Case Study: Paces CEO James McWalter Learned To Turn Rejection Into Success Through Curiosity

Founders can learn valuable lessons in rejection if they embrace it with curiosity.

Jun 20, 2022

Introduction:

James McWalter is the CEO of Paces, a venture-backed startup that provides actionable data and analytics for green infrastructure developers, operators, and investors to understand what and where to profitably build. He also hosts the Carbotnic Podcast where he has long-form conversations with experts in cleantech.

In the past, McWalter was the founder of Hale, a personal training marketplace. He was Director of Operations at Respondent, a market research marketplace, and Director of Business Development and employee #1 at Hello Vera, an AI chatbot startup acquired by a tech giant. Before that, McWalter sold data to US quantitative hedge funds and portfolio analytics tools to EMEA asset and sovereign wealth managers. He grew up on an organic farm in Co. Mayo, Ireland.

Executive Summary:

Problem: Collecting & Aggregating Infrastructure Data In A Cost-Effective Manner

We are finding and making sense of lots of hard-to-collect data. The more relevant data we have, the more value we can bring to users, but the data is divided across thousands of county clerk websites and nearly always stored in an unstructured way.
Market: Solar Developers Who Waste Time Surveying Sites

Solar developers became obvious as they are the second largest green infrastructure development type in the US (4% of current energy usage). They are growing fast (+30% CAGR), and when engaging those developers via outbound, they had the most acute problems to solve.
Solution: Manual Customer Onboarding Reveals Where Improvements Can Be Made

We log in as customers and set them up in ways that will not scale so that we can identify all the worst parts of our current product. We make it as easy as developers to log in and see sites that they would want to build on, with all the data collected and surfaced in as clear a way as possible.
Team: User Feedback As The Tiebreaker To Settle Team Differences

In the early days of ideation, one of us was more interested in calculating climate risk for green infrastructure projects, e.g., flooding risk vs. identifying ways to build more green infrastructure. We resolved this by talking to more users to hear the problems people were experiencing directly.
Fundraising: Being Upfront About Expectations And Honest About Uncertainty

When raising our pre-seed, we were very upfront that we expected to get a product out to users and make something some users would like, but that there were a lot of questions around getting too large scale distribution.
Takeaway: Use Your Curiosity To Get The Most Out Of Every Rejection

You also need to be super curious and not defensive about rejection. I am rejected a dozen times a day by customers, investors, and potential hires, and early in my career, that would have gotten me down, but now, it makes me curious about the reasons and sets me up to figure out ways to get more yeses.

Case Study: Paces

James McWalter, co-founder and CEO of Paces.

Problem: Collecting & Aggregating Infrastructure Data In A Cost-Effective Manner

Tell me about a problem or set of problems that you’ve had to solve on your journey to product-market fit.

We are finding and making sense of lots of hard-to-collect data. The more relevant data we have, the more value we can bring to users, but the data is divided across thousands of county clerk websites and nearly always stored in an unstructured way. We combine brute force/manual data collection with more automated methods, and getting the balance right between those approaches is a challenge.

Why were these problems so critical to solve? What was it like personally struggling to overcome these challenges to achieving PMF?

We need to be able to collect data in a way that does not blow up our COGS number. If our data collection method is ineffective and costly, then we will never be able to get to a VC backable margin number. This means we like to get our hands dirty and try data collection in many different ways. We have a couple of interns that now help with data collection, but everything they have done, the founders first did dozens or hundreds of times to figure out the most effective way.

I wanted to build a climate startup and had three principles:

1 Gigaton of carbon reduction
Decarbonize a major sector without offsets
Solve business problems with data solutions

I tried to understand the different types of levers that cause industries to decarbonize: Consumer, Shareholder, and Regulatory levers. I cross-referenced these levers against the number of emissions in each sector of the economy to identify the addition of green infrastructure to the built environment as something that will have extraordinary change over the next 30 years. Then I started talking to 100s of people in that vertical about the problems they face getting green infrastructure built.

Market: Solar Developers Who Waste Time Surveying Sites

Let’s get deeper into the pain point or points you were trying to solve. Imagine I’m a customer thinking about using your product or service. How do you go about understanding my pain and creating a solution to address it?

One of the first solar developers we spoke to told us how he traveled all the time to see different potential sites. Last week he was in Kentucky, and next week in Ohio. He told us that it affects his marriage being on the road all the time and that he wished he could understand what was happening at a parcel without all that travel.

Other developers told us similar comments that they spend a ton of time on sites that they end up not building on, start building on and eventually fail. The average developer spends six figures on sites that they do not even build. If the project does not get built, that money is completely wasted, and so it is existential for developers to increase the number of successfully built projects.

Assuming you’ve managed to address the pain points I face as a customer, what additional information did you discover in your journey to PMF that there’s a large market in need of a solution to the existing problem?

We started attending in-person conferences with solar and battery storage developers. Every second person at these conferences wanted a demo as they were suffering the exact problem we are working to solve. It was also eye-opening how many of these developers had a minimal online presence, and so without meeting them at a conference, we may never have found them!

How did you narrow your scope of what portion of the market you wanted to tackle first? Who did you decide would be your first beachhead customers and why?

We had a basic equation of market segment size * growth of that market * number of developers in that segment who responded to outbound engagement. Solar developers became obvious as they are the second largest green infrastructure development type in the US (4% of current energy usage). They are growing fast (+30% CAGR), and when engaging those developers via outbound, they had the most acute problems to solve.

I reached out to over 1000 people through LinkedIn and had twenty-minute research calls with about 150 of them. I always asked the question, what is the biggest problem you face in your role that there are bad solutions for today? From there, I created a map of problems and ended up on Paces.

Solution: Manual Customer Onboarding Reveals Where Improvements Can Be Made

How did you build your solution to maximize its relevance with the customer and ensure product-market fit? If you haven't found PMF yet, what have you learned? What are the blockers for getting to PMF?

We built our MVP with four customers who we spoke to at least every two weeks. This allowed us to build something that these users needed. We are not at PMF, but every new trial user of the product has to commit to weekly calls, where we have them screenshare and walk through their usage of the product. We also use Mixpanel to get a great sense of how they use the product when they log in. We are learning a ton!

What are some of the things you did that “didn’t scale” to shape your solution today?

We log in as customers and set them up in ways that will not scale so that we can identify all the worst parts of our current product. We make it as easy as developers to log in and see sites that they would want to build on, with all the data collected and surfaced in as clear a way as possible. Our product is still not perfect; for example, we do not currently have an easy way of tagging multiple parcels under a single project. To make this easier, we are manually adding notes to the parcels in a way so that when the developer sorts them, the parcels they may want to combine into a project are always next to each other.

What did you learn to best engage with your customers? How did you build a tight feedback loop with your customers to rapidly improve your solution to their problems?

We used Zoom calls and surprised them with faster-than-promised enhancements. We would say a feature they request will be ready in a week, but then send them a 3min video walking through the live feature within 2-3 days.

Walk me through how you landed your first few customers as you were building your product or service.

Linkedin messages! About 8% of requests result in a call. I would connect with a project developer and be upfront and tell them," I am building a product to help more projects get built. Can I get on a user research call to learn about the problems you face in your role?" Then I would genuinely use the 20min call mostly to learn about the challenges in their role but reveal at the end 2mins of a mockup demo to get them excited about what we are building. I would have them commit to a trial once the product is ready, and some would commit to weekly feedback calls to help us build the product!

We continue to talk to more than ten target customers every week. We have a specific user research interview structure, and from there, we have a list of user feedback features. We use this as inspiration to develop the actual product features we want to release. All features have a one-week time to build; we are trying to iterate quickly to PMF with very short development cycles.

Team: User Feedback As The Tiebreaker

If you have a cofounder, walk me through a time when you two had a conflict. What was it about? How did you handle the situation? What was the resolution, and how did it impact your working relationship with your cofounder?

My co-founder Charles and I had independent startup founder mastermind groups that we met regularly before founding Paces. Getting external feedback from peers is incredibly powerful, and we continue to see our mastermind groups monthly. I have also started having a therapist for the first time in my life! I have long been a proponent of therapy for the important people in my life but have not availed of it myself, and I think it's a great time to get that extra support as we grow the company.

In the early days of ideation, one of us was more interested in calculating climate risk for green infrastructure projects, e.g., flooding risk vs. identifying ways to build more green infrastructure. We resolved this by talking to more users to hear the problems people were experiencing directly. It was pretty light, though, we have a lot of trust between us and a lot of alignment, and we have never had anything escalate into something damaging.

What key qualities did you look for in key early hires to increase your chances of discovering product-market fit, and how did you prioritize what types of hires you needed to make first?

Grabbiness for responsibility and more work. Not sure how else to say it, but it's clear when someone is grabby for more responsibilities. Now, they always need to excel in the main requirements of their tool, but the best hires are then looking around them at other things that need to be done and proposing ways they can add value there as well. We hired a couple of interns, and one, in particular, came up with a whole new way of streamlining our data collection, which was so exciting to see!

If there was a potential employee of your startup reading this Case Study right now, how would you convince them that joining your team is the next best step in their career?

You will have an immediate impact on the company's direction and hence be working on climate change in a real and actionable manner. Every day, we solve challenging but fascinating problems and can tie our work back to the ground development of green infrastructure assets.

Fundraising: Being Upfront About Expectations And Honest About Uncertainty

How did you set expectations with investors at seed and Series A? What is the main difference in those expectations as your company grows from one stage to another?

When raising our pre-seed, we were very upfront that we expected to get a product out to users and make something some users would like, but that there were a lot of questions around getting too large scale distribution. We would speak about three potential approaches and how we planned to test them, though in general, the investors who invested cared less about this and just loved our team. We send out a monthly investor update and are open about that also.

How does dilution work as you go from seed to Series A?

We are targeting 15% dilution per stage.

Risk, Competence, And Character:

(Risk) What keeps you up at night when thinking about your company?

Converting usage into paying customers! We have had a really easy job getting potential customers to see a demo, and many of those have started to trial. But we are at that 0.1 to 1 stage where we need to convert trials into more and more usage and identify the areas in which we add value for the customer. We have quoted every company that is trialing a 4-figure monthly price for our product, and the reaction is that it is reasonable. But we don't believe anything until they put the credit card down and buy, so until we have lots of paying customers at that price point, we don't feel the business model is proven.

(Competence) What’s the toughest professional project that you worked on in your career or life? What were the most important lessons you learned from that project?

Getting my green card. We applied after my US citizen wife and I (Irish Citizen) married in Mexico, and the process took 1022 days. It was wildly stressful and involved being stripped naked at the consulate medical exam to explain my tattoos were not gang-related! But it was completely worth it. I learned that everything worth doing would take longer than you think, and so you need to manage expectations around the parts you have no control over.

(Competence) Who are some of the most inspirational people you’ve gotten to work with during your career in tech?

Chris Tolles (Founder of Yard Stick) + Louis Potok (Founder of Recoolit) are two climate CEOs that I have my mastermind with, who give me not just amazing insights but are really wonderful for giving me a confidence boost when it's been a tougher than normal month.

(Character) Out of everyone you have worked with in your career, who have you been able to have the greatest positive impact on, and why?

RRJ at my previous job. They were a direct report to whom I gave many stretch tasks, and they consistently excelled. They are now working in a more senior role that gives them incredible fulfillment.

Takeaway: Use Your Curiosity To Get The Most Out Of Every Rejection

What are the key lessons have you learned so far from your journey to achieve product-market fit?

Have tough goals, but know that everything takes longer than you think. Hockey Stick projection graphs are important for showing the direction you are aiming, but it will be a series of up and down steps before you hit that type of growth. You also need to be super curious and not defensive about rejection. I am rejected a dozen times a day by customers, investors, and potential hires, and early in my career, that would have gotten me down. Now, it makes me curious about the reasons and sets me up to figure out ways to get more yeses.

Click Here For Paces’ Startup Secret:

Paces’ Startup Secret Description:

McWalter: “Recently, we raised a seven-figure pre-seed. This was the first time either cofounder had raised outside capital for a startup and even though we know a ton of people who have raised money, it still always looked like a black box on how to actually do it.”

Paces' Startup Secret

Three Cool Founders You Should Know About:

McWalter: Here are three founders you should check out next!

Louis Potok, Founder of Recoolit: Recoolit mitigates climate change by preventing refrigerant emissions!
Quincy Edmund Lee, Founder of Electric Era: Electric Era engineers and manufactures AI-driven high-power storage systems for EV fast charging stations!
Jason Yosinski, Founder of Windscape.ai: Windspace AI uses machine learning to increase energy production, turbine life, and project ROI of wind farms!

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