๐ŸŽง๐ŸŒ The Future of AI, Software, and Tax + Lessons Scaling Zero to One | Michelle Valentine, CEO of Anrok

Why AI is so hard to predict, the trend of software consolidation, raising a Seed round in 48 hours, and early tricks for founders to avoid future sales tax headaches

In this latest episode of The Peel, I talked to Michelle Valentine, Co-founder and CEO of Anrok.

We talk about why software is consolidating, lessons from finding Anrokโ€™s first customers while in stealth, plus advice on fundraising and scaling a sales team.

Anrok is the global sales tax platform for software companies, and she also shares tricks for founders to use early on to avoid future tax-related headaches (I promise the tax stuff is more interesting than it sounds!)

๐Ÿ‘‰ Stream on Apple and Spotify


Timestamps to jump in:

  • 2:19 The trend of software consolidation

  • 3:00 Why billings and payments isnโ€™t consolidating

  • 6:09 Early tricks for avoiding future tax headaches

  • 8:42 Founder lessons from first being a VC

  • 9:28 The two catalysts that led to Anrok

  • 17:15 How software companies used to figure out sales tax

  • 22:51 Raising Anrokโ€™s Seed round in 48 hours

  • 25:42 How to join a VC's scout program

  • 28:24 Fundraising lessons from being an investor

  • 34:24 Surprising results from the very first โ€œeasy fileโ€ product

  • 38:30 Lessons getting the first customers from outbound

  • 40:19 Why you should make your first two sales hires at the same time

  • 41:50 Sales advice when scaling into enterprise customers

  • 46:19 How your Seed round helps raise your A and B

  • 47:24 The reason AI and LLMs are so hard to predict

  • 50:58 Michelleโ€™s favorite Claude use cases

  • 53:51 Predicting market sizes, and why Figmaโ€™s seemed small

  • 57:39 How to invest in AI right now

  • 1:01:01 Advice on changing your opinion

  • 1:04:10 Getting outside your comfort zone

  • 1:05:04 Michelleโ€™s go-to interview question

  • 1:07:23 Lessons from Intuit founder Scott Cook

Referenced:

Find Michelle on Twitter and LinkedIn


๐Ÿ‘‰ Find on Apple, Spotify, and YouTube

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Transcript

Find transcripts of all prior episodes here.

Turner Novak:

Michelle, welcome to the show.

Michelle Valentine:

Excited to dive in.

Turner Novak:

I'm excited too. You have a really cool framework around the history of business models, how they've changed over time, over the past couple of years.

Would be really interested in having you kick us off with that. How do you think about it?

Michelle Valentine:

Yes, we're recording this August 2024. It's post-zero interest rate era, and something that I'm hearing from many founders and sales leaders is that the reasons to buy their software has changed. And that has meant the way in which you build software, position software also changes as a consequence.

And the trend is this, a lot of people are buying to consolidate their software stack, instead of buying a point solution for, let's say, cold calling, a point solution for writing sales deal notes, a point solution for sales calling, for example, people are looking to buy a consolidated version of all of those different tools.

And so, the interesting thing I think for other founders building software out there is how do I position my product such that we come across as a full suite solution?

Turner Novak:

Interesting. Is that hard?

Michelle Valentine:

It depends on your industry. I think what's surprising for Anrok's industry, we plug into billing and payment systems. The thing that's different about certain industries like the financial stack is that there is still less consolidation than I would've expected even with this landscape change.

And my hypothesis is that founders, finance leaders buy the billing and payment financial system tools that help their sales team close. So, if your customer wants to buy using self-serve payments, you'll probably invest in Stripe. If your customer wants to do a different type of invoicing, they don't want your standard QuickBooks or NetSuite invoicing, they want to pay over bill.com, or their own specific workflow, you will do anything to accommodate that sale.

Turner Novak:

Yeah, you're closing a sale in 2024, revenue is important.

Michelle Valentine:

That's right. And maybe a few other reasons is like, one, you want some redundancy in your payment systems, right? If one fails, you want to make sure that you can quickly swap it out.

Turner Novak:

Oh, so people are doing multiple?

Michelle Valentine:

Especially at the larger scale, probably not if you're a early stage startup. But there's that piece for redundancy and there's also pricing leverage. Some of the larger prospects and customers we speak to, they want to be able to negotiate the basis points pricing that the payment providers might want.

So, for all of these reasons, that trend of consolidation that we're seeing in a lot of the software industry hasn't really touched the billing and payments landscape. And so, that's something that's pretty interesting that we're seeing at Anrok.

Turner Novak:

Do you think it's going to happen, or do you think it's going to remain pretty fragmented just because of all these different necessities of closing a deal, and different types of customers, and all that stuff?

Michelle Valentine:

I think because of the redundancy issue and wanting to make sure payments go through, my guess is that it's going to stay that way.

I think Stripe is doing something pretty interesting, where I think they are starting to allow you to switch out other payment providers under the hood, and so that could be an interesting play, and I think that's a very, very smart move.

I also do think even just simple eCommerce, you probably noticed as a consumer, they now have not only PayPal and credit card, they have Apple Pay, because there's data that shows if you can switch in the method that a consumer is used to paying with most then most likely to convert. And so, there are now all these tools that also try to estimate, based on the consumer you're selling to, what should be the primary payment method that you surface that will increase conversion.

So, my sense is there might be fragmentation under the hood, but to the consumer it might look a little bit more consolidated because it's a smart system, and it's telling you, okay, I think we know what you like to purchase with.

Turner Novak:

And so, I think as you get a little bit more complex with your billing, you're invoicing, you're going global, what kind of happens at that phase, usually, that you see?

Michelle Valentine:

For context, Anrok, we plug into billing and payment systems and we help monitor where a customer needs to collect tax.

Turner Novak:

Which sounds brutal.

Michelle Valentine:

This is sales tax in the US, this is global VAT, and for many software companies this is a new problem, and we can get into later a little bit why. And so, my lens in answering this question will be a little bit colored by what a lot of founders and finance leaders will need to do, eventually, after they set up that billing and payment system.

So, the thing that we notice people often missing is collecting a customer address. If you're a software company and you're selling a digital product, you might think, why would I ever need to know where my customer is? And it might add friction to the checkout process, and so you might choose not to do that.

But the problem is is that when states inevitably come asking, you should be collecting sales tax, or maybe you ignore it and you go through an M&A process, or you prepare to go public, your company will have to go through a big audit, calculate a potential reserve for that tax amount, and how do you do that if you don't know where your customers are, and what tax rate the different transactions should have applied to that transaction?

And so, something very simple to do as you're setting up your billing and payment systems, collect the customer address, it could be as simple as taking the zip code on a credit card, the full address is preferred, it's more accurate, but if you're worried about the conversion process, we've seen a lot of folks just use the credit card data to at least know what state it is in, or at least know what country it is in. So, that's the first thing.

As you go global, there are other things that come into the mix, like that ID validation, so if you're selling to another business, and your business, so it's a B2B transaction, there's a mechanism called a reverse-charge in many places in Europe, and so that means tax dollars don't actually change hands. So, there are things like that where you might want to think about, as you set up your payment processes, how do you want to collect that? Or as you invoice a customer, how do you want to give your customer a chance to say hello, I'm an exempt customer, or hello, I have a VAT ID.

So, those are things to think about as you set up your system as a digital product.

Turner Novak:

Interesting. So, I'm super curious then, when you first started the company, how did this all get started and come about? Because it's probably the least sexy topic imaginable, but maybe that's a good thing for starting a company.

Michelle Valentine:

One of the things that I have been very lucky to do in my career is to spend a few years in venture capital. And so, my job for many years was just to look at different business models and to talk to a lot of founders. And I think that allowed me to do a few things, one is pattern matching. At the simplest level, it's figuring out what makes a good business, and then the second is how do I build conviction on whether I'm excited about that business?

And when I came across the sales tax problem, it had all of the signals of a B2B business that I would've been excited to invest in, and for me there were two aspects to the problem that really resonated with me personally.

On the one hand, I really care about startups and the underdog and building for the internet economy. People like doing innovative things, yet they're stuck in this world where all of our sales tax regimes are very much built for the retail world. It makes no sense sales tax is calculated based on where your customers are receiving the product. But we're stuck with that.

Turner Novak:

Wait, so why does that not make sense in the age of the internet?

Michelle Valentine:

Well, your customers are virtually everywhere from day one and your customers might move all the time. And so, why does the location matter when calculating the sales tax amount? It's the best thing that we have, you're right, I don't have an alternative.

But it does seem particularly based on this brick and mortar world, and sales tax originated after the Great Depression, in the 1930s, and it was really a way for local governments to be able to meet their budget deficits, and be able to say, hey, you're making revenue in my state, we should be able to take a cut of that. And if you're a software company and you might never be in that state, but you're selling to someone who just happens to have an address in that state, but might move a month later, and your sales tax revenue dollars still consistently flow into that state government for the perpetuity of your contract. Unless they update their address, so then you need to update the invoice.

Turner Novak:

Interesting.

Michelle Valentine:

That's the first thing that resonated with me, was building for the underdog, make it really simple, if you are a software founder or finance leader, sales tax should be the last thing you have to think about, that was something that made me excited.

And then, the second piece was I do feel a lot of empathy for these state and local governments that are providing real services, like public schools, fire departments. The thing that makes sales tax pretty complicated is that it's not just the state county, city level tax that gets added that rolls up to this big sales tax number, but sometimes special purpose districts, like a school, or a fire department district can say, hey, that 0.5% out of that 7% tax rate, that goes to my fire department. And so, that's something that I also empathize with.

So, those are the two personal aspects that resonated with me.

Turner Novak:

And then, I think there was a moment, there was a court case a couple years ago that triggered it initially, where you're like, huh, maybe this is a thing that I should focus on a little bit more.

Michelle Valentine:

Yeah. So, the question that investors always ask when they're looking at investing in a business is, why now? Why should this business exist now?

And what made me have such a strong reaction to this space, as a former investor, is that two things changed in the landscape for software companies. Where, they went from often not having to think about sales tax to having to think about sales tax.

So, traditionally, just to recap, you as a business collect sales tax in a state if you have a physical presence. So, this can be an office, a store, a warehouse, that means you have nexus, you have a close enough relationship with the state such that you as a business are obligated to collect sales tax from the customer. And then, if that state taxes those products, the tax rate is based on where your customer consumes and purchases the product.

And so, in a retail world, those are often the same thing. The store is where you have nexus, the customer comes in, purchases the good, that's the same place, you have one consistent tax rate across most of your products. And the main thing you have to think about is are my different products taxable? That's a typical traditional scenario.

Turner Novak:

Wait, so different products are taxed differently also?

Michelle Valentine:

Yes.

Turner Novak:

Wow.

Michelle Valentine:

It's usually binary, like is it taxable, is it not? If you go into the land of groceries or alcoholic beverages, for example, yes, there's a lot of differences within that as well. So, at the basic level, first question is, do you have nexus, an obligation to collect tax? And then, the second and third question is, if the product is taxable, where is the customer, and calculate the tax rate based on where the customer is.

So, the two things that changed is that, one, businesses went remote in the pandemic, where all of a sudden all these Californian software companies had to think about sales tax in other states. And California doesn't tax software, so you often never had to think about it in your home state. But 20 other states across the US do. So, that's a big wave that changed.

The second thing that changed that really made me start to think about this problem was in 2018 there was a Supreme Court level case called South Dakota v. Wayfair.

So, Wayfair is that furniture e-commerce company that a lot of people know, and in this court case, South Dakota won. And the ruling and implication of that was, hey, you might never have a physical presence in my state, but you're making so much revenue in my state, that constitutes nexus in an economic way.

So, now, software companies need to think about how much revenue they're making in a state, and sometimes how many transactions they're making in a state. So, for example, a state could have a $100,000 revenue threshold, and once you cross that, you now need to collect sales tax in that state, even if you don't have an office or a remote employee. Another typical transaction threshold we see is 100 transactions, which is very low if you're a software business and you're invoicing monthly, right? That's like-

Turner Novak:

12 a year, yeah.

Michelle Valentine:

Yeah. And so, this creates this ongoing monitoring problem that software companies now need to think about. So, these two things made me think, oh wow, something has really changed and this why now reason for this market is very compelling.

Turner Novak:

Okay. So, this nightmare that we just talked through for the last 10 minutes, you are fixing it. All the stuff that you just talked about.

Michelle Valentine:

That's right. And our goal is to make it really easy to integrate, we're built for the internet economy, for software companies, and so we understand recurring revenue, we sync in real time with your billing and payment systems to figure out where do you have to calculate tax. So, alerting you in real time, helping you register, calculating tax on all of those transactions, and then filing and remitting. So, we actually move money to the different states, and so you never actually need to really think about sales tax as a business.

Turner Novak:

Oh, interesting. Moving it to different states, that's an important piece of it.

Michelle Valentine:

Well, you have to remit the sales tax that you collect from the customers and remit it to the states. And the surprising thing that people don't realize is, even if you, let's say you decide, hey, I've got so many things going on, I'm just not going to figure this out yet, you as a business are still on the hook to eventually remit that tax.

o, if it comes up in an audit or an M&A transaction, you'll be holding some kind of escrow of what that tax amount should have been. And customers are willing to pay the sales tax amount, if you bought that cup of coffee this morning, you didn't decide, oh, instead of paying that $4 cup of coffee and now there's a sales tax rate on it, I'm not going to pay for that cup of coffee, that just doesn't happen. You're used to paying the tax as a consumer where you're based.

Turner Novak:

Interesting. So, just... Because remittance, people might not know what that means. That is basically, you hold it in escrow or save it to eventually pay the government when it's due, right? Is that essentially what remittance is?

Michelle Valentine:

Yes. And often it's monthly, it can be quarterly, if you have a very low sales amount in the state, it can even be annually. But for most sales tax regimes it's monthly or quarterly.

Turner Novak:

How were people doing this before, or are they doing this? How do you see people figuring this out usually?

Michelle Valentine:

So, before Anrok, there were two probably different ways of doing it. One is obviously manual, you can work with a tax advisor, if you're only doing enterprise invoices and you only have a few a year, it might be very much manageable. But if you start getting into the dozens of invoices, that actually doesn't get very cost-effective, but you still might want to partner with a tax advisor for taxability advice, tax strategy, and at Anrok, we work very closely with many tax professionals that can advise the software companies on going global strategy, for example.

The second method is to use a legacy system that has been built for retail. Our largest competitors are 20 and 30 years old, and they tend to be typically very hard to integrate. If you're a software company and you have recurring subscriptions, you also might want to see your global transactions from day one. And historically, the retail systems don't have to think about global commerce because there's customs, duties, there's a lot of other obstacles that it might take to go global as a brick and mortar or physical business.

And so, Anrok, we've built global from day one, so you can do US, Canada, Australia, all the countries that you need to think about for software, you can actually see that in one place.

Turner Novak:

One thing you mentioned was interesting was you can choose to not pay, I guess, sort of, or not worry about it, but then later on you do eventually have to pay. How does that usually come to fruition? Let's say I get acquired, I've never paid sales tax before, I've done whatever, %100 million in revenue cumulatively, what is that going to look like when I try to figure it out at the end of the tunnel?

Michelle Valentine:

So, for every business it's a little bit different, you might have different risk appetites, you might have different exposure footprints. So, these are really questions you want to speak with a tax advisor with. The reality is, if you ignore sales tax, and let's say, hey, I'm willing to continue to accrue the liability, you should be recording that in your books. So, even if you are not collecting that sales tax amount, you as a business are liable to remitting that tax eventually to the different governments, which is why collecting the address is really important because you need to calculate that at some point, and the more accurate data you have the more defensible in your case is, to say, hey, State of New York, this amount of revenue is not yours, I've collected the addresses and it's only 10% of my revenue is in New York, not 80%, or whatever case they might be trying to make.

So, the few eventualities is, one, you could get audited by multiple different states in a year, just given your company footprint, it's a state by state system. Let's say you're lucky and you don't go through an audit as a business, and you might go through an M&A or going public process, part of that due diligence is sales tax, and so that can probably be a very arduous process, where you have to figure out, okay, we need to create some kind of escrow and that's taken out of the acquisition amount or that's a risk that we have to disclose as part of going public that we still need to file something called a VDA, a voluntary disclosure agreement, or do all of these different things, as part of going public, because we've neglected sales tax.

That's becoming less and less common, just given how prevalent sales tax is for businesses. Maybe a decade ago only a few businesses had to think about sales tax because they had a physical office in a state that taxed software, so they had to think about it. Whereas now, all these businesses have remote employees, so you have to think about it a lot earlier. So, we are seeing it becoming less and less common that you actually ignore the tax.

Turner Novak:

Interesting. What other changes are you following, just in the broader tax landscape right now?

Michelle Valentine:

This development's happening all the time. Vermont in the last few months just changed how it's thinking about taxing software companies, another recent, this one is less of a change but more of an annual sales tax related item people need to think about, is Chicago is a city that taxes software, but the state does not, this is quite unusual. Typically, cities follow the taxability of the state, and so that deadline just passed a few weeks ago now.

And so, those are the types of things that, if you're interested, Anrok, we have a mid-year tax update, and you can get all of your tax digest that you need as a founder in one place, this isn't something you should be thinking about on a monthly basis. But those are some of the developments that are happening all the time that impact software.

Turner Novak:

Interesting. Okay. Well, I guess that's a good plug. Do you guys have a newsletter or something that you put out every whatever period to say on top of it?

Michelle Valentine:

Yes, we have a newsletter that you can sign up at Anrok.com. We also have a Substack called Journal Entries, so if you're more interested in finance, I think this is more catered to CFOs, finance leaders, founders, if you're still owning the finance function, this could be interesting to you, where we interview a lot of CFOs and finance leaders to get a sense of what they would do. So, that's Journal Entries, Substack, Anrok.

Turner Novak:

Okay, cool. We'll throw a link to both of those in the show notes, if people are just dying to get more tax stuff.

So, one topic I wanted to get into, fundraising. You raised your seed round in 48 hours in 2020. I don't actually know the full story behind that, can you just tell me what happened?

Michelle Valentine:

It did go very, very quickly, I think there were a few reasons for this. One is just the context of the time where all of the fundraising pitches were over Zoom, it was the depths of COVID, and so I think the speed in which investors could move was very, very fast.

I think the second thing that really helped was that I used to be in VC, and so I had many pre-existing relationships with investors who knew how I worked, how I would think, and knew how careful I was with picking markets and picking teams. I think for a general kind of reflection that I think any founder can take away from this is your vision is important, but how you package yourself with that vision is even more important for the seed stage, where you're really the reason why investors are betting on you in the early days.

And so, taking the time to build that relationship before a fundraise can actually make your life so much easier. I do think it is tricky when you're a seed stage company, you might want to stay in stealth, and you don't want to spend too much time with investors, and be distracted.

The best advice I have about this is get warm introductions, or try to be involved with, let's say, the scout fund for example, before you start the company, or before you're being explicit about starting a company, to start building those touch points. Show up at their community events, if you're on open source, go to their open source events, and then when you fundraise, that's when you can share a little bit more about your vision, just given at the early stage, your idea is so important and it might change, you might not want to pitch the full idea before you start building the relationship.

So, that would be my best advice, is be really intentional about the initial meetings, and try to make it more about you and how you think and testing out that chemistry, because that chemistry is important going both ways as well, before you get too deep on the specific area, the specific problem, which could change depending on your business.

Turner Novak:

Yeah, that's one thing I found is that of all the, I don't know, successful pre-launch investments that I've made, I think zero, exactly zero, the product that ended up being what the business is, it's never been the same thing. It's always, some of them have been literally going consumer to B2B, and some of them are vague, general problem area, but completely different product. The thing that was in the pitch deck just doesn't even exist because no one wanted it. So, I can definitely see that.

The other interesting thing you hit on was the scout program, for somebody listening who doesn't know what that even means, can you just real quick explain what that is, and how to do that? How do I become a scout?

Michelle Valentine:

Many investors have a program in which they want to keep a pulse on the undiscovered universe of startups, and the best way to do it is often people at other startups are already working at companies that have an amazing talented team that might go and spin out a company, and so they really want an ear to the ground, and also teach you how to invest a little bit as well along the way.

So, the best way to get involved besides a warm intro is actually to do the job before you have the job, really come up with three to five different ideas that, hey, have you heard so-and-so is starting a company, or these are the three companies, or people, or even themes on my radar that I think is pretty exciting, happy to facilitate an intro, or chat with you more about it, I'm interested in your scout program, please consider me for your next batch. A lot of investors do this on a fund by fund basis, so there might be some time where they're inviting more scouts, each investor runs it a little bit differently.

Turner Novak:

Would you recommend, if that's something I'm interested in, just ask a friend who's a VC, or ask other founders if they know?

Michelle Valentine:

You can ask a friend, but making sure you roll that in with an insight, saying, hey, this is the value I can add, this is what I can bring, I think is quite important because a lot of people want a finite number of spots.

Turner Novak:

And it sounds like a big point of it is getting either insights on how markets or the world are changing or specifically deal flow. So, you'd probably want to say if you're trying to be a scout at some fund, you're just like, here's one or two or five founders that you should meet.

Michelle Valentine:

Exactly.

Turner Novak:

And then, how long had you been working on it? Had you started at all when you were at Airtable, is that when you first came across the problem, or an evolution over time of, I think you were at Index before Airtable?

Michelle Valentine:

We had been working on the product for a few months before we raised our seed round. For us, I think the big thing for a lot of the early stage rounds are more of a founder team bet than it is like a product or a specific marketplace bet. The thing that I'd encourage people to spend a lot of time on is actually building relationships with investors, because as much as you think you're selling your vision, you're selling your point of view on that vision rather than the vision itself.

So, one thing that really helped us and the speed and velocity of our seed round was the prior relationships that my co-founder and I had to investors that I really respect and was excited to work with.

Turner Novak:

How would you recommend somebody do that? Did you meet them when you were still at Airtable? Index? How long was the getting to know each other process?

Michelle Valentine:

My story is a little bit unique, in that I had the luxury of working at one of these investing firms, and so my job was to look at businesses with other people, talk about different businesses and then understand how you think.

One of the, I think, most underrated ways to actually get to know investor communities is join their scout programs, that could be a really great way to start getting to know multiple investors in those firms before you even decide to start a company. And so, an easy way to do this is to write up a quick email, and say, hey, these are the five pre-seed or seed companies I know that are amazing, and you should take a look at, and hey, by the way, I'd love to learn to invest more, if you have an opening in your scout program, I'd love to meet with the team.

And so, that's a way that you could start to build a relationship with the company before even starting your own company. If you're already at the point where, hey, I've started the company and I want to get to know investors, I would say time box when you want to meet investors, long before you want to raise, and say, hey, I'm happy to take a coffee this month, for one or two weeks, so that you don't distract yourself from building, but make it very clear, hey, we're not fundraising until next year. And just being very, very diligent and disciplined with how you spend your time, and know that even if it's a casual coffee, you'll be assessed on how you think, your excitement for the space.

Turner Novak:

Yeah. I know you were an investor before, what did you learn about fundraising from sitting on the other side of the table for a few years?

Michelle Valentine:

I would say, number one, is come in prepared. I think to the point about that there's no such thing as a casual coffee, I do think it's true. I do think you can take a coffee and be very clear you're not ready to share metrics, if you truly aren't fundraising, but I do think making sure that you are raising at the right time for your business is very important.

There are all these other factors that an investor might be feeling at that fund, in their personal life, to make them interested in your business right now. Just because you're getting emails doesn't mean they're excited to invest, right? They're excited to have the right to look at the business to invest.

And so, just making sure as a founder, you're not falling in love with the attention and you're rather making sure that you know the right time for your business to raise, and really sticking to that, I think that's the number one role of fundraising for the business.

Turner Novak:

So, yeah, it's a tricky thing to balance, of getting to know people but not actually be fundraising. It's not intuitive, I guess.

Michelle Valentine:

And honestly, if the chemistry is good, those conversations are easy. You learn so much from the investor, you might even share a lot of ways of about thinking about your broader market that they might be interested in. So, I would say really try to lean into that way of framing, I think there's a chance where you might end up feeling like you're getting interviewed and you're only talking about your business, make sure that you've done your research going into that meeting too, and ask the investor about their companies, and what they're seeing, and really learn from them in that meeting as well.

Turner Novak:

Yeah. What kind of things do you think were most helpful questions to ask to get to know people? What did you value when you were thinking about, okay, I'm selling them part of my business, what did you want to know about them before you did it?

Michelle Valentine:

There's the general piece about the invest in themselves, and what have they been interested in, why did they invest in so-and-so company that got invested recently? And then there's things that are more relevant to your specific business, where don't be shy to ask, like what is the biggest concern that you have about my business? Or what do you think the biggest obstacle will be for me in the next year?

Those are really interesting questions for you to think about, and you don't need to address those in that meeting, you can say, oh, that's really interesting, let me think about it. Or I have an intuition and this is why I think it's less relevant or important, but let me go explore that more because I think you could be right, I need to really sort that out before my fundraise next year.

Turner Novak:

So, then, coming from the investor side, now you started a company, do you see yourself as an investor still?

Michelle Valentine:

Anrok is my baby, it's like the number one thing I'm thinking about. Angel investing is very helpful to think about the broader landscape, to swap notes with other founders. I think for me it's a combination of sharing my learnings of being a few steps ahead, and codifying like, oh, I went through this, let me actually take the time to reflect and express this to another founder, so I'm actually learning from that experience.

The other thing that is useful to me is that actually we had a really amazing moment the other week, where a company I had angel invested in a few years ago now came to us and said, hey, I was talking to the finance team at this very incredible enterprise software company and they're going through tax issues, and they asked me for advice and I thought of you, and actually, can we hop on a call? Because I want to make sure that before I do this referral, you can actually help them.

And that was a really amazing moment, where it helps us be top of mind for them, so just as much as I hope to help these portfolio companies, there is something pretty powerful about that network, if you start angel investing early, and ultimately it is a very mutual relationship that can blossom into a long-term friendship.

Turner Novak:

Yeah, no, that's true, I generally try to, as much as I can, be as good of friends as you can with all the founders that you're investing in.

So, when you first started Anrok, the very first product, what did it do? What did it look like? The very first thing that you went to market with?

Michelle Valentine:

For us, we knew exactly what we were building. I think there's many ways to build a company, you can look for product market fit for a long time, you can pivot for a long time, and still land on something pretty amazing.

I think for us, we spent... In some ways, you could even say my VC days, of looking at businesses. I wasn't interested in starting a business then, but if I'd come across this problem when I was at Index, I probably would've paused and been like, oh, maybe I should go do this. Right? And so, for me it was a very intentional move, and so the first iteration of the product, we knew clearly what the pain points were, and how to build a product that addressed the needs of our ICP.

One unexpected thing I think when we were building is that we thought some people might want to file and remit on their own. So, going back to your question about remittance, we thought some software companies might want to control the filing process, they might want to control where they remit money to. And so, we had two modes in the initial product, we had Easy File, which we help and file and remit on our customer's behalf, and we had Hard File-

Turner Novak:

Was it actually?

Michelle Valentine:

Which was officially branded as Hard File. But no one actually wanted the manual hard file, surprise, surprise.

Turner Novak:

Wait, no one used it?

Michelle Valentine:

No one wanted to file themselves. Even though we built-

Turner Novak:

Zero people?

Michelle Valentine:

Yeah, no one wanted to file themselves. I think once in a while it might come up, where someone might say, oh, we already have a process, we're interested, and at this point we're like, hey, literally 99.9% of all of our customers are using us to file at this point, we are not going to do something like a special Snowflake just for you, if you want to use us, we're going to take it off your plate end to end, and usually they have a really great experience.

Turner Novak:

And so, everyone went to the Easy File, how robust of a product was that? Did you just have an Airtable that you fancied up, or what was the extent of the first product? And then working with customers, designing the first couple iterations, how did that go?

Michelle Valentine:

The thing that moving everyone to the Easy File process unlocked for us is actually a different way of billing a customer. We thought we might need to accept credit card payments, for example, for folks that wanted Hard File. And with credit card payments, it's actually pretty finicky, you need to make sure the credit card is updated, there are all these additional fees that credit cards charge as well on top of that, and for us, it adds friction to the process.

And by moving everyone to the Easy File automated remittance process, we could take out our fee as part of the remittance process. So, we would debit an ACH bank account, move the money to the different governments, and in that process take out the Anrok fee, and that's a much stickier and a much smoother experience for both parties. And so, that's something that was unexpected that allowed us to really make a win-win experience for both the customer and us, and actually get the job done.

Turner Novak:

Interesting. Okay, so just to make sure I get that right, with the Hard File, which no one ended up doing, you would've had to send separate invoices when they were doing a lot of stuff manually by themselves. With the Easy File, it was as you were escrowing and remitting the taxes, as things were happening, you were able to take a cut? That's probably good for cashflow for you as a business too, you're getting paid pretty quickly.

Michelle Valentine:

Well, we debit at the time of the return. So, could we earn interest on the one or two days that we hold the funds? Sure. But that's not our primary business model. I know some neobank types do that. And it really is more interesting at scale and also as interest rates rise, but maybe it's more attractive, but for us that isn't the primary driver, it really is that great customer experience.

Turner Novak:

Okay. So, do you remember how you got the first couple customers? How'd you get them to sign up for this new Easy File product?

Michelle Valentine:

You know you've hit a pain point when you're on stealth, it's not on your LinkedIn, and you're talking to real businesses about something pretty important, like tax compliance, and they're like, oh yeah, we've looked at solutions on the market, they don't work for the internet businesses. They don't work for my subscription businesses, I'm willing to take a bet on you. That's when you know you've hit on something pretty interesting.

So, before we came out of stealth, I think we had something like, almost like 10 or so development partners. To me, that was important to have that initial announcemen, actually have real customer names on there, I think that social proof does matter, and very grateful for our initial early customers. I'll give credits to my co-founder and CTO, he actually helped with our very, very first customer was someone he knew from his Dropbox days. So, using that network, using the network of folks you've walked with, is really important to say, hey, will you take a bet on a startup that has no public presence yet?

Turner Novak:

Yeah, so it was mostly... Was it everyone, just people that you had met over the past couple of years, and started working with solving the problem?

Michelle Valentine:

No, out of those 10 or so folks, only a handful. And the thing that made me really convinced about the problem was when we were exploring the space, the amount of people that responded to our called LinkedIn messages and email messages, and like, oh, I'm willing to talk to you, helped me gain confidence, oh my goodness, this is a really shared pain point.

Turner Novak:

Especially taxes and compliance, you can't really mess that up. They must have really, really needed the help if they were willing to trust you with that.

So, then, how did you initially then navigate acquiring more customers, starting to move up the stack and enterprise, what was kind of the next, I don't know, year or so, after you raised the seed round and really started going?

Michelle Valentine:

So, the early sales were really driven by myself and our COO, and really I think that was something like, I give him credit for the first 20 or so customers that we had. And when you get to the point where you realize, hey, this could be repeatable, let's see if other people can sell the products, specifically a full-time sales person.

If you're doing enterprise sales, I'd recommend hiring two AEs at the same time, we hired folks with two very different backgrounds, and not knowing which one would work out.

Turner Novak:

What were the two backgrounds?

Michelle Valentine:

So, one came from a large ERP business, where he sold to the finance persona before, and then the other persona was someone who hadn't sold to our ICP before, but had been at a startup, had been the first sales reps. And we had a hypothesis that both of these profiles could work really well, but we didn't know which. And you know you have product market fit when both walk out and they're both doing a great job.

And so, that's one way that you can both de-risk that hire, to figure out, okay, is this a product market fit problem? Is this the right sales persona fit problem? And ideally you do two at once so you don't lose too much time, and they can learn from each other as well.

Turner Novak:

And two very different backgrounds.

Michelle Valentine:

Very different backgrounds.

Turner Novak:

Okay. And then, when you scaled up, did you continue the two separate personas, and five of each, 10 of each, or were there new personas that you added?

Michelle Valentine:

For us, we started going into different segments of the business. So, today, we have a commercial SMB segment, we have a mid-market segment, which was the segment that we really started at, and then we have that enterprise segment as well, so, these are more six figure plus deals.

With the commercial segment, to me, what's pretty amazing about it is that it just shows how mainstream sales tax is now. Where, I didn't think we'd be selling to seed and series A businesses, but the number of businesses that say, hey, we're launching our product for the first time, I know we have customers in New York, or maybe I'm headquartered in New York, or Texas, and I know I need to think about that from day one, we're closing business at the very early stage, all the way to, hey, I'm preparing to go public, and my existing system isn't working for me, or hey, I'm only doing the US, but I know I need to go global, and my existing system has all these add-ons to go global, Anrok, can we talk?

So, today, the way that our sales has evolved is really thinking about our business's different segments. For us, the ICP doesn't evolve too much, we do sometimes sell to the finance, then the first finance hire, then ultimately the tax team, but what they care about is generally the same, just more and more sophisticated.

Other businesses that I've seen, as you grow into the enterprise, sometimes the selling motion is totally different, or the persona wants a totally different product, and that's where you as a founder need to really think ahead, and before you go into that segment, do I have a product that will win in the segment?

And one last thing on this is the concept of, hey, I found product market fit, is actually a simplification there. As you grow, you're constantly re-finding product market fit for every segment that you're selling into, and for some businesses it's more organic, and for other businesses you really need to totally change the product and really rethink your go-to-market strategy, if you go from selling to a sales or marketing team to the procurement team, they're going to care about very, very different things.

Turner Novak:

Interesting. So, when you moved up into enterprise sales, the six figure deals, maybe lessons learned/examples, how did you navigate that for the first time?

Michelle Valentine:

So, one thing that I'm very grateful for is early on we decided, hey, we're going to not only get SOC 2 compliant, we're going to get SOC 1 compliant. This is more important for businesses in the financial sector, where this is more about controls on your business, and so that's something that we did very early on.

And so as we've sold into the enterprise, customers come to us, it's like, oh, do you have SOCs sorted out? And we are able to say yes, and we have multiple years of operating history with that as well. And so, that's one thing that you can prepare today before you sell into the enterprise, and yes, it takes time and it takes effort, but it really does pay off.

Turner Novak:

So, just so I get it straight, SOC 1, is that Sarbanes-Oxley, like audit, financial control?

Michelle Valentine:

It's financial controls, it's like where is the information coming? From going to? Can people read, write, edit the transactions? That's probably not a no-go.

And then, SOC 2, there's type one and type two, ideally when you're selling into the enterprise, you've actually gone through the time period in which you have a type two certification.

Turner Novak:

Interesting. So, it seems like, and you were already... Were you doing enterprise deals from the beginning, or did you do a trial period? How did you convince people to start... Especially, you didn't have a public facing brand really yet at the time, in the early days?

Michelle Valentine:

We only started moving into the enterprise after we launched our global product, and that was about two and a half years ago. And the main reason is enterprise businesses, you might start off focusing on US sales, where maybe 60, 70% of your sales are in the US, but eventually as you grow, that 30 or 40% becomes meaningful, and you will want to care about tax globally. And so, it was only after we had that, had we really started to pursue enterprise businesses, and they also came to us because they did see, hey, you have the best in class product for our global needs.

Turner Novak:

Reflecting back on, I don't know the journey so far, you've raised a seed round, series A, series B, state of the business, I don't know how big it is specifically today, anything you want to share. What have you just learned in terms of fundraising, specifically, over the past couple of years?

Michelle Valentine:

The early seed round, if you do it right, it can really set you up for success and momentum in series A and series B fundraisers. Specifically, the few things that I would think about is, one, making sure that you're working with folks that can help you attract the best investors for your A.

And so, the quality of your investors at the seed round does matter, both in terms of their reputation as a fund, but also the individuals. Like if you bring in angels, if you bring in Turner, he has a network, can he introduce you to the relevant investors for your industry segment?

Turner Novak:

Okay, that makes sense. And then, I think shifting gears a little bit, if you go on your LinkedIn, you've written a little bit publicly about a lot of stuff, one of the topics I thought was really interesting was, you have this kind of three part series on thinking about how large language models are going to impact, not just investing, building different companies, different parts of the economy.

Why is it so hard to predict what's going to happen?

Michelle Valentine:

So, maybe starting with my journey with AI. I moved into venture capital, I remember, I started in 2017, so I got the offer in 2016, and one of the things that I had to get up to speed on very quickly was AI, that was one of my focuses. And I remember before starting, I spent all this time reading Nick Bostrom's Superintelligence book, which I highly recommend to anyone interested in the space, it's been almost a decade since, but I think it's aged pretty well. And I did a few other courses, like a machine learning course back in the day, as a way to prep.

And so, I've been looking at the space for a long time, and I think progress has gone faster than people expected, I think a big shift from then to now is that scaling laws are a real thing, and the more compute you put in to model, the more competent and capable those models are. And that scaling law or relationship was pretty new, that was not something most people knew, or most researchers would've believed in 2016, I think a few people did, but that was really a new phenomenon.

Turner Novak:

Wait, so why would you not believe it?

Michelle Valentine:

Well, back then I think people were focused much more on algorithmic improvements, I think people were focused on more traditional machine learning techniques, not, hey, let's throw a bunch of money in compute and train a model for a long time, I think people took a much more sophisticated approach. A lot of, I think researchers thought it was a dumb approach, like it can't possibly be based on things that we already know, that must be a new way of building these things. And also, there's also transformer architecture that hadn't been really codified yet.

So, there were a few things that needed to happen before you could train big language models, but the main developments was the Attention Is All You Need paper, and then in 2020, the Scaling Laws paper by Sam McCandlish really codified that relationship between compute and scaling.

So, maybe that takes us to your question of what makes it hard for people to predict progress. And I would say actually, if you look at the Scaling Laws paper, people have really predicted progress in the last few years, very, very well. And it really is our human intuition that makes it difficult to think in those exponentials, to really believe, what does it look like when a model goes from being able to sum one or two digit numbers. Which really was like GPT II and III, to really do complicated, Olympiad math, which is more like GPT-IV or Claude III.

And so, that type of exponential thinking is very unusual, we often don't see things like that in our lifetime, and just pausing to think, oh, four years ago if you asked me could I work with Claude in this way on my day-to-day work, and realize, no, I couldn't even have imagined that, that should update you on how much confidence you should have in your own intuition.

Turner Novak:

Okay, so you said you work with Claude every day, what do you use it for?

Michelle Valentine:

So many things. Everything from helping think through how to look at marketing data, I'm not a marketer by training, we have paid channels, we have organic channels, like how do I interpret this data? I use Claude to think through just writing a PRD. I write fewer PRDs, but I often think about, okay, I'm reviewing something for my team, what could I have missed? I would walk with Claude on that. So, so many things.

Turner Novak:

Interesting. Okay, so you use it as, if you're typing something, you run it through Claude almost?

Michelle Valentine:

Very often, even, let's say if I'm dealing with a high stakes negotiation, or a heated discussion, I think it's useful to get Claude's perspective, and just say, hey, can you proofread this? Am I escalating a situation unnecessarily? And helping be your sounding board, Claude is very good at that.

A feature that a lot of the team has started using is something called the knowledge base, or knowledge projects, within Claude. I don't know if it's available on individual plans, but it's available on, we use the Enterprise Plan, and we put, let's say, a very common use case is generating content.

So, we put a lot of existing content, blog posts, we have a voice and tone guide that someone on the team wrote, and we put it into a knowledge project, and then we're using that to train Claude in a way, you don't need to fine tune, it's part of this much, much larger prompt, now that you have a knowledge project, and then you input, hey, I want to write an outline on this topic, based on prior outlines, the tax knowledge that you know, how should we think about writing this outline?

Turner Novak:

So, the knowledge project is almost like a stored style guide in a way, for the use of an LLM or the output?

Michelle Valentine:

Yes, that's one way to think about it. You could also instruct the model to only use information from the knowledge project, for example, if you don't want it to use knowledge from elsewhere. And I think as models get smarter, they're less likely to hallucinate, but if you want to make sure that you're only using information from a certain selection of sources, a knowledge project is good for that as well.

Turner Novak:

So, you could say, you can take the entire Anrok, like any piece of company information you've ever produced, throw it in there, and then that way it'll never hallucinate and make anything up that's not actually true, or that Anrok's ever put out?

Michelle Valentine:

You could, we don't do that.

Turner Novak:

Oh, okay. Interesting. I'll have to try it out. Because we were talking before we started recording that I've been struggling on the marketing content of, specifically related to the podcast, it's never quite good enough. Maybe I'll have to check out the knowledge project from Claude.

So, how do you personally predict how market sizes are going to change with AI? I think this was maybe part two that you wrote, and we'll throw out links to all these in the show notes for people. But how do you personally predict how to size a new market in the age of AI?

Michelle Valentine:

I probably even think about removing that as a factor from the question, and think about how do you even predict sizes of markets in general. I think there's a lot of evidence that points to us getting it wrong all the time.

The story I love is Figma, with Dylan Field, and people would ask him, how many designers exist out there? Who can you sell to? And at the time, not many people had designers on their LinkedIn profile, and use that as a title, but a lot of people were doing that work. And the pace in which you are hiring designers as a ratio to engineering was increasing really quickly. And so, there were a few indications like that that gave Dylan the foresight and the confidence, but could you point to a very clear signal? Back then you couldn't. And now, looking back, people really underestimated Figma's potential market size.

I think Canva is also a very interesting one. Where, Canva is a giant, giant market, people don't realize how truly big the... I would say it's almost software for everyone. Every business needs to really build digital assets, and have a digital presence, and really use tools like Figma and Canva.

So, I'd first express that we get it wrong all the time, whether or not we're in an AI world. The stat that I find pretty helpful is, and I think maybe relevant to a lot of the listeners here, where they're building in software as well, is how fast the software economy has historically grown. So, if you take any software ETF, it compounds, it's like about 19% CAGR. Which, over the last decade, that comes to a 6x growth in a decade. Which is pretty wild.

Turner Novak:

So, that's your rough baseline assumption, is this will probably 6x over the next decade, if it's software?

Michelle Valentine:

6x, yeah. And it's hard to imagine, for me, that the pace of change is going to be any slower, if anything is going to be a lot faster than the last decade, when we all have virtual AI assistants, helping us code, augmenting our producticity.

Turner Novak:

Yeah, it sounds like you're also saying that speed of adoption or speed of change is almost just as important as the actual size of the market too.

Michelle Valentine:

Yes. You want to look at markets where there's a rising tide. And it's growing, and the size of the pie is growing, and then you also want to look at the speed at which you can win the size of the pie. And so, markets where there's a lot of greenfield opportunity are particularly interesting because you don't need to rip and replace legacy solutions in order to win the market.

So, these are frameworks that I think a lot of investors typically use when they look at a market, and that's why I think a lot of investors don't love the CRM market, even though the CRM market is really, really big, because the speed to win the market is already a really big established incumbent, with a big ecosystem, it's much harder to have that speed to win the market, even though the pie is growing.

Turner Novak:

Yeah. Speaking of that, I think one of my favorite ongoing jokes or memes on the internet is, what does Salesforce even do? I think it's a, I don't know what the market cap is today, a couple hundred billion. And I feel like every day I see a tweet or something, where someone's like, what does Salesforce even do?

It's like DocuSign. I don't know if anyone listening seen those jokes where it's, DocuSign has, I don't know, 6,000 employees, and it's just signing a PDF, it's like another one of those things.

So, then, if you were an investor right now, you do some angel investing, or if you were in an investor's seat, how would you think about investing in AI? What would you be paying the most attention to? What would you actually want to be investing in?

Michelle Valentine:

If I think about what LLMs are good at, and I'm looking at investing in LLM powered companies, you could say, oh, I'm also interested in foundation models, that's one layer, but let's keep this discussion on what is cool to build.

Turner Novak:

So, it's just broad software that is going to incorporate AI.

Michelle Valentine:

Broad software. And if you squint and look at LLMs and what they're good at, they're really good at two things. One is generating content, and one is synthesizing a lot of data.

And so, the best businesses that can take advantage of AI have a lot of proprietary data to synthesize, that you can then generate really valuable content. And that flywheel, if you can find businesses that have that proprietary data and then can generate disproportionately useful content, those are the most, I think, interesting businesses that will have a, I would say, some kind of moat in the AI world. The extent of that moat, is it impenetrable? Probably not, but I think those businesses are most interesting.

Turner Novak:

What would be an example of that? I think I maybe can maybe think of somethingโ€ฆ but I'm curious what would that look like in practicality? Any examples?

Michelle Valentine:

So, I do think tax is pretty interesting, where we have interesting revenue data that a company has across their self-serve payments, their invoicing, we all have that in Anrok, and we can surface pretty interesting insights on that. I think an example outside of Anrok is I think legal AI is pretty interesting, and why people are interested in that, where you have proprietary data and you can synthesize really useful content and insights from that. Those are the two that I would pose, there's so many more, it's a really exciting time to build.

Turner Novak:

So, the insights, is that within the product, or more from a marketing perspective? So, you constantly have that engine going?

Michelle Valentine:

More value to the user. So, in the legal case, let's say if you are ironclad, and you have all of their legal documents of all of the contracts you've ever signed, and someone sends you a new contract, and you're like, well, what stuff should I care about? You can synthesize the data from your existing contracts, and be able to say, hey, based on historical comments and activity in the ironclad platform... This is me totally guessing here, but its what they could be doing.

But this is the insight of what could be interesting and what the initial red lines might look like for this contract, hey, in-house lawyer, general counsel, what do you think?

Turner Novak:

I can see that, yeah. And then, especially for Anrok, it's like, I'm assuming you probably can create a bunch of reports that are related on spend shifting or interesting trends across our own business also based on the sales tax?

Michelle Valentine:

Yeah. Already, today, I think a lot of customers say, hey, Anrok, your finance data is valuable, could I use your data elsewhere? And so, that's something that we're hearing from customers already today.

Turner Novak:

Interesting. So, a little bit different question, but let's say... You talked about how understanding how AI was evolving, how it was changing, how have you personally found you update your thinking around something you used to think was true, and as the market changes, the landscape changes, what's been your process of revisiting things, and it's like, oh, maybe this is actually different than I thought, how do you do it?

Michelle Valentine:

Personally, it's building almost like a quantified intuition of how I feel about something, and it's not transferable across people, if I say, hey, Turner, I'm 60% confident that we should do this podcast, and you're, 60%, what does that mean?

Turner Novak:

That's pretty low. That's a D-.

Michelle Valentine:

Is that high or low? It's probably pretty high for me, to say, oh, let's chat for two hours or something like that.

And so, the most important thing is you know what that means when you say, oh, I'm 10% sure about this thing. What does that mean to you? Does that mean it's worth your time to explore? Should you listen to that signal? Should you not listen to that signal?

And so, that's something that I've done over time, when I think looking at a lot of businesses in VC helped me hone this, I was like, okay, how much confidence do you have that this is a good market, good team, good business? Or actually there's something that I can't quite put my finger to, but I'm 80% confident this isn't a fit, let me listen to that and figure out why. I think honing that over time is really helpful.

What we do internally at Anrok to try to communicate that to other people is to have a much more generalized way to communicate this in a document, for example. So, we can say epistemic confidence is low, I'm proposing a solution based on an insight, I don't know if this is the right direction, but I think it's worth socializing it to the group to see what other people think.

And by saying it's low, it helps preview to other people how much time they should spend on it, or how seriously they should take the proposal. Whereas, if someone comes in to say, hey, epistemic confidence is high, I'll spend much more time looking into that, and if I disagree with something, weโ€™ll say, okay, actually let's talk live, right? I'm not going to dismiss this because you think it's high and I'm skeptical, let's actually talk it through.

And so, I think that confidence level is very helpful in just moving faster as a team, to know, okay, this is a small experiment, and all of us feel like it's low, but it could be worth doing because it's a cheap experiment, or hey, it's low and so we shouldn't spend time on it. Just seeing that on a doc helps how much time you should invest in reading it or how seriously you should take it.

Turner Novak:

Yeah. So, you come to me with a pretty crazy idea and you're like, I don't know, I'm like 5% on this, you're like, yep, I don't think it's worth it. Let's just move past it. Or if you're 90%, I might be like, all right, let's talk about it a little bit further.

Michelle Valentine:

Or maybe you're 90% and you really trust the person in the domain, and you might say, okay, I've skimmed it, I don't need to be involved, that could be another outcome as well. Whereas, if they say, hey, I'm an expert, but I'm only medium confident, I might need some help, that's another good indication that can come from that as well.

Turner Novak:

Okay. This is a little bit more of a niche question, but it's on the topic of writing and putting things down. I've heard you mentioned before, you're more of a written communicator, but now you're on a podcast.

What advice would you give to a founder who's, their starting to think maybe I should do some podcasts, how did you get yourself in that mindset and get ready to do it? If you're more of a writer.

Michelle Valentine:

For a lot of founder jobs to be done, you're getting out of your comfort zone all the time, and you're really multitasking, you are doing so many different types of things day to day, it's a lot of context switching, and having the attitude that, hey, it's a fun challenge, let me give it a go, and let me use this as a learning opportunity, helps me. I think it depends on what really motivates you as an individual. For me, it's curiosity, learning, self-actualization is really fun.

And so, to me, when you asked to chat, I'm like, oh, this could be a fun learning experience.

Turner Novak:

Yeah, that's fair. So, question maybe more internally about Anrok. Do you have a favorite interview question, maybe something other people could learn from, or just favorite go-to interview question when you're interviewing people?

Michelle Valentine:

A few different things. I think if I'm coming in late in an interview process, and I want to get the lay of the land, but not go through their entire resume, and dive right in, I like to open with, what are the three things you're responsible, today in your role? And so, I can quickly figure out, okay, can they communicate concisely? How relevant is their existing experience? Should I focus the interview on their existing experience or their ability to adapt their experience if it's quite different?

The thing that I like to ask to understand an individual a little bit more is, what are you uniquely good at compared to your peers in that role? So, if you're a engineering manager or a sales manager. And it gives you an indication of a few different things, one is how they like to be perceived amongst other people, and two, it gives you some indication of them in a dynamic with other people and how they could operate on a team.

Turner Novak:

It's interesting, it's actually, so the episode's going to come out right before this one, he sits down for two hours and goes line by line through their resume, each, every single role they've done, asking every single thing they do, I forget the name of it.

Michelle Valentine:

It's a topgrading interview and I highly recommend it.

Turner Novak:

Yep. Okay. That's what it's called, topgrading. And he lives by, he's like, that's the process, is you sit down for two hours, you topgrade, and then they make a decision.

Michelle Valentine:

We do that for every role, and typically it's a hiring manager that does that. So, the hiring manager knows the breadth of their experience, and I think what I like about it is that it gives you a jumping off point for strategic questions.

So, they might say, oh, my proudest accomplishment is X, and then you can follow up with, oh, interesting, how did you notice that being the problem to solve? Or why was this the highest priority issue? What were the trade-offs? And then, you can go into more of the strategic thinking, but you try to keep it to the same broad set of, I think, five questions. And then, you want to block out a full hour so you have time to go through slight tangents, especially if they're a more senior candidate, and you want to understand how they think about strategy.

Turner Novak:

Interesting. Okay. So, last question, I'm curious if there's a certain business, founder, another company, it can be maybe just like a CEO of a business, anyone throughout history or even recent that you've just always really looked up to that you feel like you've learned a lot from?

Michelle Valentine:

Scott Cook, Intuit. He's one of the founders there, or he is the founder at Intuit. And what's been pretty amazing I think is, one, just generally the business has gone multi product, and it's a multi-hundred billion dollar market cap business, and he's still involved.

So, he scaled from a founder, to a public company CEO, to still going into walk every day, and really, from the outside, it seems like he's really energized and loving it and is still involved, and that type of scale or ability to scale yourself is, I think, pretty unique. And he does it in a way where he's often the most accomplished person in any room, but he will make time for you, and he'll get to know you, and it's pretty amazing to watch.

Turner Novak:

Interesting. When was Intuit founded, was it the 80s?

Michelle Valentine:

Something like that. I actually don't know off the top of my head.

Turner Novak:

Interesting. It's definitely an older company, pushing 30, 40 years old, older than me, I would assume.

Michelle Valentine:

And QuickBooks is still very, very prevalent today.

Turner Novak:

Yeah, that's true. And then, the thing that surprised me the most too is you go to their investor relations page and look at some of their decks that they have, they've laid out the vision for the company, they have interesting tentacles and distribution across hundreds of millions of small businesses. I don't know what the customer number is, but it's kind of insane when you think of, okay, we started with accounting software, but that's led us into payments, like credit products to the customers, you can lend money to them, invoice factoring, HR and payroll... They're probably already doing this.

So, it's interesting, how big could that business be, ultimately? It's probably one of the most scaled SMB products globally. Maybe Google Ads is a bigger one, or I don't know. But yeah, it's a pretty incredible company.

Awesome. Well, this has been a lot of fun, thanks for coming on.

Michelle Valentine:

Thanks for having me.


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