🎧🍌 How AI Changes Governments & Business Models | Mike Vichich, CEO of Pursuit
Lessons going from $11 in the bank to a $187 million exit, how AI changes Helmer's 7 Powers, if DOGE is actually working, building startups in the Midwest, and how to disagree with your team
Mike Vichich is the Cofounder and CEO of Pursuit, helping companies drive more revenue from the public sector.
This conversation explores how AI is changing the government, how it's impacting Helmer’s 7 Powers, if DOGE is actually working, building a startup in the Midwest (specifically Ann Arbor, MI), and how to disagree with your team.
We also get into Mike’s prior company Wisely, and how they went from $11 in the bank account and unable to run payroll for six months, to a $187 million exit to public company Olo a few years later.
Special thanks to Jack Altman, Blake Robbins, and Tyler Felous for their help brainstorming topics for Mike!
Timestamps to jump in:
3:21 How AI changes Helmer’s 7 Powers
17:06 What becomes important in AI-first economy
21:02 How AI interfaces with the government
24:02 “The rules intended to save taxpayer money ironically cause taxpayer money to be wasted”
29:34 How change orders impact public sector costs
33:20 Why DOGE has not impacted US government spending yet
38:15 Three pieces of wisdom from 2nd-time founders
41:44 Starting Pursuit to make selling to the public sector as easy as the private sector
45:35 Why cities grow expenses 5x faster than tax revenue
51:42 Pros + Cons of building startups in Ann Arbor, MI
57:43 Hiring talent density in the Midwest
59:30 Starting his first company to fix consumer credit cards
1:08:50 Pivoting Wisely to restaurant loyalty
1:12:49 $11 in the bank, missing payroll for six months
1:15:21 Embarrassing demo at an Ann Arbor tech meetup
1:18:18 Why CEOs don’t always have to be right 1:20:54 How to disagree
1:25:48 Hiring at Pursuit
1:28:30 “A bad day with customers is better than the best day in the office”
1:31:33 Crashing their first customer’s PoS on Labor Day Weekend
1:35:55 Using “The Cadence” to hit $10M ARR
1:41:55 Selling Wisely to Olo for $187M
Referenced:
Check out Pursuit
Careers at Pursuit
The Four Steps to the Epiphany by Steve Blank
Ann Arbor New Tech Meetup
How to Disagree by Paul Graham
The Cadence by David Sacks
Find Mike on X / Twitter and LinkedIn.
👉 Find on YouTube, Spotify, and Apple
Transcript
Find transcripts of all prior episodes here.
Turner Novak:
Mike, welcome to the show.
Mike Vichich:
Thanks for having me, man. Fun to be here.
Turner Novak:
I can't keep a straight face. We're both sitting straight up if you're not watching the video. We were just talking about not slouching over. Yeah, I think we're going to talk about a bunch of different stuff. Companies that you built, sold, you're working on now, talk about AI, selling to the government. Always a fun topic.
Mike Vichich:
Fun topic.
Turner Novak:
But, yeah, I think first one is just how do you think AI is changing how we're building businesses and companies? I know we actually, we got lunch a couple months ago. This was half the lunch, so we can revisit this a little bit.
Mike Vichich:
Yeah. I definitely don't know the answer. One way that I think about it, there's an awesome book by a guy named Hamilton Helmer, I think is how you pronounce his name. It's called the 7 Powers. So at the end of every Acquired podcast, they break down the company on those seven powers. And I think it'd be really interesting to have, what does it mean in the age of AI? Because the argument is that there are seven things. In Warren Buffett's world, he always talks about how differential pricing is the number one thing that's the most sought after thing for him.
Turner Novak:
Just like pricing powers, you can just go to your customers and say, "Hey, we're increasing the price by X percent," or whatever dollars, and they literally can't do anything because they have no other option.
Mike Vichich:
And they're not that upset about it, right? Yeah, I think he has a line, "A bad business, customers get upset if you raise price 1% overnight and they really care. A good business is, you raise it 10% and they don't care." So when you think about how do you get pricing power, that comes back to the unique value that you're creating. And this Helmer thing, 7 Powers, I think breaks it down nicely. The way he describes it, there's one page in the book that breaks it down great. There's three different stages of a company. There's startup, growth and maturity, and the powers, there's two in startup, there's three in growth and there's two in maturity. In startup, you have cornered resource and counter positioning. So cornered resource is, we own all the lithium mines, or we have all the best AI researchers in the world. Counter positioning is the classic one that I think of is Blockbuster, Netflix. Netflix used Blockbuster's business model to beat them, right?
Turner Novak:
Yep.
Mike Vichich:
Because Blockbuster didn't want to get rid of the late fee thing.
Turner Novak:
That was literally most of their profits.
Mike Vichich:
So you wonder a little bit in today's world, is that Google with AI search? But anyways, and then in the second one, growth, you have network effect. Classic one there is Facebook. Scale economy is the one that I think of there is with Amazon, if they buy an airplane to make Prime faster, they can leverage that across their entire subscriber base for Prime. So their cost on a marginal basis for that investment is relatively lower. And then switching cost is a midterm growth stage one. And then under maturity, you have brand and you have process power. So brand, the example there is Coca-Cola. Warren Buffett, someone asked him, "How do you build a brand like Coke's?" And he said, "You start building it in the 1800s and you invest in it every year since." And then Toyota is, I think, a good example of the processing power one. So if you think about that in an age of AI, which ones are least durable in your mind?
Turner Novak:
Yeah, I feel like AI automates things, can make things go faster. It gives you labor horsepower or electronic digital horsepower is maybe a way to think about it. So I think we talked about one of the big ones is maybe process power, you would think is one that goes away because you can just hyper speed run, doing a bunch of things, but there's probably an argument to be made of, if you don't have the processes set up right to utilize in, quote, unquote, I think "an AI workforce, an agent workforce" is how people describe it. I don't use it to its full advantage. I know probably no one does. I'm assuming no one does yet.
Mike Vichich:
Yeah, man, with the classic thing I think people talk about is you break the tasks down into these little micro things, right?
Turner Novak:
Yeah.
Mike Vichich:
And each of those is a step in a process basically. And you could imagine they're not easy, right? This is one of the things you, we'll talk about it later, but with Pursuit, it's like there's a lot of work in just reading a document, still. It's getting easier and easier, and maybe that goes away in five years, but from my perspective, I think counter positioning, I think it is easier than ever to start a company and get something off the ground.
Turner Novak:
Because you can, say, do something with AI or you don't actually tell people that, but you use it and it actually makes a marginal difference versus not being able to use it five years ago.
Mike Vichich:
Yeah, and I think with Wisely, one of the things that we were counter positioning against was, it was the stated position of a lot of companies, whether it was OpenTable, or Yelp, or Rezzy, well, to a lesser degree, specifically OpenTable and Yelp at the time. They were owning the consumer data, and our counter positioning against that was the restaurant should own it. It's the restaurant's customer. But I just think that starting a company that has that counter positioning mindset, you could ship something pretty easy today. So I think counter positioning goes down a little bit in value. I think the big one though-
Turner Novak:
Wait, goes down, so it becomes-
Mike Vichich:
It's less important.
Turner Novak:
Oh, because anyone can do it.
Mike Vichich:
Yeah, or it's easier to do.
Turner Novak:
Okay, because, yeah, it becomes more common, but the durability of it or the opportunity there actually goes down a little bit.
Mike Vichich:
Right, yeah, exactly. And then I think the other one that's like a, I expect to change pretty dramatically, is switching cost.
Turner Novak:
Because you can use AI to automate a switch.
Mike Vichich:
Yeah, right. If we were talk to a lot of PE investors, they would say that they want to invest in the system of record. That's the term that everyone uses. And what happens when you can now just port all the data? You could build an agent that ports all the data from one place to another. I don't see what the bottleneck would be on that. So I think that goes down. I think network effect still is a thing. Scale economy's still a thing. Cornered resource, still a thing. Brand, OpenAI came out of nowhere within the last 10 years and built a brand that I think in some ways is better than Google on the AI front, actually in probably most ways from a consumer point of view.
Turner Novak:
Is that unique to AI though? Because there's always new brands popping up. Think Airbnb over the last 20 years, decimates the hotel... I guess, depends who you are. Some people actually don't like Airbnb's brand because they complain about quality, consistency, the fees, and yeah. Yeah, it feels like brand is one of those ones that always ebbs and flows. There's always an opportunity-
Mike Vichich:
For new...
Turner Novak:
... to build. Yeah, maybe it depends, like in AI right now, are you going to go in and build a better version of ChatGPT? Probably not, right?
Mike Vichich:
Mm-hmm.
Turner Novak:
That they have the brand there, but there might be new opportunities in different categories where the brand has gone stale of a leader. I feel like one that people talk a lot is Salesforce. You hear people all the time like, "What does Salesforce even do?"
Mike Vichich:
Right.
Turner Novak:
And it's $200 billion company.
Mike Vichich:
Right. Switching costs a huge barrier to them, right? Because you've got all your data, which I think is probably the easier to switch thing, right? If you have an agent port your data out of Salesforce into something else. One thing that's really hard to switch though is you've got all your integrations to it, integrates literally everything. And then I think switching costs is still the thing if you have all of your sales team, and all your BDRs, and everyone is using it every day, now you got to think about ripping all those use cases out one by one and porting it. So I don't think switching cost goes away. I just think that if the only thing that was durable was that the data was locked in this database and moving the data out would've been tough, I think that problem gets easier.
Turner Novak:
It's probably, when you say Salesforce versus a smaller software company, Salesforce is so big, so many users, we have network effects in the demand side. Is that what you'd consider that? But there's just so many so that the switching cost goes up as the other effects go up.
Mike Vichich:
Right.
Turner Novak:
Maybe switching costs is one where depending on the other lenses that you can tilt on this, the more of a cornered resource you have, the harder it is to switch. The stronger your network effects are, the harder it is to switch. So to your point then durability comes down.
Mike Vichich:
The durability, of switching costs. It's just, that's a network effect thing.
Turner Novak:
Yeah, or maybe it becomes attached to some of the other ones, because that's always the argument that switching costs is just so hard to switch. It takes so much time-
Mike Vichich:
Right.
Turner Novak:
... and AI, you can just automate the time, speed up the manual, low-skilled labor. Yes, maybe switching costs go away or something, or just becomes way less of an important vector.
Mike Vichich:
Yeah, it's interesting to think about because then there's, in our space at Pursuit, there are a lot of companies that are trying to solve a similar problem. Maybe they have a data angle and there's various other angles. There's a whole reseller community too that, they play a role in this. And I think that a lot of the stuff that makes the existing ecosystem of resellers and systems integrators, that's a cornered resource in a way because they have contracts with public sector entities, and that is really hard to replicate. You can't do it overnight.
Turner Novak:
Yeah, it probably depends on the type of cornered resource. That cornered resource is a legal contract. That's harder to get around, but maybe if the cornered resource is a source of data or a talent pool, you could argue that is more or less powerful than the legal contracts depending on what it is. Like OpenAI, having spent a bunch of money acquiring all the best AI researchers, maybe five years ago, four years ago, three years ago. I was just leaving, going to Anthropic and moving companies.
Mike Vichich:
And other places, yeah.
Turner Novak:
Yeah, so was it... Or they're starting new companies, right? A bunch of the cofounders of OpenAI now starting new businesses that are raising a ton of capital.
Mike Vichich:
Yeah.
Turner Novak:
So-
Mike Vichich:
And at the same time, I think that's true, and I would argue that OpenAI's velocity is improving.
Turner Novak:
Yeah, that's true.
Mike Vichich:
They're shipping a lot of stuff, stuff. And maybe it's moved out of research land into product land. I think a lot of the stuff that you and I see every day is more in product land rather than research land. But, yeah, it's interesting to see.
Turner Novak:
Yeah, and then what about economies of scale? I feel like that's one that doesn't really matter as much in the internet. It's more of a physical world thing, like a… you've got some sort of fixed cost or fixed asset that you use. Then the bigger your customer base gets, the lower the cost is per use when you just aggregate it up. So maybe there's something related to server farms and the GPU clusters everyone builds. Those keep getting better and the cost keeps coming down. So I just don't... I guess, it just depends.
Mike Vichich:
I think if you're building Stargate, it's easier to justify if you've got more users, right?
Turner Novak:
Yeah.
Mike Vichich:
On that end. And then just from our angle, one of the things that we are investing a lot of energy in is document processing.
Turner Novak:
Oh.
Mike Vichich:
So there's roughly 110,000 public sector entities in the US, state agencies, municipalities, counties, K-12 districts, higher ed and special districts. Special districts are a port authority, or a mosquito abatement district, or utility district. There's 40 or 50,000 of them, depending on who you ask.
Turner Novak:
Really?
Mike Vichich:
Really.
Turner Novak:
That’s like half of them.
Mike Vichich:
It's crazy. Yeah. There's bridges-
Turner Novak:
Bridges get their own district?
Mike Vichich:
Bridges. Yeah, there's all kinds of stuff.
Turner Novak:
Bridges get their own district?
Mike Vichich:
Yeah, like the Mackinac Bridge.
Turner Novak:
So you might have 10 employees, 20 employees working at the Mackinac Bridge district authority.
Mike Vichich:
Yeah. Mackinac Bridge Authority, I think. Don't quote me on that, but that is a good example of one.
Turner Novak:
Yeah, interesting.
Mike Vichich:
So they all produce documents, and if you just look at it, they produce budgets, they produce transcripts, they have contracts that are public record, strategic plans. There's all these different plans that they produce that are public record. And so by our account, there's 30 million new documents produced every year by all these different public sector entities, and processing them is painfully difficult. Before AI, it just didn't really happen in a comprehensive way. They would have humans or lobbyists read them for a given place, like New York City, makes sense to have people go read all their stuff, right? But someplace in Northern Michigan, probably not, right? But now we're able to read that. And I think the thing that's interesting about it is if we invest the energy into reading those documents, there's a bunch of people who want them, right?
Turner Novak:
Yep.
Mike Vichich:
So I do think that that is... There's still examples of that in the digital world, scale economy.
Turner Novak:
So then what do you think becomes important if you're building a business in 2025?
Mike Vichich:
Yeah.
Turner Novak:
Oh, wow, we're almost halfway through 2025. I was just thinking about that in my head. I was like, "What am I saying right now? What's the..." We're almost halfway through. So-
Mike Vichich:
Closer to 2050 than 2000, which is wild to think about.
Turner Novak:
Oh, yeah, that is crazy.
Mike Vichich:
Yeah.
Turner Novak:
There's always those stats, like Cleopatra lived closer to today than she did to the building of the Great Pyramids. Have you heard that one?
Mike Vichich:
No, that's nuts.
Turner Novak:
Yeah, that's nut. You just think of her as pyramids and you think of Egypt. Yeah. Yeah, so I guess it's an interesting question of what actually becomes important. What should you focus on? If you're a, which probably mostly startups listening to this, but if you're just a business "future-proofing yourself," quote, unquote, you want to be around in 10 years, what are the most important things?
Mike Vichich:
Oh, man. If you figure that out, you got to tell me. I think there's some thoughts that I have on that. So first of all, one of our investors is Jack Altman, and he did this program last summer that brought a bunch of AI startups together. It was called Generate. And he set up a bunch of meetings with folks, and one of them was with Sam, and they talked about where do you think companies are going? And OpenAI has come out and said this publicly, but basically in, what was it? End of '22, they shipped chat, and then you have reasoners, there's three or four, I think now they have five levels of different AI. But the punchline is that by 2030, there's the whole company AI, where one person should be able to build a billion dollar company, because an AI can handle marketing, and product, and engineering, and sales and customer success, and all the things, right?
So if that's true, poof, no idea what matters. But I think for us right now, the thing that we are relentlessly committed to, one is our problem thesis at Pursuit. And the way that we describe that is that the rules that were intended to save taxpayer money, ironically caused taxpayer money to be wasted. We can unpack that if you want, but I think that's a fundamental thing. That is a really hard problem. I could work for the rest of my life and not solve that problem. So that's one, is we're committed to solving that or materially improving it.
Turner Novak:
I don't know if that's possible to solve completely.
Mike Vichich:
We'll try.
Turner Novak:
It's a hard one.
Mike Vichich:
You got to try, right? Step one of solving it is you got to try... and for a really long time.
Turner Novak:
Yeah. It's like the OpenAI one of achieving AGI. It's like that's an undefined objective. Like, can you ever actually get that?
Mike Vichich:
Satya defined it, by the way, did you see that?
Turner Novak:
Wasn't it making a profit or something?
Mike Vichich:
It was a hundred billion of profit in aggregate, I think.
Turner Novak:
That's AGI.
Mike Vichich:
Yeah, or I think they also said something like world GDP rose by 10% a year.
Turner Novak:
Oh, yeah. Okay.
Mike Vichich:
So anyways, I-
Turner Novak:
Again, that's a pretty abstract definition, I don't know if that’s a fair… At this scale, then you add another 10 trillion in GDP..
Mike Vichich:
Well, you've seen Our World in Data, and it has GDP on a graph. This is a amazing graph, by the way.
Turner Novak:
Yeah, it's one of those charts that shows each year, each century or whatever of a certain thing, and it's moving and stuff.
Mike Vichich:
Yeah. Humans have been around for whatever, 200,000 years, and it shows GDP. And it flatlined forever ... And then it rips, and we're in the going vertical part.
Turner Novak:
Yeah, and we're in the, you're just about to raise a series A. We're just getting started here. We're so early.
Mike Vichich:
Yeah, I don't even know how we got there. What was the question?
Turner Novak:
We were talking about how AGI, achieving AGI, we're talking about how, Pursuit... the goals.
Mike Vichich:
Yes. Yeah. Yeah.
Turner Novak:
The Pursuit thesis. Yeah.
Mike Vichich:
Okay. So we're committed to the problem thesis, number one, and trying to solve that. And then I think the second part is just listening to our customers and thinking critically about the problems that they're facing on a day-to-day basis and how we can solve them. And our hope, our bet is that if we're doing those things, if we're defining the problem better, and we're listening to our customers better, and shipping the things that really matter to them, no matter what happens on the AI front, we'll be well positioned for it. Do you think that's a fair bet?
Turner Novak:
It's a pretty crazy ambitious... I think, yeah, they're fair for sure. These fair bets, better than we're going to help you automate sending cold email spam to people.
Mike Vichich:
Well, that-
Turner Novak:
No offense to anyone doing that. Maybe do it towards improving government efficiency instead.
Mike Vichich:
There you go.
Turner Novak:
... something like that. Yeah. So I guess then the other question is how do you do that? How does AI interface with the government? And maybe, I guess, I have a guess at this, but I want to... I know you've told me before, but how's this play out?
Mike Vichich:
I also don't know. I think the place that we are... So first of all, I came from the perspective of someone who cared a lot about our country. My parents were teachers, my family, my grandfather flew bombers in World War II, uncle, fighter pilot, FBI, other cousin, cop. A lot of people in my family were involved with public service and just growing up, it was something that I cared about. I always cared about our country and tried to think about how do you leave the world a better place in that regard. So that was always there in the back of my mind. I think the other part of it is what incentives exist.
I'm a huge Charlie Munger fan, and he has this quote, "Show me the incentive, I'll show you the outcome." And so coming from a place of not working in the public sector and having a, just layman's view of it, I think is actually, my hope is that that's actually helpful rather than a liability, right? And I think, I'm sure in some ways it's a liability, because I don't know what I don't know yet. But the way we've tried to approach it is just to understand both sides of it. There's another amazing Charlie Munger quote where he says, "If you can't articulate the opposing viewpoint better than the person who believes it, you don't know enough." You haven't done the work required to have an opinion.
Turner Novak:
But you need to know both sides of the thesis so well that you then come to the answer. Oh, I know all of it.
Mike Vichich:
You know the central thesis, the thing that pierces all the noise. And so I think we're working toward that. I think that's something that you got to have empathy for people, because I think a lot of times people who work in the public sector get a bad wrap, especially today. They're like, "Oh, they're lazy. They work from home. They never work or they're not good enough to make it in the private sector." I think that's all bullshit, frankly, that's not real. And I think a lot of people working in the public sector have done more for the country on a given Tuesday than most other people. So again, they work within a system that has incentives, and one of those is not, let's just be real, it's not seeking the optimal price, it's reducing risk. That's what government incentives are all about.
So if you try to unpack that, even in the private sector, people choose to work with companies that they know and that they trust. That's true in the public sector too. So I think we're trying to empathize with why do make the decisions that they make and assume, I think this is key, we're assuming that we're not going to change those incentives. Those incentives are going to be there. How do we work within them? And that's how we got to the founding of Pursuit, was we grappled with that stuff.
Turner Novak:
So when you talk about the incentives and the incentives specifically to not take risk, I'll be like, "What does that mean?" Because I guess if I'm not familiar with how some of these entities work and how they make decisions, you just think, "Oh, they should just do what's best for the community or for people." Why is that such a big deal that they don't-
Mike Vichich:
Totally.
Turner Novak:
... take risk?
Mike Vichich:
Well, I think, back to the problem thesis, the rules that were intended to save taxpayer money cause taxpayer money to be wasted. I think that is a fact, and-
Turner Novak:
How is that a thing? How does that work?
Mike Vichich:
Well, so let's talk through it, right? Let's say that, you and I both live in Ann Arbor, and let's say the mayor of Ann Arbor, who's an awesome dude, by the way. He would never do this. Maybe we should make up a fictional city.
Turner Novak:
We'll call it Can Carbor.
Mike Vichich:
Whoville.
Turner Novak:
Whoville, there we go.
Mike Vichich:
The mayor of Whoville, if he's awarding contracts to his friend or brother who didn't deserve it, we'd probably be pretty pissed off about that, right?
Turner Novak:
Mm-hmm.
Mike Vichich:
We'd be like, "What? How about, this should be an open bid. It should be on the internet for 60 days. We should get three bidders. We should pick the low bid." Right? These are all, they sound like logical, good things to do.
Turner Novak:
Yeah, that seems like, okay, the government will probably get the best product for the lowest price.
Mike Vichich:
Exactly.
Turner Novak:
Save money.
Mike Vichich:
And so that's the road to hell paved with good intentions. I think those intentions are right, and by the way, they oftentimes come from a time where someone got burned. Same with insurance requirements. Someone goes out of business and they didn't have enough insurance, so the city or the county sunk a bunch of money into a project with a company that failed. Oh my goodness, now the taxpayers lost a bunch of money. And so now, forevermore, you have higher insurance requirements in order to do a project. Another good one is the procurement rules, right? There's these things called procurement thresholds where people who work in government can put something on a P-card or purchasing card below, whatever, 500 bucks sometimes or a thousand dollars. And then above that, they have to go get an informal bid, and above that, they got to do a formal bid process.
Turner Novak:
So this is probably to prevent a government worker from charging up a bill for something that might be too high of an amount.
Mike Vichich:
Yeah, and then now that, whenever that has happened in the past, it's a big to-do. In the old days, the newspaper cover it. Now it's all over the internet, and people are lighting up the elected officials and the managers of that, whatever the entity is. And they're like, "How are you allowing this to happen with taxpayer money?" We create rules now where every trip more than 90 miles has to be approved by the city manager. And does the city manager have better things to do than that? Absolutely they do. So I think this is the point about risk, our tolerance for projects going sideways in the public sector is, I would argue, near zero now. And I think that hurts us because then we create a bunch of rules that are designed to save taxpayer money. But the people who know the rules and can navigate them are those who are on the inside of the castle. Right? And they can price the compliance with those rules into what they're charging the government. And people who are on the outside of it, they look at like, oh, hey, maybe I should sell to the city or to the county or to that school district because I have a good idea for how they could help. But the reality is they look at the procurement and they're like, oh, it's a total black box. I don't know where I'm going to get the money for that because I'm going to not win this deal for maybe two or three years because I have to get licensed and registered and do I need a lobbyist? And I've got to hire a lawyer and I need to... The way the proposal has to be structured so that I don't get disqualified on some technicality.
All of that stuff is what goes through people's heads and they're like, ah, forget it. I'm just going to work on the private sector. So over time, there are fewer and fewer companies on the inside of the proverbial castle, and there's not enough backfilling of new innovative companies behind it. And so you have people who are left there. And by the way, on the inside of the castle, there's business owners who are retiring or selling their companies, there's private equity roll-ups going on inside there. So even the number of suppliers inside the castle walls, that's becoming fewer and fewer and there's no backfilling. So I think anytime you have a situation where there's a monopoly or a duopoly, you're just not going to get good price discovery, you're not going to get good pricing. The quality is going to go down.
Turner Novak:
Yeah, it seems like there's less and less competition, and that leads to higher prices. I mean, the classic way to lower prices is you're operating a business, you're selling coffee, you're selling it for 20 bucks because you're the only option in town, and I come in and say, I'm going to charge 16 for this. And you're like, oh shit, I've got to charge 14 now. And your margins were 95% of course selling them at 20. We compete all the way down to 50% margins. We sell them for two bucks. Maybe you sell yours for three and I sell mine for two because you're like the original. You're a premium product. You'll have 66% margins. And now instead of customers having to pay 20 bucks for a cup of coffee, they pay three to you and two for me if they want my crappier lower cost version. But yeah, overall you get a 90%, 85% decrease in price. Extreme example. Hopefully no one's charged-
Mike Vichich:
Well, I think related to that, back to the point about risk, in local government, there's an incentive to go with people you know because I trust you. Let's say it's not coffee, but it's like road resurfacing.
Turner Novak:
Oh yeah.
Mike Vichich:
Or water main replacement, right? If that goes south and you mess up the water for your city, people are going to lose their jobs for that. Elected officials are not going to get voted back in. So then let's put ourselves in the chairs of people who work for the public sector. You're like, we work for the water department. We're trying to pick the contractor to do water main replacement. Do they have a proven track record? Have we worked with them before? If the price is 10% higher, 20% higher, we're probably okay with that because we also know by the way that people will low ball. They'll intentionally low ball so they get a bid and then they'll change order it.
So you might come in at a hundred dollars to do this project. Someone else comes in at 125. You think the person who does 125 is going to give you a better outcome, but your procurement rules say you've got to go with the lowest bidder and now you go with the person who does it for a hundred, but then they change order you up to 150 and you're like, wait a minute. And granted, there's no guarantee that the person who quoted 125 was going to not change order, but this is the point, right? It's really difficult to actually parse through it. And I talked with one well-known infrastructure contractor and that person told me, unless you get five bidders, you're not really going to have true price discovery.
Turner Novak:
So what is a change order? That might be an obvious question for somebody who's never heard that word before.
Mike Vichich:
Well, it's just like I quote you to redo your roof or to better... Well, yeah, I quote you to redo your roof. And so I come over, my crew, and we'll say we do it for a hundred bucks. My crew rips the shingles off and the tar paper under it, and we're like, oh, Turner, bad news, man.
Turner Novak:
Wood's rotten.
Mike Vichich:
Exactly. Wood's rotten. We didn't quote that in. So now it's not a hundred, it's 200. And you're like, oh, great. It would've been nice-
Turner Novak:
Probably would've had to pay that to anybody in theory, not just you, but anyone who redid the roof.
Mike Vichich:
Yeah. But also because the woods rotten, the water got down into here and we've got to replace all the insulation and there's even mold growing and now we've got to do mold remediation. And you're like, wait, do we have to do all of this? How bad is it actually? But you're so far down the path-
Turner Novak:
Because you don't have roof. They ripped your roof off.
Mike Vichich:
Yeah, you've got to get it done. So these things happen. But then it's not to say that you didn't need to have the wood replaced because it was rotten, but what's the price of that wood replacement? That is something that's probably not competed because you've already signed this deal, right? So the margins on those change orders, what are they actually? We don't know. So it's tough, man. I really do have a lot of empathy for folks in the public sector making these decisions, and I think that's why I come back to we as a private sector company, Pursuit, we're not going to change the incentives.
Those are granted, they're taking them for granted, and we'll talk about DOJ, but maybe there will be public sector incentives that change. Because I do think that when you think about the risk aversion, there are things in procurement rules that are risk averse, but then there's also cultural stuff around it. The rules are really hard to change because you've got to change code in order to do that. The culture around it, I think the culture could be changed under the right leadership framework. I'm not saying that that's where we are today, but I think that that could evolve.
Turner Novak:
So one interesting thing, you just mentioned DOJ. So there's all this public perception about DOJ, we're going and cutting costs. How's that going?
Mike Vichich:
Yeah. Well first of all, I guess my fundamental take on this is when you live in a country where there's trillions and trillions in deficits a year and interest on that debt is now... There's more spent on interest on the debt than there is defense. And if you look at the graph on interest expense, it's going vertical. I would argue that's not a good place. If that was my house, my family had that financial picture, I'd be really concerned. And so I think the same thing is true for the country. We have to do something about it.
So fully on board with the idea, and that's why we started Pursuit was to try to work on this fundamental problem. Because by the way, a lot of the federal money goes to the states. So I definitely think action is required. I don't think that there are incentives generally at the public sector to have the budget reduced or to have the deficit reduced because who wants to go to their constituents, no matter what side of the aisle you're on, who wants to go to their constituents and say, hey, we're actually not going to be investing in whatever the thing is that's in our district?
Turner Novak:
Because it's always like a healthcare project or an infrastructure. We're doing this thing, we're spending this money to improve quality of life in some way.
Mike Vichich:
Right. Yeah. It is not a politically viable thing, especially when the other side is saying we have to do it to say we've got to cut spending. So it's really, really tough back to the incentives. So I definitely think something needs to happen. I think when you look at the stuff on Twitter/X of the talk around deficit reduction, I wonder whether it's mostly theater. And the reason why I wonder that is if you look at outlays from treasuries so far in 2025, they're actually higher than in years past. And if you look at the budget proposal, there's no meaningful change. There was a budget that came out recently that I think was, don't quote me on this, but less than a 1% reduction in spend. And there were big shifts from non-discretionary non-military to the military. There was a big shift there.
So there was I think more than a $100 billion cut from the budget from discretionary non-military and moved into military. But overall, the budget was flat. So it's kind of hard to parse talk from action. That's one of the things that I find to be challenging about this because you hear, I think in February, there was a thing that was put out by the Department of Defense that said they were going to try to cut the defense budget by 8% a year for the next five years, which that's an interesting idea I think because the US spends more than 2X what the next biggest country does in defense, and I think we should have the strongest military. I think that serves our country well. But I think there's a lot of cases where we're fighting the last war or the war before that. And maybe that's an area because we're investing in those areas, men, fighters for instance, maybe that makes it harder for us to invest in new tech.
And there's kind of the proverbial thing floating around Washington of if there ever was a conflict with China, or I guess it could be any other foreign adversary, the carriers could be sunk in 10 minutes. It's kind of like the proverbial thing people talk about from a drone or from a hypersonic missile. And so now all the investment that went into that, bottom of the ocean in 10 minutes. So anyways, I think it's a really hard problem to solve, but I think there needs to be work done on it, but I don't think the tenor around it is actually a sustainable thing. I think it's making a lot of people hate the idea of cutting the government budget, which I don't think is creating the right tone for the country long term. So we'll see.
Turner Novak:
Yeah. Well, you hear the narrative come up about this is if you were spending all this money and you were benefiting from it, you'd make a big deal if people were trying to take that away.
Mike Vichich:
Right. Yeah, for sure. So that's again, incentives, show me incentive, I'll show you the outcome. This is why it takes actual, real leadership, and I think no matter who was doing it, you're going to get insane pushback. So I just kind of take that for granted if you're going to work on the problem.
Turner Novak:
So then how did you come across all of this? Because I mean, you kind of talked about Wisely. You worked in the restaurant space.
Mike Vichich:
Yeah.
Turner Novak:
I don't know if this is a 180 or if this is a 270 or a 90 degree change, but that's a pretty big change. How did you come across all this?
Mike Vichich:
Yeah, totally. So I left Ollo, the company that bought Wisely, in February of '23, is that right? Yeah, February of '23 when my wife and I had our third son and took some time off and honestly didn't think about that much. I guess that was a few months. And then started reading. For me, I talked to a bunch of second time founders who had started multiple companies to try to figure out, is there any wisdom that I could learn from that?
Turner Novak:
Quick pause to the story. What was the biggest wisdom?
Mike Vichich:
So there was three things that I did that I think were really healthy. One was I wrote my eulogy, which is a Charlie Munger thing. Write your eulogy and that'll help you identify what's actually most important.
Turner Novak:
This is what people will say about you when you die?
Mike Vichich:
Yeah, what you hope would be said about you. And so that was interesting. There was one kind of new thing there, or I guess one change in emphasis there. Obviously my family was my number one thing. No matter what business success I had, if my family was not in a good spot in all the ways, then I would be upset about that. So that helps me prioritize. And then also focusing locally was really important, and that's probably a shift that I've had rather than thinking on a global scale, like how can I literally make my street better?
Turner Novak:
Yeah. Yeah, that's true. I think a lot of people overestimate how much of an impact they can have on the world, and they underestimate the impact they can have on a smaller scale, like the smaller you get, right? There's three people in this room right now. I could probably relatively easily convince both of you. We've got producer, we've got guest, podcast host. We could all probably change our views on something versus if we were to go, all three of us were like, let's change the world.
Mike Vichich:
It's a little hard.
Turner Novak:
Pretty hard.
Mike Vichich:
Yeah, totally. And also what's the metric and all that. Yeah. So eulogy was one thing, and then my wife and I, we wrote down our values and then we talked about how we wanted to live those every day, every month and every year with our kids and teach them being intentional about it. Not to say that our values were right, but just to teach that you discover them over the course of your life. You discover what your values are and you try to live them and the decisions that you make every day, they should indicate what your values are basically. Not just the thing you write down, but just actually do them.
Turner Novak:
Actually do them. Yeah.
Mike Vichich:
Right. And then the third thing, I don't have a better way to describe it, I call it the three column thing. There was a founder I'd talked to-
Turner Novak:
Three column thing.
Mike Vichich:
It's a genius frame.
Turner Novak:
It's a great blog post title.
Mike Vichich:
The three column. Yeah. So I got this from another founder and he was like, "I wrote down all the stuff that I did at my prior company that I want to do again, all the stuff that I did at my prior company that I never want to do again, and then stuff that I didn't do that I want to try." Just like a phrase, a couple words.
Turner Novak:
The three column thing.
Mike Vichich:
Three column thing. So those three things were kind of my compass. That's the structured side of how I approached it. The unstructured side was like, just go have conversation that I thought might lead to an interesting place. And over the course of the summer of '23, my now co-founder Brandon, he and I started kicking around a bunch of ideas and we had an EdTech idea, and then we had an AI traffic light idea that would use computer vision to read the throughput of an intersection and dynamically change the light. Who loves sitting at a red light when there's no one else coming, right? No one.
Turner Novak:
I feel like that's such a common startup idea is sitting at a red light and like, man, there's no one around, I should just be able to go. How can we change this?
Mike Vichich:
Totally. But how many common obvious startup ideas are there laying around on the ground all around you? You've just got to like-
Turner Novak:
Yeah, that's true.
Mike Vichich:
Find the stuff that you personally care about. But anyways, in each of those cases, the EdTech and the AI traffic light thing, EdTech we would be selling to school districts and AI traffic light we're selling to cities, counties, state agencies. And there's all the normal hard of building each of those companies, but there's the extra hard of selling to the public sector in each of them. And Brandon and I were like, maybe there's something to that. Now, every company that wants to sell to the public sector, they have to go through all this stuff and it takes years. They have to build relationships and they have to do it place by place. And so if you think of that from the perspective of any investor, your sales cycle is insanely long, your CAC is insanely high, and your CAC payback is probably four years. That's like an uninvestable business basically.
Turner Novak:
Yeah.
Mike Vichich:
Which again, I don't think that serves our country. So what Brandon and I thought was, well, what if rather than every individual company out there in the world having to build that stuff, what if we tried to AI-ify that, right? And reduce that overhead as much as humanly possible. And so that's one way that we think about our job is reducing the overhead of selling to the public sector. It would be great if it's not different from selling to the private sector. You could imagine how all the registrations are just done, all the hard work of finding which opportunities matter, that's all done. The legal stuff automated away. So we're focused on a small sliver of the overall puzzle right now around demand gen and finding opportunities. I think selling revenue is a good thing. Companies are always wanting to grow, so that's partially why we chose that. But yeah, being able to just reduce the barrier of selling to the public sector, as a capitalist, as someone who believes in competition, I think that that is probably the best thing that we could do given the incentives that are out there.
Turner Novak:
Just coming back to what we talked about earlier, it's helping there be more competition when a government entity is making a decision to work with a vendor, having there essentially be more options for them to choose from, which is probably better for the taxpayer community governments, but also better for your customers because they get a seat at the table. So you're basically giving them a seat. You're trying to take them behind the castle wall, trying to add more competition, which in theory should drive down the prices.
Mike Vichich:
Yeah, and I think the way that we talk about it and think about it is that the best contractor should win, not just the best connected one. You said it's simply, I think that's where we want to be. So yeah, I think that it's totally doable. I think with the tech that exists today, I think it's doable.
Turner Novak:
So one interesting thing that you told me once was the city that we live in, Ann Arbor, you told me an interesting stat about the budget. What's going on with the Ann Arbor budget?
Mike Vichich:
Yeah, this really surprised me. So Ann Arbor I think historically has had... A good portion of the public are NIMBYs, not in my backyard, kind of like, let's keep Ann Arbor the way it is. It's a cute small town. We don't want to have huge buildings showing up that are blocking the sun. There's a lot of that stuff. And if you look at over the last maybe 10 years or five years even, this city seems to have shifted into more of a, no, we need to build. And now if you look at city council and the mayor almost, I think everyone is pro development. And so I was really curious about that. What shifted?
And so in a conversation that I had with one of the elected leaders, they shared that for Ann Arbor and for actually many cities in the country, revenue will grow at low single digits, call it one or 2% a year. Costs might grow at eight or 10% a year. And think about that from if you're running... You're now in an earnings call for a public company, like yeah, revenue grew at 2% and cost grew at 10. People would be like, what's going on? That doesn't seem sustainable. And so I applaud the leadership in Ann Arbor for realizing that you get more leverage out of density. You don't need more roads, you don't need more water mains, you don't need that many more cops or fire employees to be able to serve a 20-story building than you do a five-story building.
Turner Novak:
Plus just think about what's the value of a piece of grass or a parking lot versus 20 stories? You're basically taxing the economic value of that real estate that's within the jurisdiction of the city. Maybe I'm like a NIMBY at heart, but in theory you'd want a hundred-story maximum throughput coming through every single building, you can tax it, but obviously people probably don't want that extent of it. But you could try to find a heavy medium of some kind of a little more economic value coming through this.
Mike Vichich:
Yeah. And it doesn't happen overnight either, right?
Turner Novak:
Yeah.
Mike Vichich:
It's funny because I think a lot of people, they're like, we want to have affordable housing. And if you look at the cities in the country that have the most affordable housing or especially change in rates of housing, who is it?
Turner Novak:
I think it's Austin. Yeah. Because they're just building way more inventory. The prices are going down or flat Yeah.
Mike Vichich:
Go figure. So that whole insight that all other things equal, public sector revenue will grow at one or 2% and costs grow at eight or 10. That's like a watershed moment for me. We looked into that. We're like, well, why are costs going up so much? And that's kind of how we started to have conversations around contracting being a root problem.
Turner Novak:
So that's what it is? They're just spending a little bit more on... Each year they renew certain contracts and they're up 10% or 20% and that's it?
Mike Vichich:
I wouldn't say that's it. I think that is a big part of it. Contracting is a big part of it. Another big part of it is of course labor and-
Turner Novak:
You're just giving people increases. You may be hiring-
Mike Vichich:
Cost of living adjustments. Yeah. I think, I forget how you pronounce it, Baumol’s Cost Disease or something where basically if you have a public sector employee who's paid a hundred dollars to do whatever job but their private sector equivalent is paid 150 to do it, then you're going to have inflation of that price.
Turner Novak:
The public sector will inflate to the private sector.
Mike Vichich:
Or it'll chase it. And then you look at how a lot of public entities spend their money, there's a lot of police, there's a lot of fire, there's teacher salaries, and as inflation is going or as new contracts get struck with those people, there's a cost of living adjustment that gets built in. And that cost of living adjustment is contractually obligated at whatever the percentage increase is a year, but the growth in revenue is not.
Turner Novak:
I mean, it's just purely property taxes for the most part?
Mike Vichich:
Yeah. So if the economy takes a hit, you have a contractually obligated price increase and maybe your property tax or your sales tax goes down.
Turner Novak:
And one of the issues, there's a lot of cities that are actually shrinking, so people are moving away, and that's also going to cause revenue to go down.
Mike Vichich:
Totally. And same with schools, by the way. If you look at Ann Arbor public schools-
Turner Novak:
Attendance, yeah.
Mike Vichich:
Enrollment down materially and-
Turner Novak:
You have fixed costs of all these buildings, you've got the staff-
Mike Vichich:
Yeah, the buildings are aging. Fortunately in Ann Arbor, they passed the billion dollar bond to be able to renew the buildings.
Turner Novak:
Yeah, we're benefiting from that. The elementary school my kids go to and will go to, we're getting a new one.
Mike Vichich:
Yeah, that's great.
Turner Novak:
And I'm all for it, but not like the one down the street. Definitely don't spend it there. I'm just kidding. I think it's great.
Mike Vichich:
But in a lot of places that deferred maintenance is just accelerating, so the budgets are getting harder and harder. It's a tough problem, man, but one that I'm excited... I just turned 40. I'm excited to grind on this. I don't like retirement, I don't really think I'll do, but I'd love to grind on this for the next three decades.
Turner Novak:
Yeah. I'm going to cut that part from the episode so my wife doesn't hear this talk about working until not retiring.
Mike Vichich:
Did you see the thing, they were talking about how Warren Buffett retired at 95?
Turner Novak:
95, yeah. Is he actually retired though? He's probably still involved.
Mike Vichich:
Yeah, he's on the board.
Turner Novak:
He's absolving responsibility of the day-to-day management, but still-
Mike Vichich:
But the joke was like, in this economy, even Warren Buffett had to work until he was 95.
Turner Novak:
So then of all choices, Ann Arbor. It's usually not on people's first list. It's like, hey, I'm going to start a tech company and we're going to build a unicorn, we're going to change... That's more of like San Francisco speak. Maybe you'll be in New York, maybe Chicago if you want to stay in the Midwest. But Ann Arbor, that's got to be not in the top 10 of most people's list. I don't know. Obviously we're both here-
Mike Vichich:
Top one of my list.
Turner Novak:
Yeah, we both live here, obviously. So it's the top for both of us.
Mike Vichich:
Yeah.
Turner Novak:
Why Ann Arbor?
Mike Vichich:
I mean, I think there's a lot that goes into that answer. I think from a personal perspective, I have three young kids, 10, six, and two. The community's phenomenal. I think that the schools are amazing. It's pretty decent culturally considering it's a small town, 125,000 depending on how you-
Turner Novak:
Is it 125?
Mike Vichich:
It depends how you count students at Michigan, but yeah.
Turner Novak:
Fair.
Mike Vichich:
But yeah, I think from that perspective, from a family life point of view, it's phenomenal. And I don't know if you believe the greatest places to raise a family list, but it's-
Turner Novak:
Oh, yeah. It's always up there. Yeah, we have great PR, the Ann Arbor PR team. I'm glad we're spending money on that.
Mike Vichich:
Yeah, yeah.
Turner Novak:
Keep boosting that up 10% a year.
Mike Vichich:
Yeah, totally. Or maybe 20.
Turner Novak:
A hundred percent, just focus all the money on it. Well, then you get your revenue up, right? Get all the-
Mike Vichich:
You should run for Mayor, man, you got your platform. It's already there.
Turner Novak:
I'm actually a Canadian citizen. Can I actually run if I'm not a born American?
Mike Vichich:
For mayor? I believe you can.
Turner Novak:
Oh yeah, you can. It's just President is the only thing you can't do.
Mike Vichich:
Yeah.
Turner Novak:
You can run for Congress, can't you, if you're not a natural-born American?
Mike Vichich:
Oh man, I don't know.
Turner Novak:
How do you not know this? You're supposed to be like-
Mike Vichich:
I'm not running for Congress, man. I don't know.
Turner Novak:
Fair.
Mike Vichich:
Yeah.
Turner Novak:
Okay. Shame.
Mike Vichich:
I don't know. Plus, I'm an American, so wouldn't apply.
Turner Novak:
You don't have to worry about this.
Mike Vichich:
But yeah, so I think the community is great, but I also think that from a tech point of view, Ann Arbor punches above its weight and it has for a while. Obviously in recent history you have Llamasoft. I think they had a billion and five exit. There was 4C. There was Criteo, who got bought by... Or it was another, I forget. It became Criteo or Criteo, I don't know how pronounce it.
Turner Novak:
Is this a networking company?
Mike Vichich:
No, I think Bain Capital bought this company. Anyways... And then, of course, Duo in recent years had a $2 billion exit. And there's-
Turner Novak:
I think Barracuda is another one.
Mike Vichich:
Barracuda.
Turner Novak:
And they were networking, right?
Mike Vichich:
Yep, lover networks.
Turner Novak:
Okay.
Mike Vichich:
So there's decent culture of that. I think the university certainly helps.
Turner Novak:
Yeah. There's actually, I haven't looked at these rankings recently, but Michigan has a top five engineering and a top five business school, which I do not believe anyone else has. There might be Stanford MBA is number one, or however you want to rank this stuff, but-
Mike Vichich:
On grad, you're talking about?
Turner Novak:
It's just the schools, like how do the schools rank? So I forget specifically, but again, unique situation, we have very talented technical people and very talented on the business side, which is rare combination. You need to be good at both of those.
Mike Vichich:
Yeah, for sure, and I think there's a lot of really cool entrepreneurship stuff coming out of Michigan. Also, as a proud Spartan, I think there are other great universities in Michigan too. But I think if you look at the talent that comes out of the University of Michigan and Michigan State, there's a lot of really amazing companies that were founded by graduates of each of those schools.
Turner Novak:
Oh, yeah.
Mike Vichich:
So I think as a VC, really interesting opportunity. I know I saw you at a demo day for a University of Michigan... So yes.
Turner Novak:
The hackathon.
Mike Vichich:
Yeah. tTey did a whole presentation.
Turner Novak:
It actually wasn't a hackathon, it was just a demo. No one was building things there.
Mike Vichich:
That day, yeah.
Turner Novak:
Yeah, that day.
Mike Vichich:
I think they were leading up to it. But anyways, I think it definitely punches above its weight. I think one place that I personally have found to be challenging is there's really great kind of out of undergrad talent from the universities. Senior-level leaders, though, I think if you're talking about like a senior sales leader, a senior engineering leader, there's certainly more of those people in other places, but...
Turner Novak:
A lot of kids leave. I noticed I'll meet smart kids in Michigan their freshmen, sophomore year, and then they drop out to go be a first engineer ramp, or Stripe, or something like that. And then, they don't always come back. It might be if you have a local tie, your family's here, you might come back. I think that's the challenging part.
Mike Vichich:
Totally.
Turner Novak:
There's not always a magnet to keep people to stay, which-
Mike Vichich:
I mean, Duo did a great job of that. They had great connections into the engineering school and would bring a large intern cohort in every year, and I think they kept many of those people, because, look, if there's a compelling company that's a really cool company here, and you could intern there during the summer and you can work there during the school year, just inertia wise, it's most convenient to just stay with that company. Certainly, there's like, "I want to live in a big city." That's one.
Turner Novak:
That's a hard... There's a lot of people graduate school, they're like, "I want to go to New York or-"
Mike Vichich:
Totally.
Turner Novak:
"... Chicago."
Mike Vichich:
And the other part of it too, I think this is true at Michigan, but maybe even more true at Michigan State is if you leave school with student debt, you kind of want to get a great job at Microsoft.
Turner Novak:
And makes as much money as you can, yeah.
Mike Vichich:
Yeah. Right, totally. So there's that element of it. And I think another one is, "Well, if that company doesn't work out, then I can go to 10 other ones or 100 other ones right down the street, where my experience as an early startup employee is valued for what it is, rather than seen as a liability." So I think we would not say it's perfect, but I think it definitely punches above its weight because of the experience and the community. There's a lot of great founders here, and the talent coming out of the universities I think is great, too.
Turner Novak:
How do you get the best people when you're trying to track density of talent, and you're working at Wisely and at Pursuit? Just, how do you get the best people in Ann Arbor?
Mike Vichich:
I think it depends on at what level, right? If you're talking about fresh out of undergrad, I think having a great intern program is the answer there.
Turner Novak:
Did you guys do that at Wisely, or doing it in Pursuit?
Mike Vichich:
We did, actually, I would say it was more happenstance or just dumb luck, but one of my co-founders from Wisely started as an intern, actually, and was phenomenal. Josh, shout out Josh.
Turner Novak:
Josh, punching above his weight, the intern.
Mike Vichich:
Great dude. And so, but it was just dumb luck. I met him through some job board thing.
Turner Novak:
Why'd you point to me when you did that? You're like, "Some job board thing." You're like, "Oh, am I the job..."
Mike Vichich:
It's just a hand motion. Yeah, I wouldn't make anything of it. Dumb luck. Yes, dumb luck.
Turner Novak:
Let's turn our guys and see what...
Mike Vichich:
No, but we are trying to be much more intentional about that now. And so the other few weeks ago, I did a talk at Michigan to their engineering department, and we had 68 interns apply. 68.
Turner Novak:
That's like, that's one below 69. Yeah.
Mike Vichich:
Way more than we can hire. So how do you start parsing through those and figure out, when you're a young company, of 10 plus people, how do you bring on a bunch of them? But it's something that we're committed to doing as time marches on.
Turner Novak:
Interesting, okay. So you talk a lot about this company, Wisely. We've mentioned a couple of times. What's the story there? I know I've heard, I've heard a sort of long version, I think like the 15-minute version, I heard. You know of, you gave it at that, at the demo day.
Mike Vichich:
Yeah.
Turner Novak:
So I want to talk through, because, I mean, it's pretty interesting. I think it's maybe a way to describe it is you struggled through for four and a half years, didn't get a product market fit. You kind of hit rock bottom, and then we talked earlier, you sold it. It's a pretty successful outcome, at the end of the day. How did it kind of all get started?
Mike Vichich:
Well, I guess the short-ish version was, out of undergrad I was at Accenture, and when I was at Accenture, I led recruiting at Michigan and Northwestern for the undergrad strategy practice.
Turner Novak:
Were you living in Ann Arbor at the time?
Mike Vichich:
Yeah, yep, but I was on a plane every week for five years. But through the Northwestern connection, I met one of my co-founders, Tyler, recruited him to Accenture. We worked together there for about 18 months, and we were in the office late one night, and our client was American Express, and we had what we thought was a pretty genius idea. And I was like, "We should tell American Express about that." And he's like, "Fuck that, let's just start that company." And I was like, "Hmm." Like, we'd always talked about wanting to start a company. Here it is, here's this idea that we've finally had, and we're like, "Okay, let's pursue it." No pun intended.
Turner Novak:
Yeah.
Mike Vichich:
So anyways, I think probably six months or so go by. I decided to leave in the fall of 2011, he left in the spring of 2012. Meanwhile, I had started a coding boot camp as kind of like a side project, because I wanted to learn how to code. I was always the Excel guy at Accenture, but I wanted to learn how to build apps.
Turner Novak:
So you were teaching other people while you were learning?
Mike Vichich:
Yeah, it was like the Hair Club for Men. I was the president and the client, and you know, that's a different story, but I decided to kill that after a year. And then, in the spring of 2012, April 5th, 2012, to be precise, I'll never forget that day, we raised 500K from my college entrepreneurship professor and his friend, just angel checks. And we did it on a PowerPoint deck at the time, it was a PowerPoint deck, and literally knew negative things about how to start a company.
Turner Novak:
So what was the pitch?
Mike Vichich:
The pitch was, if you remember back in the day, Square had this app, it was called Card Case. Do you remember this?
Turner Novak:
I don't remember this.
Mike Vichich:
Where you could pay, it had your cards in this digital card case. You could touch your phone down and pay with it. It was early Apple Pay. And I was like, "Oh, my God, that's the most amazing thing. Mobile payments is going to be everywhere tomorrow. PS, like a decade later, it-"
Turner Novak:
It's finally here, yeah. I literally don't bring my wallet sometimes when I go somewhere, it's just phone.
Mike Vichich:
Totally. We got to get Michigan to have the digital driver's license, come on.
Turner Novak:
Yeah, I mean-
Mike Vichich:
Anyone at the state listening.
Turner Novak:
Yeah, hopefully there's some people. Hopefully people got sucked in from all the other stuff.
Mike Vichich:
Yeah.
Turner Novak:
We're going to be like, "Oh, public funding, state," and then we're an hour in, it's like honey pot. Get the digital ID. We don't care about anything else.
Mike Vichich:
Yea, that's our objective. So yeah, so anyways, we were like, "Oh, once you touch your phone down, there should be an algorithm that picks the card that is in your financial interest, so to maximize rewards or to choose the card that has the lowest interest rates, or whatever." We thought that that was the logical next step. Still is an interesting idea, but there's a million reasons why a start-up as a terrible place to make that happen. So we built this app. It was a terrible... You know, we thought of it as an MVP, but it was not viable.
Turner Novak:
It was an MP.
Mike Vichich:
Minimum product. Arguably, it wasn't even a product.
Turner Novak:
It was just minimum.
Mike Vichich:
Yeah, right, it was definitely minimum. And then, it was funny, though, we got written up in the Wall Street Journal.
Turner Novak:
Oh, wow, really?
Mike Vichich:
Yeah, it had a color photo.
Turner Novak:
Yeah, that's insane.
Mike Vichich:
In the Journal, and my mom was all proud and stuff, but-
Turner Novak:
How'd you land that? How do you get a Wall Street Journal article with not much-
Mike Vichich:
Basically just... That is a good question that I don't fully understand. I think it was like we had kind of an interesting idea.
Turner Novak:
Did you email them?
Mike Vichich:
Yeah, we just pitched them. Cold pitched. And then through some random connection, they thought it was interesting. And it was partially talking about... The angle wasn't just our company, it was that we had this software development thing that we had started, this bootcamp that came out of the bootcamp to build this product. Anyways, I think we knew within three months or should have known within three days that the app was just not going to work. The friction to sign up... There's that Dave McClure thing, where it has the pirate metrics, AARRR, acquisition, activation, retention, revenue, referrals, kind of the consumer funnel. We had no really good way to do acquisition. It was not viral. Our activation was, like, pathetic. 1% of people who downloaded the app actually went through the process of taking the steps.
Turner Novak:
It was probably like the 10 people that you knew that asked to do it?
Mike Vichich:
Yeah, exactly, exactly. Mostly, yes.
Turner Novak:
Yeah.
Mike Vichich:
And maybe not even them. So we killed that thing, and I remember going to a meeting with the two investors, and being horrified to have to break the news that this idea was not going to work. And they were like, "Well, we invested in you guys. Do you have any other ideas?" And we were like, "Yes." And they're like, "Okay.
Turner Novak:
Okay, did you go do them, or did you just make that-
Mike Vichich:
Yeah, yeah.
Turner Novak:
Oh, you did. Okay.
Mike Vichich:
So interestingly enough, we were one of the first, if not the first consumer app to integrate with Plaid. It was back when Zach and William were working in some shoebox apartment in New York.
Turner Novak:
They also did a consumer spending thing before Plaid.
Mike Vichich:
Yeah, yeah.
Turner Novak:
So you both have this idea, they went to Plaid, what'd you-
Mike Vichich:
They are smarter than we are I think is the punchline there. But yes, that is exactly right. Well, we kind of chased that consumer app idea that they had, similar one. The whole thesis of it, which I still think is interesting, was you have Amazon recommendations based on what you buy, you have Spotify recommendations based on what you listen to, Netflix based on what you watch, but there's nothing like that for the physical world, like how you spend your money.
And we were like, "If you could get the transaction data from your credit card, and have that plotted on a map, and build a graph, like a recommendation system off of that, I think that's really cool." I still think it's really cool. PS, if anyone's working on that, hit me up, because I'd love to invest in that concept, because I think it's probably easier to do today than at the time. At the time, the way it worked was you had to give us your username and password to your bank account. There was no Plaid modal that everyone had known of. Now, there's a Plaid branded modal that gives you some, if you're technically savvy, gives you some security that Plaid actually holds your username and password, and this app just has a key or a token to access-
Turner Novak:
It just accesses whatever data Plaid has stored from there.
Mike Vichich:
Exactly.
Turner Novak:
Web scrape.
Mike Vichich:
Yeah, and so there's a layer of security there, where you don't have to trust that startup with your credentials, you need to trust Plaid. Right. So I think that is maybe a meaningful difference, maybe not. But at the time, what we were doing was a whole... And then I think AI makes this easier too, but we build a whole crazy system to take the ugly string that you've probably seen on your credit card statements that shows where you made that purchase, and-
Turner Novak:
Like, it'll show the address, like 62 Stadium Boulevard, Verizon Store 2196.
Mike Vichich:
Yeah, right, and that would probably be a pretty easy one. It has an address, but then sometimes it has a phone number or part of an address, part of a name. So anyways, we were trying to take those strings and put them, tie them to a spot on a map, and then build a recommendation system off of it. And I think we actually got good at kind of mobile UI and UX at that point. Similar story to the Wall Street Journal one, we had hit up... Guessed an email address for a guy at Apple, Steven. Never forget this dude, but I emailed this guy. I was like, "Hey, we're working on this cool new app, love for you guys to feature it in the App Store."
Because at that time, an App Store feature was a huge unlock, and, "Here's why we think the app's cool," whatever. And then he invited us to come out to Cupertino and show him the app, play around with it, and we're like, "Wow, this might actually work." And then long story long, we got featured every year in the App Store, or sorry, every week for a year, we got featured in the App Store, and we had close to 500,000 downloads. But again, activation, it still was not viral.
Turner Novak:
It was still the 1%.
Mike Vichich:
Still-
Turner Novak:
You had like 5,000 registered users, roughly?
Mike Vichich:
Activated users.
Turner Novak:
Okay, and then where retention was low?
Mike Vichich:
Yeah.
Turner Novak:
So it was just like was just like there's 1,000 people, maybe less than that using it?
Mike Vichich:
And so now we're starting, this is maybe a and a half in, and we're like, "Oh, man."
Turner Novak:
How much money did you have left, at this point?
Mike Vichich:
We raised a little bit more money from those same two people, and so I think we never had much in the way of runway ever throughout the life of Wisely. But we raised some more money from those guys, and then came to the conclusion that this wasn't going to work, either. And what we ended up doing was, there was a book that I remember reading, it was Steve Blank, the AOL guy. And there's a line in the book that, at least this is how I remember it, I have to fact check this, but I think there's a line in that book that says, "A bad day with customers is better than the best day in the office." And I was like, "Hmm, I've been spending a lot of days in the office, maybe I should go talk to people who are going to actually monetize this thing." So if you looked at the transaction data, the most common purchases for people, the most varied purchases for people were restaurants.
Turner Novak:
So you thought you could influence the decisions that they made around-
Mike Vichich:
Exactly.
Turner Novak:
Yeah.
Mike Vichich:
And the fact that people would pay for it in some form or fashion would be the restaurant owners. So went around, started talking to all these restaurant owners, and there's one person in particular who was like, "Dude, the last thing I need is another app that I have to manage. I have Yelp, I have Google, I have Tripadvisor, I have Foursquare, there's... Name 10 other ones."
Turner Novak:
And the delivery providers weren't even around yet.
Mike Vichich:
They weren't even around, so now-
Turner Novak:
You really blew up his world.
Mike Vichich:
Way more to manage. But he's like, "The last thing I need is another app, but I would love to know when someone walks in the front door, because my hosts are oftentimes my most junior people who work in the restaurant, and 100% of my customers interact with them. So it would be nice if they knew when someone walked in that Turner's been here before, and if you had a booth preference, or if it was your birthday, or if you liked a certain drink." Like, that, it could make you feel like a regular, right?
Turner Novak:
Yeah, because I feel like when I think about our favorite restaurants, it's usually the owner that they recognize you. It's like, "Oh, Mike, welcome back."
Mike Vichich:
100%.
Turner Novak:
"So good to see you. We got this special, you should check it out. It's, like, the burger, you'll like it."
Mike Vichich:
Right, but from the restaurant owner's perspective, they're trying to build systems so that level of hospitality can happen even when they're not... It's not dependent upon them, right?
Turner Novak:
Yep.
Mike Vichich:
I think there are certain restaurants, usually in big cities, like Danny Meyer's restaurants do a fantastic job of that.
Turner Novak:
This is the Shake Shack guy?
Mike Vichich:
Yeah.
Turner Novak:
Yeah, okay.
Mike Vichich:
Yeah, he's got couple other full-service restaurants, too. But yeah, so trying to make that hospitality experience more accessible.
Turner Novak:
It's like that one where we... Echelon, that new one downtown, we both did date night at the same place. It's pretty high end, pretty nice.
Mike Vichich:
Yeah.
Turner Novak:
My wife's a bigger fan than I am. I don't like their food that much, but it's a good experience. My wife loves it, yeah.
Mike Vichich:
It beat my expectations.
Turner Novak:
Yeah, I have very high expectations, but it's a good one.
Mike Vichich:
Yeah, and then, so we started walking around, and then talking to all these restaurant owners, so we built the mobile payment app, we built the recommendation app. And then now, this is the third app that we're building, was this loyalty app that used Bluetooth beacons and 10 other things to try to track you when you walked in the door.
Turner Novak:
Okay, and then what happened when that happened?
Mike Vichich:
And good results in Ann Arbor. I think we had like 25 restaurants in Ann Arbor and maybe 10,000 consumers using it, which is-
Turner Novak:
Oh, nice. That's like 10X at least higher than before, yeah.
Mike Vichich:
Yeah, yeah, yeah. So we're like, "Hmm, maybe we have something here this time. If we could make this true everywhere, we're in business."
Turner Novak:
Yeah, were you in Grand Rapids at that point? Because I used it at-
Mike Vichich:
We had a couple of Grand Rapids restaurants, yeah.
Turner Novak:
... the Winchester-
Mike Vichich:
Yeah.
Turner Novak:
... on Wealthy. Yeah, I think that's why I first came across it. I forget which year this was.
Mike Vichich:
Yeah, it sounded like maybe '15.
Turner Novak:
Yeah, '15, '16-ish.
Mike Vichich:
Yeah, yeah, something around there.
Turner Novak:
Yeah, I remember seeing it.
Mike Vichich:
I think it was another one over there.
Turner Novak:
Yeah, we went to Donkey sometimes. Yeah, I remember we were like, "Oh, this is kind of a cool idea for an app." Like, you had bonuses when you come back in, I think was the way, when you come back. Yeah.
Mike Vichich:
Yeah, and long story on that one is basically we got to a place where requiring the consumer to do something we thought was just not the path, but the problem was still... Like, the problem of we want to have, we want to make sure that our customers have a consistent hospitality experience, that was an actual problem that restaurants were willing to pay for. So we dropped all the stuff, after we ran out of money at the end of '15, we had $11 in our company bank account, missed payroll for six months in early 2016. During that time, we were trying to figure out how to save the company. So many people were like, "Dude, just shut down the company. What are you doing? You've been working on this for-"
Turner Novak:
Yeah, how many employees? Was it just you, Tyler, and Josh?
Mike Vichich:
We had four at the time, yeah.
Turner Novak:
Okay.
Mike Vichich:
And Ty and I kind of both gave ourselves an equity haircut, because we thought it was the right thing to do. Gave some of that equity to our two other co-founders.
Turner Novak:
So it was like, "We can't pay you, we'll give you a couple more points of equity."
Mike Vichich:
Yeah, because they're smart, talented people. They're going to wake up one morning and be like, "Wait, why don't I go work half as hard-"
Turner Novak:
Just make some money.
Mike Vichich:
Make more money at some other company.
Turner Novak:
Yeah, wow.
Mike Vichich:
Yeah, so we kept going.
Turner Novak:
How do you survive with only 11 bucks in the bank account? Did you have some customers? They were kind of-
Mike Vichich:
No, we literally didn't get paid. Imagine going to work, and then when payday hits, you get a zero in your bank account for six months.
Turner Novak:
But did you pay utilities, pay rent? Did you-
Mike Vichich:
Yeah, we did.
Turner Novak:
How did you do it?
Mike Vichich:
It went down on the credit card, and then my wife was at the grocery store a couple of times, and swipes the card, declined. And she's like, "What happened here?" And we just got our credit cards frozen a couple of times, it was brutal.
Turner Novak:
So the credit card was frozen, you had no money?
Mike Vichich:
Yeah, one of our credit cards was frozen. We put it on another one.
Turner Novak:
Okay.
Mike Vichich:
Dude.
Turner Novak:
And then, would you eventually be able to pay one of them down?
Mike Vichich:
That was the argument. Yeah, like, "We're going to figure it out, we're going to be able to pay them down." And if you talk about having a fire lit under your ass, that really motivated us to try to figure some stuff out.
Turner Novak:
Yeah.
Mike Vichich:
And that's why we're like, "Let's forget all the consumer stuff." I now know that I'm not cool enough to have a consumer business. That's just not me, and I'm also cool with that. But B2B stuff was like. you could just go talk to the customers, and ask them what their problems are, and solve them.
Turner Novak:
And it'll just be a company that has a million bucks in the bank, they can just send you some money if they like what you do.
Mike Vichich:
Yeah, exactly, like how easy is that?
Turner Novak:
Did you had this moment with a demo, where you gave a demo?
Mike Vichich:
Yeah.
Turner Novak:
Was this before the time-
Mike Vichich:
Yeah, when that time-
Turner Novak:
It was during the time-
Mike Vichich:
It was during that time.
Turner Novak:
With the demo?
Mike Vichich:
Yeah, that's a good story. It was probably like 2015-ish. P.S. My wife was going to grad school and pregnant with our first kid.
Turner Novak:
So basically, she was not making a ton of money to pay off the credit cards, also.
Mike Vichich:
She was.
Turner Novak:
And she was super busy.
Mike Vichich:
Yes, and pregnant. So it had an insanely stressful time.
Turner Novak:
Wow.
Mike Vichich:
And the demo story was we were at... There was this thing called the Ann Arbor New Tech Meetup.
Turner Novak:
Yep, I've been to that before.
Mike Vichich:
Do they still do it, by the way?
Turner Novak:
I haven't been in a while. I just-
Mike Vichich:
Check that up.
Turner Novak:
The emails might be hitting my spam folder, I just haven't seen that in a while.
Mike Vichich:
Yeah, I don’t know if Meetup.com’s a thing anymore.
Turner Novak:
Yeah, I don't know. I think it still exists. WeWork acquired it or something.
Mike Vichich:
Oh, yeah, that would-
Turner Novak:
But it might not exist.
Mike Vichich:
Yeah, right.
Turner Novak:
See if WeWork-
Mike Vichich:
Maybe they shut it down.
Turner Novak:
I bet it's still out there, we should actually check after this.
Mike Vichich:
Yeah.
Turner Novak:
We'll throw a link in the show notes if anyone in Ann Arbor is a thing, and this'll be like, drive some traffic to the New-
Mike Vichich:
The New Tech Meetup, it was kind of cool. But anyway, so they had a startup or three come in every month and present. So I was doing that for Wisely at the time. Plugged my phone in, phone starts projecting on the screen behind me, and I was introducing myself. "I'm Mike, I'm from Wisely." I had forgotten, like a moron, I had forgotten to turn off my notifications. So as I'm in 30 seconds into this spiel, text comes down from my wife, Jen, and it says, "Are you coming with me to therapy tonight?" And there were probably a couple hundred people in the audience.
Turner Novak:
Yeah. It's like a big lecture hall, usually, right?
Mike Vichich:
Yeah. At the law school, big lecture hall. And you could hear like half of the audience gasp, like... And then the other half was like... Laughing, cracking up. And I'm like, "Well, I didn't say anything anywhere close to funny." So I turned around, looked at the screen, and before I saw the message go know, animate away, I read that, and I was like, "Oh, boy."
Turner Novak:
And how do you recover from that?
Mike Vichich:
I forget what exactly I said, but I said something along the lines of, "Starting a company, at least in our experience, has been really hard. And it's not just hard for us, it's hard on our family, our families. And like in any company, I think if you have a relationship where you're lucky enough to be able to be direct and honest with your partner, those are the ones that actually have a chance to solve the problem. So I think my hope is that we'll be better for it." And the audience was clapping or whatever, but it was funny, because you talk about the founder bullshit of like, "How big is your team?" And there's always this... Maybe it was in my boogeyman in my own mind, but I feel like a lot of founders have this, is like you want to sound like you're crushing it, but in reality, you're getting your teeth kicked in every day. But walking off that stage, I was giddy, and it was weird.
Turner Novak:
So there was a material moment of change, how you thought about things?
Mike Vichich:
Yeah, absolutely, because it kind of removed the whole veneer of me having to fake, like-
Turner Novak:
You were fully exposed of like-
Mike Vichich:
Totally.
Turner Novak:
"This i not going as good as people might think."
Mike Vichich:
Yeah, "Dude sucks," you know? Things that... And by the way, that was probably before we ran out of money, so-
Turner Novak:
Really? Okay.
Mike Vichich:
Shortly before we ran out of money. In hindsight, that year was super difficult, but in hindsight, is one of the things I'm most grateful for out of the entire journey. And I think that's true of the hardest challenges professionally in my life. I'm most grateful for those, because it forced me to learn. There was a major software upgrade that happened in my brain, and it went from my perception was that the founder had to be right. The customers, the team, the investors were all counting on the founder to be right. And you have these proverbial startup leaders, the gods, like Steve Jobs, and Larry Page, and Sergey Brin, and all these guys that of course they were right, you know?
Turner Novak:
Yeah. You just think Steve Jobs woke up and created the iPhone, and the iPad, and the App Store, and he just guided it all to market. He had it all.
Mike Vichich:
"I had all the answers," right? And don't get me wrong, the dude was really, really good. So he's probably more right than I was. But I went through this bit flip in my mind where I went from like, "Now what I say is, 'I'm sorry to disappoint you, but you work at a company where the CEO is wrong all the time,' and I want to be less wrong." So never do something because your manager or even the CEO said to do it. Only do it if you think it's the right thing to do. And if you don't think it's the right thing to do, loyalty means having the courage to disagree, and say what you really think, because then one of two things happens. Either you save the company from making a bad decision, and that's a thing that you should be lauded and promoted for.
Turner Novak:
You should do that all the time.
Mike Vichich:
Yeah, right. But actually, it's not welcome in a lot of companies, right, that had a leader who's thinking the way that I used to.
Turner Novak:
Because you're right, you're the CEO, you know the answer. People are counting on you to have strength of always being smart and knowing everything.
Mike Vichich:
Yea. Totally, right. And then, but on the other side, so either you save the company for making a bad decision or the employee gets a software upgrade in their mind, where they now know, they now believe something that flipped a bit in their mind, and every decision that they make moving forward is now better.
Turner Novak:
Does it inform over the way that the company actually works, or the-
Mike Vichich:
Exactly.
Turner Novak:
... other big system works, or like a customer thing?
Mike Vichich:
So it's like the biggest win-win ever.
Turner Novak:
So you encourage disagreement?
Mike Vichich:
Absolutely. All day, every day.
Turner Novak:
So when I hear somebody say, "We disagree," I think of yelling, and arguing, and berating people. How do you avoid it descending into that and have a good, healthy disagreement?
Mike Vichich:
There's two things that come to mind that are like, because I spent years trying to answer that question. There's a phenomenal blog post by Paul Graham. It's /disagree on his blog.
Turner Novak:
Isn't it How to Disagree?
Mike Vichich:
I think the URL is /disagree, but the title is How to Disagree, I think.
Turner Novak:
We'll throw a link in the description.
Mike Vichich:
Phenomenal blog post. But basically he's got this pyramid, which I actually have on coffee mugs now. But it's this pyramid of disagreement at the very bottom is name-calling. And then another one is you go one layer up from that and it's like the person's authority doesn't really give them the credibility to be able to say what they're saying. So for instance, you could never just something like...
Turner Novak:
You're just a podcaster. You'd never know.
Mike Vichich:
What do you know? You've never run a company. How could you know? Or you're not a teacher, how could you know anything about public education? Or you're not a whatever, right? So at the very tippy top of the pyramid, the thing to aspire to is disagreeing with the central thesis. And I think someone that I respect that I think does this really well as Jon Stewart, because he'll say like, "So, are you saying," and then he'll fill in the blank with a one-sentence thing that that person who believes it can say, "Yes, that is exactly what I think."
And you don't try to make it sound like a moron thinks it. You try to objectively state it the way that they would in one sentence. And I think unless you as the person who disagrees with someone else, unless you can actually say, "So are you saying," one sentence and have the other person say, "Yes, that's exactly right," then you have no chance of solving the problem. But that's true both ways.
So I remember a couple of times where I've tried to, we were in some disagreement trying to figure it out, and I've said, "I want to make sure that I really understand what you're saying. Are you saying," one sentence and the other person says, "Yes." Awesome. "Can you summarize what you think I'm saying," and see what they can. And if they can't, no use talking about any solutions. You just need to make sure that the framing of the problem is nailed down first.
So I think that's a really key point, and credit to Paul Graham for helping me think through that one. The other one is back to Charlie and this intersects with that same thing, but back to Charlie Munger where if you don't know the other person's argument better than they do, then you haven't done the work required to have an opinion.
So I try hard to actually have fewer opinions on things. I don't know, it's like I don't really have an opinion on this. I haven't done the work to really think it through, so let's talk about it. So I think those are kind of the two big things in my mind.
Turner Novak:
So have you ever... When you're in that information gathering phase of coming up with an opinion, how do you approach that when you're in a setting with your team of not offending or not dismissing, being open to hearing people's views when you're truly just, you're trying to get everyone to the same level of understanding the problem and then let's decide how we're going to solve this?
Mike Vichich:
A couple of thoughts on that. One I think is what does it look like to do that well? How do you observe that?
Turner Novak:
Yeah, that's a great way to tee up that question.
Mike Vichich:
I think that a healthy culture is one where a new engineer can question the head of sales in an all-company meeting and be celebrated for it. Somebody who's in another part of the organization questioning someone over here.
Turner Novak:
You have lower part of the ladder.
Mike Vichich:
Lower part of the ladder to higher part of the ladder in a different org, and vice versa. If a new sales rep can question the head of product or the head of engineering or the CEO, that's the mark of goodness. So for that reason, if we're on a Zoom, I ask folks like don't be on mute. Please take yourself off mute because that just puts another barrier between you and speaking up. I want to hear you sneeze literally. I don't want to have that be the reason why you don't remove all barriers to talking and then try to... It's a bit of a gut feel thing, but how much are people actually cool disagreeing openly?
And then I think the other part of it is when people join the company, they likely come from places where that is not true, where the expectation is put your head down and do what you're told. We look for evidence in the hiring process. This is one of our values, right? Run at conflict. We look for people who've run at conflict before. Critical thinking is another one of them. Show me a time where you... talk to me about a time where you disagree with someone in a position of authority. What's the last thing you changed your mind on?
So we build into our interview process and we have a written thing that we have people do where we ask them questions and hear their stories. And you'd be surprised. You can tell when someone writes out their answers to these questions. We find that to be a pretty good filter.
Turner Novak:
So what's a bad answer to some of those?
Mike Vichich:
I mean, they're just generally less specific. There was one person, for instance, that embodied... It comes to mind like someone wrote in their response recently, and this is a good answer, that they actively... I was going to say lobbied, but not in a lobbying sense. But they actually advocated, a better word, for Medicaid to cover continuous glucose monitors for people because that previously in Michigan wasn't done. It wasn't part of the Medicaid reimbursement.
And this person was like, it should be, and they actively went out of their way to do it to get that covered, which I was like, oh my gosh, that one example lives three of our values right in it. And she walked through how exactly she did that. And so I love that example. Other ones are, "Oh, on the school project, I disagreed with my teammate on some other thing." So how important was it? How much did they go out of their way to do it? Those are, I think, good examples of it.
But then, I don't know, I think I have a bit of a reputation in my wife's family for being the one who will be honest. And people actually like, because of that, I can probably say stuff that if someone else said it, they'd be like, "What, are you mad at me?" So there's a bit of a cultural part of it where you just have to live it and it becomes just normal. We try to normalize having hard conversations.
People can make certain hard conversations hard. How much should we pay this person? Should they get a raise? Those are the sort of questions we're like, let's just talk about it. We don't have to make this a hard thing actually. We can choose to make it easy. And I think it's just that choice is important.
Turner Novak:
I realized we had a little sidetrack on the Wisely story. We were just talking, you're basically rock bottom where we were just at 11 bucks in the bank account. What was kind of the turning point where things finally started to look good?
Mike Vichich:
Well, I think we had started to embrace this whole bad day with customers is better than the best day in the office thing. And so for me, the turning point was we sent out basically a spam email to a bunch of restaurant owners where we were not selling our product because we basically didn't have one, but we were selling a problem. We were selling the existence of a problem.
So it's important to know who your guests are, but no one knows. And that's what the email is all about. Basically, are you happy with the way your restaurant brand is solving that problem because no one can be. And we were like, let's just see who's got this issue and then let's talk to them and figure out what they believe the best solutions are, and we'll think about those and try to come up with a product that we think solves it.
One of our first customers was, actually our first customer in this new world was Bartaco, great restaurant brand from Connecticut at the time. And I'll never forget the person that we talked to there, his name was Scott. He was the president of Bartaco and he was like, "Hey, I hate this idea of a loyalty app. I would literally never do a loyalty app. It discounts my brand, it makes people think we're cheap. That's not what we're about. However, I love the idea of knowing when my regulars come in the door."
And they were fortunate that it was like a taco restaurant. They were always insanely busy. He's like, "We have lines out the door Thursday through Sunday every week, and I want to know who those people are who are coming back." And the waitlist system that they used at the time had no concept of a CRM in it.
Turner Novak:
Just a waitlist.
Mike Vichich:
Just a waitlist. They text you when you got on the list and that was it. But it didn't say that Turner has been here five times, didn't say anything about who you were, what you like to eat or drink. So he was like, "Can you take that CRM idea and wrap a waitlist around it?" And we were like, "Well, we can go out of business. We could just do that. So yeah, let's do it."
So this is in probably May of 2016. We had them sign a letter of intent that basically pre-negotiated price, pre-negotiated all the things. And we got it to a place where like if we build this, you will pay us $200 per restaurant per month. All the things were pre-negotiated and they would be in a contract if we delivered. And here's exactly what delivering meant. There were five things that the app had to do, had to be able to text someone, there had to be a list that you could see, had to show how many visits they had.
So we defined those things that they really cared about and then we just... And by we, I mean mostly Josh just worked his ass off that whole summer with our designer to come up with the V1. And we shipped it on Labor Day weekend, which was a really busy weekend for them. One of the assumptions that we made unknowingly was that we were counting on their wifi to be good. So we rolled it out, because wifi in our office was great. Wifi in the restaurant when you're walking around with an iPad is terrible. And so the syncing of the waitlist was a nightmare.
Turner Novak:
So you launched...
Mike Vichich:
We launched.
Turner Novak:
Labor Day weekend.
Mike Vichich:
Yeah. And I thought that they might've killed us because it didn't go well. It went, the waitlist did not sync. Person over here with one of the iPads would add Turner, and Turner wouldn't show up here for five minutes.
Turner Novak:
Oh, okay.
Mike Vichich:
Yeah, on the other iPad.
Turner Novak:
So this was their flagship location, right?
Mike Vichich:
It was, yeah. It was like a $12 million a year restaurant.
Turner Novak:
Okay.
Mike Vichich:
Crazy busy restaurant. So then we finally figured that out, and now that's a solved problem. And the next thing was we want to tie into their point of sale. And this was another thing where again, it's a $12 million a year restaurant, and their tacos were like four bucks a taco or 3.50 a taco. So they're selling a lot of tacos. But we took down their point of sale because we did a point of sale integration, because we wanted to know what tacos Turner ordered once he was seated on table 53. We want to know what his order was and store that in our CRM.
So our agent brought down, literally, they had to break out on a busy Friday night, the knuckle buster thing where like... You put the credit card, have you seen one of these in the last 20 years? You put the credit card in, they had the copy paper where you used to knuckle. It was this thing that would like, based on the numbers on the card, they were embossed, it would stick out. You swipe, you go like... And it would actually imprint the numbers and the name on the card onto this little check.
Turner Novak:
That then they would run later?
Mike Vichich:
They would run later.
Turner Novak:
Okay.
Mike Vichich:
It was so brutal.
Turner Novak:
Were you there in the restaurant?
Mike Vichich:
I was not there that day in the restaurant.
Turner Novak:
Did you guys have someone on the team?
Mike Vichich:
For a lot of the early days, yeah, but not at that particular night.
Turner Novak:
Oh, man.
Mike Vichich:
And I just remember their CEO, it was a huge lesson for me. He called me insanely calmly. If it was me, I would've been freaked out like, "What is going on?" But he just called me insanely calmly and he was like, "Your app has brought down the point of sale in our restaurant and we're not able to process any payments right now except for these knuckle buster things, and we need to get that solved." And I'm like, "Yeah, we really need to get that solved."
But that was a lesson in just being totally calm under fire. And that's something I've tried to channel from time to time. I was really impressed by that.
Turner Novak:
Did you solve it?
Mike Vichich:
Yeah. Yeah. We solved it, and that became a non-issue. Actually, I don't think that ever happened again. Well, actually not true. I take that back. It was in January where that happened because it was one weekend in January we brought down their point of sale. And I remember they used this ancient point of sale called MICROS. I was on the phone at 1:30 in the morning with the tier three MICROS support trying to troubleshoot this thing on a Saturday morning at 1:30 AM. And we got it figured out, they had to... By the way, the point of sale was so broken that they had to bring in a new... These point of sales ran on a Dell tower, like a desktop tower.
Turner Novak:
Like just sitting there behind the counter?
Mike Vichich:
Yeah. They had to bring in an entire new one in.
Turner Novak:
You just like, bricked the-
Mike Vichich:
We bricked the thing so badly. So we're like, cool. We brought the new one in, got it set up for the next weekend, and we did the same thing again the next following weekend.
Turner Novak:
Oh, wow.
Mike Vichich:
So it was brutal, man. And then once we got through that second weekend, we're like, "We need to get one of these towers of our own so we can brick our own tower in our own office, not theirs," which that was really hard to do because you had to have some crazy enterprise license. But we did it, ended up doing it on a virtual machine. But anyway, that became a solved problem. And except for that one restaurant, two weekends in a row, we never brought down another point of sale that I'm aware of.
Turner Novak:
So then at that point, what was that when you were like, "Okay, we're not killing our customer's business anymore, but this is kind of working"?
Mike Vichich:
The fact that they didn't fire us after that, we were kind of like, "We should be fired right now. But we're not, so there's something going there."
Turner Novak:
So is that when you kind of knew that there's something here and it's kind of were starting to work?
Mike Vichich:
That was tough, man, because now keep in mind we had built one, two, three, that was our fourth major pivot, or I guess third major pivot, fourth major idea. And I was I think gun-shy about product market fit. I'm like, no, we couldn't possibly have product market fit.
Turner Novak:
Because you spent like five years just getting nowhere, nothing.
Mike Vichich:
Nothing, trying, failing. And I think it was, I credit one of my later investors/later board members, Andy, for saying like, "You guys have product market fit, man. Go." And that was, I think we were probably north of a million and a half ARR at that point before I accepted the idea that we might have product market fit. Maybe even more than that, might've been more than 2 million of ARR. So anyways, I think that's one of the gifts for being a second time founder is like you have spidey sense on a lot of these things. You know what real pain sounds like. You know what fake pain sounds like too.
Turner Novak:
Yeah. And then how did you go about scaling? I know you guys got quite a bit bigger than 2 million ARR. What was just generally the process of getting there?
Mike Vichich:
Yeah, we ended up selling the company around 10 of ARR, and we never raised institutional money. So I think we probably during that phase burned two and a half million total, maybe three. So four to one, three to one kind of like ARR to burn ratio, just solid.
Turner Novak:
They'd write blog posts about that. The VCs would.
Mike Vichich:
Yeah, right. But there was some unlocks in there too. I think one of the things that sticks out at me is hiring a phenomenal leadership team and giving them the hats to wear. I think that's a key part of it. The other thing too, there was a great David Sacks blog post called The Cadence or How to Operate a SaaS Company. Did you ever read this one?
Turner Novak:
Probably.
Mike Vichich:
It was basically everything runs on a quarterly schedule, which we did that. But at a lot of companies, sales and finance are on the same calendar, it's a fiscal quarter that product and marketing are. And he's like, no, offset those things by 45 days. So you have sales and finance work off of the fiscal calendar, and you have product and marketing work off of a seasonal release schedule that is also three months.
Turner Novak:
So you're releasing November 15th, February 15th?
Mike Vichich:
May 15th, and August 15th. Yeah, exactly. And it's winter, spring, summer, fall.
Turner Novak:
Yeah, I was going to say that kind of lines up more with the season start, not the quarter start.
Mike Vichich:
Exactly.
Turner Novak:
Okay.
Mike Vichich:
Yeah. So we have seasonal releases. We did it at Wisely. We do it at Pursuit. And I think there's a bunch of reasons why it's helpful. And the blog post I'd recommend if you're a founder and you haven't read it, especially if you're thinking like I need to hire a COO or a chief of staff or someone to help me juggle all these, spin all these plates, go read the Cadence blog post first.
Turner Novak:
We'll throw a link in the show notes for people.
Mike Vichich:
Yeah. It's great because I think there's a few reasons. One is that at the end of a quarter, it creates the space for the CEO and for all the other leaders to be really, really dialed in on making the quarterly number, deal support, deal desk, joining calls, doing what it takes to hit the number. And then you have 45 days where everyone on the executive team is focused on product.
So the sales team, it's obvious that product and engineering should be focused on shipping product and engineering. But to have marketing and sales be able to carve out the time to go think about like what are customers saying, what is the feedback we're getting actually?
Turner Novak:
That we lost this deal or they didn't sign because we need this feature.
Mike Vichich:
Exactly. So it creates this connectivity between the functions that I think is really important. And then it also just drives a lot of clarity in there. One of the things that they cover in the blog post, or that Sacks covers in the blog post is the concept of big rocks, pebbles, and sand, which this is actually true.
If you were to take two jars, same amount of sand, same amount of pebbles, same amount of big rocks, bigger rocks, and you put the sand in first and then the pebbles and the rocks, the rocks are sticking out of the top of the jar. They don't fit. But if you put the big rocks in first and then you put the pebbles in, and then you put the sand in and shake it up a bunch, the sand fills in around it so you actually can better utilize, there's less wasted space in the jar.
And I think the same is true for engineering. I think a lot of engineering and product teams can get bogged down in the proverbial sand. It's like bugs or little issues that customers bring up that are not... They're important, I don't want to minimize them, but they're not critical things. They're not the things that the customers actually value.
And so that was a huge unlock for us, it was figuring that out. And I think the third thing I would say is just talent density. That's something that we're trying to do at Pursuit. And I question all the time, I'm like, "Should we have hired XYZ person, like they could have gotten..." It could be good. They could have gotten a bunch of stuff done, but we just try to hold a high talent bar. And I think that means that you have to be comfortable going slower on hiring.
Turner Novak:
And then you did end up selling the company. I know the process of doing that, how did you get that done?
Mike Vichich:
So we had in the Q1, Q2 part of 2021, we got hit up by a bunch of strategics. I think it was nine different strategic companies.
Turner Novak:
Because you probably cross that threshold of size where they're like, "We would want to tuck this in. We'd want to bring in the product by the cashflow that you're generating."
Mike Vichich:
Yeah. Well, I don't know about the cashflow because it wasn't positive at the time, but it was definitely by the growth.
Turner Novak:
By the, yeah.
Mike Vichich:
And so whether it was a payments company or other reservations and waitlist companies or partners of ours, we had nine people who had expressed some level of interest in purchasing the company. That was in Q1, Q2 of 2021. And remember, we started the company officially on April 5th, 2012. So we were nine years in at that point. Our early investors were nine years in at that point.
And we had just, if you look at nine months prior to that, we'd just seen COVID, which cratered our business, dude. For a solid month, we went from 350 or 400k of revenue coming in the door every month to zero overnight. And so it was a very compelling reminder that it could all go away overnight. And every, 99.9% of my net worth was in the company, same with my co-founder.
So that was a thought in the back of our mind. And so we were like, "We're going to need to do something this year. We're going to need to raise or sell the company, so let's just see what all the options are." Some of those companies on the acquiring side got ahead of the others in how quickly they were moving. And so we had to pump the brakes on that because we also hadn't started the VC thing at all.
But we pumped the brakes in July of '21 on the strategic acquisition side. And legitimately we were like, "We've got a couple of big deals we need to go close," which we did. And then in that time, we also kicked off a fundraising thing and got five different term sheets because again, we wanted to see all the cards and make what we felt was the best decision. And we didn't feel like we could do that unless we had all the cards turned over, both on the fundraise side and on the acquisition side.
So we get to August, end of August, we had five different term sheets from VCs, and one of them was phenomenal. And they were like, "Hey, we'll modify the term sheet in such a way that allows you to consider two strategic acquisitions. But if you go with a financial investor, you'll go with us." And I was like, "Wow, that's incredible." So we had a couple week period there at the end of August and first 10 or so days of September where we had this signed term sheet that we could shop with two named strategics.
So we named two strategics, Olo was one. There was another one that was a public company. And we were sprinting to try to get an LOI signed and got there. There was a bunch of back and forth, which I think that helped from a price perspective. There was a bunch of back and forth because there were so many interested parties that helped us negotiate better terms and stuff. But we ended up, we wanted to sell to Olo because they were a partner of ours for years. They had been a phenomenal partner. They had the same business model that we did as well. They made their money by making restaurants happy.
And we really cared about our customers and the product, and we felt like... There were examples of B2B companies who had sold to a company that had a different business model, whether it was a credit card company or an advertising company. The business model wins in the end. And so we felt best about, we wanted to stay true to this whole like the restaurant should own the data thing, and the best way to ensure that that was true was to sell to someone whose business model was the same as ours. They made money by making restaurants happy, and Olo was a phenomenal fit on a number of those dimensions, including that.
We unfortunately lost the last two minutes of the recording in the studio, but it was mostly winding down the conversation.
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