How does a husband and father in Utah launch a startup, raise money and get acquired?
Zachary Mangum is the founder of GroSocial, which offers a suite of web-based tools that allow you to easily build and track social media campaigns.
In December 2012, about 2.5 years after he launched the company, he sold it to Infusionsoft, for an estimated $25 – $30 million.
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Zach Mangum, GroSocial
Zachary Mangum is the co-founder and CEO of GroSocial which is offers a suite of web-based tools that allow you to easily build and track social media campaigns.
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Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. In this interview, we’re going to find out how a husband and father in Utah launched a startup, raised money, and got it acquired. Zachary Mangum is the founder of GroSocial, which offers a suite of web-based tools that allow you to easily build and track social media campaigns. In 2012, about two and a half years after he launched the company, he sold it to Infusionsoft for a reported $25 million to $30 million. I invited him here to talk about how he did it. Hey, Zach.
Zach: How’s it going?
Andrew: I saw you smile as I gave that number. Why?
Zach: I love the reporting. It was actually a funny joke here, where we’re kind of tight-lipped about it. It’s kind of funny. There was an article in TechCrunch over the weekend, actually, about undisclosed financing and undisclosed acquisitions, and I almost commented on it. I was going to say, “You know, some people don’t announce it because they don’t want anyone to know.” Sometimes your personal finances or other things like that aren’t anyone’s business but your own, so, anyway, that was, yeah, that’s [??] . . .
Andrew: That number came right out of the TechCrunch story about you guys that happened earlier this year.
Andrew: Were they wrong?
Zach: No comment.
Andrew: There was a time, though, when your wife used to shop at Walmart. Can you talk about what happened one of those times?
Zach: Yeah. Man, in the early days of GroSocial, I could share ten like just hilarious and then ten sad, sad stories with you about financial struggles and chasing a dream. There was one time in particular where you’re juggling all these different credit cards and stuff like that, just trying to make ends meet, because you make X and you spend more than that, and that’s not because you’re living beyond your means at all. It’s because you just literally aren’t making enough to survive, right.
Yeah, my wife would go to the local Walmart, and she’s not overly fond of it. It’s no elitism or anything like that. It’s just Pam [sounds like]. It just kind of sucks. Anyway, she’s going to Walmart one day and getting groceries. She’s got our two kids with her, and at that time our oldest was probably like 3, the youngest was 1 year old. She’s juggling them, and I’m at the office a little bit late one night. She’s at the grocery store, and she calls me in a panic, saying, “I’ve got a grocery cart full of groceries, and the credit card’s declining. What are we going to do?” I thought about it, I look at the credit card statement, and I see we can get like half of what we need to get this time.
I told her, “As painful as it is, I need you to go take the walk of shame and take a few things back, put them on the shelf, get back in line, and man, she couldn’t have been a better sport about it and completely had my back the whole time. It wasn’t fun. Those are memories that are good to remember as far as, that’s where you were, it helps you remember and keep some perspective, but also wonderful to forget in some cases that that’s kind of the past now. It definitely helps you keep your head on straight.
Andrew: A lot of people would have that experience and be too ashamed to continue as entrepreneurs, and in their head say, “This is not the life for me. I have a family, I have kids, I have a future, I have some self-worth, I’m going to duck out of this.” What went on in your head?
Zach: You know what? For me, it’s kind of funny. I’m LDS. I’m from Utah. Everyone out here has a family. It’s what you do. I got married when I was 22. I had my first kid when I was 24. It was planned. It wasn’t a surprise child or anything.
Andrew: That is one of the reasons why I was especially excited to have you on. It’s something that many people in the audience say that they’re looking for, more entrepreneurs who have kids and have families and have these obligations and can’t just sit there and code and eat pizza all day, so. Not the latter day saints part! I’m happy that you’re latter day saints. But the part I was especially excited about is that you are a family man with the obligations of others, so what happens internally to you when this family you’re so proud of has to go through something so painful?
Zach: Honestly, it’s a shot to the gut. I’m not going to lie. When your wife calls you up and someone you’re madly in love with and care deeply for has to go through something that some might call really embarrassing, others might call, you know, big deal, all things considered look at the grand spectrum of things, we’re doing just fine at that point in time. But it was very uncomfortable and it was very hard financially for us for an extended period of time. I have brothers, one who went to Harvard business school, one who has a master’s degree from BYU. My siblings are really educated, and they are looking at me thinking man, you are freaking nuts. Are you seriously doing this? Go down the beaten path. It’s beaten for a reason. Everybody sees reasonably good success if you follow the same steps. I look at it, though, as a family man having a couple of kids, it’s incredibly motivating when you look at [??].
So at that point I have a three year old, I have a one year old, and I think constantly in my head, “Owen and Jessie, Dad is not going to fail, period. They need to look at Dad and say, “I’m going to be like Dad and Dad’s not a loser.” Not to say that you’re a loser if you start a company and it doesn’t work out, but at the end of the day failure wasn’t an option. There was no other choice but to succeed with this, and success can be defined in a variety of different ways but it’s insane how I didn’t really anticipate it being that way; how motivating it was having two little boys who I knew where going to have careers someday who needed somebody to look up to, and I wanted to be that guy they could look up to.
Andrew: April asked you about what books and authors you like, and you told her about Mark [??], an old friend of mine who sat here on Mixergy, and he likes to invest in entrepreneurs who have a chip on their shoulder. Something to prove. Something that happened in the past. Did the fact that you didn’t go Harvard, that you were starting your own business and had trouble making ends meet – did that fire you up? Is that the kind of edge that Mark is looking for?
Zach: Absolutely. I wouldn’t say that I was trying to shove it in my brother’s face, but I will say that to a certain extent I kind of was. [LAUGH] You know what I mean. You’re looking at them and they are seeing great success and they are thinking dude, you are a moron. It was incredibly fulfilling to have both of them come back to me and say, “Dude, I would kill to be in your shoes right now.” That’s pre exit, right. They see how things are going really well and they think that’s really cool, but I think [??] is spot on with that. Have a chip on your shoulder. That’s one of a variety of chips on my shoulder that I feel like I’ve had from the beginning.
Andrew: What’s another one?
Zach: Any time somebody tells you “no” it throws another one on your shoulder. You just think, whatever man, we’re going to prove why you should have said yes. I speak of investors or maybe a partner or a key client, whatever the situation might be. We usually would use that as fuel. In fact, at one point we had a Google doc that we put together of people who said no and told us that we were nuts, whether that was an investor or anything else that we shared amongst us founders and said, “Remember this stuff.” I love it. I feed off of that stuff. I grew up playing sports and stuff like that. Anytime somebody told you you weren’t good enough, it was kind of like pouring more fuel on the fire, so we like to use that as motivation.
Andrew: That’s one of the things I’m noticing in my interviews, that if an entrepreneur hears no, and he just gives into it, he’s just going to start to walk away, maybe even go back to work. But if the no has almost an immediate mental trigger that says, “I’m going to prove him wrong,” of if the no says, “Then I’m going to work even harder because I don’t have what it takes,” that’s when they take off. You’re not . . .
Zach: Yeah, I can say from my experience, spot on there with the latter. I mean, if someone says no to me and my co-founders, the response wasn’t generally like, “Ah, he’s probably right.” It was generally, “As experienced as that guy might be, he’s wrong, man. He’s dead wrong, and we’re going to go prove him wrong.”
Andrew: Just before you launched GroSocial, you were at a company called Funding Universe. What was that? What were you doing there?
Zach: That was actually my first gig out of school. I went to BYU. I studied finance. I thought I was going to go to law school and do that fun stuff, and thank heavens I didn’t. Anyway, I was going to take a financial analyst position, decided to go against logic and reason, and go join a startup. Funding Universe, at that point in time, was a local startup here in Utah that was getting a lot of buzz. A lot of people were really hopping on the Funding Universe bandwagon, and at that point in time they were all about helping startup companies find angel investors and/or venture capitalists, so really like seed stage type of stuff. Occasionally some business would come in. They were just clueless about how to raise money with investors and thought that, hey, we could talk to these guys. It was a worst version of AngelList before AngelList was here, and it wasn’t a software platform, really. It was more consulting, right. So, anyway, the company evolved and turned into what is now called Lendio, and it’s more debt financing that they help businesses attain. Back in the day, that’s what was it was.
Andrew: So what did you learn working for a startup before launching your own?
Zach: Honestly, the biggest thing I took out of it is I worked with different startups, and they would share stuff with us. They’d share their historical financials. They’d share a bunch of data. Then you’d talk to the guy behind the startup, and this is going to sound like I’m just arrogant, but you’d talk to him and say, “If he can do it, I can totally do it.” You know what I mean? So it was like the perfect place to breed a future entrepreneur because you’d come in there and look at it and say, “Look, that guy’s doing like a really cool, phenomenal thing. His business is soaring.” And when I talked to him, I’d think, you know what, I could probably do it better. Your self-confidence kind of spews over into irrational levels, but you get this itch, and it was good for me. It was definitely great for me. There’s obviously that side benefit of being able to rub shoulders with some angel investors at an age where I was way too young to be able to meet and associate with some of those guys, so that certainly didn’t hurt.
Andrew: Is that how you met some of the investors who eventually backed your business?
Zach: It’s how I met our very first investor, yeah. I had just gotten to know him a few months before I took the plunge and jumped into GroSocial full time.
Andrew: Who is that?
Zach: His name was Chris Russell.
Zach: He started a revenue-based financing group out of Northern Utah called Rock & Hammer Ventures.
Andrew: I see. All right. So you picked the perfect place to really get to know what’s going on in entrepreneurs’ companies and also get to know the entrepreneurs themselves and the investors, and you realize, all right, I can do this. But where does the idea then come from?
Zach: We backed into it. I mean, we did not set out at all to create GroSocial, so it’s kind of long story. Me and my co-founder, Kevin Kirkland, he and I went to the same high school. In fact, I was really good friends with his younger brother, and so Kevin and I are about two years apart in age, but a bunch of us old school buddies decided we were going to grab lunch one day. We thought about the idea of being entrepreneurs and starting a company, and I’d tell them what I just told you about, “You should see some of the guys that are starting really successful companies. If they can do it, we can do it, man.” So we started brainstorming some ideas, and we set out to create, it’s like embarrassing to even say it. We set out to create a startup that was like a Facebook app, but for soccer players, because we actually played on the same soccer team growing up, and so we thought, hey, this could be a great way to manage the communication within your team, almost like a Facebook group, but for a soccer team, and then a couple features layered on top. We thought we were brilliant.
Anyway, we spent a bunch of money creating this, and we got to the point where it was ready to launch, and we were broke. I mean, how are you going to get any users on this thing without spending some dough to get at least some initial users signing up and using it? Facebook was a lot more viral back then, so we were pretty confident if we threw some money at it that we’d be in decent shape. And, of course, ad revenue was going to be our revenue model, right, so we weren’t going to make any money anytime soon. Anyway, we got to the point where we had no money, and so we decided, all right, the best way for us to market this thing is just to go make money somewhere else. We learned a ton about social media along the way, particularly Facebook, as we started developing this thing. Let’s go and see if we can talk some small and medium sized local businesses into giving us some money to do some Facebook promos and stuff like that. It sounds funny, but this is like two and half years ago when that stuff was really kind of new, particularly for a smaller or mid-size business, and so the fruit was low hanging enough that we were able to get some people to give us money.
The idea was let’s take this money, and we’ll market this soccer app, right. Well, we never spent a penny marketing the soccer app, number one, because we never had any money left over. We’d get like a couple grand off of a customer, and we’d spend like 1,999 bucks keeping them happy. We just found over time people pay us to do this, and I have no idea if that soccer thing is going to go anywhere, so it wasn’t too hard for us to say, all right, ciao to the other idea and keep running with GroSocial.
Andrew: What were you spending money on when you were doing people’s social media?
Zach: Oh, man, we were doing like custom applications. Basically what our product does today, we were doing it all manually, and that’s why we ended up developing the product. So we were building promotions, like like-gate or fan-gate promotions, which were really trendy at that point in time, and we’d do the graphic design, and we’d outsource a lot of this because both of us were full-time employed somewhere else. It was like still working 3:00, 4:00 in the morning. You’ve got a couple young kids and stuff like that and a day job. I mean, life was miserable at that point, but we were outsourcing so much, trying to kind of like orchestrate this, so we could at least have a sliver of a decent life at home and stuff like that. Yeah, it was heavy lifting for sure.
Andrew: So basically what you did was you did consulting that helped you figure out that there was a need and helped you understand how to fill that need, and then you automated the work that your consulting gig did. Is that right?
Zach: Spot on, yep.
Andrew: And so you were seeing over and over that people were doing like- gating. Like-gating is where if you want this content, if you want this video, if you want this report, whatever, you have to at least like us on Facebook, and once you do, you get the report.
Andrew: That’s essentially it. Is that what you thought customers would want when you started doing consulting for social media?
Zach: No. I mean, I wouldn’t say it was way off or anything like that. Honestly, what we did is we started it out, and we’d look at what Red Bull’s doing, right. Red Bull’s big. They do cool stuff on Facebook. So we looked at that and said, ‘Is there a way we could bottle that cool stuff that they do and make it accessible for the small guy at a reasonable price point?’ And as we started looking at stuff that businesses like that were doing, we found, holy cow, you actually can, and, granted, there was a lot of complex software that some larger enterprises use. But it started to become one of those things, almost like another chip on your shoulder, where you think, hey, there are these big companies doing big things, and they charge big dollars. What if we could commoditize all of that stuff and really empower the small business and let the corner deli do what Red Bull’s doing for a price that they can totally afford?
And so that started to become like this mission for us, and it started out with things like like-gates and stuff like that, and then it evolved into stuff like a photo contest or a video contest. We were finding, when we were custom coding those back in the day, we charged like $5,000 or $6,000 to do a photo contest, and people would gladly pay it because they would see the results, and it worked fantastic for them. Then we said, “Hey, what if we just let everybody use this thing, and they do it on their own for 20 bucks?” That’s when the light kind of flipped on, and then people started coming in in droves.
Andrew: One of the things I’ve learned from talking to entrepreneurs who started out doing consulting work and then packaged their consulting work into software is by doing consulting work, they understood which product people are most interested in, and it’s often not what they expected.
By doing consulting work they understood how to express what their software does, that it taught them something that shaped the product. Did that happen with you?
Zach: Yeah. Absolutely.
Andrew: Do you have an example of that, of how doing this as a consultant gave you an edge over someone else who might have said, “I’m going to create packaged software in social media”?
Zach: For sure. I think for us, honestly, instead of one specific example, it’s the whole process. We’re doing consulting for businesses day and night, and we find as we talk to them, you find out what they’ll pay for, right? And then you look at it and say, “All right, what sucks [laughs] while doing this process? Can I automate it?”
We went with this hunch in the beginning, where we said, “All right. There are enough people paying for this service. They love it. We’re not having backlash or unhappy customers whatsoever,” so we’re seeing this really ideal situation forming before our eyes.
We said, “All right. How do I take 90% of the work out of this for me?” Our thought actually was that’s what we would do, and we’d still be this agency service provider with this secret weapon behind the curtain. What we decided to do before we got too far is saying, “I guarantee everybody else has this same problem that we have and is trying to solve it. Why don’t we just throw it out there?”
There was a little bit of a hunch that went into releasing the product, but we knew that at least we needed it, and that there had to have been other people out there that shared that same pain with us. There’s no way that we were the only ones.
I think what a lot of entrepreneurs do, in my experience viewing different entrepreneurs and my own experience trying to create stuff, is you’ll create something that you think the world needs, but you would never use it yourself. So without any additional validation, you’re screwed before you even get started.
We knew that, at a minimum, if nobody else wanted to use it, we would use it every single day, and we could still keep a successful business afloat using our software.
Andrew: How do you find all these customers who needed you to do this for them?
Zach: We were starting out, as I told you before, full time working elsewhere. We would target at businesses that were open in the evening. A good example of that, our first two customers, one was an author, and another one was a used car dealer. Used car dealers, he’s always at the office after 5:00.
I would go to a used car dealer on my way home from work, stop by, do a little presentation, and get him to write us a check. We were picking businesses that we knew that we could meet with outside of your typical work hours.
And then as we got a little bit smarter, that’s what your lunch break was. I’d say, “Let’s meet you at your office.” You’d say, “You know, I’m going to be right by your office eating lunch, [laughs] so let’s go talk over lunch. I’ll buy you…”
Andrew: You’re just cold-calling and cold-knocking on doors?
Zach: It didn’t start that way. We tried with our warm circle first, hit up friends and family. We used social media ourselves, begging everybody we know to refer somebody over to us. That got us pretty far.
We never really have done any cold-calling, ever, at GroSocial. We would use those customers as referrals to other customers. We really banked on knocking it out of the park with each customer, and banking on that being fuel to get the next one.
As we got a little bit further along the way, though, we got bright-eyed, thinking, “All right. I can’t sell this thing every single day like this and create a legitimate business.” So we talked to a couple of larger businesses here in the area — there’s a pretty decent tech scene in Utah — and talked to a couple of companies that do marketing and other services to small businesses, and said, “We want you to resell our service.”
Andrew: Let me go slowly into that, because that became big for you. In fact, I want to start off with what the software package looked like. You told April in the pre-interview that you couldn’t even call your first version a minimum viable product. Why?
Zach: [laughs] It just was garbage. It was so bad. We had one of our developers put out on our Facebook group — we have a private Facebook group we use for company communication — and he attached a screen shot of that just the other day. We all just started busting out laughing. It was just…
Andrew: Would you show that in the comments if people asked to see it?
Zach: Yeah. Yeah, I would.
Andrew: I’m going to let the audience request that. I’d love to see it myself. I want to see if they’re interested in it.
Andrew: What didn’t it do? What was so embarrassing about it?
Zach: Honest, I think when we launched it, I wouldn’t say we were overly embarrassed, but I think a lot of it was because we were so naive. We went into it thinking, “We know what we need this to do,” and it was good enough for us to still make money. When I look back at it now, and I see where our products come, I think, “Holy cow. How did anyone pay us for that?” People were gladly pulling out their wallets and paying for it. We were doing very little marketing. We had been a product first, and revenue and marketing later, kind of organization for quite a long time. So, it blew my mind that people would pay for it and retain. It was kind of funny, but the user experience was kind of clunky. It was no rounded corners on anything. We produced something, and it was like take your worst designer on planet earth, and this was ten steps below what they would have produced.
Andrew: What’s dramatic about this, and the reason this is important, is you were designing their Facebook presence. The Facebook presence you designed for them was still clunky.
Andrew: In addition, the process of creating that Facebook experience, that your customers would give their customers, they couldn’t do it using drag and drop, images didn’t fit in the space, and issues like that. So, a lot of us actually need to launch this way, to launch and figure things out, but we’re going to resist it, because we’re going to say, “Oh, I have to have rounded corners. I have to make this look good.” We get caught up in our own need for perfection, even if we’re not recognizing that that’s what we’re doing. Help us snap out of it. Why should we just stop and sell something, even if it makes us feel a little embarrassed.
Zach: The biggest reason I would bring up is that you never know if what you think matters really does matter. It’s so easy to go off like this long list of, “I must have this stuff in order to have something legitimate.” You’re almost always wrong. You have to let the market decide what they care about. What you care about and what they care about can be at such odds with each other.
Andrew: Give me an example. You seem to have really lived and breathed this space and known it. Where were you wrong about what you expected people to know?
Zach: Our first version of the product.
Andrew: What did you think they wanted, and what did they want instead of what you thought?
Zach: We thought that a photo contest would be imperative to have in a first version. We didn’t even, in the very first version, if I recall I don’t think we even had a light gate [??] or anything like that. We thought, “Dude, what’s the point if I’m just throwing out a static tab, that’s a brochure basically, you can’t really click on anything, why are we even doing this?” We thought, “Look, let’s just release this and see how people will react.” Sure enough, we released it, people signed up, and what do you know? People, at that point in time, killed for welcome tabs, just something that was a splash page. I could set it back then as my default landing tab on Facebook. Even if it didn’t have a light gate [??] attached to it, people still cared.
Andrew: They just wanted that if anyone went to Facebook.com/TheirBusinessName, to have a clean presence there. They didn’t have to have it collect email addresses, collect likes, encourage people to do anything like join a contest. They just wanted to have a presence that looked good. In fact, Gary [??], at the time, this is Mr. Social Media, he had a welcome page that was basically a really beautifully done image of his background, describing how he built up his online personality, but he didn’t do light gating [??] at the time, email collection, and so on. I see, you expected that people wanted it. You learned that people just needed a Facebook page that looked good.
Zach: Yeah. That was enough for us to get enough traction. This is pre- legitimate funding. We had a little bit of money that had come in, but at that point in time we were able to take that and actually generate enough traction to be able to tell a good enough story to investors, where they actually wanted to pull out their wallets and say, “Yeah, you guys have got something here.”
Andrew: I see.
Zach: We could then come to them and say, “Look how crappy this thing is. Look how crappy it is, but look how many people are paying for it. We’ve done this much to get them to pay for it. Let me show you what it’s going to be, because we know how to build this stuff. We just need to get some money and some devs to be able to do it.” And, what do you know? It was the perfect story. We actually at that point finally had… another thing I’ll say, is that if you’re an entrepreneur trying to raise money, data sells more than anything. You can take any set of data and you can tell a horrible or a magnificent story off the same set of data, it’s just what angle you’re looking at it from and investors, when you start to share a little bit of data, especially if you’re in, like, a different market, right? If you’re in, like, Utah, data matters that much more. So, if I can come in here and share a little bit more of the story, and make you just less scared to give me a check. You know?
Andrew: Who’s we?
Zach: We? I’m talking about the founders of GroSocial.
Andrew: Who’s your co-founder? I introduce you as a founder because I try to just keep it simple in the intro, but my research said co-founder, co- founder, co-founder, and I thought we’d talk about who you co-founded the business with.
Zach: Kevin Kirkland was my original co-founder, and then it was several months after that we had Chris Wright, who’s our CTO hop onboard.
Andrew: What was I going to say? Oh, right. So, you’re selling this thing to individuals. How are you getting individuals to buy this software? As clunky as it is, how are you getting them to come in?
Andrew: How are you marketing on Facebook?
Zach: That was seriously it. When we were doing this whole service providing gig, Facebook was our big thing. We had a Facebook page well before we had a website, and we invested any loose change we had to try and get more fans on Facebook. But, at the end of the day, that only produced so much for us, right? We weren’t doing like AdWords campaign. We were really like nothing, right? It was very much social media, word-of-mouth. Then our big hit was partnering.
Andrew: Ah, yes.
Zach: We had this really. . . We thought this was going to be so brilliant and so easy. We went to different companies in the area. This was where some cold contacting came into play, you know, get a LinkedIn membership and sending in mail all over the place to people. We hit up some companies here locally that had done pretty well for themselves. One was a web builder, one was a marketing firm, but they were pretty big, an arm of [appellate] company.
Anyway, we went to them and said, “Look, you guys already have a ton of customers and you don’t offer social.” We kind of came in pretty arrogant, like, “Dude, if you don’t have social, what are you doing?” You know, like everybody wants social. We put this pitch down and said, “You need to white label GroSocial.”
We actually had one partner that white labeled us without the software, before the software was there. It was like we were almost employees of the company, but we weren’t on payroll. We just got a check and we were service providers behind the scenes. We would do all this. We would do webinars and some consulting in group style format.
Anyway, when we got our software and we actually showed them the software, they looked at it and said, “Dude, this is awesome. Can I white label that?” It was actually. . . I mean, I owe it to some of these partners who actually pointed that out and said, “Hey, I want that,” because we didn’t really think, “Hey, I want to show you this thing because I want you to white label it.”
Then, we started looking at it and saying, “Dude, we could maybe put together a very simple API and maybe we should just go after the land grab here and see how many different businesses like that we could get onboard and enlist to resell GroSocial.” So, we enabled a lot of businesses to do. . . We signed a contract with them, and then they could basically create their own version of GroSocial. It’d be on their domain, their branding, their color scheme, all that fun stuff, but still GroSocial. Right? So they’d create a new user. We know, because it’s on our system. We send them an invoice for the total number of customers they added and that they retain in prior months times a wholesale rate per customer per month. Three dudes made it a long way just doing that.
We started. . .
Andrew: It was a three man company at the time?
Zach: Yeah, it was a three man company at the time.
Andrew: And so, when you first started what we’re calling white labeling, you were basically being a consultant for other companies. They said, “Hey, we can do. . . “They went to their clients and said, “We can do your social media. We can create your Facebook tab,” and so on.
They got those customers. They brought it to you and they said, “Hey, Zach, here’s some customers that we need you to take care of.” It was that kind of a situation.
Andrew: And that’s how, when you started creating your software, you got software customers from these guys who eventually white labeled your software.
Zach: Yeah. Once we showed them the software, they said, “Hey, we love recurring revenue just as much as you do, man, so let’s get all these people on the recurring platform and then let’s start adding all the new customers to the software platform. Let’s bag this whole service gig altogether.” We said, “Gladly.”
Andrew: So why’d you raise money? You were getting recurring revenue. You had partnerships. You were doing pretty well for yourselves with the small organization. Why raise funds?
Zach: We looked at it and said, “You know what, there is. . . “Our industry’s kind of weird, right? We have Buddy Media and Wildfire Interactive, and some big players on the enterprise side of the market. There are a handful of other companies like us, that serve small and mid- sized businesses. But, there’s never this, and still I think to this day, there isn’t this defacto, “This is the leader of the small business area of this market.” We looked at it and said, “We can own that, man. We can totally own that, but we have a limited amount of time, because there’s a lot of people entering this space. You know, innovators dilemma style, everyone’s going to start from the bottom and try to go upstream. You’re not going to see the guys upstream trickle down.
So, we said, “We feel like we’ve got a model here at the bottom, and a clear path to trickle upstream eventually.” We’ve got partners that are saying yes, partners that should, frankly, be saying, “No.” Based off of three guys, working out of the basement, no legitimacy, but we had a good sales pitch. We had mediocre, at best, software at that period in time. But, we went out, and we said, “If I could get two or three really good biz- dev guys and a few developers to help us improve the product, we can go out, and we can literally wrap up every key reseller we need.” So, that’s what we raised the money for, is to basically sprint to that point.
Andrew: I see. Did you also get advice from these guys, and introductions to the bus-dev people that you needed, and the developers that you needed? Or, was it strictly funding and the reputation that comes from having some money?
Zach: We definitely sought that. We actually lucked out, in the case that an associate at one of the VCs who funded us ditched his gig at the VC, and came and worked with us in biz-dev.
Andrew: Who was that?
Zach: John Walker is his name. So, he ditched them and came with us. Then another was actually connected to one of the angels that went into the deal with us, the other biz-dev guy, Brad Jensen [SP]. They were valuable, in that sense. It’s kind of funny that there is this kind of perceived legitimacy of, you know, you raise some money, TechCrunch wrote an article on you, or something like that. I know a lot of people say will that, that doesn’t matter. Actually, it did a ton for us. Getting a little bit of financing and a TechCrunch mention, the end users didn’t seem to care, the small and mid-sized businesses, they didn’t really do anything for us on that front, but partners cared immensely. We found that, on the biz-dev side, getting more partners and resellers in the door came that much easier, after that all hit.
Andrew: That’s something that a lot of software to service [??] companies don’t do, what you do about partnerships. You weren’t thinking, “How do I acquire one user at a time? How do I improve my marketing? How do I do social media to get one customer at a time.” You said, “How do we partner and bring in a lot of customers from our partners customer base?” How do you get companies to partner with you?
Zach: It’s hard.
Zach: I mean, it’s a lot of work. It takes several months. It can take a year. We’ve had some that have taken us over a year to go from first meeting to signed contract, and actually launched, and they’re reselling finally. It can get really hair. The larger the organization, the longer it takes, generally.
You say, “How?” It’s just being scrappy as heck, man. It’s going to trade shows. It’s figuring how… it’s funny, the way you structure a message on LinkedIn makes a big difference. The way you get intros to people makes a difference. Press matters, when you’re doing biz-dev, it matters so much more than you can ever imagine, in our experience at least.
If we were taking a different approach, just going user by user, going after the small business, I can say that based off my experience, I couldn’t care less about any sort of press. I think all it would do for us at that point is expose us before we’re ready to be exposed to competitors and other people.
When you get in and you start working with partners, all of that is perceived as, “Man, these guys must be just huge. It must be just killing it.” We’re like, “Yeah, we are. We’re still like five dude in [??], Utah,” but we’re not going to tell you that. We’re going to just tell you, “Yeah we are kicking butt. We really are.”
Andrew: It’s also that, if they’re going to trust their customers to you, they want to know that you’ve got some substance to you.
Zach: Yeah, it’s funny. You find that a lot of these big organizations, they grow outdated in what they offer, it’s kind of interesting. I’d share some examples, but I’m not supposed to share who we’re partnered with on the white label side but a handful of them offer some such outdated services and, but they’re still able to sell because small midsized businesses I think in many cases are, they’re just reaching for whatever they can get especially in a slow economy, but you show them something new, something that they haven’t done or something maybe they are doing but you do so much better. A lot of these big organizations we call them SMB aggregators internally, they just deal with like hundreds and thousands of small businesses. They’re just reaching for that next thing to sell to their user base, and so if you can come in there and tell them look we got something that is that much cooler than what you’re currently offering, and we can do it for that much money, you just need to give us that many people, we’ll make it work. People, we found that people are very, very interested in it, especially these SMB aggregators, they’re looking for additional ways to monetize that are outside of the boring norm for them.
Andrew: Are these companies that, they offer free web host or cheap web hosting and then they have all these businesses that are hosting on them and they’re looking to monetize?
Zach: Some of them yes, so we partnered with some hosting companies, web site builders are a great example where, you know web site builder is, it’s not like the newest thing around right? A web builder is a pretty old school type of technology, but still that doesn’t mean they’re not valuable and that people don’t like them, but at the end of the day if I can get in and I know that somebody comes in and says all right a web builder is for me, I’m, you know, Joe Plumber or whatever, I’m going to come in here and I’m going to create my business’s web site. What Joe Plumber now knows in today’s world is, hey I should be on Facebook too, and if the sales rep who talked him into using the software for the web builder or maybe he just signed up online, if he gets an email or a phone call or something that says hey you should really do the same sort of thing that you’re already doing for your website but do it on Facebook using our new tool here, and then they have white labeled version of it. It’s a no brainer.
Andrew: Is it also SMB aggregator meaning small to medium size businesses and they aggregate them, but we also talking about companies that just have big mailing lists?
Zach: That doesn’t hurt, yeah I mean you can look at, one thing that we looked at is we looked it at what stage would somebody want to get their Facebook page up? Right? What stage of business, and we looked at it and we said well, you know, I can catch the really broad net, say anybody, right? But it really is anybody who doesn’t have a Facebook page yet. But then, now you’re to the point where kind of like everybody has one so we then shrunk it down and said maybe it’s really at the point of like starting a business. Early stages of the business, right?
So that’s why I web host a web builder like a legal provider. Maybe like a legal zoom or a logo provider. You know those first things that start going through your mind and you think I need to create a business. Maybe, business cards or that sort of thing. You start to realize hey, that’s one of those things where I should push something out on Facebook, right? There’s over a billion people out there, I should look good over there.
Andrew: So, I had a list of books that you recommend as I talked about earlier, but I’m wondering if there’s a book or a blog or some way that we can learn more about how to develop, how to do biz-dev, how to develop these kinds of partnerships. Because it’s not the kind of thing we read on Mark Suster’s site, though I think he covers it sometimes or venture hacks. Where do we get that? Where did you learn it?
Zach: We learned it by doing it. Honestly, we didn’t really have any training. It was this idea and it was just straight up hustling. So it was… I will say though, when we brought on a couple of our biz-dev guys, I learned a ton from those guys. Guys who had done it before. So if you’re, I would say, if I was giving advice to an entrepreneur right now, I would say for you, find a guy who’s done it. Find somebody who’s done it. Benn there, done that. Look for companies that have strong reseller channels and figure out who’s got some sort of business development title in their name and tell them why they should work for you. That’s kind of how we did it, right?
Andrew: For you it was a guy in HP and you said he took you guys over the moon, took you to the moon?
Zach: Yeah, he was phenomenal for us.
Andrew: I see the business is going well, Facebook is growing, you’re in it, why sell? Why not continue.
Zach: Honestly, that was, it was hard. We reached a point where there’s a lot of consolidation going on in our industry, right. Last year about this time is where it first started hitting with some big players on the [SP] inter-price side, being acquired…
Andrew: We’re talking about Puddy media and Wildfire and…
Zach: Yeah, they’re not even competitors because they serve such a larger business, but they do more advanced versions of the same stuff we do. Anyway, we looked at it and our board said, “There’s that much consolidation going on and most of these guys are bowing out to CRM type of companies,” you know, sales force, Oracle, Marketto, [??] as well, so we looked at it and they said, “We’re not really for sale, but are you guys opposed to looking at it and throwing it out there?” I said I’m not necessarily opposed to it if there’s a fantastic fit, but you take money on and now that means you have to give somebody your return, right, so thanks to [??] relationships we already had it wasn’t a very hard conversation to have with people, and it was absolutely shocking how much interest there was when we just said we’re not for sale but people are wanting to talk, do you want to talk too?
It was just as simple as that, and the numbers started to make a lot of sense really, really quickly. I’m the type of guy where I look at it and I say, “Yeah, I want to create a lasting business, I want to create a legacy type of business where if I’m working here or not I can drive past the building and know that there are a bunch of people that have a job,” and that’s incredibly rewarding to someone like me. But we looked at it and said there’s also that side of, there are so many different stake holders, and there are people I told, “Yeah, I’m going to make you a ton of money, man,” and the opportunity to actually be able to deliver on that and deliver on less than 18 months after first taking money was pretty awesome, so it turned into a financial question where it was kind of impossible to say no at that point.
Andrew: Part of the process you told April in the pre interview just sucked. [LAUGHTER] What…
Zach: It did.
Andrew: Did you need to tell her that, or is the fact that we spent so much time on the phone in prep, that we wear you down and you say things that aren’t real?
Zach: No it’s not that at all. It did suck. On different levels. So due diligence with VCs and due diligence with acquisition partners. At least for us, it was dramatically different. It was painful, not because we were hiding anything, we’ve always been incredibly transparent but it was just so much time, and it was during the holidays for us. I tell my wife that I vaguely remember Thanksgiving and Christmas last year because it was just so distracting, so much going on in your brain. But the legal process with [??], they’re closing a big round of financing a simultaneous close and, so, that was all into it. There was just a ton going on all at once and in addition to that you have this thing in the back of your head that says, “Do I really want to sell this thing I love?” What we’re doing, I love.
Maybe I’m a control freak, I don’t know, I love being able to say this is what we’re doing, and everyone let’s get behind it and let’s rock and roll, and you start to have those reservations of. Is that how it’s going to be at all after ? You just don’t know what’s going to happen. It’s like sending your two year old off to college. You’re just not ready to send your two year old away to college yet, but all of that coupled together made it this incredibly emotional roller coaster, but in the end it worked out fantastically so we definitely made the right decision.
Andrew: You say that one of the advantages of having gone through this, one of the benefits is you’re now more confident. How do you mean?
Zach: I’m finding that so many things that I want to say I am catching myself because I’m realizing how arrogant it sounds, but I look at it and I think I could do this again. I’d feel like we have learned so much in such a short period of time. And we feel like, particularly you know, we talked a lot about biz-dev and things like that. We built our software kind of the right way and kind of the wrong way and you learn a lot of that along the way and you start thinking, man, I can’t, I could do a startup again, but I could shave off so much time and frustration.
But also, just the process of negotiating and selling and all that, it’s, I mean, I look back and I just feel extremely blessed that I’m, you know, 29 years old and was able to go through a lot of that stuff at such a young age. I feel blessed and almost like it’s unfair, right, that I was able to have that sort of experience at such a young age because I do feel that much more confident in what I could do in the future.
Andrew: And in the beginning, though, you felt like it couldn’t happen to you. What do you mean by that?
Zach: You know, every time you go talk to an investor, a partner, you have to go in confident, right. You go in, I can think of so many different conversations with investors where, you know, you’re telling them you’re going to get them that 10X and you spell it out, how it’s going to work financially and I can connect all the dots and you can see it. And you start telling that story.
And I think you go in there, and you pitch with a ton of confidence, but in the back of your head, you also think, dude, like one in ten actually gets there, and are you really that one. You know, you start getting those, you think in the back of your head, like, I don’t know, man, this is.
Andrew: So, how do you deal with that? How do you keep it from crippling you and hurting your pitch?
Zach: You just, it’s like the reality distortion field, right? You just keep forgetting about it. You have to, it creeps in all the time, right, and this happens in everything in life, right. Any sort of doubt or anything that’s going to push you away from being able to do something big, you just have to forget about it. You have to just not let your mind welcome those thoughts, right.
Andrew: How do you stop your mind from going there? Do you shift to something else, or have you found a way to just ignore it?
Zach: I just personally found a way to ignore it.
Zach: I don’t know. I don’t know how I can even describe it. It’s more of a, just an unwelcome thought, right, it gets shunned right out of my brain, right. We, because there are so many times where you get to that point of, you know, this sucks, man.
Let’s look at the financials, let’s look at historical trends, let’s look at whatever else, and you think, man. And particularly in the very, very early days, right. You look at it and it just looks so, like, incredibly, I don’t know, like desperate, right. I don’t know. I think of one thing, just continues to come back to mind for me in particular, and it comes back to family.
What I mentioned in the beginning, where you look at it and you think, what happens if I fail? Let’s, like extend this out maybe a month, maybe a year, maybe three years. Where am I if this fails? And where am I if I succeed? And then I think, what does either scenario mean to my kids and to my wife? And suddenly, it’s, all right, like, let’s hunker down and let’s go kick some butt again.
So, I say this always, but I always have this in the back of my head, of like, Owen and Jessie’s dad will not fail, right? It’s just not going to happen. So it might sound kind of cheesy, but it works for me.
Andrew: It’s not. It’s inspiring.
Andrew: OK. I want to do a quick plug and then I want to ask you about this list of recommendations that I refer to throughout the interview.
Andrew: And for me, the quick plug is for Mixergy Premium. And actually I should say, guys, there’s a whole archive of interviews and courses that I’d love for you to check out. There’s a link always at the top of every page that links to interviews and courses and I’m going to refer you to a few that relate to this interview.
Since we talked about Wildfire, the founder of Wildfire was here on Mixergy telling the story of how she came up with her idea and how she built it up. Since then, she sold it and she and I have been talking via email about having her back on here. Because she’s part of Google, we’ve got to talk a little bit before we can make it happen, but the interview is fantastic and I’ll show you guys how she came up with the idea and built it up, and built what Google wanted so badly.
There’s also an interview with Buddy Media, who was on the wrong track for a long time about what they were going to do with their, what the business was going to be. And I remember talking to the founder about how he figured out what his company was going to produce. He eventually sold to Salesforce, for apparently $689 million. But like we talked in the beginning of this interview, you can’t really tell. You can’t tell for sure, but it was a nice exit for him.
And finally, for courses, Nathan Latka, the founder of Heyo, which helps create online presence, he talked about how to find customers from Facebook and how to bring them to your site, how to get them to actually buy from you. And there’s a whole course that he taught on that. And it’s all available on Mixergy. You just click the link at the top for interviews, click at the top for courses, take all those, and I know that they’ll be valuable for you.
And of course, if you want to join us and be a member and really get access to every single thing that we do, go to MixergyPremium.com. I guarantee you’ll love it.
By the way, do you know Nathan? I was hesitating midway through talking about him, because I said, maybe Nathan and Zach are competitors and now I’m talking about a competitor in Zach’s interview.
Zach: [laughs] No, we know each other, yeah. We’ve exchanged several emails and then we actually met, when was it, late March maybe? Actually met face- to-face and hung out for a little bit, so, yeah. Yeah, I know Nathan.
Andrew: He’s good that way. He seems to reach out to everybody.
Zach: Yeah, he does. Nice guy.
Andrew: So, I don’t know if you remember what your list was. How about if I read you the five things that you recommend, and you just tell us why you put them on the list. Is that cool?
Zach: Sure. Yeah.
Andrew: Not necessarily in any order, but, number one is ”Rework” by Jason Fried and David Heinemeier Hansson. Why ”Rework,” the book?
Zach: So, honestly, there’s so many things I love about that book. I love how simple it is. I love that I can read it quick because I’m, like, incredibly impatient. But it’s, one thing I love about it is it tells you so often things that everybody says that you can’t do, they say you can do it, and they give you evidence that you can do it. And I just love that, I just think it’s really inspiring.
Andrew: Yep. Very quick read. I remember reading it on a bus in Patagonia because there’s nothing else to do and it let me get my mind off the bus. It was a good read.
Next book is, ”Start with Why,” by Simon Sinek. Why that?
Zach: Honestly that, plus his TED talk, are just awesome. I mean, again, to me, just super-inspiring. I think that way too many entrepreneurs start companies for the wrong reason. They start companies to get rich, they start companies for accolades, they like the title entrepreneur, you know. I think that’s a swear word, right.
It’s, get in there and, like, try and change the way people do stuff. Try and create a legacy. Try and improve the world in one way or another. And I’m not saying necessarily GroSocial the software makes the world a fantastic place, right, but I can say that it’s helped so many different small businesses find new customers, make more money, stay in business, and we have some fantastic stories along those lines.
But in addition to that, I think of the people that work here, and things like that, and it’s incredibly inspiring to me. And I love the thought of just, shift of thinking. Not just from a business standpoint, but from a life standpoint, like, why are you doing what you’re doing. And if you don’t know, like, figure it out and maybe change what you’re doing because it might not be in line with where you’d like to be.
Andrew: Start with why. Find your purpose. Next is ”The Lean Startup” by Eric Ries.
Zach: Love that book. I know it’s like this, everyone says that, right? But it is from, like a product development standpoint, just brilliant. I don’t know what else to say except for that. It’s like a must-read for any entrepreneur starting a software company. It should be probably the first book you grab.
Andrew: And you guys did that. What does he call it? He says, start with the concierge VP, concierge minimum viable product. Basically you do the work for the customer so you understand what they want, and then build that minimum viable product, where you’ve said, all right, I’ve taken you a step extra, a step further, we’re going to build something even simpler than that, and then build a company. So you clearly have been influenced by him.
Anything by Mark Suster? Why do you like Mark’s writing?
Zach: I just think that, from my experience, it seems like everything he writes is, like, spot on. I think that also, there are different people that I feel, particularly in the blogging world and in the entrepreneurial space, that feel a little bit self-serving, and I don’t, I’ve never gotten that sense when I read his stuff, which makes me trust it that much more. And I just think it’s fantastic advice. All along the way, I’ve been thoroughly impressed with the stuff that he produces.
Andrew: I’ve got to say, even as a human being, I remember when I first met him, when he started doing venture capital in Southern California. I was at a conference and I said, oh, Mark Suster’s here. And then he comes over and says, or, he turns around and says hello to me. He’s sitting at a table with other entrepreneurs. I thought, that’s kind of interesting, sitting with other entrepreneurs and saying, and inviting me to join, and then continued from there.
And it was especially different for LA, because in LA, the venture capitalists are sitting so remotely from entrepreneurs. They are in such beautiful offices, but they’re in those offices and you come to them. And here he is, this guy Mark Suster, just kind of hanging out with us. And at the time, I was engaged, and he started talking to me about my fiancee and how weird it was to use the word fiancee, and just, like, sharing what was going on with him and his wife early on. And this was soon after we met. I like that guy. Genuine, even offline.
Andrew: And then finally, anything from the guys at Venture Hacks. Why?
Zach: Just spot-on fundraising advice. I mean, I, in my prior job, I was, I mean, I was [doctoring], man. I was very, very, impressed with the stuff they produced because I found it to be accurate, and like, beyond accurate, every single time. I would take something they said and, like, apply it in a pitch deck, or whatever else. I would say anybody who’s trying to go raise some money, you should be very fluent in what they’ve produced.
Andrew: Yeah, great site, Venturehacks.com. I’ve seen lots of funded entrepreneurs talk about how valuable that’s been for them.
Andrew: All right. Zach, thank you so much for doing this interview.
Zach: Thank you. It was fun.
Andrew: You know what I especially like about this interview? I was really worried about this. We’re still on camera, so don’t say anything that you don’t want to.
Andrew: But I want you to know what I especially like about this interview. When I saw your story and I said, oh, this guy sold his company in under three years, and so it was quick and he made good money from it, and he’s not promoting anything else, there’s no reason for him to do this interview. That means I’m going to have to really pull information out of him. It’s going to be really tough. He’s going to act like he can’t stand even being here and regret that he’s not, I don’t know, on his boat or something. And I’ve had interviews like that. This whole time I’m just watching. You’re so friendly and you’re so giving and you’re so good with the stories, and took me from a place of worrying to a place of feeling such comfort in this interview. And as a person just talking to you, selfishly, this is apart from the audience, I really appreciate it. But I know that the audience gets a lot of value out of that too, so thank you.
Zach: Hey, thank you. I hope nobody watching fell asleep or anything.
Andrew: No way.
Zach: I appreciate it.
Andrew: All right. Thank you all for being a part of it.
Zach: Thank you. You bet.
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