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If you’re a tech entrepreneur, don’t you have unique legal needs that your family lawyer can’t help you with? That’s why you need Scott Edward Walker of Walker Corporate Law. If you read his articles on VentureBeat, you know he can help you when you’re raising money or when you’re issuing stock options or even if you just need to decide whether to form a partnership or a corporation. I almost screwed up on that. But I won’t screw up when I tell you Scott Edward Walker is the entrepreneur’s lawyer. But you probably know that by now. Here’s the program.
Andrew Warner: Hi, everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. What we do here is I interview entrepreneurs about how they built their businesses. I want to find out what they learned along the way. Most importantly, I want to bring back their best lessons for you, so that you can go out, build an incredible company, and do what today’s guest is doing, which is teaching others what you learned along the way.
So, have you ever copied text from a webpage, pasted it somewhere else, and right at the end there was a little link? Well, those links are inserted by a service from Tynt. Tynt is a company that aims to help websites leverage the benefits of copy/paste. I have with me the founder of Tynt, Derek Ball. I want to ask him about how he’s building his company and the story behind his previous company, Sonic Mobility, which he sold in 2004 for $8 million. Derek, welcome to Mixergy.
Derek Ball: Thanks, Andrew. I appreciate the opportunity.
Andrew: I’ve got to ask you, how did you get investors to give you $11.9 million for a copy and paste company?
Derek: [laughs] It’s a great question. One of the really interesting things, in fact one of the wonderful things about Tynt is its simplicity. Almost everybody copies and pastes on a regular basis. It’s not so much just that suddenly we’re the first ones to ever track copy and paste behavior. But it’s what you can learn from that copy and paste behavior that’s very exciting, because it gives us an opportunity to really see across a very large number of people what people care about. It’s a lot like every time you hit control + C, you’re voting, and you’re saying that you have found something of value on this page. The reason I believe our investors are so excited about this opportunity is that we now see input from, we now touch over 300 million independent users every month, across 600,000 websites around the globe. We have a real-time stream of what the world cares about right now. So it’s a lot more than just, “Oh, these guys have analytics on copy/paste.” It’s much more about having our finger on the pulse of the planet.
Andrew: Okay. I care much more about the business behind the business than the technology behind the business, but I’ve got to ask you more about the technology just to understand the business. And then we’ll also go back to the previous company. What kind of analytics can I, as an entrepreneur who’s running a website, possibly get from copy/paste?
Derek: The interesting thing about the analytics here is . . . well, let me talk about the kinds of people who are using our technology right now. It’s a broad spectrum. We have a lot of the large-scale publishing companies such as Time Warner, Conde Nast, News Corp., and Hearst all leveraging this. And the reason they leverage it is usually one of three things, or it’s all three things combined. The first one is that they get a lift in traffic, because when somebody pastes content and the activation link is added, that helps to draw new visitors back to the site. And since most of these sites are ad revenue supported, that means more ad displays, which means more money for them.
The second thing is SEO. They get a lot of their traffic from people coming through search engines. So if you have good content related to a particular set of keywords, the best thing is when your readers are actually taking those links and putting them in places where the search engines will go, “Oh look, Sports Illustrated has good content on this subject,” and so Sports Illustrated rises higher in the search rankings.
For a lot of them, the third reason is brand. Some of our large publishers say, “Hey, we’ve got great print brands, but we’re not known that well online. So we want to make sure that when people actually share our content that our brand is attached to it.” That works for the big guys, but it also does a lot of the same things for the upstart entrepreneurs and the early guys, because it does help make sure that people spread your content, that your brand grows, and that your traffic grows, especially if you have a content-oriented site or a commerce-oriented site.
The other piece of the puzzle is that you get analytics about what people actually care about. This can be very, very important in helping to analyze your online content, to know what people are engaging with. You might choose to put different things on your front page, or different things in key areas of your site, based on what people actually care about. One of the interesting things we can tell you as well is when people are copying something with the intent of jumping off your site and searching on a search engine, which means you’ve now lost them. As a business owner, you don’t want to lose your readers. So we can tell you what terms they are searching for more information on, so you can then put that more information right on your site.
Andrew: Okay. And I can see how on a site like mine it might help, because you and I are now going to create I don’t know how many thousands of words because this interview is going to be transcribed. Somebody out there is going to start copying a key phrase in this interview, and then another person will copy their key paragraph, and so on and so forth. I want to know what is it that they care so much about that they’re not just reading, but they’re copying and sharing with their friends. The issue though is that John Gruber famously brought up when he called you guys “the copy and paste jerks” is that you add a long URL to the end of that copy. Why not create more of a bit.ly sized, short URL at the end so it doesn’t overpower the text that’s quoted?
Derek: Absolutely. I think that’s a very fair comment right there, which is, “Can we get the URL to be shorter?” In the beginning, the large brands we were dealing with wanted to make sure that it wasn’t a shortened URL, because at the time when we started this about a year ago, there was quite a bit of suspicion that they wouldn’t get the maximum lift in the SEO side if it was a shortened URL. I think that most of those concerns have now gone away. So the second concerns the brands have is that it actually says sportsillustrated.cnn.com in the link, and not bit.ly. Now, though, there seems to be more openness to the shortened URL. So I expect you’ll see that coming as an option for us in the future.
Andrew: And they could have their own personally branded short URL. They could have cnn.ly, cnn.ly with a short text. Unlike John Gruber, and I want to ask you about him in a moment, but I’ve got to say that I as a user do want that link at the end, especially if I’m copying and pasting on my iPhone. I might see an article in “The New York Times.” I want to copy it, and I want to know where I got it so that I don’t later on pretend that I invented it or forget that I copied it from someone else and start to imagine that I came up with that quote. I like to copy that URL. I want to know where it came from. But man, is it a hassle. Then I have to go and copy the URL, and I might want to copy the date along with it, and it’s too much. But John Gruber said he didn’t like it. He called you guys jerks. How do you deal with that kind of reaction coming from such a high profile blogger? What did you guys do?
Derek: We actually attempted to reach out to John, but he never responded to our emails. So we were unable to have a conversation with him unfortunately. I think we recognized that not everybody would appreciate having this done, especially people that have their own way they want to format links. So for a long time we’ve offered an opt-out through our site. In fact, most of our publishers have it in the graphic view, where you can push a button, and when we see that in your browser that you requested to not have the link, we go to sleep and we don’t insert a link. We’ve had that option available, but of course we never had the opportunity to say that to Gruber’s audience.
But the reality of it is, it’s really interesting, that it’s not so much the savvy technical people that we’re attempting to help the publisher with, it’s the more casual reader. When you look at the many, many people on the Web, I can tell you very clearly that it’s the wrong assumption to make that everybody always gives a citation when they copy content from original sources. Many people do not, and it’s not because they don’t want to. It’s just because they neglect to, or don’t understand that it’s the right protocol. We want to encourage people to always remember that there’s a link there, and it’s proper protocol that you should link back to the original source. But clearly, if someone doesn’t want it, there are ways around it, and we’re fine with that. You can opt-out on our site, or there are various tools that you can use that will block it from running.
Andrew: I understand that, and he actually did in a follow-up post he talked about the tools that he used, the tools that were available, and he complained that he shouldn’t have even had to use those tools. What I’m interested in, from a business point of view, is how did you get your word out there? How did you get your side of the story out there? You guys don’t seem like you have a popular blog. You don’t seem like you have as big a microphone . . . in fact, you definitely don’t have as big a megaphone as he does. So what does an entrepreneur do in a situation like this? I want to learn how you guys did it, so when somebody attacks me, I’ve got maybe an option to think about.
Derek: I think there’s a number of very valuable lessons to learn. One of the first and most important lessons is that any time somebody’s speaking about your product, it’s very important to listen and to try to understand fundamentally what they’re concerned about. I think if you are producing a product that somebody has a legitimate complaint about, you want to try to address that and have an avenue to addressing it. I find most people are pretty reasonable in conversation.
For example, one of the people that jumped onto John Gruber’s bandwagon initially was Rafe Needleman from CNET. So we dialed up Rafe and said, “Hey, do you have some time? Can we sit down?” We sat down and explained to him what we’re doing, how we’re doing it, and why we’re doing these things. He had some legitimate concerns about how our service functioned, and some of that has now been rolled into input. It’s now in our development queue to try to make some changes based on that, because it was constructive.
I think that in any one of these situations, you can usually learn and improve your service, if you’re actually listening. But the other piece of the story is that you do need to get word out about what it is that you do, so to try to dispel the misunderstandings that often come out of these situations.
So, what’s the best avenue to do that? I’ve done multiple startups, and in fact, one of my friends out there, Guy Kawasaki, has a comment. He says, “Be polarizing,” because the worst reaction when you put out a product out is for people to go, “Nyaaa.” [laughs]
You want them to love it or you want them to hate it. You want them to be passionate about what you’re doing, because it means you’ve done something meaningful. You want to reach out to people who also have a voice and can help with raising the other side of the story. For example, Robert Scoble, Rafe Needleman, and some other channels that we used helped to help it to spread. Unsolicited by us, Matthew Ingram had put some comments out. He used to be with “The Globe and Mail,” and he’s a well-respected person. He said, “This really isn’t such a bad thing. In fact, it could be very beneficial if deployed correctly.”
Andrew: You invited Rafe into your office. He came into your office. You sat down one-on-one, and you got his feedback. Am I understanding this right?
Derek: Yeah. It wasn’t in our office. It was actually at a coffee shop near his office in San Francisco. So we sat down face-to-face.
Andrew: And by we, you mean you personally?
Derek: Myself personally, and my co-founder Dayton Foster. We sat down with Rafe and said, “Let’s talk.”
Andrew: What were some of his concerns that were legitimate and you guys have in the queue right now?
Derek: One of his concerns was that he often will paste things into Excel spreadsheets. When you paste into Excel spreadsheets, the way that our carriage returns are implemented, actually it can overwrite a lower cell. So in my mind that’s a very legitimate concern. It shouldn’t do that. So we actually have our team looking into ways to fix that problem, and hopefully we will have that addressed. In my mind, that’s a bug. And this is your users raising your attention to a bug in your software. He wasn’t aware that there was an opt-out available, so we made him aware that there was an opt-out. We also helped him understand why some of the publishers we work with (and in fact one of the publishers that he works for) use our technology, what they gain from it, and the reasons behind it. He wrote a follow-up post after saying, “Hey, I spent some time with the guys from Tynt. They’re really not jerks, and here’s my new understanding of what’s going on.”
Andrew: It’s a good comment that you mad earlier, that you’ve got to be polarizing. I’m not pissing enough people off. Derek, who can I piss off? I’ve got to polarize. I’m too nice.
Derek: You’ve got to have a vocal opinion and you will piss somebody off.
Andrew: Have a vocal opinion and piss somebody off? Maybe I should piss off John Gruber. He’s got a big audience. If I piss him off and he comments about me, I’ll get tons of traffic from him.
Derek: You know, some people have said that there’s no such thing as bad press. I don’t think that’s necessarily true. I think you definitely want to try to have more positive stories than negative stories. But I do think that when you do something that touches 300 million people every month like we do, there are going to be some people who are going to have a reaction. So I think the reality is that the size of your audience will dictate if you have a reaction. If your audience is only 10 people and most of them are your family, you’re probably not going to get a negative reaction. But when all of a sudden you’re reaching a much broader audience, you’re doing things that are changing the models that we’re accustomed to . . . we do, we change the behavior of what you become accustomed to with copy/paste.
If you look back at when banner ads first started appearing on the Web, people became very upset, because it changed the behavior of what they expected. You can look at almost anything that has changed things and made a significant impact on the Web, and at each stage of its evolution, there were people who were very upset.
So I think that the mere fact that people have gotten upset with your service is not a bad sign. So, sometimes provoking a reaction can be good. It’s not always getting them pissed off. It’s provoking a reaction that can be beneficial, which might be saying something controversial or asking a controversial question. Google is a good example of this. They’ve come up with many controversial things, many of which have now become mainstream for us.
Andrew: Okay. I asked it in a joking way earlier when I said how do you raise $11.9 million for copy/paste? But now I am going to ask the exact same question in a more serious way because it doesn’t seem like it would, and in fact, it definitely wouldn’t take anywhere near $12 million to code up a system that would attach tracking information to something that somebody copied and spit back analytics to a person so he gets a sense of what’s happening to his content. What did you do? Now I’m getting jokey, but what magical thing did you tell your investors? And let’s pull away from the joke completely. What vision did you create for your investors that helped them see that you needed $12 million roughly?
Derek: [laughs] I think a big part of that is that it’s easy to build systems that are small, but that changes as they start to scale. It’s not hard to digest large amounts of data, but it can be very, very hard to extract meaningful insight out of extremely large sets of data. We’re now tracking 100,000 data points a minute into our systems. We have a large number of servers digesting that, looking for correlations and insights within that data which can be beneficial to the larger world. That’s where it gets tricky. The trickiness is not just building a database that tracks the copies.
Andrew: What about marketing money? Are you paying websites to use Tynt?
Derek: No, we don’t pay websites to use Tynt. We essentially have an exchange of value at this point. They get to use the product for free, and what we get is the opportunity to understand the larger trends in the data that we see. Our future path forward in monetization, we believe, are around the trends in that data.
Andrew: Okay. When, who was it? It was Mark Suster on “This Week in Venture Capital.” Do you happen to watch that show?
Derek: Unfortunately I don’t.
Andrew: All right. I shouldn’t have asked you, because if the answer is no, it might insult Mark Suster, who I’m sure has an alert for his name.
Derek: I’ll make sure I tune in.
Andrew: When it came up, Mark Suster and Jason Calacanis were talking about this, and they were trying to figure out where the money was going. Mark had this idea that you have some bigger vision than what we’re seeing right here, that there’s something else that you plan to add on, beyond charging for some analytics. What is that vision?
Derek: [laughs] Oh, allow me to say this. We definitely do. We have a big plan, and it’s an exciting plan. I think that it’s one that a lot of people are going to maybe be surprised by. Maybe not. But it’s something that will fill what we see as being a big gap in the Web. But I can’t really tell you more than that in this forum right now.
Andrew: Is it still copy/paste, or is this a whole other project? Actually, is it still copy/paste?
Derek: It’s the data behind the copy/paste that drives it. But the big vision, the big piece that you say we must have shown the V’s. Correct, we did. And the big piece that we’ve shown them is derived from the data that we see from copy/paste, but it’s not directly tied to copy/paste.
Andrew: Okay. When are you releasing this?
Derek: [laughs] As soon as possible.
Andrew: Are we talking about in the next few weeks, in the next few months?
Derek: It won’t be in the next few weeks, but you will see it this year.
Andrew: All right. Are you also including any kind of tracking? Maybe a single pixel to let you know where that text that’s being copied is put in?
Derek: The links that get generated actually have a hash tag at the end. The hash tag gives us visibility into where people are activating that link, because that allows us to basically close the loop on the copy/paste cycle.
Andrew: But that’s only if somebody clicks. If it’s not clicked, then do you know?
Derek: No, we don’t. So there’s a certain number of links that we lose track of, which is normal. The ones we actually care the most about are the ones that come full circle and bring people back to the site.
Andrew: You know what seems to get plagiarized, stolen, or used inappropriately, or without attribution . . . that’s what it is. What’s used without attribution more than text is images. Sometimes people do it unintentionally. I sometimes will pick someone’s photo who I interviewed thinking that it’s their usual press photo, but I’ll accidentally grab a photo that a friend of theirs took. Then when I post it without attribution, I’ve just done wrong by that guy. Any plans to do images too?
Derek: We have some limited image support in the system already. We do help you track what images people are copying, and let you see the most copied images. But depending on how the image is copied . . . by he way I should pause here and say that we really don’t see ourselves as a copyright enforcement tool. There are wonderful tools out there like Contributor and Copyscape that help to enforce copyright.
We really see ourselves as a tool to help a publisher or content owner benefit from the sharing of that content. So we do let them know what images people are sharing, but the attribution piece, if the image itself is grabbed (like if you right-click copy image), then it’s stored into your clipboard as a binary, and it’s a lot more difficult for us to actually add the attribution onto it. So we’re doing some research and development on that right now. We’re doing the first part, which is the tracking. The attribution, we’re continuing to try and crack that nut.
Andrew: I see, okay. All right. Let’s go back and find out how you got into this. In fact, why don’t we go back before? Sonic Mobility, 2000, you launched that business?
Derek: That’s right, in December of 2000.
Andrew: What was the vision behind that company?
Derek: That company, at the time, I had this vision that people would all be carrying around these small portable devices, like this. And they would be able to communicate in real-time. Of course, back then, the state of the art was the Compaq iPAQ, which was not connected to anything. You had to slide it into a giant sleeve and stick a radio on the top and have batteries so that it would actually run. I had this vision that IT people would be able to . . . myself and my team, I should not just say. It was us. We had this vision that IT people would be able to use these devices to do real-time control of back-end infrastructure. People at that time we saying, “Are you kidding. No one’s going to carry around something that big and bulky that only has a one-hour battery life.”‘ And we said, “Not yet, but they will.” [laughs] And that was what essentially gave birth to Sonic Mobility.
We ended up working with the BlackBerry platform, and we were the first ones really to put a BlackBerry onto the Internet. At the time, the Blackberry ran on the paging networks — DataTAC and MobiTex. We actually built a bridge between the DataTAC and MobiTex networks to the Internet and allowed them to communicate as if they were an IP-enabled device. Now it seems, “Well, of course they do.” But at the time, that was pretty much rocket science.
That grew and we found that our particular niche for that initially was primarily military, government, banks — people that had critical real-time infrastructure, and also had the wherewithal to equip their IT people with these devices. That business grew for us, and we were very fortunate. We had a positive exit to Avocent in ’04.
Andrew: How did you get your first clients?
Derek: And that’s always the trick, because your first client is somebody who’s going to share your vision for the potential of what you’re doing. And very often they get the product for free or next to free.
To tell an interesting story, I remember going back to raise the money to fund Sonic. We never took venture capital money into Sonic, but we did take angel money. I remember going back to talk to the VCs. They would say, “You know, you’ve got a really interesting idea, but when you actually have a beta product, come back and we’ll fund you then.” So we went out, worked away, raised a bit of money from friends and family, and we built the beta product. Then we took it in and showed the VCs, and they said, “You know, that’s great. But if you actually had a customer, then we would fund you.” So we went away, worked hard, and found that first customer. We convinced somebody to try our crazy, hair-brained product. Then we went back to the VCs and said, “We’ve got a customer. Will you fund us now?” And they said, “Yeah, not quite. You’ve got one customer, but prove to us it’s repeatable. Prove to us you can get more than one customer.”
So we went out and we ended up with seven customers. And the seventh customer actually was the US Army. We went back to the VCs, and they said, “Yeah, you know, that’s really great. But your competitor over here has partnerships with Oracle, and partnerships with all these different groups. We think that you can’t partner as well as they do.” So we went out and started partnerships with RIM, with Palm, and with Microsoft. In fact, Microsoft licensed our software and bundled it as their mobile administrator toolkit.
Then we went back to the VCs again and they said, “Yeah, but this competitor over here just got $11 million of funding from a major Silicon Valley VC, and you guys are up in Canada, so we don’t think we’re gonna do this deal.” At that point, I stopped and I looked and I realized that I had 450 customers. And we had cash flow, and things seemed to be going the right way. So I ended up only raising the angel money, and seeing ourselves through to the exit. It was funny because the VCs set the goalpost that I had to hit. And as I navigated through it, it was actually incredibly helpful. But I never actually took their money, or had the opportunity to either.
Andrew: I was wondering about that. I couldn’t find any information about any venture capital money coming into the business, but I thought they were acquired for $8 million, plus assumption of liabilities. If they raised $11 million, that’s not such a great win. If they raised angel money, then it was. Can you say how much angel money you raised?
Derek: I can’t disclose total money, because we sold to a public company. But I can tell you that the first angels in made a 10X return on their money. The next round of angels in made a 4X return on their money, and then as we were coming into closing, cash was tight, so some of our angels bridged us through that. They made 25 percent return in six months. So everybody made money on the deal. Everybody came away happy from the deal. Given at the time there was a bigger differential between the US and Canadian exchange rate, it actually translated to about 113.5 million Canadian dollars, and that worked out pretty well for all of our investors and our management team.
Andrew: No wonder you became an entrepreneur in residence soon after. I was wondering about that too, but now I understand. Now entrepreneurs want you in their office, and want to keep pitching you. Is that what ended up happening? They came to you because they wanted to have the opportunity to pitch you?
Derek: I think they wanted the opportunity to pitch me not so much because they were after my big mounds of money, because I don’t have big mounds of money. I did well, but we all did well in that.
Andrew: I don’t mean about the money. But when they see an entrepreneur who can create that kind of return, I think they want to lock them down.
Derek: I definitely had people coming in and pitching me, wanting me to get involved with their ventures. In fact, that’s part of why you become an entrepreneur in residence, to see if there’s something you think you want to get into. And I have to say I got close on a couple. I looked very closely at a couple of deals. But ultimately it came down to watching my children grow up and beginning to engage on the Web and do things and communicate on the Web, so that I decided to launch Tynt with some people I’d worked with on Sonic Mobility before — my co-founder Dayton Foster and other key people in our management and engineering teams. Because I didn’t quite find the right deal I wanted to do as an EIR, but I knew I wanted to get back into the game. It was time to be a player and not a coach.
Andrew: I want to come back to what you said earlier. I want to ask about some of the key sales that you made — the very first one; the one to the military; and maybe the partnership with RIM. So the very first customer, the one who sees your vision, how did you get that customer?
Derek: You have these network connections that you make. Usually your first customer is not going to be a complete cold call. It’s going to be somebody you have some kind of pre-existing relationship with. Your investors can be very helpful for that. I’m trying to remember if my first customer at Sonic was referred to me through investors, but I think it was actually through an industry group that I made this connection. The individual shared the same vision for what they could do with mobile devices for remote management and was very willing to work with us to see if they could make it work. He was clearly an early adopter/innovator.
Andrew: What kind of company was it?
Derek: They were an outsourced IT services company. So they thought that they could put their people with [interference] service than their competitors and do so more cost effectively to improve their markets. They saw it as a win, not just as a technical long-shot. If it actually worked, they would be differentiating themselves in the marketplace. So that was our first customer. But then the interesting thing was that the US Army came and found us. They said, “Hey, we heard about this tool that you have.” In the early days, one of our competitors in the space had been written up, and had in fact received quite a bit of venture financing. They were buying advertising and trying to educate the market. We actually were able to tag along with all the money they spent, because then the reporters would ask who the competitors in the space were and they would cover us.
Andrew: It looks like the video disappeared for a moment. Let me take it out completely and bring it back, and hopefully we’ll have the connection. Go ahead. I’ll work on the video while you continue with the answer.
Derek: In that case, they would buy an ad in some of the magazines that targeted IT people. And then on the opposite page there would be a story written about us. That was our opportunity to not have to spend the money they spent, but still kind of come along for the ride. It was one of these situations where somebody from the US Army’s Biological/Chemical Command Center read the story and understood how what we had could solve a problem for them. The problem was that if they had to evacuate — and at that time there was fears of anthrax and all kinds of things — if they had to evacuate, how could they stay in touch with their critical systems inside if they’re standing on the street? That massively advanced our product as well, because they came in and completely disassembled the product and said, “Okay, change the encryption algorithms, change this, and do this, and then we can purchase your product.”
And being based at the time in Canada, we were foreign nationals. We had to have people who were GSA-approved, and there was a bidding process. It was a huge education. But at the end of that, when we came through this cycle with the Army, our product was much better. We understood our market much better, and we were a lot smarter for having done so. Plus once we had gone through that cycle, nobody ever said, “How do I know your platform is secure?” Because the US Army used it, it became a slam-dunk.
Andrew: How did you convince them to work with you and not your big competitor that was buying the ads and getting a lot of attention and on whose coattails, at least in the press, you were able to ride? Why you, not them?
Derek: In that situation, we made some fundamental decisions within our product, which really put . . . both products although they were attacking the same problem, the implementation was very different. The competitor in that situation had utilized a web interface for everything. In those days in mobile devices, web interfaces meant click, wait a minute; click, wait a minute. And we implemented native interfaces because we knew that we couldn’t afford the latency of having to reload the page every time something happened. So, that really was a fundamental architecture decision that we made very early in the game, which proved to be, for us, the right one. It meant that the competitor’s product was fundamentally unusable, and ours wasn’t. [laughs] We never, ever actually lost a deal to that competitor.
Andrew: Wow. I hate to keep sticking with that first sale, but I’m just such a business nerd that I’ve got to find out a little bit more about it. So, you don’t really have that much to offer when it comes to the first customer. It sounds to me like this was a customer who just loved technology, who was willing to be forgiving because he was a cutting edge, early adopter,
Derek: Right.
Andrew: But what was the deal? Was it try us for free? What was the thing that clinched the sale?
Derek: Oh, completely. Back in the beginning, you have to let them try it for free, because you haven’t proven the value. There has to be a chance for you to demonstrate your value at no risk or minimal risk to the end customer. The only risk that they should take on is their time. In that situation, he was wiling to invest the time. And then when we could prove that it worked and the value was there, then we could negotiate a price. Make them want what you have first, then talk about price. Don’t negotiate price until you know they want what you’ve got.
Andrew: Okay, I’ve got you. How about RIM? How did you get the partnership with RIM?
Derek: RIM actually had an open partner program. At the time, there weren’t a lot of companies involved in it. Ironically I was just out last evening having a drink with our old partner/manager from RIM, who’s now a VP over there, running their global partner program. We hadn’t talked for a few years, so it was kind of fun looking back on those days when RIM only had 300 partners. In fact, I think we were one of the first 50.
By the way, another piece of advice I always give to entrepreneurs of early stage tech companies is, “Get out from behind your desk and go meet these people.” If they’re going to influence and change your business, you can’t do it by telephone. You can’t do it by e-mail. You have to go out and build a relationship with them. That’s a very critical thing to do.
So, we actually got on an airplane, we flew out to Waterloo and sat in front of them. At the time, it was still the early days, and people were starting to get excited about RIM. They had all these people walking in and saying, “Here’s what we’re going to do with your product.” So they’re tended to be very leaned back. Then we came in and said, “Here’s what we are doing with your product,” and we showed it running and demonstrated it. And all of a sudden, they are leaning forward. They said, “You know what? You’re the first company that’s come in and actually showed us the product it running.” Instead of trying to tell them what you will do, show them what you do. And that tends to win you [interference].
Andrew: And as a result of giving them the opportunity to see it, to interact with your stuff, did they end up partnering with you? At that one meeting?
Derek: They were a partner of ours, and yet we were very fortunate because we had different partnerships with Palm, RIM, and Microsoft. Now most of our customers were on the RIM platform, because at that time the Blackberry really dominated in terms of what tools people actually carried around. RIM was a great partner in terms of exposing us to the large customers who were utilizing it. Although I have to say, they didn’t treat us with favoritism over other partners. It’s just that we had a solution that worked, and so it was good for everybody involved.
Andrew: I see. Why’d you decide to sell?
Derek: When you look what Sonic Mobility had, it was a niche solution for a very specific market. It wasn’t a thing that could globally touch many, many people. We were four years in on this, and we had a decision to make at that point. I had a VC term sheet on the table willing to invest money. Of course, as soon as you take VC money, you’re setting a new bar for your potential exit. And at the same time, we’d gone forward to one of our strategic partners, Avocent. And they told us, “Based on the valuation we’re seeing in this financing round, we’d rather just own this outright. Would you guys be open to that?” We liked them. They were a good partner. As a CEO, you have to make a decision about what’s the best thing you can do for your shareholders. In that particular situation, we looked at the potential market growth, the dilution that we would get from raising the VC money versus where we thought the company could go after that. It was a very clear answer, at that point, that the exit was the right thing to do.
Now at Tynt, for example, the situation is different. We’ve been presented with opportunities to exit, and we’ve chosen not to, because we believe we have an awful lot to do here still. You have to try to assess your path ahead and try to decide. You know, we’ve now taken a significant amount of venture capital into the company. That means we’ve now set a bar for ourselves that we are confident we will hurdle, and of the value that we can build, and we’re not there yet.
Andrew: One last question about the previous company, Sonic Mobility. Can you tell me what it felt like when you saw . . . was it a check by the way or was it a cash deal or were they giving you shares in exchange for your business?
Derek: It was an all cash deal.
Andrew: So tell me what it was like when the wire went in, when you saw it. What was that day like?
Derek: [laughs] You hear these stories about people walking in and closing the deal like two weeks later. That wasn’t this at all. When we first started working with Avocent, it took a year from the time we first started conversations to when we actually closed the deal. There were so many times when I thought the deal was going to go off the rails. So when the cash actually hit the bank, there was this incredible feeling of relief and happiness at the same time. We’d been working towards this goal, and it was a difficult goal. We all had to pull together. When we actually summitted the mountain, you stood up and said, “Wow, we did it.” And it was a wonderful feeling.
Andrew: All right. The idea for Tynt, where did it come from?
Derek: I think it’s a good point to say that what Tynt is doing now is not what we thought we were going to be doing when we started the company. Most of the companies I’ve worked with that have had commercial success have pivoted at some point from what they started doing, and Tynt is no exception to that. When we started Tynt three years ago, it was based on helping social networks better monetize teenage users. At the time, there were many social networks out there. We had a business model based around virtual goods and a lot of things that were very innovative and interesting. We had some initial customers in the social networking space, but it became very clear that our customers were getting their lunch eaten by this company called Facebook. We basically sat down at one point and said, “Okay. Our product isn’t gaining enough adoption. It’s not going to ramp fast enough, and our customers are being eaten alive. This is not a good space to be in.” [laughs]
We looked at our core technology we’d developed and said, “Whose problem can we solve with the technology that we have?” We’d been working with the social networks as, essentially, content creators. Instead of trying to monetize the end users, we thought about if we could solve a problem for the publishing community. We had started working with some publishers at this stage. We’d learned about some of the concerns and the lack of awareness they had about how much people were copying their content. We thought, “We could take a different angle on this. It doesn’t have to be copyright enforcement. What about benefit to the publisher?” We began looking into that area. We wrote up a little proof of concept piece of code and deployed it. It exceeded our expectations, so we did an alpha; that exceeded our expectations. We did a beta. Pretty much everything since has exceeded our expectations. And it just redirected the whole company about a year and a half ago into the company we are now, which is tracking user engagement through copy activity.
Andrew: That alpha, when you say it exceeded your expectations, how do you mean?
Derek: At the beginning, when we came up with the idea, we said, “I wonder if people copy/paste? How often does that happen? Why don’t we try and do some research?” We went looking to see if anyone ever measured this, and we could find no research that anybody every measured anything like this before. I’ve been in the industry a while now, and the initial reaction was that it probably means that there’s not a significant or relevant amount of this going on. But wouldn’t it be interesting if a quarter of a percent of all the page loads out there result in somebody copying something? You’d get this really focused database of what people care about.
So we wrote our proof of concept just to see how much people copy. We put it out on one of our engineer’s websites. He has a restaurant menu site, and we threw it out over there for two weeks, and we found that the copy rate on that was 10 percent. One of every ten page loads resulted in somebody copying something off the page, which completely blew our minds. We were looking for a quarter of a percent, and we found ten percent.
As we went into the alpha, we thought that was clearly an anomaly. It can’t be normal. In the alpha, we found that the copy rate ranged from two percent to six percent across 15 different types of sites that we were tracking. And now that we’re tracking 25 billion page loads every month, I can tell you that it’s consistently two percent copy rate on page loads. Now, that’s eight times higher than we were hoping we would see.
Andrew: That’s one in 50 times that somebody hits a web page, they’re going to copy something from that web page. That’s what you’re saying?
Derek: Correct.
Andrew: Wow. And that proves that there’s activity there. How did you prove that there was a business there?
Derek: The first part was that we proved there was more of this going on than anybody realized. When we first deployed on Guy Kawasaki’s site, he was one of our alpha testers, and he called me up after we deployed. He was looking at his statistics page and seeing how much copying was going on. He said, “Clearly your software’s broken.” He said, “Twenty people have copied from my site in the last ten minutes,” or whatever time period it was. We went back and said, “No, it’s not broken. In fact, here’s a live stream of what’s being copied right now off your site.” He was blown away, because people just didn’t grasp what a pervasive, universal behavior copy/paste is.
Now that we found that there was a critical amount of copy/paste going on, we began to dive in deeper into what can we see from that data. What can we learn from this information that would be beneficial to the publisher, to the user, to whomever? That became the next stage of determining the relevant analytics that a publisher can use and benefit from. At the beginning, we didn’t even do the back link function, we just measured the copy. But then we thought, well, let’s try the back link to see if it draws new visitors in. Does it help with the SEO? Are they going to be in places where the search engines’ crawlers are going to see them? It was all very much a grand trial and error experiment. And then we found the results were really good, so we just kept going.
When we went into the beta stage, I hoped I would get 50 sites to sign up. We had a closed, private beta, and I hoped I would get 50 sites to participate. We had 15 sites in the alpha. So I wanted basically three to four times more for my beta. We had 50 sites sign up by word of mouth in the first 24 hours. Within the first four weeks, I had 1,000 sites contact me by email, saying, “Can we please, please be part of the beta?” So we decided, “Let’s open it up and make it a public beta.” But it was all word of mouth. We didn’t really do any outbound marketing or advertising to try to gain that market.
Andrew: How do you know Guy Kawasaki? When he was blogging on his site, I used to read him all the time. I wish he’d do more of that. I read his books growing up, I love that guy.
Derek: He is a good guy. We were introduced by some friends of mine over at iStockphoto. Guy was very close to iStockphoto. It’s another company from my hometown, Calgary. iStockphoto was born in Calgary. Tynt was born in Calgary. So we knew each other. When Guy was in speaking at the big venture event we have every year called the Banff Venture Forum, they introduced me, and Guy and I struck up a conversation. Over time, we bounced off each other. And when the idea for Tynt came up, I approached Guy and said, “Look, I could really use some guidance and advice.” Guy’s now joined our advisory group. And it’s been a while since I’ve hooked up with him lately, since I’ve been kind of busy and so has he. But we try and make a point of getting together. He’s always got interesting insights and advice for what we’re doing.
Andrew: Can you give me an example of one of those insights? How has he been helpful as an advisor?
Derek: He’s been helpful in many ways. We have a tremendous group of advisors. We have people in our advisory group from major publishers, advertisers, bloggers, tech geniuses. I’ve got to say I love our investment group and advisory group — they’re so phenomenal. Specifically, one of the things Guy’s exceptional at is getting the message out through social media. Guy was very, very helpful in the beginning, especially with getting our initial message out. When I wanted to get some sites onboard, his word of mouth carries a lot of weight. So he was great at helping us get some initial exposure into the market. He also gave us some very good feedback on the product, some of which is only going to come out in the next generation of the product, because we had to wait for the right time to introduce some of the things he said we’d need. Guy saw one thing that we’d need in the product over a year in advance, so we were able to plan for that and build it in. He’s given us product guidance from his perspective; messaging guidance, and exposure to the market.
Andrew: And in return? In addition to showing him how the business grows and teaching him along the way, you also give him a share of the business, right?
Derek: That’s right. Our advisory board gets a small number of options in the company. Most of them are involved not because of the options. It’s kind of our way of saying thank you. I can’t say it’s going to change any of their worlds financially, but it’s a nice way to say that we appreciate your time and support.
Andrew: All right. I think that’s all the questions that I have. By the way, I’ve got to thank Marie Domingo here. She sent me a Skype message to make sure we were okay. We are okay. Is she your PR person?
Derek: Yes, we just started working with Stage Two recently actually, and Jeremy Toeman in the Bay Area here, another well-respected Canadian who’s part of a group called the C-100. I jokingly refer to the C-100 as the Canadian mafia. It’s a group of executives who are scattered throughout the Valley in the tech industry all there to help up-and-coming Canadian tech companies break into the market. Jeremy is one of those guys, and I was very impressed with him. So we’ve now started working with Stage Two to help us with the next generation of Tynt, making sure people understand who we are, and what we do, and that we get our message out there properly.
Andrew: She’s terrific.
Derek: She’s perfect.
Andrew: There are very few people in PR who feel like they know the sites that they’re talking to, and she’s one of them. She always seems to just get me and get exactly what I’m looking for, and it just makes for such a great conversation. That’s very helpful. So if Marie’s listening to this or reading the transcript when it’s posted, thank you for that help.
Derek, I guess that’s everything that I’ve got. Oh, one last thing. You’re now in California. What got you to move? You were doing so well in Calgary.
Derek: That’s right. And we still have the lion’s share of our engineering team is still in Calgary. But as the company grew, I found we suddenly started to become distributed. We have 18 people in Calgary, a little more than a dozen in Salt Lake City, Utah, and we have a couple in New York. But what was happening for me was I was getting on an airplane every Monday, flying to San Francisco, doing meetings down here, and then getting on an airplane on Friday and flying home. First it was one week a month. Then it was two weeks a month. Then it was three weeks a month. And I realized that we really need a presence here. On top of that, I was meeting the most amazing people here. I wanted to begin to attract some of these people into the company.
So, you’ll actually see an announcement from us very soon about a new chief business officer who we’ll be filling the world in on. And I’m able to build out a team because of the amazing people you find here in the Valley. I thought this was a great opportunity for my family to have an adventure, and this is clearly where I need to be to take Tynt to its next level. I think this is where we’re going to generate a lot of our key core partnerships.
Andrew: Thanks for doing the interview. And let me make sure to spell it so that people get it right. It’s T-Y-N-T, tynt.com. Check it out, copy and paste all over their website. And of course, if you’re copying and pasting on other sites and you see the URL, now you know the man behind that technology. Derek, thanks for doing this interview.
Derek: Andrew, thank you very much.
Andrew: All right. Thank you all for watching. Bye.
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