Stacey Abrams: How to harness risk

0:00Scaling a business in the US can feel like a maze. Each state has its own payroll, benefits, and compliance rules, pulling your focus away from growth, which is why founders use Deal. Deal is the professional employer organization, or PEO, that gives you a dedicated HR expert, plus Fortune 500-level benefits for your team. The National Association of PEOs says businesses can grow twice as fast if they use one. So, if you're scaling, make it simple with Deal. Go to deel.com. slash MOS and get up to three months free. One of the patterns I've seen over and over and speaking with successful founders is this.

0:40They don't wait for HR problems to show up. They build solid systems early on so their company can grow without tripping over itself. JustWorks is one of those systems. JustWorks is the human resources platform that helps you scale without sacrificing your team's needs. It handles automated payroll, benefits, compliance, even international hiring, so you can scale your team without slowing your momentum. JustWorks secures your hiring systems so they don't cost you time, money, or people, which is how you scale with confidence. JustWorks for your people. We went to Kotzebue, Alaska.

1:25And we're fly fishing. We're doing she fishing in a catch and release area in Kotzebue.

1:33It was cold.

1:40It was beautiful. I'm in the water. I'm casting fast and reeling it even faster.

1:52That's Stacey Abrams. You probably know her as a leading voice in American politics. But the story she's telling is a window into her parallel life as an entrepreneur. In 2006, Stacey and her friend Laura Hodgson co-founded a small venture called Insomnia Consulting. Now, they found themselves north of the Arctic Circle, trying to win a new client. That would be the Alaska Native Corporation, or NANA, representing local indigenous communities. Our guides are members of the Inupat tribe that own the NANA Corporation. And so we're out there, and one of the gentlemen came up to me, and he was going to gently correct my casting.

2:34And I said, no, no, I know what I'm doing. My dad is an avid fisherman, so I know how to fish. But her guide pointed out the obvious flaw in her argument. He said, well, you're not catching any fish. I'm like, I don't want to catch the fish. it's cold in this water and I just want to give it a requisite amount of time and then get out. But out of graciousness, because I am Southern, I caught three she-fish. I demonstrated my prowess with the rod and the reel. I released the fish and I got out of the water. I'm back on the boat. I'm reading the book I want to read. And Laura is still in the water.

3:07And she is catching and releasing and her she-fish count is rising by the moment. and they lean over and they said, she's really good. Is she going to stay out there all day? And I'm like, Laura's going to stay out there until you tell her to stop. Despite the frigid temperatures, Stacey's co-founder was determined to be the queen of the she-fish. I think that was one of those moments where in the cold of Alaska, I saw encapsulated who we are. I want to get the mission done and Laura is relentless. We refer to ourselves as yes and but. She is yes. And I think, but. This fishing tale could be a modern fable of entrepreneurship.

3:53On the one hand, Laura, relentless pursuit of a goal and a willingness to stay in the icy river no matter what. On the other hand, Stacey, who said, get the job done fast and get the heck back on the boat.

4:13When we tell the stories of successful founders, we often elevate that first way. We say, be competitive, tenacious, the last one in the water. But look closer. Stacey's approach is not just viable, but ruthlessly efficient. She knew her goal was to win the client, not catch the most fish. So she marshaled her resources where they mattered most. Both approaches are valid, and both Stacey and Laura would go on to become scale leaders. As yes and but, each would have a different challenge in front of them. That's why I believe there's a place in entrepreneurship for both yes and but, if they work in harmony.

5:00You've got to have incredible talent at every position. It's like this huge push. There are fires burning when you're going home. Can you believe it? Such an idiot. And then you go back to, this is totally going to be amazing. There are so many easy ways. I have no idea what to do. Sorry, we made a mistake. But you have to time it right. Oops. Working out of a three-bedroom apartment. Stuff that just seems absolutely nut balls. Ten years later, we're like, well, that's just how you do it. We haven't made it. Just how you do it.

5:30This is Masters of Scale.

5:37I'm Reid Hoffman, co-founder of LinkedIn, partner at Greylock, and your host. And I believe there's a place in entrepreneurship for both, yes, and, but, if they work in harmony. When I interview guests for the show, I always end with a series of questions we call the lightning round. There's something between a personality quiz and a party game. What's something that's in your pocket beside your phone? A soil thermometer. My pocket, my car key. I live on an island, so I don't have any pockets. I just have a swimming costume on all day long. One of the delights of asking these questions is hearing how different the answers can be and how different founders can be too.

6:23Take some of the different ways our guests have answered one very simple question. Open office or closed office? Closed. Open office. What am I working on? A little bit of both. I actually don't like an office. Open always. We're open door people. We have an open office, but I'm starting to rethink. I am craving to be back in an open office. Whether or not you want your office door to close doesn't actually say that much about the kind of entrepreneur you'll be. But we can't help assigning meaning to it anyway. We do the same thing when we talk about an entrepreneur's appetite for risk. Some people naturally gravitate toward entrepreneurship because they can't imagine doing anything else.

7:06They know early on that they want to be their own boss and scale their own ideas. Not only are they comfortable taking risks, they see it as a perk. But there are many entrepreneurs who don't fit this description. They may never have envisioned themselves founding a company. But at some point, they saw a need. And starting their own business was a pragmatic means of answering it. To them, the risks may seem more like a necessary evil. This alternate perspective doesn't hurt the second type of founder. In fact, it can be an asset if they can harness their risk aversion instead of being ruled by it.

7:45I wanted to talk to Stacey Abrams about this because as an entrepreneur and scale leader, both in and outside of politics, harnessing risk has been one key to her success. As a social entrepreneur, Stacey founded and scaled not one, but two voting rights organizations, the New Georgia Project and Fair Fight Action. She also founded the Census Mobilization Effort, Fair Count, and the Southern Economic Advancement Project. In the political arena, Stacey Abrams is a master of taking calculated risks, embracing scale challenges, and going for yes when every pundit is predicting no. As a 2018 Democratic nominee for governor of Georgia, she won more votes in her state than any other Democrat in history, which is why this year she's gunning for a rematch.

8:36But Stacey's had an entire parallel career outside of the political arena. And no, I'm not talking about her stint moonlighting as the romance novelist, Selina Montgomery. If you haven't heard that story, please look it up. She also co-founded three businesses with Laura Hodgson, the master she-fisher that we heard about earlier in the show. And they've just written a new book about their experiences called Level Up. Often the books that you read about entrepreneurship or small business ownership tell you the great stories. It's usually the rags to riches story or the innovation story. Sometimes it's a passing account of the failures on the way to glory.

9:18And we really wanted to linger in the failure. We'll get to that tantalizing cliffhanger of failure in just a few minutes. Stacey herself can tell you that the entrepreneurial path was not one she had planned for. I describe myself as a reluctant entrepreneur. Heretofore, I was very, very, very fond of paychecks. I liked the fact that someone else was responsible for making certain that I had my mortgage met. But in 2006, I decided to run for office. Stacey had been deputy city attorney for the city of Atlanta. Now she'd be running for state legislature, a full-time commitment that's technically a part-time position.

10:02If she won, her salary would be less than$18 ,000 a year. I knew I needed to focus on running for office, but I also needed to pay my mortgage. And so I was encouraged to start a consulting firm to work on one of the last big projects I was doing at the city. That was the Atlanta Beltline, this 20-plus-mile green space transportation hub. And I'd been the lawyer who architected a lot of the infrastructure. The nonprofit organization overseeing the Beltline wanted Stacey to keep consulting on that infrastructure. So they said, well, if you'll do that, we'll pay you. I'm like, oh, really? And so they said, yeah, do you have a company?

10:42And I made sure I had one. And that became my first client. Stacey called her brand new consulting firm, Sageworks. She was officially an entrepreneur. Over time, I added a couple of additional clients. I helped bring the Atlanta Dream to Georgia. The Atlanta Dream, a women's professional basketball team, part of the WNBA. And got to get into a fight with David Stern, which gave me street cred with my brothers. As a lawyer, Stacey was positioned to apply her unique skill set to entrepreneurship, even if she hadn't intended to land there. I think the most important lesson I learned in my first forays, one was the importance of record keeping, which sounds pedestrian.

11:29And as a tax attorney, it's ingrained in me that that's what you do. But when you're a small business owner, your first responsibility as an entrepreneur is to know what you owe, know who owes you, and know what you've done. That attention to detail and accountability would serve Stacey well, not just at SageWorks, but in government. Remember that race for state legislature? She won. That was 2006, the year Stacey would also meet her business partner, Laura Hodgson. It was at a program called Leadership Atlanta. Right away, they saw they had different approaches, different personalities, and one more difference that might surprise you.

12:09One of the things that's kind of delightful about your story is Laura's a Republican. Politically, we are different. She was appointed by then-Republican Governor Sonny Perdue to serve on a board. She and I had different politics, but similar values. And that's a distinction that people often dismiss as impossible. And what she and I found is that on many of the issues that mattered most to us, our values and our approach were aligned. What Stacey and Laura found themselves most aligned on was the desire to bring unique infrastructure projects to life. So they formed Insomnia Consulting, a nod to their working hours.

12:51As co-founders, one of their greatest strengths was their most obvious differences. Laura came from the real estate development world. I came from the city of Atlanta, which meant I'd gotten a very hard and fast course in public works and understood in granular detail how governments made decisions about infrastructure. She understood the private sector's conversation. We together could bring people from various points of political view together. And while they would never have taken my call or may not have gone to her meeting, when we came together, we were able to land them as clients. This is a classic benefit to co-founders bringing different skill sets and networks to the table, as well as complementary approaches.

13:38Or as Stacey told us earlier. We refer to ourselves as yes and but. She is yes. And I then go, but. This shorthand isn't meant to oversimplify their personalities. As a politician, Stacey is one of the most yes-oriented people I've ever known. As business partners, however, it worked well for one of them to always be looking ahead to new opportunities and one to always have an eye on the essential risks. And actually, let's take a moment with this idea of essential risks. It's something I spoke with my producers about, and it's the key to understanding why stretching all of your risk-taking muscles is important.

14:19There's this nuance about how you take risk as an entrepreneur that's really important. Some like to say, okay, I'll take a little risk, and then I try to take as little risk as possible. That's generally a mistake. What you want to do is you want to say, okay, which risks are intrinsic to this entrepreneurial path? and then I will take those risks and manage them really ferociously, but I'll take that entire risk. Like, is there a product market fit for this product? Or does this MVP get me enough that I can really test whether or not this is gonna work or not? Or can I outpace this competition?

14:53Or can I get the right talent in order to do this? And then you try to align behind those risks and then take those risks, but no others. And then there's the other thing, which is you don't wanna take every risk. You want to take just the essential risks that get you to creating something new, something important, something valuable. The good news is you can learn how to better separate the essential risks from the extraneous ones. And that's where having both yes and but on your team comes into play. If you're a company of gung-ho risk takers,

15:29every opportunity is going to look dazzling. And you may end up chasing bad bets. If your team is ultra-cautious and risk-averse, every new idea will seem like a disaster waiting to strike. It's like the old adage, if you're holding a hammer, everything looks like a nail. You need your partners to be holding different tools than you are. The fact that Stacey was in government and Laura was in the private sector meant they had different tools and different nuanced outlooks. Laura brought the let's go now of the corporate world. And Stacey brought a regulator's eye to assessing risk.

16:18But when it came to their next big venture, their essential risk management tools in particular would be put to the test. Insomnia was our infrastructure company, and it was going well. Then there was a slight collapse in the economy that took out infrastructure and real estate first. But for us, it also happened to coincide with a conversation we'd had when I was running for office. Laura had her son, Connor, and she was trying to make a bottle for him while we're sitting at lunch. Laura had formula powder at the ready, but she needed water to mix it, which was more complicated than it might seem at first.

16:58There's the shape of most screw-top baby bottles with a small neck that invites spills. Then there's the quality of the water itself, wherein the real risk lies. She had to send the waiter to go and guarantee that she had clean water. There was a lot of trust in that moment for her. She said, I wish Dasani made a baby water. And we all kind of went back to the conversation about the campaign. But later on, we started talking and I said, well, what do you think? And she said, well, I've been really thinking about this. and I want to try it. This was the yes moment so many entrepreneurs will recognize.

17:32And both Stacey and Laura claimed it. They founded Nourish, a brand new baby water company that would sell purified water sold in wide neck bottles for mixing formula on the go. Neither of us had ever been involved in manufacturing. She was married to someone from Coca-Cola. I have consumed Coca-Cola products. I have consumed water and I was a baby. But that was my exposure to the necessities of baby bottles. It was a new construct. We had never seen anything like what we were putting together. And so she and I gave ourselves the task of figuring out what this can look like. Did that feel like kind of jumping off a cliff?

18:12It was less Sundance and more Romancing the Stone when you're kind of sliding down the cliff as opposed to just jumping to the abyss. But it was certainly a departure. This is a delightful new twist on our usual cliff jumping metaphor. for, especially if you happen to be afraid of heights. But whether you're going down in a self-built airplane or by running down the rock face, there's a reason we talk about entrepreneurship in this high-altitude way. To me, jumping off a cliff is the best way to capture the oh-God moment you feel when you launch a new company in a motion. No matter how intelligently you've assessed your risks, there's always a moment of vertigo when you look down and see how far you could fall.

18:52To ignore that feeling is to ignore the reality of starting a business. But to succumb to that feeling is to undercut your best asset in those first moments, your gathering velocity. What benefited us and me, I'll speak for myself for a moment, is the intellectual curiosity. I didn't know how it worked and I wanted to know. And Laura and I have that shared curiosity, that desire to understand how things come together. She's actually an engineer by training. I'm just nosy. And so it was, how do you do this? And we investigated. We went to visit plants and we read books. And so, yes, there's a knot in the pit of your stomach, but there was also the opportunity to learn about a whole new industry that could transform how people live their lives.

19:42This is a brilliant shift in mindset that I want to underscore here, especially for any listeners who, like Stacey, identify as reluctant entrepreneurs. Stacey and Laura took their fears and channeled them into curiosity. About to become a manufacturer and you know nothing about manufacturing? Ask questions. Learn the process. It's a shift from I don't know how any of this works to I wonder how this works. Rather than running away from the unknown, curiosity encourages you to run toward it. One place Stacey and Laura turned to for answers was their respective networks. Laura and I inventoried ourselves.

20:26We thought through, who do we know who can help us with things and who will do it for free or for de minimis amounts or for the promise of something in the future? Laura had a group of people that she knew who could help us think through the manufacturing and the sourcing. I had friends who could do the art and the design. And so we each would pull from our pool of allies and we were able to build a prototype. Among those allies was Spanx founder and previous Master to Scale guest, Sarah Blakely. Sarah and Laura have known each other for a long time. Part of what was helpful in building the company was that you had someone who was certainly further ahead in the process than we were.

21:10but remembered enough of it that she could give us really good advice. You too can get good advice in Sarah's own episode, How to Find Your Big Idea. It's in our show feed. One way that Sarah counseled the brand new Nourish team was in choosing which retailers to approach first, which meant getting into the mind of the consumer. When will they most need your product and where will they be most likely to encounter it in the store? This had to be a convenience product, but we had to explain where the inconvenience was. We are not what you need when you're sitting at home with your can of Infamil and easy access.

21:49We are what you need when you're lost in the airport and your flight's been canceled and your baby does not care. Yes. When that paint point was so high that our price point was not too much. And that made it a lot easier to pitch to boutiques. We're able to go into airports. We were in hospitals. We were in places of high inconvenience where the necessity of our product suddenly becomes evident. Notice how Stacey and Laura zoomed in on the product market fit. They understood where their customers might feel most vulnerable to the unexpected, places of high risk and high time pressure like airports.

22:26This boutique strategy also helped nourish, mitigate risks to their own supply chain. When you start by partnering with small sellers instead of a major grocery chain, you learn quickly whether the product is a fit without a massive capital expense. Because one of the biggest risk factors you'll be mitigating is cost. As it turns out, even in the Coca-Cola capital of the world, making bottles of baby water isn't cheap. Our product required hand assembly because it was a nipple or a sippy cup top. and our bottle was designed to be held by a little kid so it was a different shape. To build the equipment to do it automatically, we had to buy more equipment and it cost money to build molds.

23:12It costs money to specialize. We did not have money. Early in Nourish's life cycle, Stacey and Laura needed to fundraise. So once again, they inventoried their social and professional networks. Who did they know who would want to invest? That's when they noticed a growing distance between yes and but. One of the challenges that we had is that Laura had access to people who could invest in the company. I didn't know that I did. Laura went to Georgia Tech. She went to Harvard Business School. And there was a comfort in having conversations about money. I had not come from that space. And I had not been in a position to ever ask someone to invest in something that was outside of my brainpower.

23:59This is a necessary leap all entrepreneurs must make. But as Stacey points out, it's not equally vertigo-inducing for everyone. And as someone who'd been in politics, who'd raised a fair sum of money for my first race, I was very comfortable with political fundraising. What I did not know was how to raise money for a business. The people who gave me money for politics did not believe that I understood what I was doing in business. And that's a very different way of having to see yourself. The shift to having to ask for investors versus being able to do it yourself, that is probably the most terrifying part of it.

24:37It's not the product and the learning. It's just anyone else willing to invest in what I think I see. Let's dig into that a little bit because I completely agree. I think for a lot of entrepreneurs who come from disadvantaged communities, there is a humility that we think is what's driving us, and it's less humility and more fear. We're afraid we can't do it, and you can't ask an investor to put their money into something when you don't trust yourself enough to believe that it's worth it. This is absolutely true, and it's a problem that needs to be worked on from both sides. Yes, entrepreneurs of all backgrounds must learn to fundraise with confidence and ease, But it is incumbent on investors to break free from their own limited networks.