This is part of my series of interviews with companies that got mentoring, funding and support from TechStars.
Andrew: Coming up, if you ever need help, who can you go to to help you think through your ideas and get support? Today’s guest did something interesting that got three entrepreneurs to help him. Pay attention to it because I think it could help you someday. Also, what do you do if a giant like Amazon enters your business? How do you keep growing? Today’s guest did it and he’s going to show you how he did it and how you can too. Finally, listen for the P-word. I’m not going to tell you what it is because I don’t want to scare you off, but listen for that P-word that sounds painful to impose on a company, but that could have massive, massive growth implications for your business. All that and so much more coming up.
Three messages before we get started. First, do you need web design work? Go to launchtower.com. It’s run by Alex Champagne who has helped me with a lot of last minute projects at Mixergy. Now he’s running a design company at launchtower.com.
Second, do you need a lawyer who actually understands the startup world that you live in? Go to walkercorporatelaw.com. I’ve known Scott Edward Walker for years, so tell him you’re a friend of mine when you go to walkercorporatelaw.com.
Finally, what are the big challenges that you have as a founder? Go to mixergypremium.com and take courses taught by proven entrepreneurs who want to help you get through your toughest challenges. Mixergypremium.com. Let’s get started.
Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. What happens to a startup after an outside executive becomes its new CEO? Jim Franklin is the CEO of Sendgrid, which helps companies get their email delivered easily and provides them with analytics so they can improve their message’s effectiveness. This is part of my series of interviews with companies that got mentoring funding and support from TechStars and Jim, thanks for coming here and telling your story.
Jim: Glad to be here. Thanks for having me.
Andrew: A shocking thing happened to your space on January 25th, 2011. What was that?
Jim: That’s a day we remember well. If you’re fortunate enough to have great product market fit and get some really good early metrics, there’s something that’s going to happen. You’re going to attract attention. Attention’s going to come from competitors, both large and small. In our case, that attention came from Amazon, specifically AWS came out with a directly competing service called Simple Email Service at one tenth our cost. Worse yet, a chart got passed around the blogosphere showing Sendgrid pricing here and Amazon pricing here. The chatter was all about, “Is this a Sendgrid killer?” That was really a day that was very interesting on a couple of levels. One, it was huge validation. I was actually in the interview process at that time, for the CEO, and many people felt that was [??] for Sendgrid. “How’s Sendgrid going to compete?” For me, my interaction with Sendgrid to that point had been nice, but it just felt like the company was doing so well. It was not a fun project to work on, but when Amazon comes you’re [??], “This is going to be fun.” Like the David and Goliath thing. I love that chart. The reason I love that chart is because we were on it. There were five other little companies, which I won’t mention, who had also come into our space and they weren’t on it. It was great to have Amazon recognize us as the market leader and the one to beat. Even today, in Amazon’s job ads, they say, “Come join us to help become the leader.” They still recognize that a year and a half later, we still are the leader.
Andrew: I want to hear throughout this interview, why they brought you on board. They were in conversations with you, as you said, before this happened. I want to hear what you, as an outside CEO sees when you enter a startup. I want to know what’s working, what’s not working and then how you fix it and help the company grow. Let’s make sure that people even understand what Sendgrid is. Maybe the best way to do it is through the eyes of one of your clients. How about Pinterest? Pinterest is in the news a lot. What would a site like Pinterest, who’s one of your clients, do with Sendgrid?
Jim: That’s a great example. At Sendgrid, we work with early stage and merging companies. It’s 60,000 customers. Some of them grow to be big, like Pinterest. What we do is when a developer writes a web app, that web application needs to send an email, maybe for registration confirmation when they first sign up, or in the case of Pinterest, if you have content and it’s been pinned [??] and an email goes out to let you know what’s happening with your content on that site. We do that email infrastructure layer that moves the email from your application to your customer’s inbox. [??] deceivingly, appears simple, but is not so simple.
Andrew: I can imagine that a lot of people who haven’t faced these issues might be sitting in the audience thinking, “Wait a minute. This is Pinterest. Pinterest can do all this stuff and they can’t even send out an email? I could send out email. I’ve been sending out email since I was a kid.” There are problems, like?
Jim: About 20% of machine generated email doesn’t get to the inbox.
Andrew: Twenty percent does not.
Jim: [??] return path, one of our partners keeps track of a set of statistics and you and I send an email to each other, that works. Human generated mail. The trick part comes in when you write an application. An application then sends the email. That’s where the spam filter, or the [??] of the Internet can just bounce into outer space, or drop it into a black hole. People are like, “I never got my shipping confirmation. I didn’t get my receipts. You never told me that [??] photo. I want to know about that kind of thing.” The developer has to start figuring out, “Why is it that people who have certain email addresses aren’t receiving email from [??] application?” That’s where we have no [??], 100 people focused on doing this one thing very, very well. It’s like any modern business, we have a premium model so that it’s free to start and we also offer free support for customers and non-customers. If anyone in the audience who’s a developer and you’re pulling your hair out about, “I hate messing with email,” just let Sendgrid take care of it.
Andrew: You will make the phone calls to AOL and figure out why my mail isn’t coming in, and you will make the phone calls to Yahoo and deal with the headaches over there?
Jim: [??]. We have this [??] four billion emails a month on behalf of customer [??] have good relationships with those receivers and, in the case of Pinterest, or Spotify, if legitimate mail’s not getting to the inbox, we can help solve that problem.
Andrew: Isaac, the founder of the company was here about two years to talk about how he built up this business. It’s a phenomenally successful startup. At one point, before you came in, was thinking of bringing an outside CEO. Others had advised him to do it and what was his response in the past?
Jim: Isaac’s awesome. First of all, encourage people to go back and listen to that interview. It’s an absolutely, amazing story about how he and his two co-founders started the company. They really did a great job of getting [??] product market [??] really good, early traction at [??]. David Cohn and Brad Feld just [??] megaphone to launch this business at this time. Isaac is a very sincere person and like many founders, they sincerely feel like, when the time is right, they’ll be ready to step aside. However, when you go forward in time, the perspective of board members, or investors, or maybe some other people in the company that recently hired non-technical people, might have a different opinion as to when that right timing is. People are [??] polite and they [??] things like, [??].
Andrew: Jim, do you have anything running in the background that could be taking up any bandwidth? Even Chrome, if you’re checking Gmail, would be an issue. Guess we should have run through this before the interview started. Dropbox. If you have that running in the background, sometimes when that syncs.
Jim: I’ve got a few of those [??], Safari. I just have only Skype open here.
Andrew: The connection was really strong when we were just chatting before the interview started, and I could see that it’s starting to deteriorate, so I thought maybe something was synching.
Jim: Would it matter, I’m just running off battery power?
Andrew: No. We’re fine. Whatever you did seems to have helped a lot.
Jim: [??] some files.
Andrew: Isaac thought, when the time came, like any entrepreneur, he’d be ready to step aside and let a professional come in and run his business and he could do other things, but?
Jim: People have different perspectives on when that time [??], and when board members start to talk to you about, “We should be thinking about it,” they’re really being polite and they’re really throwing some big flags here. As an owner, entrepreneur you should be thinking about, you really have your antennae up and be sensitive, like, “Maybe it is time for me to [??] in the CEO role.” One thing (?) is that if you’re a founder, you’re acting CEO. But not really a CEO. If you think you’re really the CEO, ask yourself some questions like; Do you like to attend meetings? If the answer is no, then, probably CEO’s not the right job. Or, do you like to build stuff? If you think building stuff and being creative is fun, then maybe you should do that. And not be a CEO.
Jim: I see, but there are some entrepreneurs who do like, not necessarily attending meetings, but the persuasion of being in a meeting. The mechanics of a company. The outside conversations that go along with being a CEO. The strategic thinking. So you say, for them, are you saying that all founders need to at some point think that some….
Andrew: I think that’s a relatively rare case.
Andrew: I think the best thing you can be is a co-founder, and the second best thing you can be is the founder. Way down third on the list is CEO. I would think that founders should use CEOs as, sort, the hired help. You know, execute their vision of plans. So being a Board Member, a Chairman of the Board and be a founder, are highly influential roles, and (?) strategy and make the big decisions. I think as a founder, especially like Isaac, you should just pick out the good parts of the things you want to do.
Jim: Can you as a CEO, someone who’s so experienced, we’ll go into your background in a bit, can you really take someone else’s vision and not say, “Hey, I’ve got a different vision. I’ve seen the world. I’ve run businesses before. I’ve been in businesses before. Let me show you the better vision.” Or, “Hey, you’re building this product you don’t know the overall situation here.” You can’t do that, can you?
Andrew: I talk about, there are really three roles in a company. There’s the (?) people that build stuff. There’s (?) who go to market. (?) about sales and pricing and competitive response and that sort of thing. And then there’s (?), people that think about legal, and facilities, and financing and all that. So, in my background, I cover (?) and go to market rather thoroughly. But not so much on the product side. Isaac is all the product side. So we make a really good team because my sense of vision has much to do with culture and people, and the business process. Less so in the product direction, so I’m not here to tell Isaac about how to email better. That’s Isaac. He’s about product direction and strategy.
By bringing me in, it frees him up from having to deal with the bankers and people sales process, and all of those things which he was not interested in. And that’s not the fun part for him. Our next step was to bring in a VP of Engineering. Because we found that running engineering was not fun for him, either. That involves a lot of people and process. He would rather be building products. So Isaac’s in charge of our R & D. And he gets to build new things, permatech things, and there’s a very broad charter to do what he wants in that guise. And he’s also a Board Member, he’s a Management Team Member, so he’s highly persuasive in meetings when it comes to what we do with regard to, whether it’s email strategy or other things, say, we may pursue in the future.
Jim: Okay, so, he wasn’t ready before but he had great advisers because they said he’s from TechStars who are suggesting that he bring in a CEO. He was having conversations with you, then, boom, this Amazon thing hits, and he realizes what? What changes? Andrew: I think through the five month process where (?) were saying, “Well, then maybe you should start thinking about this.” And I met him in December, right before the holidays, again, I just didn’t really feel like he was brought into the process. But in January, when Amazon came in, it was a big enough move that he had to do some kind of response. And thinking about competitive response is not his background, or area. He really wanted to focus on building an awesome product, and making developer’s lives more awesome.
That’s what Isaac’s all about. And thinking about Amazon and their price strategy, and how we should adjust our product strategy in response to that, was not something he had done before. And that’s the kind of thing I let them do before. You realize that, you see the good in things. And actually I can say here, that a year and a half later, Amazon’s been awesome for us. In our (?) I actually have Amazon listed as a partner. And investors were like, “I thought they were a competitor.” And I said, “Well, they’re an inadvertent partner.” They’ve been awesome for us to help us create a much bigger market and their product is aptly named. Simple email service. It’s simple, and then people try it, and they end up buying the (?). So we’d be happy if everyone used Amazon’s product tomorrow.
Jim: You know, I was going to ask you about that. Let’s hold off and see how you understood how to compete with Amazon. How to message in a world with Amazon in it. But, I want to continue with this story. Isaac’s not sure, Amazon comes in. He says, “You know what, now’s the time to really act faster.” You come in, and you as an outsider see what?
Jim: Well, that Sendgrid’s doing awesome. That’s the overall view. The company had tremendous momentum, great brand, great people, great technology, and so we had a leadership position. The key thing was to not panic or over-react. And I think that is the risk that can happen if this is your first time through this situation you think that a competitor or any kind of external factor will make a big difference. And it’s surprising that after doing this for 20 years, wow time flies, it’s amazing just how much inertia there is in the world. And having seen that before it allows you to take a deep breath, watch a few key metrics on a daily basis to make sure this isn’t one of those rare cases where the world really has shifted on you. Our daily sign-ups, our traffic, continued to move along. It was in May.
Andrew: But it took a hit after Amazon, right?
Andrew: It didn’t.
Jim: It didn’t. Actually we have some beautiful charts to show all of our operating metrics just moving smoothly up to the right. And I like to ask investors or new key hires, I say, “Show me on this chart where Amazon came in.” And they’re like, “We can’t tell.”
Andrew: So one of the first things you had to do is say, “Look, guys, let’s not get carried away and assume that everything is gone and destroyed because Amazon’s in the market.” And frankly, as an entrepreneur, I sometimes get to these places where if something bad happens it means everything’s going to pot. All my worst fears are suddenly going to be realized. And you come in and you say, “Wait. We still have great customers. We still have new people coming in every day. We’re still handling tons of email and our partnership with the companies that process the emails that we send out is strong. Let’s not overreact. Let’s think with our heads on.”
You also noticed that this was a fast-grown company that didn’t have processes, you told Jeremy our producer. Can you talk about that because I think that’s an issue that a lot of entrepreneurs face.
Jim: Yeah, process is a dirty word and I don’t like process, that’s why I don’t like working for a big company. But then there’s some processes is good, and it’s finding that balance. And again it just comes through lots of experience [??] around hiring. When you’re scrappy and your cofounders are people you know and worked with in the past, those next five or ten hires are when you get that core group of ten or fifteen people. But once you hit 20 or 25 people, people start to expect there to be a company, right? And there’s an interview process, a [??] process, and thing like that.
Andrew: And that didn’t exist, so how would they hire back then?
Jim: Well, ad hoc might be the best way to do it. Casual interviews without structure or particular purpose. One thing we got real clear on first is culture and value. And we articulate that through the four H’s, honest, hungry, humble, happy. and we have interview questions and a process for that, right? You need to interview people not just in your same functional area, but in other functional areas, different levels, different ages of people, and it gives a different perspective on candidates. Having that discipline on the front end really helps your hit rate. I think we’re probably solidly over 90%. We’ve hired 50 people already year-to-date here in 2012.
If you follow that process you have a very good hit rate. Where I think if you do a more random process, friends, quick referrals, no background checks, all that stuff, that might be one in three. So you have a two- thirds failure rate, which is my personal background before having developed this about ten years ago and being more process-oriented. I met a guy on a plane the other day and thought ‘Man, I want to hire this guy.’ But you have to put them through the process.
Andrew: Why do you have to put them through the process? Doesn’t that then start to slow things down? I mean, one of the reasons why entrepreneurs are hesitant to bring in professional managers is the sense that professional managers are going to put into place processes that mean that someone who you know is going to be a good hire and who you can fire quickly if things don’t work out, suddenly has to go through weeks of conversations that eat up his time and people’s time internally. And that doesn’t end there. There’s procurement processes, there’s processes for sales, everything then becomes so process that it becomes slow. Why is it a good thing?
Jim: So it’s finding that right balance. The cost of that hire is tremendous and it’s not easy to fire people fast. It’s easy to say and hard to do. So trying to slow down your hiring process can be infuriating, but you’ll realize in the long run that bringing in people that are the wrong cultural fit or don’t have the skills they say they have, or maybe you did work with them in a different situation and that was effective, but they’re not going to be flexible in applying their approach from a previous situation to your current situation. And just having that check, maybe it’s not weeks, at least, it should be days, of time to think about things.
With a new hire, they join us, and they wanted to make a pretty big decision on a particular day, it was on a Thursday. And I felt like, we really need to think about this for a little bit. I said, can we make this decision by Monday? So in three days, I wanted to check some other departments and just vet a few things, and then we made a decision that was a several hundred thousand dollar decision, but we did it in four days. So you can add some process and give it that founder and entrepreneurial zeal to really beat all that, and then be like, OK, let’s pull the trigger.
I think pulling the trigger same day would’ve been risky, or more risky than was prudent. But we’re not going to go on for weeks. I actually most recently came from Oracle, having been a [??] there. And it took us 13 months to get a pricing approval, a price increase approved. Thirteen months. The whole year was over, right? To try and make any difference. So I’m very sensitive to sort of minimize approvals. I’ll try and do [??] the A word. I’m like, don’t say the A word. We try to–
Andrew: What’s the A word?
Andrew: Approval. I see. Sorry. The connection again is starting to go a little bit slow for some reason. I see that the screen’s frozen. Sorry. We just lost what you were saying. For some reason, the connection was going a little funky. You were saying there are two things, and I didn’t catch what those two things were.
Jim: If you work for me, I require you to do two things. One is do something I disagree with, and two, make a mistake big enough [??].
Andrew: Big enough that what?
Jim: At our board presentation each month, is your mistake actually big enough to show up there? And that does two things. One, it makes sure that I’m not doing your job, because you should do your job better than I can do it, so there’ll be things that you do that I disagree with. I’m like, I wouldn’t have done it that way. I need to learn from you about how you do that job. And then you should be doing hard things, right? And doing things without approval and making mistakes. And if you’re making small mistake, we’re not going to be a great company. If you’re making big mistakes, and they’re hopefully not illegal, we’ll be a great company.
Andrew: By the way, Jim, and I was asking not because, and I know that you sensed it in our conversation, not because I was challenging you on any of your systems, but because for a long time, I thought that, I don’t need systems. I just get this phase. I don’t need system. I live and breathe this space, this world. I can make decisions quickly. Systems are just going to slow me down. What I found was, systems forced me to analyze my process. They forced me to be consistent about they way that I did things. They allowed me then to hire other people who can run systems and then improve them, too, so I didn’t have to do everything, or just expect that someone else was going to figure out how to handle it themselves on day one. So I’ve, through these interviews, come around.
One thing I’m wondering is, how do you improve a system once it’s in place? Once you have hiring, how do you know which part of the hiring process meant that four months down the line, someone who you hired was bad and you need to go back and change that piece of the hiring process?
Jim: So the hiring process, part of the process is actually interviews. [??] agile, the vernacular, the retrospect of online growth, why did that hire not work out? It’s never because they’re an evil person. It’s, hmm, they didn’t fit, and what did we miss in our interview process? We had an example where someone just literally wasn’t capable to do the job we asked them. It’s not that they’re incompetent. Our hiring process failed. We didn’t actually test the skills thoroughly enough, and it’s a position that’s hard to fill and had been open a while, and we got sold on someone’s skills rather than saying show me. Two most powerful words in business, show me. They used to work an Excel-based company, just have someone use Excel for 10 seconds in front of me, and I can get a sense of how good they are.
In front of Isaac, just have someone do a little bit of coding, and he can tell rapidly that they’re BSing you or not on what they’re doing. So you do need that retrospect when you go back, and say, oh, we had this problem. Or we had a lady show up one day, and she started asking about who books our travel. And we’re like, you book your travel. And she had come from a very large company. And so then I realized, oh, we need to put into our hiring process the small company questions. Is this a small company person?
Andrew: Oh, I see. Yes.
Jim: That’s why over the years, I’ve had so many hiring failures. We kind of go back and say, oh, why did we fire this person? It’s like, well, because.
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Jim Franklin: Hire this person, right, it’s like, “Well, because they lacked humility, right? They thought they had nothing to learn from others.” Now we have this interview question around, “Tell us about times you’ve learned from others”, and it speaks to humility and those questions. So that’s how it kind of creates this energy flow and a self-healing process. I think more generally just all the business processes, like business development, you start off with a founder-sold BD process. Isaac set up our Heroku relationship which has been awesome. We’ve gotten 10,000 plus customers from Heroku, and Isaac set that up, which is great. He hired Denise Hulce as our VP of everything. She was our first non-technical hire. She was good and set up some relationships with Rackspace, but then she has been able to hire a real BD expert.
Now he has got 120 relationships and is managing a traditional process to sign up engineers and lots of other customers. I think that’s a great way to scale something where, you know, (?), because he knows the space and has personal credibility to go do something. You hire that early executive to kind of take it to that next step, but then that person needs to scale themselves with a key hire who has now actually hired someone else.
Andrew: Now, is there a system in place for putting together deals like that? Can you put a system together in place for that?
Jim: Yep. It’s like a traditional enterprise, a sales process. It’s a complex sales process. We think about sort of sourcing and signing deals as sort of a hunter function, and then there’s a middle step which is project management; that 90 days of actually on-boarding the partner and getting all the systems together, and then there’s the long-tail, which is more of a channel marketing function of making sure that the Sendgrid is well- positioned within that partner’s ecosystem, whether it’s a reseller partner or we’re in some kind of an application marketplace.
Andrew: So I think everyone in the audience knows Heroku is the place that when a developer has an app that he wants to run he just goes to Heroku, and he runs it on their system. Of course Heroku would be the partner for you guys because if that app needs email, Heroku would introduce that developer to Sendgrid, and Sendgrid would manage that person’s email. MediaTemple, similar type of relationship. If Isaac was able to build that quickly, and then we come in and say, “We need to put a system in place,” I could imagine an entrepreneur saying, “Oh, I just talked to them.” You just build friendships. Stop over-analyzing. In fact, I shouldn’t say I could imagine myself being in that place saying, “Hey.” I do it now, I go, “I just asked people if they want to do interview.
Why do we need this 20-step process, or even this 5-step process to bring in new interviews? Can’t everyone just go pick up the phone and ask their friends to come on and do interviews?” No, in fact, what am I trying to say? Because I’m recognizing that I would think the process is too much if someone were putting this on me; especially, if I were able to just start a conversation and get a big deal, like Heroku. What would I do? I would come to you, and I would say, “Jim, can’t we just hire someone who is just good with people, and knows his space, who can just find other Herokus, who could just email them, or talk to them and bring them in?”
Jim: There are different skill sets at play. Let’s think about the hunter versus the farmer. That person you’re referring to is really the hunter, right? He’s out in the market, has the relationships, is good at talking to people, and can get the Heroku to say yes. Awesome. Well, saying yes is one thing, but then delivering on the expectations of that relationship is another thing. That’s where you shift into the sort of farmer execution mode. Part of our work with Isaac is understanding different people’s strengths. Some people are great at starting things, and some people are great at finishing things. It’s hard to find one person who does both. It’s almost like being left-handed and right-handed, right? It’s not that one is better or worse, they’re just different, and you want the hunter person to go get that relationship, but then there are people who really like to farm. They want to take that commitment, the customer said yes. Well, what did you mean by that? How are we actually going to operationalize this? How is the billing going to work? How is the single sign on going to work? All these details. Generally, those hunters are bored by that. They’re like, “I don’t want to do that. I want to go hunt the next big deal.”
Andrew: So are we as entrepreneurs being unrealistic when we say, “Hey, I did it all. Why can’t I find other people who can do it all?”
Andrew: We are. And that’s one of the problems.
Jim: You probably did the hunting part, threw it over the fence and then forgot about it. That’s why building a team — hopefully you have, I like to think you have three co-founders, right? and mixing skill sets so that you can have one co-founder who might be the person who is out front throwing the fish in the boat, right? But someone then needs to deal with them when they’re in the boat. We found that with our sales model it’s a very similar situation. We have a self serve model. Just developers tell developers and they come to our site and it’s a self serve model, which is great. Then we have companies like Pinterest, who’ve become large senders, that need some attention. We want to talk to them and make sure that they’re using our service effectively.
We hired account managers to deal with our high volume senders to make sure they’re doing good sending practices and you just know what’s going on at Sendgrid and making sure their voice is heard inside of Sendgrid. For every 50 high volume customers, we have one account manager that understands their business. That account manager function is very different than what founders do, which is creative process and heavy on starting things.
Andrew: Is this what you do? It’s one of the things that you do as CEO, you come in and you create these processes? You build a business around the idea?
Jim: Yes. I think I’m more of a COO. I’m actually not a big process person. I’m much more of an external spokesperson and representative of a company. My academic training is [??] processes, so I appreciate them and I reluctantly use them. Maybe that’s why I’m a good match with founders. It’s like, “I recognize I’ve got to do a little bit of this”‘ There would be people that I would work with that would be good as for the follow through and execution on a business. I think CEO’s, a vision, values and culture and, in my case, it’s not vision creation, that’s Isaac, but vision articulation and presentation. I love to go out and talk to people like yourself. Isaac’s very happy to be working today. He’s in the flow [??] building [??] right now, rather than talking externally.
Andrew: Let’s talk about the vision and the way you communicate to the outside world what Sendgrid is and what Sendgrid was after Amazon. How did you figure out how to present what Sendgrid was in a world that thought, ‘These guys are goners. Amazon’s the one company that’s going to handle it all’?
Jim: Fortunately, not everyone thought we were goners. You hear a few people, it’s a big world out there. Tim Jenkins, one of the co-founders, does jujitsu and I find myself thinking in terms of jujitsu a lot. When you have a big competitor like that to try and use their strength against them. In this case, we just made some validation that they recognize that we’re the leader and to then distinguish, to get underneath it, what exactly are they offering? When we realized we were only offering this, then it’s like, “Our customers want something much broader,’ and we were a good 18 months ahead of them. We had already delivered on their future road map. There is no SES 2.0. That was part of our messaging, if we had to do that messaging was that, ‘If you want the next generation of SES, then that already exists and it’s called Sendgrid.”
We also realized that Amazon’s pricing metric was different than ours. With pricing, you think in terms of metrics, as well as volumes. We thought, “We don’t price it that way. We don’t price it by the drink.” We thought, “We could. Why don’t we?” We create an alternative pricing. We kept our pricing the same. We created an alternative pricing metric that was consumption based, but we also stripped back our feature set. We said, “World, if you want to consume email services on that metric, at that level, we’re happy to do it at that same price.” It was .10 cents per thousand. We said, “We’ll come out with a light version for ten cents per thousand and our [??] is even better, since you still get our free support and, of course, Amazon is not known for being easy to deal with, or you can call them.” With Sendgrid, it’s free support forever unlimited. We’ll solve your problem. You got a lot more. Also, Amazon charges by weight.
Depending on how heavy the mail is you send, there’s additional charges that are hard to calculate ahead of time. You’re not sure just how heavy your mail might be. We don’t have any kind of weight charge, so we were simpler, cheaper, free support and that has been the appropriate response for Amazon. [??] those customers really is [??], just like our free accounts and some of our bronze accounts even. If you’re paying us $10 a month, we appreciate that business, but we really think that $80 a month is our sweet spot. if you’re serious about sending mail and controlling your sender reputation [??] inbox, $80 a month isn’t too much to charge for that service.
Andrew: What I’m hearing are two ways to present yourself in a world with Amazon. The first is to say, “Everyone’s saying that we’re ten times their price. We’re not. They’re comparing apples and oranges.” If we were to give the exact same product as Amazon, or as close as we could get to it, we would match their price. In fact, we would actually give even more features. We have to come up with a product that’s similar enough that people can start to compare apples to apples. The second thing you said was, “We’re going to show that we are the next level up. If you want basic service, Amazon is going to be able to provide it, but if you need the next level up, in fact, many levels up, we’re going to be the company that you go to.” How do you come up with that? You can’t just sit down at a table over lunch and say, “We need a solution here. I’ve got it.” Then just articulate what I did a poor job of articulating right here in this interview. How do you get to that point?
Jim: That speaks to core management process and how you hire, the [??] you have, the teams you create. When I first became a CEO, people were looking to me for the answer. They’d say, “What’s the big direction? Where are we going? What’s the answer?” I’m like, “You talking to me?” What I do is bring the right people in the room, create an atmosphere where there’s a lot of trust and openness and healthy conflict, so you can work through these issues and come up with a good solution. Isaac had already put the core team together with the [??] person, finance, sales, marketing and his co-founding team and I just brought some decision process to that.
Meetings can go in lots of different directions. There’s some good books on the topic. Patrick Lencioni wrote an excellent book called “Death by Meeting.” It’s very thin and easy to read. It gives some helpful structures to think about how to structure meetings. Another system I use is called Proact where you think about the problem, the objective, the alternatives, the consequences and the tradeoffs and you walk through that. Two key parts are, the problem, what problem are you trying to solve? It’s amazing how people are trying to solve different problems. You will spend a fair amount of time getting clear on the problem you’re trying to solve and the other [??] is the alternatives.
What are the possible alternative solutions we could come up with to this problem? As the business leader, write one to ten on a whiteboard and that way your team will come up with ten different alternatives. If you don’t write one to ten, write one to five, [??] five alternatives. Get the ten and then you can start baking them off against each other. ‘What do you like about this one? What do you don’t like about that [??].’
Andrew: How could this problem be seen in multiple ways? It seems like it’s a pretty straightforward problem. What are the different ways that this problem could be seen?
Jim: With Amazon coming to your market? I can frame things in terms of opportunities. This is a huge opportunity to extend the same good brand because it’s been associated with Amazon. How do we create an upgrade path from the SES product to us? How do we intercept in between Amazon’s development group and the sales group? The sales group with Amazon that sells this product, actually sells a lot of things at Amazon. You don’t really care about those products. It’s an edge product. Their core product is hosting and getting people on the [??] infrastructure. If we can convince their sales team that selling Sendgrid helps sell more of their core product, can we actually use their sales team to sell our product? There’s a lot of ways to think about moving forward in this new environment.
Andrew: If you walk into a room and you say to the team, “We’re going to articulate the problem. We’re going to put it in big letters up at the top of the whiteboard. Then we’re going to come up with ten alternatives for how to deal with this problem.” How could this problem that you’re writing at the top of the whiteboard be expressed differently? You’re saying that you want to get everyone on board with the same understanding of the problem. The reason I’m asking is I want to see how it helps to have one clear statement of the problem up at the top of the board.
Jim: This battery’s running down rather rapidly, so I’m going to power up [??].
Andrew: While you’re doing that, what computer do you happen to be on today?
Jim: Mac Air.
Andrew: Macbook Air. Are you getting the full seven hours that they promised you?
Andrew: Day one I got my full, actually, I think day one I might have even gotten eight hours. It’s cool to see that in the upper right of the screen. Over time you get less and less. What’s happening, by the way, to the audience, Jim is actually not in his office today. He is in a conference room near his office and the reason is that his office got flooded. There were fires and rain and all kinds of stuff going on in Colorado. His office got flooded. What are they doing to your office now, while you’re in here doing this interview with me?
Jim: Big industrial fans in there trying to air out the carpet. In Colorado, we probably average about 15% humidity throughout the year. I think it’ll dry out quickly. If not, we’ll just come in here and use this room. Having a clear definition of the problem with regard to the Amazon situation, if you’re in this dire panic mode. It’s like, “How do we keep from dying?” I can think of one of our members that might have been in this sort of panic mode and framed it in that direction. I’m the most, the biggest optimist in the room, at any time, so I might be thinking, ‘How do we make lemonade out of this? How do we increase our ready [??] traction by leveraging all the [??]?’ Everyone comes at it from their own perspective about how they look at it. CFO might be thinking, “Is this going to trash our financing process?” If we had HR then, they might be like, “How is this going to affect our CEO candidates? Is this going to scare everybody off?” They’ll be like, “We don’t want to join Sendgrid.” The HR perspective might be, “How are our employees feeling about this?”
Andrew: So you say, “All these different issues going on, but we’re going to find one problem and we’re going to look at different alternatives for solving it together, but let’s focus on one thing here, so that this conversation doesn’t go a million different directions and end up being completely unproductive.”
Jim: [??] on that is six-hat [SP], thinking.
Andrew: What? I’m sorry.
Jim: It’s called six hats thinking to get people focused on on the same direction, so everyone is thinking about the human dimension, everyone thinking about the economic dimension, everyone thinking about the competitive dimension and you do those in series, so it’s like a laser. You want to get everyone on the same style of thinking for a period of time, otherwise, someone will be talking about, “Why is this great for us?” Someone is like, “This is why it’s bad for us.” Let’s all think about why it’s bad for us. Let’s all think about why it’s good for us. Let’s all think about how the people are feeling about it.” You do those in rotation.
Andrew: It’s called the sixth path?
Jim: Six hats. Wearing different hats thinking.
Andrew: How do you know all this stuff? What in your background prepared you to be able to do all this?
Jim: I read a lot. I studied accounting in school and then I did a law MBA for a round, until I was 26. You learn a lot by going through all the case studies and you get the black letter law on business stuff. Then being a life long learner. I see a pile of books there behind you. There’s a lot of paper books and electronic versions, got books in the car. Just trying to learn from others has been a key. Then just doing this for 20 years, you [??] a lot of coaching and have really benefited tremendously from, I’d like to call them peers, but really people that were five or ten years ahead of me in my functional role. I was 28, I became a CFO and my then CEO said, “You’ve got to go out and meet other CFOs. You have no business being a CFO.” One of the fine people who were 35, or so, just tell me about, ‘Which GL system do you use? How do you negotiate leases? Am I getting a good deal from this banker, or not?’ It’s incredibly valuable. I basically take three people to lunch. I buy lunch, so for 100 bucks I get an hour’s worth of their time to ask them all these questions.
Andrew: Three people to lunch at once?
Jim: Yes. There are four people at lunch at some downtown business [??]. Just be like, ‘Tell me about board communication?’ It’s like, ‘I’ve got one board member that wants a thick packet and one board member that wants a thin packet, and how do I make it all happen?’
Andrew: Today you can do that because you’ve got backing from TechStars. I ‘m looking at your background here, you’re a board member of AWare, you’re a mentor at the Founder Institute. You, of course, can get three people to sit around a table. When you were just starting.
Jim: When I was 28, I did this.
Andrew: Tell me why would someone take your phone call? Go to lunch with you, with three other people and basically give you advice? What’s in it for them?
Jim: I think that’s part of what makes Colorado awesome. Everyone always says, “Yes.” Never has anyone not returned a phone call or not taken a meeting who was in that kind of situation. Whether it’s Denver, Boulder, this area, people are helpful. We want to see other people succeed. It’s a [??] issue. I did a lot of volunteer work when I was 26 to 28 for the Rockies Venture Club. I got to be known around town as the guy who put on events, that is, putting on the venture capital panels and what’s the pros and cons of [??] investing. Every time you would call investors and say, “Would you come speak on a panel?” And I was like, sure, let me see if I can make calendar. If not, hey, you should try to call Bob, [?] or Mary and see if they can come to the pane.
Andrew: If someone’s in the audience listening to you and saying I want to do what Jim did. I want to get three people who are also entrepreneurs like me or three people who are CEOs and further along than I am together so they can give me advice, what would you suggest that they do? How do they make it work and worthwhile for the three other people who are coming to lunch with them?
Jim: I think it’s pretty simple especially with the modern day tools like LinkedIn. I’ve been a very active LinkedIn member [?] and I did this at CFO and then BP Sales then CEO so three times in my life I’ve had to reach out to a functional area and say, hey, that’s me. So I think that this is always as simple as identifying people and asking or finding that qualified introduction which [?]. The ecosystem is so small that it’s pretty simple. You’ve got lawyers, bankers, these various programs like Pharmasuit and TechStars and the venture nextworks and say oh, I really want to be VP of sales and then the zip code. Being on Pearl Street here in Boulder, it’s pretty simple to say let’s go to Hapa Sushi and people are like, sure, I like sushi.
Andrew: Is it also helpful for them to get to know each other, to meet each other and talk?
Jim: Absolutely, and I think the reason their helpful to you was because someone was helpful to them. [?] I’m 46, I’m thinking if someone asked me, it wasn’t that long I remember, it’s just a paying it forward concept alive and well in this system. So you have a receptive audience. I think if you can handle CEO of a public company, that’s a lot harder but we’re talking about venture [?] based companies where someone’s VP of sales or CFO [?] find a BP person. [?] Boulder then software reps have forums or VP sales, you’ve got your CFO’s get together or CEO’s get together. I think, I mean those are awesome and I love them but I think me just me hanging with a couple of people in your own function is awesome. I really encourage my own team members to drop in and view that. It’s like go find people in other companies here in town like, Trada and [?] that, you should know your counter parts. We also [?] to public companies, that have just gone public and one reason we took money from investment partners [?] investors in cornerstone [?] it’s really a great team, we already knew pretty well that also an investor in other companies so, and encourage people to know their counterparts [?] organizations. So we can learn from each other and we certainly learn a lot from them but there running three years ahead of where we’d like to be.
Andrew: You said a couple of times to Jeremy Weisz, our producer, when you talked to him about this interview that a CEO earns his pay about one day a quarter. What do you mean by that and what’s that one day like?
Jim: Well, I’ll say you’ll know it when it happened. When you’re a founder, you’re in there every day. You go from this progression from starting a company as a founder all the way to a board member; you probably earn your pay every other year, maybe every third year. It’s very unusual that you would actually do something that makes [?]. So a CEO is probably about one day a quarter when you do something makes really makes any difference. As an operating person, so if you’re a sales person or support, you have to show up every day and do your job, right? Make those 50 phone calls, do those 50 tickets and do that [?] whether you’re a front line manager or a VP, you have less of a material influence.
And so a CEO, that one day a quarter, you’ll make a hard decision. You’re like OK, we’re going to steer this ship and go this direction. Having a management team and using [?] to makes decisions, there’s so many decisions to make, that is organization that really makes good decisions here. But if [?] a year, I will do something [?] like get it, I’ve got all your feedback, I understand that the team thinks we should go right, I think we should go left and in case of Bessemer we would go [?]. No one inside the company wanted to raise the money. We didn’t need the money financially but I just had this sense that associating ourselves with a very top [?] firm that really knew, had the playbook of how to go from a fast growing [?] company to a cornerstone, a public company with a billion dollar market cap.
I think we just needed some more help to connect the dots from $10 million to $100 million in revenue and they’ve done awesome with that. But that’s like one of those days your like where [?] this money or we’re going to go do a big strategic shift. Those are rare days. Sometimes it might be more of an HR issue. Earlier this year, someone did something that violated our values and the black letter law is you hire and fire on values. This is one of those cases where I could have [??] and said, ‘We’ll just let that slide. ‘That would have sent a signal to employees that we weren’t serious about some things, but I just knew, this is one of those days. We had to go through an HR process.
Andrew: What’s the thing that they did?
Jim: It was a sexual harassment issue.
Andrew: It wasn’t so big that it was clear there was a huge violation, but you said, “If we start letting this little slide.”
Jim: [??]. We took the whole company to Cancun for a kickoff event. We have an office in California and one in Colorado, and one of our challenges is communication. It’s important that the whole company get together once a year and clap for all the good things that happened last year and then set goals and talk about what we’re going to do in the coming year, so people can especially relate their daily work to what the overall plan is. Bring a bunch of 20-somethings to Cancun, there’s some things that might happen that should stay in Cancun. But if you’re an executive, you can’t let that slide.
Andrew: That makes sense.
Jim: [??] led to the termination of somebody, which was very difficult and [??] back, but I think we made it very clear that we’re all serious about what we’re doing with the values and you got to move forward from there. That was a day, the day we got back was, “Am I going to override on this, or is this just another regular day, and are people going to build software and sell it and just want to relax?” I decided . . .
Andrew: That was it. I can see our connection start, there you go. By the way, there were times in my life when I didn’t make that firm decision, where I said, “It’s one time and I really need this person, so I better just give in.” Once you do that, you let everyone know that, if you’re that good, you can get away with anything. Once they get away with anything, they just continue. They’re not that good anymore, in time.
Jim: Having that gray hair [??].
Andrew: What’s it like to be in a company where everyone is so freaking young and you’ve got gray hair?
Jim: I’m 46. I’m prematurely gray. It’s exciting. I always want to be learning things. One reason I took this job, obviously, Isaac is awesome and the co-founders [??]. I’d never been part of a cloud computing SAS company, building a business. We want to build a $100 million business, $80 a month. ‘How does that work?’ Coming out of [??] selling software for hundreds of thousands of dollars. I get how that works. There’s just a lot of learning. [??] customers are awesome. If you think you’re a cool kid, look at our customer list. It’s amazing all of the new things that people are doing out there in the world and it’s [??], which [??]. It’s just amazing how [??], he’s relatively modern, but people who are out there doing developer relations, they’re in the field everyday at the startup weekends and hack-a-thons.
Andrew: You’re not at those events. Do you ever feel like, ‘These guys are going to feel that I didn’t earn my spot here everyday because I wasn’t at the Twileo, weekend event, at the hack-a-thon here, and I wasn’t at the South by Southwest party there. Do you feel any of that?
Jim: No. I think I make the South by Southwest parties, but the hack-a- thons, we tend to have separate spheres. I hang out with business people. I’m good at that. So when it comes to the fundraising and position the company in public markets is where I’m [??].
Andrew: Public markets, are you considering going public?
Jim: When you’re taking money from [??], that’s the playbook, is to be cornerstone. They went public a year ago, March. They’re the fastest growing public SAS company. That’s our A-plan is to build a company, again, I think as a professional manager, I like to think that I create options for shareholders in order to create a company that has the option to go public, where it has the option to be a very large business.
Andrew: Can you talk about the time that, in theory, you generated billions of dollars in penalties? That’s one of those CEO days.
Jim: We had worse days, but this was an interesting day. Being in the email sending business, there’s laws about [??] spam and “Don’t send spam.” Sendgrid is 100% committed to [??] mail. We want to move the world’s [??] mail. When I got here, that wasn’t exactly clear, that Sendgrid is paid by volume. An unfortunately 90% of the world’s volume is spam. And so if you believe in freakenomics and that incentives matter, we have this gravitational pull towards the dark side, so we have to be very conscious and directed about not doing that.
We also are a very high volume sender. So we send about two thousand emails per second, 24/7. That’s a lot of mail moving through our systems. And one of the rules in CAN-SPAM is you have to have the little footer at the bottom of your newsletter saying ‘here’s where you unsubscribe’. Well Isaac made some design changes to the product which made sense to him as an engineer. However, some of the people using the product are business people using this newsletter feature we have, and they didn’t understand some of his changes and they inadvertently scraped off all of their footers. And so when they sent of thousands or tens of thousands or millions of emails that didn’t have their footers, each individual email is an infraction of CAN- SPAM Act which has something like a $1000 fine or penalty to it. And so $1000 times hundreds of thousands of emails calculates into billions of dollars of potential liability. And so that’s one of those things you’re like ‘well that could be really bad.’ Just a little change in how the footer works.
Andrew: Because it’s $1000 per email, which just seems so excessive.
Jim: 2000 per second, right? That’s a lot. That’s $2 million a second of liability we were generating until we figured out that there was this misunderstanding. And it was really on our end, that we need to make the user interface more clear so that people knew how they were using the technology.
Andrew: All right. Let me quickly do this important plug and then I’m going to ask you an important question. Anyone who’s been watching this has been wanting the answer to this question. But the plug is this, that if you’re listening to us you’ve noticed Jim mention several times how he learned. He caught the books behind me, he held up his phone, because he reads even on digital devices, and Jim, even your cofounder when I asked him, the cofounder of your company, when I asked Isaac what happened in his life, what was that transformative moment? He talked about the book that he read. He talked about Elmer Thomas [SP] his friend who introduced him to those books and how once his mind was open to these new ideas he felt like he had these superpowers and he was able to build Sendgrid into this incredible success story. Well that’s my vision here with Mixergy, that if–are you sending me a message while I’m saying this?
Jim: No I think I just might have just accidentally. . .
Andrew: Did you just give me your password to something? You did! Somebody asked for a password and you sent it over. I feel bad. You can delete it. Delete it. I won’t look. I’m too busy trying to talk about Mixergy Premium. To the right of the chat message, if you click that triangle you can delete what you just sent me. And while you’re doing that I’m going to say that if you’re in to learning the way that Jim and I are, and Isaac is, I urge you to go to MixergyPremium.com. My vision for that is to bring entrepreneurs on to teach what they’re especially good at. And if they’re especially good at customer service I ask them to turn on their computer screens and to show me how they handle all those emails they get and how you can too. If they’re especially good at publicity I ask them to teach that. And if you go to Mixergy Premium and you join you get access to all those courses immediately.
And let me read you a quick testimonial from someone who did this. Daniel Tenner [SP] who you can read at swombat.com or tweet him @swombat, too, and ask him if this is real or what he thinks or get some more detailed feedback from him. He signed up and here’s his personal testimonial. “I started listening to the mixergy podcast properly since I opened an office for my company and started commuting every day. And it’s the only podcast on my list that consistently provides me with actionable ideas and insight that actually lead me to make improvements in my business. So after listening to the podcast for a couple of weeks I thought I’d try the Mixergy Premium master classes and I’m very happy that I did. I’m on the second master class so far and both have been full of really specific and helpful advice that I’m getting to apply directly in my business. Love it. Keep them coming.” And of course I will, Daniel. So, go to MixergyPremium.com, sign up, and if you’re not as happy as Daniel I’ll give you 100% of your money back.
All right, Jim, here’s the final question. Jim: First of all [??] because I’m not sure they’re aware of this, but it seems like it’s just great continuing education. I love the programs. It’s focused, 90 days, kick their ass to learn all this stuff. It’s really a lifetime process. You have awesome content.
Andrew: Great. So you are going to tell the people at TechStars to go sign up, too?
Andrew: Thank you so much. That keeps this whole thing going. This whole operation with Jeremy who pre-interviewed you, with Ari and Andrea, who do research and everything else that we have here. Jim: The pre-interview, that was a good sign of process.
Andrew: The pre-interview? It was helpful. It is. Our process really helps. I told you, I really learned the importance of process. I used to fight it. Here’s the thing. I think a lot of people are listening and saying at one point, maybe even now, maybe year from now, they want to hire someone like you. Someone who can help their vision, who can help organize the things that they have no interest in. How do they find the right CEO?
Jim: That’s a big topic. First, it’s part of your understanding your own culture and [??] interview for that. This is a key hire. Being well plugged into that network. Isaac found me through Brad and the Foundry Group. Then they knew me through 15 years of being in the same community. We never actually worked directly together, but being out there in the community, to be well known. I think it’s not unlike that core hiring process of having a wide net and a consistent process. One of the few things we got right was, the board and myself, we’re very founder centric. We’re very deferential to Isaac and that way we don’t have a conflict on things at that level, that there are some people who are less founder-centric and [??] come in and say, “Isaac, let me tell you how to go do email.” That would be a problem. The best interview question I’ve ever asked, or been asked, is “Who makes which decisions?” It’s a very interesting question. It helps people understand there’s boundaries.
Andrew: That’s one of the questions that you were asked as they were considering you for Sendgrid?
Jim: I would have asked the question.
Andrew: That’s what you asked?
Jim: Sendgrid didn’t have a process to really go through that. Isaac didn’t have a process for hiring a CEO, so he just asked me, “How do I hire you?” What could I be doing to hire a CEO?’ I was like, “There’s a few things you could do.” Some advice he got, which I think was not good, was to do the [??]. “Hey, let’s come in and do a project to get together and see how we work together.” I said, “We could do that. It’s [??] near your end. It sounds like you need to put together a 2012 plan. There’s no budget. There’s no plan. There’s no, “What’s the big goal? How do you encapsulate that?”
We have a big goal and the word “send” in Sendgrid encapsulates our strategy. Scaling Everywhere N’novation, is the N, and the D is Double digit monthly growth. It’s all that stuff. I’ve done some off sites. We had off sites before the company, just for fun, and I like it. We have to do an offsite. We could do your 2012 planning, and that would be a good project. Then we thought about it. It’s like, “That’s a weird way to introduce me to the team.” Just like, “Is this guy the facilitator? Is he my future boss? What is this?” It got to be a little weird. We were in the process of talking about it when Amazon came along. That’s when Isaac’s like, “You just do it.” I think he chose me because Isaac was very clear in knowing what he wanted. The number one thing he wanted out of his CEO was to learn. “I want someone who would be a mentor. I want to learn their management process.”
I’m well known in this particular community for having a certain management process and on the four H’s and a lot of these various things. Isaac takes the long view. It’s not about this business. He’s already had, I don’t know, how many businesses and he’s a young man, but he’s going to have many, many more businesses in the future. So he wants to think about this as I want to learn about, “What does a CEO do, and what is a good management process, and how does that work?” [??] would be awesome, and that’s great, but Isaac’s going to do a lot of things in the future. It’d be interesting to do a follow up with him. I think he’s learned that he doesn’t want to be a CEO. He’s comfortable with that, to be that business architect and designer, that founder. Then go hire the business people to go do the business stuff and keep them far away, frankly. Once a week, at most, once a month, contact is good so that he can go do the fun stuff that he likes to do.
Andrew: I’d love to have him on. David Cohen from TechStars who helped put this together, I think he introduced me to both you and him and said, “If you’re looking for company to talk to, these guys are doing exceptionally well.” I said, “I got to talk to Jim.” I already had Isaac on, but I also wanted to hear about how this transition takes shape from your point of view. It’s so easy as an entrepreneur to say, “I don’t want to bring in any investors because they’re going to bring these CEOs on board, and these CEOs are going to ruin everything and they’re going to take over.” I hate to have these kind of knee jerk reactions. I want to really learn. I want to dig in and see what you do well and how we can learn from it. We did that here in this interview.
Thank you for doing this. I’ve got to say again and again, thank you to TechStars. So much of what happened to Sendgrid happened because of TechStars, where Isaac, when I interviewed him and he was looking for new customers, he said, “The TechStars mentor community introduced me to my first few customers”‘ When he and you met up, it was through TechStars. I’ve heard people who didn’t even get into the TechStars program go to David Tish, who runs the New York operation and say, “I need help. You guys rejected me but I’m struggling with something.” The guy comes in. He owns no piece of the business, but he still comes in and he helps him. They own no piece of Mixergy and those guys, David Cohen, David Tish and everyone at TechStars keep helping me. As always, thank you guys for doing this and, Jim, thank you for doing this interview.
Jim: Thanks for having me. We want to help you succeed. It’s not about owning a piece of it, we’re just happy to see you be successful. You’ll help others, and it just makes the ecosystem [SP], work.
Andrew: Thanks a lot for doing that. You really are helping. Thank you all for watching. Of course, check out Sendgrid.com. Bye.