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Hey there, freedom fighters. My name is Andrew Warner. I’m the founder for Mixergy.com, home of the ambitious upstart. And I know I sound like a Pollyanna, or I might sound like a Pollyanna, I’m not going to decide for you, the listener, but here’s the thing. I’ve been noticing that it might actually be better for a new project that’s being launched not to have a lot of users in the early stages. I’ve noticed this in past interviews and also in my own experience, and the interviewee that I’ve got on here today, Max Cameron, says that that’s one of the lessons he learned by starting Kera, a startup that he had to close down.
I invited him here to talk about it because one of my missions here on Mixergy is not just to talk to founders of huge, mega successful companies, but to also give founders who had setbacks an opportunity and a safe place to talk about what they learned from those experiences. I do that so that you and I can learn from them and avoid some of the mistakes that they’ve uncovered. I’m really proud that Max is here to tell his story. Welcome, Max.
Max: How you doing?
Andrew: Max, do you think of Kera as a failure? I don’t even know if I should be using that word. How do you feel?
Max: It depends on if you think failure is good thing or a bad thing. I think every company has its failures and its successes. You made the comment that Kera shut down. The product is shut down. The founders are still together and we’re working on some things right now, but in terms of that particular product, though, we saw the writing on the wall and decided to pivot away from it, just a radical pivot that we weren’t able to spin it in a way that it says hey, it’s still the same thing, right? Really sometimes you have to separate shutting down a product from shutting down a company.
Andrew: OK. I want to see how the product evolved, because it had a couple of different pivots. Why don’t we start by just understanding what you were doing just before. I’m on your LinkedIn profile right now and it says that you were the co-founder of Big Bang Technology and that’s what you were doing just before. What is Big Bang Technology?
Max: Big Bang Technology was the first company that I started with one of the co-founders at Kera. There’s a third, but two of us started a consulting company in 2008 and we build SAS applications, mostly in the B2B space for American customers. We had a background in building enterprise B2B SAS and we did that for three and a half years and it was great. It was profitable. It was everything that one would expect from consulting, but ultimately we weren’t building our own products and that’s why we do this, right?
Andrew: Right. What is the attraction for service-based businesses for building your own products?
Max: I can’t speak for everybody, but for us it was a way to learn. How to build products? When we first started the company in 2008, we were young and we were growing. We didn’t come out of backgrounds, we weren’t working at Google or Facebook or Microsoft or any of the usual suspects. We started really from scratch in 2008 in a recession or whatever, and for us it was just an opportunity to discover the way that we wanted to do business and how we didn’t want to do business and figure out the type of company we wanted to build. We got to scale some really cool software. It was a great experience, but, again, you strive to control your own destiny.
Andrew: I see. So you’re saying that you did the consulting company so that you can learn how to build products and then you moved on to building your own products?
Max: Yeah.
Andrew: What I mean is if you’ve got a profitable consulting company, why would you want to build your own products? I know it seems like an obvious question, but I realize such an obvious question, I don’t really ask it enough. So, let me ask you. If you have a profitable consulting company, why take a risk on building a product?
Max: Let me ask you a question in return. Have you ever been a consultant before you ever built custom software for other people?
Andrew: No. To be honest, doing consulting work just scares me because it’s tying me down and basically I’m getting an hourly fee and I’m at somebody else’s, or my work is constantly being brought up to somebody else for evaluation, and they are not experts in software development, so I would have develop for non-experts, and I’m not sure that they would even know what they want. The whole thing just seems really painful.
Max: Yeah. There you go. There you have it. You identified some of reasons we knew we weren’t cut out for it. Ultimately, you’re measured by different set of results. You’re measured by… In our case we were still building really cool software that helped companies do things internally. I think that’s one thing where it fell short because we would see an opportunity to go for a really big win and say, “Hey, look, I know we’re working on project X, but we’ve been thinking about this other thing that you’re doing and we think that we can… I we’re going to make you $2 million over here, we think we can make you $10 million.” You don’t have that autonomy to just go where you want to go.
You’re here for a scope of work. We just wanted to go where our instinct was leading us and where we thought the opportunity was. Unfortunately we weren’t able to find clients that had that much alignment with us, right? Not to mention, of course, the thrill of building something that doesn’t just satisfy the needs of one, but the needs of many. That’s a really great rush. I think that’s part of what drew us towards it.
Andrew: Where did the idea come from for your product?
Max: The idea came from an earlier incarnation. We started playing around with the idea of we want to help people learn on the web. We want to use web technology to promote software literacy and computer literacy. Those are two things we care deeply about and our first attempt at this was a competitor to stack overflow [SP]. We said stack exchange is pretty cool. You can go there and post your recipe or your [??] and you can leave a lesson for somebody, but you can’t really do much with it, that artifact, after you’ve submitted it to them.
We said we’re going to build a similar system, but it’s going to have elements of version control built into it. So if you write a tutorial on how to set up…
Andrew: [??].
Max: A particular type of server in your Mac environment and that [??], someone will be able to come in and fork [SP] that tutorial and update it for a different server or a newer environment. That was our first idea.
Andrew: OK. StackExchange, of course, is a question and answer platform, right?
Max: For developers.
Andrew: Sorry?
Max: It’s for developers and it’s for technical stuff. We sat down with… We built a small prototype.
Andrew: How long did it take you?
Max: A month or so. The prototype was essentially, it was an I-frame that you could embed into your own blog which would contain a step-by-step tutorial and then someone would click the “Fork this” [SP] button when they were reading your blog post and they would [??].
Andrew: Got it.
Max: What we found was we started showing it to people as soon as possible because we’re firm believers in getting quick customer feedback and validation. We sat down with some developers who wrote these tutorials on their blog and it just so happened that these people they don’t wake up in the morning thinking about what platform they’re going to use to publish their next blog post. It’s not a [??]. They’re like, “Why would I switch?” They started talking about SEO and they were like, “Oh, I’m going to lose the SEO.” We really just thought if we had found something that would have struck a chord of passion with these developers, they would have been OK with no SEO [sounds like], but you know, it just turns out, it’s not something that people care about. They don’t care.
Andrew: It’s not a big problem. If they want to describe how to use something, they just fire up WordPress, and they start typing the way they would write any other blog post, and . . . I see, and that’s why they weren’t looking for another solution. How did you know? How did you talk to enough . . .
Max: What?
Andrew: Sorry?
Max: Oh, it was simple. We built a functioning tool — very limited in scope — and it worked. We offered it to some people that we were connected with loosely, and they said, “Whoa, that’s a fantastic idea. I’m going to use it next week.” You know? And I called them back the next week, and said “What happened?” They said, “Well, you know, I’m sorry. I got sidetracked, you know, with something else.” So it wasn’t so much that they told us that it was [??], everybody told us how fantastic it was, but when it came down to, you know, them using it, they fell short.
Andrew: [??] A lot of entrepreneurs would be very bull-headed and say, ‘I’m just not talking to the right people’ or ‘This person is not considerate enough of me, even though I was a good friend of his, and I helped him out in the past. Now that I’m showing him something, he’s just not a good friend, and so he’s not using my product. I’ll go find someone else.’ Why didn’t you keep saying, “I’ll go find someone else,” until you finally found people who needed this? How did you know that you were talking to the right people, I guess, is a shorter way to ask that question.
Max: Well, I mean, we said, ‘Look, who do we think the target audience is for this product?’ And we said, ‘OK. Well, [??] they do things like they’re already solving the same problem.’ You know, they’re going out of their way to write these long tutorials. They’re exhibiting a lot of the behavior that we thought would be part of this persona, and we could’ve kept chasing down the rabbit hole. Right?
We could have gone that route, and I guess that’s really the . . . that is the biggest question that you have to answer as an entrepreneur — is when do you pivot [sounds like] and when do you persevere. Right? This is, like, Eric Reese [SP] has written about this ad nauseam. This is the grand existential question for us. You know? It just didn’t feel right, so we stopped. Right? And, you know, we showed it to 15 or 20 people, so it’s not like we showed it to two people, and then we got sad and started crying or something like that.
Andrew: I see. And you know what? The other thing that I’ve heard, and you tell me if you agree with this, is that frankly, if you just talk to five people in your target audience, that’s more than enough, because people in your target audience tend to work alike, tend to need the same things, and . . . probably, I think it was the founder of Twitch TV [SP] who said he could’ve talked to one person, and it would have been OK, but he wanted to talk to five to make sure that he wasn’t talking to one of the outliers. Does that seem right to you?
Max: Absolutely. I mean . . .
Andrew: So you weren’t going to kid yourself. You said, “Hey, we’re getting feedback here. People are saying that they like it, but they’re not using it. We’re not getting the adoption [sounds like] we want. It’s time to do a pivot” Right?
Max: Absolutely.
Andrew: OK. So how do you find what to pivot to?
Max: Well, in this case it was . . . it was easy, because one of the people that we were showing our prototype to said, “Look guys, I’m not going to write another article for another two months, so, like, come back to me in two months,” but he said, “Listen, I’m working on my app, and we have a big launch next week with a really big customer. Can I drop some screenshots in here, and embed it into my web application, so that I don’t have to record videos, because that would be really cool if I could take this widget and put it into my site, and it would have the screenshots showing people how to get started.”
Andrew: OK.
Max: And that was really the moment. Right now there’s a guy in Toronto [??] who runs a start-up called [??]. This is like, you know, almost two years ago. This guy said, “Can I just re-purpose what you’ve built to solve a completely different problem?” He said, “You know, this is a problem that I’ve actually faced. Next week I have a big launch, and I don’t have the resources to man the phones, and I don’t want to make videos, so can you help me out?”
Andrew: Yup. I get that. Basically [sounds like] he just wants an easy way to explain to users how to use his software.
Max: Precisely. And we said, “No, you can’t use our software to do that, but if you give us two weeks, we’ll come up with something that . . . we have an idea for how we might solve that problem, so just give us a couple of weeks and we’ll be back.” Right?
Andrew: All right. And what did you build?
Max: So at that point, Cameron Westland, my co-founder, he built the prototype of what most people knew as Kera, and the first incarnation was a virtual mouse cursor that moved across the screen of a web page, and it was just that — just a cursor moving across the screen, and that was all I needed to see the vision. All right? And I was like, “Whoa, this has never been done before.”
Andrew: You moved my mouse cursor or a virtual mouse cursor on there?
Max: A virtual mouse cursor.
Andrew: OK. So I’m looking at your web app, and I see a mouse cursor moving. The idea is, you say, this is how we can explain to people how to use the web app. If we can move a mouse we can direct their attention to the areas that we want.
Max: And not only that. The mouse can click a real button.
Andrew: Wow, OK.
Max: A mouse can click a link that goes to another page. And the cursor is still there. We can layer an audio track on top of this mouse cursor so we can explain to the end user, “Hey, welcome to Facebook. Let me show you how to add your first friend.”
Andrew: Not just give you a tutorial. But say, here, click on this. You see the mouse clicking on that tab. Click on this link and you see the mouse clicking on the link then you’re on the page that you are looking for. Now go ahead and use it.
Max: Precisely.
Andrew: Got you. You built this and you showed it to the one developer who was about to launch. What did he say?
Max: He said, “When can I use it? Can I use it now?” Which is so much better than, I’ll use it next week.
Andrew: Right.
Max: I said, “No, you can’t use it now. Because it’s not ready for you. Instead, what I’d like you to do is give me 50 dollars. Because if you give me 50 dollars, I’ll know that this is really worth something to you. It’ll be your deposit. In return for you to this deposit I’ll give three months free when it’s ready to go.”
Andrew: OK. When did you learn to do that?
Max: That was a technique that I started doing when I first attended Lean Startup Machine. It was run by Trevor Owens. We went to the second one that ever happened. We fled Boston. That was really we understood how to use customer developing in a practical way. I did that with ten different customers. I said, “Here’s the deal.” I showed them the cursor. Moving across the page I said, “Here’s what the future’s going to be like. I’d like your 50 dollars now and I only have ten spots available.” Then we had 500 dollars.
Andrew: Was ten spots available a [??] technique where you said I need scarcity here? And it worked?
Max: Yes. Like we already discussed, you only need five people to prove that an idea sucks. You only need five or ten to prove that an idea could work.
Andrew: Right. Okay. Now you have ten people, all willing to pay. You know this is something that they want. It’s time to build it. How long did it take you to build the usable version?
Max: That was in June. That was in, I don’t even know it.
Andrew: I know that the Startup festival in Montreal that you attended was July 2012. Did that give you a sense of roughly how long it took?
Max: We had the first prototype in June of 2012.
Andrew: Okay.
Max: In July 2012, we went to the Startup Festival. We went there to do more customer developing. We said we’ll maybe need fifty startups. Hopefully we’ll get another ten deposits.
Andrew: Okay.
Max: What we did was we built the first version of the website. It had a demo. It had a button that said Click me. We had a full walk-through that took a visitor through our marketing website, showed off a little bit, click some buttons, messed with some drop-down menus. At the end it said claim your email address to be notified of the launch. We get to Montreal and we’re talking to people and we’re just having a good time. We spent probably a thousand bucks or something to go meet fifty startups. That very day, when we were there, somebody in Austin, Texas posted our website to Hacker News.
We ended up getting 800 signups in one day. 800 signups cost us nothing, compared to 50 conversations that cost us a thousand dollars. That was just another little sign. Another small piece of validation that we could use the web channel to reach our audience through communities like Hacker News, which was essentially a huge part of our success, the successful part of our project. We tapped into this community. That was fantastic. We got that little piece of validation. People thought what we were doing was cool and that was enough to take it to the next level.
Andrew: OK. Is that around the time that you were accepted into Extreme Startups the Accelerator?
Max: Yes. That was September of 2012, when the Extreme Startups Program started. You could see, right from Spring into July it was really good. We got those sign ups, then we started working on the actual product itself.
Andrew: Okay.
Max: And this we entered Extreme Start Ups early September and then we released, we launched, or whatever, September 15 or September 30.
Andrew: So things are looking good but then when you look at the conversion rates, what do you see?
Max: Less than one percent.
Andrew: And what does that mean? Less than one percent did what?
Max: Let’s say if we had a hundred people sign up for Carol. It got pushed to a live website one time.
Andrew: When you say a hundred people, you mean all of the hundreds of people of came to Hacker News and gave them your email address and said, “Yes, tell me when you are ready to go?” only one signed up?
Max: Yeah.
Andrew: Oh wait, from that hundreds, a hundred people signed up and said I want to sign up and actually use this thing, and then only one of those ended up deploying it on their site? I see.
Max: Exactly. Yea, so that was our conversionary because we didn’t have a paid plan, so we weren’t measuring conversion to paid. There is a step between the monetary conversion and the sign up where they create one of these walk throughs and push it onto their website, and they can play around with it for 30 days. That was our proxy for success.
Andrew: Okay. And did you ever get a sense of why they weren’t doing that?
Max: Oh yeah. Absolutely, because we called, and e-mailed, and personally contacted every single person who signed up. I had conversations, or at least tried to, with the first thousand people that signed up for the site using tools like Intercom and Reportive even. Literally my full-time job was talking to customers.
Andrew: Intercom is something that lets you watch people while they are on your site and then if they do something, that’s when you chat with them?
Max: Intercom is basically a CRM tool that gets integrated into you web app. Basically, you can see who signs up, they give you their social profiles, and then you can sort of tie in specific events that says show me somebody that signed up seven days ago but hasn’t published a walk thru, send them an automatic email saying, “Hey, I’d love to chat,” and stuff like that.
Andrew: Got you. Okay, and so what were they telling you?
Max: Yeah, so with this particular product, we had a couple of challenges. The number one challenge was that the reason that companies ignore onboarding in the first place is because their engineering teams have a different set of priorities. If you are a startup and you’re trying to prioritize a smoother onboarding experience compared to the 50 features you think you need, the features are going to win every time. So part of our value proposition was that you no longer needed to be an engineer or a web developer to build these onboarding experiences. You needed to have some web developing skills but a web designer could do it as opposed to one of your main hardware developers.
Andrew: And the onboarding process is what Carol was going to help people with? It was a web app has a new user. The new user is confused with how to use it. Carol comes up, moves the users’ mouse on the user’s computer screen, and shows them how to use the site. And you’re saying the developers can build this but they can’t do it, for what reason actually? If the developers aren’t going to do this you wanted to make something so easy that the designers can build one of these onboarding processors. Why did developers not want to do this?
Max: Well, the biggest reason was because they had other priorities.
Andrew: So they wanted to build the product, not build the how-to guide?
Max: Exactly.
Andrew: I see. And the designers who want to build a how-to guide, don’t have the programming chops to do it. So you say great, we’ll build something that designers can use.
Max: One hundred percent right. And it’s not just designers, it’s marketers, it’s customer support agents, it’s product managers, a lot of the time. And so those are three sort of people that we targeted. It was marketers, customer support, and product management and so we talk to a lot of those people and they really love the product. There was a tremendous amount of perceived value in the product we built, so then people would come to our website and say, “This looks fantastic. I think this going to solve all of our problems. I’ve never seen anything like it before. Give it to me. Give it to me. Give it to me.” But then when the sign up, it was never a simple as 1-2-3, you’re done. We didn’t have the [??] that were really needed for it to be any person. Our product was so deeply integrated with the front-end code of other applications, that our challenge was building a tool that would work on a hundred thousand different websites that all followed different programming styles. As a result, we were focusing on breathe as opposed to really simple WYSIWYG tools for offering.
Andrew: OK. So it’s too tough for a marketer to be able to use and it was too tough for a marketer to use, because you were trying to work with so many different kinds of web apps.
Max: Exactly. We were trying to productize this thing, so that any engineer, by him or herself, could build an onboarding experience for their web app in two or three weeks, or maybe even less, if they’re awesome. What we were trying to do, was take that concept and then make it usable by anybody. Which is like a very ambitious technical goal. It’s really a messy problem. I think that’s why there’s not a ton of people who are trying to solve it. That’s why you see a lot of half-passed [SP] products in the States as well. It is actually a very difficult challenge.
Andrew: Ultimately, what people end up doing is just doing a screen chat, a screencast video that helps people through using their apps.
Max: Exactly. We went into this accelerator and at that point it really felt like our cards are on the table. Once you go into these programs and you take a little bit of venture money, because our accelerator is funded by [??] in Canada, you’re on the path.
Andrew: Huge growth or nothing?
Max: You’re locked in. When you have an investor it’s rare to find one who is OK with a lot of uncertainty and a lot of risks.
Andrew: OK.
Max: You think these are risk-prone? They’re not. They want to bet on the sure thing. [??] By the time that we got into the accelerator, we noticed we got 800 sign-ups. We got 500 dollars in deposits. That was our thing. We committed to that product and we started hiring…engineers. It’s easy to think that it was the right move. We said, “Look, there’s tons of demand. The reason we’re not fulfilling that demand is because our tools aren’t good enough. Let’s hire some more engineers to improve our authoring tools.” Engineers are expensive. It became a race against time to get something out there that can satisfy the demand before we ran out of money. Unfortunately it’s the age old dilemma.
Andrew: How much money did you raise?
Max: It was just standard accelerator terms. Less than 500,000 dollars.
Andrew: Actually it seems like it’s more than most accelerators give. I thought most accelerators are somewhere around 15-20 thousand per founder.
Max: You should look into like in the extreme start-ups program give you a 50,000 dollar note from the program. And then at the end of the program you’re eligible for a hundred fifty thousand dollar convertible note from the BDC, which is the Business Development Bank of Canada. It’s like pseudo- government money.
Andrew: I didn’t know that.
Max: It’s interesting. Of course, we invented quite a bit of our own money. Because none of the founders was taking any salary. We put a lot of money into it. The point is, it’s not about the money. The point is, that given the amount of runway we had, we had this decision where we said we either need to double down on the product or transition. At that point, we decided to double it down.
Andrew: When you say double down, that means making the product simpler?
Max: Yes. Investing in our offering tools, investing in the overall quality. You can see how it turned out. My belief now is that one should not start hiring until you have real traction, not pseudo-traction, not customer deposits, not sign-ups but people pushing into production. That’s really the key. Right?
Andrew: I see.
Max: And if the challenge was too big for a three person team, we should have shrunk the challenge and built something smaller. Right? We were spending more money. Our burn rate was increasing faster than our traction was increasing, and that’s never a good thing.
Andrew: So, I’ve got a note here that you guys pivoted one more time.
Max: Yeah.
Andrew: It sounds like from this conversation, though, that you were working on simplifying the product, and if I understand you right, you’re saying: We were working on simplifying the product, but we couldn’t get it simpler enough, fast enough for out run rate, and so that’s why you had to pivot. If you had more time, you might have simplified the product to the point where developers would have been able to integrate it properly.
Max: That next pivot that you mentioned, was a simplification pivot. It was still in the same space, right? We built a new, simpler, on boarding tool.
Andrew: I see. Okay, so no more moving the mouse around. Now you moved into what?
Max: The linked in progress bar for any website. Right? You would show a list of tasks that a new visitor would have to do, and instead of showing them how to do it, instead of automating use of the demonstration of the product, we would just show them what to do, and allow the user to figure out what to do while still giving them a guide. Right? And, really, it was simpler, because you no longer were a content production tool. You know what I mean? Think about Barrage Game[SP] or Screen Flow. These are pieces of software that allow you to make extremely sophisticated pieces of content, and what we decided is we don’t want to be one of these content authoring tools. We would rather be the thing that you put your content into.
Andrew: Okay.
Max: It’s funny how we almost came full circle that way from that conversation with Eugene Lou[SP] where he said, ‘let me just throw the screen shots into this widget.’
Andrew: So then, Max, if I wanted to use this to tell new members that they were 25 percent complete on my site if they uploaded a photo, another 25 percent if they added their name, another 25 percent if they added a bio, and they’re up to 100 percent if they invited a friend to join my site. Those for steps, each one gave them 25 percent. What would I need to do on my site to use this widget that you guys built?
Max: So this time we dropped the idea that we were for non-technical people. This time around we said, ‘look, it’s very similar. The set up process is Mixed Panel or Google Analytics. We market it towards that role. At this point, it was simpler. You didn’t have to create all this content. You basically had to drop a Java script into you app. You needed to track events in, so you know when to give the user credit. It was a fairly straight forward implementation. It was much simpler.
Andrew: Okay, and how was the traction on that one?
Max: Not as good, so, interestingly enough, people looked at that product and they said, “it’s cool, and we think it will be useful, but we don’t think it will have as high an impact as your version one.” So, it was interesting. It didn’t have as much perceived value, but I think it was, actually, a more interesting product. I think, ultimately, if we had had more time to pursue that line of thinking, we could have done something.
Andrew: You took this product out to the same people who signed up to find out about the mouse moving product, I see, and you said, “hey, you know what, we decided to go a little simpler, in a different direction. Here’s what we built for you. If you’re a developer, it’s easier to add this to your app. Here’s what you do, and that’s it, and they said, ‘uh, that doesn’t really work,” and that’s it.
Max: Not enough perceived value.
Andrew: Gotcha, and meanwhile, you got a burn rate, because you’re on the path, as you said earlier, and it’s time for you to make a decision, and what’s that decision?
Max: At this moment, that’s when we said, “Look, we’re either going to be looking for jobs in a couple months, or we’re going to have to drastically reduce the size of our burn rate and the rate of our burn.”
Andrew: Okay.
Max: And that’s what we decided to do. We said, “We still have more work left to do. Clearly we were on the wrong path.” We had to, basically, not let the egos get in the way, and do everything possible to lower the burns. Quite the opposite. I think that people do better work when they have more context into what’s going on. When you have an employee that doesn’t know anything about how the business is run and you give them a project. Then they’re just like…they’re going to do the project and they are going to be evaluated by their boss and that’s going to be their feedback.
However, if you choose to share and have a really high level of transparency, you can start to do really cool things. “Hey Joe, you’re our engineer. You know everything that’s going on with the business, in terms of all the numbers and how we operate. Here’s a project, in fact, why don’t you choose your own project, given this vision and pick one of our numbers to drive. Do you want to work on revenue this week? Do you want to work an acquisition number this week? Do you want to work on an activation number this week? What metrics do you want to pull?”
So once you give…people need to have the data in order for them to make a measurable difference and not be evaluated by their boss but by their results. And that’s our line or thinking…and I think it cost some anxiety for the team. I think some level of anxiety is good for everybody.
Andrew: [???] you feel like you have some control of the most impactful numbers the company, then, that alone is a motivator.
Max: Do you really think hiding the numbers would actually reduce anxiety? Do you think not knowing is actually better that knowing? Because, I can imagine a scenario where you’re being kept in the dark and you suspect that things aren’t really great. And that could cause a lot of anxiety too, right? Why don’t we just get it all out on the table?
Andrew: It’s a good point. People can really pick up on what’s going on in the company. Even if you don’t share the numbers, they can read it.
Max: Yes, if you have a bad sales meeting, what are you supposed to do, go back to the office and pretend that everything was great. No. You say, here’s why it didn’t work, what are we learning from this. How are we going to apply our learnings for next week, right?
Andrew: So, April Dikeman [SP], who pre-interviewed you for me asked you what you learned from this process. And I got three different, maybe four big lessons. The first one you said was, “Perceived value is not validation”. What did you mean by that?
Max: I mean, when you get 800 sign-ups because somebody sees a demo of your software that ends results. You know, that doesn’t mean that you have 800 paying customers. Right? So, like I said, we have a lot of people signing up over, and over, and over, and over, tons of people signing up. There was a lot of perceived value, but when it came time for them to do the integration, they slow down and had a really bad conversion rate. So, they had a lot of perceived value going in, and then we weren’t delivering enough of it at the critical moment, so that’s why I would have said, I would have rather had ten customers using Kera, than 10,000 sign up for Kera.
Andrew: I guess that goes back to what we said at the top of the interview. Ten people actually had it on their site, who actually wanted it enough to do some work, to get it on their site, and to give you feedback based on that. They would have informed the product better than a thousand people who were just sitting on a mailing list saying, “Yeah, I’m interested.”
Max: Yeah, precisely.
Andrew: Okay.
Max: Mind you, we had 15 paying customers. Again, when you look at the volume, it just wasn’t making sense. It certainly wasn’t enough traction for us to go raising money on.
Andrew: Okay, so we, actually, are trained to think these days that pre- selling is the ultimate validation. It means you should go build, and everything’s good. You’re saying sign ups are good. Pre-payment is much better, but pre-payment and actually use of an NVP, that’s the most helpful validation that we should be going for.
Max: Yeah.
Andrew: f you could have scaled it back, you could have said, “Hey, I don’t need all these other people on the mailing list. I have 15 people who paid me. Now my goal is to build something that they will use, even if it’s a lot more hand holding on our part, even if it’s more customization, the goal is to have them use it, because if we do all this hand holding, and they still don’t use it, then what’s the point of building software that automates everything? People are never going to use it. ”
Max: I know, and we could have done a very high tech, sales driven, organization. When we could have done that, we could have sold a bunch of licenses to companies that probably wouldn’t have used out software. I see lots of companies doing that, but, again, we wanted to provide value first.
Andrew: I see.
Max: But, anyway, I digress.
Andrew: No, that’s a useful thing for us to learn. So, going back, just to stick with this one point, if you could done that part over again, yes, you would have pre-sold it, but instead of building the fully automated system, you might have, internally, built something for your customers, not a Wizzy- Wig, not anything like that, but, hey, I’ll build something that works for you guys. I’ll find some similarities in the way I build it, and if you all use it, then I’ll take those similarities and build a product that other people can use.
Max: Yeah, I would say that. Except that I wouldn’t recommend doing services work, because that’s on a NVP. Right?
Andrew: Okay.
Max: We offered. We said, “Do you want us to build your walk-throughs for you?” We were desperate to get traction. Right? People said, no. We don’t want a service. We want a product. We need to be able to do this ourselves.
Andrew: Because that want to keep updating it themselves.
Max: Yeah. Right?
Andrew: I was thinking of what Eric Ries, in his book, “The Lean Startup” calls concierge MVP, where, essentially, you’re doing all the work, but the customer doesn’t see it.
Max: That’s the thing. The customer can’t see it.
Andrew: Okay. I see. So you’re saying, it would have to be so seamless that they still felt complete control over it, because if they didn’t feel like they could edit themselves and change the flow themselves, then it would have been a different product.
Max: Exactly.
Andrew: And it wouldn’t have been validation of your vision. Okay. The other thing that you said is, it’s not enough to build something people want. You have to build something they’re actually going to use, and I guess we talked about that. And you told April on that point, don’t hire people or spend money until the metrics show that people are actually going to use it.
Max: Or not even that people are going to use it, that people are using it.
Andrew: I see. So, if you could do it again, you’d say, ‘hey, you know what? I know we have all this money, but we’re going to stay a three man team until we build something that people pay for and implement on their site, and then once we have that, then it means we have enough traction to hire more people, to improve it.
Max: Well, there’s two caveats to that, right? The first one is that this really applies if you’re a product first company, instead of a sales first company. Right, because if we were a sales first company, think sales force early days, we could have sold, and sold, and sold, and used that revenue to improve the product. There’s a company called Lock Me[SP] that is very sales driven. They’re in the same space, and that was their approach. Product First Companies is more like Zen Desk[SP], where you don’t to a lot of direct sales, especially at first. You do a lot of inbound marketing. You polish and refine your product until people pull it from you, and you can have a much lower cost to acquire customers that way, and, ultimately, run a more profitable business.
But it takes a lot of investing. Create revenue before you can get there. So if we had had a million or two million in the bank we could have got there, right? But we didn’t, right? So here is when you start hearing marking increasing who say startups these days are pivoting too much. He longs for the companies that persevere and have his vision and can pop it out and deliver this game changing product.
Andrew: I see.
Max: But to have a team that can raise that type of financing pre-product, you need something to bring to the table, whether or not it’s the previous exit, whether or not it’s an extremely influential position at a known company. Given our teams characteristics we were not cut out for raising that type of ram.
Andrew: I see. So if you can’t do that and stick with one product until you get it right then you have to think in a different way which is keep costs low and don’t expand until you can build your product, have customers want to pay for it and use it and that’s when you start to ramp up.
Max: You know it almost feels like a [???] trap, right? It’s like before you can make one of those huge you know five million dollar bets, two million dollar bets, before you even have a paying customer, you need to prove, you need to like start somewhere small and actually get a success underneath your belt, right? You know it’s very difficult for BC’s to take a big bet on you if you’re not proven, right?
Andrew: You also told April that one of the big lessons is to work closely with a small amount of customers and really focus on getting results for them. What’s the best way to work with a small group of customers remotely?
Max: So from a logistical standpoint, I mean obviously if they are geographically close to you that’s the best. You know you’ll never be face to face interaction, right? What I was really driving at there was Kera was supposed to deliver results, right? The value proposition was an increased conversion rate for our customers and so really what would have been a different approach, that might have been worth pursuing, would be to say let’s say we have our ten customers, stop the marketing and just focus on getting those results delivered for your ten customers, right? Do whatever it takes to your product for you to deliver that ten percent increase in conversion, right? Once you have those ten paying customers who are deriving value from your product, well hey, then you’re good to go right? Those people will do almost anything for you.
Andrew: And for a product first company that’s manageable because they can’t spend a lot of time getting users they can’t hope that someone on hacker knows will promote them and then they’ll get a lot of clicks and sign ups. But they can find ten people who are the ideal customer and just insanely focus on them.
Max: Exactly, until you’re delivering hands down results. And that was the thing with Kera except we had this very polished, sophisticated piece of software that had a ton of perceived value, but we were never able to pinpoint an example where we said we boosted a conversion rate by 30 percent.
Andrew: I see.
Max: Right. Maybe if we had focused on fewer customers at first we could have done something like that.
Andrew: Alright, let me do a quick plug and then I want to ask you one final question. And the plug is actually, it’s not going to be for my own thing, it’s going to be for one of the members of Mixergy Premium. It’s a member named, Owen, who introduced me to you Max. He said you got to get this guy on. He was fascinated by your story and wanted to learn more so he said Andrew see if you can get Max on Mixergy to talk about what he learned from building Kera.
So we did and so I want to thank Owen, but I also want to say to anyone else whose saying who really signs up to Mixergy Premium and what do they get out of it. For months now I’ve been saying sign up and hear all the courses and interviews that are in there but I thought maybe I’d highlight one person whose been there almost since the beginning and what he was able to build so that you could get a sense of the kinds of products that are coming out of entrepreneurs who sign up for Mixergy Premium. So I’ll tell you about Owen’s site. It’s called Sweet Process and what Sweet Process does, and you guys can go and check it out and see for yourself, it makes it really easy to document what document processes in your company so that you get a sense of what you’re doing and then you can pass it on also to virtual assistants, to new employees, to other people who will do that work for you.
And I’ve talked in the past about how systematizing Mixergy and documenting those systems has helped me. It’s allowed me to do things like get other people to do pre-interviews so I don’t have to it. Get other people to edit my interviews, because that was driving me crazy. And all those things help me focus on the heart of Mixergy, which is doing interviews and talking to the audience, but I couldn’t do any of it unless I was able to reliably pass that work onto other people.
And so, Owen, I remember in the past, pushed me to do it, to systematize and then to pass on my work to other people, and now he created a web app that allows anyone who wants to create a manual of what they do, and then pass that manual on to their employees, or virtual assistants. And that app is called Sweet Process. And I hope you guys check it out, and when you’re ready to sign up to Mixergy premium and learn from proven entrepreneurs, Mixerypremium.com is the site to go to. We’ve got hundreds of interviews, and a hundred courses taught by entrepreneurs who teach you what they do best. All right. Mixergypremium.com. I guarantee it.
And Max, here’s the final question. You told April when she asked you how are you different at the end of this, that you’re now more skeptical of your own product. How do you get to be skeptical, so that you could, just the right amount of skeptical, but not so much that you start to say, nothing’s going to work out, and become a pessimist who loses the entrepreneurial optimism? How do you do that?
Max: Well, I mean, the other thing I should say is that I’m also more confident now than I’ve ever been.
Andrew: Really? Why?
Max: Because I’ve been through this. Think about it, like, there’s only, you know, not that many people in the world that get to do what we do, you know? Build a company. Whether it works out or not. The amount of experience that, you know, we have accumulated through this experience, or through this company, is remarkable. The next time it happens, I’m going to skip over a lot of the issues that we had, like last time. But, again, we’re such big believers in customer development, and lean start up, and don’t listen to vanity metrics, but even so, it’s easy to convince yourself that you’re on the right [app?] Even if you’re using tools, like customer deposits and putting up landing pages before you’re building the whole site, etc, etc. You know, you can still fool yourself.
And if you think about it, we were able to take an idea to a company, and invalidate it, essentially. With less of an investment, as big as it was, less of an investment than it’s ever been in history to do. And it’s fantastic, it’s absolutely amazing. So, you know, my key take away from this experience is the next time that this happens, ROI must be delivered. Value must be delivered first. Even if you’re doing it for five people. Don’t stop at the customer deposit. Don’t stop when you get some sign ups on your landing page, right? Those are just, those are like lean vanity metrics. If we could almost say that. Right? So hold yourself accountable, and resist the urge to grow, even though it’s very alluring.
Andrew: All right. It’s a good place to leave it. You don’t want to talk about what you’re doing now? You’re not ready for it, right?
Max: Give us another month or two. You know, maybe we’ll get a chance to talk again.
Andrew: That’s what I especially appreciate about this interview, that it’s so easy to come on and do an interview that says, “Everything I did was perfect” And when entrepreneurs want to do that, I say maybe we should pass on this interview. It’s a lot more useful, though, to do an interview like you just did here, where you say, “Andrew, I’m not trying to promote anything, I’m not trying to hustle here, I’m just trying to say I learned something over the last few years, and I want to pass it on to other entrepreneurs.” And I especially appreciate that, and I hope that someone who got some value out of this will find a way to say thank you. If they do, what’s a good way for them to connect with you?
Max: Hey, just shoot an email to max@kera.io, Max Cameron on Twitter, very easy to find, we’re always up for a chat, and I don’t mean to paint a super bleak picture here, nobody on my team is upset or sad, or anything like this. This was a fantastic experience, and as you very well know, the ups and downs happen so fast, that I even hesitate to do retrospectives like this at this point, because literally, next week, it might have been a completely different interview, am I right?
Andrew: I agree with you, I hear you, but I’m still glad that you did it at this point, because there’s so much that you said that doesn’t get said. This idea of, hey, once someone buys your product before you build it, it’s a good and useful idea, but I don’t hear anyone say, “But here’s the gotcha there. Here’s the part where you could be misled.” And that’s why hearing that here is useful. You’re not saying, “Hey, look, if you have it, believe me, you can still go. There will be disaster.” You’re saying, “It’s good, but here’s something else you should watch out for afterwards.” Just because they pay doesn’t mean they’re going to use, and it’s better to have 10 people use it than 100 people say, “Yeah, maybe I’ll use it.”
Max: Yeah. Any day. Any day. All right. Thank you.
Andrew: Thank you so much for doing this.
Max: My pleasure.
Andrew: Thank you all for being a part of it.
