The headline of this post is kind of an understatement. Look at some of the companies Kevin Hartz has been involved launched or backed.
How did he do it? And what can you learn from his experience? That’s what I tried to answer in this interview.
Kevin began his career as a product manager and later co-founded ConnectGroup, a start-up providing high-speed Internet access to the hotel industry. ConnectGroup was acquired by Lodgenet (NASDAQ: LNET).
This is a raw, mechanical transcript. Readers (like you) are editing a better version here.
Hey, everyone. It’s Andrew Warner, founder of Mixergy.com, Home of the Ambitious Upstart. And today’s guest has been involved in many companies that many of you already know of. But I want to talk to you about a new company that I met him through, a company that used to be called FlexList, that’s now called LookOut. Some of my smartest friends launched this business. It’s security for mobile phones. And they told me about Kevin Hartz, who invested in the business. I said, “Who is this Kevin Hartz?” And the founders started telling me about how he was an early investor in PayPal. How he’s the guy who’s running, in fact, at the time, I think, Kevin, you were bootstrapping EventBrite. And I went through and found out so much about you. You’re one of the most successful people in our industry, and I’m so glad that you’re here on Mixergy. We’re going to talk about investments like the LookOut investment that you’ve made, like PayPal, how you were an early investor in that business. We’ll also talk about EventBrite, the business that you’ve launched. And you give us a new number here. You said that in March you got 4.6 million people to EventBrite, to the website.
Andrew: And last year… That is correct? Last year, 2009, you did gross ticket sales of a hundred million dollars. Those are incredible numbers, and this isn’t your first business. So I’m going to try to squeeze in as much as possible into this interview, Kevin. About your entrepreneurship, about the investments that you’ve made, and try to figure out how you’ve made this all work out. And I’ve got to say, Kevin, there isn’t that much about you, beyond facts on the internet. There aren’t stories behind some of these businesses. Or have I missed something in my research?
Interviewee: I guess that’s probably for the better.
Andrew: Why is that?
Interviewee: Well, I’m kidding. But yeah, I don’t know, usually when there’s lots of stories about you on the internet, you have to be concerned, or change your name, perhaps.
Andrew: Well, there are a lot of people who aren’t nearly as accomplished as you are, who do interviews all over the place, who talk about their success, and teach other people how to do it. And here you are, a guy who’s like I said, really one of the most accomplished people in our space, and hardly anything written about you. Oh, of course, your businesses, the businesses you backed and created have gotten a lot of attention. Why do you think there’s a difference here? Why aren’t people spending… Oh, you were about to say something.
Interviewee: Yeah, you know I, I mean I guess I can’t, I guess I’m very happy with working really hard, and I’m a student of the startups. And a lot of what I’ve accomplished has just been from learning from other entrepreneurs. So I’ve worked really hard. I started a company called Xoom, before this, in the international money transfer business. And Xoom is doing remarkably well these days. I’m on the Board of Directors there. But it’s really because we have a worldclass team, a leadership team in place over there, led by John Coons, the CEO. He’s taught me so much. So the way that I’ve kind of built my career is kind of following, just trying to find really talented, smart people, and stay close to them. And I’ve had the chance, you know, of working with and watching how John Coons at Xoom operates. Roelof Botha over at Sequoia Capital has been a big influence. He was one of the first investors, Sequoia was, in Zoom, and he’s now, as of November 1st, an investor in EventBrite. And I think, you know, I’m very pleased to just be around all these great, talented people. And perhaps maybe I’m not as visible because I’m surrounded by…
Interviewee: And perhaps maybe I’m not as visible because I’m surrounded by some fantastic investors and operators.
Andrew: All right. Well, you know what? Let’s go through and do more of a biographical interview, at the first part of our program together. And then in the second part, maybe we can talk about, you said that you were a student of startups. Maybe we can talk about some of what you’ve learned as you’ve invested and built these businesses. And there’s so much here in your biography that I’ve got here in front of me. But why don’t we start with, how about this one, with ConnectGroup. You launched that business in the late ’90s. What was the vision behind the business, before you launched it?
Interviewee: Well, it was my first startup, and we really felt that, in that case, we were going after the hotel market. And the high-speed internet access was just finding growth into the whole market. And it seemed very obvious that the hotel space would be one. It still is a very backwards area. And we built a kind of a hardware and software solution to sell into hotels that we did a revenue share, much like the on-demand movies providers did with hotels. And so it was a great, and relatively easy, sell. The hard part is, in general, it’s hard to get hotels to make decisions on general managers and so on. Hotels don’t have the same kind of decision-making process as IT buyers in big enterprises. So we were able to work closely with a video on-demand provider in the space, and went through, it was 1998, through a very quick growth, and then were acquired by this public company, towards the end of 1998.
Andrew: The public company was Lodgenet, right?
Interviewee: That’s correct.
Andrew: Let’s dig in a little bit deeper into the early days. You have this idea that you’re going to bring broadband into hotels, very similar to the way that there’s movies on-demand, as you’ve said. It makes sense to have broadband in hotels because people are doing business on the road, when they’re staying at these hotels. But executing seems hard. What’s the first thing that you did?
Interviewee: Well, the first thing, we were very pragmatic. We were also very young. There were five founders, and we were all out of Stanford University. And we took a very pragmatic approach, where we found an advisor who was a general manager for a number of hotels in the Silicon Valley area. And we actually brought him on board as an advisor and investor first off, to work closely with him. You know he had every incentive, and he helped us get those installations, those first installations, so we could really test and get something live to market. So with very little capital, we were able to do something that typically would require a long amount of time, deep contracts, lots of spending, and so on. And we did it for next to nothing. And having that lighthouse account was really key. So that’s one message that still holds very true, not certainly on the consumer side. You know consumers internet entrepreneurs should get their services live, and get traction right away. And get consumers using it. But when you’re in the early stage of selling to a entity, whether it’s SMB or hotels or enterprises, you really have to find a hook into your first customer, and really delight them.
Andrew: So you had that first customer before you spent any real money. Is that right?
Interviewee: That’s correct.
Andrew: OK. What about the infrastructure? How do you get that in place?
Interviewee: Well you know, when you don’t have a lot of money, you figure out how to do things very inexpensively. That was a lesson at Zoom, as well. Zoom is an international money transfer company that a lot of entrepreneurs, a lot of investors, spent lots of money, back at the time, in competitors, trying to get these companies started. And we figured out a way to do it very inexpensively. And when you figure that out, when you figure out how to do thing efficiently, you really build a business to last. And you learn, you know, efficient development of your infrastructure, that’s non-capital intensive, will really carry you a long ways. In the case of the hotel internet access, we used a Linux server which was, you know, in the late ’90s, pretty revolutionary. But it was a way for us to license an OS or to have an OS, and no cost. And we used a simple high-pass, low-pass filtering. We just changed the plates on the door, on the outlets, and were able to run, or kind of wire the building for high-speed internet access…
Interviewee: …or kind of wire the building for high-speed internet access with just a server in the closet, and these plates. And, you know, I think our cost was about $150 per room, which was revolutionarily low, versus spending, you know, thousands to put in special adapter boxes and so on. And that’s really, in my view, that’s the most efficient means to, you know, to build a business to scale and last.
Andrew: All right. I’ve got to. The next line of questioning I think is going to be very boring to anyone who’s not in business or not an entrepreneur. But the people who really are, are going to love it, as we dig deeper into this. I want to see if I understand this. The internet came in from the phone company, right? It went from the phone company, to the Linux server that you had in the hotel.
Andrew: The wiring to the rooms, was it already in place?
Interviewee: Well, what we did is we’d have a T1 line come into the telco closet of the hotel, into the Linux server. And then we would have this, then in the rooms themselves, you can pass high-speed internet access, as you know, from, you know, now from cable or AT&T, you know, standard phone lines. And we could run it over standard phone lines with what’s called a high-pass/low-pass filter, that you separate the internet traffic from the phone traffic. And we could do this over a short distance, a couple hundred feet, versus what we see the phone companies doing with more robust equipment. And so it was simply the server itself. And then these kind of face plates on the room side of it, where you would then have an ethernet jack and a phone jack.
Andrew: So all of that came out to $150 a room, is the cost of putting it all in place. What were you charging for the service?
Interviewee: We were doing a revenue share. So if I recall, it was something back then. It was something on the order of, you know, $20 or so a night. And you know, that varied. And then so you could certainly model out how soon you could get to break even, but…
Andrew: Seven and a half days you break even.
Interviewee: [Laughs] Yeah, right. So you know, certainly it’s, in those days, there was a high premium for hotel internet access, or it wasn’t considered a freebie. And still you see a lot of hotels where people charge for it, but if we could show a break even and a means to profit very quickly, and companies like Lodgenet, you know, which, at the time were doing a few hundred million in revenue a year, really showed the path to this sort of model of bringing in a service, a media service, or so on. And then in installing it at no cost, and then sharing revenue with the hotel.
Andrew: What was the revenue share on that?
Interviewee: You know, it depends on, it really depended on fifty…
Andrew: Talking about roughly 50%? So instead of seven days break even, it would be maybe fourteen days to break even? Or are we talking more?
Interviewee: Yes, I mean it’s, you know, I think around 50% was, you know, was somewhat the typical. But you also have to remember that every room is wired up, so you have to fill every room.
Interviewee: So, you know, break even points are a little trickier than that. But…
Andrew: So then when you’re sitting down before the company starts, you’re back of the envelope math, kind of like I’m doing right here. Would you say maybe at first seven days gets it covered, but we have to do revenue splits, so we maybe end up with fourteen days. But then you have to account for all the rooms that aren’t used, so that’s an average of fourteen days to break even. What percentage do we estimate people… You know you do this kind of like back of the envelope math to come up with what you expect your break even points will be. How did the reality compare to the back of the envelope math that you did, or the intense math that you might have done later on?
Interviewee: Yeah, I guess I don’t want to give myself too much credit because, to be honest, we were, you know, we, I think we were, we were far less sophisticated back then. You know we had an intuition along that line, along those lines, and were doing some rudimentary models. But you know, we were also kind of flying by the seat of our pants. And I think it was really going through the experiences of watching PayPal become great, or growing Zoom, where really understanding the metrics behind a business’ success really brought us to decision making there. And in the case of ConnectGroup, we were actually taken out very early on. We were made a, you know, not an enormous acquisition offer, but a very nice acquisition offer.
Interviewee: …a very nice acquisition offer, and chose to kind of sell out very early.
Andrew: What was the acquisition offer?
Interviewee: Well, the final price was around nine and a half, ten million dollars.
Andrew: And you had five co-founders. Was it just one investor, the advisor?
Interviewee: We had a couple advisors that had a share in the company.
Andrew: OK, wow. And this was…
Interviewee: So it wasn’t a something to retire upon, but it was a, I guess I smelled blood in the water. I really got a taste for the excitement of startups. And also it gave me some autonomy to not have to jump into the job market. And that’s when I started, and loved the early stage. Started to work with other startups, and invest, and was fortunate to get involved to reconnect with Peter Thiel and his crew, and get involved in PayPal very early on.
Andrew: How did you first connect with him?
Interviewee: Well, I knew him as, I was an undergraduate when he was a law student at Stanford. And we were in student government together. He had moved back out to The Valley in ’97 or ’98. He was first an attorney with, I believe, forgetting the firm now, and then he was trading derivatives on Wall Street, and came back out to start a hedge fund called Thiel Capital in 1997. And Ken Howery joined him as well. And he set up shop on Sand Hill Road, and it was of course, a very opportune time to be on Sand Hill Road, and started seeing. He was very astute to notice the tech boom. He met up with Max Levchin, I believe, 1998 at a Stanford talk. And Max was a young engineer, just out of University of Illinois. And the two of them started what became PayPal.
Andrew: But how did you meet them? I see how you met them, but when you say you reconnected, you mean you didn’t do any work together. The first connection was at school, and then you reconnected with them later on PayPal. Is that right?
Interviewee: Yeah, we had some mutual friends that said, “Hey, Kevin’s out in The Valley. Peter’s out in The Valley. You know, you guys should talk.” And we had a breakfast with Max and Peter at Hobey’s in Town and Country, and that’s when I made the decision to put a little money in. And the company was actually, I can’t claim, you know, massive insight that PayPal would be great, I just knew that Peter and Max are great, phenomenal people. And they actually went through a few iterations of the business model. And in the fall of ’99, launched what was, what became really the PayPal product. And that took off almost immediately as they identified Ebay as a growth factor for it.
Andrew: Can you help me understand what it is about them that seems so great, that would make you want to invest in them? There’s this decision making process in Silicon Valley around companies like PayPal, that’s basically, I think these are super smart guys. They’ll figure it out. I’m going to back them. But can you unpack that a little bit to help me understand what goes on behind that? Or is that all there really is to it?
Interviewee: Well, I mean, I think at the time, you know, at Stanford, there’s a lot of smart people there. And Peter was like the smartest of the smart people there, for one thing. And Peter had a real drive to, he really wanted to change the world. He wanted to do something massively great, and was always thinking very, very big, and not afraid to take big risks.
Andrew: How can you see that in the early days? Before you reconnected you got this impression. How can you pick up on that so early on? What did he do that seemed, that said to you there, “That guy’s got it”? Whatever it is.
Interviewee: Well, I mean I, you know, I think it’s just very much in how he views the world. Or how it’s no surprise that he went in and started the global macro hedge fund, because he’s thinking about how the world is changing, or how one can impact the entire globe. And you don’t come across many 20-somethings very often that have that mindset.
Andrew: OK. So it’s just the way that you saw him think about big issues, and notice big trends, that made you say, “This guy, he knows it. I trust him.”
Interviewee: Yes, that’s right. And you know, with that said, I’ve also made a lot of investments…
Interviewee: And you know, with that said, I’ve also made a lot of investments in companies that have been failures. So…
Andrew: With the same kind of investment strategy of, this is a big thinker who’s smart. He’s going to figure it out. And then that ended up being a failed company.
Interviewee: Yeah, that’s correct. I mean I guess I still haven’t seen too many people with the brain power of Peter Thiel. But you know, I would say, when have someone that intelligent, and a big thinker, usually the failure there is overconfidence. Lack of, maybe not being as observant or coachable, but I think Peter is a good combination of a lot of those factors. Coachable, was able to find very smart people to surround himself with, in a lot of cases, that you know, that certainly had greater strengths in other areas. You know, not to rehash the PayPal story, but he brought on Roelef Botha, who very quickly became CFO of the company, who had just graduated from Stanford Business School, and who was, I think, maybe 25 or 26 at the time, you know, as the CFO, and took the company public, you know, a year later. He…
Andrew: All that seems, I mean, in retrospect, you say, “Wow, this is the ideal dream team”. All these names that you’re talking about were nobodys back then. Today when you say it, there are Google alerts going off from people who are studying them. Back then, did you do any, like when we were talking about ConnectGroup, I did quick math here, the way I always do. And that included, how much does each room cost? What are we estimating conversion rates to be? And so on. Did you do anything like that for PayPal, or was it just what you were saying there? Was that all there was to it? A feel that these were smart people.
Interviewee: It was entirely qualitative with PayPal.
Andrew: Qualitative, OK. ConnectGroup, before we move on past that completely, I want to know about the take aways, the good and the bad. Let’s start with the bad. What were some big mistakes that you took away, that you learned from, from that experience?
Interviewee: From ConnectGroup.
Andrew: ConnectGroup, right.
Interviewee: Well, I mean ConnectGroup was a flip. We never built a company. And you know, I would say we were somewhat lucky in timing. You know, the internet sector was starting to get very frothy. And we sold something that was hardly a business. You know I mean technically we had incorporated in April of 2008, and sold the company in October of 2008. And you know, I think the biggest negative is that we didn’t really change an industry. We didn’t really have a massive impact. We didn’t build a business. We flipped something. And that’s starkly opposed to PayPal, which is has built a long-standing business. Zoom, we think, is a very long-standing business that will transact over a billion dollars in gross volume this year. That is, we’re helping immigrants. People send money back to their families all around the world. And we’ll move a billion dollars in funds, and that’s a massive amount. And same with EventBrite. We’re really focusing on building a long-standing business to really disrupt and change the events and ticketing business.
Andrew: OK. And what about the good? What’s one thing that you did so well, that if you just do that right, it covers up a lot of other mistakes?
Interviewee: You know, it was a good team. I think there is a… You know it was a very strong team. I think the one negative about the team is it was a pretty headstrong team. And I that, looking back in hindsight, the rest of the team could have gone on to do much bigger things than they have. But they had maybe a lot of the flaws. They had a lot of the intelligence of the PayPal team, but they also had a lot of flaws that prevented them from succeeding later on, at their level of…
Andrew: For example?
Interviewee: I won’t get into too many details there.
Andrew: Not personal, but can you just give us an understanding what that is? And I bet, as you say, we’re going to see part of it in ourselves. I don’t want to get personal at all. That would take away from the mission here. But…
Andrew: If you can just help us understand some of what was going on, maybe even some of the flaws that you might have shared with them.
Interviewee: Well, I mean you know, I would characterize the flaws as personal, so I probably wouldn’t…
Interviewee: wouldn’t go into it too deeply.
Interviewee: wouldn’t, wouldn’t go into it too deeply.
Andrew: ok, allright fair enough. That’s the kind of thing probably it,that’s better left for a conversation over drinks, what I’m finding, and tell me if I’m wrong here Kevin, doing these interviews you get a lot of insight and people surprisingly in this industry are, are very open about their failures, about their accomplishments, about about their flaws but there’s a certain like that extra, that you can only have with a drink with someone, over coffee over breakfast, or …
Andrew: Am I right?
Interviewee:You know I think that’s very astute
Andrew: Fair to say that if Andrew Warner was in town we were out to have a drink or coffee, I don’t know what your thing is, and I would ask you the same question you’d be open?
Interviewee: I absolutely, for you Andrew,of course.
Andrew: Thank you, all right well I think it also reveals I want to be open about what were doing really well here at mixergy but I think I also have to acknowledge that there’s a limitation and what I’m finding is that there’s that extra little bit that people have to go and do on their own and this is a good example of that. Someone in the audience, actually a few people in the audience, were asking what did you do before connect group? Were you an investor an advisor before?
Interviewee:I was at Silicon Graphics, so Silicon Graphics was the high flyer in the nineties, we made high powered work stations and I was a product manager there, and it was, it was an amazing experience, it was something that I, I think I started to appreciate, but now only greatly appreciate, Silicon Graphics made work stations that were 10 years, not 10 years but maybe 2 or 3 or 4 years ahead of, of what you saw on your desktop. And so you saw a lot of amazing thing, we had a, it was just this Disneyland for research scientists and so on to experiment and play, and what we saw were a lot of, a lot of the future unfolding there, we had, we had processors in our computers on our desktops that were you know exponentially faster than what was out there in the general market
and we had high speed, we had this great network in there and so we saw a lot of the technologies that were to come and it’s no surprise that SGI produced a lot of great companies. I mean essentially Netscape came out of there, Heltheon, there is Tell me, there is the Netscape alumni, or sorry the SGI alumni went on to do some really great things and, and a lot of it was because we had this,this interesting view of thew future and I’ve been meaning, I want to go down to a kind of a supercomputing institute and spend some time down there and see maybe what’s coming next.
Andrew: Ok, and that was from 1995 to was that 97 or 98?
Interviewee: To 97
Andrew: 97, and that’s when you launched connect group?
Andrew: OK. All right we talked about a lot about zoom, zoom’s a company you co-founded in 2001 and you’re still a director of the company. What was the original vision behind, behind zoom?
Interviewee: The original vision is exactly what it was today, which is rare and that is that globalization is a trend that’s happening as orders open up and free markets flourish, that, that workers move overseas and as an adjunct to that they send money back to their families, and what we’ve seen over the last 30, 40 years is, is that trend accelerate so, so you know what we’re really trying to do is help people, help immigrants send money back to their families, and do it quicker, cheaper, faster. And…
Andrew: Quicker, cheaper, faster than what? Than Western Union?
Interviewee: Western Union is, you know is the biggest player in the market, it’s an interesting market because it’s very fragmented. Western Union has about a you know 22, 24% market share, but is considered the market leader which is very unusual, most market leaders will have you know 70, 80 plus percent, look at Google has I, I think 75 or 80% market share, and, and so we see that as a big opportunity. You have a lot of sub scale local businesses which are doing it very inefficiently, very expensively and through the internet and, and a lot of good product work, and then you know a lot of operational smarts which, which really John Koonz our new CEO has brought we’ve, I, I guess I would characterize it as, as Fedex moves packages around very efficiently, we move money around, so we can allow someone to get money to their families in the Philippines in in just a few minutes and be disbursed as cash. For delivery….
Andrew: From where?
Interviewee: From anywhere in the world, from any internet terminal.
Andrew: I mean is it from a kiosk, is it from a Western Union station?
Interviewee: It’s actually what we call online to offline. So the sender would get online, and their recipient can receive it offline, or receive it in cash, or receive it directly into their bank account. So whereas…
Andrew: If it’s cash, where would they go to get the cash?
Interviewee: We have tens of thousands of different retail locations around the world. We work with major banks in different countries. We go out there, to each individual country, and we assess what has the best distribution network, whether a bank or a money retailer. And we build a relationship with them. And then we integrate our systems with them, so the money essentially flows from our site to that partner, and is disbursed.
Andrew: I see. And they already have the infrastructure in place. They already have the computer system. They’re already processing payments like this, or transfers like this.
Interviewee: That’s correct.
Andrew: You’re just plugging into the existing system. I see.
Interviewee: That’s correct.
Andrew: I ask because I did an interview a few months ago with an entrepreneur who tried to build something similar, and the endpoint became the problem, especially with such a quick turnaround. What did you see that the existing competitors didn’t have, that they didn’t do right? What was wrong with Western Union?
Interviewee: Well, Western Union is…
Andrew: Or the others?
Interviewee: They’re a strong business. You know, they do have a challenging reputation is that they price in their markets pretty aggressively, and have reaped big profits, you know, on behalf of their customers, or at their customers’ expense. But they run a good business. What our thesis is that really at Zoom, the online to offline space, the notion that you can, instead of taking a bus into town, or going into the local market and handing over cash, which is, you know, has security risks and everything else, that’s inconvenient. It’s much easier to get online and send the money back, or schedule the payment. And so a computer with an internet connection is always closer than the closest online retailer for sending.
Andrew: Well, couldn’t you do that with the competitors? I remember when I was going to move here to Buenos Aires for a few months, I had to pay the rent here. And the woman would only accept cash. So I think I, I forget what service I used, but I went online. I used my credit card or PayPal, and they got the money to them. Wasn’t that around before? Or were you…
Interviewee: Yup. You know there’s a whole number of competitors, including the established players, do have online offerings. But to really be successful at it, you know it’s kind of the same notion, as was Barnes and Noble best at online book delivery, back in the old days? And the feeling was, oh yes. But the reality was the problem was very different. Fulfillment, inventory, you know this is on the e-commerce side. On the money transfer side, now you have massive fraud issues. You have, you know, a different set of regulatory issues. You have operational issues that are very different. You have customer acquisition issues that are very different from an offline business’ core business. And that’s the opportunity for startups, is that the incumbent players rarely, rarely win in the online world. They rarely make the… I guess I would maybe ask the readers to try to come up with, or the listeners to come up with, you know, an example where the offline victor has won online.
Andrew: Actually I really would love to see examples of that. And you’re right. I can’t think of very many. Let’s see. What about marketing? We now understand the infrastructure, how you’re going to pass the money from one side to the other. How are you going to tell people to come to this site and use it?
Interviewee: That’s one of the big challenges. You need to be able to market towards a certain segment of users, say customers that want to send money from the U.S. or Canada or Europe, back to say, the Phillipines, or from Canada down to Latin America. And so there’s this very specific, direct marketing challenge that’s the team over at Zoom has developed, over a number of years now, that we think is very defensible, and is very quantitatively assertive.
Andrew: What is it?
Interviewee: Without going into too much detail, it’s just a lot of discipline around testing and investing, and understanding acquistion costs and lifetime value. It’s the classic CPA versus CLB equation of cost per acquisition versus customer lifetime value. When we started Zoom, our heroes in the market were NetFlix, believe it or not.
Interviewee: Were Netflix, believe it or not. We saw Netflix as the closest analog to Zoom. It was… they were very effective at acquiring new customers through testing different media and then really delighting them with a great experience, and getting them to stay for a long time. And in fact, remittance, this money transfer business, is much like a subscription business, because there’s this heavy repetition element. You send money on the first and the fifteenth of the month back to your family. And it’s… we call it a quasi-subscription model.
Andrew: I see. Can you say a little bit about where you get the… is it direct mail that they respond best to? Is it media? Does it matter?
Interviewee: It’s all across the board. You want to take a fresh approach to it and you want to test in an array, in many different areas. Some areas work better than others, but they’ve all been… it’s been the process of testing and optimizing.
Andrew: OK. Let me see what I… there’s so many questions but I’m also looking at the time and I want to make sure to be fair with your time. Profitability, how long did it take to get to profitability?
Interviewee: It… I guess I would say too long. We had projected going profitable earlier. But we also… I would say the… one of the earlier mistakes I made with Zoom was trying to go too broad too quickly. It’s a very good start-up lesson, and that is that, you know, we thought we… early on, we were, you know, we had–we felt we had so much cash and we felt we could go very broad into many different countries. We could serve Latin America and Asia and India. We saw it as, like, a big “Risk” game or something and we were trying to take over the globe. And what we should have done, in hindsight, is focus more on–in one country. And we spread ourselves too thin. So the lesson there is focus on one market, get that profitable, and then start adding more markets. You really want to learn your–you want to learn what you do right and what not to do in one market before trying to replicate it. Otherwise you create the same problem five or ten times over in different markets, and that’s just a lesson I’ve seen, you know, over and over and over.
Andrew: What if it’s too late, Kevin? What if… what if somebody’s now listening to us and they’ve realized, ‘Wait. I’ve gone in too many different markets. Kevin makes a lot of sense.’ And they’re asking, ‘What do I do now?’ What do you think?
Interviewee: You know, it absolutely applies to every start-up. And–
Andrew: You’re saying that we all go too broad and need to bring it back?
Interviewee: Yeah. Every–very few companies really stay truly focused. And it is something to sit down, you know, with the team and just be ruthless. To just start cutting things out that aren’t core to the business, because you can’t do a lot of things great at the same time, especially with limited resources.
Andrew: Did you do that at Zoom? Did you have to cut certain things out to get back to focus?
Interviewee: We did them, I would argue, too late.
Andrew: Like what? What did you do and what do you mean by too late?
Interviewee: Well, we actually exited some countries. We were given the chance to go into so many different countries, we went into too many and we had–and we’ve exited them. Some we’ve returned and some we won’t return for awhile. But we won’t, you know, we’ll only go into a country when we feel that we’re ready for that or we really… you know, the team really challenges itself to say, ‘Can this be successfully handled?’
Andrew: That takes a little bit of guts to stand up and say, ‘We’re going to cut back,’ especially when so much ego, so much… because we’re trying to create the air of success when we’re starting out. How did you come to that decision? And then how did you sell it as a step forward, instead of making it look like it was a retreat or a failure?
Interviewee: Well, we–
Andrew: Or a sign of weakness in the business?
Interviewee: Yeah, I guess, you know, I guess like, honestly… like we’re, you know, Eventbrite is wrought with weaknesses and those are the things to discuss with the team and with the board of the directors and, you know, we’re always… I guess we’re always making mistakes. That’s part of the start-up. The most important thing to do is to realize the mistakes and stop them so there’s no… You know, I don’t think there’s any pride or anything lost. We want to see our businesses succeed. And, you know, I’m delighted when I’m wrong and we dump something or we cut something and the business ends up benefiting from that. I’ve, you know… I’m as delighted as everyone else.
Andrew: That’s today. Today you’re proven entrepreneur.
Andrew: …entrepreneur with long track record. Everybody loves EventBrite, everyone’s impressed with what you’ve done, and a lot of people are studying your success. What about back at Zune when you weren’t as proven, even though you had a big track record by then. Was it hard, what was it like to have to cut back at that point?
Interviewee: I think at that age, it is hard to admit that one is wrong, but it’s also hard to be successful. One will just end up running a business into the ground. I have no qualms with switching direction or admitting mistakes and so on, and I challenge our team constantly to come up with better, faster ways to do things. And the entrepreneurs out there really should take heed to that. I got an update from one of the portfolio companies that sounds like they’re being too bullish, and that’s always a dangerous… Yeah, I’ll just leave it that that’s typically a cause for downfall when a company is overly aggressive or kind of thinks far too much of themselves. You set yourself up for failure.
Andrew: OK. Let’s move on to the next step. Then I want to come back in and ask about some of these investments. But before we move on beyond Zune, you don’t have a daily role there anymore. You’re now a director. Why did you leave before selling the company, before having a clear exit?
Interviewee: I think I grew impatient, and I would say, I always felt like ‘wow, that was the biggest mistake I ever made not staying through Zune to see it mature. But then, of course, now I have EventBrite. So, everything turned out OK. When you go through the ups and downs, the roller coaster, perseverance is very important. You hear this from your parents all the time, like ‘you got to stick with something and persevere.’ And I think like coming from, being in the ’90s and seeing how fast everything was built. We all thought that everything should happen overnight. Frankly, I think I pulled the rip cord too early and should have stayed around.
Andrew: Oh, wow. Why didn’t you?
Interviewee: It’s hard to hand the reins over of your company, and we had all agreed that it was time to bring a new CEO in, and I just felt, I maybe didn’t have as much of a place, an operating role in the business.
Andrew: Was it because the business at that point was running without you?
Interviewee: Yeah, I mean, the interesting thing is, that’s the hope. Like I’ve realized that that’s the greatest thing that can happen is when you wake up and you don’t have to… I guess I wake up every morning and Mark [Andresen] said that you’re always, as CEO of the company, you’re terrified or you wake up and there’s a new emergency every morning. But the most important thing you can do is hire great people. Sounds like lip service but really, finding a great team that can take on the challenges that you used to all take on one’s self. And being able to farm that out and be able to find people that you trust. So, my job is becoming more and more of a pleasure as we build this very mature team and very strong team here at EventBrite that can all do great things that I could never manage myself having done that. Julie, head of product; Tamar, head of Marketing; Daniel, head of engineering; Tom, head of sales. Nell’s head of Finance. All great people.
Andrew: Where did this idea come from for EventBrite?
Interviewee: Well, the idea was, it just felt like the last bastion of e-commerce, that we attend so many events of different shapes and sizes, not the Ticketmaster, big concerts and so on, but all these other, you get those fundraiser invites in the mail, and the yoga classes are posted on their, they’re posted on the telephone poles, and you rip the little card off to call in and sign up for it. And it just seemed like there is this myriad of different events, in all of these different categories that never really moved online.
Interviewee: …really never moved online, and really it’s become our mission to move those online. And we’re really excited because the ticketing has really only been in managing events has really only been for the biggest concert holders or the biggest sporting arenas. And we’ve essentially taking the power of those systems and brought it down to a very broad audience so anyone can use it. We kind of took the buzz word from Mark Benny. He was democratizing software, bringing those high end enterprise systems down to everyone, and we’re doing that with ticketing and managing events as well.
Andrew: How did you know the market was going to be big enough to be exciting?
Interviewee: It was a lot harder than Zune, so Sequoia Capital is a TM investor. One of the main things they look at is addressable market, how big the market is. And it’s a very simple exercise to go into Western Union’s 10K filings or so on and pull up and see the actual data on the market. It’s very clearly reported that it’s a multi-billion dollar revenue opportunity. Western Union does 5 billion a year in revenues alone. With Eventbrite, it was a little harder, we’re enabling a lot of people. The market data’s much more disparate. It just felt very large, and so I think what we did was we went through a very painful exercising it, looking at all the different verticals and came up with a very large number. But in reality if you just kind of pondering the market itself, and probably how many events, Andrew, that you’ve attended this year that would fall into that category. It’s a massive opportunity.
Andrew: OK. And so you sat down and you said ‘well, there are conferences going on, how much money is there in the conference space? There are yoga events, how much money is in that space? There are small concerts that people are putting together.’ You were actually able to find numbers for every one of those areas, and you did that as an exercise before you got started?
Interviewee: No, we did that as an exercise after we got started. Yeah, that was actually done as we went into the fundraising process. We brought on a great head of marketing, or actually, we elevated Tamar as our head of marketing. She just came out of MIT Sloan, out of business school last year. And she was, of course, in research before. So, she went through and helped us size up these markets. But it was only when the investors asked that we said ‘hey, we should probably look at this. Our [problem] is that we had a big market.
Andrew: Why did you fund this on your own until that point? Why didn’t you just say ‘hey, I can bring in a lot of money here. We can quickly create the best, most robust ticketing system out there. We’ll dominate this space before people even realize this space exists. Instead, what I saw was very, very slow progression here. Why?
Interviewee: I say, there’s a few reasons, and one is that was related to the market size. We weren’t sure, we had a gut feeling that it was a very large market, but we wanted to build a business internally and not get the overhang of a large venture round before we really were confident, improved a lot of things, and got on a certain trajectory, which we’re now on. And then number two is that Zune, we, over time, invested a lot, the company has raised close to $100,000,000 in capital to really get that business to scale. And being an entrepreneur, I love to learn, and I wanted to build a business that was, requiring much, much less capital. Or to see, just as a personal challenge if you could a business with much less capital. And today, to get Eventbrite where it is today, we’ve raised less than $10,000,000 total, and we still have close to $7,000,000 in the bank.
Andrew: Until you got funding, how much did you put into the business?
Interviewee: We had a few million in the bank, maybe three or something million but we used very little of it. Our burn has always been very low, and we’ve had some quarters where we’ve been profitable. So, it’s been a very capital efficient business.
Andrew: Can you say how much you went through to get to the point of needing funding?
Interviewee: We were making money a lot of times. So, I guess if you look at the total Op-Ex and capital spent, it’s much higher than what’s in the bank, but we’ve been contributing. It’s a very profitable business. It’s a very high margin business, and capital efficient business. But, relative…
Andrew: Relative you know, pennies compared to I would say some of the higher more tabloid intensive business you see and the clean energy space or so on.
Interviewer: I remember even from the earlier days you used to really watch your feedback from people and used to have that one question that every event organizer would answer which is, “How likely are you to recommend this service to someone else?” which is 1 to 10 which you can always adjust it and it was based on, I forget the name of the book that is was popularized at. What I would like to know is, How did you get feedback from your people, It looks like you really were paying attention to them in alot of different ways.
Andrew: Absolutly, you know its critial, we really want to have a pulse at all times of how the business is operating or what our customers think. We want to empose that we want to have the feedback in place and that promoter score is where the book there is a Harvard Business School artical written on it thats just a few pages, its extemely valuable and thats a quantitive way to measure what people recommened your business to others and when we found that we got our business into a certain percentage so we actually quantitatively determined a means, I think we were the first to put out this simple widget and start to record this and we track this like many other key metrics like ticket sales, revenues, and expenses and so on and when we would get that over a certain point We would see our organic adoption happen much faster and thats a clear opposition of alot of companies that spend alot of money on sales and hammering the phones and really not thinking about the customer experience. But we have tried what we mentions in a tweet you will find, Theo or Tamara will respond to that very quickly, or whatever means we want to answer and be very visible and vocal out there and thats helped drive alot of awareness and we want to build that community up around our business.
Interviewer: Somebody in the audience can give that a shot and in some random tweet come up with something on your own that includes the word “event” and tell me what happens, I am cutious about that. And how long it takes. What did you do to get new customers, new users?
Andrew: We tried lots of things and we tried to spend.
Interviewee: Or what it was, was you know, just a simple form to enter the details of your event, publish, and then you had a registration page. And the product has just matured leaps and bounds beyond that, in features and use ability and so on.
Andrew: What did you think was critical for you to get into that first version? Because, like you said, there’s so many things you’ve added now, there’s so many more things you could have added even day one? What did you say, this is so important that we can’t launch without this, but we’ll push everything else away?
Interviewee: Well, I think the most important thing is, you know, I’m in the camp of launching early. So, the most important thing is to get something live. And that is the ability to create ticket types and for someone to run a transaction, and be able to simply track that. And that’s a very simple app that almost any developer can use. You know, and from there, from there it’s just constant feedback and duration with the customer.
Andrew: So you had the ability to create an event. You saw ticket types as being important, you know, student, basic, premium, vip and so on. Those kind of ticket types. You needed the order to go through, I guess, Paypal, right? To make sure that the recipient got it and you needed to keep track of r…, did you need to keep track of RSVPs by then?
Interviewee: We didn’t even have RSVPs at that point.
Andrew: Okay, so all people could do was create events and tickets, and buy events, buy event tickets. And that was it?
Interviewee: That’s correct. Yes.
Andrew: What about payment for you? Was that important for you in the beginning or did you push that out to the future payment, money that Event Bright gets?
Interviewee: We, uh, yeah I think, we started out with no fees and very early on, we did charge a fee per ticket and we didn’t charge any setup costs, and we still don’t. We don’t charge any peripheral costs for other uses of the app. We don’t charge for sending out invites. And the notion behind that is that we want to be very closely aligned with our customer. So we want our customer to be very successful and when they’re successful, we get paid. The idea is that if we can get them more customers, like, what we want to do is help them through our Facebook integration, through Twitter, and through high search engine optimization, all these different mechanisms that we’ve now invested allot of time, and energy, and money into. We want our customers to sell more tickets and in turn we get a small transaction fee from that.
Andrew: Okay, so you had this very bare bones product you released it, you immediately start to get feedback from people even if it’s just the people who are working on the product, saying, what they all think needs to change. What was that biggest complaint that you heard? And what was the complaint that you thought was most important?
Interviewee: You know, it’s always been, “I wanna sell more tickets.”
Andrew: So you’ve given them the ability to sell more tickets, they’re not asking you for more colors or better design? They’re saying, “Hey Kevin, hey Event Bright, how can you help us sell more tickets?”
Interviewee: That’s correct. I think that we always take in that great feedback of, you know, wait lists, or need batch printing, or certain other kind of block and tackle, I would describe, features. Early book sales ending, inventory of number of tickets traded, discount codes, all this sort of stuff. But at the end of the day, we have some customers selling $1000 in tickets, 5,000, 10,000, $50,000, $100,000. We’ve even had, you know, one customer sell, or a couple customers sell close to a million dollars in tickets. You know, they’re building their business office. We almost, like Ebay, have people enabling or having their careers or moving their careers to being professional event holders or teaching a skill that they have. And they really want to attract and sell more.
Andrew: So you’ve told us all the ways now that you’re helping them do that. What…
Andrew: What were the first few ways you helped them do that?
Interviewee: Our thesis was that it would be search engine optimization. You know, we started a little after Yelp and we had always felt that Yelp would be, or that SEO would be the main driver, you know, of discovery, and then what’s interesting is, you know, in 2008-2009 we saw this massive take off of social media. We had integrated with Facebook Connect, saw the growth of Twitter, and Google Organic is still the number one source of traffic but now Facebook is number two, and Twitter is number three. It’s amazing to see that.
Interviewee: And it’s amazing to see that, we feel that what we’ve seen that events are the true incarnation of social commerce. That you want to go to events where there’s like minded people, that your friends are attending if it’s social, that your business colleagues are attending if it’s professional. And you make that buying decision on that, and it becomes very powerful if it ends up in your NewsSpeak, or somebody you respect tweets that event out. And as we’ve integrated more deeply with that, we’ve seen traffic and results, growth in that substantially.
Andrew: OK, and I know now that if someone RSVPs an event on Eventbrite, it can automatically go into their Facebook feed and automatically promoting the event to their friends, and I know you got other social media tools that work similarly. But, going back to the early days, search engine optimization was very important. What else did you do to help them promote their events, to help them get past that one big issue that they had?
Interviewee: Well, e-vite showed a lot of the way with e-mail invitations. We’ve created widgets and different embeds that you can put up on the site, and even things like discount codes or features. We actually have an events affiliate program that event holders can actually give kickbacks to the affiliate, send traffic their way. So we tested and implemented, I mean, in a dozen different plus different programs.
Andrew: How do you know from all the different ways you can help an event holder increase sales, how do you know which one to pick?
Interviewee: We don’t. You just need to test and see how the customer responds to it, and how effective it is.
Andrew: How do you decide? Is it based on the loudest voices, has it got feel, is it based on how much time it takes to build it? What do you use…
Interviewee: So it comes down to, did it sell more tickets? Like you see the Eventbrite platform, but what you don’t see is we have a massive amount of administrative tracking and metrics. It’s kind of like you see Eventbrite as the tip of the iceberg, but behind it is the amount of tracking and infrastructure behind the system that we’ve watch and optimize to make these events successful.
Andrew: How can you tell, of all this data, what you need to watch, because there can be data overload? How do you know what data to look out for and to work on?
Interviewee: We’re constantly reevaluating but it’s important, you kind of, you have concentric circles so you start with what are two or three most important metrics? And then what are six or seven most important metrics? And kind of work out from there. And then each team also has their own metrics goal. Customer service has certain metrics that they watch closely. Sales, marketing, engineering even, we look very closely at site performance and scaleability and so on.
Andrew: OK. I’ll ask just one question.about marketing, and then we’ll move on to these great companies that you’ve invested in. I notice that some of the high profile events credit you as a sponsor, Eventbrite. So, I think, TechCrunch 50 for example, and I don’t want to name any because I don’t want to get them wrong and I don’t have them all at my fingertips, but I do see that you’re out there a lot. How much of your marketing strategy was that?
Interviewee: Absolutely important to sponsor some where we saw kind of beacon accounts or people who were doing innovative things or different things or drew a strategic audience. It’s relatively simple for us to sponsor those events and…
Andrew: It’s simple because you give them no-fee use of your site. You don’t even have to pay for sponsorships in many cases?
Interviewee: Well, it’s typically in exchange for something if we’re going to take on, if we’re going to decide to work with a company as a sponsor. There will be some trade off of services or work done or so on.
Andrew: I see. But you don’t have to pay cash because you got a service that costs money and just by giving a service that costs money away for free, you’re giving enough value, in many cases, to get that sponsorship. Am I understanding it right?
Interviewee: You are.
Andrew: OK. All right.
Interviewee: I don’t want to get hit with, I’ll probably get a number of inquiries now for sponsorships.
Andrew: I see. I was wondering what the hesitation was.
Interviewee: …another astute observation there.
Andrew: Well, thank you. Another great benefit of having a service you charge for, gives you a currency that you can then use to get services like this or advertising like you did. All right, so, Trulia, I-Control, Tom Haugh, your Board of Directors. TalkBox, you’re an early investor, the first investor of TalkBox. We talked about LookOut, lots of great companies you’re backing, people can see them on kevinhartz.com. Based on all this experience, you sit down with a guy like John Herring, the co-founder of LookOut, or any of these other entrepreneurs, and you need to give them advice. What advice do you give them?
Interviewee: It’s a great example to use John Herring from LookOut. LookOut is the mobile security company in the [thesis theatre], that security will emerge in the new smart phone arena and be an issue but not in the same way that we saw happen in the PC market. There’s a great new market market emerging. There’s more smart phones than there are PCs out there, and security threats are inevitable and we see that on the rise, and that’s the thesis behind the company. Why I got involved in it is the strength of the team. I don’t profess to be an expert on mobile. It’s been again a great learning experience I had, just a great opportunity of working with John and the other founders over at LookOut. And learned quite a bit about mobile, but it’s really this young dynamic team that was looking at a problem in a different way, and how I tend to help is, just having been in those trenches from going from no product to launching a product, from no revenue to revenue and so on. There are these different gating factors along the way. And I would say I spend a lot of my time with John thinking about how to build a team, a lot about team dynamics and issues. That will carry a company a long way when you have a smart technical team as a core and a good product team as a core.
Andrew: So what advice do you give them about finding the right team?
Interviewee: You know it’s really about scale, how to scale the business most effectively. And in the early days, John, Kevin, and James, the three founders, did everything. And that only works to a certain point. And these guys were working 24/7 and had boundless amounts of energy. But there’s a point where you hit a wall. And so, the importance of scaling up the business is identifying where you can get the most leverage and growth. So, we determined the VP of Engineering would be one great start and start to build a large engineering team under that, and then hire product. I always think it’s always hard, being an entrepreneur, to let go of things, put them and trust them into somebody else’s hands, but really thinking about and finding that right person is 90% of the battle.
Andrew: You’re right. And they’ve got such a smart core group of founders over there that it’s hard for them to even find somebody who can keep up with them, never mind take on those responsiblities. I remember walking into their office one time and John did everything. He was showing me an input box on his site. He said ‘check this out. We have a big input box, and we’ve learned a little bit from Pounce in the way they’ve got it.’ And I said ‘wow, this guy’s right down to that detail. He’s in charge of everything.’ And I can see how they needed smart people around them to help them out. Let’s go broader, because I don’t want to push too deep into their business. What advice do you have for entrepreneurs, for people like Alex, who’s now watching us. Mark, Espry, she’s was watching us, I saw earlier. Do you have maybe three different pieces of advice? You say you’re a student of start ups, I know what they are. What advice do you give other students of start ups?
Interviewee: Well, I find the biggest innovation, I find the most successful start ups is, I fall in that Paul Graham camp. I think it’s important to have at least one co-founder. And that’s because you go through some very hard times, some ups and downs. And you also need that balance, you need somebody you respect to bounce ideas off, or to kind of keep you in check. I think it’s very challenging to be a single entrepreneur and build a successful company. I think that having product and engineering as a core part of the business is critically important. So, don’t outsource it. There have been very few companies that have been successful outsourcing technology from the beginning versus having a technical co-founder, a great engineer. So, really, if you’re coming from…
Interviewee: So really, if you’re coming from the business side, look for that great, you know, technical mind, or architect, or so on, to balance things out. I’m a big believer in product and the iterative method, so build quickly, get something out, and do it with, make it a game of how you can do it so inexpensively. I’m just in the midst of, we’re going through a closing up round with a company that’s in stealth. And they did some amazing things to bootstrap their company. And you know, it’s just remarkable now how they were so frugal, and then to see revenues really taking off because they kept this great mindset, or this yeah, great focus about frugality, and to see the business turn profitable very quickly and blast off, is very exciting.
Andrew: What did you do to be frugal?
Interviewee: What did we do to be frugal? You know, we kind of begged, stole, and borrowed. We found a place with free office. You know we started in 208 Utah, and the landlord there was fantastic. It was kind of after the dotcom bust. And I met this guy Gary Gilmas, and he said, “Kevin, come over to our office. We can’t fill it with anyone because, you know, the economy’s dead.” So he let us set up Zoom in there. And he said, “You know Kevin, if you meet any interesting entrepreneurs, bring them in, too”. And after awhile, we had, I mean a really interesting crew of entrepreneurs that, you know, had come through there. So certainly you shouldn’t be paying for office space. Work out of your house. But you don’t need… Don’t spend too much time… Don’t anticipate problems, I think, is the big picture here. Don’t spend a lot of time like filing patent documentation, or worrying about fraud, if you’re a payments company. You know, get the product live. Try to serve the customer. And then deal with the problems as they come.
Andrew: All right. Well, thank you. Thanks for doing this extra long interview with me. I really appreciate all this time.
Interviewee: My pleasure.
Andrew: How can people connect with you?
Interviewee: I’m Kevin [at] EventBrite.com, and yeah, feel free to email me.
Andrew: All right.
Interviewee: It’s a pleasure being here today. Thank you very much, Andrew.
Andrew: Well, thank you. It’s great to finally meet you in person. Thanks for doing this interview. Guys, thank you all for watching. I’ll see you on the website.