“When I Invest In Entrepreneurs, I Want Entrepreneurs Who Are Willing To Walk Through Walls”

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Andrew: Instead of telling you again how great Haystack is, I invited my friends at Hash Rocket to shoot this video.

Andy Liu: I got into web design from a very early age. I was always fascinated by the Internet, you know, dial upon modems and all that. I brought the complete idiot Skype HTML to my school, my reading school.

Female: Zen is my passion. I love it. It doesn’t feel like a job. It’s fun. I can be as creative as I want, start with a blank canvass and make something out of nothing.

Andy Liu: The greatest gift you could give me is an opportunity, and that’s exactly what Hash Rocket gave me. The opportunity was to take some of the best programmers and developers in the world and then build a design team to match that quality. The part that I like most about being a designer at Hash Rocket is definitely creating an entire application from start to finish, and once the final application is done and just seeing that experience and seeing people using the site, than feeling like you helped that business, you know, communicate and engage their users.

Female: Where Hash Rocket find us and other designers like us at haystack.com.

Andrew: Hey, everyone. It’s Andrew Warner, founder of mixergy.com, home of the ambitious upstart, and I’ve got with me a guy who we’ve talked a lot about in past mixergy interviews. He is an angel investor whose invested in a few companies that I’ve interviewed here on mixergy, and he’s also the CEO and founder of Buddy TV, and we’re going to get into what buddytv.com is, and we’re going to get into your history, the company you built and sold and the companies you invest in, Andy. But first of all I want to talk to you about a story I heard from Neil. Apparently you don’t just park in a parking lot. Can you tell people how you park, and then I’ll explain why this is such an important story for us to start with.

Andy Liu: So I would say that I am scrappy and very, very cheap, cheap to the core, and it’s something that I share with Neil quite a bit. So cheap that sometimes I’m tripping over pennies and tripping over dollars to pick up pennies, but at our office we don’t exactly have free parking so you do get free two-hour parking and so for the last four years we’d be checking our cars every hours and moving our cars if we thought that we were about to get a ticket. A lot of people who argue that that would be not a good use of time, but you know what’s funny is I think it instills in our employees that hey, we’re a scrappy startup and need to save every dollar that we can and even though it is, you know, I still question whether or not why is this use of my time. I still think it pays off in the long run as you think about building culture and building teams that understand that the idea that cash is king.

Andrew: Well, I can understand thinking about how you might be taking it too far, but I also see that these stories, they get passed from person to person a lot. When somebody talks about how you’re so cheap that you won’t even pay for parking, they’re telling everyone else that this is a priority for them as entrepeneurs, that they’re proud of this kind of attitude, and you specifically want to instill this in the entrepeneurs that you invest in. Am I right?

Andy Liu: Absolutely. You know, one of the things I mention on my blog is one of my personal pet peeves is as soon as you raise money is to acquire class A office space, and I think it’s just the dumbest things you can do with cash because your office space dos not generate cash and so our first office space for Buddy TV was 600 square feet, and we had 12 people and a golden Lab join us in the office. So we’ve always been very, very conscious of how we spend our cash and when we invest in entrepeneurs, we always want to instill that sort of confidence as well in terms of how do you think about spending your cash as wisely as possible and doing deals where you can. So this last space we got, we’re spending less cash per square foot and we’ve got a larger office space. You know, it’s all about doing deals that make sense for your company

Andrew: One of the companies that you, you didn’t just invest in it, but you helped, well I’m talking about what’s the parent company of Icon Head [inaudible] Cheeseburger called now, Cheeseburger Network?

Andy Liu: It’s Cheeseburger Network and the holding company is called Pet Holdings Incorporated.

Andrew: And these guys create insanely virals sites. A lot of them are cute cats with funny captions, but

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Andrew: but they also have hot women pictures and funny pictures in general that get passed around. You didn’t just invest in it, you told the founder of the company, Ben Huh, that he should go buy it, and that if he did you would invest in the business with him. Now, you created that investment, but you also mentored him. Can you give me an understanding of how he became cheap because of you and how that helped his business, do you have an example of that in that specific business?

Andy Liu: Sure. So, along the same thing, thinking about how do you spend money from day one. We immediately got him a sublease. We didn’t sign a lease but we subleased space, I believe it was for about 200 bucks a month to get it started. I think he got the clue. If you’ve seen his office it’s amazing. He’s in a closet. There’s no windows, there’s nothing there but amazing things happen because the team is out there. People are generally not in offices. There’s a community field. We call it the bull pen because everybody’s out there talking with each other and engaging in business. It’s very very energetic. I saw that Ben was a very very capable person in terms of other opportunities and so forth. We always thought about, hey, what are ways that we can leverage each other’s vendors, how do we keep our costs low, and very quickly get into profitability. I give him a thumbs up for being able to get his company profitable so quickly.

Andrew: By levering each other’s vendors you mean the companies that you invest in and that you help out. If you get a deal for one of them for servers, you help spread that deal to others or you say “we’re all going to go in together and we’re going to buy servers and capacity and everything else, we’re going to buy together.”

Andy Liu: Absolutely. So, our hosting company is the same, many of the servers that we buy are from the same vendors. We’re able to get some pretty attractive deals by leveraging each other.

Andrew: OK. I’m going to come up with more examples of your cheapness and more examples of your negotiating skills, even better than the cheap stories. But I don’t want it to come off like a petty conversation that we have here, so let’s go bigger picture here and let’s talk a little bit about your history. You founded in 1999 a company called Net Conversion. What was it like in the beginning?

Andy Liu: You know, we started the company back in ’99 and it was a crazy time. That was when the dot com was off to the races. It kind of started naively too, I would say. I didn’t really know exactly what I was getting myself into, and I assumed that money would come easily. I assumed that business would come easily and I would say the first two to three years were extremely difficult. Trying to learn how to hire, learn how to fire, learn how to raise money and so forth. In fact, I would say that we had a near death experience around 2001, we literally had 200 dollars in the bank.

Andrew: Actually, before we get into the near death experience, I want to know how we got there, so what was the original idea for the business? We’re going to talk about near death and we’re also going to talk about how you sold the business, so it ended happily. But what was the original idea?

Andy Liu: The original idea was, it morphed once, so the original idea is that we had a professor from Warton that had developed some technology an IPed around Beano to predict whether or not someone was going to buy on a website or not just by looking at how they were moving through the website. And so we built a product that a black box that, and was able to take that technology and be able to work with the likes of CDnow and so forth to predict whether or not someone was going to buy a product or not. Turned out that we weren’t able to sell the product and we turned the company into a website usability and optimization company. We tracked how people were actually moving through sites, helped companies like American Express and CitiGroup be able to improve their credit card application processes by looking at how people were getting confused on a website. We were able to improve their processes and made quite a bit of money doing that.

Andrew: What was the funding for the business?

Andy Liu: We did one round of financing back in 2000 and had a couple of venture firms and some angel investors as well.

Andrew: How much money?

Andy Liu: We raised about 1.2 million in that venture.

Andrew: OK. By the way, I see some incredible people who are watching us. Chris Windfield, who I’ve interviewed in the past, Tony Adam who I interviewed in the past, Clinton Shaft who I’m not sure if I interviewed or not, but also a great person who’s been a tremendous help for me here Mixergy. If any of you guys who are watching us have any insight that I might

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…that I might not have, or have any questions, give it to me right here on Mixergy and just tag it with hash tag Mixergy so that I see it and can ask the questions live.

All right, you say that it didn’t work out. Why didn’t it work out? Why didn’t the original idea work out?

Interviewee: A couple of reasons. One is we didn’t know how to sell, and up to that point we kind of assumed that the product would speak for itself and people would pay for it. We had some people who were willing to try it out for free, but they never turned into paying customers.

So, we had to morph the product in such a way to basically build a product that they would be willing to pay for and we didn’t figure that out until 2001.

Andrew: I see, and then switching it all over to a different kind of company, one that was gonna help companies like Amex and Citigroup or that eventually did still require sales, no? In fact, because of the size of the companies that you were selling to, it seems like it would require more sales work. Am I wrong?

Interviewee: Yeah, and so you know, in 2001 when we finally realized hey, we couldn’t raise money, and 2) we didn’t have very much cash in the bank, I personally went to Barnes and Noble and picked up every cold-calling book on the shelf to try to learn sales; you don’t learn that in school.

So, one thing I’ve mentioned on my blog on multiple occasions, if you’re running a company, you need to do sales. Very, very quickly we were able to sign up one to three clients just by talking with clients more often and finding out what their needs were, we were able to figure out how to build our product in such a way that it would actually sell.

Andrew: Sorry, I was gonna say that that keeps coming up in my interviews here. It’s a lot of developers, engineers, programmers, who don’t know sales who then go out and take a class or read a bunch of books, and they don’t become naturals at it, but they become so good that they can actually go out there and sell these great products that they work on and then the businesses turn around.

Can you give me an example of how you sold just so I could…maybe one sale you made that exemplifies your sales process? I wanna see, I wanna learn from the way that you did it.

Interviewee: Yeah, you know, personally I believe that sales people are not born, they are made; and you know, being an engineer, I’m very, very process oriented so I like seeing that as long as you adhere to the process, you will get good results.

So, the basics is 1) when we started it was, hey, we just need to get a lot of sales activity; and sales activity is just pick up the phone and call 100 people a day…and the more no’s that you get is the closer you get to a yes.

So for us, that’s just dialing for dollars. Two phones at a time just cranking away until we started getting some success. Then once we started getting some success, then it’s about referrals and so forth.

My personal belief in terms of personal sales is it’s a lot more about listening than it is about talking. So, what is it that your customer needs and how is it that you can construct your product in such a way that resonates and speaks to them rather than you pushing down a product that may or may not make sense for them.

Andrew: It also seems like you’re in a business where it’s a little easier to sell because you’re proving your value to your customer. You can show them an increase in their conversion rates on their credit card application forms. You can show them how much more money they’re gonna make, or how much they’re gonna save by using you, and then they can compare it to their costs, true?

Interviewee: Absolutely, absolutely. So, a pitch that we focused on was hey, we know you’re having some trouble converting visitors into customers. Have us help you make that happen and so, you know, do a small pilot.

One of the techniques that we use is hey, what’s the greatest amount of money that we can do to get a trial going? For us, we found that to be around the $10-15k range, and if we prove ourselves, then we’re actually able to close million dollar deals over a series of time.

Andrew: I see, because you might land a $10k deal, then if you prove yourself at $10,000, which is pretty much disposable money for a big company, you can land a multimillion dollar deal.

Interviewee: Absolutely, absolutely.

Andrew: OK, I said that I’d get back to the near death experience in 2001, what was that about?

Interviewee: So, in 2001, many companies were going belly up, including us. We were down to our last $200 and we couldn’t raise money, we couldn’t sell the company. You know, it was very, very bleak. I would say that we realized that and one of the first things I did was pull the telephone switch out of the jack because every phone call coming in was about…

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Interviewee: …You know, one of the things I did was pull the telephone switch out of the jack. Every phone call coming in was all about, “Hey, when are you going to pay us?” These people, our creditors, are asking for cash, and we literally had no cash. So, either, we keep listening to them and get down on ourselves. So, we pulled the plug and say, “Hey, you know what? The only thing we need to focus on right now is sales.” So, 24/7, we’re just dialing for dollars and we hardly get one client, then two clients and three clients. It’s just clear focus, it wasn’t going after cash. It wasn’t rebuilding the product. It wasn’t anything but just making phone calls and dialing for dollars, and I think that’s what saved the company is just clear focus on that.

Andrew: Andy, why didn’t you give it up then? Why didn’t you say to yourself, “We’re deep in debt here, I can close up shop, it’s not going to be on me, personally, to pay these debts.” Close up shop and start from scratch somewhere else.

Interviewee: That’s a great question, Andrew. You know, most of the successful entrepreneurs I’ve talked to, every single one of them have had a near-death experience. If you don’t power through those opportunities, you’ll never really understand. I think you’ll miss the opportunity of light at the end of the tunnel. It’s funny, one of our investors actually wrote off our investment as zero, and had actually talked to me and said, “Hey, you know, I think it’s really time to hang it up.”

There’s a fine line between being stubborn and being optimistic. When I invest in entrepreneurs, I want entrepreneurs who are willing walk through walls. Ultimately, it’s a lot of will power and a lot of vision to takes to kind of make it through those tough times. So, I expect that to happen to all my companies, but at the same time, I expect the entrepreneurs to be able to persevere.

Andrew: But, I want to get deeper into it. Was it that you felt you couldn’t because your reputation was at stake? Did you feel that there was enough value in here that you could turn it around? Because, the truth is that, yes, you want to walk through walls, but we all sometimes have to recognize that this isn’t the right wall to walk through. Why was this the right wall to charge through?

Interviewee: That’s a great question. You know, for me, I do feel personal responsibility for taking in capital and saying, “Hey, you know what? I’m going to fight until the bitter end.” For me, the bitter end sometimes might be very, very stubborn. But, I do believe that a great entrepreneur knows how to shift strategies to make it work. So, I don’t believe that people should go out of business, there’s always a way to rethink your business. That’s my thesis, I just think that you can make it. Especially if you take money, you have an obligation to do to the best of your abilities. If you think there’s just an inkling of a chance that you can make it, why not make it happen for your investors.

Andrew: Right. So, you did make it. You, guys, sold. Can you tell people about that?

Interviewee: So, in year 5, in 2004, we had turned the business into a very profitable venture, and we actually had multiple offers on the company. So, I never want to close a door on an opportunity and we had an opportunity to evaluate our opportunities. So, I thought to be not only a great fit for us personally but also great for our investors as well. You know, it’s an interesting process for us. We didn’t hire a bankrupt for the process, we did hire some advisers, but the overall experience is great. It’s always best to not actually go out and sell your company, it’s best to let people come to you and I think that we’re very fortunate with that.

Andrew: How do they come to you?

Interviewee: One was actually a cold call in to me and saying, “Hey, we’ve noticed you in the marketplace.” It was a public company, and they wanted to find out kind of where our heads were at. So, that started the conversation and we have been in discussions with another company as well. It’s interesting, if you’re out in the market and talking to customers, they will talk to you to their vendors and so forth, and word gets out that you’re running a profitable and growing enterprise.

Andrew: When you sold to aQuantive, what size sale did you get?

Interviewee: The reported price is $7 million.

Andrew: OK. Was it much off based or are we talking roughly seven?

Interviewee: Yes, roughly.

Andrew: OK. What percentage of the business did you own?

Interviewee: On that business, my partner and I split roughly half or more. It’s actually ended well.

Andrew: So, roughly, you ended up with a quarter of that.

Interviewee: Yes, I would say roughly, that might be in the range.

Andrew: This was a public company, did you keep your shares or did you sell them?

Interviewee: So, we got cash worth and we also received some shares and considerations as well.

Andrew: OK. All right. I noticed that, right after that, you jumped in to another business. Why? Why didn’t you say to yourself, “I’m going to go and explore the world for a little bit.”

Interviewee: That is a great question. I stayed on board there for about 18 months. I wanted to travel the world, I do some non-profit work and enjoy traveling to developing countries, and that I would do it for about a year. I made 30 days in down in Peru and Machu Picchu and having beers with my business partner. It might have been the altitude or the beers that we got very, very excited about TV. Both of us are not huge TV watchers, but we definitely thought TV was right for innovation. So, yes, literally, 30 days later, we flew back to Seattle, hired our first employee, and jumped right in. You know, looking back, I kind of wish I took a little bit more time off, but, right now, it’s a lot of fun as well.

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Andrew: Did you keep your shares or did you sell them?

Andy Liu: So we got cash for it.

Andrew: You did.

Andy Liu: And we also received some shares and consideration as well.

Andrew: Okay. All right, I noticed that right after that you jumped into another business. Why? Why didn’t you say to yourself “I’m going to go and explore the world for a little bit.”

Andy Liu: That’s a great question. I, we, I stayed on board there for 18 months and wanted to travel the world. I do some non-profit work and I enjoy traveling the developing countries and thought I would do it for about a year. Made it 30 days in and down in Peru and Monte Picchu and having beers with my business partner and it might have been the altitude or the beers but we got, very, very excited about TV. And we’re, both of us are not, not huge TV watchers but we definitely thought TV was right for innovation. And so, yeah, literally 30 days later flew back to Seattle; hired our first employee and jumped right in. You know looking back; I kind of wish I took a little more time off. But, you know, right now it’s a lot fun as well.

Andrew: We’re talking about BuddyTV.com now, right?

Andy Liu: That’s right. That’s right.

Andrew: Okay, what was the original thesis behind that business?

Andy Liu: The original thesis is that people have watched TV; they watch TV very differently today than they did 50 years ago. So if you were to watch people watching TV today you’d seeing people actually on their laptops, their talking on the phone, their doing their homework but they’re not actively watching TV. It’s always kind of passive. They’re doing multiple activities. So the ideal was, let’s create a social TV experience and allow people to interact with the television. Be able to see what other people are thinking at the same time and we actually brought in celebrities to talk about the show as the show was going on. Great idea and concept; I think and the product itself was pretty compelling. But nobody used it. It wasn’t until we got the ah ha moment which was hey let’s transcribe all of this content and put it online. More people consumed that content than consumed it live; that we realized hey we’re on to something here. We are building a fan community around the water cooler conversation. So…

Andrew: By transcribe that conversation you mean transcribe the live text that’s going back and forth?

Andy Liu: That’s right. Yes.

Andrew: So you don’t mean transcribe it. You mean just save and post it online somewhere.

Andy Liu: Exactly.

Andrew: Because it’s already text. So you said we’re going to keep all of this conversation that is going and people are going to want to read it afterwards?

Andy Liu: That’s right and it’s amazing how many people read it afterwards. And the thought process is this; is that people watch the show and then they want to know exactly how other people thought about the show. But they want it instantaneously and so we realized that being the first out there was critical to our success. You know some numbers I can share with you Andrew; the first year we did maybe 10,000 unique visitors a month and that was a struggle. You know, because everything we did wasn’t working. I would call it almost another near death experience. And then year two we went from 10,000 to 1,000,000 uniques a month. And so, you know, again, it’s one of those things that as an entrepreneur to be able to move into an area that he can tell is being successful and hit the gas pedal.

Andrew: Can you give me that number again where you ended up afterwards, the second number?

Andy Liu: The second number is in year two we started hitting about a million uniques a month after moving to this new model.

Andrew: And that was because of search engine optimization right or because there’s so much content for search engines to pick up on? If I was doing a search for a TV show, I was more likely to come up with one of your TV shows because there’s so much text around it and then I get into the community. Am I reading it right?

Andy Liu: So since we realized that people were interested in the water cooler conversation, we decided to actually move into building a fan community around TV shows. So yes, so that was a piece of it that drove; usage was SEO; but also because we syndicated the content. We also had games and we had community around it as well that drove some viral nature around the content as well.

Andrew: I see and you mentioned earlier that you got celebrities to come into the conversations. How do you get so many celebrities to come in and talk to your people when you’re a new site?

Andy Liu: Yeah. You know that the; I would classify the celebrities that we had as kind of B-, C+ stars and people who are related probably most likely to reality TV shows. So these are folks that a very symbiotic relationship. They’re looking to extend their 15 minutes of fame. We’re looking to increase our audience. So it worked out really well. We were never able to lock down a Kiefer Sutherland or you know a bit Hayden Panettier or some big names; but we definitely hit on quite a few solid reality stars.

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Andrew: How did you know who to even call for that? Who did you call for that?

Andy Liu: You know, we–again, this is back to that “being scrappy”–we went after their MySpace accounts, we went after what we could find online…

Andrew: Get out!

Andy Liu: We would find them on chat, we would go after them and cold-call them–we’d cold-call quite a few of them. And if we can actually bypass their publicist, we can actually be pretty successful.

Andrew: How did you get their phone numbers?

Andy Liu: Again, it’d be private-messaging them, and on social networking sites, and pointing them over to our site and saying, “Hey, can we connect with you,” and if–sometimes, the phone number was right on the site. It’s amazing.

Andrew: Wow, all right. And the revenue comes from advertising?

Andy Liu: Yes. Right now the revenue does come from advertising.

Andrew: Okay, I want to talk about, maybe, talk about one other business, and then get into some of the…some of what it takes to be a “scrappy entrepreneur,” because I know that that message is so important for you, to get out to the entrepreneurs that you invest in. How about, since we had Ben Huh, the CEO of I Can Has Cheezburger, let’s talk about that. He told me that he saw this site that has a lot of traffic, that had funny cats on it, and you told him to go buy it, and that you’d invest. What did you see in the business, first of all? And then we’ll talk about what it is about Ben.

Andy Liu: So, what was interesting about that site was, I was watching the organic growth, and it was absolutely stunning. I had never seen anything like it, and I, you know, I had experienced, right there, the growth of BuddyTV, and so… One of those, one of those…once you can grasp how unique that sort of site was, I think it was pretty clear. It’s not clear that it’s going to be a fantastic business, but it was clear that this was a very, very unique site, and something that we should, we should jump on. So that was, that was really the kind of a-ha moment for me, was watching the growth trajectory; it was just extremely unique.

Andrew: But the growth trajectory for cat pictures could just as quickly, you know, fall down.

Andy Liu: Yep.

Andrew: Why did you think it was going to sustain itself? What did you think was so special about it?

Andy Liu: There’s a couple of things that was interesting. One, one was, you know, people are still getting their arms around what is user-generated content. And, you know, you have to understand that, at that point in time, we saw that there were a lot of people submitting their own cat pictures and captions. And so, if you think of it as a pipeline of great content, you realize that if you get more and more content, you’re going to surface even funnier pictures. And so, so the idea was, hey, is this sustainable? Yes, because we don’t just have one person writing content. It’s thousands of people, thousands of people writing content, and now we have a way, similar to the Digg model, to be able to surface the best content to the home page. And that sort of model really resonated with me, especially given how fast it was growing.

Andrew: Okay, let’s take a look here…oh, Ben. What was it about Ben? Ben was a failed entrepreneur, who was no longer an entrepreneur when you met him, he was working for somebody. Why did you say, this is a guy I’m going to bank on?

Andy Liu: You know, that’s a funny question. In fact, you know, when I was raising money–and I think it was a challenge, because he was…we would classify him as a first-time entrepreneur. But, you know, Ben–I had actually worked with him a little bit on BuddyTV–just had a knack for understanding what works on the Web. I saw a lot of passion as well. I thought that, you know, he was constantly tinkering with his own blog site and so forth, that, you know, if I was to make a bet on first-time entrepreneurs, those are some of the key characteristics that I’d like to see. And I love betting on first-time entrepreneurs, especially when they’re talented, they’re passionate, and obviously I thought that he actually resonated very, very well with what was going on with I Can Has Cheezburger.

Andrew: Why was he working with you on BuddyTV, and what capacity?

Andy Liu: So, you know, he had done quite a bit of UI work for his previous company, in a product-management work, so I was always, you know, asking him, “Hey, what do you think about this redesign?” and so forth, and, you know, getting some feedback. I’m always looking for feedback from as many people as possible as to, you know, what we can do better. And he was definitely a fresh perspective on what we were doing.

Andrew: So he was just giving you free help, but that built up the relationship that ended up with you championing him and getting him investment for his business.

Andy Liu: That’s right, that’s right. Absolutely. Yeah, it turned into a, you know, a friendship, and definitely a great business relationship, too.

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Andrew: OK. Actually I want to talk about one other one and then get into scrappy entrepreneurship. Judy’s book in world in a world of Yelp, why are you such a backer of Judy’s book. In fact, for anyone who doesn’t know what Judy’s book is, can you tell us?

Andy Liu: Yeah. So, Judy’s book simply stated, I would call it a Yelp for soccer moms. And so, if you don’t want to only read about restaurant reviews, we have soccer moms reviewing everything from contractors to lawyers to dentists to doctors. Obviously we do have restaurant reviews as well.

Andrew: And so, is it a free site where I can go in a search for these reviews and find out what other soccer moms think?

Andy Liu: Yes. We find it pretty compelling, so it’s in that vein of Angie’s list but it’s free and it’s a great community, so when we had the opportunity to pick it up it was a great opportunity because it had been in business for four or five years, there’s organic traffic, SEO was there, and it had a great reputation. We thought it was a great asset.

Andrew: And you own that business completely right?

Andy Liu: Yes. We do.

Andrew: Alright. You’re, by the way, people keep watching the videos and wondering what’s going on in the background. You have a headset on because the mike didn’t work, right? But we’re also looking behind your shoulder as we’re looking behind everyone’s shoulder to try to figure out where you are. You’re not in an office. Where are you?

Andy Liu: I’m actually at, I would call it Neal’s condo, but I’m actually in one of the community rooms in Neal’s condo, so Neal’s living large.

Andrew: Finally the cheapskate Neal’s living large. So he bought a place now in Seattle, he’s not just living with his parents anymore. And it has a community room?

Andy Liu: It does. It has a community room. It’s amazing. He’s definitely living large.

Andrew: Alright. We’re talking about Neal Patel, the marketing guy who’s actually involved with lots of businesses with you and who didn’t interview here on Mixergy. Which I hope people go listen to. Alright. Let’s talk about what it takes to build a successful business. Now that we’ve talked about you and how you built your business and the entrepreneurs that you’ve backed and the companies that you’re into, what does it take to be a scrappy entrepreneur and build something?

Andy Liu: I think it has to be in your blood. You realize, hey there’s a lot of resources around you and cash is not the only way to spend money. Cash is the blood of your company, and so you can’t afford to spend and spend and spend and I don’t like the advice “hey, you’ve gotta spend money to make money.” I just don’t believe it. There are a lot of advisers out there. Neal’s an adivisor to Buddy TV as well, that are willing to work for equity or they’re willing to even work for free. The opportunity to be able to leverage your network, to marshal resources, that’s the mark of a great entrepreneur. Not the guy who knows how to spend a lot of cash very quickly.

Andrew: Alright. Getting people to work for free, I can understand that. How else can you get a business up and running without spending money, because it does take money to pay for office space, it takes money to pay for traffic, for servers, for everything else. Do you have other examples of how you’ve gotten deals where you didn’t need to spend money?

Andy Liu: Yeah, absolutely. Even vendors are willing to work with start-ups, so there’s some vendors such as attorneys that are willing to work for basically zero for the opportunity for the upside. Options there could work and equity there can work. I would say work with the hosting company. A hosting company would love to work with you in exchange for, perhaps, a permanent link on your site. So if it takes off they win, but in the beginning you get free servers, free hosting, free traffic, and so forth. So, great ways. Then talk to Shoe Money about how you can get more free traffic from Myspace and so forth. There’s just ways that you can network your way into opportunities to try things out at very very low cost.

Andrew: Can you give me an example of how you did that at one of the businesses that we’ve talked about, Judy’s Book maybe?

Andy Liu: With Judy’s Book we were able to acquire the site at a deep discount and we were also able to negotiate with our attorneys to make that deal happen at a very very low cost and incorporate very quickly. Again, the office space, don’t spend much money on it, 150 bucks a month, we call it good. In terms of getting the site back up and running we got some help from the hosting company as well to say, hey we know that these guys are behind a little bit, so let’s work together on trying to figure out a deal that would

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Interviewee: … “Hey, we know that these guys are behind a little bit, so let’s work together on trying to figure out a deal that would work to keep the service up and running while we get the business back up to speed.” Obviously, there are as well. they’d like to get paid.

Andrew: All right. I’ve got a question here from Chris Winfield. Before I get to that, let me just thank Neil Patel for telling people to go watch us, he’s watching us live. Christian Winkler, thank you for telling everyone to go watch us. One Happy Guy, Mono Cat, and Clint Shaft, I see your question, I’ll come back to you. But first, let’s talk about Chris Winfield says that I’ve got to ask you about the time you bargained for weight at a sporting goods store. What is he talking about?

Interviewee: (laughs) So, this was back in grad school. You know, I went to a sporting goods shop and my business partner was actually with me, too, because we thought, “Hey, it’d be good to workout.” We actually of our apartment. So, we saw this weight set and he was a little embarrassed, but I thought, “Hey, why not? Let’s try that weight set down.” You would never think a sporting goods shop would even consider negotiating on a weight set. So, one thing I did right away was try to find out if I’m talking to a person who could make a decision.

A salesperson, generally, can’t make a decision. So I said, “Hey, you know, is your GM around?” He said, “Absolutely.” He brought the GM over, and immediately, I said, “Hey, I don’t want to pay this price for the weight set.” He said, “What?” “You know, I’m willing to buy this weight set but it’s really got to be about 30% less than what you listed the price for.” He hemmed and hawed, and sure enough, if he’s a decision maker and he needs to move the product, he said, “Yes, I’ll take the deal.” So, I was able to negotiate a retail shop to get a weight set. You know, it’s funny, I think, everything is negotiable, and if you don’t ask, you’ll never know if you could have gotten a better deal.

Andrew: You know what? It seems you’re right. Why do you think people don’t try to negotiate everything?

Interviewee: You know, I think, there’s an assumption that certain things are just non-negotiable, and that makes no sense to me. So, people think that if you’re going on a wireless phone shop and negotiate on a plan beyond what’s listed is non-negotiable.

Andrew: Yes, I actually thought that was non-negotiable, that when you have to deal with AT&T, you’ve got to pay the price that they’re charging everyone else or else, some blogger would have discovered that you can negotiate what he told us. Neil Patel said that you’ve got some kind of deal, do you have an iPhone like me?

Interviewee: I do have an iPhone, yes.

Andrew: You’ve got some kind of deal, which means your price is less than mine. Can you tell people about that?

Interviewee: (laughs) Again, it’s one of those things where I had a friendly conversation with the person that in front of the desk and I said, “Hey, you know what? I notice that you charge an activation fee.” He goes, “Absolutely, we charge an activation fee.” I asked him, “Hey, you know, do you waive activation fee?” He goes, “Absolutely not, we’re AT&T, we don’t waive activation fees.” Then I asked him, I kind of did the waive out of him and said, “Hey, have you ever waived an activation fee?” He said, “Yes, I have, I have.” Then, you know, I said, “Hey, you know, waived it for me.” He said, “OK.”

You know, it was just really odd that some people on a front desk including a hotel desk and so forth all have a little bit of power and they can move the needle for you. You just have maybe ask in a different way. I got a free case out of them, a bunch of free accessories, and so forth. We talked about the plans and so forth to get certain things free or discounted and so forth, but again, if you don’t ask, you can’t get it.

Andrew: All right. [xx] o Twitter, followed somebody’s link on Twitter and is watching us and doesn’t know who I’m talking to. This is Andy Liu. He is an angel investor who’s backed some pretty interesting companies, and of course, he’s a successful entrepreneur in his own right. Take note, go get a pad of paper and a pencil, my friend, Mr. Shaun [xx].

Do you squeeze entrepreneurs like this? So, if you’re working with Neil Patel, are you trying to get the most for the least money out of him? Are you trying to squeeze Ben Huh when you’re backing his company, too? Are you negotiating like a madman with these guys?

Interviewee: You know, that’s a great question. I think we need to have a big picture of you. So, when it comes to negotiating for a car or negotiating for a weight set, and really, there is no long term value. I’m probably not going to that sporting store again. It’s just making true that he’s OK with the deal and I’m OK with the deal, and I’m [xx].

Andrew: But you’re going back to the hosting company again, and you’re negotiating down with them and you’re going back to your landlord again and you do not need to negotiate with them?

Interviewee: Yes. Yes. So, absolutely. If I think there is a long term relationship, then I think that you need to make sure that there’s a win for them, a strong win. I do think that there are opportunities with certain folks that there are opportunities for win-lose that you just have to be aware of if it’s a one-time transaction and so forth.

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Interviewee: Yeah, yeah, so absolutely. So if I think there is a long term relationship, then I think you need to make sure that there’s a win for them, a strong win. I do think that there’s opportunities with certain folks. That there are opportunities for win and lose that you just have to be aware of if it’s a one-time transaction, and so forth. I don’t advise that, I always think you have to leave something for the investors, something for the entrepreneur, and if you don’t, I think you’re very very short-sighted. And things will come to bite you in the butt.

Andrew: I think part of it, tell me if I’m wrong, right now we’re having a very staid conversation. You know, really, I’m usually a very high energy person. They say I’m talking to Andy Liu, I have to take it down a notch. Who knows who’s watching this? I need to look professional. I see you, too, a lot calmer than you usually are. Here’s an observation I’m going to make about you. There’s always like a party going on, this guy’s going someplace, you got to get on-board with Andy Liu or else you’re going to miss out on the opportunity. Then you and I just had lunch one time with a bunch of friends, and it was like that over lunch. You were making [frills] with them over who should pay, and you were going to do some contest over who should pay, and then you were selling insurance to people at a rate that was really a terrible rate, but it was so much fun I could see people even jumping in. It seems to me, beyond the quality of the deal. Your personality and the fact that you’re on, and that energy is what sells the deal and makes people think. I’m going to take shares in Andy’s business because it’s probably going to go up because there’s so much energy around him. I’m going to give Andy a cheaper hosting deal than I’m going to give somebody else because he looks like he’s on the upswing. There’s something about this guy, there’s so much energy here, that’s got to help him go somewhere. Is that a correct thesis? I’m I reading something right?

Interviewee: I need to do more interviews with you, Andrew. I love that. We’re all human, we all like to have fun, and the deal is a piece of the action, I think, is a lot of fun. But at the end of the day, it is realtionships. And so, you know, my realtionship with Chris Winfield, he’s an advisor to us, and he’ll tell and so forth, these relationships are great, you know. I take care of them any time I can. And I provide free help, and I love to help people. Entrepreneurs I don’t invest in. I take meetings with them. I try to do a rhythm with once a week and meet with them and as much as I can, I love to help. I think it really is an ecosystem. And it’s a ton of fun. If you look at it as an ecosystem, and you’re giving of yourself, I think that it comes back in spades.

Andrew: How have you helped an entrepreneur beyond investing in him? Can you give me an example of an entrepreneur who didn’t get your money but got a lot of ideas from you that helped turn around their business?

Interviewee: Yeah, for example today, I met with an entrepreneur that was struggling with sales. And we just rapped about, and it’s fun, just to talk about, hey, how do you manage a sales force? And, you know, I talked about, sales is not about outcomes, it’s about process. You know, trust the process. And if you have a sales person, they always like to be lazy. And they always want to try to short-cut the process to a sale and it just doesn’t work that way. So, how do you build that process working with the entrepreneur? Talk about how many calls do you make a day? How many follow-up calls do you do? How many proposals do you send out? How many meetings do you set up? And make sure you handle the things that you can control. And let the results speak as they may. But you can always problem solve with your sales people. So, I love thinking about those things, and I think it also engages me to think about my business more critically as well. Which is one of the reasons I like to blog. I haven’t blogged much in the last couple of months, but I enjoy thinking about things and putting it down on paper. It helps me and hopefully it helps others as well.

Andrew: Let’s see this question here from [Clint Ashley] sees a little activity on Twitter around it and maybe you can help me understand it. He’s saying, “Andrew ask Andy how CPG marketers can make sites or add more viral? Sometimes hot girls and [lull cats], etc., don’t fit the brand. First of all, what’s CPG?

Interviewee: CPG Marketers, I need, maybe you can get some clarification around that. Are we talking about Consumer Packaged Goods?

Andrew: Is that what you mean, Andy? Give me a little bit more insight into that. But it does seem that one of the reasons your sites grow is because they’re so viral.

Interviewee: True. Um-hmm.

Andrew: How do you make a site more viral? Somebody’s listening to us and says, I see how [Icanhaz] Cheeseburgers creating these funny pictures that everyone’s passing around. I can create funny cat pictures, but I do want my sites to get passed around. Andy, what kind of advice do you have to make their stuff more viral?

Interviewee: One of the key things in our product strategies is anytime we build a product, we try to make it OK for one person, but it’s a ton of fun with a lot more people.

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Interviewee: So for example, our trivia game on Buddy TV. It’s fun to kind of play solitaire and just answer question after question after question. But it’s even more fun if you actually bring in a team. And now you play teams against teams. So we have Team Leader Boards. And so everything that we think about, we have to think about what’s going to make it compelling for you when you play the game to invite all your friends. If it’s not compelling for you to invite all your friends, we don’t do that product. And so user-generated quizzes, another example, is when you create a quiz, in order for you to get published, you have to get at least three people using your quiz. So you tell your friends about it. So these are all things that we think about as we create products.

Andrew: I see. How about this? Chris Winfield, everybody knows, is one of the superstars in social marketing, social news. Are you using techniques like the ones that he uses to promote sites? Are you working on? Do all your businesses somehow leverage sites like Digg and social news sites and Twitter.

Interviewee: Absolutely.

Andrew: How?

Interviewee: If you’re buzzed about and talked about, it drives traffic and virality. So for both Cheeseburger and Buddy TV, all our articles, you can Digg it, you can also put it on Reddit and Stumbleupon and so forth. But it is really important that we’re creating content that’s compelling for the social media community as well.

Andrew: See, just putting those buttons doesn’t help. Everybody puts those buttons on there sites.

Interviewee: [Laughs] That’s right.

Andrew: And they look so sad. It’s like Click Here to Digg This, and then you look at the number of people who dug, and it’s three.

Interviewee: Right, right, right.

Andrew: How are you guys getting your stuff dug more, so that they really take off?

Interviewee: You know, there’s a variety of ways. You know on Buddy TV, every so often we will let our friends know, hey this is a great article, and will you Digg it on behalf of us? So we’ve just got a lot of friends in the net, friends of the family, I would call it, that can help, you know, get some momentum on the story. And then we let the story speak for itself. So if it’s compelling, then people will continue to Digg It, and they get it to upcoming and hopefully out to the homepage. But yeah, absolutely, you almost have to have friends of the family to be able to pull that off.

Andrew: I see. And not just friends of the family, but the right kinds of family.

Interviewee: That’s right. Exactly. [Laughs]

Andrew: All right, anymore than that and we really would be revealing things that I know you wouldn’t feel comfortable revealing. And so I couldn’t get straight answers. So I’m going to suggest this. If you want more depth into that answer, you’ve got to meet Andy in person. I’m sure over a drink he’ll be a little bit more. He’ll dig even deeper into it. Also, we talked about Neil Patel a few times. Neil Patel is known for search engine optimization. In fact, and he’s such a great guy, he took my user name and password to my site. He said, “Andrew, I can tell you how to optimize your site for search engines, but it’s going to take me too long. Give me the username and password. I’ll do the work for you.” And he did. Incredible guy.

Interviewee: Right.

Andrew: For you, I’m sure he does even more. What kind of search engine optimization is going into your properties?

Interviewee: I would say our key focus, again, I’m a big fan of focus, you can do, you know, 30 things, but at the end of the day, and it really is backlinks. And so, you know we really focus on creating link bait. We focus on creating good content. But also, just making sure that we’re partnering up with the right sites, and so forth. So we want to get as many links back to that Buddy TV. That also drives traffic. And you know, I don’t like using search engine optimization experts. I think if you’re paying for it, I think it’s a waste of money. I mean if they’re that good, then they’ll be doing it for themselves. So you, if you think it’s important for your company, should do it yourself. And then if you can’t, pull in advisors like Neil to help you out.

Andrew: I see. OK. And when you’re saying that you create link bait. Do you have an example of how you did that on Buddy TV?

Interviewee: Yeah, so, on Buddy TV, sometimes we, yeah, the best ones are when we have a spoiler alert. Or if we get some inside information about a character that’s going to be kicked off eventually. And so we will create the content, and then we’ll send it out to all of our partners that we have that cover entertainment news, and have them link back to us.

Andrew: I see. What kind of partners?

Interviewee: So we have folks like MSN, IMDb, on the large side. But on the smaller sides, we have several, you know, everything from Star Post to other small entertainment sites that will cover our news.

Andrew: And how do you get news like that? You guys aren’t a news agency.

Interviewee: No, no we aren’t. And so, but the TV producers sometimes will leak us information because they want us to drive buzz for them. And so it almost sometimes seems like it is, you know, kind of viral out in the public, but sometimes it’s actually brought out by the TV executives.

Andrew: Why you guys? Why you guys? You’re not TMZ. Why wouldn’t they just go to TMZ?

Interviewee: So,

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Interviewee: …so TMZ is definitely around celebrity gossip, but if you want TV-related insider feedback, sometimes we will have better stories than the other folks, and they will send us on sets just to meet with their stars, primarily because we drive so much buzz for their shows and it’s a very symbiotic relationship.

Andrew: Merrick, who’s watching us live, is making sure that I show that comScore shows that Buddy TV as the second-fastest-growing site last month, with three million “uniques” to five million, and he wants to know how you guys did it.

Interviewee: Alright, thanks Merrick. You know, I don’t know if there’s any “secret sauce”, but there’s definitely a very disciplined approach to making sure that we’re getting traffic every single day and we watch, we have… in our office we have a huge monitor for all of our employees to see and it goes real-time showing our statistics. So, you know, we just measure everything and I think we’re fortunate in terms of how we’ve watched fantasy television and fortunate in terms of how we’ve launched a couple of products that have driven in some traffic and obviously we’re back in a TV season, which is always helpful too.

Andrew: Clint Jeff came back saying “yes”, he means consumer package goods, how can we be compelling when working with established brands? A lot of people who are watching us now are watching us recorded, are people who are working with big brands, they are creating these small agencies that are working with these big brands and they want to do some of what you are doing to make the work that they do with big brands go viral.

Interviewee: Yeah, absolutely, I think that brand work is fascinating, I will say that right we’re working on a video short for Buddy TV that we’re going to be releasing to the public, and we think it’s going to be fantastic and building the product into a show like that and getting a lot of viewers is a very very cool way of attaching a brand to something that is very viral, that is very hot online. So we are going to do a take-off on “Twilight” and not only promote Buddy TV but another character as well, so…

Andrew: What’s the other character?

Interviewee: We will be releasing that soon, but I will just say that it is a very notorious character on television that’s going to be on video for a very short period of time, but it’s very very funny.

Andrew: And that character’s owner is your client and that’s how you’re making their product more viral?

Interviewee: So we are selling some advertising against it but we’re also trying to make Buddy TV more viral through this video short, so it provides a couple of avenues of revenue for us.

Andrew: And Clint Jeff: that’s a whole separate subject that we’d have to do a whole separate interview just to dig into that one so we’ll leave that question there. Anyone have any more feedback, anything live, just let me know because we’ve got just a couple more minutes here. I want to know: big mistake that you see entrepreneurs make. I know that on the inside you know what entrepreneurs can get away with and you see that they’re not, and you must think “Boy, those guys are idiots, they’re making stupid mistakes.” What stupid mistakes are you seeing us make?

Interviewee: The biggest one that I see when I meet with entrepreneurs is that certain pieces of their business are doing well and they want to meet with me because they have ten other ideas that they want to pursue. A lot of advisers will go in and say, “Hey here’s ten more ideas that you should go after,” and the problem with entrepreneurs is that you cannot survive going after thirty projects. You need to do one thing extremely well, stay focused, and maybe you might do one or two slight bets just to see if they work but that’s it. You don’t have unlimited resources, you don’t have unlimited cash, and at the end of the day you need to stay focused on a very singular strategy. If I had to say “Buddy TV’s strategy for 2010: it’s all about loyalty and that’s all I care about.” And so even though I care about modernization, I care about audience, I care about how our products are doing, I care about what our product road map is, and so on everything is within the lens of loyalty.

Andrew: So test different approaches to it but you goal is to get to loyalty and then go with whatever gets you there the most. How do you measure loyalty?

Interviewee: For us it’s about repeat visits and how many page views within that certain visit. So if we’re doing a good job then we should be able to move from seven page views per visit to, say, twenty. If we’re doing a great job we should see Andrew come onto our site not once every two months but once every two days. And so that would be a successful year for us in 2010

Andrew: OK, what other mistakes are you seeing entrepreneurs make?

Interviewee: There’s a ton. The other one is believing that your company is so big that you deserve cash.

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Andy: …raise money right now. And the deal structure is very important. And so, for you to think that you’re worth ten million pre or five million pre, is just unrealistic. And so, you don’t get some advice and decide very quickly, “hey I don’t want to raise money because it costs to much time and cost too much angst and its going to cost me too much equity” or go for it and set it a reasonable level. It’s amazing how many entrepreneurs are way out of the ball park.

Andrew: I see. So they’re being offered investment but their being unreasonable about the level of equity that they should be giving away for that.

Andy: Absolutely.

Andrew: What else?

Andy: So many other things that I see. You know, one of the things that I always look at is how are you thinking about your budget, you know. Are you overspending? And theirs just so many other ways of building product besides hiring people. And so, one of the things that I always stress is it’s so easy to hire people, so hard to fire them. So, you should reverse that. Make it extremely hard to hire, and it’s extremely easy to fire. There’s nothing worse than having dead weight on your shift. And it’s better to have a smaller team executing on important things than to say lets expand the team and hit a lot more marks.

Andrew: How do you make it so easy? How do you make it harder to hire and so easy to fire people?

Andy: So if you really need a person, I would say make sure you can use this person a hundred and fifty percent. So you’ve got more work than they can handle for this person when you bring you bring them on board. Two is make sure you’re spending a lot more time on your hiring process, making sure you’re getting the right person. And then, you know if it’s not working out, we as entrepreneurs have a tendency to give people too much rope. Its time to move on and upgrade talent.

Andrew: OK. Let’s do two more big mistakes because I really like where that’s going. I feel like there’s a lot of value in this.

Andy: Right, right. As I think about my business as well, I think that there is a tendency to give up too early. Cut a rough timeline if I had to nail it down is two years, you know. If you can’t commit to two years don’t do the business because you’re going to run into so much trouble. And things are going to go so much slower and self-worth it. Just give yourself enough time so you can actually see if you’re going to succeed. So have two years as your baseline. So, don’t give up after four months of tough luck.

Andrew: Alright. One final one.

Andy: One final one is, you know, this is just advice that I live with is you know startups are hard. It’s never easy. There’s no quick riches so you need to have fun during the journey and not always focus on the end game. The end game will be there but focus on the journey and making sure that you have fun so what we do is we always celebrate. So anytime there’s a success, even the small success daily, make sure you’re celebrating ringing the bell, eating out. Yeah, what else?

Andrew: You know I hear that a lot but its not that we’re just waiting for the end goal. We’re stressing over where we are now and how we’re not at the end goal yet or how were not bigger than we should be or bigger than we are. We’re stressing over that and that’s why we don’t celebrate. How do we take a moment and how do we celebrate the fact that our site went to ten thousand used this month when we know that unless its a hundred thousand views, it’s meaningless?

Andy: Right. Right. Yeah. Andrew, I think that’s a great point but what I’m saying is you’ve got to have that rhythm. If all you’re doing is stressing all day, you’re just not going to survive. And it’s just no fun if you’re stressing all day. Hey, the reason you got into startup is, you know, for a variety of reasons. I hope that part of it is passion and for the fun of doing it. And if you don’t have that element, I think the journey is very very tough. And so, whether that’s zero to ten thousand in that day, you know what, we’ve got five more registered users. Lets make sure those five people are extremely happy and that one email is something to celebrate when they say that you’re doing a great job. You know, so make sure that you have something to celebrate about. If it’s all negative, I think a human can only take so much of that.

Andrew: Right. Is there anything that I missed? Anything that I should have brought up here that you want people to know?

Andy: This has been a ton of fun, you know. I’m happy to interact with folks if you want to give my twitter handle or my Facebook or what have you. I’m very very happy to meet up with folks and talk in more detail. I’m happy to grab a beer with you next time I’m in LA.

Andrew: Alright. Actually, I’m in Buenos Ares. Id love to have you come down here and have wine and a steak with me.

Andy: [laughs] Fantastic. I love Buenos Ares.

Andrew: I’m here for a little bit. Alright so yes.