Groupon Founder Sprouts Midwest Success - Interview with Brad Keywell

Hello and welcome to Zing Talk, where Benzinga brings you the biggest names and brightest minds from New York City to Silicon Valley.

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Today our guest is Brad Keywell, a founder and principal in the hugely successful Groupon. Keywell is also the founder of LightBank, a venture capital firm, the co-founder and CEO of MediaBank, and the co-founder of Echo Global Logistics ECHO.

Keywell has started over 11 companies that generate more than $2 billion in annual revenue, with more than $250 million free cash flow.

How are you doing today, Brad?

Brad Keywell: I'm good. How are you Jason?

Good. Thanks for being on. Everyone was pretty excited to hear from you. Could you tell our listeners how you got your start in the business world?

Brad Keywell: I went to business school and law school at the University of Michigan. But really, from a business world standpoint, I've been starting businesses since was too young to remember and continued to start businesses not just in high school but when I was in college. Right after college my business partner, Eric Lefkofsky, and I – rather than go into law, we started what was the first of a series of businesses that continue to this day.

I know you went to the Ross School of Business. Then you also worked with Sam Zell, who is big into the Ross School of Business. How'd you get in touch with him, and did your experience at the University of Michigan business school help you prepare for where you are in the business world today?

Brad Keywell: Michigan was absolutely a majorly formative part of my life, both the business school and the law school. But in terms of Sam Zell, way back in 1988 or '87, when I was a freshman in Ann Arbor, teaching entrepreneurship was not something that was often done. In fact, it was not done. And Sam Zell, who was a graduate of Michigan, went to the business school and suggested they teach entrepreneurship, and their response was, “We don't have the money.”

So Sam put up the money for what was the first time the business school in Ann Arbor ever taught entrepreneurship. And it was a graduate school class, and I don't remember how, but as an undergrad freshman I got into this MBA class. I probably cared more than most others so I ended up doing very well and was introduced to the guy who funded and fundamentally created the class itself, Sam Zell. Through that introduction, he and I became friends. And it's a friendship that's now 20+ years old. He's definitely an important mentor in my life.

Unbelievable, the connections you make in school.

You've founded so many successful firms from the ground up. Most, if not all, are successful. What is one or few of the common threads you found to foster a successful startup?

Brad Keywell: The most important thread, and most important element of all these businesses, is that we are very good at knowing what we're not good at. We meaning my business partner, Eric Lefkofsky, and I. We understand what we're not good at and we try to avoid those things.

On top of that, we are not always successful. We have plenty of strikes. As a result, we try to learn from what we don't do well and what we do wrong. What we do well, the positive side of that comment is we understand technology very well. We're technologists in that we understand how to build technology that works, number one. Number two is we understand data.

We understand how to leverage data. We understand how you can use data advantages as a key asset in a growing business. The third thing is we are at the center of a thing called social commerce. Clearly, one of the businesses that we started, which was Groupon, is defining what is, I think, one of the more important, new, types of advertising that exists. And I would argue also one of the more profoundly effective types of advertising that's ever been created.

Who came up with the name for Groupon? Did you guys ever imagine it would be such a force in society today?

Brad Keywell: A guy named Aaron With, who is a genius, who was the original editorial writer of Groupon, and today runs an editorial group that is 250+ people deep. We have the largest editorial staff in the Midwest; much bigger than the Tribune or the Sun Times, for example.

Aaron is the one who thought of the name Groupon, which is obviously a combination of group and coupon. And, in terms of the growth, Groupon is one of the fastest growing companies ever. When that happens, that's spectacular to anybody.

Where do you see the next three to five years with Groupon?

Brad Keywell: Andrew Mason, who is the CEO, is the better person to ask. But what I can say is that Groupon is changing the way people interact with local merchants. It is helping people to discover things that are local, that they might otherwise not have tried.

And for merchants, it is a much more effective way to reach local consumers than a newspaper ad or than other forms of traditional media. So what I know about Groupon is that it is unique in the world and it has created a new space that has produced huge value for everybody involved. For the consumers, who can save money and discover new, local things – activities and businesses. And for the businesses who can now uniquely reach local consumers. Where that goes, Andrew is better to comment on. But what it is I can tell you is quite profound.

I found this an interesting tidbit: you and Mark Cuban, your favorite book happens to be Ayn Rand's The Fountainhead. What is it about this book that speaks to you, and is it something you'd suggest for other entrepreneurs?

Brad Keywell: Actually, my favorite book is Atlas Shrugged, and I think that's Mark's as well. It is, in my opinion, the book that every aspiring entrepreneur should read. Beyond that, I think everyone should read it. It speaks to the potential of human beings. It changes their world. And it speaks to the meaning of innovation and hard work and what happens when you strive to do the best you can do. And those are important lessons for anybody. But when I speak to entrepreneurship classes at universities, whether it's U of M or University of Chicago, where Eric and I teach a course, or Northwestern, I'm constantly suggesting that every single student read Atlas Shrugged. I know that when I read it when I was 21 it changed my life.

There was a survey done by the Library of Congress, I think 10 years ago, but about the most influential book of all. Number-one was not surprising: it was the Bible. Number-two was Atlas Shrugged.

Let's talk about your new venture firm, LightBank. What was the catalyst for founding this firm?

Brad Keywell: Eric and I have been starting businesses – that's what we do for a living. But what we have done historically is start businesses ourselves and grow businesses ourselves. In the last few years we started to see really interesting opportunities to help others who were starting businesses succeed, and hopefully help them change the risk/reward equation to have more reward and less risk.

We formalized that with LightBank. What we're doing now is actively investing in other people's companies. It's very non-traditional in that we look at these opportunities more as partnerships than investments. When we get involved with a company we of course put money into that company. But we put significant amounts of our time and our resources and hopefully our experiences and understanding, what works and what doesn't work, and more importantly, how to successfully build a business. And put those elements into the pot. And hopefully what you get is great entrepreneurs, plus our involvement is a more likely picture of success.

LightBank is in Chicago. Can you tell us about your passion for the Midwest and what you're trying to do here?

Brad Keywell: I grew up in Michigan. I grew up not far from where Benzinga is headquartered. I went to school in Ann Arbor, and Michigan is home for me. So I have a huge amount of loyalty and passion for Michigan.

Chicago is where I live with my family. It's where I'm raising my children, and I have a huge amount of passion for Chicago. I believe that both are vastly underserved by venture capitalists, and both are the home of some phenomenal entrepreneurs and some great ideas. So what's missing in Chicago, and more broadly in the Midwest, is ready access to quality, value-added capital that can help entrepreneurs grow their ideas and grow their businesses uniquely. To that problem, we offer the solution of LightBank.

We don't invest in everything we see. We invest in less than 1% of what we see. But when we invest, we're all in. And we invest with money and lots of help.

We're trying to find great entrepreneurs, which is the most important thing we look for – which is great people – who have very good ideas, maybe not perfect ideas, but very good ideas. And have demonstrated traction. So we're more focused on people that have already done something and are in the early stages of execution, versus people with simply an idea on the back of a napkin. Frankly, we invest in both. And hopefully, because we're doing this, we're making a difference in the entrepreneurial community both in Chicago and in the metropolitan Detroit area and the whole Midwest.

One of your recent investments is Sprout Social. What made you back this company over other social monitoring tools?

Brad Keywell: We have a strong belief in the power of the social Web and the importance of the social grasp as it relates to virtually everything. I believe that there are few industries that will not be affected by the social Web.

In response to that interest of ours, we think it's important for small businesses and mid-size businesses to have great tools to help monitor and influence their presences on the social graph.

Sprout Social was the best one we've seen, with phenomenal entrepreneurs behind it. And we made the investment which has now proven to be a good one in that Sprout is getting great traction, organically great traction. The reason is [that] it helps small businesses get more customers and make more money. To me, if you can use the social graph to get more customers and make more money and we're the facilitator at Sprout Social – that's a home run.

What's the best piece of advice you can give to aspiring entrepreneurs?

Brad Keywell: I'm not sure this is the best advice. But to me, being an entrepreneur is about happiness. For some set of people in our society, the need to create, the need to innovate is insatiable. It's who they are. For those people, there's really not a choice. You are an entrepreneur, and therefore you are here to create new things, and therefore you need to realize that some things that you try to create won't be successful and others will.

But the perseverance that comes out of the certainty that you are who you are – you are an entrepreneur, and you create new things – the certainty with that definition of self is a primary driver of all entrepreneurs. In other words, it's not a, Well, should I be an entrepreneur today? Or should I go take a job today?

Those who are entrepreneurs, what you find pervasively is that is not a balancing act of, Do I start a business or do I take a job? What you find is, I start businesses for a living. That's what I do. And when you're that certain of who you are, it provides some amazing resourcefulness when you confront adversity.

So my advice is: understand who you are, and if in fact you are a creator – if you are an entrepreneur – then your resourcefulness will help you find all that you need.