- 4 months ago
Precision Neuroscience CEO Michael Mager joins WIRED to answer the internet's burning questions about startups. Why do most startups fail? What does a typical CEO's job entail? How do you hire the right people for your company? Who can fire a CEO? How does startup funding work? What does it mean for a company to "go public?" Answers to these questions and many more await on Startup Support.
Director: Lisandro Perez-Rey
Director of Photography: Charlie Jordan
Editor: Richard Trammell
Expert: Michael Mager
Producer: Lauren Zeitoun
Line Producer: Jamie Rasmussen
Associate Producer: Brandon White
Production Manager: Peter Brunette
Production Coordinator: Rhyan Lark
Camera Operator: Caleb Weiss
Sound Mixer: Sean Paulsen
Post Production Supervisor: Christian Olguin
Supervising Editor: Eduardo Araujo; Erica DeLeo
Assistant Editor: Billy Ward
Director: Lisandro Perez-Rey
Director of Photography: Charlie Jordan
Editor: Richard Trammell
Expert: Michael Mager
Producer: Lauren Zeitoun
Line Producer: Jamie Rasmussen
Associate Producer: Brandon White
Production Manager: Peter Brunette
Production Coordinator: Rhyan Lark
Camera Operator: Caleb Weiss
Sound Mixer: Sean Paulsen
Post Production Supervisor: Christian Olguin
Supervising Editor: Eduardo Araujo; Erica DeLeo
Assistant Editor: Billy Ward
Category
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TechTranscript
00:00There's a whiteboard in case like you want to do some math or something.
00:03I'm not going to do that.
00:05I'm Michael Mager, CEO of Precision Neuroscience.
00:08Let's answer your questions from the internet.
00:10This is Startup Support.
00:16Newfun asks, how do you hire the right people?
00:18This is a matter of life and death for any startup company.
00:22Getting the right people into the organization is absolutely critical to success.
00:25Precision Neuroscience is developing a brain-computer interface.
00:28We need people really with deep knowledge around a certain technical area
00:32and a demonstration that they've been successful either in academia or in another company.
00:37The X factor is real dedication to the mission.
00:41Any startup company has ups and downs.
00:43There are good times and there are bad times.
00:45And the folks who really stick with it, who really contribute over the long term,
00:48are those who have bought into the mission of why the company exists in the first place.
00:52Here's one from the NoStupidQuestions subreddit.
00:55What does a CEO actually do?
00:56Would regular workers notice if the company didn't have one?
00:59I hope so.
01:00I think that sometimes a CEO's work doesn't maybe look like work.
01:04Like, you know, in terms of recruiting the team, how do you do that?
01:07Well, you got to get the word out.
01:08Sometimes you get the word out by doing things like this.
01:10My view of leadership is setting a goal and convincing other people that it's a worthy mission
01:19and that they want to be involved in helping you achieve that mission
01:21and inspiring them to work incredibly hard alongside you to achieve the mission.
01:26It's really about summoning resources beyond just yourself or a small group of people in order to do something big.
01:32ExitFund wants to know,
01:34I'm 21 years old.
01:35What skills should I start to develop for becoming a CEO or an entrepreneur in the future?
01:40Those are really two separate questions.
01:42If you want to become a CEO, there are a few pretty well-trodden paths.
01:46You can go to business school and get an MBA.
01:48You can go into a management training program in a company that offers one.
01:52You can work in a company for a long period of time that you think you have the prospect of moving up over time
01:57and getting promoted eventually to the top job.
01:59In order to be an entrepreneur, it's simple.
02:02You got to start a company.
02:03If you start a company and you're able to convince investors to fund it
02:08and you're able to convince people to join the company and work for you to help realize your vision,
02:13congratulations, you're an entrepreneur.
02:14Fuzzy Lulu asks,
02:16What's the fastest way you've seen a CEO ruin a company?
02:19My answer on this is a little bit counterintuitive,
02:21but I've seen a lot of entrepreneurs focused on getting to good enough and moving on
02:27because there's so much to do.
02:29This mindset of just sort of adequate is incredibly dangerous for any startup for two reasons.
02:35I think the first is that, you know, with any new company that is pitching a new product or a new service,
02:41you are trying to change people's behavior.
02:44It is hard to get people to spend money on new things.
02:48In order to do so, you should be shooting in every respect for amazing.
02:53The product that you're offering or the service has got to be absolutely fantastic.
02:57And I think the second reason is competition.
03:00This is an incredibly, incredibly competitive world.
03:03And if the company that you are building is operating in a space that has the potential to be big,
03:09there is the very strong likelihood that you have several competitors who are trying to do the same thing.
03:15And if you come out with a product or a service that is good enough, that is adequate,
03:20there is a very good chance that one of your competitors usurps you in short order
03:25or that one of your competitors already has and you just don't know about it
03:29because they're in stealth or because they're in a different geography and you haven't heard about it.
03:32Buzz Mightiers asks,
03:33When I think about a startup, I think about two words, urgency and chaos.
03:42Urgency because in general, you know, a startup company needs to hit a certain amount of milestones
03:48to unlock its next round of funding.
03:50And if it can't hit those milestones, it's most likely going to fail.
03:53And so there's a tremendous sense of urgency to make progress as fast as possible.
03:57Chaos because the rate of growth of companies,
04:00especially when they're gaining traction and being successful, is really unlike anything that people are used to.
04:06When you think about a school or a religious institution or other organizations that you're part of,
04:12they tend to grow a few percent a year, maybe 10 percent a year.
04:15Startups will often grow 100, 150, 200 percent in a year.
04:20And that puts a strain on everything, all of the processes, all of the systems in a company.
04:25Fundamentally, startups often are operating in a state of chaos.
04:28And people who are comfortable with that, I think, really thrive in the environment
04:31because you get opportunity to do all sorts of things.
04:34Startups, like any company, inevitably make a ton of mistakes.
04:37I think you have to get more right than you get wrong, ideally.
04:39But I do think it's an opportunity to be really creative.
04:42You know, most startups are trying to sell a product or a service that either doesn't exist yet
04:45or to do it really differently from what's been done before.
04:48And I think it gives people a tremendous opportunity to really think outside of the box.
04:52And I think some amount of that thinking is really necessary for success.
04:54And then also, you know, startups have a culture of shared ownership.
04:58Every employee is actually a shareholder in the company.
05:01And so I think that that really helps people feel bought into the mission.
05:05Ultimately, you know that if the company is successful, that you're going to do really well.
05:09Too Cynical2Care wants to know, why does HR exist?
05:13I think it's a typical mistake to actually discount HR.
05:16You know, you're building a new product, you're building a new service.
05:18You want all the money, you want all the resources to go into building that new product or service.
05:23And HR is viewed as something that is a nice to have, but not a need to have.
05:27And as a result, it's often neglected for far too long.
05:30If you think about, you know, what a startup is, what does it require?
05:34It needs capital and it needs people.
05:36And HR is all about people.
05:38How do you attract the best people?
05:40How do you retain the best people?
05:42It's about creating and disseminating and supporting the culture of the company.
05:47It's about allowing people at the company to be well taken care of in terms of the benefits,
05:51administering those benefits, and making sure the benefits are appropriate.
05:54Bringing great people into the company is really one of the absolute most important things to do on day one.
06:00And building an awesome HR function is critical to that.
06:03It's important to have some part of the HR function in-house, given how core it is to a company's operations.
06:08That said, there are a lot of aspects of HR which are best partnered and outsourced.
06:14Healthcare is a great example of that.
06:16Generally, sort of benefits management and administration.
06:18Often, it's helpful to partner with an organization that really specializes and so you can benefit from pricing that's only available otherwise to larger companies, even as a smaller company.
06:29Try to take some of the administrative burden off of the team's plate and put it on to a specialized outsourcing partner.
06:36On the capital side, Silicon Valley is still home to most of the best and deepest pocketed investment firms that fund early stage companies, venture capital firms.
06:51So there's the famous Sand Hill Road, a very famous road in Silicon Valley, in the Bay Area, where so many of the best firms are based.
06:59There are other areas that have emerged.
07:01There's New York.
07:02There's Miami.
07:03There's Austin.
07:04There's Europe.
07:05Parts of the Middle East are also developing funding for startup companies.
07:08But still, the most capital and the most famous firms are based in Silicon Valley.
07:13So many of the most successful companies, the products that we love using in technology, were created in Silicon Valley to raise capital from great firms.
07:21And you need to hire fantastic people, not just in the United States, but globally, to help realize your vision.
07:26There's still a tremendous amount of pull to that specific area.
07:29At Abbas Efferdeen asks, why do you think most startups fail?
07:34Starting something new is hard.
07:37Getting people to part with their hard-earned cash or an organization to do so is difficult.
07:41You also need to change people's behavior on some level.
07:44The number of startups that actually succeed are in the single digits in terms of percentages.
07:50Most startups fail because they can't sustainably generate a profit.
07:53You might ask then why people start companies.
07:56And I think that there is some aspect of hope over common sense that inspires entrepreneurs to do what they do.
08:03Jin88reddit asks, what's the difference in job description among CEO, CFO, COO, and VP compared to an owner of a company?
08:12CEO, CFO, COO, those are all functional roles within a company.
08:16They have some management responsibilities around finance, around operations.
08:21The people who fulfill those roles could themselves be owners of the company.
08:24They could own 100% of the company.
08:26They could own a share in a company.
08:28But those roles really describe what somebody does functionally at a company.
08:33The owner of a company is someone who owns the equity of that business.
08:37Theoretically, an owner of a business can do absolutely nothing in that business.
08:41Theoretically, an owner can lie on the beach and eat bonbons all day and watch the dividend checks roll in.
08:46In practice, in my experience, especially with smaller companies that tend to be more fragile, you know, owners of businesses tend to be very involved in overseeing them, either as one of the functional roles, CEO, COO, CFO, or as just a very active owner.
08:59But if you think about it, like anyone who owns shares in a publicly traded company is an owner, and there's no expectation of any functional involvement in the business.
09:09CEO is in charge of the entire enterprise to make sure that the company is on the right track, that's executing on its deliverables, has adequate funding.
09:19The buck stops with the CEO.
09:20The CFO is in charge of all of the finances of the company.
09:23If the company has any debt, making sure that it gets serviced.
09:26Cash flow issues, you know, really spin up to the CFO.
09:30And the COO is the chief operating officer.
09:32It's an operating role, making sure that the company is executing on its plan and projections efficiently.
09:39Bob Fred III is asking, how does a CEO get fired?
09:43Who fires the boss?
09:44The board fires the boss.
09:46The board's job is fundamentally oversight.
09:48The board makes sure that the company is executing on its broad strategic goals.
09:53The board also can make decisions on major questions of strategy, you know, financings, acquisitions, divestitures, if the company is considering selling itself.
10:03But in terms of actual day-to-day impact in the business, the board's influence is actually really limited.
10:09And it's by far its most important function is overseeing the CEO.
10:14And when the CEO is not executing, replacing him or her with someone who will.
10:19I think this is actually something that doesn't happen enough.
10:22I think some of the most high-profile bust-ups in Silicon Valley, in startups, WeWork and Theranos, these are examples of the board really getting overwhelmed by the CEO and not exercising their oversight responsibility.
10:34And doing what had to get done, which is ultimately replacing a CEO who wasn't acting appropriately.
10:39Catflap10 asks, what does it mean to take a company public?
10:43Certain startup companies require more capital than others, but most require some amount of capital.
10:47For a company like ours that's developing a brain-computer interface, you know, we have to fund the company for many years before revenue.
10:54You have to go through the product development stage.
10:56You have to go through the regulatory process.
10:58That's true for any pharmaceutical product.
11:00It's true for any medical device.
11:02Generally, the way that companies like ours raise money is from private funds, primarily from venture capital.
11:07But at a certain point, you can go public, which really means offering shares to the public through an IPO.
11:13That can be a really great way to access large amounts of capital.
11:17But it does come with administrative burdens, certain regulatory burdens.
11:21And so it can be actually quite expensive and resource intensive, which is why generally companies do it at a later stage when they can afford the administrative overheads that it requires.
11:29That said, it can impose a really healthy discipline on companies.
11:33In general, companies are more successful going public when they have demonstrated revenues which are growing and where they can predict what they're going to generate in terms of revenues and earnings for, you know, the next quarter and the next 12 months.
11:45For us at Precision, I think our ambition is to go public when we're commercial.
11:49I wish it were that simple that you could just plug in a few numbers to an Excel spreadsheet and it would spit out a business value.
12:01There's a lot more that goes into valuing a business.
12:03You know, think about how defensive is the business?
12:06What are the growth prospects of the company?
12:08Are the margins sustainable?
12:10How subject to disruption is the industry?
12:11If you look at the stock market, you can see that people's perception of value in companies is a lot more volatile than the actual earning streams of the companies themselves.
12:21And that just gives you a sense that valuing a company, there is a science to it.
12:24There is math associated with it.
12:26But there's also a lot of judgment and, you know, a lot of volatility around people's expectations.
12:30Run rate is generally if you sort of take the last month or last three months, that's the run rate at which revenue is right now.
12:38If it stays at that same rate over time.
12:40So hopefully the revenue run rate is going up over time.
12:43It's a way of basically looking at revenue, not, you know, for the trailing 12 months, which is often how much revenue you generate in 2024 or how much are you going to generate in 2025?
12:51This is a way of doing a sort of more up-to-date approximation of what the company is generating.
12:56Gross margins are the revenue less the cost of goods sold.
12:59So it gives you a sense of what the unit economics are, but there's a lot not explained by the gross margins.
13:06Like, did you have to build a $500 million factory in order to generate, you know, $24 million of revenue and 58% gross margins?
13:13Or did you start a software company and you only needed to invest a million bucks to get to $25 million of revenue and 58% gross margins?
13:20Those two questions, like, really help determine what the company is worth and what the future value is likely to be, which, unfortunately, Houseplants Hustler has not given us insight into.
13:30Glittering Flan 1049 wants to know, how do I raise pre-seed funding for my startup?
13:36Pre-seed funding really meaning, how do I raise the initial capital to get off the ground for a company?
13:41It really depends on the business.
13:42So if you want to start something like a restaurant or a storefront, there are ways of raising either a loan from a bank or through the SBA, the Small Business Administration, for money in the sort of tens of thousands of dollars to get off the ground.
13:56If you have an idea for a business that has the potential to be big and that requires significant amounts of capital, then you're likely a good candidate for venture capital.
14:05So, you know, I'm the CEO of a company developing a brain-computer interface that will likely cost somewhere between four and five hundred million dollars from start to finish.
14:13That is way more money than friends or family could fund or anybody can fund out of their own savings.
14:18So we have gone to the venture capital community to fund the business, going to investors and convincing them that the idea that you have is worth funding and that you have and the team around you have the capability of executing on that.
14:31And if you can do that, you know, you can raise capital and get going.
14:34Codemon wants to know, how does startup funding such as series A, B, C, etc. work?
14:40We're developing a brain-computer interface.
14:42It will cost somewhere between four and five hundred million dollars to develop from start to finish.
14:46If we tried to raise all of that money all at once, investors would have laughed us out of the room.
14:52We were a couple of guys and a PowerPoint presentation pitching a dream.
14:57The way that investors tend to look at a company is over the long term to make sure that it's hitting its milestones.
15:04And if companies are making progress, then they are able to generally raise money in different rounds and at subsequently higher and higher valuations.
15:12So we raised an initial round of twelve million dollars.
15:15We hit a bunch of milestones.
15:17The value of the company increased.
15:18And then we did another round, our series B round in this case, at a higher valuation.
15:23And when that works, when you're able to raise subsequent rounds at higher valuations, what that means is that the existing owners of the business, the employees and the existing investors have to give away less and less ownership in order to raise capital.
15:37Had we tried to raise all five hundred million dollars at once, we would have had to give investors 90 percent plus of the business right off the bat if investors had been willing to do it.
15:46And so that would have been bad for us and it would have been bad for the investors.
15:50A.V. Guy 42 says, screw your success.
15:54Tell us your greatest failure.
15:55Starting a company is never a straight line.
15:58You hope that the successes outweigh the failures, but there are inevitably going to be a bunch of both.
16:05One of the core assumptions that we made when we started the company, Precision Neuroscience, was that the array that we're developing, which is actually the part of the system that sits on the brain, that we would be able to manufacture it in the United States.
16:18It turned out that the supply chain that we had expected to be there didn't exist.
16:23We had finite resources, an early stage company.
16:26We spent over a million dollars working with a supplier that said they could do it, that had made some progress in validating that they could do it.
16:34After spending seven figures, they delivered six arrays, which on average, about 30 percent of the electrodes or sensors in our case actually worked.
16:43That is not the basis of a successful company.
16:45Without a path to manufacturing at commercial scale, you know, hundreds and thousands a month in a sustainable way, there was no way to continue to build the technology.
16:54There was a facility in Texas.
16:57We moved really quickly.
16:58We ended up acquiring it in a process that usually would take six months.
17:02We were able to do it in six weeks.
17:03And in the end, this facility has become a really important strategic source of strength for the company and competitive differentiation.
17:11But staring into the gun barrel of no clear supply solution, we had no idea that that was going to be possible.
17:19So if everybody knew all of the things they didn't know when starting a company, no one would ever do it.
17:24I think at a certain point, you just have to have the courage to jump off the cliff and figure it out on the way down.
17:29BlackDogNick82 wants to know, but the gap between top earners and low earners has got wildly out of control.
17:35The percentage difference between CEOs and workers is higher than it's ever been.
17:39How do you address that imbalance?
17:40It's true that the gap between CEOs and the median worker has expanded enormously on the order of 10x in the past 40 years.
17:49Being in a startup company, it's actually quite a different dynamic.
17:52Startups are generally cash-starved, and so you have to be incredibly careful about where finite resources are allocated.
18:00Cash salaries being in the millions of dollars is absolutely not the rule.
18:04I also think, you know, it depends a little bit on the industry.
18:06The technology that we're developing, a brain-computer interface, requires an incredible amount of scientific and medical expertise.
18:15We have a lot of PhDs on staff.
18:16For us, having a very wide discrepancy between pay of the average worker and the pay of the seam suite has the potential to be very corrosive to the culture of the company.
18:25For a company like Precision, every employee is an owner in the business, and I think that's incredibly important in terms of alignment around a common mission.
18:34But it also means that if we as a company end up being very successful, every employee in the company is also going to share in that success.
18:42Our ambition is to make a lot of people millionaires, and I think that that would feel wonderful in addition to doing something good in medicine and in science to actually make sure that the people who really build the company end up benefiting from it.
18:54I think that that really is the Silicon Valley model, and I think it's one that we're really excited to pursue.
18:59The Janae Michelle wants to know, how, TF, do stock options work for a company?
19:04An equity stock option is the option but not the obligation to buy stock in the company.
19:08Generally, the exercise price, so the price at which you have to pay to acquire the stock, is set at a low value, so that if the company ends up being enormously valuable, you can pay a relatively small amount for equity in the company that ideally should be worth a great deal more.
19:23If a company ends up being acquired, which actually happens more frequently than a company going public, employees typically exercise their options right before the acquisition and so get their pro rata proceeds from the acquisition.
19:35Or if the company goes public, you exercise your options before the IPO, and then there's a liquid market in which you can sell your equity, hopefully at a much higher price than the exercise price.
19:44Sky Ballad says, looking at the KPI sheet and what the actual hell is this, KPIs are determined by management teams to gauge the health of the company, the trajectory of the company, the prospects of a company, and those actually even within a company can change over time.
20:00There are some that I think are pretty universal, like, you know, burn, very important.
20:04You need to look at the amount of cash you have on hand and the amount of cash that is being depleted and the rate at which it's being depleted and keep a very close eye on that.
20:11I think that's true for virtually any business.
20:13But I think KPIs otherwise really depend on the business and the industry that you're in.
20:18If you have a software company, you might be looking at retention.
20:21What percent of the people who sign up for your product continue to pay for it 12 months afterwards?
20:26If you have a media company, you're probably focused on how many people view your video or listen to your podcast.
20:34For a company like ours, which is developing a medical device, we have regulatory milestones.
20:39We have product functionality milestones.
20:41The ability to measure the things that really matter is one of the most important judgment calls that a management team can make.
20:46KKW16 wants to know, can someone help me understand the different phases of FDA approval process?
20:53Well, the FDA approval process really depends on whether you're developing a drug, like a pharmaceutical product, something that's in digital health, so like a software program.
21:01They all have slightly different regulatory pathways.
21:04But they all generally are intended really to gauge two things, that the product is safe and that the product is effective.
21:12In a series of tests, first in the lab and eventually when the system has demonstrated a significant amount of reliability and underlying safety, you implant patients.
21:21I think the FDA provides an incredibly important regulatory regime in which to operate.
21:26But ultimately, I think, you know, any company that's developing technology and they're trying to do it the right way also has those same goals in mind.
21:33They want to develop something that's going to make a positive impact on human health.
21:37And in order to do that, you got to do something that's safe and it's got to actually fulfill what's on the label.
21:41Iggy says,
22:11If the accounting rules force you to depreciate the entire building in 15 years, but actually the building's going to last for 75 years, depreciation can overstate the charges and really understate the underlying cash flow of a business or of a project.
22:25And so it can make sense to either adjust or even eliminate certain charges.
22:28I think this is often used by the private equity industry, but it has some pretty obvious flaws.
22:34You build a factory, it does depreciate.
22:36Things break.
22:36You got to replace the widgets.
22:38I often look at operating cash flow less capital expenditure because capital expenditure is often really required in order to maintain and grow a business.
22:48Right Juice 6079 wants to know, if you had to start your business again from scratch today, what would you do differently?
22:55I'm not sure I would do a lot differently, but I think my perspective has changed in some regards.
23:00I think when you start a company, everything seems like it's life and death.
23:04And in a startup, there is a lot that's life and death.
23:06You really need to move with urgency in the day to day.
23:10And yet, you know, I think knowing what I know now, it's really about perseverance over a long period of time.
23:16This is very much a marathon, not a sprint.
23:18Trying to focus on the things that really matter and focusing a little bit less on putting out every fire as quickly as possible is something that will help sustain people over longer periods of time and really avoid burnout.
23:29In the first few years of precision, I felt that I could never be the bottleneck for anything.
23:34And so anytime an investor reached out, anytime a prospective partner reached out, anytime a prospective employee reached out, I was the first to respond.
23:43I never left the office with any emails in my inbox.
23:46I felt a tremendous sense of urgency to move the organization forward in every way that I possibly could.
23:52And in retrospect, some of those things were important and a lot of them really weren't.
23:56They could wait a day.
23:57They could even wait two or three days.
23:59So those are all the questions for today.
24:00Thanks for watching Startup Support.
24:04Startup Support.
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