As a prior startup founder myself, I can attest that it's inarguably (a lot) easier for founders located in traditional startup hubs like New York and San Francisco to attract outside venture capital interest than entrepreneurs in cities without a strong startup scene or ecosystem.

But as Harmony Venture Labs Founder and CEO Shegun Otulana — a good friend of mine for many years — shared in a fireside chat with me at Alloy 2024 in Atlanta, a lack of financial backing from VCs and other investors shouldn’t stop entrepreneurs from realizing their ambitions of starting their very own companies.

Top Takeaways

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• Shegun recognized he was miserable working as an employee and decided to act on his ambition of founding and running a company of his own — even without any outside VC interest. Instead, he used his own money to back his earliest business ideas. Though there were a few misses before his big hits — including a company he sold for $1.25 billion — those initial failures fueled him to become a better entrepreneur.

• Operating in a non-startup hub in Birmingham, Alabama, created constraints in growing Shegun’s earliest startups. But he noted those same constraints helped him form a “VC growth mindset” and “private-equity discipline” that ultimately enabled him to get to profitability quickly and build a proven blueprint for how to scale his business cost-effectively over time.

• Shegun explained how entrepreneurship can be a big “force for good in the world,” when public and private organizations invest in educational opportunities for members of their communities. The government, non-profits, and philanthropies certainly play a sizable role in creating entrepreneurial ecosystems, but Shegun said aspiring entrepreneurs also need to be proactive in building businesses they believe in to turn their areas into startup hubs.

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Watch our entire conversation from Alloy 2024 below to learn more about Shegun’s inspiring startup success story and hear his advice for other entrepreneurs who are looking to get their business ideas off the ground.

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Sign up for our Wavelength newsletter to access additional Alloy 2024 content, including recaps of our other sessions and keynotes.

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Transcript

Nate Schmidt: This is going to be a fantastic segment, and I think it's going to be well worth the wait. My name is Nate Schmidt. I am the Portfolio Success Director at High Alpha Innovation.

I've had a career as a startup founder. I've worked in multiple accelerators. And, today, I have the great privilege of interviewing my friend of 15 years, my neighbor in Homewood, Alabama, a few streets down, and just all-around great guy, Shegun Otulana.

Thanks for being here, Shegun.

Shegun Otulana: Thanks, Nate. Thank you all for having me here. 

Nate Schmidt: So, I do a lot of mentoring for startups. I do a lot of public speaking pitch work. And I always encourage everybody, like, start with something that'll get you off your phones and have everybody's attention. So here's what I'd like to do.

I'm going to go straight to the punchline. Here's the punchline. Shegun: As a first-time founder, as a solo founder in Birmingham, Alabama, you started a SaaS company — stop me if I get any of this wrong — and sold it for $1.2 billion. Is that right?

Shegun Otulana: Not first time. A few failures. But nobody knows about the failures. And I sold it for $1.25 billion. 

Nate Schmidt: Sorry, my apologies: $1.25 billion. And would you mind telling us how much you raised along the way in order to get to that exit? 

Shegun Otulana: So we raised into the company. We did do some raise, but it wasn't really into the company. It was more taking chips off the table. Into the company, we raised $250,000. 

Nate Schmidt: Okay, are your phones down? Yeah, that's a clap for sure. Just in case you missed that one, you sold the company for $1.2 billion dollars after having raised $250,000 in Birmingham, Alabama. When, when you say it out loud, does it still kind of sound weird? It does to me. 

Shegun Otulana: The whole of my life sounds weird to me. Every part of my life sounds weird to me. It did take me 10 months to raise the $250K. So it was quite a journey. 

Nate Schmidt: Well, let's dig right into the journey. I love hearing origin stories. I've been in Birmingham for 25 years. I would have never guessed growing up that I would end up in Birmingham, Alabama.

My story is the most predictable one. I met a girl. You've also been in Birmingham about 25 years. Maybe a little longer than me, 26. Did you meet a girl? What happened? Why are you in Birmingham? 

Shegun Otulana: Well, I stayed in Birmingham because I met a girl, which is probably the most wonderful thing that happened to me because she's a huge part of my story.

I came to Birmingham because of a series of unfortunate events that were happening. If you cannot hear the LA accent that I have, Lagos, Alabama accent. I grew up in Lagos, Nigeria. So, in the ‘90s, there was just a lot of turmoil. And I'm a child of two people that didn't have anything, dirt poor. And through entrepreneurship, I kind of built something.

One of the things they wanted to give their kids was quality education. And in the ‘90s, with a lot of social turmoil in Nigeria, a military dictatorship and everything else, it was pretty clear that the children had to get out of the country to get quality education. So that's how I ended up in Birmingham, Alabama.

An older brother had gone to Birmingham before me. UAB, University of Alabama at Birmingham, is actually one of the top medical schools, top research universities in the country, in the world. And the older brother, he's a physician today. So he picked UAB. And when it was time for me to leave Nigeria, my parents said, ‘Don't bother looking anywhere else. You're going to where your brother is.’

So that's how I ended up in Birmingham. And then I stayed because I met a woman. 

Nate Schmidt: And there you go. If you go back by the way — 

Shegun Otulana: I think it's a good recruiting strategy for second tier third tier cities to just get the women to marry. The men will come into the city and the men to marry the women. And it's a good way to just make the population grow and stop losing talent to New York and everywhere else. But that's it. 

Nate Schmidt: Well, that's a business idea for the founders there if you want. Two for two so far. Well, the first time I ever saw you, I didn't know you yet, but 13 or 14 years ago, we were both starting new companies in an incubator downtown Birmingham. And when I would walk to the restroom, I would pass your office and it was maybe a couple hundred square feet.

No windows. It was a closet. You had a desk dead center by yourself in the saddest office I'd ever seen, and you were always there, and I wondered, ‘What is that guy working on?’

Can you talk a little bit about the earliest days — those days alone and where the idea for TheraNest ultimately therapy brands came from?

Shegun Otulana: Yeah, so entrepreneurship was kind of all I knew. I was a child of entrepreneurs. I made for a terrible employee, to be honest with you. So I had always tried my hands at entrepreneurship, and the first go-around was a company called Zertis.

Terrible name. Started with a college friend, but we just couldn't align on vision and eventually I kept Zertis and he went on his own way.

I always wanted to build a product company, and he was an unbelievably smart guy who loved to tinker and he just couldn't sit with one thing and that created a problem, but I was the dumb one also because I was the one who took all the liabilities on my shoulder.

Now, this is Birmingham. We didn't really think about raising money on VCs.

So I actually, on my own, I had a lot of credit and reputation and took loans and stupid things like that to try to build the company. So when we split up, I kept all the liability. Not very smart. But I thought I had something I could do something with.

But so there was a series of failures there. And then I realized this wasn't working.

I kind of stayed with just having a regular job. Walked in various companies in Birmingham after graduating and in 2010.

My I was in one of those complaint modes again, whining about my job, how much I loved the people, but I'm not happy but I like the people I work with, but I'm miserable and my wife, which is why she gets credit, looks at me and said, ‘Please stop whining. Everybody knows what you want to do. So just go do it. And I'll be here. I'm not going anywhere. And if you feel whatever, but go do it.’

And then, stupidly, I went into the office the Monday after that, and I told my bosses I was quitting. No real plan.

But they were gracious and they said, ‘Hey, you're a great employee, but you're a great guy, smart guy, but a terrible employee because you are designed to be an entrepreneur and we've all been waiting for the day you come tell us you're going to go start something.’

So this was the first grace I received in my journey because they actually kept me on their payroll to the end of. 2010. My last day was December 31, 2010, and my first day with the news artist was 2011, January 1. And the deal I had with Mary, my wife was, ‘Hey, I'm not doing the consulting thing. I'm very bad at it, but I've learned a lot and this is what I think needs to happen.’

There needs to be my ideal lab to go find problems in the world that I could build a product around. And I'd kind of given myself a filtering algorithm of some sort that was a combination of what I thought was best about how I work and what I thought would give any founder an advantage when you're building something.

So I don't know if I remember all five, but it needed to be something that I could see myself doing for the next decade of my life. Whatever that idea was, it needed to be something I could build a team around because I just don't do very well as a solo entrepreneur. But I didn't want a co-founder, but I wanted a team.

It needed to be something that was like SaaS, web-based, because one of my beliefs is you have to take advantage of the trend and things that are at inflection points and kind of ride waves. And this was the early days of SaaS. SaaS was probably single-digit-percentage software revenue out there, but it was pretty clear it was an awkward trajectory.

It needed to be a very large industry, even if it didn't seem large at the beginning. It needed a path for it to become large. 

Nate Schmidt: Let me pitch TheraNest to you and see if I can do it right. You ready? Go ahead. TheraNest is a SaaS software platform system that allows small to medium-sized mental health practitioners to better manage their practice. Is that close?

Shegun Otulana: That's how it started. That was the original idea. We had to tweak it a little bit to find our own point of differentiation. But yes, that was what I ended up settling on. And the two things that really drove the growth was Number one, these practices, a lot of them private practices, some of them non profit counseling centers.

The second was actually where we got our initial attraction, non profit counseling centers. They were moving into the world of QuickBooks online. So, if you think about it, these were people that were used to having QuickBooks on CDs, and they could see the world changing around them and adoption of SaaS.

And they wanted something similar for their practice. So I could see that the second really tailwind for us was the high-tech act, which is this need for everybody in healthcare to move to electronic health records and mental health was one of the last adopters of this because they weren't really incentivized like doctors and everybody else was.

So they were still in the early days of that trend. And those were really the two big things that we kind of took advantage of. 

Nate Schmidt: So you head out to raise money fairly early in the company, and the response is less than perfect. 

Shegun Otulana: Yeah. So this was 2012. So again, I had started in 2011. By 2012, I felt like building something for the mental health space, checked all the boxes.

I didn't know anything about mental health. But the first company I interacted with, I was just blown away by the impact they were having. I drove past this place dozens of times when I was in college and I just did not know they were affecting hundreds of lives every year. So it checked the box of, I can serve these people for the next 10 years of my life.

But then I wanted to raise money and I was some guy with a funny name, never did anything in healthcare and I was telling these investors who were very familiar with healthcare, but healthcare from the perspective of Birmingham was hospital systems and clinics and things like that. So it was a little different, but I was pitching a SaaS product in healthcare to them.

And I think it did not connect. These were great people that just couldn't, they didn't trust this guy that was pitching this thing. And they felt it's never sold in healthcare. You don't sell in healthcare without a sales team. And I think there was a disconnect there.

So, for nine months, nobody would give me anything in terms of a check, but we just kept plodding along. Credit card debt. You shouldn't do this, but I took out my 401(k).

Nate Schmidt: You put yourself at significant personal risk to do this business. No doubt about it. Ultimately, a few investors, a few family offices stepped up, did write the $250,000 check. I think it's fair to say they were pleased with that investment into the company.

Shegun Otulana: I think they did pretty well. 

Nate Schmidt: One thing I think is extraordinary about your story is that you apparently got it into your head that you needed to make acquisitions in order to grow.

And so, I don't know if you had ever made an acquisition before, but I remember talking to you one day and you were like, 'Yeah, we just made our 5th or 7th or 20th acquisition.'

How many acquisitions did you make? Was that something just inside, like, Were you irrationally optimistic? I'm just going to acquire some companies and go figure it out. Is that what happened? 

Shegun Otulana: So what happened was that the struggle at the beginning forced a lot of constraints, and I really needed to figure out how to grow the business, which I did with very little money.

So when we got the $250,000, I could just pour fuel on the fire because I knew what worked. I just didn't have the money, the funding to make it work. So we grew unbelievably fast.

And then what happened was it became clear that mental health was highly fragmented. And now my ambitions were huge. I thought I could take advantage of the fragmentation through strategic acquisitions.

We were very disciplined. The only year we weren't profitable was our first year. So we were always a highly profitable company from the second year onward. but we, my ambitions had really grown a lot by then because now I saw what was possible, but to get there, It also meant there were certain parts of mental health.

I had to kind of acquire my way into like behavior analysis, and then there were also opportunities for margin expansion that we could take advantage of by maybe acquiring certain technology or platforms that we could integrate into our platform. In the world of healthcare, the EHR is kind of king, and it's something we always talked about.

If you, if you did something that wasn't really significantly differentiated or extremely difficult that the EHR platform wasn't interested in, you were safe. But if you did something that the EHR company was interested in, once they turn it on, you kind of lose a lot of customers to them. I think there was a conversation around that today.

So for us, for me, I saw it as, ‘Okay, now I have this very successful platform. If I can actually innovate things out there that are kind of connected and plug it in, we just accelerate our growth and it's significant margin expansion for us.’ So we wanted to take advantage of that.

But the challenge for me was I had a very successful company, but I still didn't have anything personally and a little bit of fear setting in. So I wanted to pursue this additional growth strategy, but I also wanted to make sure that if I was wrong, my family didn't go back to square one. So I needed to find a partner that would let me de-risk my family, but, at the same time, give me access to external capital. And we ended up doing stuff with like, I think Alliance Bernstein or one of those guys.

So that was kind of the strategy. So we had huge organic growth and then we could also supplement it with some strategic acquisitions into certain areas of mental health or certain technology platforms and things like that. 

Nate Schmidt: Was there an element of like, 'Oh, if it's going to take me 10 months to raise $250,000. I guess I'll just go build a profitable business and, you know, forget you investors.' Was that, was that part of it? Because you sure got to profitability fast. 

Shegun Otulana: I never had the 'forget-you-investors' mentality to be honest, because I actually wasn't sure the business would survive if I didn't get capital.

I am not sure I'll be sitting here if. Eventually, I did not get that $250K, to be honest with you. Maybe I would and I would figure it out, but I'm not so sure. I think it would have been a 50-50 proposition if that didn't happen. So I kept trying to figure out a way to make it work. And in the meantime, we just kept pouring the things we had into the business to keep it going, but it did.

Make me change how I thought about business. When you're building business in cities like Birmingham back then that were kind of capital constrained. You have to think about talent globally. You can't just think about hiring people locally. One thing that became pretty clear was I could not really go out there and just afford a marketing or growth team.

But I was a software guy and I knew what a great software engineer looked like. But I didn't know what a great marketer looked like because I had never really hired one. So one of the bets I had to make was, ‘Can I go turn myself into a growth marketer and just go hire an engineer that I can direct?’

And that actually turned out to be a good thing because it turns out, yes, I could learn a lot of things around marketing and growth tactics. So those were some of the decisions that we made earlier on that turned out to be very, very helpful. 

Nate Schmidt: So ultimately, you, you took some chips off the table early to kind of protect your family. You sold it again, you sold it again — three exits, basically. 

Shegun Otulana: Yeah. So I regret the first time. taking the chips off the table a little bit. Not in a bad way, but then a year after that, the company was humongous, and I was like, ‘Oh, I should have waited.’ But a year after that, me and the private equity guys were like, ‘Man, okay, this thing has really become very big.’

So maybe we should do another recap event, which we did a year after that. And then, in 2021, we sold the whole company to KKR. 

Nate Schmidt: Well, is there, is there a fourth exit on the way? Or this is three and out?

Shegun Otulana: No, I have nothing to do, I have nothing to do. 

Nate Schmidt: Let's talk about Birmingham for a minute. I think that's the title here, ‘Building Unicorns in Birmingham-sized cities.’ Let's start with some pros and cons like what's a strategic advantage that Birmingham has when it comes to building a startup? What are some things where you felt you were left behind? Take either side of that question.

Shegun Otulana: I think constraints just make you wiser as a company. So this is how we talked about it at the company. Then we were like, ‘Look, this is how we do things here. We have a VC growth mindset with a private equity discipline, which explains the profitability, even though we're growing very fast.’ So I think when you're in that kind of place, your mindset's a little bit different about how you think about growth and how you approach things.

I just believe there are two primary reasons why many companies in that part of the world may fail.

The first thing is office space. Nobody freaking cares about your office space. You don't have to be Google, which is the mistake many people make. They go find this fancy office. They're barely profitable. We did not do that.

And then the second thing is people hire too many people, which we also did not do. So I just think those kind of communities for certain mindsets that are actually good for you. That's one. 

The second thing is your one degree of separation from everybody you kind of need to learn from and talk to. It's very easy to just reach out and somebody is going to be willing to help you.

There's a huge civic sense of responsibility in those communities and people kind of step up to try to help you. Talent, local talent is also cheaper. So you can always take advantage of that.

Back then, I'll take my $18-$20-per-square-foot office over going to New York or California and trying to get office space. So there are these, are there disadvantages? Yes. But there are certain advantages built in that you can take advantage of. I think what makes a company grow, is not location dependent.

Do I think location matters? I think it does. But at the end of the day, the key things that drive growth location-agnostic, and you just have to know what those things are and be very disciplined about it as an entrepreneur. And, you know, 

Nate Schmidt: Do you feel like you ever faced an anti-Birmingham bias when you went out into the world and tried to —

Shegun Otulana: Birmingham bias when I go out into the world? Somebody was on the stage that said they moved to Arkansas and people treated them like they were 30 IQs lower and the world tends to do that, which is ridiculous, but you can actually take advantage of it and make people think they're much smarter than you and you know, and you win at the end of the day.

So I think there is some of that. And I was looking at a deal once and the, the, it was California. This was recently. And the founder had this founder starting up with no real prior huge success. But they were sharing emails with me from all these folks that were like bending over backwards to be helpful to be helpful to the founder.

And what ended up happening was we kind of bought the whole thing from the founder. And the same people that founders were talking to and everything, when I got involved, they didn't even respond to any of my emails. And I think part of that is people look at you, they say, ‘Oh, Birmingham, Alabama, whatever,’ you know, and they just discount you.

So I think there is some of that, but you just take advantage of it and you move on. Who cares? 

Nate Schmidt: Well, there's people in the audience from, you know, all over the country. And I get the question a lot, of someone that's been in the ecosystem trying to build Birmingham up and running and accelerators in Birmingham and anything else.

And it's like, ‘What does a city like Birmingham need in order to be successful?’ Accelerators are great. Funding is great. But there is nothing that transforms a community our size more than a huge exit. And we have now had a handful of exits in Birmingham in the $500 million range with you know, yours being the biggest that I'm aware of, but what it has done to our ecosystem has really been extraordinary. So I hope you feel that. 

Shegun Otulana: Yeah I feel that I do think that I'm a huge believer in entrepreneurship as the primary force for good in the world. And I think the more those communities can pour into entrepreneurship and education, the better we would be for it. I'm not saying there's no room for philanthropy.

I think there's a huge room for that. There's huge room for the government, the role for the government to play, but I think the fastest way to change fortunes in those cities is actually to create more entrepreneurs and to create more companies and to just work hard at that. And I think that's the biggest factor for change.

Nate Schmidt: We're almost at time, but I'm going to take a moment of moderator, personal privilege here and thank you for something. You did a favor for me six or seven years ago, and we've never talked about it. And I thought instead of just thanking you privately I would do it in front of a whole bunch of people.

Okay, I'm curious what this is. Yeah, he's like, where is this going? I talk, I'm very interested in founder wellness and how we talk to people. Seven years ago, six years ago, Shegun did something for me that no one's ever done. And I've never forgotten it, and I've thought about it probably weekly since it happened.

Shegun asked me to go to lunch. Like, of course, I'll go to lunch. So we went to lunch, and Shegun looked at me and said, ‘I can tell you're struggling, and I just want to see how you're doing.’ And then you just stopped talking.

It's one thing to be like, ‘Hey, how are you doing?’ And you're like, ‘I'm good.’ I mean, we all have that conversation every day, all the time. But it takes a special skill to look somebody in the eyes and say, ‘How are you doing?’ And then give them the space to really answer.

And I was struggling, and you were smart to pick up on it. And I was going to ask you a few questions on company culture and how you clearly built one that was amazing and that could acquire all of these companies and maintain. We don't have time for that.

But I wanted to say thanks. Thanks for being such a good friend and such a good guy and so impactful in our community.

‍Shegun Otulana: Thanks everyone.