A Founder's 20-Year Journey Through "Compound Stupidity"
How Scott Julian raised VC, got fired, but then ended up buying his company back.
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Scott Julian has built and sold multiple companies, but is most well known for cofounding Effective Measure in 2008. During his stint at Effective Measure he raised venture capital, was ousted as CEO by the board, but then picked up the pieces and eventually purchased his company back. After the Effective Measure journey, he now focuses on restructuring and turnaround work, helping other founders navigate the complex world of venture capital and company building.
In this interview, we dig into:
Chasing a term sheet all the way to San Francisco
Getting replaced by the board
The $20m deal that never was
The personal cost of entrepreneurship
The Three Types of Money
SH: How's life for Scott Julian right now?
SJ: It’s good, and I’m in an interesting spot. I've started to define money in three ways as I've gotten older. There's "fuck me" money, "fuck you" money, and "fuck everybody" money.
"Fuck me" money is like, "Fuck me, how am I going to sort this shit out?" That's where the vast majority of us are.
"Fuck you" money. There's no aggression. It's just like, "No, I don't need to do that. Fuck you."
Then you've got Elon Musk with "fuck everybody" money.
I'm maybe on the beginnings of "fuck you" money, but definitely somewhere between "fuck me" and "fuck you." I’m having a bit of an emotional reset to go, "How can I use whatever I've got to actually be a better human?"
SH: It sounds like you're on a journey of self-inquiry?
SJ: Yeah, you can call it that. Over the last couple of years, I've had to be a bit of an asshole to achieve some things. Now that they've been achieved, I'm happy to not be the asshole. It's not my preferred natural state.
SH: As an outside observer, I would have thought you'd be good at being the asshole?
SJ: Oh, I'm absolutely good at being the asshole. Doesn't mean I enjoy being the asshole. They're very different things. Some people relish being a prick and being selfish. I see it as potentially a necessary tool. Not a fan of it personally, but I've got a practised facade for when it needs to be done.
SH: Give me the 30-second overview of who Scott Julian is.
SJ: Fucking great question. If you find out, let me know. I'm a kid who got all the fancy shit early on, including selective schools and a good environment. I found myself at university around 1999-2000 going, "Hey, I'm not really interested in becoming an accountant or doctor or lawyer." I was convinced by a bunch of friends that there was gold in the hills around startups.
What followed was what I describe as "compound stupidity". Every time something worked, I doubled down. I built a couple of businesses that were successful, generating revenue, and then I sold them. Then in 2007-08, I took most of that money and put it into someone else's startup idea. That became Effective Measure, which I think was the first Australian registered company to raise from a US VC.
I'd encourage people to apply a similar amount of logic to their careers. You've got to take risks, otherwise you end up at 55 going, "What the fuck have I done with my life?"
Finding the Idea That Changed Everything
SH: What was the business of Effective Measure?
SJ: Effective Measure was a leading provider of digital audience, brand and advertising effectiveness measurement and targeting solutions. We brought best practice online measurement data to premium publishers, agencies, networks, advertisers and researchers. Over time, we operated as the leading and most trusted audience measurement platform in MENA and South Africa
SH: Effective Measure wasn't your idea. How did you decide that was the thing to pursue?
SJ: Based on my 15 years of experience since, I've seen a pattern where some of the best businesses come from people who've worked in an industry and seen a stupid friction point.
"Why do we do things that way, when we could do them this way and be so much more efficient?"
We'd sold a couple of businesses and had enough money to have some choices, but not enough to relax. We set up an office in Cremorne way before it was cool. Mostly we did it for the cheap rent! We shared space with some guys working for Web Trends, which became Omniture and eventually part of Adobe.
One of them, James, said there's a shift occurring with third-party cookies and an opportunity to build a better system to service a market worth billions. So with James and another cofounder, my brother and I went ahead and built it. This was pre-AWS, so we had to build data centre infrastructure ourselves.
We were originally trying to replace Nielsen in Australia. Everyone agreed we had built something better, but the market dynamic was too hard to shift. They did eventually get replaced by Ipsos, so perhaps we were right on the idea but wrong on the timing.
Instead of quitting, we said, "If we can't replace incumbents, let's go somewhere there aren't incumbents." That's how we ended up in Dubai. Dubai at the time was an emerging market, and we attacked it like any other startup would. Lots of hanging in hotels and trying to convince people what we had was amazing. It started to take off but it was still bleeding money.
The Serendipitous $4M Term Sheet
SH: What was it that turned it around for you?
SJ: At the time Yahoo was one of the biggest players in the ecosystem. On a whim, I chased a Yahoo executive who was in charge of emerging markets back to the Bay Area, and spent a week in a shitty motel waiting for a meeting that never happened. The only point of being in the Bay Area was that meeting, and he never confirmed it.
Being bored after a few days, I started to reach out to people I knew and had met before. I didn’t tell them I was in town with nothing to do! I eventually got a meeting with an agency and gave them a demo. They said:
“If you are building this for established markets, we’ve seen it a million times. But if this is for emerging markets where no one else has this information, then that’s interesting.”
In the last five minutes of the meeting, I asked if they knew anyone interested in investing. Three weeks later, I got an email with a Skype connection. I had a 90-minute conversation with someone I hadn’t met before, but it turned out to be David Carlick. David was the former chair of MySpace and the founder of DoubleClick, and he’d just been given a $40 million early-stage fund.
David had missed out on investing in another Australian analytics startup called Hitwise, which went on to exit for over $250 million. I think he saw us and decided there might be a pattern to follow. A week and a half later, I received a term sheet from a US VC. It was a combination of serendipity, luck and stupidity. Being in the right place at the right time and not completely screwing up the conversation.
SH: That sounds amazing with hindsight.
SJ: Everyone believes they're a genius. Having spent time in this world, I understand that serendipity and luck play a much bigger role than everyone realises. The analogy I use is surfing - tons of waves come in, and if you paddle your ass off, you may catch a wave. But if you don't paddle, you ain't catching no waves.
We all play in a dangerous space with a lot of "hopium." The brutal reality is that startups are not the fertile ground people thought it was. But if you hang around with a mission and you care, sometimes things work.
Brought to you by Murmar.
The Brutal Early Days
SH: What were the early days like before that raise?
SJ: We were paying $35k a year in rent, had seven or eight people, burning $30-40k a month out of our own pocket. One of the biggest costs was data centres because this was pre-AWS. Our original data centre was in King Street, Melbourne, but we realised very quickly that migrating it to LA would pay for itself within months.
We flew to downtown LA, and it was a bit of a shithole back then. We found a sketchy data centre that was a fit for what we needed. For $1,500 US a month, we got what we were paying $15-16k for in Australia.
We managed to buy a bunch of second-hand servers from British Telecom, and I distinctly remember ungodly hour calls with my brother in LA saying, "This is bullshit, the server rail doesn't fit, this thing's heavy, I'm pissed off!" In one implementation, we set up servers in the wrong direction, taking hot air in rather than cold. It was an interesting time in the sense that a lot of things that are straightforward now were hard then.
SH: Did you ever come close to shutting down?
SJ: No less than 400 times.
SH: Tell me about one of those moments.
SJ: Late 2008, we'd probably spent about half a million of the money we'd made from previous startups. We were down to a couple hundred grand. This is when houses were $500k, so your mental heuristic is,
"Shit, I could have bought a house and owned it outright. What have I done here?"
This was also about the time I chased that Yahoo executive across the Atlantic. I was sitting in a $70-80 a night Motel 6, on the other side of the world alone, going, "What the hell have I done? Maybe it's time to go be a lawyer." It was literally a week or two later that we got the term sheet for $4 million US.
Those "oh shit" moments happen all the time. I don't think there's a seminal moment where everything turns around. Startups can be death by a thousand paper cuts rather than guillotines. It’s a bit like being an actor in Hollywood. Some make it really big, some find satisfactory careers playing bit parts, others burn out and hate everything.
There have been thousands of small moments where I was considering what the fuck I was doing with my life. Startups are a bit like a lottery. You might be drawing the lottery ticket yourself, but you are still drawing a lottery ticket.
What I've learned, though, is that there's no problem I can't solve. Everything's fixable if you break it down into digestible chunks. Nothing is unsolvable. You just need to lean into the stress but not get sucked in by the process.
The Reality of Taking VC Money
SH: What changed once you took the $4 million USD?
SJ: In working with investors, the number one thing to know is that the partner matters more than the firm's reputation. Everyone wants money from Sequoia or A16Z, but what matters operationally is the partner you're working with. Make sure they believe in the business. They don’t have to completely believe in you, because sometimes you're not the right person for the second, third, or fourth stage. But they have to believe in the business.
Structured investment accelerates growth, capital, PR recognition, which are all positive. But it also accelerates expectations. It's incredibly important to understand they're not there to support a lifestyle business or help you buy a home. They're there to invest someone else's money for higher returns than the market average.
SH: Did you feel pressure from taking that money?
SJ: Absolutely, but it's not necessarily bad. The best analogy is steel forging, where the metal is folded and pounded. That concept of forging is very real in startups. The most effective founders have been put through some shit.
I see repeatable patterns of founders being starry-eyed about raising money, thinking all problems are solved. Three to six months later:
"Shit, problems still exist and now I've got this person pushing me."
If there's a healthy relationship between an investor who understands they're making spread bets and a founder who understands they're one of many bets, that's positive. But anyone thinking their problems get solved by raising money is delusional. Some problems get solved, but there are commensurate expectations.
These bets aren't made to make people comfortable. They're made to create outsized returns. You need to understand the power law. Out of 100 investments, two to three pay back the fund. If you're not comfortable potentially being roadkill, don't do this.
The $20M Deal That Never Was
SH: Did you raise again after the initial $4 million?
SJ: We raised about $15 million total across follow-on rounds. In 2012, one of the world's biggest private equity funds approached us.
I'd been at the W3C, which is an organisation that focuses on defining the protocol standards for the Internet. I was working on the "Do Not Track" initiative, and I found myself sitting next to Tim Berners-Lee. I think most people know him as one of the founding fathers of the Internet, and we were chatting about what we did in emerging markets. About six months later, Tim was at another conference, and he happened to mention us to a private equity firm that was making investments.
We spoke to the PE firm, and they ended up flying to Melbourne to meet us two days later. They did intensive due diligence for three days, where they were less worried about the financials and more focused on the business potential. When they invest they are looking to make a step-change, and our numbers at the time were rounding errors for them. Eventually, they offered us a $20 million US term sheet. That would have valued us at $70-80 million US.
Unfortunately it fell through, as we fell victim to a pissing contest between our existing investors and the PE firm over who would own the largest share of the company. We were sitting there as founders thinking,
“Hang on a second. We’ve gone from a $20m valuation to an $80m valuation, so what the hell is the problem?”
We wanted to do the deal, but our existing investors wanted to make sure they didn’t lose out. We ultimately fell victim to pro-rata rights. We were given commitments from the existing investors that they would backfill if we didn't take the PE money. That wasn't the case. We did get some more money from the investors, but it wasn’t anywhere close to what the PE firm were offering. Had we landed that PE deal with a multi-billion dollar fund, we'd be talking today about a meaningful exit.
In parallel, we had a founder fallout around the same time. There was a bit of political white-anting going on inside the business, and it wasn’t healthy. There was an individual, who I won’t name, who was a little bit more progressed in their career and saw a political opportunity to get themselves a role. They were a CEO of a public company and knew they were about to get canned, so they engineered a way to take over the CEO role at Effective Measure.
It was hard but after four years of hard slog, I was ready to step back into a president role. I know the President’s role can be a bit of a graveyard for founders. Moving from CEO to President meant I was still on the board, but no one in the ops team is going to listen to what I have to say. Someone else is in charge of the business.
Getting Ousted and Buying Back
SH: How did that transition feel? Was it liberating?
SJ: God no, it wasn't liberating.
SH: Did you fight it?
SJ: Oh yeah absolutely. I fought it, and accidentally divided the team into camps. "Are you on my side or theirs?" But the reality is that I'd already lost that battle before I knew there was a fight. Someone with experience worked out how to beat me politically.
I'd caution founders: if investors are approaching you about changes, you may have already lost the political war. The decision was made before I knew there was something to fight.
With hindsight, I think I was right because the following year and a half wasn't great for the company. The investors ended up selling us back the company for basically nothing. But I went about objecting in a very immature way.
SH: Talk me through buying the business back.
SJ: It was incredibly simple. Professional investors are clinical, and our investors have been investing third-party funds. It wasn’t like they had taken $50k out of their personal superannuation and bet the farm on some exciting idea. They allocated third-party money to this as part of a portfolio, and it wasn’t working, so how do they extricate themselves?
Their scarcest resource is time, not money. If you're a zombie company, you become a burden time-wise. Their thought process is,
“Well you are not going to return the fund, and yet I have to spend three hours of my week working with you on this stuff. I could invest those three hours into a company that IS going to return the fund”.
We also benefited from their attempt at a management change that didn't work. It was still an interesting business, doing $4-5 million in revenue. So it wasn’t a complete “nothing burger”, but it also was not a "shoot the lights out" thing.
We did a rollover deal which took about a week to paper. The new company acquired the old structure. On Thursday it was a clean skin, and on Friday it was a new company with $5 million in assets. The founders owned 85%, and the previous investors retained 15%.
We made a few obvious mistakes after that and missed some opportunities to exit. We could have turned a scrip for scrip rollover into a $5m USD exit, but my brain at the time was telling me that it wasn’t enough. It sounds ridiculous when you say it now, but at the time, I saw it as a piddly amount of money compared to what the business could become. In my career I have been too dumb to quit sometimes, and that can be a positive thing but it’s a really fine line. I do think compound stupidity is the best way of describing everything I have done.
SH: Were all of the original four cofounders involved in the buyback?
SJ: No. Only three of the original four founders participated in the buyback. There were two sets of brothers as cofounders, and at the time I’m sure there is a good chance we all would have said to each other “I’m never working with that person again”. But in the fullness of time and having worked with a bunch of different people, I can confidently say I would work with them again in a heartbeat. There was something quite special there.
The Cost of the Journey
SH: What did Effective Measure cost you personally that you didn't expect?
SJ: It cost me a marriage. Whether that is a fair statement or not I don’t know, but there's definitely a correlation between raising initial money and having a separation. I'd spent a year and a half so maniacally focused on an outcome that I'd been neglecting other things.
The irony is that I now have a much better relationship with that person than I did when we were married, and we work together now. Sometimes things suck at the time and everyone goes on a journey, but sometimes things work out.
I don't feel like I missed out socially. I got to see the world - spent time in Pakistan's Swat Valley, Dubai, Southeast Asia, Silicon Valley, New York. There's always a payoff.
I'm cautious about saying anything has cost me anything. There's a toll, but that toll means you're on a freeway. A faster road. I definitely feel like I've been through some shit, but sitting where I am now, I'm happy. I'm not a billionaire, not in the papers all the time, but that suits my personality.
I look at people who've made tons of money and think it makes them better than everyone else. It's only one form of scorekeeping. For people where this lifestyle fits, they'll thrive either way. At a minimum, everything else in life will seem simple if you do startups for long enough.
Working with Family
SH: What's it like doing business with your brother?
SJ: One benefit is we can literally yell at each other and know we're stuck with each other regardless. His kids are my nephews, and nothing's going to separate our family unit. That's liberating, because you can call each other idiots with no consequence.
The downside is if other people are in those conversations, they think we're fighting versus discussing. We've spent time tempering how we speak in front of others.
We've been doing this for 22 years, so we've developed distinct work and family personalities. We have different skill sets. He's a more introverted thinker, and I'm more extroverted. My job is to kick down the door, and his is figure out how to make it work once it's ajar.
The Three Easy Questions
SH: What’s a book we should all read?
SJ: That's not an easy question! Anything by Dr Seuss is always useful in my opinion. I think the moral core of Dr Seuss is really quite powerful.
SH: What is a band or artist we should all listen to?
SJ: You said these were easy questions!
In the electronic space M83 are great. In the indie space I enjoy The Naked and Famous. I really like some of the more popular stuff now so like Charlie xcx, and I think Sabrina Carpenter is potentially underrated. She’s not for everyone but I think she's actually really clever. She understands the zeitgeist and the marketing, and has this great combination between being very talented but also understanding the business side of things.
SH: What is a podcast we should all listen to?
SJ: Oh that's a fun question. I am really getting into a podcast called Pod Save The World at the moment. What I do find really interesting is that it's a couple of guys who were ex-Obama people, who think holistically about the world and how the US fits into it. Perhaps more than the current administration does!
SH: Thanks so much for your time Scott!