How can customers show you how to build a multi-million dollar business that they love?
Mike Silagadze is here to tell the story of how he built his company based on conversations with his customers. His company, Top Hat Monocole, creates classroom response systems that engages students and provides professors with real time feedback on student understanding.
Watch the FULL program
Mike Silagadze, Top Hat Monocle
Mike Silagadze is the Founder of Top Hat Monocle, a web and mobile-based classroom response system that engages students and provides professors with the real-time feedback on student understanding.
Andrew: Coming up, today’s entrepreneur had an idea that depended on his users having iPod Touches. He wanted to give 30 iPod Touches to his users. Problem is he didn’t have enough money to buy 30 iPod Touches, not nearly, not even close. What would you do in that situation? Check out the one thing today’s guest did to get those iPod touches. It’s kind of a scrappy story that pretty much you can only get here on Mixergy.
Also, check out this secret thing that today’s entrepreneur did when he raised money from investors. While they were talking he did this thing. I’m going to ask him about it. He was a little reluctant. You’ll see it on his face. A little reluctant to talk about it but this is Mixergy. This is where entrepreneurs talk about the stuff that they really did to build their businesses.
Finally, why are people who care about you sometimes the worst users, worst customers to have? You’ll see what happened to today’s guest when he had people who cared about him use his product and then you’ll see who he got to change everything, the first customer that really helped shape his business. If you need a first customer, listen to that story and so many others in this interview that are going to help you. Check it out.
Listen up. I hate to have commercials interrupt this interview so I’m going to tell you about three sponsors quickly now and then we’re going to go right into the program, starting with Walker Corporate Law. If you need a lawyer who understands the startup world and the tech community, I want you to go to WalkerCorporateLaw.com.
Next, I want to tell you about Shopify. When your friend asks you how can I sell something online? I want you to send them to Shopify and explain to them that Shopify stores are easy to set up, they increase sales and they’ll make your friends products look great. Shopify.
Finally, I want to tell you about Grasshopper. Do you want a phone number that people can call and then press 1 for Sales, 2 for Tech Support, etc. and have all of the calls be routed to the right person’s cell phone? Well, get your number from Grasshopper.com
All right, 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.
In this interview I want to find out how can customers show you how to build a multi-million dollar business that they love. Mike Silagadze is here to tell a story of how he built his company based on conversations with his customers. His company, TopHatMonocole, creates classroom response systems that engages students and provides professors with real time feedback on student understanding. Mike, thanks for doing this.
Mike: Yes. No problem.
Andrew: Before you start with TopHatMonocle, you were working at a company that did not talk to its customers. Why didn’t they?
Mike: Well, it’s kind of a classic engineering mistake, you know. We really focus on the technology rather than any kind of customer need that might exist. So what we did with, I guess I won’t name them, but what we did with our first startup and I was, I guess, one of the earliest employees there, was really we thought of a really cool idea for a technology that was powerful and we thought it was great. And spent years literally, over two years building the thing.
And then when we finally surfaced, we realized Oh, nobody actually needs this. And then, as we surfaced and started talking to customers, we realized what they actually needed and then, the funny thing is that the problems that we needed to solve in order to build a really great business, and they’re doing well now. They’re I think to like up to $20 million in revenue, we’re actually a much simpler problem, so we made our life harder just because we didn’t actually talk to customers and then figure out what they needed.
Andrew: What did you build over the year or two that you guys were coding?
Mike: So the company was doing computer vision technology, so it was a very research-y type of job. It was founded by grad students. I was a grad student at the time, too. So we built this really awesome technology for tracking objects and video and we spent all this time implementing and developing all this sophisticated algorithms for object tracking hoping that, you know, in theory we might be able to apply it to one thing or another. And we had a few applications, most of which were silly.
And then, as I said, when we finally started talking to customers they said you know, we don’t actually need the tracking. That you can do pretty easily. What we need is the video collection piece, what we need is like the automating this particular format of data or another. So as I said, it’s funny, like, really, just by talking to customers first you end up saving yourself huge amounts of time and anguish.
Andrew: If they would have talked the customers first, how long would it have taken them to build what the customers actually wanted?
Mike: Oh, probably would have saved at least two to three years.
Andrew: So if things worked out for them anyway, what’s the problem? Why not just build and then just show it the customers, and you’ll figure it out later.
Mike: [laughs]. Well, most people don’t want to spend 3 years. [laughter]. You are doing something most people would probably have given up. I guess that, the ultimate outcome of it was that, they spend 3 years basically being a consulting company. They just keep the lights on instead of actually being a, you know, product company. And that was just very stressful and difficult.
Andrew: And as people who listen to this interview all the way through will discover, not everyone has money to continue that long. You got so close to the end that you almost were going to sell your car just to keep going. So, if you have an infinite amount of time, and you have an infinite amount of resources, maybe you can afford to wait that long. And then talk to customers, and then build what they really want.
Andrew: But an alternative is an approach that you took. And in this approach, you…Actually before we even get in the approach, you tried quitting this company that we’re not going to name.
Andrew: And the first time you tried quitting it to start your business, they did something that I think will shock the audience. What did they do?
Mike: Yeah. Well, they did something, I think, very reasonable, which was, they offered me a whole bunch of equity and I agreed to stay, because I like the company. I thought, maybe not being the founder is OK. It’s close enough. I got enough equity that I almost felt like a co-founder. But eventually I realized that, no, in fact that I need to be. I have that weird entrepreneurial tick that I do really need to be the guy that’s sort of setting the direction.
Andrew: And so, we’re not going to name…I guess I have it here in my notes what percent of the company they gave you. It’s pretty significant, considering…
Andrew: …that you weren’t a co-founder.
Mike: It’s about 5% of the company, I assume.
Andrew: OK. All right. You took it. You continued working and you said, “I got to start my own company.”
Andrew: And the first thing that you did wasn’t what you built today. What’s the first thing that you built?
Mike: Yeah, I guess as with most companies, you know, what you start doing is typically not the thing that you end up doing. So we originally started with iPhone games. We built a couple of games for the iPhone, for Android, and at least in various ways. We tried doing it for free just to see what kind of traction we get with advertising. It wasn’t very long. I mean, this was like 2 months that it took us to do this. And then very quickly realized that you know, this is a very crowded market. Everyone and their uncle at the time was starting up an iPhone apps company. Most of them ended up being consulting shops. We did consulting work. It’s just terrible. I hated working with clients. That’s not what I wanted to do. So over a period of a couple of months, we pivoted and tried, I think, 4 or 5 different ideas. We tried gaming technology for iPhones, so basically like a library that let you localize your iPhone more accurately, a very techy thing. We tried a couple of medical censored applications for iPhone. And then, you know, we pivoted these very quickly, tried to look at the market, talked to some potential customers, realized, no, that’s not going to work, that’s not to work. And then we got to this education concept of using iPhones or any mobile device in the classroom and realized, hey, this thing really has legs. We talked to the Dean of Engineering at our university. And it was one of these things where we didn’t even realize…We just call them up. We said, hey, do you want to meet with us? [laughs]. And talk about our company? Whereas, normally, it’s a pretty presumptuous thing to do, you know, to just go talk to your Dean of Engineering. That’s a tricky meeting to get. But we didn’t know any better, so we just set up an appointment and he happily obliged.
Andrew: One of the ideas that you had, you took to Y-Combinator. What did they say to you?
Mike: They said no, probably justifiably, because it was not the greatest idea.
Andrew: What was the idea?
Mike: So it was the technology to localize iPhones more effectively in using some sounds, sound technology. Yeah, they asked us a bunch of questions and they decided, nah, we’re not going to invite these guys for an interview.
Andrew: You also had an idea for a news aggregator that didn’t go anywhere. As you said, you built iPhone apps.
Mike: Yeah. Um-mm.
Andrew: You actually did better than…You said everyone and his uncle was creating iPhone apps. I think you did better than most people’s uncles and most iPhone developers. What size revenues were you generating from these apps.
Mike: Oh, it was like in the thousands of dollars. What we just realize is, I think we didn’t try it for long enough. If you look at Rodeo[sp], it took them a while before they scaled up. We just didn’t try it for very long. We just looked at it. It was very crowded. We built what we thought was a pretty awesome game. It’s about a squirrel that, sort of, hops around, and just got this minimal traction, that I guess there’s only like thousands of dollars of revenue, where we had this image of maybe, you know it was obviously naive, where we publish this game and because it’s great, we just get tons and tons of revenue and recognition. And that didn’t happen. And so we just said, you know, it’s pretty crowded and I knew half a dozen people in my area, like in the next couple square mile, who were doing the same thing as these iPhone apps. And so we just said, look, we need to do something more substantial, I guess, more serious.
Andrew: Heaton Shaw told me that before talking to customers, you should have a theory about what you’re trying to build; something you’re going in to prove or disprove, with an open mind and an open conversation. Did you have that?
Mike: Yeah we did. So when we talked to, in our case professors and the dean of engineering, we had a pretty clear idea, we even had a prototype. We threw it together over a period of a few days, and just had this very rough, kind of a prototype example of what we thought it would look like. What it ended up looking like was quite a bit different but the concept was there, and we didn’t spend a ton of time building this massively sophisticated system. We built something that was really cool, and had just a core bit of utility that you couldn’t get anywhere else. That was really the key for us.
Andrew: What was it?
Mike: In our case it was a physics simulation. So we literally just loaded a couple of physics engine simulations of falling objects, intersections, and just a couple of these physics-type games, and said, “hey, imagine if you’re in a physics class, and instead of seeing on the blackboard, the professor guy talking at you, and you know, describing these things, you can actually load it on your phone right in front of you, and play with this, and in effect do a mini lab experiment right inside the classroom.” We thought, that was the core idea. We thought wouldn’t it be cool if you could do that, and that’s what we came up with. And everyone said, “yeah, that would be cool,” and then of course, the practical side of how do you actually get it into the classroom, you know, how do you charge for it, and what does it work on was important.
Andrew: They also told you that getting students’ engagement was a big deal?
Mike: Right, yeah.
Andrew: So, was this going to solve that problem?
Mike: Yeah, for sure. We, that’s, that was the other pretty important lesson that we learned. This problem that we were addressing, and that’s why we, you know, really went after it. This problem that we were addressing was “the problem” that educators were trying to figure out. I mean, everything from how do you get students to not drop out, how do you get students to perform better, I mean, as students, as class sizes keep increasing, it’s more and more difficult to keep them engaged, they feel anonymous. And not only that, but the contrast between what they get in the classroom, versus any experience and learning outside of the classroom has just become so drastic. Like, outside the classroom, they go to you know, YouTube, and Wikipedia, and Procera [SP], and all these things, and then they show up to the classroom and say they’ve been transported back in time by 100 years, you know? It’s this contrast that makes it so difficult to engage students, as I said, this was clearly one of the major issues they were having, and we realized, “OK, we’re on to something.” And there didn’t seem to be many companies, any companies actually, going after that problem.
Andrew: I see. It’s true. You go from a YouTube world where you get to click around while you’re watching one video, and sometimes watching a second video with the sound turned off, on your laptop, to suddenly sitting in a classroom where one person is talking at you, and you’re supposed to just take notes. And you could sneak off and do other things on your IPhone that you’re hiding, or even just tune out.
Andrew: So I see the problem, I see your idea for the solution, what’s the next step that you took?
Mike: Yeah, so we came up with a, you know, immediately thought of a revenue model. This was, you know, at the time that we were starting the company, was right after the Rio State crash; nobody was investing at the time, and we were basically in Waterloo, Ontario, which is not the worst place in the world to do a start-up, but it’s nowhere near even Toronto, or not even close to Silicon Valley. There was probably, and I’m not exaggerating, maybe like five active investors in the whole city. It was just ridiculous. And we got two of them, so, we really almost exhausted the pool of people that were available. So it was very difficult to do anything. As a result, we were very focused on revenue, and that actually helped us out, in many ways. I know for many companies, that’s not the right thing to do, but that helped us out, in that, by insisting that we have to charge for what we’re building, for what we’re providing, it gave us a signal: what we’re building is important, and it matters. Whereas if we had just offered it for free, I’m sure we could have gotten lots of people to use it for free, just because we were a couple of nice young kids, and they just wanted to be friendly to us, but it wouldn’t have helped us, because we would have built the wrong thing. So we insisted on charging for the thing. So the first interactive model that we came up with was to charge the universities. Like you go to the school, and it becomes a traditional enterprise.
Andrew: Actually, I apologize, sorry, go ahead. I want to make sure that we get every detail and I’m looking at my screen full of details, but I’ll come back and fill it up. So the first thing you said was that you were going to sell it to universities.
Mike: Yeah, yeah that’s right, and that’s a terrible idea. If anyone is thinking of doing a start-up, selling to schools or universities, just literally stop right now, don’t do it. It’s the worst thing you could possibly do…
Andrew: Why? Universities have tons of money, they can afford to pay a lot, and then they can afford to make what they’re buying a requirement.
Mike: Well, for one thing, they don’t have tons of money. They’re always, always in funding shortages. Never in my life, have I heard of a school administrator say “oh, we have too much money to spend.” Like it just doesn’t happen, they’re constantly short of funding. The priorities of what they spend money on is very much aimed at getting more research grant revenue. That’s actually where the majority of their funding comes from. Professors are basically grant-generating machines for them. They’re like sales reps, in effect, for the school. Any grant that a professor gets, the school automatically gets a 30% overhead, some big chunk of overhead on top. That’s where a very big chunk of the school’s revenue comes from. Tuition is actually not that big of a chunk.
The other big problem is bureaucracy. I’m not at all exaggerating here. The sales cycles for universities are measured in years. You’re talking two to three years to get something into a school, if you can get it in there at all. Sometimes dozens, maybe even hundreds of stakeholders, that you need to convince to get on site [??]. If any one of them, for whatever reason, doesn’t like you, doesn’t like the color of your hair, you’re out the door. It’s incredibly difficult to do.
That’s why you have probably three or four big companies in the enterprise education space. They make horrible, just horrendous software. Blackboard is probably the worst example of that. Nobody else can come in and compete with them. The only counterexamples are Edmodo, maybe Instructure Canvas, and they’re giving it away for free. They’re doing almost, in effect, what we’re doing. They’re not going through the university. They’re just giving it away for free. When the school has no choice but to adopt because everyone is using it, that’s when they go to institutional-level adoptions.
We didn’t know any of that. We thought, why not sell to universities? That seems like the logical way to do it.
We went out there, and had dozens and dozens of meetings with people all over the place. Just to see if we could get a couple of these pilot projects going. Within three months, we managed to close two pilot projects with $10,000 or $15,000 each. It doesn’t sound to horrible. We thought, look, it takes three months to close these pilot projects. This is not a business. This is not a scalable company that you can build around it.
It was at that point that we realized that we needed to come up with something different. We need to actually put together a different revenue model that sold software in the same way that textbooks had been sold. The other thing that we did. A very serious mistake that we made. We had this vision, probably another example of focusing on technology instead of focusing on the customer problem. We had this vision that it should be on iPods because iPods are this beautiful device. They’re small, discrete. They can sit on your table. They’re very sophisticated. They’re connected.
We went to the university and tried to sell them a service business. We provide these iPods for your classroom with this great software. Then the school pays for all of these devices. Very quickly, we realized that that wasn’t going to work. We needed to make it compatible across all devices. Everything from iPhones, Androids, smartphones, cell phones with text messaging, laptops, tablets. Basically everything had to be supported, so we can have every student participate.
Andrew: So, you wouldn’t have to buy them all the iPod touches. Now I’ve got to pause so we can fill in some important details for my audience here. The first is, what did the first version look like, the one that was going to be on the iPod?
Mike: It was just an iPhone app. We were an iPhone app company; that was our pedigree. We build this first version. It had a couple of these interactive demonstrations. In order to validate this thing, after we managed to secure one of these pilot projects. We needed to do… no, this was before actually. In order to secure one of these pilot projects, we did a beta test. We needed to figure out, does this thing actually work? For our own sake, we need to see does thing work?
Andrew: If these guys are going to pay us $10,000 to $15,000, we’d better make sure that at least it works, even if the idea needs some tweaking.
Mike: Yes. I’m not even talking on the technical level. I mean, just on a conceptual sense. Is it going to improve engagement? Is it going to improve learning? What we did is we got a whole bunch of students and wanted to bring them in and give a test lecture in one way and a test lecture in another way. Compare the results.
This was during exam time, and everyone was crazy busy. What we did is we went to campus at the University of Waterloo and just randomly approached students. We said, do you want to be in this study? Help us out. We’re a local startup trying to validate this learning technology. We’ll give you a ride to our space. Come, please participate in this study. Somehow, we managed to cobble together 30 students who agreed to do it. In retrospect, that’s pretty impressive. I can’t believe we actual did that. Why did they do it? I guess they were pretty nice.
The other thing was that we needed 30 iPods. We didn’t have 30 iPods. We were funding this thing on credit cards and our line of credit. So we certainly didn’t have the money to buy this thing, to buy these IPods for a test, so what we did is, I hope I don’t get arrested for this but, so myself, my cofounders, a couple of employees, we literally went to like random Best Buys in the area, there were a bunch of them, and Future Shops, that’s like the Canadian version of Best Buy. So we went to all these random stores and at each store, we bought, like one or two IPods, on a credit card obviously, and then brought them, did the test, the experiment, on all these students. The results came up positive, so we, you know, did improve engagement, and then of course, the next day, we came back and returned the IPods. You know, we said “oh, it was gifts, you know, people didn’t like them.” We, it’s not entirely…
Andrew: Before your credit card could even, before you had to pay your credit card bill.
Mike: Oh yeah, yeah, yeah, we couldn’t have paid the credit card bill.
Andrew: Jeremy, who pre-interviewed you, our producer here at Mixergy, he asked you what the first version looked like, and the first sentence you told him was, “it was the worst thing ever.”
Mike: Yeah, it was.
Andrew: It was one of these, it was one of these ugly first versions. But what made it the worst version ever?
Mike: I don’t, maybe I’m being a bit harsh, to what we managed to do. It was just, it wasn’t polished. It was crappy, it just, it barely worked, when it did work. It was, you know, far from optimized. It was basically about as much of a minimum viable product, maybe it wasn’t even viable. But it was just a proof of concept really. And so this was actually the version that we ran with our professors, not the one that we did the test with the IPods. We had to build a whole new version that was web-based, because we, you know, we wanted people to use their laptops, and smartphones at that time.
Andrew: So you wouldn’t have to go and buy all these IPod touches, like you said.
Mike: Yeah, that’s right.
Andrew: Alright, so now you get your feedback. And the idea, if I’m understanding it right, at this stage, is the professor asks a question, people can press a button on their iPod touches, and later on, their Android devices or whatever, and respond, and that way the professor gets to see, are people even understanding this.
Andrew: If they’re not responding like they understand it, than they don’t understand it, and you’re giving the students something to do while they’re listening.
Andrew: They’re not just taking it in, they’re being challenged.
Mike: Yeah, it was that, and interactive demos. So, but with interactive demos it was basically, one of them is literal animations, there are modules you can play around with, in this case it was actually a robotics course, so you’d have, like, a little animated robot arm that you move it around and it shows you the coordinate transformations from one axis to another. So it was that, it was questions and, you know, these interactive animations. And I think we made like 5 or 6 of them for the course.
Andrew: OK, and then you took it out to professors, and you told Jeremy that the couple of professors, who you picked, weren’t the right ones.
Mike: So, in our, in my experience, and I think a couple of other people that I know of have had the same experience. You generally, you actually don’t want to use your friends or people that you know well as your first customers. The reason you don’t want to do that is because often times they’ll be doing it, they’ll agree to use your product as a favor to you, not because they believe in it, not because they think it’s a great idea. But they’re doing it just because they want to be nice, they like you, you know, they want to be friendly. And that’s exactly what happened, so we had these professors who were the first ones to use it, who really just didn’t care. Like they didn’t, they weren’t interested in using this new technology. They would give us, you know a few minutes in each lecture, and they would just sort of step away, and then we would come in, we would run these activities, and then they’d be like, alright let’s, you know, let’s get on with the lecture. So it really wasn’t integrated. It wasn’t a good experience for the students, and we found, you know, at this point of course, it’s all about the professor. I mean, what we provide is just the tool. Like it’s, the professors the one that uses the tool to make it awesome and a great experience, and we just didn’t have that. And as a result, those first few pilots, were frankly not that great. I mean, we persevered because we still thought, “hey this is a good idea, this is going to work.”
And then we found another professor, almost just at random, and I’m not, like we basically, we were so frustrated that we had these professors and they weren’t really taking it seriously. We just said, “You know what, screw it. We need to get good professors.” So we just went to campus and walked around, like just walked around door-to-door, and said “hey, we’ve got this thing. Let me show it to you.” And just at completely random, got this amazing professor named Stephen Forsey [SP] at University of Waterloo. He teaches chemistry, and he was just, literally one of the best teachers on campus. Was super excited with us, worked with us to go through all the bugs in the software, and put up with all the, sort of, the nonsense, and was just a fantastic user. It was just, sort of, the model of an early adopter, that really helped shape the version of the product. And he’s still one of our best users. And he’s one of the best…
Andrew: Why is he a better professor for you to work with than, I mean, him alone, better than others who are doing you a favor? What made him so good?
Mike: Well because, first of all, he was willing to tolerate a not-finished product. So if it was buggy, and you know, wasn’t working exactly as expected, he’s not the type of person who would be like, “ah, screw it, I don’t have time for this” and then just, you know, drop it immediately. That’s not your early adopter. That’s your, you know, your majority of users, who would be like, and then that’s fine, but you know, it takes a while to get there. And the other thing is, he provided feedback, he was actually, he loved this technology and you know, this idea of using it in the classroom; he provided really fantastic feedback to us, about how to improve the product and again, take it, which direction to take it in. Whereas, the typical professor doesn’t think in that way. You know, they just, they have a problem that they need solved, and just, you solve it or you don’t, and that’s it. That’s really the only consideration. Whereas the early adopters are sort of, the ones who evangelize for you, and work with you to, you know, to get the technology to where it is, you know; solid and stable.
Andrew: Because they love technology so much that they even are curious about where it breaks, and then they want to fix it and solve the problem.
Mike: Yeah. Exactly.
Andrew: What, what kind of feedback did he give you, what did he give you that you didn’t know before, having talked to so many people, students and professors.
Mike: Well, there’s a lot of basic stuff. Just, you know, optimize this, make this easier, build this, you know, this functionality, that kind of stuff. Which is, in many ways, sort of nitty gritty type things. You know, you have an idea and you need to refine it. So it was that. That other big thing that he started doing, and that surprised us, and now is like a core part of what we do, he started using it outside the classroom, which we didn’t intend, at all. Like, we didn’t design it to be used for out of class, in fact the whole experience was really meant to be in class. And he just, just decided to start using it that way. And that was fascinating to us, and so we, as a result of that, started building on all kinds of other functionality to expand the scope of the software to make it usable outside of the classroom. So, very much…
Andrew: What did he do with it outside of the classroom, before it was meant to be used outside of the classroom?
Mike: Just as a homework tool. Just as a way to give students some feedback about how they’re doing, and like LMSs do have homework functionality, and assignments, but as I mentioned, they’re… Sorry LMS is learning management systems, so this would be like Blackboard, or Desire To Learn are examples of learning management systems. If you’ve ever been to university, I guess recently, you’ve been unfortunately exposed to these things. And they’re, just as I said, horrendous, just terrible, terrible software. Honestly, maybe government software might be worse, I don’t know what else would be worse, maybe healthcare software. And, you know you try to do assignments in these things, and it’s like, it’s a nightmare creating each question is like a 15 minute ordeal with 20 different menus and so on, but ours was just simple.
Andrew: For the students, [??} [SS]
Mike: Yeah, exactly. So ours was just simple.
Andrew: He said, “Hey, so I could use this to ask my students questions in class, and then get real time feedback to know whether I’m teaching it right. Why don’t I just give them a couple of questions at home, and they can answer them at any time they want?”
Mike: Yeah, yeah. Because it was just so simple to do; it was just way easier than working through their learning management system. And at first we were kind of like, “wait, wait no, don’t do that. That’s not intended to do this.” And then we realized, “wait a minute, what are we talking about?” Like, the users want to use it this way. This is a huge benefit to them, let’s make it a better experience, don’t say “don’t do it,” just make it a better experience to do it. And then we did. And now every professor uses it outside of the classroom.
Andrew: Shoot, I just lost my question. Oh, I know what it is. So, one of the things that I’m understanding about this professor, his name is Professor Mosin [SP]?
Mike: Stephen Forsey [SP] was the…
Andrew: Forsey, so Professor Forsey, was an early adopter, and loves technology and that’s what makes him a good fit, but what else makes him a good fit? Does it, is it also that he’s a guy who had a problem with his students not being engaged? Or he was a good teacher because he cared so much about engagement that he was more acutely aware of it?
Mike: Sure, yeah, yeah. Yeah, that was a huge thing, he had been adopting technologies, like every new thing that would come out, this is the guy that would adopt it, and again just total, perfect profile of an early adopter. You know, he was working with publishers on like, trying games in the classroom, and all these other kinds of things, so he was already engaged with this stuff. And so this was another way to have a partner to work with, you know, to [??] [SS]
Andrew: Did he also feel the pain of engagement more than others?
Mike: That’s true, yeah, for sure. Because that was his primary role, was running these courses. But, I mean he felt it more because he cared more. You know, others have probably experienced the exact same problem, and frankly they just don’t, you know that’s not enough of a priority for them to really focus on it as much. Whereas for him, he just, he did feel the pain, and he cared. So that’s why he worked with us.
Andrew: I’ll tell you why I was asking, because I wanted to get sense of who the right first customers are, and you were showing me of course, that early adopters are, because they care about technology, and then I thought, “well I know some early adopters who only care about technology, and then once they figure the thing out, they’re ready to move on to something else.” These are guys that every week have a new piece of software, a new great to-do list they have to introduce you to that you have to try. And then the next week, they have another one and then the next week after that, they have a whole other one.
Andrew: And he’s not that person. He cares about technology …
Andrew:…but he also is very, it seems like, eager to improve the engagement and solve this problem of how do you…
Andrew: keep students entertained, engaged and learning.
Mike: Um-mm. Because we were addressing a core. It wasn’t like a side thing that he just sort of played with. This was the core aspect of his teaching, like this is the main thing, that he doesn’t focus on as part of his role at the university. That’s why, it wasn’t just like sort of a fling where he just tried it out and threw it away. Like it was, hey, this actually helps. OK, I’m going to keep using it. Those are the reasons that I think he was a good example. Whereas if we had gone to, maybe a department chair, or someone who doesn’t maybe have a high teaching load, they’d play with it and then move on. That’s definitely true.
Andrew: OK. So, you and I were going to start talking about revenue model and I want to take it a step back and really understand how you got to the product. Now you are at the product.
Andrew: You understand too, that going to universities and selling to them is not as promising as you thought going in, as I thought going into this interview.
Andrew: You decided to take a different approach. How did you know that selling to students was the right approach? They don’t seem to have money.
Mike: Well, yeah, we were sort of inspired by the textbook model. We were one of the first people to do this, was that this idea of selling a software product the same way that you would sell a textbook. And it was just an idea. In fact, frankly, most people told us it was a bad idea. They said, ah, c’mon, it’s never going to work. Students aren’t going to pay you. What are the odds. So we decided to set a pretty low price point, way, way cheaper than textbooks, you know, less than one tenth the cost. And then, instead of selling it to the school exactly as you mention, sell it like a book. The professor adopts it in their class as course material, as any other course material, and then the students have a choice. If they want to participate, then they purchase a subscription to the software. And then they get access to all the activities and the content. If they don’t, they cannot do it. We insisted on that, because we were students pretty recently. We didn’t want to force it on them. And we found, thankfully, that over time, more and more students would buy in because the product provided more and more value. And these days, 90% of students typically in any given course will choose to participate. So that keeps us honest in the sense that if we provide a junk product that doesn’t work, then very quickly we lose all our customers, like in a matter of months. [laughs]. So we need to make sure that the thing actually provides enough value. So yeah, so it was just a crazy idea. We didn’t know if it would work, but that was the seminal idea. That was the thing that sort of allowed us to continue the business.
Andrew: And so now, you just needed to sell professors on liking it enough to make it, to…
Andrew: …add it to their syllabus. And then the students would come.
Andrew: Is that when you started cold calling?
Mike: Yeah, so we didn’t…We were trying a bunch of different things but the thing that seemed to work is, literally, we just sat down, went through a university directory, and just hammered the phones, and said, hey, are you teaching students this semester? Do you want to try this cool new technology? And yeah, we were able to secure, over a period of a couple of months, we were able to get, I think it was like, probably 15 customers, 15 professors, and it goes 3500 students across 5 different universities in Ontario. And that was our first launch. That was in September, 2011, if I recall correctly. No, sorry, September, 2010, it was. Yeah, that seemed huge at the time. That was just a…I couldn’t believe we managed to get 3500 students, almost $70,000 in revenue. It was like, hey, this was actually a real business. And not only that, but it seemed repeatable, like it was a model, like we can keep doing this. We can hire other people to fill this role, not just me sitting on the phone, you know, calling and meeting a professor, but we can actually do it mechanically rather than…Unlike the previous thing where I had to go around meeting with random people, and…
Mike: …scrounge together a couple thousand dollars here, a couple of thousand dollars there for a pilot.
Andrew: That revenue, you said, it was $75,000 for just 1 semester?
Mike: Yeah. That’s…
Andrew: Just you working the phones, and talking to professors.
Mike: I think that one of our co-founders at the time was working the phones as well.
Andrew: OK. What do you do? What is your process for cold calling? I’m always curious about someone who is a stranger, who has to call someone up and get them to buy into an idea that they have never heard of before.
Andrew: What do you do to even get their attention and keep them from hanging up?
Mike: Ah, God, let me see if I remember. I mean, my process and this is probably again, my engineering side speaking, I really didn’t want to be a sales guy. So I was very non-salesy. I just called them up. I said, hey, listen, I’m a founder. I just started this start-up to help student engagement. It lets you use the students’ cell phones and smartphones in class. I just wanted to come by and get some feedback from you, see if this is something you’d be interested in. Very simple, just totally honest, genuine kind of approach. Lots of people said no – vast majority of people said no, or I don’t teach, or I don’t have time or whatever, but enough did. Almost every single person that you’d meet with, this reinforced it; reinforced that what we were doing is right. Every single person that you’d meet with, told us hey this is great. Even if they told us, “I don’t want to use it, or I don’t have time, or whatever;” they said, “Hey, this is a really awesome idea.” They said, “This should exist. You’re right, I’m not teaching this term or I’m doing research, but this is a great idea.” That’s what’s kept us going, is that customers kept telling us that this is something good.
Andrew: In a sense, the sell was made even before you called them up. You could say –
Mike: Yup that’s fair.
Andrew: -anything you want, but really, ultimately, the product has to address a need.
Mike: Yes, exactly.
Andrew: But the reason they even said yes, and the reason the product addressed a need is because you went in and had conversations before you created the product.
Andrew: They told you, professors with whom you spoke with said, “Our real big problem is engagement, don’t give me any other things. If you can solve engagement, I will love you.” And then you built it and you showed it to them, and they said, “No, this doesn’t really help our engagement issue because this requires iPod Touches “well that’s the problem you had, “or because it’s not working the way it needs to,” that’s the problem they had. And you just kept hammering away at your problems and their problems, until you ended up with a product that when you call up someone up, you can feel proud of and you get the kind of response you got – $75,000. We’re going to get to what your revenues are now, but for many people that first $75,000 that came in was-
Mike: Is the hardest.
Andrew: -is the hardest.
Andrew: Now, do you remember your first customer?
Mike: …I do, yeah. That was-
Andrew: Tell me about them.
Mike: I can tell you the story about how we got our first bit of revenue and how it was just this mind blowing experience.
Mike: This was actually one of the pilot projects, and again, to reiterate the theme that we had before, we insisted that everyone pay us. We basically didn’t do anything for free. And again, we did it as a matter of self-discipline to ensure that what we were doing was something worthwhile, that people would be willing to part with some of their cash for. Because, as I said, if you give something away for free: do you really know if it’s useful? Are they just messing with it? Or are they serious about it? So, this very first pilot project, we tried out this student pay model… Sorry, I guess it was the second project that we moved to the student pay model. It was a small class, it was like 80 students, or something. You know, we were working like any startup you know: 24 hours a day basically, sleeping in the office, building the billings system. That was an important piece for us, so we could actually charge people when they came to our site. And, we’d been doing lots of tests with the billing system, and every once-in-a-while someone would run a test, and of course it would send an email to everyone saying, “Hey, a purchase has been made.” So, all these tests are happening and then one day we’re sitting there, obviously everyone’s coding – I’m coding, my cofounder are all coding- and a billing notification comes in that a purchase has been made.
And we all kind of gather around, we had this big central console, a TV that showed us all this data. We gather around the TV, and kind of looked at each other and said, “Hey, did you do that? Did you do that?” And he was like, “No, that’s a real customer! Someone actually paid us money.” It was this incredible experience, it’s hard to even describe. It seems ridiculous that this $20 transaction comes in, and is pretty meaningless after all the work we put in, but it was just amazing that we actually convinced someone to give us money. Like it was this amazing experience. And it’s funny, today we’ll have $100,000/day of sales come in and it’s just like, “Oh, yeah, good, the system stayed up.” But, at the time, that first transaction was just amazing. That’s one of the moments I remember most, from the entire, I guess, three and a half years that we’ve been at it.
Andrew: We talked about: you called and you said basically others could too because you’ve got a repeatable model.
Andrew: Let me get to that, but first-
Mike: And I had no idea what I was doing. If I could do it, I’m sure as hell anyone else could because I certainly wasn’t the sales guy.
Andrew: I just want to talk quickly about what I’m holding in my hand. I keep drinking out of this and it looks a little strange that there’s a mustache on my face as I drink, but I should say that this comes from a fan of Mixergy. who sent me this really nice letter. It comes from Ant Small [SP][??] who said, “Hey Andrew, just a little thank you from myself and the team at Mo’ Mug,” that’s his company name Mo’ Mug, “watching your videos really helped on the hard days. The one that really gave me the most courage was the video with Dave and Dave from Coffee Joulies talking about their process. Coffee Joulies sell on Shopify, and they have these little… these metal coffee beans that you put into your coffee, and it keeps your coffee from being too hot on the first sip and allows it to stay warm throughout as you keep it on your table.
Says we launched in October and I now have approved from 22 countries and 2,000 coffee lovers and then they thought that this which is the Boss is the one that I would like.
So Mo, where is it?, Moma, thank you for sending this over. And let me just give you guys one piece of feedback on this. This is a fun cup. Why don’t you show me a picture of yourselves? Of you on your website holding on this mug or doing something so that it feels that there is a real person behind that site.
Anyone else who goes and checks out Moma.com tell me if you feel the same way. That they should shot somebody holding the mug on the site, some human being, not just pictures of mugs. It is a fun mug and it is the one that I’m going to keep at home so when Olivia and I rent a zip car and go out somewhere, I’ll have a cup of coffee to take with me in the car. And thanks for sending it over.
All right. Back to this interview now that I’ve explained why there is a mustache on my face.
You started calling. Then you needed to hire people to help you. One of those people and we won’t give the person’s name, was a VP at Sales and there’s a big lesson in this.
What happened there?
Mike: Yes. So I guess the short summary is it just didn’t work out. And I’ll say it’s completely my fault. Like, I had no clue what I was doing. Again, engineer, had no idea had to build a sales team or how to hire sales people. How do you interview them? What do you look for? What kinds of roles should exist?
So through a friend we were introduced to this guy. And he was a senior guy, tons of experience, lots of grey hair. We figured, OK, I don’t know how to sell. My co-founder certainly don’t know how to sell. I barely can make cold calls. We need to bring a senior experience guy to basically run the sales piece of the company. I know Zaid, I probably know a dozen companies that have made this exact same mistake. Just text book classic mistake, you basically say I don’t know how to sell, I’m going to hire someone to take care of it for me. Someone senior and experienced from a mature company.
And it was just a disaster. First of all, you can’t, now I know all these things, you can’t hire someone from an established company who hasn’t worked in a startup before to work in a startup because it’s a completely different experience. You also can’t hire an enterprise sales rep, which is what this sales person was, to come run the transactional high-volume sales process, you can’t do that. So, of course, what happened is in all, if anyone knows anything about sales, all the classic things that you’d expect to happen happened. He didn’t want to get his hands dirty. He wanted to be a manager and talk a lot instead of actually doing stuff.
Andrew: What do you mean get his hands dirty?
Mike: Like make cold calls.
Andrew: He didn’t want to make cold calls? He wanted to manage other people and keep them making phone calls.
Mike: Right. And the irony is right now he’d probably be a great guy to hire. He was an awesome manager, very nice guy but again, just completely the wrong fit for the role. And really, as I said, this was entirely, 100% my fault. This was a high-quality, talented guy that just was not at all a fit for the organization and I just didn’t know what to look for. And it took me, honestly, a solid 2 years before I would say that I developed enough intuition and knowledge about sales that I can say OK, now I know how to build a sales team.
Andrew: Mike, it took you 6 months before you and this VP of sales parted ways. You probably knew in 30 days that it wasn’t working though, right?
Mike: Yes. we knew pretty quickly.
Andrew: So what happens, talk to us about what happens in your mind that keeps you from pulling the trigger on that? Because I think the real entrepreneurs in the audience who had employees will be able to identify with this.
Mike: Yes, I mean, it’s a piece of advice I guess. Really, if you’re having doubts about someone, 90% chance it’s not going to work. So you should do it quickly. You should do it sooner rather than later because you’re hurting not just yourself but you’re hurting them because then if they stick around for 6 months and they go try to find another job, they have to explain what they were doing for 6 months instead of I just needed to move on and not have this big gap in their career. So you’re not doing them any favors by holding off, making the tough decision.
The other thing, the reason that I didn’t make the decision, I mean, it was two-fold. One, I just didn’t have the confidence that I really knew that it wasn’t working. I sensed it but I’m like, well, maybe this is what sales people do. I don’t know. So I just kind of kept them around. And the other thing is it was just I guess the shame of it. Like, this was the first major hire, like the first sort of real person, not that we’re not real people but the first real person that we hire, you know, family. It was a job for him wasn’t just like a kid out of college. And it was like a very big decision. You know, we went through the board and this is a perfect example of this thing that I wish our angel investors had seen these type of things before. Why didn’t they tell us that this was a bad idea because I would be able to tell someone if I see them making the same mistake.
Yes. So it was just the shame of it. Like I couldn’t admit to myself that I had made this major mistake and I’d blown all this money on this person and it was just, it wasn’t working. So that’s why it took an entire 6 months.
Andrew: What I found is that there is mental shatter around that, or mental assumptions around that, like, my boards going to think I don’t know what I’m doing if I, you’re nodding. What some of the things that went through your head, some of your internal chatter around this, that kept you from making the decision you knew you needed to make?
Mike: Yeah, I mean you hit it spot on. It was exactly that. You know, what, we had a, I mean they were very low touch angel investors. They were actually very good investors. We were lucky because there’s, especially in Canada, there’s some bad investors. I’m sure they’re everywhere, but in Canada there’s, unfortunately just due to the small scale of it, there’s a lot of concentration of people that…
Andrew: So how does that fit into the mental chatter?
Mike: Yeah, so we were worried that, you know, were the, are these guys going to get involved, are they going to fire us, or are they going to bring in another management team because we don’t know what we’re doing? But as I said, these guys were good. They, we said, “hey look, it’s not working out; we’ve got to let this guy go.” And they just said, “OK, yeah”.
Andrew: And the reality is that if you would have spent a little time thinking about it, you would have said, “no, of course they want us to fire people who aren’t a good fit.”
Andrew: What else, what else was going through your head that would have kept you from doing this? Was there any, “what is this guy, with the gray hair going to think of me” type of thoughts? Was there any “what are my coworkers, what’s my cofounder going to say about this?” Any of that?
Mike: There wasn’t, no there wasn’t any of that.
Mike: I guess I didn’t have any of those hang-ups, about like, “what’s this person,” it was more, I cared about the people that I would say, well my cofounders were on the same page, so that’s a good thing, but what I cared about were the investors, the people that actually could, I guess have a lot of power to determine our outcome. And yeah, it was more just convincing myself enough to, feeling confident in myself that I had enough evidence that this guy wasn’t working out, because as I said, I just didn’t know, like I didn’t know what it looked like when someone wasn’t working out. I mean today if I hired someone like that, I mean two weeks and I’d probably be able to pull the trigger. So it’s just a matter of you know, experience, just life experience.
Andrew: OK. Alright, we talked about funding here and there. Let’s get really into how you got funding. For a long time you were bootstrapping it. The point where you had $75,000 coming in, were you still bootstrapped?
Mike: No, no at that point we’d hired a couple of people. We were bootstrapped up until we closed that 20 something thousand dollars’ worth of pilots. At that point, we hired, I think our first developer, and the VP of Sales, and then that’s…
Andrew: And that’s when you got money?
Mike: Yeah, that’s when we were able to, well sorry, we got the money, and then we hired these people.
Mike: And then the $75,000, or whatever that we closed, allowed us to get the next batch of funding. And we didn’t, again you have to understand, this wasn’t like today where it’s just super overheated and you know, people are throwing money at you as you walk by on the street. You know it was very tough, so we kind of cobbled together over a period of I think it was almost 2 years, just about a million and a half worth of funding across, I think 3 or 4 angel rounds, just bits and pieces of cash here and there. And in every stage was like we’d get to the next milestone, raise a little more money, get to the next milestone, raise a little more money. That’s kind of how it went. So we went from 3,500 students, $75,000 dollars in that first year, after we’d raised funding, we did, I think 250K in revenue, which, that was awesome. Like that was, I think that was a huge success. Year 2 we did a little over a million, 1.1 million in revenue. And this year 3, now that we’ve launched, we should, all these numbers are public, so it’s fine to share them, we should do about 3 and a half million in revenue.
Andrew: Three and a half million in 2013?
Mike: So we work on the academic year, so August to September, so from this last September until this coming August, that’s what our revenue is going to be.
Andrew: OK, which, so last year, how much would you guys bring in?
Andrew: 1.1, OK, gotcha. So some people listening to this might say, “hey you know what, he has money, and then he gets more money,” and I mean, “he has revenue, then he gets more revenue, and more revenue, and more revenue, why raise funding if you have more revenue?” So what’s the answer to that?
Mike: It’s not the same decision for everyone. Like for some people, the right decision might be to scale up more organically. And we could have done that. The way we raised our funding was that we would get to profit, raise money, go into negative spending the money, which is why we raise it, then you get yourself to profitability for that year, then you raise more money, get yourself to profitability, and then it’s so on. And then, why do you do that? It just lets you grow faster. That’s basically it. We know, and we were absolutely right. We felt this is, we’re not the only ones who are going to have this idea. The market is in the crapper so not a lot of companies are being started. And then it, but it recovered, and now lots of companies are going into this space now. And we’re you know, the number 1, we’re ahead of everyone, and we knew that was going to happen. We had the foresight to say, “OK well, this is a winner take all market, it’s a land grab, we’ve got to move quickly.” So…
Andrew: I see. You needed to hire enough salespeople to call more professors so that those professors would integrate your software into their classrooms, and once they did, you’d have more revenue. And you had a model for getting more of those professors and you knew that if you didn’t, and someone else got the software into the professors’ hands, they wouldn’t want to switch what they were using, it would be harder.
Mike: Right, and the development team, too. I mean, you need to move fast on product, it’s just what we started with, which was basically pulling a few attractive demos. That’s not enough. I mean, if we were still just doing that, we wouldn’t be anywhere. We would have a much harder time differentiating. And what we’re doing today and will be doing in the next few months is pretty exciting. It goes way beyond what we first launched with, and that’s critical. Because those companies that are just starting out, they’re starting out with a basic polling step and we’re already providing much more sophisticated services.
Andrew: A couple of interesting things happened to you as you were raising money. First is, that you were heading out to see your investors, driving over, and what happened?
Mike: Well, this was before the first round of funding actually. Yeah. So we pitched a lot of people, it took us a long time, maybe like five months or six months to raise that first round of funding. It was pretty brutal, and it was a 200 K round of funding. So, just embarrassingly small, really, compared to today’s standards. And we pitched tons of people, and we were coming back from an investor meeting, and that meeting had gone horribly. They were just jerking us around basically. And so I was in a hurry to yet another investor event. So I was in a hurry. I was driving my car; didn’t really look where I was going, changed lanes, and had a truck basically t- bone us. So it was a pretty bad accident; totaled the car, but thankfully I was okay. It was close. It hit the driver’s side, but it was pretty close. Close call, but I was okay, wasn’t hurt. So, of course, what did I do, being in an almost fatal collision, I got the car towed-towed it to a body shop or something-and went to the networking event. The reason that one of these two out of five active investors in the whole city were willing to fund us was because I told them that I just got into a car accident and destroyed my car, I rushed here with a cab. That’s the thing that impressed them. That’s the reason that they said, “Dude, this guy almost died almost an hour ago and he still made it to this networking event to pitch his start. This guy’s got perseverance.” And that’s what allowed us to get our first round of funny. And then, the funny thing is, this has actually repeated like three times. Three times this has happened where I had weird car issues, like either an accident or my clutch failed or something, before an investor meeting, and we always get the funding. My car…
Andrew: You also, at one point, were going to sell, was it this car, that got t-boned? Because you were so short on funds.
Mike: That’s right. So it was this car. Again, this was before we managed to raise thiat first round of funding, and before we had a salary. I was two weeks away from having to sell my car in order to pay rent. That’s how tight we got. And I would have done it, I would have totally done it, but that would have been a better story, maybe, if I would have sold my car to pay rent.
Andrew: One of the things you did was; as you were talking to investors, there was someone else who was on the computer, doing what? Say it. Others have done this to. We’ve got to talk about this here.
Mike: We were pitching VC’s. And anyone who’s pitched VC’s and done this sort of road show on Sand Hill Road, where all these big shot VC’s are, needs to go door to door, like one meeting after another on the same stretch of road. And everyone has these weird quirks of what they look for and just these weird requirements. So what we did after a couple of these meetings; there would be two people at the meeting, myself and one other person from the company. So we would come into the meeting, and what you do before the pitch is typically you just chit-chat with the VC, just get a general feel about the company, what they look for, what you look for, and then you do the PowerPoint presentation. So I’d have my laptop open, and as the person from Top Hat is talking to the person, and I’m sort of participating in the conversation, we’re listening to them, and they say, “We look for market size ecs [Sp], we’re looking for this kind of focus, this kind of scaling.” And as we’re talking in the meeting in the board room, I’m changing PowerPoint slides to say, “Yeah, our market size is this, and we’re going to scale at this rate.” It wasn’t too bad. It wasn’t egregious, but it was tweaking numbers. And of course we do the presentation, and they would be so impressed. They would be like, “Wow! You’re telling us exactly what we’re looking for.”
Andrew: What did you raise, total?
Mike: It was an $8 million round of funding. That was the VC round, and then we had a follow on another investment from a VC.
Andrew: Sorry, I didn’t catch the first number. What was the final number?
Mike: The total was $9.1 million.
Andrew: $9.1 million that you raised for this business. This is not a here. You and I met through Andrew [???]. Am I pronouncing his last name right?
Mike: How do you know, Andrew?
Interviewee Andrew: It was a funny story, too. This was after raising [??] funding way before the VC round. Maybe about a year before…… [???] We do ok. As I said we had decent revenues. We were growing. We had this angel funding and we were trying to partner with publishers, text book publishers to distribute our software and we just announced a pretty big deal with [???] publisher and so, that’s how long it took. We just literally just got it finalized. And I was frustrated because of the time we were talking to these publishers and we were just going nowhere. Because we were in Canada and when you talk to big American companies, from the Canadian company, they say oh yea, talk to our Canadian branch. And of course, it doesn’t go anywhere because anyone who is ambitious and wants to move up in the company, Ends up moving to the U.S. So, what you have in Canada is all of these boring people that weren’t ambitious enough to move.
Andrew: If I said it as an American, I’d get flack. But, you as a Canadian can say it.
Mike: So I mean meetings went nowhere and we were trying to talk to investors. You know, U.S investors and they were just like Canadian company. The Market again, was not very hot. So they weren’t looking outside the [???] they kind of are today. I was just frustrated. I was just like what the hell. Like we’re this great company that has awesome revenues and nobody knows about us. No one knows that we even exist. No one wants to fund us or do partnerships with us. This is bullshit. We need to fix this. So, I just basically just bought a ticket to San Francisco. Had no plans or like I don’t know what I’m going to do. I’m going to go out there and I’m going to find an effectively a co-founder in the valley and get a one or two person thing there. So we can start talking to the valley VC’s and to partners. And I did that. I went down through random connections. Managed to get introduced to Andrew over coffee and then he started in a consulting role for a couple of months. And then finally ended up joining full time. And the reason he joined full time was……. It was funny basically. This was before we decided to raise VCs funding. Almost every partnership meeting we’d have, with a whole bunch of different companies, it would immediately be like yea, yea we want to partner with you guys, but what we really want to do is buy you guys. So let’s keep that in mind. We need to get to that point in the conversation. I guess Andrew was pretty impressed by that. I was pretty impressed too. And then, at the same time, we realized OK, we could sell for modest amounts.
To [???] that’s a large amount, but in company terms, a standard of 15 million dollar exit is pretty modest. Or we feel like there is something big here. There is actually a pretty substantial business we could build on top of this thing. And so we decided not to sell for that relatively modest amount and to raise VC funding instead and it totally worked by the way. So getting that person in the valley, Andrew. First of all, he was extremely well connected. Was able to get a lot of the VC meetings partnerships going and you know, it was fantastic. Months, we’ve had really serious discussions with the publishers. We were able to raise [???] funding very quickly. It was like a month, a month and a half to raise those millions of dollars compared to six months it took to raise 200k. So it was huge success and it was just [???]
Andrew Warner: Isn’t he a McKenzie guy in his background?
Mike: Yea, that’s right.
Andrew: Well, two things that I’m wondering and then I’ve got to tell people a couple of things. First it’s, you said your revenues were public. Usually people will reveal their revenues on mixer g, but they don’t talk about it publicly outside of here. Why are you talking about your revenues publicly? You’re a private company.
Mike: Because a lot of times companies don’t talk to them because they’re not good. [???] Pretty good. We’re growing nicely and you need to talk about the number of the subscribers you have, number of students In our case, and you just multiply that by the price of the [??]
Andrew: You have to say,” Look, this is so popular, it’s used by, is it a 150 thousand paying students?
Mike: Yea, just a little over that this year.
Andrew I see. So this year, a hundred a fifty thousand paying students, each one paying 20 bucks.
Andrew: And that’s how many already bought?
Mike: Yea, exactly.
Andrew: Oh wow, so that’s why I’ve got in my numbers here. It’s three million.
Andrew: So, and the other thing is, did you take money off the table when you raised your funding?
Mike: I did. A little bit,
Andrew: That’s what I heard.
Mike: It was for like a really small amount. Really, just to pay off my debts and have enough cash in the bank that I don’t need to starve. I did that basically for a couple of reasons. One, we had investors that wanted in but we had to give them a little bit of a discount. I think it was like a 10 percent discount. Because we really wanted them on board, so I said, “Okay, I’ll take the hit.” Quote on quote. I’ll like sell some of those shares. And then another case at the last second someone who was going to sell shares, is part of a secondary component just decided to pull out. They said, “Now I’ll just hold on to my shares.” So, I said fine. I’ll supplement mine just to not screw up the legal paperwork, which was already done. So it was kind of like convenience and I said why not, it’s nice to have no debt and a little bit of cash in the bank.
Andrew: Okay. Quick plug here and then there’s a question I’ve got to ask you about that is completely unrelated to business but still really important for me to ask. I am looking here at my notes just to make sure this is real, but the plug is…If you guys have heard this interview and you like the idea of talking to customers before you build; Figuring out what they really need you to build and then going out and building it. I got this course that I recorded with Ash Maurya. I got a cold today so hot water and this. I’m hoping I’m speaking clearly. I want to make sure that everyone knows this guy, Ash Maura. Not only is his course on Mixergy so freak in’ fantastic that it breaks down this process of figuring out what your product is and testing it before you build it and making sure people really care about it. Not just testing the product but testing your ability to reach the customers and so on. He taught this course. I highly recommend it. I would suggest that if you’re not a Mixergy premium member, signing up just to get access to that course and if you are, of course, go and listen to that course, he’s terrific. But if you don’t like me and you don’t like my nasal voice today and you don’t trust it, maybe video is no your thing maybe you like to read. Get his freakin’ book. Go to Amazon and get it. Go to the library and get it. Ash’s book Running Lean is fantastic. His process is good. And hell, if you’re not a reader and you like video watch my video.
But if you’re not a reader and you don’t like video, but you need something else, tweet at him, email him, find a way to reach out to him and say, “Hey you know what I heard Andrew says that you’re good. Erica Reese says that you’re a good guy with viable ideas. Where do I go and tap into your ideas? I’m not ready to buy your book. I’m not ready to sign up to Mixergy premium. Where do I go and just learn your process? Just tweet at him and say, “I want to learn it from you”, and he’s going to give you tons of different ways to do it. Whether it’s going to see one of his events in person, or maybe he is going to speak at one of his meet up or maybe he’s got a blog post for you. Find a way to learn from Ash. He is fantastic. The one thing that he doesn’t do very well, in my opinion, having talk to so many entrepreneurs, he doesn’t know how to self-promote as well as others do, so that’s why you guys might not heard of him. So Ash is the guy and mixergypremium.com. I hope is your way of learning from him. Mixergypremium.com. So Mike final question is this, outside of work you doing something with robots. What is this that you spend your college with robots?
Mike: Well, unfortunately, I don’t get a chance to do it at all these days, but yeah that’s pretty much what I did in undergrad. There was class, I guess, in theory that I was supposed to go to but I didn’t really do much of that. So I started the University of Waterly (?) Robotics Team and we pretty much spent literally almost every waking moment building electronics and robots and going to competitions and all that. It was a lot of fun. We grew that team up to 80 members. It’s successful and it’s still going. That’s the really cool thing for me is that there still one of the largest successful design team on campus.
Andrew: So you just build a robot out of parts?
Andrew: And these are the battle bots?
Mike: No we didn’t do any battle bots. That was a little to cliche. We built mostly a sort of AI driven sophisticated robots that would navigate to different kinds of terrain and map things and that kind of stuff.
Andrew: You’re a real engineer?
Andrew: How do you go from that to running a business? To saying hey, “You know what I can’t just logic my way through this and tell someone clearly why the stink. I have to talk about them and think about the touchy feel parts of business. How do I communicate to him that he’s a good person but what he just did here [??]?” How do you do that?
Mike: You know as with engineering or anything else, these are skills and you learn them as you go and as I said…
Andrew: Where did you learn that?
Mike: For me, it was on the job I guess around the fly. You know running the robotics team helped. You work with a lot of people and learn how to recruit and what motivates people and that kind of thing and so yeah, look there’s nothing special about it. Like in the same way if someone wants to learn how to program, they just sit down they learn it. [??] You can learn how to network. You can learn how to motivate people, how to you know..
Andrew: Is there a place that you do that? Are you a guy that learns by sitting home reading books until you figure it out? Do you have a mentor that teaches you? Do your investors help out?
Mike: No books, no… There were some mentors but not as much. Really it was just by doing,
Mike: Like doing it and making lots of mistakes. And I’ve made a lot of mistakes. The hiring one with the BP sales, it’s not the least of it that was actually a pretty big one but there were lots of really big mistakes that I made. I wasted hundreds of thousands of dollars through my stupidity, so it’s just that’s how you learn and you have to be okay. That’s the things it’s such a cliche in entrepreneurship circles, the thing that makes a successful person you need to have a certain level of intelligence, just enough. But beyond that it’s all about perseverance. You just need to keep learning and doing and eventually you’ll succeed. You just need to have a thick skin and immunity to doubt.
Andrew: Well, I asked you before this interview why you wanted to do the interview. What’s a win for you here and you basically said, “I’m not going to sell professors by doing this interview. This isn’t where this is going.” You said, “I wish that I had this interview before I started so that I would have learned and not made so many mistakes.” And that’s why you’re doing it. You want to save others from making some of the mistakes that you made and also show them what worked for you so that they can do it. I think your approach is one of the best ones that I have seen because it’s so reputable. You didn’t sit here and say, “Well, Andrew [??] just came to me or Andrew I just got customers.” No, you said here’s how the idea came from me. Here’s how I got customers at first and it didn’t work out and then how I got them and it did work out and this is how I scaled that. It’s an incredible helpful to hear this kind of story and I really appreciate you sharing it with us.
Mike: Yeah. Happy to do it.
Andrew: Thank you all for being a part of it. Bye guys.