In 2006, Jason Seats joined his college friend Matt Tanase to found Slicehost in St Louis.
Two years later, they sold Slicehost, a cloud computing hosting provider aimed at developers, to San Antonio-based Rackspace for millions.
This week on the Ideas to Invoices podcast, Seats recounts how he built Slicehost with Tanase into a thriving web hosting provider and lessons he’s learned working with hundreds of entrepreneurs through the Techstars program.
Today Seats is managing partner of Techstars and oversees a $155 million venture capital fund that focuses on seed stage and early investments. He previously served as managing director of the Techstars program in Austin and Techstars Cloud in San Antonio. And he was vice president of software development for Rackspace Cloud.
In 2006, Tanase, a freelance web developer, saw a gap in the market for providing hosting to his clients and others like him so he decided to build a web hosting company aimed at the developer community.
Tanase and Seats mapped the idea out on a napkin over lunch.
“It felt like it made sense. In that moment, everything felt right,” Seats said.
At first, Seats didn’t quit his day job. He worked 9 to 5 p.m. at his regular job and then worked another eight-hour shift at Slicehost. It’s not unusual to have investors want entrepreneurs to quit and put all their energy and focus into the startup. But Seats knows that’s not always possible.
“I have sympathy and can identify with founders that can’t do it that way,” he said.
The company launched in May and Seats quit his day job in October.
“Going a few months without paying myself I could stomach,” Seats said.
He knows now how unusual it is to have cash flow so quickly in a startup and to be able to pay themselves paychecks from the proceeds, he said.
Seats and Tanase didn’t consider Slicehost to be a cloud computing provider at first.
Initially, people made fun of the cloud, Seats said.
“It sounded like it was a punch line to a joke,” he said.
Slicehost referred to itself as a virtual private server provider. But Seats learned from Graham Weston, chairman and cofounder of Rackspace, that if the industry called itself cloud, then he needed to adopt that term.
A year into the business, Slicehost had 5,000 to 6,000 customers, Seats said. They never took out traditional advertising but they learned to generate leads through content. They had an early podcast called The Threeway Handshake. But Slicehost’s real driver for its content marketing was its customers posting on blogs and in forums about Slicehost, Seats said.
The startup also did its customer support out in the open in public forums with threaded conversations which generated Search Engine Optimization traffic, Seats said. That activity also became a driver of customer acquisition, he said.
Slicehost bootstrapped its business because they didn’t know any other way to do it, Seats said.
“We did what we did because all we were doing was trying to solve things the best way we could with the resources we had,” Seats said.
They didn’t know how to access outside venture money, he said.
Rackspace bought Slicehost on Oct. 22, 2008. The acquisition let Rackspace compete more effectively against Microsoft and Amazon in the cloud computing business.
Today, Seats spends most of his time investing in and mentoring startups and serving on board roles for Techstars’ investments. He travels the country and the world meeting with entrepreneurs in the 30 programs Techstars runs annually.
The number one thing he looks for in investing in startups is the judgment of the entrepreneur, Seats said. A great trait for entrepreneurs is the ability to focus and have ruthless prioritization, Seats said.
The number one mistake entrepreneurs make is the failure to launch their product and put their work out in the open for others, Seats said.
“Founders have a fear of putting their work out into the world for feedback,” Seats said.
Startups that join the Techstars program get feedback on their ventures and learn how to apply it effectively to their business, Seats said. They also get plugged into a massive network, a peer group, advice on how to build their companies and information on how to model a community, he said.
“Our long-term hippy goal is to terraform how business is done in the world,” Seats said.
Techstars promotes a give first mindset, he said.
The book “Give and Take: A Revolutionary Approach to Success” by Adam Grant highlights the concept of a give first mentality in business and the reasons why it works, Seats said.
Seats has worked in both San Antonio and Austin and knows the technology startup communities well.
Austin and San Antonio are both emerging ecosystems, Seats said. As emerging ecosystems, they are still relatively immature markets and they tend to be transactional in their deals, Seats said.
“One thing I get from Techstars is a little bit of a global perspective,” Seats said.
“Smaller markets tend to hang on to things too much,” he said. “They are more territorial, they are more transactional.”
No one wants to work with takers, everyone loves a giver, Seats said. But there’s a third kind called a trader. A trader is a person that wants to give something tit for tat, he said.
“That’s a transactional mindset. It works,” he said. “But without the givers in the mix, you don’t get really positive feedback loops going.”
Austin and San Antonio are ecosystems that are dominated by traders, Seats said. It helps the ecosystems work, but they don’t work as fast and they don’t support startups as much as they could, he said.
The goal for the region is to move to a give first way of doing business, Seats said. He said that is happening. It is evident in the massive mentor network Techstars has and the number of people who give their time to help the startups in the programs, he said.
Seats also recommends entrepreneurs read “Ventures Deals: Be Smarter Than Your Lawyer and Venture Capitalist” by Brad Feld and Jason Mendelson, mostly as a reference guide, Seats said.
“You should not raise money from investors unless you’ve read that book,” he said.
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