Serial entrepreneur and investor Bruce Croxon, co-founder of Lavalife and rookie investor on Dragons' Den
Bruce Croxon likes a fighter. So much so that Round13, the company he started to back early-stage technology startups, is actually named for the 1975 heavyweight fight between Joe Frazier and Muhammad Ali.
The serial entrepreneur and investor, best known for co-founding online dating service Lavalife and now a rookie dragon on Dragons' Den, really does believe that "stick-to-it-ess" is a necessary ingredient for success that allows you to get through the failures every entrepreneur faces along the way.
"There's no replacement for it," says the 51-year-old, who co-founded Lavalife in 1987 and led its sale in 2010 to First Media Group Inc. for $180-million.
He shares his insights on Lavalife's rapid rise to the top, what he looks for in entrepreneurs and what it takes to make a good pitch.
Q: How did Lavalife come about?
A: People tend to think it was a product of the Internet boom, but our first brand was Telepersonals in the late eighties that morphed into Lava. The idea really came from two of my partners, right before voice-mail technology hit, who decided to use that technology as a way to meet people. They designed a system that allowed people to call in and leave an ad, send or pick up messages, versus the old archaic way of writing in to The Globe and Mail at the back of the classifieds. Then, we launched Webpersonals in 1997, one of the first social media/dating sites and rebranded both of those platforms into Lavalife in 2001.
Q: Was there a vision from the beginning or did you just adapt as the technology became available?
A: I'd say both are true. Our vision was clear. We wanted to provide a place where singles, specifically women, could feel safe interacting with people they wanted to meet for a date or a longer relationship, so the vision was consistent. As new technologies and ways for people to interact came onboard, we were the first mover.
Q: With four co-founders, how did your role develop?
A: We had a very consensus-based partnership right the way through until we took investment in, when the investors demanded more of a traditional hierarchy. We had taken the company from 0 to $60-million to $65 million in sales with basically each of us handling our own area, without a CEO title amongst us. I was always marketing and business development, one partner was finance, another was product development and one was operations out in the field setting up call centres and hiring people in every city we opened in. That's how it was done in the old days.
As we grew up as a company, my role evolved to be more the CEO. The abilities were just in different areas. I was more of a generalist, I guess. But the partnerships for the most part stayed together and we're still excellent friends today. It's a great example of how four guys working together could achieve way more than any one of us could on their own.
Q: Were you pretty informal about how you worked?
A: No. We were pretty buttoned down in terms of our organizational development with systems for everything. We met every Tuesday starting at 3 and ending somewhere around midnight. Most of the major decisions from anybody's area were made as a consensus, with one of us having to convince the other three that this was the direction to go. The cost was that things tended to move a little slower, but the benefit, which to me outweighs the cost, was that we made very good decisions.
Q: What was the toughest challenge in developing the company?
A: I've never encountered a situation like it before or since. We were in an area where there wasn't a lot of competition, the margins were insanely high and it was new. Plus the technology that we developed was a lot more expensive to do than it would be today, so there was a technology barrier to entry to the business that we were in as well.
Our challenges were really around managing the rapid growth. We peaked out at 600 employees at one time and it was the first job for a lot of those young people. So we felt it was incumbent on us to be good at giving them direction and be very clear on what they were trying to achieve every day. We were a very inclusive culture, so we enrolled everybody in the decision-making process, and that required a good deal of organization.
Q: When the company relaunched as Lavalife, how key was the name change to your success?
A: Very key. I credit a guy named Peter Housley for that. I had brought him in as CEO when I was chairman, and he led the whole branding of Lavalife. It was phenomenal. The brand Lava did a really good job of making it not only socially acceptable to use technology to fulfill your dating needs, but made it cool.
Q: Why did you sell when you did?
A: The lead reason was probably timing. We felt that the market as we had it defined was nearing its zenith, so it was peaking. It was also getting a little bit crowded with competitors in the U.S. that had deeper pockets than we did.
Q: What did you learn from Lavalife?
A: In a word, it would be confidence. I have an incredible pride that companies can be built from nothing and they can be done in Canada. As a result, I'm putting a lot of energy back into supporting young technology digital companies, because I think we have an incredible level of talent here. It was very formative to be able to launch a Canadian digital company, take on competitors in the U.S., win and sell to a U.S. company at the top of the market. I believe it can be done again and again, so I'm pretty bullish on the entrepreneurs we have in this country.
Q: What makes a good digital business pitch?
A: There are all sorts of ideas and concepts out there, but at some point, the user has to be acquired cheaper than what they're going to yield. There's no other way to cut it.
Q: What's essential that people often leave out?
A: That!
Q: When does sticking with an idea become stupid and you admit failure?
A: The first decision is, do you really want to be an entrepreneur?
It's not all that relevant to me when you give up on one idea and modify it to go in a different direction. Or if it doesn't work, apply what you've learned to something else. I don't know too many people who've built their own business who haven't had losers. Learn from your failures and be able to adapt.
Q: What do you look for in an entrepreneur?
A: That fighting spirit. And I won't work with someone who doesn't have some level of introspection – some evidence that they've looked in the mirror and thought about themselves a bit. I want them to be able to engage in a conversation with me as a partner where it's not all, 'you're great, you're great', or disagree without it turning into a personal thing. That's huge for me.
Q: You've invested in Vida , a chain of high-end holistic spas on the west coast of Canada. Why spas?
A: No good reason. I was out in Whistler skiing and got interested in the bodywork you have to do for injuries. I was going to this one spa consistently where the partners were fighting and my friend and I ended up taking some of the partners out. Next thing we knew, we were learning a new business. So we thought we might as well grow it. I enjoy it. It's kind of off strategy for me.
Q: Have you been able to apply your social media skills?
A: Not enough. That's something I wake up thinking about. I'm not proud of the strategy for Vida right now. It's in the middle of a complete overhaul.
Q: What does that involve?
A: A big part of the spa business is customer retention, making sure that they have an experience that they'll want to come back and repeat. What we need to do is get a lot better at being part of their lives when they're not in the massage room – through education, letting them know about specials if they're driven by economics and making the service more convenient
Q: When someone pitches, what makes you bite?
A: First there's the person's vibe. At this stage of my life, I need to enjoy the people I'll be working with, because we'll be spending a lot of time together. We need to share a common set of core values. You can get a feel for that relatively quickly.
When you're doing investments on Dragons' Den, you don't have much time to make the first level of decision. So if the idea addresses a need in the market, and the person's vibe and the core values line up, it's worth putting in some time to see if you can come to terms.
Q: Are you prepped on the pitches before the show?
A: No. They're very strict. They don't even let us peer into the room if they need to set up the pitch with a prop.
Q: How long should a verbal pitch be?
A: They call it an elevator pitch for a reason. If you can't explain the idea in five minutes, you've got to refine it. If it's an interesting pitch and hits some of those initial criteria, you don't need more than 15 minutes.
Q: What kind of due diligence do you do?
A: We go very deep. It's ideal if the investment going in is to do more of what's already been proven and the money is just being used to expand. That's really where all the diligence is headed. If you want to do something different with the money or trying to prove a concept, that's where risk comes in. So it's all about trying to mitigate that risk as best you can.
Q: Have many of the deals you've made on Dragons' Den worked out?
A: I've held up my hand for 18 deals and am still working on some of them. I'd say I'm going to close on seven or eight.
Q: Why do some deals fail?
A: The most common one for me is the company changing their story once we got into diligence. It could be the valuation has changed in the three weeks since the show was taped. That's happened to me because some are digital businesses and they've just grown that much in the previous month. The entrepreneur's need may have changed and they need more money than they asked for originally. Other people, I've come to believe, don't want a deal when they come on the show. It's become a very powerful marketing platform.
Some don't survive the diligence process because when you get under the covers of some of these businesses, they don't look as good as they sounded in the seven minutes. If we close seven or eight deals out of 18, that's a lot higher percentage than real life. In the capital company, we'll look at 50 to do one.
Q: What turns you off a pitch?
A: Once you take nervousness into account, it comes back to a feel. Sometimes you just smell something isn't consistent or quite right with the idea or person. It starts with a feeling of how much the entrepreneur has their act together and the kind of person they are. Do they have a good grasp of their numbers? Do they have a realistic idea of what their business is worth? I don't worry too much about that because Kevin [O'Leary]takes care of it.
Q: What's your top tip to entrepreneurs making a pitch?
A: Rehearse. Make sure that you can get a stranger to understand it in five minutes or less.
Q: How do you like being a Dragon?
A: My inbox is a lot fuller than I need it to be right now because of it. Ask me in six months. But no regrets yet. I'm a serial entrepreneur. At least I'm spending my time dealing with other dreamers.
Special to The Globe and Mail