Trough of Sorrow

I spent some time today thinking about an old post I wrote back in 2019. It took me three years to write this post. Well, three years to live this post. And then it took me just ten minutes or so to write it. As if three years of frustration bubbled to the top, and then a muse showed up and put it down nice and gently onto the page.

I still remember that day. It was a gloomy day. The picture that accompanied this post, that was our view from the Exponential ETFs office in downtown Detroit. I took that picture just when I finished writing it, to go along with the post. It captured the moment.

We had just hit $500 million in AUM. I was so proud. Within a year we would hit $1 Billion, and then 1.5, before Covid changed everything for us, like it did for so many.

Anyway, I might be back in the Trough of Sorrow. New company, new products, new team. We aren’t in Detroit this time, but we’ve got the same attitude. Maybe we’ll avoid the Trough altogether, maybe we’ll climb out. We’ll see. But I was thinking about this post today and wanted to share it.

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Trough of Sorrow

Detroit is a tough town. The weather is tough, the people are tough, the sky is gray for eight months out of each year. I didn’t grow up in Detroit so there are things I notice as an outsider. Like the fact that everyone starts work early in Detroit. They start the day early, they quit the day late, and in between they work hard.

The morning in Detroit has a certain toughness. Tough people with thick old gloves and boots carrying thermoses and lunch pails to their jobs. White-collar workers walking with a touch of shame; blue collar workers with a touch of pride. That, more than anything, is a Detroit thing.

Charles Ragauss grew up in Grand Rapids, and furthest from Michigan he ever got was a brief stint in Columbus, Ohio. When our office was based in Ann Arbor it never felt right to Charles, who moved to downtown Detroit even though it meant a long commute. Charles feels more at home in Detroit among people who work each day until they can’t anymore, and then drink a Manhattan when they get home, thinking about how to do it all over again the next day.

Josh Blechman grew up just outside of Detroit. It is ironic, because Josh is now managing our NYC presence, the only member of Exponential who is no longer based in Detroit. Josh carries a West Bloomfield pleasantness on the outside which masks his Detroit toughness below. Josh doesn’t carry a worn old lunch pail to work but he does carry the work ethic that accompanies it.

Eric Kelly grew up a few miles outside Detroit. He comes to office early every single day, ready to grind and ready to work. He never complains, he never has an off day, he never brings up the fact that he has taken on three times the amount of work as he signed up for.

Christina Stage too, is from the Detroit suburbs. Christina has so many jobs I couldn’t even keep track if I tried. Christina manages human resources, billing, marketing and special projects for Exponential – and does the same for our sister companies The ACSI and Detroit Vineyards. There is no amount of work that is too much for Christina to handle.

Qiao Duan, however, did not grow up in Detroit. Qiao grew up in Xinjiang, a province on the Western edge of China. A province that is decades behind the Chinese metropolises in terms of development. It is a cold province, it is under conflict, and it is tough. After Qiao got recruited to come to America to enroll in the University of Michigan’s Quantitative Finance and Risk Management graduate program, her fellow students all sought jobs in NYC and Chicago. But for Qiao, Detroit felt closer to home.

This is the team I get to work with at Exponential ETFs. My team is Detroit Tough.

Here is a graphic that Paul Graham put out, a graphic that illustrates the life of a startup:

Trough of Sorrow. If anything, that is understated. It is hard to describe that transition from initial enthusiasm to the Trough of Sorrow. When you start, sure, you plan for contingencies, you model out the “bear case” you think you’ll be prepared when it gets hard. But really, that is the head talking, not the heart. Startups are launched with the eyes on the upside. Startups are launched with founders imagining the glory, the wealth, the fun and the freedom. But it is hard. Harder than founders expect, and many aren’t as prepared as they thought. And sure enough, just about every startup lands in the Trough of Sorrow.

Competing in a saturated market is not for the timid. Sleep becomes a luxury, something you hope will come a few nights each week. And the obstacles take a psychological and physical toll.

It took a toll for me. It took a toll when the Cincinnati gatekeeper condescendingly chastised me for telling him the benefits of a fund I had launched just the week prior. Even systematic strategies need a three year track record for him to have the ability to evaluate them, he smugly instructed, and how dare I waste his time with a brand new fund.

It took a toll when a promising new hire practiced for days in preparation of a client meeting with a Chicago-based financial advisor. The advisor never showed up. Three weeks later that new hire left the industry.

It took a toll when an ETF strategist told me that they love one of our funds but that they “don’t invest with startups” even as they describe themselves on their own website as… a startup.

And of course, it takes a toll when you watch as the entire risk management and portfolio optimization process is dumbed down to four words that you are told over and over and over again: What. Are. Your. Assets.

It wears you down. You get tired. You have self-doubt.

But a tough team bounces back. A Detroit team bounces back. Day after day my team fought behind me and we tested, we pivoted, we adjusted, and we iterated. This is what four years of iterating looks like:

We knew the outcome but we didn’t know the path. Here is another graphic I think about often:

And sure enough, slowly, we started to see progress. One day our friends at Sage Hill allocated to one ETF, and then my friend in Charlotte allocated to our other ETF. We formed a partnership with my old friend Larry Medin who was launching a firm called Brandometry. And then we formed a partnership with some of the top industry leaders at Toroso Investments.

Before we knew it we had another partnership, this one with Amplify ETFs, perhaps the most promising emerging company in the ETF industry. And then we formed a partnership with Tidal ETF Services. We formed partnerships with some of the best investors in the country from Argi Financial Group to Acquirers Funds. And then a partnership with SoFi. And then we closed out the year with two more partnerships, SP Funds and ARIS.

And suddenly we are putting out a press release and running a victory lap because we hit $500 million in AUM. But those are the companies that did the hard work, and those are the companies that we owe any success to. Those are the companies whose success we are as committed to as we are our own. Those are the companies who have a Detroit Tough team behind them.

Here is a quote from James Clear’s phenomenal book Atomic Habits: “When nothing seems to help, I go and look at a stonecutter hammering away at his rock, perhaps a hundred times without as much as a crack showing in it. Yet at the hundred and first blow it will split in two, and I know it was not that last blow that did it—but all that had gone before.”

You spend day after day hammering at the rock, and in the Trough of Sorrow you don’t see any progress. I have spent much of the past two years working to create the best podcast I could. Every week I would work on something else – my speech impediment, speaking slowly, prep work, promoting the podcast, audio quality… something different every single week. And for so long it seemed like I was getting nowhere. Until suddenly I look back and can see some results!

The rest of our business has gone the same way. Charles, Josh, Qiao, Eric, Christina grinding and fighting day after day after day through the Trough of Sorrow. And then we look back one day and see that maybe, just maybe, we have crawled out of the trough.

There are bigger firms out there, and there are more profitable firms out there, but we have built ourselves a base. We have reached the upswing in the curve, outside of the trough. And the future is bright. We are talking to some of the smartest venture capitalists in the country about working together. We are building tech-enabled products that can change the industry, that we can create from scratch and bring to our clients to help them manage their expenses and help them compete and grow.

I am thinking about our bright future and writing this note in our Detroit office. The sky is grey and will be until June. July if it’s one of those years. I can see someone walking down the block with a thermos, a lunch pail and a tough look on their face. He is walking to a construction site across the street – used to be a vacant lot there but now they are building a skyscraper. Yah, we fit right in here.