Scot Chisolm  0:01  
We ended up finding this, this one event, their property called the Relay for Life. And that's I don't know if you know what that event is. But basically you walk around the track for 24 hours straight, which is great, but at 24 years old, mature, that's, you know, exactly your idea of a good time. And so we kind of had, you know, put that aside, and we were sort of just sitting there. And, you know, one of our one of my friends said, Well, why don't we just do a simple pub, crawl down Garnet street here in Pacific Beach and collect cash at the door and just invite as many people we can on eBay? That's kind of what we were using at the time. what yours is, by the way, it's got 2006. Yeah. And then we just donate the money afterwards. And when we were coming up with the name for that pub crawl, the movie anchorman with Will Ferrell happened to be on in our apartment where he says the catchphrase you stay classy San Diego my buddy Pete turned to me and said, Well, why don't we just named the pub crawl, stay classy pub crawl, never thinking in a million years would ever go anywhere. But

kevin edwards  0:53  
you are listening to the real leaders podcast, your number one source for impact leaders. harnessing Capitalism to sustain the planet, people and profits. I'm your host, Kevin Edwards. And that story was from Scott Chisholm, the founder and CEO of classy org, one of the largest online fundraising platforms for nonprofits. And on today's episode, I asked Scott, why for profits should act like nonprofits, the story behind his first sale, and what pressure comes along with early investment at just age 24. So folks, let's give it up for the real Scott Chisholm. Enjoy. Or three, two, and welcome, everyone to the real leaders podcast. I'm your host, Kevin Edwards. Joining us today is Scott Chisholm, the founder and CEO of classy Scott, thanks for being with us today. Appreciate it. So we're in this metaphor, 13 times unlucky floor but we're here. of classy here in beautiful sunny San Diego. How does This story go and explain to our audience what classy is. 

Scot Chisolm  2:03  
Well, first of all, my house number growing up was 13 as well. Somehow we're on the 13th floor of this building. So it's become a lucky number for whatever reason,

kevin edwards  2:11  
so it's unlucky now it's lucky. 

Scot Chisolm  2:14  
Normally you don't even have the 13th floor on buildings. I don't know what that's about. But I appreciate you guys coming out. Classy actually started quite a long time ago. And it was it was really a passion project before was a technology company. This was back in 2006 timeframe. And I had moved out from the East Coast with a bunch of my buddies basically. And we were looking for better weather and learning how to surf and all that good stuff. And my first job was actually at a pizza shop, believe it or not, my first foray into entrepreneurship. I had to go door to door selling pizzas and trying to get people to come into the store. But anyways, we were we were trying to figure out how to do something good as 24 year olds and my mom and I had cancer growing up and she had went through You know, two bouts of it actually, chemo, radiation, the whole, whole, whole thing. And a lot of the folks that I was living with at the time is here in San Diego Mission Beach, I had also been affected by the disease and pretty profound ways my buddy, Pete's dad passed away from brain cancer when we were all in high school. And it left a really, you know, strong sort of mark on us and, and whatnot. And so, you know, our idea was to basically to, you know, research the cancer organizations in San Diego and try to figure out if we could get involved and the one that we stumbled upon was the American Cancer Society or the chapter of the American Cancer Society here in San Diego. And we had a bunch of issues with the website. First, we just were trying to figure out how to navigate through the things super clunky whenever else and we ended up finding this, this one event, their property called the Relay for Life. And that's I don't know if you know what that event is, but basically, you walk around the track for 24 hours straight, which is great, but at 24 years old, I'm sure that you know, exactly your idea of a good time. And so we kind of had, you know, put that aside and we were sort of Just sitting there and you know, one of our one of my friends said, Well, why don't we just do a simple Pub Crawl down Garnet street here in Pacific Beach and collect cash at the door and just invite as many people we can on eBay. That's kind of what we were using at the time. what yours

kevin edwards  4:13  
is, by the way, it's got

Scot Chisolm  4:14  
2006. Yeah, yeah. And then we just donate the money afterwards. And when we were coming up with the name for that pub crawl, the movie anchorman with Will Ferrell happened to be on in our apartment where he says the catchphrase you stay classy San Diego, my buddy Pete turned me and said, Well, why don't we just named the pub crawl the steak classic pub crawl, never thinking in a million years would ever go anywhere but there but that. But here we are talking about our name still has roots in anchorman. And Will Ferrell has even done a video for us later on talking about his connection to the company. But so we did this pub crawl we raised $1,000 and we were stoked. We were We were so excited. And I was working at Booz Allen Hamilton at the time. So on that Monday from my office, Booz Allen Hamilton shut the door. I called up the ACS and I was like started like hey we raised $1,000 for you we you know we were plastered the town with with your logo you know all this stuff and the woman on the other end it actually got quite upset at me for hosting an unsanctioned event. So an event that they didn't approve I said Well do you want the thousand dollars and she's like Well yeah, I want the thousand dollars Do you have to come to the sanction event called the Relay for Life in two weeks in Point Loma and walk around the track that and that's how you need to donate the money. And we're like, okay, so we went and we got the she asked us to get a check and all that stuff. And so we got that and we went to the this event that we were trying to avoid the whole time. We got in there we did like two laps, we handed the check to the administrator or whatever, like a baton. And we got we got out of there as fast as we could. And we were just kind of left with sort of this bad taste in our mouth. And in caveat, I love the American Cancer side still, they're actually a client today, which is a full circle story, but you know, kind of the experience for us and trying to do what what we call in our world, a third party event, had so much friction and we were left basically saying like why does giving need to be so hard? and really classy founding story was rooted in that that that pub crawl and that friction and that's like carried us to today. But for the first like four years of the company, we weren't even thinking about technology we weren't thinking about online giving all that we wanted to do was make giving easier, more accessible, and even fun, especially for young people and the younger generation, because we felt like there was a disconnect on what the way we wanted to give sort of on our own terms, and the end the product, if you will, that the organization was providing us or that avenue, that opportunity. So what we did was we decided to basically partner with local nonprofits around San Diego, we've picked different causes, we stayed with the cancer cause we moved into like cleaning beaches, we were struggling for the homeless shelter, etc, etc. And we would pick a project with a nonprofit and then we would host an event or a series of events for that project, and we would promote the crap out of it and get as many young people to come to these events and really tie into the impact volunteer for the organization and sort of the whole package. And they were really, really successful to the point where thousands of people were coming to these events. So athletic events, more pub girls, of course, music festivals, etc, etc. We did a partnership right here outside the Padres stadium. We did a partnership early with them in the in the, in the early days with the Padres. We're cage the elephant was one of the headliners. Okay, and our biggest festival It was called the elemental experience. Solar powered stage is actually before that was a thing. And that the headliner, there was modest Yahoo with bass nectar, Mason Jennings pinback. So like good, pretty good hands and bass nectar. No, actually, that's how it right like this is now 2009 ish. And we had basically outgrown the jury rigged system we're using to take the ticketing for our events and allow people to make a donation we were using, evite, PayPal, spreadsheets, you know, and MySpace and Facebook to promote it literally MySpace and that's we're talking 2009 now

And we just outgrown it. So we basically said, like, you know, could we build something that was very simple for this modest Yahoo show to allow our attendees to not only buy a ticket, but to create a personal fundraising page and share that page on the early versions of social media in just a few clicks. And so that's what we did. We literally hired a developer to come in and join us. And he built this really rudimentary, yet elegant app that would allow our attendees to essentially do do what we call in the day was called social fundraising. So sort of an early form of social fundraising or crowdfunding for this show. And the beneficiaries, the charities that we were supporting, noticed what we had built. And we ended up raising 10s of thousands of dollars that goes like 18 $19,000 for that one show alone. But the use of the app really took off and the charity started saying, Hey, can we use this for our own campaigns and events not just the at the time that Monica was stay classy events, the stay classy charity events? Can we use this app for our own stuff? So for the The stuff that they were hosting and organizing, and that's when sort of the lightbulb moment went on like, wow, this, this isn't even really that good in terms of the app and technology, but we built it, we like to say through the lens of the supporter, so it was very end user friendly, the donor, the supporter, they could do it in a few clicks. It's shared on social before all this was a thing, right. And it just made the giving experience much easier for the supporter. And that's what they were latching on to, in a world where giving was moving very rapidly from offline to online and still is now mobile. We were sort of just ahead of the curve. And they were like, you know, that that's, we want that, can we have it and so we we basically quit our jobs, we phased out the events portion of the business outside of one event called the classy words which we can get back to. And we went through an incubator here in town and we we tried to basically make the big biggest startup pivot of all time from a pub crawl company to a technology company. We almost died a couple times in between there. But we relaunched as classy, the technology company, the SAS company, if you We'll in January 2011. And so it's been about eight and a half years since we've been a tech we launched as a technology company. But really the story started, you know, four years or so before that. So it's been a wild journey, we can get into the tech portion a little bit, but that's kind of how

kevin edwards  10:16  
we got here. Well, I really appreciate that story, you know, going on PB last weekend, and it's always it's always a great time and there for anyone that's not familiar with San Diego. I think what's so cool about that is you really tapped into that culture. I mean, I don't know how many times I would go out of my way as a 24 year old to donate to a cancer society. But hey, if I can go have a couple beers, right? And do what I did, you know, do best and around there and, hey, I can contribute to society. I think that's really cool. Now, what are some of the hesitations that like you said the ACA had with this? investors may have had with this and people that are a little skeptical about an online crowdfunding site like this.

Scot Chisolm  10:57  
Yeah, I mean, it was it was built out of an organic So I think it helped us with our first sort of, you know, many dozen customers who wanted to try it out. I mean, we were almost honestly in the beginning, we viewed ourselves as a hybrid of a nonprofit and a for profit organization. We never viewed ourselves as you know, this, we're going to you, I think, like a lot of technology companies are born with an idea. And then they go incorporate, and then they raise VC funding and all that stuff. And we went through that journey in certain ways. But in the beginning, honestly, we were just we saw ourselves really as what we would come to call and identify as a social enterprise. So we were some weird mix of the two. We were building this technology. We're also fundraising ourselves. And we were just as focused on or more focused on the end, end result, the impact that these organizations were we're having in the world as we were anything else. And I think that made our story not only authentic, because it came from the supporters. We came, we were supporters ourselves. But we were so focused on the outcomes of the organizations and I think that really resonated with the space and sort of a practice what you preach type of way. But in terms of like, you know, the the skepticism from some investors and other people that, you know, other stakeholders we brought had to bring in as we scaled, because we were sort of saw ourselves differently than the average, I think tech startup. And it took a while for investors to sort of relate to what we were doing here. Yeah. And it was hard for us to raise money. For the first several years, you know, we we raised maybe a million dollars or so and it was like $10,000 at a time from anyone that would listen to us. It wasn't from you know, Andreessen Horowitz on on in Sand Hill Road or something like that. Like, it was very much from friends and family. And it was from folks that had been successful in business and maybe we're sort of shifting into the philanthropic side of their life. And one amazing story was in angel investor to Texas who called us up and he actually had a foundation and one of his foundations was using the early version of classy. And he was like, What is this? And they literally cold called us, like, Are you looking for angel investors, and he invested $100,000 and ended up continuing to invest over the years until he had almost a million dollar position in the company. And so, you know, that's just sort of how it happened, again, like a very organic, sort of like long story. And I think that helped us sort of fine tune, not only how we identify ourselves and the terminology of social enterprise, but what that actually means. Rather than just feeling it and saying, this is the right way to do business. We codified a lot of that it's part of our values. Now it's part of the framework in which we do business. And then that helped us communicate to investors and and also back then now we're talking 2011 to say 2014. The term impact investor was like basically brand new like that, didn't it? Yeah, I did. And B certification and B labs was just getting started like, they be We're born alongside companies like ourselves are pretty still pretty good in terms of the the evolution of business. It's a, you know, we're talking to tiny, right. And this is only last eight years. So for us, we felt like we were actually on an island, frankly. And we didn't have a community to relate to like the nonprofit community was actually the closest community we had. And I think that that was amazing because we were able to sort of bridge that gap and work across the island a lot of ways and we just we didn't see I mean, for profit nonprofits a tax designation, a lot of those so many similarities. A lot of people say oh, nonprofit should operate like for profits. I usually say well not I think for profit checked a lot like nonprofits there's there's there's something to be learned on both angles there. But anyways, that was our community and still is, but now the the social enterprise or the stakeholder type of company community has really grown tremendously over the years and now we feel like we have a you know, a new community or a new a new forum. A new set of relationships in that world as well.

kevin edwards  15:02  
Just to clarify for our audience really quick, you're saying you're a mixed between nonprofit and for profit, would you structure your company as originally it was

Scot Chisolm  15:09  
actually a traditional S corp or C Corp. Yeah. Like literally, we went down to some random alt lawyers office walked in, and we're like, Hey, we're starting a company. And they just like gave us a set of documents. And like, that was literally like, as much thought that went into that initially. So we had like certificates and this stuff. But we were we our mindset, in the way that we thought about business was coming at it from kind of both angles. So even though technically like on paper, or like our cap table was of S corp, and then we were became a C Corp was, was that what really made us a social enterprise, in my mind, was the way we showed up every day and how we did business and how we tried to keep that as core and authentic to what we do on a day to day basis. Now, over time, we certainly ran into periods of our growth where that mentality And that foundation was at risk in a lot of ways. And you get that by adding new stakeholders to the company, whatnot. And so I think not being formally, honestly, I'm not even sure B corporations, Exhibit B cert was just getting started from big corporations, I don't know what our options really were. Because we knew we needed to raise money, it's expensive to start a tech company, we needed investors, we knew that from pretty much the beginning, although we had trouble raising the money. So we were advised to sort of set up this way. Maybe if if b cert B corpse were a little bit further along, we would have started with that. But we started with this so that we could raise money. And then we basically just leaned on our own core values and our own ideology honestly to to create the compass that would steer us on how we showed up and how we did business. And I

kevin edwards  16:47  
just want to break this down for audience really quick, just so they're on the same page as well. And correct me if I'm wrong, like what I envision your company is doing is you're basically white labeling. So you're selling your crowds Funding service for software to nonprofits like the ACA, like Girl Scouts of America who wants to raise money. So people can go online, they can donate. And it's nice. It's nice physical appearance on the outside. People can use that without knowing that it's classes. classes.

Scot Chisolm  17:17  
Yeah, we probably should have said what we actually do. Yeah.

kevin edwards  17:21  
That's what makes sure before we get on to the

Scot Chisolm  17:23  
Yeah, no, it's I mean, it's a it's a full online fundraising platform for nonprofit organizations of all sizes, and it's okay. It's it's crowdfunding and peer to peer fundraising, but it's team fundraising. We have a full event, ticketing, a registration, product, it's international fundraising, it's recurring, giving management's donor management. I mean, it's really sort of all encompassing. It started with just that sort of crowdfunding example. That's a big still a big piece of what we do. But we work with some we work with about 4000 organizations now. And we still work with some of the smallest of small organizations right here in San Diego, all the way up to some The largest organizations in the world like the Salvation Army, Shriners Children's Hospital, Oxfam, and many, many others that you would know. And you know, their needs are different because the complexity of the organization is different but at a fundamental level you know, it's about the donor trends. It's not necessarily about the nonprofit and donors are increasingly wanting to donate online fundraise online, they want it to be easy access to the same things that sort of motivated us to do the sort of the event phase of our founding story and just make giving easier more accessible fun, even for younger people especially those same things are showing up in the online world in when a donor you know, books a house or a rental house on Airbnb or has experiences that are beautiful, like you know, Instagram or or whatever it is. They're expecting that same standard in there having experience so far has totally gone up right? Only five years ago, you could get away with not having a mobile responsive site, which is like insane right. Now that's just like total table stakes like you will just bounce The person will just lose trust immediately and bounce, you might be the best nonprofit in the world. But if the experience isn't at that standard, so, so yes, we're almost like WordPress is to a website or Shopify is to e-commerce. We're behind the scenes. So likely the audience is given to a nonprofit that's powered by classy. So that might just be on their website, it might be through an event they attended, it might be a peer to peer page that was sent from a friend. We do all of that. And it's fully white labeled for the nonprofit. So we'd like to say philosophically, it's their brand before ours, right? We're not out there promoting ourselves. And I think that's also been one of the key ingredients to our success, putting them in the forefront.

kevin edwards  19:35  
So what was the space like before classy was a thing? What were who were the competitors? What were some challenges with gathering that market share? Yeah,

Scot Chisolm  19:46  
in a way, like the sort of classic on premise to cloud story was sort of playing out in our space as it has with like Salesforce and in their world and CRM and others in different verticals. Where where Our biggest competitors out of South Carolina, multi billion dollar public company been around since the 80s. And they've done actually a lot of things right. But you know, they they still are struggling to make the transition from sort of the old way of doing things and old technology into the cloud. And then even beyond that. Yeah, although I'm sure they have some sort of funny founding story here that the founder is actually a soccer fan and I'm a big soccer fan. But they focused on nonprofits and I, you know, we we give them a lot of respect for that. But, you know, when when you've been around for a long time, and you've built a lot of technology and sort of in a different stack, and a different way of doing it is very difficult to transition. So the state of the market was essentially, nonprofits that felt like they were stuck. And they had sort of old school, antiquated technology and there wasn't a lot of options. They were they didn't have the ability to go anywhere because the space was actually fairly monopolized, honestly It isn't worth it. You know, now there's it's great because it keeps us on our toes. But there's there's a lot more competition in the space people, because I think the younger generation is looking to do more of nonprofits and social enterprises Generally, the whole bar has risen, but like when we kind of came in, you know, we would look at some pages online, those powered by this company and be like, wow, like, this is really poor. The experience is really poor compared to some of the other online experiences in our lives. Like, why is there this disconnect, right. And so we basically like from day one, tried to fix that, and make the giving experience much, much better. And by putting their brand in the forefront, and then bringing that same design, forward thinking and user experience into the back end. So we're just talking about the donor experience. This software was equally as clunky on the back end, so it was very difficult for a development director or a marketing lead or event coordinator to do what they needed to do to not only manage the campaigns and events but steward and nurture that donor over time. Okay. Very very difficult. Now it's like okay you know when you're using classy it's like as simple as using you know, an app on your phone or whatever and the back end is super intuitive easy, simple, same philosophies that we extended to sort of the heavier administrative tasks that used to take people hours and hours and and have ton of manpower to like you know, simply run us a report on something right look for an example. And now you can do it in a couple seconds and it's very friendly and you can pull it up on any desktop or on your on your phone.

kevin edwards  22:28  
So what's tell our audience what's the first story everyone's guy remember their first sale? What's your first sale your first meeting? What was that like? And would you feel after that moment?

Scot Chisolm  22:39  
Yeah, I don't even know. You know, I'm for sale is kind of funny because we were giving the software away for free. Exactly. When we first started actually pricing it. We were so afraid to even put a put a price tag on us. You know, again, our mindset was very different back then. But you know, the software's You know, when something is valuable, you should charge for it. Learn that that's a really great way to hold hold both sides accountable and have the right type of relationship. Anyways. And obviously, it helps us grow and make new and better software. The first sale I when I was really looking at like, Alright, what organizations I love to work with, we didn't have Salesforce as our CRM, we didn't have anything, I would actually use a sticky note, like one of those Apple sticky notes and I would write the elevations down to like the digital and the organization's name. And then I'd put a plus if they if like, they answered my email a minus if they didn't answer my email, some other icon if they picked up the phone if I picked up the phone, and they answered and that was my like, pipeline manage Sticky, sticky CRM. And when we hired our first head of sales, she came in and she's like, Oh, so like, you know, I know Salesforce, you know, like, I'm sure you guys use that or whatever. And I'm like, No, no, we're on this sticky note system. And she's like, oh, my goodness, where did that go? Like, you know, like these guys are?

But anyways, yeah, I think I remember just a few A few names on their salvation army honestly might have been one of them, Team Rubicon was. And so actually Team Rubicon veteran led disaster relief organization out of Los Angeles now, you know, in the 10s of millions of dollars, they were only a couple hundred thousand dollars. And I ended up meeting the founder at an event called Summit Series. And I think we were it was a rough night, we were the first ones at the bar having a bloody mary or something like that. His name is Jake. And he likes to tell the story that I convinced him that we were like 10 times the size of the company. And we really he was like one of our first 10 customers, right. But Exactly, so that was one that was really special because they came on and they've seen tremendous success over the years there. They've gone from basically 100 million or half a million dollars into the 10s of millions, which has been, which has been really remarkable. And I was super fortunate to be able to join their, their what we call a founding board of directors for Team Rubicon as well and so that was very special to is able to sort of go really deep into their process. and whatnot and contribute in that way. So that was one that's meaningful to me now, but that was one of the organization's on that original sticky note.

kevin edwards  25:06  
So you said Team Rubicon went from the hundreds of thousands to now 10 million. Yeah. Have you ever thought about the impact that a software like yours has been able to have for these nonprofits and like, what is actually happening? And have you ever looked into measuring something like that?

Scot Chisolm  25:22  
Yeah, totally. Great question. So for Team Rubicon, it's like a, you know, a little more straightforward actually than some other organizations but it's a great example because they're disaster relief organization. That's it's kind of a they have a dual mission because they're helping veterans reenter, gave reintegrate back into society and serve again, but they're playing behavioral health. Yep. Yeah, so keeping that purpose alive. And serving again is okay. That's the beauty of it's kind of the beauty of the mission but on the disaster relief front, something happens they deploy and they're able to spin up a campaign in a matter of seconds, you know, literally minutes on classy and that they get that out there. So when there was you know, the flooding down south of the fire Up north or wherever the mean, they've responded to hundreds of disasters at this point in time. Okay, so just being able to launch a campaign quickly out out into the world and collect funds that used to take a long time, like when we're talking about the, the older companies that came before us, like you'd have to call them up, like, I mean, it's just a huge headache. So that nimbleness that speed really plays well into the disaster relief use case. And for them, they also have a big recurring giving program and other things like that. But yeah, I mean, you can you can literally measure the the old way of doing it would have been that, you know, they would take a lot of time, they maybe missed that opportunity to raise funds and then they they basically directly use the funds for their their mission and in fact, for a long time, and I'm not sure if they still do this, but they would donate back funds that they weren't the excess that they didn't use in the in the actual mission itself, which was highly transparent, almost Charity Water esque. So that nimble sense, which is a lot of problem with a lot of that is Yeah, people don't love that model because it's it's hard to again, it's like everything's contextual for Have them it might work great. For other organizations, it's much harder to do that. So anyways, you know, for disaster relief organizations, it's huge. But we have we have put a lot of effort and thought into how do you measure the collective impact of our clients on a platform. And it's, it's extraordinarily difficult task, but one that we take seriously and we're still chipping away at, I would say, one, you could just look at it from total output donations raised, we've been able to prove that conversion rates go up, we're able to improve donor retention through the platform, things like that. So it's on the on the fundraising side, we're making their fundraising a lot more sustainable. Okay, bottom line, we're also a pie expander. So we're not just saying hey, you know, take what you've done, and put it on classy, it's going to be a little bit better. Our campaigns have proven to got to be attractive to a new generation of people that otherwise wouldn't have seen that organizations are bringing in new people. So it's the their pie is expanding. Okay, so that's also One of the ways that we drive value, and but then, you know, at the end of the day that the money is going somewhere, right? So it's either going to disaster relief, it's going to, you know, in the case of Shriners Children's Hospital, it's going to fund hospitals and patient care. 

And, you know, there's a million different, you know, sort of avenues for this, how do you connect the programmatic work with the dollars that are raised on classy, and that's a, that's a really, really difficult thing to do. But we've put in a whole lot of effort on building out actually an impact measurement framework that allows us to help the organization input programmatic information and try to tie that back to the dollars. It's sort of I would say, an A, it's it was sort of like an academic project. It actually was born out of the classy awards, an award show we do, that measures nonprofits on the merit of their impact. It's sort of like the Oscars for nonprofits. And we needed a way to basically measure Who will? Who won? Who won the environmental award? Like how do you It can't just be like a popularity contest, it can't just be the fact that they have good branding, like how do you actually measure the the merit of their impact and who's moving the needle, right. And so we started on this path of building this impact framework called progress, which, to this day, and this is probably five years ago or so, is one of the strongest ones that exist out there. And we're still integrating that into the core platform, so that what we're trying to do is when someone gives us $100, you know, through whatever $10 even, we can tie that $10 to a program, and then tell the donor, Hey, your $10 helped do this and move the needle on this program and make that quantitative? Because right now, storytelling is very important. The marketing aspect, of course, right? Like you get things in the mail and you see, you know, like someone else or whatever, but okay, when if you could actually quantify how the money is moving the needle against the social issues, social or environmental issue that that number It's tackling, right? We call it the impact feedback loop. That's kind of the Holy Grail. That's a lot of groups are trying to search for that not only technology companies, but like the Gates Foundation and all these, like more academic, nonprofit and big NGOs. They're all trying to figure out how do you how do you measure impact on the on the on the programmatic side? And then for us, it's it's whether we, whether we use our framework or we plug into other frameworks, the key is connecting the dots for donors to say, I donated x, and this is what happened. Right. And I think that's, that's kind of where the world's moving and that's when you can really specifically quantify the collective impact of the funds that we're raising on classy and a much more granular level.

kevin edwards  30:41  
And I think that's what investors or donors are looking for, is that transparency to know where that dollar is going to extend to? There's been an obviously a big, big bluff with the American Red Cross with building homes in Haiti. You know, I think that that was kind of something wasn't as transparent It was kind of bad look for a lot of nonprofits get back to that later. But plastic bank, the plastic bank? Well, really, so they basically I had the opportunity to interview David Katz. And what they do is they employ Third World workers, for instance, it is in Haiti, and they basically pay them to collect recyclable plastic, they take that plastic, they melt it down, and then they sell it to someone like SC Johnson puts it back to their products, the full circular economy, you know, close the loop, right. But what I liked is what you're talking about is that they can quantify exactly how much plastic I'm reducing, when I give them $50. Right. So they have basically just two options. I can basically reduce that plastic waste for an entire year. They take like the average person's plastic waste for the entire year. And then I don't have to think for the rest of the year. I can just, you know, I want to say I do it, but you know, I'll throw a plastic bottle in the trash can and say, Hey, whatever, you know, I already paid that off, right, which doesn't really correlate but in the back of my head, it kind of does. So that's what I'm talking about kewanee this guy you touched on an interesting point about, I think more for profits can be like nonprofits, and I wish more nonprofits would be like for profits. What do you mean by that?

Scot Chisolm  32:11  
Well, I think I mean, your examples perfect. It sounds like very much like a just pure, authentic social enterprise model where just by showing up and doing their business, they're they're doing, you know, they're, they're creating that impact. And then the problem and more and more businesses sort of are having that they used to call it like, double bottom line or dual mission, I think it's just triple mission. You know, it's like, the mission is to do these things. And, you know, like, you know, we've discussed actually in the past, like, you know, you had a lot of for profit companies that had social missions, just sort of weaved into their company, but weren't, weren't necessarily research or, you know, didn't have a way to quantify what the impact side of what they were doing. financial metrics are very easy to quantify, of course, revenue these things, right. So people get fixated on that partially for good reason, because it's very important. To build a sustainable business, you have to, you bring in money to have a return for your shareholders, those types of things. But on the impact side, it can be a lot more amorphous and very, very difficult to quantify the impact. So I think, why I say for profits could learn from nonprofits, because there's so much activity in the nonprofit space about how to quantify and measure the impact on the program side. So in this case, where this business maybe I don't know what their structure is, but the same type of thinking and the same effort that's going into quantifying a nonprofit program could be applied to a social enterprise, or it could be even applied to a for profit. And frankly, a lot of the the the effort that's going into the the impact measurement and the framework and all that stuff is also getting fed into programs like B certification. So that program has gotten so much better and so much more rigorous. So it's focused more on sort of for profit, social enterprise B corpse versus nonprofits, but it's starting to bleed over so the work that he starts doing and some of the work like the gates, finding Class he and others are doing on the nonprofit measurement side are starting to come together. And I just see a world where you're going to have unification there. So every business or nonprofit will be using similar types of methodologies to measure their impact. So you might be a nonprofit, and most of what you do is on the impact side, or you might be a for profit, and some of what you do is on the impact side, but I truly believe that every business every nonprofit, will eventually be measuring this and communicating it to the world and even be valued by that side in a much stronger fashion than they are today.

kevin edwards  34:30  
Can you operate a for profit? You help out nonprofits? Do you believe so? Why donate to a for a nonprofit? So let's think of like the ocean waste example. Let's just throw that out there. Ocean cleanups. The example I like to use is if you're going to stop a flood, you want to turn off the faucet before you break out the mop. Right? So how do we stop plastic from entering the ocean versus cleaning that plastic up? So there is a for profit model Businesses that contribute to that. So I guess why do you think the rationale is for people to donate, say, $1,000 to a nonprofit, versus investing in a not an a for profit that could scale, that impact? And that solution, very similar to what classy is doing as you guys grow? Like you said, the profits good, because now you can help out more nonprofits. Why do you think that there's a contrast there? And what do you think about market driven solutions? versus nonprofit? I'm sorry, as a big question. 

Scot Chisolm  35:31  
That's a big question. But I think I think each sector plays an important role in problem solving a, so a lot of the ideas and innovation that for profits bring the market usually started for profits or academia and a lot of cases not always, but there's a massive contribution from the social sector. And the academic space that contributes I mean, look at pharma and all that, but just in the same way, the work that organizations in the nonprofit sector are doing day to day on the ground. is leading to innovations that eventually people know about and then end up in the market. So I think even on the front end, there's a stronger collaboration there can be extraordinarily powerful. And then, on the donation side, I think it just depends on where the nonprofit is operating within that sort of what, what angle are they taking on the problem. They're not necessarily the ones with the mop, is what I'm saying. A lot of the nonprofit's are actually trying to solve the root cause. And that's where this this impact measurement really comes in. Like, what problem are you trying to tackle? And what's the best way to tackle the problem? So are you tackling it on you know, like, is it downstream or is it upstream until you find a way to turn the faucet off? You need people with mops, but not everyone should be mopping. You need kind of both going on, right? I mean, look at homelessness right here in San Diego. You know, the solution, the root cause of homelessness is is is something that is of great debate. And there should be work on that, but that doesn't mean we shouldn't be helping the folks that ended up somehow becoming homeless right now, we need both. And so the nonprofit sector, the nonprofit sector is is is a collection of both monitors to use your analogy and people that are trying to figure out how to fix the faucet. And then in addition, I would coming back to the earlier point, I think they they spark innovation in the for profit sector in a massive way. And then there's just the accountability piece, like all of it, both sectors, right. This is something that b-cert has been really great with, but needs to be scaled well beyond just just sort of the 4000 or 5000 organizations that are b-certified. And that's just holding ourselves accountable to being better stewards of the environment and others so it's just how we show up. So our product or service may not actually be doing the faucet fixing or the mopping, but we all use plastic in our day to day so how you how you what what what you stock in your kitchen or how you steer your employees to be better. stewards of the environment also plays into this too. So you don't necessarily need to be directly working on the problem to be a stakeholder in solving the overall problem. So I think it's both.

kevin edwards  38:11  
I'm gonna just gonna play on that. I totally agree. And that's why it's a difficult question, but I think you answered it very well. And that, to me is you're encompassing all stakeholders. You're working with NGOs, you're working with the government, your for profits, solution yourself. I think that's really, really unique. Now, could you explain to our audience what you believe stakeholder value is in your own company, and how you use it, not just externally, but internally with where we are right now? on the on the 13th? floor?

Scot Chisolm  38:41  
Yeah, and I'll try to articulate this the best I can I nailed your really tough question. I'll screw up the low ball question. Honestly, like years ago, I would answer this in a confusing way. And I think it really comes down to this fundamental idea that a stakeholder company is striving to create a win win business model. So So One stakeholder is not losing at the expense of another. It doesn't mean that, you know, just take the financial or the shareholder stick doesn't mean that you're anti shareholder, it doesn't mean that you're anti making money or anti return, it just means that the shareholders shouldn't be rewarded and make money at the expense of, say, the employees, or the customers themselves, or the community. And that's how we kind of look at our groups. Everyone has a slightly different definition of the stakeholder groups, those are ours, its employees or team, its customers, its community and its financial. So we really, truly believe in half from day one that we can create a win win business model. And by doing so, if each stakeholder group is winning, and we're creating value for and with them, then ultimately over the long run, shareholders will make the best return. Right and that's also a key concept over the short run, you know, a couple of years. Maybe you're making decisions based on you know, optimizing In the financial outcome at the expense of others, and to maximize financial returns, and three years, you might have to do that in some ways. But if you're thinking long term, we truly believe that you can set it get that balance, and continuously calibrate so that each stakeholder is winning. By winning, I just mean that we're creating value just past existing as a company, we're creating value for that stakeholder group. Now the key is measuring that and holding yourself accountable to it. And we we've done it in a lot of different ways over the years, we are moving into finally into the B certification process, which I still believe is the best existing framework to use for for for profit social enterprise companies to hold themselves accountable, and to create a standard that others can kind of share best practices and pull themselves up. And so we'll be using that moving forward. And luckily, the way we view the world and our stakeholders maps really closely without the certification Looks at their stakeholder groups. So for employees, okay, how do you measure that? Well, we have something called employee NPS, for example, and we survey our employees. So it's basically would you recommend classy to appear? It's not It's not that dissimilar to the NPS, for customers. And so we do things like that. And we it's almost like a stock market. We look at it and we and it's one thing to look at if then you take action, right? Or what we're doing with diversity, equity inclusion, and we add, a huge piece of it was this came from our employees and our team. We added our diversity, equity inclusion commitment, right into our company bylaws, A la B Corp, but literally, it says, the Board of Directors and everyone will form a committee and take DEI initiatives extraordinarily seriously. They'll show up at board meetings, etc, etc. And so that came from our employees and it was because we're focusing on what do they care about and where we're, you know, if they're, if they're, they're feeling as a stock where what how do you quantify that? And then if it's going down, why, what do you do about that? community can be someone the hardest, and that's where I think that the That's us our contribution to society to the environment to San Diego. What does that look like? And how do you measure that because in some ways you want that is closely tied to yours, your your core mission as possible. You don't necessarily want to be just out here doing, you know, everyone can be good stewards, but we have to, you know, of the environment we're not but we can't spend all of our energy doing environmental projects if we have a we have a job and a mission and Cheryl, and all these things, right? So you want to try to figure out, you know, and if I'm serving my community, how am I doing it in the most like core authentic way that makes sense for my particular business? And that's where I think that social enterprise piece comes in for us it was always okay we're, we're in the nonprofit space, we are helping them with their technology. The the piece of the equation that people don't seem to understand or doesn't get enough recognition is the the impact side and the merit of their programs. And that's why we created the classy awards, which is, like I said, the Oscars of philanthropy, and that was, that was very much in the community bucket. You don't have to be a customer of class either. No strings attached. It was literally our own social mission program to elevate the awareness of the programs that nonprofits here in San Diego we're doing. So literally what are they doing on the ground and trying to build up support for the impact that they're making in the community. And then we scaled it across the nation. So now any nonprofit, and even some social enterprises can actually qualify to apply. And 2000 people show up like the Oscars, and when we had that Awards on stage, and there's this prize and all that stuff. And the purpose of that is to elevate the impact side of the equation. And so that was something that was core and authentic to us. made sense. And it helped us sort of have, you know, balance between sort of the technology and the customer side, the financial side, and what we would call the community.

kevin edwards  43:47  
Okay, so all of these decisions are encompassing the stakeholders. We talked about the community in San Diego, just want to emphasize again, comedian San Diego, classy, it's so as a company In the employees within the company itself, so we're in, we're encompassing all of the stakeholders that would be involved. Now, I want to touch on the investment side of the stakeholders. Scott, you were 24 years old, you got $100,000 from a client and customer who was an angel investor. What comes along with this pressure when someone comes in and has 10% of your company? And have you dealt with any difficult decisions from shareholder pressure that might not align with your intentional values that you mentioned earlier?

Scot Chisolm  44:29  
Absolutely. That's one of the most important questions, I think, because, you know, there's a thing in you know, I'm sure that the audience knows about this thing called shareholder primacy. And that was a concept that sort of was born in the 70s, I believe, with Milton Friedman, and where basically the per that what he said was the purpose of a corporation is to basically return money to shareholders, right? I find that really limiting. We've never we've never thought that way. And that's why I said we sort of viewed the world as a hybrid of a nonprofit and for profit way By that is basically looking at the stakeholders and trying to drive value and create this Win Win business model. But the investor community generally, I would say, and it's changing slowly, is really happy with shareholder primacy. Because it puts them first on the list of priorities. And when you put someone first and list of priorities, very easy to make decisions at the expense of others, because you can just anchor on something that says, well, the purpose of the corporation is to make money for shareholders. So who cares about the community, you know, who cares if our employees suffer for a year or two years doesn't matter? Because the purpose is to make money, those things should be last. And there's no actual legal footing in that concept at all. It's more philosophical in nature. It's just, it took off because it's very simple. If you have like a list of priorities, like a task list for the day, you're like, the number one thing is the number one thing like it's kind of messy to say, oh, let's create a win win for everyone and honestly, people might. It might sound soft To invest or like make money, you know, drive the share price, and then that benefits everyone. But that's not always the case. So by looking at the world through this lens of stakeholders, and it doesn't need to be 100 stakeholders, it can actually be fairly simple. We have basically four, how are we making decisions to make sure that, especially over the long run each or we're not, we're not creating value, the expensive of another. So from the investor's perspective, early on, when someone basically when you know, they invest in your company, and they own a percentage, they're expecting a return at some point. So when you take money, there's an expectation that's attached that money and you have to go in eyes wide open. And I think we always have I think investing is awesome. Shareholders I love ours. I love our shareholders honestly, like so. thinking this way doesn't mean you're anti shareholder doesn't mean you're like against making them a return. We just believe that if we can create this win win and they're going to make the best return and they're going to feel really good about their investment because we're not screwing someone over to make them a buck. But that comes down to the type of investor you bring in. And we haven't always gotten that, right. So now there's impact investors and things like that. But even angels, angel investors, they're people, they're all these are all humans. They're not like some robot that just says, You know, I like your company, because these are people and they, they hold their own value system, right. And so that's the key thing I've learned, right? Like, who you bring in, even regardless of firm is so critical, because they're going to look at the world in a certain way. And maybe you can sort of influence them to look at your way, but really should be a handshake up front. And if you look at the way, the world war one way, and I look at it a different way. And now we're basically getting into a marriage because we're investing What do you think is gonna happen? And we weren't always that savvy or wise. I mean, we've we brought folks into the company, in certain in certain phases that didn't align with that fifth philosophical viewpoint that didn't want to see The world in a very simple way where shareholders were the really the only thing that mattered really wasn't even shareholders was their investment. But either way, that sort of myopic view of the world short term thinking, extreme focus on that, at the expense of everyone else can completely tank a culture because the culture especially in one, like classy the employees that what we're doing here, it's a holistic picture. So when the board, especially the investor on the board, the board has a lot, a lot of influence, and they need to be aligned to and our board is fantastic. But we had an investor come in, and then it sort of added an ingredient to the board that shook things up and they saw the world their way. We all were very rooted in sort of the classy way of doing things. And these are financial, these are investors that you on the on the the folks that look at it this way, and maybe the person that did these are folks that you know, they're very sophisticated investors, they're not even tactically impacted. So like, you don't have to go the impact investors to have someone that's actually aligned with your way of thinking and kind of gets it. But if but there's definitely a subset that does not. And so the biggest learning was really screening and that on the front end, like the partner fit and values alignment is so extraordinarily important. And for us, frankly, like that one misled just one investor as a big investor. It's one of the lead investors that one misalignment, frankly, almost almost, you know, shattered the company, to be honest with you. I mean, it was I saw one guy that did a podcast with you, I don't know who it is and get to meet him. Yeah, I said, I got fired with my book from my board. Amazon PA. Yes. I mean, we weren't that honestly we weren't that far away from a story like that. And I'm I'm so happy that we were able to rebound you know, out of that and we still got work to do to repair from that, that sort of period. 

But let's just say that we we had our priorities pretty, pretty backwards. For a little while there, and we had not lost who we were because I think we knew. But we didn't know what to do about the situation we had let someone in with a set of expectations and a view of the world that was so different. And we're electron and wind it and you know, when you get it's like almost like, oh my god what I do. And it's like, at the board level, at the investor level, the employees are like, Well, I know something's wrong. But you know, like, you can't, you know, you want everyone to freak out. You can't share like, there's a massive misalignment the board too much, right? So like, you know, there's things that would trickle down, like employee decisions, other all sorts of stuff. They'd be like, that's not the way we used to do things, and it wasn't just about maturing, this is an evolution of maturity in any company, right? It's not about that. But it's about decisions that were made specifically to benefit one party at the expense of others. And eventually it starts to grind and you're like water on a rock right? Like it does what made you sharp, what is the special sauce like culture, and that's what started to happen. We were able to basically buy out that investor after an extraordinarily hard and painful year to figure out how the heck to do that, because that's not easy. I mean, we're in the 10s of millions on our way to 100 million dollar company we've raised $40 million in venture capital. It's you know, you don't read about the story you usually read about, like, the graveyard of companies that maybe were trying to fix a mistake. And I just feel unbelievably grateful to a the board the remaining board who was supportive of this because they realized that we were sick and need to get better. And come back to our why our theme for this whole year is, you know, going back to our why, and start really focusing again on on on all the stakeholders and that's, that's tremendous. And I feel very grateful to them to give us that chance to do that.

kevin edwards  51:47  
And I think play off that that the theme of what I just got from is is just that stakeholder alignment. Your your culture, that was culture eats numbers for breakfast, everyone knows that so that culture is To attract employees to this business, that means, you know, hopefully they'll stay at the company longer and there will work better they'll be more satisfied about their work. And then that attracts those investors who want to come in who had the same like you said the same y, same values and then all this encompassing this, you win I win mentality, is what you're saying is going to have this long term success. And that's very difficult for someone to come in, who isn't aligned with that to make and squeeze profits out of that,

Scot Chisolm  52:30  
that or has it or has a shelf life on their investment only a couple years, like their expected return is to happen in three years when we're all thinking, you know, 510 20 you know, who knows, right? Like, it's like, you know, you have these short mind imagine like a short term investor trying to invest in like Patagonia who thinks about things and like, literally generations like that is obvious and be a be a mismatch. But when you're a tech startup and things are just like lightning speed and you're growing super fast, and you're trying to figure it out, and you're trying to raise the next money, and all these Different things, and usually tech companies aren't profitable right away. So you're trying to get into profitability. So a lot of those dynamics are extraordinarily challenging, and you make compromises and sacrifices sometimes to just keep going. That's kind of like, you know, kind of where we were. And then you realize, oh, my goodness, maybe if I had just taken a little bit more time, or I had really evaluated the partner in a deeper way, rather than just feeling like I have to do this, we wouldn't have, we would have avoided a lot of turmoil and conflict over the next, you know, 12 months or so.

kevin edwards  53:33  
By staying true to your values and having those values create value, we consider that a mark of a good leader. to you from your experience. What would you say your definition of a real leader is?

Scot Chisolm  53:47  
I'm going to bring our core two of our core values into this. Not to be cheesy but one I'd say one of our core values is to create meaningful value and to us that that literally is creating value with our product into our customers. But it's creating value across those those four quadrants. And I don't think you even have to call yourself a social enterprise or even identify as a stakeholder company. But for me, a real leader is someone that thinks about the holistic value and the purpose of why they exist in the world and has at least attempted to some degree to instill that in the organization so that when the founder is gone, the CEO is gone, which is all natural part of life, right? You know, the company is those, those principles are sort of institutionalized so that they can live on. And I think that's a, you know, a mark of a great leader for me, especially in today's world where, you know, companies are at the epicenter of the good, the bad, and I think they can be a massive catalyst for positive change moving forward. The other one is lead by example. So it's one thing to like, you know, basically go out there and talk about this stuff, right. But if you're not doing it or challenging yourself to improve like, the b-cert thing is great like, for me, because we were doing it our way and we were measuring our way but we felt like it wasn't good enough and we'd gone through This experience where we had maybe the compass wasn't as clear as it should have been right for us, right? And so we said, You know what, like, what's the best that there is out there? Let's Let's standardize, let's go into that community let's let's hold ourselves accountable to that. So that we make sure that we are practicing what we preach on a day to day basis. And then we create those. Now, I'd say something to lean on, but we create that stronger foundation so that if someone's coming in there, the influence is pushing you in one way right? You can push back but if you don't have that foundation and that core you got nothing to lean on, you fall over and all of a sudden, it's too easy to push you into you know, a world you don't want to be in and so leading by example is critical. I think we've done a phenomenal job for the most part of our in our nine plus year journey with classy of doing that. But I see us evolving the company and setting those those anchors and strengthen that foundation is a key piece of doing that and making sure it happens when the rest of us here in the leadership team myself are gone. Hopefully this has gone on for a long time.

kevin edwards  55:58  
Well Scott, this interview went on for a long time, appreciate your time, good or bad. That was great. I enjoy long you're going to be dishonest. Because you know I love the sound of my voice obviously. So appreciate your time coming here on the religious podcast podcast talked about a lot today from the TV bar crawls, raising money that way in the pizza shop, to stakeholder alignment and then following that up with what leadership is needed, you know, to sustain an effort in an organization like classy so just appreciate coming back on the show in the real years podcast, but podcasts are scotches and I'm Kevin our is asking you to go out there. And always folks, keep a real nice guy appreciate you and stay classy and stay classy San Diego. Alright, good people. And thank you for tuning in to this episode of the real leaders podcast. We hope you enjoy it as much as we did, and if you haven't yet subscribed, then please by all means, hit the subscribe button to start receiving notifications of this amazing podcast and for all the lucky listeners out there today. You my friend are going to walk away with a free magazine. All you got to do is go online to real Ashley's comm slash subscribe and use coupon code podcast 25 at checkout to receive your first magazine for free with a one year subscription again, folks, that's for magazines for the price of three using coupon code podcast 25. That's all lowercase and if you're a visual learner, you want to watch this interview on your computer, TV or tablet with friends and family. Make sure to go to our YouTube channel at realtors magazine to see this and all of our interviews with guests harnessing capitalism to sustain the planet, people and profits. Thanks again for being a real leader and stay tuned for the next episode of the real leaders podcast.

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