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Here’s the program.
Andrew Warner: Hi, everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. And as you know by now, I do interviews with entrepreneurs about how they built their business and pass on what they learned to you so you can go out there, build a great company, and do what today’s guest is doing, which is an interview with me where you teach others.
So I got an email from a viewer who said that, “You know, Andrew, you should interview my boss. Adam Edmunds of Allegiance. Allegiance makes software that helps companies listen to employees and customers.” The email said that Adam bootstrapped in the early days by using his credit cards to pay bills and to make payroll. And while he was working hard to get his company off the ground, a VC told him that the idea wouldn’t fly. Fast forward to today, that VC is Allegiance’s biggest investor, and the company is doing over $10 million in revenue. I invited him to Mixergy to find out how he did it. Adam, welcome to Mixergy.
Adam Edmunds: Hey, thanks Andrew.
Andrew: So isn’t it awkward by the way to come here and publicly have me say that this VC, who’s your biggest investor, didn’t believe in you in the early days?
Adam: You know, I actually throw him under the bus quite often, so I bring it up often myself so it doesn’t hurt my feelings at all. It’s a fun story to tell, for sure.
Andrew: Why didn’t he believe in the idea?
Adam: You know, I met this guy at a business plan competition at BYU. BYU’s where I went to school. They have one of the best business plan competitions in the country. They give away like 25 grand. I went through the process with my first business, and the company was called Silent Whistle. We did an ethics reporting product. So one of my investors in the company early, early on, well, advisors at the time, was the dean of the business school. I thought I had this competition wrapped up, and the finalist judging panel was a bunch of VCs that have ties to BYU. And I go through the presentation. I think I’ve got this thing all wrapped up, and later on that night I met him at the reception. He came running up to me, and I still remember he was so adamant about how crappy my idea was he had like spit coming out of his mouth and just going off about how this was not going to work. “I’ve owned businesses that are purchased because of government mandates. This will never fly. It absolutely will not fly. Quit now while you’re ahead.” So I never forgot that. Then a few years later, I had acquired another business and I had expanded it beyond just that original product. He claims to . . . the story’s a little bit different from his side but that’s how it happened.
Andrew: Do you remember what it was about the idea that he didn’t like?
Adam: He thought it was too narrowly focused and that . . . companies had to buy our product because of Sarbanes-Oxley. So he hated businesses that are built around government mandates, and he just thought it was way too narrow. He thought there needed to be a much broader offering. And that second point he was correct. It was too much of a narrow product company. It wasn’t enough to sustain an entire business. The average deal size for that company was like three grand a year, so we had to set our sights a little bit higher.
Andrew: I see. Okay. I think you said that was the second business plan competition that you entered. Is that right?
Adam: I was entering a few at the same time. Didn’t win any of them at the time. The best we did was second place.
Andrew: I thought that you got a first place finish. I did a little bit of research on you, and I found a winter ’04 or winter ’05 article on you in BYU’s school magazine. You were wearing a suit, you had your business that you were presenting, and you said you were ready to win second place and when they gave it to somebody else you were surprised that you ended up winning first place, which was 12,500 cash and another 12,500 in support. And this was for Silent Whistle.
Adam: Yeah. That was the BYU Entrepreneur of the Year, later that year after we did not win the business plan competition.
Andrew: So you were just entering competitions all over the place. For what? Why so many?
Adam: Money. Money for the most part. I often tell student entrepreneurs today that that’s probably the best refiner’s fire. It’s a really good business plan competition because the judges are the mentors you gain access to. Oftentimes, they’re great mentors that can give you good advice on your pitch deck and all that kind of stuff. But in my case, three of maybe my first five customers were mentors from business plan competitions. The CEO of MyFamily.com now Ancestry, a publicly traded company, he was a judge in one of the competitions. He was my first paying client. Another mentor was my second paying client. So I was just entering them mainly for learning but also to try and win and get startup cash.
Andrew: OK. All right. So you launched Silent Whistle. What was the idea behind that? That one apparently somebody liked because you won.
Adam: I got a Master’s of Accounting from BYU. Sarbanes-Oxley was passed while I was in school. And I didn’t think much of it when it was passed, but there was a founder of Protivity spoke to us and he said, “Anytime there’s monumental legislation like this, there are entrepreneurs who become very wealth because of it. So if you can find a business idea around Sarbanes-Oxley, that will serve you well.” At the time I thought, “Yeah, that’d be nice but I’m not an entrepreneur, so too bad.” At the time I thought I was going to become an accountant.
And then my last semester at school, I took a class from Larry Miller. Larry passed away last year, but he was the owner of the Utah Jazz, self-made entrepreneur, when he died had 50 car dealerships, owns just a ton of things here in Utah, including the Jazz. And he just said, “If you’re going to be an entrepreneur, might as well try it out of school because you’re already used to eating ramen noodles. So just go for it. If it doesn’t work, you still have your degree, go get a job.” And Josh James, the founder of Omniture, was one of my early mentors and he did that, he started right out of school. So I started Silent Whistle. I had that idea that I was just toying around with before I graduated and had gotten enough progress to where when I graduated I called up KPMG, who I had signed on to work for, called up two weeks before my start date and said, “Never mind. I’m going to be an entrepreneur.” Lucky for me it worked out.
Andrew: So what was the idea behind it?
Adam: Sarbanes-Oxley required companies to have an anonymous means for employees to report wrongdoings, ethical violations to the board of directors. And historically how that was done, there was a few companies started in the ’80s that had hotlines, just 1-800 numbers that the employees could call. And just in quick research I found that, of public companies in Utah, none of them really had anything in place or if they did no one every used it. So my idea was to take that concept and turn it into a web-based submission site and a case managements system so that the company would have an area to track and monitor all of these feedback items that came through, create somewhat of an audit trail as they went through investigations. So that was really the original idea, and we ended up selling that company last year and it never really changed beyond that. Just kind of worked from day one.
Andrew: I didn’t realize it was that involved. I did a little bit of reading on it, and it just seemed like a simple 1-800 number that people could call 24/7/365 days a year. But how much of the back end did you have built out before you got your first customer? How much of the product?
Adam: Very little. We talked about the old days. I had enough to just show a site, but it didn’t really work very well. We probably had eight or ten paying clients before we got that product really working. A lot of the back end processes were still being done manually as we were building out the entire product. We still laugh about the old days when we would do GoToMeeting demos. Before we clicked next, we’d have to pause it and then click next maybe 10 or 15 times till the next page finally came up and then unpause the demo. We still laugh about those early days.
Andrew: Actually just having paying clients doesn’t mean that anyone’s making phone calls or anyone’s blowing any whistles, right? So it didn’t have to be automated. The phone calls could just come straight to you pretty much.
Adam: Yeah. And when we first started we didn’t even have phone calls; it was all just web submissions. And what we kind of were banking on is that there was this implementation period of 30 to 90 days as they set up what kind of alerts they wanted to allow to come through and what the questions would be. And then there was another roll-out period. They wanted to make this something they’d send out and tell all of their employees about. So we kind of had a 90 to 120 day lead time to get the product working.
Andrew: All right. Can you describe a little bit more about what that first version looked like? I’m always fascinated by that.
Adam: The first version was built in Python. That was the cheapest developer I could find — New Python. Like I said, it didn’t work very well, but it was just good enough to get companies to buy off on it. I was pretty straight up with these guys that I was a 24-year-old college student trying to start a business. And I think I got lucky with a lot of people kind of taking a flyer on me and saying, “Hey, you know what? I’ll help this guy out. If it doesn’t work, I’ll switch to another vendor.” And I was charging them really cheap prices. My first client was 600 bucks for the first year and then $1,200. So this wasn’t a lot of money they were looking at. I try and take that same approach now that we have an established business here. When young entrepreneurs come to me, if it’s not too much of a burden, I think it’s helpful for former entrepreneurs starting startup guys to try and help out those early ones. Getting those first three or four clients and then having them be reference customers really got us off the ground.
Andrew: OK. Tell me how you got those first few customers, the ones who became reference customers.
Adam: Like I say, a lot of them were mentors from business plan competitions. But my approach to the others, I would just call them and say, “I’m a student. I just started a business. Can I buy you lunch?” And I once counted it up. I think in the first year I spent three grand just buying business executives lunch. And I found that if I played the poor student card, they oftentimes took mercy on me and said, “Hey, this idiot. What has he gotten himself into? Let’s see if I can help him out.” And that’s really how I probably got my first dozen clients or so.
Andrew: Now as you’re saying that, I’m wondering about the challenge of going to a mentor or going to someone and asking them for feedback when you want their business, because if they’re giving you feedback on your business, they’re looking for all the problems with it. And then when it’s time for them to actually buy, they’ve been alerted, and in fact they’ve made themselves super aware of all the issues with the product and they might be more reluctant to buy. Was that an issue?
Adam: Do you know, it really wasn’t. I think they were believers enough. They were so invested in the company they wanted to see it succeed, and they were willing to put up with a couple of speed bumps along the way to make that happen. I still talk to a lot of them today, and I can tell they take a lot of pride in being to tell people, “Yeah, there’s this little company I helped out six or seven years ago and it eventually had 2,000 clients and was doing business all over the world. And I was one of the first two or three people to help put that together.” Make them feel almost like founders.
Andrew: Yeah. I would feel that way if I was one of your first customers. So how much did you have to earn before you felt comfortable telling your job, “No. I’m not coming in.”
Adam: I did it on just a total whim. One of my best friends was a fellow student entrepreneur. He had started a property management company, and he was kind of my mentor throughout the process of me deciding to become an entrepreneur. And he had told me if you want to be an entrepreneur, you’ve got to plan on 18 months without any pay and just know that going in. And that kind of sifts out probably 95% of students right off the bat because they graduate with a bunch of student loans. In my case, I’d had a couple little startup business ideas during school. I had a little part-time job, so I made it through school without any student loans. And I also had a house. My dad’s a homebuilder, so I had a house that I had about 30, 40 grand of equity in. So when I made the decision, I sold my house. I was driving a Beemer. I sold my Beemer and just put all that cash in the bank and just lived off of that for the next year or so until I could start paying a modest salary. I think my first salary I paid myself was like 18 grand a year and slowly that would go up as the company increased in size and success.
Andrew: I’m sorry I missed that. How’d you end up with a BMW and equity in a house?
Adam: I had two businesses in college. One that was a success and one that was a massive failure. The massive failure was . . . I don’t know if you’ve ever gotten sucked into this, but you’ll talk to guys who’ll say, “Hey, you want to know what a great business is? You go down to the car auctions in Vegas and you buy a car. You bring it home, you detail it, and you flip it for three grand.” Sounded fine and good. I did that in school for about six months and lost about 15,000 bucks.
Andrew: Why?
Adam: Why did I lose money?
Andrew: Yeah. Why doesn’t that work out?
Adam: I don’t know how to lie to people very well to sell used cars. I mean, when someone says, “Why are you selling this?” And you say, “To make three grand.” Or, “How long have you owned this car?” And you say, “Three days.” It’s not an easy business to do that, so I was a massive failure at the used car sales business.
Andrew: OK. And then what was the one that was a success?
Adam: The success also helped fund me and my family for a few years. I had a part-time job at Franklin Covey selling their technology products. And one day I was with my boss, we were walking over to one of the product manager’s office to ask him about something. And in his office, his wall was just . . . there was all these stacks of used cell phones. And Franklin Covey always had this policy in their retail stores that ‘we return anything. And in about 2001, they started to sell cell phones. So they have all these used cell phones brought back. And they didn’t know what to do with them, but they returned them because that’s what their policy was. So they just had probably 200 cell phones. And these were nice phones. They didn’t know what to do with them. They were selling them to employees for cheap. So I looked at that price list, took it back to my desk, went to eBay and found that I could buy the entire stock for about four grand and sell it on eBay for about 14 grand. So I did that. I went into his office, emptied my savings account. This was the middle of school. I had four grand to my name and I called my wife up and said, “I’m going to buy a bunch of used cell phones.” And she’s like, “All right. Whatever.” So in about 30 days, I turned that into about 14,000 bucks. And then I get a call from that product manager saying, “Hey, we have a bunch of Palms and Palm Treos, these old Palm Pilots and Treos. Do you want to do the same thing with these?” So I did that for about a year and a half, maybe two years until they realized how much money I was making. Over that time period, I probably grossed about a quarter of a million dollars and then they kind of figured what was going on and they cut me off. So that was my temporary success during college.
Andrew: Franklin Covey I know is the company that makes those organizers. It was the Franklin organizer that I think I had as a kid and then Stephen Covey had the “Seven Habits of Highly Effective People.” And I guess he bought them out or somehow the two companies merged. And you’re saying that they would take anything back?
Adam: That was their retail policy. Yeah. They just had kind of that Nordstrom attitude of we return everything. And I think it bit them when they were trying to make this transition from a paper planning company to software, technology, cell phones and they didn’t really know how to react to that.
Andrew: I remember that. Even Staples used to have a 90-day return policy on anything. They treated computers the way they treated staplers at a time when computers were being updated every 60 days. Okay. So that’s how you got the money to start off with Silent Whistle. How long did it take for Silent Whistle to support you? Was it 18 months like you heard?
Adam: Well, I brought investors in after about 12 months. We’d proven ourselves enough. We raised about $300,000 in investment capital. And at that point I was probably paying myself like 36 grand a year or something like that. It was a couple years though before the company was really picking up a lot of traction, where I had a dozen employees or so and it was to the point where I could pay myself more than a minimum wage salary when you count how many hours you’re putting in.
Andrew: If you don’t mind, I’ve got to ask you a personal question. You’re married at the time. You’re making $36,000 as a married man.
Adam: With a kid.
Andrew: What’s it like for your wife under those circumstances?
Adam: You know, people often ask me that. My oldest son was ten months old when we started.
Andrew: You had an older son already?
Adam: Yeah. In all the studies I’ve read, I’ll often meet these people who say, “So tell me about your wife,” when they hear how I started. “Did she come from an entrepreneurial background?” And she didn’t. Her dad was a janitor and her mom was a schoolteacher. This was very, very unfamiliar territory for her and her family when I came home one day and said, “Honey, I’m going to sell the house and our furniture and our cars and I’m going to become an entrepreneur.” I still don’t know why. She just went with it. I moved us from our house, we had a 3,000 square foot house, moved us into a little two bedroom apartment, and she just went with it. Luckily, I always had enough, was always making enough between my side business and then the cash that we got when I sold my house and then whatever little I was able to start paying myself with the company. We just kind of always made ends meet without making it too painful on her, so she never pulled the plug. When I mentor young entrepreneurs who are married, I’m from Utah so a lot of the guys here are married when they’re 21 or 22. So a lot of entrepreneurs I deal with, I’d say 95% of the time when they quit, it’s because their wife made them quit. They just said, ”This is enough. You’re not doing this anymore. Go get a job.” So it’s definitely challenging.
Andrew: I could understand that. But what about then how it impacted your relationship to have had that now in your background? I imagine that having the two of you battle together through this, or having her support you as you go do your thing, it’s got to be a together thing. Is it a bonding experience the way I imagine?
Adam: Yeah, you know, it is. I think she feels a lot of pride. We’ll go to these events and she’ll meet other wives and mentors of mine and people who know the story and they ask her, “What were you thinking?” And she says, “I just knew he could do it.” And I think she looks back and thinks, “I was a good wife for that.” She’ll take a little bit of the credit when she has a chance.
Andrew: So the fiery, spitting venture capitalist who said this idea will not work wasn’t talking about Silent Whistle. You had another idea and I guess . . . what happened to that other idea while you were building Silent Whistle?
Adam: He actually was talking about Silent Whistle.
Andrew: He was? Okay.
Adam: That was the business he didn’t like. He thought it was too narrowly focused and just said this’ll never happen.
Andrew: Okay. And then what about the credit cards? If you got the money from reselling cell phones and Palm Pilots on eBay, why do you need to go to your credit cards?
Adam: When I was starting to dwindle out of cash personally and in the business, I had a term sheet from a venture capitalist here. It was a startup venture capitalist for about 350k and I thought it was ironclad. That’s classic lesson of if money’s not in the bank it’s not done. I thought it was ready to go, and at the last second the rug got pulled out from me underneath me. And I was like, “I don’t know what I’m going to do. I’m not going to be able to make payroll.” And I only had four or five people at the time, but it wasn’t insignificant. I didn’t have cash personally to do it at the time. This was December. And you know when American Express they send you a little checkbook and they say, “Use this to buy holiday gifts or pay off credit card balances.” And I thought in my mind, “Or pay payroll.” So I used those checks for a month to make payroll during the month of December. I tried to do everything else, go to people offer stock options, anything else. And they were all, “No, dude. I need my money. It’s Christmas.” So I did that for a month, and then luckily I had an investor come through that pulled me out of that. But that’s a story my wife doesn’t know about the early days. That’s also part of the balancing-your-wife part is she doesn’t need to know every little thing.
Andrew: So what was it like for you to deal with that? To deal with that and to keep it internally. I remember being freaked out when I was in a situation where I had high credit card debt because of my business.
Adam: You know, people ask me that question of, “What if it hadn’t work?” Or, “Were you ever afraid? What was your plan if it didn’t work?” I don’t know if it was naiveté or I was just too bullish on it. I just knew it was going to work. And if people said, “But what if it doesn’t?” I’d say, “Maybe you didn’t hear me. It will.” And I look back it now and I don’t know if it was blind stupidity or luck, but things just always kind of seemed to fall into place. If I’d write credit cards checks for payroll one month, the next month I’d get an investor to come in for 50k to save us. I look back and I remember it was a stressful time, but because of the amount of hours we were putting in. Not for the financial side. The financial side I kind of always felt like it would fall into place.
Andrew: All right. Wow. Really? I worried all the time. I think that some of us are just worriers who will worry about every little thing and others, even under the worst circumstances, can just continue to go through.
Adam: Even today . . . we had a dark story a few years ago where we had a couple big deals fall through and our cash balance here at the company got crazy low. And it was kind of the same story. I don’t really get too high ever and the lows don’t really affect me all that much either.
Andrew: All right. Tell me about one of the milestones at Silent Whistle. First customer big milestone. What about another one?
Adam: About a year after we started getting that thing going, we since had redone the product in Java, we built out a solid platform, it worked. And I was introduced . . . there was a quasi-competitor of ours, Thompson Financial. Thompson had acquired a business called CCBN, which had a competitive product and I was given an intro to the guy who ran this product for them. Talked to him. He said, “Look, we have 400 companies using this product and we don’t even know how to maintain it. And the solution we have in place is terrible. We know that they’re all just going to eventually leave us. Why don’t you come in, let us come in and do kind of an OEM deal here. They’ll use our system. They won’t even know it. They’ll still think it’s a Thompson Financial product.” And it took about six months to work that out, but we had 400 clients move over in one day. It was over a half a million dollar deal that happened, and it took us from having to hide that we were small, because before that we maybe had 50 clients and a lot of our competitors had 2,000. That was a huge, just a monumental deal because all of a sudden I could say, “I’ve got almost 600 clients and Comcast and Motorola and Sports Authority, they’re all using this product.” That just took us several steps ahead when we landed that deal.
Andrew: How did you know them well enough to make this deal happen or even to broach the subject?
Adam: One of my friends had been at Thompson Financial. He moved back to Salt Lake . . . he was out there at Harvard Business School finishing up his MBA and right out of school he went to work for Thompson Financial. He wasn’t over this product but he knew the team. And then he came out here to be a principal at a venture capital firm. He was just trying to meet people and we went to lunch one day. I told him what we did and he said, “You’ve got to call Thompson Financial. You’d have a deal immediately. If you can get them to buy off that you won’t make them look bad, that’s all you have to do. If you get them to believe that, they’ll give you all their clients.”
Andrew: And how long did it take you to win them over and get all of their clients?
Adam: It was probably a six month process from the first to the last day.
Andrew: You’re a pretty young guy as this is all happening. You’re still young right now, young enough that when I got the email from Chris he brought up your age. What are you, 31, by the way?
Adam: 31.
Andrew: At the time, you were in your mid-twenties. You’re handling something that’s critical. Sarbanes-Oxley was considered a big deal. It’s kind of laughable today, but it’s still a big deal. And companies are going to trust this big deal to a young guy in his twenties. How do you get them to overcome that?
Adam: Reference clients was all I had. It was just getting those first few, and then when I would talk to a company they would always say, “Well, I need to talk to someone else who uses this product.” Like you said, because it is . . . we were selling it to chief general counsels, chief compliance officers, or CFOs. I wasn’t dealing with product managers or IT managers here. And that was the only way we got through that. But it was something that always made me nervous in those early days. Today I don’t really hide behind my age, but back then it was something that I was really nervous about. That people would find out that I was this 25-year-old running this business. .And they’d say, “I’m not trusting my Sarbanes-Oxley compliance to a 25-year-old.” So I had to kind of get over that.
Andrew: Did you do anything like grow a moustache or a beard or wear lifts? Gray your hair?
Adam: There’s a picture of me in a magazine where I started combing my hair really nerdy. I did this part way over to the side and kind of slicked it over like an accountant trying to make myself look older. And I was on the cover of some local business magazine here and my wife showed me that a couple weekends ago. It’s like, “What were you thinking?” I said, “I was trying to look older.”
Andrew: Did it work?
Adam: No. I looked like an idiot.
Andrew: So I’ve actually got an email here from Chris in addition to the one where he suggested I interview you. Chris is a good guy by the way. I’ve got to meet him at some point in person.
Adam: Yeah. He’s great.
Andrew: He said ask him about some of the struggles of getting funding. So let me ask you this. What are some of the struggles of getting funding?
Adam: What are not the struggles of getting funding? I went to an event six months ago or so and they had me walk through all the different types of funding deals I’ve done to get this company where it’s at today. I’ve done venture debt, I’ve done venture debt with warrants, I’ve done convertible debt, I’ve done bridge loans, I’ve done common stock deals, I’ve done venture capital. And it’s just turned into this canned presentation that a lot of people are sitting there saying, “Young entrepreneurs, first-time entrepreneurs they need to hear this because of all the struggles.” What I was fighting against was when I first started it was still the post-dot com bubble, kind of licking wounds time frame. I was a first-time entrepreneur, which is a big red flag. I had no prior business experience. I started out of school. I mean Josh James at Omniture went through the same stuff. We compare our first four or five years, and it was the same theme. It’s hard to make a bet on a horse that’s never even been in a race before. And like you said, the business that I was attacking originally with Silent Whistle was not some small thing. It’s a very heavily regulated industry.
So probably the biggest challenge was just fighting my age and my lack of experience in business in general. Not even in the industry I was in but just in business. People just knew, and it was the truth. They just always said, “You don’t know what you don’t know.” I was able to win people over because I generally didn’t make the same mistake twice. I’ll brag all day long about all the mistakes I made, but I wouldn’t do it a second time.
Andrew: I’d love to hear that. What are some of the mistakes that you made?
Adam: Oh, just wasting money early on.
Andrew: On what?
Adam: Stupid marketing campaigns. The worst ever was a local newspaper here had this special one-time-a-year business section insert that they did. And for like 25 grand you could get the front cover of it and basically build out just how you wanted the page to look and feel. And I thought this was the greatest thing since sliced bread. I was like, “Oh, I’m a genius.” And it was the biggest disaster. Newspaper was already dying back then and to do this one-time-a-year insert into a family evening newspaper, it was just bad. It was really bad. It took me a while to figure out how to hire sales guys. It took me a while to figure out what a CTO looks like. A lot of that stuff that I just kind of burned through cycles trying to figure it out those first few years.
Andrew: Why is hiring sales guys so tough?
Adam: Because they’re sales guys and they can lie in interviews. My very, very first VP of Sales was a disaster. But he looked the part, he spoke the part. He had the MBA, he was really polished. Good sales guys, well even bad sales guys, can sell themselves fairly well in an interview. It took me a while to learn the value of making background calls that they don’t know you’re making.
Andrew: What else beyond background calls helps you find the right sales guy?
Adam: With sales guys, I find you have to really dig into details. When they say, “I closed a million dollar deal with Cisco.” Okay. Tell me about that. Tell me about the sales cycle. Who’d you sell to? What were some of your challenges? Who was your champion on the deal? Who was the economic buyer? Who signed the PO? How long did that take? And you can find out real quick if they were just a bystander or a sales engineer or an account development rep on that deal or if they really were the person that closed it. That’s probably the best advice I would give. With sales guys dig deep into anything they claim on their resume go find out every tiny little detail about that.
Andrew: That’s a good point because there are a lot of people who are just helping out with the sale who claim the sale on their resume and they obviously wouldn’t have those details. Interesting.
Adam: We have former sales guys here that I’ll see on LinkedIn and I’ll go to their portion about Allegiance. “Created $6 million of pipeline” with all these accounts. He basically is reporting the entire team’s results as his own. And he’s gotten a couple of good jobs since then. Nobody called me. I’m sure they didn’t dig in because it would have been very apparent that he didn’t create a million dollar opportunity with Best Buy or whoever it would have been.
Andrew: That’s a great point. By the way, that happens to me here in interviews too. Guys will claim that they’re founders just because they were one of the early, not the first, one of the early hires. And then what I’ll have is an email from the person who really did found the company, because they listen to these interviews, and they’ll say, “Andrew, that’s not how it happened.” I’ve actually had a few come on and refute it. They did it kind of nicely but they basically said they weren’t a founder.
Adam: Coming out with who’s the founder is such a messy process already I’m sure it’s a struggle for you. Just watching “The Social Network,” the Facebook movie. I think every company starts out with just craziness like that. People who are in for a week, they thought they owned some portion. I think every company has a little bit of a skeleton in the closet when it comes to . . .
Andrew: You know what? And while you’re building the company who cares about titles? You might as well let people consider themselves a founder. As the founder of Match.com said, “Yeah, it helps for everyone to feel like they founded it. At the end of the day, it doesn’t hurt me to have these guys running around as founders. It hurts the rest of the world to think of them as founders.” By the way, I am a co-founder of Silent Whistle. I put that on my resume.
Adam: There’s three or four others, so you’re in good company.
Andrew: I was there in the early days on my LinkedIn. Nobody’s going to check on it with you. So when did you add another product? What was the next big product addition?
Adam: I’d say a year or so into the Silent Whistle gig, we found out, I realized that that VC was kind of right in that it’s going to take a long time selling something that’s three, four, five grand a year. It’s going to take a lot of time to build an interesting company here. At the same time, we had a few clients who we were having success with who said, “Hey, what else do you guys do? Can you help us with other compliance products?” And then I had others coming and saying, “Can you help ups with other types of feedback, whether it be customer inquiries or employee inquiries?” So these were the two industries I got interested in. I looked deeper into the compliance arena and by that time there’d been a ton of companies who’d already raised a lot of money and they were way smarter than me. These were former partners at PWC and Ernst & Young. I was like, “I’m not going there. I can trick people with my little Silent Whistle idea, but when you’re talking about broad based compliance there’s no way.”
So this kind of customer feedback/employee feedback industry interested me. And I ended up being introduced to a professor at BYU who I never knew during school. But he had founded a company in 2000 called Allegiance Technologies. He was doing a few hundred grand in revenue, three or four employees, a handful of clients but had no direction. They didn’t know where they were going. And he came to me and said, “I want my business to go somewhere else. Let’s figure out a way to work together.” So we ended up buying that business in 2005. And the hope was that Silent Whistle and Allegiance Technologies would somehow integrate well. With Silent Whistle, we had this have-to-have quick sales cycle product. And with this customer and employee feedback product, we have big upside but it’s a long sales cycle but it’s a big upside, it’s nice to have. We figured out it would be a nice combination. But in reality, what happened was two businesses kind of grew up side-by-side. We had the Silent Whistle core business that kept growing and doing well. And then we had this new Allegiance customer feedback business and it was almost like starting over. I spent ’05, ’06 and maybe even a bit of ’07 just trying to figure out what the heck to do with that thing. Meanwhile, Silent Whistle was just growing. So that was the next big step, was buying Allegiance Technologies.
Andrew: How much was already built out with Allegiance?
Adam: They had a nice case management system that would help companies manage and track customer inquiries. So one of their clients was Zion’s Bank, a $10 billion bank here in Salt Lake, and they talked about how their customer response time had been two weeks. It had been brought down to a couple of hours because Allegiance had built this nice case management tool that would immediately route customer feedback to the right person in the organization to respond to. And that was basically their only product. Like I said, a few hundred grand. People loved them. All of those original clients from 2005 are still here.
Andrew: I see. So not a lot of features, not a lot of product lines but that one thing that they had was doing so well that customers could see measurable results from. They could see their response time go down. Okay. So you’re saying that one business is growing, which is Silent Whistle, the other you’re trying to figure out what to do with. Why did you decide to sell Silent Whistle then and go with the one you were trying to figure out what to do with?
Adam: So it’s funny about that compliance market. When I started Silent Whistle, there was probably 30 competitors. There was three big ones and then a bunch of little guys. And because it was driven primarily by Sarbanes-Oxley, and Sarbanes-Oxley had a window of 24 to 36 months where everybody had to get compliant, that market went from small and fragmented to completely mature in like two years. It was crazy. So Silent Whistle got to the point where it was doing probably four million in revenue and kicking off a couple million dollars of cash every year. But it wasn’t going to grow very fast anymore, and it needed to become part of a bigger umbrella. So a couple private equity groups looked at buying it to see if they could grow it but they all kind of came back with that general consensus that, “We think this market is already too mature and it’s not going to grow more than 5% or 10% a year from this point on.” Whereas on the other side, on this Allegiance side, we got this thing figured out and we saw some very clear market needs. We felt like if we could play our cards right, there was a multi-hundred million dollar exit in the realm of possibility in the voice of customer world. So we made the decision to go sell Silent Whistle. We sold it to the biggest competitor, which they loved because we had ruined the pricing in that industry because we went in with this new web-based approach and we cut their pricing by 60%. So they were more than happy to kill us. They picked up $4 million in revenue and it was a great deal for them and then we took that cash and ploughed it all right into the Allegiance business because to really be the winner here it’s going to take some cash for sure.
Andrew: So you weren’t able to take any off the table for yourself?
Adam: No.
Andrew: And did you ever announce before how much the sale was for? Before this interview?
Adam: I don’t know if we ever did. It was just under 10 million bucks.
Andrew: I don’t think you did. I did some research, couldn’t find anything. But you took it all, put it right back into the business, didn’t give any of the investors their money back, didn’t do any . . . wow.
Adam: The reason it worked was that when we bought Allegiance Technologies that was a stock purchase so the cap table didn’t change. The two companies were kind of jointly owned by the same common shareholder group. One of my lessons learned now is, if I could go back in time, I would have not done that stock deal. I would have bought Allegiance Technologies out back then.
Andrew: For cash?
Adam: Yeah.
Andrew: And you’d enough on the books to be able to do that?
Adam: Not at the time. But if I knew and had the context and know-how I’d have today, I could ha e easily found the money to just buy that company out.
Andrew: Before I go on with the story, I’ve got to ask you how you figured out the VC market, the angel market, there was also debt that you took on. Lots of different financial instruments had to come into play to help you build your business. And you’re not a guy who has a background in finance. You’re an entrepreneur who started this business right out of school. How’d you even learn this stuff?
Adam: Hard knocks. Like I said, that first year of taking people to lunch to get them to buy my product. It’s just kind of the same thing with funding. Just taking angels to lunch. When you’re young and you start a company, people will generally take pity on you. If you’re some 45-year-old starting your fourth business, people aren’t going to let you buy them lunch to get free advice. But that was my main strategy. I’d take angels to lunch. I’d figure out what that world was all about. I’d take former entrepreneurs to lunch. The founder of Control4, Josh James at Omniture, Patrick Byrne at Overstock.com. I’d take these guys to lunch and just figure out how’d you start, tell me about angels, tell me about different ways to structure deals. If I could go back, I’d do a lot of the funding I did very different. But at the time, when you’re building a company, you’ve just got to keep that thing afloat. Early on I was never able to go raise a million or two million at once. I was always raising 100 grand, 150 grand, 300 grand, just enough to get me three to six months further down the road. So I kind of just had to take what money was available. And I’m not saying I ever got screwed over and took bad deals. We’ve never done a down round or anything like that. But I could have done a lot of things differently along the way to save myself some heartache down the road. There was provisions I put into some early deals that when it came time when I brought a real venture capitalist to the table, they didn’t want to invest with some of those other provisions I’d put in place in earlier rounds. It was kind of messy to clean that up.
Andrew: How’d you get all those guys to give you the time of day let alone to sit down with you over lunch? It’s not easy to get people to let you take them to lunch to pick their brain.
Adam: I always had to find an intro through someone they knew and respected. So it was spider’s web of just trying to connect the dots. I’d get an entrepreneur that would like me and I’d say, “Who was your best investor?” And Josh James, his largest private investor was this Japanese guy named Nobu Mutaguchi. Made an intro Nobu, Nobu put in 25k just on Josh’s word in a round years ago. And later on put in another few hundred grand and then a million dollars. Today he’s one of my biggest shareholders, one of my favorite investors and just made that intro through Josh. And that’s probably how all of them happened is I’d take someone to lunch who talked really highly of someone and they’d make the intro for me. Like I said, I think if you go with the approach, especially when you’re young of, “Hey, I just want to learn from you,” people generally will let you take them to lunch. Everyone needs to eat.
Andrew: How do you win them over so much that they then want to introduce you to their friends and trust you enough with those kind of valuable introductions?
Adam: I think telling everyone the story of selling my house, selling my Beemer, moving my family back into an apartment. I think people like to see passion from entrepreneurs. They like to see people who aren’t coming to them saying, “I have this business idea and I’m thinking of starting it.” They like people that are like, “Dude, I just freaking threw myself into the fire and I’m burning up right now. Will you help me?” And people really like people that show that initiative and have already done lot of the heavy work. And then I think they’re more than willing to sit on advisory boards or make introductions. At least in my case that’s kind of what happened.
Andrew: Okay. So let’s continue with the story. We’ve heard you talk about how you got in this business and why you were getting into the feedback business. And Allegiance had this great individual product. What’d you do with it? How’d you grow it?
Adam: I’d say for the first few years with Allegiance, we were just trying to figure out what the industry wanted. So there was a lot of competitive intel, going to a lot of shows, talking to a lot of clients. What made it tricky was the industry was also early on. I mean three years ago when I would pitch a venture capitalist, they’d say, “So you’re Survey Monkey?” They didn’t understand the difference between just really basic, almost free survey tools from companies trying to deliver real time customer insight and behaviour insight. So it was just throwing a lot of spaghetti against the wall, trying to figure out what would stick from both a product perspective, marketing, sales. We didn’t do a lot of product development, R&D for a couple of years there. I only had four or five engineers. But I’d say late ’07, early ’08, we figured out where this industry was going to head over the next five to seven years and we went all in. Again, that was part of the reason we sold Silent Whistle was I took my dev team from about four or five to about 60. I had three stud product managers and for the last two years plus it’s been nothing but hardcore R&D mode. Our first big release came out . . . and actually we ended up buying a company last year in Austin, Texas because we couldn’t build everything we thought we needed. Couple partnerships along the way as well to help build out the full product. But had our first release, big release in May of this year and it’s just been phenomenal response from the marketplace. Had our biggest quarter ever by far in Q3 just now. Q4 will be epic, and 2011 looks just great for us.
Andrew: What was your revenue in 2009?
Adam: In ’09, we did, with that acquisition and simultaneous divestiture, we were kind of around the $5 million or $6 million mark. And now we’re in the $10 million to $12 million mark, looking to do 20 plus next year.
Andrew: So you’re on pace to do 10 to 12, you’re saying?
Adam: Yeah.
Andrew: Okay. So how were you going to be different from Survey Monkey and WuFoo and some of the tools that were already out there? Or UserVoice?
Adam: There’s a quad chart, a classic HVS quad chart we use, that on one axis has real time nature of the solution and on the other axis has the amount of insight provided in the information. On one corner, you have very much real time products that deliver zero insight, just data. Survey Monkey’s the king of that world. You can create a survey about anything you want. You can do it with Google Docs and in three minutes start collecting data. But that’s all it is, just data. On the opposite corner of that graph, you have big market research firms, a $30 billion industry that you can go spend millions of dollars to get insights but it takes six months and a lot of money to get those insights. And where we’re taking this industry, where we’re taking ourselves and our product is to the top right corner where we’re delivering insights in real time. That’s what will be the ultimate driver of success in our industry.
Andrew: What kind of insight?
Adam: What’s driving customers’ behaviours. I don’t know if you’ve read the book “The Ultimate Question” by Fred Reichheld a few years ago. The Net Promoter Score came up with all this, created a lot of good buzz for our entire industry. Everybody’s benefited from NPS. But all it is is a number. So naturally the next thing the industry asked for is, “Okay, I’ve got my NPS score. Well, what does that mean? What’s driving that? What’s driving behaviours of promoters? What’s driving the behaviours of detractors?” And getting into the real time insight of why people buy your products and why do they not is it service, is it product, is it something else, is it price? Being able to put that kind of data into the fingertips of business users on a daily, weekly, quarterly basis is really the value that we’re beginning to provide. More than just, “Here’s some survey data for you. Figure out what to do with it.”
Andrew: I see. So the Net Promoter Score from the book, “The Ultimate Question,” I guess that’s the name of the book is a question that you show your audience that says something like, “How likely are you to recommend Mixergy to your friends?” If I get a 1, it means I’ve got trouble. If I get a 10, it means I’m doing everything right. But regardless what the number is I’m going to want to know why they’re saying that, I’m going to want to know what led them to that decision, how I can influence that decision in the future. And the book does say that you can ask a second question which is, “Why did you give that answer?” You’re saying that’s not enough insight? The ultimate question is not enough with one extra follow-up?
Adam: Here’s the problem. We deal with a lot of companies who have that exact program built out. They ask the NPS question, then they say, “Why did you give us that score?” All they get back are tens of thousands of verbatim comments that they have to manually go in and categorize. Till the product we released in May, there was no way to scale that and make it real time. Because before it would become real time, someone had to manually go in, read those and code them and most companies just didn’t go through the hassle. So you had these managers that had their NPS score and if they asked the question of why did it go up or why did it go down, “Okay, let me go into these comments and see if I can figure it out based on gut feel.” That was the best they could do.
Andrew: I see. That’s right. The only other thing that I could think they might do is put it into an Excel spreadsheet and sort it all in alphabetical order and hope to see some repeats that stand out. But that’s no good.
Adam: It’s got to be real time analysis for business users to make changes on the fly.
Andrew: Again, I’m going to go back to one of the emails that I got from Chris Cottle. He’s saying that I should ask you about big conferences, guerrilla marketing, thought leadership, and basically how you were able to act on big ideas and stand out from better funded companies. So what about guerrilla marketing? How were you able to use that?
Adam: Like I mentioned, a few years ago we just did a lot throwing of spaghetti against the wall to see what would stick. And it was kind of a mixed bag of we would do really ground level targeted campaigns of going and finding out what vendor some particular company used. Or using LinkedIn or using Twitter or using Facebook, whatever we could find to find some certain individual in a company that we knew was going to be a key contact in making an introduction, and I would fly out and take them to lunch. So a lot of guerrilla tactical stuff like that. But because our industry is growing and evolving as we speak and is really early still, there’s really no thought leadership. There’s a couple good analysts but that’s it.
So a year or so ago we decided we’re going to have to just define this industry where we want it to go. Otherwise it’s just going to wherever it just happens to be the greatest fad. Someone will put out a new book to replace “The Ultimate Question” and it’ll go down that alley. So we’ve launched a massive effort of hosting just first class events that we host. We make them industry events. It’s not about Allegiance. We’re there, we’re footing a lot of the bill, we’re doing all of the nitty gritty details behind the event, but we bring in just great industry speakers, VOC champions from big companies and most of them aren’t even our clients. We’re just trying to push forward that thought leadership in the industry, and we’ll probably help out competitors along the way because we won’t be able to convince everybody to switch over to Allegiance or to buy Allegiance’s products. But someone has to do it and we feel that we’re in the best position. We’ve got a great creative team. Chris is fantastic when it comes to seeing where markets need to go. And this way we can kind of control our own destiny a little bit. It’s an expensive process, but if you do it right, you can get a very nice ROI on the dollars you spend.
Andrew: Have you gotten a return on investment from that?
Adam: Yeah, I would say so and probably quicker than we thought. These events probably cost us anywhere from 90 to 150 grand to put on. But within a couple months of each of them, we’re closing big deals. Many six figure plus deals as a direct result of those conferences. So even though they’re more pushing industry rather than Allegiance, it’s been a great marketing machine for us.
Andrew: What does Chris Cottle do for your company?
Adam: Chris is my VP of Marketing and Products.
Andrew: That’s right. I saw that in one of his emails. I’ve got to say this to anyone who’s listening or watching right now, if you’ve got a boss who built an incredible company, especially if he came from behind the way that Adam did, had to use credit cards, introduce me to them. Or send me an email. Let’s talk about them. And then maybe we’ll have them on here to do an interview. Hopefully her too. I need more female interviews. So is there anything else on here? No. I guess that’s pretty much everything. What are you guys doing next?
Adam: What we’re trying to do is just suck all the air out of the room that we’re competing in, make it not fun to compete with us anymore. Just dominate. Five years from now when people talk about customer feedback, customer insight, I want Allegiance to be the name that immediately comes to mind.
Andrew: By the way, kept talking about the all the low points. What about that high, the first million that you guys brought in? Do you remember what that was like?
Adam: It’s very anti-climatic actually, because there’s still so much work to do whenever you do that. It’s great and it’s very validating when you have those kinds of events happen. I imagine it’s like if you’re an NFL coach. You may win a big game on Monday night football where you come from behind and you drive down and score a touchdown at the last second to win the game and it puts you in first place in your division and you’re going to make the playoffs or whatever. But as soon as the game’s over, you enjoy that for a second and you’re like, “Hey, we’ve got a game in six days we’ve got to get ready for.” It’s kind of a similar feeling here where you enjoy it, but it’s a journey. There’s still a lot more to accomplish.
Andrew: If you want to check out the website guys, Adam’s site is Allegiance.com. That’s a great domain name to get. Allegiance.com. Oh, one more thing. If anyone heard some noises during the interview, I want to tell people what it is because when I listen to podcasts I always wonder what’s that noise that’s going on in the background. I actually was using Google voice on my computer today, and somebody called up while we were doing this interview and Google voice popped up. I’d forgotten to turn that thing off. I think you and I are both on Skye; I think one of us also had a Skype chat come up in the middle of the interview. That’s the way we do these interviews. I call him from my office on my Skype. You’re in your office, right, picking up on your Skype, on your computer. That’s how it’s done.
All right, Adam. Thank you again for doing the interview. Guys, thank you all for watching. Come back to Mixergy give me my Net Promoter Score, shoot it to me in an email until I get some system up and running to organize it properly.
Adam: Thanks, Andrew.
Andrew: Cool. Thanks.
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