Bootstrapper Case Study: Alien Skin Software – with Jeff Butterworth

Posted on Sep 23, 2010 - 12:52 PM PST

Jeff Butterworth dropped out of school and started his company. He didn’t have much money, so he decided to make what he thought would be a simple product: a plug-in. As you’ll hear, it was more complicated than he expected, but he kept working on his business and, even as other companies raised venture capital to compete with him, he remained self-funded. His company, Alien Skin Software, broke a million dollars in revenue three years after launching and stayed above a million dollars and profitable ever since.

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About Jeff Butterworth

Jeff Butterworth is the founder and Queen Bee of Alien Skin Software.

Alien Skin Software makes Photoshop plug-ins for photographers and graphic designers. They distill advanced math and cutting edge research into simple tools that render beautiful pictures.

Raw transcript


This transcript was prepared by SpeechPad. You can read (and help edit) it on Google Docs.

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Andrew Warner: Hey everyone, my name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart, place where I interview successful business people about how they built their company so that you can learn and, hopefully, come back and do what today’s guest is doing, which is an interview about how he did it.

Jeff Butterworth is today’s guest. He is the founder who dropped out of school and started his company. He didn’t have much money, so he decided to make what he thought would be a simple product, a plug-in. As you’ll hear, it was more complicated than he expected, but he kept working on his business and even as other companies raised venture capital to compete with him, he remained self-funded. His company, Alien Skin Software, broke a million dollars in revenue three years after launching and stayed above a million dollars and profitable ever since.

Jeff, welcome to Mixergy.

Jeff Butterworth: Thanks for having me.

Andrew: So, I read that your parents turned you down for a loan when you launched. How much money did you ask them for?

Jeff: I only needed $2,000 to buy a computer at that point because . . . well, the background is that I started my company in a really dumb way, at least, financially. There was no savings, so I had no cushion. And so, that was kind of dumb. So, I didn’t blame them for turning me down. I was borrowing a friend’s computer at night while . . . well, no, I’d sleep on his couch during the day and I’d use his computer while he was at work.

And, you know, that’s just not a very smart way to start a company. And so, they said, “Jeff, go back to grad school” because I dropped out of grad school to do this. They said, “This will pass” and I said, “No, I’m going to do it.” And so, I used the one thing that I owned, my car, as collateral for just a bank loan for $2,000 and bought a Performa 475 Macintosh which is behind me on a shelf, actually, and I just figured it out.

I think, actually, it was not a good way to start a company. I had no savings. I do like bootstrapping. I think that is terrific to not have investors for a lot of reasons, but it’s dumb though to not start out with any sort of savings and just to assume that the first thing you do will take off with no hitches. You need to have some cushion. You need to have some backup plans.

What happened was George Browning and I dropped out of UNC, Chapel Hill, to do this, and Photoshop plug-ins were not what we started out doing. We started out making history generation projects, a lot like Kaiser power tools. That didn’t work well. It was a big failure with the company that was going to publish it. They just sat on it, and then he and I were immediately starving.

And so, we had to scramble to do other things. I started making plug-ins. He went off and did other stuff, and so we split up pretty quickly. It was at that point where I asked my parents for money, and they said I was crazy and I was crazy. Yeah, just have a little bit of savings, if you’re going to do this, if you’re going to bootstrap. Again, don’t assume that you’ll succeed immediately. Have some sort of cushion and, maybe, some backup plans in case you need another six months.

Andrew: Didn’t it drive you to know that you had no other option, that you didn’t have money coming in, that you didn’t have a job that you can coast on while you were building up your nest egg? You had to find some solution, and if that solution was plug-ins then let’s give that a shot.

Jeff: Yeah, that’s true. That is true. I never worked as hard. I never worked that hard before. I was literally starving, but it was pretty close to having to declare bankruptcy or something like that. I was extremely motivated. This was the only thing I was doing. For that first year I was probably working 80 to 100 hours a week, and in the second year it only tapered off a little bit.

So, yeah, I was working in part because I absolutely had to, and it’s a great motivator to be really fully committed, but still I recommend being a little more sane. When you quit your day job, you’ll feel fully motivated even if you’ve got some savings. Once this is your main thing, you will have a fire within yourself.

Andrew: OK. I’m wondering how old you were that you didn’t have any savings.

Jeff: I think I was about 25. So, George and I dropped out of grad school. He had some savings because he had actually worked for a while before he went back to grad school, but I had been in school the whole time. We didn’t know much about business, and that’s the problem, too not having even a clue about you to start a business and just some of the basics. It was not very smart.

Andrew: How cool were you? Do you have an example of something you didn’t know back then that seems obvious to most entrepreneurs?

Jeff: Well, I guess I didn’t realize how much it would be to not only just make the product but we could do it. We were programmers. We could, at least, make our own product for free. That’s very important. In any sort of bootstrapping situation, you need to be saving money. If the core thing your business does, you already know how to do, great. You don’t have to pay anyone to do your basic job.

It would have been good if I’d learned a little bit about just basic accounting, and how do publishing deals work because what we were basing the company on initially, was we would make the software and another company Vertus, which is now gone, they would sell it. They’d do all the support, sales, marketing, and packaging.

We just really didn’t know how those deals should be structured, and so in the negotiations with them, working up the contract took forever because we were learning a lot. Well, I didn’t know you should use a lawyer to take a close look at contracts. And so, we really skimped on lawyer time and only had him briefly look at it.

The contract was huge, and it was really onerous for us and not onerous for the publisher. So, we had tons of deadlines, really, really tough detailed time line for us. And they didn’t really have any obligations on their end. And so, sure enough, we got our part done very quickly, and within a couple months started and the product’s done. Here you go. Go sell it.

And then, Vertus was just busy with other stuff, and so they didn’t sell it. So, that’s why we started starving. They were doing their part, and then we realized that we should have had a lawyer draft a more fair contract because we had no control over them, no leverage there.

And so, knowing a little bit about when you should use lawyers and things like that and even just a little bit about how you deal with employees. A lot of things I learned the hard way, and I recommend learning lessons from other people who have gone through pain already. Let other people’s agony teach you so that you don’t have to do it.

Andrew: How do you do it?

Jeff: Well, I think that Mixergy, 37Signals, Signal versus Noise blog, and there’s lots of great resources on the web now giving little bits of legal advice, learning stories from other entrepreneurs. There are a lot of ways you can learn now, even learn about your specialty, just learning about software companies.

You can do it now whereas in 1993 the web was barely in existence. And it was harder to find concrete advice from people in your situation. So, I would advice people considering starting a business to learn a lot on the web first before they do it.

Andrew: You and I met through 37Signals. They featured you on their blog as a bootstrap proud and profitable company which has the criteria as having no outside funding and a million dollars in revenue. And, of course, you did that, and we’ll talk a little bit more about some of what I read in that story and put some more details into it.

Actually, selfishly, I’m curious about how you listened to Mixergy. You were telling me a little bit about where you listened. Can you tell the audience and fill me in a little bit more?

Jeff: Yeah, sure. Well, I listen to it as a podcast usually when I’m running or driving. The audience is the important part. You don’t really need to see this shiny highlight on my bald head to learn from me. You really just need the audio. I’ve been digging through a lot of your back catalogs. It’s been really fun.

Andrew: Thanks.

Jeff: It’s an easy thing to do, too. Podcasts are a great way to learn anything because they can just be going while you’re driving or doing something else.

Andrew: I listen to them all the time. I listen to podcasts and audible books that I get on my iPhone. No matter where I am, there’s always something I can learn, and I did it this morning on the train, listening to a book called “Switch”.

Let’s go back and fill in the details. I’m sure there are a lot of question marks in our audience’s minds about what the product is, what that first product was. Why don’t we star off with what the original idea was. What were you guys going to create?

Jeff: Well, I think, here’s an example, like, a product design example where if I was giving advice to somebody today, I’d say, “Don’t do it quite like we did.” We had a piece of technology that was cool, and we said, “All right. Great.” Let’s sell this. Other than learning about customers, what problems do people need to solve?

This is how we do things today at Alien Skin Software. Now, we talk to our customers, find out what they’re trying to accomplish, and then we think, “Actually, I’ve got a little bit of computer science that can do that for you” or I know where to look in the literature to find software solutions or mathematical solutions. And then, we will adapt those for solving problems. Instead, when you say, “Hey, here’s a neat little gizmo . . .

Andrew: What was your neat little idea?

Jeff: It was texture generation. So, really abstract patterns, and that’s where the name of the company came from. These abstract patterns might look realistic, like wood grain or marble, but much more often they just look weird, like slimy alien skin or craters on the moon. And it’s great. It’s cool. And if you go to our website and go to the company section, there’s an article on this stuff.

Andrew: How many people use these skins? How would they use these textures?

Jeff: And that’s the problem. What are you going to do with this stuff? Most of it was just weird and abstract. And so, what happened was when Vertus finally did put this product out a year later at which point I didn’t want to be distracted by it. I was obligated to help them finish it.

When it finally came out, the feedback we got back from a lot of people was, “This is cool, but I’m trying to do wood grain today. How do you do that?” I’d say, “Hit the mutate button for 10 minutes until you see something that looks kind of like wood. Then turn the mutation rate down and keep hitting mutate.” It was not a very direct way to make textures for real graphic design projects. It was just a bit of fun technology for using genetic algorithms to just explore the wide world of weird textures.

And so, we weren’t solving a clear problem. We were just taking a fun piece of toy technology and throwing it out there, thinking that people would pay us for fun toys. It didn’t do really great.

These days, we still make software for graphic designers and for photographers, but now it’s solving very specific problems. And so, we have a texture filter now and it will be named wood, if it makes realistic wood, or it’s named marble and it makes marble. And so, the tools are more narrowly focused in solving problems that people need solved.

The general lesson is find out what people really need and don’t just take neat little bits of technology and throw them out there and call them products.

Andrew: And, Jeff, when I’ve done that, and I think we’ve all done that, when I’ve done it I will start to rationalize my idea and start to place it into people’s lives in a way that only later I realize it just doesn’t fit.

How did you imagine people would use these textures? You’ve done it, to. I see you shaking, nodding your head.

Jeff: We didn’t even think about it that much. We just said, “This is cool. People like cool pictures.” We were just so young and nerdy and not business oriented, that we just thought people like to buy cool stuff. It took years before it really sunk in really deeply that people will give you a little bit of money for some little toy, but if you want really reasonable amounts of money to live on, you need to solve their daily problems, their problems that are related to their work.

Actually, maybe, I did learn it quickly because when we were starving and George and I went in different directions and I started doing Photoshop plug-ins, I looked around at who’s making money off of software. Well, Kaiser Power Tools. OH, Photoshop plug-ins. What plug-ins should I do?

At that point, instead of just throwing some weird graphics mathematical stuff into a package, I looked at a book on how people used Photoshop at that time. It was the Photoshop Wow Book, and it just showed here’s 12 steps to doing a beveled edge. And then, there’s a chapter on here’s 12 steps to doing a really beautiful glow.

And then, I realized this is what people are really doing with Photoshop. They have very specific effects that they want, and they’re very tedious to make. It takes a lot of steps. You’ve got to be pretty good, and if you mess up one of the steps it’ll turn out wrong. And until you’re an expert, you won’t know which step you got wrong.

And so, I said, “Well, I know how to do all this stuff mathematically. I’ll put all those 12 steps into one tool that does it with one slide control and make it easy to use.” That launched in a much better direction. At the time, it was just me.

That was called the Black Box, beveled edges and glow and a drop shadow, not much else. But, those were the effects that people really needed. They didn’t need slimy alien skin. They needed a drop shadow which at the time, believe it or not, was actually kind of hard to do in Photoshop. It was like Photoshop 2.5 or something.

Andrew: How did you and Jeff split up? How did you go your own way?

Jeff: George, George Browning.

Andrew: I’m sorry. How did you and George break up?

Jeff: It was early on. As the Vertus deal seemed like it was dead, we had to go make money. He wanted to go in a direction that wasn’t so graphics oriented. He did a sub-system for programmers to add tool bars to Windows products. It was a library that he licensed to programmers, and I wanted to do graphic stuff since that was really my specialty. So, I went and did Photoshop plug-ins. And so, we mutually broke up and that was kind of stressful.

Andrew: Can you describe it? Why was it stressful?

Jeff: Well, just because . . . it was nice to have a partner at first, someone to bounce ideas off of. But I think when it was clear that we didn’t want to do the same kind of products, then I decided that I really am committed to just graphical things because I’m more of a math-computer graphics guy.

And so, I went off on my own, and it is scary to go off on your own. I think that I do recommend partners in general if they have complimentary skills and you guys kind of want the same kind of thing. George, by the way, went on to do good stuff. His company is Zengobi, and I forget the name of the product, but anyway it’s a good product.

Andrew: Why did you continue? Why didn’t you go back to school? Here you were. You had debt. Your first product didn’t work out after taking forever to even get to the “didn’t work out” stage. You’re going hungry. Your partner leaves and goes off to do something else. Why didn’t you quit?

Jeff: Well, I think it’s because fundamentally I didn’t like academia. I did at first. At first, I got a physics undergrad degree from UNC, and then I went into computer science for grad school. At first, I loved it. I was finally getting to work on fast computer graphics machines which at the time around 1990 it was rare to find a computer that could do 3-D graphics.

And so, it was really fun new stuff for me, and I got to help with research. And UNC, Chapel Hill, is one of the top schools for computer graphics. It was fun at first, but after a while, by the time I got my master’s degree I realized that I didn’t like the unfinished nature of software in academia.

What you do at a university is generally proof of concept. You demonstrate a new idea and then you move on. You don’t polish up that piece of software so anyone else can use it. Often, the only person who knows how to use a neat piece of software at a university is this one grad student who made it. And it crashes every 10 minutes, but it’s fine. It runs long enough to do a demo and to write a paper. After a while, I realized I hated that.

I like to make stuff that’s finished. I like to use good software engineering tools, like source code control. A lot of people in the Computer Science Department were really not into it. They didn’t see why you should bother with source code control and I forget what else but real software engineering type of stuff. I realized I want to make things polished and really solid and then see whether people use these things.

And so, when I was out starving on my own I realized I couldn’t go back to grad school because I would be really frustrated. So, I decided just very firmly I want to make commercial software that works great, as bug free as I can make it, and I want to see people get some productivity out of it. So, I was just really committed to it.

Also, I knew I wasn’t going to starve. I didn’t have any kids or wife. And so, what’s the worse that can happen? I say this to people starting companies all the time, what is the worst that will happen. Are you going to be starving in the gutter? No. You’re going to go with your parents again, if you absolutely have to, and, maybe, you’ll declare bankruptcy to get a clean slate. If that’s the worst that can happen, then your life’s pretty good. So, take some chances.

Andrew: Why not though go out and get a job where you can be trained for a little bit, where you can be shown how to take a product from idea to creation to market and actually see all the things that you wanted you would have seen by working for someone else?

Jeff: And you know what? I actually do recommend that. I think it would have been a great idea. I think I was just really stubborn, and I was foolhardy. So, I think a lot of what I did isn’t really good to emulate. I was also using credit cards. The classic ridiculous story of starting a company with credit card debt is just stupid, but that’s how it goes.

Andrew: How deep into credit card debt were you?

Jeff: Well, by today’s standards it probably was not very bad at all. I think, at the worst, maybe, $7,000.

Andrew: When you say you were poor, by the way, how poor? What are we talking about here? You weren’t out sleeping in the street, but you must have some memories that stick with you that say, those describe in my mind what it was like.

Jeff: Sure, sure. It was just like college student type of poor. So, college students just eat cheap on healthy food, just a lot of frozen burritos and pizza. And you have a roommate or two and live in a really cheap apartment that’s falling apart. The thing is though the time to do that kind of thing is when you’re used to it.

So, right after college you’re used to living cheap. You don’t have expensive tastes yet, and again you don’t have the responsibilities like a mortgage and kids. And so, it doesn’t feel like too much of a sacrifice to keep eating burritos for a while. That is a good time to do it. So, I didn’t really feel like I was suffering any more than I had been for all those years in school.

Andrew: OK. By the way, when I was in that situation, I would drive into Manhattan. I lived in Queens at the time. I drove into Manhattan, and I looked up at those big buildings and just remembered all the stories that I read about the people who put those buildings up or the companies that were in them. And that inspired me because I thought if they could do it, I could do it, too and look at what’s available. Manhattan is the menu of opportunity for me.

What was it for you? What were you using as your vision to inspire you and keep you going?

Jeff: Well, you certainly always hear stories of the really big successes like back in those days. Actually, it’s the same people who we wish we could emulate now, Steve Jobs and Bill Gates. I know a lot of people dehumanize them. They don’t want to be that jerky, but we all want to be that successful.

And so, I saw people like that and I didn’t think that I would get that successful. I didn’t ever want to run a big company, but I just looked around and saw that software people can sometimes do well. And sometimes, do well from a background of just starting off as a programmer, not starting off as a MBA or something like that. And so, I just felt like it was possible.

I think part of it was also I’d seen, at least, one example of another software startup here in Raleigh, North Carolina. It was daVinci Systems, which is long gone, but they did email before the Internet came along. So, it was local network email. And they had hired a lot of my friends.

So, when I was in college, a lot of my friends, including George Browning, had been working for them. And so, I had gone over there all the time, and I talked to their CEO and their founders. And I had seen what a startup was like, and so I did have some examples to emulate. I knew that you could do it, that regular people could start a business. And they never go rich. I think when they were finally bought out, it was sort of probably a break even type of thing. But, I saw that if you’re fairly smart and work hard, you can start a company.

Andrew: Funny that you say regular people could do it. I’m now living in DC for a little bit, and I’m meeting people here who just don’t have a sense of how regular people can build incredible companies. They have this idea that the people who are making money, who are building good businesses or others, they’re not regular people. They’re walking around with monocles and top hats and we tax them or require more of them. Then, it just means that they have to hand in their top hat, which really they stole from some little kid along with his candy.

I don’t want to take political sides here. Really, I’m political indifferent, but it’s so interesting to see that if you’re surrounded with stories and examples of people who’ve done it, you think a different way than if you’re surrounded with stories of people who are others who are doing it in your world and controlling your world.

I’ll back away from that before I get into any politics and ask about that first product, Black Box. You now have that product. You kept your customer in mind. How do you reach your customer?

Jeff: Well, boy. At that point it was a lot harder than today. With the web you can start out now having a very attractive store front, a website that explains everything about you and your product. And if you present yourself really well without going to a lot of expense and if you make something good, you can quickly have a lot of people find you.

But, in those days, the web was just like a research tool at universities. And so, I didn’t have an ad budget. I didn’t have any money, so I had Compuserve and AOL. I would put my demo up in the proper places there. I would be a guest speaker at some special interest group. So, you’d have, maybe, just like 10 or 20 nerds in a chat room talking about graphic software. And I’d be the guest, and I’d answer the questions.

So, just really, guerrilla marketing where you are just trying to contact very directly with small, small groups of users and, maybe, meet with music groups and, maybe, go visit them if I could or just talk to them through email. At first, it was just really scrappy connecting with whoever I could, and it was very difficult. And then, as the web started to really work, in the following couple of years it got easier.

Andrew: Speaking to 30 people at a time in a chat room, by the way, I’ve never heard of that. That’s the first time anyone said it in the hundreds of interviews I’ve done here on Mixergy. Doing that, doing some of the other things you talked about, don’t really get you significant sales.

Jeff: Yeah.

Andrew: How many sales are we talking about here?

Jeff: Well, it was really puny at first. I can’t remember, honestly. It was 17 years ago, exactly what the numbers were, but at first I was just paying my rent and buying a better computer. In the first six months or so, I think I was just getting by. But, as I started to get off the ground, I built momentum because what I was making was something that people did need. You had to buy books and follow the 12 step recipes to do drop shadows.

And now, there was a tool that you could do it in one click. And we’re just spread because the product was useful. And that’s something to remember. If you make something that people really need, it will spread on its own. But also, though, I think that having a good relationship with the press is very important. If you’ve got money, you can hire a PR agency, and they will meet the press for you.

Andrew: How did you get press back then?

Jeff: Exactly. I did it myself. You know, if you are willing to get off your butt and figure things out on your own, there’s a lot you can figure out. So, I bought magazines. I opened them up and found articles on products similar to mine, and I saw the name of the person who had written that review. And then, I looked for the contact information in the magazine, and I contacted them. I just introduced myself and said that I’ve got a product you might want to write about, and I was just really humble and nice about it.

I said I am the whole company here, and I don’t really know how I’m supposed to talk to the press. So, you just let me know what information do you need and at what point in my development cycle do you want to see a new version. Do you need to see it three months before I release? I don’t want to show you something that’s too buggy. I just had a conversation with them, and I would just ask. Tell me what you want and it was great.

I think that you said this in one of the Mixergy interviews. You or one of your guests said that most people in the world, including business people, even your competitors, if you just ask them for advice, they’ll give it to you. They will give you these wonderful gifts and just say, “Hey, I’m willing to listen” and they’ll tell you anything.

And so, the people in the press said that I like to hear about a product two months before it ships. I’m going to need press release kits because what I like. And a couple of them also said, “Do not ever do A, B and C because that enrages me.”

They gave examples of things that PR people or software company executives had done that really made them mad. I can’t remember what they were. It was things like not telling them about the product early enough or I forget what, but I said, “OK, great, thanks.”

Then, I just followed their instructions, and they wrote about me just like they were writing about products that had huge PR agencies behind them. All I had to do was look in some magazines, email or call people, and just ask them what they need. I think a lot of stuff in life is that easy. Just pick up the phone. Just go check into it and just ask people. They’ll tell you what to do.

Andrew: I want to do a little bit of math here. I want to figure out how many copies you had to sell of Black Box in order to pay the rent, and we’re not going to get accurate numbers here. But, I’m curious here.

Jeff: It started off as $47. I like to pick odd prices. I still hate prices that end in nines. I think we should get rid of our prices that end in nines. So, it was $47. And so, my rent, I had a roommate. My rent was probably $400 a month or less, and I didn’t drive my car much because I was just at home all the time working. You know, burritos and pizza are not expensive. So, maybe, I spent $10 a day on food, so that’s $300 for food.

And then, my computer expenses were not really big. I had this one computer. It worked, and I had a little dial-up modem. So, I was probably was living off of $1000 a month. And so, $1000 divided by $50, what’s that? 20? So, I had to sell 20 copies of this cheap software a month just to live.

This is an example of living below your means. I do think you should live below your means and don’t let you expenses get really big until they need to be. And so, it didn’t take much for me to survive. And then, I started to hire employees after I was making enough money to be able to afford them.

Andrew: All right. So, now I can see how if you’re in a chat room or you’ve got your product uploaded to some kind of download site. I could see how you could make 20 a month and pay the bills. And then, if one of your press attempts hits, then you get even more orders and then it starts to build on itself.

Do you remember your first press hit or your first mention in a magazine or newspaper?

Jeff: I don’t think I remember the very specific first one. Again, 17 years is a long time. But I remember that one of the magazines where I contacted somebody and asked her . . . I feel terrible. I can’t remember her name now. I’ll look it up later. As I said, you know, how should I talk to you? What should I say? How should I be doing this? And she just made it really clear, and I was surprised within six months one of my products was reviewed in World Magazine which at the time was just really big.

And yet, it was things like that that really gave me big boosts, and those things were not as hard as you think. You just politely contact people. Don’t bug them. And I think I seemed real. It was very clear I was a real genuine human, and I was not a faceless PR agency or big corporation. A lot of the press loved that. I think that goes over very well.

When you are poor and scrappy, people are going to want to write about you. So, get in touch and give them something huge to write about. Talk about how you’re this starving little company. You’ve got something cool that you’re passionate about, and you’ll get written up.

Andrew: All right. At what point did you hire your first person? Where were you as a company?

Jeff: Well, I was still working out of my apartment. I think it was pretty early. It was pretty early on, and I think it was within six months. I had just hired a friend, and I think it was part-time. What happens pretty quickly is that you find that the ringing phone is driving you crazy. You’re trying to make the next version of the software, and people are calling you to buy it or need support. You’re just thinking, if I wasn’t giving you support, I could fix the bug, and then you wouldn’t need support. You know, catch 22.

And so, I hired a friend really cheaply about six months into it, and she could, at least, take care of the basic phone calls and give me a little bit of relief so that I could get some work done. I actually went through a couple of friends in that position because . . . here’s where being a real poor bootstrap really hurts you. It’s not being able to hire qualified people right off the bat.

And so, I was hiring really cheap friends, sometimes, very slacker friends who didn’t have anything else going on. The first couple of them didn’t work out. They were really slacker buddies, and they just couldn’t even get some of that basic stuff done.

So, when you’ve got some money built up, then you can hire qualified people. And it’s a better way to start.

Andrew: You said in that 37Signals article that I met you through that you hired friends and there was trouble and that it was tough, I think, to let them go is what you were saying.

Jeff: Yeah.

Andrew: How do you do that? How do you let friends go who just aren’t keeping up with the growth of the business? Who aren’t living up to your expectations?

Jeff: I think one of the most painful things I’ve experienced in running my own business . . . I’ve made a lot of different kinds of mistakes. Some are easy to recover from than others, but I think one of the mistakes that’s hardest to recover from is bad hires or just employee situations where, maybe, they were good hires at the time but then the needs of the company changed.

It’s especially bad if you hire a bunch of friends. It’s very difficult to let a friend go if they aren’t really doing anything bad. Occasionally, somebody would be disruptive. Those were easier to handle, but a lot of times people just were having a tough time getting things done even though they were trying. And so, letting somebody go in that situation is just really not fun.

Andrew: How do you do it?

Jeff: So, I would recommend not hiring a whole lot of friends. And yet, even the ones that you do, do it because they’ve got really great skills and not because they are your friends. How do you do it? Well, I think that what I know now is that you need to give people regular feedback.

And so now, like clockwork, and we weren’t doing a lot of this stuff at the time when the company was a bit of a mess, in the middle years. Now, every six months we have performance reviews. It sounds sort of corporate, but it’s useful to get feedback.

First of all, everybody has a manager, and we don’t have a lot of management. There’s 11 people, and so there’s two managers. Everybody has a clear person who guides them, and every six months you get some feedback. It’s usually a pretty friendly experience. But, occasionally there’s some pretty clear messages of “This thing is really going badly. I don’t want to see this happen any more” or “We need to find a way to fix this fundamental problem.”

By doing that, people know where they stand now, and they don’t get delusions that they’re doing great when they’re not. And so, people know when they need to improve, and they generally do. But, in a lot of those middle years we didn’t have performance reviews, or we would be really slack about them. We’d do them once every year or two.

As a result, I think that when some people were starting to go off the tracks, they thought they were doing great and they didn’t know they were going off the tracks. There would be simmering resentment from, maybe, a lot of people on the side, but people weren’t telling them.

And so, finally when the situation was totally untenable and they had to be let go, they were surprised, and that’s really terrible. That’s a sign of bad management. I definitely did a lot of bad management stuff in the early and middle years. So, now I say, just give people regular feedback and that solves a lot of problems.

Andrew: What was the second product after Black Box?

Jeff: Well, the Black Box went through quite a few versions. It was the thing that was sustaining us for a long time, and we added lots and lots more filters to it. And now, it’s called EyeCandy because there is a Black Box Corporation which firmly but politely asked us to change the name, and that was fine. I like EyeCandy better, anyway. And so, that just got bigger and bigger and made more and more money.

We did another special effects called Xenofex which is a weird name. It was designed by committee, sort of. Xeno was sort of alien and the fex part to it. I hate it. So, more weird special effects. We branched out a few times into video or illustration plug-ins, and those didn’t work so great.

Andrew: Why not?

Jeff: I’m not sure. I think part of it is that we were starting to spread ourselves thing into areas that we weren’t experienced with. And so, we were just being pulled in a couple of different directions and starting to not do everything as well. I think that staying specialized is really good. Once you’re good at some area, just mine that for as much money as you can. Be the king of that area.

And so, we would tepidly stick our toe in the water, a video, an illustration, and not be very serious about it. You’re not going to make a lot of money by giving something a half-hearted attempt.

So, mostly we did well with our Photoshop plug-ins for graphic design. And I just briefly mentioned that EyeCandy and Xenofex have a lot of “gee whiz” effects, like lightning and fire and chrome and just really sparkly, explosive, metallic sort of effects. They’re well loved by a lot of graphic designers, but what really has been driving us for the last, maybe, seven years or so has been photography.

Photography Photoshop plug-ins are pretty different. A lot of times the effects are much more subtle, like film simulation, image enlargement, and things like that. And so, that’s what we’re really more into now. We still do very well with our special effects, like EyeCandy. But, we do even better with our photography tools.

Andrew: Because there are more people who are into photography or looking to improve their photographs. I see. I saw some of the transformations that you did with photography, and some of them I understand and my eye can spot where you take a beautiful picture and you make it old or you make it look like it was in film. Some are so-I can’t even tell what you’re doing to it. It’s such a minor adjustment, but people are raving about it.

Jeff: I didn’t know much about photography when we started to get into this. When we did Exposure, our film simulator, I did it because photographers were urging us to get into this. I said, “Well, I don’t know what you guys need.” And I kept telling them, “I don’t understand the difference between film and digital. Don’t they look the same?”

They’d roll their eyes. “No, they’re totally different.” But like you were just saying, I’d say, “I don’t know. They look pretty similar to me.” And I don’t see a product there. Finally, the convinced me that there were differences, and you go through a lot of education.

What are the subtle things about film that photographers love? And so, I can see it now. So, you’re probably referring to our Exposure product. Some of the setting in Exposure do very little to your image, but a little bit of contrast change, a little bit of a color cast, and, maybe, some subtle film cream just in the mid-tones.

For some of us non-pro photographers, that’s pretty subtle, but for a lot of the photographers they say, “All right. You nailed Fuji Velvia exactly” or Kodak Portrait NPS. “That is exactly what it looked like. Thank you. I finally have my old tools again.” You know, my old film tools.

Andrew: How do you listen to your customers? How do you get feedback like that?

Jeff: This is a good example where instead of having some neat gizmo and saying, “Ah, this is a fun bit of computer science. People should pay me for it.” Instead, I was talking to the customer saying, “What are you guys trying to do with Photoshop?” And the photographers were saying, “Well, I’m trying to recreate film since I can’t use film any more. All the labs are closed in my city. I’m trying to get these looks.”

Andrew: How would you talk to them?

Jeff: I think just really directly email, sometimes on the phone. We would meet these people, sometimes, through our forums on our website, but like this they contacted us directly. One of our fans also was using EyeCandy to do some, maybe, shiny buttons on their website, but they were also a photographer. Just get in touch and say, “Hey, look. I’m a fan of some of your stuff, but I need this other thing.”

And so, when people email you, sometimes they seem like crackpots and you just say, “All right. Thanks.” But, sometimes they seem really eloquent or they’ve got a neat story to tell, and you just talk to them more. Just some of the more eloquent or, maybe, sometimes the more forceful of our customers got our attention. When they made it clear that they’ll pay for this, “I need the look of film” then we said, “All right. There’s a problem to solve. Educate us in exactly what you need, and we’ll do it.”

And Exposure has been a huge success for us. It’s really sunk into me that you should be trying to solve people’s problems and not just show off the kind of neat computer science you can do. Really, a lot of the programming behind Exposure is less mathematically difficult than what we did in EyeCandy, much less mathematically difficult.

What makes the product special is all the research behind it and understanding in all the subtle ways what these photographers need. It really drove home to me that you can still make a very valuable product that doesn’t have rocket science in it. It’s just exactly what the customer needs.

Andrew: We talked about what it was like when you were poor and struggling. And I mentioned in the intro that three years ago exactly you launched a million dollars in revenue. Can you describe what it was like to hit that million?

Jeff: It was great. In those first couple of years I went from . . . I had been a student for many years, so four years of undergrad, then three years of grad school and then just leading right into more burritos and more cheap apartments with roommates.

Then, I started to see revenue go from-the first year I forget. I’m just going to guess here, maybe, $60,000 the first year. It was still more money than I had ever made to then doubling the next year and then quadrupling the next year. So, in those first couple of years it was really exponential growth until we got to about a million, and it started to slow down.

It was great. I had more money than I’d ever had before. I could start to do things, like go on a press junket. I could go to San Francisco and New York and visit all the magazines in person and sit down and do demos for them. This was the first time that I traveled, and so I go to see San Francisco and places like that. I was very excited. Those first new years as the company starts to do well are really the most exciting times ever, very stressful, working 80-100 hour weeks, all-nighters, which I don’t recommend, but we were doing it.

It’s exciting. It’s fun. You have some money. It’s very different than now. I think that those early years are what people like to talk about. A lot of people want to do that trajectory where you grow quickly and you sell as you’re still growing for some really sexy amount of money. And I wanted to do that, but I really didn’t know how. I didn’t have an exit strategy.

What we’re doing is much different. We’re in this sustainable mode, 17 years later. We have about the same revenue now that we did back at the four or five year point. So, we haven’t been growing for a very long time. We may be growing a little bit again now, but pretty much it’s just been a sustainable model where you may have a company that’s profitable enough that everybody has good salaries. And when things are going really great, good bonuses. It’s just an enjoyable thing to do indefinitely.

Again, this is not really the model of a lot of the software companies, but I like it. It seems to be, 37Signals is doing good, also. Let’s make this really profitable and let’s do it forever.

Andrew: Peldi from Balsamiq, do you know his program?

Jeff: I learned about it through Mixergy, and I actually did a little work with it yesterday. So, the first time, yeah.

Andrew: It’s great mock-up software. He said the same thing. You know what? What I want is that little restaurant that everyone knows makes delicious food but can never scale up to be as big as McDonalds. He said, “That’s what I want to own. That’s what my business is.” And it sounds like that’s what this is, too.

Jeff: I think you can still do some growing. I want us to more and more profitable all the time. I want to get to the point where we have ridiculous salaries and crazy bonuses but without doubling our head count every year. We have 11 people right now. We’ve got plans for becoming a lot more profitable without growing beyond maybe 14 or 15 people.

I think you can do that. You can just find ways to constantly be improving your business so that it doesn’t get boring because that is really awful if you were just turning a crank year after year, just no creativity. I think that you can do new, cool, fun things, make more and more money without growing head count, without moving to bigger offices. And so, that’s what we’re trying to do.

Andrew: I’ve got to ask about one other marketing technique that you use because to get to a million within the first three years, it’s got to be more than the chat rooms that we talked about, which I understand helped you get traffic, and the press. What else did you do to grow sales so fast?

Jeff: Well, in those early years . . . things are different in the way I do marketing now than back then. Now, we have full page print ads in national magazines, and we have a PR agency that helps deal with some of the press relationships now which we didn’t do back then. Google AdWords wasn’t around back then.

I’m trying to remember. Why did we grow so quickly? I think it’s because we had a product that did things that other products didn’t do. We went to trade shows a lot which I despise now. I do not go to any sort of trade shows. I don’t like to fly people around and set up booths. I think that takes way too much time and money.

Back in those days, you needed to do that for people to learn about you because, again, the web wasn’t really big yet. And so, we had to go to trade shows. So, we went to trade shows and talked to the press. Those are the main things, good relationship with the press and be out at the big shows back then. But the world’s changed. Trade shows don’t seem to be very popular now. They’re not popular with me.

People are just finding out on the web. So, now you need a really good website. Of course, back then websites were pretty minimal.

Andrew: Finally, how did you meet 37Signals? I met you through them. How did they know about you?

Jeff: I’d never really met them. They put out a call for companies [inaudible]. A couple of different friends emailed me and said, you’ve got to do it. You’re exactly what they’re looking for. So, I emailed them and gave them an outline of who we are. And they said, “Yeah, it sounds good.” So, it’s just been a little bit of email contact.

Andrew: Gotcha. All right.

Jeff: And they seem like busy people, like, they probably don’t have time getting to know a lot of new folks and hanging out. So, even though I went to Chicago recently for fun, I’ve been trying to look them up.

Andrew: I get the same feeling from them, too, that they’re just doing their thing. They rush through it. They don’t want work to take up 80 100 hours.

Jeff: In the early days it was like that. These days we have a very different philosophy though. I’m really into sustainability but not in farming, in software. And the way to keep productive year and year is to not burn people out, including yourself, which actually I want to ask you questions about that because you’ve been through that.

And so, we only work 40 hours a week now, but it’s 40 hours of really productive time. And I think if you don’t push people to work more than 40 hours a week you can really smart productive hours out of them. You need to have a good environment where it’s quiet, individual offices with doors that close and good equipment and good health insurance so that they don’t have to think at that, good retirement plan so they don’t have to think about that.

It’s that kind of stuff that keeps the place calm. I think if you’re always burning the midnight oil, it’s going to implode at some point.

Andrew: Yeah. You alluded to it happened to me. I always thought that you have to work non-stop, that if you’re not working all the time, it means that you don’t love your job completely and you should find something else to love about it which makes a lot of sense until it does. And for me, the problem was when I was in school and I hated school. I would start to focus on my job that I had after school, and I’d get really good at that.

And then, being really good at that, gave me confidence and opened my eyes to new ideas that I would then take into school and make it a little bit more enjoyable. Once my job was all I had, there was no place to go away from it to get new ideas and to charge myself up or feel like when the job sucked, that it wasn’t me that sucked, that I’m still good at this other thing.

Jeff: And kept you totally busy, too. You didn’t have time for these other outlets, right?

Andrew: Yeah. I didn’t realize where I wasn’t thinking clearly because I was too deep into it. Running helped me tremendously. I was not athletic at all. I was the guy who talked my gym teacher into letting me out of gym by saying, “I’ll guard the lockers. This is Brooklyn. There’s going to be all kinds of danger here. I’ll guard the lockers, if I don’t have to run, if I don’t have to be in gym.”

I took up running a little at a time and when you run further than you ever thought you could, and for me that was a mile, you start to feel like you’re on top of the world. You’re almost at a mile and you say, you can get to that mile. You can do anything, and it means that everything is going to work itself out. You go back into work the next day or later that day and you start your day with a run, feeling like you’re superman. It helps.

Jeff: I think that taking care of yourself is really crucial for every stage of the company. If you’re bootstrapping especially, you might have to work some long hours the first year or two, but even then you should, at least, be exercising, at least, twice a week. Don’t eat too unhealthy. I say this from experience, doing things the wrong way where I wasn’t exercising. I was much more overweight than now.

And so, no sleep, no exercise, and eating unhealthy. It helped me kind of crazy. I’d just get stressed out about things when I didn’t need to. And now, I don’t exercise a lot, as you can see. I exercise a couple times a week. I run or bike, usually run and try to eat a bit more healthy and get some sleep. And I’m just calm. After I exercise, I think you just burn off a lot of nervous energy, and it really helps you at work then to not get too upset and just to stay calm.

Andrew: Right. When did you start doing this?

Jeff: I’ve been pretty healthy for quite a while now. I think about 10 years ago I lost a lot of weight. And just now, on and off, sometimes fairly healthy and sometimes moderately healthy.

Andrew: What got you to do it 10 years ago?

Jeff: That’s a good question. Oh, I remember, yeah, I remember. This is a story about what makes for a good doctor. My doctor said, “Oh, you’ve got high blood pressure.” I said, “Oh, well.” I weighed 35 pounds more than now, I think. I said, “Could it have to do with my weight? Is that a factor?”

Instead of sparing my feelings, he said, “Yeah, you should lose weight. But, we’ll also deal with it in other ways. Yeah, it’s because you’re fat.” And it was great. He just bluntly said you’re killing yourself because you’re fat. I was, of course, embarrassed, but mission accomplished. It really woke me up. And so, he said, “I’m going to have to put you on high blood pressure medicine.” I said, “Wait. Give me a chance to try and lose the weight, and we’ll see if that does it.”

He said, “OK. Don’t drink for a month and eat healthier.” I said, “Don’t drink? I just got into brewing. I’ve got 20 gallons of beer at home.” And he said, “Yeah, you want to live?” So, I gave away all the beer and didn’t drink for a month. I came back in, and he said, “Wow, your blood pressure is way down. You lost a lot of weight..” He said, “OK, another month.”

And so, that just started a good path. You can see I’m not slim, but I weight a lot less than I used to and I’m a lot happier. If you’re not going to sell your company after two years for a billion dollars, if you’re going to keep running it, you better find ways to stay calm and happy and healthy, and exercise is, I think, as important as things like business plans and having a good lawyer.

Andrew: Yeah, well said, well said. All right. Well, let’s leave it there, and I’ll direct people over to your website, AlienSkin.com. Check out some of these effects.

Hey, I saw an effect somewhere. Some interviewed you a while back and showed a picture of the White House with two different lightning bolts on it. One was generated by your software, one by your competition, and that drove it home for me. I said, Now, I see why it’s different. One looks authentic. The other looks like a kid drew it. Is that on your site?

Jeff: I don’t think it’s on our site, but I think that’s what’s sets us apart is the mathematics and computer graphics underneath. Our products are really a step up from a lot of other peoples because I was doing computer graphics research at UNC. And so, I bring that strength of getting the details right and realism and getting the math right. I bring it to the products.

Actually, I don’t do it any more. I haven’t programmed in three or four years, but the other programmers have the skills, too. And so, we try to make sure that our effects don’t look like they come from a computer. We try to make things look natural rather than computery, and I think that’s been the key to our product success.

Andrew: Well, check out the website. You’ll see lots of samples on it. And you know what, Jeff earlier talked about how he was getting feedback from his customers. I want feedback from you guys. Let me know what kind of interviews you want me to do.

If there’s something in here that drove you nuts, that I interrupted Jeff, maybe, or there was the time when I forgot to follow up, give me your feedback. One of the best things about what I do here is that I cam get pretty instant feedback, and I know of you guys when you have the most useful information want to spare my feelings and don’t say it publicly, I don’t mind if you say it publicly.

If you want to say it privately, it’s just Mixergy.com/contact. There’s a contact form on every page on my site. Give me feedback on this or any interview. I’m always open to it. I want to learn from people like Jeff who do that and continue to get your feedback.

Jeff, thanks for doing the interview.

Jeff: Thank you. It’s been great.

Andrew: You bet. It’s great meeting you.

This transcript brought to you by www.SpeechPad.com.

Sponsors I mentioned

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  • http://www.JiansNet.com BriteGuy

    Andrew, you asked for feedback. So here are mine.

    1) This interview is one of the best. As a software engineer myself and love programming, I feel this is very relevant to me.

    2) I really like more interviews from people who bootstrapped to success. I can learn the most by listening to how they did it, as I don’t see myself getting any venture funding, also I personally feel like approaching VCs are a lot of work and waste of time. That time could be better used for programming and getting things done.

    3) I totally agree with what Jeff and you mentioned about exercising. For me, I’ve been walking to and from work, 2.5 miles on each way, so in total 5 miles every day. I call it urban-hiking ;-) It actually did reduce a lot of anxiety from work, and has been keeping me in sane mode.

  • http://niravmehta.myopenid.com/ Nirav Mehta

    Hi Andrew,

    I said this in my last comment, and reading through the transcript of this interview I feel like saying it again.

    If you can summarize each of these transcript in 3 pages, with headings and quotes, I would be happy to pay for them on a monthly basis.

    Reading through the transcript may not actually take a long time. But I get scared looking at the scroll bar. And more importantly the irrelevant pieces of the story in it. Frankly, I come here to learn from other entrepreneurs. And impatience folks like me who want it quick and dry would love such a service.

    Alternatively, open up the summary service to the community with a price per download. Give a split to the guy who did the summary.

    You are doing awesome with these interviews and I would love for you to continue doing them for a long time.

    My two cents.

    :Nirav

  • http://niravmehta.myopenid.com/ Nirav Mehta

    OK, I went ahead and edited the Google Doc file. Made key points bold and highlighted some points that I felt were even more important.

    Hope you guys like it.

  • http://thyagav.tumblr.com Thyaga

    Jeff’s story is motivational for an early stage entrepreneur.

    It is nice to bootstrap your way to profitability. It would have been quite helping to hear Jeff’s experience in trying to get external funding and the idea of growing big ?

  • http://www.thebootstrapcoach.com/ Josh Bulloc

    There are so many lessons here in this article. I admit I am not a tech guy but I do love the bootstrap story. The main pieces I am taking away from this is that you have to be passionate about what you are doing and and you need a motivation to keep going (in this case it was a bit of hunger). Also, living below your means to reach your goal. Finally, keeping at it even when people around you think you are crazy.

    Josh Bulloc
    Kansas City, MO
    How can I help?

  • http://www.bigdaybillboard.com Trindaz

    Loved hearing about Jeff starting at 25 – I don’t feel so old now!

    –Trindaz on Fedang #startups

  • http://www.perezfox.com Prescott Perez-Fox

    I thought this was a great interview. A+. Obviously, as a self-trained graphic designer who spent many teenage afternoons playing with Alien Skin software and various Photoshop tricks, I have a bit of a bias, but I appreciate the interview for the overall honesty. I thought Jeff was a great speaker and together you two have a very natural rapport. This is perhaps because he bootstrapped, and admitted that it wasn’t all shiny from day one, but instead a bloody hard effort. We need more interviews that discuss “grit” in a similar manner, and less about silicon valley BS.

    You also touched on the whole notion of “work-life balance”, for lack of a better phrase. I have long examined this, even in the start of my career. I definitely would like to hear more about how these entrepreneurs lived while they were working on their project/startup, preferably with the undertone of “you can survive it” and some tips for making it through the day.

  • Guest4567

    Hi, First time listener/viewer and WOW! Charley Rose better look out. You are a great interviewer! I appreciated the questions and the curiosity which was evident. The interview with Jeff was great and I certainly appreciated the time he took to share his story (including what not to do, exercise, etc.). I’m in my 50′s, a corporate slave in the tech business and working on a small internet business as a way out. I’m looking forward to listening/watching the other interviews on your site. Thanks.

  • http://www.gutterguardreviews.net Gutter Guard Reviews

    Bravo, Bros! keep going like this, more good info again.

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