Inflection: Life After A $100 Million Dollar Sale (It May Surprise You) – with Matthew Monahan

Posted on Nov 9, 2012 - 9:00 AM PST

How does a family’s curiosity about its past lead to a site worth $100 million?

A 2008 life changing event led Matthew Monahan to co-found Archives.com, a site whose goal is to make researching family history simple and affordable. Four years later, he sold it to ancestry.com for $100 million.

Today, they continue to run Archive’s parent company, Inflection LLC, whose sites include peoplesmart.com, a search engine for people and public records, and identity.com, which will help people manage and protect their online identities.

Watch the FULL program


About Matthew Monahan

Matthew Monahan is the CEO and Co-Founder at Inflection which is an online people search business.

Raw transcript


Mixergy’s audio transcription is done by Speechpad

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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. How does a family’s curiosity about its past lead to a site worth 100 million dollars? In 2008, a life changing event led Matthew Monahan to co-found archives.com, a site whose goal is to make researching family history simple and affordable. Four years later, he sold it to ancestry.com for 100 million dollars. Today, he and his team, which includes his brother, his cofounder. They continue to run Archive’s parent company, Inflection LLC, whose sites include peoplesmart.com, a search engine for people and public records, and identity.com, which will help people manage and protect their online identities. Matthew, congratulations and welcome.
Matthew: Thanks for having me.

Andrew: So, $100 million, how do you celebrate the sale of this site? How do you celebrate such a big success?

Matthew: It was a lot of celebration, to be honest. The process itself takes a while, as it relates to the deal. When you sign the deal, you still have to close the deal, so it went to FDC approval. One of the interesting things about it that I didn’t expect was that there were very few moments where you could fully celebrate, until the money actually hit the bank. When it did, my brother and I, we actually promised some friends that we’d join them at Burning Man, so we went to Burning Man for a week. That was part of our celebration, being out in the desert in an RV with no creature comforts, and a lot of art and music. That was our fitting celebration.

Andrew: Does the world feel different after that? Does it feel like you’re more sensitive to it, or do you feel less aware of it because your mind is on this big win and what got you there? We’ll hear about the ups and downs of it. Does the world change because of it?

Matthew: No. It really doesn’t change. There are things that have fundamentally changed, and I’m still processing it all, to be honest. Yeah, I mean, it only emphasizes certain things and maybe de-emphasizes other things.

Andrew: What does it emphasize?

Matthew: It just creates a lot more possibility, and a lot more freedom and flexibility, and then a sense of responsibility. A lot of it just creates more of a desire to give back, and do even bigger things. The selfish needs are far less important, which is great. It’s a great feeling.

Andrew: Alright, and you said that’s one of the reasons why you’re doing this interview, the need to give back, to teach. I said that in 2008 you had a life changing event. I know it’s early in the interview, we’re just getting to know each other, so I feel a little uncomfortable asking about it, but it’s important. Can you talk about it a little bit?

Matthew: Yeah. Brian and I, we started Inflection in 2006 together, and Brian’s my brother. We were having a great run, and in 2008 we woke up one day and I had a voice mail on my phone from my mother, and it just said, ‘call me immediately.’ I knew right when I got the voice mail that something desperately was wrong. It turned out that my father had a massive heart attack that morning, and had died. Completely unexpected, it was actually while he was exercising. He was only 57, and so it hit us like a ton of bricks because it wasn’t something that [??] and I had really ever experienced in terms of death of a close family member, nor was it something that I would say we were really psychologically prepared for. The reason it’s pertinent as opposed to the archive story is that after he passed, we watched our mother grow interested in genealogy, having never been interested in genealogy prior to that. She started asking a lot of questions about my father’s childhood, and he had a big family, and when they came out for the funeral there was a lot of unfolding the family history and some of the things that shaped his life because when someone passes, it’s a celebration of their life, and ironically we had already been noticing how large the search demand was on the search engines for genealogy information. People searching for things like obituaries, or vital records, or old photos of family members. We started connecting these two pieces, one at a very personal level and one at a more business level, and it was the genesis of the idea to build Archives.com.

Andrew: You come from a small town in southern Illinois. Right?

Matthew: That’s correct.

Andrew: What was your background like?

Matthew: In the small town, you have the advantage of being able to potentially be a big fish in a small pond, and for me, it was a lot of trying to achieve academically and putting forth a lot of effort as it relates to academics. The same was true for my brother. The ironic twist to that is by the time we got into college, we were a little bit burnt out on the whole academic thing, and we both subsequently dropped out. I went to the University of Southern California and had enrolled in the entrepreneur program there. Ryan had went to Harvard and studied economics. We both [??] two years each and then joined forces on Inflection.

Andrew: Did you [??] business while you were in school?

Matthew: Yes. Not in high school, to be honest. I don’t have the background of someone who started the lemonade stand when he was seven and then started the next business and the next business. It really didn’t start for me until I graduated high school, but I did work very hard, and I think that work ethic was something that was really critical for starting my own business.

Andrew: What was the business that you started while you were in college, in USC?

Matthew: The very first business I started was essentially trying to be a shopping mall meets search engine for college products. It’s hard to explain now because I don’t even fully understand what I was thinking at the time. This was in 2002, 2003. It was my first introduction to real computer programming, software development, databases, HTML, all of those things. I was learning a lot along the way but only going an inch deep and a mile wide. Then the launch of that website was devastating. It took me six months. I put in every ounce of energy I had. I had skipped a lot of classes to stay back and build it and was really convinced it was going to work. When I launched it, no one came to the website [??] no one knew about it, and for some reason I had this conception of the Internet where, ‘If you build it, they will come.’ That’s simply not the case. Taught me a lot of really good lessons. One around launching quickly and getting feedback and [??] fast. Another around the importance of mapping and distribution and a traffic strategy to a product strategy.

Andrew: What does that mean?

Matthew: Know where your users are going to come from, or at least have a very specific plan of how you’re going to be able to get users before you build a site. Even if that plan is word of mouth, it’s certainly better than the plan I had, which was I just expected everyone to show up at the doorstep.

Andrew: You’re saying while you’re planning what the product should do, you should also be planning what the distribution would be, how you’re going to get customers. Do they need to be connected directly? Do you feel that the distribution needs to be an integral, inherent part of the product? Or can they be two separate activities that are just thought of together?

Matthew: I do. I think that too often, entrepreneurs separate them. Then they think of, you build a product and then you do the sales and marketing. I just don’t think that that necessarily represents the most effective paradigm for internet businesses. Say, for example, you’re going to build some sort of new messaging service and it’s going to be free. Well, maybe your plan is that everyone that receives a message from this messaging service would then learn about it and go sign up that way and so it will spread virally because different (?) people will message people.

Andrew: I see.

Matthew: Whether it’s a viral loop that’s built into your product. An advertising-based model, word of mouth or whether it’s an offline model, where you’re going to go out and find the users and customers through offline channels, the point is to have a plan because you’re only going to be successful insofar as you attract users. Finding users is one of the most common reasons that companies or start-ups or websites or products fail. They build something cool or interesting from a technology perspective, but don’t have that clear path for its profitable distribution. For us, with Archives, it was the search engines. It was very clear that people were looking for genealogy information on Google, on Yahoo, on Bing and therefore we could advertise on the search engine. It was pretty simple, but effective.

Andrew: I see. There, you did have it right. In college, did you eventually have to shut this business down? Or did it just kind of stay there and languish so that you never had to accept that this was a setback and a failure?

Matthew: I did have to shut it down, but shutting it down really didn’t mean anything to anyone but me.

Andrew: I see.

Matthew: No one was visiting the website. Yeah. I realized quickly that it wasn’t working. I tried to distribute flyers across college campuses in the area, so at USC and then I went over to some of the surrounding schools and had (?) to (?) with my dorm mates to join me. It was completely futile. Completely inefficient. Absolutely never going to do anything. Then, when kind of the next set of ideas for web business emerged that I (?) passionate about, I just cut the cord and moved on.

Andrew: All right. Then the next set of ideas, is that what took you to Northern California and got you started on this business that your brother joined in on?

Matthew: There was actually a business in between. It was in eBooks because at the time, in college, I was completely broke. A lot of the reason I wanted to start a business was to create some degree of financial freedom so that I didn’t have to work for someone else for (?) per hour. I found that the thing that people were willing to pay me the most for was SAT tutoring and college admissions counseling because I had spent a lot of time in high school learning how to go through that process. I could make maybe $15 to $28 an hour with very inconsistent hours. But I realized that was still kind of shipping my time in exchange for money. Long story short, the business became I wrote a series of eBooks about how to get into school, beat the SATs and win scholarship money. Then I started selling them online to high school students and their parents. It was a difficult business, but it ultimately got me to my first self-sufficient income stream.

Andrew: How much were you generating from that business?

Matthew: Only a few thousand dollars of profit a month. That was after a year and a half to two years of torture. It got to that point and then from there, it started building. We ended up expanding it into a variety of other eBooks. Then a company in Charlotte, North Carolina contacted us out of the blue in 2006 and said we love your newsletter, we’d like to buy your business. It was a very small deal. Nothing like what Archives did. It wasn’t even seven figures.

Andrew: How much was it for?

Matthew: It was essentially a couple hundred thousand when you factored all of the components of the deal.

Andrew: Meaning a payoff over time?

Matthew: Yeah.

Andrew: I see.

Matthew: Except for time and equity in the new business and all these things. Then I moved out to Charlotte, North Carolina for a year and worked with the company on the transition. That ended up being worth more than anything else because I developed a great mentor there who is the CEO of the company. He taught me a lot about business. Then, after that wrapped up, Brian and I joined forces, moved to Northern California and started Inflection.

Andrew: How did you market the eBooks?

Matthew: Mostly through the search engines, but then also through advertising partnerships on websites that had similar audiences. One of the most successful deals we did was someone had a site all about financial aid and he really liked the book I had written about scholarships. He promoted it and we paid him for successful sales. It ended up being a tremendous amount of volume.

Andrew: An affiliate deal.

Matthew: What’s that?

Andrew: An affiliate deal, essentially.

Mathew: Yeah, it was essentially an affiliate, a (?) deal, although it started more from the relationship. I didn’t have an affiliate program at the time or anything like that. I do think that another underappreciated channel of users is good old fashioned partnerships with websites. If you just take whatever keywords users are looking for that would drive traffic to your business and you look at who are the companies and sites ranking on those keywords and then contact them and see what type of value proposition you can offer them, the minute you’re kind of a little bit more creative and not just standard affiliate deal, not just standard buy an ad deal, not just standard paperclip deal. Sometimes those creative opportunities are where the real profit margins . . .

Andrew: Give me an example. What’s a creative opportunity that you discovered?

Matthew: Well, I’ll give you an example with Archives. One of the ways that we were really successful was we embedded search boxes into partner sites and brought back initial search results for their users for free. If someone wanted to run a search for birth records on a site, rather than paying for just advertising and rather than doing just a standard affiliate deal, we created a little bit more of an elaborate deal where we embedded a search box, we gave them an API, we were delivering value to the webmaster by (?) their users something that they wanted. Then we were getting downstream customers and traffic from that and preferential advertising placement. Because it was a deal, it gave us the opportunity to do contracts over a longer period of time.

One of the things that’s very easy in online marketing is to kind of have these ups and downs where (?) for awhile. Then someone comes in and outpays you and then you lose it and you try again. We’ve been very keen on finding opportunities where can lock things in for a year, two years, maybe longer. A lot of that has to do with just the personal connection through partnerships and kind of unconventional and more creative deals where you’re really catering to the webmaster, the traffic distribution partner.

Andrew: All right. I want to get to Archives.com quickly. But first, there was something that you guys were doing for a couple of years between 2006 and 2008 that was different from Archives. What was it? What was the original idea and how did it evolve?

Matthew: Yeah. The original idea, and we still have this business today, was public records. In 2006, my brother had the realization that the public records industry was moving online. It was really quite that simple. It was an offline system where you had county clerk offices, state archives offices, government agencies, commercial vendors, were doing everything in a paper-based world. The internet was completely disruptive because now, when you put everything online, you could search it, you could link it together, you could access it from any device.

Simultaneously, when you looked at the time, for example, Yahoo published the number of search queries for different keywords and the pricing and (?), we were able to see that this was a huge category of demand, where people were searching for San Mateo County public records or contact information or people search or White Pages. It was, again, really quite simple. Big amount of demand, big amount of disruption on the supply side with everything moving online. Someone needed to start building the pipes, start building the technology solutions to connect these users to the information and their privacy channels just that needed to be solved and they did have challenges that needed to be solved. We didn’t call it [??] at the time. That was kind of later and just essentially a lot of inefficiency which translated to opportunity.

Andrew: But there were already competitors in this space. If you type someone’s space. If you type someone’s name into Google or Yahoo back then, yes, you’d find through organic search results but on top you’d find ads for companies that would give you details on them.

It was a space from what I remember seemed not just crowded but it seemed to have money and it was tough problem to solve. So why go into a space that had already entrance, that had money and that was so tough to build a solution for?

Matthew: Yes. You know, you’re fairly naive, maybe that was part of the reason but I think as we look at the competitive set what we saw ware a lot of companies graded online marketing and we felt we had some of those marketing chops ourselves and so we could neutralize that advantage.

But what we didn’t see were a lot of companies were building and [??] customer experiences and [??] brands, really deep product experiences and virtually none of the companies that we saw that were entrenched on the category were [??]. A lot of them were kind of [??] type of companies how you would associate them, though for us it was okay let’s be the platform company. Let’s move to Silicon Valley, let’s build a real engineering organization, let’s build a real product development competencies and if we can win, this space is huge.

Andrew: You know, Matthew, I remember using one of those sites back, maybe it was 2004 or so. I remember typing in this women’s name who I met at a bar and we were dating and I said I want to know who she is. This was before Facebook, so I typed her name in and sure enough there were a couple of sites that had some info on her. Alright, I’m going to pay $10, $20 bucks to find out anything.

And I found out her age, which was 41. Man, she was impressive for a 41 year old but it made sense. And then I was done with it. I don’t to this day remember the site even bring it up properly in this conversation. I just don’t, I know that I never went back and that’s one of the challenges. People do searches, they come in to a search engine, they do a search, they maybe pay you for the result and then they walk away.

How do you build an enduring business with that kind of situation?

Matthew: Yes, so our approach, we think about it as contact information and public records. And as it relates to contact information our goal’s to make as much contact that’s free and available as possible while also empowering users to control their contact information. So we never publish email addresses, we never publish cell phone numbers, [??] and addresses and traditional contact [??].

And then as it relates to public records, what we find is professionals and people who have some sort of business or work use [??], real estate agents, journalists, legal professionals, folks in the medical community. There’s a lot of different reasons to need access to records that are traditionally housed at county clerk offices, state agencies, etc.

And so our goal is to build a product experience mostly designed for them and because they have so many on going [??] that if we’re able to satisfy those needs, even that first time, we’ve perhaps gotten a [??] longer period.

So yes, it is interesting space though because there are a lot of these cases like yourself, which are kind of a one time consumer lightweight public records type of case. But I think increasingly those use cases shift to Facebook and shift to Google Plus and so forth because that information fundamentally [??] someone wants to be known online is their choice through their social profiles and through the social networks.

Andrew: OK. And so this site was PeopleSmart, right? PeopleSmart.com.

And PeopleSmart was gone for two years, it wasn’t a huge hit, right? But it was profitable.

Matthew: Yes, so at the time it actually wasn’t called PeopleSmart. We started only with caller ID because it was the only data [??]we had. And then we launched kind of a classmate search which completely failed. We launched a different public record search which kind of sort of was struggling along but you know in those early days it was just kind of launch, iterate, test, launch again, iterate, test, try new. We threw out a lot of new ideas along the way. When Archives launched, it was just immediately apparent it was a win.

Andrew: I see. Archives was just another one of these tests. Where the others failed pretty quickly, this one did well. You told Jeremy, our producer, that 80% of your ideas at Inflection, the parent company of Archives, fail.

Matthew: Yeah. At least.

Andrew: At least. How do you keep from having failures that are repeated so often from hurting your business? What do you do?

Matthew: Yeah. Well, let me support the number real quick just so people understand it’s actually very quantitatively rigorous. We track our batting average on split tests and we test a lot. We can actually see how many split tests work and which ones don’t. That’s fundamentally the number, is 20% win and 80% lose.

The question, how do you support that from a business model perspective? Well, you make split testing really easy. You make it something that you can do very quickly. If you look at web design and product development, a designer can come up with a new concept for a page or a new concept for a flow in less than a day. But that’s a concept. Somewhere along the way, it’s really difficult to go from broad strokes idea to in production, in users’ hands, fully tested, supported by your technology stack and out there making money. What we’ve tried to do is look at all the steps in that process and develop our own internal tools to make it very easy for that designer to plug in, run a split test and then if it works, have that test out there in production.

Andrew: I see. The 80% that don’t work, we’re mostly talking about new designs, new flows, new onboarding processes. It’s not new properties.

Matthew: Exactly. No, that’s right.

Andrew: OK.

Matthew: Luckily our batting average is slightly higher on new websites, but I wouldn’t say dramatically higher.

Andrew: Here’s the thing that I’m learning about the way that you launch new sites and test them and not have a failure devastate your business. Archives.org took, was it 21 days to go from idea to launch site?

Matthew: Yeah. Archives.com . . .

Andrew: Excuse me, why did I say Archives.org? Archives.com.

Matthew: Yeah.

Andrew: It actually started off with a different name. It was called Genealogyarchives.com, right?

Matthew: That’s correct.

Andrew: It took 21 days to launch. How do you launch something in 21 days that allows people to type in their name, find their family members and do all that kind of research?

Matthew: Yeah. Well, the site was really simple when we started. It only had basically a few record searches available. You would come to the site and say I’m looking for my birth record. If you searched for birth records, it would come back and say here’s how many we have from which states and which names, whatever. Then if you wanted access to it, you had to pay to get access. There were really four screens up front and a couple of screens on the back that delivered your information. It wasn’t fundamentally some build your whole family tree. At the time, it was just get access to these records.

What we found was that the unit economics of how much it costs to acquire users who are searching for keywords on the search engines times the conversion rate minus the costs of the data and the information, when we looked at it, said OK. This is potentially really exciting. The certain amount of records that we launched with weren’t interesting to users. Certain records were very interesting and so as soon as we got actual users, the whole world opened up because they were telling us what they were looking for, what was important to them.

We started doing a lot of surveys. From there, we ended up building out the site on our platform technology stack with the full muscle of our design team and product organization. The prototype was really just three people, my brother and I and Eric, for a few weeks of just crank it out and set it up. When the real site really launched, there had been maybe 30 to 50 people involved for multiple months. That’s nerve-wracking because you don’t ever know if you can take something that was like a paper prototype test to scale web production, and then we bought the domain Archives.com, which you can imagine [??] cheap. We were invested in the idea at that point.

Andrew: You told Jeremy, “Prototype took 21 days. It was fueled by coffee, dub step and all nighters.” You also said, “We’ve done this many times before and nothing came out of it.” Where you invested days into a launch, you’ve bought some ads against it, it didn’t work. It flopped, and you moved on. The reason that this stuff works, is it doesn’t keep your company from going under, is because you keep it short. You also, from what I’m sensing, you just bought your data from places, so you didn’t have to do the kind of work that you now do today, where you can actually send someone to the public records in person to pull out data for me. Back then, it wasn’t like that. Where did you get your data then so that you can launch so quickly?

Matthew: A lot of the initial data sets came from our relationship with the National Archives, which we had, at the time, an understanding of. It wasn’t very expensive. Government organizations that provide various data, some of the most widely available data sets are only a few thousand dollars to get your hands on. That was the data sources to start and then the [??] about how we fail fast, that’s one of our mottos is “Just fail fast.” Make sure that we’re humble about the fact that a lot of ideas do fail, and therefore, it’s not a question of who has the idea, and it’s not something that we get overly invested in. We just try it and see what happens. It puts the emphasis on the users because ultimately they’re the ones that are [??] to [??] successful. In addition to that, importantly about our culture, it puts emphasis on analytics because you need that quantitative rigor to make these judgment calls about what’s successful and what’s not. When I said it was clear to us that Archives was going to be a hit, the reason it was clear was because of the numbers. It was because of what the [??] numbers were saying [??] huge amount of opportunity between demand and cost to service that demand, and what else was in the marketplace, and how it was priced. It was a quantitative exercise that led to that conclusion.

Andrew: Was it all about pay per click sending traffic to a sales page that had a whole onboarding process, and at the end of this process there would be an offer for people to pay for something. You saw that what they were paying was more than you were paying for ads. Right?

Matthew: Or that what we were paying for ads and what they were paying, we had confidence that both of those metrics would continue to move in the right direction as we optimized and built the product out.

Andrew: It wasn’t profitable instantly that way?

Matthew: No. The prototype didn’t make us money. It didn’t cost us very much, but it wasn’t like we were making a lot of money from it. But it was nearly break even, which there was just [??] for everywhere from there. We said, ‘If we design the site properly and we put all the records in that we know we can get access to, and we create a functionality where you can build a tree and pin the records to it and split test the ads, then all of these metrics will move, and we wouldn’t have been able to do Archives had we not been in the public records space for the couple of years prior because that IP, if you will, or experience about how to build and [??] these sites had been developing for a couple of years. Archives, yes, we launched and sold it for 100 million, but they’re a couple more years behind the process of this overnight success and a few years of things behind that, in terms of earlier businesses that led to this.

Andrew: And those businesses were profitable because at that time you were self funding everything.

Matthew: Everything was hand to mouth at the time, for me. We didn’t raise venture capital until 2010 when Archives was really taking off and PeopleSmart business was also doing really quite well. We decided that it was coming more of a competitive disadvantage to not have funding, and we wanted to switch that to Vantage (SP) and we met some great VC’s and we decided to take some money at that point.

Andrew: Where did the money go? What was it supposed to be used for?

Matthew: To be honest, we never touched it up until even the archives deal. We did have a large data deal where we started to deploy a few million bucks but the business sold before that. That being said, I’m really glad we still raised that money because what it allowed us to do is be more aggressive in terms of building up the team and executive team. So we made hiring decisions that we wouldn’t have otherwise made, and then the VC’s themselves, who were all on board, had been extremely helpful and, as a first-time CEO, having mentors and advisers of their caliber has been truly incredible.

Andrew: But you didn’t use the money.

Matthew: No, we’d still been thrown off cash and….

Andrew: Did you take any of the money off the table? Did you use it to cash out a little bit?

Matthew: We did take a little bit off the table in 2010 and we made that available to any shareholder who wanted to participate, but it wasn’t a lot in relation to the company size or equity. But it was, again, nice to have that breathing room so you could more decisive decisions. You know, if at any time as an entrepreneur you are finding yourself a little bit bogged down by fear, whether it’s fear that something’s going to go wrong or fear that you’re overly invested in something and so forth, it just clouds your decision making and your judgment. What I tell people, having progressively taken different steps along the way, is that I think often you try to shoot for a bigger number or outcome than you’re really prepared for. If you can take progressive steps, whether it means raising capital or taking some money off the table or, in our case, selling a piece of the business, or whatever, those steps really help to ground and center everything comes around it. It’s difficult to really predict your psychology and your decision-making skills until you get there, but by taking progressive steps it’s a way to ensure that you’re moving positively in the right direction. Charlie Munger said to me that part of the reason that he and Warren Buffett had been so successful is that they’ve never taken steps backwards. A lot of people celebrate the forwards but they don’t necessarily recognize that there are a lot of entrepreneurs or investors who take steps back, where they risk too much or they have a big loss, or they invest in something that doesn’t work out. If you’re trying to compound value at an ongoing rate for an extended period of time, sometimes that means you won’t have quite as big of wins on the upside, but you also won’t have the same downsides. I just am fundamentally kind of wired that way.

Andrew: Yeah, that makes sense. I do see in my interviews entrepreneurs who will admit that they made a lot and then they took big risks and they lost a lot, and they had to start over or they had to start from a big setback, and that becomes really tough.

Matthew: Yeah, that’s really frustrating.

Andrew: We talked about how you used paper-per-click ads, but you also did some article writing, right, to help the business ? How effective was that?

Matthew: You mean with archives?
Andrew: Yes.

Matthew: Yeah, you name it, we did it. We tried it. We had forums, and pay-per-click grew but it wasn’t the only channel. We had probably five or six primary ways that we were getting users at the time of sale. Affiliates, SEO, different genealogy advertising and events, publications. We became much more engrained in the genealogy community, which was amazing and really receptive to what we were trying to accomplish. We did different partnership deals, which ended up being a really big channel. We had different expert genealogists write articles and content and sent it to our users for free; we added it to our websites; we just kind of tried and tested a lot of different things, and as certain things worked we looked to see how much different road room existed and if it was promising we would invest in it, build a system around it, hire people for it, and keep part of the product.

Andrew: You mentioned earlier that you surveyed your users to figure out what to build out. I want to come back and talk about that. How do you survey your users properly? It’s very easy to ask a question like what should I build and get an answer that’s way out there and doesn’t really impact your business, or sends your business in the wrong direction, which is worse. How did you get them to answer the questions, and then how did you ask questions that would give you meaningful and useful answers?

Matthew: We just sent out a survey with 25 or 30 questions. We said we’ll give you a free version of the product when we’re done building it in exchange for filling out the survey. Then we ran ads to that survey. Certainly incentivized certain behavior, and self-selected for people who are looking for a free product, and all of that, but it got hundreds of responses. A lot of them were questions that weren’t multiple choice, but were rather asking for comments or input. What is the purpose of your genealogy research? Then other questions to demographics, age, how long have you been doing genealogy, what other sites do you use, etc. To be honest it was fairly intuitive and common sense for us. It also wasn’t something that was probably so precise and scientific that someone else could have done. We actually have amazing user research and user insights personnel team who does this with way more rigor, and way more sophisticated than I’m. . .

Andrew: But you would just ask them questions that you guys would sit around and think you want to know the answers to. Even without a background in surveying, even without a lot of experience in doing it, you were able to get answers that changed the way you understood your audience and what your product should be. You actually told Jeremy, our producer, ‘when we launched, there were many things that we thought were going to work that actually didn’t,’ and these surveys helped you understand what wouldn’t work. Do you have an example?

Matthew: I think the most important thing is to listen.

Andrew: To listen.

Matthew: To listen. Just fundamentally, and not get too caught up with there is some sort of templated right way to do X, Y, and Z, and more about just go in with the curiosity and learn. For us, as we were listening to those comments, patterns emerged. I’m a big fan of looking at word count of the same phrases and words approximately. People use the same words over and over, or say something very similar over and over across a lot of different users, that’s gold. That’s really where you want to focus. The example I told Jeremy was, one of the things the survey people kept saying was that the purpose of the research was to trace their family tree back as far as possible. We really weren’t keen on this idea before that, of people really trying to go far back, as far back as they could, because there was almost a game mechanic, if you will, of how far back can I get. Can I get to the 1600s? Can I get to the 1500s? And so forth. As it related to our data acquisition strategy, it shaped our approach. Maybe instead of just focusing on how do we get this user to find 50 family members, maybe all 50 of those are in the last two generations. How about how do we get this user to find as many family members as possible, but as far back as possible.

Andrew: I see. Go back multiple generations.

Matthew: Exactly. Tweaks like that emerged, but for me it’s a very intuitive process. You want to be in a situation where you’re just making decisions really quickly, and don’t get too caught up with. . . Sometimes you can be crippled when you know there’s a better way to do something. Don’t get too caught up with that. Eye on the prize. The prize is a great product that users love. So just focus there.

Andrew: One more question about surveys, and then I want to move on. Was one question that worked for you — I’m looking at my notes here — is, what was your number one goal? That’s what you asked your users, what’s your number one goal with the site, right? How is that question helpful?

Matthew: What’s your primary goal, or your. . . I don’t remember exact phrasing, but that’s correct.

Andrew: How is that helpful? I’ve been told to do that before, most powerfully by Emmet, the founder of Twitch TV. He said he would ask his users, what’s your goal with using — at the time it was Justin TV, and then they would tell him. He’d say, okay, what’s keeping you from doing that, and then he would understand where the problems were with his site, and he improved, and improved, and improved until he was able to create this whole new side site, which was Twitch TV, which now might be bigger than the first site. So, how do you use that?

Matthew: We don’t necessarily have too much of a process around it, it was just one of the questions we asked. I think it just taught us a lot, because part of genealogy that was challenging for us was, we weren’t genealogists. Having watched our mother, still, we weren’t quite in the psychology of what drives someone like this. I think my advice is for people, especially if they’re building a product where they’re fundamentally not the customer set, is to spend a lot of time trying to understand the emotions behind it. What are their fears, what are their desires, what are their hopes? And so forth. That can go a long way.

Andrew: OK. There’s one thing in your notes from your conversation with Jeremy that I didn’t understand, that I want to ask you about. There was a point there where your income statement was backwards, I think you said. Where, here let me see, ‘we lost a million dollars over there months,’ but it was because of the way that you changed your. . . You’re nodding. Tell me about that.

Matthew: After we prototyped the site, we decided we’re going to invest in this business, we’re going to build a genealogy business. That meant a lot of engineers and designers working on it. Those designers and engineers were no longer working on other things that we were doing. That, coupled with the 2008 financial crisis, coupled with the. . . We lost a big affiliate on the Peoplesmart business. A couple other things just didn’t fundamentally go well. I remember now, the other thing was we were shifting some of our merchandising to different membership durations, which was a huge cash hit, but long term made sense. We had all these different factors combining, where all of them in isolation seemed like the right decision, but the result was our [??] just went [??], and profits turned to losses very quickly. That was scary, because while I had dealt with challenges like that when I was running my own business from college. I’d never dealt with challenges like that when I turned over to my right side, and there’s people who we’re employing, and they have families, and health care, and all these things. It just suddenly got a lot more real. The stat was, we basically burned through a million bucks in 90 days. We were faced with this decision of whether to change anything about what we were doing, or to just hold the faith and keep through. Holding the faith meant, one, nothing else could really go wrong, and two, being very analytically rigorous about our P&L to make sure we were going to get back on the right track. Fundamentally that’s what we did. We slowed down hiring a bit, but other than that, we just kept plowing through all the initiatives we were doing. Then when we launched Archives, it was a home run. Really good, because it was profitable, and it created a momentum that became the basis of growth for the next couple years.

Andrew: What caused it was you were changing the way you were charging subscriptions. That was part of it. Hiring, too, because you were going to build the business out. What do you mean by changing the way you were charging for subscriptions? How does that impact you?

Matthew: If you’re a subscription business, and you want to charge a monthly basis, or a three month basis, or a six month, or 12 month, or in our case, also having a one time fee only option, where you can just get these records only for 20 bucks, or you can get all these records every year for 50 bucks a year, something like that. Each of those decisions has different consequences on the lifetime value of your customer, so if you can get someone into a subscription for multiple years, great. That means more money that that user will pay your business, but if perhaps you showcase a really good one-time option for a lower amount of money, you might make more right away, but it’s less over time because fewer people got a new membership. What you offer has different consequences downstream. One approach is to maximize the total lifetime value of your customers, and to offer options that seem to do that. The problem is that’s not always aligned with maximized cash flow near-term. Actually it’s usually at odds with it. We were faced with decisions like that, and I don’t remember the exact configuration at the time, but we were essentially switching some things that resulted in less cash now, more cash [??] in a year from now, and the numbers looked good. It was like, ‘This is going to work,’ but, boy was it scary. Especially since we were still self funded, and we were basically using retained earnings at that point and diving into our piggy bank pretty deeply.

Andrew: So much more I want to cover, and we have so little time left. How about Facebook? How did Facebook factor into your growth strategy? What did you do there?

Matthew: We were convinced that the future of family history was integral with Facebook, and specifically that one of the key things that people want to do when they are doing genealogy research is share it with family and friends. We felt like the experience of a really well designed family history application, we called our application Family History, on Facebook [??] share and options and different social viral nodes, that that was the future. We had really started investing aggressively in that in 2011. The challenge was it wasn’t working, and ultimately we were still struggling to build something that was scaling Facebook. The good side of it is it’s so new that if you can win there, big gains. The bad side is it’s so new that a lot of things are constantly changing and for us, this change has led to ongoing bugs, and we weren’t finding a flow and rhythm, and yet we ended up getting some content [??] where we were [??] to acquire the entire U.S. federal Census from 1790 to 1930, and we won this partnership with the government to launch the 1940 Census to the public, and we beat all of the competitors in that process out. There were things that were here that we didn’t expect [??] really well, and we had things over here where we were like, ‘No, this is the future. This is how it’s got to be,’ that weren’t working. One of the important decisions that I was faced with as an entrepreneur that I would advise people to think about is you have to be really flexible with your ideas and recognize when you’re just trying to push a rock up a hill that’s not going to move, and when something over here is working and get rid of your ego about it, get rid of your emotional attachments about it, and keep your eye on the prize and the goal. For us, the goal, build and integrate a great product. The Census stuff over here was absolutely aligned with that, and we invested more there. Proved to be the right decision, and it ultimately was a big part of the reason that ancestry acquired us.

Andrew: Because you had all these deals that they didn’t have? All this content that was drawing in users and also adding value to the business. You tell me, was it hard to watch everyone talk about how the future of business is going to happen on Facebook? About how all these innovations keep coming to Facebook? See your friends talk about Facebook, and you’re trying to get on there, meanwhile, it’s not working nearly as well as a partnership that leads to Census data, or your partnership with the Church of Latter Day Saints, for example.

Matthew: It also emphasizes the point that sometimes the real opportunities are not following the crowd. If everyone’s over here working on one thing, probably a good idea to check out what’s not being worked on. It was difficult, and I do believe that the future is on Facebook, which made it even more challenging because I was fundamentally convinced that it was necessary for us to be successful.

Andrew: One of your advisers, Rick, you say, keeps telling you to think about, ‘What do you want to be the best in the world at?’ Why is that an important question for him to ask you and for you to ask yourself?

Matthew: It’s common for entrepreneurs to have a lot of ideas and want to do a lot of things, and I know my own bias is to try to do too much at once. However you ask the question, I think it’s important to not only have awareness over the ability to get distracted and to focus, but also to have outside accountability around that focus. For us, advisers and board members are Rick and Evan, Josh and Greg have been really critically helpful at foreseeing that focus. I also think that some of this is a symptom of how fast technology is moving, and how many new things are emerging online. If you spend 30 minutes, 60 minutes every morning, just reading all the news and blogs and so forth, your mind is just spinning with ideas. That’s very common. What’s not common is taking a couple ideas or one idea, and just very disciplined, step by step, building and pursuing it, until it’s successful.

Andrew: When you are focused on that one idea, and you’re being flooded by new ideas from blogs, new ideas from books that you’re reading, from friends who you talk to, how do you make sense of it all? Do you just push it all out while you’re focused on your one idea? You focus.

Matthew: Yeah, you focus.

Andrew: Then you look for, in all this noise, ideas that can help with what you’re focused on, and let go of everything else? Is that how it works?

Matthew: Yeah, you do, but I think it’s important to ask the question, to what end? With Inflection, learning is one of our core values. We very much are focused on having a culture where constant stimulus and new ideas is available, but to what end? When you’re pulling up some new blog, or news, or video, or whatever, maybe just have a concept of what your goal is here. If it’s just to get new stimulus, great, but you don’t want to let it interfere too much with your existing ideas, or pull you off of whatever you’re focused on. In my experience, often, a lot of what we’ve done at Inflection has been very simple. We looked at the search engines, we found out that lot of people were telling us they want X, Y, and Z, and they weren’t getting it. We looked at the records over here, then we just bought them. We gave them to the users, and built a very simple site to do it. We named the product very simple, archive. A lot of this stuff is very simple, but I think the magic is in the execution, I think the magic is in actually doing it. Ideas are a dime a dozen, a lot of them fail. Everything’s moving really fast. There’s a ton of opportunity all over the place. I think the best thing that people can do is curb their own bias to try to do too many things, and instead have a disciplined focus and execution for some period of time, until they’ve assessed whether they want to move on or not. Be explicit about these things. Don’t let it happen to you accidentally. Create some degree of intention, and explicit goal setting about what you’re trying to do. At least for me that’s been the formula that’s worked.

Andrew: Why sell archives.com?

Matthew: 100 million was a good price. I think that we love the family history space, and there was a ton of stuff that we were just starting on. We just really gotten our image viewer out into the market, where you could interactively look at historical documents in full high resolution, and tiled in all these different things like Google Maps. We had our family tree software, just being showcased at HTML5, and responsive design, with the tablets and the phones. There was all sorts of stuff that we were really excited about. Timing is everything as it relates to business exits. I truly believe that. When Ancestry’s timing was such that they decided that it was the right time for them to acquire Archives, we didn’t have this in mind. We definitely weren’t thinking we were going to split a part of our business up and sell it, and so forth. When we looked at the deal, and when we looked at all of the components of it, and the valuation. Our core business around public records was getting very interesting as it related to personal records management and identity management. We feel that there’s a really key opportunity around giving people a simple way to manage their own information online. There’s just so much that we’re excited about that if we could take an exit over here, maintain our percentage ownership of the company, and start building new things, that we were really happy with that outcome.

Andrew: Did you approach Ancestry, or did they approach you?

Matthew: Actually, neither. It was that the CEO of Ancestry and I had a . . . basically once every three to six months we would get together for drinks or dinner and it was during one of those conversations that it came up. And so, you know, one of the pieces of advice our advisors gave us when we started the company was, ‘Great businesses are bought, not sold.’ And we fundamentally have followed that philosophy where, let’s build a great businesses and some day, if we decide to exit, that opportunity will emerge. But I would advise entrepreneurs to make sure that you’re getting to know the people in your space who might be potential exits for you down the road. Because even having touchpoints a couple years before, even if they’re very simple, just get to know you, no details or information about your business, that goes a really long way when it’s time. And, so that is something I learned from the process with Ancestry.

Andrew: All right. Let me do a quick plug here and then I want to ask you one final, important question based on something you told me before we even started. And the plug, of course, is for Mixergypremium.com. On Mixergy we have interviews with entrepreneurs or tell their stories. On Mixergy Premium we have courses taught by entrepreneurs who teach how they get traffic, who teach how they do publicity, etc. One thing that they do especially well, they teach. And in my last conversation with Jeremy, our producer, he told me, ‘Andrew, you’re not saying nearly enough about all these great interviews that are available just to Premium members.’ He says, ‘Yeah, it’s great that the courses are there and you’re talking them up well,’ but he told me, ‘Make sure you tell people Seth Godin is in the archives of interviews that are available just to Premium members. Founder of Groupon. Founder of Wikipedia. Hundreds of entrepreneurs, literally.’ I finally get to, I’m using the word literally properly. Literally hundreds of entrepreneurs are in there as part of this Mixergy project, and if you’re a Mixergy Premium member you get access to all of them in every format that we have available. So, go to Mixergypremium.com. If you’re not convinced that within a week it gives you thousands of dollars worth of value, then cancel and let me know and I’ll give you a hundred percent of your money back. But thousands of people have been happy with it and continue to stay happy with it, and I’m confident that if you’re listening to me right now and if you go to Mixergypremium.com you’ll be happy with it, too. All right, here’s a final question. Before we started the interview, Matthew, I said ‘Why do you want to do this?’ and you had this great answer. I wish I could include the answer in this interview, but essentially you said you learn this way, by listening to other entrepreneurs’ stories and that it was your opportunity now to share your story that way people shared it with you. How did people share it with you and how did you use it to build your business?

Matthew: Yeah. You know, they way I learned a lot of these stories was actually through books and interviews, so I didn’t necessarily know a large number of entrepreneurs personally. I did have some really great mentors and advisors who were entrepreneurs themselves and taught me a lot. So I think it was kind of those dimensions of developmentors and seek out information through books, podcasts, interviews. You know, however you digest it easiest. You know, I read books like, oh gosh, The PayPal Wars and The Google Story and there’s one about Amazon, I think it’s Amazonia or something. Sarah Lacy’s book [??] And a lot of it is inspiration, but there is real pattern recognition that I think you can derive from these stories, even to the degree that they’re embellished or revised a bit because you just start to learn things. Like, okay, well that entrepreneur was really ultra super-focused on hiring engineers, and thinks that the most important thing is engineer hiring. And that entrepreneur over there said the same thing, or, you know, the way that this VC deal got done was actually in 24 hours over coffee and, you know, it didn’t involve 15 meetings and spreadsheets and so forth. And so there’s different things that you’ll pick up in the stories that, I think, just help you just understand bounds and, kind of what’s possible and how things actually go out in the real world. And until you can see something with your mind, until you can imagine it, you’re not going to accomplish it. So, I think it’s really healthy to dive into these types of resources as much as possible, and I guess, you know, Mixergy should definitely be high on the list because we have a whole series of these interviews.

Andrew: Well, thank you. All right. There’s so much else that I didn’t get to and so I’ll just say it and tell the audience. Check out Peoplesmart.com just to get a sense of the business that we’ve been talking about. Of course Archives.com. Identity.com you paid a million dollars for? For the domain?

Matthew: That’s right.

Andrew: That’s what I read in biz journals. A million dollars for, and the site is soon going to launch and I want to watch it so that I can see how you build it up and be there early to watch all the setbacks, the learnings and the building. So that’s Identity.com. And if people want to connect with you, of course they can check out Inflection.com. Is there another way for them to say thank you for doing this interview and for being so open?

Matthew: Yeah. I’d be happy to be available. My email address is matthew@inflection.com. And, so feel free to shoot me a note, especially if you’re a, you know, a founder, an entrepreneur and you’re just looking for, you know, additional feedback or whatever I can do to maybe be helpful. Feel free to reach out.

Andrew: That’s really generous of you. My suggestion to the audience is before you ask for anything just start off by saying ‘thank you.’ And I’m going to do it right now. Matthew, thank you for doing this interview.

Matthew: Thank you, I appreciate it.

Andrew: And thank you all for being a part of it. Bye guys.

Matthew: Cheers.

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  • http://twitter.com/cameronsmith Cameron Smith

    One of the best interviews in the last few months.

    Thanks Matt and Andrew.

  • http://twitter.com/shayanbehzadi shayan behzadi

    One of the best interviews on mixergy. Thanks.

  • Mitesh

    Great interview, though I’m surprised by the fact that getting 100 million does not fundamentally change anything. I know that if it happened to me my life would change. The thing I’ve took away and it seems like every business starts around a pain – so I have to find the pain and build a solution around it.

  • Travis Miller

    Very Cool Interview! If you want to stay up to date with Technology news, check out http://www.techazoidnews.com

  • http://mixergy.com Andrew Warner

    Thanks. What did you like about it?

  • http://mixergy.com Andrew Warner

    Thanks. It’s a story that hasn’t been talked about much. I love those.

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