Dec 3, 2020
Rahul Raj is founder and CMO of 5&Vine, a fractional CMO and marketing agency that identifies industry incumbents’ vulnerabilities, market changes, and technological opportunities to enable startup brands to challenge and overtake established brands.
The agency focuses on challenger brands that have both economic and social goals, e.g., increasing financial literacy, addressing discrimination, or making organic food more accessible to the masses.
Before starting 5&Vine, Raj worked at a Canadian thermostat startup, Ecobee. The big-name competitors, Honeywell and Nest, owned the market. Their vulnerability: single location thermostats did not address the comfort of people in “different” parts of their homes. Ecobee developed a system of individual room sensors that identified temperature and occupancy so that people could be comfortable where they were, instead of only being comfortable in the “single thermostat” hallway. The technological opportunity, Bluetooth, enabled sensors located in different rooms to communicate to the main thermostat without the need for “dropping wires.”
The company had no money, no “presence,” and no awareness. It invested heavily in customer support, won converts, and curated reviews. Ecobee had 10% of the five-star reviews of big-name competitor Nest . . . with only 0.1% of the market share – which made Ecobee larger than they actually were.
Faced with a profound family tragedy, Rahul left Ecobee, interviewed over 200 companies, received 10 offers, and decided he wanted to “date.” With each company, he agreed to work for anywhere from a week to a month which de-risked the hiring process for both sides. He so loved working as a “fractional CMO” that he professionalized his “dating” and launched a fractional CMO agency.
Rahul’s “sweet spot” is working with referred clients are those who are “pre Series A to just post Series B” – those who have the financial resources to invest in marketing and are highly motivated to grow.
In keeping with his “dating” philosophy, Rahul typically works for a company for up to three days to ensure there is a personal and intellectual fit. If both Rahul and the customer are satisfied, they write a formal contract. Of the thirty or so companies 5&Vine has worked with, the agency has taken a significantly reduced financial compensation from five or six – in exchange for equity or options in the client organization.
Rahul has developed a formalized process to discern vulnerabilities that open opportunities for his startup clients to beat more-established companies.
Answer the questions:
In this interview, he also notes that it is helpful to determine what has changed over time. . . and what technologies could be applied to solve problems.
Rahul spoke at HubSpot’s 2020 Inbound Conference on Go-To-Market Strategies for Startups: A Framework + Insights from One Challenger Brand to Another.
He can be found on his agency’s website at 5andVine.
Rob: Welcome to the Marketing Agency Leadership Podcast. I'm your host Rob Kischuk and I am excited to be joined today by Rahul Raj, founder and CMO of 5&Vine based in Toronto, Canada. Welcome to the podcast, Rahul.
Rahul: Thanks so much I’m delighted to be here.
Rob: It's excellent to have you here. Would've loved to meet up with you in person at the Inbound conference, which you spoke on and we'll talk about that, but glad to be on the line too, in virtual land. Why don't you start off by telling us about 5&Vine and what your agency superpower is?
Rahul: Fantastic. We are a fractional CMO and marketing agency that helps startups and scale-ups take on industry incumbents and win. We focus on challenger brands that have some type of social pursuit alongside an economic aim. Whether that be financial literacy or addressing discrimination head on or making organic food more accessible to the masses. What we're particularly great at is identifying the vulnerabilities of the industry incumbents and using that to help propel the challenger brands that we work with to positions where they either take on or take down those industry incumbents.
Rob: And you have some experience with that yourself having worked in a startup and a challenger brand before starting the firm, right?
Rahul: I do indeed. Yeah. Prior to starting 5&Vine, I was the CMO at a technology company called Ecobee. Now, when I joined that firm, they were single digit million in sales, they were focused on the B2B market with a smart thermostat. That organization had a tremendous opportunity to go head-to-head with both Nest and Honeywell in the consumer space, but they were very reluctant to do so. Obviously, both of those organizations like Honeywell, as an example, created the thermostat and are a massive multi-billion-dollar organization with a variety of product lines that essentially translates to deep pockets. On the side of Nest, they were the darlings of Silicon Valley, started by Tony Fidel, who was the principal designer behind the Apple iPhone. And so they had tremendous street credit on the design side.
And so here was this little engine that could call Ecobee in the Canadian marketplace that kind of wanted to rattle the cages of those big dogs. And, in essence, what we did was we identified the single biggest vulnerability of both of those organizations. And that vulnerability being that consumers are uncomfortable in their homes despite hiring a thermostat to make them comfortable. And the reason is that both of them measured the temperature in one spot only and it was typically in something like a hallway. Now, if you spend the entirety of your life in the hallway, outside of your thermostat, you are going to have one cushy life when it comes to temperature. But if you're like the vast majority of humans that sleep in their bedroom that eat in their dining room or hang out in their rec room, you're probably going to experience hot and cold spots.
With that insight in mind, we created what was deemed to be a room sensor. Now a room sensor measured temperature and occupancy. So, we knew which room you were in, and we could help curate the comfort for the room that you were in instead of by the hallway. The way that we framed it from a language point of view is that Ecobee delivered comfort in the rooms that matter. So, there was a sub text, which was Ecobee: for homes with more than one room. And that, that strategy of going and addressing a fundamental design flaw that existed with thermostats was the cornerstone that enabled us to take on those industry incumbents.
Rob: That's interesting. I didn't know that Ecobee story so much and, I'm just curious, how did those room sensors connect through to the main thermostat?
Rahul: Yes, it was done through Bluetooth.
Rob: That makes sense. And that really highlights it. You know, one of the things that can make a startup a success is by taking advantage of something that has changed in the market. And something that has changed in the market is Bluetooth, right? Very few people would string wires around their house to connect different rooms, to connect the sensor back to the thermostat, but with Bluetooth or even if it had been Wi-Fi or something like that, that's something that changed in the market that it seems like hadn't fully been exploited by the incumbents or even the splashy new entrants.
Rahul: A 100%. Yeah. I think that they kind of fail to acknowledge the customer pain point, failed to sort of conceive of a solution. And then it was the like solving for “how do you make that solution technically feasible.” Now that the sort of first chapter of that story. The second chapter, just in brief, was that we had no money and we had no presence and no awareness. And so what we ended up doing to get this product out into the market was that we invested disproportionately in customer support, over marketing. And so the intent was to go out and find people that had this pain point, sell them on the resolution of the pain point, which is be comfortable in the rooms that matter, but then go out of our way to deliver on support. So if they needed help with the installation, we would stay on the phone with them the entire time. We would go out of our way to do whatever it took to make sure they had an extraordinary experience.
Now, at the end of that experience, we say, if you're happy with our product and our service, could you do us a solid and write us a review. There wasn't any sort of bias towards it, where it was like writing a review that consisted of X nor was that like write a review and we'll give you X dollars. It was just based on reciprocity – doing the right thing. If we go out of our way to do right by you, could you please help us with a review? And in the end, we had about 10% of the five-star reviews that Nest had with like 0.1% of the market share. So, we presented an image to the world that we were bigger than we actually were. And then we worked like heck to close the gap between the perception and our reality and grew our sales.
Rob: That's a great point. And in your talk at the Inbound conference was go to market strategies for startups, a framework and insights from one challenger brand to the other. And I think that kind of tees into the question of how you build a business and agency around finding these insights. Because a lot of times what you have is this sort of survivorship bias where a company survives, and then you go back and you write the story of why they succeeded. But you're really putting yourself in the position where you need to have a process to uncover these insights about what the vulnerability is in the market. How do you get to that?
Rahul: Yeah, it's a great question. I think the starting point is just like web research about the product. So obviously there's a bunch of commentary that's put out by the organization about what they're great at and perhaps what they're not as great at. So that becomes your starting point and it's the hypothesis that you're trying to validate working validate. So, the next step is to go to customer reviews and seeing whether the customers substantiate the strength of that product or service or whether the company is misleading people by stating that they are better than they actually are and so that becomes the second phase. The third phase is to buy the products yourself and experience them in some way and determine whether your experience is in fact reflective of the reviews and what the company has stated or not. I think in total, that that gives you a sense of what are people yearning for that is being under-delivered and what opportunity exists for your startup to really come out with a powerful product or service and clean up.
Rob: Wow. And so you've talked a little bit about the origin story of the business, and I think we can kind of see the overall through-line, but it's still nonetheless a significant jump to go from CMO of a sort of scaled physical product startup into starting 5&Vine as a services organization. What led you into taking that jump?
Rahul: Yeah, I mean, truthfully, I did not architect this. I accidentally stumbled upon it. So, when I left Ecobee, it was on the back of a profound amount of family tragedy, five deaths in three months, murder, a suicide. My father was given three months to live, it was overwhelming. Through the negotiation of that grief, I read an adage that said you are the average of the five people you spend the most time with. And it resonated so deeply with me that my quest was actually to find my five. So, I went through the process of evaluating a number of jobs, and I had 287 job-related conversations, which translated into 10 offers. And with each of those 10 offers, I wanted the experience of working with them before I drew a conclusion about whether I wanted to engage full time.
So, in other words, I wanted to date. I didn't want to get married because I was aware that dating behavior in marriage behavior are materially different. So for each of them, I said, let me work with you for anywhere between a week to a month, pay me and we will essentially de-risk the hiring for both sides. So, I did this 10 times, and with each of them, I was able to make a significant impact to their business, to help them see opportunities that perhaps they were otherwise they were otherwise unaware of. And, and that was all done in a very short period of time. Now, the reframe of that experience is that I was engaged as a fractional CMO instead of a full-time CMO. And I loved the civility with which I was able to engage because I was treated almost more like a guest than a family member. Can I decided that this was such a delightful experience and the variety was so appealing that instead of taking any one of those jobs, I would just professionalize my dating and launch a fractional CMO agency.
Rob: And at what point did it become clear that you were going to have to get some more people on board? You know, obviously it’s one thing you can kind of picture making your own way kind of as a consultant, but there's another inflection point from there where you say, gosh, I need some help and even get to the point where you may have other people who are running that primary fractional CMO seat. What was that transition like?
Rahul: Again, it was relatively like a logical transition and it kind of comes back to de-risking the move. So, when I needed extra help whether it would be in PR and growth in social, in content, in design. I would initially go to trusted people in my network that I could engage on a contract. And so, I would start paying them to do the work. We would evaluate or solidify our chemistry, both personality wise, intellect wise. And it was only when the expense for that discipline became significant enough that I could make the calculus to say, I think it would be more economical to hire someone full-time than it would be to continue on contract. And that's when I started building up my team.
Rob: You make it sound so logical, but I, you can also see it, it really is kind of a steady sort of building block path to progress. Now, one thing that strikes me, particularly when you're talking about startups, a challenge that some agencies have when they work with startups is client selection. Because you have to essentially find clients that you can help, but also are financially solvent enough to not leave you hanging with open invoices. How do you think about process of choosing the right risks when it comes to clients?
Rahul: Yeah, it's a fascinating question. There's a few dimensions to the answer. So, I'd say as a general rule, what I've learned is my sweet spot is just pre-Series A to just post-Series B. And the reason for that is that the organizations have the financial resources to invest in marketing and to pay me, but it beautifully aligns with their motivation to grow. They've they need to show aggressive growth as they, in order to land financing, or if they've just landed financing, they need to show their investors that it was worth it, that they can grow at the pace that they originally promised. So that's my sweet spot when it comes to . . .
Rob: Okay. Have they typically raised seed money or have bootstrapped their way to some measure of viability at that point?
Rahul: Yes. Yes. So, it's either that, or the founders themselves have means either due to a previous success, the discipline of saving, or family means.
Rob: I see. And so, it definitely makes sense that somebody who's pre-Series A, you know, they're looking for that edge. They're looking to come into that fundraise with all of their advantages and with articulation of their differentiation and that's always an investor conversation, is what makes you different. And so, I can certainly see, you probably are plumbing some words into some investor decks along your way,
Rahul: 100%. Yeah. I've pitched X so far for the startups that I engage with, and it's been amazing to even join them alongside those pitches to help close financing.
Rob: And how do you think about customer acquisition in this way? Because it seems to me that startups are, they kind of show up, they get some degree of success. Sometimes they disappear there. It's not like targeting a Fortune 500 firm, everybody knows where Coca-Cola is and how to find them. You may have to navigate the organization to get there, but it seems to me that startups right around as they're getting to your sweet spot can be a little bit hard to find even. How are you finding these businesses?
Rahul: So, fortunately it's all referral based. There's no active prospecting, it is just word-of-mouth, because I think when you start to see a startup do well, many people ask, well, how the heck did that happen? Right. Where did these guys come from and what drove their growth? And when I'm associated with that story and whether it's helping in a minor way or in a major way – that helps generate more client work.
Rob: Got it. Rahul, you've been at this for a little bit now, what are some lessons you've learned in building 5&Vine that you might do a little bit differently if you were starting over from scratch today?
Rahul: Yeah. Great question. So I think the first is, it's something that I'm now practicing I just didn't realize that at the beginning But I employ the same first date premise that I did with the job prospects that I referenced earlier to the startup clients. So, because fit matters and it's really, it's hard to assess fit during an interview process. I'd like to start by engaging in one to three days’ worth of paid work with the client, but I don't need a contract. I just work on the honor system and I want to see whether our personality-based chemistry in our intellectual-based chemistry works. And if they're happy with the value that I've delivered and they like me, and I feel the same way about them, then we'll formalize a contract. And to me, it's not how I necessarily started, but it's what I've embraced now, it’s very different than trying to hunt for as many clients as you can and treating them all as just dollar signs to build your business. I'm not trying to optimize for money alone, I'm trying to optimize for joy, social impact and fair economic compensation so that's one of the big lessons.
Rob: Got it. It's funny how sometimes there are things we instinctively do early in our business that we don't realize we value. It sounds like you were doing this dating and then you kind of got away from it and you've realized that it wasn't just something that you did. It's actually something you did that was valuable along the way, it's an interesting journey there. Does anything else come to mind that you might adjust?
Rahul: Definitely. The second one is, thinking about the composition of your compensation. I have out of the, certainly, 30 companies that we've worked with, there were about five or six where I have taken a meaningfully reduced financial compensation in exchange for equity or options in that organization. And that is just a powerful decision to make, but it obviously comes along with a proportionate level of risk. But it's powerful because when that organization does well, its game changing, it's just game changing. So, give you one example and knowing that you're in Atlanta, this will land pretty well, but one of my early clients was a company called Greenlight Financial, based in Atlanta. Greenlight is a smart debit card for kids that helps parents teach kids about financial literacy in an era where we're no longer as dependent on paper bills. Right? So, because our transactions occur virtually Greenlight helps facilitate that conversation and that education between parents and kids using a debit card and a mobile app, and they do an extraordinary job. When I was engaged, we grew the business significantly enough to close a Series A, led by Amazon. Recently within the past month, Greenlight has closed a $215 million round of financing that values the company at $1.2 billion. Trust me that I am delighted that I took a reduced financial compensation and have a piece of that business.
Rob: Yeah, that's a great one to be in, they are certainly on their way, but early on, I think there were probably along the lines of what you were saying with the thermostat. Some unspoken kind of concerns and skepticism from the market. I know those folks, Johnson Cook, I think I know over there, I've known for a while. I think, Tim that's in charge of it.
Rahul: That’s correct, yeah.
Rob: Anyhow. They used to be right down the hall from us So, I know Greenlight well.
Rahul: Do you know TBC as well?
Rob: Yes. Absolutely. But talking about the insights, what was the insight in that payment market that really, it seems to me that the challenge would be trust. I think I had a little bit of skepticism and trust around the product when they first rolled it out the way I knew the people involved were excellent. Most people don't have that privilege. So how did you think about the differentiation and opportunity in the market with Greenlight?
Rahul: Yes, there was, I guess to your exact point, because it's trust-based, you de-risk a situation when you know someone that has used it and derives value from it. So, you need to take something that is a private experience – and most financial things are private – and you need to help make the private public, and you can do that through storytelling. And so what we did fairly early on was we had great relationships with the parents and kids that were using our product and with their permission either encourage them to share their story on social and or enable us to share their stories on social. But we did so in such a way that the storytelling was, you were exposed to the storytelling, likely from someone in your community, in your city or someone that was relatable because their kids play in a particular sports league that your kids played in. So we made the private engagement with the product or public but did so in a way that you could relate to, and that was familiar to you.
Rob: Wow. That's really intriguing and for the sake of Rahul, but as well as for the sake of your children, go check out Greenlight is a really, really cool product. I would encourage anybody listening to go have a look. I think the market is certainly validated that there is something there, there is value there, and I will vouch that there are good people working on it, so that's really exciting. Rahul, when you look ahead, when you look at what's coming up for 5&Vine, or maybe more broadly in the market of either marketing or innovation, what's exciting to you that's coming up?
Rahul: So, we're evolving our business into a venture studio model where we are taking a bigger position in companies but taking on a higher level of risk in developing their brand, their websites, and their acquisition strategies. So, in essence, whereas a venture capital firm might put in dollars and then the use of proceeds is to do those things, we are doing the same thing, except we're giving all of our intellectual capital to these organizations to help them develop and accelerate them in exchange for more material equity positions. And that to me is unbelievably exciting because there's so much skin in the game. Where our future essentially depends on the success of those organizations and I'm just so excited to unleash more of the team's talents in bringing more socially responsible brands to market.
Rob: That's interesting. And it's really interesting from a team compensation perspective, because oftentimes a lot of agencies will get into a model of some sort of profit sharing or distribution or something like that. How do you think about, is there any way you've been able to align the equity upside to the incentives of your team to kind of be staked into the long-term success of the clients?
Rahul: Yeah, truthfully, not yet. But the model that I'm exploring – but I have not yet solved for – is the venture capital model. And my understanding of the venture capital model takes into consideration is: who’s working on the business, how long are they working on that business, and then what is the outcome? And then how do you proportionately share proceeds based on agency and risk and by agency, I think involvement. And that's the trickiest part of this model is that we all know there's turnover. People leave agencies for a variety of reasons and so you want to ensure if they contributed to the success of an organization, that they can benefit from it for the time that they were involved. But the related thing is to what extent does it impact their base compensation? Because it's a risk model and the risks or the return isn't necessarily generated in the first two years, five years, or even 10 years. Right? And so, I'm trying to figure out how to structure it in such a way that it's equitable, doesn't disadvantage people, also they're still able to live fairly, get compensated fairly, but benefit from that level of upside, knowing that it's the agency that's taking on the most risk.
Rob: Right. I've been having some conversations lately with attorneys. I've been facing down a similar thing because coming from an investor-funded product business, as I have, but also a services business, which we are spinning up. What you run into, if you just follow a typical startup pattern of granting equity, not that you run out of equity, but you keep diluting people with people who are not there anymore. And on the one hand you want them to benefit from the upside maybe . . . probably . . . not at the expense of everyone, they’re not at the expense of maybe even an investor. So I've been tweaking with an idea, and I'm not sure if we're going to get anywhere with it, but if I can find an attorney who will make this format public the same way that some attorneys have made like safe notes and certain sorts of, investment instruments, they've made them public and sort of open source.
What I've been thinking is to have people vest into a profit sharing and equity pool that they vest out of, they relinquish when they leave and that doesn't fully solve things. We had an episode where we talked to Soze, which is an agency out of Brooklyn. And they, it wasn't like Monte Python where they were an autonomous collective, but they said something kind of like that. It was a very like Brooklyn kind of hippy sounding, but really compelling and empathetic way where they, nobody owns that agency, they’re a co-op I think they said. So, everybody owns the share that they own for the time they've been there while they're there and then it goes back in the pool when they leave. And so, I think somewhat inspired by that I've been tweaking with ideas and I, I don't know where I will get with it. I hope if anyone else has some thoughts on it, I'd love to hear drop me an email.
Rahul: Oh, that's fascinating. We should make sure to stay in touch on that one then.
Rob: Yeah. I think it's something that needs to be solved for, I mean, a service business with an interest in the product, which is what we are, which is what you are. I don't know how many of those there are, but I'm a big believer in letting the team share in the upside. And it's a lot easier to reckon that I think on the services side, it's here's profit sharing. but it's, it's harder when it's longer term it's harder when it's, it's something that's not, it's not divisible in the same way.
Rahul: Yeah, fascinating.
Rob: Well, Rahul, when people want to find you and when they want to find 5&Vine, where should they look for you?
Rahul: Yeah, the best way is online. Our website is 5andvine.com. It's the number 5, A-, N-, D-, V-, like Victor, I-, N-, E.com. And as you referenced earlier, it's based on the David and Goliath story where David took five stones from a river and use that in a slingshot to take down Goliath. So, he made a Slingshot out of vine. So it's 5 and Vine
Rob: That's a good, concise backstory as well. Well, Rahul, thank you for your time. Thank you for sharing your story and I'm sure the audience will benefit well from it
Rahul: Much appreciated. Thanks so much for having me on.
Rob: Be well. Bye-bye.
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