Alberto Lugo: Welcome my friends to a new episode of successful blunders podcast where we talk about failure with successful entrepreneurs so you can learn what not to do in your business, so you can scale up quickly. Ahm, we want to thank our audience and our viewers too because you’re watching this show on youtube and you can also, eh, hear it on different platforms via podcast.

Remember if you’re watching this on youtube click the like button, and subscribe, and hit the bell so you can receive different announcements, and in this episode, we’re gonna welcome the one the only Mr. Bob Davila, Welcome!!!

Bob Davila: Good morning! Good morning Alberto.

Alberto Lugo: Bob is a former chairman of the war of Grupo Guayacan and he’s been doing a lot of things over his, ah, life as an entrepreneur. So, we’re very honored that you are in the podcast and we want to start by asking you who is Bob Davila for our audience and what do you do.

Bob Davila: Well, first of all, thank you.

I’m delighted to be and honored to be for, ah, invited, and to be part of this podcast. Um, eh, I’m a New Yorker, Ah I’m what you call a Nuyorican, born and raised in New York, went to college in New York, NYU. Ah, and ah, ultimately started off in banking, ah, quite a few years ago probably longer than some of your audience before they were born…

Alberto Lugo: hehehehe…

Bob Davila: Ah, and, ah, got into traditional banking, found that very boring, and then got into the more entrepreneurial banking which basically back in the 80s would have been the leveraged buyout business were we, we, we had you know more entrepreneurial type of, uh, investors, uh, buying the divisions of companies and outright companies that were being managed very poorly or managed in ways that were not terribly entrepreneurial. So that’s where I learned to do, uh, mergers and acquisitions, and private equity investments, um, and then ultimately what I ended up, uh, doing that, uh, in the US in Latin America and in Puerto Rico as well as for a few years in Brazil. Uh, eventually, I decided that, um, rather than being the financier an investor I wanted to see if I could actually be an operating entrepreneur and so back in 1998, I left. I left for chase, I left chase, uh, Brazil, uh, came back to Puerto Rico partnered up with some of my old, um, customers/clients-investors and wound up being in charge of the group buying outdoor media display posters which was at the time the largest outdoor advertising company uhm…

Alberto Lugo: Umhu…

Bob Davila:  Built that over four years sold to Biocom, uhm…

Alberto Lugo: Often?…

Bob Davila: And then wound up being called by the board of Guayacan to see if I could help them, ah, develop their strategy bit more and that’s what I’ve been doing ever since.

Alberto Lugo: That’s where we met actually, and ah, so you come from the other side you were actually investing in these failing businesses and then you decided to pursue it on your own?

Bob Davila: Right exactly, ah, I was, yea as I said I gotta prove to myself that I can actually be an operator not just, not just a finance guy

Alberto Lugo: And that’s great, that’s great for, for this podcast, so I would, I would love to go in real quick and start the conversation around a blunder or a failure that you had in any of those past experiences…

Bob Davila: Sure…

Alberto Lugo: Well, go ahead.

Bob Davila: Well, I have, I have two, two fond ones. Uhm, one at the same time I got involved with the outdoor advertising business, our investment group, uh decided that it wanted to invest in, um, agricultural commodities in Puerto Rico people thought that Puerto Rico you know being in a group where it is in our cultural center there may be a great opportunity to build a big business and agricultural commodities and so there was a business out there that we saw that we identified that was very successful I won’t get into the details because there’s a lot of controversy around this…

Alberto Lugo: Don’t worry, don’t worry about it.

Bob Davila: Uh, but we wound up uh, because of the history of the company, we wound up, uh, investing in this company, and within two years it was an absolute utter failure but broke we lost all our money the bank took a big hit and it was an absolute, it was an absolute disaster and so I will talk about the lessons learned in a second; uh, the second disaster was also around the same time this would have been in 98 and for those of you old enough to remember that was the .com boom era and so everybody was going to become an entrepreneur and…

Alberto Lugo: Millionaires…

Bob Davila: Yes right, right, right, so and we had a couple of Puerto Rican entrepreneurs come to our little investment group and say that they wanted to create the Latino music portal the portal that was going to you know have Latin music be sold and understood everywhere in the world and we said looks pretty interesting we invested some money in it and then within six months we realized what a disaster that was…

Alberto Lugo: Wow, that was very fast!

Bob Davila: That was, that was very fast, and you know the common theme in those two as well as the other failures I’m not going to bore you with, is that what we did was we made decisions based on unvalidated assumptions you know we would do things based on or what we saw.

Alberto Lugo: Your gut?

Bob Davila: Our gut right, but also things that you couldn’t validate so when you look at for instance the agricultural commodity business, ok?…

Alberto Lugo: Umhu…

Bob Davila: You can’t validate the weather as an example, right?…

Alberto Lugo: Of course.

Bob Davila: If you’re relying on commodities you don’t control prices. The prices are set in the market, okay?…

Alberto Lugo: That’s been so true, yea.

Bob Davila: And so you can’t validate that either Um, ah, and, ah, you can especially doing an export, especially to Europe, you can’t validate currency gyrations and so without the ability to validate any of those things we made a significant investment in there and everything turned out… You know absolutely wrong so, you know certainly our lesson there and certainly, my lesson there was I am never going to make another investment in business unless I can validate, the key components of the business model in some formula that doesn’t take the risk out of it…

Alberto Lugo: Yeah.

Bob Davila: But at least you have data and facts to support the decision making that you make.

Alberto Lugo: But let me ask you something without going into details, what about the team? Because, most of the time what I heard or when I see a television show such as the profit which is very similar to what you were doing before, and when you did that, he is always talking about the team and specific characteristics of the people running the business, not just these assumptions, what do you, do that has anything to do with the problem or just these unvalidated areas that you didn’t saw coming or you couldn’t validate?

Bob Davila: Well, no. I value much the team because the non-validation started with the teams themselves. In other words, they could they come up with their business model, they come up in those days business plans uh…

Alberto Lugo: Umju.

Bob Davila: And when you look at then you can read a 30-40 page business plan but then if you really get into the detail of what’s behind there you realize that people are making decisions based on lots and lots of assumptions that they have not themselves validated and it, you know, their history and their brains tell them well look this has worked in the past so of course it’s gonna work in the future. Uhm, and so and then we come as investors we compound the error by then not forcing the validation at our stage of the game and so they didn’t validate it, we didn’t validate it, and therefore the disaster occurs and so they are good people…

Alberto Lugo: Yeah, yeah.

Bob Davila: They are are very, very smart people, but…

Alberto Lugo: But it was not validated.

Bob Davila: But it just wasn’t validated, and you know I think a lot of people don’t realize this but, you know and I, and what you know, once these things happen you know, I tend to be perhaps more academically oriented than the average entrepreneur

Alberto Lugo: Yeah.

Bob Davila: So, I started doing a lot of research I started doing a lot of reading, uh, and I discovered that you know, the failure rate whether you are talking about startups, whether you are talking about existing businesses, ah you are talking about ah, product development, you know, the starlet,  the failure rates like 60 – 70 or 80% and then the question is you know with all these smart people why do we fail so often, and so the, one of the biggest answers is that you know the way our brains work we are destined to failure unless we do something differently.

Alberto Lugo: Oh. You got that from the research? So this is pretty common?

Bob Davila: Uh, it’s very common, right, 80% of all startups fail after five years. Uh, 70 to 80% of all new product development in dollars goes down the drain as an example…

Alberto Lugo: I think when I went to Guayacan and you, I think you showed up  in the first 40 min of my first class at Guayacan venture accelerator and I was kind of scared because our business was, uh, not growing at that time but we were being in business for at least five years, so I said like maybe we’re almost failing because of the statistics right?

Bob Davila: Well, I mean, well when I tell at the people a lot of people wait a second you know, wait a second I’m in business, so I haven’t failed, and so they don’t believe me, and what I got back and tell them is you know, you are what you are today because you basically have been lucky, okay? You’ve been the 20% that didn’t fail but it wasn’t because you made validated decisions it’s because you got lucky that you’re right based on that based on the circumstances that you had no control or no knowledge over…

Alberto Lugo: Yeah, I always said that you have to make some good decisions in a notion of bad decisions or horrendous decisions just to be successful. I think Bill Gates has said that in the past. You just have to be there at the right time, and make the right call so you could move forward.

Bob Davila: Yeah, absolutely, ah absolutely, and the same thing occurred with the, uh, with the Latino, uh, the Latino portal thing Uhm. You know it’s, it’s I liken it to Netflix so when Netflix and people don’t know this but when Netflix first started it was an absolute disaster, uh, because you know they wanted to become, uh, the entertainment, the movie entertainment portal, uh, and what they discovered very quickly was that it takes a lot of money to code, to get customer acquisition you know all those things it costs a ton of money, and at the time the business model of served ads, just didn’t pay the bill, and so they really had to change their entire business model and the same thing, I mean we didn’t know this about Netflix at the time but if we did we wouldn’t have made the investment right?…

Alberto Lugo: Yeah.

Bob Davila: At the same exact issues you know came up with our lot and portal thing which is, wait a second, this is way too expensive to try to develop and make some money and survive well you would just have to keep on putting tons and tons of money, in the process…

­­­­­­Alberto Lugo: Yeah, I can imagine the burn rate because you said they fail at six months after the investment so I can imagine the burn rate monthly that you decided not to be pursuing it.

Bob Davila: That’s exactly right. Yeah, we were smart in the sense that we used the traditional branched capital investment approach which is, field them enough money to approve the next point. You know, to approve the next, proof of concept. And it became pretty quickly, obvious to us that after six months, you know, this wasn’t really gonna come anywhere near what, uh, what the assumptions were behind it.

Alberto Lugo: So, you’re a professor you can, we can expand a little bit here on lessons learned and what as you learned from this experience and what you were telling me about the brain how the human brain works can you expand on that at least?

Bob Davila: Sure, yeah, the, one of the things, um, as you know, and you were you went through with GBA which has evolved over time Uhm. I teach the first course in GBA, uh, and what I try to do is get the participants Uhm, and for those of you, those of your audience not as familiar with GBA, as the quack and venture accelerator…

Alberto Lugo: Yes, please explain what it is, for the audience.

Bob Davila: The Guaca mentor accelerator is a program put together and inspired. I was a co-founder of it and Guayacan, Group Guayacan now gives it every year. Uh, it gives a cohort of ten selected companies so you have to apply before the program and ten to twelve companies come in every year and it’s basically probably a bad example but an MBA for growth-oriented entrepreneurs and so there’s a series of courses. I do the first one and then there’s, about seven or eight other courses that you take over several months and then at the end, you and then the objective is for those companies these are established companies that are out there and they want to really change the acceleration of their business you know grow their businesses more dramatically and that’s what the program is designed for. it’s not, you know, the enterprise program is for the startups this is for established Puerto Rico companies that really want to change the trajectory of their businesses, and I go…

Alberto Lugo: And I came again to that because before taking their course or taking their program we were I thought I knew it all because I was being quote-unquote successful but, I had so many areas or so many gaps that I had to cover either with more people in the business or myself that, things that I didn’t know and it really sparked the interest and made me go in a journey of learning and keep learning and keep seeking more and more information to just drive the business and I’m forever grateful for being there at that time I think it helped us tremendously and we made changes right away when we took the…

Bob Davila: Yeah.

Alberto Lugo: So we were making changes every week when we were going to these courses and it paid, it paid really well in the long run.­­

Bob Davila: Yeah, yeah, yeah, and so like, you started talked about, you know, what is it that we what I try to get across in the course is, you know, our brains the brain is wired to be extremely lazy, okay? It doesn’t like working hard Uhm, and so because of the way the brain is wired, it’s got things like a risk aversion associated with it okay? It’s got something called confirmation bias it’s got something called recency effect these are all things that we as entrepreneurs and as customers, okay? We make decisions based on things that have been encoded in our brain over our lifetime and anything that’s different from what we’ve been coded we tend to avoid, okay?…

Alberto Lugo: That’s true.

Bob Davila: Right? And so what whether it’s trying to get a customer to buy something new, that’s hard because they’re encoded to not make many-many changes okay?…

Alberto Lugo: Umju.

Bob Davila: And as entrepreneurs when we try to do something more innovative we tend to be very risk-averse, uh, and not get out go there because of the way our brains are wired in terms of risk averseness in terms of confirmation bias and any new data that comes in is stuff that 95% of the time if it’s inconsistent with our, what we call schemas, we reject it. And that’s where the innovation opportunities are by taking that information that’s inconsistent with what your brain is telling you and say what a second maybe there’s a new way of looking at this and that’s where the real innovation opportunities occur and that’s where you also do things like, you know, make less mistakes, okay? Or at least make less stupid mistakes because you’re actually opening yourself up to new data and new information and are prepared to validate assumptions that you’ve made.

Alberto Lugo: That’s where the magic happens and let me say something um. That also helps you fail fast and move forward with the next things because if you’re not wired like that which most people are not you just try to make things work because you think it’s gonna work or you don’t want to fail or you don’t want to take the hit so you could spend a lot of time and I want to give back the example on the six months you invested in this company and you said this is gonna be too much money  I don’t want to go that route I don’t want to pursue that and move forward and take the hit but you could be you could have been there for years trying to make it work and losing money just because you’re not wired to go fast and keep going with an… another thing.

Bob Davila: That’s right if you work off of this unvalidated assumption that Latin you know digital digitized Latin music is going to be the biggest thing in the world, okay? no matter what it costs to do that you’re right longterm right you’re right over 15 years but the problem is the business model you have at a time doesn’t provide enough cash flow to support that growth and so the question becomes is where is that cash come from? and it wasn’t gonna come from us, and the idea frankly was you know maybe 10 – 15 years ahead of it’s time, which is frankly what happened you guys know this as well and the technology feels sometimes there are incredible ideas but they’re probably 10 to 15 years ahead of their time.

Alberto Lugo: Yes, I’ve heard that uber was made 20 or 15 years ago and didn’t work because the market was not ready.

Bob Davila: Right Absolutely.

Alberto Lugo: And let me ask you something Bob, how can entrepreneurs try to train their brain to, not do, these stupid mistakes, or, how can you try to teach your brain to do better?

Bob Davila: Sure! Uh, and in GBA, and I’m gonna share some of the secrets of GBN with your audience…

Alberto Lugo: Just enough for people to apply, just enough for people to apply.

Bob Davila: Right, there are two tools and one overall concept okay? The overall concept is something that we all learned in high school, some of us smarter than one of us, I wasn’t one of them, learned perhaps in elementary school is, this is using the scientific method, okay? Uh…

Alberto Lugo: Umju.

Bob Davila: And then the tools that specifically we use, uh, the scientific method around are the business model canvas on the one hand, um, and design thinking on the other. And without getting into a lot of detail what those two tools do is, it give us the opportunity to as objectively as possible map out what our assumptions are so we can acknowledge that these are assumptions and one of the greatest things we do in the program is we get our companies to map out their business models on business model canvas and then I proceeded to ask them, okay, how much of what you have in there is a fact, and how much of what you have in there are assumptions?…

Alberto Lugo: Fiction…

Bob Davila: And after thinking about in for a little while they all realized that ninety percent of what they have on those business models are all assumptions because it was all created in their own heads.

Alberto Lugo: Yeah.

Bob Davila: This is what they think the customer was, this is what they think works for the customer um…

Alberto Lugo: I wonder I want to circle back and say that I was not able to take the business model canvas when I did Guayacan, but I did it with you guys at a later date and it was mind-boggling because you see so many errors that you can fast forward in a day of planning really with that…

Bob Davila: Right!

Alberto Lugo: With that simple, uh…

Bob Davila: Amazing uh

Alberto Lugo: With that tool that you guys provide, and the other thing that I did a few years after was when I went to Stanford I did the design thinking course, and we, it… Iterated, iterated? …

Bob Davila: Yeah.

Alberto Lugo: We iterated throughout, six times in a day trying to build the ultimate members…

Bob Davila: Aja. Yeah.

Alberto Lugo: It was eye-opening to see all the crazy ideas and then researching with other people in the room and not to mention that the other program that Guayacan has where you have to interview like a hundred people…

Bob Davila: Yeah Icore (22:32).

Alberto Lugo: And you can validate your ideas so these are things that, make, make you think about it, and make you also fail in weeks not months.

Bob Davila: Yeah, and it’s a structure as you have said, how do we train our brains to deal with this? Well, it’s gonna be tough to train your brain because your brain is a very very stubborn thing to do so, uh, a very very stubborn thing to change so, if you at least use these tools and you accept that these tools can help you bypass some of these biases that you have then you’re gonna really reduce the amount of mistakes or certainly reduce the stupidity behind your mistakes. Um, so…

Alberto Lugo: Would you recommend doing, would you recommend doing… Doing design thinking sessions with the team every now and then just to, just to teach the brain….

Bob Davila: I do teams every business you know in Puerto Rico and the world, frankly should be, should have these business model canvas that they’re looking at least once a week, and then having a design thinking, uh, exercise, you know, whatever works for the team whether it’s weekly, whether it is monthly where you really get in out there and, and test in some assumptions you’re gonna find when you look at your business model canvas is that you’ve some really crazy assumptions here that you have been working on that you better test and so you use the design thinking model to then test that assumptions, it’s a nice little structure that gives you the opportunity to test those assumptions

Alberto Lugo: Like the distribution channel that area of their canvas it’s the, it’s toughest for me.

Bob Davila: Well yeah, I mean I, mean, think about it right. Whether it’s, whether it’s, you know…

Alberto Lugo: Everybody is gonna buy it.

Bob Davila: How do you access your customer right it’s the physical distribution there’s the digital distribution there’s the awareness there’s the branding awareness, you know, concept, there’s a lot there and so it’s very powerful.

Alberto Lugo: Yeah, everybody will buy it because we build it.

Bob Davila: Yeah, you know, if I had these tools, you know, if I had these tools 15 – 20 years ago I might have you know reduced, you know, I think we are, me and my team sort of intuitively understood some of these concepts but since we didn’t have the tools…

Alberto Lugo: Yeah, I would even go to say that maybe you could have uh, helped those entrepreneurs be more productive with the investment that you guys made because you could pass them through that training and in a couple of days or a couple of weeks you could decide if the distribution was all right if the idea was okay or you had to pivot?

Bob Davila: Right absolutely, absolutely, and so, you know, it’s some very powerful stuff and fortunately I don’t make many more investments any more but certainly in the last five years my mistakes have dropped dramatically…

Alberto Lugo: Dramatically, right Bob so we’re almost at the end of the podcast and I want to wrap it up with uh if we can summarize the learnings from those uh, two mistakes that you had in your past lives.

Bob Davila: The learnings are, recognize that most of making most of your decision making, most of my decision making was based on thoughts and assumptions in my head that were invalid, and so, I needed to figure out you know, how to validate that. And if I couldn’t validate it you know, then don’t do it because without being able to validate something uh, don’t do it. Recognize that everybody else around you your team suffers from the same issues of working off of assumptions so as a leader one the things I try to do is. And if I ran a business today you know the first thing I would do is get the entire team around the business model canvas and around design thinking and have them understand and accept that you know, these are ways that we are going to make much much better decisions you know, going forward, because if we take this approach we’re going to take a lot of the unvalidated assumptions you’ll add the equation um. And then the other thing is with those tools you can really let people go. If they are practicing those tools and using those tools as a leader you can step back and say…

Alberto Lugo: Yeah.

Bob Davila: Go ahead, go do your thing make your mistakes because I know that if you use these tools those mistakes are going to be faster and cheaper and we’re going to learn so much more you know, by doing it faster and cheaper and acknowledge that mistakes are part you know if you’re gonna be an innovator mistake are a part of the game failures are part of the game but let’s do it faster and cheaper.

Alberto Lugo: I love the feedback and I love the lessons learned because they hold true to everything that we’ve done in the past. And every time we use those two approaches which, we don’t do it every time, but we have done it in the past, it’s so much easier to make decisions so I’m grateful that you’re sharing that and for the people watching this show or at least listening to it we’re gonna put the links to these two resources so you can at least learn a little bit about it and then learn a little bit more about Grupo Guayacan so If you’re in Puerto Rico or maybe now with the corona that we’re doing a lot of remote stuff maybe you can apply and leverage what Bob is telling us here in the podcast so you can scale faster.

Bob Davila: Great, great.

Alberto Lugo: Thank you Bob for being in the podcast and for the information provider really helpful I want to remind you guys to follow us on social networks and remember that this podcast it’s a… You can read the transcription of this podcast in successfulblunders.com.

Thank you Bob from being here.

Bob Davila: Thanks, that was a lot of pleasure.