How does a business generate over $80 million in revenue by helping other businesses buy online advertising? Court Cunningham is the CEO of Yodle, which specializes in local online advertising. I invited him here to find out how the bushiness grew and continues to grow.
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Andrew: Hey everyone, my name is Andrew Warner I’m the founder of Mixergy.com, home of the ambitious upstart. This is a place where proven founders come to tell their story. Tell you how they built up their businesses, and more importantly what they learned along the way. With the idea that you’re going to take it, build your business based on what you’ve learned. And hopefully do what today’s guest is doing. Once you achieve that height come back here and tell others how you did it so you can teach them.
Big question for this interview is, how does a business generate over $80 million in revenue by helping other businesses buy online advertising. Court Cunningham is the CEO of Yodle, which specializes in local online advertising. I invited him here to find out how the bushiness grew, and so on, Court, welcome.
Court: Thanks I’m glad to be here.
Andrew: I had a revenue figure that I put in my notes to talk to you about in the interview and you said, no, that’s already out of date. The $80 million for last year, actually what was the revenue for last year 2011?
Court: So 2011 was about 88, 89 million we haven’t closed the books yet, but close to 90 million in revenue for 2011 which is fantastic.
Andrew: And you’re already surpassing that. What’s the run rate now, can you say that publicly?
Court: I think we’re over a $100 million run rate and we think that it’s a big enough market where local advertising in general is a $100 billion market. The online segment is estimated at anywhere from $10 to $20 billion today. And so we think with the market that big we should be able to continue to grow at 40 to 60% a year for the foreseeable future.
Andrew: Unbelievable growth rate. Till now a lot of people who say we’re going to have a growth rate in the future really haven’t done anything yet. That’s why they’re talking about the future. You guys just keep growing and growing and growing by the time this is up I’ve got a feeling that the numbers we’re sharing are going to be out dated.
Let’s take a step away from numbers and talk more about the substance of the business starting with the typical customer. Who is he, what do you do with him? Can you give me an example of one of your customers?
Court: Sure, so we help the very small business. People talk about SMB, and SMB can mean a lot of things. I mean Yodle can arguably be an SMB, we’re a medium sized business. But we focus on the very small business. Our average customer has seven employees, and in general they’re the kinds of businesses that you find in the yellow pages. Dentists, lawyers, plumbers, limo services, locksmith companies.
We serve actually about 400 business segments right now. Our average customer is, let me give you an example of one. Brother’s Mechanical is HVAC contractor somewhere in Virgina. So they do centralized air conditioning, boiler repair, tank less water heaters. It’s a family business. They have four or five employees, father and son.
They spend only about $1000 a month on marketing and about half of that goes to Yodle for online marketing. So they do some print stuff still in the newspaper and in the yellow pages. Like all these businesses, half of their revenue comes from new customers. So with marketing isn’t optional thing it’s a must do initiative for them. And so we help them grow their business through online marketing.
Andrew: OK. Why would they come to you instead of going directly to Google or to one of the other services and just doing the self-serve ad buy?
Court: It’s a good question. I’ll take it from two angles. One is, the way I look at it Yodle is a successful, growing company and we’ve got an eight person marketing department. SEM is part of what we do but so is reputation management, so is SEO, so is display, social, website. The small business doesn’t just need SEM. They need a marketing department in a box. That’s what we provide. Google is offering a piece of the puzzle but not the entire puzzle.
The other way to look at it is, even for SEM stand alone if you look at the high end of the market, I used to work at Double Click and we worked with people like Capital One and CitiBank and LL Bean. At the highest end of the market a third of the market goes through agencies and intermediaries. If Capital One is using, I don’t know if Capital One is, but if people like Capital One are using an agency a third of the time what is [Brothers Mechanical] going to be doing? It’s going to be at least half or more. There’s a need for simplifying the complex online advertising ecosystem, which we do. At the end of the day we give them a simple dashboard where they can see how many calls and emails am I generating from my marketing and how much did I spend to generate those calls and emails?
Andrew: Obviously a lucrative market that you’ve discovered. I want to spend the majority of this interview telling the story of how that idea went from idea to business to this $100 plus million a year company. Let’s tease a little bit about the three challenges that you’ll address as you tell your story. You say in your space there are three big challenges. What are they and then we’ll talk later about how you solved them.
Court: Hundreds of people have failed trying to sell products to the small business. Not just marketing services, really any kind of product. When we were out raising our initial rounds, our ANRB round, this was the principle push back that we got from BCs. Which was ugh, the number of companies that have come with small business [offer] ideas and failed. I’m so glad I didn’t invest in them.
The reason that most people fail, talking about small business, is they don’t get the sales economics right. Sales excellence and being able to acquire the customer at a price that makes sense for your product that you’re selling is absolutely critical. It seems obvious but it’s hard to do because the small business doesn’t spend a lot of money. Our average customer is spending $375 a month. You think about how can I afford to pay a sales person, pay the service people, pay for my developers on $375 a month? You’ve got to be hyper efficient.
Two is service excellence. Small businesses have very high service expectations. But, as we also mentioned, they don’t spend a lot of money on marketing. Automating service is important.
Three, in our market, actually delivering value. After you’ve paid for all of the sales and services folks how do you actually deliver value in the market and deliver marketing ROI? When you look in the online marketing ecosystem there are not a lot, in fact we’re not aware of anyone. That’s a bold statement, I almost shudder to say it because as soon as you say it you get three emails talking about people that you don’t know. But we’re not aware of anyone who’s succeeding at selling marketing to the small business at $200, $300, $400, $500 a month. The people like Constant Contact out there who’s selling email for $30, $40 a month. The domain registrars selling websites for $10 a month, or $30 a year, whatever. This is a price point that’s hard to execute on.
Andrew: I can imagine. Let’s talk about those three challenges then we’ll go to the story. Tell me if I’ve got this right. The first one is the sales channel. How do you even reach these guys? It’s not like there’s one website or one television show that they’re all watching at the same time so you buy ads there and you reach them. How do you get to them? Second, once you get to them they have an expectation that they’re going to get to talk to people. That they’re going to get a high service interaction. That they’re not just going to plunk their money as if you’re a vending machine that dispenses what they paid for. They want high service. The third is they want return on their investments. Specifically, if they’re buying ads they want to know that every dollar that they’re spending is coming back to them with some friends.
Court: Yeah, right.
Andrew: All right. Where did the original idea come from?
Court: The original idea came from, there were a few founders and one of them is a guy named Nathaniel Stevens who’s father owns a car dealership in Newhaven, Connecticut called Steven’s Auto. He was a sophomore at Penn and took a summer marketing internship at his dad’s car dealership. They were buying leads from various online sources. The sales guys were complaining that the leads are weak and I need more of them. All the usual things you hear from sales people. He said there’s got to be a better way so he started buying ads on Google. Realized they needed a better site. Started to optimize the site. Realized that to be able to tie the click to an actual lead they needed to be able to track the phone call and the inquiry in. Came up with a phone tracking solution. The basic elements of media [buying], great website, and phone tracking really came into shape that summer.
Andrew: Was he building the phone tracking just for himself just so he could buy for his business?
Court: No, actually. He licensed that from another entrepreneur named Ari Jacobe who had a company called Voice Star who was also coincidentally based in Philadelphia, which is where Yodel started. Ari actually sold his company a couple of years ago to [Mark Checks] but the phone tracking came from Voice Star. Everything else, the website creation and the media buying tools were all built in house.
He and two of his college buddies were still here and doing quite well. Got it up to a few hundred thousand in revenue. Went on to raise a series A round from Bessimer Ventures. Bessimer said we’d love to market it, love the team but want to bring on a more seasoned CEO. That’s when I joined. We were about seven employees and less than a million in revenue. That was about four and a half years ago.
Andrew: Did you come on before or after that series A?
Court: I came on immediately after. Actually I liked the idea so much I invested in the series A. Technically I was an investor before I was an employee.
Andrew: Let’s talk about what they built before you came on to take over the reins. You talked about the media buying, the phone tracking, et cetera. That was just all, it seems, like a minimum viable product or a scratch your own itch product. When they took it from that to something that other businesses could us, what did that first version of the product look like? Was it all hand done?
Court: One of the reasons that I was attracted to the team here, the Devon Product team, is I’m a very firm believer in minimum viable product and [slice all the agile] principles. We’ve had a lot of success because we’re fine getting something very, very basic out and getting customer feedback. And forcing the discipline of having customers love it or throw up all over it. The original product, there was no product. It was a reporting interface where we reported on the results but all of the media buying and optimization was done manually.
The concept was look, at the end of the day the customer can’t see the algorithm and the automation. They’re going to judge us on a) the results and b) how the product looks and feels. Let’s not worry about efficiency. Let’s design an attractive product and get good results. Then we can automate that after the fact. That’s something we’ve taken with everything we’ve done. We pretty much don’t build it until we’ve done it manually first and know that it works. Then we automate it. You just save a lot of time doing that.
Andrew: That’s encouraging. It was a nice reporting structure, nice reporting interface but the actual ad buying was done by people. The actual sales process was done by people.
Court: The website creation was done by people. I mean literally, when I started our total work time to set up a campaign and a website was 14 hours. Today we’ve got that down to 12 minutes and we’re actually producing better results. Our [inaudible] to our customers improved three fold. It’s a classic example of continuous improvement, automation, and driving efficiencies through technology.
Andrew: I’ve got to spend a little bit more time on this because this is fascinating. The typical customer back then was whom? A dentist…
Court: Let me think of, jeez I’m forgetting his name. He was like customer number 10. He’s a plastic surgeon. There’s a great plastic surgeon in Philadelphia who’s been with us forever. Yeah, it’s doctors, dentists, home services.
Andrew: How do you get the plastic surgeon to be a customer?
Court: We started out going door to door.
Andrew: Really? Like literally someone was going door to door, business to business, knocking, shaking hands?
Court: Yup. We actually did that for us first year and a half. Just because, again, we weren’t focused on scaling. This is a big thing. People make so many mistakes trying to scale too quickly or worrying about scaling too quickly. The market will forgive scaling problems or inefficiencies. What they won’t forgive is if the product doesn’t work or those kinds of things. We were not about efficiency early on. We were about getting the product market fit right and then solving the scaling problems later.
One of the things, and I’m diverting a little bit, but in terms of hiring early on I made a conscious decision actually I didn’t want to hire the big company guy. The reason is early stage is a ton of work. There’s no one to delegate to. You, as the head of the department, have to do most of the work. What I found was the perfect profile is someone who’s just below the level that you’re hiring into. Someone who’s the Senior Director of Sales and has been there for four years and is hungry to step up, you put that person into the VP of Sales role and they’ve got to something to prove to the world. They will work their ass off. A) because they’ve got something to prove and B) because they’re used to working their ass off.
Really our whole exec team was staffed with that kind of profile. It’s funny, the VCs, when I came in the head had hired a Head of Sales who was more of a big company guy and he didn’t work out. Yeah, we started door to door with the small businesses.
Andrew: What do you give? A plastic surgeon says yeah, I know I need to buy some online ads. I’ve got some extra money to experiment with. What are you going to give him for it? What was the proposition?
Court: That was a big part of it early on, was figuring out what is the value prop and how do you package it. We started with cost plus. We’re going to buy ads on Google for you. It’s going to cost $2 a click, or whatever it’s going to cost. We’re going to charge a fee for that. What we saw, there are a number of things. One is people wanted to cap budget. I don’t want an unlimited liability. I’ve only got $500 a month or $800 a month to spend on this. The concept of a budget came up. They also said look, I’m going on vacation. I have a seasonal business. I’m an HVAC guy, I want to take down my AC ads in the winter. We put in the ability to pause campaigns.
Actually, we were led by our customers in the wrong direction. They said I don’t care about clicks. I want phone calls. Can’t you just charge on a per call basis for me? We tried that and it ended up not working. For a number of reasons. The point was we probably went through, I don’t know, at least five and maybe as many as 10 different pricing and packaging models within six months. It was just kind of trial and error. Lots of feedback. For the most part the feedback was good but there were times when the feedback actually led us in the wrong direction.
Andrew: Like what?
Court: Like the pay per call.
Andrew: Why didn’t the pay per call work? I have a note here to come back and ask you. Since we’re talking about it, why didn’t it work?
Court: When you think about any commodity that you buy. You go to the supermarket and you buy steak. When you buy a pound of steak is, whatever it is, $10. I have no idea. You expect that pound one is the same as pound two. There’s a price per unit of value. The problem with internet phone calls is about 20% of them end up being wrong number, solicitor, things that don’t matter.
On average the price per call that we generate for customers is very attractive. Our average customer is generating $7 of revenue for every $1 in marketing that they spend. But there’s a psychological thing when, if you’re saying I’m paying $20 a call, if one in every five calls is bad I feel like I’m getting ripped off. It makes sense to me. On the one hand you can argue it doesn’t if you look at the average. There’s assumption in commerce that when you’re charging at a price per unit basis every unit has equal value.
Andrew: OK, so that didn’t work. Through having conversations and trial and error and listening to your customer you ended up with a product that did work. Before you scaled up, in fact before you even came on board, the product was more or less working. What did that…no, huh?
Court: It was, I’ll put it this way. The product market (inaudible) in terms of the value prop. As I said there really was no product early on but the value prop, we’re selling you a budget that’s going to drive clicks to your website that’s going to drive leads and phone calls to your business. That had been solidified.
Andrew: And you found that the customers did have websites? You didn’t need to create quick sites for them?
Court: No, we did. That was a huge challenge. At the time half of small businesses didn’t have a website. Today, five years later, it’s still a third of small businesses don’t have a website. Building website building capability was critical. We talked about should we outsource the technology? Maybe we want to do it in house but we’re going to license Fat Wire or some CMS system. What we realized is that the website is just a marketing artifact. Ad copy, videos, website, they’re all pieces of content that are part of the marketing ecosystem. What we built was not a website builder but a content management system that could manage content across multiple channels, the website being just one. The great benefit of that is three years later when mobile started taking off we didn’t need to build a mobile website building platform. We just sucked content from our content repository and put it into mobile formatted templates.
Andrew: I see. All right. Were they still going door to door when they came to you looking for investment and to possibly run the business?
Andrew: They were. But it was more than the three founders at that point wasn’t it?
Court: It was like seven people. We had this one guy, all these people are still here. We had Cook who was the set up guy. He was manually running around building websites. We had a couple of client services people. The two other founders were selling and we had one developer. No UX person, no QA. That was it, it was like seven people.
Andrew: And they got to how much in revenue at that point?
Court: A little less than $1 million. It was $600,000, $700,000.
Andrew: OK. There’s a recurring revenue piece here so that you can kind of predict where the revenue is going to go.
Court: Right. Because we get monthly budgets it’s not like you’re buying a piece of software. You’re buying a monthly marketing budget of, on average, $375 a month.
Andrew: Wow. Why do you see this, as the guy who’s going to run it, and as the guy who has money and the guy who has connections and experience, why do you see this and say I’ll take the job instead of saying I’ll take the idea? I could take this whole thing and run with it somewhere else and explode with it.
Court: Part of that is, that crossed my mind, part of is that as an investor. It happened that guy [who is the CTL] used to work with me at Double Click. He was not happy where he was. He was looking around. I said look, I’m not sure if I’m going to do this or not. I connected him and once I had a friend who was in the business and connected I stopped thinking about maybe I should just do this myself and maybe I should just focus on making it successful.
Andrew: Because your friend was there, and was there on your recommendation, you felt a sense of obligation to the company? Interesting.
OK, all right. How much do you invest in the business?
Court: I don’t want to talk about that publicly but it was a significant amount of money. It was not DC levels of money but it was a significant amount for me.
Andrew: A significant portion of your net worth was invested in this business?
Court: Yeah, if you do it as a percentage of net worth it was probably 15%, 20%.
Andrew: OK. Why invest any money at all? Why not just come in and say I’m going to run this company. If I produce results I get a bigger share of the business.
Court: Yep. My dad built up a couple of businesses so I grew up in an entrepreneurial household. You think about the world differently when the reward is upside that’s great, that motivates you, but when there’s the countervailing penalty of I’m going to lose 20% of my net worth you focus just a little bit more. My dad said that, I heard him talk about it. When he brought on his partner he made his partner invest in the business because he wanted him to be as excited about the upside but also afraid of that every business can go bankrupt if you make reckless decisions.
I didn’t even think about it. It was something that I just have always tried to do in businesses that I have been a part of. For people who don’t do it I absolutely recommend it. You work harder, you focus more, and you think about every dollar as though it were your own.
Andrew: I’m sure there must have been a time when that investment might have been a peril. Where you might have thought ooh, I’ve got to work harder to come up with a solution because I’ve got skin in the game.
Court: We’ve had a lot of success, probably more than most start ups. Going from zero to $90 million in four years. We raised four rounds of venture funding over those four years and we’re non-profitable so we’re sort of out of that phase of the business. There were two times when the cash balance is getting low and cash is oxygen. Without it you die. You watch every dollar. It’s incredible. I really believe that leaders set examples, so I still have no executive assistant. We have very dense office space. We’re 110 square feet per person. Some will say, oh, this is too dense, but those with signals matter because if employees see the boss wasting money, they’re going to waste money.
Andrew: I’ve got a note here to come back and ask you about those times when cash was low. But let’s continue with the story. You saw something in this business. You thought about competing. You said, “No, this is the business I’m going to bank on”. You then have extra money. What happens after the funding is put into the business? How has the business changed because of it?
Court: We did something that we debated a lot. We said, “Look, before we can scale, we need to put some basic automation in place. We can’t sign up even a hundred customers a month when it takes 14 hours to set them up. And so, we said we’re not going to solve the automation problem completely, but we need to get that 14 hours down to two-three hours.
And so, we took a lot of time. We took probably four or five months to focus on that problem in automating what we had learned, and there was a lot of debate about, oh, you’re foregoing revenue and all that, but in retrospect zero data is the right decision because if you start scaling without the systems and process in place, you’re going to implode.
Actually, one of our competitors who had been much smaller, we blew past them in revenue. Their name is Web Visible. They actually had the bank just seize their assets right before Christmas, and when you talk to employees that have left there, they say we were still, five years later, manually setting up campaigns, manually setting up websites. Yeah, you couldn’t keep track of it all. And so, that was a big thing.
We got the market fit right with manual process. We then automated what we figured out, and then we started to scale.
Andrew: How did you know what to automate first?
Court: It was just we started with the most time consuming stuff and worked our way down the list. It wasn’t anything super sophisticated.
Andrew: What was the most . . .
Court: We thought about how this was going to evolve, like we were not building a website publican system, we’re building a content management system, things like that. Even the algorithm that does the bidding on the ads. We said, look, we’re starting with search. We’re going to do display and other things down the road, so we need to build this in a way that there are other channels to optimize.
So, we did think ahead, but we didn’t build features to support that future reality. But we sort of took a design approach to support the future reality.
Andrew: That’s interesting. That’s an interesting distinction because a lot of people would, at that moment, say we need to build for the next five years. No, what’s the distinction, and how do you make it? How do you just do it right?
Court: This is where you’ve got to be relentless on minimum viability product. What do I need to do to generate whatever the business goal is and revenue tomorrow? Our business goal was what do I need to do to get setup time? I think we set a three hour goal, from 14 hours to three hours.
And so, there were a bunch of things that were super time consuming that were obvious, and we had a great CTO who was forward looking, and he is just fantastic at balancing. A great example is we knew at some point we were going to have resellers. Right now, about 10% of our business is resellers.
We talked about it. Should we build in support for resellers, in the architecture? And he said “Look, if I can’t really pin down the requirements, we could go and build something that would be wrong. It’s much better to do that. Let’s get resellers signed up, and they’re going to have requirements, and we’ll build to those requirements.” So, we did build in reseller support. We only did a couple of [inaudible]. It was the content management and the algorithm, but you’ve got to be very careful.
It’s funny. I learned this actually at Double Click. So, I took over the e-mail business at Double Click from a guy who spent nine months and still had no product and no revenue because he was trying to build the perfect end thing. I said this is crazy, and I said, “We’re going to have something sellable in 30 days” and we said,” What do we need to do to sign up a customer in 30 days?”
We had a list of things. We did it. We signed up the Wall Street Journal as our first customer. Guess what we learned? It sounds silly, but this was 1999. They wanted to sell some HTML versions of e-mails not just text, and HTML was the cutting thing back then to have rich formatted e-mails. That wasn’t anywhere on the road map. Our first customer, the Wall Street Journal, biggest requirement . . .
That’s why getting our there, forcing the conversations to the customers is so important.
Andrew: You know what, that’s so interesting. Back then at Double Click what would you guys have thought customers wanted if you didn’t talk to customers? What did you think it was going to be? Was it market segmentation? Was it going to be an automated system that based on what users clicked on you’d email future articles? How did you think, or what did the coworker think, before you talked to customers?
Court: Actually I don’t know. I literally was brought in because he moved on to bigger and better things so I don’t know. I talked to the sales guys and I just said look, what do you need to sell this? It was just like OK, we need to be able to send an email. We need to be able to report on it. Literally, early on in the automation stuff as basic as we need to be able to charge a credit card and validate that it’s good. Basic, basic stuff.
Andrew: OK. All right. What about the sales channel? You told us systemize the business so that you can grow and so that you’re not spending 14 hours.
Court: You think about those three pillars. We started with getting the marketing ROI right first. Then we said let’s get the service element right first because we’re going to deliver horrible service at a very high cost if we don’t automate it. Then, the last thing that we did in phase one, and we’re obviously continually cycling through those every month, every quarter, every year. The last thing we did was how do we optimize the sales channel? We did a bunch of testing on inside versus outside.
One of the really important things in tests is we actually failed at our first two tests at inside sales. You’ve got to be really careful when you test something to understand was it a bad test or is this approach wrong? Someone who had a quick trigger finger would have said oh my God, inside doesn’t work. Can’t make it work. We would be like some of our competitors who have outside sales sources and who are not profitable because of it.
Andrew: What’s an inside sales force?
Court: Inside is like over the phone versus outside is face to face. We were, at the time, outside meaning face to face, knocking on doors. Inside is over the phone, telesales.
Andrew: Why didn’t it work at first?
Court: Because it’s so sensitive to how many dials you make, what your conversion rate is. It didn’t work so we teased it apart. OK, went through the phone. How many dials? How many appointments? How many appointments held? How many of those converted? Then, rather than give up, we said OK, there’s sort of four or five basic steps here. Let’s test each one and try to optimize each one. As we optimized each one we got closer and closer and then finally got the formula right. That was a huge insight. I don’t think we’d be profitable today if we hadn’t figured out that secret sauce on making an inside sales force work.
Andrew: What’s one of the things you learned that helped you get more people from the top of the funnel to the bottom of the funnel? Meaning became customers.
Court: A lot of it is standard sales stuff. On the bottom of the funnel, driving conversion is identifying paying points, elevating paying, presenting a clear value prop. Probably the most important is work ethic. It’s hard calling 100 people a day and being told no 99 times out of 100. The profile of who you hire and how you measure them and how you motivate them is critical. What we find is people who put in, we have a target of how much talk time you need to put in on a daily basis, which is three and a half hours. If you’re not on the phone with a prospect three and a half hours a day you’re going to fail and the company’s going to fail. It sounds easy like wow, only three and a half hours in an eight hour day? But when you get into it actually is a lot of talk time.
Andrew: Why? What happens to the other four and a half hours?
Court: The other four and a half, and this is something that we have moved up over time, preparing for a call is a lot of work. If I have a list of 100 phone numbers and I call them. I call you, I don’t know who you are. I don’t know your business. I need to have some context. They were spending a huge amount of time preparing. Also, because it is hard you need down time. You need to go take a break. Just re-energize. We’ve done a lot of stuff with a prospect database to give the sales people that information at their fingertips rather than make them scour the web to kind of put together a profile of who they’re calling.
Andrew: You don’t have a telemarketing background and you also don’t have the time to learn every step of it on your own and figure it out. Who do you turn to for guidance in this? To teach you the process and to help you figure out, as a business, how to get this done quickly.
Court: We hired a guy named Mike Deluka as our head of sales. He ran inside sales at Hot Jobs and so he had done it. Early on, I said, “Don’t hire big company guys”. Big company guys are, I think, more of a mind set. Mike ran a 150 sales person team within a big company, but Hot Jobs was a smaller unit within a bigger company, and it was a mind set. He was entrepreneurial. He was agile. And so, we hired that expertise.
I think it’s really, really important to be brutally honest with yourself about where am I strong, where am I weak. Where you’re weak, you hire someone who’s best in class and just park the ego at the work.
Andrew: You basically said to him, “Look, this is what we need. This is what we’ve got.
Andrew: Somehow, we’re not picking up on the solution. You take it. Make it work.
Court: Yeah. He was all about that testing I talked about, he led. He figured it out, and he was eventually the one. We obviously had to go to the board and talk about it, but it was a big shift in strategy. We were going from outside to inside, and instead of having 50 offices throughout the country, which was the original plan, we were going to have two or three. And so, he figured it out.
Andrew: One thing I’m curious about, how entrepreneurs can manage new employees who are doing jobs that the entrepreneurs themselves don’t know? If you were already from a telemarketing background and you hired someone to create this, if that person made a mistake, you can say, “Here, let me show you where you went wrong. I’m going to guide you towards the right path.”
But if you don’t have that background and the guy makes a mistake, you don’t even know to catch it. You don’t know how to guide him. So, what do you do at that point as an entrepreneur?
Court: Yeah, I mean, at the end of the day, I think it’s a mistake that a lot of entrepreneurs make, and there’s a great [inaudible] model that I sort of made up, the four stages of a leader. Early on, the CEO or the leader is the doer. So, he’s in the trenches setting up accounts, selling which is where we were when I started.
You then move to phase two where the leader is the delegate. So, the leader says, OK, here are all the things that we’re going to do. Joe, you do this. Susie, you do that. That model is still one where the entrepreneur needs to know what’s going on.
Phase three is where most companies stop, which is the leader as the direction setter. And so, that’s where I said, “Mike, look, we need to get our cost to acquire a customer around X to Y and here are the levers. Let’s talk about: what are we going to do to drive those levers?” And so, if you’re focused on outputs instead of inputs, that’s really what matters at the end of the day, right? If you can’t figure it out, it doesn’t make any difference. If it’s not your job to figure it out, then you need to find someone who can because if the outputs are not changing and you’re achieving the business objective, then you need to make a change.
The final stage, which is where we are and this is where . . . the phase three where you become the delegator, a lot of entrepreneurs have trouble letting go, being in every decision. But great people don’t want to be told what to do. Great people want to be given a problem, and they want to go solve it.
Andrew: Oh, we just lost your audio. Did something just happen?
Court: Can you hear me?
Andrew: Yeah. OK.
Court: I don’t know what happened.
Andrew: That’s strange. I have no idea. What was that last one? So, you were the doer, delegator, direction setter and . . .
Court: And to finish the direction setter, so any big, successful company is in the direction center mode because strong people want to be given a goal and accomplish it. The last one – I’m making up these names, but I sort of had this little chart that shows essentially the role of a leader shrinks and actually moves outside the team.
So, I really call it team builder where if there’s a problem between sales and service, the head of sales and the head of service should work together to solve that problem. If they can’t, escalate it to me and I’ll help solve it, but that’s the ultimate scaling ability when all big important decisions don’t have to come through me.
That’s also very hard because you’re entrusting a lot to these people, but my view is if I don’t trust you, you shouldn’t be working here. And if I do trust you, then I should give you the power of that trust.
Andrew: I see a lot of entrepreneurs get stuck on the doer.
Andrew: And if they go to the delegator as – who was it, Michael Gerber of eMyth – they will often get slapped on the hand and go right back to the doer. But, fine if they get to the delegator to go to the direction setter, that’s a really tough task. And then, to have a team that works without you is kind of risky for some entrepreneurs, and so they never go to that level.
How did you know how to do this? Where in your background, who’s your advisor, where did you learn how to go from one to the other to the next?
Court: So, I am a strong believer in just constantly getting information and learning from others. I was just networking with other CEOs. Actually we put together a forum of other CEOs. Six or seven of us would get together once a quarter for an entire day and we’d talk about what are your challenges. Everyone gets an hour to talk about their challenge. Everyone sort of chips in and gives advice. It’s a benefit for two reasons.
One is that you get to have smart people help you solve your problems. Especially early on when you don’t have a deep management team. Two, you get to see other people’s problems. I saw all of this in these other challenges. Oh, this really talented guy quit and I don’t understand why. You sort of ask them why, what happened? You’re doing his job for him, of course he quit. You start to see these patterns evolve. I think that’s a huge risk. People can be too internally focused and you just need to, again, it’s about having low ego and just trying to learn as much as you can from customers, from peers, from partners.
Andrew: That’s been coming up a lot and at some point I would like to do an interview with someone who helps groups like the one that you’re a part of and does it effectively. I’m still looking for the right person.
Court: We actually formalized this and there’s a group in Boston that now does this. They’ve got five or six of these forums. Offline I can introduce you to the firm.
Andrew: Absolutely. I’m going to follow up with you and get their contact information. I’d love to do an interview. I’m sure you’ve also seen this, groups that get together and they become bitch sessions. Or groups that get together and they’re just not effective because they haven’t gotten that momentum going. Of course, groups like yours that work and what’s the difference? How do you get them to work the way that yours has?
Court: People do, [YPO] is another place where people do this. The challenge of YPO, I looked at that and I’ve talked to people who are in it, is that it’s too diverse a group. You’ve got people who run travel agencies and construction companies and restaurants. Building software with venture backers, it’s a very specific problem so I tried to find people who were trying to solve similar problems.
Andrew: And you were one of the guys who helped start it?
Andrew: All right, we talked about the sales channel. We talked about high service. I didn’t ask for more depth on it, how do you increase ROI for you clients? You’ve got the money, you’ve got a system in place to deliver service and to speed up your service for customers. You talked about the sales channel, bring it in house and doing it inside over the phone. How do you make sure that all of your clients get a result when they give you guys money? Or enough of them do?
Court: That is a big challenge. At the end of the day we’re selling marketing and marketing doesn’t always work. As with Double Click, we were joking that our tagline should be Double Click, we prove that 90% of all advertising is a waste of money. It’s obviously not that but it’s hard to make it work. We’ve just focused on the fundamentals. How do we evaluate our own marketing? Let’s drive the price per lead down. Let’s drive the quality of that lead up so that the ROI is just getting better and better and better.
That’s what we’ve done. Our price per lead has dropped by three fold over the last three years. Our lead quality, we’ve come up with a way to measure lead quality, that’s gone up. It just comes to testing things. Mobile has been a big part of that. Mobile advertising converts at a much higher rate than desktop advertising.
Andrew: What do you guys consider a conversion? I know our guys, when they buy ads they often will send it to a landing page. On the landing page they collect the contact information. Then the next page they might sell. That would be their sales process. What’s yours?
Court: A conversion for us is not a closed sale because we don’t do ecommerce. It’s a phone call or an inquiry to the business. I type in roof repair. I click through on the ad. I come to Joe the Roofer’s…
Andrew: The audio just went down again. Whatever you did before worked. Let’s give it a minute to come back up.
Court: I think it is, let me close my email. I think it’s emails are coming in and when the little ping from the email comes in it’s blocking out.
Andrew: A user goes online, does a search for a roofer, sees Joe the Roofer’s ad, your audio just went out there.
Court: And then picks up the phone and calls him and says hey, do you do asphalt roofing? I want to get an estimate, can you come out? The action is that inquiry to the business to set up an appointment for an estimate or to go do that service. A lot of times it’s teeth whitening. Hey, do you have availability on Saturday? I want to come in and get my teeth whitened.
Andrew: OK. You’re creating pages, then, that increase conversions for them and that measure conversions for you clients, right?
Court: Absolutely. We actually don’t call our websites ‘websites.’ We call them ‘adversites’ because they’re designed to convert advertising into leads. The average small business website converts at about 5% from click to phone call or email inquiry. Ours converted over 15%. Again, it’s just part of testing and optimizing.
One way to think of it is, I think of it as kind of an oil refinery. You think of Exxon, they go dig big slimy crude out of the ground. It’s not useful to anyone. They then run it through a bunch of processes that turn it into useful product. That’s kind of what we’re doing. We’re taking undistinguishable internet traffic and we’re refining it. We’re targeting it and turning it into a business lead. There are just thousands of steps along the way to make that happen well.
Andrew: We’ve all seen the bad small business sales process. They’ve risked a few bucks. They bought Google ads. You do your search, you see the ad and say great, that’s exactly what I’m looking for. You end up on the page and you go what am I really looking at here? Where is what I tried to buy? Why are they sending me to the homepage which looks like a dead brochure? Where is the contact information? Are they really in my city? It’s terrible. What do you do that refines that process? That makes it more effective. What are some of the things? I know you can’t walk us through the whole process.
Court: Like you mentioned the phone number, it’s incredible. I said half of small businesses don’t have a website. 75% of people who do have a website don’t have their phone number on their website. Serving area is a big one. You want to go to a dentist. You’re cruising through Google, you want to know that they serve your area. Putting front and center serving whatever metro area you serve, or whatever town you serve.
Literally we’ve got a 30 point onboarding guide for websites. You’ve got to do these 30 things. Showing your serving area and showing your phone number are obvious. Those are two of the 30 things. Again, it just comes to that 30 point checklist came from continuous testing. We’re still testing. We’ve got two people on staff, all they do is test websites for conversion. What copy works?
By the way, it’s different by channel. Mobile, a lot of times people don’t go to the website. They’ll call right from the app because they’re on their phone. [Ad copy] becomes even more important in a mobile environment. Mobile websites, you’ve got limited real estate. What do you show? We’re constantly testing and improving.
Andrew: Is that checklist available publicly or is that an internal secret sauce?
Court: It’s internal. Most of it is stuff that most people who know web design would know but there’s some surprising things that are counter intuitive.
Andrew: Like what? What can you tell us that’s counter intuitive?
Court: I’d rather not share them.
Andrew: OK. Frankly, I’ve got to tell you that I’m glad when entrepreneurs say I’d rather not tell you because I’d so much rather you not telling me than afterwards start begging to have it removed and edited and kick yourself even worse. You know what? We don’t have to know all of your secrets. We want to know as much as you’re willing to give. Then from the next person I interview we’ll get as much as they’re willing to give. Together we’ll be able to combine and create something useful.
Here’s something else that you mentioned earlier that I want to spend some time on. You said sometimes customers throw up all over it. When? When did you create something and they “threw up all over it?”
Court: Let me think of a good example there. It’s funny, I did a kick-off this year to the company and they said we did not fail enough in 2011. What do you mean you didn’t fail enough? I said failing is an opportunity to learn and if you’re not failing you’re not learning as much as you could. You’re not taking risks. I went over the history of big bets that we’ve taken with the product and every year we’ve had one to three big failures. I said that’s great. I can point to this failure led us to this insight which led to this product innovation.
Andrew: Do you have an example of a failure that led to an insight that led to innovation?
Court: Yeah, I was giving you the background. A great example is Yodel Submit was a product we have that was a basic listing service. It’s kind of like [Yex] Power Listing today. What we saw was the product failed, people were not happy with it. It didn’t deliver the value. But what we saw is that self-serve sign up and low price are very, very powerful. It’s what Constant Contact has built their business on, and iContact. We did a lot of testing around price point. What we realized was we could get up to $100 to $125 on price point and still have the self-serve sign up process work.
We then had another product a year later which was a self-serve website. We were going to compete with Web’s Planet, Homestead, Weebley, and Wicks, and the other 500 people building websites out there. The logic was we’ve got this great publishing system. It will be very cheap and easy for us. We realized something very interesting there which is that the customers who wanted a nice website needed more sophistication than a self-serve and the customers who were willing to pay the self-serve price needed hand holding. Once you provide that hand holding they didn’t want to spend money on advertising.
We were not in the website business, we’re in the solving a marketing problem business. Both those things led us to our current offering, Outrank, which is $150 a month with website and tracking and Google maps optimization and reputation management. A bundle of features that’s very efficient at selling, which was learning from [deal with submit] but that is a high enough price point that we’re targeting the kind of buyer who’s going to want to buy more advertising down the road.
Andrew: I see, right. $150, that’s the cut off you found? Is it as clear as that?
Court: No, it’s not as clear as that. (Inaudible) it varies by segment, it varies by geography. That’s roughly an easy price point to talk about. We’re constantly testing up and down, impacts on sales versus customer satisfaction.
Andrew: Resellers you brought in at some point. How did you do that right?
Court: That was one where we, I saw this at Double Click. Early on we started working with agencies. We’re going to have a channel and we would just sign up anyone and their brother to resell our products. It created a huge support burden. Most of them didn’t generate any revenue. Then two years later when the .com bubble burst and everyone had to be profitable we said oh jeez, we’ve got all these unprofitable agency customers. We need to rationalize that channel.
I said look, let’s learn from experience and we only want larger resellers. We put a minimum and we still have it to this day. If you can’t generate a half million dollars in fees for us we don’t want to talk to you. A lot of people would say that’s crazy. Your first conversation with a customer is about the money to you? I say absolutely because time is so precious and people just say wow, we’re never going to do that and you say OK, great. Sorry we can’t help you. Rather than spend weeks of back and forth and needs analysis. We just put it up front.
The other thing we found is that big companies that have been burned by small companies, they actually like that. They get it. They get why you’re doing that. Oh, you’re not one of these companies that says yes to everyone. You want to focus and say yes to the right people? I like that. We’ve won every reseller deal that we’ve been in, not just because of that but I believe that that’s helped.
Andrew: All right, I’m writing a note here. I feel like that’s something that at some point we need to clip out. That you’re not one of those people who says yes to everybody and how clients appreciate that when you say no to them sometimes. Let me do a quick thank you here and then I’m going to ask you one final question. Where is my thank you? There it is.
The guy I want to thank is Dr. Vince Wong. He bought a couple of dozen Mixergy premium memberships to give to customers [in court]. What Mixergy premium memberships are, in addition to interviews on Mixergy we also do courses where entrepreneurs turn on their computer and basically they walk my audience, walk our customers, step by step through how they do things like get clients. How they get traffic. How they get publicity, etc.. Dr. Vince Wong bought a couple of dozen premium memberships to give out to his customers. He is the guy who runs Project1Percent.com where his goal is to teach strategies from the 1% of entrepreneurs who have figured it out. One of his video was recently featured on Tim Ferris’ blog by Tim. Anyway, I just wanted to say thank you to Vince for doing this.
If you’re out there and want to buy a membership I’m no longer making gift memberships available. That was only available over the holidays but if you want to buy one for yourself go to Mixergy.com/premium. All of those things that we talked about like PR, traffic, et cetera, we’ve got entrepreneurs that will teach you exactly how they did it and how you can too. Mixergy.com/premium.
Finally Court, here’s the last question. You’re now at a $100 million run rate. You’ve seen people when you got started who are running companies who aren’t ever gonna get near that number. And in your head you must know, that guy’s not gonna do it because. What separates the people who aren’t gonna do it from the people like you who’ve hit these big milestones?
Court: I, I thought I’d see a profound question, but if you had a simple answer, you’d probably be worth a billion dollars, but, to me I think it’s two things. I think it’s work, and I think it’s ego. I think most people are lazy and they wanna be entrepreneurs, but they don’t wanna put in the work. And then the ego thing comes out in so many ways. Like, I am smarter than the customer. I don’t need to talk to them. I’m smarter than my head of sales; I’m gonna tell him what to do. My product is failing, but the market is stupid. I’m just gonna keep going and keep spending money. And so I think having a low ego is important, but the flip side of ego is, if you’re ego is too low, so yeah that’s great that we bailed on yodel submit and we bailed on step starter, which was the self serve website. But, like, you know, if you’re too quick to fold the cards, you fail, cause, like, I was convinced that we could make inside sales work. So how you measure that, I don’t know, but it’s having a low enough ego that you don’t blind yourself to the world and what’s going on around you, but a high enough ego, that you’re willing to persevere against very hard odds, and how you measure that or talk about it, I don’t know, but I do think that’s the key.
Andrew: That makes a lot of sense. The company is Yodel, and you guys literally wrote the book on small business ad buys through the dummy series. Right?
Court: Absolutely, with Wiley.
Andrew: All right. With Wiley. All right. Check them out, and of course, I actually recommend anyone who’s heard this, who’s seen the business develop through this interview to just go check out the website and see where it is right now, see what the product looks like right now, and maybe touch in every few months to see how it evolves, see how some of the lessons that they’ve learned are applying to the products they create for their customers. Court, thank you for doing this interview.
Court: Thank you. Great talking.
Interviewer: Thank you all for watching.