I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand.

It's time for some money rehab. There is no better entrepreneur than a consumer. And that's because the best entrepreneurs know what problems need to be solved. I see this a lot with parents. Parents know exactly how products for kids can and should be made better. And today, I'm talking to one of the most successful parent-turned entrepreneurs out there, Lane Maryfield, who is one of the co-founders of the beloved Children's Game Club Penguin. Lane and I talk about the most important considerations for anyone making kids products and beyond that advice for any entrepreneur solving a problem. In fact, Lane is on intro, a platform for one-on-one coaching with experts. So after you hear this conversation, if you need more Lane in your life, I've put the link to book Lane in the show notes.

Here's our chat. Lane, Maryfield, welcome to Money Rehab.

Thank you. It's great to be here. Great to chat with you.

We're going to chat a lot about advice for entrepreneurs today. But first, we have to talk about Club Penguin because around Money Rehab land, we love Club Penguin, and we would love to hear the origin story of it.

Yeah, so Club Penguin started really as a couple of young dads who had young kids who were jumping onto the internet and looking to play games and realizing that the social internet had really taken and was growing really quickly for adults, but there really wasn't much for kids. And so kids were either hanging out in adult spaces or really just doing single-player games, which were more isolating. We put together a business plan, we bootstrap it ourselves. We took out loans on our homes and did whatever it took.

To.

Try and pull it off. You could have said the letters of DC, and I couldn't have even told you what they stood for back then. We were just trying to figure it out. Because we bootstrapped it, because it was our money, we were very capital efficient, we were very focused, we got something live as quickly as possible. Again, this is all pre-lean startup, but we certainly followed a lot of the same principles, and we got it out there and it started to take off. It grew a lot faster than what even we thought. We started monetizing it and the rest of history. It was a lot of fun.

Well, let's double-click on that monetization strategy. My understanding is that Clump Penguin had a freemium model. For those who might not know what that is, can you explain that business model and how companies make money that way?

So a freemium model is basically some part of the core product is offered for free, and there are parts of it, though, that are effectively, back then we call it behind the belt, parts of it that required some form of monetization. And we were always really intentional about what we wanted to offer for free. We didn't want kids to feel like they were oshocized or on the outside. We always wanted to make sure there were some great free offerings. One, we wanted to make sure that, frankly, the most expensive part of the whole thing was chat, the ability to have conversations because of how heavily moderated it was. So we had 1.3 or 400 people behind the scenes moderating what was going on in Club Penguin, keeping it safe, making sure that everyone was following the rules. All of that we made sure it was free. In our view, I guess in our game, what we monetized was the opportunity to buy more clothing and decorate your egg living or have more than a few puffles if you wanted 10 puffles, which were the pets and piggies back then. What's funny is, and this is something that gets lost because we're so used to subscription businesses now, I kept one of the press clippings from someone basically saying, No one has ever going to pay a monthly subscription for a video game.

It's going to be on the web, the only way to make money is through ads, or if it's going to be a video game, the only way is to sell hard products. Frankly, the influence we used, the example we used back then was HBO, which for me was like, Well, people pay for HBO even though there's lots of free TV and because it's a premium experience. Literally, as we're pitching it amongst ourselves, we're like, Well, it's going to be like a premium internet experience. Now we're just inundated with subscription. Now we have subscription fatigued. But back then, it just didn't exist. But the reason why we chose to do it that way is because we knew we were going to be launching lots of new content every single week. Obviously, all that content had to be created by employees who had to be paid. We needed to make sure that we had some annual recurring revenue in place for them.

That's why you didn't go the ad route.

Well, that and frankly, we were dealing with such a young group of kids. One of the things that we saw that was really insidious back then on the web was the way that websites would be established to try and click kids from very innocent areas of the web. And sadly, because there was very little policing of what ads went where within about three or four clicks, a six or seven or eight-year-old could be in a really bad part of the internet just by clicking through ads. And so it's gotten better, but it still is not ideal. We also felt like, Well, if we're going to charge parents for this, then it should be ad-free. We didn't want to try and take money from both. We were offered a lot of money. We had big companies offering a lot of money to be able to put their logo somewhere in Club Penguin. But for us, it also suspended the notion of this. We lost the suspension of disbelief. My first job was at Disneyland, so I was a big Disney fan. To me, I thought if there is billboards all over Disneyland advertising, in some ways there are, but it's not as blatant as it is in other theme parks.

We wanted to keep that same notion of letting the creativity of the world be on the forefront.

So as entrepreneurs are thinking about business models, can you just explain high level the pros and cons of the different ones? You have a free, you have a premium, you have a freemium, which is a combination, and what they should be thinking about when they're trying to get their company off the ground.

Yeah. One of the things I love most about tech is that you can find win-wins. It's not a zero-sum game. Someone doesn't have to lose in order for someone else to win. And so for me, whenever I talk to entrepreneurs about a variety of business models, and there's so many great ones out there now, especially as payment systems have gotten more sophisticated, it's gotten easier and cheaper to add different types of payment systems. People understand what my transactions are now, which they did back in the day, subscription is more normalized. I still remember being in an office with Eddie Q from Apple trying to convince him to allow us to charge a subscription in our game because back then, Apple only allowed subscriptions for newspapers and for magazines. And they're like, No, we would never allow subscriptions for a game. It just doesn't make any sense. And ironically enough, fast forward now you've got Apple Arcade, which in and of itself is a music subscription, so just showed the evolution there. So we've evolved a lot, which is great. But I see often times entrepreneurs starting with the opportunistic approach of saying, Well, what's going to make me the most money?

And the tough part about that is then they end up executing it, they launch it, and for some reason, it doesn't meet their expectations because they haven't found that win-win. We started very intentionally by saying, Our parents are going to be our decision-makers, our kids are going to be our influencers. And so our decision-makers, we need to keep them happy first and foremost, which is why we're going to make it ad-free. So we're going to cut off that revenue stream in order to make sure that our decision-makers are as happy and content as possible. So that when they walk by their kid's computer screen, they're not seeing a giant billboard for Kool-Aid or for Lucky Charms when they're going, Wait, why am I paying five, six bucks a month for this and they're still inundating my kids with ads? Those are all very active decisions, sometimes risky decisions, but we found those wins. We found a way to make sure that everyone in the ecosystem was happy and content, and I think we were financially rewarded for it.

So at the time, you didn't put the whole thing behind a paywall entirely because Apple didn't allow it?

Well, by the time we were having those conversations with Apple was when we were rolling out our mobile app. So we started on the web. It was purely web-based back in the day. And so thankfully, we had some time to convince them. And it wasn't until we started showing them the numbers that we were able to convince them. And in fact, something was one of the first that was allowed to actually use subscription model in the App Store. But we didn't start the App Store. We started on the web. So that was part of it. But no, it felt like we were being hypocritical if we said we built this thing for kids to have a safe place online, but only wealthy kids, and we really don't care about the others. I mean, not to sound overly like Saffi, you're altruistic, but we really said, Hey, we want the core of this game to be available for everyone. And for those parents who can't afford five bucks a month, great, they can help subsidize a lot of the kids out there that can't, and all the kids are going to have the safe space.

How much revenue was Club Penguin making when you sold it to Disney?

I'd say we were somewhere between 50 and 100 million at that point. And then post-disney, we grew that up to well north of 150 million annually in AR just from the subscription business, of course. Then we added in consumer products, and we were doing magazines and all sorts of things, which all added to that. Ironically, people always ask about Club Penguin being shut down. And there's a lot of reasons behind it. One of the worst ones was Disney accidentally signing a contract with a credit card provider who was unwilling and they were unable to transition their subscriptions off of the previous provider onto this new one without canceling everyone's subscriptions and basically having to start from scratch. And so if the numbers I heard were accurate because I wasn't obviously involved back then. Club Penguin was still making 30 to 40 million a year when Disney decided to shut it down.

I guess at that point, you knew what ARR, which by the way, if you can define that for our audience, MVC meant?

Yeah, ARR is annual recurring revenue. To put it in perspective, we all pitched in about 50 to 100 grand each, launched Club Penguin for about $200,000. It was profitable three months after launch. I think we're 50-60 % margin for most of its lifetime. Yeah, so ARR being annual recurring revenue, VCs being the folks that started knocking as soon as they saw those numbers.

It always happens that way. When you don't need it, they come knock it.

I know it's amazing. I have a lot of VC friends, so I'm not harping on it. I think for the right company, being venture-backed is not a bad thing. Vc obviously standing for venture capitalist. As an investor now myself, there's times that I think it works. But there's also times, if I'm being really honest, that I don't think it's right. I'll tell entrepreneurs this. Sometimes entrepreneurs just assume that getting other people's money or VC money is like... It's an assumed step in the process. I've literally attended company parties before where the company party is really an announcement party of how much money they just raised and a giant celebration of we've made it. We just raised $10 million, $15 million. It's so funny to me because it'd be like getting all your friends together and be like, all right, we're going out this weekend. We got to celebrate. I just got my credit card limit raised from $5,000 to $10,000, and I'm feeling like we should really celebrate because that must mean I've made it.

You just took on a bunch of debt.

Exactly. I think, sadly, there's a lot of 20, 30, 40, 50 million dollar companies that could have been very successful, that could have made their founders a lot more money even in the long run, but it might have taken longer to get there, but that were squished and destroyed by being jammed into trying to force them to be and they were never really designed for that. Because the moment you take that money, the expectation is if you're not using numbers like half a billion or a billion dollars, don't waste my time. And so you get a lot of founders are like, Well, of course, I'm going to make a billion dollars. Well, they could have made them and their founders a few hundred million dollars and it would have been just fine.

I totally agree with you. I have an entrepreneur friend who took on a bunch of money and they grew like crazy and they needed to then fulfill all these expectations. I was having dinner with her and she said, I just wanted to let you know the company is going to go bankrupt. I'm like, I'm so sorry. She said, Oh, no, this is the best thing. My husband and I started this to have a lifestyle business and we wanted it to make money, but this became out of control. I'm so happy that it's getting back to where the intention was.

And sadly, there aren't enough gatherings to sit down and talk about when that credit card check finally comes due, when that board sits around the table and says, hey, I think we're going to replace the founder CEO with another CEO who's going to go do this. I think we're going to go ahead and you're going to have to take a down round in order to keep your employees. And so we're going to screw up your liquidity and your cap table in doing so. And basically, you've now lost your company. And there's no parties when that's happening. There's no celebration when that's happening. And again, I'm not trying to imply that that's always the case. Frankly, I went through with a different company that I've worked on. It's a really painful process and one that I don't think is necessary.

A down round, just to clarify, because we try to cut through the jargon on this show, is where you raise money for a lower valuation than the round you raised for before to keep the lights on essentially.

Yeah. You might be in a situation where you say, Okay, I'm going to give away 20 % of my company for the first round. Or maybe it's a seed round or a Series A round the first couple of rounds, and that 10-20 % is your ideal amount to give away. And all of a sudden you're like, I'm not going to make payroll. And so people come in and go, Okay, well, we'll invest in you. But we thought you'd be worth 500 million because you kept talking about these billion dollars you're going to make. Now you're only making 50 million or 60 million. So now we're going to go ahead and it's going to cost you 40 % of your company, 50 % of your company. Well, if you've got employee stock options, you've got founder shares, depending on how well you structured your cap table or whether or not you protected yourself from that. It's very easy for founders. It's so funny sometimes because even I've talked to founders, gone up to them. Founders I know and I didn't know the details of their company, but I see them. They exited for half a billion dollars, $600 million, 300 million.

And you hear these numbers and you're just assuming, Oh, these founders are just walking away with gobs of cash. And the reality is I have a lot of friends who had $100 million plus exits and walked away with two million bucks, three million bucks, which is still, don't make me wrong, it's a lot of money. I'm not saying it's not a lot of money, but it's not nearly as much as you think. And a lot of it is because of all of these rounds and all this process that went into it.

It's like the Shark Tank effect. If you're going to start a company, you might as well take money from Mark Cuban or somebody else. And every time you raise money, the valuation is going to go higher and higher. But I'm glad you clarified a down round or a flat round where that just doesn't happen.

Yeah. And it happens more than people realize because at the end of the day. To be fair to the VCs, they're going, Hey, we took a risk assuming X. We're now seeing it's going to be Y. We can't give you the same valuation you had before. That's the other thing a lot of entrepreneurs make the mistake of, is accepting too big of a valuation for their company. You get deluded into thinking, I just had a VC say that my company is worth $50 million. Then they do the imaginary math. Well, I still owe 20% of my company. That means on paper, I'm now a millionaire. I'm worth this. Then, sadly, it's all on paper and never becomes real.

Yeah. Part of the spirit of why you start a company is to be your own boss. I think it's a great reminder, and you do this all the time saying to entrepreneurs, as soon as you take money, it's not free money, now you have somebody to report to.

Absolutely. It's that credit card. It's that, hey, all of a sudden, guess what? Every month you're going to get someone sending an invoice going, hey, how's it going? Let's have a quick board meeting here and figure out what's going on over here. We don't talk about the personal elements of this enough, the stress that puts on founders. The amount of anxiety they find themselves under. And sadly, the poor decision making that can come from being under that level of anxiety that when they were first starting out and feeling like, hey, they had nothing to lose and they are taking smarter risks, better risks, sometimes more risks. All of a sudden, you've got 30 people on payroll and I feel responsible for them. And what if they can't pay the bills because I screw something up? And all of that just ends up creating this compression that if you can't really handle it, if you can't work your way through that fear and get to the other side of it, you're going to end up making poor and poor decisions, which now has you in a cycle that is only going to make matters worse and not better.

And it's really tough to watch.

It's like trading one problem or one source of anxiety for another. I have a founder friend who took on a bunch of money and didn't write back to an investor on time or something in a timely manner and got a talking to. And they're like, Hey, I need to spend time doing sales calls or bringing in more revenue. Then you have to, with the limited amount of time, answer to these investors who then gave you a bunch of money where you could... I mean, the calculus is using that same time to make money or bring in revenue other ways. But I'm really glad that you're saying the contrarian view to what's been proliferated around this.

Yeah. And you know what there's been? And again, I was on the Canadian version of Shark Tank called Dragon's Dam. I was part of that propaganda machine around entrepreneurialism and just, hey, it's all about taking money. Frankly, if I'm being really honest, it's a little bit of why I'm not on the show anymore. I did three seasons, but it was hard to see people assume that, well, once I've got the investment, now I've made it. Now I've achieved it. That's all I really need to do. And even some of the investments I made on the show, you see it switch, and now they're more concerned about me and my perspective than they are about their customers. When we were acquired by Disney, I still remember one of my kids saying like, Well, is it weird now, Dad, because now you have a boss. I was like, Well, yeah, I've always had a boss. I said, What do you mean you were the boss? Like, Well, yeah, I was maybe the CEO of the company, but ultimately, my success or failures as CEO was driven by the customers, so they were my boss. And the parents, all those millions of parents out there, they were my boss.

So ultimately, I think it's in a weird way what happens when investors and a board and everyone comes in, is you can start to lose sight of who the real boss is, ultimately your customers, and keeping them happy. I've seen some CEOs do an amazing job of keeping their boards happy and apprised, and they run incredible board meetings and they're detailed, and they're specific and they know their numbers, and they drive their company right off the cliff because they realized that I spent so much time managing up to my board, I lost sight of who I was really building all this for and I lost sight of the customers.

You never took on Capital when you were at Club Pigman?

No. Like I said, we didn't really know what it was. We had credit card debt and I took a line of credit out on my house. There's three of us as founders. There's Dave, Crisco, who owned the marketing company that we were building this out of. He basically said, Hey, I will put in some cash, but also you guys have free range of everything you need here. Use all the equipment, use the space, whatever. Lance, Preb and myself who both basically took a line of credit out on our homes. That was the same, I think it was 60 or 70 grand, which was terrifying because it was my first house. I just got to a place from like, Okay, this might actually work. We might actually be able to pay this mortgage every month. And all of a sudden, thankfully, there was some equity in it because the market had gone up. But I knew that if Club Penguin failed, there's a chance we'd be back in the department for a little while. So it was a little dicey. But it also again allowed us to be really focused on who we were there to serve.

We were there to serve our team and our team was there to serve our customers, and we were there to take care of kids. And thankfully, we had a great financial outcome. But I think we had a great financial outcome because we kept our on the ball.

I love what you said to your son. I mean, everybody does have a boss, and when you take on money, investors are boss or a board is a boss. I mean, everybody reports to somebody, but reframing that and saying you report to your customer. If your customer is a kid, you report to those parents because if you don't serve them, then you don't have a business.

Yeah. We literally had a statement that was even written on the wall at one point in our offices that just said, if it doesn't matter to an eight-year-old, it doesn't matter. And that was really critical to us. And in fact, even for me, there was speaking opportunities, there was press interviews, media interviews. I think we turned down Forbes and Bloomberg about a dozen times in there. And the reason being is that if we couldn't directly pinpoint to this is going to help us get our message out to parents or it's something that the kids would really value us being a part of, then we just didn't have time for it. And it really dictated everything. And we would call each other on it. We'd be like, Hey, I'm thinking about we're going to do this big thing over here. We're going to go do this. I'm going to go speak at this conference. It's like, oh, how many eight year olds are going to be at the conference? Well, I mean, there's not. Oh, okay, but it's like a parent conference. It's like a teacher conference. Well, no, not really that either. Oh, so it's an ego conference.

It's going to make your ego feel better. So we give each other a hard time about that. But it was a good frame for us to just go, what really matters and what doesn't matter because we can't do it all. And obviously, Steve Jobs is credited all the time for saying, I'm more proud of what I've said no to than what I've said yes to.

Hold onto your wallets. Money Rehab will be right back. And now for some.

More Money Rehab. I read that you can buy things on Club Penguin through digital coins. Was that pre-disney acquisition?

Yeah, so that was part of the original game loop. The idea was that for kids, we want to play to be like their work, right? And in fact, almost all the games did have a little bit of a notion of a job to them. So there's one where you're unpacking the coffee beans from a truck, and there's another where you're helping fish for the restaurant, and then the jobs paid out coins. And then those coins could then be spent in the world on updating the clothing of your Penguin or your Igloo or feeding your puffle or other things. That was the game, and that was the way it worked. But we never sold the coins. Coins always had to be earned. What the monetization strategy was, was just unlocking more things you could spend your coins on. You just had opportunity for more diversity and more creativity there.

Basically, you invented cryptocurrency.

Well, here's the funny thing. You're not the first person that's made that joke. Certainly not at least around NFTs. There's people now... In fact, there's an NFT-based game called Pudgy Penguin, and they reached out because it is literally... We grew up playing Club Penguin, we were fans of it. We modeled this off of it, and it should have been... If I could buy an NFT of my avatar, my Penguin avatar bag, then I would have. They're modeling it after. I'm not endorsing that. I play no role in it. But it was certainly an interesting conversation how what it would be like today if we were still in the game.

But you did invent the metaverse, it sounds like.

Well, here's the thing I will take credit for. Listen, there's a lot of great games and a lot of really cool things happening back then. We were inspired by a lot of what others were doing. The one thing that I will take credit for was we had a firm belief that this universe of Club Penguin should always be interconnected. Some of the patents that I'm most proud of filing are patents that we filed around how to connect books into a digital world, physical books into a digital world, magazines into a digital world, some of which you could use codes for, which were easy, but you couldn't always put a code with everything. If you bought a Club Penguin, Plushy or a stuffy or a toy, everything we sold had an unlock. You were either unlocking that exact outfit or unlocking coins or something in the world. If you got to a certain level in a game, we had DS games and back then, Nintendo Wi-games on other platforms. If you got to a point in that game, we were sending a code back to our servers to tell our servers that you had reached a certain point in this level, and so you should have access to, let's say, if you found out about the spy agency.

Now in the web version, you now have access to that same spy agency. Now that stuff, people call it transmedia or cloud entertainment or whatever, all of that is a little bit more common. It's still somewhat novel, but it's a bit more common. But back then, again, I remember being in meetings with Nintendo, and they're like, No, we don't send data back to servers for any reason. We had to get special permission to say, Well, no, here's why, because we think it's going to be so magical for a kid when they log in to be like, Hey, you've been recruited by the spy agency. And for a kid to be like, How do they know I was playing on my Nintendo DS on the way to school on the bus. Why, all of a sudden did I get recruited into the spy agency? We just always wanted the story to be consistent and to be interconnected and make a more magical experience for kids.

Lane, our executive producer, Morgan, was in the spy agency.

Oh, really? First of all, they shouldn't be telling you that because it was The Secret Agency that no one should be sharing whether or not they made it into the agency or not.

It's the first role of The Spy Agency? Don't talk about The Spy Agency.

Exactly. It was our fight club. It's funny, actually, one of the things I miss the most, I miss sitting in those creative rooms with our team and just coming up with these crazy ideas, but also listening to the kids. One of the things I'm most proud of is that we invested a lot of money and effort into just listening to our audience. It wasn't easy because back then, kids didn't have a million YouTube channels, they weren't all over TikTok. They would either send in an email or something, which we said an email, reply will always get a reply. Every time they picked the phone and called us, someone will always pick up the phone and answer. Even if they handwrite a letter, we're going to handwrite a letter back to them. That was always our notion of just maintaining that communication. But those communication channels were integral to us because one of the things I love the most is how much kids would come up with an idea. They'd almost rally themselves behind this. They'd create this lure of this idea, and then we just had the opportunity to figure out how to make it come to life.

Millions of kids would write in saying, You used my idea. The reality was we did. They didn't know that there was a million other kids that had the same idea, but we loved turning their imaginations into reality. In fact, we considered ourselves stewards of that. We are stewards of their imagination. How do we just connect the dots and make it come to life?

Did you get any shit from parents who wanted their kids to spend less time online?

Yeah, actually, it's one of the reasons why we were one of the first games that had a parent portal, a parent access that allowed them to limit how much time their kids spend online. We always said, We don't mind being the bad guy. You just tell us what time of the day and how long you're willing to let your child play online. We would literally pop up a warning, like you've got 10 minutes left to play and 5 minutes left to play, and we would be the bad guy giving them the warning so their parents didn't have to. But that was a feature we custom built from scratch. There wasn't anything out there. Now again, there's printer controls and everything, but back then there wasn't. Again, people thought we were crazy because most people are like, No, you want more time. You want them spending as much time as possible. Look at social media. Well, how are those funded? They're funded through advertising. The advertisers want as much air time as possible, and that's the way that works. We didn't have ads, we didn't care. If the kid logged in and spent five minutes but had an amazing time, that's all that mattered.

It sounds like you're making it for your kids. You're a bunch of dads who knew the pain points. There are a lot of pain points when you're dealing with a teen-focused vertical or a business that's geared toward kids. What advice do you give entrepreneurs who are thinking about getting into family or teen-focused businesses?

I get this a lot and people don't always like the answer. They see the market and they say, Well, it's less crowded, so I'm going to jump in there. What they don't see is the reason it's less crowded, is because it is significantly more complicated. You're dealing with significantly more laws, more regulations. Rightly so, frankly. When we started Penguin, it was a bit of the Wild West. And in fact, we had the chance to sit on the board for CAPA, the Children's Online Privacy Protection Act. Part of why we had the invitation is because a lot of our standards were what they were using. You're dealing with kids, you don't always have email addresses, you can't market to them directly, you can't... Even the communication that takes place needs to be very controlled. They can't share too much PII with you or with each other. You need to have parental involvement. Sometimes parents don't want to be involved. Sometimes they can't be involved. There's a lot of complexity there. I should say there's a lot of complexity if you're going to do it well. If you don't always do it well, sadly, you get the media headlines that have been out there.

I'm not going to pick on any one company, but there's a handful of kids-based entertainment companies that have rightfully so gotten in trouble because they just tried to ignore a lot of the regulations and a lot of the policies that are put in place, frankly, to protect kids.

Would you invest in an entrepreneur who was starting a team-focused or family-based business who wasn't a parent themselves?

I would, but I would want to see who their first, second, and third employee was or who their co-founders were. Because I don't think you have to be a parent to be a great founder of a space like this. But like any entrepreneur, you better know your weak spots. If you and your roommate from college had fun, hammer and beers together, so now you're going to go do a startup because you read some article and you think there's a big opportunity there, it's the most dangerous thing because you end up ignoring each other's blind spots and driving each other right off the cliff. I would want to see your employee table. I'd want to know how many of them are parents and I'd want to know what level of access they have to you and what level of influence they have over you and your decisions.

I want a little SWOT analysis action.

Totally. Absolutely.

Being an employee, your first job, you said, was at Disney. Selling to Disney, come on.

It was surreal, to say the least. It was surreal. Negotiations, we went all over the place. There was other companies involved. It wasn't a sure thing. But I'll tell you one of the craziest parts about that. I grew up in Southern California, was Canadian by birth, but grew up there, moved back to Canada, and that's where Clubhengo is formed. But I remember in the process of moving from Southern California, which for anyone who's living in Southern California, especially if you grew up there, you believe it's the epicenter of everything. In some ways it is, but in a lot of ways it's not. It's hard to believe that life exists outside of it. I remember thinking like I was doing the rat race, moving ahead of my company, and I remember thinking, if I move up to Canada, to the small town in Canada, I'm probably never going to see the inside of the boardroom again. I'm ignoring all opportunity for a real significant advancement in my career outside of a small town marketing company, which is what I was going to work for. But I wanted to raise my kids in that environment. Fast forward to walking in the Bob Iger's office at the Walt Disney Company multiple times, sitting around his personal conference table and negotiating this, gives me chills even now, just thinking about it.

You can imagine what it was like then because it felt like I took two pay cuts before we found at Club Penguin because of who I wanted to work for and with, because of who I wanted to be around, because the culture I wanted to be around, and because the place I wanted to raise my kids. To be in that situation, sitting across the table from Bob and having these conversations was like nothing I'd ever imagined. I was a total Disney nerd. I used to give tours of Disneyland to friends and family.

Did you tell him that? Did you try not to be a total fan boy?

I tried to not fan boy out too much. The one thing I will say is Steve Jobs was on the board at the time, and I did fan boy a little bit with Steve. Thankfully, because Bob was very gracious, he asked Steve to reach out to me and I got the chance to talk to him on a couple of different occasions before he passed. That was a big deal for me, for sure. Bob, I've run into him a few times since, and we stay in touch every once in a while. I feel for what he's going through right now, but I do believe he's a great leader of that company.

The lester of those experiences has never worn off. It never becomes ordinary, does it?

No, it never does. I mean, shame on me if it does in some ways. I guess here's what I will say. You meet enough really impressive people and you start to realize that they're just people. It's not a negative thing by any means. But let's face it, most of the people that I would try and name drop. I mean, I realized I just was a bit douchey and name dropped a few right there. You were not at all. But most of the time that I would do that or that you could think to do it, these are people who've got teams of press people and marketers and communications execs around them helping craft an image. It's almost impossible for anyone individual to perfectly live up to. And so what you realize is at the end of the day, they've got their own beers, their own issues, their own challenges, their own work to do, their own sessions that they got to dig into and figure things out. We're all people. But I am thankful for those experiences, and I'm thankful for the friends I made. There's a lot of things I would have done differently, if I'm being honest.

And a couple of regrets I have, but overall, I can't complain.

And now you're paying it forward on intro, you're a fellow coach where people can book one-on-one meetings on the platform with experts like you. Do you talk really openly about those regrets or things you would do differently when entrepreneurs book your time?

If it's relevant. When they book time, I don't know all their situations, but it's not cheap. It's an investment. I want to make the best use of their investment I can. I try not to just wax, poetic on all these stories. If it's relevant, I'll share it. One thing I talk a lot about, because it's oftentimes, especially early in an entrepreneur's career, one of the biggest things they face is fear. I talk a lot about fear, partially because I don't think we talk about enough. We definitely don't normalize it enough in the entrepreneurial journey. I think one of the things I love about ITRO is an opportunity to sit down with such a wide variety of entrepreneurs and creatives and hear a bit of their story. I immediately try to figure out, Okay, what can I plug into and relate with? What value can I add here? Then make sure that I use the time as judiciously as I can to add as much value as I can and hopefully give them some real Nuggets to walk away with.

That's cool. We had Spencer Rescoff on the show a few months ago. He talked about how the current economic climate is making it really difficult for founders to fundraise. He gets booked a lot to talk about that. Do you think that potentially could be a good thing? Are we normalizing back from the go-go days of fundraising?

Listen, there's some companies that fundraising is the right thing to do, and the fact that it's harder, I would never wish that on anyone, as having participated on both sides of that spectrum. But I do think that there's some balance that needs to come. I do think that there's... Part of why I wanted to share this openly here was to talk about some of the education that I think needs to happen around the fact that not everything should be venture-packed, not every project needs investors. Now, it doesn't mean you should go risk your house on it like I did, but it does mean that these decisions shouldn't be made lightly. Sometimes in an era of easy, free money, it gets so easy to take it and way harder to return it. I've seen the pain of that in entrepreneurs. If I can help alleviate or avoid that pain for some, then I want to do that.

So then if you don't tap into your house and you don't tap into VCs, where would you suggest to get startup capital?

Well, yeah. First of all, a lot of ways to do it. Of course, there's savings, there's also partnerships you can do. And part of why we were able to build the payment so cost-effectively is because of Dave, Chrisco saying, Hey, use my office, use my equipment, use my systems. And here's even a couple of employees who part-time can help you out with this. It was very generous, but it also kept us focused on just creating the product and we weren't trying to lease off a space and come up with a logo and figure out. I see so many entrepreneurs get so obsessed around what's the company going to be like that they forget and lose sight of what the product really should be. So being capital-efficient also forces you to get the product out faster and see if you've got a market there. We all talk about MVPs, minimum viable products, and getting it out there. But sometimes when you got a lot of money, it gets really easy to convince yourself that it's not ready yet. It's not ready yet. It's not ready yet. There's friends and family, although that's always a little bit dicey, but one thing I've seen work really well with friends and family rounds and stuff is to say, Hey, invest in this.

Would love to repay you, but then I'd also love to set up a trust or a fund for future kids, grandkids, whatever, for an education fund or something like that, and have part of this equity go into that in a way that now that they're not trying to pay out VCs and trying to give big capital returns, it's like, hey, if we're dropping in 50 grand, 100 grand into this fund, it's actually a way that our family and the legacy of our family can endure. There's a lot of creative things you can do around that that don't put the same stakes as high as saying, well, how can I become a unicorn in the next year? And if I can't become a unicorn, I must be a failure. Which is what I think has transpired a lot over the last 10, 15 years.

So a friend or family member wants to give me 100 grand for my company. I then take that 100 grand and say that with the returns, I'm going to put that into some investment vehicle or trust to then grow for your family?

Or you could say, Hey, I'm going to return the 100 grand. Or even say, out. The goal is to return 120 grand. But then I'd love to have a piece of equity of the company that is basically just family equity. And in some ways, we did this little with Club Penguin. All of my nieces and nephews went to school and got their bachelor's degrees based on the fund we set up, actually trust we set up, that any kid who wanted to could use it. And I think 24 of them have all used it and have all gotten bachelor's degrees and some are now going to med school and others. But there's just a lot of creativity you can... You can do out there in a lot of ways that, especially when you start getting in the lifestyle business and stuff like that. Even now, if I were approached, if someone would just say, Hey, I'm going to give you a bunch of equity and I'm going to take your 100 grand, I promise you I'm going to give you a million dollars back in the next three years, five years, whatever. My first response would be like, Hey, first of all, if you're friends and family, don't tell me that.

Don't put that pressure on yourself. I don't want you waking up tomorrow trying to figure out how to get me a million dollars back. I would much rather have you waking up tomorrow figuring out how to make a great product, how to make your customers happy, how to take care of them, how take care of your employees, and let's figure out a mechanism that allows me to get some return, but I don't need to always use purely the bottom line as a score. I think there's a lot of creative things we can do to take care of each other and to live as a community in ways that I think we've lost over the years.

That's really smart. So blocking and tackling, you basically took some equity, and once you guys got liquidity, you use that trust to then pay for whoever wanted to go to school.

Yeah, and that will perpetuate on for the next generation as well, thank you, Pauley.

It's a gift that keeps giving in so many ways. And thank you for catching on so quickly and defining MVP as you were talking. You got the shtick of the show very quickly.

I'm trying to. Although I didn't want to interrupt you, but there was a point earlier on where you talked about SWOT analysis, and I want to step in there too and go, Oh, I don't know, Nicole.

Touche. Let's talk about strengths and weaknesses.

There we go. We should probably explain what Swap means.

Yes, S-W-O-T. Strengths, weakness, opportunities, and threats.

Perfect. Yeah, I know it's exactly it. So to.

End our episodes, I ask all our guests for one tip that listeners can take straight to the bank lane. I'm sure you have so many. But what's one today with the economic climate, the zeitgeist that's going on right now that people can use when they're starting a business or for investing, angel investing on either side of the equation?

Well, I guess I'll end this one on entrepreneurs, especially because you already highlighted one of the challenges, one of the headwinds that they're all facing right now, which is just, where do I get capital from? I would say take a good portion of the creativity that you're going to pour into and the energy and effort you're going to pour into trying to raise money and figure out five ways that you can be more capital-efficient than maybe you thought you could. Figure out a way that you can maybe work with, partner with, barter with another company in order to get some distributions. Figure out ways that don't require huge cash. One of the things that we did with Club Penguin was we partnered with a company called MidiClip, and we gave them a Rev Share, which they hadn't done previously, or maybe they had, but not that I was aware of, because we couldn't afford to buy ads. There was no way that I wasn't going to go find another 100 grand to go buy a bunch of ads. I just said, Hey, we think we've got something here. They played the game, they experienced it like, Yeah, it's pretty cool.

I'm like, Well, let's do a rep share. I think at one point we were cutting them checks for $4, $5, $6 million a year, and they ended up making a lot more money than had they sold us advertising or we bought ads. It didn't cost us anything at the time, but we did cost us more down the road, but that's fine. We all won together.

Not a zero sum game.

Exactly. Find the win-wins. So everybody wins.

I love that. We're even thinking of weird ways to barter, too, in our business. That's awesome. I love a good barter.

Yeah, I think we've lost a little bit of that.

Yes, I totally agree. I mean, I grew up in Southern California, but first-generation American and just bartering and negotiating is in my blood. And so, yeah, Morgan has seen me be like, Let's barter for this, I don't know, ad whatever. Why not? If the worst thing they can say is no, I guess.

Absolutely. And people love to take risks too, especially if you're dealing with other business owners. So for them to go, okay, I'll take a risk here and have a payoff down the road, go for it.

Money Rehab is a production of Moneynews Network. I'm your host, Nicole Laffin. Money Rehab's executive producer is Morgan LaVoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab@moneynewsnetwork. Com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram @moneynews and TikTok @moneynewsnetwork for.

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Seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.