Learn How Troy Henikoff Reveals the Key to Unlocking Growth for Your Startup

Posted by Anant January 17, 2023

Troy Henikoff is the Managing Director of Techstars Chicago, and before that he was the founder and president of a $100M exit. In this episode he shares the “one core component” that every startup needs to grow, but most overlook.


→ He shares the “one core component” that every startup needs to grow

→ He is the Managing Director of Techstars Chicago, and Math Ventures

→ His roles at Techstars and Math Ventures

→ He is a lecturer of entrepreneurship and innovation at Kellogg School of Management

→ He is an entrepreneur with multiple exits and an angel investor

→ What are the signals that a startup has no chance

→ What are the habits that lead to startup breakthroughs

→ What do the best entrepreneurs consistently do to get their startups to the next level

→ His best advice to any startup that’s trying to grow

→ And a whole lot more


Troy’s LinkedIn Profile



Bronson: Welcome to another episode of Growth Hacker TV. I’m Bronson Taylor and today I have Troy Hinchcliffe with us. Troy, thanks for coming on the program.

Troy: Yeah, thanks for having me. Bronson It’s going to be fun.

Bronson: Absolutely. I’m excited about this one. I know people are going to learn a ton, but let me tell people about you a little bit in case they don’t know who you are. You are the managing director of Techstars Chicago, the managing director of Math Ventures, a lecturer of entrepreneurship and innovation at Kellogg School of Management, an entrepreneur with multiple exits and an angel investor. Is that about sum it up?

Troy: I think that’s good.

Bronson: Yeah. I think to say that your life revolves around startups would be an understatement.

Troy: Yeah, when people ask me, I just say it’s everything. Entrepreneurship. Yeah, that’s the thing.

Bronson: Entrepreneurs, that’s the big title. Absolutely. All right. So let’s just dove right in. Let’s start with your roles at Techstars and Math Ventures, because given the amount of startups that want to get into Techstars, I think 900 apply to Techstars Chicago. This year you could only accept ten. And given the amount of startups trying to get investment from math ventures, you have to make quick decisions about the winners and losers. What are the signals that a startup has no chance? And a side note here you wear a shirt around the office that says will tell people your baby is ugly. So I know you’re willing to give us the truth about what the signals are that you have no chance.

Troy: Yeah. So the way I think about first of all, investing is a lot about pattern matching. And having been in this space as both an entrepreneur and as an investor for many, many, many years, you start to see patterns. Just because there’s a company that I don’t like doesn’t mean that that company’s not going to be successful. Best example I can think of off the top of my head is Airbnb. The first time I heard that concept, I thought that was crazy. Who would ever do that? That’s the stupidest idea I’ve ever heard. Now, obviously, I mean my hat. So you can’t judge whether a company is going to be successful or not based on whether a particular investor likes it. But I can talk about what my processes actually look for. So I am maniacally focused on customer acquisition. I think there is nothing more important than customer acquisition and then it needs to be baked into the DNA of the founders. Let me be specific, Bronson. You and I start a company and I don’t know, we make smart phone cases, so we make these really cool smartphone cases and they’re awesome and they’re perfect and they’re cool technology and we hire someone to sell. And if that person doesn’t sell any what we do, we fire them. But if you and I are partners and you go out and try to sell them and you can’t sell them, what do we do? We change the product. It’s fundamentally different. When the founders have customer acquisition built into their DNA. It’s fundamentally different how you go to market, it’s fundamentally different how you learn from market. And I think it fundamentally changes your odds of success. I think your odds of success are significantly higher when that customer acquisition channels stuff is built into the DNA of the founders. So one of the first things that I look for is do they understand customer acquisition?

Bronson: That’s awesome. Did how did you get to that point of view? Did you have a bad experience? Did you have a good experience? Like what was it that happened that made you go, yes, this matters as a part of the core DNA.

Troy: Yeah. So a lot of things have colored it. I would say probably one of the most important was my experience running short payroll. When we started your payroll, we thought that it was going to be a marketing play we literally had brought on as an advisor, one of the best known direct marketers in the world, a guy named Howard Draft. You may have heard of Draft FCB, I think it’s now just called FCB, but that was his his his ad agency. Howard is amazing. At direct marketing. We consulted with him. We had a whole formula. Basically, you’d send out 400 pieces of direct mail to small businesses. You’d get a 1% response rate. Four of them would call in, you closed one out of four and you’d have a customer direct mail cost roughly a buck in the mail. So for $400, I got a customer in that customer and we thought would be worth $5,000. That was the business. Spend 400 bucks, get 5000.

Bronson: I like a business. So very.

Troy: Very repeatable. And it turned out that we did a bunch of campaigns and I can tell you all kinds of crazy stuff we did, including a partnership with Citibank and Co-branding that just failed miserably. It wasn’t it wasn’t one out of 400. It wasn’t one out of 4000. It wasn’t one out of 40,000. It was horrible. And it turned out that that people don’t choose payroll based on a postcard that gets sent to them. Right. It’s a very considered purchase and it needs to be sold. And so instead of just giving up because customer acquisition was part of our core team, we had a couple I believed it, but we had a couple other people on the team who were really great and we said, okay, we got to pivot. Now we’re going to do we’re going to go after. This is a sales strategy. And fortunately we had tried both in parallel because we were testing and we had three salespeople who were dialing for dollars. And that started to work and we had to totally trash the entire we had this huge model. We had raised money based on this and we had to totally trash the direct marketing and go direct sales. And while that may sound like a subtle change, that is an incredibly huge change in how you operate the business, what kind of people you’re trying to hire, how you’re going to market. And at the end of the day, while direct sales is harder, right, it required a lot more people. It required a lot of heavy lifting. It was very repeatable. It was very predictable. And we built a business that today pay tax on them now. But today I believe they’re about 180 or 200 salespeople sitting in that office up in Glenview just dialing for dollars.

Bronson: Do you think the startups do a poor job at getting that in their DNA? Because it seems like designer developer, that’s the the duo. If you have a designer developer, you can get something out to market. Do you think there’s not enough startups thinking and we need an acquisition guy that’s a part of this founding team?

Troy: I totally believe that. So I see so many I probably see 1500 to 2000 business plans or businesses a year, and the vast majority of them are smart people. They understand their market, they understand the pain. They come up with some really cool solution. I got a solution here. It is great product and they don’t have a way to go to market. And the vast majority of those guys fail. Sometimes if you have a product that really is good enough and it just it delights your customers to the point where they start talking about it that you can get away with just having an awesome product. But most of us who are mere mortals have to actually sell like that.

Bronson: Now, you recently retweeted a quote from Brad Feld, and it said, Fundraising is simple. Find investors that get excited about your company in quote. I want you to unpack that for us a little bit because I feel like if entrepreneurs get that, you’re going to save them a lot of heartache.

Troy: Yeah, it’s good for both sides of the equation. So I get emails all the time. I got one this week from someone in my now or someone who I knew not really well who said I got this new company and here’s what it does X, Y, Z. By the way, can you introduce me to any investors you think are going to be interested? And that is so that’s a horrible email to send it. So I don’t even I don’t know the company well enough. I don’t know what what motivates the various investors. I can try to do some pattern matching. They’re putting all of that, that, that work on me when they’re asking for a favor. What they really should be doing is going out and figuring out who has passion for this space. Right? If you’re doing something innovative, if you’re developing a product around Bitcoin, go find the people who are crazy passionate about Bitcoin. That’s who you want to talk to. And if you find one of them in there in my network, ask me for the introduction and include really nice type email that says, Trey, great talking to you the other day. I want to meet Mary. I understand Mary is way into Bitcoin. I’ve read her four blog posts. She’s an investor. I would love to share with her what we’re doing. I thought that that’s a great introduction and it’s great for everybody, right? I’m adding value to Mary and helping her sniff out people that are in her wheelhouse. She loves the introduction because it’s something she’s interested in. The entrepreneur has a really great experience because someone of a high likelihood of investing. But unless you have that shared passion, it’s it’s just it’s hard. It’s almost impossible. And you’re wasting everybody’s time.

Bronson: Yeah. And it seems like if the investor is excited about the business, excited about the opportunity, they’ll overlook some of the problems where if someone’s not excited about it, every little problem is going to be a massive reason to not invest.

Troy: And every business has its warts and has its problems. And the younger it is, the more warts and the more problems it has and the more reasons there are to say no. And so if you find someone who’s really excited about a particular aspect of your business, it’ll make it so much easier to sell and to get investment. And I think that that’s I think it’s really key. And and and Brad says something else, too. I don’t know that he says it as publicly as he did with that tweet, but has said something else to to me many times, which is, you know, life is really short. And he wants to work with people that that he really likes and he really cares about. And so if he meet you once and he likes you and you have a second meeting and he likes you more and he has a third meeting and he likes you more, he’s likely to invest. It’s one of the things that are really important to him. But if he likes you and then has a second meeting and like, wait a minute, this guy’s a little fishy, and then a third, like, there’s no way. And it’s about relationship building. And I don’t think it’s just Brad. I think that’s how we should all behave. But, but it’s about relationship building and engaging with people who you really care about and you really want to have a build a future with because investors are your partners for the life of that business, you know? Sure. Payroll. We raised money. We were with those investors for 11 years.

Bronson: Yeah, that’s a long time. I think I heard somebody say recently it’s longer than the average marriage in America.

Troy: Yeah.

Bronson: That’s that’s some good to keep in mind. So as the managing director of Techstars, you have this unique opportunity. To watch this cohort of startups literally learn and grow right before your eyes. And I think that’s a unique kind of perspective that you’re going to have on things. So let me ask you this. You mentioned pattern matching earlier. What are the habits that lead to startup breakthroughs? What do the best entrepreneurs consistently do to get their startups to the next level?

Troy: Yeah, and I think there are a few categories here. So one thing is that there are some things that you have to have built in to to your personality, things that are hard to change. So I look for people who have a bias towards action, who are comfortable with uncertainty, who are who like willing to change and experiment. You know, have a have an unbridled curiosity. Are always asking why and how and trying to get to the core answers. Those are some of the personality traits that I see that really make a difference. You know, you can take the smartest person in the world, but if it’s someone who likes to analyze, analyze, analyze, they’re not going to do well in this business or any of these businesses. Right. You really have to do more faster, which is the whole point of David Cohen’s book or I do more faster. I mean, you have to have that bias towards action and you have to go, go, go, go, go. And then if you take the person with those personality traits, I think there’s three blocks of things that they can learn. There’s some things you can learn from books. And when I say books, I mean books. The Internet watching videos like this. Right. And and that’s awesome because there’s so many resources and then there are some things you can only learn from others. Hey, I’ve got a real problem. Bronson, you’ve dealt with this kind of an employee problem before. Let me talk to you about it. And you helped coach me through it. Learning from others is really important. It would be hard because the subtleties of the situation are so specific. It would have been really hard to learn that by watching a video. Mm hmm. And then the third category is things you can only learn by doing. And there really are some things you can only learn by doing. You know, when we do demo day here at Techstars in the CEOs get up on the stage in front of the house, in the House of Blues, in front of 500 investors. And they pitch like, the only way you get better pitching is by pitching. You can’t read that in a book. You can’t watch other people’s videos you can’t learn from. You have to get up and practice a hundred times before you get on stage. But once you have that skill, you have it for life. And so what we try to do is find the people who have the right personality traits, bias towards action, comfortable with uncertainty. Right? Mm hmm. We don’t waste time on to learn from books. They can do that on their own time. Videos, books, internet. We spend time on learning for others. That’s mentorship and learning by doing. And that’s by pushing them to do more experiments. Get out there, do pitches, do demos, etc..

Bronson: Yeah.

Troy: And amazingly, at the end, you have successful entrepreneurs who are building great companies.

Bronson: Yeah. And I can say firsthand, I’m in the middle of going through that right now with Techstars, and it is quite the experience. I mean, I get why they call it an accelerator because I thought I was going fast before, but I’m being accelerated, that’s for sure. Good. So let me ask you this. We read TechCrunch. We all read TechCrunch. And it seems like some startups are just rocket ships from day one. But talk to me a little bit about how messy is the process really, even for good entrepreneurs, even for good startups with good ideas? How messy is it really getting from point A to point B and eventually to point Z?

Troy: I think there are two important things here. The first is that we do read about stuff in TechCrunch and we read about the big fundings and the big successes. And the reality is those are the outliers, right? They don’t write in TechCrunch or any of the other publications about the average Joe business. And so what one of the problems that entrepreneurs have is they fall into reading about this every single day and think every single business should look like this when what you’re reading about is the top 1%, or maybe it’s the 1% of the 1%, and it’s all the outliers that you read about. It’s sort of like if you only you know, you read about movie stars and People magazine and thought your life had to be like that, otherwise you are a loser. Don’t compare yourself to the people on People magazine. Don’t compare yourself necessarily to the articles in TechCrunch. People read these articles and try to compare themselves to what they read in the article, and that would be like if you were standing at your home, you’re standing in the mirror and you’re comparing yourself naked in front of the mirror to what you see other people doing. When you go out to the big events and they’re in their tuxedo, of course, they look good when they’re dressed up and going out and showing themselves off at the at the big gala because they’re in a tuxedo. And when you put on your tuxedo, you look good, too. You just know what’s underneath it. You don’t know what’s underneath all these other companies. And so don’t forget that everybody doesn’t wear a tuxedo all the time. They all are messy underneath. And it is messy. I mean, the payroll business it took us, we said 11 years. We had a very nice exit, sold it to Paychex for over $100 million. But it was 11 years of really hard work, lots of detail stuff. As a matter of fact, we went into it fairly naive. Had I known everything I know about payroll today, I’m not sure I would have started that business. That’s too hard.

Bronson: Or there. Moments when you actually thought it wouldn’t work, you wouldn’t get to the other side or your internal optimist.

Troy: So, you know, to be an entrepreneur, you have to be an optimist. There were some hard times. We did do a down round in the middle. So clearly, our investors didn’t think it was going as well as we did. But it’s tough. Yeah. The when you’re thinking about how you’re going to make payroll and and where that next customer is going to come from. And you’re struggling. We’ve all struggled with that stuff. And and hopefully we struggle hard enough and we figure it out and we come out the other side and then we see that graph that we all love that goes up and to the right.

Bronson: Yeah. Most graphs have dips, though, don’t they?

Troy: They all have dips.

Bronson: We wish they didn’t, but it’s just. It’s the nature of the beast.

Troy: Yeah. And one of the things that I think is really important for entrepreneurs to realize is that they all have dips. And if you look at them up close, if you look at day to day, they go up and down and up and down. And even within the day I have highs and lows and up and down. And if you measured all of that, you could drive yourself nuts. It’s when you step back and look at the graph from a distance and you realize that it’s trending up, right? That Wow, where was I six months ago? How am I doing compared to that? Wow. It’s been a great six months. I doubled my revenue. Did I have a crappy week? Yeah, of course so. But even with my crappy week, I’m still two weeks over where I was six months ago. It’s trending in the right direction.

Bronson: Yeah, that’s great perspective for sure. Let me ask you this. You know, with sure. Payroll, that’s you know, like you said a number of years ago, I think you exited in 2002, is that right?

Troy: The end of oh two was when I left. Michael Alter ran it from there, forward did really well and we ended up selling two paychecks in 11.

Bronson: And so going back to the early days of it, has building a startup, building a business fundamentally changed or is business fundamentals the same? And it’s just the details that are different now. How does it compare ten, 15 years later?

Troy: So a few things I think have fundamentally changed. So the cost of building technology has dropped dramatically to build your payroll, we raised our first round was $8 million. You don’t see many early rounds of that much anymore, but we needed to because we needed to buy servers. We need to host them at Exodus. We needed to own our own firewalls. We needed to build software that was really hard, that cost. We spent a couple million bucks before we processed our first payroll and then that client paid us $19.95 who needed venture capital to get off the ground? There was no way you could build quicker and cheaper today. So two things I think of change. One is obviously you can buy you can build software so much more quickly and you don’t have to buy the hardware, right, w, w and all that stuff. So you can actually spin up something for a tiny fraction, literally might be 10% of the cost, might be less, might be 5% of the cost of what it used to be 15 years ago. But what’s more important is the implication that that has on the process. And the implication is that when we were building share payroll because it was going to be so expensive, we had to design everything out. We had to test everything. We did a waterfall type development process and then we had this product and we took it to market and said, Here it is. And it was very costly and timely, time consuming to change it today because it’s so inexpensive to build software and to adjust and modify. You know, we all do what we call lean startup, which is the part I love the book and I love what Eric did, but he didn’t really invent anything. What he did was he took what people had been doing some best practices and put a language around it so we could all talk about it. Some of that stuff we were doing 15 years ago, we did a smokescreen test for sure payroll. We just didn’t know to call it a smokescreen test. Many things, however, we couldn’t do because it was so expensive to build software. So today with agile development processes and it’s almost an agile business development process, you can actually test all this up so quickly and inexpensively that it has fundamentally changed the way people go into businesses, and they start by trying to prove their assumptions about customer acquisition. Hopefully that’s first right and product and and then build the business around it once that’s successful.

Bronson: Yeah. All right. Two last final questions here. These are kind of fun ones we always end with. The first is, what are you working on today specifically? As soon as this interview is over, it can be awesome or super boring, but what are you doing? As soon as the camera goes off.

Troy: As soon as the camera goes off, I’m going back to helping Techstars companies. We got ten companies to shepherd through this and I think we have nine weeks left till demo day. And there is a lot of hard work to be done between here and the House of Blues.

Bronson: Yes, there is. All right. Final question. What’s the best advice you have for any startup that’s trying to grow? Maybe it’s something you’ve already said. Maybe take on a new direction.

Troy: I think focus. If I had one word, I would say focus. You know, no business ever goes out and nobody ever goes out of business because they have a lack of ideas. Many go out of business because they have a lack of focus. And if you stay focused and you do one thing better than anybody else on the planet, you are going to win. Just figure out what that one thing is and do that really, really well once you’ve done that. Then you start branching out. But do one thing better than anybody else and you win.

Bronson: Troy, this has been an awesome interview. Thank you again for coming on Growth Hacker TV.

Troy: Thanks a lot. Take care, Bronson.

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