Joe Caruso, "Fearless Angel"

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His bonhomie masks a keen intelligence that has, for decades, taken note of what makes or breaks founding teams. Joe Caruso is the CEO Whisperer, the Father Confessor to Founders. Joe’s an intrepid angel investor who goes where other angels fear to tread. This makes him a highly sought-after board member or advisor. I was privileged to sit down with him for an hour and to imbibe his wisdom and good humor. Typical Joe Caruso comment: “…you don't train a Labrador to flap its ears. It makes for a lousy butterfly.”

Click here to read full episode transcript

Here are some highlights of what we discussed:

  • Joe Caruso Introduction
  • Joe Caruso Bio
  • How Joe Discovered He Wanted to Be the Father Confessor to CEOs
  • How Roxbury Latin School, the One True School, Figured in Joe Caruso’s Formation
  • Joe Caruso Drops Out of High School and Enrolls at Northeastern University
  • Boston’s Unique Environment for Learning: Jeff Bezos Take Note
  • “I'm in the cafeteria … and at the table is a newspaper from the prior June … and they had a list of starting salaries of all the people who graduated, and electrical engineers made more than anyone else, so I said I guess I'll be one of them.”
  • “…co-op [work/study program at Northeastern] taught me that engineering wasn't my strong suit.”
  • Outstanding Argument in Favor of Northeastern’s Co-op Program
  • Delightful Story About Joe Caruso Considering Turning Down Harvard Business School
  • Joe Caruso Had No Idea of the Value of Networking While at Harvard Business School!
  • “I studied and ... I took no advantage of that [networking at HBS], which in retrospect was a huge missed opportunity.”
  • How Doing Turnarounds Got Joe Caruso Involved with Level Up
  • “Here's this 19-year-old kid, either freshman or sophomore at Princeton, that was going to drop out to start a company.”
  • “It had gaming, location-based. As I kidded with him, it was very buzzword-compliant.”
  • “If you give me a bright, passionate, high-integrity entrepreneur, that's the ticket of admission to at least me considering investing.”
  • Semyon Dukach’s Answer to “Should I Start a Company?”
  • “…you don't train a Labrador to flap its ears. It makes for a lousy butterfly.”
  • “None of this is off-topic. … Our topic is human nature.”
  • "So, be who you are. That also says, "complement who you are."”
  • The Change in Business Plan of Which Joe Caruso is Proudest
  •  From Measuring Alpha Waves to Helping People Recover from Spinal Injuries
  • Leveraging Personal Computers for Lab Automation
  • The Particular Hell of VCs with Conflicting Interests
  • Sal Daher Reads the Review from Listener bpaul2 – Reminds You to Leave a Review in iTunes
  • Joe Caruso’s Favorite Pivot
  • Joe Caruso’s First Investment
  • Joe Caruso’s Parents Were Survivors of the Depression Era and thus Not Open to Entrepreneurship
  • "We've gotta get you out of the basement."
  • Joe Caruso’s Apologia for the Value of Boards – Directors vs. Advisors
  • What Advice Do You Find Yourself Giving Over and Over?
  • Joe Caruso’s Parting Thoughts

Transcript of "Fearless Angel"

Guest: Super Angel Joe Caruso in “Fearless Angel”

Joe Caruso Introduction

SAL DAHER: Welcome to Angel Invest Boston, conversations with Boston's most interesting angel investors and founders. I am Sal Daher and my goal for this podcast is to learn more about building successful new companies. The best way I can think of doing this is by talking to people who have done it, people such as CEO whisperer, angel investor, founder and executive, Joe Caruso. I'm delighted that we could finally get together for what is likely to be one of the highlights of the second season of the Angel Invest Boston podcast. Thanks for taking the time to be here, I know you have a very busy schedule Joe.

JOE CARUSO: Glad to be here Sal, I've listened to some of your podcasts, been extremely impressed and I'm honored to be part of the program. One comment, in introducing me you used the word executive and that's a term I'm sort of uncomfortable with, so maybe that gives some insight into me. Maybe we need a psychiatrist or we have to look at my capabilities, but I always felt I'm more an entrepreneur, a change agent, a cultivator of creativity, lots of other descriptors. When I hear executive I kind of wince.

SAL DAHER: Well executive implies that you are someone who executes, who does the thing, and in a sense, you are someone who asks really pointed questions that people have a hard time answering, but they are really valuable for them to answer, but you just don't ask the question. You help them get to the answer.

JOE CARUSO: And maybe that is supposedly what a good CEO does but I've always felt ... I remember when I was first CEO, there was a point where we grew from 5 people to 10 to 20, to 50, we got up to 100, 150 people, and I remember having this feeling. I felt like a queen bee in a hive, I didn't do anything, the drones did all the work and all I did was sit around and it's like ... and when you're in the intense company building business.

SAL DAHER: Yeah.

JOE CARUSO: Where you're doing multiple hats and I was actually doing stuff as the job morphed to just being CEO, that's where I kind of morphed into really trying to coach others and help them, but I never thought I was doing it, I merely thought I was facilitating others doing it.

SAL DAHER: I understand, well, I was going to ready our bio right now.

JOE CARUSO: Sure.

Joe Caruso Bio

SAL DAHER: Joe Caruso, at least in my experience, is most frequently to be found in a conference room or advising or consoling a startup CEO. He is the Father Confessor of Founders, the CEO Whisperer, because of his generous personality and acute business sense, he is one of Boston's most sought-after investors. You can see he's not shy about expressing his opinion. Joe Caruso graduated in electrical engineering from Northeastern University and received his MBA at the Harvard Business School. Prior to that he attended the one true school, Roxbury Latin, and Joe was a successful technology executive ... I know he doesn't like the term, for decades, culminating in a 13-year stint as CEO of Cyborg Corporation, I love the name, which pioneered the use of personal computers in the automation of laboratories and factories. Now since that time Joe has dedicated himself to advising and investing in a variety of companies, you would not believe the number of companies that Joe has been on the board of and also the range of companies. They range from Boston's iconic Coffee Connection to Level Up, which Joe I'm sure will talk to us about later.

SAL DAHER: So, a man of tremendous range but just basically good old common sense, there are really few angel investors in the Boston ecosystem as influential and as sought-after as Joe Caruso. Now Joe, as a service to our young listeners, it's a tradition of this podcast to ask our massively successful guests how they figured out what they wanted to be doing in life, is there a moment that stands out for you?

JOE CARUSO: When you say what I wanted to do in life I guess depends on whether you mean what I'm doing now or what I felt early on?

How Joe Discovered He Wanted to Be the Father Confessor to CEOs

SAL DAHER: Think of what you do, you are the kibitzer extraordinaire, when is it that you discovered that you wanted to be the father confessor to CEOs?

JOE CARUSO: So that point happened right at the point with ... at Cyborg, we had several years of some significant success and at the end, kind of a long story, it stumbled, I stumbled, I screwed it up. Basically, it was only later that I came to the realization that my mistakes were rookie mistakes, I mean this was something ... I was there in my 20's, 30's, didn't know what I was doing, and it dawned on me that had I had a good mentor there are several things that I would have done differently that I think would have ended differently and that's what led me to sort of be what I wanted to have and so ...

SAL DAHER: So, because of that experience ...

JOE CARUSO: Because of that experience ...

SAL DAHER: You wish you had a mentor and advisor ...

JOE CARUSO: I wish I had, I wanted to do it, and the problem was then I was kind of almost mid-career, didn't have any money, there's no way you can go out and quote be a mentor, that's not a way to make a living, and that's when I went and did turn arounds for 10 years and that's where I did well enough financially to be able to afford what I do now.

SAL DAHER: Now take us back, you went through RLS, and then Northeastern, studied engineering there, so obviously ...

JOE CARUSO: It's a little break, I mean I didn't know we were going to get into the pre-college days because there's more history to that if you'd like.

How Roxbury Latin School, the One True School, Figured in Joe Caruso’s Formation

SAL DAHER: Sure, I'm interested in trying to find out how you figured out your direction in life, RLS is for those who don't know, Roxbury Latin School is the premier prep school in the country, it's unbelievably selective. The graduating class, I think their SAT scores are higher than the average SAT scores of the class entering in Harvard, I mean it's unbelievably elite prep school. Super high IQ kids in an environment which teaches them the classics, and the education that at one time the nobles would give their children, now the brightest children from any family poor or wealthy can go there and get this kind of education. So, this is Roxbury Latin, so anyway for the story ...

JOE CARUSO: Well that part that comes after that, I think it was after my third year, they raised tuition, my parents started having some concerns about tuition, and decided that maybe I shouldn't continue there even though I was doing well.

SAL DAHER: Right.

JOE CARUSO: So, I ended up going to Boston Latin and that's where I learned ... I hope I'm not going to insult the City of Boston but it was long ago, how good Roxbury Latin was. I coasted for two years I did nothing, in fact, my history teacher at Boston Latin owned a furniture store in Jamaica Plain and he would let me cut classes if I would go move inventory in his warehouse. So, for two years I literally did nothing, it taught me some bad habits unfortunately, we then moved out of Boston and Boston Latin wanted to charge tuition because I was no longer ...

SAL DAHER: In the City of Boston.

Joe Caruso Drops Out of High School and Enrolls at Northeastern University

JOE CARUSO: In the City of Boston and when that happened I said screw this, I'm going to college, and so I quit in my junior year and went knocking on Northeastern and Northeastern was flexible enough.

SAL DAHER: So, this would have been at what time, Northeastern?

JOE CARUSO: This was in the early 60's.

SAL DAHER: The early 60's, so Northeastern then was not the Northeastern of today?

JOE CARUSO: And the only reason for going there is it had co-op and ...

SAL DAHER: It still has that feature.

JOE CARUSO: It still has that feature and that's how I was able ... I mean I saved money as a kid, I had like 4 or 5 jobs in high school, so I already had a little money but the only way I could afford college was by going to co-op.

SAL DAHER: I suspect that Roxbury Latin today for a kid in straightened circumstances that your family was in, they would have been ...

JOE CARUSO: They would have ... and they might well have done it then, but I have a feeling ...

SAL DAHER: You just didn't know about it?

Boston’s Unique Environment for Learning: Jeff Bezos Take Note

JOE CARUSO: I don't know whether they didn't know about it or would have been too proud to do anything about it, but ... no. Today, yeah, I think I'm on the President’s Council it's called at RL, not to turn this into PR for Roxbury Latin but it is an unbelievable ...

SAL DAHER: Perfectly okay to turn it into PR for Roxbury Latin, for MIT, for Northeastern.

JOE CARUSO: No, but it turns out good people ... it is a character-building school as much as it is an intellectual training.

SAL DAHER: It certainly is, this aspect of character formation at Roxbury Latin is something that most people may not be aware of, but they have the thought that “Mortui Vivos Docent” ...

JOE CARUSO: Yes, very good, yeah, the dead teach the living, you're amazing with your memory. This is now for the audience, Sal and I were just talking earlier is that he quotes the classics, he quotes things that ... how you would even remember that is amazing.

SAL DAHER: Yeah, Boston is filled with just amazing institutions. Northeastern we're talking about, Roxbury Latin we talked about, MIT, Massachusetts General Hospital, Massachusetts Eye and Ear Infirmary, the list goes on. The Museum of Fine Arts and so forth, it's a testament to the foresight ...

JOE CARUSO: Are you going to send this to Jeff Bezos?

SAL DAHER: Well ... it would have to look very far... for me, if I were Jeff Bezos, it'd be a no brainer. This is the place to be for Amazon, there's no comparison, there's no other place like ... this is the Hub of the Universe for me. The old Yankees used to say that and it really is, I mean it is a community dedicated to learning, discovering new things. Who would have thought those puritans that we thought so dour and so forth would have created this unbelievably vibrant place?

JOE CARUSO: Yeah.

SAL DAHER: And neither of us have any puritan stock.

JOE CARUSO: No, I know it.

SAL DAHER: He's Italian American, nothing to do ... it's just a remarkable place. So, you had sort of a bumpy career in high school, it wasn't the perfect fit, you weren't able to be at the school that was the perfect fit for you. You ended up at the Boston Latin School and then Northeastern and then when did it click for you that you wanted to be in technology, you wanted to be an engineer?

JOE CARUSO: So, I think it's just because I had good grades in math and physics, had like 800s in ... what was it called, college boards.

SAL DAHER: College Boards, yeah.

JOE CARUSO: They didn't have the SATs then.

SAL DAHER: By the way, 800s in those days, combined score verbal and math, I think it's 150 points higher today on average than it was then.

JOE CARUSO: Oh really?

SAL DAHER: Yeah, much tougher test.

“I'm in the cafeteria … and at the table is a newspaper from the prior June … and they had a list of starting salaries of all the people who graduated, and electrical engineers made more than anyone else, so I said I guess I'll be one of them.”

JOE CARUSO: Engineering only because math and physics, I had no idea what I wanted to do. First year at Northeastern, general engineering, you had to pick a major second year, I had no idea. I'm in the cafeteria and going back and sitting at the table is a newspaper from the prior June when everyone graduated and they had a list of starting salaries of all the people who graduated, and electrical engineers made more than anyone else, so I said I guess I'll be one of them. So, I had no clue.

SAL DAHER: Just because it paid better.

“…co-op [work/study program at Northeastern] taught me that engineering wasn't my strong suit.”

JOE CARUSO: It paid better and so ... but here again, good lesson about co-op and what not. Did pretty good, not outstanding grades but good grades, I spent more time doing extracurricular stuff. I was in a lot of organizations and fraternity, class president for 4 of the 5 years ... 3 of the 4 ... either 3 or 4 of the years, I don't even remember. At co-op, even though I was getting good grades at school, co-op taught me that engineering wasn't my strong suit. It wasn't the actual job that taught me, because I would sit at the desk that the alternate co-op student had when I was in school, you know you had these swapped sessions, and I would look at the work he did and it blew my mind. I don't know how to do this, he was designing stuff and building stuff and I just wasn't good at it.

SAL DAHER: There's a huge difference between knowing the physics and the math and being able to design and to interact with reality and so forth.

Outstanding Argument in Favor of Northeastern’s Co-op Program

JOE CARUSO: And you know, and the pitch for the whole co-op process I guess is I would have wasted a big part of my career because I would have gone on because I had good grades, I could have got a masters, which was one of the things all the professors were encouraging me to do, I instead thought that I wanted to get an MBA, again, to show naivete of the time. I called around to a bunch of schools, I called Harvard to ask them if they offered an MBA, I had no idea there was this thing called the Harvard Business School.

SAL DAHER: Before the internet people knew so much less ... it was so much harder to get information.

JOE CARUSO: It was ... so I applied to several places, some in double e [electrical engineering], some in business, I got a Hughes Fellowship where I could have gone to UCLA to get a masters in double e and Northeastern heard about it and they designed this custom course for me where I would get a combination MBA, masters in double e, and have a teaching fellowship.

SAL DAHER: Wow.

Delightful Story About Joe Caruso Considering Turning Down Harvard Business School

JOE CARUSO: And I thought that was fantastic and I actually accepted that, and it was several weeks later I got my letter from HBS saying I got into HBS, and so I'm sitting at the secretary's desk at Mitre Corp where I was a co-op and I was typing my letter to Harvard to tell them that I couldn't accept it and my boss walks by and he says what are you doing, he says I can't believe this, I never thought I'd get into Harvard and here I am having to turn them down. He said you're doing what.

SAL DAHER: You're a mental case.

JOE CARUSO: That's right.

SAL DAHER: Turning down Harvard Business School.

JOE CARUSO: And he took me up and down 128th to meet the vice president at a company called I-Tech at the time, was a big technology company, some vice president at Raytheon and it was one other big company. All he did was describe my situation, because I said I can't, I've told Northeastern, I've already accepted, they've told other people that they can't ... that the position is gone.

SAL DAHER: Yeah.

JOE CARUSO: He says Joe, you're an idiot, you have to ... so he described it to each of these guys and to a person they burst out laughing when he asked them what I should do.

SAL DAHER: Nah.

JOE CARUSO: Literally burst out laughing like it was the dumbest question anyone had ever asked and I said oh, I guess this HBS thing, there must be something to it. Even to this day, I mean as we're talking about the quality of schools, RLS great, Northeastern great because of the co-op. The thing that struck me about HBS was ...

SAL DAHER: Harvard Business School.

Joe Caruso Had No Idea of the Value of Networking While at Harvard Business School!

JOE CARUSO: Harvard Business School, was meeting the 100 people in my section, they divided 7 or 800 students into sections of 100 each, blown away. Everybody got grades, high grades, everyone was class president, student union this, and at the time most people had been at work three or four years, there were only a few of us who they took right out of school. I remember it dawning on me that if the school shut down for 20 years, but they kept the admissions department open, that 30 years later you wouldn't know the difference who actually attended the school and who didn't. Now I've insulted all three schools I've gone to, it was a strong bias towards people who were destined to do something unusual or be successful.

SAL DAHER: And you would become connected with them because you're going to be going through two years of very tough curriculum with them and so forth.

JOE CARUSO: Yeah.

SAL DAHER: That's amazing.

“I studied and I did ... I took no advantage of that [networking at HBS], which in retrospect was a huge missed opportunity.”

JOE CARUSO: Another life lesson learned there, unlike the other people who were there that because they had been at work for several ... they all understood the issue of knowing the other people and the networking and all that, I thought I was in school. I studied and I did ... I took no advantage of that, which in retrospect was a huge missed opportunity.

SAL DAHER: Joe, nobody would say that your life has lacked for ...

JOE CARUSO: No, it's not a complaint, it's not second guessing of it, but again, it shows ... I look back at how naïve I was.

SAL DAHER: How did you come to be involved with Level Up, that's an interesting story?

JOE CARUSO: So, I don't know how granular you want it to be but I'll give you the back story.

SAL DAHER: Yeah.

How Doing Turnarounds Got Joe Caruso Involved with Level Up

JOE CARUSO: During the period where I did turnarounds, one of the turnarounds that I got involved with ...

SAL DAHER: Explain turnarounds to ...

JOE CARUSO: Turnarounds are companies that have got in significant trouble, often need a change in management to come in and fix them, turn arounds have two flavors I guess. One is where you're just winding the company down and it isn't really a turnaround, it's a financial restructuring ...

JOE CARUSO: ... and it isn't really a turnaround, it's a financial restructuring. I prefer to get in things where a change in strategy would help get them out of the problem.

JOE CARUSO: This one company I went with, the very first day I would go there, they tell me I really got to be careful. That there's this one investor out there who's a real jerk and he's going to give me all kinds of problems. This was a publicly held company, so they said, "You shouldn't even talk to him, because you're gonna get in trouble, and he's going to sue us," and all this.

JOE CARUSO: And I says, well rather than that, I went and I met him. I had the conversation. It was an investor that not only had equity, but also we owed him some debt. I said, "I'm going let you know up front, we're not going meet the terms of the debt. I don't know when you're gonna get paid," and I laid out the story.

JOE CARUSO: You know, that came and went, and years went by. I hardly even remembered that, that occurred. I got a call from him, I don't know how long ago, it was probably 10 years ago, saying that, "Joe, while I didn't like the message, I respected the way you dealt with me. My son is starting a company, and he needs some advice. You're the kind of guy I want to advise him."

“Here's this 19-year-old kid, either freshman or sophomore at Princeton, that was going to drop out to start a company.”

JOE CARUSO: So, I got together with him. Here's this 19-year-old kid, either freshman or sophomore at Princeton, that was going to drop out to start a company.

SAL DAHER: So, 19-year-old kid, thinking of dropping out of Princeton-

JOE CARUSO: Princeton ...

SAL DAHER: ... to start a company.

JOE CARUSO: ... to start a company.

SAL DAHER: This is a guy that you had at one point, had a very nerve-wracking conversation with, because you were not in compliance with the terms and that's what-

JOE CARUSO: Well his father is the one I had the-

SAL DAHER: Yeah. The father was the investor and you were not in compliance and so forth. But he respected you tremendously from the conversation that you had back then. Enough to want you to advise his son, who was thinking of dropping out of Princeton to start a company.

JOE CARUSO: I'm not sure I'd use respected me with that. I wouldn't be as positive, but I guess, yeah, he at least was not ...

SAL DAHER: Thought well enough of you.

JOE CARUSO: He felt well enough of it to do that. I actually wrote him a check before he incorporated. In fact, we kidded about it because ...

SAL DAHER: To the 19-year-old kid who was going drop out of Princeton, right?

JOE CARUSO: Yeah. We kidded about it after the fact when the whole lawsuit thing happened with Facebook, and people suing each other about who owned how much of the company. We had agreed as to what I would get for that if and when he incorporated. I would always kid with him using the Facebook metaphor, "You do remember, that was half the company, right?"

SAL DAHER: Right.

JOE CARUSO: It wasn't, it was a small percentage, but ...

SAL DAHER: No, no, no. So, what happened?

JOE CARUSO: He started, well, actually at the time it wasn't Level Up-

SAL DAHER: Well, okay.

JOE CARUSO: It was called Scavenger.

SAL DAHER: Scavenger.

“It had gaming, location-based. As I kidded with him, it was very buzzword-compliant.”

JOE CARUSO: He was planning on having a business that was mobile phone. It had gaming, location-based. As I kidded with him, it was very buzzword-compliant. He was doing scavengers hunts.

SAL DAHER: Every hot buzzword.

JOE CARUSO: Yeah, right.

SAL DAHER: Today would be block chain, AI.

JOE CARUSO: Yeah, that's right. Block chain, AI, 3D printers.

SAL DAHER: 3D printers. What have I missed?

“If you give me a bright, passionate, high-integrity entrepreneur, that's the ticket of admission to at least me considering investing.”

JOE CARUSO: No, there again, and maybe this, I don't know you haven't asked the question, but it leans a little bit to what do I look for? Because I don't have any deep expertise, any deep domain expertise, I'm very much focused on the founder and the team. If you give me a bright, passionate, high-integrity entrepreneur, that's the ticket of admission to at least me considering investing.

JOE CARUSO: This is someone who, and I've probably got this wrong, the specifics I have wrong. But in the 7th or 8th grade he had started a company that had found a place in China to print post cards inexpensively.

SAL DAHER: This is the founder of Level Up-

JOE CARUSO: This is the founder. So he had a little business that he actually made money on when he was in the 7th or 8th grade. Then later on in high school he had this business where he was offended by how much they charged for things like Coke and potato chips in the cafeteria.

JOE CARUSO: So he would get a couple of his classmates and he rented their lockers from them. He filled them with food and had a means whereby people would leave money on a voluntary basis. He almost got kicked out of school because of that.

JOE CARUSO: I just saw that, and he was super bright, one of the brightest entrepreneurs that I've ever met. I didn't care what he did. Whatever he did, I was going to give him money.

Semyon Dukach’s Answer to “Should I Start a Company?”

SAL DAHER: Definitely the jockey not the horse. This reminds me of Semyon Dukach talking about somebody asking him, "Should I start a company?"

SAL DAHER: Semyon's answer was sort of like, "If you're a founder you can't help but found a company. They are destined to do these things." The ones that are not made to do that will hesitate, may not ever do it.

SAL DAHER: There's a big argument as to nature or nurture and so forth. I think certain aspects of entrepreneurship can be taught. But there are, I think, certain types of personalities, certain types of motivation that people have that predestined them to do this kind of stuff.

JOE CARUSO: You are right. You can have influence over it, but for years I've used an expression, actually stole it from a friend of mine. The expression that Labrador Retrievers retrieve. That's what they do. If anyone's ever had a Labrador, try throwing a ball and have the Labrador sit and not chase the ball. It's incapable.

“…you don't train a Labrador to flap its ears. It makes for a lousy butterfly.”

JOE CARUSO: The follow-on to that is if you want or need a butterfly, you don't train a Labrador to flap its ears. It makes for a lousy butterfly. There's nothing better or worse. A butterfly isn't better than a Labrador. A Labrador is not better than a butterfly. But you don't want the butterfly getting the newspaper in the driveway and you don't want the Labrador going in and moving pollen on the flowers.

SAL DAHER: You should play to people's strengths, not pick at their weaknesses. Weaknesses can never become strengths, where necessary, can be minimized, but in character. A company can make a weakness into strength, but people, people can't. Those things are hardwired. What you can do is try and minimize those things and then optimize for the stuff that you're really, really good at.

JOE CARUSO: Not to take you further off topic here, but ...

“None of this is off-topic. … Our topic is human nature.”

SAL DAHER: None of this is off topic. This is ... Our topic is human nature.

JOE CARUSO: Okay, so the human nature thing, just as I talked about the Labrador Retrievers retrieving, I think of us all, us entrepreneurs in particular, as having what I call our default mode. What I mean by default mode, and I learned this from turn-arounds, is what is it we revert to when under deep, deep stress?

JOE CARUSO: The person with sales genes will go out and sell more product. The people with engineering genes will design a new product. The people with financial genes will cut expenses. The visionary will come out with a new way to sell what he has, the same product, same everything, just ...

SAL DAHER: A new vision.

JOE CARUSO: ... that new vision, a new market, whatever.

JOE CARUSO: Where I saw that come out is you never see anyone's true colors until they're really backed into a corner and they're under significant stress. It's either fear of failure or pressure or competition or whatever. That's what I try to get entrepreneurs to think about. What is the essence of who you are? Are you a product guy? Are you sale-end guy? I use the word gender-neutral.

SAL DAHER: Or woman.

JOE CARUSO: Yeah. That's what you should do. Don't try to get too far removed from that.

SAL DAHER: This is really deep wisdom from the CEO whisperer. Everybody, you should put a little asterisk on this here, because this is really deep.

“So, be who you are. That also says, "complement who you are."”

JOE CARUSO: So, be who you are. That also says, "complement who you are." One of the other things that you see a lot of entrepreneurs, they don't want to hire an accountant because they know how to do their thing. You know, they probably are better at QuickBooks than the accountant. The trouble is, it's a waste of their time. They might be better at negotiating a lease than the operations guy. They might be better at closing the order than the sales guy.

The Change in Business Plan of Which Joe Caruso is Proudest

SAL DAHER: Joe, let's move on here. Which of the companies that you refashioned in terms of the direction they're going in, so forth, not necessarily restructuring the financial sense, but companies that you changed the direction that you're most proud of?

JOE CARUSO: Actually, ironically, the one I'm most proud of is Cyborg, which I wouldn't have said. I didn't found it.

SAL DAHER: Cyborg Automation.

JOE CARUSO: It was three people.

SAL DAHER: Automation of labs.

JOE CARUSO: No, when they first started, they were actually selling Alpha brainwave monitors, the early bio feedback, and putting on seminars, where it was the first time I-

SAL DAHER: Alpha, that's the kind of stuff they would sell in California.

JOE CARUSO: That is true. They were putting on seminars.

SAL DAHER: How did I know that your market was mostly in California?

JOE CARUSO: It's the first time I ever smelled marijuana, because you would go to these things and that's what they were doing. A brilliant creator-founder. They asked me if I would come and run it. I said, "Well, I don't know. I don't really know about this kind of stuff." It was definitely not me, not my personality, not my style, or values, or anything.

From Measuring Alpha Waves to Helping People Recover from Spinal Injuries

JOE CARUSO: But, in the concept of biofeedback, what we did is instead of just doing that, take the same concept, apply it to stroke and spinal cord victims, and you could teach someone with a paralyzed or near-paralyzed arm or leg to retrain those muscles. They ended up with a whole line of muscle monitoring devices sold to physical therapists and the company grew doing that.

SAL DAHER: So they grew. How is it that they came to automating labs and production facilities?

Leveraging Personal Computers for Lab Automation

JOE CARUSO: Well, so there is ... Now, we're going back to ancient, ancient history. When Apple announced a disk drive for the Apple ... First Apple computers had little cassette tapes, and then they announced the disk drive. There was this sort of flash that reminded me of what we had done at Teradyne. My first year out of Harvard Business School was at Teradyne, which took PDP8's used it for automatic test equipment. I thought this Apple computer thing that you could buy at Hi-Fi stores and things might actually do something useful.

SAL DAHER: PDP8s were mini computers.

JOE CARUSO: They were mini computers [crosstalk 00:25:59].

SAL DAHER: Then you were having desktop computer, so analog. What they were doing in many computers, just saw the Apple computers, said, "Ah."

JOE CARUSO: Truth be told, it was really the founder of Cyborg that went out and bought the first one, because he was a member of the World Future Society and he was always looking in the future.

SAL DAHER: Ralph Wagner had the same kind of thought when he saw Apple, "Wow, it can do all that."

JOE CARUSO: Yeah, actually, Ralph tried to come ... I first met Ralph, he doesn't even remember this, I don't think, but he was out selling Apple II computers. By this time, we were growing and he tried to convince us to use the Apple II for our accounting system and business. We ended up buying an HP instead. But for him, the Apple II was good for anything.

SAL DAHER: You know the title of his episode? “Flunk Calculus, Ace Life”.

JOE CARUSO: Oh, I love it, I love.

SAL DAHER: He was interviewed on this podcast because he discovered at IBM that his calling was sales and not being a programmer.

JOE CARUSO: I know, I know. He was great.

JOE CARUSO: The first use of it, we actually did to automate the measuring of physiological functions. We had EMG and temperature.

SAL DAHER: Okay, so that sort of led towards automating-

JOE CARUSO: ... doing that, the Apple was still a consumer product. In fact, if I remember correctly, we were Apple OEM number 003. We were the third person. It's because of that and we saw we got significant traction where people were buying these expensive systems. They really almost didn't care about all the physiological devices we had. They were using it for generic data acquisition. So we came out with a product designed to turn the Apple into a laboratory data acquisition system.

JOE CARUSO: Then we went from there, from the laboratory, to it being useful on the factory floor. Then IBM came out with their PC. This is some strategic selling on our part, I basically went to them and said, "You guys do a terrible job selling to engineers. You should do what we did for Apple.' We ended up getting this huge contract where we ...

SAL DAHER: With IBM.

JOE CARUSO: ... with IBM, where we made product for them which they resold as their own, to sell on the factory floor for data collection.

JOE CARUSO: That took off and things were very successful for a few years. Then when they had a change in strategies, cut way back on the business because I kept the company profitable, generated a lot of cash. That ended up in some conflict among the venture investors, as to ... There's where I got my education after the fact.

The Particular Hell of VCs with Conflicting Interests

JOE CARUSO: A side note to any entrepreneurs listening. If you have one investor who has a nine-year old fund and has a senior security, and another investor that has a brand-new fund where you were one of his first investments and he has a junior security, when you get into discussions about what our strategy should be, their advice may not depend on what the best strategy is for the company. It has to do with what their interests are-

SAL DAHER: There’s no common ground. Their position…

JOE CARUSO: ... their particular position. That's part of the education that I talk about.

SAL DAHER: They’re talking their book. Yeah.

JOE CARUSO: I mean, for months we had discussions about strategy this, strategy that. They actually ended up suing each other. I'm sitting there thinking we were having strategy discussion. I'm going to say it was fine, after the fact. We talk about it somewhat, I won't say, jokingly now. But it was not a fun time.

Sal Daher Reads the Review from Listener bpaul2 – Reminds You to Leave a Review in iTunes

SAL DAHER: Coming up next, I will ask CEO Whisperer Joe Caruso about his favorite pivot stories. First, I wish to think listener bpaul2 for this great review on iTunes:

SAL DAHER: "Great content. Very informative podcast for entrepreneurs to get inspired and start working on their idea."

SAL DAHER: Thanks, bpaul2. You've done your bit to help this podcast get found by more people. The Angel Invest Podcast features outstanding guests, such as the Father Confessor to Founders, Joe Caruso. It is professionally produced, has no commercials, and comes to you free. The only thing we ask in return is that you help get the word out. Please tell an angel or founder about us. Take a minute to review our podcast on iTunes. That's really important. It helps us, Joe, with getting our rank on the algorithm.

JOE CARUSO: By the way, I got to remember to do that myself.

SAL DAHER: Awesome, awesome. I'll prompt you.

JOE CARUSO: I know a couple of times I've meant to and I never have.

SAL DAHER: So, follow these. Not only bpaul, but also of CEO Whisperer, Father Confessor to Founders, Joe Caruso. Also, sign up at Angel Invest Boston to be notified of new episodes and of upcoming in-person free events we've held in the past and will be holding in the future.

SAL DAHER: Joe, I like pivots so much, I wish there was a pivot channel which I could binge watch. What are some of your favorite pivot stories from the startups that you've invested in, from the gazillion startups that you've invested in.

JOE CARUSO: Ah, from the ones I've invested in. Sorry, I was thinking of one of the ones that was one of the other companies that I've been involved with.

SAL DAHER: Okay, fine. Let's broaden the question.

Joe Caruso’s Favorite Pivot

JOE CARUSO: This is one I really can't take credit for, but it was a company that was in the CO2 laser business, selling primarily for gynecological surgery. It was a small business. It wasn't really growing. They had one laser they had sold to a hospital in California, which was using it for a totally novel thing. They were actually drilling holes in the heart to see whether or not blood flow would be altered, it's called trans myocardial revascularization.

JOE CARUSO: There, we lucked out. We had this crazy Canadian entrepreneur, who was very successful financially, who basically started a joint venture to do just that laser. He didn't want to invest in the company, he just wanted to have us focus on that. That ended up with the company focusing on that.

JOE CARUSO: The company focusing on that. We ended up doing a reverse merger with a publicly-held shell, and this is back in the early 90's, I guess. Had a four or five hundred-million-dollar market cap. It was gonna be really successful. Ended up not living up to the promise that it had, but it certainly took it out of the struggling small-market company into something-

SAL DAHER: Much bigger.

JOE CARUSO: Maybe it's like the internet or block chain. It was a pivot that certainly changed the-

SAL DAHER: It made a real difference.

JOE CARUSO: It made a difference financially. Maybe not as much from a business point of view.

SAL DAHER: Yeah. How did you start investing as an angel?

Joe Caruso’s First Investment

JOE CARUSO: So, the very first investment I ever made was when I was a kid. I had an older friend who had a newspaper route who made a lot of money. I made money cutting lawns, shoveling driveways and what not, and I wanted to have his paper route. But, you had to be a minimum age to have the paper route. So, I'm not sure whether I bought the route from him or we did a rev share thing. But, I gave him money. I started delivering the papers. He kept the margin on the papers and I kept the tips.

SAL DAHER: Ah.

JOE CARUSO: So, that was my first investment.

SAL DAHER: It was your first investment, and you put some money in.

JOE CARUSO: I put some money in, and that's where I started. I remember, I opened a bank account and every week I put money in that.

Joe Caruso’s Parents Were Survivors of the Depression Era and thus Not Open to Entrepreneurship

SAL DAHER: So, were your parents entrepreneurs?

JOE CARUSO: No, the exact opposite in fact. Both Depression Era.

SAL DAHER: Oh. Yeah, yeah, yeah.

JOE CARUSO: My father worked for the government. In fact, he worked for the Navy Yard.

SAL DAHER: Very risk-adverse because the times were so hard.

JOE CARUSO: My mother ended up being a schoolteacher, and I know we're getting off topic a little bit, but one of my job offers after business school was to go work for AT&T. When I turned that job down, I literally thought my mother was gonna have a heart attack.

SAL DAHER: I could just imagine.

JOE CARUSO: She absolutely, this is why I went to Teradyne, it was like a hundred-person company. For several years, she could not stop talking, until we reached a point when we bought our first house. They came and they looked at the house, and they said, "Well, guess he's not gonna starve."

SAL DAHER: You know, these are much sunnier times than during the Depression. They could just not imagine.

JOE CARUSO: Sorry, we're way off.

SAL DAHER: No, no. But this is-

JOE CARUSO: Topic was you say first investment.

SAL DAHER: No this is extremely important.

"We've gotta get you out of the basement."

JOE CARUSO: Another one and this is one a company, and I don't know if they think of me as an investor. Right after Cyborg, this fellow started with a factory automation software company, I gave him I think it was $2,000, was a tiny amount of money, joined the board. But did a lot to try to help him. In fact at one point, he tried to have these phones sales meetings from his basement and his oil burner would turn on and I said, "We've gotta get you out of the basement." And I actually bought an office condo to-

SAL DAHER: To put him into.

JOE CARUSO: To put him into.

SAL DAHER: And what company was that?

JOE CARUSO: It was called Iconics. And it's still, he didn't raise any money, any meaningful money till several years ago.

SAL DAHER: Would you mind talking a bit about your favorite startup?

JOE CARUSO: Yeah everyone asks that, and I'm really ... A. It's difficult because they're favored for different reasons. It's like asking who your favorite kid is and especially in a public forum, I guess I don't, I'm not sure I have any favorites.

SAL DAHER: Talk about a startup that comes to mind to you right now, that recently you've been dealing with that you think has something interesting to talk about.

JOE CARUSO: There's a couple actually that come to mind. One of the more unusual one's is a company called Novopyxis. Three young women, I've gotta say, each one of them in the category of the brightest entrepreneurs I've known, I probably have them and two other companies that I would put in similar leagues.

SAL DAHER: But it's the team?

JOE CARUSO: It is the team.

SAL DAHER: Okay.

JOE CARUSO: Every time I've met with them and I go to give them advice, they go, "Oh yeah well, yeah we've done that, and we've done that, and we've done that." And I feel completely useless. Every time I give them advice, they've already done it and they've done it in a way that's better than I would have imagined and better than I had suggested.

SAL DAHER: Just an outstanding team.

JOE CARUSO: Yeah, yeah.

Joe Caruso’s Apologia for the Value of Boards – Directors vs. Advisors

SAL DAHER: Now here's something that I hear all the time, "Oh I don't wanna have a board, because I'm afraid they're gonna constrain what I do." Or, "Oh I have, a board of directors I've gotta, manage them," quote unquote. Respond to that Joe.

JOE CARUSO: I think one of the big mistakes entrepreneurs make is to view a board just the way you described them. I think instead they should view a board as a strategic weapon. Instead of viewing it as this unpleasant task they have to deal with, or this hurdle they have to overcome, they should think of it, as to how to expand the resources available. How to expand the knowledge base available and how to help them through the various pivots that they're gonna have to go through? I think it morphs a little bit into the discussion of board of directors versus advisory board. And I think they sometimes mix the two. Advisory boards to me are a place you get domain expertise, you get subject matter expertise. Board of Directors you get people who are experienced at building companies.

SAL DAHER: And also board of advisors does not have the same commitment as the directors have to the company, just in terms of time. Board of advisors are not gonna have the time to spend with the company, as someone who's a compensated director who is going to be really, really involved, 10 hours a month at least with the company. Would you agree with that?

JOE CARUSO: Well ... it depends a little bit. I have seen advisors who are very deeply, different kinds of advisors-

SAL DAHER: Well you as an advisor, you're different.

JOE CARUSO: There's the brochure-ware advisor where if you will, where you have someone because they're known, their name is known and whatever. And you're right, they don't have a big commitment to other than the fact that they're willing to tell the world that they're involved with you. But I have seen some advisors who get very deeply involved, in fact more so than a typical board member. So I'm not sure I would put intensity of involvement as the differentiator. I would put the nature of advice and the role and you can be intense or, well you can't be as casual if you're a board member. An advisor who's a minimal advisor, you can get away with. You don't want a board member who's just there.

SAL DAHER: A minimal board member.

JOE CARUSO: You don't want a minimal board member. But to me, the subject matter that boards are good at, issues of the right team dynamics, what happens if there's a fallout between partners, is the CEO doing his or her job, what about the capital strategy, who the investors are? I mean there's a whole bunch of things that have nothing to do with whether you know the disk drive business at IBM. That doesn't make you a good board member even if you're a disk drive company.

SAL DAHER: So this is interesting, cause it fits in with, Howard Stevenson likes to say, I think if I paraphrase him correctly that, "A startup is a company that is working with resources it doesn't yet have."

JOE CARUSO: Yep.

SAL DAHER: And this a very apt definition and I think that your point in here is something that fits that construct very well, that your board allows you, to operate with resources you don't yet have.

JOE CARUSO: That's right.

SAL DAHER: And that's a very fitting thing for a startup, if you're a startup, the board helps you access those resources which you don't have yet because you're not a full-blown company. It's kind of like a shortcut. And I think that's really elegant apologetics for boards.

What Advice Do You Find Yourself Giving Over and Over?

SAL DAHER: What advice do you find yourself repeating all the time, that founders have a hard time following?

JOE CARUSO: That I wish I had thought that one through.

SAL DAHER: Wish you had like a little card you could hand to people and say, "Do this."

SAL DAHER: I know what it is for me. For me, it's report every month, tell me what your runway is. And don't hit me with surprises, you haven't talked to me in six months, "I've run out of money!" Don't, I mean that is my pet peeve.

JOE CARUSO: Okay. So I definitely have a thread that goes in that direction. It's the thread that I would call no surprises. But a lot of it does relate to metrics. And some people think, "Geez you're obsessive about getting numbers." It isn't that the numbers in themselves have meaning, it's what you have to go through to come up with them. So I suggest that every entrepreneur, determine the three, four or five things that if they went away for a year and half and came back in a time machine and all they could see, is a graph of five numbers over the last 18 months, and that's the only information they had that would tell them whether or not this company was doing well, what would those be? Is it revenue, is it customers, is it return customers, is it custom acquisition costs, is it cost of goods sold if you're a manufacturing company? Whatever it might be-

SAL DAHER: So come up with an effective set of metrics.

JOE CARUSO: Come up with what they are. And more important than that, project them out for the next year or two, on a graph in a dotted line. And then as reality occurs, plot against that dotted line, and in my mind that's where learning occurs. "Gee we got twice as many leads as I projected, but only one-tenth the close rate I projected." What does that tell me?

SAL DAHER: I gotta work on conversion.

JOE CARUSO: Or the other way around.

SAL DAHER: Right.

JOE CARUSO: "My God, we got twice as many orders, but my God, we got it from three people." And so it's the premise under which you're building the business will be tested and if you don't look at it on a month to month basis, you're gonna be like the frog in hot water. Suddenly you're gonna be where you are and-

SAL DAHER: And it's gonna kill you.

JOE CARUSO: I remember in the Cyborg days, I used to have a 30-day moving average over our operating expenses, and a 30-day moving average of our bookings. And that's how I made sure that we were gonna be profitable. I literally had a graph next to my desk. And if those things started to crisscross the wrong way, where the trend in bookings was less than our ongoing fixed costs, less margin I had to factor in gross margin-

SAL DAHER: Your margin squeezed in-

JOE CARUSO: I knew that we were in trouble.

SAL DAHER: Yeah.

JOE CARUSO: The vagaries of the revenue and profitability month to month, I knew you could have backlog, you could ship, you could get prepaid, but the long-term thing was, if we weren't consistently booking more than we were spending, or the margins were more than we were spending, then I would have to adjust something. That was my kind of dumb down metric and these days if someone only came to me with those two metrics, I'd kick them out and say, "Come on you can do better than that."

SAL DAHER: No but you're absolutely right this is really, so Joe, let's wrap it up now. Just sum up the interview. I'd like to invite you to address our audience about something that you believe is important for founders and investors to have in mind. What would you like to leave us with, what thoughts?

Joe Caruso’s Parting Thoughts

JOE CARUSO: I think one of the biggest things when it comes to startups, is if you're starting a company to make money, if that is the driver, I don't think you're as likely to be successful as if you're starting a company, where you have something in mind you wanna accomplish. There's a problem you wanna fix. There's a need you wanna address. There's some opportunity that you're solving. If you're not passionate about what it is you're doing, and I'm not saying you shouldn't wanna make money, but if you're in it to get rich, I don't think you're as likely to-

SAL DAHER: Or not to scratch an itch.

JOE CARUSO: That's right. It's the-

SAL DAHER: It's not gonna work.

JOE CARUSO: That's right.

SAL DAHER: Because it's so painful. And frankly there's easier ways to make money than a startup. You can go work for Google or something-

JOE CARUSO: No, no, no I get that. I get that. I mean good example of that, if there's an entrepreneur I haven't talked to in a while and I reach back and I say, "How is business?" And if the first words out of their mouth are, "We raised money at this cap, or this valuation," my antenna go up.

SAL DAHER: Father Confessor's shaking his head.

JOE CARUSO: Yeah it's like, I asked how business was. Now it could be they just misinterpreted. But often times there is this correlation and it's strictly about-

SAL DAHER: Money is a resource, the business is what you're putting that resource to work.

JOE CARUSO: I get entrepreneurs who come and say, "Joe I'm starting a company I wanna raise money." And I say, "Well, what is it you want the money for?" "Well I'm starting a company." I said, "I understand you're starting a company, what do you want the money for?" And we get in this little arm wrestle where they look at me like I'm stupid. "Don't you get it? I'm starting a company, I need money." And I'm saying, "No, don't you get it, I wanna know what it is you wanna do with the money?"

SAL DAHER: Two angel investors sitting here agreeing that not every company should raise money.

JOE CARUSO: Yeah.

SAL DAHER: Absolutely. Joe Caruso, I'm just delighted for your generosity of coming and sitting down. I know you're a tremendously busy guy. On behalf of our listeners I can say this, thanks for coming here, thanks for being with us.

JOE CARUSO: Thank you, it's great to be part of it. I think you ideally suited for what you do Sal. You, no, you have people feel comfortable, you turn it into an informal conversation. We got off on a range of topics I never thought we were gonna talk about. I mean we get to my high school there, I never even remotely thought-

SAL DAHER: Joe I learned so much from this. You know, I have a big mouth and a face made for radio, what can I say. I just wanna ask our listeners, if you enjoyed the podcast, to just please review it on iTunes. Write to me at sal@angelinvestboston.com with critiques or suggestions. People have suggestions of people that they'd like to hear interviewed, please leave me those suggestions. You'll find transcripts of the podcast at angelinvestboston.com. This is an important resource that a lot of people don't know about. But we have annotated transcripts that are very clean. Also, we are on a service called gretta.com that allows you to just highlight the text and a transcript and share it on social media and then you have the sound there, it's a pretty cool thing. So please connect with us on sal@angelinvestboston.com. This is Angel Invest Boston Conversations, with Boston’s most interesting angels and founders I'm Sal Daher.

SAL DAHER: I'm glad you were able to join us. Our engineer is Raul Rosa. Our theme was composed by John McCusick. Our graphic design is by Katherine Woodman-Maynard. Our host is coached by Grace Daher.