What happens when an entrepreneur sets out to build a billion dollar business?
Are Traasdahl is the founder of Tapad Inc, an ad technology firm that offers cross-device advertising solutions. When he started out his business, he didn’t want to think small. I invited him here to talk about how he built his company up.
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Are Traasdahl, Tapad
Are Traasdahl is the founder of Tapad Inc, which is an ad technology firm that offers cross-device advertising solutions.
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Hey there freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. What happens when an entrepreneur sets out to build a billion dollar business? Are Traasdahl is the founder of Tapad an ad technology firm that offers cross-device advertising solutions. When he started out his business, he didn’t want to think small. I invited him here to talk about how he built his company up. Are, welcome.
Are: Thank you.
Andrew: I’ve heard you say that when you were trying to figure out what business to get into, the room that you were working in made you look like a mad scientist. Anyone would have seen it. Why? Why did you use that description?
Are: I was working on a lot of different ideas, and I was kind of fortunate after my last company to be able to take some extended period of time off. Then after a while, I was really excited about getting back and starting out a company again. So I had one room in the house with 26 different business ideas. So every time I had more, I’d tease around one of these ideas. I would write it down on these huge Post-it notes or these huge clip overs. They would have lines going from one to the other. It looked like a mad scientist’s room. That was a very exciting process. Starting a company is kind of off logic and off magic. So the logic part of that was just kind of getting tons of research done and starting to put it up on the wall so that you could make sense of it all.
Andrew: I want to break down that process and make sense of it all because in a short period of time you did incredibly well. How old’s the company, and what size revenue are you guys doing now?
Are: Yeah, we started building it in the end of 2010. It took us a year to build it, so we launched it in the end of 2011. After we launched it, it’s gone from zero in revenue to now we’re getting a 40 million dollar run rate in revenues. So it’s seen some tremendous growth. But there was a lot of (?) periods that it was pretty tough. But after we really got the solution out in market, it has taken off like nothing I’ve seen before.
Andrew: I’ve written a note here to come back and ask you about those tough periods because I want to hear them too. Since I started out asking you about this mad scientist approach to coming up with your idea, let me understand. What did you put up on the wall? Were you putting up your vision for the world up on those Post-it notes or were up business ideas that you’d like to pursue? What were on those Post-it notes?
Are: You know, that’s a very good question. It was actually a little bit of both. One was you had to have this kind of unified view of where the world was going, what are consumers doing, what is all these kind of technologies that are happening now with the smartphones and the tablets and the screens everywhere and what does that really mean for a consumer? In order to understand technology, you really need to understand what is it that makes sense. So that was the over option portion of it.
When it gets a little bit less scientific, it broke down into all of these 26 different ideas that could be from a shoe shine company to a cross- device, multi-device analyzing technology company which is what we ended up buying. But they had a lot of common finalities to them. I started kind of applying filters to it as well. So you were really looking at the ways that you can build these huge businesses.
Andrew: I see. So where most people would say, “Hey, what’s exciting right now?” and then look down at their phone and say, “OK. This is what’s exciting. I love my phone,” you’d say, “Wait, where is the world going five years from now and beyond, and then what will those opportunities be at that point?” And that’s the kind of view that you were taking.
Are: It is, yeah, and that’s really when we came up with the solution for what we ended up building for Tapad as well, was that it wasn’t about all these point solutions. It wasn’t about Groupon for mobile. Three years ago, that was what most of the innovation was around – taking things that work on other platforms, and making them work on mobile. And that wasn’t really innovation. I didn’t believe that the growth was going to in that direction. And now they have… [SS]
Andrew: Why wasn’t it enough to say, “Everyone’s going to have mobile devices in the future — iPhones, iPads, Samsung, et cetera. All I’m going to do is take what worked on the desktop and move it to mobile.” Why wasn’t that big enough?
Are: I think because Groupon is going to be the Groupon on mobile.
Andrew: I see.
Are: The ones that already all have this, it doesn’t make any sense for them. In order to build a company, you also have to understand what all the competitors are going to do. So if you just have a solution that’s x-for- mobile, then you run into these problems. One day the ‘x’ is going to come and kill you. [SS]
Andrew: I see, I see.
Are: So the [???] was all that, but this kind of brought us to where we started to understand that consumers are jumping between screens. You’re on your phone for one minute, and the next minute you are on your tablet, and the then you are on your computer, and then you are in front of a television at the same time. And this really happened through this kind of mad scientist process. As opposed to that, it’s not so much about the actual screen or the platform itself, it’s about this particular consumer that’s living in this multi-screen world. And how does that influence advertising and content, and commerce, and everything? So that was, to your earlier question, what was kind of on the wall there, that became one of these big themes that we later developed the Tapad idea out of.
Andrew: And part of that process was, as you started saying and I interrupted, was the filters. What were the three filters that you used to figure out which of those ideas were worth pursuing?
Are: Yeah. After a while — I was going to the beach in the meantime here, as well, and my wife wanted me out of the house, I think. So I said, alright, we’ve got to actually pick one of these studies, pick any idea. So then I started applying three filters to it. One was it needed to be scalable, so our business could be built into a billion-dollar business. Not that we necessarily can and want to build a billion-dollar business, but it has the potential of becoming a billion-dollar business.
Number two, that, as it scales, it’s a protectable business, so that you can protect it, and you’re pulling the ladder up behind you as you’re building this business. And number three, that this is actually a profitable business. So, there’s so many of these kind of ideas that can be interesting, but there’s just no potential of creating a billion-dollar, profitable, and very protectable business. So I started…
Andrew: Was there a second-best idea that met all those qualifications, but you decided not to pursue?
Are: There was. We had, actually, when we started Tapad, I couldn’t make up my mind. There was another idea as well that, three years ago, there wasn’t much richer media and video and these type of things on mobile devices. But then, when we got the tech team together it took us three weekends to build this thing. So I thought, “Hmm, this is not a hard enough problem to solve.”
So because of that, we said, let’s go for this multi-screen, cross-platform solution that seems absolutely impossible to solve.” Because you had all these problems with it, so it seemed absolutely impossible to solve. But I knew that if we solved it, there were very few people that were going to be able to do the same thing. And it was also in an advertising market, it’s a $300 billion market, so you can easily build a billion-dollar business there, as long as you can protect it and have it be profitable.
Andrew: I see. The idea that you scrapped was for advertising that was with premium video? So not just static images, not text, the way that Google popularized, but premium video. And you said, “If I could build it this quickly, anyone else could. They could come in and compete with us.”
Are: Yeah, exactly. So it didn’t hit the criteria number two, in that it’s very scalable, very profitable, but it’s not protectable. So then we looked for these things that were much harder to solve — things that are incredibly difficult to solve, but we can solve it. And we spent a year trying to solve it, but we still couldn’t solve it, until we really broke through and solved it. Then I knew that we had something that was very hard for others to do.
Andrew: And one of the things that you did after that, as I understand from your pre-interview with Jeremy Weiss, is that you talked to David Rosenblatt, the CEO of Doubleclick. Right? Once you had this vision, why did you talk to him?
Are: Well, I don’t this vision happened in a vacuum. I don’t think any entrepreneur is so smart and so brilliant that they’re in a mad scientist room and offer something that’s fabulous. We have to get out of that room and sit down with people that have done before and he obviously built a multi-billionaire company and sold it to Google for three, four billion. And so I was lucky to have a lot of friends like that in my immediate circle of friends. So I was sitting down with a lot of them to get their input on this idea then.
At this point the idea would be like 60-70 percent developed. I think at that point our friends are afraid of discussing this because they are afraid that their idea is going out there to everybody so that they can be rich. I sat down with David and ten guys like him, maybe not like him, but ten of the same type of person. We just started really discussing it and getting feedback from somebody that knew this incredibly well. That was, one, to verify that this idea that I had actually made sense and number two, to get their input on how about this. Should I do that first? This is what my experience in building this was and accomplishing these problems. Getting all of that input early was very helpful for the company.
Andrew: So I’ve done a lot of reading on this company, and I’ve got your website up on my screen here. TapAd.com, but I want to understand what the vision was in the beginning, and I think maybe the best way to understand it was with the use case. Can you give me an example of how you envision someone interacting with this technology that would work cross platform?
Are: Yeah. In the beginning it was targeting and analytics and also some of the biggest buyers in the U. S.
Andrew: This was thumb play and you guys did a lot of ring tones.
Are: Music and games, videos for mobile devices. We were 60 percent at one point of ad most revenue that was basically sold to you. We were quite into this generation of advertising on mobile. They’re incredibly data driven, and kind of (?). So we were looking at finding a way to type these ads more appreciatively and to start off with a smaller group of people with a higher probability of actually buying a product. So that is what we innovated around in the beginning.
Andrew: You targeted a small group of people? You do it no matter where they are.
Are: Exactly. And I sold it. I was thinking of advertising solutions. I tried to look at my own . . . remove myself from the technology, and look at see myself as a consumer and all of the consumers around me. The thing that sold us the consumers are not on one device in a long period of time. In the middle of this the iPad came out as well, and I would see that people were be on these multiple devices throughout the entire day. And just having a fun solution, a (?) solution for mobile on this end. No matter how smart and good you are and your technology for that you just missed the entire picture.
Andrew: Meaning AdMob would only advertise to me when I was on my iPhone but not when I was at work on my computer.
Are: Exactly. Yeah. They would lose so much when the user switched between screens. I was diving in and trying to understand why that was so. The whole industry had grown up. Every time there is a new platform come, then there is a new team that is doing that and it makes this very fragmented approach to the media.
Andrew: The idea that you don’t just want to advertise both on mobile and on computer screen and other screens, too, but you want to know that I saw an ad when I was on my mobile device and then when I switch to my desktop, you want to know I’m the same person and either show me an ad that reinforces the message or don’t show me anything if you’ve decided that I’m not the right person. But identify me at least as that customer.
Are: That’s exactly right. You could work on the marketing side a while.
Andrew: I’ve done a lot of work. TechCrunch did a really good piece that helped me understand this where they were talking about your retargeting campaign, and that’s when it started to click for me.
Are: Yeah. I know it is, and it’s big. The biggest problem in advertising is that I know 60 percent of my ads work, I just don’t know what 60 percent. You had your prints. You had your television. Your radio, but these channels didn’t really work together. You didn’t know how your (?) for television and how that eventually influenced products that were purchased in a store. The biggest Holy Grail and the biggest problem in advertising is to solve this issue.
Andrew: I want to continue with the narrative here, but I’ve got to ask one other question about this decision-making process. Actually two. The first is, one of your criteria was that it could be protectable, but if Google is buying mobile ad companies, then it has the whole picture, and if they did it then other people could do the same thing, so doesn’t that defeat the big filter that you wanted to apply to your business?
Are: If you’re going to be in advert – first, if you decided that you want to be in advertising, you are up against some pretty big companies, like Google. So, a lot of these companies have – I wouldn’t say stopped innovating, but they are innovating through acquisitions more than innovating through, kind of, internal or organically developed ideas. And even for a huge company like Google, you still see that they have these [??] mobile solution, they have a tablet solution, they have a television solution.
So for us, it was not about creating a better mousetrap, or mobile, it was about taking a completely different view of the world and starting from the top, which is starting with being able to reach this particular consumer, and no matter what platform they are on, integrate it in holistic ways.
Andrew: I see.
Are: I knew that I was going to run into competitors. At the same time, I also knew that the competitors, kind of outside of the Google Ad system on Google’s side are really not so strong with technology. They have Ad tech in their name, so I knew that [??] a bunch of these companies that were actually not that great of engineering teams. So, it was interesting to kind of build something that’s truly technology, and data, and product driven and have zero sales people, and then once we have that correct, then start up on the sales side. A lot of people it other ways. Start with the marketing, a bunch of PR and marketing, and then they hire sales people, and then they hire the product people, and eventually they end up actually building the technology, but we did it the other way around.
Andrew: Okay. And the second question about this portion of the development of the idea is you talked to David of Doubleclick. How did he change your idea for this business?
Are: Yeah he is a pretty remarkable guy, so I gave him two options. Should we do, or build like a mobile exchange, which is something that happened online, online ad exchanges, or should we build this cross-screen ability to re-engage with consumers, and he spent two seconds thinking and said you should build cross-screen. Once we had that figured out, there’s a lot of other businesses you can build. But he said I know there’s a bunch of other companies that try to go off of and just change an idea.
What you’re pitching me, a lot of it is completely unique, I’ve never heard it before. It’s the biggest problem you can solve. It’s actually the hardest thing you can do is be able to be working 80 to 100 hour weeks and not [??]. So I thought yeah, that sounds very tempting. So let’s go down that path of … so that’s good to have people like that and others similar to him around me as well that can kind of help give me strategic advice throughout the building of the company.
Andrew: I see. And again, according to that Tech Crunch article that I read he was part of the 1.8 million round that helped get the company going. So, he was an adviser, but also an investor.
Are: Yeah. So that’s what actually ended up happening. I ended up sitting down with him and a lot of people that have built companies, like in the space, and also just for their advice, and get their advice. Said okay, I know I think you’re onto something huge here, can I also be a part of investing in your company. So, we ended up not taking any venture money in the beginning. Just a little piece from one VC, which was great, and then the rest was primarily these people that could help the company. That was the only thing I needed. I didn’t need money. I need help to, kind of shape, shape this.
Andrew: And the way that you launched it I think is really interesting, how small you kept it, and what you did until you got to – until you decided to buy. But, you mentioned something that I have to talk about before we get to what you launched with. Your wife. The hours – I think you mentioned your wife, or maybe you mentioned the hours – and I connected it to what you said to Jeremy about your wife. She was pregnant. You were working 80 hours for 15 years, you said.
Most of the entrepreneurs who I talk to, it seems to me sometimes started out when they were 20 years old, didn’t have a wife or kids, didn’t have other obligations. All they had to do was work on their start-up, and eat pizza, and then go back and work on their start-up. You’ve got a wife, and a baby on the way. Does it – how does it influence what you do? Are: Many of these 15 years I was also, n-, n-, didn’t have a work, so I could …
Andrew: So you had your pizza work, pizza work.
Andrew: Maybe not exactly pizza, but, yeah.
Are: We, but then, got lucky with my last company that I was able to get out of that in a positive way. Right then we found that she was pregnant. So she was actually going to give birth right when I left there. So then actually the first year, year and a half when I did all of this (??) stuff on the wall, I had a newborn baby and that was just, I worked maybe 2 or 3 hours a day on this because when you’re not (??) your thinking as much about this as when you are on the beach or your hanging out with your family as when you are in front of and actually working. So the harder thing set in later and when I started this company and then I’m back to working 80 hour weeks again and that was a much tougher period.
Andrew: You didn’t scale it back, so how do you make a relationship work when you have to work 80 hours a week to bring this new idea to life?
Are: She’s an entrepreneur as well, so she has the understanding and she’s fabulous. So we also liked to discuss all these things with her and include her in everything that I’m doing and building and the highs and the lows and all that. She understands. She is fabulous. I am very lucky.
Andrew: I’ll say. So what I was bringing up earlier is you said that you wanted to keep the whole company really small. Not get a lot of people on board. Not get a lot of money on board and really blow it up, until you’ve built something small scale. You had only 5 people at that period. What were you trying to build to prove out this idea?
Are: So we really want to prove out that this worked. So advertising was a bunch of smoke and mirrors. A lot of people going out for martini lunches. That was 2013. There was a lot of mad men (??). At the end of the phase but there’s still a lot of things in advertising that’s a lot of smoke and mirrors. I wanted to figure out if this actually did work. Actually sold this thing. Big problem with advertisers. When you are doing that, a lot of testing back and forth. Need to get customers and you need to be in a very tight, small team in the beginning to do that. Almost like, what’s that television show, Mythbusters, when you’re building a small prototype of this first. You don’t go out and blow up a bunch of trailers.
Andrew: Yeah, Mythbusters don’t, right. They start out blowing small stuff up.
Are: They build a little prototype.
Andrew: What’s the small version that you build to validate the big idea?
Are Small version was an (??) solution for everything that we were going to do later. It was basically this concept of taking data from one platform of computer and using that data for targeting in (??).
Andrew: I see. You know that I am on the computer and then understand that it is still me when I’m on my iPhone.
Are: Yeah, so prove that through actually running live campaigns for live advertisers on one platform and see that when we applied our methodology, versus not apply our methodology, that we drove 2, 3, 400% better results. That is what we were able to do, actually, when we built this, we came and said this is actually driving this 250, 300% improvement. Even if the algorithms didn’t work completely; didn’t work as well as they do now, in the beginning. When you drive that type of difference in results, then you know that you are onto something big here. Then at that point we started saying that we’ve got to run as fast as possible and make sure that we are the only ones in town with this solution.
Andrew: So, you’d already sold it to an advertiser. You already built a prototype of it and you said we can increase this advertiser’s results. Who did you get that was willing to experiment like this. What kind of advertiser?
Are: It was actually one of our investors. They had a (??). One of them were (??)
Andrew: (??). Yes, Ben.
Are: Ben, he’s also an investor in this. So you go to your friends and twist their arm until they sign off for this sort of service. It was kind of small scale at that point but we were able to actually prove that this worked. Looked at all the numbers and proved that it worked.
Isn’t Ben’s father’s company also an investor in the business?
Andrew: They are, yeah. (??) Ventures. They are also ones that we really wanted to have a part of this in the beginning, so they came in very early together with (?).
Andrew: I see. OK. So now you’re testing this out. You do need a developer, and this is one person who I want to talk about how you got your head of technology. Can you tell the audience how you did that?
Are: Yeah. He’s a Norwegian, and he’s actually always a Norwegian. He had never been to the US before, but he had this fabulous reputation in the country. So I brought him over in the middle of these 26 ideas on the wall to work on a different idea than Tapad which was a kind of communication, text and phone type of solution. While I was white boarding up and putting more messes up on the wall, I thought he was just going to be taking notes. He was actually sitting down building the whole thing, the whole technology. In a week he had built a lot of this. He ended up back in Norway and put the final touches on it. The product was in a (?) stage. At that point I said, “OK. I need this guy here.” So then I brought him over, got him a girlfriend.
Andrew: Did you say, got him a girlfriend? And a hockey game, but OK.
Are: At that time it was off to the races.
Andrew: You had 300 meetings in a month and a lot of rejections?
Are: In the beginning, when we kind of had this breakthrough, that is actually work, we thought we had the saved the world of advertising and now orders are just going to flow in. So then we started taking this out to the big brands. At that point, yeah, we probably did 250-300 meetings a month for 10-12 months. So what is that, two or three thousand meetings with two or three thousand rejections. Nobody wanted this. Nobody bought.
Andrew: Why? What were you learning that they were telling you no?
Are: The thing was that it was more of a structural systematic issue of how teams were organized. You had a buying for mobile. You had a buying team for tablet, a buying team for TV, and a buying team for computers. They were running their own little teams inside of these organizations, and nobody was responsible with this (?) cross platforms. So they said, “Oh, I love this. This is (?) to our advertising, but that’s not how we are set up as an organization.” So the brand’s not set up like that and the agency’s not set up like that. That has later changed in a big way, but back then it was kind of a systematic issue.
I remember I had lunch with one of the top executives at one of the agencies, and he saw that I was kind of all depressed and not excited. He said, “Tapad has made us rethink our entire agency: how we are organized, how we measure, how we buy media.” “But why have you not bought one dollar of advertising from us?” And he said, “You have to understand that these are huge organizations that kind of need to move where the world is moving and take some time.” So that was a very tough period. We were out there with the solution, and we thought we had saved it. Then we said we were saving the advertising world, and they just told us, “No, no, no, no, no.”
Andrew: You’re not the kind of person to have to go out and talk 1,000 times, hear no 1,000 times and go out 1,001 times. You would have adjusted either your pitch or your product so that you could at least have a better shot after each no. How did you adjust it over that period?
Are: That’s a very good question. We ended up actually adjusting it so that it kept more in tune, and make it super basically. Instead of this huge holistic idea, we broke it down. OK. This is how it works for mobile. You can still use it for mobile and buy it, but we’re just going to take and optimize that based upon data that we have from other platforms.
Andrew: I see. So instead of saying, “Give me everything,” you said, “OK. Give me just your mobile then, but understand that I will make this better than other mobile because I will inform your campaign by what people are doing on the computer.
Are: Yeah, exactly. So then it fit into their structure. Then actually, I think we also were instrumental in helping our customers change as well because they came back and said, “Hey, you can do this for mobiles. Can you do this for online? Can you do it the other way around?” So now we actually see a lot of these big brands and the big agencies are collapsing all these teams together into one team. So it was kind of a process where we had to adjust our approach. We can’t just have this one big machine and just not listen to what people are saying. I’d be happy to address it, but now we are back where we started with the issue.
Andrew: I see, and that’s the Trojan horse that got you into people’s offices that you said we will sell you mobile and then once they started buying that everything else was possible.
Are: That’s exactly right.
Andrew: OK. Which is the big customer that got you really rolling?
Are: The big breakthrough was one of the mobile carriers in the United States. They came back and said they 100% get it. They see this fragmentation between the different screens because they were a part of creating that problem, and they were pushing out tablets and phones. So they came back and said I totally get it lets [???] big. I think the initial commitment to them was like $500,000.00 dollars, which is a huge amount of money for a company like ours. When we got that big breakthrough and it performed very well then it went from 0 customers to a huge list.
Andrew: That was your big case study?
Are: That was a big case study and it was proof that we could work with the big advertisers. We had obviously worked with the [???], and the debt companies and all sorts of direct response companies to prove that this works. In the meantime we will pick up all those notes, but this was the first huge one where we could prove it on a massive scale.
Andrew: Because with direct mail companies, these are people who you don’t have to sell to them you just have to hit their cost-per-lead or cost-per- acquisition right?
Are: Yeah, they don’t care what’s inside the box as long as it performs for them. It’s very easy to get us customers although a lot of these people like to turn us down.
Are: If you do enough sales quotes you get a big enough group that can figure out everything in technology. And then you can go back to the big leagues once it works.
Andrew: I want to ask you about the way you hire and the culture of the company, but there’s one more thing I wanted to talk about since you brought it up a couple of times. Your past company, Thumbplay, got huge. Here’s what I have in front of me, an article about the sale to ClearChannel of everything except the ringtone business. It basically says that the sale had to happen because the music subscription business wasn’t working, and Thumbplay had to give up on it. It also says that at one point the ringtone business was 100 million dollars, and then it went down. What happened there? When it started going down, what happened to you; how did you take it?
Are: That is when I was on the beach. I was out of the company for a while when that happened.
Andrew: You still had ownership in the business right?
Are: Absolutely I was still involved for sure. A lot of that is around the innovation that we need to have in a company. We had the iPhone companies before the iPhone. So we had the iPhone company out and it really changed the whole market. There was a lot of things we could have done in terms of structuring that business for the big future around the iPhone. It was tough getting all the record labels and all the mobile operators. It was a fabulous experience to build a 100 million dollar business as a first time CEO. I learned a bunch from that experience and from what to get out of a business. Now it’s coming back and applying a lot of those things you learned and the second time around especially around teams and innovation.
Andrew: Because of Thumbplay you can sell ringtones directly to consumers back with the old telephones. Old Motorola phones would allow people to go buy a ringtone online and put it on their phone and enjoy it. Once the iPhone came out you couldn’t do that anymore and so that opportunity started to close, but you saw other opportunities like selling music subscription services the way that Spotify does. You just weren’t able to move to that the way that Spotify did.
Are: The challenge with that was really, which Spotify still has that problem.
A: Spotify still has that problem. The economics just are very tough when you have a record label involved. In the older business the cost for the goods was much lower. Once you pushed really hard, and this was way before Spotify was in the US around this unlimited access to music on all your devices, and the product was fabulous. But getting the economics to work and the label takes 40% of it and the carriers take 40% and there are a bunch of others that take a percentage of it as well, it’s very tough to make that work as a business. It worked, we got to profitability and it worked as a company but getting into something massive, billion dollar companies with huge profits in that business, is just brutal.
Andrew: The big takeaway that this author of The All Things D article said was, ‘It’s a cautionary tale for investors pouring money into digital music.’ And that’s a big issue.
Are: It’s famous but not rich.
Andrew: Did you become paranoid after that? You hit such phenomenal heights and then one thing could go wrong, meaning the industry that you’re in is not a very generous one, and everything could start to fall apart. Could you become paranoid?
Are: Not really. I think you just learn to focus on…The first companies I did I was very top line focused. [inaudible] top line. That’s where these came into place saying, ‘You have to actually look at the bottom of the page as well because that’s more interesting. The bottom line, the long term sustainability of a company is really around how much cash it can throw off.’ That’s where those three things came from in terms of the filters; the scalability and at that point we checked this over time and when you do those three things it becomes a profitable company because we [inaudible] become the largest one in the space. At the same time we started breaking even around $100 million, $120 million in revenue and that’s very hard for any company to get to those levels.
Andrew: At less than $100 million you’re not breaking even.
Are: Which is tough. There are not that many entrepreneurs that build $100 million businesses. It’s hard. But you have to make sure when you actually get to that level when you succeed you can actually then start to generate some real profits. You have an IPO option [inaudible] as a sale option when you start generating bottom line money.
Andrew: You’re hiring incredibly quickly I imagine with the growth as it is that you’ve had. What is your growth rate for hiring right now?
Are: After we had five people then for those months then we went from five to now 70 people in the last 20, 22 months. Even in the last 15 days I think we hired 15 people. Now we are on this tremendous growth rate and building out offices outside of New York, building eight offices outside of New York in the last 12 months.
Andrew: You can’t keep flying to Norway and bringing back top talent from there and finding them all girlfriends. How do you find people now?
Are: I have some [inaudible] that work full time on only that. We have four or five firms that work on this for us as well. The challenge is always that [inaudible] 30 people for every one person that I’m hiring that ratio is now probably down to 1:10. Still you can bring 70 people in with a 1:30 ratio that’s 2,100 people you need to talk to. You have to have a tremendous amount of people just going through the system and dedicate time to it, When you have done that and handpicked 70 people then it goes by itself. One good person always brings one or two good people in. One bad person is negative five; they are able to hire one or two bad people before you figure out what’s going on. They also piss off a lot of other people in the office that leave. So if you do bad hires you’re negative five. If they’re good hires you’re plus one.
Andrew: What do you guys do with that other people don’t that gives you an advantage?
Are: I think we focus a lot around these core values what we’re looking for. We have these ten articles in our constitution around what we’re looking for in people and the values and the culture of the company. Those things are very important for us in terms of scaling the company. It also attracts the right people because when they walk in the door they will see these ten articles written there, and everybody in the company signed off on them. And they can read them and say, “Hey, this doesn’t fit for me. I’m not a hard worker, I’m not a big thinker. [laughs] So they can then turn and leave before they can–
Andrew: You guys have a constitution, like the U. S. It says things like, “Maintain maniacal focus on dominating one thing. Use technology to innovate. Fight like the underdog. Break the rules. Defy new rules. Make them play by our rules. Speak up about the good, the bad, and the ugly.” Did you have a situation where your CTO did that?
Are: Yeah, all the time.
Andrew: [laughs] What’s an example of him speaking up about the good, bad, or, actually, from what I see in my notes here, the ugly?
Are: [laughs] Let’s see.
Andrew: Something about how no one was buying … here it is. “Our head of sales came to me and told us about problems customers were really having. And then he went to the CTO and he said that they really wanted to buy but they don’t have our authorization to buy.” I guess this was in the period where people couldn’t buy more than just the one kind of product that they were doing.
Andrew: “That they really want just mobile now.” Oh, I see, so that was the ugly. That he said, “Hey, I know you [???]. I know this whole this whole vision here is to sell to everything, to sell people on all the devices, but all they really want to buy is mobile now. That’s an ugly truth, but we have to accept it.”
Are: Yeah. And that made us change our approach with what you mentioned earlier around the Trojan Horse idea. So we knew where we wanted to be, but we had to address this [???], yes. But if we didn’t have this culture of people actually talking about the ugly things, and talking about the bad things, and kind of putting everything under the carpet at hope that you never find it, if we didn’t have this culture from the beginning, you would never have gotten that information, never learned about it.
And then we couldn’t take action and do something about it. So that’s very important for us as this grows, especially when you have this tremendous growth rate that we see now, both in revenue and people and all that. It’s that nobody wants to be the one that turns on the light at the party. They don’t want to be the one that tells that things actually don’t work, or things are not good and that we need to do something else, or that we hired the wrong person, or all these things that happen in every startup. But now we have the culture of getting that out in the open, and dissent with others if you don’t agree with them. And then we can discuss it and we can figure the solution, but we kind of get the ugly out in the open so that we can deal with it.
Andrew: And so now I’ve got a note here to come back and ask about the tough periods. And I think it’s important to ask about that, because so far, Ari, it seems like this is a charmed life. You came up with an idea in the room by yourself, you checked it with one of the top people in Adspace, everything worked out. Yeah, you had a little bit of difficulty selling, but it all worked out, and now you’re on the road to this billion-dollar business. But it couldn’t have been that easy. What was the toughest period for you?
Are: The toughest period was after we … there were two tough periods. One was the period when we thought were going to, when I said that I didn’t want to do a company that we could build in two weekends, I was more thinking, “Okay, let’s do something you can build in three to six months.” But I think we were on the ninth to 12th month and still hadn’t really had a breakthrough around the technology here, that was pretty tough. Because you’re kind of up against the clock there and you’re not able to solve the problem. And you’re trying every angle, and at that point, as well, building companies is so hard, because you’re kind of moving targets everywhere, and you don’t have anything that is solid.
So you’re kind of standing on all of these things that keep moving underneath you. So, in that period, when we couldn’t really nail down the technology. And once we nailed down the technology, then I knew what sales team to build, what products to build, what, everything else. But when we couldn’t stand on one thing in the beginning there, it was very tough to kind of figure out where to go. So that was the first kind of dark period. The second dark period was when we then thought we had this great breakthrough and we come back to the market with this solution, and nobody was buying it. Because probably …
Andrew: Why didn’t you give up at that point? Why didn’t you say, “Hey, this idea is not going to make sense, it’s time to move on. I have 25 other ideas on Post-It Notes on the wall.” [laughs]
Are: [laughs] Good question. I think you get so stubborn as an entrepreneur, that you … And I’ve done it before, and seen it before as well, so I know that things are not, they don’t just work immediately. Things that work immediately are too easy. So, I think that was the background. It was just, let’s keep banging our head against the wall here until the wall breaks down. I don’t know how long I’m going to beat it, or how thick this wall is, but let’s keep on doing it. Because I knew we were on to something big, especially when we got that [???] to work, then we were on to something big. And at that point, we were more kind of trying to figure out what the rating for the market, and the structures, and everything with that to turn around.
And that’s something that I can sit around and wait for, because I knew also that all the education that we’re putting into talking to our customers about this in that period is now paying off huge. Because [??] and we went on [??] customers and now we work with 140 of the largest brands in the U.S., signing up two or three of them a week. But that is happening because of almost a full year of education into the market.
Andrew: I see, so where someone else might say, “Hey, no one is buying from me. This is an indication that my idea doesn’t work,” you thought, “Nope. No one is buying from me. This is part of the process. It’s not because I’m a terrible salesperson. It’s not because my idea doesn’t work. It’s just part of the process. You don’t close every sale right away.”
Are: Yeah. You also get a little proud at that point. You feel that you have a solution, but then you have an entire market against you. There’s nobody that’s kind of helping you out. I know that’s a subject [??]. You have everybody against you at that point as well. And it’s tough, then, to want to make a team keep going, and that part of as well. And that’s where you also filter out all the ones in the team that don’t have the same kind of a mission about the idea, and about the team, and about the [??] So it’s a good way to kind of get rid of the riffraff. And then, once it turns around you’ll have the sweetest [??] of people, and that’s when you explode out of that and you scale [??]
Andrew: Let me do a quick “thank you,” and then I want to ask you about something from your childhood that I couldn’t believe when I read this. The thank you is to Mixergy premium members. I know I keep talking about what you get as a premium member, but I have to just thank you and acknowledge what I get when you’re a premium member. You’re the reasons why we’re able to continue to do interviews that are serious interviews. That I can come in having research, with prep, and with a focus on what’s important and not just on what’s going to drive more traffic.
Frankly, if it wasn’t for the premium members, then I wouldn’t be able to put all this on. I wouldn’t be able to do this interview with the focus that probably will appeal to…I don’t know how many people in the world care that much about business that they’re that willing to sit through an hour. And those that do, I don’t think most of them care about the real part of business, they just want to know about the cars, the Lamborghinis, the days off, and all the money that you make from it.
It’s a rare group of people who say, “No. Tell me about the hardware. Tell me about where the idea came from,” pause for a moment, and really dive deep into every part of the ideation process. I appreciate that you guys are there and that you’re a part of Mixergy premium, so thank you for doing that. If someone out there is listening and hasn’t joined and wants to join, just go to Mixergypremium.com.
Here’s the interesting thing. You were big on Lego and building as a kid and you built something for your mom as a kid. Do you remember what I’m talking about, when you were about eight, nine years old?
Are: Yeah, it was the best business I ever built. Sold at 100% margin. It didn’t have the sustainability that I wanted. I noticed there was a lot of traffic into my room, so what I ended up doing was building this, if you can remember Lego had the motors? I built this automatic door opener, that you had to be a quarter in for the door to open. It was a perfect business, it was 100% margin, and you build it once, and it will make money forever.
Andrew: So were you charging your mom to come into the room?
Andrew: Oh, you were.
Are: To clean my clothes. So that was the part of it I didn’t kind of fully think through as an eight year old. My mom was, in the beginning, “Oh, this is so cute. Oh my God, it’s so entrepreneurial. This is great. I’m happy to put the quarter in,” but after two weeks, she was, “Uh-uh, I’m not paying more to clean his clothes.”
Andrew: That’s interesting that she was encouraging of it. She didn’t say, “Why do you charge, charging is evil,” it’s, “Hey, this is a cute idea, you’re entrepreneurial, and it’s a creative expression of that entrepreneurial event.”
Are: Except until she said, “I’m not paying to wash this guy’s clothes.” [??] up inside of the door.
Andrew: That’s okay because apparently you upgraded. Did you build cars later on?
Are: I did, yeah. I built bikes. I owned, like, the spare parts of bikes, and it cost maybe $5.00 to try and get the parts, and then you sold it for $200.00. Paint it a little bit, and sell it for $200.00, and that also a high-margin business. Then I went into cars, did the same thing with cars. We bought them from one part of the country, fixed them up a little bit, and then drove them to another part of the country and sold them there for twice as much.
Andrew: Is it fair for me to think that part of the reason you were able to do that, and then do Thumbplay, and now do Tapad is because your mom didn’t say, “I can’t believe you’re doing this,” when you built the toll with the electric door opener, but she encouraged you.
Are: Yeah, I think it’s a lot of it is in what your parents kind of encourage you to do. They did that with everything, not just entrepreneurial. They gave me a very liberal upbringing. They said, “Try whatever you want, and I’m not going to stop you and direct you, and put you into a lawyer, or a doctor, or things like that.” They just let me do what I wanted to do, and that turned into wanting to build companies and build teams, and really great businesses.
Andrew: Thank you so much for sharing the story of how you built these businesses. For anyone who’s listening, the company is Tapad, and it’s just T-A-P-A-D(dot)com. And of course, it’s a growing company, so I’m sure that there’s a…there it is, ‘careers,’ right at the top. That’s one of the cool things about being part of a fast-growing company. You get to watch it grow, but also you guys are open to hiring and it’s right there at the top. Thank you so much for sharing the story of how you built your business.
Are: Great. Thanks so much for doing this.
Andrew: Thank you all for being a part of it.
Are: Thank you.
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