He tried to return $200K to investors 30 days in—then exited to Microsoft 5 years later. | Alex Sherman, Founder of Bluefish AI

Alex Sherman (00:00:00):
We raised a bunch of money from angels. I think we raised like $200,000 and basically within 30 days. We were like, this is the wrong idea, the wrong execution. This will never work. I called all of our angel investors and I was like, I'm giving it all back. Don't send us the money. It doesn't stop at that initial product market fit. Because once you find gold in the jungle, everyone finds out about it and everyone comes to kill you. We felt like we've got the beginnings of a thing, but now we need to protect it. Now we need to put more sort of fuel in the fire. We need to scale this up. we need to build a moat around the castle, we need to go. That is another trap is that as second time founders, there is no shortage of capital that is chasing you and if you're not discerning, the capital won't be. One of our first principles as a company was that we didn't want to partner with anybody that we didn't trust, that we didn't actually want to go for this ride with and we've been really fortunate in that we have fantastic investors. I would raise from them again in a heartbeat.

Previous Guests (00:00:59):
That's product market fit. Product market fit. Product market fit. I called it the product market fit question. Product market fit. Product market fit. Product market fit. Product market fit. I mean, the name of the show is product market fit.

Pablo Srugo (00:01:11):
Do you think the product market fit show, has product market fit? Because if you do, then there's something you just have to do. You have to take out your phone. You have to leave the show five stars. It lets us reach more founders and it lets us get better guests. Thank you. Alex, welcome to the show, man.

Alex Sherman (00:01:27):
Thank you for having me.

Pablo Srugo (00:01:28):
You and your founders have been in the MarTech world for a while now. I mean, Bluefish, which is the company you're running today. Just raised $20 million Series A from NEA. Your last company was also MarTech, sold to Microsoft. Your founder's last company was sold to Facebook. So, impressive track record that you're building. Let's kind of go through all of it. I mean, you know, we'll talk about obviously Bluefish. What you're doing today, but everything I assume is going to feed into that. Especially because, you know, multi-time founder and also in the same space. So maybe let's start at your previous company. What was that and when and how did that start?

Alex Sherman (00:01:58):
I'll take you back to the beginning, because it was messy. So I graduated college in 2008 and my plan at the time was to go work in some white-collar profession. Go be a management consultant. My dream was to go work at a McKinsey or Bain.

Pablo Srugo (00:02:14):
What a sad dream, dude.

Alex Sherman (00:02:15):
It was terrible. So 2008 happens, financial crisis and all of a sudden there were none of those corporate jobs. Didn't exist, so I'm like unemployed, totally broke and my friend's like, well, I'm working at this startup. Why don't you come work with me? I was like, what is a startup? What does that even mean?

Pablo Srugo (00:02:32):
Yeah, it was different back then. It was not cool to be in startup world.

Alex Sherman  (00:02:35):
Yeah, totally different. Like Circa 2008, if you're at a cocktail party and everyone's doing the thing like, what do you do? And you're the guy who's like, oh, I work at a startup. Everyone looks at you like, how can I help? Something has gone really terribly wrong.

Pablo Srugo (00:02:48):
Did you eat in the last few days? Do you need anything?

Alex Sherman (00:02:50):
Right, right, so I joined this company. They had just raised their Series A. I was employee like 20 or something and they were basically building like a MarTech company. This is like, programmatic media was in its earliest days and I immediately fell in love with this thing. It was this, true meritocracy. it was us against the world. We're in this really tiny cottage industry that nobody understood.

Pablo Srugo (00:03:13):
What was the company called?

Alex Sherman (00:03:14):
It's called MediaMath.

Pablo Srugo (00:03:16):
Okay.

Alex Sherman (00:03:16):
We'd go pitch these agencies and brands, and it would be you in the waiting room. It would be Google, you know, Yahoo at the time and then us. And everyone's like, who are these guys. And I just loved it, because we felt like pirates. And so that company grew really quickly. And so I was there for about three years, and primarily working as a product manager. And I was like, startups are it. This is the coolest thing ever, I love it, building products. I remember at that time it really did feel like a magic trick. Because you could go from a PowerPoint presentation to a commercially viable MVP, to customers, to fundraise. That felt like magic in 2008. It was just unlike anything else I'd experienced.

Pablo Srugo (00:03:54):
And your background wasn't in design or anything related to product, right? You just kind of learned it all on the job, yeah.

Alex Sherman (00:03:59):
No, I was a history major. So like, ask me about European revolutions.

Pablo Srugo (00:04:03):
I mean, you did say Circa 2008. So already that was like, okay, interesting.

Alex Sherman (00:04:06):
Yes, so after a few years at that company. I was like, I got to do this myself. I had someone I'd worked with on the engineering team at that company. We left and we started a company that was originally called Spotfront and the idea was to basically take the technology that we had been building at that previous company for the Fortune 500, and apply it to SMBs. We were going to democratize this new tech. We raised a bunch of money from angels, you know, who are executives that had worked with us in the past. They believed in us. We raised from like family and friends as the classic. I think we raised like $200K. It was more money than I had seen in my life.

Pablo Srugo (00:04:40):
And this was when?

Alex Sherman (00:04:41):
This was 2015.

Pablo Srugo (00:04:42):
Okay.

Alex Sherman (00:04:44):
And basically within thirty days we were like, oh, this is completely wrong. This is the wrong idea, the wrong execution, this will never work and I will never forget this. I called all of our angel investors, who had sort of soft-circled money for this angel raise and I was like, I'm giving it all back. Don't send us the money, because we're wrong and these were all professional angels that had written hundreds of checks like this. And they were like, no, no, no, no, that's not how this works. You're taking the money, go figure out what to do with it. We're betting on you guys. We're not betting on this sort of D1 idea, go figure it out and that was sort of the starting point of what became PromoteIQ. That we ended up selling to Microsoft, you know, ten years later. But basically we went through kind of the classic grind of moving through these iterative stages of product development. Where we would build a thing go take it to sort of our customers. They'd say, okay, ninety percent of what you're pitching us is wrong. But there's this little kernel of something here that's interesting.

Pablo Srugo (00:05:42):
What were some of those first ideas and then the little slivers that made it on to the next step, and the next step?

Alex Sherman (00:05:46):
So the first company was, hey, let's build this sort of programmatic media platform for SMB. So basically an ad tech platform that helps mom and pop shops advertise on the Internet with the same technology that like Pepsi and American Express use. I wouldn't wish SMB MarTech on my worst enemies. Unit economics make no sense. It's just a really tough space and props to companies like HubSpot that figured it out. But anyway, so I think pretty quickly we realized, hey, this isn't the right thing and so we went to a bunch of corporates. And we were like, hey, we built this thing. Is there anything in here that sort of resonates with you? And we ended up talking to a lot of large corporates that served middle markets. So, for example, our first customer was JPMorgan Chase. They had their Chase Inc. credit card that was marketed to SMBs and they're like, well, we're really all about offering additional perks and services to our SMB customers. Why don't you guys build us this kind of white label marketing thing that helps us provide marketing services to those SMBs? And so we're like, okay, cool. So we did that for them and then we took what we built for JPMorgan. We went to all the other banks and all these other SMB firms. We're like, hey, it's this platform that helps you offer marketing services and every time we did an iteration like that. The feedback would be like, here's all the stuff that doesn't resonate that we're not interested in. But here's the thing that is really compelling. Go make more stuff like this. So we ended up building kind of this like middleware ad tech platform. That sort of could be white labeled and plugged into a variety of different use cases. And we did that for about two years, it made money, we had a bunch of customers.

Pablo Srugo (00:07:18):
What did it do exactly?

Alex Sherman (00:07:19):
It was a marketing automation platform. You could take a interface like the JPMorgan Chase, small business interface. They could put in a really limited number of marketing parameters like I run a pizza shop in New York City and here's the sort of customers that we work with really finite parameters. We would take those inputs and we would sort of multiply it out into a really sophisticated targeted programmatic marketing campaign. That was engaging really tailored targeted customer segments across, Facebook, across Google, across the Internet. Today, this is how everybody does it, but back in 2015. This was something that was totally inaccessible to SMBs.

Pablo Srugo (00:07:55):
And by the way, who creates the ad sets and all that stuff?

Alex Sherman (00:07:58):
We did all of that. Yeah, so we automated everything. So business would say, like, we're the pizza shop, here's our customers, you know, we can spend 100 bucks a month and we would turn that into tens of thousands of lines of code. And a campaign with creatives, and targeting, and analytics, and reporting. It was one of those businesses that it worked, but it wasn't a venture business. It wasn't growing quickly and so we were generating cash flow. We were really broke, you know, we could like pay rent barely with this and so it was me, and this co-founder, and you know a scrappy team of two or three other people. And I remember, we had for a year and a half, two months of runway in the bank the entire time.

Pablo Srugo (00:08:35):
How old are you, by the way at this point?

Alex Sherman (00:08:37):
I'm twenty-five.

Pablo Srugo (00:08:37):
Okay, you can play that game, sort of.

Alex Sherman (00:08:39):
Yeah, but keep in mind. At this point, financial crisis is over and so now all of my friends have these great corporate jobs. And so they're pulling in like six figures. I'm sort of like, man, I've made some horrible choices in my life.

Pablo Srugo (00:08:52):
Very questionable, yes.

Alex Sherman (00:08:53):
Yeah, my family is like, oh man, where are those tuition dollars going? You know, so I've paid myself, I don't know, $30,000 a year or something like that. And my co-founder was like, hey, like this is a good idea, right? That we should keep doing this, are you sure? And of course we weren't sure. So we do that for a few years. I remember one day someone who was an investor connected us to a retailer and the retailer said, hey, we've been thinking we have this massive customer base. We've got all these customers visiting our website every single day searching for products. So we've got all this data on our customers and we work with a thousand or so brands. And we sell their products on our website. Why can't we start to monetize that data and have our own ad business? And you guys seem to be this ad tech middleware thing. You guys clearly need, more income and, more customers. Why don't you take your thing and make it work for us? Help us build sort of a retail media program and retail media didn't exist at the time. It was this sort of novel idea, but we're like, okay, let's try it. So we did that.

Pablo Srugo (00:09:50):
Maybe walk me through that. What exactly does that look like? I mean, I get the general idea, but specifically.

Alex Sherman (00:09:54):
The general idea is this, retailers operate on super low gross margins. Like, most mass market multi-brand retailer is like sub 5five percent gross margins. In those days, every large retailer was really struggling with this transition from brick and mortar into e-commerce, and Amazon was clearly in the lead. And Amazon basically kept investing all of their profits into better e-commerce experiences, lower price, and what Amazon was starting to do was fund that with ad revenue. So if you went to Amazon, you search for a product, you'd get these sponsored listings and it was basically all profit. It was an ultra high margin business. So Amazon would take profits from their ad business, which even in the early days was like a multi hundred million dollar business and very quickly became a multi billion dollar business. They would take those profits and they would use it to invest in better you know warehouse automation, and lower prices, and all that. So in those days the large retailers would sort of look to Amazon and say, okay, if we want to compete with Amazon on low prices, and on e-commerce experience we need to fund that. And so for retailers launching an ad business became this obvious play. Because they already had the customer base. They already had the advertisers, right? Because they sold products on behalf of these brands, and they already had the ad space. Because they already had these e-commerce environments and so what PromoteIQ did was basically provided them with a software solution. That enabled them to launch an ad business, and so it had a buy side interface. Where a brand could log in, could run a campaign. There was a retailer facing interface, where they could set up their ad program, design ad units, figure out what prices to charge and there was a bidding system. Like, a back end system that basically connected the dots and whenever a customer would go to Home Depot's website or Kroger's website, or any large retailer's website. It would run an auction, in the same way that Google runs an auction. When you go to their search results page and brands would bid in real time, to put their products in front of those shoppers. And one by one, every large retailer in the US, launched an ad business. It became like the table stakes thing that you had to do, as a retailer in order to monetize and grow. So that was what became PromoteIQ and I think at our peak, we were powering many of the largest retail media programs in the US. A bunch of them in Europe. Yeah, that was the last business.

Pablo Srugo (00:12:09):
When did that happen? That pivot or at least that focus on the retail media?

Alex Sherman (00:12:13):
Look, I think two things are true. I think that, it is really palpable as a founder. Especially as an enterprise founder. When the velocity of product market fit, shifts in your business. Look, if you are an enterprise SaaS founder in the early days, pre-product market fit. You're doing all the selling, so you are talking to customers all day long and you feel it when things are working. It's like the current of a river reversing direction. One day you're sort of going against the current and all of a sudden the next day the current switches, and everything is that much easier. So you feel it, unless you're not paying attention, like you really feel it. You go from all no's to all yes's in a hurry. But I think the secret behind that, is that there are a thousand little steps that you need to take in order to get there and so for us. The first step that we took was just failing. Quickly, like immediately, we went from utter confidence in our idea, to we have no idea, we're at zero. We just need to make money and that foundation served as a really critical starting point for us to begin that iterative journey. Because in the beginning, you're like, oh, I have an idea, you fall in love with that idea. But if you're wrong in the beginning, there's nothing to fall in love with. You're just like, what works? What is someone going to buy? What's going to make sense? What's going to resonate with a customer? And as you start to kind of go from, okay, can we get one customer to buy, to can we get ten, to can we get a hundred? It is this forcing function for you to really start to think about what are the drivers of each conversion? When a Fortune 500 customer says yes, they don't say yes by accident. There are all of these elements that need to be true and so have you ever done a thousand piece puzzle and you just dump it onto a table, and you're looking at this pile of puzzle pieces?

Pablo Srugo (00:13:51):
Yes.

Alex Sherman (00:13:51):
You start by kind of framing it up. Like let's find the borders, the corners. I think product market fit is like that and you have these inflection points where, okay, you have the frame. Now you're starting to fill in the pieces in between, but it's still a thousand piece puzzle.

Pablo Srugo (00:14:05):
I agree, but it's interesting. Actually, that you say that just going on a tangent. It's not totally a zero to one event. It is kind of something that you build towards, but it isn't in the way that you might imagine, Especially as a first time founder, which often is about, I have a potential customer, I have a product and you get into this. You know, you add a feature and then another feature, which is a very common mistake, right? And then you keep adding features and you're like, at some point we'll get there. That's actually not how it happens and even in your description of it, isn't how it happens. You started by building some product and then ultimately there was this outside event that put you in front of a completely different set of customer. That ended up being the thing that really mattered and then, yeah, from there, I'm sure there was an iterative thing that made it even better over time. But there are these step functions like, yes, it is a gradient, but you won't get there just in small steps. The small steps matter, but then there's this big step that takes you. You have to be willing to kind of go elsewhere until you have that zero to one moment. That inflection point that you mentioned.

Alex Sherman (00:15:01):
Totally, I think that's spot on. I tend to believe that answers tend to be complicated. That is to say there are a number of factors in most. What appears to be on the surface a clear cut answer and so for PromoteIQ there was this combination of we had spent five years building really sophisticated ad tech middleware. In order to be able to have the opportunity to move when we saw this addressable market.

Pablo Srugo (00:15:23):
And this was what? From like 2011 to 16' sort of thing?

Alex Sherman (00:15:26):
Yeah, something like that. We also, we needed to deeply understand the backend technology. In order to apply that backend technology to a totally new category. We also needed to be scrappy enough that we were comfortable sort of setting a legacy business aside and taking a risk, and pursuing something new. If you're a mature company, if you're a mature business, that's really hard to do and there's a timing component, right? So we really needed to be building that exact platform in that exact moment when every large retailer had seen what Amazon was doing and wanting to build sort of their version of it. So there's a lot that kind of went into that inflection point. And then, of course, after that, it doesn't stop at that initial product market fit. Because, you know, once you find gold in the jungle, everyone finds out about it and everyone comes to kill you, right? And so as soon as you have a thing that works, you have to defend that thing, you have to scale that thing, you have to nurture that thing. And I don't think that in that moment we really felt like, oh, well, we have product market fit. Like job done, we're on the other side of this great chasm. We felt like we've got the beginnings of a thing, but now we need to protect it. Now we need to put more sort of fuel in the fire, we need to scale this up, we need to build a moat around the castle, we need to go and so we went from being, in that moment, very undercapitalized to like raising money really quickly.

Pablo Srugo (00:16:48):
How much did you raise?

Alex Sherman (00:16:49):
I think we went from having raised like $2 million to raising somewhere between ten  and fifteen. So we took that first big kind of slug of capital and so the dynamic of the business changes, and it feels uncomfortable at the time. Because again you don't know that you have real decisive product market fit. You see all the signals around you, but in that moment it feels like a risk to really step on the gas. It feels like nothing but risk and I'm glad we did at that time. Because basically a year after, our category exploded and I think overnight we had three or four big competitors. Not to mention legacy incumbents that were moving into the space. It went from a desert to a jungle really quickly and so I think, now as a somewhat more seasoned founder. Anytime you have a sort of inflection point in the business or you discover something, or you feel like you have real fit. My second thought is paranoia. My second thought is like, okay, there is some other team, somewhere that is learning the same thing or that is about to and I think you really have to sort of pull yourself out of your own bubble, and realize like, if we see this, other people can see it too. We got to move.

Pablo Srugo (00:17:55):
Maybe just to follow up on that. How much of that mode besides, you know, raising money and stuff. How much of it is product that you build and how much of it is just speed? You know, you're helping Home Depot add ads to its website. Okay, like, what stops somebody else from doing the same thing for dozens and dozens of other retailers? Nothing, really, how do you win more than anybody else? Is it because of something you see that others don't, or is it just because you move faster? And that fundamentally is the only thing.

Alex Sherman (00:18:19):
So I think that's a great example, of what I was saying earlier. In that I don't think there is sort of a single magical solution for creating a moat. I think the answer tends to involve a few different factors and of course those factors that like, those different ingredients in the cake. I think are different across different product, categories and verticals etc. But for us at PromoteIQ it was a combination of things. The first thing was we were selling into the largest corporations in the world. We were selling, like our customers were $100 billion corporations. It was a six to twelve month sales cycle. We were selling a new business into, some of the most conservative organizations in the world. We typically needed to get three or four different stakeholder teams to sign off on this initiative. It was a brutal sales cycle. The first and most important element in our moat, was that we just had a greater pain tolerance than anyone else. I remember in those days, people just saying we don't sell to retailers. Because it's just too hard. We just stay away. There is sort of a graveyard for startups and I think like our biggest moat was, the thing that scared everyone else away. We saw as a strategic advantage. We're like, okay, so if we can figure it out, that means that we're going to have a little bit of time and space to go, and figure this category out. So sales cycle was one. Two was we were building a, you know, essentially a marketplace, right? Like on one side, we had all of these retailers. On the other side, we had all of these brands that were running campaigns.

Pablo Srugo (00:19:41):
It wasn't a single retailer marketplace. It was across all the different retailers on the buy side.

Alex Sherman (00:19:45):
So there's network effects, very quickly that you accrue there. I think the third thing was we were, from a product point of view. We were more comfortable taking risks than a lot of other players in the space and that, I think, is the element of speed that you're talking about. We were lucky, we made good decisions and we executed without fear on those decisions. But to be clear, we feel it could have just as easily gone the other way. We could have been wrong and, you know, any number of things could have happened. But just being comfortable taking big product swings in a time when a lot of the. I mean, I remember raising money in this time. There could not possibly have been a less sexy category than ad tech in 2016, 2017. Forget it, no one was touching that and so as a result. All of this sort of ad tech, more tech universe, they were in this very conservative posture. They weren't taking big product bets, because it wasn't rewarded by the market. We didn't have any money and we didn't have anything to lose. And so I think we felt comfortable saying, you know what? We're going to go all in on building this sort of retail media attack. We think it should work this way and we're going to take that bet. So those three things a really painful sales cycle, you know, the network effects of the sort of business we're building and then just velocity from a product standpoint. Those three things built our moat. And to be clear I don't believe that there is such a thing as like a moat in startups that cannot be sort of attacked. It isn't vulnerable in some way and so we never looked at that moat and thought like, oh, we're good, job done. We were super paranoid all the way through our acquisition by Microsoft. Even when we were at Microsoft, we were like, okay, so here's how the business is vulnerable. Here's what we need to protect. Here's what we need to do.

Pablo Srugo (00:21:24):
Maybe fast forwarding to that. Actually, I was going to ask.  How did the Microsoft acquisition come about?

Alex Sherman (00:21:28):
So Microsoft has an ad business. Which not everyone is aware of, there is a search engine called Bing that still exists and Microsoft was basically scaling up that ad business. And I mean it wasn't a small business, it was a $10 billion ad business, something like that. You know, they saw retail media as kind of a really strategic expansion opportunity and so that was what led to our acquisition. It was also sort of a time when the rest of Microsoft was Azure. All of these business units were expanding very quickly into the retail space and I think one of the merits that we had was we worked with all the retailers or, you know, most of them. And we were really familiar with sort of the dynamics of digital transformation for large multi-brand retailers.

Pablo Srugo (00:22:09):
Did they come inbound to you guys? And, how did you think about doing that versus maybe raising a series B? Or whatever the other choice was?

Alex Sherman (00:22:16):
Yeah, it was inbound. We spent a lot of time really thinking about, what do we want to do next? There's this metaphor of like exits off the highway that a lot of founders use and when you get an exit off of the highway. If you say no, then you need to know like the next exit is fifty miles away or a hundred miles away. And I think M&A for founders is about that calculation. It's a super complex personal process. I think every exit is it's a complicated thing. We were fortunate in that pretty much from day one, we were super excited about it. It was a great outcome for the founders, for the team, for our investors. It was a really good strategic fit. Microsoft at that point had just become I think the second or first largest corporation in the world. It was like could not have been a better exit for the company at that time.

Pablo Srugo (00:23:02):
And I assume it was kind of a neat figure like between ten and a hundred million dollar range.

Alex Sherman (00:23:07):
We never disclosed, but it was a really good outcome.

Pablo Srugo (00:23:09):
We have tens of thousands of people, who have followed the show. Are you one of those people? You want to be part of the group. You want to be a part of those tens of thousands of followers. So hit the follow button. Let me ask this then. This is more of an emotional, not so numbers question. You know, having gone through everything you did during there. Especially, potentially giving the money back, paying yourself $30,000, you know what I mean? And then finally hitting it. What was that feeling like when, you're going through it, you're signing, you're like, okay, maybe it's going to happen, maybe it's not. I wonder if something wrong is going to go down and then boom. You sign it, the money's in your account. You're like, holy shit. What's that day like?

Alex Sherman (00:23:42):
That day is nuts. I still remember I had $2,000 dollars in my checking account. So I was looking at my Wells Fargo app and it was like, it was like two thousand and ten dollars like that. That's it.

Pablo Srugo (00:23:53):
Crazy.

Alex Sherman (00:23:54):
And then all of a sudden you know a bunch of zeros. It was great, we were thrilled and I think this is true of most startup teams. But we had spent so much time really grinding it out to make that company a success. That there was this explosion of euphoria. I remember announcing it to the team and there were kids on the team that bought houses a month later. It was just so cool, as a founder. There's really few things that are as gratifying as that. We couldn't have been happier at the time.

Pablo Srugo (00:24:23):
So then let's move forward to what you're doing now, which is Bluefish. I assume you worked at Microsoft for a few years. When did this idea for Bluefish happen?

Alex Sherman (00:24:30):
So I was at Microsoft for about three years and then left, and sort of took a sabbatical. It was such a cliche, post-exit sabbatical, did some traveling. The first six months are just amazing, because you feel this like, the weight is off your back. I think when I left Microsoft, I was managing a team of like 400. We were still this super high growth business within Microsoft. I mean, really, really strong execution on all fronts.

Pablo Srugo (00:24:56):
How many employees did you have at exit?

Alex Sherman (00:24:58):
Like, fifty.

Pablo Srugo (00:24:59):
Okay, that's crazy.

Alex Sherman (00:25:00):
Yeah, no, we grew a ton within Microsoft. It was really successful and so the day after you leave, it's really quiet. Like you're not you're not a CEO anymore.

Pablo Srugo (00:25:08):
It must be weird for a bit, not worrying about anything. You're like, should I be worried?

Alex Sherman (00:25:12):
So in the beginning, you're just thrilled. I remember I took a trip right afterwards, went for a swim in the ocean, and it was just it was pure bliss. Problem is you can do that for six months and then after six months you're sort of like, oh. You know, I think at the time I was thirty-five and I was like, okay, well do I just retire. What does that look like and every post exit founder goes through the same thing. There are a bunch of great groups that I joined similar founders in similar positions and very quickly you're just like, I want to get back to work. I miss problem solving. I miss working with people. I miss the challenge. I miss the intensity of it. All of the stuff that you enjoy as a founder, you don't stop wanting that. You don't stop enjoying that or getting fulfillment from it. So what happened for me is that I had six months of vacation. Which was Awesome, I built a house, I traveled, it was great and then after that. You get into this sort of like valley of shadows. Where you're like, oh, I am not useful. I'm not contributing, I have nothing to show for myself and by the way. This is a phenomenon that you see not just in startup and you see it across the business world. A lot of people when they retire, go through that even later in career. You see this with professional athletes, like when you're not on the team anymore. When you come back from the Olympics. The first few months are great, really relaxing and then you're like, oh, like I'm an ex Olympian. What do I do now? And so for me, I was really fortunate in that I'd worked with a great team in the past and they were all sort of getting bored and restless. And we started riffing on kind of what the next thing looked like. And we had a bunch of really horrible ideas. And as second time founders, you know more, and so you sort of believe that these ideas are better. You know, you're like, oh, no, I don't know. I know how these markets work. So my two co-founders, Jing, who is the COO at Bluefish and previously was COO at PromoteIQ. She had also worked with our CTO, Andre, at his company, LiveRail. The three of us got together and we went from having a bunch of bad ideas to very quickly sort of seeing where the puck was going in our market and deciding, like, let's go. And so we went from bad ideas at a bar to clicking into gear and having conviction. This is the business we're going to go build. This is our vision.

Pablo Srugo (00:27:27):
Was this after ChatGPT came out or before?

Alex Sherman (00:27:29):
So this is two years ago, and basically we saw that Perplexity was out, ChatGPT was out, and it was really clear that the genie was not going to go back into the bottle. That consumers were being trained on this better, faster, smarter way to use the internet. You know, from a marketer's point of view, It didn't exist as a channel. If you called the CMO of any Fortune 500 company two years ago and said, hey, what is your use of AI? They would say AI is a really effective tool for lowering production costs. This is a great way for us to save money and sort of do more with less. Maybe, you know, optimize some campaigns. But the idea that AI was turning into its own channel. A place where the eyeballs and consumers were going, was very novel at the time. But I think we had the luxury of we've worked in MarTech for twenty years and MarTech every five to ten years you get a new marketing channel that emerges. And it plays out the same way every single time. You get new technology that changes how consumers use the internet, right? Like, the rise of search, the rise of social, the rise of mobile. So new tech, consumers start using that tech to navigate the internet in new ways. Marketers initially don't know what to do with this new tech. So there's like, when social media came out. Marketers were like, no, this is not for us or when mobile came out. Marketers were like, why do we need a mobile website? Consumers will never shop on their phones. But eventually, as consumer adoption scales, it becomes really clear that. That's where the eyeballs are going and that as marketers, sort of an opportunity for you to engage those consumers in new ways. Tell your story, you end up with sort of a nascent marketing channel. Then you get a bunch of capital that pumps into the space. You get a bunch of startups, some good, some not so good and eventually it starts to mature. And you end up with best practices, a clear value chain, a clear ecosystem.

Pablo Srugo (00:29:12):
It's similar, by the way. To as you say, of what happened to PromoteIQ. Like, retail being a new channel, right?

Alex Sherman (00:29:18):
Totally, the reason that we saw it first was because we had that pattern recognition. Because we had built platforms in the previous channels on the internet and we'd already worked with a lot of the CMOs. And so when we started Bluefish, we basically called up every CMO of every blue chip company that we knew. And we said, hey, look, this is where the market's going. Over the next five to ten years, your marketing stack is going to need to be rebuilt for this new AI channel. Why don't you be a design partner with us? We'll build you the enterprise marketing platform that you need to manage this new channel, with the same sophistication that you manage any other marketing channel and if you get in on the ground floor, we'll do it for free. We'll build it for you based on your spec and that was how we spent the first six months of Bluefish, was just like deep design partnerships with some of the largest brands in the world.

Pablo Srugo (00:30:04):
Was that relatively easy given your background and the relationships?

Alex Sherman (00:30:07):
It was easier for us. Yeah, because we had the credibility. Enterprises are super conservative. There is no shortage of startups that are pitching any Fortune 500 saying we have a solution for blah, blah, blah and so we did have an advantage for sure. And I think as a second time founder, you really have have no qualms using your advantages. Because by the way you have plenty of new disadvantages. Second time founders have plenty of blind spots that first time founders don't have.

Pablo Srugo (00:30:33): 
Like, what? 

Alex Sherman (00:30:34):
Confirmation bias for sure. If you have found any sort of success in the business world regardless of whether you're a founder. There's a part of you that's like, oh, I know how to do this and that is the most dangerous thing of all. You have to maintain a growth mindset and set all of that aside. And I think for us as second time founders, it has been really critical to just hold ourselves accountable and just be like, is this a good idea? How do we know? Is this just like a feeling we have or can we actually demonstrate it? And I think for that reason, the fundraising process is a really good crucible for all startups. Because just putting together a pitch deck and in our earliest days as Bluefish. We raised our first round without a business. It was an idea and a pitch deck and just that process of holding ourselves accountable to, hey, we are not going to lose a penny of our investors' money. This needs to be a really rock solid sort of play in the space, was really helpful. Because as second time founders, you can raise money.

Pablo Srugo (00:31:28):
How much did you raise for your seed?

Alex Sherman (00:31:29):
Our pre-seed was three and a half. I think that is another trap, is that as second time founders, there is no shortage of capital that is chasing you. And if you're not discerning, the capital won't be. One of our first principles as a company was that we didn't want to partner with anybody that we didn't trust. That we didn't actually want to go for this ride with. And we've been really fortunate in that we have fantastic investors. I would raise from them again in a heartbeat.

Pablo Srugo (00:31:53):
It's interesting, actually, this second time founder thing. Having met many on the show and just through investing. There is so many different advantages, relationships being a huge one, which leads to capital and also leads to kind of design partnerships, and these sort of things. The confirmation bias piece that you bring up, is an important one. Because it's part of it is sometimes what I see is like, for example, you take your last story, right? PromoteIQ. and you might think to yourself, man, how do we skip all the bullshit? How do we just skip the part where we didn't know what the fuck we were doing and where we were failing. And we just get to that part where things were working out and it's not a bad idea to try to do that. But then sometimes, as a result of that, you're like doing everything right on the outside. Your deck looks pretty, you raise the money, your design partnerships are clean, well-structured, you work with good customers. And you forget that the thing that really matters is product market fit. It's like finding that hair-on-fire problem, you know what I mean? So you solve this thing and you create this great product and you kind of get to move along. Because there are ten, twenty, thirty CMOs that love you and some subset of them is going to want to move you along sort of thing. But then at some point you fall flat. Because you realize, oh shit, we built something nobody really cares about.

Alex Sherman (00:32:57):
Totally, one of the things I will say is that. So, Bluefish only works with Fortune 500 brands and one of the nice things about Fortune 500 brands is that they are incredibly discerning, and they don't care. They're like, oh, cool, Alex sold his last company. Doesn't matter, because they don't want to get fired and this transition into A.I. marketing. Pick any large Fortune 500 brand, if you're the CMO of that brand and you are not racing to rebuild your enterprise marketing stack for A.I. You're in deep shit. So that CMO that chooses to partner with Bluefish, they do it because we're the best solution. Because their team has banged on our product. They have met with everyone on our team. They have met with our other customers. They go through a rigorous procurement process specifically for that reason. They just don't care, so to answer your question. We moved beyond sort of affiliated design partners that knew us and trusted us. To unaffiliated customers within six months, really quickly and it was a really important thing. Because I agree with you. I think there is a real risk, that you are coasting on your reputation and by the way. It's not just true with customers and products. Same thing is true with employees. You get a lot of second time founders that do like a let's get the gang back together sort of thing and the team. They're not what they used to be. They're not, you know, like founding teams need to be aggressive. You're not playing defense, you're playing offense. You are playing it hard and fast. It is a no fall zone. It is super intense. You are working your ass off and like, I don't care how much money you have in the bank. Because of the last company or whatever. This is day one. We are starting from zero. Realistically, there are a lot of people, and this includes founders. That can do it once and they can't do it again. Because it's just fucking hard. It is so hard and I think as a second time founder, you have to be really clear with yourself, with your co-founders and with the team. Do you guys want to do this again? You'll find out really quickly if you have what it takes. Because it's just it is like a black hole. It just pulls you in. I love that. That's what I missed. Like I missed that intensity and so I'm like I'm very happy to be on the pirate ship in the hurricane. I am that guy. But it's not for everybody.

Pablo Srugo (00:35:03):
Tell me about those six months with those design partners. What did you focus on? What did you find out? What did you learn?

Alex Sherman (00:35:08):
So look, anytime there's a new channel. There's kind of this hierarchy of needs that a brand has and this applies to social, it applies to mobile, it applies to search. It applies to every time there's been one of these new channels. The first thing you need is visibility and so when we were working with our design partners. The first thing we built was a platform that basically gave them visibility into how their products and services were being portrayed to consumers, by the large language models. So that you could have real-time visibility for all of your key customer segments to understand how is Adidas being portrayed for marathon runners versus young families and, this particular brand. How's it being compared to this other brand? What language is being used? What is your share voice? What's your favorability? What's your visibility? So that was step one was can we give these marketing teams visibility into this new channel? Then, of course, once you have that visibility, the next thing is like, okay, well, we see a bunch of things we don't like. There's a bunch of problems that we want to address. Maybe we have low share of voice or maybe we're not being portrayed accurately. We're not being portrayed favorably or, hey, this is a target customer segment that's really important for this particular product line. You know, we're ranked 10th versus all these other players. So you have sort of a to do list and our customers are the most sophisticated marketers in the world. They have fantastic marketing teams across search, across content marketing, brand marketing, PR, corp comms, paid editorial, social. So how should all of those teams take action? What should they do to optimize for this new channel? So our next product that we sort of co-designed with these companies was an organic optimization tool. So that if you're on the team, for example, that is building website content, that content can be optimized for LLMs. Maybe ChatGPT is pulling heavily from Reddit. Because somebody logged onto Reddit and wrote a 3,000 word article about a particular aspect of your product. And you just don't have that on your website. Okay, so there's a content gap that you probably want to address, or, maybe there is a third party blog that is, you know, like a nerd wallet. For example, that Gemini is really pulling on when it compares your credit card to a competitor's credit card. Okay, so maybe your paid editorial team should reach out to NerdWallet and do some work there. So there's all these organic steps. So that was the second product that we built. But in those early days with our design partners, The thing that we emphasized is that when these new channels come around. There is this tendency to race to take action without really understanding what you're optimizing for and so honestly, what we spend most of our time doing was was just educating. Just saying, hey, look, 200 million consumers at the time are using ChatGPT every day to discover your brand. What does that actually mean? What does that mean for your marketing funnel? What does your AI funnel look like? Like if we're tracking a million AI responses for you every month that outline your brand, your competitors, your category, what can we do with that data set? What are the implications? And so in those early days, I think we just spent a lot of time focusing on education, and starting to design this new marketing function. Because nobody has an AI marketing team today, in the same way that in 2008. No one had a social media marketing team and so our job is to help these companies prepare for the next ten years. Which very clearly are going to be the AI chapter of the internet and so we're helping them design a marketing function from scratch. And that's probably our biggest job. 

Pablo Srugo (00:38:19):
Maybe a simple question, but how do you even know that first step? Here's what the LLMs are saying about you. How do you know what they're saying about you for, you know, all the different variations that, different people could do?

Alex Sherman (00:38:28):
Yeah, we spend a lot of money on prompts. So the way our platform works, our methodology is that we generate really large volumes. Think hundreds of thousands of AI prompts on behalf of a given brand or product. Every day we syndicate those prompts to the AI providers that are relevant to that brand and then we do a semantic analysis of that response data. And we use that to sort of create a model of how that brand is being portrayed. And then we do that over and over and over every single day. And over time, we build a really sort of robust and stable understanding of how that brand is being portrayed by the major models. Because we're just we're constantly asking questions in a million different ways just to sort of understand, okay, what does ChatGPT tell consumers regardless of what their prompt is? How do they position this particular brand? That's the foundation of everything we do.

Pablo Srugo (00:39:20):
And so for now, a lot of this stuff is organic. But do you assume that in the future there's going to be ads on ChatGPT and any of these chatbots?

Alex Sherman (00:39:27):
Yeah, for sure and I'll tell you why. I know that this is like a dogmatic debate. I think I'm old enough to believe that I've seen every big tech company turn into an ad company and so now I'm just sort of like, I know how this story ends. If you look at AI today, the most important shift over the last six months in AI. Has been the rise of AI shopping. Whether it's ChatGPT launching it, Perplexity, Google sort of folding Gemini into their shopping experiences. Amazon launching Rufus and shopping, and online commerce is just a gateway drug to online advertising. And you can call it affiliate, you can call it whatever you want. But very quickly, as soon as your brand and you recognize that their transaction has moved into the AI funnel, and that a consumer can go to ChatGPT and say, hey, I'm training for a marathon and ten minutes later can buy a pair of sneakers. Within that same conversation on ChatGPT, there is an inevitability to basically some sort of pay to play and I think for the AI providers. They have a balance to strike, no doubt, between maintaining the organic integrity of that experience with monetizing it. But that is the problem that every big tech company has had to wrangle with forever. So I don't see it as insurmountable.

Pablo Srugo (00:40:32):
I would tend to agree and I mean I'm stealing this from from Ben Thompson at Stratechery but I think when you think of when you zoom out and you're like this thing wants me to use it as much as possible. But then if I use it too much it tells me to stop or maybe I can pay to not stop. But a lot of people are just never gonna pay. It doesn't make any sense, at some point they're gonna be like okay fine you can use it for free. I'm just gonna show you ass. It's just it's kind of a no-brainer

Alex Sherman (00:40:51):
Yeah, for our customers. I think they know that these deployment cycles can take a little bit of time and so they see the transition of consumer adoption usually leads to enhancements to those applications like shopping. Which eventually leads to monetization of that consumer base. Again, our customers have seen this play out before, and so they know, okay, eventually OpenAI is going to need to fund their business. How are they going to do that? Where is it going to come from? And so I think there's an understanding there.

Pablo Srugo (00:41:21):
And then just to wrap it up, you raised a $20 million Series A. A few months ago, where did you get to revenue-wise, attraction-wise? What happened inside of the business that made you decide to go out and raise real money to go after it? What did you see?

Alex Sherman (00:41:33):
It's just the scale of the opportunity. Let me put it this way. Our customers individually spend anywhere from $1 to $5 billion a year on marketing. Across, you know, organic and paid and analytics and data infrastructure. The whole marketing stack and that enterprise marketing stack is largely predicated on a paradigm of how consumers move through the internet. That doesn't exist anymore. It's been replaced in a very short while, like, over the last twelve to eighteen months. That paradigm of like keyword ten, blue links, crisscrossing around the internet to find what you're looking for. Upon which a trillion dollar enterprise marketing industry is based. Has been replaced with this new AI thing, and so fundamentally, we believe that the largest brands in the world are going to rebuild that enterprise marketing stack for AI. And we're building them the platform to do it. And you just got to heavy up in order to do that. Enterprise is real, you need real tech, real scale, real team. You know, everything is sort of significant and in the case of AI, as you know. It's moving so fast. This is not a low and slow, this is hot and fast and we feel we're just getting started. So super exciting that we raised the round and we're thrilled, but there's a lot more to come.

Pablo Srugo (00:42:41):
Perfect, well, let's stop it there. Let me ask the last kind of questions that we always end on. For this, I'll ask a little bit different. Would you say you have product market fit today with Bluefish?

Alex Sherman (00:42:48):
I would say we have product market fit for this chapter of our market. I think of industries and deployment cycles as having different chapters. And your product market fit might be fine for one chapter, but you have to rebuild it for the next and the one after that. And so that is not lost on us, that we are in the earliest innings of AI marketing. And two years from now, will the platform need to have evolved significantly? Absolutely. 

Pablo Srugo (00:43:12):
Perfect and then the last question, what would be your number one piece of advice for an early stage founder?

Alex Sherman (00:43:18):
You know, look, I'm an enterprise guy. Which means for me, my radar comes from having conversations with customers without the direct connection to customers. I'm totally blind and so my number one piece of advice is just get on the plane. Always get on the plane, go meet with your customers, it never makes sense, no one wants to get on the plane. It's always like, well, this is an informational meeting. Why do I need to be there in person? You know, I've got so much other stuff to do. For me, at least, the most impactful thing that I've done as a founder is just spend more time with customers. And I know that sounds obvious, but I cannot tell you the number of times I have met with a customer. Somewhere in the in the U.S. and they've said, you know what? None of our other startup vendors have ever come to our office. That is crazy to me and so, yeah, that's my advice. Get on the plane.

Pablo Srugo (00:44:09):
Awesome, love it, man. Well, dude, thanks so much for jumping on the show, man. It's been great.

Alex Sherman (00:44:12):
Of course, yeah. So great, thank you for having me.

Pablo Srugo (00:44:15):
Wow, what an episode. You're probably in awe. You're in absolute shock. You're like, that helped me so much. So guess what? Now it's your turn to help someone else. Share the episode in the WhatsApp group you have with founders. Share it on that Slack channel. Send it to your founder friends and help them out. Trust me, they will love you for it.