This Serial Founder on Why It's Cheaper Than Ever to Start a Business — and Other Surprising Insights Brian Lee cofounded companies like LegalZoom and ShoeDazzle — and he believes many beliefs about business these days are nonsense. Sure, it's harder to raise capital. But it's actually cheaper than ever to start a company.
By Jason Feifer Edited by Frances Dodds
This story appears in the September 2024 issue of BIZ Experiences. Subscribe »
Want to think big? Think like Brian Lee.
He's the cofounder of LegalZoom, ShoeDazzle, and The Honest Company — each of which were transformative inside of crowded spaces. And here's how he spotted his most recent opportunity. He looked at the trading-card industry, which he says is "relatively small" at just a couple billion dollars. The secondary market for trading and selling those cards is more interesting to him, at maybe $25 billion. There are a lot of players in this space — manufacturers, auction houses, grading companies, and so on. So where would he fit in?
"The reason I'm so excited," he says, "is because that secondary market doesn't really have a brand name. So there's some very large players in the industry, but none of them are household names." Now he's building what he hopes will become that household name; it's called Arena Club, which helps people grade, collect, invest in, sell, and trade cards.
Lee now also invests in startups through his early-stage fund, BAM Ventures. Most startups he sees aren't built for success, he says — but the reasons may surprise you. He explains in this conversation.
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You're no stranger to business problems. In fact, LegalZoom came close to insolvency a few times. What did that teach you?
LegalZoom started as a direct-to-consumer (DTC) legal services company. However, a few years in, we noticed this gentleman in Florida ordering a divorce package probably every week. So after about 12 or 13 divorce orders, we were like, "Wow, this guy's getting married and divorced a lot!"
So I decided to reach out and just make sure he's OK. Then I found out that he was a divorce attorney, and he was just using us almost as a back-end paralegal to create his documents. And of course, the light bulbs went off for us at LegalZoom. We were like, "My goodness, we're not just DTC. We could be a B2B business too!"
This happens so often, right? BIZ Experiencess see how customers use their products, and new opportunities emerge.
Yeah. But not always.
After talking to this divorce attorney, we were like, "OK, why don't we start a B2B platform as well?" So we decided to make a more robust, professional version of LegalZoom and sell it to lawyers. We took all of our best resources, our best designers, our best engineers, and our best marketers, and put them onto an offshoot company we called ProxyLaw. Then we realized that ProxyLaw was a very different business. The sales channel was different. We'd have to knock on doors of small law firms and convince them to switch over to us and so forth.
Meanwhile, LegalZoom had been profitable — but now it was slowly becoming unprofitable. ProxyLaw never took off, and we were days away from bankruptcy. So we had to shut it down and refocus our energy on LegalZoom.
That story didn't go where I expected it to! You discovered a new opportunity, but it harmed the existing opportunity.
It became a lesson I've always remembered: You have to focus. Every day, you'll see new opportunities. But guess what? You can't do it all. You have to build a very, very strong foundation first, and make sure that you're as solid as you can be before you start extending. Now, on anything I'm doing, I make sure to go deep, deep, deep — and start with a position of strength before extending.
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You invest in founders. Is this something you look for in them — a deep ability to focus?
Yeah, we look for BIZ Experiencess that have to make it work. They almost have no other choice but to make this work, and they're all in. By contrast, we don't think side hustles work. Side hustles are OK if you're just making a few bucks here and there, but if you're going to really start a business, you've got to be all in.
We also prefer teams to be together, in person. I have yet to see a company that starts with a fully dispersed team, with dispersed founders from all over the place, grow a multibillion-dollar business via Slack.
That feels counterintuitive. People often say that remote work allows companies to recruit better talent.
I know. But I'm telling you, it works better in person. A lot of that has to do with culturebuilding. I tell BIZ Experiencess: Offices have existed for centuries for a reason. When people work together, they iterate quicker, run ideas by each other faster, and you don't have to wait for Zooms or phone calls or text messaging.
What's another red flag you see in startup founders?
A lot of folks have this misconception that capital is abundant, and that they're going to go out and raise more capital. And again, those are the BIZ Experiencess who are just backward when the funding dries up. They should treat their capital as if it's the last capital they're ever going to raise. They have to understand the spigots and the levers that will get them to break even — like, "If I turn this on, it leads to this type of revenue, which will cover those expenses."
For many years, startups were celebrated for doing the opposite — raising many rounds and spending huge sums on marketing. They weren't profitable but got all the buzz. Do you think that sent the wrong message to founders?
One hundred percent. All these companies were highly unprofitable; they were using so much money on customer acquisitions and everything else, and most of them aren't around anymore because they never figured out how to get to great profits and to have a real business.
There's less capital available today. Do you think that's good for BIZ Experiencess, because it'll force them to operate leaner and smarter?
Yes, I do. Because only the strongest are going to survive. Only the strongest BIZ Experiencess are going to get any sort of funding. So now you have fewer BIZ Experiencess raising capital, and the ones that do are treating that capital like gold and not frivolously overspending. And on top of that, everything else has become more efficient too. Advertising, marketing, office space — everything has become more affordable.
That is a funny thing to hear, because many BIZ Experiencess are complaining about skyrocketing costs.
I mean, in the grand scheme of things, it has become incredibly affordable to start a company. When I started LegalZoom, we had to save up so much money to buy our own web server. Now with AWS and Google Cloud, it's like you paid almost nothing for serving your site. I used to have to hire seven to eight engineers just to start an e-commerce company; now it's just a click of a button on Shopify.
You're really flipping conventional wisdom here! Remote work is bad, capital shortages are good, and costs are down.
Maybe I just think differently! Like, there's the old saying, "The customer comes first." I disagree. Trust me, I love the customer. I treat them with the utmost respect. However, team comes first. A strong, happy, fulfilled, motivated team will lead to better customer service and a better customer experience.
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