Andrew: Listen up. I have to have commercials interrupt this interview, so I’m going to tell you about three sponsors quickly now. And then we can go right into the program.

Starting with Walker Corporate Law. If you need a lawyer who understands the startup world and the tech community, I want you to go to WalkerCorporateLaw.com.

Next I want to tell you about Shopify. When your friend asks you, “How can I sell something online?” I want you to send them to Shopify and explain to them that Shopify stores are easy to set up, they increase sales, and they’ll make your friend’s products look great, Shopify.

Finally, I’m going to tell you about Grasshopper. Do you want a phone number that people can call and then press one for sales, two for tech support, et cetera and have all of the calls be routed to the right person’s cell phone. Well, get your number from Grasshopper.com.

All right. Let’s get started.

Hey everyone, I’m Andrew Warner, the founder of Mixergy.com, home of the ambitious upstart and home of the infinite tech trouble, it seems like. Today’s guest was good enough, after we had some tech trouble last week, to come back. And now we’re doing this interview, not on Skype but on GoToMeeting. Thank God for backup systems because I felt like everything failed at the time, personally. In this interview I want to find out how an idea that happened to an entrepreneur on an overseas trip became a business that was sold to Home Depot. In 2008 Ethan Anderson launched RedBeacon which allowed you to compare prices, ratings, and appointment availability for home service providers. About three years later he sold it.

Today he’s building MyTime which lets you book appointment with thousands of local businesses, like housekeepers and dentists, and they just recently launched MyTimeFavorites which will allow you to book appointments with companies that haven’t even signed up for MyTime, and that way you get the convenience of booking with them online. Ethan, thanks for doing this interview.

Ethan: Thanks, Andrew. It’s great to be here.

Andrew: So a lot of difficulty in running a business. Frankly, you can see even my little operation here is having a lot of tech trouble. You had a lot of challenges building it up. You finally sold. What’s the payoff? Do you remember the day that you sold it? Did it feel as great as I imagine?

Ethan: Yeah. It’s always to me incredibly exciting, and you feel like you found a great home for a company that you worked so hard to build and one that makes a lot of sense. That feels really wonderful. To me it’s kind of talent acquisition, I feel like, where no one fails any more, (?).

Andrew: Yes.

Ethan: Usually, what happens your app gets acquired, your users are left in the lurch. And the years of hard work that you put into it go for nothing except proving yourself as a hard worker. And so I was really thrilled that Home Depot is probably the best home that little RedBeacon that I could imagine. What they’ve done with the store integrations, what they’ve done with leveraging their own service professionals who shop at Home Depot and customers who shop at Home Depot and making RedBeacon a part of that shopping experience is something I could never even have imagined the day I came up with the idea.

Andrew: And the idea that you sold the company, and you could point to Home Depot and, “It’s there. It’s now part of that big organization.” And everyone, your mother, my mother, everybody knows what Home Depot is.

Ethan: Great. Of course. I love that you can walk into the store and see the signage and the kiosks and the store associates will talk to you about it. It’s even kind of a fun thing. Each of the Home Depot/Nascar have the RedBeacon colors, the RedBeacon logos throughout. Pretty cool.

Andrew: So then what’s the difference between RedBeacon and MyTime? I was trying to describe them in the intro, and I looked at it and said, “Anyone that listened to that would say Andrew usually does his research”, but I can’t tell the difference between these two introductions.

Ethan: Sure.

Andrew: So what is the difference between MyTime and RedBeacon?

Ethan: Let me start with little RedBeacon and then I’ll move into the current startup that I’m working on, MyTime. So RedBeacon was about getting bids or price bids for home service jobs specifically. When you need to have a complex job done on your house, it almost never gets fixed right. Every business that you call quotes you very different prices because of their qualifications. They usually come on-site to make a final determination. So what RedBeacon would do is it would simplify that process for you. You get four or five bids from plumbers, electricians, (?), you know, typical kind of home service workers that come to your house to do the job, right?

Andrew: Mm-hmm.

Ethan: You could take photos. You could describe the job. They could ask you questions about it. And then what happens is you have four or five choices that have the price, the bid that they’re going to charge. You have profiles of the business, ratings and reviews, backgrounds checks, a service guarantee from RedBeacon to make sure that you know we’re standing behind the job, and you know, then you select somebody. When you select somebody, the service provider pays RedBeacon 10% of the job. Actually, it went up; it was initially 10%, now it can be 20 or 30% depending on the type of job. MyTime is the mirror opposite. MyTime is actually a site that has jobs where every single service is fixed price. You know exactly what it’s going to cost ahead of time. The consumer buys the service from My Time, we’re actually the merchant of record, but we book the appointment for you with the merchant because we’re connected to their calendar.

So I’ll give you an example. Let’s say that after the interview you decide, “That was a really great interview, the best I’ve ever done, and I’m going to reward myself with a massage.” You can go onto MyTime, see who’s available in your area right now, even filter down by Thai massage or deep-tissue, whatever you want. Right? You see the beautiful profiles, the business- same thing, kind of ratings and reviews, information, but you see the price ahead of time.

You see the availability ahead of time, and when you choose a time and price combination you purchase it, we charge your credit card, it shows up on the merchant’s calendar, and they get a notification that you’re coming. So, it’s a little bit different and it solves a lot of the, I would say, business challenges that I think we faced with RedBeacon as we were growing that business.

Andrew: All right, I want to hear about those business challenges as we build up. By the way, you mentioned a massage; I’m looking at my hair, I feel like it’s a haircut that I need, and I could do that too, right?

Ethan: You can. Yeah, haircuts…

Andrew: And I book a specific time on MyTime for the haircut.

Ethan: Right, you could. There are a couple of things you can do. One is, if you don’t have a person you go to today, you could filter down by the day and time and location that you want to go. You probably would select “men’s haircut,” but you know there’s a lot of different choices. You could do “blowout,” “no blowout,” I mean there’s all kinds of different things you can do. I’m sure you don’t color your hair, but if you did…

Andrew: I feel like maybe I should start.

Ethan: [laughs]

Andrew: But if I wanted to, I could pick that out and discreetly set up an appointment with them for a specific time.

Ethan: You’re actually… I mean, you can’t underestimate the convenience of being able to book and pay for that haircut on MyTime versus calling the businesses. Half the time they put you on hold or don’t answer at all. Finding out who’s available, how much they’re going to charge, who’s good, who’s not, all of that’s taken care of for you. So it’s… The experience that we’re really trying to model is something like Amazon. It’s a retail experience that should be as seamless as that.

Now the second thing, just to say quickly, is, let’s say you have somebody you go to. Most people have, you know, they go to the same person every month, right? You add that person to your “Favorites” page, and then the person, the hairstylist, lives there, on that “Favorites” page. There’s a tile, and you click a “Book” button, and it opens up their schedule instantly, within seconds, and then you choose the time that you want. It’s already configured, we know which hairstylist to go to at the salon, we know their price, we know which service you want, so all you have to do is click “Book,” and then the time you want, and then it’s done.

Andrew: And if they’re not on the service already, you guys will do what?

Ethan: Then what we’ll do, we’ll actually call the business, and ask… We’ll print a free profile for them. This is one of the big learnings I had; you actually have to build a profile for them, for these local businesses, because they tend not to be as tech-savvy as you and me, so we hire ODesk workers who are specially trained in profile creation, and less expensive. They will create the profile and send it over as a link: it says “Claim Your Profile,” they click on the profile, and if everything looks good, they click “Approve.” Then they go live on the site.

Andrew: OK.

Ethan: So, if your business isn’t there, though, we don’t want you to have to wait for that process to happen, so we’ll concierge it for you for free. We’ll call the hairstylist at a salon and say, “Andrew needs to make an appointment. He’s expressed a preference for Saturday afternoon, what do you have available?” Then we’ll let you know, and then we’ll confirm it for you. Hopefully that only happens the first time, but you’ve provided us with a warm lead. We’re grateful for that, we signed up a salon and the hairstylist, and we throw you a $10 credit for your next booking.

Andrew: Really?

Ethan: So, I kind of joke that you could get $10 off any business in America. You should never, ever pay full price again. You can always get $10 off any business with MyTime.

Andrew: It’s like you’re creating Open Table for all the services that I want to use that use dilapidated call answering machines that I have to deal with. I’m obviously getting very carried away with the product here, usually I talk about the business and rarely do I get this interested in the product, and that’s why…

Ethan: That’s a good sign.

Andrew: I wonder if the hipster place that I go to that shaves the bottom of my neck here will sign up. I’m going to try it and we’ll let you know.

Ethan: We’d love to have them on.

Andrew: So, let’s see how you got here. I mentioned at the top of the interview that this idea came to you when you were on a trip overseas. You were in Japan. What were you doing there and how did this idea come to you, the idea that eventually became Red Beacon?

Ethan: Right. I had a Japanese friend from business school, and it was the five year Harvard Business School reunion, so I went back. I was a Google product manager at that time, kind of I was feeling antsy, had been at Google for a while, I really want the experience there but was feeling antsy that I want to do something entrepreneurial. And, I felt like going back to that reunion was actually a good kick in the seat of the pants, because my classmates had done some pretty amazing things, [??] in my class, [??] in the academy, just really incredible people. I sort of felt like, I work for a great company, and I love my job, but I need to get out there and improve myself, beyond just working for a company.

So, I started talking to some of my classmates, and this guy from Japan had created a really interesting company. It was a mobile first application, in that it allowed small businesses to summon workers. Let’s say that you need…you’re a restaurant, you need an extra dishwasher. Or you’re a retailer, and you want someone to help stock the store. All these little things, made…they would push out the notification to this app – it was, like, 100,00 Japanese 20-somethings, who had this app on their phone – they would get the push notification, they’d respond “yes,” I’d like to do this job, and then an hour later they would show up. In Japan it’s totally different than the U. S. Much, much less regulation. There’s no workers’ comp, there’s no payroll taxes for temporary jobs, it’s like, you just show up and do the work, it’s totally fine.

When I went back to see if I could recreate that business in the U. S., I found out that heavy bureaucracy and regulation in this country made that almost impossible.

Andrew: What do you mean, what kind of obstacles were there?

Ethan: I mean, everything from sexual harassment to workers’ comp to the right to work. In this country you have a work authorization. Payroll tax withholding; all of that became our responsibility; you had to be a full-on temp agency.

Andrew: I see. You fully were hiring these people; it wasn’t this set of freelancers who were just using the app to find work.

Ethan: Exactly.

Andrew: That’s a big responsibility.

Ethan: And I noticed, by the way, that one of our companies in our space called Task Rabbit, a few weeks ago, launched Task Rabbit for Business. And sure enough, they provided all of those services that I didn’t want to provide. I didn’t want to be a temp agency, and I guess Task Rabbit – I think they’ve raised, like, $20-plus million – could afford to build the infrastructure to do all those things that I felt like were going to be just not worth it.

Andrew: I was shocked when I saw that, too. They even list all the things that they’re going to take off your plate. All the regulations that you’re talking about that businesses don’t want to do, they say that they’re going to do it.

Ethan: Yeah.

Andrew: So, how far, Ethan, into this idea did you get before you realized this is just not going to work in the U. S. with all the regulations?

Ethan: I hadn’t left my job at Google, it was probably two or three weeks into it as I started to really do the due diligence on this idea that all this stuff came up. But I didn’t let go of the idea. I thought, this is still a really interesting idea. I just can’t do that exact one. It kind of morphed into the idea of you can be a consumer, and need a service provider. You might need a plumber, because your hot water heater broke. Or you might need a handyman, because something in your house, a window, needs to be replaced. Whatever it is, right? And that’s actually where the name Red Beacon came from. I thought of it kind of in my head as, there’s an emergency, I’m going to summon help, I’m going to put up my red beacon like the bat signal, and they’re going to come running to take care of my problem. And it’s all going to be through mobile.

As it turns out, we built it on the Web first, and then we built mobile later, but I kind of, in my head, I always imagined it as a really cool mobile app. It’s back in 2008, so it’s a little bit early for mobile, which is why we started on the Web.

Andrew: You had a great job at Google. Was it tough to give that up, the salary, the protection – frankly, I walk around San Francisco now, and I see the prestige that goes along with working for Google. That couldn’t have been easy to shed.

Ethan: For me it was. I don’t know, I think if you’re a real entrepreneur, then you’re not looking for those creature comforts. It wasn’t like I didn’t enjoy the great food; I actually think that Google’s food is better than most restaurants you can get in San Francisco. It is pretty amazing, when I go back to visit friends and have lunch there – it actually is better than I remembered. But that’s not really what life is about.

It’s not about trying to live the easiest life, how to live the one where I’m the most comfortable and do the least amount of work, and get the most benefit for it. Engineers, we like to chew on glass, we like to create things that everyone says was impossible to create, just because we can, because we have the vision to do this thing. Once I had locked on to this vision, I was hungry, and that’s all I wanted to do.

I ended up going a year and a half with no salary, and put in $50,000 of my own savings. I wasn’t super-rich. I mean, I was at Google, but I was there at post-IPL, so it wasn’t like I was one of these, you know, multi- millionaire early movers. So, it was, you know, real risk, real pain, to kind of do that, but you know, I just lived very leanly and we kept a lot of equity.

I brought on two co-founders from Google’s vaults, so there are three of us. We lived very leanly. We all put in $50,000 into the company to keep it going. We paid ourselves nothing at all, and eventually, we decided to enter TechCrunch50, which was a big decision.

At that time, Andrew, TechCrunch50 was really important. It was, in a way that I don’t think any of the startup conferences are today, because they’ve all been diluted. There’s so many of them now. But back then, it was like, you know, mint, yammer, it was like, you know, it was like, it got so much publicity–1,000 startups from around the world would apply to get in–1,000–and then, you know, 50 would be selected. So, even the selection process was tough. I mean, you had to get through; they had to weed out 1,000, to 50.

And we were so excited when we got the notification from Heather Harde, who is the CEO of TechCrunch that we were in. I mean, it was like, oh my God, this is–jeez, we’re in to TechCrunch 50. You know, and I will tell you that there was not one moment that we thought we were going to win, not one moment. And even when I was on stage and they were narrowing it down from five people, to four people, to three companies, to two companies, I’m standing there on stage. In my head, I’m thinking, oh, it’s pretty awesome that we’re the runners-up to TechCrunch 50 when there’s two left.

It wasn’t until they said Red Beacon that it even became like, I even realized that it was even possible and we’d won. Really.

Andrew: I remember when you won. I remember the excitement around it, because I think Mint happened the year before, right?

Ethan: Right.

Andrew: So, they had a track record of picking intelligently and all the attention was put on TechCrunch 50 at the time.

Ethan: It was, everything–I mean, we had–to be honest, you know, we haven’t gone into this yet, but the Home Depot acquisition happened because of TechCrunch 50, and I haven’t really talked about this.

Andrew: Really?

Ethan: It just hasn’t really come out.

Andrew: Why? How does TechCrunch 50 lead to Home Depot even knowing you, let alone acquiring you?

Ethan: Well, as it turns out, the Home Depot online team was watching TechCrunch 50.

Andrew: Really?

Ethan: They were reading TechCrunch, and they said, wow, somebody in the home services space won, like, this is really interesting to us because, you know, we’re this old-line retailer from Atlanta, and somebody into home services is, like, has this vision to kind of really be disruptive to the ServiceMagics and the Yellow Pages, and everybody else that’s been out there before them, in a new, much more technical way. Like, we’re doing algorithmic matching, and you know, we’re kind of taking the more Google-y approach to it than probably some of these companies that were started in the 1990s were.

And they came out and they met us, they met me. I had breakfast with them. A year, you know, over a year, year and a half before the acquisition even took place, and they were just tracking it closely. I didn’t know how serious they were. I mean, I think that, you know, lots of companies talk to you and lots of companies sort of express intentions, want to work together, et cetera. So, it wasn’t something I’d ever thought about until one day they showed up and they were committed to buying the company. Andrew: Wow.

Ethan: I mean, really committed. It was like they decided that they wanted it, and so we didn’t shop it around. There was no process, there was no investment bankers. It was no second bid. It was, if you guys want this, you know, there’s probably a price which RBC and we will accept, which is pretty high, you know, given that we were probably going to raise a series B. And they got there, and, you know, we were excited about their promises of integrating it and really carrying it to the rest of the country, which is something that is hard to do.

Andrew: Jason, the co-founder of TechCrunch 50, must be insanely proud to know that this, that the conference not just led to investors contacting you, but eventually, a sale. Which also reminds me that Jason invested in a company called Thumbtack. I was having dinner with the founders recently at their house, at their apartment here–

Ethan: Oh, cool.

Andrew: And the way that they described their business sounds just like what you were building. I don’t even see much of a difference, except in the way that they get companies on board, in the way that they get customers. Companies and, you know, the end user. What do you see there?

Ethan: Well, I think they are similar. I think Jason would have invested in RedBeacon, but we didn’t have the opportunity because we only did one round at seven and a half million dollars, and there’s no room for angels. Because remember, we had sort of done the seed round as founders, like, saying, there is no outside capital. And we did the one round of seven and a half million.

It didn’t make sense for somebody to come in with, like, $25,000 and get, like, a hair of the company, right? It’s like, why would you do that, as an angel? So, he went with Thumbtack instead.

By the way, Jason’s also an investor in [??].

Andrew: Oh, I didn’t know that. Okay.

Ethan: Yeah, so, he’s hoping that lighting will strike twice, I guess. But, you know, I don’t want to speak too much about Thumbtack. I will say that they had a different approach. They had an approach of an open directory, and it was highly saleable, so it was great in that sense that they get a lot of traffic from SEO, but it wasn’t about the… I think Red Beacon probably monefies better because we have this algorithmic matching, we’re giving you four bids, we’re charging 10% of the service provider initially, and, as I said, later it’s under 30%. They’re making money on the transactions.

I think Thumbtack was good at: Hey, look! We have this really open directory of tons of businesses a la Craig’s List and you can contact them and they can contact you and you can browse categories and things like that. But then I think that they’ve had to adapt their model over the last year or two, because they had this traffic but didn’t really have the business. Frankly, now it looks a lot more like Red Beacon. Right? It’s more lead-gen.

Andrew: Much more. You go to their site, you type in “I need a gardener.” They ask you a couple of relevant questions, you hit submit, and then they send it out to gardeners who then bid on your…

Interviewee: Exactly. That’s what Red Beacon was. That’s not what Thumbtack used to be, but it is what Thumbtack has become.

Andrew: So what about the issue of getting, the chicken and the egg issue with a business like Red Beacon, where you need to get customers but at the same time you need to get businesses and neither one’s showing up unless the others are there in large amounts?

Ethan: Sure. We did something that we called ‘The Wizard of Oz Strategy’. We’re very public about this. The first time you came to Red Beacon and you requested something… Let’s say you needed a carpenter to build you a fence in your backyard, okay? We don’t have any carpenters so what happens? Our wizard team calls, goes on to yelp! Or goes on to the Yellow Pages, looks up highly rated carpenters, starts calling them and says, “Are you available to do a fence-building project on Thursday around 2:00? If so we’d like you to bid on this.” They’d say, ‘Sure.’ That’s what they do for a living.

They bid on things. That’s totally normal for them. Then we’d send them a link to the job, they’d click on it, they’d see the full job, they’d put their bid in, but it wouldn’t let them submit their bid until they’d signed up. So we used a real job that they could get as a carrot to get them to sign up. That’s how we solved the chicken and the egg problem. And I’ll tell you what, within two months we had 100% of jobs getting bids and the average was over 4.

Andrew: How does it spread beyond the people that you guys can contact directly?

Ethan: Well, we launched city by city. And one of the things that’s interesting is, how many plumbers do you think needed to be on Red Beacon to service a city the size of San Francisco?

Andrew: Good question.

Ethan: It’s not like… The same plumbers can bid on every job. Right? That was the thing that was so startling about Red Beacon. You actually didn’t need as many service providers as you think that you do. Whereas Thumbtack, to go back, they had, I think, several hundred thousand businesses on it. I was like, ‘Wow, how do you meet that many?’ It’s about the consumer traffic and it’s about how many consumer requests you’re getting every day and closing. Does that make sense?

Andrew: Yes. My sense with them is they want that many on there because each one is another door from Google to their site. And then once they get that person there, the question is can we get that user to bid on getting even more, to apply to get even more bids, and that’s how we get that user locked in.

Ethan: Right. Right. But it depends on what your business model is. The Red Beacon model was a consumer requests something and we want them to choose somebody. For that to work, what you need is… We did data analysis and more than four bids did nothing. You weren’t more likely to close the job if you brought in 10 versus 4. So if we brought them 4 super high-quality businesses that were priced competitively, that were highly weighted and reviewed and that would do good work when they went, then you only need 4 businesses. So what we learned is that we needed to get 20% of our businesses to win 80% of the jobs.

Why? Because they really gave a crap about Red Beacon. They showed up on time. They never flaked. They did good work. They never cheated. They had good prices. Because they were getting a lot of jobs. They were making tens of thousands of dollars by using Red Beacon and they didn’t want to shoot that goose that lays the golden egg. Whereas, if we brought somebody new on, okay, now there’s a whole training and hand-holding process; the quality could be variable, we don’t know yet; he hasn’t built up a reputation. It’s not that we don’t want new businesses, but I’m saying the goal was not to bring as many new businesses as we could.

Andrew: Right. That makes sense. By the way, everything that I just talked about Thumbtack, I think it’s public, but basically I got it from a competitor of theirs over drinks. I didn’t hear it directly from them otherwise I wouldn’t be revealing it. They will be doing an interview here so we can find out more about them. So now you’ve got the strategy for bringing service providers on board, how are you getting the traffic, the people who will eventually be buying from these service providers?

Interviewee: Right. That was challenging. With Red Beacon, it was a lot of AdWords and Facebook ads and things like that. That was a huge tranche of the traffic which was expensive. I’ll be totally honest, while I was there we never figured out how to make that ROI positive. I mean we could bring traffic there, and we could get revenue but it was actually less revenue than we were actually paying for that traffic. So that was tough. So then we started looking at distribution partnerships.

We did distribution partnerships with a number of companies including Yahoo, where it was actually built in the Yahoo search. We’d get the top search results and it was ?? We’d put in there so there was NBC, ABC, Fox, and they had widgets on their websites, SF Gate. We did so many different distribution types of deals. We tried social that was difficult. Frankly, one of the things that was so great about Home Depot buying the company is that 100,000 plus people coming every week into a Home Depot store in America. And so all of those people are getting exposed to Red Beacon at a time that they are very interested in some kind of home service thing.

Andrew: When you did the distribution though, you had to pay upfront right?

Ethan: No. 100% of them were all paid for performance.

Andrew: Really?

Ethan: Yeah. Even the Yahoo one, which was pretty amazing.

Andrew: Wow. With guarantees?

Ethan: There were no guarantees.

Andrew: Who’s your biz dev person?

Ethan: Me.

Andrew: You were the one who worked out the deal with Yahoo where there was no guarantee, just share of revenue? Wow.

Ethan: They brought them onto a co-branded Yahoo Red Beacon page, which is basically the Red Beacon page with a logo that was co-branded and that was a 50% ??.

Andrew: Wow.

Ethan: Yeah.

Andrew: That was impressive. Now I’m looking at your background, and I don’t see biz dev experience in your background.

Ethan: Well, what entrepreneur is not naturally a sales person, a business development person? At its heart, being an entrepreneur, you never stop selling. You’re selling investors on the dream. You’re selling employers on the dream. You’re selling partnerships. You’re selling the media and the press. You’re selling customers. It’s like we’re always selling something and so if you don’t have that built into you innately, then you better have a co-founder who does.

Andrew: I see. And you are the guy, out of the three of you, you were all three engineers, weren’t you?

Ethan: No. I have an MBA from Harvard and a non-technical undergrad Economics and Public Policy studies from Duke.

Andrew: I see.

Ethan: My two co-founders were both CS. One was from MIT and one was from Princeton in Cambridge. So they were very technical, more so than me. I was a product manager at Google so I had a real passion for the product and a good product sense but not in terms of RC coding ??.

Andrew: All right. So you got a way of bringing people in the door and you got a way of bringing service providers in. Then I guess we hit on the issue that you and I talked about before when we started this interview which is you work hard to bring a customer into the door and they may not think of you again, maybe not even ever in fact. Can you talk about that?

Ethan: Yeah. Yes I will. One of the things that probably is obvious in hindsight, and I think a few people did warn us about this is that people don’t need home services that often. I mean how often are you remodeling your home and how often do you not have somebody already? It’s not that people don’t need a handyman on a regular basis, but they already have somebody and what Red Beacon was good at was bringing you new people. We’re bringing you bids from four different people each time that you use it and so that contributed to a lower lifetime value of a customer. What is the definition of LTV but how much you monetize times how many times you have a sale each year times the life of that customer, maybe plus some sort of referral like if they were referring some other people and there’s some sort of ??.

I mean that’s basically what LTV is. And so Red Beacon was tough because there was almost no referrals despite our best efforts and I think that’s because people probably might not want to talk about their plumber. Who wants to talk about that? But even if they did, they’d probably want to talk about the plumber to their friends not about Red Beacon. They’ll be like I have a great plumber for you. Yea, he’s fantastic. Let me give you his, that’s what will happen. And we be like, no, no tell them about Red Beacon too.

It wasn’t something that people wanted to go tell everybody about. So ?? was pretty low and then people didn’t need the Red Beacon service all that often so at six months or nine months goes by you may have very well forgotten about it probably because you’ve goggled it and put in an ad word and maybe it didn’t even registered too much that you are using Red Beacon. It wasn’t a destination. Right?

Andrew: Right.

Ethan: Angie’s List, who’s in our space, has been building up a brand for ten years and spending tens of millions of dollars a year on advertising in radio and television. So they have done an admirable job of creating a brand. And so some people do probably think of Angie’s List when they think of pump services, but Redbeacon hadn’t been around long enough, or had the money to invest in building a brand like Angie’s List.

Andrew: Also, Angie’s List locks people into a membership, so you feel like this membership gave you the value of . . . right?

Ethan: Maybe. It’s basically Yelp, user generated content, ratings, and reviews.

Andrew: Isn’t there a membership there?

Ethan: It is, yeah. It’s ratings and reviews behind a wall of garb and Paywall. You can’t crawl it, you can’t access it, you have to be a member. So, they get no SEO value, of course, because it’s locked. In a world of Yelp, it’s hard for me to understand how Angie’s List survives. I know that the subscription model is gold because people get lazy, inertia carries them through when it renews, and they just stick with it.

Andrew: The subscription model also seems to help, because all I see when I go to CNN is commercials for ‘Buy gold! The world is ending! Buy gold!’ or ‘Angie’s List’, and it’s regular people talking about how they’re on Angie’s List together, and giving each other recommendations. I guess, because they charge all this money, they can afford to just bombard the airwaves with commercials.

Ethan: Yeah, exactly. I looked at their 10K, and it looks like about half of the revenue is coming from advertising from the businesses to be on top of the search results, and less than half is coming from the membership.

Andrew: The other thing you told April in the pre-interview, is you guys hired an offshore call center to badger your customers to select a service provider, well, to remind them. I think ‘badger’ is her word. What happened there?

Ethan: One of the other things we had learned, as we’re trying to figure out how to make the company profitable, is that the drop-off rate was substantial. When somebody put in a request for the service, and the time to come back to RedBeacon to look at your bids. A substantial drop-off, much more than half. We’d email them, we’d even text message them, and it didn’t seem to be enough. So then, we got this crazy idea of why don’t we have people call them, ‘Hey, we have these bids for you. What happened with your job? Do you still need this person? Let me tell you about who came back with bids, and how great they are. Would you like to select one of them?’

Andrew: Did that work?

Ethan: Yeah, it did. It probably increased the conversion rate upwards of 30 percent, from where it used to be, but it didn’t work enough to the point where the company was profiting yet. A lot of these learnings, from RedBeacon, colored my views, and the business that I wanted to create with MyTime. Whereas, a lot of the problems of “I don’t need to ever come back, because I don’t get home services that often”, “I’m not going to book the same person, because I have a direct relationship with them now, so you’re cut out for the future” and the experience of the drop-offs from having to come back to get your bids. All of those problems have gone away with MyTime, because we signed up the businesses ahead of time, the calendars are connected, so you complete your transaction in that one session.

Prices are there ahead of time, so you know already what it’s going to cost and if you see somebody you like, you click on it. It goes into a shopping cart, you purchase it and it’s booked. And, this is really important; we want you to come back to MyTime when you re-book them. We don’t want you to call them directly. So, we don’t charge the businesses for repeat bookings, otherwise the business would tell the customer not to use MyTime again, right? It goes into a favorites page, where all of your businesses are on one single page.

You manage everything there, the re-bookings, the reminders to re-book, cancellations, all of that happens right on your favorites page. At some point, we’ll make that a public page for you, so that your friends can come and see all the businesses you go to. I’m going to mark it right now for a house cleaner. If you live in San Francisco, I’d be really interested to see who you’re using, because if you’ve been using them, and they’re on your favorites page, I wouldn’t mind booking them.

Andrew: I get that. I would feel that way, too. Right now, I’m looking at your hair and my hair, and I’m saying, ‘That’s what I’m going for with my hair. This hipster place that I’m going to needs to do that.’ I would definitely go to your place.

Ethan: You need to get them on.

Andrew: Yes! Who did you talk to, before launching MyTime, to make sure that the product made sense for people other than you?

Ethan: Right. I think everybody who has ever used OpenTable, everybody who’s ever used Kayak or Expedia to book a flight, everybody who’s ever used Uber to get a car, they understand the value of pulling out your phone, or going to the computer and booking something online, when you want to do it. Everyone knows how frustrating it is to call a business, get put on hold, get no answer, have them call you back, right in the middle of a meeting they finally get back to you. It’s so annoying. It drives me crazy. I’m too busy for this. I get no pleasure in talking to the secretary. It’s not something I look forward to, at all.

Oftentimes, frankly, I do things late at night. I’m a hard worker and get home late. There are still things that need to get done, so I go online and do them, then. In this world that we live in today, work and play, vacations and non-vacations, travel, and everything gets blended together in a way that it probably didn’t, years ago in our parent’s generation. We need things like this.

Andrew: I kind of feel like a lot of what we use, I imagine the rest of the world is going to use and then I get disappointed when they don’t. When Zaarly came out, and they were going to do grocery shopping in Washington D.C., where I happened to live at the time, I thought, ‘This is going to take off like crazy, because who wants to go grocery shopping?’ I’m busy; I’m working all day long. I just want to use the computer. I don’t want to wait in line at Trader Joe’s, etc. That didn’t work out for them, because, I guess there weren’t a lot of people like me, who are maniacs, who wanted to work all day and then go home and forget about doing anything. So, did you even need to test it, or were you feeling so sure you were on the right track and you were going to launch it anyway?

Ethan: It’s interesting. Something like grocery shopping, I don’t have a good intuition for because I don’t necessarily know what I want. It’s usually more like, I’m walking up and down the aisle, and I say, ‘Oh, yeah. That looks good. I’m going to grab one of those.’ Or I want to look at the fruit and vegetables, and make sure that it’s fresh.

Andrew: That makes total sense. I never would have imagined that anyone feels that way. When I think about it, I guess there are people like that.

Ethan: I go back to Zip Zap Salon, in the lower Height, to get my hair cut. I’ve been going to the same guy for 11 years. I know exactly what the hair cut is going to be, I know what it’s going to cost, there’s no variability there. He might have an off day, but if I call him or book online, it’s not going to affect that. If I need a massage, and I’m looking for a deep-tissue massage or Thai massage or something, it doesn’t have the same variability as grocery shopping. I have a better sense of what it’s going to be. By the way, not every business works from MyTime. Almost none of the RedBeacon businesses work. We’re probably not ever going to have plumbers, electricians, roofers, or services like that, because they’re not fixed price and they’re not fixed duration appointments.

Andrew: I see.

Ethan: I don’t think restaurants will work. How do we know what you’re going to eat once you get there? Not to mention, there’s Open Table who dominates, but even if they didn’t, I don’t think it’s a good fit.

Andrew: OK. What about validating your idea with the service providers? Did you take it out to them, and see if they would be interested?

Ethan: They loved the idea.

Andrew: How did you do it? What was your process?

Ethan: I understood one of the big pain points, from my RedBeacon experience, was open appointments in their day. It’s not like Apple, who says ‘I’d love to have another half-million customers this month to buy and iPhone. That would be awesome.’ It’s not like that for a local business. It’s, “My day has a 3-hour block where I’m not working. That’s really annoying because then customers come in again. I’d love to fill those 3 hours with somebody, so I’m not just sitting there idle, and making no money.” So, MyTime is phenomenal in that regard. They say, “Let us be a retailer for you. Let us distribute those open appointment times, to new and existing customers, who can fill those times that are open.”

And if you’re already booked, we won’t show those because we’re synchronized with your calendar. Then, we went even further. We said, we’re going to dynamically price, aka discount, your hard-to-fill time slots. We’re going to do what United does, in the worst possible flight that nobody wants to take, and that one is way cheaper than the popular flights. It could be half the price, or maybe even less. We’re going to do the same thing for you. It’s worth it, because you don’t want to sit there idle. You want the chance to get a new customer, and you want to be working and making some money during that time slot.

Andrew: Was there a way of validating your assumptions, because it seems like there are some inherent assumptions in here. It’s OK if there’s no validation. I don’t want it to be an egg-head interview where you feed me this lean start up process, because that’s what we’re supposed to do. I’m sensing that, maybe, the service providers don’t even want to use the internet, don’t want you to sync with their calendar, don’t trust calendars online because they have paper calendars. Maybe they like the idea of making money when they’re not working, but they hate the idea of discounting their stuff ever, because it sends the wrong message. I don’t know what kind of (?) could be in their minds. Were you validating it with them, or did you just say, “I’ve been in this space long enough. I know what to produce. If I create it, they will follow me there?”

Ethan: I didn’t do too much validation, other than having talked to a lot of people, over the last several years, in the local space that I was in. I didn’t do separate research for this. But I will say this, there are some of those businesses like you described. These are people who don’t do email, they don’t have a computer in their office, they don’t check their cell phone during the day, and they’re not good fits for us. And they probably won’t be on MyTime for a while, at least until their children take over the business or something.

Andrew: Right.

Ethan: But, I will say this. The trend is in our favor. These businesses now, most of them have Facebook pages, most of them have web sites, almost all of them have e-mail, most of them have cell phones, and they use apps. Right? So the trends are in our favor. And, by the way, you don’t have to discount. That’s an option. I call it “Dynamic pricing”. You can flip that on or off. It’s kind of like a happy hour, is how they understand it. It’s like happy hour time.

Andrew: Right.

Ethan: And they like it.

Andrew: As a user I could see the value of it. If I was going to go get a haircut in two days, but I see that some barber is free later today and would give me a little bit of a discount if I do it, I’d hustle over.

Ethan: Totally. Yeah, they like it.

Andrew: When you and April talked, you said that you launched with fifteen hundred businesses. How do you launch with that many businesses on a new platform?

Ethan: We started signing up businesses even before the product was done. Back in August of last year, almost a year ago, we started the sales process. And I’ll tell you what I knew; I didn’t know how to build an efficient sales team because at Red Beacon I didn’t have to. Remember I was telling you that you could have 15 or 20 plumbers and they could serve the whole city? You can be inefficient if that’s all you have to acquire.

Andrew: Right.

Ethan: Right? You and I could do that in two afternoons. The MyTime sales team is like a well-oiled machine. We brought in a sales director from Trulia, we scoped out sales for [??] , we’ve got monitors on the wall. The sales people know they have to make a certain number of calls every day. We know the average number of decision makers reached. We know the number of decision makers converted. They’re commissioned and comped based on that. It’s a real sales organization. It’s not big, it’s not like we have hundreds and hundreds of people yet, but it operates like a big company.

Andrew: I see.

Ethan: In terms of sales team.

Andrew: So how’d you learn how to do that?

Ethan: I had to learn, I mean, everything. All this stuff is out there, in this day and age. I mean, you talk to experts, our sales director had some experience in it, I asked other people like H. Craig from Betaworks, “How did you do it?” and I talked to his guy. I went over to Zoze and I talked to their sales director and asked, “What do you guys do?” It’s like anything else, if you don’t know it, you make it your business to learn it. And I realized that with MyTime, I had to make it my business to learn how to build a sales organization and a sales team. And we have really great people now. They really know what they’re doing, and the merchants love them. Sometimes they’ll go get a MyTime service, right? And they’ll be like, “Oh, do you know Graham? Do you know Becca? Oh, he’s great! She’s great! I love her!” They know them by name. It’s great. It’s really cool.

Andrew: And apparently they know you by name, too. Apparently someone called up from Mytime, called up a service provider, who said, “Hey, is this Ethan Anderson’s start up?”

Ethan: Yeah, he said, I forget how much he made, something like $45 or $50,000 at Red Beacon, he said, “If you’re starting this company, I want to be on it.”

Andrew: It’s great to have a good reputation. There’s a note here that I wasn’t sure, I probably should have asked April about it, but we’re here so I’ll bring it up directly to you.

Ethan: Sure.

Andrew: You said, something about the Google Video story, making sure all pieces of the product are consistent. Do you know what that refers to?

Ethan: Yeah, I’d love to talk about the Google Video story. If I had some free time, I’d like to write a book about the Google Video story.

Andrew: I would love to read that.

Ethan: Why did Google Video [??] Google is a very powerful organization today, don’t get me wrong. But this was like, the height. This was when Google the hottest company in the universe. Google video lost to YouTube, it was unheard of. How could Google, with all its resources, the best engineers in the world, all the press, darlings, everything, how could they lose to YouTube? And, my conclusion is that Google Video tried to be everything to everybody, and the pieces didn’t go together, at all.

In fact, the pieces of Google Video were diametrically opposed to one another. Google Video was trying to serve premium content providers like CBS, NBA basketball, and Charlie Rose. And what do these people want? Well they want the things that iTunes content providers want. They want DRM protection, they want a store where you have to purchase things, they certainly don’t want to be next to pornographic or other copyrighted infringing material that users uploaded, right? We couldn’t really advertise on Google Video, because there was a lot of infringing content that could be uploaded through the UGC or User Generated Content portion of it there as well.

Andrew: Mm-hmm.

Ethan: Right? Now, let’s look at the other side. If you’re YouTube, what do you want to provide to your users? Well, you want a super-easy way to upload content. So they built an HTML uploader which was awesome. You click a file, hit submit, and the file just shows up. There was no screening at YouTube. Google Video screens every single video. Thousands of videos. There’s a long delay. It took you three days, or something, for your video to go live. YouTube would be live within minutes. YouTube built all these social features.

Social features today are taken for granted, trust me. In 2008 they were not taken for granted yet. Ratings and reviews, embeddable widgets where people embedded on their MySpace profiles, which got them lots of distribution, commenting, play lists, all those things, YouTube came up with these things. And of course you might know and everybody knows that it was tons of infringing content.

Of course, they would take it down if somebody submitted a DMCA request, but it was all there. And that’s how YouTube grew like lightning, but Google Video is basically in conflict of itself at all times.

Andrew: Because Google video is trying to make Charlie Rose happy who does not want embed his videos, he wants to sell his videos and they are trying to make Andrew happy who does want embed his videos and wants everyone to spread his videos and those two people can’t be serviced by the same product in the early stages of a company at the same time and that’s the challenge.

Ethan: Exactly.

Andrew: And you are in there. As the guy in there did you notice that this was happening? Was it painful for you?

Ethan: Yeah. It was very difficult. I mean I think we were watching YouTube and trying to chase the hottest thing so you know they would come out with something and then four months later and it’d be like we have to ??.

Andrew: Do you remember something like that? What was it comments?

Ethan: Yeah. You know, I was actually, not that it was all myself in any way, but I was actually the international product manager. It was my first job at Google. I had a number of roles that they offered to me, and I took this job to internationalize and launch Google Videos in other countries. I was actually spending a lot of my time in Europe and Asia launching the product internationally, translating it, dealing with copyright and privacy things there, getting contact providers to get on board, marketing it.

So I wasn’t as influential as you might say on the core product development. It was out of my hands a little bit. But I saw this, was concerned about it, and I think everybody saw it,. But what was happening is videos is a marketplace as much as eBay is a marketplace and at some point in technical terms the corpus of video content was so overwhelmingly large at YouTube, that it was getting to the point where nobody could catch it anymore.

Andrew: Yeah.

Ethan: Even if we did all of the right things from that point on and we were perfect and we never made a bad decision, it was too late. Everybody was uploading their videos there and everybody was going there to watch the videos, and they had just won the game and there was no catching up. And by the way it’s not like, I’ll tell you something interesting. In my opinion, it’s not like face book. Face book could still lose in the sense that everyone could decide there’s a new hotness in town and they are going to move their social network over there. YouTube can’t really lose. You know there are billions of hours of content on YouTube servers right now. They have an incredible infrastructure for serving it and hosting it. It’s fast. It’s cast all over the world. I mean it’s almost at this point impossible to recreate. I think YouTube will be here for the rest of our lives.

Andrew: Yeah. It is a very defensible business. Internally though, I’ve been looking at some messages from my audience, entrepreneurs who are wrestling with inner doubt and when I ask them why they often will say I had this one big failure or this failure at a company I worked for that I was marginally associated with, it makes me feel like I’m very vulnerable, like I’m going to fail, or I’m made to be, or I’m a failure. Why didn’t this make you feel that way? Why didn’t you say hey you know what I was with all of Google’s power, with all of Google’s strength? I competed against its sub start and I lost. Maybe I just don’t have what it takes. I’d better not risk it on myself.

Ethan: You know, I don’t think in general I don’t have that kind of mentality. First of all, I didn’t really internalize all of the ?? Google Video myself. It was a massive organization and you know I was a, you know my first job as a ?? at Google internationalizing the product so I don’t think that I, I learned a ton and I was crushed. Yes. You know I couldn’t go, like Hunter? You know Hunter, right?

Andrew: A little.

Ethan: Or you know of Hunter. Yeah. He was also a ?? at Google video. He was able to brush it off and go over to YouTube. He went to work at YouTube and he spent the rest of his career at Google there. He did really well. He became Director of Product Management and for some time was leading the product at YouTube. You know, I actually couldn’t do that. I felt like I had been punched in the gut that Google had bought YouTube for $1.65 Billion. This company that I thought about for the last year working seven days a week to try to beat them to suddenly be like, hey guys what’s up. I’m going to come help you guys now build your company? It was like, I couldn’t even do it. I was like let me work on something else. You know what I mean?

Andrew: Yeah.

Ethan: So it’s not like it didn’t affect me. I don’t know if I blamed myself for the entire failure of Google Video but it definitely affected me. It did hurt a lot.

Andrew: And you are the kind of person who can, can you brush it off too like Hunter? How do you disconnect yourself?

Ethan: Now I could, but I couldn’t do it right away. Hunter was able to say, ‘The queen is dead, long live the queen’ [laughing]. I couldn’t do it. Now, it’s fine. It’s been years. Right? But I couldn’t go the next week and say, “Let me help you to succeed now”.

Andrew: How do you do that? I want to end this interview, with the strength of mind. I want to understate it, the ability to not internalize setbacks, to not take other people’s setbacks and make them your own, and then define yourself by it. It’s a huge strength. A lot of people don’t have it. How do you do it?

Ethan: Cognitive dissonance.

Andrew: What? Oh, cognitive dissonance.

Ethan: I think that entrepreneurs have cognitive dissonance. I think that they see the world through their own lens, they rationalize things in weird ways, it kind of wows them to keep going forward. Where other people would be emotional, or it would stop them, or cause them to be uncertain, or feel like they’re riddled with indecision and self-doubt, I think entrepreneurs don’t even think about it. We’re probably horrible people, in a relationship.

What makes a successful relationship with somebody is that you reflect, you think about the failures and you work them out. I think entrepreneurs are like bulls. We say, “I’m not even going to think about that. I’m on to the next thing.” We just forget about it and move forward, which, obviously, is terrible for a relationship. You probably accumulate baggage over time that causes it to fail. I’m sure, if there was a study, entrepreneurs have a higher divorce rate, it has to be.

Andrew: I can imagine. Did you ever see the 60 Minutes piece with Arnold Schwarzenegger, after he wrote his book about . . .

Ethan: Yes.

Andrew: He’s got it, like you wouldn’t believe. He can say, “Yes, I slept with the maid. I had a baby.”

Ethan: He says, “Yeah, I cheated on her, and yeah, I didn’t tell her, yeah, and I just kept going. I pretended it wasn’t happening.”

Andrew: It’s nothing to emulate, but it’s an exaggeration that shows how that process works, “just move on”.

Ethan: I remember, the 60 Minutes interviewer was just aghast. I think she could barely contain herself.

Andrew: We all were. He knew he was doing it in front of a national audience, a huge audience, but that’s who he is. He can just move on. Alright, the important thing here for us, is congratulations on RedBeacon, number one. And congratulations to us on MyTime, because all of us who are really busy people, who use services that will go and get our grocery and will try to shave a minute here, a minute there, because our time is valuable, now have an opportunity to stop going to Yelp and then calling up those companies that we need a haircut from, like me, or need a massage for our girlfriends, or wives, or husbands. Just go to our website, and book it online. We do it now with restaurants through OpenTable, we can now do the same thing with everyone else on MyTime. You’ve got a great domain. Mytime.com/favorites is where you guys will be my valet. You will go call up these people for me.

Ethan: I’m looking for your hipster hair salon.

Andrew: I have to do it. You mentioned it in here. Now, I’ve got to go back in the transcript and get the name, because I was focused on the interview and didn’t write it down. I appreciate you doing the interview, and building the site.

Ethan: Great. Thanks Andrew. It was great to be here.

Andrew: Thank you all for being a part of it.

Andrew: Three messages before we get started: If you’re a tech entrepreneur, don’t you have unique legal needs that the average lawyer can’t help you with? That’s why you need Scott Edward Walker of Walker Corporate Law. If you’ve read his articles on VentureBeat, you know that he can help you with issues like raising money or issuing stock options or even deciding whether to form a corporation. Scott Edward Walker is the entrepreneur’s lawyer. See him at walkercorporatelaw.com.

Do you remember when I interviewed Sarah Sutton Fell about how thousands of people pay for her job site? Look at the biggest point that she made. She said that she has her phone number on every page of her site because, and here’s a stat, 95% of the people who call end up buying. Most people, though, don’t call her, but seeing a real number increases their confidence in her and they buy. So try this. Go to grasshopper.com and get a phone number that will make your company sound professional. Add it to your site and see what happens. Grasshopper.com!

And remember Patrick Buckley who I interviewed. He came up with an idea for an iPad case. He built a store to sell it, and in a few months he generated about a million dollars in sales. Well, the platform he used is Shopify. If you have an idea to sell anything, set up your store on shopify.com because Shopify stores are designed to increase sales. Plus, Shopify makes it easy to set up a beautiful store and manage it. Shopify.com.

Hey, there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart.

One of our bookers here at Mixergy said to me, “You know, Andrew, as marijuana is becoming more and more legal throughout the country, maybe the right place to build a company is to make one that makes pipes for smoking weed. You’re more protected from the law if you make the pipes and you can benefit financially as more people start to smoke.

So today I have an entrepreneur who is in the glass business and he happens to make pipes. Dave Daily is the founder of GravLabs which manufactures glassware in the contemporary pipes market. Dave, welcome

Dave: Thanks, Andrew. How are you doing?

Andrew: Good. Are these pipes that I see on your website, are they made for marijuana.

Dave: Well, even today we still put a ‘For tobacco use only’ sticker on every pipe that leaves our facility, but as the social climate is changing we are starting to have the opportunity to market our products to a growing marijuana smoking demographic, specifically in Colorado and Washington where it is legal, as well as to some of the medicinal [sp] states that have recently changed their laws.

Andrew: [??] when and if this becomes legal throughout the country that your business will rise. You’re seeing revenues go up [??] market increase as it’s becoming more legal?

Dave: Absolutely. I think that this is… What we saw in November was a very defining moment in [??] social climate of marijuana laws. Where we haven’t necessarily seen a giant increase in our sales in those specific states, Colorado and Washington, but I think it just gave a lot of entrepreneurs across the country who always wanted to open up a glass pipe business a really great excuse. I guess it made them feel a little more confident in their ability to start that business and not be ridiculed for it.

Andrew: What are your revenues now?

Dave: This year we are projected to do about $6.5 million.

Andrew: What did you do last year, 2012?

Dave: $4.25 million.

Andrew: Wow! And this is all your business, 100% personally owned?

Dave: It is, but we are running up against some difficulties in that expansion, and it’s really hard to grow 40% to 50% year over year without external financing, which I could get really deep into, but I’ll let you continue asking some questions about that.

Andrew: And this isn’t like a lot of the businesses that I interview here on Mixergy where if their sales increase by 25%, they could fire up some servers, maybe hire one extra person and they’re covered. How many employees do you have?

Dave: We have 70 employees in Austin alone, and we do have some production that we do in China to help facilitate the production that we do here. Thirty of those employees in Austin are glass-blowers, and the other 40 do processing, shipping, sales, marketing.

Andrew: All right. I want to hear how you got here because I think the story of how you built up this business is inspiring. But first, the way that you and I met is through Noah Kagan of AppSumo. And it actually had to do with a post that he put up on AppSumo about this incredible entrepreneur who had an innovative way of meeting him. And I said, “This is the entrepreneur for me to interview on Mixergy.” What did you do to get a hold of Noah who famously turns most people away?

Dave: Well, that’s, I have an app idea just like everybody else in the world. But it doesn’t have anything to do with my company. But, I’ve followed Noah, I’ve been a fan off AppSumo for a while and I also subscribe to his blog. So, in January, he posted a blog about selling his Sperrys online. And I was actually already looking at some Sperrys, because they’re top-siders.

Andrew: Shoes.

Dave: And I was like “Hey, you know what? I have this app idea. Even if I don’t have anything, maybe this guy just thinks my app idea is amazing. I’m going to see if I win can his shoes in order to get myself in front of him.” Well, I ended up losing his shoes. I actually bid it up to $600 for a pair of shoes. And I ended up losing the shoes and kind of let it go.

Then, a couple of months later, I had pursued more about this app idea. And I was just running up against walls. And so, I decided “Hey, look. Let’s reach out to Noah. Just let him know I was going to buy his shoes. Maybe he’ll get back to me, maybe he won’t. Either way, the worst that can happen is that he doesn’t get back to me.”

So, I sat down for about an hour and typed out an e-mail and thought about how I would want to be addressed if the roles were reversed. And he wrote back in 30 seconds. It was amazing. I got an amazing response and I think that just putting myself in his shoes was enough to make it simple to write a letter that would get a response.

Andrew: Yeah. And that’s the thing. I’m looking at the letter here and anyone can see it on AppSumo. And what’s interesting is that you do just keep making it about him and shifting it over to you right from the start. “I lost your Sperrys and your apartment,” which you put up on eBay for people to use. “And this is why you should meet me.” And then, you kept going from there. Talked about him and talked about why he would be interested in meeting you.

All right. So, then, I reached out to Noah and said, “Can you introduce me to this guy”? And that’s how we got put together here, today. So, I want to see how you built up this business. You started out in sub-prime lending?

Dave: I did. I was working at a mortgage company in Houston, Fidelity One Mortgage. And a small firm, like four or five guys. And I was processing loans for a while and then I got into generating some leads and I realized that, it was 2004, early 2004. And I started to generate leads in the $40,000 to $100,000 loan range. In that specific range, you can just smell the steak a mile away. You were competing. You’re basically buying these leads on LendingTree and competing with all of these other brokers that were trying to (?) this business and lying to these borrowers.

Andrew: What do you mean? What would you say to a borrower?

Dave: Well, that’s why I didn’t really get very much business. I would be open and honest with them about the reality of the situation which was, “Look, you’re getting into an adjustable-rate mortgage which is going to balloon on you, and you are not going to be able to afford this loan in five years. Here is your full amortization schedule. Let me explain the amortization schedule to you.” And that wasn’t happening.

Andrew: What were most people doing? What were the bad guys that you saw, doing?

Dave: Well, first of all, they were getting borrowers into these loans for nothing down. You could get into an house in Beaumont, Texas for zero down and without coming out of (?) you could buy a $100,000 house without them checking your credit and you know, we would sell no-docs, which was you don’t have to prove how much you make, and we don’t care about your credit. Andrew: So what you were doing was basically pushing credit that these people couldn’t handle and you said I can’t allow myself to do that.

Dave: Yeah, it was an awful place to be and of course I was young and idealistic, no family, I’m sure that pushed up against the wall, playing by the rules, I might have been enticed to go out there and sell more sub- prime loans, but that’s not really the story, the story was I could smell the stink a mile away so I took the advice of a friend of mine who said, hey Dave, why don’t we make that gravity bong that we used to make in college, you said that you can make it, if you can make it I’ll put it up on the internet, we’ll sell a million of them and we’ll be millionaires.

Andrew: What’s the gravity bong that you made in college?

Dave: Oh, I should have grabbed one for you. Well in college we just took a Jim Bean bottle and cut the bottom off it with a scoring tool, and then put a bowl on the top of it and used a bucket.

Andrew: So the bucket has water.

Dave: The bucket has water.

Andrew: The Jim Bean bottle is empty, you put it in so that the bottom of the Jim Bean bottle is in the water but the rest of it is not full?

Dave: So let’s say that the bucket is ten inches tall and you put the Jim Bean bottle in it and when, you cut the bottom off of the bottle, it submerges completely in the water, and then when you light, when you seal the mouth of the bottle and light it as you lift, the bottle fills up with smoke, and then you remove the stem and push it back down and the water volume shoots the smoke back up into your lungs. So it’s like a shotgun apparatus.

Andrew: What does that do for, I’m not a smoker, what does that do? What’s the difference, why not just smoke it like a cigarette?

Dave: Why do people take beer bongs? It’s completely unnecessary and it’s simply a party effect, it has no real–I mean, it does have the utility, in the effect that if you were to roll your own cigarette, you’re smoking it, all of the, as the paper is burning down you’re losing all of that smoke. When you use a gravity bong you lose zero smoke. So it is a good way to smoke all of your herbs that you’re smoking. But for the most part, it’s a party device.

Andrew: And I saw it on your website, grav.com, it is beautiful. A beautiful bottle now. I know that what you have now is not what you started, but it’s beautiful and I can see why people do it. All right, so he says to you, if you can make this, I will sell it online, we can get rich together, you don’t start blowing glass at that point, how do you have the very first one made?

Dave: So I knew that I needed to figure out how to cut bottles efficiently, I had no idea how to cut a bottle, so I took it to a local glass fabricator called Ben’s (?), I think they just filed bankruptcy a couple years ago, so Ben’s (?), I took a bottle in that I had actually fished out of a dumpster at Sam’s (?) in Houston, and I scraped the label off of it, it was a McCormick’s Vodka bottle.

And I took it to Ben’s (?), I said I need to cut the bottom off this because I’m making a special base for my mom, it was close to Mother’s Day 2004, and they insisted that there’s no good way to do it but they sent me to the back, talk to one of our techs. So this guy gets out this tiny little (?) glass saw, and he asks one of the guys to come over here and hold it, and it’s water-fed, four inch glass saw and he starts to cut it and I flip out my flip phone at the time and took some pictures of them cutting this bottle, and they were just as surprised as I was that the bottom just popped right off. They polished the end of it with some grinders and sent me on my way. And that day I ordered that (?) saw and I went to work cutting bottles

Andrew: How much did that saw cost?

Dave: It was $210.

Andrew: So your whole investment in the business is 210 dollars plus whatever bottles you could get. All right, so continuing with the story.

Dave: So I had the problem of what, I had a bottle, but I didn’t have a vehicle, I didn’t have the bucket or the base that it was going to sit inside of, and I needed to have a presentable product. No one was going to buy a McCormick Vodka bottle in a trash can from me. So after a couple of days of trying to work this problem out…my mom, I was living with my parents at the time, and my mom came to me and was like, “Hey,” and bless my parents that they were so supportive of this idea. And she came to me and said, “Hey, how about you use my Kendall-Jackson bottle?” And it was that eureka moment that was like, oh, wine bottles are all the same, I don’t have any variance. So I can actually use the same wine bottle over and over again and then I can get a uniform base.

So I went to Michael’s, which is an art supply store, and found these vases that were three dollars and fifty cents. So I am still fishing the bottles out of a dumpster and cutting them, and now I have a vase that they fit. And of course, they are not made to go together, but I am re-purposing. And now I have to figure out how to get a down stem and a bowl in it, which makes it smokable [sp]. You don’t want to have a…wine bottles come with a cork, so you can’t really manipulate the cork. You need to have some sort of a bowl that goes in the top of it.

So I go to a local smoke shop and I tell this guy, confide in this guy, and say, “Hey, here is my idea. I need to put a down stem and a bowl in it.” And he said, “Yeah, no problem. Here is the down stem that will fit, and there is the grommet, here is the bowl.” It will be $10. And $10 is too much money. I want to sell this thing wholesale for $20. So I can’t spend $10 on this bowl. So I tell him, “Hey look, I need to be able to buy these in large bulk.

Where can I get bowls and down stems?” To which he tells me, “Good luck, you’re not going to find them. Here’s the names of some distributors but even they will sell them to you for $7.00.” So I am running up against the walls and I eventually kind of, through the grape vine after a couple of months of kind of intermittently making these things, I didn’t just jump right into it. I was still kind of picking up gigs at the mortgage company.

And I actually, during that time, I also moved back to Austin. So now I am in Austin, I’ve got a friend of mine’s apartment for the summer. I’ve got like $15,000 saved up from the mortgage company and I am fresh start, making my…starting Gravitron [sp] in Austin, Texas. So I continued to buy…I find a source for these little down stems and bowls for $3.50. Now I am buying the base for $2.00, the down stems and bowls for $3.50, and I am cutting all the bottles myself, which I get for free at a local recycling company. So that’s kind of the start.

Andrew: So the overall cost is how much?

Dave: My overall cost on the unit is about $6.00 all said and done.

Andrew: So now you have to go out into the stores and sell them, right? Is that where you go? Or do you go somewhere else?

Dave: No, that is exactly what I did. I started going door-to-door, knocking, going to the head shops in Austin, and there weren’t very many of them. In fact, I continued to take trips into Houston to try to convince the stores in Houston to buy some of them as well. So right out of the chute I started selling about 20 to 25 a month, and the stores were re- ordering them. I mean, it was very encouraging. Immediately it was…I had found this small community, this counter culture, of stores that were selling pipes. And I guess I thought that it was a huge market.

I should probably backtrack and say that my buddy who wanted to sell a million of these on the internet…about two days later we found out that just a year before there was a federal crackdown called Operation Pipe Dreams. And Operation Pipe Dreams…they came in, the DEA came in, and they raided 55 of the biggest online distributors of marijuana paraphernalia. So that rendered all online sales of our product impossible. So he was immediately out of the picture and we didn’t have any articles of incorporation. And he was a good friend of mine. And so he said, “Hey Dave, go do it. You’re going to do it great. I’ve got another job, if you need anything…”

Andrew: Wasn’t Tommy Chong, of Cheech and Chong, put in jail for nine months because of this? Because he was selling…?

Dave: Yeah, that’s it. It’s actually a really good documentary.

Andrew. I didn’t know that there was a documentary on that.

Dave: Yeah, it’s great. The details of this story are obviously very long, and I don’t want to bore the viewers…

Andrew: Give me a sense of the DIY way that you started your business.

Dave: Sure.

Andrew: You then went on to a trade show. Right?

Dave: Right.

Andrew: How helpful was it to go and instead of talking to store owners one on one, going to a place where you get to meet a lot of them all at once?

Dave: The trade show changed my world entirely. I encourage anybody that’s pursuing any industry to pursue the trade shows associated with those industries, obviously. It was profound. I took a friend of mine with me to the trade show that happened in Vegas, and I had no idea what I was doing. It was only two or three months into the–well, I take that back. I had been doing it for about a year in Austin before I went to this trade show. It was August of 05 when I first went to that trade show. I took two different sizes by then of the Gravitron. It was just an amazing reception.

I called the trade show a week before, and asked them for the cheapest table that they had, which was $500.00. They put me off in a corner, and I printed a banner that we did the graphic design ourselves. I brought maybe ten units, and that was it. I had a notepad, ten units, and a banner. That was everything I brought with me. I get there and there’s this massive trade show with all of these really professional booths, and all of these people selling all of these glass (?) pipes. It was like oh my God, I have arrived. This is where I’m going to sell these things. If I can sell them, this is the place. I did. It was a three-day event. We went home that day with selling 500 units to about 33 different shops. That was a big push.

The other big move for me was starting to advertise in a trade magazine. There’s a big trade magazine in the industry that was the only one at the time. Now there’s four of them. I got a spread in the trade magazine, and the orders started coming in. It was actually an amazing time to be getting into the industry.

Andrew: You told April in the pre-interview that at that point you said, “I’m going to be rich.”

Dave: That’s right. Oh man, it was like we’re going to sell so many thousands of these. It was a really exciting time, and it didn’t last long.

Andrew: What happened?

Dave: You gained it back, and it’s like that. There’s that Citi commercial where they’re saying, “OK, I can sell them. Can you make them?” It was hard. It was really hard to produce everything that we needed to produce. I started to bring on more employees. I had a new warehouse. We were, obviously, advertising in this trade magazine now that cost us a $1000.00 a month. We’re planning to go to these trade shows that are going to end up costing us $5,000.00 or $6,000.00 per trade show.

I kind of cruised along that way for several years. In order to buy more inventory, I would take out a new credit card. I would transfer balances whenever they’d have balance transfer offer cards, new credit cards to pay off the old credit cards.

Andrew: How deep in debt did you get?

Dave: By 2007, I had $80,000 in debt.

Andrew: Personal credit card debt, $80,000?

Dave: Personal credit card debt.

Andrew: Were you making any money?

Dave: No, I was losing a lot of money. That’s how I got into all the debt. I was simply buying and selling inventory. Something wasn’t working out. It seemed so simple that…

Andrew: What was the problem?

Dave: The problem was that I think that I got over ambitious, and tried to hire more people than I needed. It’s a really, really delicate situation. I can’t say that it was necessarily a mistake. I think that I had to do that. If I hadn’t have continued to fund this business in whatever way I could possibly fund it, it would have died. It would not have worked. So it was either do it through credit cards or go to a bank. And what ended up happening after I had this come to Jesus so to speak, where, hey I’m 80,000 dollars in debt, I don’t own property or have a ton of inventory, if I had to close this thing down today, I couldn’t liquidate my assets to cover this debt and this is a big problem.

And I either need to go get another job or do something dramatic with this business. And at that point I had started to make all those, if you remember those (?) that I was talking about, I had learned through these several years that in order to cut my costs further, I had learned how to make those myself. And I had spent the last several years essentially teaching myself how to blow glass. So I was all in on this. I’m also really young, I was 26 years old.

And so I’m teaching myself how to make these things as I go and at the ACL festival in 2007 I took these little giveaway pipes, they were little one hitter bats, that I was taking there to give away, the materials cost me nothing, I was making them myself on the machine, so I was just willing to give away hundreds and hundreds of them. And at that festival one of our shop owners was there and he saw what I was giving away and he was like hey, you should come see me on Monday and I think we’d be interested in buying some of these. To which I thought was ridiculous because it was a really simple bat with our name on it, but he said, “Hey, look, you’ve got a name. You can sell these things.”

And that was that eureka moment for me, it was hey, I don’t have to be pigeonholed into this Gravitron product, While I’ve been really unsuccessful in generating a profit, all of these little individual stores, I had 600 stores by that time, who were selling about one per month. Those 600 stores were happy with that one per month. They would look up at the end of the year after buying the dozen that they bought from me at the trade show and realize that they were out. So I wasn’t that washed up gravity bong guy, I was Dave, the Gravitron guy. It was the guy who makes the Gravitrons. So when I started calling these shops and said, hey I have this other thing, They said, that’s awesome we’d love to try it. It’s amazing what you start to realize once you start to put yourself out there and realize that you can be so much bigger if you just kind of ride that.

Andrew: I see that you don’t just have to be the Gravitron guy. You can create other products for the same customers and you started out with this, you call it the, what was it, one hit.

Dave: I call them tasters now.

Andrew: Tasters, is what you call it on the site. Like little cigarettes.

Dave: Yeah exactly. I guess I should say that the taster was born because I went to the Cannabis Cup in 2006. And everybody was smoking in Amsterdam. So I traveled to Amsterdam, went to the Cannabis Cup, and everybody was smoking after each other. They were just walking around and taking bong rips one after another and it was disgusting. There were a couple people that were wiping it off, but otherwise you’re basically making out with everybody in the room.

So I said I could make these little one-hitters that I could give away at this event, and that way everybody could use their own piece. It would be a nice little giveaway piece. It costs nothing. Well, I never did anything about it, and then the ACL festival came around and I was like, hey I’m going to do that thing and give some of these away, and then, hence, the shop picking them up and me having that eureka moment.

Andrew: So does this taster, do I need to have a bong to use it, or can I just put some weed in it light it up and go?

Dave: You just put your herb in it, light it up ad you’re good. It’s just exactly like that.

Andrew: Should I be calling it herb instead of weed?

Dave: What’s that?

Andrew: Should I be calling it herb instead of weed? Am I?

Dave: Yeah, that’ll be fine.

Andrew: Not weed, I should have changed it in the intro

Dave: That’s okay. It’s fine.

Andrew: I have a cousin who does smoke who says that up until recently I was saying pot and he’s like, you’re insane. You’re sounding so out of it.

Dave: No, in fact, you should leave all this in.

Andrew: I will leave all this in, of course. Unless Skype craps out, we don’t edit. So then you needed more equipment to blow glass. And you got it from an interesting place, where did you get it?

Dave: This is where the stars really align and people get really upset at my story. It was shortly after, I had this epiphany that I need to sell more things to more people. It was in November of ’07, and I had been sitting on this Teischer[sp] machine. I actually made this machine myself. The guy that taught me how to make the bowl and (???) myself, he had a this machine which was, basically, a single-sided lathe. I took some pictures with my flip phone and went to Granger and built it myself, with the help of Granger. I proceeded to teach myself how to make these things. So, I’m sitting on this Teischer machine, making all of these things, trying to claw myself out of this debt. I should say, I let go of a lot of my employees during that time, to try and minimize my overhead, and really get back to bare bones. It worked really well, and I was able to. I had to work a lot harder.

The point is, I was making all these Teischers myself. One day, I realized that if I had a bigger machine, I could sell more things to more people. I got up off my chair, and went into the other room, got on Craigslist and I searched. I first searched Austin for glass lathe, and then my second search was Dallas. I type in glass lathe and up pops this posting that says “Glass Lathe or Spinning 5-inch Borosilicate Inner Tubes”. It had a phone number on it, and nothing else. I think it said “Do Not Email”. So, I call this guy, and the posting had just been posted five minutes before I had gotten online, miraculous. And it was 120 dollars. These are machines that typically sell for 20,000 dollars. So, I was thinking, there’s got to be some kind of mistake.

Andrew: Wait, 120 dollars instead of 20,000?

A: That’s right. So, I’m thinking, there’s got to be some kind of mistake. Yeah, 20,000 dollars used, at the time was a very typical price point to pay. So, I call him up. He’s says, ‘Well, you’re the first person to call. If you want it, you gotta be here in the morning.’ I said, ‘You can’t send me any pictures?’ ‘Nope. I don’t have a camera.’ So, I borrow a buddy’s truck, get in the truck the next morning, and I’m in Dallas by 9:30. He takes us out to this barn, in the middle of nowhere, opens up the barn door and sure enough, this is a Litten lathe, a glass blowing lathe. The guy ended up being ex-military, that used to make vacuum tubes for the military. It was a treasure trove of stuff. I got a lathe, I got a cut- off saw, I got some other vacuum tube equipment. It was amazing.

Andrew: Why was he selling for so little?

Dave: It was one of those situations where his wife said, ‘Get all that s**t out of the barn, or we got a problem.’ It wasn’t that simple. The lathe had been idle for 15 years, it needed a lot of work. I actually ended up having to borrow some money from my dad. I ended up borrowing about 5000 dollars in order to restore this machine. I got it restored, hired a glass-blower, and we, in tandem, started to make some bigger things, and expand the catalog. That brought us into 2008, and then she, the glass-blower that I hired, had a friend that wanted to come work with us as well. I had enough space to have a second machine, and this guy was working out of his house and he wanted to be in a more conducive environment. He brought his machine up there, and all of a sudden we were three glass-blowers with two big machines and a small one. All the while, we’re still going to these trade shows, still advertising in the magazines and the company is growing. At that point, it was definitely time to start becoming more of a distributor, continuing to exploit that asset which was our existing customer base.

Andrew: Distributing your own products, or other people’s products too?

Dave: Our own products. I mean, to this day I still don’t sell anybody else’s products. We design and manufacture every single product that we sell.

Andrew: So things are going great at this point, but wasn’t there a period when you had to let go of people, including some of your closest friends?

Dave: Yeah, that was that part that I skipped over briefly, which was the end of ’07, which was that really dark time when I was $80,000 in debt. I had no assets. I mean I didn’t even own my own car. It was that moment where my best friend, who I had come to the trade show with that first time…letting him go was really probably the hardest thing I ever did, but it also taught me a lot about myself and my business. You know, it was me owning up to the fact that this…when it comes to being an adult, you have to make some very difficult decisions. But between having to let him go and having to tackle this gigantic debt that I didn’t think that I could…that was rock bottom.

Andrew: Are you guys still friends?

Dave: Yeah, it definitely took some time, but he has since gone off and started his own company and…

Andrew: Because he was hurt that you were letting him go?

Dave: Yeah, I think it was really hard on him. I mean, I know it was really hard on him, and it was hard on me. I mean, it was definitely harder for Evan [sp] to get back on his feet. We weren’t necessarily taking on a lot of money in the first place. So…

Andrew: How do you let go of a friend properly?

Dave: How do you do it properly?

Andrew: Yeah, what did you do? Did you go in there and say, “Look, I want to work with you, but I have got to tell you I have got $80,000 in debt, and I think I am going to get crushed by all this debt and I know I can’t keep this going.”? Or do you say, “He doesn’t care about me. He just needs to know about himself.” So I will say, “I have to make this decision, but let’s talk about how we exit you.”

Dave: No, I don’t think it went down like that. I think it was neither. I think I did it much less eloquently than you put either scenario. I think it was more of an, “I don’t know what I’m doing, I’m flailing away, all I know is that I can’t keep paying you to do this and I don’t feel like we can continue on with this partnership.” And there was some more to it. I definitely remember feeling like he didn’t really understand the extent that I had gone to to build the business. I think there were some misunderstandings between the two of us, but…

Andrew: Did you also feel like this was his company and that was hard?

Dave: Absolutely.

Andrew: Like he had shared in the ownership of the business?

Dave: Absolutely. And to me it was like, hey look, you know what? That debt, that’s the business, you know? That’s what’s left of it. And unless you want to share that debt with me this isn’t going to happen.

Andrew: Was there any conversation with you guys beforehand about who owns the business or any implied understanding that he owned a piece of it?

Dave: I don’t think so, I don’t remember it that way. You know, of course, I started the business on my own. There was never any paperwork. There was never anything to document that there was any co-ownership of this. So no, there wasn’t. But yeah, I think that you put a lot of blood, sweat, and tears into a company that is in its infancy and you feel like you are a part of it, and I can understand that.

Andrew: Yeah. Was there a period where…well, how do you handle worry? Do you wake up in the middle of the night, unable to go to sleep? Do you smoke more? What do you do?

Dave: Neither. I feel like I’m really lucky to be a pretty stress-free person. I actually play a lot of sports. I think that is more of my outlet than anything else. I mean, every day of the week I either play basketball, ultimate Frisbee, or softball, so that’s a huge outlet for me. And Austin is a great place to do all of those things. And I also…I have since been able to hire a lot of really great people. And I have grown, that is one thing that I have never sacrificed, is trying to, you know…we don’t waste our time on people that don’t work out with this company.

Andrew: What about those periods when you are stressed? Was there a period where you woke up in the middle of the night? Was there a period where you were crying in the shower? There must have been something. That crying in the shower, by the way, came from a past interviewee who said, “I would go into the shower, grab a beer when I got home, drink it in the shower because I just didn’t even want to waste time, and start drinking.” And he said he cried sometimes. Those moments when you have $60,000, $80,000 in personal debt, that’s a big weight, especially when you’re the kind of person who dreams so big that several times, I am looking in my notes here, you said to yourself, “I’m going to be rich.” So you clearly wanted something big for yourself, but instead you were on your face watching the rest of the world succeed while you were in debt. Somehow you had to react to that. You’re not a machine.

Dave: Yeah, I guess…I have been fortunate enough to have a lot of vices. I don’t smoke a lot, I don’t drink a lot, but there were those times where I definitely didn’t think it was going to work out. And I can tell you that the hardest parts are not thinking that the business isn’t going to work out. The hardest parts are firing people. I definitely shed tears when Evan [sp] and I broke up. And I have shed tears almost every single time that I have had to fire somebody. There is not a single firing that I can remember where I didn’t get choked up, and because these are people’s lives.

And that, more than anything, I have realized throughout the years that if I can make the people who work for me successful, then I can get rich and be successful too. And when you have destroy other people’s dreams and excitement, that’s when it gets emotional. The money doesn’t make you emotional, I will be fine. I always knew that. Even if I had to close the doors with $80,000 of debt, I knew that I was going to be okay. At the time, I didn’t have a wife, I don’t have any kids, I didn’t have a lot to lose. And that I think had an instrumental effect on being able to bounce back.

Andrew: So when your head would go into, “Oh my God, I can’t believe I have got $80,000 in debt,” you would snap it back by saying, “Yeah, but I’m young. I can figure this out,” or “Yes, I’m young, but at least I don’t have a family that could end up on the street with me. I can always survive.”

Dave: Absolutely.

Andrew: Okay. Are you a millionaire now?

Dave: I think, I mean it depends on your definition of a millionaire. I mean, do I have a million dollars in the bank? No, I don’t have a million dollars in the bank.

Andrew: But the value of the company is?

Dave: I probably have a million dollars in inventory and the valuation of the company is probably significantly more than that, I don’t know. I mean, we are actually in the process of evaluating the company in order to be able to potentially raise some equity capital. Of course, we haven’t decided on doing that, but that is the process by which you go. You try to figure out what…you try to find [inaudible 00:03:37] and in order to do that you try to do an evaluation of the company, so.

Andrew: And Dave, ordinarily a business like yours with inventory, with customers, with a track record…you didn’t just start yesterday, you’re not a start-up anymore, you’re an ongoing business. Ordinarily you should be able to go into the bank and say, “I need to borrow money. Here is the inventory that you guys have as collateral.” You just can’t do it because of the industry that you’re in and the fact that there is some kind of stigma still?

Dave: Yeah, that’s right. I mean, I have no problem throwing Bank of America under the bus and telling you that they flat-out rejected me. And my new bank, who I love, who is Prosperity, they are very supportive but after we applied for a loan they only agreed to give us a $100,000 line of credit and that is a joke to a company that is doing $6.5 million in business, on track to. So we took it, and the truth is that we’re actually doing fine. It’s a matter of choosing to grow, and the unfortunate part about the banks not wanting to get on board is that we have this spectacular growth rate and if we were to get that financing, I think that we could grow significantly. I think that the conversation might be different if we were somewhere else. There are a lot of very open minded, liberal people in Austin, even liberal bank presidents and decision makers that really want to fund us and do all the things that you would do in a normal situation.

I think that they worry about the backlash. They tell you under their breath, “Hey, you know, I totally support what you’re doing, but, you know, I think that we can only afford to do about 100,000–let’s see how you do with 100,000, and then we’ll explore it.” I do believe that if I show them that I’m using it responsibly that they will extend that. Most banks won’t. That’s the truth of it.

You’re not going to walk into a bank and say, “Hey, I’m selling pipes that are for tobacco use only. But yeah, we also sell them to Colorado and Washington where they’re used for marijuana.” They’re going to go, “Whoa, hold on, you know, I don’t know if we’re really comfortable with that.” It’s a risk assessment on their part. I understand it, but it’s really unfortunate.

Andrew: Let me do a quick plug here, and then I want to ask you about top resources here that you gave April in the pre-interview. The plug, of course guys, is for Mixergy Premium. You guys see how this thing works. Right?

I bring on entrepreneurs to tell the stories behind their businesses. The reason I do that is because we as entrepreneurs don’t often react well to just being told what to do. Do this, do this, do this, do this. If we watch someone else do something that works, like hustle, talk store to store. Hustle and go to conferences, to trade shows and get a bunch of customers. Those ideas get implanted in our heads, and then when it’s time for us to think, “How do I get new customers? What haven’t I tried? I haven’t tried door to door. Let’s try that. That worked for Dave.” That will pop in your head, or “You know, we’re not actually going out and talking at conferences.” This guy, Dave Daley, did that. He went to trades shows, and that’s where he got the bulk of his customers early on and the idea for products that got him to grow even more.

That’s the idea behind interviews, that when listen to other extrepeuers you get ideas, and you don’t even have to work so hard. It’s not like they’re holding you by the lapels, or grabbing you by the neck and saying, “You’ve got to do this.” You’re just hearing their stories. It’s interesting. It’s motivating. You use what you learn without actively sitting down and saying. “Now I’ve got to use every single thing that I learned.” It just naturally will come out of you, and watch, trust me, if not immediately, maybe a few years from now, you’ll be thinking, “How do I get new customers? What didn’t I try? This thing worked for Dave.”

That’s where this comes in. We have hundreds, literally hundreds–I can actually use the word literally properly, hundreds of interviews at mixergy.com for premium members where you can download them, listen to them, and just allow this motivation and inspiration to hit you right away with the knowledge to really fill up your life for the rest of your life. When you are ready to actually take on a topic that you need like, “How do I get customers? How do I organize my pipeline?” I’ve got entrepreneurs who teach that in the courses. We have over a hundred courses. Again, I could use the word, literally properly. Literally, over a hundred courses taught by real entrepreneurs who break down how they did it and show you how you can too.

For the pipeline course, for example, if you are looking to do a pipeline, I’ve got you the guy from Mind Valley to teach you how to create a pipeline, how they did it and allowed themselves to keep growing consistently. It’s Juan Martitegui from Mind Valley. That’s the idea here behind Mixergy Premium.

If you are not yet a member, I urge you to go and sign up, because the sooner you sign up, the sooner you have access to all this. You’re going to start to see results sooner. You know me, Dave knows me, Noah Kagan, knows me, the hundreds of entrepreneur at Mixergy know me. I would kill this whole reputation that I built up over the years if you came back to me and said, “I’m not happy,” and I didn’t give you a refund.

There’s no risk here. You try it out. If you’re not happy, of course I’ll give you a refund, but thousands, again I could use the word properly, literally thousands of entrepreneurs who have signed up have been happy. I urge you to be one of those. Go to mixergy.com right now.

I intentionally did it a little bit slower, because a few people on Twitter have said, “You rush through your own sales.” It is tough to sell your own product, isn’t it?

Dave: I think you did a great job. That was great.

Andrew: Thank you. I’m actually happier with this. I can feel that I did a better job here. Sometimes it’s easier to sell your own stuff, because you believe in it more. Other times it’s harder, because it’s like I’m looking at the camera, not even at the audience. I’m trying not to look at the audience. I’m trying not to look at you. I’m looking at the camera, and I’m saying, essentially, “Love me, love my work, please. Love me enough to take out your credit card. That’s not the way to think about it. The way to think about it is to say, “Wait, what do all these people who signed up, say?” They say that they get a lot of value, a lot of benefit, out of it, and one guy actually called me a God.

I immediately showed the email to my wife last night. So I say, alright, these people are clearly happy with this. What are they happy about? Let’s explain that and look in the camera and say that, so that’s what I did. I’ve got a few resources, here, that you gave April. I don’t want you to have to remember what you said, but she asked you, ‘What are a few books, courses, online products that you recommend?’ Here’s the first one. I’ll give you the name, and you just tell me why you recommend it, the book, ‘Good to Great’, why that?

Dave: I think it really teaches you the fundamentals of leadership. I think I’ve read a lot of books and you try and conjure up all of them, and I guess the best endorsement for it is that it’s the one I think about the most. He really talks about the levels of leadership, and allows you to pick a category and it gives you a defined path to increasing your level of leadership. That can play really well in small businesses, all the way up to large businesses, and it’s allowed me to stair step during the growth of my business. So, that’s my favorite book.

Andrew: Here’s another one. I love this. I don’t think I miss an episode and I savor them, they’re so good. The ‘Marketplace Podcast’ from NPR, what do you like about that?

Dave: Well, I love Kai.

Andrew: Kai Risdol.

Dave: Kai Risdol. It’s just such a comprehensive website. It is hard to keep up with, on a daily basis. It’s 30 minutes, but it’s still digestible. I try to listen to, about 10 minutes of it on my ride to work in the morning, and then I’ll try to catch the second part, either during lunch or right after work. It automatically downloads again, at about 6:30 when it’s sent to my podcast. It’s free, and it just keeps you up to date with the news. I know that most of the entrepreneurs out there are probably so busy that it’s hard to keep up with everyday news stuff.

Andrew: That is the way that you keep up with business news,”Marketplace Podcast”. I should say, by the way, I got it wrong. I meant “Planet Money”. That’s the one that I love. “Planet Money” breaks down complicated topics and explains it very slowly and in an interesting way. I feel like I understand what’s going on in Greece. I feel like I understand why Greece could end up being a domino that leads to destruction in all of Europe. They’re just interesting. Alright, final one is “Freakonomics Podcast”. Why that?

Dave: The “Freakonomics Podcas” is probably one of the most useful, as far as direct business information, because of how focused they are on incentives. I hits close to home, because I graduated from UT with an economics degree, and I find that I’m constantly, every single day, thinking of new ways to properly provide incentive to the people who work here. Not only just the people who work here, my vendors, my customers, everybody throughout the business process all need the proper incentives in order to be motivated to work with you, continue to spend more money, work harder if they’re an employee, and that’s not always done by paying people more money. You need to find ways to give people the opportunity to grow, and do the things that they want to do in life. That’s really hard to do. If were a matter of just throwing more money at them, It would be easy.

Andrew: Could somebody help me out, and just hook this up in the comments, ‘Good to Great’, “Marketplace Podcast”, “Freakonomics Podcast”, and “Planet Money”, too. We share that passion. I love that podcast. The website is, I love how you have a four letter domain name, it’s grav.com. You can see the, what was it called, the Gravitron?

Dave: The Gravitron, among hundreds of other products, yeah.

Andrew: Even if you’re not a smoker, like me, I think you’ll agree that his stuff is just beautiful. It’s really well done. Thank you so much for doing this interview, and thank you all for being a part of it. Bye, guys.

Andrew: Listen up. I hate to have commercials interrupt this interview, so I’m going to tell you about three sponsors quickly now, and then we’re going to go right into the program, starting with Walker Corporate Law. If you need a lawyer who understands the startup world and the tech community, I want you to go to WalkerCorporateLaw.com.

Next I want to tell you about Shopify. When your friend asks you, “How can I sell something online?” I want you to send them to Shopify, and explain to them that Shopify stores are easy to set up, they increase sales, and they’ll make your friends products look great, Shopify.

Finally, I want to tell you about Grasshopper. Do you want a phone number that people can call, and then press one for sales, two for tech support, etc., and have all of the calls be routed to the right person’s cell phone? Well, get your number from Grasshopper.com.

All right, let’s get started.

Hey there, freedom fighters, my name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. How does a founder bootstrap a profitable business by putting his mission before his product? Michael Radparvar is the co-founder of Holstee, which sells shareable art. They sell things like letter-pressed greeting cards that say, “Live your dream,” wallets that are up-cycled, and a T-shirt that has a pocket in an unusual place, as we’ll talk about in a moment.

At the heart of the company is a manifesto that the company says has been viewed over 60 million times. I invited him here to talk about it. Hey, Michael.

Michael: Hello.

Andrew: How profitable is the business?

Michael: We’re at a point where we’re not… we have a little bit more buffer room than we did before. We started off… we’re still very, very resourceful, we have to be very scrappy, but we have space for being creative now. When we first started, we got office space from other people. That’s how we literally got off the ground. We went around and asked people if they’d allow us to work out of their office, when it was just two or three of us. As our team grew, we were lucky, because the revenue is starting to scale with us, and we were sharing space. I’m actually, for the first time, for the first week, standing in a space that is our own home. We’re really excited about it. We just moved to Brooklyn. That’s a really exciting time, profitability-wise, when you are able to swing something like that.

Andrew: You guys are profitable, but not insanely profitable?

Michael: We’re not insanely profitable, yeah.

Andrew: What kind of revenues are you generating selling greeting cards and T-shirts?

Michael: Last year, for the first time, we surpassed a million. We’re on track to exceed that this year. So, we’re really focused on doing investments in the future of Holstee, right now. That of course is going to impact our profitability, but we see a vision of what we want to create in the long tail. It’s much more than even just shareable art or greeting cards. This whole [??]. Behind me there’s our line, which is encouraging mindful living through design. That’s our vision, and that’s what we want to create. We want to approach that from many different facets.

Andrew: I want to get into what the manifesto said. I’ve got it here up on my screen and this T-shirt that started it all, but let’s talk a little bit about what you did before, just to get a sense of how you got here.

Michael: Sure.

Andrew: It was one day that you were excited about going to work. In fact, you were videotaping yourself as you were going in to work this day. Why were you videotaping yourself, and what were you headed to do?

Michael: My brother and I had decided we were going to actually go in and give our two week notice at that point. We had been working on a couple different projects, with our co-founder Fabian, at that time. We realized that we were both in a position and a time in our life where we just wanted change, and it was feasible for us to go in and do that. Fabian was still in school at that time. We had been talking the night before. Literally, on Friday, it was just a crazy idea. By Sunday, we had talked ourselves into, “OK, let’s make a pact. Let’s do it Monday morning.” “You’re going to do it?” “Yes.” “I’m going to do it?” “Yes.” Then throughout the whole weekend, one of us was up on it, one of us was down. By Monday morning, we had locked it down. I think we both has this insane nervous energy you get when you’re about to do something kind of crazy, but really exciting.

I remember, I got to the office, and I had literally had just set down my laptop, and was getting ready, and I got a call from my brother. He’s like, “I did it. I saw my boss, and I ….” I was like, “Oh, my God!” He was like, “I didn’t even put my bag down. I walked right into the office…” I was like, OK, the pressure is on. I better not mess this up, because Dave already did it. It was that first week when we, I remember describing it to each other, when we were talking about it as, almost feeling like we’d unplugged from the matrix a little bit. It was like, “Oh, wow!” It was a different form of reality, like we felt like we had much more control, but also we were much more accountable. All of a sudden we better make this work now, because we don’t have a regular income stream. We had to just really rethink. We went into survival mode that week, after that video.

Andrew: The company that you worked for, you had a good job. You got to watch big companies and how they operate. You also got to watch one of the problems in a big company, which was a cultural issue. What was the cultural issue that you noticed?

Michael: In other companies that we worked with, or in general?

Andrew: Yeah, you were working at a company that wanted to make a change, but the culture didn’t jibe with the change that they wanted to make.

Michael: I think that the companies that we were working with, or the…

Andrew: Well, here’s what I have in my notes. I was curious about this. I think it fits in with the direction that you took your company, when you finally launched it. It was, I was working at a telecommunications company and was on a conference call. We had been working with them for three to four months, and they were wondering why we were not seeing bigger results. The problem was, it wasn’t being supported as a cultural change, the changes that you guys were making. They wanted people to get behind a service culture, when they weren’t even embodying that.

Michael: Yeah.

Andrew: What was that? Help me understand that.

Michael: This was a really interesting scenario, that I think it’s a lesson that I’ll take with me forever, where ever I am or whatever I’m doing. It was this idea that they wanted to create a true service culture, at least outwardly, to their customers, and from call centers, or in retail shops. As we were talking, interviewing people at different levels within the company, we found that they actually didn’t have a very good service culture internally, in terms of how the relationships between managers were working with middle managers or front line employees. What I saw as a pattern in a lot of different companies was, when that didn’t exist, it was really hard to create an outward service culture.

It really has a very strong trickle down effect. A lot of times, when we saw that there was trouble or not a lot of traction, in terms of improving the customer service on the front line level, the actual interaction between the end customer and the service employees, if you trace that up within an organization, you can see how that might have happened.

In companies, and I think Zappos is a great example, and they pride themselves on that a lot, they have an incredible internal culture. That just explodes out into their call centers, into their service culture.

That was something, even as we were starting our own company, I think it’s a lot within our nature to want to create a culture like that. It’s something that is definitely very, very clear in my mind.

Andrew: I see. This was, you were working at a company called, Achieve Global, is that right?

Michael: Yeah.

Andrew: That’s where one of your clients was trying to make this change, but when the culture doesn’t support the change that they want the people to make, it just falls apart. It becomes very thin.

Michael: Right.

Andrew: OK. All right, so you quit your job and you had a business idea. Was it just a T-shirt idea at the time?

Michael: Yes, it was just…

Andrew: What was so special about this T-shirt, that got you and your brother to quit your job, and partner up with your best friend. Fabian?

Michael: I think we all had this feeling that it would be something more than T-shirts eventually, even though we had no idea where that would go, or where that would lead. That was pre-manifesto or anything. We were all very hungry for a lifestyle change. We were hungry to create a life for ourselves that we could do something that was meaningful and fun, and work with people that we wanted, in a culture that we were more excited about. I think that having that unique project, the holster positioned pocket on a T- shirt, was just a vehicle for getting there for us. It could have been anything. It could have been a digital product. It could have been a lot of different things.

I think that as we learned more and got into that space, we learned more about the process of making things, and creating things. And, just even the impact, if we’re a small T-shirt company, we learned a lot about cotton, and how cotton requires a huge percent of the world’s pesticides, but represents a very small percentage of the world’s overall crops. Even if we’re going to be creating a very small run, we don’t want to contribute to that in any way. We want to be very proud of all the ingredients we always use, and the way we make things, and that kind of set the foundation for how Holstee was going to grow.

Andrew: I see. Okay. So I’m going to ask about what the T-shirt looked like, but you’re saying, “Hey, Andrew, we just wanted a lifestyle change, and we wanted to do something meaningful in the world. If a T-shirt was our entry into that new path, then that’s what it was going to be, but it’s not about the T-shirt.”

Michael: Yeah.

Andrew: Okay, but the T-shirt did have something, as I said at the top of the interview, a pocket in an unusual place.

Michael: Yeah.

Andrew: Can you describe where it is?

Michael: It was literally a holster position pocket. Sorry if it comes out blurry, but you can imagine if you put in a pocket right here on a T-shirt. My brother actually created the first designs and my grandmother prototyped them. She has since become our chief prototyper. She lives in California. Even when we weren’t there, she would come up with these crazy designs for putting a hidden pocket. We ended up just keeping it pretty simple, but it was just this idea of having a pocket that was functional, because at the time also companies like Threadless [??] were blowing up, and huge fans of what they’ve done, but we thought they may be something interesting about creating shirts that aren’t just another silkscreen T-shirt, and maybe there’s something we can do around the form or the function of it.

Andrew: I see.

Michael: That’s what got us…

Andrew: So it was kind of a functional T-shirt. The pocket was right by the waist where your arm would fall down…

Michael: Yeah.

Andrew: … so that if you wanted to grab something out if it you could easily.

Michael: Right, as opposed to a chest pocket, where you bend over and things fall out right away, this you can actually put something in and not worry about it jumping out.

Andrew: Is that where the company name came from? Holstee has to do with T- shirt and…

Michael: Hoster, T-shirt.

Andrew: Holster. Got it.

Jeremy, in the pre-interview asked you, what’s the first step that you took. It basically was you guys sitting together, the three of you, on steps of Union Square. You were coming up with what you stood for. Why do it that point? Why not say, “Hey, you know what? Let’s just figure out how to make a T-shirt, how to get customers. Once we have a little bit of revenue, and some breathing space, and maybe our [??] profitable, then we have the luxury of doing a manifesto.

Michael: Yeah.

Andrew: Why do it so early?

Michael: Well, when we first wrote it, we started doing it more as a personal journey than as a manifesto for our company. It ended up going on the about page of our website, because I think we didn’t want to forget it. We wanted to be very connected to it. We sat down and wrote it because we had all done this crazy stuff. Fabian [SP] had been giving up really great opportunities to come and join Holstee. Dave and I had quit very stable, secure, well paying jobs that, at the time, at some point of our time at those jobs, that was some type of a dream job, in terms of what we were getting. We all realized that this wasn’t for us at some point.

We wanted to start. We were like, “Why are we doing this right now? It’s 2009. The recession is in full swing. The company that I was at just laid off over 100 people. Yet, we feel it’s important enough for us to go in and totally disconnect and shake shit up, in a time when things are very unstable already.” We wanted to write down, what is important for us. Our prompt was basically, let’s define what it means to have a successful life in non-financial terms.

Andrew: Ah, so this was internal for you, and then to keep yourselves accountable you put it up on the about page. Then this thing, I’ll ask you in a moment how it took off, but first let me make an adjustment here. I want to read part of this. I’m not going to do it justice. Someone in the comments, please link to the actual image, because it’s beautiful in addition to being inspiring. I’ll just read a few sentences.

It says, “This is your life. Do what you love and do it often. If you don’t like something, change it. If you don’t like your job, quit. If you don’t have enough time, stop watching TV. If you’re looking for the love of your life, stop. They will be waiting for you when you start doing things you love.” That’s essentially it. Boy, it’s actually giving me goose bumps right now as I read this, and I read it in preparation for this interview.

The idea was not even to make it look this beautiful. It wasn’t to make it an object that was a sharable object, as you say.

Michael: We had it on our site, just in a text form, for the first three or four months. We were literally just getting into this whole space. The idea of putting typography to text was something that never occurred to me. My brother, who is much more design inclined, he’s not the lead creative officer, I’d say, for Holstee, everything from product design to web design. He suggest that we start looking to working with a typography designer and seeing what their approach would be with these words. So, we put out some feelers, literally had no cash. We’re just like, “If anyone wants to do this, we’d be really… you know. We got connected with a great typography designer, named Rachel Brush. They had a couple iterations back and forth. Dave was like, “You know, I was thinking something more like this.” Then after a while, they came out with what just felt right. It felt good. It seems like it has presence and power. It brought significance to the words that were also very important for us. Then we put it on the about page of our website from there.

Sorry, I think I didn’t answer part of that question though.

Andrew: No, you did.

Michael: Okay.

Andrew: I was wondering about the evolution of this.

Michael: Oh, right.

Andrew: I see, it started off as just basic text, that made you guys feel empowered and gave you guys a sense of direction. Then someone decided to make it into this beautiful work of art, and then it was shared.

How did you come up with this? It’s not easy to figure out what you stand for. Some people go out to India for years, or travel to mountain tops, and sit, and quietly try to ponder it, and then don’t come up with anything. How did you figure out what the three of you stood for and what your company would embody?

Michael: We spent, actually, even to this day, we spend a lot of time talking about exactly that. Even though having written down that manifesto early on, of what is important for us, that really cemented the type of company we wanted to have, the type of culture we wanted to have, and even the way we wanted to make our business decisions. But, it’s still a little bit of an evolving process, I’d say. So, we continue to have discussions around why does Holsee exist, what’s the purpose of our company.

I think that early on we wanted to write something down, just because for us…

Andrew: How do you do it? Do you guys just all start brainstorming and saying, “Look, we’ll write down whatever comes to our mind. What do you stand for? What do you like? I like ice cream. OK. There are no bad answers. Let’s write down ice cream on a piece of paper. What else do you stand for? Well, quitting your job if you’re not happy with it. That’s what we did and we recorded ourselves going into work to do that. Great. Put that down.” What else? Is that it?

Michael: I think that a lot of people a lot of times ask, how did it spread the way that it did? I think that the most important thing is, don’t write it for anyone else, write it for yourself. Don’t write it with the intention of it going well, because that’s the absolute recipe for it not happening, I think. Be authentic and really, just challenge yourself. Give yourself time and space to think deep, and do it with people that you really feel comfortable with… almost like, taking that journey on, if you will, for lack of a better term.

David and Fabian are two of my best friends. I think that we’re all very, very close. For us, having that discussion together was just very natural. We all kind of pushed each other and challenged each other, like, why is that important, or what do you feel about x, y, and z? We would just bounce ideas back and forth. It really just started as a mash up of different values. What are the things that are important for us. It organically flowed.

I think Fabian was pushing with a lot of the question asking. That’s one strength that he brings very strongly to our team. David was able to take a lot of the different words, a lot of the different lines we had, and I think he got a good rhythm going with the manifesto.

The whole process, overall, was very organic. Nothing felt forced about it, because we didn’t actually even know what we were writing when we were writing it. It was just, let’s just write down the things that are important for us, and it just came together.

Andrew: There’s a sentence right here in the middle. It says, “When you eat, appreciate every last bite.”

Michael: Yeah.

Andrew: That’s a little too simple. let’s keep that out.

Michael: Food is a huge part of our culture.

Andrew: It is.

Michael: One of the most important things in our new office was having a place where we can cook. It’s not even a big space. The kitchen probably takes up a fifth of our office space right now.

Andrew: Isn’t it cool when it’s your company, and you can say, “Cooking food at the office is important to me.” I get to do that. Anyone else, any other job would say, “That’s something you should do at home,” but this is my company. I get to do that.

Michael: We even have, every Thursday, we have one person who cooks for the entire team every week, and we rotate that. We just find that bringing together people around food is so, and I think this is something that’s becoming very common, especially in companies of our size. Even larger companies are starting to seem like food-centric. Google has a thing, never be more than 150 feet away from food, or never more than 150 inches from food, I don’t know. We have, definitely, a very strong food culture. We keep food stocked. We’re making food all the time.

I think that also started from when we first started our company. Me, Dave, and Fab [SP], we just didn’t have money to go out for lunch. So, we got a rice cooker. We found the extent of a rice cooker is infinite, based on your own creativity. We made everything from obvious rice, to pasta, to [??], to omelets. It’s kind of continuing.

Andrew: All right, you got your mission, you got your buddies, you got your first product that grandma helped put together. Now it’s time to get some customers, and as I understand it you’re walking from store to store trying to sell your T-shirts to stores. Is that right?

Michael: Yeah.

Andrew: Why that direction instead of the internet?

Michael: We were basically trying everything. Trying to see what sticks. We saw a wholesale as not necessarily the ultimate route we wanted to be in the long tail but as a brand enhancing tool so the right stores with the right presence could get us in front of people who might not have just been stumbling on us online. So we also thought that as an online company it’s really important to have an experience of getting that person to person feedback and that would be the best way to get it. We actually learned a lot in that process.

Andrew: What did you learn from going to stores in L.A.?

Michael: Well, I remember we learned a lot about our pricing was first of all way off. We weren’t that familiar with the level of margin people were expecting. Everything from selection size. That a lot of stores would rather have a large line to choose from rather than a couple of one-offs. What else? Even the types of fabrics we were using, the colors. It was just great instant feedback from people who do this for a living. They’re just looking at all different types of stuff and buying for a living so for us we’re able to take those learnings very quickly and apply it to the next round of wholesale tees that we have.

Andrew: I see. What did you learn about the price?

Michael: We learned that we were making probably what was the most expensive T-shirt ever made. We could never get to the price they need for wholesale.

Andrew: What price did they need and what price were you offering it as?

Michael: They want at least a 50% margin so if you’re selling a shirt for 30 they want to be able to buy it for 15 which means you better be making a healthy amount before even then. We needed to cut our costs by 30 or 40% to even get there. It really comes down to the fact that we were using materials [??] even 3 years ago the scope of materials that are available now was very different then. We couldn’t even find T-shirts that were made from organic con that were a good fit. Now you can walk into any American Apparel, pick up an organic cotton tee. At that time they oxide [SP] T- shirts so we had to make our own patterns so they were a good fit.

Andrew: How do you even know how to find the material and then how to find someone to do it for you, to sew it up?

Michael: This was all trial by fire. We went from person to person saying, “Before you get to me, you have to talk to this person about the fabric. Before you get the fabric you have to, before you get to me you have to get a pattern made” so we were like “wow”. We thought we were about 3 months away from getting our T-shirts made, we were actually about 9 months away.

Andrew: It took you nine months to a year to have a T-shirt made?

Michael: When we started doing everything from scratch, it took us that long. That was our first time making it so we had a lot to learn. We just kept realizing, “Okay, this is going to take us a little bit longer than expected. I think if we did it now, we could do it again in half the time and a quarter of the costs probably, but that was just learning that anytime you do something for the first time, it’s going to take twice as long, cost twice as much. That’s pretty much what we found at this point.

Andrew: Planet Money, the NPR show, tried to make T-shirts from scratch and showed their audience the process. Did you hear it?

Michael: Yeah I backed that on Kickstarter, it’s awesome.

Andrew: They ended up going to Kickstarter but they bought their shirts from Jockey because they just couldn’t go through the process. It was too tough to source their own cotton and then to have it made. The same thing that happened to you happened to them except they were going to go all the way back to cotton and make it from there. They just gave up, it was too much. They decided to just get a T-shirt from Jockey and tell the story of how T-shirts are made instead of showing you how to do it. I think it’s Jockey.

Michael: Yeah it is huh?

Andrew: It is a really tough process. Long time. You quit your job so how are you supporting yourself?

Michael: We got really creative. We cut out pretty much every single cost we could. I don’t think I bought a new piece of clothing for an entire year and a half. It was just wearing wholesale stuff. As we were getting prototypes just wearing those and whatever I had from before. We did everything from stop going out to restaurants almost immediately, and we started realizing you could stretch your money out very far if you’re cooking smart. You can actually eat very healthy also. Things like Air B&B had just come onto the scene. I think were one of the first people in New York to use Air B&B and so we got a lot of really great reviews early on and that helped us to just get a lot of traction. As a result, we met the founders, Brian and Joe. They stayed at our place a couple of times. That was kind of cool. That was just perfect timing, because otherwise our biggest expense in New York, of course, is rent. We were able to pretty much eliminate that for the first year.

Andrew: They told me that, in the early days, to figure out their product, they would go and stay in people’s homes in New York, because New York was so popular for them, and ask questions and figure out their product.

Michael: Yeah.

Andrew: You were one of the homes they stayed in.

Michael: Yeah. Yeah, totally.

Andrew: It was the three of you living in the same apartment, and also renting it out on [??].

Michael: For a while, yeah, there was a time period where all three of us, it was a two bedroom apartment, so we were all crashing in one bedroom for a while.

Andrew: That’s crazy.

Michael: Yeah.

Andrew: There’s an HBO show called, How to Make It in America, where these guys are essentially trying to get into the clothing business, like you. You watch them for episode after episode, and I just gave up on it after a few episodes. I said, “These guys are crazy.” How did you know you weren’t crazy? How did you know that this made sense and that this was a real business, when in nine months you’re not selling?

Michael: We had other products coming on, so it’s not like we had nothing to sell for nine months. We had a round of prototypes that we did, but we were pretty much making no money for the first six to eight months, I would say.

Andrew: So, how do you know you’re…

Michael: …on to something?

Andrew: …not on the wrong track? Not another guy with it, because there are tons of people with T-shirt company ideas that never went anywhere and should have given up sooner. How did you know you weren’t one of them?

Michael: I don’t know. We just had this unbreakable momentum for some reason. I think we were just so excited to be doing this. It was summertime when we started. We just had such incredible energy. We were working on Holstee as a side project before, and when we started doing it full time I think people really changed how, in their minds, how they would support us. Because, wow, these guys are for real now, they’re not just some other side project who want to do this. A great advertising agency on Fifth Avenue, called Arnold NYC, put us up there for about a year and a half, and we just got a great space to work out of, and we started bartering with people. So, even though we didn’t have money, we’d say, “Oh, we have some experience doing some creative work or web design, maybe we can help. The pattern maker, we basically helped put up her website, in exchange for her making a pattern for us.

I feel like we just… we definitely had these points where I felt like shit was just hitting the fan and we weren’t going to be able to get out of it, but there’s a story that Dave tells. Imagine that we were undersea and we’re swimming, and swimming, and swimming, and you’re running out of breath, running out of breath. Then you finally get to a red balloon, and you get a little bit of air. Then you take that and you swim, and swim, and swim. You’d always get to the next red balloon at the last second, but you have to swim like crazy to get there. The last seconds are the most important to swim the hardest. We definitely had those moments we didn’t think we’d find the next red balloon, but we had a mix of working crazy hard, being very resourceful, and a good amount of luck throughout the process. And, we also realized that once we quit our jobs and started Holstee, we could never go back. Once you’re unplugged, it was really hard to ever think about going back.

Andrew: You wanted a lifestyle. One of the things that I know about you is that you don’t have an alarm. You don’t need one to wake up. You wake up. What’s the deal with the alarm? I won’t tell your [??].

Michael: This started about the time that I started Holstee. Unless I have to make sure that I’m up to catch a plane or something, or I know I have an early call, I don’t really use an alarm. I found that if I really concentrate, this is going to sound so hokey and ridiculous, but I find that if I concentrate on a specific time, like I need to wake up at 8:00 a.m., and I know what time I’m going to bed, how many hours I have, I very consistently just woken up, pretty much within like three to five minutes of that time. I find that now there are all these things, quantifying your body, sleeping patterns, and food, and I forgot there’s actually some sort of phrase for…

Andrew: A quantifiable self. [??]

Michael: Yes, a quantifiable self. That’s very big right now. I think what that’s showing is there’s obviously times when you want to wake up, there’s times when you want to continue sleeping, your body can regulate that very well. Once I got into this pattern, I just found that waking up with an alarm is really disruptive, and I don’t feel that great that day.

Andrew: See?

Michael: Yeah.

Andrew: What I was getting at there is you are living, as tough as it is, you’re at least getting to invent your life, and try things like this. You also, in addition to selling through stores, you said, “We were trying everything,” one of the things you were trying was selling online. Do you remember your first customer from when you sold online?

Michael: Our first customer was one of our really good friends from where we grew up in Providence, but I have to actually go back and find… I remember there was a time when our first customer that we didn’t know, and me, and Dave, and Fabian were all sitting at a table, and an order came through. We were like, “Whoa! This name is unfamiliar. Do you know this person?” “No.” “Do you know this person?” “No.” We’re like, “Oh, my God, someone’s buying our stuff. Not just because they want us to eat tonight, but because they actually think it’s cool.” That is a really magical moment for any company I think.

Andrew: I bet. [??]

Michael: When it’s no longer just family and friends that are buying your stuff, but other people, that is pretty remarkable.

Andrew: Who built your online store?

Michael: We use Shopify as our back end. Dave and our lead developer, Tom, they do all of the kind of build that we’re … next, the end of this week, early next week we’re going to be releasing a whole new refreshed look that’s going to better reflect the direction that Holsee’s going now, in terms of encouraging mindful lifestyle.

Andrew: The whole thing is built on Shopify?

Michael: The whole thing is built on Shopify.

Andrew: Why didn’t you build it yourselves from scratch? Why connect with someone else?

Michael: We started off actually… We did the reverse of what a lot of companies do. We jumped right to Magenta thinking we don’t want to pay anyone monthly, we want to own this, da, da, da, da. We realized pretty quickly… Well, first of all the developer we were using built half the shop and then we never heard from him again. We had paid him in full, which is also one of the things you learn along the way.

Then we got stuck trying to figure it out. We brought on some other developers who helped us do it, but even once it was finished, we realized how dependent we were, because it’s very developer focused.

When we first started with Shopify, we didn’t have a developer. We just brought one on, because we wanted to do things that were much further advanced. With Magenta, to do the simplest things, to do little tweaks, you actually had to have a developer. At that time, David wasn’t coding that much. We realized that, OK, it was just really frustrating even to add a new product photo.

Andrew: I see.

Michael: So, we decided at one point, okay, this isn’t worth the headache. Let’s look at other options. We tested Shopify, and we were like, “Wow. We can actually start to focus on our company, and not credit card processing, and the site being up or down, or other things.” We built a great relationship with them, and they’ve been so supportive and helpful.

Andrew: One of the challenges that you have is balancing your mission to create great products, but also sustainable products. There was one issue that you had with a backpack.

By the way, I should tell the audience, you’re still doing construction on this brand-spanking-new office. You asked the construction people to please pause, so that we could record this interview. I appreciate that. Are they coming back in? I know that we’re now at the top of the hour.

Michael: Yeah, they’ll probably be back, I’d say in 30 or 40 minutes.

Andrew: Plenty of time. So, the backpack is a good example of the difficulty of making products that use sustainable material. What happened there?

Michael: It’s been David’s dream, I think, to design a backpack. We had a lot of different prototypes going. It’s one of those products that we were really determined to only use our favorite types of materials, things that we really wanted to see, making our dream backpack. We didn’t really want to make so many compromises along the way. For sure, we didn’t want to use any plastic. We were making out of a really nice hemp canvas, which is also not that easy to source in the U. S. That’s a whole other topic.

As we started getting prototypes together, again we realized that if we wanted to make this backpack the right way, it’s essentially going to be very cost prohibitive. We aren’t sure if we’re at a point where we can actually scale to make this backpack at a price that we think makes sense.

So, we had basically been going around and towards that. I think David still wears the prototype backpack to this day. We’ll come back to it, maybe some time in the future.

Andrew: The backpack would have cost $300 to $400.

Michael: Yeah.

Andrew: That’s partially because, let me see what I have in my notes, you wanted the backpack, no plastic, all hemp canvas, biodegradable, all natural beeswax to create waterproofing. In the U.S. though, it’s illegal to sell hemp and to bring it into the country is going to be very expensive. So, that’s the big challenge.

Michael: It’s illegal to grow hemp. Selling it, because they import it all, it gets very expensive, and I think that right now, the tides are starting to turn a little bit. A lot of people are saying that there is a lot of value in growing hemp. And hemp, just to be clear, is very different from medicinal marijuana that someone might smoke. If you tried to smoke just the cannabis hemp that they use for creating apparel you would get sick. So that was just a material that we were really interested in. And from what we learned about crops and which ones are most sustainable and have least impact, hemp consistently ranked at the top of the charts; so we were so determined for a very long time to use it. I think we ended up using, well, I know we ended doing a blend of hemp and organic cotton in the last round of Holstee tees that we made. But it’s something I think we’ll be hearing more about in the future.

We understand now the fundamentals of the business. They’re in place. You guys have a product that you can actually sell at a price that’s reasonable. You got your first customer who you didn’t know, and now it’s time to really build this thing out. How do you go from that one customer you didn’t know to a business that’s now doing seven figures in revenue? Where do the rest of the customers come from?

We got very fortunate, I think. The manifesto is what put us on the map in a very big way. It was funny because…

How did it spread?

I don’t know exactly. I know that it’s definitely kicked off via Tumblr. I remember because I remember we were sitting around, and we got an e-mail or a message from a friend saying “Hey your company manifesto…” I didn’t even think people were calling it a manifesto that much at that time. “…is blowing up on Tumblr, and you should check it out.” And so we went. We were really surprised because no one really even knew about our company at that time. Turns out, they still didn’t because we didn’t write the word Holstee anywhere on the manifesto.

From what I can see, it’s still not on there. It’s just a really nice manifesto. It looks beautiful; it’s copied in so many different ways. It doesn’t have Holstee on it anywhere.

Well, it depends on which one you look at.

OK, so you started to add it on there.

We started to add it on, yeah. So what happened was eventually maybe that had a positive impact because people kind of got curious. Like, “OK. Well, where did this come from?”, and they started to hunt it down. In Google, because we had a lot of text on our website, if you type any of those sentences it would link back to Holstee. About three or four hundred comments down, people would be like, “Oh, it’s this T-shirt company in Brooklyn, Holstee. Check it out.” So if anyone actually got that far they’d find out. It was just insane. Within a six to eight month period, it went from pretty much just people coming to our site and commenting that it was cool to just exploding. It went first from Tumblr, and when it went to Twitter, that’s when I feel like it started reaching to different countries. We’d see people tweeting in all these different languages, and it would just have the word Holstee.

Andrew: My wife who is a do gooder, said, “Oh no, this is Holstee. Oh great, great T-shirt company that is made out of hemp.” Oh, what do I care? But then I heard you talk about the manifesto and heard other people who recognize the manifesto felt like you stood for something that they wanted to see expressed in their companies, companies that they work for. That they want to help spread the word about his idea that you don’t just go to work to make money, but you go to work to make a life that you care about for yourself and other people.

It seems like you started to promote this and to talk about it in a way that other T-shirt manufacturers wouldn’t have. Does that seem right, or am I just making too much out of this?

Michael: I think that we always saw the manifesto. . . We were actually very hesitant to even print it or to sell it. Actually, we had to almost be sold on that idea by our intern who was just watching our analytics and saying, “Hey, there’s a lot of attention and requests around the manifesto. We should just look into. . .” We had been literally getting tens or hundreds of requests to print it up and to build it and sell it as a poster. I think it took us like three or four months of, “No, we’re a T- shirt company. I’m not sure if we want to.” When we finally decided to do that, it was definitely a good call. It quickly became like one of the most requested items on our site.

Andrew: When you decided to do what, sell it?

Michael: To sell it as a letter-press poster. I think it also took us a while because we just didn’t want to do another like a silk screen. We wanted to print it in a very special way. And so we had just been learning about different methods, and that’s when we first started getting to letter- press printing. Letter-press printing, for people that don’t know, is literally when you take a sheet of paper that is made out of cotton rag, paper that has bites if you push into it. Certain parts of it would get indented from the plate that’s made. And so you create like a massive plate, metal plate, and it just goes down on each paper, so it’s creating a literal imprint on the paper for each one. That creates a very beautiful effect on the paper.

Andrew: Holy crap! I am now researching this to try to make a point because I wanted to bolster my statement here about how the message spread, and you guys didn’t just allow this then to be a viral thing that spread and got you some boost in traffic. But you allowed it to be what you stand for and to be what other people stood for. I found this Washington Post articles that says how the Holstee manifesto became the new “just do it”. As I’m reading it looking for that point to show you, I see a quote from my wife, Olivia, that says, “People do look for meaning in a different way in the things that they buy now.” It says, “Said social business strategist, Olivia Khalili of CauseCapitalism.com.

Michael: Wow.

Andrew: They want to feel like, “My product can do more than just be a product.” And that is what I think you did. You didn’t just let it go out there as a message. Even she’s now talking about it here.

Michael: Wow. I didn’t make that connection. Yeah. I think that is . . .

Andrew: So how did you do that because I don’t want to leave people with the impression that it was all luck. Frankly, it was a lot of luck that people on Tumblr picked it up and started spreading it, that others started to use it on Twitter. But what I notice is you made it bigger than luck. You took this luck and you built on it, but I want to understand how you did it. How did you get people like Olivia to understand that this is a company that spoke for them and not just some random thing that was out on the Internet.

Michael: I don’t know. Maybe, I think that it had a lot to do with just maybe the way we were building our company, the types of things that we were putting out into the world. In terms of creating awareness, in terms of my role as chief storyteller, since day one I have had two things That was really important for me. The first thing is create awareness, and the second one is to create goodwill or to generate goodwill, basically.

Andrew: So how do you do that?

Michael: I think that comes from different types of initiatives or the things that you do as the company or the messages that you put out into the world or the actions that you take that are not just necessarily related to selling your products but everything around that.

Andrew: Give me an example of how you do it. I want the person who’s listening to us who says, “You know what, I stand for something in my business, too. I quit for a reason, and it wasn’t just because I didn’t like my cubicle. It’s because I wanted a life that I was passionate about and this message that I want to spread around the world.” Great. They write it down. Now how do they get people to hear about it, to feel it, to understand it? What did you do as a chief storyteller that got people to feel this way?

Michael: We did a lot of different kind of wild things. We did everything from printing out bookmarks and putting them into all the best sellers at Barnes and Nobles…

Andrew: OK.

Michael: … just with message like, read more, learn more, change the globe. That was the way we tried to do some Guerrilla Marketing too. On Black Friday, two years ago we actually decided to shut down our website on Black Friday, rather than, it’s so common for every retailer to try and compete on having the lowest price, and sell, sell, sell. We realized that’s kind of the antithesis of why we created Holstee, and if we’re going to take a big revenue hit, that was the way we wanted to respond.

Andrew: OK.

Michael: I think there’s a lot of different ways to approach something like that, but we took a very non-conformist approach with very atypical decisions to typical situations…

Andrew: I’m seeing some of it. I don’t know that the Barnes and Noble thing would have gotten you, tell me if I’m wrong, a big response, but I do see your Black Friday response in Good magazine. This is something that they’re especially proud is going on. From others, BuyPositively.org seems to have talked about it and other sites. What else did you do that spread the message of what you stand for?

Michael: We did a line of, and we didn’t make any money off this, this was just a fun project, adding another project or not making money at a time when we weren’t actually already making money. We did a line of up-cycled T- shirts, where we went to the Salvation Army, picked up a lot of different T- shirts of all different sizes, that actually already had prints on them. We thought it was really fascinating to explore the idea of those shirts that Salvation Army have a way better story, and have lived much richer lives than some stale shirt that they pick up at The Gap, and for that reason they’re worth more.

So, we made three different prints, three different silk screen prints, and printed them right over the design, or next to, or around the design already on those shirts. So, on those shirts, we had everything from a print that says, “Everything has a story,” to something that says, “Fuck fast fashion,” and all the Fs were blocks. I don’t know, I think doing things that are out of the box…

Andrew: Where did you sell these T-shirts, or how did you give them out, or promote them?

Michael: We sold them on our site. We got some early stage, really good press about it. I think that if we had continued to do our specific… things like that, there are actually a lot of different things that fit into that scope of just doing small projects, or side projects, or initiatives that are more about generating good will, and less about trying to drive a specific sell.

Andrew: That’s what I’m getting at. That’s what I don’t see enough about you guys online, that it’s not just that this manifesto exists, and it’s spread, and now people are buying T-shirts. It’s that you express it in all these different ways. Now, I’ve got to find out, how do you do it? Before I even get to, how do you do it, you’re a guy who’s coming up with creative ways to use a rice cooker, who is bringing people into a two bedroom apartment, which three of you already are in, to make money. Don’t you at that point say, “I don’t have enough money to live right now. Let me just get enough to buy my own space, or to feel like I don’t have to eat out of a rice cooker, and then I could do these projects that are fun.” Wait for the responsible moment. Why didn’t you do that?

Michael: I think that none of us felt like there was anything we were missing at that point. This was exactly, we were literally, and I think one of our family friends, Sally, always said the funniest or the best that, we’re the happiest people, there’s no one happier to eat rice and beans every day. That was literally us. I think we were at a point where we were just like, yeah, it would be awesome to have a little more play room, to have a little more money, but at this stage of my life where I am right now, and I think that we all feel the same way, is we’re pretty lucky, all things considered. We have a life that we really enjoy living. We work at jobs, at companies, that we really believe in. We get to do stuff that’s very creative, hands on, in a collaborative way. I think that, from where we’ve come from, we’ve seen other directions other friends go, we see a lot of people trying to move into this direction, even if it means you’re scaling back on certain things. Those things that we scaled back on, that felt like sacrifices at the time, have just been very positive lifestyle changes.

For example, we stopped taking taxis. Oh, that’s a sacrifice. We got a bike and then we started biking everywhere. That turned out to be an amazing lifestyle change.

Andrew: I see. So, you’re not saying, “Damn it, I can’t believe I have to eat out of a rice cooker.” You’re going, “I can’t believe I get to build this life for myself.”

Michael: Yeah, I can’t believe I get to actually have a delicious home cooked meal on a very regular basis, and that I know how to cook. I think it’s in large part to Holstee that I started to actually learn how to cook, because once we stopped going out to eat, I’d be like, maybe I’ll start cooking. What was that meal that my parents, I come from a Persian family, we do a lot of Arabic food culture also, what was that great dish that my grandmother and my mother always makes? Hop on the phone, get the ingredients, kind of going back to basics. Now I can make three or four really great Persian dishes, but I don’t know if I would have got to that point as quickly, because I would have just been going out to check out awesome new restaurants all the time. I’m really grateful for that, for knowing how to cook. That resulted in us starting to entertain people at our office or at our home much more. Those are things, parts of our lifestyle, that we value very high now. We may not have gotten there without Holstee.

Andrew: I see. All right. So, can you tell me a little bit about your creative process, the ability to communicate what you stand for through art projects, like going to the Salvation Army, buying up T-shirts, knowing what to put on those T-shirts, then making them available for sale on your site. That makes a statement. That’s impressive. Where do ideas like that come from?

Michael: They just come from us. I don’t know. They come up really organically as we’re talking. That was a project that made sense at the time. Now, since then, we’ve started doing things like we created a fellowship that every month we give away $1,000 to help someone jumpstart their dream. The whole concept behind this is, Holstee’s built on this foundation of encouraging people to grab life by the horns, take life into their own hands, and do what drives them, what makes them excited.

We have this quote that we say a lot. Don’t think about what the world needs, think about what makes you come alive, and go out and do that. That’s what the world needs, people who are alive. We really strongly believe that. Holstee has been built around that whole concept. We think that a lot of different things we’ve done in the past we’ve always tried to link back to that. Now that we’re at a point to be able to do this fellowship, we realize how important that is. Sometimes there’s a project, or a small side project someone wants to start, and they need a small nudge. It’s not that a thousand dollars is going to help them execute on it, but it might be enough to get the ball rolling in a meaningful way.

Things like that, and we had our first fellowship run, that every month we do, the first one went last month. We thought we might get like 20 or 30 people applying for it. We ended up getting over 100 people applying for it, and 4-5,000 people voting. Later on, because we tried to make it as democratic as possible voting on the winner, we realized this is something that people really are excited about. That turned into its own, we didn’t actually go out and have to create too much of a campaign around it, because people got excited about it. They drove other people to go and apply for it. Then other people came to vote for it. I think that doing things like that, rather than the very typical, and we still do some ads, some Facebook ads, Google ads, we’re very new to that, we’re still learning about it, but that’s generally not what excites me. I don’t think that’s what creates long tail business. I think that creates a sale at that moment, right then and there, but you’re not going to get a loyal customer because you have a creative Facebook ad.

Andrew: Yeah, I get that. You’re not going to get someone holding up your stuff, and taking pictures of it, and putting it on their Facebook page, unless you have this meaning behind it. I’ve seen people do that with your manifesto.

You also then moved on. We started off with T-shirts in an understanding that this was not going to be a T-shirt business. It was going to be a mission business. I’m looking at your site, at shop.holstee.com right now. I see a lot of letterpress cards. How did you know that, that was the right product to build? Where do you get your product ideas?

Michael: This has been a very big discovery year for us, in terms of where we want to go. We recently realized that it makes sense for us to transition a little bit away from, to do less apparel, and moving more towards home goods. That transition is starting with art, wall art, home art, shareable art.

Having printed many posters at this point, we’ve become very close to the letterpress process. Our letter pressers in L.A. and Boston are two of our best friends at this point. We know them. We’ve hung out with them…

Andrew: Who do you use in L.A.?

Michael: …we’ve had dinner with their friends. Aardvark Letterpress.

Andrew: That’s who I use.

Michael: Oh, really? They’re the best.

Andrew: Yeah, they really are. I was in D.C. I could have found letterpress anywhere in D.C. or on the east coast. I still went to Aardvark, because they’re so good. I watched them make it, when I lived in L.A. These guys really are good.

Michael: They are. They really take…

Andrew: They’re craftsmen.

Michael: They’re true craftsmen of their trade. You know, when we started making this poster, it’s an 18 by 24 print, which is a very uncommon letterpress size. So they actually, when we were like we definitely want it to be this size, for some reason we wanted them that big, it’s kind of ridiculous size to do letterpress, but we were hell bent on getting that size. So, they were like, we think… they know everyone in letterpress… we know a couple people who would have a press that would that size. They started just renting that machine on a regular basis. That was at a time when we were starting to scale. We started sending them larger and larger P.O.s.

Apparently, we didn’t find this out until later, but they actually just went out and bought a machine just for that project. Later on they said, they told us they were so grateful that happened at that time, because letterpresses also started to make a rebound in a very big way recently, and they said that when they bought that machine three years ago, and then they were looking at other ones to get, it cost three or four more times to get it now. So, they were like, when you guys started needing them, that was perfect timing, because we beat the rush, and now they’re much more expensive. That’s pretty cool.

Andrew: I talked to the founder of Minted, Miriam Naficy, I think. She has a company that creates greeting cards, using the model where people design it, their friends and others vote on it, she only makes the card that’s got the highest votes. I think that’s her process. One of the reasons why she uses that process is that it’s hard to predict what greeting cards people are going to go for.

Michael: Yeah.

Andrew: You have a problem where you’ve got a big audience now. They’re waiting to see what you’re going to sell them. If you create too much and the concept fails, you’re stuck. How do you know what’s going to work?

Michael: We talk about that a lot. I think that being an online shop, there’s probably much more creative ways that we can start to test products, and we’re starting to do that more and more. I think that Minted has a really brilliant approach. I think we’ll see a lot more people doing something similar to that.

We’ve talked a lot about even, at Holsee, doing more pre-order stuff, Kickstarter-esque type things, and if it gets to a certain point, then we’ll run this print.

Andrew: What’s worked for you as a way of testing out your ideas?

Michael: We’ve done everything from… We have an inner circle at Holsee, and that’s basically some of our closest customers, community members, it’s a private group on Facebook, and [??] just a lot of prototypes, a lot of discussion of early designs. We tend to drop things in there and have really great discussions about it.

For example, this is one of the products that we have coming out soon. It’s a frame made out of reclaimed wood. They’re all made in Detroit. So, it has a really great story behind it too, because Detroit, as everyone knows, is going through a mega-recession. There are rows and rows of houses there that are basically getting demolished, because no one is living in them. They have to almost start from scratch. So, 3,000 homes a year are coming down. There’s one company, called Reclaim Detroit, that’s going in and saying, “Hey, instead of taking a wrecking ball and smashing this house, and hauling it to a landfill, let’s go in and purposely deconstruct it, and we can probably reuse a lot of that material.

They charge the city the exact same amount, even though it takes them a week or two longer to do it. They go and deconstruct it. As a result, they’re able to… the only reason they can do it is because they walk away with $10,000 to $15,000 worth of raw materials they can sell.

Basically, we’re using that wood from that house. It’s like this gorgeous Douglas fir wood that you can really not get that easily these days, and we’re building it back into these frames. We’re going to be launching a Kickstarter on it soon. The whole idea behind the frame is, a lot of letterpress art and prints that people are making are really beautiful now, and it’s kind of the antithesis of the Hallmark card, right? Where Hallmark was the soulless greeting card that’s manufactured for Valentine’s day, I think there’s something really special about sending someone actual shareable art that means something to you, that happens to have a place where you can write a note to someone. When they get it, how cool would it be to have a place where you can actually house it and treat it like art, either hang it up or put it on your desk? So, the design challenge we had was, create a frame that has significance in the way that it’s made and the material that it’s made from. It’s very easy to put cards in and out of, that can help to represent those cards in a form that actually feels like art.

Things like that is [??] This is going to be our first Kickstarter project, so in light of what you’re saying, this is the first time that we’re doing that model. We’re probably a little bit late to the game in that respect, but for this it makes perfect sense.

It’s like a product that has, we have to hit a certain minimum to be able to do it. It’s a new product for us to do. We’re not sure how people will respond to it. We all love, we’ve been using the [??]. We have a couple we gave to friends and family to see what they think about it, but it will be interesting to see what a larger community thinks about it.

Andrew: Before Kickstarter, what you did to test was go to an inner circle of people whose opinions you trusted, and you said, “Look, we’re thinking of doing this. What do you think?” and they’d say, “No, it’s lame. It’s too big. It’s too small. It’s beautiful,” whatever their feedback is.

Michael: “It’s too that.” Exactly.

Andrew: I see. You used this phrase, “sharable art” a lot. I used it at the top of the interview, because that’s how you referred to your products when we were just chatting. Why sharable art?

Michael: I think there’s a lot happening right now with, first of all, just getting something physical, exchanging something physical. It’s great to send your friend a GIF. It’s great to send a GIF as in G-I-F, not G-I-F-T.

Andrew: Email.

Michael: Yeah, email, etc. We’ve gotten to a point where email has definitely hit a saturation point. I can’t remember the last time my email was below 50 in the inbox. Sorry to everyone I haven’t gotten back to. I’m trying my hardest, I promise.

10 years ago you were real excited when you got an email, and you heard AOL.com saying, “You’ve got mail.” You got a piece of something in the mail, and you’re like, “Eh, great. Another piece of mail.” But now it’s total opposite. You get one thing in the mail and you’re really excited and you open your inbox hoping that you have not that much email going on. I think that sentiment is going to continue to grow. I think that’s one side of it.

The other side is that the whole feeling of just exchanging art and seeing something that…Greeting cards are one thing, the Hallmark greeting card, I think that’s one thing, but when you see a piece of art that really touches you or makes you think of someone, people want to share that. You want to give that to someone. You want to give it to someone in a meaningful way, and probably attach a personal note to it.

I think that there’s an opportunity to rethink about what it means to have a card that’s designed so intentionally and so purposefully, so that every card…There’s a lot of these cards that are behind me. They’re probably not very clear, but, we’ve been working with more than 10, a growing number of designers. At this point it’s 10, but we’re doing almost a new one every month.

These are our favorite illustrators and designers around the world, and we’re challenging then with one design prop, which is, “Create art that encourages mindful living.” Everyone approaches that in a radically different way. The whole idea is that you find something that really touches you, and you can then share that with someone else, and hopefully if the frame gets made you have a place to keep it in a special spot.

I think there’s something really powerful about that, and much more meaningful than other traditional ways that we’ve had of sharing, expressing, moments of happiness, moments that would create a deep impression on you, wanted to reconnect with people. There’s something really special about that. That’s become something that we are almost becoming obsessed with, and there’s a growing group of people that I think would be interested in that too. We’ll find out if we’re right or not, I guess.

Andrew: Let me do a quick recommendation here, and then I want to ask you a final question, okay?

Michael: I just want to plug in because I’m at two percent battery, so don’t want to die before it ends.

Andrew: Oh, yeah, go for it while I talk it up. The recommendation is, since we talked a lot about creativity here and because these words in the manifesto were brought to life and shared because of the creative way that they were expressed, I’m going to recommend that if you’re watching this program or the follow-up to it, that you check out Shed Simove’s course on mixergypremium.com, his course about how to be creative.

I came to him with this issue where I said, “Look, I’m not a creative person. I don’t know what to do. I’m a little intimidated by your creativity, Shed. What do I do?” He said, “Okay, you like systems? I’m going to give you a set of processes that you can go through to create products.” That’s what’s there in that course.

I’m also going to recommend that you check out the interview that I did with him. He was so creative that if you look at the comments, you’ll see it blew people’s minds. Shed Simove — get the course, get the interview, and find a way to connect with him. This guy is incredibly creative, and he’s good at teaching his process.

All that’s available at mixergypremium.com. I hope you guys sign up.

All right, the final question is this: Jeremy, in the pre-interview, asked you what question did I not ask you that’s important to address? You told him about this woman who, after I guess her house was demolished, after Hurricane Sandy, and she found something.

Michael: Yeah.

Andrew: What did she find that changed so much?

Michael: She wrote this story on this section, I guess that goes under another initiative that helps create a little bit of the depth, and personality, and character of Holstee is. She wrote something on a microsite we created, called My Life, which is where people can go and share their stories of how they grabbed life by the horns, in maybe a tough moment or a challenging moment. Often times, it’s often inspired by the manifesto in some way.

Her house was demolished. She’d live out deep in Brooklyn, in a place that was a red zone. She’d just moved there with her daughter. They, fortunately, were not harmed, but they came back to a house that was totally flattened.

She wrote about how she had just come across… she bought the manifesto and gave it to her daughter not too long ago. She looked back at that and she’s like, “I’m at a point where I can either really feel really sorry for myself, or I can just step up and see this as an opportunity to start fresh.”

The fact that she would even connect Holsee, or those words we wrote three years ago, with her and this unthinkably difficult situation. It’s so humbling for us. I think that was one of those stories that our whole team read, and we’re’ like, “Holy shit. We actually might be having some kind of an impact on people’s lives.” That was a really powerful, powerful moment, I think, on our team.

Andrew: So that manifesto helped her focus on her community, instead of her own problem, and she is, as you said, one of many people finally checking out mylife.holstee.com. It looks like it’s a Tumblr blog, full of stories of people who are impacted by the manifesto.

Michael: Yeah.

Andrew: Unbelievable. Congratulations on the success.

Michael: Thank you.

Andrew: Congratulations on the business success, and the success you guys have had on touching so many people. For everyone who’s watching, guys I don’t think I could properly describe what this manifesto looks like, hopefully someone in the comments will link to it on Holstee’s website. Frankly, you don’t even need to wait for someone in the comment section to do it, just go to Holstee.com, and check out the art that we’ve been talking about, the manifesto, the whole way that their philosophy is expressed through the site. H-O-L-S-T-E-E dot com.

Michael, thanks for doing this interview.

Michael: Thank you.

Andrew: Thank you all for being a part of it. Bye, guys.

Andrew: Three messages before we get started. If you’re a tech entrepreneur, don’t you have unique legal needs that the average 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 that he can help you with issues like raising money, or issue and stock options, or even deciding whether to form a corporation. Scott Edward Walker is the entrepreneur’s lawyer. See him at WalkerCorporateLaw.com.

And do you remember when I interviewed Sara Sutton Fell about how thousands of people pay for her job site? Look at the biggest point that she made. She said that she has a phone number on every page of her site because, and here’s a stat, 95 percent of the people who call end up buying. Most people, though, don’t call her, but seeing a real number increases their confidence in her, and they buy. So try this. Go to Grasshopper.com and get a phone number that will make your company sound professional, add it to your site, and see what happens. Grasshopper.com.

And remember Patrick Buckley, who I interviewed? He came up with an idea for an iPad case. He built a store to sell it, and in a few months he generated about a million dollars in sales. Well, the platform he used is Shopify. If you have an idea to sell anything, set up your store on Shopify.com because Shopify stores are designed to increase sales. Plus, Shopify makes it easy to set up a beautiful store and manage it. Shopify.com.

Here’s the program.

Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. In this interview, we’re going to find out how a husband and father in Utah launched a startup, raised money, and got it acquired. Zachary Mangum is the founder of GroSocial, which offers a suite of web-based tools that allow you to easily build and track social media campaigns. In 2012, about two and a half years after he launched the company, he sold it to Infusionsoft for a reported $25 million to $30 million. I invited him here to talk about how he did it. Hey, Zach.

Zach: How’s it going?

Andrew: Good.

Zach: Good.

Andrew: I saw you smile as I gave that number. Why?

Zach: I love the reporting. It was actually a funny joke here, where we’re kind of tight-lipped about it. It’s kind of funny. There was an article in TechCrunch over the weekend, actually, about undisclosed financing and undisclosed acquisitions, and I almost commented on it. I was going to say, “You know, some people don’t announce it because they don’t want anyone to know.” Sometimes your personal finances or other things like that aren’t anyone’s business but your own, so, anyway, that was, yeah, that’s [??] . . .

Andrew: That number came right out of the TechCrunch story about you guys that happened earlier this year.

Zach: Yeah.

Andrew: Were they wrong?

Zach: No comment.

Andrew: There was a time, though, when your wife used to shop at Walmart. Can you talk about what happened one of those times?

Zach: Yeah. Man, in the early days of GroSocial, I could share ten like just hilarious and then ten sad, sad stories with you about financial struggles and chasing a dream. There was one time in particular where you’re juggling all these different credit cards and stuff like that, just trying to make ends meet, because you make X and you spend more than that, and that’s not because you’re living beyond your means at all. It’s because you just literally aren’t making enough to survive, right.

Yeah, my wife would go to the local Walmart, and she’s not overly fond of it. It’s no elitism or anything like that. It’s just Pam [sounds like]. It just kind of sucks. Anyway, she’s going to Walmart one day and getting groceries. She’s got our two kids with her, and at that time our oldest was probably like 3, the youngest was 1 year old. She’s juggling them, and I’m at the office a little bit late one night. She’s at the grocery store, and she calls me in a panic, saying, “I’ve got a grocery cart full of groceries, and the credit card’s declining. What are we going to do?” I thought about it, I look at the credit card statement, and I see we can get like half of what we need to get this time.

I told her, “As painful as it is, I need you to go take the walk of shame and take a few things back, put them on the shelf, get back in line, and man, she couldn’t have been a better sport about it and completely had my back the whole time. It wasn’t fun. Those are memories that are good to remember as far as, that’s where you were, it helps you remember and keep some perspective, but also wonderful to forget in some cases that that’s kind of the past now. It definitely helps you keep your head on straight.

Andrew: A lot of people would have that experience and be too ashamed to continue as entrepreneurs, and in their head say, “This is not the life for me. I have a family, I have kids, I have a future, I have some self-worth, I’m going to duck out of this.” What went on in your head?

Zach: You know what? For me, it’s kind of funny. I’m LDS. I’m from Utah. Everyone out here has a family. It’s what you do. I got married when I was 22. I had my first kid when I was 24. It was planned. It wasn’t a surprise child or anything.

Andrew: That is one of the reasons why I was especially excited to have you on. It’s something that many people in the audience say that they’re looking for, more entrepreneurs who have kids and have families and have these obligations and can’t just sit there and code and eat pizza all day, so. Not the latter day saints part! I’m happy that you’re latter day saints. But the part I was especially excited about is that you are a family man with the obligations of others, so what happens internally to you when this family you’re so proud of has to go through something so painful?

Zach: Honestly, it’s a shot to the gut. I’m not going to lie. When your wife calls you up and someone you’re madly in love with and care deeply for has to go through something that some might call really embarrassing, others might call, you know, big deal, all things considered look at the grand spectrum of things, we’re doing just fine at that point in time. But it was very uncomfortable and it was very hard financially for us for an extended period of time. I have brothers, one who went to Harvard business school, one who has a master’s degree from BYU. My siblings are really educated, and they are looking at me thinking man, you are freaking nuts. Are you seriously doing this? Go down the beaten path. It’s beaten for a reason. Everybody sees reasonably good success if you follow the same steps. I look at it, though, as a family man having a couple of kids, it’s incredibly motivating when you look at [??].

So at that point I have a three year old, I have a one year old, and I think constantly in my head, “Owen and Jessie, Dad is not going to fail, period. They need to look at Dad and say, “I’m going to be like Dad and Dad’s not a loser.” Not to say that you’re a loser if you start a company and it doesn’t work out, but at the end of the day failure wasn’t an option. There was no other choice but to succeed with this, and success can be defined in a variety of different ways but it’s insane how I didn’t really anticipate it being that way; how motivating it was having two little boys who I knew where going to have careers someday who needed somebody to look up to, and I wanted to be that guy they could look up to.

Andrew: April asked you about what books and authors you like, and you told her about Mark [??], an old friend of mine who sat here on Mixergy, and he likes to invest in entrepreneurs who have a chip on their shoulder. Something to prove. Something that happened in the past. Did the fact that you didn’t go Harvard, that you were starting your own business and had trouble making ends meet – did that fire you up? Is that the kind of edge that Mark is looking for?

Zach: Absolutely. I wouldn’t say that I was trying to shove it in my brother’s face, but I will say that to a certain extent I kind of was. [LAUGH] You know what I mean. You’re looking at them and they are seeing great success and they are thinking dude, you are a moron. It was incredibly fulfilling to have both of them come back to me and say, “Dude, I would kill to be in your shoes right now.” That’s pre exit, right. They see how things are going really well and they think that’s really cool, but I think [??] is spot on with that. Have a chip on your shoulder. That’s one of a variety of chips on my shoulder that I feel like I’ve had from the beginning.

Andrew: What’s another one?

Zach: Any time somebody tells you “no” it throws another one on your shoulder. You just think, whatever man, we’re going to prove why you should have said yes. I speak of investors or maybe a partner or a key client, whatever the situation might be. We usually would use that as fuel. In fact, at one point we had a Google doc that we put together of people who said no and told us that we were nuts, whether that was an investor or anything else that we shared amongst us founders and said, “Remember this stuff.” I love it. I feed off of that stuff. I grew up playing sports and stuff like that. Anytime somebody told you you weren’t good enough, it was kind of like pouring more fuel on the fire, so we like to use that as motivation.

Andrew: That’s one of the things I’m noticing in my interviews, that if an entrepreneur hears no, and he just gives into it, he’s just going to start to walk away, maybe even go back to work. But if the no has almost an immediate mental trigger that says, “I’m going to prove him wrong,” of if the no says, “Then I’m going to work even harder because I don’t have what it takes,” that’s when they take off. You’re not . . .

Zach: Yeah, I can say from my experience, spot on there with the latter. I mean, if someone says no to me and my co-founders, the response wasn’t generally like, “Ah, he’s probably right.” It was generally, “As experienced as that guy might be, he’s wrong, man. He’s dead wrong, and we’re going to go prove him wrong.”

Andrew: Just before you launched GroSocial, you were at a company called Funding Universe. What was that? What were you doing there?

Zach: That was actually my first gig out of school. I went to BYU. I studied finance. I thought I was going to go to law school and do that fun stuff, and thank heavens I didn’t. Anyway, I was going to take a financial analyst position, decided to go against logic and reason, and go join a startup. Funding Universe, at that point in time, was a local startup here in Utah that was getting a lot of buzz. A lot of people were really hopping on the Funding Universe bandwagon, and at that point in time they were all about helping startup companies find angel investors and/or venture capitalists, so really like seed stage type of stuff. Occasionally some business would come in. They were just clueless about how to raise money with investors and thought that, hey, we could talk to these guys. It was a worst version of AngelList before AngelList was here, and it wasn’t a software platform, really. It was more consulting, right. So, anyway, the company evolved and turned into what is now called Lendio, and it’s more debt financing that they help businesses attain. Back in the day, that’s what was it was.

Andrew: So what did you learn working for a startup before launching your own?

Zach: Honestly, the biggest thing I took out of it is I worked with different startups, and they would share stuff with us. They’d share their historical financials. They’d share a bunch of data. Then you’d talk to the guy behind the startup, and this is going to sound like I’m just arrogant, but you’d talk to him and say, “If he can do it, I can totally do it.” You know what I mean? So it was like the perfect place to breed a future entrepreneur because you’d come in there and look at it and say, “Look, that guy’s doing like a really cool, phenomenal thing. His business is soaring.” And when I talked to him, I’d think, you know what, I could probably do it better. Your self-confidence kind of spews over into irrational levels, but you get this itch, and it was good for me. It was definitely great for me. There’s obviously that side benefit of being able to rub shoulders with some angel investors at an age where I was way too young to be able to meet and associate with some of those guys, so that certainly didn’t hurt.

Andrew: Is that how you met some of the investors who eventually backed your business?

Zach: It’s how I met our very first investor, yeah. I had just gotten to know him a few months before I took the plunge and jumped into GroSocial full time.

Andrew: Who is that?

Zach: His name was Chris Russell.

Andrew: OK.

Zach: He started a revenue-based financing group out of Northern Utah called Rock & Hammer Ventures.

Andrew: I see. All right. So you picked the perfect place to really get to know what’s going on in entrepreneurs’ companies and also get to know the entrepreneurs themselves and the investors, and you realize, all right, I can do this. But where does the idea then come from?

Zach: We backed into it. I mean, we did not set out at all to create GroSocial, so it’s kind of long story. Me and my co-founder, Kevin Kirkland, he and I went to the same high school. In fact, I was really good friends with his younger brother, and so Kevin and I are about two years apart in age, but a bunch of us old school buddies decided we were going to grab lunch one day. We thought about the idea of being entrepreneurs and starting a company, and I’d tell them what I just told you about, “You should see some of the guys that are starting really successful companies. If they can do it, we can do it, man.” So we started brainstorming some ideas, and we set out to create, it’s like embarrassing to even say it. We set out to create a startup that was like a Facebook app, but for soccer players, because we actually played on the same soccer team growing up, and so we thought, hey, this could be a great way to manage the communication within your team, almost like a Facebook group, but for a soccer team, and then a couple features layered on top. We thought we were brilliant.

Anyway, we spent a bunch of money creating this, and we got to the point where it was ready to launch, and we were broke. I mean, how are you going to get any users on this thing without spending some dough to get at least some initial users signing up and using it? Facebook was a lot more viral back then, so we were pretty confident if we threw some money at it that we’d be in decent shape. And, of course, ad revenue was going to be our revenue model, right, so we weren’t going to make any money anytime soon. Anyway, we got to the point where we had no money, and so we decided, all right, the best way for us to market this thing is just to go make money somewhere else. We learned a ton about social media along the way, particularly Facebook, as we started developing this thing. Let’s go and see if we can talk some small and medium sized local businesses into giving us some money to do some Facebook promos and stuff like that. It sounds funny, but this is like two and half years ago when that stuff was really kind of new, particularly for a smaller or mid-size business, and so the fruit was low hanging enough that we were able to get some people to give us money.

The idea was let’s take this money, and we’ll market this soccer app, right. Well, we never spent a penny marketing the soccer app, number one, because we never had any money left over. We’d get like a couple grand off of a customer, and we’d spend like 1,999 bucks keeping them happy. We just found over time people pay us to do this, and I have no idea if that soccer thing is going to go anywhere, so it wasn’t too hard for us to say, all right, ciao to the other idea and keep running with GroSocial.

Andrew: What were you spending money on when you were doing people’s social media?

Zach: Oh, man, we were doing like custom applications. Basically what our product does today, we were doing it all manually, and that’s why we ended up developing the product. So we were building promotions, like like-gate or fan-gate promotions, which were really trendy at that point in time, and we’d do the graphic design, and we’d outsource a lot of this because both of us were full-time employed somewhere else. It was like still working 3:00, 4:00 in the morning. You’ve got a couple young kids and stuff like that and a day job. I mean, life was miserable at that point, but we were outsourcing so much, trying to kind of like orchestrate this, so we could at least have a sliver of a decent life at home and stuff like that. Yeah, it was heavy lifting for sure.

Andrew: So basically what you did was you did consulting that helped you figure out that there was a need and helped you understand how to fill that need, and then you automated the work that your consulting gig did. Is that right?

Zach: Spot on, yep.

Andrew: And so you were seeing over and over that people were doing like- gating. Like-gating is where if you want this content, if you want this video, if you want this report, whatever, you have to at least like us on Facebook, and once you do, you get the report.

Zach: Yep.

Andrew: That’s essentially it. Is that what you thought customers would want when you started doing consulting for social media?

Zach: No. I mean, I wouldn’t say it was way off or anything like that. Honestly, what we did is we started it out, and we’d look at what Red Bull’s doing, right. Red Bull’s big. They do cool stuff on Facebook. So we looked at that and said, ‘Is there a way we could bottle that cool stuff that they do and make it accessible for the small guy at a reasonable price point?’ And as we started looking at stuff that businesses like that were doing, we found, holy cow, you actually can, and, granted, there was a lot of complex software that some larger enterprises use. But it started to become one of those things, almost like another chip on your shoulder, where you think, hey, there are these big companies doing big things, and they charge big dollars. What if we could commoditize all of that stuff and really empower the small business and let the corner deli do what Red Bull’s doing for a price that they can totally afford?

And so that started to become like this mission for us, and it started out with things like like-gates and stuff like that, and then it evolved into stuff like a photo contest or a video contest. We were finding, when we were custom coding those back in the day, we charged like $5,000 or $6,000 to do a photo contest, and people would gladly pay it because they would see the results, and it worked fantastic for them. Then we said, “Hey, what if we just let everybody use this thing, and they do it on their own for 20 bucks?” That’s when the light kind of flipped on, and then people started coming in in droves.

Andrew: One of the things I’ve learned from talking to entrepreneurs who started out doing consulting work and then packaged their consulting work into software is by doing consulting work, they understood which product people are most interested in, and it’s often not what they expected.

By doing consulting work they understood how to express what their software does, that it taught them something that shaped the product. Did that happen with you?

Zach: Yeah. Absolutely.

Andrew: Do you have an example of that, of how doing this as a consultant gave you an edge over someone else who might have said, “I’m going to create packaged software in social media”?

Zach: For sure. I think for us, honestly, instead of one specific example, it’s the whole process. We’re doing consulting for businesses day and night, and we find as we talk to them, you find out what they’ll pay for, right? And then you look at it and say, “All right, what sucks [laughs] while doing this process? Can I automate it?”

We went with this hunch in the beginning, where we said, “All right. There are enough people paying for this service. They love it. We’re not having backlash or unhappy customers whatsoever,” so we’re seeing this really ideal situation forming before our eyes.

We said, “All right. How do I take 90% of the work out of this for me?” Our thought actually was that’s what we would do, and we’d still be this agency service provider with this secret weapon behind the curtain. What we decided to do before we got too far is saying, “I guarantee everybody else has this same problem that we have and is trying to solve it. Why don’t we just throw it out there?”

There was a little bit of a hunch that went into releasing the product, but we knew that at least we needed it, and that there had to have been other people out there that shared that same pain with us. There’s no way that we were the only ones.

I think what a lot of entrepreneurs do, in my experience viewing different entrepreneurs and my own experience trying to create stuff, is you’ll create something that you think the world needs, but you would never use it yourself. So without any additional validation, you’re screwed before you even get started.

We knew that, at a minimum, if nobody else wanted to use it, we would use it every single day, and we could still keep a successful business afloat using our software.

Andrew: How do you find all these customers who needed you to do this for them?

Zach: We were starting out, as I told you before, full time working elsewhere. We would target at businesses that were open in the evening. A good example of that, our first two customers, one was an author, and another one was a used car dealer. Used car dealers, he’s always at the office after 5:00.

I would go to a used car dealer on my way home from work, stop by, do a little presentation, and get him to write us a check. We were picking businesses that we knew that we could meet with outside of your typical work hours.

And then as we got a little bit smarter, that’s what your lunch break was. I’d say, “Let’s meet you at your office.” You’d say, “You know, I’m going to be right by your office eating lunch, [laughs] so let’s go talk over lunch. I’ll buy you…”

Andrew: You’re just cold-calling and cold-knocking on doors?

Zach: It didn’t start that way. We tried with our warm circle first, hit up friends and family. We used social media ourselves, begging everybody we know to refer somebody over to us. That got us pretty far.

We never really have done any cold-calling, ever, at GroSocial. We would use those customers as referrals to other customers. We really banked on knocking it out of the park with each customer, and banking on that being fuel to get the next one.

As we got a little bit further along the way, though, we got bright-eyed, thinking, “All right. I can’t sell this thing every single day like this and create a legitimate business.” So we talked to a couple of larger businesses here in the area — there’s a pretty decent tech scene in Utah — and talked to a couple of companies that do marketing and other services to small businesses, and said, “We want you to resell our service.”

Andrew: Let me go slowly into that, because that became big for you. In fact, I want to start off with what the software package looked like. You told April in the pre-interview that you couldn’t even call your first version a minimum viable product. Why?

Zach: [laughs] It just was garbage. It was so bad. We had one of our developers put out on our Facebook group — we have a private Facebook group we use for company communication — and he attached a screen shot of that just the other day. We all just started busting out laughing. It was just…

Andrew: Would you show that in the comments if people asked to see it?

Zach: Yeah. Yeah, I would.

Andrew: I’m going to let the audience request that. I’d love to see it myself. I want to see if they’re interested in it.

Zach: Sure.

Andrew: What didn’t it do? What was so embarrassing about it?

Zach: Honest, I think when we launched it, I wouldn’t say we were overly embarrassed, but I think a lot of it was because we were so naive. We went into it thinking, “We know what we need this to do,” and it was good enough for us to still make money. When I look back at it now, and I see where our products come, I think, “Holy cow. How did anyone pay us for that?” People were gladly pulling out their wallets and paying for it. We were doing very little marketing. We had been a product first, and revenue and marketing later, kind of organization for quite a long time. So, it blew my mind that people would pay for it and retain. It was kind of funny, but the user experience was kind of clunky. It was no rounded corners on anything. We produced something, and it was like take your worst designer on planet earth, and this was ten steps below what they would have produced.

Andrew: What’s dramatic about this, and the reason this is important, is you were designing their Facebook presence. The Facebook presence you designed for them was still clunky.

Zach: Yeah.

Andrew: In addition, the process of creating that Facebook experience, that your customers would give their customers, they couldn’t do it using drag and drop, images didn’t fit in the space, and issues like that. So, a lot of us actually need to launch this way, to launch and figure things out, but we’re going to resist it, because we’re going to say, “Oh, I have to have rounded corners. I have to make this look good.” We get caught up in our own need for perfection, even if we’re not recognizing that that’s what we’re doing. Help us snap out of it. Why should we just stop and sell something, even if it makes us feel a little embarrassed.

Zach: The biggest reason I would bring up is that you never know if what you think matters really does matter. It’s so easy to go off like this long list of, “I must have this stuff in order to have something legitimate.” You’re almost always wrong. You have to let the market decide what they care about. What you care about and what they care about can be at such odds with each other.

Andrew: Give me an example. You seem to have really lived and breathed this space and known it. Where were you wrong about what you expected people to know?

Zach: Our first version of the product.

Andrew: What did you think they wanted, and what did they want instead of what you thought?

Zach: We thought that a photo contest would be imperative to have in a first version. We didn’t even, in the very first version, if I recall I don’t think we even had a light gate [??] or anything like that. We thought, “Dude, what’s the point if I’m just throwing out a static tab, that’s a brochure basically, you can’t really click on anything, why are we even doing this?” We thought, “Look, let’s just release this and see how people will react.” Sure enough, we released it, people signed up, and what do you know? People, at that point in time, killed for welcome tabs, just something that was a splash page. I could set it back then as my default landing tab on Facebook. Even if it didn’t have a light gate [??] attached to it, people still cared.

Andrew: They just wanted that if anyone went to Facebook.com/TheirBusinessName, to have a clean presence there. They didn’t have to have it collect email addresses, collect likes, encourage people to do anything like join a contest. They just wanted to have a presence that looked good. In fact, Gary [??], at the time, this is Mr. Social Media, he had a welcome page that was basically a really beautifully done image of his background, describing how he built up his online personality, but he didn’t do light gating [??] at the time, email collection, and so on. I see, you expected that people wanted it. You learned that people just needed a Facebook page that looked good.

Zach: Yeah. That was enough for us to get enough traction. This is pre- legitimate funding. We had a little bit of money that had come in, but at that point in time we were able to take that and actually generate enough traction to be able to tell a good enough story to investors, where they actually wanted to pull out their wallets and say, “Yeah, you guys have got something here.”

Andrew: I see.

Zach: We could then come to them and say, “Look how crappy this thing is. Look how crappy it is, but look how many people are paying for it. We’ve done this much to get them to pay for it. Let me show you what it’s going to be, because we know how to build this stuff. We just need to get some money and some devs to be able to do it.” And, what do you know? It was the perfect story. We actually at that point finally had… another thing I’ll say, is that if you’re an entrepreneur trying to raise money, data sells more than anything. You can take any set of data and you can tell a horrible or a magnificent story off the same set of data, it’s just what angle you’re looking at it from and investors, when you start to share a little bit of data, especially if you’re in, like, a different market, right? If you’re in, like, Utah, data matters that much more. So, if I can come in here and share a little bit more of the story, and make you just less scared to give me a check. You know?

Andrew: Who’s we?

Zach: We? I’m talking about the founders of GroSocial.

Andrew: Who’s your co-founder? I introduce you as a founder because I try to just keep it simple in the intro, but my research said co-founder, co- founder, co-founder, and I thought we’d talk about who you co-founded the business with.

Zach: Kevin Kirkland was my original co-founder, and then it was several months after that we had Chris Wright, who’s our CTO hop onboard.

Andrew: What was I going to say? Oh, right. So, you’re selling this thing to individuals. How are you getting individuals to buy this software? As clunky as it is, how are you getting them to come in?

Zach: Facebook.

Andrew: How are you marketing on Facebook?

Zach: That was seriously it. When we were doing this whole service providing gig, Facebook was our big thing. We had a Facebook page well before we had a website, and we invested any loose change we had to try and get more fans on Facebook. But, at the end of the day, that only produced so much for us, right? We weren’t doing like AdWords campaign. We were really like nothing, right? It was very much social media, word-of-mouth. Then our big hit was partnering.

Andrew: Ah, yes.

Zach: We had this really. . . We thought this was going to be so brilliant and so easy. We went to different companies in the area. This was where some cold contacting came into play, you know, get a LinkedIn membership and sending in mail all over the place to people. We hit up some companies here locally that had done pretty well for themselves. One was a web builder, one was a marketing firm, but they were pretty big, an arm of [appellate] company.

Anyway, we went to them and said, “Look, you guys already have a ton of customers and you don’t offer social.” We kind of came in pretty arrogant, like, “Dude, if you don’t have social, what are you doing?” You know, like everybody wants social. We put this pitch down and said, “You need to white label GroSocial.”

We actually had one partner that white labeled us without the software, before the software was there. It was like we were almost employees of the company, but we weren’t on payroll. We just got a check and we were service providers behind the scenes. We would do all this. We would do webinars and some consulting in group style format.

Anyway, when we got our software and we actually showed them the software, they looked at it and said, “Dude, this is awesome. Can I white label that?” It was actually. . . I mean, I owe it to some of these partners who actually pointed that out and said, “Hey, I want that,” because we didn’t really think, “Hey, I want to show you this thing because I want you to white label it.”

Then, we started looking at it and saying, “Dude, we could maybe put together a very simple API and maybe we should just go after the land grab here and see how many different businesses like that we could get onboard and enlist to resell GroSocial.” So, we enabled a lot of businesses to do. . . We signed a contract with them, and then they could basically create their own version of GroSocial. It’d be on their domain, their branding, their color scheme, all that fun stuff, but still GroSocial. Right? So they’d create a new user. We know, because it’s on our system. We send them an invoice for the total number of customers they added and that they retain in prior months times a wholesale rate per customer per month. Three dudes made it a long way just doing that.

We started. . .

Andrew: It was a three man company at the time?

Zach: Yeah, it was a three man company at the time.

Andrew: And so, when you first started what we’re calling white labeling, you were basically being a consultant for other companies. They said, “Hey, we can do. . . “They went to their clients and said, “We can do your social media. We can create your Facebook tab,” and so on.

They got those customers. They brought it to you and they said, “Hey, Zach, here’s some customers that we need you to take care of.” It was that kind of a situation.

Zach: Yep.

Andrew: And that’s how, when you started creating your software, you got software customers from these guys who eventually white labeled your software.

Zach: Yeah. Once we showed them the software, they said, “Hey, we love recurring revenue just as much as you do, man, so let’s get all these people on the recurring platform and then let’s start adding all the new customers to the software platform. Let’s bag this whole service gig altogether.” We said, “Gladly.”

Andrew: So why’d you raise money? You were getting recurring revenue. You had partnerships. You were doing pretty well for yourselves with the small organization. Why raise funds?

Zach: We looked at it and said, “You know what, there is. . . “Our industry’s kind of weird, right? We have Buddy Media and Wildfire Interactive, and some big players on the enterprise side of the market. There are a handful of other companies like us, that serve small and mid- sized businesses. But, there’s never this, and still I think to this day, there isn’t this defacto, “This is the leader of the small business area of this market.” We looked at it and said, “We can own that, man. We can totally own that, but we have a limited amount of time, because there’s a lot of people entering this space. You know, innovators dilemma style, everyone’s going to start from the bottom and try to go upstream. You’re not going to see the guys upstream trickle down.

So, we said, “We feel like we’ve got a model here at the bottom, and a clear path to trickle upstream eventually.” We’ve got partners that are saying yes, partners that should, frankly, be saying, “No.” Based off of three guys, working out of the basement, no legitimacy, but we had a good sales pitch. We had mediocre, at best, software at that period in time. But, we went out, and we said, “If I could get two or three really good biz- dev guys and a few developers to help us improve the product, we can go out, and we can literally wrap up every key reseller we need.” So, that’s what we raised the money for, is to basically sprint to that point.

Andrew: I see. Did you also get advice from these guys, and introductions to the bus-dev people that you needed, and the developers that you needed? Or, was it strictly funding and the reputation that comes from having some money?

Zach: We definitely sought that. We actually lucked out, in the case that an associate at one of the VCs who funded us ditched his gig at the VC, and came and worked with us in biz-dev.

Andrew: Who was that?

Zach: John Walker is his name. So, he ditched them and came with us. Then another was actually connected to one of the angels that went into the deal with us, the other biz-dev guy, Brad Jensen [SP]. They were valuable, in that sense. It’s kind of funny that there is this kind of perceived legitimacy of, you know, you raise some money, TechCrunch wrote an article on you, or something like that. I know a lot of people say will that, that doesn’t matter. Actually, it did a ton for us. Getting a little bit of financing and a TechCrunch mention, the end users didn’t seem to care, the small and mid-sized businesses, they didn’t really do anything for us on that front, but partners cared immensely. We found that, on the biz-dev side, getting more partners and resellers in the door came that much easier, after that all hit.

Andrew: That’s something that a lot of software to service [??] companies don’t do, what you do about partnerships. You weren’t thinking, “How do I acquire one user at a time? How do I improve my marketing? How do I do social media to get one customer at a time.” You said, “How do we partner and bring in a lot of customers from our partners customer base?” How do you get companies to partner with you?

Zach: It’s hard.

Andrew: Yeah.

Zach: I mean, it’s a lot of work. It takes several months. It can take a year. We’ve had some that have taken us over a year to go from first meeting to signed contract, and actually launched, and they’re reselling finally. It can get really hair. The larger the organization, the longer it takes, generally.

You say, “How?” It’s just being scrappy as heck, man. It’s going to trade shows. It’s figuring how… it’s funny, the way you structure a message on LinkedIn makes a big difference. The way you get intros to people makes a difference. Press matters, when you’re doing biz-dev, it matters so much more than you can ever imagine, in our experience at least.

If we were taking a different approach, just going user by user, going after the small business, I can say that based off my experience, I couldn’t care less about any sort of press. I think all it would do for us at that point is expose us before we’re ready to be exposed to competitors and other people.

When you get in and you start working with partners, all of that is perceived as, “Man, these guys must be just huge. It must be just killing it.” We’re like, “Yeah, we are. We’re still like five dude in [??], Utah,” but we’re not going to tell you that. We’re going to just tell you, “Yeah we are kicking butt. We really are.”

Andrew: It’s also that, if they’re going to trust their customers to you, they want to know that you’ve got some substance to you.

Zach: Yeah, it’s funny. You find that a lot of these big organizations, they grow outdated in what they offer, it’s kind of interesting. I’d share some examples, but I’m not supposed to share who we’re partnered with on the white label side but a handful of them offer some such outdated services and, but they’re still able to sell because small midsized businesses I think in many cases are, they’re just reaching for whatever they can get especially in a slow economy, but you show them something new, something that they haven’t done or something maybe they are doing but you do so much better. A lot of these big organizations we call them SMB aggregators internally, they just deal with like hundreds and thousands of small businesses. They’re just reaching for that next thing to sell to their user base, and so if you can come in there and tell them look we got something that is that much cooler than what you’re currently offering, and we can do it for that much money, you just need to give us that many people, we’ll make it work. People, we found that people are very, very interested in it, especially these SMB aggregators, they’re looking for additional ways to monetize that are outside of the boring norm for them.

Andrew: Are these companies that, they offer free web host or cheap web hosting and then they have all these businesses that are hosting on them and they’re looking to monetize?

Zach: Some of them yes, so we partnered with some hosting companies, web site builders are a great example where, you know web site builder is, it’s not like the newest thing around right? A web builder is a pretty old school type of technology, but still that doesn’t mean they’re not valuable and that people don’t like them, but at the end of the day if I can get in and I know that somebody comes in and says all right a web builder is for me, I’m, you know, Joe Plumber or whatever, I’m going to come in here and I’m going to create my business’s web site. What Joe Plumber now knows in today’s world is, hey I should be on Facebook too, and if the sales rep who talked him into using the software for the web builder or maybe he just signed up online, if he gets an email or a phone call or something that says hey you should really do the same sort of thing that you’re already doing for your website but do it on Facebook using our new tool here, and then they have white labeled version of it. It’s a no brainer.

Andrew: Is it also SMB aggregator meaning small to medium size businesses and they aggregate them, but we also talking about companies that just have big mailing lists?

Zach: That doesn’t hurt, yeah I mean you can look at, one thing that we looked at is we looked it at what stage would somebody want to get their Facebook page up? Right? What stage of business, and we looked at it and we said well, you know, I can catch the really broad net, say anybody, right? But it really is anybody who doesn’t have a Facebook page yet. But then, now you’re to the point where kind of like everybody has one so we then shrunk it down and said maybe it’s really at the point of like starting a business. Early stages of the business, right?

So that’s why I web host a web builder like a legal provider. Maybe like a legal zoom or a logo provider. You know those first things that start going through your mind and you think I need to create a business. Maybe, business cards or that sort of thing. You start to realize hey, that’s one of those things where I should push something out on Facebook, right? There’s over a billion people out there, I should look good over there.

Andrew: So, I had a list of books that you recommend as I talked about earlier, but I’m wondering if there’s a book or a blog or some way that we can learn more about how to develop, how to do biz-dev, how to develop these kinds of partnerships. Because it’s not the kind of thing we read on Mark Suster’s site, though I think he covers it sometimes or venture hacks. Where do we get that? Where did you learn it?

Zach: We learned it by doing it. Honestly, we didn’t really have any training. It was this idea and it was just straight up hustling. So it was… I will say though, when we brought on a couple of our biz-dev guys, I learned a ton from those guys. Guys who had done it before. So if you’re, I would say, if I was giving advice to an entrepreneur right now, I would say for you, find a guy who’s done it. Find somebody who’s done it. Benn there, done that. Look for companies that have strong reseller channels and figure out who’s got some sort of business development title in their name and tell them why they should work for you. That’s kind of how we did it, right?

Andrew: For you it was a guy in HP and you said he took you guys over the moon, took you to the moon?

Zach: Yeah, he was phenomenal for us.

Andrew: I see the business is going well, Facebook is growing, you’re in it, why sell? Why not continue.

Zach: Honestly, that was, it was hard. We reached a point where there’s a lot of consolidation going on in our industry, right. Last year about this time is where it first started hitting with some big players on the [SP] inter-price side, being acquired…

Andrew: We’re talking about Puddy media and Wildfire and…

Zach: Yeah, they’re not even competitors because they serve such a larger business, but they do more advanced versions of the same stuff we do. Anyway, we looked at it and our board said, “There’s that much consolidation going on and most of these guys are bowing out to CRM type of companies,” you know, sales force, Oracle, Marketto, [??] as well, so we looked at it and they said, “We’re not really for sale, but are you guys opposed to looking at it and throwing it out there?” I said I’m not necessarily opposed to it if there’s a fantastic fit, but you take money on and now that means you have to give somebody your return, right, so thanks to [??] relationships we already had it wasn’t a very hard conversation to have with people, and it was absolutely shocking how much interest there was when we just said we’re not for sale but people are wanting to talk, do you want to talk too?

It was just as simple as that, and the numbers started to make a lot of sense really, really quickly. I’m the type of guy where I look at it and I say, “Yeah, I want to create a lasting business, I want to create a legacy type of business where if I’m working here or not I can drive past the building and know that there are a bunch of people that have a job,” and that’s incredibly rewarding to someone like me. But we looked at it and said there’s also that side of, there are so many different stake holders, and there are people I told, “Yeah, I’m going to make you a ton of money, man,” and the opportunity to actually be able to deliver on that and deliver on less than 18 months after first taking money was pretty awesome, so it turned into a financial question where it was kind of impossible to say no at that point.

Andrew: Part of the process you told April in the pre interview just sucked. [LAUGHTER] What…

Zach: It did.

Andrew: Did you need to tell her that, or is the fact that we spent so much time on the phone in prep, that we wear you down and you say things that aren’t real?

Zach: No it’s not that at all. It did suck. On different levels. So due diligence with VCs and due diligence with acquisition partners. At least for us, it was dramatically different. It was painful, not because we were hiding anything, we’ve always been incredibly transparent but it was just so much time, and it was during the holidays for us. I tell my wife that I vaguely remember Thanksgiving and Christmas last year because it was just so distracting, so much going on in your brain. But the legal process with [??], they’re closing a big round of financing a simultaneous close and, so, that was all into it. There was just a ton going on all at once and in addition to that you have this thing in the back of your head that says, “Do I really want to sell this thing I love?” What we’re doing, I love.

Maybe I’m a control freak, I don’t know, I love being able to say this is what we’re doing, and everyone let’s get behind it and let’s rock and roll, and you start to have those reservations of. Is that how it’s going to be at all after ? You just don’t know what’s going to happen. It’s like sending your two year old off to college. You’re just not ready to send your two year old away to college yet, but all of that coupled together made it this incredibly emotional roller coaster, but in the end it worked out fantastically so we definitely made the right decision.

Andrew: You say that one of the advantages of having gone through this, one of the benefits is you’re now more confident. How do you mean?

Zach: I’m finding that so many things that I want to say I am catching myself because I’m realizing how arrogant it sounds, but I look at it and I think I could do this again. I’d feel like we have learned so much in such a short period of time. And we feel like, particularly you know, we talked a lot about biz-dev and things like that. We built our software kind of the right way and kind of the wrong way and you learn a lot of that along the way and you start thinking, man, I can’t, I could do a startup again, but I could shave off so much time and frustration.

But also, just the process of negotiating and selling and all that, it’s, I mean, I look back and I just feel extremely blessed that I’m, you know, 29 years old and was able to go through a lot of that stuff at such a young age. I feel blessed and almost like it’s unfair, right, that I was able to have that sort of experience at such a young age because I do feel that much more confident in what I could do in the future.

Andrew: And in the beginning, though, you felt like it couldn’t happen to you. What do you mean by that?

Zach: You know, every time you go talk to an investor, a partner, you have to go in confident, right. You go in, I can think of so many different conversations with investors where, you know, you’re telling them you’re going to get them that 10X and you spell it out, how it’s going to work financially and I can connect all the dots and you can see it. And you start telling that story.

And I think you go in there, and you pitch with a ton of confidence, but in the back of your head, you also think, dude, like one in ten actually gets there, and are you really that one. You know, you start getting those, you think in the back of your head, like, I don’t know, man, this is.

Andrew: So, how do you deal with that? How do you keep it from crippling you and hurting your pitch?

Zach: You just, it’s like the reality distortion field, right? You just keep forgetting about it. You have to, it creeps in all the time, right, and this happens in everything in life, right. Any sort of doubt or anything that’s going to push you away from being able to do something big, you just have to forget about it. You have to just not let your mind welcome those thoughts, right.

Andrew: How do you stop your mind from going there? Do you shift to something else, or have you found a way to just ignore it?

Zach: I just personally found a way to ignore it.

Andrew: How?

Zach: I don’t know. I don’t know how I can even describe it. It’s more of a, just an unwelcome thought, right, it gets shunned right out of my brain, right. We, because there are so many times where you get to that point of, you know, this sucks, man.

Let’s look at the financials, let’s look at historical trends, let’s look at whatever else, and you think, man. And particularly in the very, very early days, right. You look at it and it just looks so, like, incredibly, I don’t know, like desperate, right. I don’t know. I think of one thing, just continues to come back to mind for me in particular, and it comes back to family.

What I mentioned in the beginning, where you look at it and you think, what happens if I fail? Let’s, like extend this out maybe a month, maybe a year, maybe three years. Where am I if this fails? And where am I if I succeed? And then I think, what does either scenario mean to my kids and to my wife? And suddenly, it’s, all right, like, let’s hunker down and let’s go kick some butt again.

So, I say this always, but I always have this in the back of my head, of like, Owen and Jessie’s dad will not fail, right? It’s just not going to happen. So it might sound kind of cheesy, but it works for me.

Andrew: It’s not. It’s inspiring.

Zach: [laughs]

Andrew: OK. I want to do a quick plug and then I want to ask you about this list of recommendations that I refer to throughout the interview.

Zach: Yeah.

Andrew: And for me, the quick plug is for Mixergy Premium. And actually I should say, guys, there’s a whole archive of interviews and courses that I’d love for you to check out. There’s a link always at the top of every page that links to interviews and courses and I’m going to refer you to a few that relate to this interview.

Since we talked about Wildfire, the founder of Wildfire was here on Mixergy telling the story of how she came up with her idea and how she built it up. Since then, she sold it and she and I have been talking via email about having her back on here. Because she’s part of Google, we’ve got to talk a little bit before we can make it happen, but the interview is fantastic and I’ll show you guys how she came up with the idea and built it up, and built what Google wanted so badly.

There’s also an interview with Buddy Media, who was on the wrong track for a long time about what they were going to do with their, what the business was going to be. And I remember talking to the founder about how he figured out what his company was going to produce. He eventually sold to Salesforce, for apparently $689 million. But like we talked in the beginning of this interview, you can’t really tell. You can’t tell for sure, but it was a nice exit for him.

And finally, for courses, Nathan Latka, the founder of Heyo, which helps create online presence, he talked about how to find customers from Facebook and how to bring them to your site, how to get them to actually buy from you. And there’s a whole course that he taught on that. And it’s all available on Mixergy. You just click the link at the top for interviews, click at the top for courses, take all those, and I know that they’ll be valuable for you.

And of course, if you want to join us and be a member and really get access to every single thing that we do, go to MixergyPremium.com. I guarantee you’ll love it.

By the way, do you know Nathan? I was hesitating midway through talking about him, because I said, maybe Nathan and Zach are competitors and now I’m talking about a competitor in Zach’s interview.

Zach: [laughs] No, we know each other, yeah. We’ve exchanged several emails and then we actually met, when was it, late March maybe? Actually met face- to-face and hung out for a little bit, so, yeah. Yeah, I know Nathan.

Andrew: He’s good that way. He seems to reach out to everybody.

Zach: Yeah, he does. Nice guy.

Andrew: So, I don’t know if you remember what your list was. How about if I read you the five things that you recommend, and you just tell us why you put them on the list. Is that cool?

Zach: Sure. Yeah.

Andrew: Not necessarily in any order, but, number one is ”Rework” by Jason Fried and David Heinemeier Hansson. Why ”Rework,” the book?

Zach: So, honestly, there’s so many things I love about that book. I love how simple it is. I love that I can read it quick because I’m, like, incredibly impatient. But it’s, one thing I love about it is it tells you so often things that everybody says that you can’t do, they say you can do it, and they give you evidence that you can do it. And I just love that, I just think it’s really inspiring.

Andrew: Yep. Very quick read. I remember reading it on a bus in Patagonia because there’s nothing else to do and it let me get my mind off the bus. It was a good read.

Next book is, ”Start with Why,” by Simon Sinek. Why that?

Zach: Honestly that, plus his TED talk, are just awesome. I mean, again, to me, just super-inspiring. I think that way too many entrepreneurs start companies for the wrong reason. They start companies to get rich, they start companies for accolades, they like the title entrepreneur, you know. I think that’s a swear word, right.

It’s, get in there and, like, try and change the way people do stuff. Try and create a legacy. Try and improve the world in one way or another. And I’m not saying necessarily GroSocial the software makes the world a fantastic place, right, but I can say that it’s helped so many different small businesses find new customers, make more money, stay in business, and we have some fantastic stories along those lines.

But in addition to that, I think of the people that work here, and things like that, and it’s incredibly inspiring to me. And I love the thought of just, shift of thinking. Not just from a business standpoint, but from a life standpoint, like, why are you doing what you’re doing. And if you don’t know, like, figure it out and maybe change what you’re doing because it might not be in line with where you’d like to be.

Andrew: Start with why. Find your purpose. Next is ”The Lean Startup” by Eric Ries.

Zach: Love that book. I know it’s like this, everyone says that, right? But it is from, like a product development standpoint, just brilliant. I don’t know what else to say except for that. It’s like a must-read for any entrepreneur starting a software company. It should be probably the first book you grab.

Andrew: And you guys did that. What does he call it? He says, start with the concierge VP, concierge minimum viable product. Basically you do the work for the customer so you understand what they want, and then build that minimum viable product, where you’ve said, all right, I’ve taken you a step extra, a step further, we’re going to build something even simpler than that, and then build a company. So you clearly have been influenced by him.

Anything by Mark Suster? Why do you like Mark’s writing?

Zach: I just think that, from my experience, it seems like everything he writes is, like, spot on. I think that also, there are different people that I feel, particularly in the blogging world and in the entrepreneurial space, that feel a little bit self-serving, and I don’t, I’ve never gotten that sense when I read his stuff, which makes me trust it that much more. And I just think it’s fantastic advice. All along the way, I’ve been thoroughly impressed with the stuff that he produces.

Andrew: I’ve got to say, even as a human being, I remember when I first met him, when he started doing venture capital in Southern California. I was at a conference and I said, oh, Mark Suster’s here. And then he comes over and says, or, he turns around and says hello to me. He’s sitting at a table with other entrepreneurs. I thought, that’s kind of interesting, sitting with other entrepreneurs and saying, and inviting me to join, and then continued from there.

And it was especially different for LA, because in LA, the venture capitalists are sitting so remotely from entrepreneurs. They are in such beautiful offices, but they’re in those offices and you come to them. And here he is, this guy Mark Suster, just kind of hanging out with us. And at the time, I was engaged, and he started talking to me about my fiancee and how weird it was to use the word fiancee, and just, like, sharing what was going on with him and his wife early on. And this was soon after we met. I like that guy. Genuine, even offline.

Zach: Yeah.

Andrew: And then finally, anything from the guys at Venture Hacks. Why?

Zach: Just spot-on fundraising advice. I mean, I, in my prior job, I was, I mean, I was [doctoring], man. I was very, very, impressed with the stuff they produced because I found it to be accurate, and like, beyond accurate, every single time. I would take something they said and, like, apply it in a pitch deck, or whatever else. I would say anybody who’s trying to go raise some money, you should be very fluent in what they’ve produced.

Andrew: Yeah, great site, Venturehacks.com. I’ve seen lots of funded entrepreneurs talk about how valuable that’s been for them.

Andrew: All right. Zach, thank you so much for doing this interview.

Zach: Thank you. It was fun.

Andrew: You know what I especially like about this interview? I was really worried about this. We’re still on camera, so don’t say anything that you don’t want to.

Zach: [laughs]

Andrew: But I want you to know what I especially like about this interview. When I saw your story and I said, oh, this guy sold his company in under three years, and so it was quick and he made good money from it, and he’s not promoting anything else, there’s no reason for him to do this interview. That means I’m going to have to really pull information out of him. It’s going to be really tough. He’s going to act like he can’t stand even being here and regret that he’s not, I don’t know, on his boat or something. And I’ve had interviews like that. This whole time I’m just watching. You’re so friendly and you’re so giving and you’re so good with the stories, and took me from a place of worrying to a place of feeling such comfort in this interview. And as a person just talking to you, selfishly, this is apart from the audience, I really appreciate it. But I know that the audience gets a lot of value out of that too, so thank you.

Zach: Hey, thank you. I hope nobody watching fell asleep or anything.

Andrew: No way.

Zach: I appreciate it.

Andrew: All right. Thank you all for being a part of it.

Zach: Thank you. You bet.

Andrew: Coming up, are you wrestling with inner doubt? Watch this interview. Somewhere around the middle, today’s guest gets very open about his inner doubt, and what he did to overcome it. It just might help you when you go through that depression or that self-doubt spiral that, frankly we all as entrepreneurs, I think, go through. Also, if you build a marketplace you need both sides to come. You want the buyers and the sellers to both be there at the same time, and neither wants to be there unless the other is there. You know the headache. What do you do? How do you overcome it?

You are going to find out in this interview what today’s guest did. It might help you if you’re doing that, too. Finally, what happens if one of your employees turns on you and starts to write nasty things about you online? It has happened to people, of course. How would you overcome that? You can’t tell your employees to stop reading it. You can’t shut it down because it’s the Internet. What do you do? Listen to what today’s guest did. You are going to find that out, also, those three things and so much more, coming up in this interview.

Listen up. I hate to have commercials interrupt this interview, so I am going to tell you about three sponsors quickly now, and then we’re going to go right into the program. Starting with Walker Corporate Law, if you need a lawyer who understands the start-up world and the tech community, I want you to go to walkercorporatelaw.com.

Next, I want to tell you about Shopify. When your friend asks you, “How can I sell something online?” I want you to send them to Shopify, and explain to them that Shopify stores are easy to set up, they’ll increase sales, and they’ll make your friend’s products look great. Shopify.

Finally, I want to tell you about Grasshopper. Do you want a phone number that people can call and then press one for sales, two for tech support, etc. and have all of the calls be routed to the right person’s cell phone? Get your number from grasshopper.com. All right, let’s get started.

Hey there freedom fighters. My name is Andrew Warner. I’m the founder of mixergy.com, home of the ambitious up-start and the place where almost 900 entrepreneurs have come to slowly tell you their stories, walk you through what they did, teach you how they built their businesses so that you can learn from them and hopefully, after you build your successful company, come back here and share what you’ve learned with others. I’m seeing more and more entrepreneurs have done that. In this interview I want to find out the answer to this question. How did a talent agent, who booked jazz artists, launch and sell an online business? Panos Panay is the founder of Sonicbids, which connects musicians with the promoters who book them for gigs. He launched the company in 2001, and sold it in 2013 to Backstage. Panos, welcome.

Panos: Thank you. Glad to be here.

Andrew: When you were an agent, did musicians approach you a lot asking you to represent them?

Panos: Yes, I was a talent agent for almost seven years, and I would say almost daily we got bombarded with dozens of press kits, if not hundreds, over the course of a week from artists who wanted to get booked by us. Admittedly, as a musician myself, and as a music lover and as a guy who went to a music college, I found it awfully hard to be in a position where, unfortunately, we declined just about 100 percent of them. So it was a very common occurrence back in the late 90s.

Andrew: What were they looking for? What do musicians want agents for?

Panos: Ultimately, as a musician and as a creative person, you have one yearning. That is to have your music, the thing that you love, connect and resonate with an audience. I think people often mistake that the first intention of the average musician is to go there and make a bunch of money by playing music. I think their first motivation is, gee, I just created this thing, how do I go out there and connect with an audience and ultimately that will lead me to making a living out of doing what I love. So that was their primary motivation, and to be honest with you that’s still what the primary motivation of any creative person is, or any entrepreneur for that matter because ultimately entrepreneurs are creative people themselves.

Andrew: Who want an audience, also. So the idea I imagine is this, a musician says, ‘I love to do music. People really respond well to it when I play in front of them. I just don’t want to do the business part of things. I don’t want to have to look for gigs. I don’t want to have to find a record label. I don’t want to have to figure out what to charge. I need you, the agent, to do it. Is that essentially what they were saying?

Panos: Well, certainly back in the 90′s, yes. Today, I don’t feel you actually have that luxury of saying, “Well, gee, all I like to do is play music and I don’t really care about any of the marketing stuff or I don’t care about any of the social media stuff or I don’t care about being ultimately an entrepreneur.” But certainly in the late 90s when we were dealing with a very different music industry, a very different environment, a different way of making money by being a musician, to some degree I think a much more difficult environment as a musician to make a living doing what you love, that’s what they were looking for and that’s what they were hoping. I can sit and focus 100% on my music, and you, Mr. Agent, you, Mr. Record Label Executive, you, Mr. or Mrs. Lawyer, go ahead and take care of all of my business. I think that, frankly, that’s an attitude that’s almost as much of a relic of its time as other things that have given way to this new wave of social media and this new rise of a new class of artist that we at Sonicbids call an artistic middle class.

Andrew: And you guys help them and help this whole movement happen. Before we get in to what you did, you said you turned a lot of artists down, almost 100%. Why?

Panos: Well, we used to have this rather informal rule that unless somebody made $3000 a night we just couldn’t take them on as a customer. Somebody may say, “Gee, that’s kind of cruel.” Well, the truth is, as an agent and as a professional you make 10% as a commission from booking artists. Ironically the artists that make the least amount of money are the artists that tend to be the hardest people to book. It’s frankly a lot easier to book somebody for $30,000 or $50,000 or $100,000 a night than it is to book the artist who’s making $2000 or $3000 a night. If you do the math, that’s a $300 commission, and I can tell you that back then, and still today, that’s a whole lot of work for $300. And out of that $300 you have to pay all your bills – you have to pay phones; you have to pay your staff; you have to pay, back then, your shipping packages, your contracts and all that kind of stuff.

Andrew: Shipping packages because…? What were you shipping?

Panos: Back then you were shipping physical press kits. Press kits with CDs and actual glossy photos and paper biographies. It sounds like such a quaint thing in the year 2013, but back then it was the most frequent and common way of marketing musicians. I used to have a full-time assistant and that’s what this person did. After I got off the phone and after I got somebody all excited about a particular musical act, well, guess what, there was no website to go and send them to and there was no easy way for them to hear or sample the music or see what this person sounded like or even read as much as a review. I would actually have to go ahead and send them a physical press kit and I would literally do this every week, hundreds and hundreds and hundreds of times.

The cost to the agency, and frankly to the artists themselves, was just insane. Or to the record labels who used to have to press all these so- called promotional CDs. If you’re a person of a certain age, you probably remember going to a used record shop, finding a bunch of CDs that said ‘For Promo Use Only’ or that a hole pierced right through the CD box. Well, guess what? Those were actually promo CDs that were never meant to be sold anyway, but they were meant to be sent out by people like me to all the folks who were interested in booking them or spinning them on the radio.

What’s interesting is that after a while, after rejecting all these people, I started asking myself, well, gee, $3000 a night. All the people I went to college with — I went to Berkley College of Music to initially study to be a performing musician; I ended up switching to Music Business – but all those people, all my friends, nobody made $3000 a night. And all the clubs and the places that I went to enjoying music at, I was sure as hell they weren’t paying $3000 a night for those bands. So that sort of got me asking myself a very simple question: Where on earth is everybody else going other than coming to me?

Andrew: And your revelation was sending out these CDs that end up in used CD stores costs a lot of money, it’s inefficient, there’s a lot of leakage. And because of that you had a revelation for a new way of doing things. That’s what set you off on this journey. What was the initial vision that you had?

Panos: You know, Andrew, it’s funny. I remember travelling to Italy as a professional and visiting one of my fellow promoters, somebody who I’d talked to over the phone all the time. I go into his office… And it’s funny because actually it overlooked the Vatican – it was a pretty cool place. I walk into his office and there I see literally hundreds of the CDs that I sent him over the years just lying there. I thought, “Oh, my God! What a complete waste.”

That sort of planted a seed in me, but the vision for Sonicbids, I actually got it while reading a book. I remember exactly where I was. I was reading a book called ‘Blur’, and I was on a train going from Dobbs Ferry, New York, to Manhattan. Ironically, ten years later Dobbs Ferry became well known as the birthplace of Mark Zuckerberg, but that had nothing to do with it.

Unfortunately, the idea I came up with wasn’t Facebook, but that’s a different story. I remember reading this book and it talked about this brave, new world of how connectivity was going to change everything, of how the speed of conversation was going to change everything, of how these centralized online marketplaces would bring buyers and sellers of goods in a way that the physical world was just not able to do in that it would be able to bring these people together in a very cost-efficient way. That just gave me an epiphany. I thought what if I created an online marketplace of sorts, for lack of a better word, that brought together anybody who made music, regardless of the language they spoke, the passport they carried, the music they played or even the level of proficiency with, theoretically, anybody out there who was looking to book them?

When I was a talent agent I used to have this… I think what made me successful was not access, but persistence. I felt that there’s always a buyer out there for any band, regardless of who they are, regardless of how good they are. It’s just an issue of working hard enough to find them.

Andrew: And it’s inefficient to keep making phone calls, to keep hunting them down, to keep sending out CDs just to find that one needle in a haystack. And you said, “If maybe technology could simplify it, then we could create an efficient marketplace.”

Panos: That’s correct. I felt that the Internet, even back in the late 90s when I first got the idea for Sonicbids, I thought that it created and had this perfect environment to bridge those inefficiency and bring formerly disconnected people together. eBay at the time, as well as other so-called marketplaces, were proving that to be true. So the initial vision for Sonicbids, to some degree, a bit of a blend between a Monster.com and an eBay of sorts, but for people who were looking for gigs.

Andrew: And the book, of course, is ‘Blur’ by Stan Davis and Christopher Meyer. April, who pre-interviewed you, asked you what books you recommend and that’s one of them. We’ll get to the second one later in the interview. She also asked you in the pre-interview, “What’s the first step that you took?” And you said, “I tried to raise money.” How did that go for you?

Interviewee: Terribly. Thankfully. This was, again, spring of 2000. For those of us who’ve been around for a while, that was the end of the first wave of .com bubble. There are a whole lot of companies that people would not even recognize but were household names at the time, like the globe.com and a bunch of others like cosmo.com that was almost like a precursor to Netflix. It’s kind of funny how a lot of these ideas that actually ended up becoming very successful ten years later kind of imploded with the end of that first wave. But I remember going around to people with my business plan, knocking on a lot of doors, knocking a lot of VC doors, and I got rejection after rejection after rejection.

The attitude was certainly, “Gee, man, did you get the memo? Nobody’s really starting online businesses in April, May, June of 2000? Forget it. Why are you even bothering to do it?” But to be frank with you, that rejection fueled me, and to some degree prepared me – I hate to say it – for a lifetime of rejection. One of the often unsaid things about running a business is that you actually get rejected a lot more than you get accepted. That’s just part of life as an entrepreneur, but you just dust yourself off and try again, as the saying goes.

Andrew: Why did it fuel you? Why didn’t you say, “Hey, these guys aren’t buying it,” and get in your own head about it, and say, “Maybe it’s just me. I’m a failure. Maybe it’s me, I picked the wrong time.” We’re going to talk later on, I think in this interview, I hope, about the inner game of entrepreneurship. Maybe we can touch on it now. What was going on in your head, and then why didn’t you give up and give in to it?

Panos: To paraphrase The Blues Brothers, I had a vision from God, you know? I mean, it was one of those things. I tell people all the time that, when you have a concept of an idea that you want to pursue, you don’t do it because you think you’re going to become a millionaire or billionaire, or you don’t do it for any other reason other than you are just driven, singularly, by that belief that your idea, your vision, can make the world a teeny better than the one you’ve inherited.

I often call entrepreneurship as being very similar to falling in love. Like when you decide, or you get an idea, you have the same feeling as when you fall in love with somebody. You can’t sleep. You can’t eat, unless you’re with that person, or unless you’re pursuing that idea, you can’t rest. Very much like when you fall in love with somebody, generally most of your friends have something to say about it, and generally most of your family and friends are probably not that crazy about it, because that’s just people’s instincts. Maybe people are commitment averse, I’m not sure.

I didn’t give up because I was just powered and energized by what I felt was a very, very magnetic vision. I almost became a zealot, if you will.

Andrew: That’s a good way to put it. If you couldn’t raise money to build this business from investors, how did you get the funds to build the company?

Panos: I was in a fortunate position, to be young, but thankfully not foolish. I had saved enough of the money that I was making as a talent agent. I was in the fortunate spot of having a base salary and then earning commissions on top. For about a period of two years, I put all of my commissions away. I thought that would be a ticket to my “freedom.”

Initially, I used my own funds. I started the company with about $50,000 of my own money that I had saved. Then, gradually, I got commitments from friends of friends, as well as my own family. Frankly, when I started getting commitments from other people, and they weren’t for a lot of money, they were for $25,000, $50,000. You know me, when I say they weren’t for a lot of money, it’s a lot of money for anybody, even 13 years later, but certainly we’re not talking about the millions of dollars that a lot of modern Internet companies raise.

Andrew: And, the cost of doing business back then was a lot higher, because you didn’t have the infrastructure that we have today. There wasn’t cloud hosting of your video files or image files, which we do here at Mixergy.

Panos: It’s unreal, yeah. When you look back at that era, and the cost of launching an online business, and even when you look at my early expenses, most people in 2013 will laugh. There’s stuff that you can do today entirely for free, that would cost $10,000 or $20,000.

Andrew: For example?

Panos: Frankly, building even the most basic infrastructure of the web site, I think today you can actually get a lot of open source components to put that in place that back then I couldn’t find. To give you an example, I wasn’t able to launch a paid membership plan initially, even though it was always part of my business plan, because I didn’t have the money to put together the infrastructure to process payments. Now days, you can just slap a PayPal button on your web site…

Andrew: I did that within minutes.

Panos: There you go! Then you can start processing payments in seconds.

Andrew: Or stripe, which we now have. You did something that was advanced for the time. So much that you did was advanced, but one of the things that you did was, you found a development company in Bulgaria to build out your site.

Panos: That’s correct. Like many things that are called advanced ten, thirteen years later, it was just pure luck. I wish I could tell you that I just had some insight or that I was just that smart. I was looking for office space because after about a year of running the company out of my apartment, I got sick of not having a place to go to work. It’s amazing how that very basic thing that most people who have full time jobs hate – getting up in the morning, taking a shower, eating your breakfast, and going to work – that very basic routine makes you feel that you’re doing something that is real. Makes your company feel real. And the more real it is or the more real that it feels, the more real it becomes to you and the outside world. I think a lot of it is about your attitude towards your company.

So for me after a while, after working out of my house for a year, I just started yearning for interaction with the outside world. I started yearning of having a place to go to work. So I started looking for office space here in Boston’s South End, and in one of the office spaces that I looked at it was a sharing facility, and I came across this guy who was [??] “Hey, are you looking for developers?” I’m like, “Sure.” And he says, “Gee, we have this outsource development team in Bulgaria that costs $35 an hour.”

And I said, “Thirty-five bucks an hour! My God, most American developers charge me a hundred twenty-five bucks an hour. Bring them on. I knew nothing about developers. I knew nothing about languages. I knew nothing about architecture. All the kind of stuff that in 2013 I would agonize about, frankly. Oh, you know, like based on the language that I picked, would I be able to attract other developers. That’s the kind of stuff that goes through your head. I didn’t even think about.

I said, “Thirty-five bucks an hour sounds good to me.” And we came up with the scope of the very first project that they would do. You’ll laugh, but the way that we would work because they were seven hours ahead of us, I would actually email them and then hand draw stuff. I didn’t have a scanner, so I would fax them my… Nowadays I’m going to call them wireframes. Back then I don’t know what I would call them because I didn’t know what a wireframe was.

Andrew: Sketches.

Panos: Sketches. I just had a vision what the site would look like and how people would interact with it. So I would write and draw them my sketches, send them over to them. They would code during their day which was mostly during our night. By the time I would come to work at 10:00 in the morning, it was already 5:00 p.m. there, so they had most of their workday done. I would review them, give them feedback, and then we would do it over and over and over again, and that’s how I launched the first website.

Andrew: Did you accept payment in the beginning?

Panos: [chuckles] Not for the first six months. And then after that, aha! PayPal came about. And I used PayPal as the first method of collecting payments. That was the first method for quite some time because no bank would give me a merchant account, believe it or not, because we weren’t selling physical goods. All the banks I would go to would not give me a merchant account, and they would not give me a line of credit because I wasn’t a “real business.” Because Internet in 2001 and 2002 was still very much in its early days.

Andrew: How did you decide what to charge for? You could have charged for posting, music. You could have charged…I mean you could have charged the musicians, you could have charged the promoters who were looking for musicians. You could have charged advertisers. How did you pick who to charge and what to charge for?

Panos: Well, I always felt that you charge the motivated party. And the motivated party to connect was the musician. And more importantly, I feel that who you charge is who you treat as your customer, is who you think of as your customer to some degree and who you devote most of your energy and most of your resources to. So from the beginning from the very first business plan and the very first concept that I had about Sonicbids, I always had the concept that our customer would be the artist, and that we would be charging a subscription fee for access to a network.

I did not charge the promoters because I felt that from the beginning the biggest challenge that I would have would be to attract as many promoters as possible. And certainly one of the reasons why I got rejected over and over again in the beginning by investors was because nobody believed that it would be possible to build a so called two-sided marketplace. And certainly without a doubt, even in 2013, I think it’s difficult to build a two-sided marketplace, but if you do succeed and if you are able to do it, then it’s actually very difficult to break. I think eBay is proving that, better than almost anybody else.

In terms of how much to charge them, to be frank with you, is a completely gut instinct. People ask me, did you do any case studies, did you have focus groups? I just thought that $50 a year sounded like an awfully good deal to be able to summon up and apply to as many things as you wanted to, and save all the money from sending out physical press kits. My pitch back then was, gee, if I save you from sending out four physical press kits with CDs, you make your money back. Back then, to go and press a CD easily cost you $5, $6, $7 a CD to actually manufacture. Forget postage. Forget glossy photos. Forget all that stuff.

Andrew: I see.

Panos: That value preposition really resonated for people.

Andrew: The challenge with the marketplace is that it’s hard to get artists if there aren’t promoters looking for artists on the platform. It’s hard to get promoters if there aren’t enough artists for them to search through and find the right one.

It seems to me that the way you overcame that was by saying to artists, even if there aren’t promoters on this network, you’re going to be reaching out to them. We’re going to make it easy for you to talk to the promoters that you’re already talking to.

Panos: Yeah, you know, that’s a good point. I think maybe the flip side of the coin, that it was really expensive to launch a web site was that competition was not as intense as it is today. So, I really had time to develop and refine the concept, and develop and refine the idea.

The value prop. to the artist was, hey, I mean, I was honest with people, I’m building this, I’m still going out there to get promoters, but there’s still value for you because you can come and create your electronic press kit. You can email it out to anybody that you’d like. So even if you can’t physically apply to anybody, you can actually email it to anybody that you want, and when they get it in an email it comes in a very cool HTML email, and your photos and music are already there.

For a lot of people back then, frankly that was a novelty. Even the concept of having what we call a WYSIWYG site, and just uploading your photos, and your music, and your videos, that was back in the day it just sounded like a pretty cool thing to do. You know what’s amazing? Even 13 years later, to this day, people tell me that the EPK design, which is largely unaltered, that is still very simplistic, and it’s still very useful, and it’s still just the easiest place on the net to go and find information about a band in a very quick way if you’re a professional.

So, the value proposition resonated for musicians, but then I focused entirely my marketing energy and time on getting in promoters. To be frank with you, I knew how to do that. I was an agent. That was my job to get promoters to be attracted to, whether it was one artist or 1,000, it didn’t really matter.

Andrew: Let me break that down, actually. I want to come back to promoters in a moment, but first you wanted to get the artist, because they were the ones who were paying. How did you get the artists on board? What did you try and what worked?

Panos: Initially, I went to a career fair at Berkley College of Music, which is where I launched the company on February 25, 2001. I auctioned off a guitar that I got from a company for free, called Mars Music, which I put up in exchange for a small tile ad on Sonicbids. I knew Andy Summers from the Police, because I was his agent, so I got him to sign the guitar. I put a little sign and I said, “Sign up with Sonicbids and you enter the chance of winning a guitar signed by Andy Summers.” I guess one of my lessons to any entrepreneur is leverage any resources you have. Barter anything you can.

That got about 300 people to sign up. At the time, we were still free, but again I had to have proof of concept. To be frank with you, the way that I attracted artists after that was by going to promoters and getting them to act as our ambassadors, our marketers. I knew the area that most artists flocked to were promoters. They would go to promoters and say, “I want to play here. I want to play your club. I want to play your festival.” So, I felt that if I signed up enough promoters and I’d get them to market Sonic Bids as a legitimate means of applying to their events, that would be the key to getting the most amount of artists, because I certainly didn’t have enough money to go and spend it on traditional marketing,

Andrew: Or buy enough guitars to keep giving them,

Panos: Oh, or buy enough guitars, and there was no Facebook to buy ads, and if I had the money, there was no Twitter, there was no social media, if you will, and there was no easy places to go and find musicians at the time, it wasn’t like there were all these lists or Myspaces or all these websites that sprung up later on. So, if I had the money, frankly, or if I’d had a lot of money, I would have probably blown it on ads on MTV, and full page ads in Billboard magazine, or full page color ads in the back of the NYTimes art section, because that would have been my misguided instinct in terms of how to find bands.

Andrew: I see. So, you went to the promoters, and you said, “Please, when people come to you and say that they want to play here, instead of asking them to send you their CDs and press kit, etc., send them to the site where they can create a page and send you their music and send you their music and send you their story. How did you get them to say yes to that? That’s a whole new process for them.

Panos: They had the same problem that I had as an agent. They would get bombarded with press kits, that most of them would end up at the back of their office credenza, or whatever, and they were just overwhelmed with having to go through them, and respond to a lot of them. So, either they got unlistened, or, you know, the second to worst thing to that was you actually had to go through all of them, open them up, put the CD, listen to it, and then hand write rejection letters to everybody. I mean, that was a nightmare. But if you think about it, every promoter, whether you’re a bar, whether you’re a festival, whether you’re a college, whether you’re a cruise ship, you depend on music, ultimately, to sell that end product, whether it’s called a ticket, whether it’s called a pint of beer, a glass of wine, a plate of food, it doesn’t matter.

Ultimately you’re depending on music, so, therefore, you have a need to go through all this stuff. I knew that they had a fairly acute paying [???] point. So when I went to them, I said, “Look, I will give you this platform for free, I’m not going to charge you, but in exchange, I want you to actively refer these people to Sonicbids. I’m not going to change your process, you can still get stuff through the mail, if you really love Sonicbids and you want to do it entirely online, awesome, I’ll give you a discount, for being “exclusive” with me, but I didn’t seek to change the way they did business as I sought to augment the way that they did business. And looking back, I feel that was instrumental, because changing people’s work flow, and changing people’s habits is very, very difficult. So, my flexibility I believe, in working with these promoters, and maybe the fact that I understood them, because I was a professional for six years prior to starting Sonicbids, that made a difference in terms of the eventual adoption of the platform.

Andrew: What did you do to make that process easy for them? I mean, now they’re getting bombarded with people, instead of in the mail, but with emails, and online media. What did you do to make it easy for them to look through the kit quickly, to listen to the music, and scan it fast?

Panos: First of all, I talked to a lot of them, and I understood the way that they were reviewing things. So, the EPK, or the electronic press kit, was designed with them in mind. Then every single one of these EPKs was standardized, and still is. So, the simplicity of the look and feel of it, the standardization of it, made it really easy for them to scan through hundreds, sometimes thousands of these, in order to find what they were looking for. And, also, I didn’t seek to recreate a lot of the stuff that they were used to doing. Their inbox in Sonicbids resembled a lot their e- mail inbox, the way that it was organized, the way that they were able to move submissions into different folders.

So, to some degree, I didn’t custom build it for any one promoter, but I do feel that it was a bespoke product for a community. I sought to understand the way they worked, and I tailored Sonicbids around the needs of their community by talking with them, and evolving it in real time. That made a difference, that I listened to them and that I was able to react fairly quickly and launch new features that appealed not to one, but to all of them. That was key early on. I would say that without a doubt, promoter adoption was the single most instrumental thing in Sonicbid’s eventual success.

Andrew: To this day, 43% of bands come through promoters.

Panos: That’s correct. To this day, almost one out of two bands that join Sonicbids come as a result of seeing the Sonicbids logo on a website somewhere that says , “If you want to apply to me, apply through Sonicbids.” I sought to emulate a tried-and-true strategy of either American Express or, nowadays, PayPal, or back in the day, dare I say, TicketMaster where – I saw Sonicbids as a currency, as a platform, as an equivalent to a passport, where the more people accepted it, the most users I would get to use it. Again, I was guided mostly by instinct rather than any theories.

Andrew: There’s so much I want to ask you about and so little time left. Let’s talk about – we talked about the idea, we talked about the success, but it’s not all so easy. In fact, April in the pre-interview asked you about your biggest challenge, and your answer to her was fighting the inner demons. What are the inner demons that we as entrepreneurs face? What did you face?

Panos: Well, you know I like the way you termed it earlier. Inner demons are [??]. When I was a kid I read this awesome book called “The Inner Game of Music.” It was written by the same guy that wrote “The Inner Game of Tennis,” I think. And, you know, the truth is that embarking on being an entrepreneur, I think, is the second craziest thing on the planet to embarking on being in a rock band. Everybody tends to look at you strangely, and be like, oh yeah. Tom has decided he wants to start this company, and they look at you as if you’ve developed a drug habit that at some point you’ll hopefully overcome. But it is not a common route, and you’re also at an age – I was 26, 27 – where a lot of your friends are getting regular jobs, they’re making good money, and you’re deciding to take a very different path. Inevitably you not only get questions from your friends and your family about why you’re doing this, but certainly you keep asking yourself the question, am I doing the right thing? Is it the right thing that I’m depriving myself from the stuff that’s becoming expected, if you will, of somebody that’s my age? What if I fail?

You have all these doubts circling in your mind. I think there’s is a misconception sometimes that entrepreneurs are these hyper-confident people that never have a doubt in their mind. They just have this vision, and there’s never a nanosecond where they question their own vision. They’re able somehow to convince everybody that their idea is going to be fruitful. But it’s not the case. You have some doubt. You have people who doubt you. You get rejection. You get setbacks. You get, sometimes, depressed by rejection. There were some times where I would just go home and feel like Willie Loman from “Death of a Salesman.”

Andrew: Trying to sell door-to-door virtually to promoters. So when you’re going through that period, and I know that feeling, I know my audience has had that feeling, maybe they’re going through it right now, I know that because I see the e-mails that we have privately. The big question is, how do you change? When your mind just keeps saying you’re making a mistake, you’re not going to make as much money as other people in your position are, you’re not going to go anywhere. You’re robbing yourself of opportunities. Why are you doing this? When your mind goes into that, what do you do to change it?

Panos: I did a few things. I kept writing down all the reasons that I was doing this, and I still have those lists. I remember having a column, and on one side I said here’s why I’m doing this, and on the other side I said here’s why I should quit. I always felt as long as the reasons why I’m doing it outweighed the reasons I should quit, I won’t quit. The other thing was reading. To this day I read a lot, and I read a lot of biographies about people who started businesses – not necessarily online businesses, as a matter of fact anything but online businesses. And you realize, and I realize, that a lot of my challenges were extremely common.

Almost anybody who’s launched a business, whether its Bill Gates, or Ted Turner, or Richard Branson, or Steve Jobs, or John Rockefeller, it doesn’t matter. Anybody who started a business, Sam Walton, you know, they were faced with similar setbacks; they were faced with similar challenges. They were faced with similar insecurities and doubts, as you are, and if there was any common trait among all these guys that I found, it is their rather Churchillian notion of just never giving up. Ever, ever, ever giving up. And to this day, people ask me, “Why do you think Sonicbids was successful?” you know, and I say, “Look, I’m not the smartest guy that I’ve ever met, I’m not the richest guy that I’ve ever met, I didn’t have any technical skills, I didn’t have the biggest team, I didn’t have, at the time, any venture backing or prestigious venture back, I didn’t have a bunch of stuff. But what I knew I had, and what I knew that I controlled, were two things: my own persistence and how hard I was willing to work. You know, and, look, I’m not going to tell you that in life that’s all you need, but, you know, it’s 90% if you ask me.

Andrew: Going back to the list that you made, it sounds like one list was a list of all the doubts, all the reasons why things weren’t going to work out. The other list was all the things that you wanted. You wanted this business to succeed; you believed that you could get artists to add on and so on. When you made that list, how did it feel?

Panos: Well, when I was writing this list, sometimes I was scared that my right hand column would outweigh my left hand, meaning the reasons why I should quit would outweigh the reasons why I should keep going on. Every time at the end, it just felt liberating. It felt reinforcing. And, you know, I was also in a very fortunate position to have a family that believed in me, to have friends that believed in me, and, sometimes it’s important that you focus not on your setbacks and failures, but you have to focus on the things that are working for you. It’s easy to miss those cues, because you’re so focused on what’s not working. And, I will always look, and as a person to this day, I will always look for that positive affirmation.

I think one of the important things of being an entrepreneur is that you just have to focus on those silver linings, you have to be an optimist by nature. You have to love people, by nature. That’s my belief. I think people who are negatives, and misanthropes, and are looking for things that are wrong in life, don’t start businesses. Because, at the end of the day, you know, yes, things are stacked against you, and you are working against the tide.

Andrew: I find that for entrepreneurs, myself included, that the list of reasons why things are not going to work out makes itself. It writes itself in my head as I start, it rights itself in my head whenever I have a phone call where I try to sell someone and I get rejected. In your case, that list might have been added to when you talked to investors or said this is a terrible idea. It kind of makes itself. The list of reasons why things are going to work out seems to take effort, which is why it feels to me like you had to sit down and write it. You see, you’re smiling, is that a smile of recognition?

Panos: Yes, absolutely. I think, you know, the reasons why you should quit are almost self-evident, as you said, that list writes itself very, very quickly. But I think that the process of reminding yourself why you’re doing this is extremely critical. I think that to start a business, if your motivation is just to go and make a bunch of money, my feeling is that you’ll end up giving up pretty soon, because there’s a lot of easier ways to make money in life, than just starting a new business. I don’t know if there’s easier, but there’s definitely surer ways of making money. You know, you get a job, sure as hell, a week or two weeks later, you’ll get a paycheck. You start a company, and they take, like with me, three and a half years before I got my first paycheck from my own company because I paid everybody else before I paid myself, you know, and even when I paid myself three and a half years later, it was for the grand salary of $25,000 a year. But, hey, you know, if you believe in something, that’s what you need to do.

Andrew: There’s one other challenge, and that is an employee, and this is a hard thing for me to even talk about, an employee wrote an anonymous blog. What was it about?

Panos: This was years later, after the company grew, and, you know, you realize that in spite of your best efforts and of all the thought that you put into creating a company culture, in spite of your desires to create a collaborative space, and I went as far as designing the space that we’re in, working with and architect to design a place that’s open, worrying about the chairs that people would sit in, worrying about the company benefits. I wanted them to have the best benefits in the world even for a small company. I was always very particular about the way that we, as a company treated the people that worked here.

From the very first day I wrote not just a business plan, but a culture plan for Sonicbids and what kind of culture I wanted to foster, what kind of people I wanted to hire. I even wrote a list of what we call “The 13 Good Rules of Sonicbids”, sort of this unofficial commandment list of how you should behave. But, unfortunately, as companies grow, it’s inevitable that some people just won’t like you, not because of who you are, but because of your title, because of your role. I had an employee at the time who started an anonymous blog that was basically a hate blog against me. It was the most bizarre feeling in the world. It made me question, and it put to test a lot of my own values that were very important to me. It makes you ask yourself questions such as, ‘If I’m going to get this, in spite of all this work that I’ve done to create such a collaborative environment, maybe I’m an idiot being so giving.’

Andrew: Why be so nice if you still get burned?

Panos: Absolutely. Then maybe I shouldn’t be so nice. It really put to test a lot of my basic values that I have as a human being. It was absolutely very hard for a period of a couple months to come to work every day and there was a new blog post about the events that happened the day before. Somebody being pretty malicious and it was becoming a very negative thing in the company. It was a very difficult time. It’s funny, when you start a business you think about all the different things that can happen to you from running out of cash, to not getting enough customers, to not launching the right product, to not marketing the right way, not hiring the right sales people, not giving people the right raises, not retaining the right people. One of the things you don’t ever plan for or think of is, ‘Gee, what it somebody that I employ starts a hate blog that’s beamed all over the web and becomes the focal point of the business for a couple of months?’

Andrew: Because people have to read it. They feel like, ‘am I in it?’ or ‘what kind of stuff am I going to read about other people, or about my boss who’s in there?’ And you can’t stop them from reading it. You can’t stop them from talking about it. If you start outlawing them from reading and talking about it, that’s going to be more trouble. So what do you do?

Panos: That’s exactly what I did not do. I did not outlaw, meaning I agree 100% with you. One of the interesting things about being an entrepreneur is that your values will be called into question. That’s why I think it’s very important that you have those values clarified, of what you believe in, who you are and what you stand for. So, I thought a lot during that time how I should react. I could have shut the blog down, I could have hired attorneys, I could have blocked the blog from being accessed from the within the website. All the things that maybe your initial response tells you to do. But instead I thought, I won’t do any of that. If people want to read it, it’s a free world or at least a free country and they should read it.

Instead I appealed to everybody’s common sense, which is, look, you’re here presumably because you love the company. You are able to make a living, and grow, and get opportunities, and get raises, and get promotions, and launch products that customers love, and come to work in a place that you love because of this company. If you continue to read this blog, which is completely up to you, you’re effectively becoming the fuel and an audience for somebody who clearly wants to destroy this company.

Andrew: But it feels like even that’s not going to work. People would still read it anyway. But you did something else. You took another direction. You started writing your own blog, didn’t you?

Panos: I did. I wrote my own blog. I addressed some of the issues that the person was bringing up. I’m a believer in communication, clarity, being direct, open and honest with people about your own failings too. I think, people respond to honesty and integrity. Ultimately, that was the route that I took, I started an internal blog. I had an external blog at the time and believe it or not, I didn’t address anything at the external blog about this. I did address a lot of stuff in the internal blog that I wrote for company employees, or “teammates” as we call them at Sonicbids. That made a difference because I was communicating with people. At the end of the day, I just had faith. I had faith in the people here, I had faith in the way that they would respond. In the end, they stopped reading it, which deprived these people, whoever they are, write these hateful things. What are they looking for? They’re looking for an audience, audiences are oxygen. If you deprive them from an audience, you deprive them from their oxygen and it gradually went away.

Andrew: Why did you decide to sell?

Panos: Why did I decide to sell.

Andrew: Mm-hmm.

Panos: It was many reasons, some of them very pragmatic, some of them going back to those basic values that I have. The pragmatic reasons were, A) I raised money from venture capitalists and at some point they need a return. We got an offer that enabled everybody to make a good return. The other pragmatic reason was my entire net worth as a human being and as a person, both me and my wife, who’s also worked here for ten years was wrapped into the company. If anything went wrong, we would have absolutely nothing. As you get older, that’s something that you realize, these are very pragmatic reasons.

My instinctive reasons for selling was that I believe, unless the company got access to a broader set of resources, maybe a larger organization, at some point it would have a hard time competing. I either had to go and raise a bunch of more money or if a good opportunity came about, I would have to merge the company with a larger entity. That’s why I decided to do that. It’s important that you maintain a combination of pragmatism and idealism when you’re running a business. I always called myself a “pragmatic idealist.” You need your pragmatism to keep you sane, to make solid decisions.

You need your idealism to keep you going even when things are stacked against you. You need your idealism to keep you going in order to create something new, different, and that moves the needle forward. It’s this balance between the two that I think makes companies successful. If you overfeed your idealist side, you tend to go haywire. If you overfeed your pragmatic side, you tend to go out of business because you’re never focused on growth, or you don’t seize opportunities like selling the business or raising money when the right opportunity comes up because you’re too trapped in your particular identity of who you are, what you do, and why you do what you do.

Andrew: I’m reading online right here that you raised 4.5 million dollars, is that right?

Panos: I raised 4.5 million dollars in 2007. That was almost six years after I launched the company.

Andrew: From Edison Ventures, I think.

Panos: That’s correct.

Andrew: You sold the company for 15 million?

Panos: That’s also correct, published reports say.

Andrew: It’s correct, isn’t it?

Panos: It’s correct, yes.

Andrew: It’s the correct amount or the correct amount that people reported?

Panos: I said what they reported is correct.

Andrew: I see, OK. Most companies don’t reveal that, I’m surprised that that information is public for you.

Panos: It was a choice me and my buyer at the time made. I didn’t have an issue with that number being out there.

Andrew: Did you become a millionaire?

Panos: You could say so.

Andrew: How did your life personally change after this? We know how the business changed, a little bit of it, it hasn’t been that long. Backstage, a well-known company used to publish those. ndrew: So, but how did your life personally change?

Panos: Maybe I’m even more careful about money than ever before.

Andrew: Why?

Panos: Because, you know, I guess a few things, you know. You realize that that’s not the reason why you started business, number one. Number two, I don’t know. You realize how hard you worked for that money. You’re protective, it’s an important thing. I mean, no, I didn’t go out there and by a Porsche, or a second home, or all that crazy stuff that people do. You know, I’ve always believed that money is freedom, hopefully freedom to do something that you like, and not to be enslaved by it. So, if nothing else, actually, I mean, my wife, Kimberly, who works here, we just made a conscious decision that if nothing else, we wouldn’t do anything dramatic.

You know what, maybe it was a lesson that I’ve learned as an entrepreneur, as one of the most common mistakes you make as a business, which, I certainly made as well, was when you raise money, and you come across a lot of money, you tend to overspend, you tend to throw your own instincts out the window about the way that you should behave, and you spend money on things you shouldn’t be. And you know, at some point, if you continue that, you run into trouble. As a human being, I don’t want to experience that. I work too damn hard in my life that I don’t want to go back to that level of insecurity that I had when I started the company, and, you know, maybe that’s a good enough reason for me to just not go bananas.

Andrew: It’s a great reason. All right, let me do a quick plug here, and then I want to ask you about your book recommendations, and the plug is for Mixergy Premium. You guys know that in the interviews on Mixergy, you hear stories of entrepreneurs who tell you how they built their businesses. As a premier member, you get all that, and in addition to it, you have, at this point, about a hundred courses taught by real entrepreneurs who break down what they do especially well. One of the courses that’s coming up is a course with the cofounder of Buffer. Buffer makes an app that makes it easy for people to send their stuff socially, send it to Twitter, to Facebook, etc. They got to over $100,000 in sales, I asked them how they did it, and Leo told me, “You know, content marketing.”

So I invited him here to talk about how he did content marketing, he broke down his process of how he wrote these articles, how he got the articles out online on popular sites, how he got those popular sites to say yes, how he then got customers from those sites to come to his site, to register for his product, to become his customers, and to grow his business. That’s just one of, as I said, about a hundred courses taught by real entrepreneurs who really went through what you’re going through now, and come here to teach how they did it. They just break down their process, and teach it so that you can learn from them. And it’s all available at Mixergypremium.com, and I guarantee you’ll love it. So, since I’m recommending at this point, why don’t we talk about the second book that you recommend. You love biographies, and it’s a biography of John D. Rockefeller. I was trying to jog your memory.

Panos: That is correct.

Andrew: Which one, and why do you recommend it?

Panos: It’s a book called “Titan” that was written by a guy called Ron Chernow, that I read in the late 90s. It’s long; it’s about 800 pages, so you have to have a lot of patience to get through it. It’s just an amazing story. It’s a story about a person that everybody thinks they know but they really don’t know, it’s a story about somebody who came from the humblest beginnings, built a giant empire, and the process changed the way that the world operated, that the country operated, became the richest man on the planet, and even by today’s dollars, he would have been the richest man on the planet, far surpassing Warren Buffet and Bill Gates and all the other guys.

This was a person that was driven by their values, he attended church every week, never drank, was a very charitable individual, contributed the money that started everything from the University of Chicago to, of course, a lot of the well-known New York establishments like the MoMA, and the Rockefeller Center, all the way to financing the education for Helen Keller, that a lot of people don’t even know about. As a matter of fact, she did not know about, and was a vocal critic of John Rockefeller until he died.

Andrew: While he was giving money to help her out, she didn’t know that he was the one who was helping her out.

Panos: That is correct.

Andrew: I’ve always been inspired by philanthropists. I’ve always been inspired by people who give.

Panos: I’m sorry to interrupt, but you were saying earlier that you read a lot of biographies. And this is a great example of one, “Titan: The Life of John D. Rockefeller, Sr.” But you also said “Certainly not Internet.” Why not Internet?

Andrew: Because, you know, I believe that answers to a lot of our problems are there and they’re not necessarily coming from staring at the very problem you have. And I think reading for me, how other online businesses started, is looking for answers by staring at the very same problem that I have. I think that business is business. The fundamentals of any business are more or less, the same. And I’m just attracted and have traditionally been able to get more insights by reading about things other than the very sort of direct application of what I do. And even the insight of starting the company or how I’ve marketed the business over the years did not come from reading about how other online businesses do it.

I’m not saying that I exclusively or that I will never read. I mean, certainly, I’ve read a lot of books about successful companies like Google, Yahoo! and others. But it’s never been my focus. I don’t know. I would say “Gee, I’m running an Internet business.” I wake up every day and say “Gee, I’m running a business.”

Panos: I see. And so you want any business, you want to learn from other business, even if they preceded you. Even if they were John D. Rockefeller’s business which wasn’t around. I guess, a person who died before you were even born. And you know what I was racing to get through in that sentence was that maybe that’s why so many people like the interviews that I do with entrepreneurs who aren’t online. I would say my focus has got to be on online entrepreneurs in these interviews, but whenever I do an interview with a founder who has a restaurant. For some reason, that does exceptionally well. Or a founder who sells food at Whole Foods and built up a successful company that way that does really well.

Andrew: So, that’s food for thought for me. I want to thank you for doing this interview. But before I let you go, I encourage my audience to find ways to say “Thank you” to my guests if they got anything of value from the interview. If they wanted to say “Thank you” to you, what’s the best way for them to do that?

Panos: Yeah. They should just go ahead and e-mail me. Panos, P-A-N-O- S@sonicbids.com, the easiest address on the planet. And they should just go ahead and send a note to me and I’m always happy to respond and always happy to directly address any entrepreneurship-related questions. I’ve benefited a lot by reaching out to others and talking with others and getting others’ insights and others’ mentorship. And it’s important for me that I reciprocate by giving back, as well.

Andrew: I’m honored that you did that here. Thank you so much for sharing and for giving back in this interview. And thank you all for being a part of it. Bye, guys.

Panos: Thank you so much.