How to Bootstrap Through Partnerships | Laura McGee, Founder of Diversio

Laura 0:00 Okay, so I've got to say, and this kind of goes through the business broadly. If they're not willing to pay for it, don't bark up that tree. If you're not providing a service for them or a product for them that they're willing to pay for it, it's not going to work. I think sometimes we ignore that advice. Whenever we ignore that advice, it doesn't work. Pablo 0:17 Welcome to the Product Market Fit Show brought to you by Mistral, a seed-stage firm based in Canada. I'm Pablo. I'm a founder turned VC. My goal is to help early-stage founders like you find product market fit. The topic of today's episode is how to use partnerships to bootstrap your startup. To dive into this topic, we've got Laura, the founder and CEO of Diversio, a platform that measures, tracks, and helps companies improve diversity and inclusion. Diversio is based in Toronto and New York. They have about 40 employees and have raised just shy of $10 million. Laura, it's great to have you here today. Laura 0:54 Hey, Pablo. Great to Diversio's Backstory Laura 0:55 be here. Pablo 0:55 You just raised this pretty big round, but before that, you were able to grow your company to like mid seven figure ARR in three years with no funding. As I understand it, a big reason of how you were able to do this was by using partnerships to do more with less. We'll dive into all this, but maybe just to set some context, could you take us back to when you had the idea, and without going too deep into the entire origin story, just where were you at the time? What were you doing? How did this come to you? Laura 1:25 Yeah, so the backstory, and it's funny. It's like talking about your family. The backstory on Diversio is I started my career in consulting. I worked at McKinsey and company for several years leading work in the economic growth and the diversity and inclusion space. What we kept hearing from CEOs over and over is that, luckily, we're at a time where the business case for diversity is well understood. There really could not be more data that diverse companies that perform inclusive companies are better off, but CEOs don't know how to do it. When it comes to quantifying, measuring, tracking things like inclusion, there's just a whole lot of blank stares, misunderstanding, lack of clarity, and certainly lack of knowledge on what to do to solve the problem. We kept hearing, I feel like I'm throwing spaghetti at the wall and hoping that whatever program works. The vision, and this feels kind of simple to look back on, but the vision was, could we create a software platform that helps companies quantify and improve diversity, but in particular, that inclusion piece, so experience, and then use artificial intelligence to recommend solutions. It's all about getting to the right answer, implementing those bite size interventions that will make a more inclusive workplace. Pablo 2:45 Perfect. You have this idea. You're not a developer. You can't start building even if – I’m not sure that that's necessarily the right step, but you couldn't do it even if you thought it was the right step. What is kind of your first move? Are you working full-time at this point? Do you leave the company you're at? What's the context? Laura 3:02 Yeah, so the context, so you're right. I am not a developer. There was no way that I was going to figure out how to code in time to get this thing to work. What happened basically, with the encouragement of a close advisor, quit McKinsey, the next day called a few friends and said, “Look, I want to start this business. Here's the idea. Do you think I could raise capital?” and got really a hard no from everyone I spoke to. This is not scalable. It's not venture backable. It's really just a consulting company that might have some technology angle, but we can't – not something that we could invest in. With that in mind, you pivot and you say, okay, well, what resources do I have Win-Win Partnerships Laura 3:41 or what could I pull together? One thing that I'm good at, and I think the companies become good at, is forming those win-win partnerships, where you get the assets or the resources that you need, and then you have to figure out, well, how do I provide value back to that partner? Two things that you need when you're starting a company, product and customers, reached out originally to the head of YPO Canada, who's since and still is a good friend, and said, “Look, I have this idea. I think that the G7 is coming up. What if we got together, a group of companies, had them all take the same survey, collect the data on diversity and inclusion, and create a benchmark. There's this product vision. It's not in the market yet, but I think that this could be a really great set of early adopters to really kind of validate.” He was excited. He said, “That sounds like a great idea. I think we could pull some people together.” He went out and hit the pavement. Obviously, with my support, went out and found about 25 companies who said, “Look, we'll pitch in a little bit of money, and in return, we'll get a consultative report, and most importantly, we'll get data. Sure, we'll sign up.” Pablo 4:50 How did you know – like YPO came to you, and that's the partnership that worked. Did you have ten other partnerships you were trying out at the time or one of one? How did you pick them? Laura 5:00 Yeah, you know what it was? I went around basically anyone who would pick up the phone, who I knew was kind of influential or a good connector, and said, “Here's what I want to do. Let's brainstorm.” A lot of people – that's when a lot of people said, want nothing to do with this. It's not going to be a real thing. Then other people said, I know the head of Women in Capital Markets, or I know the head of the Institutional Limited Partners Association, and this one happened to hit. Pablo 5:25 Perfect, so this one worked and that got you, what? Did it get you early sales, but more kind of on a consulting project? Is that right? Laura 5:33 It got me, yeah. It got me our first sale. It was actually sponsored by YPO and the output that they expected was a little bit different than what we had available at the moment. The idea that we sold to them was, ultimately, this will become some sort of dashboard, but we need the data to get the foundation of what the dashboard looks like. That kind of nailed that in. We reached out to the G7 women's forum, which was being hosted in Toronto, and we said, “Look, we've partnered with this really cool organization, YPO. We've got 25 companies who have raised their hand. What if we do a presentation, really a product launch at the G7?” Then they got excited because we had this brand behind us and they said, “Absolutely, let's do it. Here's your spot.” Building a Team Laura 6:17 Then really kind of panic mode because we needed a product, and so went to the University of Toronto to the MBA program and said, “Hey, do you have any kind of smart students who are looking for an internship or looking for something to get their hands dirty in?” Rotman said, “Yeah, we actually have this great course where students get credit if they work on a real business problem. They love it because they get practical experience. Here's five people who are kind of ready, available, and willing to help and build this thing.” Pablo 6:47 These are business students, not developers? Laura 6:50 We started – so we had to land and expand. We started with the business school and got some data analysts. Then we went into the engineering school and said, “Hey, we've got this great partnership with Rotman. We would love to work with your engineering program,” got a professor fired up and then we ended up with a team of engineers as well. Pablo 7:06 Did you try to also get – was it just you as a founder? Did you try to also get a technical co-founder, somebody full-time? It's one thing to have interns, business interns that you can – you know that world, but it's a little harder when they're technical people. How did you manage that? Laura 7:24 I would say, Pablo, getting a technical co-founder was the smartest thing that I never did. It ended up being the best decision that I made. My co-founder, I actually pulled from RBC. Her name is Anya. She is my absolute righthand woman. Her background was academia, data analytics. She had a product focus at RBC, but really was more just a super smart, resourceful, crafty person. The two of us together, while neither of us could code, both of us are extremely resourceful. How we made it work is we got that small contract from YPO. We got a bunch of resources for free. Every dollar that we got in sales we used to hire engineers. We hired our first engineer, Sahil, who is actually still with us. He’s really very talented. We couldn't go with anyone other than the best of the best. We had to get him motivated, inspired by the vision, which he was. That's really where we started to build out this actual dashboard solution. Pablo 8:22 Most people that don't have a technical co-founder would say that getting one is the smartest thing to do. You're saying it's the smartest thing you never did. Why is that? Laura 8:31 Yeah, in my mind, and I think I’m maybe an outlier in this regard, but to run a tech company, like really coding is a very small part of what you're doing. It is in some ways a commodity. In the same way that you're never going to start with every function of the business that you ultimately scale, you just have to work with what you have and then you outsource the rest or you bring in the rest. For me, looking back, having someone like Anya, who's like very talented, incredibly good at sales, incredibly attuned to the market, knows our clients inside and out, with something like that's very hard to hire and replicate. Whereas engineering talent is something that we could kind of grow as we went. We did find that our mission was landing in that community. We ended up getting some talented people who, quite frankly, were willing to take a pay cut until we could afford to pay the market rate. The Importance of Bootstrapping Pablo 9:23 Did having less builders in your DNA force you to focus more on selling and customer related activities, you think? Laura 9:31 A hundred percent, I think one mistake I think a lot of companies make is not bootstrapping for longer. It forces you to be very focused on the problem you're solving. It forces you to work with clients, understand what they're willing to pay for and bake in that commercial mindset, which I actually think in a space like ours is extremely important because it does attract really mission-driven people. Having that discipline that, at the end of the day, you're still a commercial enterprise is something that I think bootstrapping helped us to instill. Pablo 10:00 How do you track talent when you're bootstrapped, especially in this environment? There's talent wars. People are paying crazy amounts. How did you make that happen? Laura 10:09 Yeah, again, I think bootstrapping is a forcing device. When you don't have resources, you have to get incredibly sharp and crisp on what is your mission? What is your value prop as an organization beyond money that's going to attract talent? Getting crisp on that mission statement, I mean, you can use that in sales then. You can use that in marketing. You really have to be able to go out there and say like, look, you're working on a problem that's bigger than your average startup. Here's how we differentiate. Here's how we're going to create a really unbelievable culture where you feel like you're developing and growing and really having an impact. Pablo 10:43 Perfect, so back to the partnerships. You did the YPO partnership. You had the partnership with the university. What was the next meaningful partnership after that? Laura 10:52 Yeah, so we ended up – it's funny. We now have an entire segment of our business, which is working with industry associations. We went to the Human Resources Professionals Association, for example. We struck a big partnership with them where we analyzed diversity and inclusion across the HR industry, created a benchmark, provided a discount to them and their members, which has now generated new product lines, a certification program. That was paid to begin with. We did something similar with Diversity VC, which is a UK-based industry body in the VC industry. We created a certification program and a dashboard for their VC partners, which has now been incredibly successful. I think, and again, it was paid. They supported the development of the dashboard. Through them, we ended up getting clients like Bessemer, like 500 Startups, like M12, like AMEX Ventures, like Shell Ventures. Again, everything we did was funded by sales. Leveraging Your Partnerships Pablo 11:49 One of the big topics here around partnerships is that, probably the more common perspective is that early on, you're much better off focusing on direct efforts, things that you can control, right? These partnerships, especially the ones with the really big, like a partner with Microsoft or something like that, where you think that it's going to save your company, it's going to lead to so much sales, and the reality is you have to manage it. It's a lot harder than you think. Really, early on, there's kind of no demand for your product. The kind of cliche is you got to go generate your own demand and then partners will come. You seem to have flipped that. What's your thinking on just that idea, that partnerships are something more useful later in life of a company? Is there something about Diversio itself that made you guys very suited to partnerships or is it something that many startup founders could leverage much earlier than they think? Laura 12:42 I think, I mean, it's really great advice. I think if you're bootstrapping, you don't have the luxury of trying to partner with Microsoft, frankly. If you've explored a few partnerships like that and you're like, okay, this is like a year and a half long sales cycle, so unless you're going to make no money for a year and a half, when your bootstrapping, that's not an option. For us, the type of partner and the outcome was really important. For us, we had sales partnerships and we had development partnerships. On the development side, like the RND, we've now worked with four or five academic institutions. For us, the litmus test was like, have they done this before? How do they feel about IP? Who are the academics that we're working with? Are they scrappy? Are they entrepreneurial? If they checked all three boxes, we work with them. A good example is we went from the University of Toronto, we then partnered with the Turing Institute in the UK. We partnered with Dalhousie. We partnered with the University of Waterloo. We found that just entrepreneurial people who like really wanted to get their hands dirty. That was great. Pablo 13:45 Those partnerships with the universities, what's the thinking there? Is it just strictly a way to get talent for less? Is there something else going on that's driving you to have a lot of partnerships? What's the thing in there? Laura 13:58 Yeah, so we work with – I mean, look, I think there's a healthy dose of humility that we bring to this business, which is like lots of enterprising academics are doing really important work that we need to be aware of. With Dalhousie, for example, the academics we worked with, who have been fantastic, had some really great natural language processing technology that they had built that analyzes employee feedback, free text. Our thought and our conversation with them was like, look, we think – we use surveys. Survey fatigue is a big problem. How do we allow employees to speak in their own voice and their own words really quickly and generate insights from that? They said, wow, great academic problem in a really cool, meaningful space, let's develop an algorithm. We need your expertise as diversity and inclusion experts. We've got the engineering ML experts. Let's work together, build an algorithm, and from their perspective, write a paper. We agreed like, look, absolutely. Let's anonymize and share back the data so that you can generate insights, get published. In return, we've now got this proprietary algorithm that is adding a ton of value for our clients. Pablo 15:06 Is there something beyond the end product they get? Is there some sort of credibility stamp that you get by doing that? Because just to play devil's advocate, the flipside would be, find a way to raise money and just hire those people, maybe not the professor, but like as many people close to that in-house, and then you don't have to worry about getting a paper done. You don't have to worry about finding win-win outcomes and all these sorts of things. Laura 15:27 Yeah, I mean, that's another way to do it. I think it goes to the heart of how do you innovate, and I think for us, we have an engineering team in-house. We develop and we go to market and all of that's great and it works and it builds the foundation. One thing that we really like, though, is like with the Turing Institute, we never would've built the kind of technology that they had spent three years building, which is a plugin that sits on Slack and GitHub and identifies bias in real time. We, just frankly, wouldn't have built that and we wouldn't have – but by kind of constantly being on the lookout, we were able to be connected with them and now we've got this muscle developed where we know how to partner with universities. We know how to make it a win-win. To your point, Pablo, one thing that was a learning for us is, what are academics after? They’re after data and publications. Really, that's it. That's enough. If we can – and so we built that into our customer contracts early on that like, look, we're going to anonymize all of your data, but we are absolutely going to share it with academic institutions so we can move everybody forward. I think you have to build the muscle. You have to build your company to allow for that if you think that there's value there. Picking a Perfect Partner Pablo 16:39 Let's talk maybe a bit more about the partnerships on the sales side, maybe a high-level question. How do you choose those, right? How do you know, because there's a lot, there's just so many entities you could partner with. Some of them are really – some of them are like too big. It's going to take too long. Some of them are too small and they're not really going to help you out. Maybe you're not going to be able to help them out. It's how are you really picking that perfect partner each time? What do you think through? Laura 17:05 Okay, so I've got to say, and this kind of goes through the business broadly. If they're not willing to pay for it, don't bark up that tree. If you're not providing a service for them or a product for them that they're willing to pay for it, it's not going to work. I think sometimes we ignore that advice. Whenever we ignore that advice, it doesn't work. Pablo 17:25 To be clear, pay for it, that means these are not like reseller partnerships where they're like, I'll just resell your thing and I'll give you a kickback where I get a kickback each time. They're actually paying to get your product. Laura 17:37 For us, it's both, but for us, how it typically works and where we succeed is you have often like an industry body or some sort of convening association who wants a benchmark. That's what we do well. We collect data. We create insights. We recommend solutions. Industry bodies are often in the market for that because they're like, look, we need to be a thought leader for the energy sector. We need to be a thought leader for the limited partner sector, but we don't have the capacity. We don't have the know how to collect this data ourselves. Let's work with Diversio. We're going to pay you for that sector benchmark, but also in the process, we now know you and we know that our members have a demand here, so we're going to recommend you. Let's figure out a process where, if it's a discount, if it's a bit of a rev share, how do we create that benchmark, generate the credibility, and then have you go to market with our members. Pablo 18:28 Beyond just are they willing to pay, what else are you looking at to pick who you partner with? What order, like how do you prioritize who you could partner with? Then the other side of that is how do you make the partnerships successful once they're in place? Laura 18:40 Yeah, so on the first one, this is going to sound odd coming from a former strategy consultant. We don't overthink it. You want to go with someone with enough footprint and enough access and trust, but I think most importantly, you kind of know it when you see it, like who is the person in charge of partnerships at that organization and do they get shit done? That's the most important thing. Are we going to have to push it forward 100% or do we have people who are like, I have this acute need and my members are asking me about this a lot and I want to make this happen. Overestimate Your Participation Pablo 19:13 Then on the flipside of that, once you do have this partnership in place, how much are you – how much of anything are you doing to make the partnerships actually successful? Laura 19:21 I would say it really depends. I think, as a rule, always overestimate your own participation. I would say that that kind of is true in almost any partnership including personal, like always assume you're going to have to do more work than the other person. If you want to get it done, especially if you're an entrepreneur, you have to push it forward. Everything from, we've developed marketing content for our partners. We've developed emails. We've literally designed websites and web and landing pages. We've created LinkedIn content, social media content. You want to be really thoughtful about, how do I take this to market? Sometimes, and this has happened, you land on a partner who does it better than you do. They come to you and say, hey, we want to roll out certification, like in the case of Diversity VC, and we've set up a team in the US because we want to expand in Silicon Valley. I would say be prepared to do more. Again, if you're filtering for people, you'll be surprised when they end up kind of driving the bus. Pablo 20:20 Were there any partnerships that really, that you remember really kind of taking the company to the next level? I'm kind of wondering. Is this just partnership after partnership after partnership? At some point you have 50 of them, and therefore, your revenues at a certain point, or did you kind of have these step functions where every now and then there was just a major partnership that really took the company to next level. Laura 20:40 I would say our partnerships in the investment space have been game changing. I would say the partnership with Diversity VC that I mentioned, the certification program, we started out with, I think, 12 investors all based in the UK, so , Atomico, Anthemis, and then worked really well, great feedback. We, with our partners, said, let's expand to the US. We got Bessemer involved. We got M12 and we got covered. Pablo 21:10 To be clear, this partnership is VCs kind of asking their portfolio startups to submit DNI data? Laura 21:18 This one started with VCs themselves. Once we kind of collect the data, we determined if they qualify to get certified. If they do, great, they get certified. They post about it, etc. When we brought it to the US, we did it with our partners. We said, let's relaunch. Let's replicate what we did in the UK. Let's get some early adopters. We did that together. We made the announcement. We got some unbelievable press coverage. We were in the front page of PitchBook for like a week straight. That ended up generating a ton of leads, which created a ton of client relationships. I would say that was game changing. I think the other somewhat similar relationship we have is with the Investor Leadership Network where we're working with them to set the standard among LPs. By working with them, we have access to their 15 members, a kind of credibility in the LP space. We frankly know what we're talking about. That's been another game-changer. Having Product Market Fit Pablo 22:07 When did you really feel like you had product market fit? What were some of the signs that you started seeing that said this is kind of beyond an experiment? This thing's working. It's providing real value. There's something big to be built here. Laura 22:21 That's a good question. I'm going to say I don't know if I ever am going to feel like I have perfect product market fit, but I think the signs started to occur. We built our business model. It's . It's recurring revenue. You sign an annual contract with automatic renewal. I mean, sign Number 1 is like, I think we've had one cancellation ever out of like now 170 clients. Our clients see the value and they want to keep using the product. I think that's signal Number 1. I think signal Number 2 is – and we're in a funny space. I don't know if others – I don't know if everyone thinks this, but we're in a space where almost like most people change the product to fit the market. We came to life at a time where really the market changed in a lot of ways to fit the product. After COVID, when Black Lives Matter kind of generated a lot of activity, the market started saying, okay, this whole like diversity data thing, yeah, we need it. Do we need data-driven plans so we can track over time? We had the product in the market. With those tailwinds, we saw more and more people coming to us and being referred to us and then kind of immediately saying I get the value. I think that was – those were some of the signals. Pablo 23:36 Maybe on that, just because timing is, from our side, I mean, it's one of the most important things we think about when we're investing in a company, maybe aside the team and the idea is just is the timing right. You got the timing right. Do you have any advice on getting the timing right, on how you think through that? I think there's pieces that are outside your control, like these tailwinds that maybe came after, but DNI was already growing. Do you have any advice for founders on how to figure out whether the timing is right for their idea? Laura 24:05 I'll go back to like bootstrap. It's easy to – if you can't survive through without making sales, that'll give you a really good indication on whether the market is ready. Obviously, it doesn't work if you're building medical technology or a lot of clean tech solutions, but in something like software, B2B sales, you'll know quickly. If you're struggling and you're on the edge of your seat and you're worried about making any sort of payroll, then you want to think through is this the right time for this product. Pablo 24:37 Maybe on that question, because you started out at least exploring the idea of raising money. Then when you could, and you decided to bootstrap and it worked out, do you think, going back to that, if you had raised money, if that would've been successful, if that maybe would've done more harm than good? Laura 24:53 Maybe I'll put it a different way. I don't know how much we would've done differently. I think that we might have spent – I think we would've been much less capital efficient, and I think we would be much less disciplined. I'm even now feeling now that we've raised, it's easy to feel like we've got money. Let's just – every tool, every opportunity, let's go after it. I'm having finding myself consciously saying like, let's keep that discipline because that's the business that we're building. I think that's harder to maintain if you're well-funded from the beginning. Recap Pablo 25:24 Perfect, all right. Laura, we'll wrap it up there. Maybe just to recap, you have this idea about building a benchmark for diversity and inclusion and you couldn't build it. You decided to use partnerships to not just build it, but really to kind of, first, sell it and then build it and then sell it more and then keep building it, and bootstrap your way to where you are today, which is 40, 50 employees, a big round under your belt, and more importantly, hundreds of really, really happy customers. It's only the beginning. Thanks a lot for sharing all of that with us. It was a pleasure having you on the show. Laura 26:07 Thanks, Pablo, bye. Pablo 26:07 Thank you so much for listening all the way through. It's been a pleasure having you here, make sure to subscribe. So you don't miss the next episode.