How A Smart Bear Built A Company So He Could Sell It – with Jason Cohen

“My hands were trembling as I was faxing eighty pages of the agreement over to the lawyers in New York City,” Jason Cohen said about what it was like to finalize the sale of the company he founded, Smart Bear. Even though he was nervous about the sale, selling the company was his plan all along.

In this interview, you’ll hear why he wanted to sell his business, and how he prepared for a sale as he built up his business. You’ll learn how he founded it from scratch, with no venture funding and no debt. And you’ll get his advice for how you can build your business.

The FULL program


About Jason Cohen

Jason Cohen - A Smart Bear
Jason Cohen is the founder of Smart Bear Software, maker of Code Collaborator, the world’s most popular tool for peer code review and winner of the Jolt Award. He took Smart Bear from start to multiple millions in revenue and 50% profit margin without debt or VC, then sold it for cash. He is also the author of Best Kept Secrets of Peer Code Review.

You should read really Jason’s blog and say hi to him on Twitter.

Raw transcript


This is a raw, mechanical transcript.

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Hey everyone, it’s Andrew Warner. I’m the founder of mixergy.com, home of the ambitious upstart and most people will tell you that can either be rich or you can be king. Today’s guest decided that he wanted to build a company and be both rich and king and we’re gonna find out about it. He also then sold the company and we’ll find out about that. I want to ask him how he did it. What you and I can learn from his experience as he built up that company. I wanna find out what it means to be rich or a king. To dig, to dig into that because Jason wrote a great blog post on the, on the choice that an entrepreneur has to make as he’s or she is building the company. And, and I’m gonna find out if he can teach us how to be both rich and king. So, Jason, the Co-, Jason Cohen, the company that you founded is called a Smart Bear. For anyone who doesn’t know what it is can you, can you give us a quick explanation?

Interviewee: Sure. Smart Bear makes a code review tool called, Code Collaborator. So, software developers review each others work just like authors and editors do for anything. And so our tool specifically supports tools and processes that software developers use. Like, version control, supporting teams that might be separated by the Pacific Ocean, for example, things like that, metrics and reports.

Andrew: Okay, and you’ve had customers that, where is my list of your past customers, Adobe was a customer, AOL, true? Cisco?

Interviewee: Mmhm.

Andrew: Big companies and what size sales did you guys have?

Interviewee: Well, you mean individual transactions?

Andrew: Sorry, overall annual sales.

Interviewee: We’re in the many millions of dollars and we’re, this year not as profitable, of course, as other years ’cause everybody’s hurting. But generally at 50%.

Andrew: 50%.

Interviewee: Profit margin, yeah.

Andrew: 50% profit margin, wow! Software is a great business to be in, especially if you’re actually charging your users for that software.

Interviewee: Yes, we, I don’t subscribe to the, you know, get a million free users and money magically comes philosophy. I like, I like that part of the Lean, not that this was necessarily build Lean, but that part of the Lean philosophy is to start charging immediately. And that’s, that is what I did, of course, then and we didn’t have Lean in the context of software companies, yet, but that is what I did.

Andrew: Okay.

Interviewee: But to be fair, the first product was $19.95, that’s nineteen dollars and ninety-five cents. Today it’s $1300 for a floating license. So, it’s not that we haven’t, you know, we didn’t start small. So.

Andrew: Alright, now I know that most people will listen to my interviews, not watch them, but for the few people who are watching and not just listening to the, to the audio, you’re seeing that it’s a little pixelated. I’m not gonna waste too much time trying to fix this. This isn’t, this isn’t, this isn’t about the looks, it’s about the ideas. And the ideas and the audio is coming in clearly so we’re gonna keep on going here. I love your blog. And one of the things that you say to entrepreneurs on you site is that when you’re an entrepreneur you just have to launch. You can figure out, iterate, and change the business. In the future, it may not look anything like it was on day one. I’m curious what your software was on, on the day you launched. What did it look like?

Interviewee: Well, first of all, it wasn’t the product that we have today or the market.
So, the original idea I had was something called “code historian,” which we don’t even sell anymore, to just underscore how irrelevant this idea really is. And the idea is you can go back in time and look at how your code used to look, just like vers.., well using version control, so a concept that a lot of developers are familiar with, and it can highlight lines of code to say, for example, “you haven’t changed this in a long time”, or this is “churning a lot”, that sort of thing. It turns out that in theory it kind of sounds interesting, but in practice nobody cares; it’s not that interesting. And, what happened was, as people used it, I would get these feature requests like “it’s kind of cool that I can look at what just changed, but can I send it to someone else”, or, “if I send it to someone else, can they write on it and give it back to me?” And I would say things like “well, print it out” or “take a screen shot” or other things that’s not what they want to hear.

In other words, what people were actually using the tool for was code review, that is looking at each other’s work and critiquing it, and rather than saying, for example, “that’s not my vision” “that’s not my idea,” “that wasn’t the…” you know, and ignoring that, in which case it would have not been anymore than shareware. Instead, having listened to that, I ended up building a program called code reviewer, which was just code historian hacked together so that you could shuttle things around and write comments. And, we had a peer code review tool. Now, there was no market for code review tools. Today there are other tools. Like, Atlacean has crucible, there is a nice open source tool called review board, and the details there aren’t important just that now there’s a, lets just say, a small market for these kinds of tools. But when I was starting there really was no market and that either mean you have a really stupid idea, that’s why no one else is doing it, or you really have found a new interesting idea. And, again, I didn’t find it because I’m so smart that I thought of something new that was needed, and I saw that… I didn’t see that. It’s because I had a thing that actually wasn’t that useful, but I listened to what was going on and I was willing to follow the customers rather than follow some predefined vision, and so I ended up with a tool, and starting a new marketplace. One of the reasons we have all of those huge names and customers is because we’re one of the few people who can serve them.

Andrew: All right, I’ve got a bunch of questions to ask about that. But, let’s go back just to get an understanding of the business in the early days, to where the funding came from for the business.

Interviewee: Sure, there was no funding. I had saved up money from previous jobs and, actually, somebody else convinced me to do it. I was thinking, “Oh, I’ll just do some more consulting,” since I was making good money doing consulting work. And, a friend convinced me to do a startup instead saying “look, you know, just set the amount of money you’re willing to burn at home, and set your burn rate low, obviously, and make a go of it what the heck you’re young and so forth. And so I did. So, there was no funding and no cofounders, I don’t recommend having no cofounder, but that’s what it was. It wasn’t for another two and a half years; it took two and a half years before I hired my first employee. So it was a long lonely road at first.

Andrew: So, it’s your own money, it’s your own business. You’re by yourself. You release software that you think people are going to like, you’re a developer yourself so it’s not just coming out of nowhere it’s grounded in reality and the market is saying no to you and instead of saying “Well lets keep this and I’ll convince them that I’m right and save the time and money that I invested in Code Historian,” you’re adjusting. It couldn’t have been an easy decision and if you walk me through some of the difficulty that you experienced through that and when I have that same situation and I will, and whoever’s listening to us is going to have that same situation, hopefully we’ll be able to get ourselves off of the stubbornness and adjust a little bit, so let’s go through how tough it was to make that adjustment.

Interviewee: Well it’s tough if you have maybe your ego or something tied up in your original ideas. It’s not tough if what your ego and money is really tied up in is trying to make a successful product that people love. Because the people, I mean, they’re telling you “no” in a sense, but they’re telling you “yes” in another sense. Like consider this, even though Code Historian was not a good tool for code review, it wasn’t built for it and so it wasn’t appropriate, people were so desperate to have a tool for review that they were abusing this tool to do it. And, it’s not like they said this tool sucks, they knew they were abusing it, right, so they knew these were feature requests for a tool that wasn’t designed for that. So in a sense it’s really positive its “We love what you’re doing so much that we’re trying to bend it into something else and will you please support what we’re trying to accomplish” So in that sense it’s easy, it’s only hard if you’re stuck on your ideas, rather than stuck on the idea of
Interviewee: you’re stuck on your ideas rather than just stuck on the idea of making something good that people want.

Andrew: How did you know that it was going to be a big enough market. Okay, so, a handful of people are going to demand something from you, you go and you build it, it turns out that there are only and handful of people in the world that want to buy this something they have invented themselves through you. How did you know that it was worth the time to build it out?

Interviewee: We don’t. There’s no guarantee that it was worth the time to build it out. You could make this argument, this is sort of like the argument that there’s aliens. If it can happen once and there’s so many different planets that you can roll the dice on, it’s got to happen again. So you could say with the number of potential customers out there and the fact that I already have ten or fifteen sitting here even though I’m a little pipsqueak and I haven’t done real marketing and I’m not a salesman and my website looks terrible and the product barely works anyway, even though all these strikes are against me all these people are poking around. There must be more than ten because how do they even find me? And that’s the optimistic argument. But the pessimistic argument is what you said, and that’s true. There may be only ten or fifteen. I think, I guess unless you can fund some kind of market research or something it’s hard to know. And it’s not enough to say I have a thousand free subscribers because that doesn’t mean there are a thousand people who will pay out there, so that doesn’t guarantee it either. I think that’s just the crapshoot you run doing a startup.

Andrew: I see. And all you’re investing at the time is pretty much your time.

Interviewee: And money because I’m eating savings at home, but I know what that burn rate is, and so it’s a calculated risk.

Andrew: And I also say that we’re investing ego, that every failure means that we’re taking a hit to our ego, and eventually even the strongest people, even Job himself, succumb and say well maybe this is all a disaster, maybe it’s all going to pot.

Interviewee: And Joel’s latest post

Andrew: Oh, I don’t mean Joel, I mean Job from the Bible, but what were you going to say about Joel from Joel on software?

Interviewee: Well, that he’s kind of showing that in the latest article showed him sort of questioning himself, some of his basic assumptions he’s been talking about since 2001. Yeah you’re right. Unless you’re Job, which I’m not, I’ll tell you that, I crack way before that, yeah, it’s incredibly rough, personally. The good news is, even if you fail utterly at making a company that does this and that and the other thing, there’s no way you fail at life. In other words the amount of stuff that you learn, the connections you make, the friends you make at your customer sights, because when you’re small your first customers, you become really friendly with them. And just the experience of the thing, you may have failed in some sense, but you will have gained all this confidence about, I had an idea and I went out and did it, and it didn’t quite work out and now I know why, you can’t buy that, you won’t get it in school and you won’t get it in a regular job. And by the way there’s a lot of employers out there, maybe not IBM, but there’s a lot of employers out there who would love to see that on a resume, talk about standing out from the crowd. So even if you rejoin the normal workforce, you’re in a much different position. Or, I mean at Smartbert I found a person who quote unquote failed at a startup, and they wanted to work at SmartBert, to me that would be massive bonus points for them over someone else who just has a nice resume. So it really opens doors. I mean it’s hard to completely fail and not come out ahead in some way.

Andrew: Now I did a 200 mile bike ride, it was an organized bike ride, 200 miles in Southern California, and at mile 183 my bike broke down and I didn’t finish the ride. And really to a lot of friends in the cycling world, that was failure. To me, I did 100 plus miles, I did 180 plus miles, I felt so much stronger, I was able to go out there and ride 100 mile bike rides like it’s nothing now. So you’re right, even if you go out there and you build it and you don’t end up making the zillions that you planned and having the impact that you wanted, you still get a lot out of it, out of building a business. So what about this. I did an interview wit the founder of FitFuel, who kept listening to what his audience wanted, what his customers wanted, kept adding it and kept doing it until he ended up with a monster. It did what everybody wanted, but not, you know a little of what everyone wanted, but it wasn’t focused anymore, it wasn’t clear what the busincss was about. So how do you keep that from happening?

Interviewee: Yeah. Well, there’s a difference between doing everything people explicitly ask for, and listening to generally what they’re saying, and coming up with your own way of dealing with it. In other words, one of the kind of typical things everyone learns is that customers ask for specific things, and what you really need to do is discover the root pain that they have. In other words the request for a feature to do, for example they said I want to take these screenshots
Interviewee: I want to take these screen shots, and email them to someone. Now the real pain is I need to share this with someone else. I need to send it to someone else. The word email is not relevant, it might be the right way but that’s actually not the point and in fact we didn’t end up emailing, we ended up having different clients and we didn’t use email to send it. And that’s okay that email was not actually important. Neither was a screen shot per se or packaging it up in a certain way, is not the point. So it’s part of your job to differentiate between feature requests and what is really going on, and how can I address what they’re asking for and make a coherent product that doesn’t have eight million disconnected features and so forth. And there’s other techniques, there’s one example There’s such a thing as an undocumented feature. And these are nice because sometimes you have a client and at the beginning this happens all the time because you just want to get clients and you want to get money, and even later on in life it still happens because when there’s a big customer with six figures or seven figures of an order and they want something you do it because it’s worth it, right? But you don’t want to necessarily support it across the whole world because it’s hard and weird and only they understand it. So using undocumented features wisely, for example, is a great way to address weird point things without making your public product a big mess.

Andrew: That could get out of control that you have so many undocumented features so many undocumented parts of your business because you’re satisfying each customer individually, in the end what you really have is a consulting business because each interaction with each customer is completely different from each other. But you’re saying if you use it judiciously you can end up testing out ideas on a few customers.

Interviewee: Yeah, and you know this is a typical problem of if you never add features, thirty-seven single says that’s good don’t add features, then you’re susceptible to for example going away and making base camp obsolete, and then there’s the product that has eight million features and no one understands anymore the word syndrome maybe. Of course there’s a medium ground and of course there’s [nine lines] but there’s not going to be one two three four to do it. But clearly earlier on in the company’s life you have to be more flexible because you just need people using it and starting, and you know five years later you’re not going to act that way. That’s okay, you’re going to change the way you behave towards those things. That’s normal.

Andrew: Okay, I see let me check out what people are saying who are watching us live. Johnny Gary’s asking a question it’s an intelligent questions Johnny but maybe you can help me clarify it. He’s asking how did you solve problems and overcome limits in the startup phase. Johnny I think that you should give us an example so that we can focus in and not go into.. not have such a broad question. I also want to thank who is it where is it Darmish is watching us live your partner at answers.onstartups.com he’s quoting you here as saying, ‘I don’t subscribe to the get a million users and money magically comes philosophy.’ So you knew from the start that you were going to charge your customers And the dollar amount that you came up with was just let’s try $19.95 and see how it goes?

Interviewee: Complete arbitrary, yeah, pricing’s another weird art. And our customers starting asking customers actually asked me to raise the price, believe it or not. They said you know you look like ShareWare doesn’t seem serious, now that I’ve talked to you for a while you seem serious, but it’s not a good idea. Of course when you’re upfront about being a small company, and you really genuinely help your customers all the time and you’re incredibly responsive that’s the kind of relationship you can have with customers. You can literally ask them what you think you should charge. That sounds like so bizarre, but you can do that when you’re up front about the type of person and business you are. Generally my rule of thumb on pricing is you should get a little bit of resistance. It shouldn’t be easy every time sometimes they should question it, and maybe occasionally people leave altogether. That’s about the right tension, but it just depends you know at the beginning again you probably can’t charge as much as and you grow. In Smartware’s case we kind of grew into a larger company type of tool. We do have people of just three or five people using it but of course most of our money comes from the [unintelligible] who buy two thousand seats, and of course that changes the pricing and their expectations. So that’s the other problem with rules about pricing it changes so much depending on the type of market, and your life cycle stage in your company and all this sort of stuff.

Andrew: Let’s talk about customers now. How did you get your original customers?

Interviewee: Well I started the company in the era where Addwords was
Interviewee: the era where AdWords was very efficient. I was the only adverstiser for the keyword code review. In fact, I was also the only advertiser for CVS. Now if you’re a programmer, you think, oh yeah CVS sure unless there’s other tools, don’t forget CVS pharmacy, which you get on Google if you search CVS, we lose sight of that I guess as programmers. And I remember the day that CVS pharmacy completely trumped all the rest of us who had the keyword CVS. It was different. I literally was spending five cents a click, hundreds of dollars a month tops, and getting tons of traffic and all this stuff. Nowadays it’s a completely different world, we still do AdWords, of course we spend thousands and thousands a month on AdWords, but even with consultants to help optimize and all the stuff, and it’s funny you mentioned Darmesh[phonetic] because he would be the first one to agree with this, even with all that it’s only kind of in the middle of efficiency with all our ads, including print ads and other things. It’s just another channel now. It’s not that impressive any more. So that’s how I started with advertising but you can’t repeat that now, it’s not so simple. The other answer is I did print ads. You know everyone says print ads are evil, and they’re dead and all this, and it is true they’re dying off, but I was pretty successful with print ads.

Andrew: Going back to what you said about buying ads from Google, I see this over and over as I ask people where they got their first customers, it’s always, well I got into this before anyone else did it, I got into Google ads before anyone else realized how powerful it was, getting hundreds of thousands of dollars in business from ads that cost me five cents, or I got into search engine optimization back when everyone poo-poohed it and didn’t think that legitimate people did search engine optimization, I got into social media. There’s always something new that’s going to be really easy right now because it’s new and you’re the first person to jump on it and then later on it’s going to change, like blogging. Blogging was huge for a while, if you were one of the first people blogging in your space, you got the audience. How much business do you think you got from AdSense, in revenue, dollars and cents, how much do you think you got from it before it started to be hard?

Interviewee: Oh, for years that was our primary marketing technique, and then we got into [inaudible] some print ads, stuff like that. So I don’t know, millions of dollars for sure.

Andrew: Wow. So you didn’t have to pick up the phone and make sales calls in the beginning, you didn’t have to go out there and solicit new customers, you just let the online stuff work itself out.

Interviewee: Yeah, we never did cold calls. Going out in person I think is a very big deal. That’s something that was always a big value at SmartBert was going out and seeing the customers. But not to cold call them. Only after they’re already inbound into our site. I think nowadays it’s still that case. I mean I suppose cold calling works maybe in certain markets and certain types of businesses, but in general if people don’t want to listen to you they won’t. And it seems like every year the attitudes of people and what technology enables only reinforces that. You know, TiVo only makes advertising on TV harder. All this social media stuff makes a faceless corporation that much more difficult to reach out to people as opposed to a human being who’s making real relationships and building real trust. So I think that trend will only continue. So it does though sort of answer the question of well what do I do next. Because although the technology of social media changes, and like you said riding a new technology wave could be nice, the general idea of earning trust from people and exciting them so that they tell other people, with whatever technology they use to do that, I think that general concept has always been valid. I mean, it’s [inaudible] that businesses grow by word of mouth. Without emails and computers, and even telephone it still happens, right? Technology makes it happen faster and it can spread to more people, and it’s very interesting, it does change the game, but the general idea of the more you can completely thrill each individual human, the more of that invaluable word of mouth you get, that will always be true.

Andrew: Alright, I love your blog, and I keep going back to blog posts that I’ve read by you in the past, and one of them was why you sold, and you said that essentially cash equals freedom, and at some point you have as much freedom as you could get, and an extra dollar doesn’t add that much to your freedom, so I want to ask, and by the way that turning point seemed to be, according to the chart that you drew, was somewhere around a million dollars, that somewhere around a million dollars you’ve got about as much freedom as you can get.

Interviewee: No.

Andrew: No?

Interviewee: No, it has to be more than that. It has to be enough that you literally don’t

Andrew: More than a million dollars?

Interviewee: That you literally don’t

The transcript for minute 25 till minute 30 is BELOW this line.
Interviewee: [00:00] … That you literally don’t have to work every day [xx] with whatever lifestyle that you like. Not that you won’t, because, obviously, almost nobody who, who is reading a blog like that has that kind of attitude, me included, right? But it means, it means choice. It means, because, you don’t have to do anything. Yeah, the reason I didn’t give a specific number is because the, the sale of the company was private. And, of course, I can’t say what it was sold for.

And so I didn’t want to give any kind of number that would start employ, you know, allowing people to, to easily, you know, nail down what it was sold for. I didn’t want to do that. But, and also, it’s different for different people. In fact, it’s not necessarily true that everybody wants to have a certain number of million dollars, never work again. For example, Joe Spolsky, or the 37Signals guys. Clearly, they could sell their companies any time they wanted for a ton of money, a ton, ton of money. Who knows what, but a lot. Right?

And they, they don’t. And presumably, they won’t. And it’s just because they like running their company. It’s, their identity is caught up in it. That it’s, it’s fun. It’s what they want to do. And, of course, that’s the main thing in life. Right? Is to do what you want to do every day. So, there isn’t. There isn’t like a right thing to do. Seeking money is not necessarily the right thing to do, either. This actually ties in to the code historian stuff. Because I built code historian, thinking. All I really want is to not have a job. I really just want to have my own boss, own hours, et cetera.

I didn’t care if there was a million users of code historian. I always was happy if it generated, maybe, a hundred grand of profit a year. More would be a little better. But, like, if I’m doing about that, then that’s not that much less what I can get consulting. And I’m my own boss. And it’s fun. And whatever. Done. There. I didn’t have to make a big company out of it. That’s just how it ended up. But I would be just as happy if it weren’t. And that wouldn’t get me into that, you know, many millions of dollar, dollars market. It wouldn’t have. But, still, it’d be fun. So, for me, there’s several things that are fun. So, really, it’s a personal choice, this rich versus king. Do I. Do I want to run something and just have that lifestyle thing? Or I really want to shoot the moon?

Andrew: [27:10] Did? Do you remember what it was like when you hit that number? Was it? Did you? Was that freedom number only hit when you sold your company? Or did you hit it early on when you made a certain amount of money?

Interviewee: [27:23] At the time that we sold, it. I was. I was going to get there within, let’s say, a year or two, which actually makes a lot of sense if you about it. Because people buy a company and discounting for future value and all. That’s about how they’re gonna value it. Right? Well, maybe not value it. But that’s about how, you know, the ballpark of the computation’s gonna go. In retrospect, would it have happened that way in fact, not almost. 2008, we actually doubled 2007, even with the downturn in the economy. And that’s both profits and revenue. So, that’s pretty cool. Now, in 2009, like everyone else, you know, it. It wasn’t as good. Actually, it’s not hurting that bad, all things considered. But, of course, we’re not gonna double again. So, given what happened with the economy, it wouldn’t have quite happened yet. But, you know, it. It. It is. It does seem inevitable that it would have happened anyway. But, a bird in the hand, you know, to me. So, personally.

Andrew: [28:21] The day that that happened. The day that you looked down and saw a number that said freedom, you know, the whole song. That was the day that you sold. And you saw the check. Can you describe what that felt like?

Interviewee: [28:32] Yeah. I. My hands were trembling, as I was faxing eighty pages of the agreement over to the lawyers in New York City. It was. It was a. It was an interesting, bittersweet event. Because, on the one hand, from the very beginning, I told everyone who came to work at Smart Bear, you, you know. If we get a good offer to sell the company, we’re selling. This is not something that we’re necessarily running forever. If it works out that way, great. But, if it doesn’t, we’re selling. And, so. There was absolutely up front, from the beginning, everyone on board knew what was going on. So, so in that sense. That was not a struggle. But, still, not everybody wanted to sell. And that, you know, that created a lot of issue. There was the worry of what, what was gonna happen next with, with these guys who bought the company, screw everything up and make life hell, which, by the way, they did not. It was fantastic, incidentally. But, still, that was a pretty big worry. You know, what if Smary Bear does really well, and we had sold too early? Of course, what really happened was the economy sucks. So, OK. But, of course, then we didn’t know either way. And, yeah, of course, like you, you, you never know if you’re making the right choice. But, in the end, it, it is pretty simple to say. There’s always a next thing. And there’s my family. And both of those things are taken care of forever. I mean, you put it that way, for me, it’s pretty easy.

Andrew: [29:55] I see. I was gonna say. Because, for a while there, it sounded like it was just full of anxiety for you.

You weren’t sure if you were doing it at the right time, you had to reassure yourself. And what you’re telling me is, bottom line you know that you don’t ever have to struggle and your family doesn’t have to struggle and that gives you the peace of mind and you remembered that moment when you had that peace of mind.

Interviewee: It’s true. Although that anxiety, I mean it took at least a year for that to really subside, to be honest.

Andrew: Really?

Interviewee: It’s hard. It’s just always hard.

Andrew: You know what? I know what’s going on with the camera now. You bought a camera, am I right, specifically for this interview?

Interviewee: I did.

Andrew: First of all, thank you so much for doing that, for going out and buying a camera specifically for this. But you must have gotten a top of the line camera, because when you get closer, the camera takes a second and refocuses you. And then when you get further out, it takes another second and refocuses you.

Interviewee: Oh.

Andrew: So this is good. I’m not criticizing the camera, bottom line I want you to know I’m so grateful that you got a camera so that we can see you as a person who’s work I’ve been reading, and I know many people watching us live are going to be watching and listening later on in the recorded version. It’s nice to see you, it feels nice to get a sense of who you are this way. Darmesh is watching us live and he’s asking me to ask you a question. He’s saying, “What should entrepreneurs do to optimize for cash freedom? Other than of course make profit.”

Interviewee: OK, this is a good one. Even if you’re building your company to sell, which as I mentioned I was. What you do every day is you build the best, most solid profit driven company you can. You don’t build to flip, because building to flip means shortcuts and not really building a real business but some kind of thing you can pawn off on the next person. Now sometimes that works and some people would argue a lot of VC funded companies are that. There are a lot of companies with little to no revenue, certainly little to not profits, and yet they’re worth millions and millions of dollars. So clearly there’s some kind of build to flip thing going on here, or some kind of future selling going on here. In my mind, again for the small start up entrepreneur, not if you’re going for a company that’s worth a million dollars, OK, this doesn’t apply. But if you want to maximize your own ability to make money for yourself, you build the company that is genuinely constructed for profit cash flow. So products people pay for, where pretty quickly your revenue is more than your expenses. That kind of stuff, you know. The obvious stuff, really. But hard, really hard, and it means you’re going to grow slower. Because rather than pumping a ton of money out and not needing revenue and just trying to gather stuff to grow fast, it is slower and more painstaking and you straighten paper clips so that you can reuse them. Yeah, you’re going to have to change your own pallets in the urinal because you save 30 dollars a month, that kind of stuff. But the result is when you have a company which is growing and profitable throwing off cash, when you go to sell, or when someone offers you, which is what happens to me, the reverse, the conversation is amazing. Because it’s not about selling future visions and stuff. It’s throwing enough money. Like, I actually don’t believe that companies are validated with these kinds of mathematical formulas; that’s a whole other discussion we can have if
you want. But there’s certainly like a base line of profits over this many years and blah blah blah. Like there’s a certain base line value of the company that you really can’t argue with. And even if you don’t sell it, because selling is unlikely no matter what, so what it’s throwing off cash. Hurrah, you don’t need to sell it.

Andrew: OK, so I get the logic of that. So that’s one point, one part of this point, one part of this message. Which is bring money in, bring profits in, and think about that from day one. And you did, you didn’t create a product that was free and then beginning and eventually at some point in the future you’re going to charge for it. But how do you build something that you can get people to pay for? Do you have to focus on an area where people are, what am I trying to think of? That’s too broad a question and that’s why I’m trying to narrow it down with you. Are you more likely to earn a profit if you’re in a B to B space, where you’re selling to businesses who could justify buying who can know if they spend a dollar with you, that they’ll make at least a dollar and a penny and so it’s an easy deal for them.

Interviewee: Yeah. I don’t think it’s about B to B versus B to C, or particular verticals. What I do think is people open their wallets when you’re solving an actual pain. Now, that’s not the only time. Like the porn industry’s not a pain, it’s the opposite and people open their wallets. So it’s not the only way, but as a guideline for something that were people will pay for it. You know, there’s solutions in search of a problem, not that. So places where genuinely the software is saving time and money and not causing more problems than it solves because it always does cause problems. If you’re really upfront about all that. And it’s not enough to just say on your home page it saves time.
Interviewee: …that’s, like you’re saying with these questions, too generic, not good enough. It has to be palpable. Here’s an interesting measure of whether that’s so, people say you have to show benefits and features. You say, “This is a feature, and it leads to this benefit,” and that links them to what’s going on. I think that if you have to explain that link, you’re not hitting the pin on the head.

In other words, especially early on, a lot of people’s experience with code reviews is printing stuff out and bringing them to meetings on paper, and looking at code on paper. It’s a long story why people do that, and not important. So, one of the things we said is, “Code review without meetings or paper.”

Now, that’s a feature, kind of, or maybe it’s a benefit. I’m not even really stating what it is. If you do code reviews with paper and meetings, your head explodes. You’re like, “Please, let us not print code out and take it into a meeting room. This is so terrible.” In other words, if you have to explain the joke, it’s not funny. If you have to explain why to the viewer to your website why they should care, you’ve already lost.

Here’s another interesting technique. “What is the T-shirt?” So that means 1-3 words that gets put on a t-shirt, that if someone reads that t-shirt, they know if they are customer, they know whether they are interested and that’s it. For example, there is a guy that comes around, he rings your doorbell, and he has a t-shirt that says “Kills crabgrass.” That’s it, you don’t need features, benefits, the only next questions is cost, and then that’s it.

So, that’s the level that you need to be at. When you can put on a shirt like that, and without explanation, where the target audience gets it, you’ve won.

There’s a company I love called Cubit Planning. You’ve never heard of them, and you won’t, because…

Andrew: What is it called?

Interviewee: I’m sorry, Cubit Planning.

Andrew: Cubit Planning.

Interviewee: You’ve never heard of them, and you won’t because they sell software in a niche that none of us use. They use acronyms you’ve never heard of, and they say, “We do TSPCA automated data collection,” and you go, “I don’t know what the hell that is.”

Right, because you are not a target customer, but the target customer knows it takes about 40 hours of effort to make these reports, and they make them in 5 minutes. They have a video showing it happening in 5 minutes. It blows them away. That’s the thing, what’s the phrase where it needs no explanation, then you’re hitting the pain point, and then the only question is how much. How much does it cost, because I want it.

Now there is another technique all throughout there. Can you give it away? Now, this is not the same thing as freemium. It’s, if I gave you the software for free, would you actually use it, not just an account, because if I took it away, would you be pissed. That’s another way to measure. If I removed it, would you be pissed. Would you take it for free is actually and interesting measure. For example, in the early days of SPAM filters, would you take one for free? Sounds obvious, of course I would, but wait a minute, what if it traps mail that’s good? What if it crashes my server?

Would Cisco buy a big SPAM filter for the entire company, because what if that goes down because of all the Spam? So it’s not immediately obvious that you would take one for free, that’s a problem. So, for example, our software, it’s a side-car. If our software doesn’t work, it does not interrupt your normal flow. You just don’t use it, no problem. It doesn’t hurt you, you just don’t do that. You go back to whatever else, not a big deal. That’s another technique to find out whether what you have has less friction. Are people are going to use it?

Andrew: You built your company from the beginning with the idea that you were going to sell, and one way you did that was, one way that you prepared for the sell was by telling the people in your business, “I’m not going to be stubborn about selling this. If we get the right offer, I’m taking the offer.” What else did you do to prepare?

Interviewee: Right. Well there is some kind of obvious stuff that apparently a lot of people don’t do, like keeping your books in good order, and keeping business expenses separate from personal. When we were going through the sale, the guy on the other side, who was leading at the finance guy, could not believe that I reconciled my bank statements every month. That’s just normal accounting stuff. You take the bank statements, go to QuickBooks, do the reconciliation, and you do it. You just account for everything. Even if that means you don’t know what something is, and you have a category called “I don’t know,” because as long as that category is not very big, nobody cares, right?

It doesn’t necessarily mean pulling your hair out at every point, but it does mean basic reconciliation. He says, “Usually, we spend hours and hours pouring through this, and I’m trying to pull invoices, I’m trying to find where all of the accounts payable might be, and it’s a big question mark on the deal.”

So just having your stuff organized, having that kind of stuff done, but a lot of people don’t do it. They figure it’s separate.

Having all your records in one place, honestly, some of that I didn’t do very well, and I had to scrape it together later, and that’s good.
The transcript for minute 40 till minute 45 is BELOW this line.

Interviewee: And I had to scrape it together later and that’s good because how much time can you spend screwing around with paperwork when you are trying to build a company, right? Here’s one thing that I did that was interesting. I maintained a document and the idea was that it should be a one page or it maybe five pages of detail that are optional which come after it. And you can call it an executive summary or an investor summary or something like that. It was as if I were either selling the company or raising money because those things aren’t that different. And it’s how I would pitch it and so, very briefly, who cares why people buy all this stuff, what does our revenue generally look like or our growth? And then in the detailed stuff like who is everyone in the company and when they joined, what they do and just kinda like all that stuff. Again I spend once maybe every six months but it kept me paying attention to ‘what are we?’. Not necessarily whether it is good or bad but what we are in one sentence. Being able to say where we are going in a paragraph. When it came time to sell, having that was amazing because I could literally e-mail this thing and immediately knew whether they were interested in taking the next step or not.

Andrew: What about fostering relationships? How did you foster relationships with the idea that at least one of those relationships might end up resulting in a sale?

Interviewee: That’s a good point. One of them was for vendors that we integrated with. So we integrated with a lot of version control tools and we didn’t just integrate. We went out of our way to make sure that the integration was amazing and their techs where people knew us. I went over there a lot of times, I spoke at their user conferences. In fact if you go to the perforce website, their home pages are a rotating thing and five enough times you’ll see me there talking about cover on their homepage. So we really tried to embed. And that’s a good point. So, we weren’t bought by a competitor or one of these vendors. But that is a good point. The company I did before Smart Bears, II watchdogs was bought by a customer. In that case we had built a special device for the them, I don’t know if you want to go into detail, but suffice to say, it was really great and they didn’t want their competition to have that. So they said we want an exclusive and that lead to well, by the time you give us enough money for the exclusive to be worthwhile, why don’t you just own the whole team and do whatever you want? And take the revenue stream that we have anyway and tack that on? And that’s exactly what happened. So, there’s a good question. But Smartbear didn’t work that way. But it does work that way a lot of times.

Andrew: I see. If anyone is watching us and has any questions please type them in there and I’ll do my best to get the answers to as many questions as I can. And what most people are doing right now is quoting you back to their followers on Twitter and I am getting to see that one way or the other here.

Interviewee: One little addendum to that is, you had asked how do we foster those relationships. One of the ways I am essentially seeing is, I guess, is to have this really deep and meaningful relationship but not just like a bullet that you support something. I can put it in another way. If you make them successful, we would sell perforce because our integration with perforce depends on that thing, so we would refer customers over to them. And vice versa would happen too. I had no agreement. There was zero legal agreement with any of these guys. It was strictly because we were genuinely bringing them customers and because there was interesting things to talk about in their newsletter and user conferences. It was just genuinely good for them and us so we literally didn’t have an agreement. And we both made our sales.

Andrew: So your strategy was to embed yourself so deeply into these companies that it’s almost like you are already an employee and when the ink dries on the contract, people say, “oh, I thought they were part of our business this whole time.”

Interviewee: And especially if you are angling to get bought by IBM, it happens a lot. Although I haven’t experienced that firsthand, I have a few friends who actually all have. And it is all just like you said. There is of course a million steps along the way but towards the end, it really is their salespeople who are literally selling your software, possibly even exclusively at that point. So this is actually how developmental are. And so the actual moving it over isn’t that big a change.

Andrew: Let’s go into ITs at the beginning of this interviewee which is the difference between being rich and being king. Could you explain the differences and how you made the decision?

Interviewee: This is a phrase which has been coined many times actually and that blog post lists all that kind of the stuff. The idea is, rich means you are trading control and the sort of lifestyle and dream of being founder for money. And the idea of king is the opposite. Well, what you want most is to run a company.
Interviewee : and the idea of king, is the opposite that where you want most is to run a company. And of course you need to make money and its better if you make more money, and I suppose if you have both then you can say you are both rich and king but its sort of refers to usually you end up picking one. So for example as soon as you raise money you are already making a choice towards rich, because raising money puts control mostly in the hands of other people and it will only get more so. And you can point to Google and all this other stuff, but generally that is the case. Whereas you can go the king route and say I am not going to take investor’s money, or I’m going to take Angels and still own most of it. But that means I grow slower, I personally think you have more of a chance of making money in the long run, but sort of the conventional wisdom is well not making 100 million dollars, well OK, and so it is that choice. But again, my philosophy although there is that sort of fork in the road, people completely believe in that fork and I am using that because it is referred to a ton all over the Internet. But I don’t quite believe in that fork, I believe that again acting like king, in otherwise acting like I want to build a company that I am incredibly proud of, that is incredibly operationally smart, that I want to come to work every day. Where I have great people I love to work with who are making a product that really does make the world better on the balance, and our customer’s lives better on the balance, and is worth the that money we are charging them because that is all awesome. And when that is the case like money doesn’t automatically come right, we know the best product doesn’t automatically win, of course not right. But surely you are maximizing your chances for money by doing something genuinely good. So marketing can trump good, agreed. But good is a good competitive advantage, too right? Especially in this day of where social media has enabled w
ord of mouth even more than ever. Good can spread more than just marketing dollars more, and probably every year that passes that is more true.

Andrew: The distinction you are saying is, when you go into a business you have to say to yourself, ‘Are you so willing to be rich that if they told you that you can’t run the company, that you would be willing to leave the company if they told you that you had to do things that you weren’t interested in?’ If you had to live in obscurity for a long time, you would be willing to do it. Being king on the other side is, ‘Do you want to be known as the founder of this company? Do you want to be like Ted Turner with your name on every piece of the business?’ And most people have to pick one or the other, you’ve decided that you want to be both. You want to build a company that you can sell and make money, but at the same time you also want to have a reputation in this phase. So that when someone says Jason Cohen says this, others pay attention to it. So when you walk around with your book, in fact not with your book, you walk around and people bring your book over to you and have you sign it. People like me want to come and interview you. Because you are a celebrity in our space, so most people pick one or the other and you are saying you can do both, and you have picked both and the people who are listening to us can do both.

Interviewee: Yeah it seems like one might lead to the next, right?

Andrew: I see. They are not even mutually exclusive. Quit saying to yourself you can either be rich or king. Ted Turner is both.

Interviewee: Yeah, now, Ted Turner is both. In fact most of the popular social media magnates are both, right? Most of them are both.

Andrew: Can you throw out a name?

Interviewee: Well, you know, Joel Darmesh[sp?] for that matter. All the 37 singles folks. All of those folks like Penelope Trunk and Faris, and all those guys.
Andrew: They are both well known. They are kings of their own universes. And they are also rich, they don’t have to worry about making a dollar every day and you could do both.

Interviewee: More or less. Like Penelope does still, but more or less you can imagine that having created this personality and I guess, trust and following, it is going to happen. It is valuable, and you know the market is pretty good at converting that sort of value into money eventually.

Andrew: Alright so we have about 10 minutes here. I want to spend about 10 minutes going into philosophy with you. The philosophy of success and the philosophy of business with you, if you don’t mind. So here is what I wrote down earlier as you were talking. My goal was to just make a living at this business basically. Most success teachers will tell you that you have to set big goals for yourself. Otherwise you can’t hit it. If you have low expectations you will have low results. And as a guy who walked into entrepreneurship saying I essentially want a job for myself, you walked out of it with what most people can’t imagine because it is such a big success. What does that say about goal setting?

Interviewee: It is so easy to do these trite things- if you don’t aim high, you will miss it crap. It is incredibly hard…
Jason Cohen: It’s so easy to do these trite things. If you don’t aim high, you’ll miss it. Or, all this crap. It is incredibly hard to make $100,000 of profit at a business.

Saying that is almost impossible. Almost no business will make $100,000 in profit. Not even restaurants. It’s really, really hard.

So, [Laughs] if that’s not a step along the way, either an end goal or a step along the way, I don’t know what .

Like, what? Again, the path of the VC where you spend a ton of money and you try to get a bunch of people to use it and you go that route, that’s OK.

That is a valid route. I don’t mean to say that that’s not a valid route, however, if you’re an individual person and you want to maximize your own chance of success .

Just being profitable at all, let’s say enough–

Even $50,000, depending on where you live, what are the living expenses, that is almost impossible already. And so why not [Laughs] try to just do that?

And by the way, if you’re successful at that, it’s not crazy to think that it might not grow more than that.

Andrew Warner: Did you think in the back of your head that, “it could grow more than this? That–”

Jason Cohen: [Overlapping] Yes.

Andrew Warner: [Overlapping] “At the very least, I’ll have a salary, but really what I’m aiming for is something a lot bigger?” You did.

Jason Cohen: Sure. I wanted to get bigger. But even if you want your goals to be huge, why not set your sights on something that’s already hard but a little bit more within your grasp?

Andrew Warner: I see. So you had this imagined goal of “I’m gonna be huge, I’m gonna be Joel Splatski. ” I keep mispronouncing his name. Can you please pronounce it for me?

Jason Cohen: Spolski [sp].

Andrew Warner: Spolski [sp]! Thank you. I keep saying Splatski. Who’s Splatski?

[Laughter]

No wonder the guy doesn’t wanna do an interview with me!

Joel, I’m sorry. I promise I’ll have Jason on to do an interview together. He’ll pronounce your name and I’ll be the one asking the questions. Or we could both ask questions.

So, where was I? You’re saying you had this goal in the back of your head. But at the same time if all you had was that goal, it would be so overwhelming that you may not be able to get . Not get up every day, but–

It’d be too overwhelming to function. So the first level goal was make a living at this. Back of your head–maybe a little closer than the back of your head–you’re aiming for greatness with this company.

Jason Cohen: Yeah, and this also ties into the whole, “what you do at first, your ideas at first,” whether it’s product or your business I guess “game plan” changes anyway.

As you discover things in the market, anyway. So, what’s the point of these far-reaching goals that are five years in the future and all this crap?

I mean, clearly, you can’t predict that far ahead. So I’m not sure why you’re trying to set out your stones in that direction.

And the other thing is, this is just how–this is just sort of my point of view and what I did. But it’s so obvious that any one of these philosophies is not the whole story.

Like, there’s the 37 Signals’ “not a lot of features, slowly build a lot of money.” But then there’s the Joel Spolski [sp], “I have a blog first, and I’m gonna have a ton of features. And I also make a lot of money.”

And then there’s the Google way of “owning the entire world and raising money.” And then, everywhere you turn around there’s a different way to get there.

So clearly it’s not about the one true way. So what I would say–back to philosophy, what does that mean? So, how do you pick what do?

To me, the hardest part is knowing what’s gonna make you personally happy. Do you need to be king? Or do you want to be rich? Do you need a cofounder? Or do you know you don’t work well with others?

Is it okay to just–and “just” is in quotes, ’cause I think it’s already really impressive and hard–just make enough money to make you happy, or do you need to make a whole bunch of money in order to be happy?

There’s no right answers. So what are they for you? And then be consistent from there on, on how you try to achieve it.

Andrew Warner: [Overlapping] Oh, I see.

Jason Cohen: That’s really the right thing to do.

Andrew Warner: I see, yes. It’s that, there is no single path. But once you pick a path, try to stay on it. Otherwise, you’re–

Jason Cohen: Yeah.

Andrew Warner: You’re not going anywhere.

Jason Cohen: Right.

Andrew Warner: Okay.

Jason Cohen: Yeah, and it’s true, even, of your product development. Code Collaborator has a lot of features and supports enterprise customers.

A product that 37 Signals makes would never have those features. Because it’s too many. And they wouldn’t make those sales.

That doesn’t make one of us right and wrong. It means we’ve picked a certain–we ended up in a certain part of the market. And now we’re gonna be consistent about how we address that.

And so, other philosophies that don’t match that–they’re not wrong. It’s just not a match for us.

And so, the hardest thing to do, I think, as a person is to know what you want. But if you can do it, then you can make things match it.

Andrew Warner: I did an interview with Jerry Colonna, the guy who cofounded Flatiron, the venture capital firm. And today he’s a life coach. And he says to the businesspeople who he coaches, have–not a work-life balance, but have a life outside of work.

Now, I read your post on this. Can you tell people what your position is on this?

Jason Cohen: Yeah, and it’s funny, ’cause 37 Signals, Matt there, just posted a rebuttal to my article. My article is called, “Sacrifice Your Health for Your Startup.”

I think that summarizes the position.
Interviewee: It’s not so much that you should or must, well, its not like the idea is to become unhealthy

Andrew: Right

Interviewee: The idea is that startups, specially blue strap startups are all so consuming an difficult and take so much time just for a chance of success that you do end up sacrificing your whole life, you can potentially sacrifice your health, you know obviously you can still run and eat well, like clearly it’s a provocative title, right. But, it’s difficult to find successful business owners who haven’t done that. That doesn’t mean you must, because theirs always guys like Leo or his Zen habits and I guess, I keep saying but like those guys, where okay they didn’t.

Interviewee: But for every of those guys I have 99 more in my back pocket who did, they are all in, okay and so you have to except that its probably what its going to be like and if you are not obsessed with the business. I am not saying that it will fail; I am saying it has a lower chance of success. If anything else sort of indicative, maybe a lack of commitment to or something like that or I don’t know.

Andrew: You are saying you got to go all in at least in the first stage in your life, you have to have that one point probably early on where you sprit so hard that you have no time to pay attention to anyone else and you brought up Leo, the guy who ran zenhabits.net and he says ‘no take it easier and don’t do as much’ I got to tell you though, the guy is not setting the world on fire. I love him. Before I came to vensaris, I read his book on the flight and it meant a lot to me it changed a lot of my thinking I got to say though that he is not setting the world on fire yet, right. So maybe this attitude would make you happy for a longer period of time. But it’s not going to allow you to have huge influence or am I wrong. It’s not going to allow you to build huge business, you never going to be Ted Turner that way. You never going to be the Google guys, you never really going to have that kind of influence.

Interviewee: I am not a Google guy either but there is no way I could have got to this point without you know full devotion. There always an infinite amount of things to do but there’s never enough time, like everybody knows those things. Then again people say ‘whoa you work 16 hours a day, everyday then you are less productive of course right. Of course there are limits and what not. I was going all the way with that point. But, generally that’s the case and you have to be prepared for your life to be like that and there is just so may more examples of that succeeding bin otherwise that its very hard to ignore it and just say its not necessary.

Andrew: Alright, I am going to say that I am still in investigative mode and I haven’t made up my mind here that Leo isn’t setting the world on fire because the truth is I read his book and I am influenced by it. You read his book you’re influenced by it. I don’t know how many people out there read his book or setting the world on fire as a result of what he did and that kind of influence is phenomenal, the guy is leaving a legacy. But I am still not ready to give up this idea that you have to go in all the way, that you have to sacrifice everything including your health. That you have to be fat if you are an overeater at that period. You have to be initiated and standing up if you need to drink as many cups of coffee as it takes, I still hold inside me that that’s the truth. But, I come to these interviews with an open that I want to learn from people in the way they do it. So I am trying to ask this question as often as I can to people like you and also the audience. Let me know what you guys think if you are listening to us live and also if you are listening to us in the usual way, most people download afterwards. What else do I have here? Dumbest mistake, I am curious about this, what the dumbest mistake that you have made.

Interviewee: When I answer this people always say that it couldn’t have been that big because you’re still right. So you got to take it with a grain of salt. I hired a salesperson that was a big mistake. It cost an incredible amount of time and morale and money. The time was things like training and what not and it didn’t work at all. But here’s the biggest mistake, then I didn’t learn my lesson and I tried again later with another person and failed basically for the same reasons. So, maybe the second time was the biggest mistake because I wasn’t learning from my mistakes. I like many, well almost all technical founders I know, things that we don’t know about like marketing, like sales, we think like there’s some kind of magical thing we don’t understand because we look at things like a coke marketing and we say I have no idea like why do they do that it doesn’t work on me so I don’t get it and those guys must be smart, so it must be me that doesn’t understand it. Same thing with sales like I don’t get these crazy sales guys and they seem like jerks to me but they go out there and bring back the orders. So they must know something that I don’t, they must have something that I don’t. Man, so at some point I just need a salesperson.

Interviewee: Man, so at some point I just need a salesperson you decide, or I need to do branding you decide, because although you don’t understand it you know that you have to have it. So I had that attitude and that’s why I failed a couple of times, because that’s not true. There’s not a magical whole in the wall that makes sales come through, there’s not a magical branding thing. If you don’t understand it you really shouldn’t do it. Just because you don’t understand doesn’t mean it’s not valid, but it does mean that you can’t manage it and evaluate it, you can’t measure it, you can’t know whether somebody’s doing it because you don’t understand it. So it doesn’t matter whether it’s okay or not ñ you can’t do it, you will waste your time on it and you will probably fail at it since you don’t understand it. It just turned out that we didn’t need to sell that way. The company wasn’t built to sell software that way and it didn’t need to be, and the fact that I couldn’t I just went in ‘I don’t know why but I’ll do it’. You know, the reason why I didn’t know why I needed it was because I didn’t need it. So, there’s my biggest mistake. Repeating a mistake.

Andrew: Okay, actually we’re overtime but I keep coming up with questions that I don’t want to put off ëtil the next time that I interview you. Like answers.onstartups.com. Why didn’t you start your own site, why’d you have to partner up with somebody else, why didn’t you develop your own something.com instead of being a sub-domain on somebody else’s business?

Interviewee: Well don’t think I didn’t try in fact I was talking to Jeff Atwood about doing a startups version of [unintelligible]

Andrew: A startup question and answer site you could have gotten startupqandq.com.

Interviewee: Oh yeah, sure so the answer is I was talking to Darmish about it anyway, like you know I was thinking about doing this, what do you think about that? He says I was thinking about doing that, right? So we just did it together. Because clearly, the world does not need forty-two Q&A sites about it

Andrew: It’s too bad I was thinking about doing it too and now it’s too late!

Interviewee: There’s no point right? Clearly it’s better if there’s one place where a lot of interesting people are having good conversations. And see, it’s not too late for you because you just come to answers.onstartups.com and just participate, right? Like, it’s not too late, it’s there and you can be a part of it as much as you want to be. The number two user is Alex Papodymalis, the guy who owns Daily WTF. And he’s the number two guy because he just wants to answer and ask a lot of questions and he does such a good job people vote him a lot. He’s not technically ‘part of the site’ or something it doesn’t matter he’s still incredibly visible. So

Andrew: So why didn’t you do that? Is the reason you didn’t create your own site because you didn’t want to compete against a friend?

Interviewee: Oh yeah there’s no point, why not join forces we’ll get way more people coming to the site in the first place.

Andrew: Who owns the name? Who owns answer.onstartups.com?

Interviewee: Darmish. Darmish. He’s paying for all the costs and the [] and stuff.

Andrew: But the cost is very little. You’re the guy who could end up owning this business yourself. You have the audience you have people out there. So basically you gave up your you don’t have a share in this business?

Interviewee: No look it’s I really think the world is a bigger place than that. I don’t need to latch onto a certain Q&A site or this or that. If I… you know right now I’m the number one user. In other words I make it my business to try to give really good, considered, researched answers to try to earn that top spot.

Andrew: I ask my friends questions you know what they do? They link to your personal answer. I looked at the picture – it’s always the same picture that you have everywhere ñ I know the guy.

Interviewee: Right.

Andrew: So now you’re answering my questions through them, so and not only on the site sorry.

Interviewee: Well okay, since what you’re essentially doing is asking about – why not be selfish about it? I’ll give you a nice selfish response, because sure there’s a lot of self interest here. The selfish response is: If my personal identity on the internet the more I can expand that, that existence, that influence, that trust, the whatever, all these words that you use with social media stuff. The more I can expand that, it’s going to pay off, and that doesn’t mean in ads. And honestly ads is not how you take your reputation like that and have it pay off, right? I get emails constantly, you know will you help me with this startup, do you want to be part of this In other words opportunities flow around constantly because of this. That’s the kind of thing where you actually can make a lot of money, do things that are fun, and so forth. So, to me, as long as I’m getting a lot of exposure on that site, earned exposure, right? You only get to be number one because you answer a lot of questions that people like and, like you said, people link to it. That’s how you earn it, but if I spend the time to earn it and all that, that is selfishly what is going to give me the most value. Not the fact that I can put up ads and make five hundred dollars a month on it. Who cares, that’s clearly not the next thing for me.

Interviewee: that’s clearly not the next thing for me to make, you know, make little ads on a blog, that’s not it, that’s not my interest

Andrew: So basically you’re a power user of the site. You’re not a co-owner of the site, but you’re on it and you’re a power user of it and you’re contributing to it and the reason you’re doing all that is because you know that your reputation is going to build through it. Some people might forward me your blog post, but I don’t get your blog forwarded, blog post forwarded to me a much as the answers as you post on answers dot startups dot com and that’s your

Interviewee: Sure

Andrew: pay off for it. That is interesting but I’ve got to say too that you and I are both on Hacker News, you’re on Hacker News, right? Your name there is a smart bear, right? So on hacker news they post your blog post. By email I get your question and answer. Someone else now is tweeting what you said, so all these different places are points for you to connect with the right audience and that’s why you’re involved, that’s why you do it for free, or without getting paid cash. Darmesh lucked out, man. Darmesh lucked out, you have a smart guy, very active, who’s got a lot of credibility in this space because he built and sold a business and he’s out there, he’s pumping in answers like you wouldn’t believe on your site.

Interviewee: Yeah, but I mean, there’s two ways to this as well. Like Darmesh, I mean yes, but on the other hand, you know, without Darmesh’s weight behind it, because as much visibility as I have, Darmesh is, I don’t know, an order of magnitude more, I don’t know, but you know, without Darmesh behind it there wouldn’t be nearly the magnitude of number of people and more importantly quality. Well, first of all, it’s really fun to meet all the people you’ve never heard of before, whose blogs, like I go to their blog and they’ve got seventeen RSS subscribers and I’m this eighteenth one ëcause I like this guy, you know. That’s, that’s actually really fun. But it’s also cool to have guys like Ran[sp] Fishkind, SCO Mas[sp] guy, Joel Spolsky[sp] himself, Neal Davidson[sp], and these guys on the site. Now could I get those guys on the site? I probably don’t have enough pull to do that, Darmesh does, so it’s also, you know, also Darmesh’s weight behind it made the site a whole lot more than it would be if I tried to do it myself. So, if I tried to be selfish about it, I actually wouldn’t have as much benefit as joining with Darmesh and that’s really the greater point, that cooperating really did a lot more for me, even selfishly, if you want to go at it from that point of view, than going it alone. And I think

Andrew: Why are you guys beating startups dot com? You both have the same question and answer platform

Interviewee: Yes

Andrew: built by the same people, targeting the same audience. Why are you guys beating them in traffic?

Interviewee: It would be easy for me to answer that, but I would also be dissing them and I don’t really like taking a crap on other people like that.

Andrew: Got it. You know we’re all, we’re all mathematicians at heart,

Interviewee: [laughter]

Andrew: two plus two is four, even if you’re upset that it doesn’t equal five, so let’s be honest, they won’t take it personally. Or, say what you want but I just want you to know that this is a forum where you can speak your mind and we all are open to it, no judgments.

Interviewee: Well, I think, let’s put it this way. If you go to the front, their front page, and look at the questions and look at our front page and look at the questions, you will notice, one of them seems to be more interesting, more in depth, more like real problems that people have and the other one looks like, you know, sort of mad libs where you can put words into slots and when, and turned the crank and generated a bunch of questions. You’ll notice if you view a question, again, pick a random one, you know, anywhere, and look at the discussion, like what are people saying? Is it in depth? Does it seem to come from experience? Is it nice? You know or is it again, like a one sentence answer that that’s not that interesting, not that in depth. So that’s what I would do I would, we have our own beliefs about why this is, I don’t really want to get into that, though, but that’s what I have to say. See for yourself what the quality of the stuff is and then you can come to your own conclusions.

Andrew: Is it because you’re building a community where you’re actually going to be the seventeenth or eighteenth RSS subscriber of one of your users and startups dot com is building a Google search engine monster that will have the best keywords that are somehow funneled in and created into questions? And so the competition here isn’t between two sites that are doing the same model, you just happen to have the same software, you’re focusing on community and talking to each person and they’re focusing on search engine keywords.

Interviewee: Yeah, I mean, just the fact that they paid six figures for their domain name, demonstrates that they’re, they’re in this for money. Clearly we’re not. I mean just look at it and there’s nothing there that costs a significant amount of money, we’re not in it for money. Those guys are smart and I’m sure their intentions are good, you know, they’re good at, you know, discussions are there but, I think you’re correct, but you know the thing is when people twitter a question or like
Jason Cohen: But yeah. I think you’re correct.

But you know, the thing is, when people Twitter a question, or like you said, they email the stuff, that counts for Google too.

And so just putting up a whole bunch of pages is not necess–maybe that will work for them. And that’s fine, I guess.

But our goal is not to–to the extent that we can grow the site, to the extent that it gets on Google, higher . To the extent that it has all this good juice, of course that’s what we want, right?

But primarily what we want to do is have really honestly awesome questions, and answers, and discussion.

One of the things about Stack Overflow is, you’re not supposed to discuss. It should be a question that has an answer. And then the answers appear, and the best ones are voted up.

And that is good for them for programming questions. For us, we debated at the beginning, “Do we want the same thing? Should it be like, ‘there is a right answer?’”

And we decided pretty quickly that that’s crap, when it comes [Laughs] to startups. There’s not always an answer. What there is, is like, considered, interesting datable.

And sometimes, some of the questions you’ll see, like, people all go to one [Laughs] side of the issue. Which is good. And sometimes it’s all over the place, which is–sometimes–even more interesting. [Laughs]

So, we don’t even see it as, there is a right answer. So if we’re getting really good information, and debate, and things to consider, and advice .

Success–that’s the measure of success. And of course we want to grow the number of people too. Of course.

Andrew Warner: All right. Well–

Jason Cohen: [Overlapping] But we want to do it by having it appear in people’s email boxes. That is the best way to grow, right?

Andrew Warner: Yes. If people are recommending it that way, then it really says that the question and the answer are spectacular. We’re not the kind of audience that forwards stuff by email a lot.

I don’t get a lot of cat pictures by email. I don’t get a lot of interesting comments forwarded to me by email. We share them online. If it comes in by email, it better be good.

All right. Well, so there you go. That does say a lot about the quality of the site. I’m gonna say it again to Darmesh [sp] if you’re still listening to us. You lucked out!

You have a top entrepreneur who’s one of–who is the top user on your site, and community manager, and all-around friendly guy that everybody loves!

Jason Cohen: Awww .

Andrew Warner: Who actually would go out and buy a camera just so Andrew Warner on Mixergy can have a video interview with you. So, come on!

Thank you Jason. So good to finally meet you.

So good to have you here on Mixergy and do this interview. I appreciate it.

Jason Cohen: Well, thank you. I’m honored to be on. And it’s been–you know, I watch maybe 50% of the videos here, or so. You know?

So, yeah. I love it. It’s good stuff.

Andrew Warner: I’m gonna be walking on air tonight! You’re telling me that you’ve watched my work over here, Darmesh [sp] is telling me that he watched my work earlier today. This is awesome!

Jason Cohen: Well, the difference is interviews are so often just, “where did you grow up?” oh my god, who gives a crap where you grew up?

[Laughter]

So you’re really good at getting to the point, getting to the truth, asking specific questions. And not doing all this sort of generic crap we’ve all read before. Or don’t care about. So keep up the good work.

Andrew Warner: Well, thank you.

Thank you, all, for watching us. If you have any questions, you know where you can go. You can go to his site. You can go to Answers.Onstartups.com. Or you can come to Mixergy, and in the comments you can ask.

You’re giving me feedback I’m always looking for feedback from the audience. Because I know that it keeps making me better, and helps me get to know them. What else can we do? Can you tell them where they can connect with you directly?

I’d love for them to all get to know your work more.

Jason Cohen: Sure. Well, the blog is Blog.Asmartbear.com. And my email address, if you go to the About Me, I have my email address there too.

Andrew Warner: All right. And Twitter is, Twitter.com/ASmartBear. And really, frankly–

Jason Cohen: Right.

Andrew Warner: If you just Google “Jason Cohen,” I’ve gotta believe you’re gonna find him. But connect with him one way or the other.

And click around Mixergy. Tons of other interviews with entrepreneurs, investors, everyone else who wants to you build a successful business. Go out there and build it, and then come back to Mixergy so that I can interview you the way that I interviewed Jason.

Thank you all for watching, I’ll see you in the comments.

Full program includes

Wannabe businesspeople always assume that the only reason an entrepreneur would sell his company is to buy cars, boats and other toys. When you get to about minute 25 of this interview, you’ll hear why Jason sold. It was for the same reason he launched his business.

And, by the way, in one way or another, just about every entrepreneur who sold his or her company and came to Mixergy to talk about it said the same thing.

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  • http://styleguidance.com Andrew

    I'm not sure, but I think startups.com is beating answers.onstartups.com

    onstartups has an alexa rank of 27.5K, but that's shared with Dharmesh's actual onstartups blog.
    startups.com has an alexa rank of 29.5K, and that's all them.

    And yeah I know alexa rank is worthless, but it's a useful indicator when it comes to comparing 2 sites.

    then we have users:

    startups.com has 2055 users.
    answers.onstartups.com has 1687

    then we have # of questions, onstartups has 928, startups.com has 3943.

    then you have page rank, startups.com has PR of 5, onstartups.com has PR of 0.

    and finally you have level of activity:
    onstartups: 29 questions updated in the last 24 hours(either asked or answered)
    startups.com: 29 questions updated in the last 5 hours

    So by every metric onstartups is getting creamed.

    I think this is a perfect example of what Jason talked about on the video, since both Dharmesh and Jason already made their bucks, they don't really care whether the site sinks or swims. While for startups.com guys, they see it as their opportunity to make it a big cash cow, so they try to go mainstream.

    With my site(i use the same platform), I'm going for a mix of both. Build up content to drive traffic, but try to focus on quality, so that the traffic that does come gets a positive experience and just might register. This is why every question gets thoroughly researched and answered. Sure it's slower than spamming the crap out of my site with dumbass fake questions like startups.com guys…but at least I don't have 1246 unanswered questions on my site.

    Well to be completely honest, I do spam my site a little with fake questions. But that's because as a brand new site, there is really not that much traffic yet, and I don't want my users who like answering questions to get bored.

  • John Farrell

    If Joel Spolesky did an interview on Mixergy it would blow my mind.

  • http://OpenSwipe.com Casey Allen

    “I was willing to follow my customers rather than follow some pre-defined vision”.

    I think that entrepreneurs trying to be the next Steve Jobs is the worst strategy (as far as strategies go) if you care about maximizing your chance of success.

    I worked for a startup that developed something revolutionary. We burned through 4 years and a few mil trying to ram it down people's throats. After burning through half a dozen marketing and sales VPs, we finally learned. We finally learned that we should cater to their needs rather than telling them what their needs were.

    Love it. Congrats on your success, Jason.

  • http://www.girlstartup.com Girl Startup

    Nice interview and Joel seems like a very grounded person.

    oh Andrew whenever you mentioned that “startup” website, in this interview and other interviews…I thought you said startup.com which I went to in the past and couldn't understand what all the fuss about is. Now I realise it's called http://OnStartups.com. Still I wouldn't of ever gone to the “answers” section of that site because it's not very obvious. I think they need to make the answers area more prominent.

  • http://OpenSwipe.com Casey Allen

    They are indeed two different, competing sites. OnStartups is a blog, and not centered specifically on the answers, whereas that's all Startups.com is about.

    To see a very recent convo about the two, including how they are different, check out the Hacker News post that this interview sparked, which includes some replies from Jason: http://news.ycombinator.com/item?id=1022707

  • http://www.bluepop13.com/ Eric

    Any business worth building takes much more than work and this video makes lot of good points about the fundamentals of it all.

  • ssunil

    Hi Andrew,

    Really nice interview. I have been following up on Jason's Blog for a long time now.

    Thanks

    P.S: On this page “You should read really Jason's blog” should be “You should really read Jason's blog” :)

  • http://www.bidsketch.com Ruben

    Great interview! I'm so glad you were able to get Jason on here.

    Some great stuff from the interview:

    >> It's hard to completely fail and not come ahead in some way.

    Absolutely true. I've learned as much if not more out of my failures than my successes. Plus, as Jason mentioned, all the resources you acquire and relationships you build in the process are gold.

    >> Translating specific feature requests into useful features that solve the root pain.

    This one is truly important and often overlooked. Every feature request that comes in should be analyzed for the best possible solution for your product and users. It doesn't always mean some time consuming feature needs to be developed; sometimes (given the context) the right answer is a quick hack.

    On philosophy of success, I like how Jason mentioned that there are many different ways of doing it, you just want to stick with the way that works with you personally. Everyone talks about their method almost as if it's the only way to become successful. So it's great to hear this.

    Also, great point Andrew about people getting into things before anyone knows about it. I notice this too in a lot of your interviews.

  • http://www.asittingduck.com/ A Sitting Duck

    I would say King up until 35!!!!!… Rich after 35!!!!!… It depends on the individual but it's great to work with creative people and if you left the office after a few months of coffee shops and bars you will miss the work environment ;]

  • startabiznow

    I am completely in awe of Jason's authenticity. Thanks for not pumping up the twenty somethings with hot air and Andrew… kudos to you for your ability to manage that dynamic. I am refreshed there is hope in the air – something other than “sugar water” is at the trough.

  • http://twitter.com/Michael_T_Brown Michael Brown

    Great interview and cool site! I agree with startabiznow Jason is philosophy is comprehensive and provide some great insight into building a company that will produce results, revenue and rave reviews.

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  • http://zemalf.com/ Antti Kokkonen

    I really liked how you, Jason, listened to what the customers really wanted and understood it was better to give them what they really want than stubbornly hold on to your vision. I see so many people and businesses do that and eventually fail, because they refuse to adapt and adjust. And then again, those that understand, and adjust accordingly, often enjoy great success. Anyway, thanks for a great interview and inspiring story to the both of you.

  • http://zemalf.com/ Antti Kokkonen

    I really liked how you, Jason, listened to what the customers really wanted and understood it was better to give them what they really want than stubbornly hold on to your vision. I see so many people and businesses do that and eventually fail, because they refuse to adapt and adjust. And then again, those that understand, and adjust accordingly, often enjoy great success. Anyway, thanks for a great interview and inspiring story to the both of you.

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  • http://www.crabgrasskiller.net/ Crabgrass Killer

    I agree with you.

  • http://www.crabgrasskiller.net/ Crabgrass Killer

    I agree with you.