In this interview I want to find out how a founder who says that he hired the wrong people ended up building a profitable software company.
Andrew: Listen up. I’d 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 wanted 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 want to tell you about Grasshopper. Do you want a phone number that people can call and then press 1 for sales, 2 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. Alright 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. In this interview I want to find out how a found who says that he hired the wrong people ended up building a profitable software company. Aaron Fulkerson is the founder and CEO of MindTouch, which turns its clients’ customers into happy users because of its cloud delivered social help center. Its clients include companies like Success Factors, PayPal, HTC, Accenture, and Intuit. I invited him here to hear how he did it. Hey Aaron.
Aaron: Hey Andrew. How’s it going? It’s great to see you again.
Andrew: Same here. Jeremy pre-interviewed you. Even though I’ve known you for a long time, Jeremy pre-interviewed you and he asked you about your company’s metrics and here’s what you told him. You said the only metric that matters is monthly recurring revenue and how many new customers we have. So what’s the monthly recurring revenue right now?
Aaron: Well, I guess we’re still private. We’re profitable. We don’t disclose revenues. I’m sorry. That’s kind of about all I can. From a day to day operations standpoint, that is a critical key performance indicator for the health of a SAS business. The thing that I found is, yes operationally day to day, that’s critically important. What matters the most to me as CEO of MindTouch is, are we helping our customers deliver value to their end user so that they become more successful with their product? One of the things that I find really exciting is HTC is one of our customers. We deliver six, well yesterday we delivered six hundred thousand help requests to their customer base yesterday. That’s six hundred thousand help requests that were potentially prevented support tickets or calls into HTC.
Andrew: Because someone went into their help center, typed in a problem, got the answer on their help center that your software powers. How do you know if they were happy with it? How did that number, and that’s a really big number, how do you know what percentage are really happy with the response that they got?
Aaron: Well it’s not just the help center, right? It’s not just the web self-service help center. It could have happened at the time that they could have filed a support ticket. It could be an agent who served that up to the customer.
Andrew: I see.
Aaron: The way that HTC knows that that answer was successful is because the end user has the ability to tell HTC that yes this worked for me. No this didn’t work for me. So MindTouch is, when you introduced us, you talked about it being a social help center. Absolutely is. MindTouch is really different. What’s really different about us is we do that web- facing web self-service help center, but that knowledge that powers that also plugs into the agent facing experience. It plugs into all of the customer support channels. And then our customers, what they’ll do is, they’ll continue to use the same measurements around customer satisfaction, net promoter and whatnot, but what we also provide is the ability for them to have one common set of analytics. Web analytics. Just off the shelf web analytics that are delivered as a payload along with the knowledge through all of the customer support channels so that they also have a whole new set of reports that they can look at to get a better sense of, well, how do we need to inform our product strategy based on what customers are having problems with the user experience? What about the marketing strategy? What about customer support? How can we be more efficient about it.
Andrew: I want to dive into that later on in the interview.
Aaron: OK great.
Andrew: But now I just want to give people in the audience an understanding of how big the company is so that someone who’s watching us doesn’t just say, hey you know what, Aaron and Andrew seem to know each other. That’s why he’s on here. And then they tune away. I want them to see this is a big company that Aaron built, his team and his co-founder, and I need a number to show them how big it is. What do we have? Aaron: So, a line such as, “We power the end-to-end help center for almost a thousand customers.”
Andrew: Paying customers. Business people. Paying customers, correct. And what’s a typical payment that a company would make?
Aaron: Well, I mean, it can vary. HTC, or Hewlett Packard is one of our customers; they’re paying a lot more than like Zorah(SP) which is a web start-up out of San Francisco. So the average sale price is probably around $100,000 but it can be really variable. I think Zorah is paying MindTouch somewhere on the order of $30,000 a year to power their help system.
Andrew: Alright, so that gives us a really good understanding of the size of payment a company could be making annually, and it’s recurring, and the number of customers you have; people that I think at this point that are trusted. I’m not having you on here just because you’re a friend but because you’ve built something incredible. Any outside funding here?
Aaron: No, MindTouch was bootstrap from the beginning.
Andrew: See, that’s the thing that I…you and I met at a Mixergy event. I used to do these events in Southern California, you came out there. A lot of people who came there were nervous trying to figure out the future, felt left out because they were in Southern California, not Northern California; they had all these issues in their heads. One of the things I noticed about you was you always had this confidence of a guy who just conquered the world. It’s like, “I don’t care that I’m here in San Diego, I’ve got this successful company. I don’t care that there are all these concerns in the world. I’ve mastered my business.” Did I read you right?
Aaron: Well, thanks, that’s very flattering. Yeah, I guess so. You know, there’s certainly some challenges that companies in San Diego face that aren’t necessarily the case in San Francisco, but I think that the community here, especially people like Howard Lindzon and Brad Feld who’s a good friend of Howard Lindzon; Howard Lindzon does Stocktwits. There’s quite a community gelling here. One of the things we faced early on in MindTouch’s history, when we first started MindTouch out in San Diego; well, actually MindTouch started out in Minnesota for the first year before we all relocated down to San Diego. My co-founder was in Redmond, Washington and I was in St. Paul, Minnesota. After the first year we centralized in San Diego and people asked me why. It’s pretty obvious, it’s because San Diego’s awesome. But anyway, in the early days it was challenging to get people that are into tech, that are technology and software, you know, get talent, right? And that’s beginning to change, the community’s getting larger. There’s more people who are mentoring software companies in San Diego, people like Howard, Brad’s coming in. You know, Brad who does Tech Stars and Foundry–
Andrew: You know what–I apologize for interrupting, but to me the part that was exciting was not the fact that you were in San Diego and that San Diego was growing and there was a community there. To me, the part that was exciting about you was the sense of confidence, this, “I conquered my business, I conquered the world.” You weren’t walking around afraid and uncertain. Now, as I read your history more in preparation for this interview, I realized you did have some issues and we’re going to get to all of that. I want to understand how you built this business with a selfish goal here of learning so that I can help build my business, but also so that my audience can build their companies and hopefully many of them will come out here and do interviews themselves and say “Hey, you know what, I watched you interview Aaron years ago and I learned this one thing and I implemented it, and as a result now I’m here doing an interview on Mixergy about my successful company.” So let’s get them there. And let’s start off with this whole Microsoft thing. What were you doing at Microsoft and why did you leave?
Aaron: My co-founder and I, we met at Microsoft. I was recruited out of college at Chapel Hill to go work for a research team doing distributive system and high-performance computing research. It was a fourteen-person team, our team reported directly to Craig Mundie, chief strategy officer who has since retired. It was a great group of people. I left… within a year of being there once I realized that the group was really a patent incubation team.
Andrew: Patent incubation team? What do you mean by that?
Aaron: Well, Microsoft has a history of, like all large companies that build a patent portfolio, Microsoft, unlike other companies, uses their patent portfolio defensively so that patent trolls who say “Oh you’re using…,” I don’t know, what’s a ridiculous one? I can’t think of one that’s not really geeky. “You’re using my intellectual property related to this widget, I’m going to sue you.” So what we were doing was helping Microsoft to build a patent portfolio and that didn’t sit very well with me. I actually believe our patent system is fundamentally broken.
Andrew: So what they wanted you to do was create more patents so they’d have more ammunition for the coming battle.
Aaron: Correct. Andrew: I see. And you said, “That’s not my mission in life.”
Andrew: OK. And…
Aaron: So, maybe, because I did get the opportunity to work with the touring award winner, Chuck Thackeray, who did the first graphical user interface at Xerox Park, and met a couple of other touring award winners. But, you know, that was really exciting in the early days, but then I realized, “Well, who’s this guy who sitting at all of our meetings?” And, “Oh, it’s the lawyer who’s filing patents based on what we’re working on.”
Andrew: [laughs] I see.
Aaron: So, I wasn’t too keen on that.
Andrew: OK. So did you quit before you found out what your business was going to be?
Aaron: Yes, absolutely. So I decided, “Well, I’ll go back to North Carolina.” And Steve and I were friends. He quickly left that group and went to a product group. He too wanted to ship products. We wanted to have a positive impact on society. Both of us do, right. So, I mean, that’s why we got into engineering. We wanted to have a positive impact on society. That’s why most people get into engineering, I suspect. So he and I kept talking. And we wanted to do something together. And when I worked with that group inside Microsoft, and then subsequently when I started working with some folks from IBM and Websphere, what I recognized was there was this big problem that was becoming more and more complicated around, “Okay, well how do product teams document the product, pass that up to marketing, marketing have input on it, pass it off to support, support the customer, and be able to add additional content?” And then of course, you know, this was before the whole social rab.
So now we got community managers involved, too. And, you know, how do we unify this product knowledge in a way that’s effective for the users, so that when you buy a product, like when you buy a new gadget, or a new software product, or whatever, the first thing you do is, like, you’re all excited and giddy about it, and you look at the packaging and it’s really beautiful, and then you open it up and there’s, like, this crappy little black-and-white book in it. And it’s like, “Well, that sucks. This is potentially a complicated product.” So what’s the next thing, often, we do is we go online and say, “Wow. How do I do this particular thing with it but I heard you could do?” And then again, there is a PDF of that crappy little black and white book. It’s awful. So, you know, the people who really know the product well, whether its end-users, or partners, or people who produce the product. What I noticed in Microsoft was there was this big problem. And then again at IBM. So that’s what Steve and I started talking about. That’s where we got the idea of the MindTouch.
Andrew: Was the original product going to be this user manual that made more sense, that was going to be online? Or was it…no. It wasn’t initially that. It was you and Steve Dorg, right?
Andrew: Who are just talking about different ideas that eventually evolved to what you describe right now. In fact, you said to Jeremy that your wife got annoyed with you as you and Steve were talking through all your ideas. Why was she getting annoyed?
Aaron: I’m a firm believer that you got to have structure. So the first thing we did is when we started coming up with, “Hey, we want to work together. Let’s come up with some ideas.” is we set a standing meeting on Mondays. And I remember I was still living in this duplex in Chapel Hill or Carrboro actually, in North Carolina. And there were two duplexes facing each other. And every Monday at 11 o’clock I would be on the phone for an hour discussing with Steve, loudly, because obviously I’m a pretty loud guy, what our next steps are. How do we proceed? And it drove my wife crazy the whole time. Because of course, she’s like, “You’re bothering the neighbors.” My wife’s very southern, so she…
Andrew: You talk to sell loudly in the house that she was worried that people outside the house would hear what you were talking about, or hear that you are making noise?
Aaron: Yes, well, you know, I walk. So I’d be inside, I’d be outside, I’d be walking around driving the neighbors crazy, but I don’t know.
Andrew: So how did this ideation process work? I’m so curious about how successful products are invented. What was the conversation like? Was it you saying, “I see a big market over here. How do get into it?” Or, “I have a friend who’s making money with this product. How do we build a similar product? What was your thought process?
Aaron: That would’ve been a better way to approach it. [laughs] You know, I saw this problem. I knew it was a problem. There weren’t any technologies that existed. There wasn’t a market that we were attacking. I mean, it was really a fundamentally flawed way to approach building the business, right. But at first we were really focused on building a business. What we thought about was, “There’s a problem. Let’s go about solving this problem. We want to work together. We’ll do an open source project. And we’ll release it out. We’ll work on it for a little bit. And we’ll solve this problem and release it as an open source project.” It wasn’t about building a business to begin with.
Andrew: And what was that problem specifically, as you understood it, back then, not today?
Aaron: Back then, it really was very much about, you know, I saw within Microsoft, I was responsible for capturing the collective intelligence and research of our team in a format that I could disseminate out through Microsoft broadly, so that it would basically matriculate from research incubation in the product, and then affect products that are being developed at Microsoft, right. At least, that was my focus. I didn’t have any good technologies for doing that. Then, when I started working with folks at IBM, I saw that Websphere is the same thing. You’ve got thousands of people across three different continents working on one common theme. And there’s a great deal of documentation and knowledge that needs to be captured and collaborated on.
So, from the beginning, it was very much a project about product knowledge and collaboration — being able to collaborate on that. My original idea was to, super nerdy, stupid idea, was to… “Steve, we’ll just take the Eclipse Integrated Development Environment, which is a desktop application, this was like ’04, ’05, and we’ll build a bunch of add-ons to that to make it into this distributed documentation tool.” Steve took one look at that idea and said, “Nah, that’s stupid, what we need to do is make it entirely web-based, and should look, as far as the end-user experience, like a wiki.” And I was like, “Oh, yeah, of course, that’s exactly what we should do.” So, we s- go ahead, Andrew.
Andrew: You understood the problem. It wasn’t just because you had this great idea. You understood a problem that you yourselves experienced at Microsoft. Can you give me an example of how that problem played out at Microsoft?
Aaron: Sure. I mean, I can’t go into the specific details of what the content was, but it’s pretty easy to understand. I’m working with 14 people on high-performing computing and distributing systems research, how do I capture that into documentation and knowledge so that I can get it out to-
Andrew: And how did you guys do it? Was it just all Outlook back then? Or was it Word docs that you were saving on a common drive? How were you doing it back then when it was broken?
Aaron: I used XML and I wrote my own Access LTs. That way I actually had a portable documentation that would be easy for me to convert to web or Word or whatever. What I was doing was pretty geeky. And it was inherently non- collaborative. I couldn’t get the other members of the team to be able to go in and edit. They’re editing XML files and I was like, “OK, well, I need to scale this, and so, how do I do it?” And I looked around and I go, “Do we use Microsoft Office with Sharepoint? No, that makes no sense. And there’s, anyone who’s ever used it will understand why, but it’s inherently non-collaborative. And also, who’s going to go in and open up these word files? What we wanted to do was to make a system that was web-centric, so there’s a web-service first. And you can hit that as a machine interface so that you can mine information, and then build a human interface on top of the machine one. I feel like we’re getting really geeky though.
Andrew: No, I think I’m understanding it. There’s this problem, that you experienced first hand, that you found a solution for that nobody else is going to duplicate, including geeks at Microsoft, and so you and Steve were thinking about solutions for it. The first solution you had in mind was going to build off a product that already existed and Steve explained why that wouldn’t work. You guys then shifted towards a wiki, and that wiki was, actually the first version was built on media wiki, the same that Wikipedia is built on?
Aaron: Yeah, absolutely, so the first rev of it, we looked at it and we said, “The human interface should look a lot like a wiki. You should click on an edit button on a webpage, you can edit, and then we looked at, what platform should we start with? We wanted to solve this problem and we were doing an open source project, so we looked around, “what projects can we use that are already out there?” Any software engineering or computer science professor will tell you the best engineers either steal or borrow, so that’s exactly what we started with. Let’s get something out there that we can start iterating on.
Andrew: And mediawiki is intended for this sort of use. For someone to not steal or borrow but to built on. But it already existed, what were you going to bring to it that media wiki, as it already existed, and was powering Wikipedia at the time, didn’t have?
Aaron: So the first revable product that we released at the end of 2006, what we did is we took the existing media platform and we added a what you see is what you get editor so that it’s all [??] and we also added hierarchical structure. The human brain actually operates on a hierarchy so we knew that we needed to have a hierarchical structure added to it. The issue with Wikipedia is that it’s super geeky for you to edit and we wanted something that business users could go in an collaborate on, so that it can go a full product lifecycle from product to marketing to support to, you get the idea. We released that at the end of 2006 and it became, by the end of the next year, November 2007, I’ll never forget. We’d done a couple releases and I went to Steve and I said “Hey, this was a lot of fun, I think I should go get a job,” and Steve said, “Well, I just put MindTouch up on Source Forge, this is before Get Hub, this was when Source Forge was “the thing”, right?
Andrew: The place for open source software to be distributed, he said, “Hey, let’s put it up on here.”
Aaron: Yeah, correct. I said great. We went off to Thanksgiving with my family, came back, looked at the stats, we were doing a couple of thousand downloads a day, a day of this software. I was like “HOLY SHIT” obviously this is pretty popular. When we first released it at the end of “06” I remember people really freaking out because there weren’t like in a positive…they were like, “wow I’ve never seen open source software that has such a polished user interface, so it became very popular because of two things, Share Point back then was very, very clunky, its gotten better, it’s definitely gotten better and two far ends of the extreme are on collaboration platforms. You have Wikipedia, which is really geeky and lightweight, basically editing web pages and you got version control and then on the far end of the spectrum you had Share Point which is really hard to get up and running. It’s a pain in the butt to keep updated, It doesn’t scale particularly very well and its very much focused on files. So, what we did is say “OK, we’re going to add a wizi- wiki editor and make it easy for business user, we’re going to get a higher article structure to it, we’re going to allow file attachments and that was the first rev and people really flipped out over it and really loved it.
Andrew: And that was a huge…I don’t want to understate how much of a problem the interface was on media Wiki. I remember even interviewing Jimmy Whales(sp) and asking him if it was intentional that is was so difficult to edit pages on Wikipedia because maybe they wanted to keep out the idiots who couldn’t do it and I think he called my question stupid because his goal was to make it simpler and it just took a long time and it still is not really that polished. Alright, so now we have a product. We’ll get into the revenue in a moment. I’m curious about the people who were picking it up. Were you intentionally trying to target a certain audience when you launch or did you say “if we make this more polished the right people will find it”?
Aaron: So, No, I mean the thing that happened was that was one of the first mistakes we made at Mind Touch was we just had this huge distribution, right?, so I said OK well we gotta get really smart about automation and start getting a sense of well how are people, who are using it, how can we like, with the lowest cost get people to buy something, so we started off with a support subscription model right, and that was in 2008, actually it was the last week of November after I came back from Thanksgiving and saw our stats on how much distribution we were doing. I said “Holy crap, I better start selling something” because this is a lot of people, so I picked up the phone and just started calling people who optionally gave us their phone number and we closed our first deal that week, but it was “08” that really we became a business entity that we had a commercial product that we were going out with, which was a support subscription model. I lost my train of thought there.
Andrew: It was about who was going to be the customer.
Aaron: The first mistake we made at MindTouch was there was such a huge broad section of people that were using Mind Touch. We didn’t pick a defensible niche that we could be best in the world at, right?, There is no way that Mind Touch, this bootstrap company, granted we had an awesome product that we could be best in the world at general purpose collaboration, right?, but that’s exactly what we went after, I went after with the companies. I was like “look we’re going to be basically like the open source share point. We’re going to be this broad enterprise collaboration play and what I should of done is really focused on “OK, where did we come from?” We came from this whole idea around product documentation to service, the customer, the user success, the customer facing, right? I went so broad that by “08” we had an incredible year.
We made our first million dollars by 2008, 2009 we grew about 3 1/2 times. At the end of 2009 though, I had the wisdom to say, “Oh, we’re screwed” and everybody is like, “What are you talking about, we just grew by about 350%.” I said “No, we’re screwed because were going after this broad enterprise collaboration play” and we now have box.netdropbox@?. All of these V.C. backed companies and Share Point and open taxed and Sysco’s got products and IBM’s got a product, so I knew, that, hey look, we’ve got to really focus in on two things: 1. Something that we could be best in the world at, and 2. We had to move away from delivering on premise software because it was just killing our ability to innovate because we had to package and Q.A. for all of these different platforms, so we really had to strip it down and simplify on something we could really own and that’s exactly what we did. At the end of “09” I came out in January and said OK, Mind Touch, this is our new focus and we’re going to be this kind of help system for other technology companies. It’s back to our roots, which is what we started off at with the whole conception of the idea, and we’re moving to the cloud.
Andrew: So, no more launches on a scheduled basis? You keep improving the software as you go. No more trying to QA on different platforms? It just works if you have a browser that’s modern?
Aaron: Yeah, correct. So, we weren’t from a 4-6 month release cycle to we put out, we update every week now. So, quite a difference. We used to QA for three flavors of Windows times two because of Apache and IIS. Two virtualization platforms and four distributions of Lenox down two it’s our clout infrastructure built out on Amazon.
Andrew: First million dollars was in your first year of business?
Aaron: Yeah. The first year we started selling a commercial product instead of we shifted from the open source to a commercial product 2008. First million bucks.
Andrew: Commercial product meaning open source with a commercial support product?
Aaron: Correct. We we’re selling a support subscription. I was always amazed by it too because, the software was really, really easy to install. We provided scripts to do the updates and my mom could use it. But, you know, people really loved the product. They really love MindTouch. They really identified with the brand. So, one of the first, I don’t know if it was the first, I think it might I have been, it was in the first few, was Intel was one of our customers. It was an IT guy inside Intel and he just loved the product. That first subscription was like $500. I think our average sales price was $3000 in 2008. That’s a lot of transactions.
Andrew: A tech company and a smart techy guy at a tech company still decides to buy support for software that’s pretty easy because, because why? Is it about just giving people security when they buy open source or when they install open source?
Aaron: I think in those early days, to be completely candid, I think a lot of people bought because they liked Mind Touch and they we’re grateful for the software. There was like, in 2008, there was like six people at the company. It’s not like we had a support department, right? By the, closer to the, later half of 2008, yeah, I think people were buying it because they’re like hey, I’ve been using this software now for over a year. I just went through an upgrade cycle. There’s a lot of important stuff in here. I need to go ahead and buy a support subscription from MindTouch.
Andrew: I see. I remember interviewing Matt Mullenweg who said, basically, he want’s plugins to be open source. You can’t lock it up and you can’t force people to pay for it, but the revenue can come from support online. From what WooThemes, which is they let you buy the, not really buy the plugin, the plug in is open source, but then you have access to a community where you can get help. How are you able to, with such a small company, do support for so many different users?
Aaron: Well, I mean, keep in mind our model completely changed. In 2009, we introduced a commercial version that had additional features. What we called, open core, is what people used to call it. So there’s an underlying platform that was open source, then we started adding commercial products on top, right?
Aaron Fulkerson: Then in 2010, we shifted entirely away from an open source model. We moved from download software with an open source platform to okay, now it’s all hosted and we sell an annual license. Just like any other softwares or service, like Salesforce.com.
Aaron It’s over 90% of our revenues come from our cloud product these days.
Andrew: Alright, what about this? You’re calling up people who installed your open source software and you’re asking them to buy and you’re not a salesman. Everything in your past tells me you’re not a salesman, unless I’m missing something.
Aaron: Well, Andrew, I could be pretty convincing.
Andrew: Why? How? Most people would of come back from vacation and said you know, I’m so excited the people are downloading this. I better update it. I better go blog about it. I better go do something else. Anything, to keep me procrastinating, so I don’t have to pick up the phone and talk to these people who might hate me, who might complain to me. Why were you able to get over that hurdle so quickly?
Aaron: You know, I love people. I mean, I love, to this day I jump in on sales calls, I jump in on support calls, I jump in on, I love people. And, I love talking to people about what we’re doing. I’ll tell you, there’s two things, like when we first started selling the open source support subscriptions, it was exciting to get on the phone. Everybody was so excited about the software, right? And, I trained the sales team to, there’s like two guys, right? And, I’m like guys don’t get on the phone giving these guys a hard sale, you know, this is an exchange, right? Get on the phone, take a consultative approach. How are you using it? Is there something we can help with? We’d like to get you on a support subscription. It was never a hard sell, never has been at MindTouch. There was a period there that I made some bad hires. We’ll get to that in a second. My focus has always been to create generative value for society, for our customers.
It’s not extracting value, it’s about creating value. If you create value, then things just work out. I said something about, at the beginning of this, we started off with “monthly recurring revenue is all that matters.” That’s totally wrong. I know I said that to Jeremy at one point, but I think it was a bit tongue-in-cheek, actually. What matters is, “what value are you creating for the customer?” Everything else works out. Monthly recurring revenue, profitability, is a result, it’s a result. Creating value is the core.
Andrew: Was there also this sense that, “Hey, if I don’t close some sales here, I’m going to have to go get a job?”
Aaron: Yeah. I don’t think that was ever a motivator for me. Because you were thinking of getting a job around that time. If this thing hadn’t taken off, you were a few months away from going and getting another job, maybe going back to Microsoft. “Hey, guys, sorry, this patent thing does sound good.”
Aaron: No. Andrew, look. I’ve been a backpacking bum, I’ve been homeless, I’ve been, you know.
Andrew: What’s this, homeless? I see a picture of you backpacking somewhere on my computer screen, I have it in my research. There it is, with rocks behind you. But what’s the homeless part.
Aaron: After high school, I just hit the road for a few years and backpacked, and periodically was homeless [laughs].
Andrew: Because you had no money?
Aaron: Yeah, of course. You don’t really need money.
Andrew: Because you’re a hippie. It’s like this, not hippie, but because of your attitude. It wasn’t because you couldn’t get a job and you were on malt liquor.
Aaron: No, that’s not it [laughs].
Andrew: Your mom was an entrepreneur. Was she, couldn’t she set you right? Say, “hey, here’s a little bit of money?” She was an entrepreneur, right?
Aaron: Yeah. She owned a restaurant. She started restaurants and ran restaurants in Northern California and Florida. Yeah, that’s correct. I know that Jeremy really loved the story he picked up, where, I remember when I was in elementary school, I think I was like, in the second grade, and I had to fill out some form (couldn’t have been second grade, must have been about fourth grade). I had to fill out some form, and it was “my mother’s occupation,” and she told me to write “entrepreneur,” and I didn’t know what entrepreneur was. I thought it was a made-up word. Yes, so she was, but I was effectively on my own when I was 15, and went through high school, and then just hit the road and I guess in a way I’m kind of a retired anarchist because, for years there… The point was, though, to go back to what we were talking about, is, the thought that I’d have to go get a job somewhere wasn’t a big motivator.
Andrew: I see.
Aaron: The big motivator has always been being – there’s a Greek term called erite, which is being the absolute – reaching your fullest potential as a human being. That’s always been a motivator for me. When I was growing up, I was always – studied and read Zen Buddhism, and seeking enlightenment, and erite is what the Greeks called that. That’s always been a motivator for me. Also, just having a positive impact on society has always been a motivator for me. So, yeah.
Andrew: All right. And here you were with this new direction for your company, that was doing well, you guys were profitable, you’re successful, and you’re saying, “hey, guys, we’re going to take a right turn over here and go towards this small niche.” Correct?
Aaron: Yeah, that’s correct. So, end of 2009, I’d already started making hires of salespeople. The thing that I – the first mistake, just to recap, was taking the company way too broad, with not enough resources to go after it. Then, focus in, “all right, great, we’re going to focus in,” but I’d already made some mistakes in hiring. It wasn’t until I read Tony Shea’s book, I guess people were telling me, but I didn’t really understand it, that every single time you make a hire, that person has a big impact on your corporate culture, especially when you’re small.
So, you know, if you’re 12 people, you hire one person, that person’s a thirteenth of your culture. I remember I spoke with a good friend of mine, Mark Hinkle. He was at Cloud.com, he was at Zenoss before that. Now he’s at Citrix. He was in the Cloud.com acquisition. He was at Zenoss at the time, and I remember calling Mark up and saying, “look, I just hired, there’s like three people I’ve hired and, you know, I’m like, I never thought I’d work with douche bags” [laughs]. I was, like, I guess at some point you get to a certain stage at your company and you just have to work with douche bags.
Andrew: What do you mean by douche bags? What were they doing?
Aaron: Well, people who just, they aren’t, they don’t share the same val-, like, [laughs]. That’s wrong to say, “They don’t share my values, so they’re douche bags.” That’s not what I mean at all. They’re self- interested. They’re interested in extracting value, not creating value.
B: Right. They’re seeing you for the paycheck and seeing you for the bonus and wanting you to aggrandize them.
Aaron: Yeah. Well, also, when they go into a sale trying to extract value from the customer without returning value. Expecting to be able to short- circuit that without creating value for the customer to begin with. That’s what I mean. The whole purpose that we’re here as a business is not to make – yes, as a business, it’s to make money, right – but that happens, again, as a result. It’s a side effect of creating strong customer relationships and delivering value for the customer. Everything else just falls into place. If you come in and think, “Oh, well, um, this is about me and not the customer and I’m going to manipulate or trick the customer…” At the time, I didn’t know that was going on, but I should have known, just based on their overall demeanor and attitude toward self-interest, being self- interested, solely self-interested.
Andrew: You were specifically interested in hiring these people because, because why?
Aaron: Oh, you know, they’re experienced, in whatever capacity. Marketing, sales, whatever. Oh, they’re experienced, they come with a track record. I was willing, at that time, to overlook certain characteristic traits because, “oh, well, they’re experienced, they’ve been successful before. We’ll go ahead and hire them.” It is not exactly my, they don’t share all of my core values or Steve’s core values, but we’ll go ahead and make the hire. Yeah, that’s a big mistake. Never do that. That’s another thing, lesson number two is really about, really focus on – I do the same thing with my family. I’ve got a wife and a four- and a seven-year-old. We have family core values posted on our refrigerator. We talk about them.
Andrew: You do?
Aaron: Oh, yeah. Absolutely. We have a family mission statement, we talk about that. We have our weekly family meeting on Sunday. We have goals that the kids pick for themselves that are in alignment with what our mission statement is and what our core values are. It’s the same thing at the company. I recall allowing people to come in and not adhere to what our, really, the core values, of Steve and myself. It creates division within the organization and it causes problems.
Andrew: I know this is a little bit of a segue, but I’m curious about the way you communicate core values within the family. What is on this piece of paper that’s on your fridge?
Aaron: I wish I could throw it over to you quickly, because it’s actually drawn up by my daughter. It looks awesome. Be honest, you know, there’s seven of them. I should be able to spit them out right now, but I’m slightly distracted. It’s, be honest. Erite, always be learning. Carpe diem, which my daughter writes up as, “fun, fun, fun, fun,” and then (carpe diem).
Andrew: So now that you’ve got this on the, I guess you guys sit and you talk about it, this is what we stand four as a couple, this is what we stand for, now, as a family, do you all agree with it. And if you do, maybe you can write it up so that they’re all participating in it. Now, how do you make sure to live it?
Aaron: Well, we review. On Sundays, we talk about it. Here’s what we do, it’s just like we do with the company. We talked broadly about our important values. Steve and I did it at the company. One of our most important values, they’re published online, [??].com/about. Those are our core values up there. Similarly, with my kids and wife, that’s what we do. We said, “Hey, what are the most important things for us?” We talked about it, you know, “Hey, we want to live healthy, what does that mean?” Exercising, eating right, being honest, caring for others, always be learning, always seize every opportunity and make the most of it, and work hard. So, there’s seven of them. We talk through it, my daughter writes it up because my son’s not old enough to write yet – well, anyway. Then, we talk about it and every week we go through, “Hey, what are some things that you want to work on this week?” Like brushing your teeth, for my four-year- old, without being asked.
Then, these stated goals, we go over every week and we tie back to the core values. It’s the same thing as running a company. One of the things that’s always amazed me is – and this could sound bad – but, running a company is so much like parenting, it’s amazing. It’s exactly the same thing. What kids want is exactly the same thing that your employees want. They want consistency, structure, and love. That’s what it is. Consistency, structure, and love. And it’s really what it comes down to in business and parenting.
Andrew: You know what? I don’t know if you’re open to it, but at some point in the future I’d love to have you come back here and just talk about this Core Values and the way you express it within a family. I’ve read self-help books from people who talk about this stuff, but I can’t relate to them. You I can relate to. I don’t trust them. You I trust. Let’s see what the audience thinks. I think that if you’re open to it, I’d love to have you on. I can see it as being valuable for me too.
Aaron: That sounds great.
Andrew: All right. So now you’ve got these people. Company’s still successful though, still profitable?
Aaron: Yeah, we grew by 450% on our cloud platform last year in revenues.
Andrew: I mean, eventually you laid them off. You say that it took you six months longer than it should have.
Aaron: Oh, yeah. There was a really bad spot that we went through when I made the transition from an on-premise platform that was being bought predominately by IT guys with an average sale price at the end of 2009 that were about $4500-$5000. Now we’re selling to technology companies. It’s cloud delivered. We’re selling to a head of customer support, a head of product. It’s a completely different sales cycle or sales approach really. It’s not transactional. It’s more involved.
We had to go through two series of layoffs. They cut the team by 40% in 2010. Part of it was that the skills sets of the folks at MindTouch at that time weren’t suited to the new sales and marketing model. We went from highly transactional to, it’s something that you’re selling to business stake holders. It’s not self-service. So part of it was the skills set. Part of it was that there was a lot of friction. People really don’t like change. It was the best thing that we ever could have done was to focus in on this business use case and also to move to a cloud delivery model. The reason why the cloud delivery model was so critical is because the products [xx]. So that was a really tough spot through 2010. And then 2011 is when we really started to take off again.
Andrew: But it wasn’t that sales were dipping at the time and that’s why you had to switch?
Aaron: No, we were flat for a year, and then we came out the other side and started growing again in 2011. No, it wasn’t that sales were dipping. It was really just that there was this shadow organization within the company that had its own vested interest to continue to do what it was doing which was selling on-premise software to IT guys. It’s like, no, burn the boats. You can’t do that anymore. Then these guys are pissed off and upset about it.
Yeah, it was a bad scene. It was a tough time. Without a doubt, that was the lowest period in it. Frankly, it wasn’t the layoffs because there were certainly some great people that I still have communication with, that I still bring in to do work with MindTouch. Some of them have even come back and work full-time at MindTouch now. The lowest point was looking around me and going, Wow! There’s people here that I just don’t want to work with, I don’t want to be friends with, and I don’t want to hang out with because they’re just in a negative place. They don’t understand the vision of the company, and they’re solely interested in themselves and extracting value for themselves not creating a great product for our customers and delivering value to the customers. That was a really low point.
Once I cleaned house, it was really scary to everybody else here that were still around. I expected it to be. It was funny, when we went through lay- offs, it was almost 40% of the company. I remember thinking, O my god, it’s going to be like a sinking ship. Everybody’s going to be like, Get off the sinking ship! What actually happened is that everybody that was here… I had like five or six people come up to me and be like, I’m so happy you did that. I did not like working with those douche bags.
It was amazing because the people who work very hard and are focused and share your values, when you introduce people who aren’t carrying their weight, don’t share your values, it just becomes a distraction and depressing. That was another thing. It was a surprise for me. I really expected that, if anything, by virtue of going through this round of restructuring (was a polite way to put it) people would have been freaked out. The core team that we really, really needed and relied on would have been freaked out. And the opposite was true. They came and said, Thank you.
Andrew: You know what? I’ve been taking notes as we were talking and one thing I didn’t understand and needed to come back to is, Why is Box and Dropbox, why aren’t they competitors?
Aaron: Yeah, they certainly are not competitors. Back when we were doing this easy to install and use general purpose collaboration tool that you can get up and running on a web server page as attached files. If we continued down the path of being this general purpose collaboration, they definitely would have been a competitor. [??] Box, Dropbox…
Andrew: Because you eventually shifted away from MediaWiki. That was just your minimum viable product and your way of getting up and running. Then you created your own wiki, and that’s when you and I met.
You were running a professional wiki software that people could install on their systems, and you’re saying that the way people would use that to share information within a company – they could just throw up a folder on DropBox and make that the shared folder, and use Word docs and HTML docs and so on and so forth…
Andrew: …and I can’t compete with that. I have to focus on something and do it really well, and that’s when you moved towards…
Aaron: The other thing that I failed to mention is that when we refocused the attention and vision of the company back on this Customer Service Help System – the knowledge tool – what I predicated that decision on was I went back to our thousands of customers. Remember, there are lots of transactions and small deals, and I looked at what our biggest customers were doing.
I saw Intuit, Mozilla, PayPal. These guys were already using MindTouch to build out these multichannel help systems that facilitated constituents from across the organization and different departments to collaborate back into a central knowledge repository and then power their self-help center, their in-product help system, their agent empowerment.
I saw that, and I’m like “Holy shit,” this is what the original vision was. These guys are taking it upon themselves to build this product against our API’s. That’s where I was like, “We’re going back to our basics. That’s exactly what we’re going to do.”
Andrew: I see, and that’s how you knew what the new product would be.
Andrew: If they were using it in a different way, you might have gone after a different niche. All right, so then one other question comes to mind, which is, I see how you got customers when you were doing open-source software. People were registering, and then you’d call them up and say, “Hey, do you need support? If you do, the company that created it can be your support center,” and then you’d charge for that.
Now that you’re no longer, at this stage in the story, offering open-source software that you could then up-sell support on, how are you getting customers in the door? What’s the funnel look like?
Aaron: The way that we do it now is we do the traditional marketing mechanisms – conferences, outbound E-mail and whatnot – but the thing that I find so exciting is we’ll close a customer like Zuora. They do a payments platform, based out of San Francisco where you are. Great company, great team over there. We’ll close them as a customer, and then we’ll start closing their competitors, because they see that they’re using MindTouch.
Another good example is ExactTarget. ExactTarget, who IPO’d last year, have been with us since the open-source days. They were one of those customers that were building MindTouch into this multichannel help system that inspired me to take the company in that direction. ExactTarget’s a perfect example of how we get customers, too.
They use MindTouch for their product documentation that’s customer-facing and partner-facing. It plugs into their in-product help system and their agent-facing experience. This was back in 2010.
We started getting their competitors into our sales funnel because they’d say, “Look, we’re losing business to ExactTarget because during the technical due diligence of the sales cycle, they’re doing bake-offs and finding the technical and product documentation from ExactTarget, they’re getting into their funnel, and we’re losing the deal.”
Andrew: From the documentation, they were getting people into the funnel?
Andrew: Do you also call up companies that are competitors of your current clients and say, “Hey, we’re in this space. You can see that people who you know and are competing against are using our software and you might want to give it a shot?”
Aaron: Yeah. The number one thing that sells our product is, we say, ‘Let us show you what we’ve done for Accenture, Blackboard.com, SugarCRM, Zuora, whomever.’ What we’ll try to do is we’ll try to select customers that are in their space or adjacent space to them, that they can connect with and understand. If we’re going after, say, CRM systems, we’ll talk about the half a dozen CRM systems…
Andrew: There’s outbound calling, where you know who your market is, you know who your customers are and how they’re going to use you, and you call them up.
Aaron: We’ll do outbound email and calling for sure. Still, our inbound pipeline constitutes most of our revenues today.
Andrew: How do you get people inbound?
Aaron: Zuora’s a perfect example of it. There are so many companies that use Zuora for their payments platform, and they’ll go get documentation from Zuora. At the bottom it says ‘Powered by MindTouch.’
Andrew: Then when I click that “Powered by MindTouch,” I come to MindTouch, I see what the product is, and then I see a form where I could get more information, or I could request a tour. I put in my information for the tour, including phone number. You guys contact me via email and phone, and you introduce me to the product. That’s where the sale happens.
Aaron: You’re exactly correct, yes.
Andrew: Let me do a quick plug. Then I want to ask you a question that I’ve been waiting until the end to ask you, because I don’t know if it would have been appropriate to ask you about it earlier.
The quick plug is this. For, of course guys, Mixergy Premium, and I’m going to recommend that if you’re a Mixergy Premium member, of course, that you should check out the one taught by James Kennedy, who heard so many entrepreneurs like Aaron here today say, “Then we called them up and got our sales.” He kept hearing it and said, “Andrew, that’s the way we get it at my company,” James told me, “Get customers. You’re not talking about that.” I said, “All right, how do I talk about it?” He showed me a process. I said, “James, you’re doing great. You teach it.”
Basically, what he taught is how do you get someone who comes to your website to give you their phone number, not just an email, but a phone number. Once you get that phone number, how do you get that person to become a customer. It’s not about picking up the phone and saying, “Hey, buy from me, because you just downloaded something.”
It’s this process that’s way easier than that, and less salesy, and much more getting to know the customer. Then at the right moment, you make the sale. He walks you through the whole process, how do you get people to come to your site, give you their phone numbers, and how do you close them.
James Kennedy, several interviewees here on Mixergy have recommended that one, of course. In light of what we talked about today, I highly recommend it as a follow up to this. If you’re not a premium member, sign up for Mixergy Premium just for that course. Then what you’ll discover is hundreds of interviews and dozens, I think we have over 100 at this point, of courses taught by real entrepreneurs like James Kennedy, who will show you how they built their businesses, and teach you how to do it step by step using their process. I don’t know anyone else online who is talking about this the way that James did. Go to MixergyPremium.com if you’re a member and take that course. If you’re not, sign up already. I guarantee you’ll love it.
Aaron: I’ve heard great stuff about James Kennedy as well.
Andrew: How did you hear about James Kennedy?
Aaron: I have no idea. His name has come up several times. I think some of my sales guys may have mentioned it or other entrepreneurs. I’m not sure, but I’ve heard positive stuff about it.
Andrew: He has told me that because of that people wanted to, I don’t know if I should say what happened, but he got a lot of business opportunities as a result of just doing that, doing that course. Here’s the final question. We talked about your employees being douche bags…
Aaron: No way. No!
Andrew: Not all of them. You’ve had some people who you weren’t proud of…
Aaron: [??] mishires.
Andrew: What about this? You have at times yelled and screamed inside your company.
Aaron: Yeah. Hold on a second.
Andrew: You seem all mellow right now, are you shutting the door so people don’t hear?
Aaron: No. No, I’m going to do this.
Andrew: Oh, opening the blinds. It’s gotten darker as we’ve continued to talk here.
Aaron: There we go. Yeah, so Jeremy brought this up. Can you see? There you go. Jeremy brought this up. I don’t remember how we got on this subject, but I spent a lot of years, like I said earlier, backpacking and what I did was I cooked. I was a line cook. I was a sous chef. I was an executive chef. It is a culture that has now been popularized by Gordon Ramsey and other chefs. It has a culture of perhaps chefs throwing temper tantrums, throwing things, yelling, screaming.
So in the early days of Mind Touch, this was probably the first few years, I did have a nasty habit of yelling and screaming, and maybe occasionally throwing a water bottle. It is completely counterproductive. It’s really just idiotic.
It was a legacy habit from me working in kitchens for so many years. I grew up in my parents’ restaurants. Then, from that, going down the road and backpacking. You just get a job where ever and I worked with some great chefs here and there, but they tended to be dicks. I just picked up a bunch of these bad habits.
Andrew: There’s something very direct about saying, “Hey, what you just did now sucks.”
Andrew: Right? You don’t want… What Dale Carnegie would say is maybe tell a story about how you sucked or maybe point out how easy it is for them to fix their mistake, but that takes work. That is not necessarily as just saying, “Dude, that’s a screw up right there. I can’t have you do that.” So how do you go from that directness to…
Aaron: Being direct is great. It’s important. Don’t waste time, right? The thing that really changed for Mind Touch, during that rough period where I’m working with these guys that aren’t… I guess douche bag is the right word for it. I was working with a couple of douche bags that I allowed into the management team. I brought in an organization coach named Michelle Saul [SP], she was phenomenal. If you’re [??] like possibilities or something like that [??]. She was really touchy feeling, which was kind of hard, especially for Steve, my co-founder, but man, she completely turned, and she turned it, if it wasn’t for her, I would have flamed out during that rough patch. And we wouldn’t, one of the things she taught me… Am I cutting out? Can you hear me?
Andrew: Cutting out a little bit but I think it’s OK.
Aaron: One of the things that she taught me was how to provide effective feedback but still direct and on target at the time at the time that it needs to be given. You know, just in time. But it is more effective than me yelling, screaming, and freaking out on people like what’s appropriate in kitchens.
Andrew: So can you give me a tip that you learned from her?
Aaron: Yeah, it’ a three step process. Real easy. Site a specific example, explain to the person how that makes you feel, and, thirdly, explain to them how you prefer them to act. So, do you recall when this incident happened? That made me feel like you weren’t listening or invalidating what it is that is important to me for you to do. In the future, when I share this with you, I want you to behave this way. It is super effective. I use it with my kids, I use it with my wife, she appreciates it a lot more than me getting angry or passive aggressive with her, and its part of our culture here at MindTouch. It was 1 of many things that Michelle saw, was really helpful with. She helped me purge a lot of those bad habits from being an executive chef/sous chef inside kitchens way back when.
Andrew: I love the way that you explain that, too. All right. Incredibly helpful and I am so glad that I got to do this interview. Partially because you come to those events, I would see you and I would hear how successful you are, and I always wanted to say, “Dude, how did you get so rich? How did you become so successful?” And its impolite to ask that kind of question in a party. But I have you over here. I can dissect every part of the process the way that we did right here, including the jerky parts, [laughs] and learn how you became a good manager and how you built up the business.
Aaron: Yeah, the key things that people should know about building a successful business is that you’ve got to retain, maintain fanatical optimism. And the next thing is, if it’s your company, you’re alone. Don’t go laying your concerns or stresses on anybody else in the organization. If you’re the CEO, you’ve got to own up and you’ve got to own that. Take risks, hustle, stay focused.
Andrew: I’m sorry to interrupt but fanatical optimism. How do you maintain fanatical optimism? Do you work on yourself? Do you have a process?
Aaron: There are two things that help me. I go back and I look at things that I have done in my life and I draw strength from that. So I look back and think about where I come from and what I’ve accomplished and that helps you out when you are starting to doubt yourself. The person who generally reminds me of that is my wife. She’s the one who’ll be like, “Aaron, you’re a badass mofo. Do you remember this?” [laughs]
Andrew: And its one incident and you go “Oh, yeah, I did do that” and then you use that to just keep…
Aaron: Yeah. Exactly.
Andrew: And as a result of having fanatical optimism, what have you been able to do?
Aaron: Well, the most important would be related to my family. [laughs] But I mean building MindTouch, right, this requires fanatical optimism. We just came back from Sapphire and we are about to announce our partnership with SAP. If you’re not fanatically optimistic and confident, then nobody else is going to be confident in you either. So the partnership with SAP was predicated on that fanatical optimism and confidence. How is lil’ ol’ MindTouch gonna service SAP customers? Because we believe we can and, as a result, now we are.
Andrew: [SS] Because you believe that you can, they have that same confidence in your product and your team and they start doing work with you because you believe that you can do it when you have this fanatical confidence you can actually perform and live up to the expectations you set for them.
Andrew: [SS] All right. I’m going to tell people–. I’m sorry.
Aaron: Yeah. Just a quick summary of things that I tell my team often is, fanatical optimism, confidence, whatever you want to call it, take risks, hustle, and focus.
Andrew: That’s great advice. And what I was going to say to the person that is listening to us is that they should go and check out MindTouch. Or that is ordinarily what I would say. I’m going to say instead, or in addition, find a way to meet Aaron in person. I don’t know how–do you do events anymore?
Aaron: We’re going out to more of them now. Yes, we do.
Andrew: I’m going to say find a way. You guys are clever. You know San Diego, if you’re in San Diego, find a way to go to one of their events. If you see that they are at a conference, find a way to meet him in person. I’m lucky that I’ve gotten to do that and I appreciate you doing this interview with me today.
Aaron: Thanks, Andrew. I feel the same way about you too. I think you’re a great guy.
Andrew: Appreciate it. Thank you all for being a part of it. Bye, guys.