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(Alex Song, Founder & CEO of Innovation Department)
We are excited about today’s Edition of The Takeoff. Today’s interview is with Alex Song, Founder & CEO of Innovation Department.
Innovation Department helps build exceptional companies. In order to streamline the entire process, Innovation Department uses proprietary acquisition and distribution channels to optimize the path to product-market fit. Innovation Department uses a platform-based approach to company-building, creating a process that maximizes potential for success.
Prior to founding Innovation Department, Alex was an Investment Analyst at Pershing Square Capital Management and an Associate at Goldman Sachs.
The interview took place via a call between Alex and Michael Spiro (Founder at The Takeoff) in mid-May.
You can find Alex on Twitter @1alexsong1.
We hope you enjoy today’s Edition.
Quick Summary of the Interview:
- Alex opens up by discussing what Innovation Department is, the company’s background, and some of the businesses Innovation Department has built.
- He then discusses some of the benefits of the NYC tech scene and how his experiences in finance made him well-equipped to start and run Innovation Department.
- Alex then offers a lot of great advice for students interested in tech / entrepreneurship and discusses decision-making post-pandemic.
(Estimated read time = 14 minutes)
Michael: To start, what exactly is Innovation Department? How did you come about founding it?
Alex: Innovation Department has gone through a few different evolutionary steps. When we first created Innovation Department, it was meant to be a hybrid between a startup studio and a venture investing arm. I didn't go out and raise a fund. I had spent some years in the finance world and was actually able to start by investing personal capital and building a small syndicate of investors, like our own angel investment group. We were focused on finding great companies in New York City, in all stages of development, and trying to form a deeper relationship with them. And for some companies that were at an early stage, we would bring them into our offices. That was the incubation model, where we’d give them capital as well as resources for an equity component in the business. As we got better at and more comfortable with what we were doing, we started building our own businesses completely from scratch, hiring the founders internally. Over time, Innovation Department latched onto this process of building and creating businesses in-house. We have evolved into a 100% holding company business, in that we own and operate all the businesses that we have created in-house. We still do occasional opportunistic investing, but we definitely slowed down on deploying capital and we’ve focused on being builders and operators of brands, primarily in the e-commerce and DTC (Direct-to-Consumer) space.
Michael: I'm curious, what are some examples of the brands that Innovation Department is currently a holding company for? Who were some of the earlier companies who Innovation Department helped while still operating as more of a startup studio / venture firm?
Alex: One of the businesses that we currently have in-house is WellPath, a wellness company that focuses on functional nutrition. It was the first one that we created. We also have a new pet brand called Finn that is slated to launch later this summer, which sells nutritional supplements in the form of dog treats. We also built a marketing technology called DojoMojo, which was one of the first software businesses that we built completely in-house. DojoMojo was actually originally launched as a marketing technology for internal brands, but it was so powerful that we started letting clients outside of our offices use it, and now it has become a full-blown commercialized product. Honestly, in the early days of Innovation Department, we never really had any huge successes. For a lot of the businesses, I’ve always been retrospective around learning from the things that worked well and didn't work well. Part of the reason why we went towards a new direction was that we weren't deploying enough capital across enough opportunities to really get the hits we needed, unlike, for example, Y Combinator. We also weren't going deep enough in our smaller portfolio to really impact the outcomes. However, what we are excited about now is that these businesses that we own and we've really gone deep in have been providing a lot of great traction and performing really well, even through COVID-19, and that's where we focus all our energy.
Michael: Awesome! I have seen a rise in the startup studio model in New York City and throughout the country, as well as some venture funds that are also launching and incubating their own companies. I definitely think Innovation Department has taken a really interesting path. Why NYC? What are some of the benefits of the NYC tech and startup scene?
Alex: Number one, I think there is an immense amount of talent in NYC. It's one of the most thriving cities in the world, which causes a lot of young talent to be drawn towards it. It has this unique balance of quality young professionals and relatively low competition from the technology standpoint. Silicon Valley soaks up so much of the technical expertise, and then Seattle and LA quickly compete for those experts and professionals, as well. In New York, from a density standpoint, even a startup can actually be quite competitive because there is so much talent. The pace at which people are working here and living their lives also yields great output and performance. Also, because of its density, New York is great in terms of networking and getting connected to other smart founders and like-minded people, creating a sense of community and pride in the startup scene. I'm going to caveat this by saying these are pre-COVID-19 benefits, and some may change after we come out of this.
Michael: I was able to see some of that first-hand last summer, as I was interning at a venture fund in New York City. The community is definitely much smaller than in the Bay Area, but it also pushes hard for New York as a whole. Recently, I was chatting with an investor at a leading venture fund, and he mentioned that one of his partners, who splits time between San Francisco and NYC, will always back the SF company if he sees an NYC company and an SF company attacking the same problem. I think the premise of this is that in SF, companies can hire 300 engineers in a year with much more ease than in NYC, when needed. As companies grow and scale, do you think that NYC still provides the same benefits and resources as it does for earlier-stage companies?
Alex: I think it really depends on the market and the market dynamics. All of this is supply and demand. While I agree that there are more software engineers in the SF area, there are also a lot more startups and businesses competing for that talent. Even though we may have fewer engineers and software developers coming to New York, we also have much fewer people / companies competing for that talent. The other thing that's attractive about New York is, there is a lot of non-traditional capital available. NYC is still the financial capital of the United States, and there are a lot of high-net-worth family offices, who previously weren't investing in early-stage tech but now want to play. Naturally, money attracts talent and yields opportunity. There is a ton of money that's available in the NYC environment that has become much more heavily invested in early-stage startups.
Michael: I think that's a really great perspective there. I know that you started your career at Goldman Sachs and then went to Pershing Square. How did those experiences in finance prepare you to enter the world of startups and run Innovation Department?
Alex: Sure. Number one, working in finance really creates this level of grit and resilience that is necessary to be successful as a startup founder. Things are never going to be in a straight line. There are always starts and stops, or two steps forward and three steps back. You need to have grit and resilience to push through that. At Goldman, I started on the investment banking side and moved to the private equity side. 80 to 100 hours a week, even when I was on the private equity side, was pretty normal. Sleeping in the office was happening at least two to three times a month. When you go through that at a young age, it gives you a sense of, if I can do that, then I can handle this. A lot of life is just about experiences. The more battles you go through and the more challenges that you overcome, you gain the confidence that you will also be able to overcome the difficulties in the moment. I think that's been really powerful for me because the finance roles were hard. They really take a lot out of you and you have to be committed. In finance, you're surrounded by other people that have the same level of commitment as you do. If you are able to make it there, it sets you up to feel confident that you can survive and stay resilient in the startup world, too.
Michael: These next few questions are advice-related questions for our subscribers, the majority of whom are undergrads, like me. What advice would you give a current student who is interested in getting into tech and maybe even starting a company?
Alex: I often meet early-stage founders and entrepreneurs that want to build their first business. The first question I usually ask is, what's your unfair advantage? There are a lot of great ideas out there and ultimately, it will come down to execution. So, I ask them, why is it that you are better fit to do this than 90% of the population? If they can't answer that question, I will often challenge them on the basis that maybe they shouldn’t start the company. If someone else can copy the idea and can execute it better, then they shouldn't be pursuing this in the way that they’re pursuing it. Capital is no longer the barrier to entry because it has become more accessible, and the traditional hurdles have been diminished because building technology has become more accessible.In order to encourage young entrepreneurs to figure out if this is the path for them, I suggest interning in a startup and really feeling that vibe because often they'll be surprised to see that there is really not a lot of structure, especially in the early stages of the startup. A lot of times you're flying the plane while you're building it at the same time, and you need to have comfort with that type of environment to be able to be successful in early-stage startups. Then if you decide, okay, if I have that, and I have the resilience and I can answer this question of why me, then I think you should go for it and see if you can raise the capital and get the traction. But I think I usually start with that question first.
Michael: Really helpful there! Early in your career, should you optimize for learning or for getting a good name / brand on your resume? I've always had the perspective of optimizing for learning, but I hear a lot of students who want to get a good name on their resume so they have something to "fall back on" later. What's your perspective on this topic?
Alex: There is no perfect answer to this question. There are plenty of examples of people that have gone through both paths and have found success. I think there's some good advice that Jeff Bezos is known for. What he says is, when faced with two opportunities, choose the one that allows you to still pursue the other opportunity and even expand it to more opportunities. What I take away from that is, there are so many opportunities for students coming out of college to pursue, but often there's this question of, do I want to commit to something more narrow that may give me more learnings in this specific area? Unless you have conviction that this is the area that you want to be spending many years of your career in, I think the best path is to actually choose something that expands your total opportunity set. That's why when people aren't sure about what they want to do, they end up trying to pursue a big-name place because that brand name is like this stamp of approval that gives them more opportunities for future jobs once they figure out what they want. However, I want to caution that there is this paralysis from having too many options and continuously chasing more options, expanding the opportunity set, and never focusing. This often happens with people in their mid-30s, who may realize they’ve wasted two decades of professional experience because they’re still not sure what they love. That’s dangerous too and can happen when someone is always chasing big names. They could look back and ask, why did I choose these things? Was I passionate about the interest, or was I just continuing to expand the opportunity set? To summarize, I think more opportunity sets are healthier and better early on in the career because it's a diversification of your opportunities that increases your chance of greater success and discovering your passion. But as you start to round out, around your first decade of professional experience, you should be disciplined in narrowing yourself down. Also, if you reach that point and you're not sure what you want to do, often, going back to school is a great reset. A lot of people go to business school for that exact reason – to get educated, meet some really smart people, and figure out what their passions are. A lot of great opportunities have come out of those types of programs. That's a lot of answers, but hopefully, that was helpful for your readers.
Michael: No, definitely. The next question is focused on information and knowledge consumption. Do you have any favorite tech- or startup-related books and podcasts?
Alex: As an organization, we do a book club together. I think it's one of the more exciting things on the social calendar standpoint because we're actually dedicating time to learn together. We have looked at books like The Lean Startup by Eric Ries, The Innovator’s Dilemma by Clayton Christensen, The Hard Thing About Hard Things by Ben Horowitz – pretty much every good startup book out there that people recommend. One area that's very interesting that we started to explore, which I would recommend, is starting to think about psychology books that help position yourself for success in a startup environment. One book that we love is called Mindset by Carol Dweck. We actually send this book to every new hire, along with their offer letter, and ask them to read this book before their first day. The simple concept is that there are two types of mindsets. There are fixed mindsets that believe their intelligence is fixed in a certain way and they're defining themselves by their talents and their perceived intelligence and being correct and right. Then, there are growth mindsets that focus on growth as the result itself. The idea of getting things wrong doesn't hurt them. Instead, it’s part of the process. The growth mindset has been really valuable for our team to share because, ultimately, startups are really tough and we're constantly learning from failing. Back in my finance days, when I was working in the hedge fund world or investing at the private equity side, being right was really important. You had to go in front of an investment committee or go to your boss and explain to them why your perspective was correct and worth betting tens of millions of dollars on. And now it's actually the opposite. I might be the CEO, but every day I'm searching for new learnings of what I’m wrong about. I've created this environment with our team where we are okay with being wrong, so long as we are learning to make new mistakes together. In terms of podcasts, I think one that I like to go back to is The Twenty Minute VC. I like that it's quick and punchy, and they have smart venture capital people on it and impressive founders. There’s always some interesting new learnings from the people and I like that they get perspectives from both people who are investing and people who are building businesses. Also, I think the moderator is really engaging and keeps it lively and high-energy.
Michael: Awesome recommendations. The Twenty Minute VC is definitely my favorite podcast. I'm always learning from Harry and all the guests he brings on. I actually just read Mindset in January. It was definitely a really interesting book. I've been trying to explore a bit more about psychology too. I have been spending a lot of time reading behavioral economics books, trying to learn more about how psychology actually impacts consumers' behaviors and behavioral patterns.
Alex: Have you read Grit by Angela Duckworth?
Michael: I actually have not yet read Grit. I've read Predictably Irrational two or three times now. I just recently read Thinking In Bets by Annie Duke, Thinking, Fast and Slow, and Nudge. Grit is on my shortlist for the next book, so maybe I'll pick it up next.What do you do in this post-pandemic world from a decision-making standpoint? How can current students feel comfortable about pursuing job and internship opportunities in the next few years?
Alex: My advice is the following. Number one, in the tech space, we're very lucky in that we still get to work. Every day I remind myself and my team that we are just grateful that we can still work remotely and that we can continue to produce and create together. I think that makes tech more attractive than ever. I think that people are going to find a lot of opportunities in the startup space. I also believe that anytime there's a downturn or an economic difficulty, some of the best businesses are born. When things are tough, and the economy is terrible, and all the challenges that people are facing really feel insurmountable, only the best businesses are able to survive. Therefore, if you can build something in this moment that gets funding and that gets traction, you know you have real product-market fit and you know it's built for the long term. Typically, when the market is frothy and everyone's just kind of throwing money into things, you have a lot of lower-quality ideas and businesses just squeaking by. I think this is a nice reset so that the businesses that do well during this period of time will be set up for long-term success.So for any of your readers that are feeling a little bit nervous or scared about starting a business right now, I would actually say, if anything, trying to build a new business right now is a really great checkpoint to know whether or not you're meant to build a business and whether you have a good idea that's fit to survive. This is a time where ideas that aren't built to last will most likely fail. So take that as a positive in that if you make it through the initial phases, it has a strong chance of going the distance. This is a really efficient time to figure out startups. This is a time where you're not going to worry that maybe you’re wrong about this. The filters and measures for what good ideas should be funded right now are higher than ever, which makes it hard but also helps you know if the business you’re building is for real and if you can really execute?
Michael: That's really great advice. Thank you very much for adding that on! Even just looking at some of the big layoffs that tech companies have recently made, such as Lyft, Uber, and Airbnb, there is such a big talent pool available right now, so I definitely expect to see several big, helpful, and influential companies come out of this.
Alex: I hope so as well.
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I’m on Twitter @mspiro3 👋