How does a guy who got scammed when he tried to rent an apartment end up bootstrapping a profitable apartment listing site?
Andrew: This interview is sponsored by Walker Corporate Law. Do you need a lawyer that’s not the local guy who doesn’t really get start-ups, not the really expensive guy who wants a piece of your business, the one who really understands the start-up community and is there to help you? If you do, go to Scott Edward Walker of Walker Corporate Law.
It’s also sponsored by Grasshopper. Do you need a phone number where your customers can dial in, press 1 to go to sales, press 2 to go to customer service, etc. and maybe even all those numbers actually lead to your cell phone but it makes you look big? Do you need that kind of feature and so many others? Go to grasshopper.com. Alright, let’s get started.
Hey there, freedom fighters. My name is Andrew Warner and I’m the founder of Mixergy.com home of the ambitious upstart and home to over 800 interviews with proven entrepreneurs who have shared the stories of how they built their businesses. And the goal here is to have you learn from them, use some of what you learn, and hopefully, hopefully you, the person who’s listening to me right now, will one day be here doing an interview yourself telling me about everything you learned, how you built up your business while listening to Mixergy, and you’ll be able to give back by sharing with my audience too one day. I’m looking forward to that day.
And in this interview to help you get there we’re going to find out how a guy who got scammed when he tried to rent an apartment ended up bootstrapping a profitable apartment listing site. John Kobs is the co- founder of Apartment List, an online apartment search engine that makes finding a home online easier by displaying search results on a giant map and making their entries there clear and organized and if you don’t believe me, go to apartmentlist.com and search and you will see how that compares to what you’re used to. John, thanks for being here.
John: Thanks so much for having me, Andrew. It’s a pleasure.
Andrew: So, what size revenues are you guys doing now?
John: So we finished the books in 2012 with 10 million in revenue. Just beat 10 million and this year we’re targeting between 18 and 20 million so we’ll see how we finish out the year. It’s a little (?) now in our business as you can imagine.
Andrew: I bet. How old’s the business?
John: The business has been around since 2009.
John: (?) incorporated.
Andrew: So roughly four years and you get to $10,000,000 in revenue and you’re going to do 80 percent more next year.
John: That’s the hope.
John: Well, 80 percent more this year, so.
Andrew: This year, excuse me. 2013. Wow. And it’s you and your co-founder. I want to know how you got here and it happened with you and your co- founder who you met when you were kids. How did you meet your co-founder?
John: We did, you know, it’s nice to work with somebody on a daily basis that you know and trust. And so Chris Herndon and I have known each other 20 years. It actually started on a small island in Lake Eerie, Ohio. I was born and raised in Ohio. He was born in Texas, but his grandparents would spend the summers up there.
And so the two of us met in a very interesting way. So my parents felt bad for me. I was like 12/13 years old. I would spend the summers on this island and there was no one to hang out with. And I was a bit of a loner and so my dad said, “Hey, why don’t we go to the post office and-” That was like the central hub of communication back then. And he puts this 3X5 index card in the post office that says, “Softball game at noon tomorrow. Be there or be square.”
And so my mom, my dad, and I we go play softball. You know, it’s noon. Nobody shows up. 12:05 nobody’s there, 12:10. Finally a quarter after this car rolls up pretty late and out pops this kid with Kurt Cobain’s hair down to like his chin, blond hair. And we had what is known as the worst softball game in the history- But that’s where I met Chris Herndon and we’ve been friends for 20 years ever since.
Andrew: I’m looking at you right now and I probably should be focusing on business but part of me had to say, “You’re a good looking guy. You’re fit.” (?) You’re in the office here. Is that inappropriate for me to say? (?) okay with it. Was there a transformation at some point in your life where you went from that guy who couldn’t even find a friend to play softball with whose dad had to put an index card up in a post office to this guy now?
John: I’m flattered, thank you, but you know, I think it’s interesting. You take pieces from different experiences throughout your life. I think a big turning point for me was actually at (?). I wasn’t a very athletic guy growing up, didn’t come from an athletic family but my parents wouldn’t let me play sports because they were worried I was going to get hurt. They ended up being right, by the way.
But, so I think I started playing football when I was like 17 years old and that’s because I had like gotten cut from the basketball team. I was doing musicals and golf. I was like, “We need a little change of pace here.” I ended up working really hard and I think that’s where I developed most of my work ethic. Working in a gym and not working with coaches. Working with my teammates. Ultimately ended up playing football as a junior. I was pretty terrible. As a senior, I was really terrible. And ended up blowing out my knee. That was kind of the end of my football career, so I thought.
I decided to go to Kames Sports Center in Ohio for college. I got in the mail. I had submitted a questionnaire that I was interested in football. So the football coach sent me the workout regimen and so I was like, “So, I got nothing better to do. I have this huge knee brace. Why don’t I just kind of work out? We’ll see where it goes.” Halfway through the summer I was like, “Well, maybe I should play football.”
I went to Kames. I was first stringer behind two freshmen at [??]. Not a good spot to be in. And was pretty terrible again. Finally I was a sophomore and had a breakout. Ended up kind of starting every game of my sophomore and junior years. At the time, set the school records for touchdowns in a game. Ended up being kind of football, track guy and I think that those play pretty well together.
Andrew: Every game after you blew out your knee.
John: Yeah. We’ve kind of come full circle. So my senior year in college, I actually blew out my other knee. Which was kind of the cap on a football career. But not before I had learned some great lessons that I still carry with me today.
Andrew: That’s when your big transformation came.
John: I think so, you know. I think that helped me build confidence and leadership. And I’d always been involved in student government and things like that. This just kind of running it on a different side. It’s kind of like courage under fire and the ability to motivate others. Beyond just the self motivation that I had experience with.
Andrew: And a few years ago. A few years before you started the business, you went out looking for an apartment for yourself.
John: I did.
Andrew: What did you notice? What happened to you?
John: So made the transition from Ohio to New York City when I was 24 years old. And that was a pretty big change of pace for me. Born and raised in Ohio. Went to school in Ohio. I was like, “Hey, I could probably find an apartment in like a day. I’ll give myself a day.” My buddy Justin and I drove out to New York City and ended up getting scammed five times in one day. Bait and switch.
A broker would show me a place, a place on the Internet. I’d say, “Perfect. Looks great. It’s right in my price range.” And I would go visit them. They wouldn’t show up or they’d show up and say, “That place is gone.” Or they’d say, “Meet me at this address instead.” I even went to one place where somebody was squatting in it. Somebody had just moved all their stuff in and said, “I’m just going to live here.” So it was a massive wake up call.
I spent 16 hours that day looking at apartments and then the last phone call, the last name and phone number on my list that I’d drummed up on Craigslist was an apartment on the upper East side. I ended up calling at about 10:00 to schedule for the next day and I was like throwing in the towel. Then ended up actually signing the lease that night and driving back to Ohio all night. So I made it happen, but not without losing a couple of hair follicles in the process.
Andrew: It is a frustrating process. I remember once leaving an apartment that we were looking and saying to my wife, “How did we even consider this place?” And she said, “That’s not the place in the pictures, I don’t think.” I had my iPad with me and I opened up the listing that we had on Craigslist and I noticed the photos looked very similar, but they clearly were not the same apartment.
The apartment that we saw had a shower in the kitchen. And if I would’ve noticed that online, I definitely wouldn’t have signed up. This guy was clearly doing that bait and switch stuff. Actually bait and switch would be if he said, “Hey, this beautiful place that you wanted doesn’t exist. This place exists instead. Do you want it?” What he did was worse than bait and switch. So it’s an awful process.
John: Yeah, I mean, Andrew, don’t underestimate the power of a shower in the kitchen. Multitask there.
Andrew: I would even have accepted it, because the real estate market in San Fransisco is so bad, but it was a dirty shower in the kitchen. The kitchen and this guys a scam artist, I don’t think I want anything to do with him or his apartment. So at the time, what were you doing for a living?
John: I was a finance gig. I worked in investment banking and [??] debt for about five years before starting the business. Actually I took away a lot of lessons from that experience as well. One day I was working 90, 100 hour weeks, anybody in finance or even consulting or lawyers, they’ve got that experience where that boss will come over and ask a favor late at night.
This boss and my MB at the time, Grant, he said, “Hey, there’s a road show this capital, this company’s raising capital, we need somebody to go on the road because everybody is out of the office for at least two days.” And I said, “Well, I’d love to.” Secretly my heart is pounding and like, “No way I’m ready for this.” I’m like 26 years old. Ended up doing 40 meetings in two days.
So it’s the CEO, the CFO and myself and we walk into kind of one of the last meetings. We walk into this office of a hedge fund and a well-renowned billionaire runs this hedge fund. At the end of the management presentation he turns to me and he says, “John, I want to do the whole thing. What’s the price that’s going to get it done?” My heart is thumping and I’m like, I have to play poker here, I have to keep it cool.
I say, “Well, it’s a very competitive process, so let me see if I can squeeze you guys in.” It took a little courage and ended up being one of the lead investors in the deal. I think one of the things that I gathered from those finance days, not only how to run capitally efficient business, but also know how to compose yourself in big meetings where there’s a lot on the line. So there’s something to take away from those earlier gigs before you move onto the entrepreneurial side of things.
Andrew: Why didn’t you stick with it? It’s a good business, makes good money. You’d be safe. You’d have a clear direction in life. Why didn’t you stick with that?
John: Well, I don’t know if I would’ve even stayed. I probably would’ve gotten axed like two years later when the market kind of fell out. I had always wanted to start my own business in some capacity. I started doing some real estate investing on the side and that wasn’t really scratching that itch. I think ultimately this was something I was really excited about doing and it’s been in my blood a little bit, too, some of my grandparents were entrepreneurs, so.
Andrew: Did you quit your job before you had the idea? Or did you have the idea and then have to quit your job?
John: I had the idea, and then I had to quit my job.
Andrew: So how did you go from being frustrated at the horrible experience of finding a job to saying I’m going to build a solution?
John: Yeah, so, I had time on my hands. When I moved from investment banking to venture data, I probably went from working like 100 hours a week to 50 hours a week. I had a three hour round trip commute to Greenwich, Connecticut and I lived right by the Empire State Building in Manhattan so I had a lot of downtime.
I wasn’t driving. I was taking the Metro-North train. I would just bring my laptop and I would spend three hours every single day working on the business. Then I would go to work, be as productive as I possibly could at work. It’s just different, kind of moving from working that much to not so much, you’re just like, “What do I do now? What do I do now?” This was kind of where I ended up devoting most of my free time.
Andrew: What was the original idea?
John: The original idea was actually a real estate brokerage and a friendly bit of advice. You don’t want to start a real estate brokerage in the biggest recession since the Great Depression so we had to pivot pretty quickly from that one.
Andrew: Especially a recession caused largely by real estate.
John: You got it, yeah . . . [SS] . . .
Andrew: So why did you want to get into that first?
John: I wasn’t the sharpest tool in the shed back then.
Andrew: No, you were. There was a reason for it. What was the reason why you wanted to go into real estate brokerage? What was the vision you had at first, even if it was flawed?
John: Sure. Well, I was invested in real estate buying single-family homes where I grew up in Ohio and I had seen that prices had come down so substantially. I thought that the market was close to the bottom and I turned out being wrong. I felt the [pain] point as a landlord, trying to fill vacancies, I had to evict somebody. They had decided to not pay rent. It was the other side of this marketplace. I had experienced it as a renter in New York City, and now I had finally experienced it as a landlord. I knew I wanted to do something in real estate because I was passionate about solving that problem. Ultimately after kind of the brokerage side which was more catering towards purchase, we said hey, maybe the opportunity is actually in rentals.
Andrew: Okay. So with this vision in mind what’s the first thing you did to start executing?
John: I actually moved out of New York City to the Bay Area. First thing I did, my copartner Chris, who I mentioned earlier, was going to Stanford Business School, and so I ended up crashing on his couch for the summer. It was a big change in dynamic because you go from these high profile meetings and working with C level folks at different organizations to sleeping on a smelly couch in a house with six dudes in it.
Andrew: Why California? Why not stick with another market like New York which you know well or Ohio where you have more experience? Why come out to Silicon Valley?
John: I was always enamored with the idea of building a business in Silicon Valley and I knew if there was a place to make it happen where the competition is the fiercest it would be on the west coast. If you want to finance you have to be in New York, if you want to do entrepreneurial pursuits then I think you need to be . . .
Andrew: That’s more tech entrepreneurship. Real estate firms don’t tend to start here.
John: That’s true. I think we were more tech product oriented in our mind sets, at least.
Andrew: So what do you mean? What is the tech part that you were going to integrate into real estate?
John: So the initial rendition of the business was building that search for rents. And so we were emboldened by what Kyle (?) had done in travel and bring in all the inventory in the United States under one roof. And so they had partnered with American Airlines and United and Virgin America and for us those initial partnerships were folks like Rent.com, ForRent.com, Move.com, Apartments.com. And so that was kind of where there were parallels to the travel industry.
Andrew: I see. And so this was after you said no real estate brokerage firm. This is after the big pivot.
John: It was. Yeah.
Andrew: I see. Okay. How far did you get into real estate brokerage?
John: It was probably like six months into it. And there’s a lot of interesting people you meet dealing with real estate brokerage and it’s a very highly political game as well. And so we looked at what Zillow and Julian had done and all the money that those guys had raised to kind of take real estate to the next level and even folks like Redfin.
It’s just a very crowded space, but when you looked at the apartment rental industry a lot of the sites had been around for a decade. And so we thought, “Hey, how can we bring technology to this industry?” Perhaps it starts with meta search. Perhaps there is more we can do beyond this stat. And so that’s where we wanted to carve out our niche.
Andrew: I see. So right from the start you wanted to build a real estate brokerage firm. You were thinking along this big Silicon Valley type company.
John: We were. I think you constantly, as you achieve your goals. . . For me I feel like we’re constantly kind of hitting the research button on our trajectory. And so the dreams we had three years ago are smaller than the dreams we have today. And so we constantly prove to ourselves that we could accomplish that next objective, and that’s when we hit the reset button and then kind of recalibrate it to the new trajectory.
Andrew: My big goal was this interview is to find out how you got to frickin’ ten million dollars so quickly, but I’m spending a lot of time on the pre-launch part because it’s interesting, also. And it doesn’t seem like if I were in your shoes that it was as easy as I just heard in this interview because when I ask a bad question here, John, a part of me goes, “Oh, why did you ask this? How do you take that back and redirect?”
Here you are going in a direction that doesn’t work. It’s hard to acknowledge that you made a mistake. It’s hard to switch quickly. It’s not easy to admit or accept that we made a mistake. So can you talk to me a little bit about the frustrations you went with, or maybe there was a time when you just didn’t believe that you were wrong and you were continuing to go into real estate in the first version of your business idea, before you accepted you needed to adjust.
John: Sure. There were some dark days. Chris graduated from Stanford. It was him, it was myself, and somehow we recruited a very talented engineer to join us. Still to this day I don’t know why he joined us, but we got him in the door. And we ended up having pretty high revenue concentration with one of these clients and you never want high revenue concentration with one client, by the way, because if something happens to this company it affects your company.
John: And we started this business because we knew that we had to build a capital efficient business, a profitable business and bootstrap it. Otherwise, we would be in this position where somebody could have a gun to our head from a capital perspective and we were going to run out of money and we weren’t generating revenue, we could have gone out of business.
And so we always said, “How can we build profit? How can we build profit?” And there was a day, six months after we got started, where we were running out of money. We had raised from friends and family about a quarter of a million bucks, and it was almost burnt through the whole thing. And we were down to just a couple grand in the business bank account, and I looked at Chris and I was like, “Well, I’ve got five grand in my personal account. Why don’t I run to the bank and wire that over?”
And then what happened was the client that we had that heavy revenue concentration with had actually filed chapter 11 bankruptcy, probably the same exact week. And so I went to my bank and wired the last funds into the business bank account. We made payroll. Chris and I weren’t taking compensation at that point. So we made payroll for the one engineer, and a couple of weeks later he quit.
I had no money in my personal checking account. We had no money in the business banking account. Our one client had filed Chapter 11. Our engineers quit. There were two of us left. You kind of stare into the abyss. I feel like you throw your hardest punches when your back is against the wall.
Andrew: What’s your hardest punch after that?
John: The hardest thing you have to do is get up in the morning and say, you know what, today’s going to be better than yesterday. It can’t get worse than that. As I look back at those times I say to myself, that was really stupid. Because I had no money left. We were in big trouble. But, failure had never entered our mindsets. We were like, alright we’re going to figure this out. Obviously, I’ll just go wire the last money from my personal account and that’ll help us get through this pinch. It was that blind faith that I think has helped us build the type of company that we have today.
Andrew: When Jeremy in the pre-interview asked you what the first version of your site looked like, you said, ugly! Why?
John: We used to spend a lot of time in PowerPoint in the finance days. I was like, oh I’ll just mock it up in PowerPoint, send it along to our designer. But when you say to the designer, make it look like this, they’ll go out and make it look like that.
Andrew: I see.
John: You don’t ever want to tell a designer, make it look like this. It’s better to say, here are the core things I’d like to be incorporated on this page so go work your magic. That’s why you’re paying them to do what they do. I found out pretty early on that wasn’t the best interaction for our user experience.
Andrew: So they actually built out this PowerPoint thing, clip art and all, and that was what the first version looked like?
John: I don’t think there was too much clip art in there, but it was pretty depressing…
Andrew: …Essentially that’s what it was.
Andrew: So, I went to the Internet archive way back machine to try to find a version of this site, and I can’t come up with anything. All I see is checkboxes for how many bedrooms you want, checkboxes for how many bathrooms, price range, neighborhoods, amenities and that’s it. Is that what the first version of Apartment List, your business, looked like? Just a search engine with a big map that archive can’t show.
John: No. It was a lot more basic than that. The original versions were all like prototype websites. They were all very, very rough. Bad domains, bad brands…
Andrew: …Oh, I see. So it wasn’t under apartmentlist.com.
Andrew: …What’s the very first domain and very first PowerPoint looking website that you had?
John: In the apartment space there’s actually something called mycheapapartments.com…
John: …Yeah, but don’t tell anybody that, okay.
Andrew: What did it do?
John: What’s that?
Andrew: What did it do?
John: It was the original kind of version of the metasearch for apartments.
John: I was like, well this domain’s only seven dollars so we should just buy this it seems like a good enough brand. Not a ton of thought went into that originally. We were more focused on the business relationships, generating profit, and then hiring engineers to help us build this metasearch platform.
Andrew: When I asked you what the first site was you said, well in the real estate market it was, then you said mycheapapartments. Does that mean that you tried a couple of other websites, too, before?
John: Oh yeah.
Andrew: What did you try?
John: Those websites are dead to me. Apartment List is where we spend almost all of our time now.
Andrew: Resurrect the dead, just one at least.
John: realtynation.com is one…
Andrew: realtynation.com. And what was that going to do?
John: That was our real estate kind of brokerage name. So, I think we set the record for company name changes.
Andrew: I’m on mycheapapartments.com. I see the kernel of an idea there. In fact, it’s not nearly as beautiful, obviously, as apartmentlist.com, but I see what you’ve got there. It’s a search engine that allows me to find cheap apartments based on the rental price, bedrooms, and bathroom number that I want. Right?
John: That’s right. Well, you can’t even see it today. It just re-directs to Apartment List.
Andrew: Oh, I’ve got my ways. I see the clip art. Free ID protection. For free credit score another different clip art. A clip art of a box for a free moving quote. But not a bad site. Frankly, in some ways it looks better than my site right now. But I get how you moved on past it. You also said that you didn’t care so much about the design at that point. You cared about the technology, obviously, and the partnerships. Partnerships, how did they fit into your vision?
John: We wanted to significantly discount the marketing costs which associate with filling vacancies at the property level. The big aggregaters in our industry have been around for a very long time because they add a lot of value in driving qualified writers to properties. We wanted them to view us much in the way that the travel industry view Kayak. Yes, American Airlines and United, they’re going to advertise on Google, Yahoo, Bing, and Facebook, but they’re also going to advertise on Kayak. We wanted to be a supplement to all their search engine marketing strategies and search engine optimization strategies, and that’s kind of what we became, but it was very difficult to message that.
Andrew: I understand that we agreed before the interview started before we weren’t going to name names. The first customer, who will be nameless for now, how did you get them?
John: It’s interesting; people don’t want to work with start-ups. We’re a start-up and we don’t even want to work with start-ups sometimes because the odds that they’re going to be able to deliver on their promises are very low. They’re job is to just sell the dream, so we were just trying to sell the dream into the industry.
To get the first client I think I had a calendar reminder set up for four straight months where I would call every single week. I said, “Hey, x, y, z I’m going to be in town tomorrow. If you’re not busy I’d love to buy you a cup of coffee.” He actually agreed to meet. I had no flight to be in that city then. I just wanted to see if he’d actually respond.
I bought a flight, a red eye, out. It ended up being the next day. I hustled over from the airport. He said, “What are you doing in town?” I said, “Just here to meet some people.” So, I think it’s being incredibly tenacious that builds big partnerships. Those are very fruitful for us today. It started small and then grew pretty substantially.
Andrew: How did you convince them to get over the fears that they had over working with a start up?
John: Part of it is that we could create confidence through our management team. A lot of entrepreneurs don’t get out from behind their computer, and they show you things over e-mail, phone, chatting, and text. It’s crazy. I said, “Let’s break out the old. We should do meetings. We should suit it up. Let’s throw on some suits and go give meetings across the country.” Getting out from behind our computers was a good way to do that.
I have a good buddy of mine, Mick, whom I’ve known for ten years. He sells rat poison. I was talking to him one day early on in the business and he says, “Tell me, what is the [??] opportunity for some of these deals?” I said, “Seven figures annually for a lot of these clients.” He looked at me and said, “And you won’t get off your ass and get on a plane and buy them a steak dinner. You’re an idiot. I do that to sell rat poison.” That kind of stuck with me, and I think it was a week after that when we started flying around the country. That’s when we saw the biggest boost.
There’s a second part to answer that question. I think building out a solid board of advisers that, one, can offer up a strategy, two, make interest and open doors, and, three, can use in your presentation materials to lend credibility to what you’re trying to accomplish. It’s a lot different by coming in and pitching someone saying, “[??] motors built it into a $14billion industry in arguably one of the most successful market places of all time was one of our advisers.” But, that helps open doors.
Andrew: I can see that. Even for me, as an interviewer, I don’t know who I can trust and who I can’t. If I’m not connected to them through a friend I at least want to know there’s someone on the board of advisers who would not connect with a liar. Then I feel OK. I feel like I can trust them, so I get that.
John: You never want to enter those partnerships from the ground up, you want to go c level. If it comes from sea level it’s going to get a lot more attention. You’re going to be able to get priority in their queue. Everybody’s got a million opportunities, and it’s kind of picking and choosing who you actually want to work with. Leverage more connections you’ve got going on. C level then work our way down. It’s very helpful for us.
Andrew: C level, of course, is CEO, CIO, etc…. If they make the introduction I can see how much more powerful it is. What you were doing was aggregating all the apartment listings that were already online and making available in one place, which was your site. Then in partnerships you were syndicating them to other sites. Is that the model?
John: The thing is they were syndicating through us. They would send us their listings, and then we would help generate the referrals on those apartments then post them right to their website. So, somebody didn’t have to leave like My Cheap Apartments was at the time and then apartmentlist.com. We hosted the entire user experience, unlike kayak where you’re constantly clicking off because you have to book on the airline’s website…
Andrew: …Are there companies out there that have that many listings that they would put on your site? They don’t just make them available to anyone?
John: They don’t just make them available to anyone because it’s hard for them to get that inventory. They’ve worked really hard to get it. Our aggregator clients have fantastic sales forces, some of them hundreds of people, regionally distributed, and national sales forces. So, you protect something that’s that hard to build. That’s why the trust and confidence in us. One, we’d be able to deliver on our promises. Two, that we could send volume. They didn’t want to waste their time with a small partner. Three, that we could really grow with them and lower the cost substantially. The ability to lower cost in a recession for big companies definitely helps you to get a foot in the door.
Andrew: I see. So, these are people who already have found all the landlords who are trying to rent apartments. They’ve got the deals with them. They want people to come to their site. What you’re doing is saying, no, let them come to my site. I will aggregate.
John: You can go to their website. But there are 10 slots on Google for a beginning search. There are 10 paid slots. Who do you want that renter to go? Do you want them to go to a different website, or do you want them to go to your friends at Apartment List? We’re looking at it as more of a shelf space game, like, hey, you’re going to be ranked up there at the top of the search results. You’ve been there for over a decade. We want to help lower your marketing cost. So, pay us what you think this is worth and we’ll help you kind of supplement your marketing strategy.
Andrew: I see. And then that’s how you get paid.
John: That’s right.
Andrew: They pay you to put their listings on your site.
John: That’s right. We’ll get paid for referrals from the specific properties. That’s been the bulk of our business.
Andrew: I didn’t even know the market worked this way. You didn’t come from this market. How did you figure out that this is how the market worked and that’s where the opportunity was?
John: Well, the revenue opportunity in the rentals industry is typically in the professionally managed apartment buildings. It’s kind of like 100-unit- plus inventory. About a billion dollars a year is spent marketing building vacancies with that inventory. We had some industry insiders that tipped us off. I guess we figured some of it out on our own, but we leveraged a lot of relationships to help inform us where the money was at.
Andrew: I see. One of the first groups of people that you hired were engineers.
John: That’s right.
Andrew: As a non-developer yourself, someone who comes from outside Silicon Valley, how do you understand what they’re looking for and whether the work that they’re doing is right for you?
John: For me it was very tough, and Chris, my co-founder, was also not technical. We actually had some engineers that were friends who offered to help interview. That was huge for us. I could do a cultural interview, right. Like, is this guy going to work hard? I think so. Is this guy intelligent, trustworthy? Am I going to be able to spend six hours in the airport with this guy? These are all good things. But at the end of the day with an engineer it’s very difficult to tell the difference between the folks that are the perfect fit or maybe are fit for a different organization whether it’s smaller, bigger, or whatever it may be. You end up gambling. You make an educated guess and say, I think we’ve got a good feeling about this guy.
Yes, he passed our technical screens. In the early days that’s all it was. It would be a couple of technical screens and some reference checks. We probed as much as we could and said, what are the shortcomings of this guy. What’s it like to work with him? How can we help facilitate his or her growth to the next level? Probing and asking those types of questions is how we got our first couple of engineers, Tom and Ben, and we couldn’t have been happier. We kind of hit the jackpot with those guys.
Andrew: And your friends helped interview Tom and Ben?
Andrew: And told you these guys are good. I see. Alright, so now I know how you got your engineers. I know how you got the first web design. I understand that you kept improving it. I understand how you got the listings on your site and where the revenue came from – from the people who were trusting you with their listings. None of this will work, though, unless you can get people in the door who are searching for apartments. People who are already used to going to Google, used to going to Craigslist, and maybe to other sites that I can’t even think of right now. How do you get in their minds at that point?
John: Yeah, so phase one I really call kind of the meta search phase of our business and it’s everything you just described. Phase two was let’s build a (?) brand that we’re really proud of and so we kind of went with a (?) and came out with (?) which we launched – gosh, it’s been – September 2011. So just over a year and a half ago now. And we knew that if we were going to build the customer acquisition side with the man side of this supply and demand marketplace, we needed to have a pretty (?) experience. And so that’s when we devoted almost all of our attention to product, you know, built the business relationships to a steady stage, continuing to scale those, but focused almost all of our time and attention on building a product that we were proud of.
Andrew: But even with a great product, how was anyone going to find you?
John: Yeah. So fortunately for us, Google, Yahoo, and Bing are a fantastic source of customers, renters in the United States. And so that’s where we focus all of our attention on customer acquisition and so it was – (?) of search engine optimization, search engine marketing, and (?) campaigns. You know, those can scale very quickly.
Andrew: Let me see. I’m going to do Santa Monica apartment into Google Chrome. I don’t see you guys in here. I see one of your clients here. I see – and I’m not sure if it’s a direct relationship – I see others. I don’t even see Craigslisting here surprisingly. But of course I see West Side Rentals. They’re always big in Santa Monica. So what am I missing?
John: Yeah, it’s – you know if you type – I’ll give you another search like apartments in NYC. We’ll show up in the top ten for that organically on Google. And so the number one phrase to optimize for in the apartment rental industry is apartments in or apartments for rent in. And that’s what –
Andrew: I see.
John: – (?) of people search every single month. So 40,000,000 households in the US are renters. And so that’s a lot of Google search going that’s being [deployed] on a daily basis.
Andrew: Alright. Actually, I have to tell you, I don’t see it here either. Is it all search engine marketing and search engine optimization?
John: No, so actually just this past month we launched our first new IOS app. And it’s been met with a very warm reception which we’re really excited about and so, you know, as far as kind of platforms for traffic and channels to get traffic you have the branded terms which, you know, we’ve got a very high percent of our traffic is direct traffic to apartmentwest.com. You’ve got search engines and that’s going to be your SMSEO. And then, you know, the biggest number of emerging channels really the app store.
And so we launched just a couple weeks ago and it’s ramping up very quickly. And we’ve been really excited because up until now, most of all our web experience on mobiles, just mobile websites, (?) very simple on streamline. And so getting a native app in the app store and being featured, you know, most recently on Mashable in VentureBeat a couple weeks ago has really helped us kind of scale that early on and hit the ground running.
Andrew. Being on where? On Venture Voice?
John: VentureBeat and Mashable.
Andrew: VentureBeat. Okay. What about funding? You took some funding from – it was friends and family at first and then angels?
John: Yeah, we did three small rounds of funding. And it began with some friends and family and then we were fortunate to get some very notable angels. Brad Stroh, the CEO of Bills.com and Ariel Poler who’s just an active angel here in Silicon Valley to sign onto the second round and then the third round was actually Scott Ingraham who founded rent.com and sold it for 15,000,000 bucks which is awesome and Dennis [Gross] who’s, again, a very active angel.
And so those four guys all became board members and then we kind of rounded out the board with Simon Rothman who I mentioned earlier that founded eBay Motors. And then he went in [with like karma] and sold that to Facebook. And now whenever you’re on Facebook it says, “It’s Andrew’s birthday. Do you want to send him a gift?” That’s his website.
Andrew: How much traction did you get between the friends and family and the angel round?
John: Well, those were kind of dark days. And so we didn’t have a ton of traffic. You know, we had to sell the [drink] and we had to devote a lot of time to capital raising which can be, you know, obviously deters from building relationships, building a business and building products.
Andrew: So, what was the dream that got people to pay up even when it was in the dark days? Pay up?! [laughs] To invest?
John: [laughs] No, I think it’s this concept of, “Hey, Craigslist is the 800 pound gorilla,” everybody that’s searched for a rental in the last ten years has used Craigslist in some capacity and they built the true marketplace. I think people believe that we can be the guys to finally take them down in the rentals category.
Andrew: Why? Why did they believe at the time that you could do it? What did you have?
John: We didn’t have much. We had a foot in the door, you know, we had started to build a revenue profit, we were getting traction on our product, we had a solid management team, solid engineers. So, I think it was such an early stage that there was an opportunity to kind of make this thing work and if they can’t make it work in rentals maybe they can just take this metasearch concept and blow it out in a bunch of different categories.
Andrew: I see.
John: Maybe these guys can be the metasearch guys if they can’t do it in rentals.
Andrew: You were in TechCrunch Disrupt 2011. How helpful was that to your business?
John: I think it was great.
Andrew: What’d it do?
John: You know, it was interesting because we actually had a pretty flawed first launch there, too. [laughs] So we were like, you know what, for TechCrunch Disrupt why don’t we launch a recommendation engine for apartments? We were fans of what Hunch had done, I think they sold to eBay a couple years back but, they had taken these zany questions and turned them into search results and helped prioritize where you might want to eat and things like that. We were like, “Wow, let’s build a recommendation engine.”
So, that’s the concept that we launched at TechCrunch Disrupt and the press loved it, TechCrunch loved it, a bunch of people picked up the story but I don’t think we deserved it because the product was vastly inferior because it turns out that we as renters, all we care about is finding a place to live. We don’t want some machine to recommend it to us. I’d much rather have the opportunity to view all the available inventory in a given city. That’s what I care about. I want to see pictures, I don’t want to see your BS recommender. And so . . .
Andrew: I see. I see.
John: It’s not like we . . . [SS] . . .
Andrew: But it still got you attention?
John: It did get us some attention. It got us on the map and it helped us recruit.
Andrew: I see. Did it help with funding at all?
John: Sure, yeah. I think people were excited about that concept even though it was a tough one to commit.
Andrew: I see. So you said, “Hey, we’ve got this concept but we also have this other thing that we’re building that might have more potential.”
John: That’s right.
Andrew: You guys were profitable right from the start.
John: Yeah. This type of business kind of, and Pike [SP] was a similar way, they built their partnerships and were able to add significant value in lowering marketing costs and so that’s why businesses grow quick that are doing metasearch. When you’re cutting costs out of, you know, a marketing expense, that’s a huge line item for these big companies. It’s a no brainer for them to work with us in some capacity.
Andrew: I see. So with all these metasearch engines, whether it’s as you say travel or real estate, you get the data from people who are just eager for traffic anyway and eager for new customers, you charge them less than they might get if they were doing Google search ad buys and then you’d just need to get traffic in the door and that’s a model that can be replicated in other areas and can be profitable like you’ve shown quickly.
John: That’s accurate. There aren’t a ton of industries where metasearch works though.
Andrew: What do you see? Where is it, credit cards? Is it something else? What do you see where it would work?
John: I do think it would work in credit cards. I think it will work in autos. Used and new cars it works. We are dipping our toe into that arena as well. It’s one of our resources. And I also think that in travel there’s still room for optimization there. I think especially with vacation rentals and what [air and B & B] is built. I think that there are some smart folks tackling that as well. There’s room to grow out there and I think that some of these other industries are even bigger than the rental industry quite frankly.
Andrew: Tell me about the first million you made in revenue that first month.
John: Yeah. It’s actually a soft spot in my heart because we weren’t sure if we were going to hit a million. It’s like summer of last year, we were like, “It’s very close. If we hit it, we have to do something awesome.” Held into the team we kind of huddled up and we said, “Alright, here’s the plan. And we’re not going to roll this out unless we’re going to hit a million because otherwise [??].” What ended up happening is the day of we told our significant others to be on guard. That we’d love them all to swing by the office at this time. But only if we give the green light.
About halfway through the day, we figured out that we were going to clear about a couple grand. And so we called on the party and what happened was 50, 60 people had all gathered around in the office. Then we kind of swung around behind a wall with captains hats and started playing “I’m on a Boat,” The Lonely Island song. We decided to surprise everybody with a cruise on San Francisco Deck. That was a lot of fun too. To party it up like that.
Andrew: This is one month, one million in revenue.
John: Yeah, that’s right.
Andrew: Unreal. So quickly. June 2012.
John: That was it, yeah.
Andrew: Alright, let me do a quick plug here and then I want to ask you about a personal thing that we didn’t even ask you about in the interview. But you thought it was important to include. We didn’t ask you in the pre- interview, I should say. But let me say this guys, for Mixergy Premium, I often talk about the entrepreneurs that come in to teach, but one of the things I’ve done a little bit of is having incredible authors come in and teach their books. So if you’re not sure if you want to read a book and you want to get a taste for it and want to understand the big ideas that you can act on and can use, check out Mixergy Premium dot com.
And I’m going to recommend three books that if you’re a reader, go get them. If you want to try them here through the course within one hour, the author and I will take you through their ideas. The first is Jonah Berger of “Contagious.” We pull out the ideas that we think are applicable to tech entrepreneurs like you, the person who’s listening to us. And we bring them to life with examples by breaking them down in a way that you can use it and a couple of visuals there. It’s me and Jonah talking it through and by the end of it, I think you’re going to see why “Contagious” is an incredible book.
The second book is, where is that one? “Little Bets” by Peter Sims. Fantastic book about how everyone says you’re supposed to take big bets. Go big or go home. And Peter says try smaller bets and he gives examples of how big companies instead of, for example, a company that does toothbrushes, instead of creating a big toothbrush and launching it, will take cardboard and test out the toothbrush concept using just cardboard. By showing it to people and get their feedback on it. And he says, “By taking those small tests out to the public, people are not afraid to give feedback.” Because they say, “This thing is made out of cardboard. They obviously are still in the process of thinking the product.”
And so they get meaningful feedback that they can use to build the big product with. Finally, where is that last one? There’s one other one that I wanted to share. I should have had the list up here on my screen, John. This is very unprofessional.
John: Pins and needles.
Andrew: To see what the last one is. So I forgot which one I was going to say so instead I’m just going to tell you about Bob Burg’s “The Go-Giver.” The idea that is behind that book is that, if you give people, if you’re considerate, if you help them out, that it’ll come back to you. Bob and I talked through that book. Pull out the main ideas and show you how you can use them. How you can get further by helping others get further in life. “The Go-Giver” by Bob Burg. MixergyPremium.com. Those are a sampling of about a hundred courses and a hundred programs that are exclusive to premium members and I hope you check out.
John, it’s kind of awkward, actually that I do these plugs and I’m getting better. I can see I’m getting better, but I’m still not past that awkward stage and part of it is, I see you looking at me and I’m thinking, “This better be good. I’m about to interrupt his story with my plug. It better fricking be good.” And then I get in my head about it and I can’t do that. I need to be clear and I need to forget about you being there and forget about any potential judgment. Because, frankly, you probably aren’t judging me. You’re probably saying, “Is it over yet? Should I go get a cup of coffee?” Or maybe you’re just taking a break and you’re enjoying the fact that you don’t have to talk. I don’t know. What were you going through?
Andrew: Do you ever get that way? Do you ever get in your head while you’re talking and find yourself screwing up what you’re saying because of that?
John: I’m a bit of a day drinker sometimes, so sometimes one of my vices and I have to focus and concentrate. I’ll ask a question and I’ll hear the first like four seconds of the answer. I’ll embrace that answer and I’m already thinking about a totally different topic. If they end their response with a question to me, I have no idea what they’re talking about. So let’s say that’s one of my ADD kind of mentalities that takes hold. But I’m doing my best to mitigate that.
Andrew: We’ve all done that. It’s painful when it happens. Thanks for admitting that. Sorry?
John: I forgot what you were saying.
Andrew: So, what I was going to ask next was about your family. You said that you had a grandfather; I think it was, who was an entrepreneur.
John: It was actually a great grandfather. One grandfather was. He kind of took over the family business. One of my great grandfathers, this is my mom’s grandfather, ran a candy company based in Chicago. It was called Shutters Candy Company. They actually had a candy bar called Bit O Honey. You ever heard of Bit O Honey?
Andrew: …Absolutely, yes…
John: …Started by my great grandfather…
John: …and ultimately that candy bar ended up in the hands of Nestle. So, one great grandpa was a candy guy. Another great grandpa built these fasteners, they were called Lift-the-Dot. They would fasten canvas tops onto like Model A, Model T cars. That was another business that was part of the family also on my mom’s side. Then on my dad’s side my great grandfather had a plumbing business.
Andrew: Your dad was a factory worker in Chevy…
Andrew: …at a Chevy plant…
John: …My dad worked at the Chevy plant for 38 years, the only company he ever worked at. My mom was a teacher.
Andrew: You went to check out the plant. What did you take away from it? You worked there actually, didn’t you, for a while?
John: For a summer. That is extremely hard work. I was working second shift and it was probably 105 degrees in that factory. My first day I’d come into work wearing my coveralls. I wanted to do as good as I could. My dad’s name was on the line. He vouched for me. They had these huge presses, like 20 ton presses, massive. There were like six of them. A piece of metal would go in one end. Then they’d press it four times, and out would come this little piece of metal that goes into the transmission of a car. They said, alright John you’re going to go over there for this eight hour shift. I’m like, okay, by that conveyor belt. They were like, yeah just stand over there.
The parts started coming out, and the conveyor isn’t moving. I said to my supervisor, the conveyor belt’s not moving, what would you like me to do. He said, no, no, we know the conveyor belt doesn’t move. We know it’s broken. You’re going to be the human conveyor belt today, so if you could just take those parts, slide them 20 feet to the next guy, that would be just fine. So I don’t know if it was a hazing ritual working on my first day. But I came in the second day and the exact same conveyor belt was still broken.
I think that the take away was this was very challenging work. I think that my dad put in all those years at that factory so that I wouldn’t have to put in 38 years at a factory and maybe I could do something a little different with my career path. He gave up a lot for me to be able to have this opportunity.
Andrew: Way to go for what you’ve done with the opportunity. The site is Apartment List. I wouldn’t have known about you except for Sam Parr who introduced me. He didn’t just tell me about the company. It’s your story that he sat down and told me. He said, I don’t know how you don’t know this guy John, but you’ve got to get to know him. And the more I found out about you the more I wanted you here to do this interview. I’m grateful to you for coming in here and doing it.
John: I’m very flattered, Andrew. It’s a pleasure to meet you over Skype here, but I’d love to grab a beer in person. Sam’s a great guy for us and very passionate. I appreciate all the good things you had to say about Apartment List today, because we’ve got a team here of 45 people that are very passionate about solving this problem that affects so many people in the United States. So, any time that I have a chance to spread the praise to our team – we wouldn’t be here, and I wouldn’t be here, without the amazing colleagues that I get to work with every day.
Andrew: Well, it means a lot, I think, when the person working for you admires what you’ve done so much. Especially in a world where so many people hate their bosses, think that they just got by somehow and tricked some system to get to the top and now they’re out of touch. But when a guy like Sam who works for you and sees you closely says, this is the real deal you’ve got to get to know him, I listen to it. So, John, thank you for doing this interview.
Everyone else who’s watching, reading, or listening on their MP3 player, thank you for being a part of the interview. Bye, guys.