SDO 016 - Navigating Uncertain Markets as a Data Leader - Ethan Aaron
Interview: Ethan Aaron, Founder & CEO at Portable
What are your thoughts on acquisitions in the data market?
We are in a drastically different market from even a year ago when it seemed like our industry was being pumped up with unlimited VC money, and every day a new data tool popped up. Fast forward to today, and leadership teams are asking departments to do more with less. This reduction in potential revenue for startups leads many to ask “what if major players started acquiring these startups?” Maybe we could finally implement the Modern Data Stack without the need for 10+ vendors— one vendor to rule them all! Jokes aside, my conversation with Ethan Aaron below explores this question, but his quote from the interview best summarizes the answer: “It's very difficult to spend a hundred million dollars…”
I’m speaking at two upcoming conferences!
DSCO 2023, Data Science Conference, March 12 – 14, San Francisco
Session: Data Science as an Equalizer
Low-Key Data Conference, 3/22 from 1-5 pm EST, Virtual
Hear from Ethan Aaron, Founder & CEO at Portable:
Hear from "XYZ" highlights real-world use cases for all of us to learn best practices and upcoming trends within the DataOps space. I first talked to Ethan last year as a networking call to learn about a fellow data nerd, and our conversation has stuck with me since. Specifically, Ethan comes from a background of both leading a data team and finance (Mergers & Acquisitions), giving him a unique perspective of the data marketplace. In our first conversation, he shared how he believes many data companies have raised too much capital and its impact on the future. I haven’t stopped thinking about this, so I had to bring him onto the newsletter so you all can learn as well. Enjoy!
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How did your background in mergers and acquisitions within the data industry prepare you to be a founder?
Ethan: “I think there are a couple things about having a background in strategy and M&A that are really valuable to being a founder. Number one, if you ever work in M&A or finance, one of the best things you get very good at is creating landscapes of the ecosystem. You aren't looking at a feature. You're not looking at a user. You're looking at the entire landscape. All the companies that can serve a certain use case. And I just happened to be looking at the data integration ecosystem. So I'm coming into this with a very good understanding of the ecosystem we were about to play in.
Luckily, the M&A experience gave me a very good understanding of the ecosystem, but even better for me as an ELT company, is before I worked at M&A, I stood up the modern data stack. So I went into my research in the industry from an M&A perspective, having first done this myself. I was talking to companies, being like, "Hey, I need to put in place a data warehouse. Hey, we're looking at ETL tools, data collection tools, visualization tools..." we had a bunch of these tools in place in various parts of the organization at LiveRamp when I stood up a centralized data team.
Number two is capital structures. Something a lot of founders don't have a ton of understanding of when they start their company is what are the implications of raising capital; whether it's debt or institutional rounds, or safes, or taking money from angels. What does that mean for future expectations, growth expectations, and what does success and failure look like? And looking at companies from the other side of the table, be like, "Hey, I wanna acquire your company." the first thing that comes to mind is the capital structure. Can you afford the company? Will their investors allow you to acquire them, et cetera?
So I was able to go look and use these tools first, then I worked at M&A, and then we started the company. So, of the experiences, the M&A experience provided landscape understanding and capital structure. But honestly, the experience running the data team is when I talk to our prospects and clients like I've been in their shoes before and I'm in their shoes now.”
You have shared that many data companies are over-valued within our fractured market. With the changing market, what does this mean for consumers considering vendors?
Ethan: “Thinking about it through the lens of a consumer. So number one, let's rewind back to 2021 and 2022. Interest rates were very low, which means valuations of everything were very, very, very high. You could have one dollar revenue, and the value of your company was a thousand dollars. We saw the same thing happening in the data world. Companies with very little revenue saw unbelievably high valuations, unicorn-level valuations. Or companies with menial revenue having very, very large multi-billion dollar valuations.
What does that mean? It means that those companies raised a lot of money. So if one of these companies raised a hundred million dollars, two-hundred million dollars, three-hundred million dollars, you don't really have to worry about these companies disappearing overnight. That's not the problem that is going to face companies that took on money at too high of an evaluation. So as a consumer, as long as the companies have capital, I wouldn't worry about are they gonna disappear.
It's very difficult to spend a hundred million dollars, so I wouldn't worry as much about that. My hunch is that who's in charge of those companies might evolve over time. When you don't have institutional investors that own most of your company, the founders and the CEO have a lot of power over the strategy, the product development, the hiring, and all that.
When you raised at unbelievable valuations and the board is not the founders, it becomes a question of how do the investors most effectively get a return on their investment? Hopefully, that aligns with the founders and the CEO and the people that are running these companies, but I would say as a consumer, as the person actually buying products, that's the dynamic.
The companies are not gonna go away, but inside of these companies, a lot of employee equity at this point is probably worthless. It's underwater. So are the employees all gonna stay? Maybe, maybe not. Maybe they have to get new equity packages. Are the founders gonna stay? Again, maybe not. If the valuation was too high and you can't get back that, their founder equity might not have value in it, and the board might want someone else to step in and try and create value. So I think consumers double-check to make sure these companies will be around. And I would expect slightly less innovation, new features, new products, because of the turmoil that could exist in the coming 24 months.”
Given your experience in finance, how are you best positioning your company to be competitive within a down market?
Ethan: “I would say there are a few different things. So up until now, we've been unbelievably lean, and we're not doing that necessarily from a financial perspective. We're doing it from an operational perspective. We believe the problem Portable solves is an operational problem. We wanna build 10,000 integrations.
Money doesn't solve that. If you gave me a hundred million dollars and told me to go hire all the people to build 10,000 integrations, I can't do it. What we need to do is figure out how to build a platform to get there. So our ability to stay lean has been in service of that vision and that mission. How do you operationally scale your business? Not how do we save money.
That being said, when I think about finance, everything's an investment. You put money in and you get an investment, you get a return on it. What that return looks like changes. So one of the things I think about right now, and I think about it like portfolio allocation, is go-to-market for Portable.
There are ten different channels you can sell your product through or service through. One, enterprise sales, hire an enterprise sales first, and they have 50 meetings with a company, you sign a hundred thousand dollars. Option two, SEO, search engine optimization. You write a bunch of content, put it on your website, and wait.
It takes a lot longer. It drives views, which overtime drives clicks, which overtime drives signups, and overtime money. So the return on it is much slower. But the economics of search is pretty remarkable as well because you can write a hundred pieces of content and then forget about it, and it will always effectively pay a dividend.
You can do paid ads, pay $5,000 this month, and get traffic to your site. The problem with that one is it's fast. You get signups now, but if you shut it off, it's gone. So when I think about a lot of the decisions we make as a company, whether it's investing in profit or investing, go to market channels. I view them all as investments.
Right now, the couple investments we're making, one SEO, is that gonna pay off in the next two months? No, not at all. It's a long-term play. So either our portfolio of go-to-market investments, it is something that we are gonna want to have done a year from now. So we're starting now.
We also need faster returns. We need signups today because those signups today turn into advocates that start telling the market Portable exists and that they love the product. So when I think about finance, there are all the capital structure aspects. How do you raise money? How do you tell stories of investors?
But one of the most interesting ones is every decision you make, every person you hire, every feature you release... how much of the cost, and when does it return that investment? If you can't get those numbers to work, don't make the investment. Some numbers are long-term, and some are short-term. But I think the biggest thing is just to think about every one of these decisions as capital or time goes out, and then over time, you either need to recoup capital or time. So that's the biggest lesson learned and kind of framework that I've been using a lot recently.”
Ethan Aaron is the Founder & CEO at Portable. Feel free to connect with him on LinkedIn to learn more about his work and to check out his company.
What are others saying in the DataOps space?
‘It’s All Just Wild’: Tech Start-Ups Reach a New Peak of Froth
What: A New York Times article from January 2022 that best captures the state of funding in tech.
Why: This article provides historical context to my interview with Ethan Aaron.
Who: You are a founder or VC who wants to remember the good ol’ times before capital became expensive again.
The ‘Too Rich to Succeed’ Challenge Facing Start-ups
What: A 2014 article from Wharton describing how a surplus of money combined with high investor control can lead to startups failing.
Why: This article also provides historical context to my interview with Ethan Aaron.
Who: You are a seasoned tech veteran experiencing a deep sense of deja vu.
Modern Data Stack: Use Cases & Components (2023)
What: An article from Ethan providing a great overview of the Modern Data Stack.
Why: There are so many tools that can be included in the Modern Data Stack that it can be hard to grasp what exactly it is.
Who: You are looking to implement a component of the Modern Data Stack and want to review potential solutions.
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