What litigators can learn from entrepreneurs with Aaron Houghton – Part 1

Adam: All right, welcome back to the Reed Smith Disputes and Perspectives podcast. I'm Adam Massaro. I'm a partner in the Denver office of Reed Smith and I have Aaron Houghton with me as our special guest today. Aaron, welcome to the pod.

Aaron: Hey Adam, thanks for having me. Good to be here.

Adam: Well, appreciate it. So Aaron, obviously you've got a very interesting background and I want to get into it very quickly here, but just for the audience benefit, tell them a little bit about what you are and who you, what you do as an entrepreneur. Please.

Aaron: I have been a serial entrepreneur my entire life. It's been my entire, entire existence. I've never had a job, never written a resume, never gone to a job interview. And subsequently never been fired, except by a few customers and maybe some team members and no co-founders yet. But I've been building companies for 25 years, mostly software companies. I did have a little side detour where I built a physical board game, which was really fun and not as scalable as some of the other things I've built. But mostly in software, mostly process automation, trying to make things that are complicated, simple, bringing things from the enterprise software market down to the small business market and building teams, really experiencing some, some pretty fun, pretty wild things along the way. I had 250 team members when I was 25 years old on payroll. I signed a $16 million lease in my mid twenties and signed that guarantee saying that I promised to pay the money back, um, and built products that have, have gone to huge scale. So I built a company to $50 million annual recurring revenue, sold it for a couple hundred million dollars when I was 30 years old. And one of the products that I built will reach a billion dollars in total revenue in the next couple of years. So I've built some things that have had pretty high scale and pretty large impact, and it's taken me to the edge time and time again, of my own abilities of, of burnout, of exhaustion, of anxiety, of panic attacks, and, and lots of imposter syndrome along the way.

Adam: Well, I'm glad that you've already sort of turned over some cards because, you know, somebody asked, well, why on a litigation podcast do we have this phenomenal entrepreneur? But my thesis is actually that entrepreneurs and litigators actually have a lot more in common than they realize, because my thesis is really, we're both building things typically with a lot of doubt, and there's a lot of difficulties in the same concept from the day you start a case till the very end, there's a lot of tested faith between you and the client and whether you can build that thing, have faith in the process and to your point, both handle it from both the mental aspects and the professional aspects. So I think we're going to pull on a bunch of different things and try to go into some water that none of us are comfortable on, but ultimately that's the best place to be.

Aaron: That sounds great. Yeah. I love this concept of, it takes a while into the process to find out whether all the things you've been building all along are actually going to accomplish the mission you want them to accomplish. I think that's probably consistent across both of these areas.

Adam: And the other thing I will say to kind of hearing the things you say, which is, you know, oftentimes having responsibility earlier than you think you can handle it, which is very traditional with the sort of the crazy growth curve you get with entrepreneurs, litigation is not that different, you know, early on, you start working on a team, but then after a while, there's no limitations. There's no thing that you have to be practicing for 10 years before you get to be the lead lawyer on a trial case. It's just your own abilities, which is somewhat like an entrepreneur in the same idea. Your ability to run a company that has 5 billion in revenue versus 50 is largely your ability to scale up and litigation is no different in that respect where you can handle $5 million cases. You can also handle 50 or $500 million cases if you can scale up. And so I think that's a great place to start for right now is talking a little bit about scaling up because it's in the entrepreneur world and it's in the litigation world and to handle the bigger, more challenging matters, either whether it's business or litigation, you got to scale up. So I want to talk a little bit about the scale up. You mentioned obviously the growth. Talk a little bit about on the, both the chaos and the lessons learned when you're taking companies and growing them from a handful of employees to over 250.

Aaron: Yeah, it's, it was a constant challenge to reinvent myself and reinvent my role. One of the practices that I picked up along the way was trying to actually write a job description for what I do. And then changing it when I realized that I needed to change it. Now, the first couple of times around, it was way too late and it was wrong. And there were some challenges to that, certainly, but really trying to not just write job recs for everybody else and all the people I hire on my teams, but for myself, so I can understand that when I'm in the early stage of the business, I'm the person building the product, I'm the person talking to the customer, I'm the person getting feedback, making changes, asking if they'll buy it. I'm doing pretty much everything. And then you start to build a team. I started to build a team kind of beneath myself in the organization and other people now do those roles. And my job is then managing those people and then eventually transitioning into really more external sort of a visionary role, kind of trying to lead where the market is, trying to liaise with investors and partners, and really shifting out of that kind of day-to-day internal sort of work. And I tried to, I tried to reinvent myself probably about, and my most successful company was a 10-year journey. So from zero, like $0 in revenue and no product to $50 million in annual recurring revenue and millions of customers all around the world. Probably every six months in the beginning, my job role changed. And then in the later years, it was about every two years, something would change. I went from being the person that did everything to being the CEO. And that didn't mean anything because there were only three other people in the business and we just figured it out to eventually chairing the board of directors and actually having a different CEO work underneath me that actually reported to our board. And so I had to figure out who I was in each of those different roles from, from a business standpoint. And then I had to figure out how to handle the pressure of those roles. I went from, you know, asking somebody if they would buy a $19 a month product, which has pretty low risk, whether they say yes or no. And then if they cancel six months later, it's like, darn, we lost that customer. But it doesn't really matter that much because we have thousands of customers to eventually being on a board where we have investors that have put, you know, 50, 60, $70 million into our business. And they're flying in from all around the country with their fancy suits and ties on and talking about the nice dinners they have while I'm still eating ramen and trying to understand what they need and figure out how to keep them happy. Well, at the same time, keeping the team motivated and moving in the right direction and that constant context switch and that constant just pressure to deliver, pressure to be the right person in that role, just continue to sort of ratchet up and ratchet up over time where I felt like I could slip up with a customer in the early days or slip up with my internal team when we're just 10 people and later on, you know, every word I said on the board of directors was scrutinized and it was listened to very carefully and people would read into things and assume that I knew what I was talking about if I said something incorrectly and I'd have to back off of it carefully. And so, the level of pressure became something that was really, really new to me. And that's what I think probably was the most challenging for me. And in part challenging because I'd never had a job before, I'd never had a mentor, I had never been in this type of environment before and here I am in my mid-20s trying to figure out how to do everything from product at the bottom all the way to leading a board of directors and speaking at global conferences about where the market's going when many times I had no clue where the market was going, but just had to suddenly come up with ideas and stand behind them. It was a big change.

Adam: One thing I'm curious about though is with respect to knowing when you're too busy as the executive that you have to figure out how to bring on more people. Oftentimes, it's far too late that you make that realization. But as you got better at it, what were some of the indicators that you realized when you knew I need more people surrounding me because I've got a finite issue and my growth is going to be capped at my inability to bring on more people?

Aaron: I developed over time this concept of optimal pace, which was the maximum amount that I could handle in terms of pressure and hours in the saddle in my professional role. And I ended up using that as a guideline to allow me to figure out really where my red line was as an engine, like how far I could push this thing without blowing the whole thing up. And I tried to use this with team members as well, but this became a personal discipline where I was trying to understand if, like I wanted to be involved in the most complicated problems. I wanted to be involved in the problems that had the biggest opportunity to drive value in our business, so more customers, better product, more competitive strategy and more competitive product, more distribution. Like I wanted to be on those calls. I wanted to be in the room when things mattered. And I felt like that was because I understood our market really well and I understood our product really well. But pushing myself to do as many of those things as possible, I found I started to get some real diminishing returns. So if I was in every single one of those important discussions and meetings, then a really less performing version of me was showing up. I always like to say that burnout breaks brilliance and burnout turns brilliant people into idiots or makes us do stupid things. And I found that in myself where I was, when I pushed too hard, I was the person showing up in the meeting that couldn't come up with the creative answer or that lacked the ability to really inspire and motivate the team in the way that I needed to do it. And so I found if I pulled back just to the right level, I could bring that level of brilliance and excitement and energy and creativity to everything that I was doing and then I could stop. And so that's where I drew the line for I need somebody else to do the rest of it. And that line was constantly shifting. And I tried to push this discipline down into our teams as well, where when leaders realized that they couldn't be in every session, it was time to add more people or couldn't build every component. It was time to add more people. We got this right a lot. We got this wrong a lot. We raised a lot of capital and we got it wrong a lot because we had capital to, we had money to throw at problems. So we would sometimes hire four full-time people to solve a part-time problem that would go away after three months and then try to figure out what to do with those team members and how to shift them around. We did it wrong in all sorts of ways. But over time, I think we started to develop a good rhythm for figuring out when we needed to support ourselves. And it was all around what is each person's optimal pace? How much can they handle? And then everything past that has to be done by somebody else.

Adam: So the easy answer is, of course, hire more people. But often as a founder or if you are the lead trial attorney on that case, you deliver a quality of excellence that the client expects. That's why they hired you. And that's why the board keeps you as the CEO. What have you been able to do? What were the techniques to keep the quality of the product or the service in touch, even if you're not touching it day-to-day any longer? How did you figure out ways to make sure that you're still delivering the quality of the service or the product?

Aaron: For me, it came down to having the right list of things to measure. And so when we got it, it became a large organization that might be, you know, feedback coming from the customer. It might be feedback coming from partners and figuring out how to quantify that and measure it in the right way to make sure that we're not missing something or we're not pushing something too hard in a way that it's not working. I think that it ended up being a real discipline of trying to figure out how fast we could possibly go and how many things we could break without getting ourselves in trouble. And in the startup world, I would imagine maybe this is a little bit different than other professions. There was a pretty high tolerance for breaking things and going fast. The incentive was really around what did we learn from that situation? And so I developed a bit of a comfort level with allowing customers and partners to catch problems that we didn't catch because we're going fast. And so it became bigger. It was trying to get other people to help us with that feedback. In the short term, it was a lot of, you know, the first, let's say, three to five years, I was still involved in a lot of things, even in a small capacity, that final release review before something went live. The team might have built it. They might have spent two months building it and working quality assurance and saying that everything's ready. I still wanted to get my hands on it and take it for a test drive before we release it to the world. And that was costly. It's challenging to have a team below you and still be inspecting things. It wasn't, you know, I was always trying not to micromanage the team, but also to have enough, a little bit of perspective and insight into exactly what we were about to put out into the world so that I could help influence that. Challenging with internal relationships frequently to say, this isn't good enough. This has to go back for another, you know, spin cycle before we can release it. And then challenging sometimes with partners and customers to have to say, whoops, we pushed that out too fast. We, you know, mea culpa, can we try again? We'll help you out. We've always got your back. Thanks for letting us know. We apologize that this happened. Knowing pretty well that it would probably happen again in two months in a different way again, because we're going fast. We had to get a bit of comfort level with breaking stuff, for sure.

Adam: Now, I want to go back to the board for a second and talk about that dynamic, because I think both for partners that know that their CEOs are talking to boards about potentially cases that could change the outcome of that particular company. Or when you're talking to a board, because obviously you've got a substantial company that now has the level of an actual board oversight. It's such a unique dynamic because you now have the CEO reporting to somebody in a group outfit environment there where you may have some hostile, some not. And then especially with private equity sponsorship, you've got some very sharp minds on the board. When you're going into those board meetings, what was some of the thought processes that you had knowing that you're facing an environment of very, very sharp people, all of which are looking for answers very, very quickly?

Aaron: They had really good questions and often really poor context, because private equity does a good job of looking across a lot of things in a similar way that consultants do to say, you know, spend on engineering should be 22% on average of your total spend and marketing shouldn't be above 15% or something like that. And so my job was to help them, one, to listen to that, because that's super helpful to understand what is everybody else doing, right? Like, are we completely out of line? We had a huge engineering group, I think maybe 70 full-time engineers, and that was out of 250 people. And we sold into an organization that had a thousand people and I think four engineers before they acquired us. So these ratios can differ widely. They had an 800-person sales team. We had, in the beginning, zero sales team and then built it up to maybe 25 people. So those broad numbers were really, really helpful. And my job was then in trying to listen to that and translate that to, here's how it works in our unique business. Yes, that's a software company and we're a software company, but our competitors are going to kick our butts if we only have six engineers on our team because they're doing something really unique and we have to match up to that. We are a growth company, whereas this other company is, you know, maintaining and trying to optimize for margins. And so we're not going to spend 15% on marketing. We're going to spend 35% of total revenue or total expenses on marketing. So really trying to own those differences in our company to help kind of match it to the mental models of all the really, really smart people that were coming in and taking a look at our business. And the second piece, it was always kind of like, it was always a bit of an unfair battle. Like, as an entrepreneur in that type of growth company, I was not getting a lot of sleep. Nobody on the core team was. We were super stressed out. Our downside was like pretty close to zero for many, many years. Like if this thing doesn't go well, you know, we're looking for jobs and, you know, I have a car payment and credit card debt and like nothing else to stand on. And apartment rent that is due in my early twenties, like no real assets, nothing to fall back on. And then on the other side, you know, the entire room, other than my co-founder and myself, is surrounded by people that get a good night's sleep every night and like have goals and aspirations outside of work. I remember our private equity guys talking about all the different like triathlons that they were running. And I was like, wow, like to be able to even go to the gym would be amazing. Like we're pushing so hard over here. So we're fundamentally very different people in trying to figure out, you know, just at very different times in our lives and very, very different situations. And then most of our executive team, they're pushing hard, but they're highly compensated. Most of them at that time were in their forties and fifties. And my co-founder and I were in our twenties. And so, you know, they probably had like a little bit of nest egg to fall back on if this whole thing didn't work out. And certainly had the reputation of being a skilled and talented executive across seven different companies over 25 years that they could lean on if this thing failed. And, you know, the cards were stacked very differently for us as founders where like this is all we got. We're working 80 to 100 hours a week and honestly losing count, who knows how many hours. We were working all of the time except for when we're, you know, falling over sleeping. And we're trying to figure out how to operate in this boardroom together with really sharp people that get a good night's sleep and have goals outside of let's make this startup work. And it was interesting. I think we did a really good job. We had great investors. We had great support consistently throughout our business, all the way through the exit and beyond. And it couldn't have gone better. We had amazing capital partners and it was still really, really hard.

Adam: So talking a little bit about the systems that you put in place to succeed, obviously you've got to adapt and evolve at each step here. But what were things you learned, let's just put it the easy way, and systems that made sense early on versus the things you learned in the hard way through all types of personal struggle that probably also got you to where you got to. But it'd be helpful to understand from the audience perspective which ones fit into which categories because I think all of us want to strive for success, but the cost can be extremely, extremely expensive to do so.

Aaron: We learned pretty early on a lesson that has continued to serve me really, really well in life, which is that the core unit level economics of the business end up just being the entire engine and all of the horsepower. And if you can solve for that, everything else just gets so much easier. And having the really big success in that business, which was iContact, which was a marketing tools business early on, it wasn't my first company. In fact, I ran a services business before it, and then I saw what this product business was like. And I realized that we could reliably pay X amount of money for a customer, and they would pay us X times some sort of multiple over their customer lifetime value, which for us was over about three or four years. And in the beginning, those numbers were really far apart, which was great. We could pay relatively little for a very, very large amount of money per customer over multiple years. So we just had to figure out how to find those customers. And then we had to figure out how to not lose them over that multi-year period. And we had kind of everything figured out if we could do that. Now that got harder and harder as our market got more mature. We were relatively early movers. We were not even close to being the first mover in our space, but we were kind of like the second or third real player that probably got to a million dollars in revenue. And that early position allowed us to go into what was like pretty much a complete just like blue ocean opportunity where people needed what we offered. We were a low cost alternative. At the time, this is like in the early 2000s, at the time the opportunity was moving small businesses away from like literally printing out paper for their newsletter and putting it in envelopes and mailing paper updates to all of their customers. And so digital marketing and digital newsletters was the, you know, low cost alternative to that. So instead of spending hours and hours and thousands of dollars, here you are now spending, you know, $25 a month to send to a thousand customers or something like that. So people were moving to us to save money. The economics in the business worked really, really well. As competitors came in, the cost to acquire went higher and customer lifetime value came down because customers had other good alternatives in the market to switch to and lots of them, like probably 50 companies, software companies that were our competitors got to over a million dollars in annual revenue. And a couple of them got to a billion. We didn't, I can think of two of them that got to a billion. And so they had lots of other good opportunities and it just became harder to try and figure out that ratio. So that's one of the things that made everything easy, something that was really, really hard. So we were running this business in the Southeast and labor cost was cheap compared to alternative markets. Like we could relocate a software developer from Manhattan or from Silicon Valley who had really significant talent and pay them market rates for that part of the country. And I think Colorado and Denver area kind of has a bit of this advantage as well, where, you know, you don't quite have to pay the Austin rates for really good talent and SFO rates and New York city rates and probably Miami rates these days. So that was a big opportunity for us. The challenge in being in a sub market was convincing people that if we went out of business, they would have somewhere else in that market to go get a job without having to relocate again. And so one of the things we did to solve that was create a bit of a co-op among non-competitive software companies in our area, where if we were bringing an executive into interview with us, we would let them go meet three or four other software company executive teams. And they might say, yeah, we're not hiring for that role here currently, but we do also have a CTO and we have this 40% technology organization. And we'd love to tell you about what we're doing and keep in touch. So we would actually shop, not just the value of what we offered in a comp package to an executive, but in our entire region, here are 20 other software companies that are doing cool things. If we go belly up tomorrow, probably one of those folks will take you in. And we kind of had to sell the ecosystem alongside actually selling our positions as well. And that was a constant battle for us, but that was a model that actually worked really, really well for us over time.

Adam: You know, what they want to focus on, and this is, I think, advice you can give to our audience that are lawyers. The one tricky part with litigators is, you know, we stake a course in the case and then we, there's a perceived perception that we are very smart in our space, but you have to be willing to kill an idea early enough so that you can pivot and litigators and lawyers are terrible at this for a host of reasons, including fear, anxiety, all those things. What are some of the ways that you at the executive level actually allow failure in a way that encourages getting to the right answer faster, because that's a real struggle for lawyers. Sometimes they will not let an argument die out of pride or out of fear when in reality, the client wants you to get to the right outcome. Even if you lose this, it's okay. But how have you sort of instilled a different culture to be okay to fail and ultimately get to the right outcome?

Aaron: I think one of the hardest things about being an entrepreneur is that maybe the number one skill that allows or personality trait that allows entrepreneurs to succeed is persistence. And the number one, probably pothole that entrepreneurs can fall into that blows the whole thing up is persisting too long. And so these things sit as complete opposites and, and trying to figure that out is, is really, really, really difficult. And so that's at the, you know, like strategy level as an entrepreneur at the highest level. And then if we look down into our teams, similar challenge, right? You know, sticking with something that's really, really difficult and seeing it through sets apart, maybe the top 10% of all professionals of any type from the rest of everyone else, but working on something that's never going to work or working on something that is dragging you down to a point that you're losing your brilliance and your excitement and your energy for it becomes incredibly difficult and figuring and trying to do that projection of like, can I get this thing across the finish line before the whole thing catches on fire or sinks underground? Cause this whole, this whole ship is sinking. So with teams, I think what I've always tried to do is reinforce that failure is learning kind of back to the old adage that, you know, there is no failure. There's only the opportunity to do a better or different next time, which is a really difficult thing to do. But inside of a culture, if you're firing people for making simple mistakes or honest mistakes or mistakes that are things that failed that they thought with available data at that time was going to lead to the right outcome, then you're training everybody else on the team, not to take risks. So a lot of it comes down to as a leader, being able to accept that people are going to make mistakes with good intentions, and then trying to reinforce that to those people that they did the right thing, that they're not going to be penalized for this despite the fact that the company or their project or the strategy is going to take a hit because it didn't work and try and allow a little bit of that grace that we're always as founders and CEOs trying to give it to ourselves. We're probably not that good at it, trying to extend a little bit of that grace to make a mistake, to make a pivot, to take a day off, pull yourself back up by the bootstraps again, show up with a smile on your face and come up with a new strategy. And I think we only end up really losing when we either don't properly resource ourselves to put everything we have into the strategy, or we run out of new ideas for other alternate strategies. So we can just take what we learned from the failure and try and apply it into one of those channels. But I've seen, I've seen it myself. I've seen myself fail in a way that wasn't helpful when I pushed myself too hard to try and get something done and over the finish line. And I was the resource on it and I just didn't have what it takes to get it done. And I've seen myself fail when I've done the same wrong thing twice. So as long as we can learn and stay resourced, I think the path is always forward for us as entrepreneurs and leaders.

Adam: On the wellbeing side, max RPMs, of course, is some levels has to be done to get to the building. It's just the reality, but it's also, it's not sustainable. So how have you been able to learn to toggle and dial it back so that you have something left at the end?

Aaron: This is what I've spent the last 10 years trying to figure out. So I love, I love this question. It's, you know, I have a computer science degree and I've built software companies. So you might be able to guess the answer is I built some tools that helped me do this. And so that's what I've done. I went out about 10 years ago and I partnered with one of the top psychiatrists, psychologists in Silicon Valley, who works with all the top CEOs and founders who push themselves really hard and then work with some brilliant psychologist resources at the state level here in Colorado that we're leading economic development initiatives and tried to come up with a kind of a framework for what could we measure about high pressure, high achievers, specifically thinking about entrepreneurial outcomes and entrepreneurial leaders and startups from an economic development value standpoint and trying to really enable the best leaders in this country to create the best technologies and solve the biggest problems. And so we came up with a short list of things that we could measure. And I've spent about a decade now trying to figure out how to stack those things and look at them. And I've run a study of about 400 business leaders that just wrapped up this last summer and it ran over five years. And what it was trying to discover is what are the things that actually work for high performers under high pressure? So different than high performers in other situations, like maybe lower pressure situations, but these are people where it's like really all on the line and they are the top 5% or top 10%. What are the tools and techniques that actually work for these people? And one of the big takeaways that we got from that is we collected 3,000 different techniques and we got these 400 people to test them over five years. And we watched the outcomes and we watched to see what happened. It's about 8 million total data points. And the answer is movement work, mindset work, and connection. So anything that helps us feel more connected to people, anything that moves our bodies and things that help prime our mind with the type of environment that we need in order to be successful. Think of things like positivity or satisfaction with what we're working on. And so when it comes down to it, if we can resource ourselves in those three categories, we have a pretty good fighting chance. Now I've built some additional tools, one that measures the thing I mentioned earlier, specifically called optimal pace, where it gives everybody a specific number every day to say you have a capacity of 10 hours to work today, go get after it. But at 10, you better get your butt out of the chair and go find some of these other activities from movement, mindset, and connection to refresh yourself. And on other days you show up and it says you've got two hours to give today. So try and cap it at two, maybe it's five, but, you know, try and try and average yourself down to that number because that's the capacity that you have. And that's the tool. It's these tools that I'm using for myself now. It's these tools I use to coach founders and CEOs on how to find where their red line is so they can push as hard as they possibly can. But the problem with pushing yourself as hard as you can actually somebody, one of my clients explained this to me last week in his language, he said, it's like trying to find an electric fence in the dark because you don't know where your limit is until you strike it. And then you electrocute yourself. And then how do you back up from there? Cause it hurts. It's costly. It's painful. And I love that. And that's what I've been trying to help these high achieve these high pressure high achievers find for themselves is where is that electric fence that we're searching for in the dark and push all the way up to it to get maximum output out of yourself, but stop one inch before it before you electrocute yourself.

Aaron: Well, Aaron, that is all the time we have for today, but we have too much to talk about. So we're going to come back and we're going to wrap this up in a second setting, but thank you so much for joining part one, disputes and perspectives on Reed Smith. And we'll be back. That's great. Thanks Adam. Thanks for having me.

Outro: Disputes in perspective is a Reed Smith production. This podcast was produced by Shannon Ryan and edited by Julian Baughman. For more information about Reed Smith's litigation and dispute resolution practice, please email [email protected]. You can find our podcast on podcast streaming platforms, reedsmith.com and our social media accounts at Reed Smith LLP.

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