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Elizabeth Zalman On Raising $80 Million For Her Startups And Authoring A Book About The Truth Of Venture Capital

Starting a business is a journey filled with twists and turns, challenges, and triumphs. In a recent podcast episode featuring Elizabeth Zalman, we delve into her fascinating journey, from her early years to her experiences as a founder and advisor. In this episode, Elizabeth talks about the book she co-authored with investor Jerry Neumann, “Founder vs. Investor.”

Her latest startup, strongDM has attracted funding from top-tier investors like Sequoia Capital, True Ventures, Tiger Global Management, and Godfrey Sullivan.

In this episode, you will learn:

  • Early experiences in Boston and her unconventional path through education highlighting the importance of embracing opportunities that may not align with the norm.
  • Starting a consignment business on eBay as a means to support herself in Canada showcases the resourcefulness and determination required for entrepreneurial success.
  • Describing the process of building something from nothing in a startup is likened to a powerful drug, emphasizing the intoxicating nature of entrepreneurship.
  • A journey showcasing the need to adapt and pivot in the face of challenges, ultimately leading to the successful development of her startup, strongDM.
  • Liz’s belief in founders being pivotal in the sales process underscores the unique ability of founders to birth and sell their vision.
  • The book, co-authored by Liz, highlights the need for greater understanding and empathy between founders and investors to navigate the complexities of building a company.
  • Advice to founders emphasizes their agency in conversations with investors, reinforcing the importance of confidence and assertiveness.
Alejandro Cremades · EP 720 Elizabeth Zalman On Raising $80M For Her Startups And Authoring A Book About Venture Capital

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About Elizabeth Zalman:

Elizabeth Zalman is the Co-founder & former CEO of strongDM, the definitive data security product. Previously she was Co-Founder and CEO of the cross-device profile company Media Armor.

After its acquisition, Elizabeth served as VP of Analytics at the acquirer, Nomi.Prior to Media Armor, she led the client analytics and media optimization team atDotomi (now Conversant), generating an annual $500M in incremental revenue for 50 of the IR Top 100.

With over 15 years’ experience leading data-driven organizations, she is an expert in analytics, data privacy, and security.

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Connect with Elizabeth Zalman:

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  • Crunchbase
  • RocketReach
  • FounderSuite

Read the Full Transcription of the Interview:

Alejandro Cremades: Alright, hello everyone and welcome to the dealmakerr show. So today. We have a really incredible founder. You know she’s done it multiple times and we’re gonna be talking about all the good stuff that we like to hear in this case, you know like we’re gonna be talking about the cycles. The relationships you know with with investors. Also, what are the absolute must when you when you think about fundraising also how to be a remote first company and many other good things that I’m sure are going to inspire you all so without further ado. Let’s welcome our guest today Elisa Salman welcome to the show.

Elizabeth Zalman: Thanks I and.

Alejandro Cremades: So originally you were born in Texas and raised in Boston so give us a walkthrough memory lane. How was life growing up.

Elizabeth Zalman: And well I don’t remember Dallas because we left when I was 3 um and I made pit stops in Florida and New Jersey you can hear my accent with Florida we ended up in Boston though and I Don know I kind of I kind of liked it wet west of Boston. So. Fields and reservoirs and places to frolic as a child.

Alejandro Cremades: So eventually on your end you started math and science. You know that’s kind of like the path that you ended up in So what? what attracted you about resolving problems and and things like that.

Elizabeth Zalman: I was bored in high school and Massachusetts had come out with its first math and science charger school. It was held at Wpi Worcester polytac um in in wo math and so high school students they would pluck out at the end of tenth grade and put them in the school and you spent. Eleventh grade learning math and science in twelfth grade at Wpi she graduated with a year of college credit. Um, and so I’m gonna age myself for a second. So I was from 42 so 1996 when I started school I was learning c plus plus and it was ah was just a crazy thing to do at that time.

Alejandro Cremades: So you actually went to you ended up going to Miguel and you studied their economics and they also jewish studies and basically you started your first company while you were there. So how did that come about.

Elizabeth Zalman: Um, well I couldn’t get a work visa because I was an american in Canada and I needed some money my parents were like you decided to go to Canada you can fend for yourself. So I started a consignment business on ebay I would scour. Ah, department stores on sale or even ebay itself when somebody would list something and they didn’t understand the value of what they had and then flip it and sell high and and that was my spending money for for two and a half years

Alejandro Cremades: Now this was your first you know glimpse at entrepreneurship right? And as they say once an entrepreneur entrepreneur always an entrepreneur now in your case what you did is you actually went to work for another company. So walk us through that thought process of. Okay, here you are you know you put yourself through school. You know you were generating your own money and then you graduated and then you decided to work for somebody else. What? But why were you thinking? Elizabeth Zalman: .

Elizabeth Zalman: I Don’t know guilty is charged I needed more money. Yeah.

Alejandro Cremades: Ah, so you were there for quite a bit So I guess what were you know some of the lessons. You know that you learned during those four years and what? what? what did you need to feel at at peace with you know, taking the leap of faith you know again.

Elizabeth Zalman: Yeah, it’s a great question. Um, so I was employee number 7 there and I stayed until they were probably a few hundred. They ultimately got acquired and then by a public company I think for just under a billion dollars. It was called to Tomi um, so I was an account manager and account management and ad tech is not sales. It’s. Essentially customer success and software. Um I was an analyst um I became a sql developer actually while I was there and a a product manager for real time bidding when it came out as a product and so I got to touch everything I worked for somebody who was a mentor who is the the chief analytics officer there. And he he allowed me to go and and play with a whole bunch of stuff. Um, and that was a gift and so maybe 3 years into it with somebody I had worked with there who had quit and gone on to work at another startup where of a sort of bored and and we were like we think we can do better. Um, at the time attic was predominantly predominantly on. Desktops and laptops and iphones I think it was I don’t know third generation or something at that pointhtmlfive had just come out and we thought we could take what this company was doing and translate it into mobile and and why not so we we wrote an Mvp for a year and then I quit my job. And I drove from I was in Chicago at the time and I drove to my to bought back to Boston I slept on my cofounder’s floor on an air mattress for a month um and then I finally found an apartment and we both just dwindled down our savings for I don’t know a year and a half I probably went through like $40000 in savings.

Elizabeth Zalman: And then we raised enough money from fence and family to start paying ourselves something that was large enough to buy macaroni and cheese every day.

Alejandro Cremades: My God I mean that sounds like ah like a tremendous you know Obviously now you’re you’re reflecting on it. But I’m sure that a lot of people that are that are listening. You know, many of them are going to resonate and it’s going to bring some memories because as as founders you know we’ve we’ve all gone through that. But. But also I guess at what point do you realize as part of the experience with midi armor which was the the name of the company that you were building there at what point do you realize? I think that I made the right decision of you know, risking it all sleeping on on this mattress for a month and. And you know that the risk is is now paying off.

Elizabeth Zalman: So the risk for me, let’s assume I fail for a moment if I fail What am I going to do for work I’m going to go get a job as a sql developer and I’m going to be able to pay the bills and it’s going to be fine I’m going to be fine. Um, but.

Alejandro Cremades: Yeah, yeah.

Elizabeth Zalman: It was so enthralling to wake up every morning and to essentially birth something from nothing right. Pure creation can I get the sale. How charismatic can I be on the phone. What’s working what’s not working. Um I’ve never experienced anything more It’s have I did a second company. Um, but it’s the most powerful. Very few powerful things I’ve experienced one is watching somebody die birthing something from nothing um, is is another one in a startup and it’s like a drug.

Alejandro Cremades: Now in this case for the people that are listening to get it. What were you guys doing at me the armor. What what ended up being the business model.

Elizabeth Zalman: Ah, the business model ended up being selling ads actually so it wasn’t software ad tech at that point was ad sales. Um, it wasn’t until I think trade desksk actually an ad tech was the first company that decided to pivot from ad sales to software. Um, and so we were selling ads and it was essentially a. Ah, profile of a consumer. So we knew who somebody was on phone and and tablet and desktop and then we also knew when you walked into a store and purchased but we tied everything together through email address and we would get the the house files from the advertisers themselves. And then we could show you an ad on your tablet based upon the fact that you just made an insort purchase the day before.

Alejandro Cremades: And the company ended up being acquired. So hey you know like what an amazing outcome now. Ah because an exit always an exit. So in this case, the acquirer was Numi So how did the acquisition come about.

Elizabeth Zalman: Um, ah, Nomi at the time was ah their tagline was retail analytics for the physical world. So typically they were trying to reinvent ah an industry called door counting right? You walk into a store and you hear a chime go off and they counted you. They would deploy wi-fi sensors and bluetooth beacons and stores and track your like literal physical path to purchase through the store based upon the proximity of your phone to these sensors and so they thought well we take the physical imprint and we marry it with media armors digital imprint print and. We used to joke that we had the ah the death star for at tech.

Alejandro Cremades: Now in this case hey I mean obviously different times too. Um, because right before the acquisition I mean you guys had they raised you know I believe it was like two million bucks you know I’m sure that the venture space was a little bit different from where it is today. You know, especially back then you know when you guys were.

Elizabeth Zalman: Um.

Alejandro Cremades: Raised this money I mean it was about 2010 or so and I remember at that point the ecosystem in New York was was still developing. So I guess like what what was it like you know to to be raising money you know during that time in in New York

Elizabeth Zalman: It was really it was really hard. Um, it was hard to get in touch with people so when we went out for our first round first our our seed round. Ah we failed and we ended up just doing friends and family I couldn’t get any institutional funds to pay attention given the traction that we had and I knew people in this space right? The. Ah, person that I worked with that the person that I worked that hired me into to to me the ad tech company was one of the founders of icq like that is a major success story when Aol acquired it and he couldn’t introduce me anywhere. Um, and so we went back to the drawing board. We sold. We had some some revenue coming in the door. We had some big customers like. Like the gap for example, um, and then we went back out and so a series a at in 2012 I believe it was took me nine months to raise and it was a million and a half dollars and that round was led by Graycroft and inobia.

Alejandro Cremades: That’s incredible. So obviously you know incredible outcome as well. You know you had the exit happening there with Naomi as we were talking about and then you did the vesting and resting as they say it. You know some people rest more than others but in your case. You know only took eleven months for you to realize that you got you had to go back at it again. So how was that experience of doing that integration and then also you know what was it like you know to to say hey you know what it’s time to go at it again with strong dm so.

Elizabeth Zalman: I was lucky actually so my lockup was only was only a year. Um and I got out with a double trigger after ten months and I was so grateful to have those two months of my life back? Um, and so so while I was resting investing I ended up. Starting to ideate with actually somebody I went to high school with at the the charter school I mentioned and the head of marketing at nomi who wanted who wanted to be a founder and so we would meet once a week and we would brainstorm ideas and throw them in a spreadsheet and debate them. Um, and then ultimately decided that it was. But it was time to go to go and raise for the idea.

Alejandro Cremades: And how do you? How do you go about validating those ideas brainstorming about those ideas to make sure that you end up pushing with one that has legs because I mean that’s that’s not an easy thing to do and I’m sure you know there was like ah quite a lot of thinking and a process behind that.

Elizabeth Zalman: Yeah, there was an and so I think figuring out an idea is similar to product development right? should I build this feature will somebody pay at least $1 for the the future of their product so we had an idea based upon our personal experience. It was the company ended up pivoting but originally was data quality. Why is it that we only find out that a piece of information is good or bad once it’s in a spreadsheet. Why can’t we catch it much earlier upstream in the in the processing pipeline. So for example, if I look at a zip code a Us zip code. It should have 5 digits if it has a. Ah, letter in it. Perhaps it’s a canadian postal code. Why is it in there in the first place. Um, and so we knew from experience that or we suspected from experience it as a market and we called around and got it validated and we can come back to that point because we did pivot. Um, but because I had successfully raised before from well-known names. And because I had gotten something over the finish line. It was fairly easy to raise on at the time a few invision mockups and an idea the team looked good. The future products looked good. The idea looked good. The founders were good.

Alejandro Cremades: So Then in this case with Strong Dm You know how did it look like when you were assembling the team around you because I mean at this point you had already experienced ah building and scaling companies. So and also successful companies that had ah an outcome. So.. How did you go about building the team around you as well. Yeah, so like what was it like to get that band together because obviously the first 20 employees or so are really gonna determine everything. So.

Elizabeth Zalman: After the fer.

Elizabeth Zalman: And yeah, we so it was 3 co-founders for a pretty long time until we knew that we had a product that would sell so I mentioned that we pivoted about nine months and we were unsuccessful at selling the state of quality product. We threw it out and started testing ideas again throwing up against a wall saying if we could if we could sell something. Um, and I think it was the fourth or fifth idea that stuck and ended up being ah um, an access management tool for for servers and databases and Kubernetes clusters. So technical staff needed access to infrastructure. You went to strong gam you didn’t issue an ssh key or a database credential. Um, and once we. We really knew the shape of what we were building and we could see the first few customers. We hired 1 engineer in and then a second and third and we built the team slow that we were 8 people who probably until we were at least a million in arr. We took our time to make sure that we. We had the go to market motion down before we decided to expand.

Alejandro Cremades: So you did obviously those saying as you as you were saying you know you had to pivot you had to get it right? At what point do you realize you’ve hit a nerve and you got product Market Fit What did that look like okay.

Elizabeth Zalman: We sold something like 30 copies 30 We had 30 sales in three weeks at at a minimum which at the time was $500 a month. Um it it just it just took off people wanted it on the end of the phone calls and then they put their credit card down. So my proxy for success. For for building anything is will somebody pay at least $1 for this thing and if they won’t you don’t have something or they’re not the right customer for you. Um, it was founders asked me that all the time they’re like but how do you know? if you have product market of it. You just feel it you can. Feel something shift and you know you’ve got it.

Alejandro Cremades: So so I guess you know for the people listening what ended up being the business model with strongdm. How are you guys making money.

Elizabeth Zalman: We price per user per month when we started pricing. It was $50 per userer per month minimum $50 and then we just started raising prices from there. Um, the thing founders always are like you can always raise prices right? So I always start and then just start inching it up. Um. every month we also did something that was ah, totally opposite the rest of the saas industry. So I knew a Ceo buying software I used to get so upset at those all those dots right on a page and you’ve got like starter team and enterprise call for details then you’ve got like. Like Sso so only available for enterprise and I I felt like I was getting just nickel and dimed on everything and I hated how that felt from a buyer perspective so we just made it one price fits all you get every protocol on your stack. You get as much throughput as you want you can push as many logs into storage as you want. It’s one price fits all. We tried to make it easy. Um, and I think that was an advantage very early on you know.

Alejandro Cremades: And what about the? um, you know going back to the team because the way that you guys build is you know I think the remote you know component was a strong one and I think that probably it’s sort of very well the company you know, given some of the ah events that we encounter with covid so how did you guys think about. The remote aspect because when you got you know started. It was 2015. It was not as a trendy as it is today which is a must you know offering employees. You know the remote option. You know, not all the time. But at least you know part of the time. So how do you guys? go about this and also establishing it in a way that. Was successful to really make sure that the that the culture was there.

Elizabeth Zalman: So um, two co-founders were on the East Coast when we started 2 of us were in New York and what was in San Francisco and so as we were iterating. We knew we had to be remote first by by default and so this decision was actually made in 2014 even before we incorporated in 2015 and it was a major advantage and in recruiting and especially for engineering talent because in New York and San Francisco you’re fighting for top talent. You’re paying crazy amounts of money but we could go into less populist places pay less fine talent that was hiding. In fact, our. Um, the person who ended up essentially being the the principal architect we found him in Amsterdam um, he was a game developer and so it set us free in many ways now of course covid hit and so we were ready for it. There was no blip in our in in how we worked, um, but then of course. Ah. It was no longer an advantage in recruiting a few months into covid because everybody realigned their business model.

Alejandro Cremades: And then I guess say as part of the journey to you know when do you realize you know that is time to hire salespeople. You know whether it is on other companies that they led you to really understand that to implement it as well as strong dm.

Elizabeth Zalman: Um, ah it’s ah it’s a real question and this is um so in in the book that I wrote it’s um, it is a major point of tension between me and the investor with with whom I co-wrote it so vcs.

Elizabeth Zalman: Throughout my career have said it’s time to hire salespeople hire salespeople salespeople will help you figure out the sales salespeople are really good at selling and I believe that if the founder cannot figure out how to do something. The founder is dead in the water on that topic people are really good at their jobs. But most people are not good at figuring out how to go from 0 to one that is actually why founders exist because we are good at birthing something from nothing and so to ask an ae who’s only ever gone from 1 to 2 or 2 to 3 to come in and say hey can you write my demo for me. It doesn’t work. And so we waited to hire until we were certain. We had a playbook I used to put up a um, a slide in my board meetings and it represented ah my my sales funnel so it was getting people to raise their hand was the first one and then it was first first demo second call. Poc you know, contract conversion expansion retention and I would do a traffic light for every single one of those words things were green yellow or red and everything started as red. But once it started to turn to yellow. We knew it was time to hire because we knew that by the time somebody came in. To be a prospector right to get somebody to raise their hand successfully I could hand them the exact combination of words in the exact places they needed to put those words in order to get somebody to agree to a demo anything outside of that the founder in my opinion is not doing their job now.

Elizabeth Zalman: Flip side of that is that you might wait too long to hire salespeople. We’re too long to hile say say to hire sales engineers if you don’t want to let go but I would rather not burn through 2 or 3 sales teams figuring out that they can’t help me figure out how to sell that they can just sell.

Alejandro Cremades: Now with strongdm You also raised quite a bit of money. How much say Capital did you raise for Strong Dm and what was the um, what was the experience like going from one cycle to the next.

Elizabeth Zalman: Um.

Elizabeth Zalman: Was about 80000000 so across the time our presee was led by Bloomberg Beta and data collective and then true ventures came in and then sequoia led our series a and Doug Leonee joined our board and then the b was ah Tiger John courteous and and Eric Nordlander Google winners. So.

Alejandro Cremades: And what? what? what is it like to be on a board with this saying legends. What is that like.

Elizabeth Zalman: That’s wonderful. Look they’re They’re all amazing right? They they have I mean true has how many funds at this point of well over a billion under management. For example, these guys have seen everything they’ve done Everything they’re excellent at Pattern matching. They have very large brains and that’s. Stuff that I have never been exposed to and and can be very helpful at times.

Alejandro Cremades: That’s incredible now for you the time came to step down of the company I was the Ceo and then basically you know, um, there’s a book that you wrote that is coming out. And very very actually like quite ah a very interesting topic topic for our audience. So what is the name of the book and how did the idea of the book come to mind.

Elizabeth Zalman: It’s called founder versus investor. The honest truth about venture capital from startup to Ipo. It is co-written with a friend and investor Jerry Newman who’s a prolific seed stage investor in New York city um and it came to be that. Maybe a year and a half ago Jerry Jerry has a blog called reaction wheel. He writes 2 or 3 times a year when he put out a blog post called your board of directors is probably going to fire you and it was based on a recent experience he had had and he was upset and it wasn’t pro investor. And it wasn’t profounder it was these things happened and this thing just happened to me and I want to talk about it and why don’t we ever talk about it and vcs called him up and said what do you think you’re doing if you talk about this, you’re going to ruin our chances of. Of getting to invest in founders because we need to appear founder friendly and he said but it’s true over 50% of founders are fired. Why are we hiding this fact and then founders called him and said I can’t believe that somebody is actually talking about this and so I read the post and I said why don’t more people talk about it. Um, and he agreed to co-author the book with me ah with the understanding that he wasn’t going to agree with me on stuff so he fully represents the investor point of view and I fully represent the founder point of view as we talk through the tensions in the relationship that shift over.

Elizabeth Zalman: Ah, course of a company’s lifecycle fundraising terms growth exits. Um, um, and our our goal is to lay bare the motivations of each side so that we can do a better job of understanding each other I don’t think everybody’s gonna get along and saying kubaya right? Um, but. I can tell you that I now have greater empathy for certain things that that vcs have to deal with on a day-to day basis that I wasn’t aware of and Jerry certainly has empathy for for things on my side of the table as well. So.

Alejandro Cremades: And how do those tensions shift as you go from one cycle to the next to the company.

Elizabeth Zalman: Oh they shipped in so many ways. So so let’s take an example of you know you start you start as a company raise the money of an incredibly quote unquote founder friendly prese or seed fund. That’s that’s backing you they’re there. They’re helping you think through things. Let’s say you find product market fit. Let’s say you suddenly now have a few million in ar are you become something that’s a phone call every few weeks checking in saying if an investor can help with anything to oh wow, this company has figured something out and this could actually be a fund returner. And I see the path that it would take for this company to be a fund returner. So I’m now going to lean in some more and I’m now going to push for more financing because the company’s ready for it and so the company at that point isn’t just the founder anymore. It’s a real company. And so tensions can arise there for example where a founder may not grow into the operator want to or even be able to grow into the operator they need to be investors can be real heavy handed and sort of demanding if you have a particularly unruly board founders can lose control. They might not have understood the implication of certain terms. Were introduced in the series a that weren’t in the seed docks and like now it’s not 3 common and 2 preferred it’s 3 preferred and they’re shut out of luck. Um, and so there are lots of little things that are introduced along the way that become a big thing and that’s when relationships get contentious.

Alejandro Cremades: Now when it comes to fundraising. What are the absolute musts when you know getting out there and seeking money.

Elizabeth Zalman: Oh well, the my I have I have 12 rules of fundraising in the book. It’s actually called Liz’s absolutes of fundraising Liz a f um the two that I think are personally most provocative I’ll tell you my first one. So I advise to never talk to associates. Um I have found them highly problematic over my career the way that I think about associates is similar to software sales if I’m trying to sell in a product that is a top-down product and needs a top-down mandate. Um, not going to be able to sell it in to an individual contributor. Probably not going to be able to sell it into a manager of a team I’ve got to go to the cto similarly associates are only able to say no they cannot say yes, they literally can’t say yes, maybe 1 or 2 funds are are are. Working with some new bottle to make that the case but the vast majority aren’t and so why would I spend my time talking to somebody who can only reject me, it’s like why would I go on a date with somebody who’s not who I already know at the beginning is probably not going to go on a second date with me. Um, so that’s one. Another provocative one that I personally like is never sending out a deck over email and it’s the same principle as a founder I am best visually I am best with you hearing me, give me the opportunity to convince you of my idea.

Elizabeth Zalman: I’m a proponent of a video of a demo like 30 second minute long loom videos. Great. But I don’t want to send you the deck over email because you can just reject it and so I never do that either. You can’t waste waste invest 15 minutes of your time with me. So listen to me and then politely tell me no I didn’t want you as my investor in the first place everybody has time for 15 minutes

Alejandro Cremades: So what is the yeah, what is the biggest truth that you’ve learned about Venture capital.

Elizabeth Zalman: I think that so venture capitalists do this for a job right? They do a hundred investments 200 investments in the course of their career. Um founders do 1 or 2 and I think that if there were any constant. It is that vcs. Do not say what’s on their mind or they say it really really really really gently and so unless you’re a super good mind reader and can really pick up on every single visual cue. You’re not actually going to know what they think. And that difference means that you don’t actually have a sense you as the founder of a whole situation and your job could be at stake company could be at stake. There’s a lot of nuance that goes into these relationships that you don’t necessarily see because vcs aren’t incentivized to tell them to you. So.

Alejandro Cremades: Now imagine I was to put you into a time machine list and I bring you back in time to that moment. You know, maybe that moment that you were thinking about perhaps giving your notice a dot to me and you know. Getting started before even you got started with your first company with media arm. Ah second company sorry midi armor but they obviously venture backed company. Let’s say you had the opportunity of going back in time and having a chat with that younger Liz and being able to give that younger Liz a piece of advice before launching a company. What would that be and why given what you know now.

Elizabeth Zalman: I would tell her to remember that she has the power in conversations with investors and to not lose that confidence even in the the worst moments possible I think the book talks a lot about fear. And about the power dynamic between investors and founders and for years it’s been in the investor side of things and then in the froth of 2020 2021 it shifted to the founders and now it’s certainly back in the investor camp. But at the end of the day founders know their business. They know their business cold. Ah, term. She does not going to expire on the date that it says if you are negotiating in good faith and investors. Don’t want to pull a term sheet for example and so know that it’s okay to slow down and to think thoughtfully about things and take your time on decisions. All of that comes from. Knowing that you have power and that it’s okay to say no and walk away from things.

Alejandro Cremades: I Love that so list for the people that are listening that will love to reach out and say hi. What is the best way for them to do so.

Elizabeth Zalman: Ah, the best way to do so is on Linkedin just just Google my name Elizabeth Zellman um or you you can buy the book and tell me how much you love it.

Alejandro Cremades: Amazing! Well is he now a list. Thank you so much for being on the dealmakerr show today. It has been an honor to have you with us. Thanks.

Elizabeth Zalman: Thank you Alejandra I appreciate it.

*****

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