How does a startup that never charged get customers to start paying?
A few years ago Jeremy Hitchcock’s company sent out an email to its users announcing they were going to charge. Wait till you hear their reaction and what happened next.
Jeremy is the cofounder of Dyn which offers Managed DNS, Outsourced DNS, and email delivery service to companies like Twitter, Etsy, and CNBC.
Don’t worry if you don’t understand what his company does yet. I’ll ask him to explain it. I’ll also ask him to explain what happened to his co-founders.
Watch the FULL program
Jeremy Hitchcock, Dyn
Jeremy Hitchcock is the cofounder of Dyn which offers Managed DNS, Outsourced DNS, and email delivery service to companies like Twitter, Etsy, and CNBC.
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Andrew: Hey there, freedom fighters. My name is Andrew Warner and I’m the founder of Mixergy, home of the ambitious upstart. In this interview I’m going to find out how a startup that never charged its customers, what happens when it starts to actually charge. A few years ago Jeremy Hitchcock’s company sent out an email to its users announcing that they were going to start to charge. Wait until you here their reaction and what happened next.
Jeremy is the co-founder of Dyn which offers managed DNS, outsourced DNS, and email delivery service to companies like Twitter, Etsy, and CNBC. Don’t worry if you don’t understand what managed DNS means or any of those other terms that I brought up earlier. I’m going to ask him to explain it and I’m also going to ask him what about happened to his co-founders. All that and so much more coming up and Jeremy, thanks for doing this interview.
Jeremy: Thanks for having me, Andrew.
Andrew: So, first question is what are your revenues?
Jeremy: This year will be about 30 million in revenue. Last year we were 17. So we’re considered one of those growth companies.
Andrew: 30 million revenue. Wow. You guys were bootstrapped at first, right?
Andrew: You ever take any funding?
Jeremy: We just did this year. A couple months ago from a group called North Bridge, like those guys a lot. A couple months ago, you can read about it. I’d still say we’re in the honeymoon period, but so far so good.
Andrew: You mean with the investors?
Andrew: OK. This was so the founders can take a little bit of the table, not because you guys needed money for growth, right?
Jeremy: Yeah. I mean a little bit of both, but the majority was for some founder liquidity, but we’re also pretty excited for our prospects for the future.
Andrew: Yeah. I would say. I mean, this kind of growth is not common in our space, is it?
Jeremy: It’s not. It’s something that’s pretty special and we’ll hopefully be able to keep that going.
Andrew: How long have you been doing this now?
Jeremy: Eleven years.
Jeremy: Seems like it was just yesterday that we were starting out on this. Every year got a little bit bigger and before you know it you have a couple hundred people running around working on internet infrastructure.
Andrew: Where does the idea for internet infrastructure come from? Where did the idea for this business, for Dyn, come from?
Jeremy: So, we were originally an open source project and helpful for remote access in the days when there wasn’t the WebEx’s or LogMeIn. So we were providing, basically, the technology that allowed you to get to a dorm room computer. So for me it was really useful with a school in Wister, Massachusetts. It’s cold there in the winter.
Rather than going to a lab to print out a paper and then pick that lab up, go in the cold and turn it in. I can use this technology so I can only go one trip in the cold to turn something in. That was really pretty magical for me. Kind of one of the first ways I got exposed to the internet.
Andrew: The need came because of this or was there some other motivation that led to it and this was the upside that you didn’t have to go out in the cold?
Jeremy: Well it’s a technology that people use in different ways. This was how the application was useful for me, but like any sort of type of technology, people find different ways to go after it and use it. It was home hosting, it was moving files around; it was being able to a lot of things you couldn’t otherwise do. It was taking advantage of the internet.
Andrew: OK. You were a chemistry major, right?
Jeremy: I was.
Andrew: So how do you go from being a chemistry major and a lab rat as you told Jeremy, our producer, to working on an open source project, on software?
Jeremy: It was more interesting than. It was right after the dot com explosion so it was kind of, at the time people were a little skeptical about the computer space. I mean, you saw like the number of computer science people just dropping pretty dramatically but there was still a lot of stuff that was going on, especially in the Northeast and we found it really exciting that we were having this little project and it also changed a lot of the ways that we thought of growing a company and being a long term type of organization that provides services to its users.
Andrew: Was the idea from the beginning, it was you, Chris, Tom and Tim. Was the idea that the four of you would be creating a business or was it just a fun project?
Jeremy: It was fun project, one that we kind of got a little tired of. And so we said, “You know, maybe we should do something else” and the way that we do this is we ask for something that our users wouldn’t possibly go for. So we asked them for donation drive and we got about 25,000 users and we said ‘If each of you donate a dollar, we’ll keep running this service, and otherwise we’re going to shut it down’.
Jeremy: Thinking that wouldn’t come true. We sent that message out and we were surprised, maybe a little bit saddened in some ways, that we had such a vote of confidence from our user base and in came $40,000 and we are running a technology company basically or we had to think about running a technology company because we were on the hook to provide a service to our customers.
Andrew: In your mind, Jeremy, you were already leaving it. You said ‘This thing isn’t going to work. I’m even going to prove to myself that it’s not going to work so that I never have this beckon thoughts later on in life.’ and you had checked out of the business. And then this happens. People actually paid and that’s what got you back in.
Jeremy: Yes. That’s what got us all back in. And then after that, we had to go buy some computers and make it pretty real and sustainable.
Andrew: $40,000 is a lot considering that you asked people for donations. But $40,000 is not a lot of money to run a business on and to run four lives on.
How were you going to live with that?
Jeremy: Well, we were a bunch of college students so it buys a lot of Ramen and then we could go to Cheesecake Factory, which was pretty upscale place for a bunch of college kids. But it also made us think about what we had to do aside from just like a free service and so we started thinking about the premium type of service that we were going to offer on top of what Open Source project was.
Andrew: I see. OK. So you were already starting to think how do we make this into a business that we could live on afterwards.
Jeremy: Yes. Well, not a business that we could live on but we kept thinking about it from the sustainability fashion and the fact that we could pay our salaries and eat and pay for rent , that was kind of an added bonus.
Andrew: Why were you hoping that people wouldn’t fund it, that they wouldn’t step up and donate?
Jeremy: Well, it wasn’t something that I guess we were, that we thought was like a material business. I mean, it wasn’t something you go out and you do an analysis on and say man, I’m going to go change the way that the internet works or I’m going to change the way that [??] is but it just happened to be that way.
And so for a bunch of freshmen and sophomore, it was something that were really passionate about and that passion I guess rubbed off on the people that were using it.
Andrew: What was the audiences or users response, I should say when you said ‘We’d like a donation to keep this thing going’.
Jeremy: I mean, some people thought Hey, you should just keep running this for free. There were other people that, again, the sign of the times, kind of the early 2000’s was that Yes, you know, I guess internet stuff isn’t just free. People actually have to pay for stuff. I don’t want to say tin foil hats but there were certainly people that thought this was a conspiracy to get them to pay to get in.
And certainly that kind of range of responses definitely has stayed with us and we continue to offer a free service and we continue to grandfather a bunch of people that paid one time for an ongoing service which, good for them.
Andrew: so we’re talking about roughly a decade worth of service that they’ve been getting for the price that they paid way back then, the donation that they made.
Jeremy: Yes. We honor that commitment.
Andrew: So you told me about how you used it, basically to go from one PC to another so you could print from school.
Can you give me some other uses that people, some other ways that people used the software back then?
Jeremy: People were using it for VPNs, and set up a bunch of offices in different places and they were able to connect their computers remotely. They were using it for moving files around or sharing pictures or some people were running their own internet projects on it before cloud computing made distributing computing easily available, people were setting up Apache on their home computers and playing around with projects and they were offering their own ideas to the Internet.
Andrew: Paul Graham wrote a post recently about how Y Combinator is going to scale back the number of investments that they are going to make and the amount of money that they’d like to give their start-ups. It seems like a big reason for not giving start-ups as much money is because there’s more to argue over.
Seems like one of the big reasons why start-ups fail, according to Paul Graham, is that founders have issues with each other. I understand two people working together is tough; four people working together feels like it’s ten times as tough because now you all have to make sure that you work together well. You have to all make sure you bring the best out of each other. There’s no one who is just kind of coasting. How did you make it work? How did the relationship work out?
Jeremy: We had four of us and all of us had different skill sets that we brought to the table; different personalities, different things. Communication is the only thing that gets people to know where they are and how they’re thinking; what they like, what they don’t like. I think that when that communication dries up, that’s when people start to drift apart.
Andrew: OK. And by communication, you mean you guys were all in the same room and talking to each other at the time.
Jeremy: Yeah. It’s all in the same place. What are the values? What are the things people are talking about? The first person that left in ’04 was up in Michigan and for probably about a year to a year-and-a-half before he ultimately left Dyn. Distance isn’t the only thing that makes something like that happen but, when you think about a list of things that make people talk to one another, distance isn’t one of them; it’s kind of a knock against the communication or the trust that you have back and forth.
Andrew: And you were the CFO. How does a guy who is studying chemistry end up being the CFO? How do you get the responsibility for the money?
Jeremy: You draw the shortest stick. I don’t know. I’m just the person who volunteered to do that kind of stuff.
Andrew: Were you good with money? Do you have a history growing up of being the kid who kept the ledger of all his finances? How much money was coming in, going out? Were you the guy who would go and shovel snow in the winter?
Jeremy: No. Maybe it was years of math team where I was just good at arithmetic. I’d occasionally reverse digits or screw something up that way but I guess I was pretty good at keeping track of stuff.
Andrew: The first version of the program, let me see what you told Jeremy. We were working on web development office and, actually, you’re nodding; seems like you remember what you said, instead of me reading it. Can you tell me a little bit about it?
Jeremy: Yeah. The first version is ugly, dark, navy blue. It’s still on archive.org if you want to pull it up. But it looks absolutely atrocious which is ironic, considering that a lot of us met in the University’s web development office. So we’re thinking about accessibilities, colors, the ways in which you make pages, and the web content easily readable.
The site wasn’t readable, it was terrible, and it was complicated. But it worked and that was what was important.
Andrew: And you said that you were thinking of getting into photo printing?
Jeremy: We thought about all sorts of things. We had a nice little business going. A couple of us were from the New Hampshire area so we moved up to New Hampshire. This was about a couple of years after this donation drive and everything. So we’re thinking about ‘What’s the next big thing?’
We’re watching the Network Solutions and the GoDaddy’s and they had these very wide portfolios of services. We’re like ‘Nay. That’s not what we’re going to do.’
We thought about photo printing. We thought about all these other Internety type of things to do and we explored some of them but we still stayed true to what we were doing, which was running pieces that run the Internet.
Andrew: When you say you explored it, do you mean that you launched a couple of small sites and saw that they didn’t go very far?
Jeremy: We looked at a bunch of stuff. We bought some technology; we played around with it. We wrote some scripts, we did some prototyping. Probably in ’06, ’07, we experimented with some other type of web services. We had some network modeling services that we were doing for a while. We had some SSL certificates that we were re-selling; there were some other things that we were doing and it just wasn’t core to what our promise was.
Andrew: So, Jeremy, here’s where my hesitation is or why I’m not proceeding with the narrative. I’m having a hard time figuring out how you came up with this incredibly successful idea. I talk to entrepreneurs, both in interviews and also in my audience, who wrestle with finding that one hit product; who sit and they try something and it fails. They interview customers endlessly and it seems like, with you, it was “Hey, we found this interesting, open-source project and it worked out and people gave us some funding. Yeah, we tried a couple of other ideas but basically the idea that we first got together on is what took off”. How do I, what’s the lesson I take from this as an entrepreneur that wants to build a successful company?
Jeremy: I think it’s, you know, follow your passion. If you have a need and you have something that you’re doing, you find that some friends are starting to use it, and you have some friends of friends that are starting to use it. I mean, you can turn a lot of things into a commercial entity. If you’re trying to look at what’s the next best thing, a lot of times it’s not something that’s really that jaw dropping. It’s usually not something that’s super interesting. I mean, everybody wants to build the next Facebook, or the next Twitter, but there were Facebooks and twitters, before there were Facebooks and Twitter. There was MySpace, there was Friendster, there were a bunch of these things. A lot of times it’s getting technology right. It’s getting how you interact with users, deciding exactly which features. For us it was about making sure that our technology actually continued to work. So it didn’t fail. That was a novelty 5 years ago.
Andrew: It was just making sure that it didn’t fail, what about all the requests that people gave you for new features, for new direction for the project? How did you know what to listen to or not to? Or are you saying, hey, we said no to all of it and we just wanted to focus on getting our current technology right?
Jeremy: It was listening to the right ones. For us, we were the prototype users because we were users ourselves. So we knew intrinsically what things mattered, and so we would add those things in and we wouldn’t add other pieces in.
Andrew: Can you give me an example of something that you knew needed to go in because you used the software?
Jeremy: A good example was, we have an update system that allows people to change the computer name, or the address that the computer name points to. So one thing that we wrestled with back and forth was how much visibility about the changes that take place do you give? Do you give log in information? And one of the reasons people would it is so they could reverse engineer a bunch of applications, and that wasn’t really what we were interested in. But for troubleshooting how something was working was useful. So we were always playing, I know it’s not probably a terribly concrete example, but that transparency was something that was really difficult to get right, about how things were changing. Or how much analytics to give. Because it wasn’t a product that was about analytics, it was ultimately about infrastructure. When the light turns on or turns off, we don’t really care as long as it’s on or it’s off. Giving all the meta information [??] about something, it’s certainly interesting, it’s certainly valuable. But it didn’t really feel like it was a core part of the product.
Andrew: I see. All right, now let me make sure I understand the product. I actually walked into this interview after doing research and I thought I understood it, but now I’m feeling like I don’t. Maybe you can tell me what was the product? It wasn’t just an open source log me in, and today it certainly isn’t. You have the letters DNS over your shoulder, that’s a big part of what you do. So what is the product?
Jeremy: So we run part of the backing system that people are faced with everyday called DNS and we also do some email stuff. So DNS, when you type in a computer address, you’re doing things with DNS. Humans don’t fundamentally understand addresses that computers use. They have these human names that people use instead. So the problem is that each computer address, mobile address, you know kind of, anything that talks on the internet has this computer address associated with it. If you ever want to access content like you would on the Twitter or the (??) or you want to be able to access files off your computer, you have to know what that address is. So we run part of the system that when you type in the computer name, you get to a computer address. We do it for continuing users from the freebee side of the world to the web enterprise of the world. It’s remote access on one flavor and then it’s more traffic management on the other.
Andrew: So I type in mixergy.com software out on the internet says mixergy.com is, and I forgot the number, I looked it up earlier, it’s a set of numbers and it says, ah when he says mixergy.com he means to go to this address, which is this set of numbers and that’s on that computer over there. That’s your software and that’s what it does.
Jeremy: We run part of that system. It’s a distributed stream but we run part of it.
Andrew: You run part of it. I can go with you or I can go with other providers. And even in the beginning that’s what you guys did? And we were able to use it, users were able to use it to access their files and also to get people to come to their websites without knowing their computers IP addresses.
Jeremy: Yeah, because if you’re a home user and you have a DSL or cable modem, that looks exactly like a web server. Or it looks exactly like an application server and you can program the next Twitter or you can program the next cool app on your computer. That was what we were allowing people to do.
Andrew: Gotcha. I have a computer at home, and I want to not host my site somewhere else. I want to host it on my computer at home. I guess as long as it has a static IP, I can do that? Don’t even need that?
Jeremy: No, you can have a dynamic address too. That was the magic that we provided was that, even with people that had a dynamic address, that we would be able to support that.
Andrew: OK. Got it. I see. Then, if this is going well, and you are actually getting people to voluntarily give you money, and you see a possibility for adding new services, why go outside of this and look at even photo printing? What was it about the business at the time, that made you say, “We should consider some alternatives?”
Jeremy: I think it was that we were just hungry to try something else and we didn’t know what it was. The people that are in this part of the internet that are in dynamic addressing and static IP’s, it was a limited population and it still is a limited population. We’re trying to think of something that would touch more people.
Andrew: OK. And maybe you weren’t earning that much money on your users. Was that an issue too?
Jeremy: Certainly some. It was a nice lifestyle business.
Andrew: Twitter was paying you only $30 a year, since you brought them up as an example. What did you do with them since such a big company is paying only $30?
Jeremy: They were starting to get some pretty good notoriety kind of in 2008-2009, and we literally had a conversation with them and said, ‘We think that you’re getting than your $30 worth of service, and what do you think about paying this much?’ We asked them to name a number on the phone and we said, ‘Sure. We’ll agree to that.’ That’s what they started with and they’ve continued to scale and we’ve continued to support them as a customer.
Andrew: Why would they do that? Why would they give you a number of how much they were willing to pay when, maybe, technically, they could be paying tens of dollars instead of thousands?
Jeremy: I think it was just the truthfulness and kind of, our approach to it. We had a lot of conversations. We could have kicked them off, and said, ‘Hey, this is just a consumer service. It’s not for the web enterprises of the world,’ but I think that they saw value in what we were doing, and wanted to continue to see us as a technology provider for them.
Andrew: So what they were signing up for was not meant to be used for enterprise? It was meant just for consumers?
Jeremy: Yes. When they started off, Eric was working on (?) and said, “Hey, you know, we should do this other thing for microblogging for music stuff,” and the rest is history.
Andrew: I see. Is that how you rose up and earned more revenue? You said earlier, you didn’t have a huge market of people out there who were going to be your customers, and you weren’t charging them that much. Was the way to get bigger by charging enterprises more money and that’s where revenue started to kick up?
Jeremy: Yes. It’s always been a consistent growth on that home user type of side, but where we really started to see a big change was taking some of our (?) services and moving them towards the enterprises and bundling in kind of a way that was interesting to the internet heavy users. It meant doing sales for the first time and doing marketing for the first time. We learned a lot from that because we were a B2C type of company. Now we’re a B2B company.
Andrew: How did you understand what they were looking for so that you would know what to create for them and know what to charge? Especially since you weren’t working in enterprises your whole life and you didn’t come from a background of selling to enterprise. How do you get inside their heads and understand what they’re looking for and what the right price would be for them?
Jeremy: It was asking a lot of questions. We certainly got a lot of things wrong as we went on. Part of it was, some people would say, “Just charge more,” and that’s (?) make it look like a real compelling product. Part of it was using different verbiage or different language. That wasn’t true to form for how we were. So we asked a lot of our customers who looked like they were enterprises, Fortune 500s and interesting brands. We said, “What can we do differently?” And they said, “Well, not really that much. Here’s a couple things, but for the most part, we really like what you’re doing.” It made us think about how we had to talk about what we were doing, not as DNS. That wasn’t really the problem. People didn’t wake up and say, ‘Man, I have a DNS issue. That’s the problem I need to solve,’ but they do think about their internet infrastructure and they do think about plumbing, and how they show their web site, how they interact with users, how they do traffic management, how they get their site to interact faster. That’s the way that we started talking about our service much differently.
Andrew: Can you give me an example of what kind of problem they had? They didn’t have a DNS problem, that’s why they were happy with you and they would have never called you up and say, ‘Hey, charge us more and give us more.’ You said that you did identify another problem. In fact, before I ask about what that problem was that you identified, let me ask you more about the process. Were you just cold calling into people who were using your…? You were.
Andrew: Who was doing it?
Jeremy: It was me. I was looking through, literally, select-star from users and was kind of paging through people and trying to understand ‘Oh, this domain name I’ve heard of. It’s Anadarko Petroleum; I’m going to call somebody up from there. There’s Subway. Man, I’m gonna call somebody up from there.’
Andrew: So you have the number of someone at Subway who actually registered to use your software? Is that how you found the right person?
Andrew: OK. You get on the phone with them; how do you know what to say? Today, customer development is more advanced and we have more scripts, more of an understanding of what we’re looking for and how to ask customers questions. Back then we didn’t. Frankly, even today I don’t think we’re that clear on what to ask.
So how did you know what to ask them?
Jeremy: It was a dialogue. It was ‘Hey. You’ve used our services for 3 years. Thanks for using our services.’ They’d say, usually, ‘I don’t know who you are.’
You’d try and remind them what they did and why they’re even having a conversation with you. They’d say ‘Oh yeah, yeah, yeah. Wow! I’ve never thought about you in 3 years. That’s great.’
You’d kind of take that as a back-handed compliment because it’s great that our service continued to work and they never thought about it. That also led to the ‘Huh. We must be doing something right because people are still paying every year.’ These type of customers had paid afterwards so they were on an annual subscription.
They were still paying us every year, but they didn’t think about us. So obviously there was some sort of value there. And then it was just the dialogue; it was a real conversation about ‘What do you think about? What do you worry about?’ It was trying to understand this space that we were in and what types of things that we’re in a position to help with. It led to letting people sleep better at night. It led to taking away IT issues that people had to think about.
Andrew: And it’s that. What do you worry about with IT? What do you think about? Where does your time go during the day? It’s those kinds of questions.
Because if you were to actively say ‘What can I charge you more for?’, you get, obviously, some resistance and maybe you’d get some ideas that weren’t really what they wanted; more what they thought they wanted.
Can you give me an example of a kind of issue that they said or that they thought about or that was bugging them, that then led to a product that you guys were able to charge more for enterprise?
Jeremy: Yeah. So they said “We want an enterprise network.” We said, “Well, we’re in five different places. That’s kind of enterprising.” They said, “Well, there’s all different types of things.”
Five sites for us meant something different because we were using multi- carrier, we were multiple redundancy and all that stuff. And so, we started looking at IP Anycast as a different way to show that we were more resilient and that our network was better. That was something we bundled in.
People talked about disaster recovery as part of the mechanisms that they use and DNS is kind of an integral part of that. So that was a way that we had different ways we could switch traffic back and forth.
People were going multi-data center. So that was other types of knobs that we could put in front of people and they could say ‘I have a data center on the east coast and west coast and I want a load balance between those two.’ That way, people on the east coast, they go to the data center that’s faster, they’ll get a better experience; people on the west coast, they get a better experience from the west coast data center.
Andrew: I see. And so, you might call someone up and say, “Hey. I know you’ve been my customer. We’ve just never met and I wanted to get to know you.” They ask, “Who are you?” And then you explain “who you are and they say, “Oh, yeah, yeah. I’m glad that we never had to deal with you because that means that everything’s working well.” And you’re chatting with them about what their issues are and maybe that day the guy says ‘You know what. I just lost my hard drive at home and it made me think, what happens if we lose all our data here at work; if my office suddenly goes down and we lose all our customer records.’
You realize “Aha. Disaster recovery is an issue for them. What happens if there is a disaster?” And then, if you start to see a pattern of multiple people saying that, you realize “Aha. That’s what we can add on top of this because that’s what these people are worried about.”
Andrew: OK. Why couldn’t you, then, just do what many people said to do which is to say, “Hey, you know what, we have a product that works for enterprising consumers. Consumers will get one price because that’s all they could afford and they’re small. Enterprise will get the exact same product at a different price because they could afford more. We’ll just price it that way.” Would that have worked?
Jeremy: Maybe it would have. You certainly see some companies that try to do that or they try to water down an enterprise service for consumers. But we wanted to do something a lot different and I think we’re pretty happy with the result.
Internally, there are two different products, two different networks, so it makes our internal costs a little bit higher. But, I think the end result is that you have something that’s tailored for the exact use case that people have.
Andrew: The other thing that I wrote down that you said was, you needed to talk differently to enterprise; that it was a language issue, right?
Andrew: How did you learn their language?
Jeremy: You learn their language like you learn any language. It’s a painful process. You start to stumble upon the verbiage the way people talk about things and who decision makers are. In a B to C context, it’s about enabling technology, enabling things that were impossible, and in a business context it’s increasing revenue or decreasing costs. You have to think about how you get into those conversations and mitigating risks and even going after customers, trying to find them. It’s a completely different process.
Andrew: That’s a phrase that consumers don’t use, mitigating risks. If I’m out with my friends, I’m not going to say mitigating risk in a regular conversation. When I look at a website, I’ve got CrashPlan running right now, I’m not going to say, ‘I got that because I need to mitigate risk.’ If they talk that way I might feel that this wasn’t for me. When you talk the way that your customer talks because you understand their language, what’s the difference that you notice in the way that they react to you?
By the way, thank you for going into the weeds with me. I feel like that’s what these interviews are about. We could talk surface all day long and talk about how many millions you guys are earning, but this is the stuff that I can use tomorrow when I’m talking to my customers. What did you notice happen when you started to change the way you talk to businesses?
Jeremy: You get further in a conversation. You’d have some surface conversation, and you’d get so far. Then you start using the right verbiage, and you get a little bit further, and you get a little bit further. All of a sudden, you’re actually talking about the real issues. When we started talking about the mitigating risks, that was the thing for IT professionals that they really gravitated towards because the only thing that can happen in their enterprise is that stuff goes down and they get yelled at. Our service doesn’t go down, and they don’t get yelled at when they use our service. People say, ‘That’s a really good thing to buy.’ That was ultimately what we found as our value proposition, and sometimes it’s the bottom line and that’s what people found the promise [sounds like], for us.
Andrew: Can you say, ‘We’ll make sure your site doesn’t go down so you don’t get yelled at’?
Andrew: You can just say that?
Andrew: In a conversation, but not necessarily on the web?
Andrew: Now it seems like everything is perfect. You’ve got a system of calling up people who are already using your product. They’re happy with you. You call them up, they’re not yelling going, ‘You son of a bitch. I couldn’t get anyone in customer support because your product stinks. I’ve been wanting to rip you.’ You just did something with your eyes. Did you get [??]?
Jeremy: No. I’m good.
Andrew: Did you get some [??].
Jeremy: [??] This is really funny. I did. Yes.
Andrew: You did: Did that keep you from making more phone calls? How did that impact you as you were making all these calls to strangers?
Jeremy: It wasn’t something engineers do. Just call up a bunch of people and say, “How we doing? Are we doing good?” You didn’t need that type of positive affirmation because you [??] see new people signing up.
Andrew: I see. You just kept going through. You said,”‘I’m going to keep making these phone calls even though occasionally someone on the other end of the phone is going to really tear into me?”
Jeremy: Yes. That happened occasionally. “Why are you calling me? Don’t ever call me again.”
Andrew: I see. It wasn’t necessarily about the product it was, “Why are you calling me on the phone?”
Jeremy: Yes. It was, “I don’t have any problem with your service. It’s great. It’s wonderful. Why are you talking to me? Are you trying to collect bills from me or something like that?”
Andrew: Gotcha. “Are you trying to squeeze me for more money?”
Andrew: It seems perfect. Everything’s working. You’re getting inside your user’s heads. You’re creating products that they really want, and you’re speaking to them about those products in the language that they use, and still you said earlier that, “We got some things wrong.” How do you still run this process that seems so perfect and still get wrong? What’d you get wrong?
Jeremy: The process is good. You have to iterate a number of times because you get some things right, and then you start using that new pitch or that new phrase or those new lines of questions on the next batch, and you start going through it. It’s like, “I got these things right, and I got these other couple of things wrong.” You keep going through it. For us, that took about a year. All of 2008 was learning how to hone that message and thinking about what was valuable. At the same time, we thought we had a freaking awesome product, and we were putting it in front of people, and they were like, “This is a pain in the ass to use. This is really complicated. To do this I need eight clicks, and it should be two clicks.” We worked on a lot of those things, and after about a year of what we thought was really the product, was pretty polished.
Andrew: Beyond the way that you presented what they asked for, was there something else that you got wrong?
Jeremy: I want to say I don’t think so, but I can’t think of anything off the top of my head.
Andrew: What I’ve heard from other people, and I’m going to move on in a moment to the next section of the interview, but what I’ve heard from other people who’ve gone through this process is they’ll figure out who they want to sell to, and you did that. You said, “I’m going to talk to enterprise, not talk to consumers, but enterprise because that’s who I want to sell to”, and enterprise users were already using my product. You’ve narrowed it down, you know who to call. They then start making phone calls, and they don’t say, “What should I build for you and charge,” because people will ask for things that they don’t really want. They don’t know what they want, but you ask questions like, “What’s your frustration?” You did that. You understood their frustration. You found something new you can build. You built it. Before you built it, what I’m wondering is, did you say to them, “Here’s a mock-up of what I think you want. Is this it? or Here’s a minimum viable product of what I think you need.” Is this right, or did you just go all out and build it?
Jeremy: We went all out and built it, which today we probably would have done a mock-up or would have done a couple things. We had a small mental model. We knew a couple things, and as we were starting to talk to people we would try things out. We’re like, “Do like this. Do like this.” It got more refined, and so when we had those first wave of conversations, we had a pretty good idea of what we were going to out to go build.
Andrew: Did you ever get it wrong? Not just the user experience, eight clicks instead of two clicks, but the wrong product because you didn’t show them a minimum viable product first, or because you didn’t show them a mock- up first?
Jeremy: No. We’d gotten most of the stuff right. I firmly believe in doing the minimal viable product stuff. Because we had the consumer experience building a similar type of technology, we had learned a couple of things that we wanted to do differently, so we learned from those mistakes in some ways. When we did the second version but a different audience, we had some of those things in a really good evolved standpoint. We were lucky in that sense.
Andrew: I see now the business growing. I see revenues growing. I see the product developing based on customer needs, not what you imagined that they might need, not just on your needs for revenue, but on satisfying their needs based on your conversations with them. Everything’s looking good, and then Jeremy our producer asked you, ‘What was your challenge?’ This surprised me. You said, ‘We used to be four people, now we’re two.’ As of a few days ago, you’re down to one co-founder, just you. What happened, and why is that such a blow to the business?
Jeremy: Changes the internal compass. When you start off as a small team, that core nucleus, you bring skills that can’t be replaced in other ways. As you grow bigger, we live by bus theory because we sell a trust based product. How many people can get hit by a bus before the service suffers? Morbid thought, but it’s the business that we’re in. As time has gone on we always think about that. When we lost one person, a really strong developer, then we had to think about how to replace those voices, or that voice that he had. You don’t replace him with one voice, it’s many voices. The same thing in ’06. We lost a really great systems person. The same type of thing. You try to think about how are the ways in which you try to supplement those voices. The person that a week ago, or a couple of weeks ago, he’s left. It’s the same type of thing. It’s still a dialogue that’s ongoing, but it’s the thought process and the future product, and it’s the future on the Internet that’s important. So you think, “What are the voices to replace that person with?”
Andrew: I asked you when you told me about how you raise money. I asked if this was to take money off the table to give the founders some security, and it was. Does that also basically lead the founders to leave because now they don’t need, they have security. They have other options, that it’s time for them to go and explore it?
Jeremy: It could be. I also think that not every organization at all of its sizes is right for the one person. Certainly, being in a small startup, it’s four people, is different than being at a 200 person mid-size company. That’s a very different environment, and you contribute in different ways. The job description changes, and you wake up someday and you realize, “I’m not very happy doing what I’m doing.” Some people do it for the money, but I think in our case it wasn’t, “We’re going to go out and go be Internet tycoons off this DNS thing.”
Andrew: What keeps someone from being less than happy at your company? One of the co-founders.
Jeremy: That’s a good question. The company size. You have to be really comfortable with what and how you contribute. If you contribute in an indirect way and you’re used to contributing in a very direct way of, “I committed this line of code and I did this type of thing.” You know, if you’re not doing that, that’s a challenge. And you can’t be all things. And that’s a real tough thing, as kind of an organization gets bigger. You can’t be involved in every single decision, and you can’t have a very high, top-level view of everything. You have to kind of choose where in an organization you are.
For me, I mean, that’s been a painful thing to adapt to, of things I love, and things I’m really do at, I can’t do as much, you know, in terms of, like, an individual contributor side of, you know, the CFO thing. I used to be the one who was doing the bank reconciliation. I have to say, I actually kind of enjoyed it [??]. There was a check mark at the end of it. Like, “I got this all right. Everything reconciled.” But, you know, it’s not something that probably fits in my day anymore.
Andrew: I know that feeling. It’s very frustrating when you’re off by just a little bit. Like, I remember in the early days, when I did bank rec, and I’d be off by $.12. I’d go nuts! “Oh, maybe I should just, you know, categorize this as an error, or I don’t know what.”
Andrew: And move on. But I couldn’t let it go. And the satisfaction of finally getting at what caused that problem was just worth more, even, than the business need to have that problem solved. To figure out why that number was off. I [??] that way, too.
Jeremy: Yeah. It was like a puzzle. Oh, definitely. And because that, you know, 12 is divisible by 3, it’s probably a transposition of digits.
Andrew: [laughs] Interesting, actually.
Jeremy: I don’t know you knew that trick. That was one thing I had read, and then sure enough, that’s helpful.
Andrew: If the number is divisible by 3.
Andrew: Like $.12, $12.
Andrew: Then it means that somewhere, I probably wrote 35 instead of 53.
Andrew: Gotcha. Oh, that’s really interesting!
Jeremy: Yeah. A tip for all you viewers out there when you’re trying to be an ex bank rec.
Andrew: That’s going to be one of the most memorable parts of this interview.
Andrew: Let’s see. Maybe, there’ll be a disaster between now and the end.
Jeremy: Glad to help. [laughs]
Andrew: Why not you, then? Why did the other three leave, and you’re still there?
Jeremy: I don’t know. We had a fireside chat, a couple days after the announcement, and I said, “I don’t know if I’m the idiot, in one form or fashion, because I’m the last person left on the island.” But in the same time, I mean, we have a great team, and we have a lot of people who are assembled here, and there are all sorts of range of longevity. For some, it means they’ve been here since Day 1, and for some it means that they just showed up yesterday.
Andrew: Why can’t you be a DNS tycoon? I think you said earlier you can’t be a DNS tycoon, or DNS — why not? I mean, especially as you’re adding more services, and you’re so critical to the way companies work?
Jeremy: I suppose we could be a DNS tycoon. It was just not something that, 11 years ago, we set out with the vision to do that. But, like . . .
Andrew: So what was your dream for your life, if not to be a tycoon?
Jeremy: There was no real grand plan. It was, you know, make a difference. It was, do a little more next year. Kind of push the organization. It was always a customer, user, client-centric type of view of, like, how can we make the service more robust, better, more resilient? And in the beginning, it meant adding more users, because if there were only 10 users, and two of them didn’t sign up the next year, well, you know, that really put the operation in jeopardy, because it wasn’t really that viable, then. And now, it’s, you know, it’s a lot more macro. It’s, what else can we do, and how else can we benefit our user base?
Andrew: You wanted to make DNS appliances. Why was that a good idea, and why did you let yourself get talked out of it?
Jeremy: Appliances were kind of neat, because everybody was thinking about appliances. You know, Google had the search appliance, I can’t remember some other really snazzy appliances that came out kind of in the mid-2000s, late 2000s. But we thought that that was a really cool way to get on network. So we’re outside the firewall, and so there’s a lot of visibility we don’t have. And that was a way for us to get on that, and the RMA and kind of hardware failures and all that. I mean, there’s a lot of stuff that our service, our back end, just kind of, like, completely routes around. And, like, there’s a lot of crap on the Internet that just breaks all the time. Because hardware breaks.
And that was how I got talked out of it. It was just, like, the logistics of doing all that. We weren’t really good at that.
Andrew: And still, you moved into email, you’re going to move into other services. How do you know when it’s time to add a different product, and which product is right? Because no matter what product you come up with, there’ll be some issue. Hardware breaks, but software’s easy to duplicate, and something else is, you know, maybe ahead of its time. How do you know what to get into?
Jeremy: So, you can listen to customers first. And you listen to what their pain points are. And so, we’re really close to our users. We think that we have good dialogue with them. And hear, what are the problems you run into, what are the things that keep you up at night? Another thing is where are organizations hiring IT talent? If we saw some of our customers hiring people that were mail delivery people, oh, that’s interesting. If you’re hiring a mail delivery person, maybe another company doesn’t want to actually hire that specialty. They want to use a service instead.
We wanted to do something that was true to our roots, with internet infrastructure, a kind of plumbing that was behind the scenes. But it wasn’t like a traditional network monitoring, load balancing type of thing. We wanted to do something a little bit different, a little bit more fun and email happened to be a good fit.
Andrew: I see, so one way to understand your customer’s pain… We talked about calling them which others have done. But you’re suggesting something that I never heard before in these interviews. It’s to look at their help wanted, and if you’re starting to see that people are hiring for a new position and more and more of your customers are doing it, then that means that they have a problem that they didn’t have before, or a problem that’s important enough for them to bring in a person to manage, and maybe you can get software that does that for them so that they don’t need to do it.
Andrew: Gotcha. Where’d you get that idea?
Jeremy: I just stumbled upon it.
Andrew: And so what you were starting to notice is, it’s probably not as formal as I’m making it out to be…
Jeremy: No, it definitely isn’t.
Andrew: But you’re starting to sense it, so how do you sense it if it’s not that formal?
Jeremy: Well, I mean, you’re always having different ideas in the back of your head. I mean there might be like eight or ten different ideas you’re kicking around all the time. Then you just try to gravitate towards things. You start looking for coincidences. You start hearing someone talk about email in conversation or transactional [??].
I mean for us like the job description thing was a validation. When we started seeing our top DNS customers hiring people on the email space, we said, man, we’re on to something. Like, they want the email customers, or maybe they will, if we can convince them that we do a good enough job. But for the rest of our user base, that might an interesting and compelling service offering.
Andrew: And the reason that they were hiring them is because their email wasn’t being delivered to recipients, and so they needed someone to constantly get on the phone with AOL and Yahoo and, etc. and just figure out what those problems were and you said, wait, if each of these companies is hiring someone to do it, we could do it all for them. And if we have one phone call that we place to one of these email providers and we represent all these guys who are delivering email, our calls are probably going to get answered faster or we’re going to get better responses.
Andrew: That’s essentially where you came up with it.
Jeremy: Yup, plus providing all the analytics and kind of reporting to understand how and where email is getting dropped. And again, it was another service that kind of, you’re right once, and a lot of people can benefit from it.
Andrew: I interviewed one of your competitors in that space and asked what happened when Amazon got into this business. Amazon has low prices and Amazon has a big reputation. What did you do when Amazon came into your space.
Jeremy: We sent them a cake.
Jeremy: Oh, we’re happy that they saw the value in the space that we’re in. We wanted to share and kind of, hey, welcome to the party and welcome them in good faith. I think that a lot of companies, a lot of services, you know, people kind of get caught up in the competitive nature of what we do and what all of us each do.
But really in the end we’re all attacking it in different ways. I think we all make kind of a space a lot better, whatever collective space that it.
Andrew: I don’t understand that. I understand sending a cake. When I see it from the outside. When I see Microsoft sending a cake to Firefox on Firefox’s birthday, or whenever they hit a certain download number, whatever, I think, OK. What they’re really doing is they’re saying to the world, we don’t care and we’re not so petty that we’re going to argue with them. It makes a statement of confidence about your product when you do that and what does it cost, a cake.
But on the inside, I imagine, that we’re all steaming when a competitor comes in, especially one who’s formidable, not just an amateur who’s going to show how strong we are, but one who’s, maybe, in many ways, is stronger than us. Do I have this understanding right?
Jeremy: Again, they approach it in a different way. I think that they’re looking at a different customer, a different consumer. They have some different features. We have some different features.
Andrew: How does it help you to have them in the space?
Jeremy: Because it’s a very indirect competitive space. Not a lot of people are necessarily saying I want to wake up and buy a transactional email. So by more than one person in the space, it gives people kind of a lens to think about the particular service offering in different ways. You might think about, here’s a good example, the number of services that transcribe text messages five years ago was very limited.
You might go to some service like that and you might get hooked on it. That was me, I did that. I got hooked on the service. The service got purchased by a company, the company goes, [acquire] shuts down the service and you have no other alternatives. I remember thinking, when I signed up for this thing, “This isn’t really a good, viable thing to use, because it could just shut off, and I don’t have any sort of choices.” I don’t understand because there is no competitive pressure and there are not a lot of things that are good for a customer or consumer. There are a lot of great things for a service provider. They’ve got all sorts of pricing ability or you can turn features on and off, at will. But when you’re in a space with more than one person, it adds kind of a complexity that’s really appreciated, because different competitors are going to look at a space differently. Yeah, maybe they steal customers back and forth, but ultimately, it’s about growing the awareness or the space and growing space bigger, not necessarily, “I’m going to take your customer and only charge them 90% of what you’re charging them.”
Andrew: That’s one angle that I could use. If someone comes into my space and if I were in a business like yours, I might say to potential customers, “Hey, look, you don’t need to hire someone to do this. I can do it for you, and you know what? If for some reason I go out of business, or I sell to someone you don’t like, or you just don’t like me for whatever reason, you can always go to Amazon and all these other services, and you can just switch. You still won’t need to hire someone and develop that capability now.” What is another thing that you say to potential customers who say, “But I know Amazon does this?”
Jeremy: They can try it out and I think that’s an adage that we always give to people that are prospects that are trying new technology out. The customers that we want to serve and the customers that we’re going after, I think they find our service offering more compelling.
Andrew: There’s one other thing that I wanted to talk about that I don’t exactly know how to fit in, so I’ll make it a non-sequitor here. Your advisers, you’ve got Jason Calacanis as an adviser, and who else is an adviser?
Jeremy: Scott Dussault, from Demandware and Tom Daly, who is formerly our chief scientist, and a couple of investors from Northbridge.
Andrew: Do all your advisers who didn’t put money in get equity in the business?
Jeremy: There may be some small option piece that is associated with it.
Andrew: Do you have an adviser who doesn’t have a financial interest in the business?
Jeremy: There’s a lot. We’re sponges. We talk to a lot of our competitors, customers, and just friends in the space. We get a lot of good advice. It’s not really a formal thing, but if we’re in New York, we might hit up a couple friends and say, ‘Hey, I’d love to get together.’ Same thing on the West coast, or LA, or international.
Andrew: What’s the incentive for them? I’ll tell you why I’m asking. I get a lot of requests about this question, from the audience, and frankly, today I’m thinking of it myself. There’s someone who I would like to talk to get some help on how to talk to my customers. So let’s Heaton Shaw, the guy from KISSmetrics. I would love to sit down with him for an hour and just get some feedback from him, but the guy is incredibly busy. Do I just call him up and say, ‘Hey, Heaton, I need an hour of your time so that I can figure out how to talk to customers,’? It’s kind of a takey thing to do. Maybe he’ll say yes, but there’s no incentive for him. I’d like to make it worth his while to do it, but how do I do that? How did you do it?
Jeremy: We have a good blog post about how Jason and (?) became affiliated with each other. We basically said, “Hey, we have an interesting opportunity for you. You’re an incredibly busy guy. You get a ton of options of ways you can spend your time. Here’s a way that we think that you would find some good value.” It’s finding something that’s mutually agreeable. I think people forget that, especially a lot of people that are in public and visible roles, they actually enjoy telling us stories about the things that they know, and they might be accommodating with a 15-minute session or even explain a short story or answering a short question by email. You never know until you ask.
Andrew: So it’s just about asking them and you don’t think, ‘How do I give them back?’
Jeremy: It’s part of it. You definitely want to be helpful in exchange, but if you hit somebody up by email or by phone and you’re kind of memorable and unique, and it’s something that’s easy for somebody to help you out with, I think people in the end are genuinely helpful people.
Andrew: OK. Let me do a quick plug here and then I have got to ask you a, ‘What the hell,’ question. The plug is for Mixergy Premium. Actually, as I was walking in here today, Jeremy, I said, ‘You know, I’m in a new city. I’m in San Francisco now. They make great sandwiches all over the place.’ When I got a great sandwich, I stood there, and this woman took, maybe 25 minutes to make my sandwich and I had to come here to do an interview with you, and I was getting antsy. At the same time, I appreciated the work she was putting into my sandwich. She was getting the avocado just right. Any way, it gave me time to look at my phone and I saw an email from Cindy Alvarez of KISSinsights, speaking of that company. I’ve been telling people, over and over, that they should watch her course because the way that she explains how to figure out which customers to talk to, what to ask those customers, how to use it, how to then create an understanding of those customers that you can use to build a business and so you can hand over to your cofounder. The guy who founded her company in her case, Heaton Shaw, founded the company and he wasn’t talking to other customers directly. She was. He still needed to understand who those customers were and what they wanted. That whole process [??], she broke down so well in a course on Mixergypremium.com. I’ve been raving about it and I guess it’s resonating with the audience and they must just be emailing her lots of messages. I keep telling the audience, “If you get anything of value to anyone online, send a thank you note”. So I’m imagining she’s been getting a lot of thank you notes and a lot of comments. God knows, I have been, on her behalf. She emailed me, asking for another copy of the course because I think she just wants to see what the hell did she says that’s having this much impact. And I just told you that what she said is having this much impact.
She broke down the process in a way that will make sense to you. If you’re an amateur in a way that you can apply if you’re Heaton Shaw, a guy who runs a business that depends on customer feedback, it’s one of the best courses that we have on Mixergypremium.com. I’m intentionally just plugging that one instead of just telling you that we have about 100 other courses and hundreds of other interviews that are available to you. I’m intentionally talking about that one because it happened that I saw it today when I had great sandwich made and because it’s a good follow-on to this interview where I really dug in deeper than even I expected. Maybe even Jeremy is thinking, “What the hell is this interview?” This is not entertaining. But, I learned so much from you, Jeremy, about how you talked to your customers. Now, that helped you figure out what to build. It just reminded me of the value of that. If you guys are feeling the same way, the same excitement, the same curiosity that I am then you want to take that understanding to the next level. I actually learned how to apply it. Go check out Cindy Alvarez’s course. It’s right there at Mixergypremium.com. If you’re a premium member you have access to it right now. If you’re not, for god’s sakes, 25 bucks, go and sign up. Actually I don’t know if it would be 25 bucks by the time people listen to it, but it’s only going to go up in price. So, go get it right now. Lock in that deal at Mixergypremium.com and if you’re not happy we’ll give you 100% of your money back. 100%. And you get to keep the course that I just mentioned. All right, Jeremy, thank you. Thank you for being here. Here’s the last question. What the hell are you doing in New Hampshire? I didn’t know there was such an incredible internet company, that they were such success stories outside of the San Francisco area. I thought this was all where it all was. Actually, all kidding aside. Seriously, you are building a successful company not just outside the Bay Area but also in a city that people don’t anticipate to have such a business. How is it impacting you to be where you are?
Jeremy: It’s a really cool thing. I still think in New England, or Metro Boston, or about fifteen minutes from Boston, so not that far from kind of like the urban city, international airport, all that. Manchester’s not like your typical internet community. It’s a great place but there’s also the cable trucks, the digital equipment for those people who have the line memory or better [??] ecologic [??] down the road in [??]. There’s some stuff that’s going on here. I think it’s a really cool area with great work- life balance. Who knows? Maybe it’s the next place…
Andrew: How does it help the business that you’re in New Hampshire?
Jeremy: Well, the construction is a little bit better. Certainly, we enjoy the work-life balance and the ease in which you can have the family life and also the professional life. We still have a 24/7 business. We still have access to the all amenities that [?] at business would need.
Andrew: I also found that when I was in Argentina for a year, building Mixergy, being outside of the distractions of people who want to pop in and conversations that you feel you have to have because it’s with someone who is important, I felt that it helped me. Do you find that too?
Jeremy: It’s really cool because you can focus on what’s important and focus on the things that matter most to business. For us, it’s meant keeping our head down and building what we have here and supporting our global customer base.
Andrew: Thank you for doing this interview. I got so much out of it as you noticed. I kept digging and then thinking. I hope you appreciate how useful this is to me. I’m glad that you went through that process of figuring out that you described in such details, the process of figuring out what your customers want. If anyone else got anywhere near as much value as I got out of this interview, I hope they’ll do what I’m about to do, which is to say thank you. I’ll tell you guys that the reason to say thank you is that you’re going to connect to the person who you’re thanking, you’re going to feel good about the interaction. I keep seeing emails over and over from people who’ve done that in the audience who then end up having business relations with the people who I’ve interviewed. One guy, and I just asked him if it’s OK for me to specifically say his name, said thank you. I guess it led to some interesting conversation with the past interviewee and then he sent me a note to say that they were at lunch, going further into the conversation. Only good things happen when you say thank you. I can’t imagine ever that saying thank you to someone who’s blog posted you, got a lot of value out of someone who’s interviewed, got a lot out of the person, go and say, “That jerk. I can’t believe he thanked me”. Only good things happen. So, if you’ve got anything nearly as valuable as I did out of this conversation with Jeremy, do what I’m about to do, which is to say: Jeremy, thanks for being so open and for coming here and doing this interview.
Jeremy: Thanks so much.
Andrew: Thank you. Thank you all for being a part of it, guys. Bye.
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