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Here’s the program.
Andrew Warner: Hey everyone. It’s Andrew Warner, founder of Mixergy.com, home of the ambitious upstart. Today’s guest is Michael Fitzpatrick. He is co-founder of ConnectSolutions. In 2007, he was living, how did I do with the date? 2007 right?
Michael Fitzpatrick: Perfect.
Andrew: Twice in prepping for this interview, I got the wrong date on his intro. So, 2007 he was living a comfortable lifestyle as an employee of Adobe Systems, but he decided to take a jump and start his own company. Four months later, he was cash flow positive. I don’t know how he was able to do that. I can’t wait to ask you. 13 months after launch, the business was profitable. I invited him here to teach how he did it. Michael, welcome to Mixergy.
Michael: Thank you so much. I really appreciate the opportunity.
Andrew: What is ConnectSolutions?
Michael: ConnectSolutions is a real-time collaboration service provider [03:04] on delivering web conferencing, webcasting technology, typically to large enterprise and government agencies.
Andrew: How would they use it?
Michael: The use cases vary significantly. We have users who are using our solutions for training purposes, both internal to their organization as well as their customers and partners. We have customers doing global outreach to constituents across the globe. Literally 100 plus countries. We have other folks who are using it for communication to large audiences in a marketing context or in-house, the quarterly updates to businesses. The use cases vary significantly. We found most success, again, in large organizations who are trying to communicate effectively internally, to their employees, and then also externally to their customers and partners who they do business with.
Andrew: It happens by video and there’s some interaction with the audience. Right?
Michael: Exactly. The general premise is that you have the ability to meet with individuals, whether it’s two people or 20,000 across the globe without ever having to jump in a plane and deal with lines, deal with travel. You can do, essentially, all of the same things you can do in a physical meeting, like sharing content, video, to add that personal human touch, as well as, obviously, voice, and other data.
Andrew: How are you guys different from WebEx or from using Skype the way you and I are using it or some of the other options? GoToMeeting.
Michael: Yep. In reference to someone like a GoToMeeting, or even a WebEx, we tend to focus our efforts on large enterprise and government agencies. That immediately differentiates us from folks like GoToMeeting, who tend to focus on the small and medium-sized businesses. In all cases, we end up providing a higher level of reliability, higher levels of security, and integration and customization capabilities to allow these large organizations to adopt and enable their end users to be successful.
We offer a single-tenant version. In today’s speak, it’s a private cloud. In the old days, it was called managed services, just a couple of years ago. It’s where we deploy each of our customers individually and that gives them a lot of options when it comes to customization, integration, and really allows them to ensure that it’s treated as a tool for everybody, much like a phone or your email address, as opposed to a scarcity. That’s been a big differentiator for us, has been that ability to really embed ourselves and not become yet another web conferencing silo like a lot of the folks you mentioned are.
Andrew: Mike B. in the audience is asking how you approach customers, which is a good question, because I’ve got a list of some of your customers up here on my screen–Google, O’Reilly, U.S. Department of Defense, FEMA. These are the kinds of companies, these are the kinds of organizations that are customers of yours. How do you get them?
Michael: I still pinch myself every now and then when I look at some of the folks we have an opportunity to work with. The primary method that we’ve gone to market, one of the decisions we made at the very beginning was to leverage a selection of channel partners to help us get to market. We recognized that we were technology and service providers fundamentally. We’re not necessarily a sales machine like, as I’ve read in your post and history, you’ve certainly had some of that capability. We decided early on that we would leverage these channel partners who, in many cases, have existing relationships with these organizations and provide some value to them to help them in selling new capabilities to their customers and that’s been really successful.
You keep those customers, and they build on themselves by delivering excellent service and really differentiating on that front. When we started the company, really, the foundation of this was to provide the most reliable service, and that helps keep and retain customers, but then also deliver insane, passionate customer support to these guys, whether it’s three o’clock in the afternoon or three a.m. and go above and beyond to really make their experience one where they get the ROI.
We found in the last year or two that they actually tend to refer us business. Customers talk to each other, in the government space in particular. Agencies talk to each other about how they’ve been successful with certain technology or programs, and that’s really helped us to get access to some incredible clients.
Andrew: Who are some of the channel partners who have helped you get the big customers?
Michael: We’ve leveraged a number. There’s certain categories. There’s a whole selection of reselling partners in the Adobe community. When we left Adobe to start this company, we focused on making organizations that were investing in Adobe Connect to be successful. There was already a seeded channel of partners that I had both worked with while at Adobe, but who were also looking for new opportunities. We went and targeted those folks. For these folks, this was a complementary service. We chose not to resell the product.
Andrew: Mm-hmm.
Michael: To remain neutral, and that was an important decision early on, as well.
Andrew: That way you’re not competing with them. They can go out there, sell it, and not have to compete with the maker.
Michael: Exactly. We’re neutral in that capacity and offer some value-added services to really allow them to differentiate their capabilities. That’s been one category. We’ve also had a number of opportunities with conferencing service providers. So folks who are already out there selling audio conferencing, for example, and want to bring best-in-class web conferencing capabilities and webcasting capabilities to the table for their customers, that’s been another excellent opportunity.
In the government space, there have been a number of systems integrators, the usual suspects that work heavily within government contract land, that have also been able to bring us in as domain experts to help round out their team and some of the programs.
Andrew: Why you? Were there other companies out there that they could have brought in? Were there other companies that they brought in along with you?
Michael: Up until now, there really haven’t been competitors in the space of Adobe Connect. I think, for your audience out there, we chose to stay narrow and pick a niche where we had a lot of domain expertise and could invest our time and energy, every waking moment of it, into furthering that cause. For customers and organizations that were looking to build upon the Adobe Connect product, we were an extremely viable option because that’s what we live and breathe every day.
Andrew: What’s Adobe Connect? I did an interview with Peldi here of Balsamiq and he talked to us a little bit about Adobe Connect. What is it?
Michael: Adobe Connect fundamentally is a web conferencing application that competes with some of the folks you mentioned earlier. It also has a component for training, and it’s all either asynchronous or synchronous training. Thousands of organizations around the world are using it. They range from small and medium-sized businesses, which Adobe tends to support, or the large enterprise customers that we focus our energy on.
Andrew: All right. So I’m looking at your history here. ’98 you worked for Vignette, I think. Siebel ’03, Macromedia ’03 to ’05, Adobe after that. Did you always want to be an entrepreneur and you were just stuck in those jobs?
Michael: I would not say I was stuck in those jobs. The Vignette experience was a startup. I joined when we were about 200 people, and literally 9 months later, I think we were close to 2,000. It was an incredible experience. That really was, for me, a behind the scenes look at what it takes to grow a business and how to be successful. I think that started to get me pretty excited about the potential opportunity.
Other organizations like Siebel, for example, which is a very large organization now a part of Oracle, a different experience. That actually led me to go to Macromedia, which at the time was starting this new business called Macromedia Breeze at the time, which has become Adobe Connect today. What enticed me there was it was a medium-sized software company, but this was a new business within it and a completely new model, the services models.
Andrew: Were you sitting there the whole time saying, “One day, I need an idea so I can launch a business. I can’t wait to do it. I need to have enough money”?
Michael: I was sitting there believing that it would behoove me to spend time getting the tools to start a business. I think, certainly when I joined Macromedia, my personal intent was eventually to go and start something. I felt like I had a lot to learn. I have always been in the product management side of the house, which for prospective entrepreneurs, if you want a general manager type role, product management is phenomenal. Not only are you responsible for what it is you’re going to develop, but you need to work with customers to understand what they need. You need to figure out how to price the thing, how to sell the thing, how to support it, how to run it out operationally. Those are all things that any entrepreneur is going to have to deal with on a day to day basis.
I felt like that was a very good real world experience to get me prepared to make that final jump. Frankly, at some point in Adobe, I started getting very serious about it. I wish I could tell you that I woke up one morning and the idea behind ConnectSolutions was there and apparent to me, but it was actually a very iterative process. Many, many late nights surfing the web, evaluating companies, and trying to figure out what was the right business model for me to go after.
I think in the time frame that we’re talking about, there were a ton of the Web 2.0 companies sprouting up. Most of those tended to be feature companies. I have this great addition to a CRM suite, and I’m going to try to make that a business and hopefully sell it to somebody, like SalesForce or somebody else. That didn’t rest very well with me because it felt like you’re taking a gamble. You didn’t actually have a self-sustaining business.
I think through a lot of, frankly, late nights and iterating on, I don’t know how many, different business models, and trying to find resources that would help me be empowered as an entrepreneur, I finally started to get the courage up. The thing I almost left Adobe for first was not ConnectSolutions.
Andrew: What was it?
Michael: It was a CRM-related idea. I used that reference earlier, because I was one of those Web 2.0 fanboys, if you will. It was an idea that had merit. It was and still is, I think, an opportunity for CRM vendors.
I had a chance encounter with Tom Siebel of Siebel Systems one day. I had five minutes to pitch him on this idea. And obviously, like any entrepreneur about to pitch someone who you hope you might get validation on and funding, I was very nervous, very excited about it. First minute, I get through it. I feel like I’m crushing it, lots of heads nodding. Then Tom just sits back and goes, “Yeah. Michael, that’s a great idea. If I saw that in the market, I’d stick 15 engineers on it and they’d be done in six months and I’d just give it away for free. What are you going to do then?” I sat back and went, “Oh, crap. What do I do?” That doesn’t mean he wouldn’t have necessarily gone and done it or that some other vendor would have gone. . .
Andrew: Let me ask you about that because that’s six months and 15 engineers. That’s a lot of engineers, but fine they can spare it because they’ve got the money. That’s six months. That’s a ton of time for you to learn how to iterate, how to improve, and how to turn that one feature into a whole business.
Michael: Correct. My immediate reaction wasn’t we should immediately run from it, but what it did force me to think about very seriously was, what are the long-term competitive differentiations? What is the real business behind this and how I can scale this?
For that particular idea, you’re absolutely right. You might have the opportunity to iterate and come out with something great. Frankly, here at ConnectSolutions, that’s been our mojo and it’s served us really well. At the time, I didn’t have the confidence to be able to say with certainty and then to put mine and my family’s future at risk. I wasn’t sure that this was the right . . .
Andrew: Right. That’s honest. Now, 2007, I got the date right this time, right? What is it with me and numbers today?
Michael: Yep.
Andrew: [laughs] I guess people who didn’t watch that pre-interview conversation don’t know what we’re talking about, but I kept screwing up the dates. So, 2007, you say, “I’m ready to go do this thing.” Talk to me a little bit about some of the risks that you were evaluating. Some of the worries that you had walking in. Some of the concerns that you had for your family at that point.
Michael: Yeah. There were a lot of those risks, a lot of concerns. Quite frankly, I think that the difference between an entrepreneur who starts something and the millions of people who are contemplating starting something is fundamentally, at some point, an entrepreneur is going to say, “What the hell? Let’s try to make this happen.” It’s always going to be a leap of faith, I believe.
At some point, I’m not sure exactly why, I decided the time is now. In retrospect, I probably wouldn’t do what I did timing-wise again, because I literally left with a baby on the way and in the midst of a home remodel. Not a very low-risk time to go try to start something. I think part of it was just being naive about what was coming in starting a company.
In terms of what I was using, the tools I was using to evaluate the opportunity, one was to figure out what were the core competencies and what were the differentiation points that I thought were sustainable for at least a year to two years to allow us to get the business going and then get prepared to do the next thing. From our perspective, my co-founder and I both had extensive experience in Connect, and we felt that we could take that knowledge and deploy it in a way that had meaning for customers looking for large deployments and it was the kind of experience that you only get through the fires and the tough times in the past with customers. We felt like we had something, a body of knowledge that would allow us to get a real business off the ground.
We worried a lot about how are we going to go to market. We knew we had a finite amount of resources to get started. And that’s where we really said, “Let’s focus on the channel and use that as an opportunity to scale.”
Andrew: What were your resources? You talking about money that you and your partner had?
Michael: Yeah. What we did was we came up with a business model. I actually recently looked at it. We’re coming up on three years now and I look back at that model. I think like most business models, we were way off.
Andrew: Tell me about it. What was the original business model?
Michael: The business model that we originally planned was very similar to what we do today in terms of delivering a high-value service for web conferencing and collaboration. But, the biggest difference I notice when I looked at this was that, I think in our first two years, we had something like 75 to 100 customers and in our model, we had four employees. Now, looking back, I have no idea how I thought we could support this kind of business with four employees. It was way off.
I think we now have somewhere around 40 employees and about 50 customers. Now, you hear that and go, “Oh, wow. You missed your targets of 75 customers.” Well, the good news is that our average selling price was about 25% of what it is today, so that 75 customers at that lower ASP made sense at the time. Fortunately, we’ve been able to increase the value of services we provide, so therefore we have a smaller number of customers, we’re investing a lot. . .
Andrew: Smaller number of customers paying more per customer.
Michael: Exactly.
Andrew: I want to ask you about that and how you came to that conclusion. But first, let’s talk about what that original model was and how it changed. What did you imagine you were going to launch?
Michael: We imagined, in fact, I sent out the original executive summary document to the whole company last night as a joke because it’s funny. In many ways, we’re still doing exactly what we set out to do, but there were a couple of main differences. When we originally set out, when we were shopping this idea around, the original intent was to be both a reseller of some web conferencing technology, so pure sales function. It was then also to provide the managed services that we do today, as well as some customization services.
Before we ended up starting, as I mentioned earlier, we dropped the sales part because we couldn’t figure out a way to make that scale without hiring a whole lot of people and that’s a different business from the technical capabilities that we’ve ended up focusing. . .
Andrew: That would be reselling somebody else’s solution?
Michael: Exactly.
Andrew: Okay. Kind of like what I might do today if I were to resell your product.
Michael: Precisely.
Andrew: And the reason for doing that is to get your foot in the door with some clients, I imagine. To get some experience on the sale side. To get some relationships going, and then you could start transitioning from the other product to your product.
Michael: Exactly.
Andrew: And it didn’t work because you didn’t have enough people as a small company?
Michael: We, as a small company, realized we had to focus. When we looked at our core competencies that we were bringing to the table, we understood that we knew how to deploy this technology in a very scalable and reliable way, and that we could build a real business around just being a technical services provider, as opposed to also doing the reselling of that third-party product.
We said, “Let’s push that out. Let’s let the channel partners continue to do what they do, which is resell that product. Let’s bring them something new to the table to help hit their quotas and help bring money into those reselling partners.” That focus really helped us.
We had, early on, after some proven success in supporting this web conferencing technology, organizations coming to us and saying, “Hey. Can you support our exchange server? Can you run our website for us?” That, I think, was another valuable lesson to share, which is, we said no. It was really hard to do that because there was substantial money on the table, and as a startup, looking to drive revenue, the tendency is to grab it and say, “Ah, it’s a just a minor distraction. Let’s take it now and get going.” Reality is, those are the quickest ways to get yourself spread too thin and remove yourself from the focus of a core competency. We said no. It ticked customers off all the time like, “Oh, come on guys. Just do this for us. You’ve proven you can do this well with web collaboration tools. Help us with our portal or our wiki.” Whatever it might have been. Fortunately, we said no.
Andrew: Did you ever say yes?
Michael: We never said yes.
Andrew: Never did. That’s a whole lot of discipline. When you need money, when you need to find your way as a company, and when your customers are asking for something, to turn down money, and to insult your customers at the same time, potentially, is really tough. I’ve got to learn to say no more often. You’re right to.
Michael: Saying no, part of my Vignette experience, going back to that, was I saw a company that owns the web content management industry. Then we started getting distracted with other components that were somewhat related, but really different businesses. That allowed some of our competitors to walk in the back door and take over that web content management space, which we should have shored up forever.
Andrew: What distracted you at Vignette?
Michael: In that case, we bought some companies that had really different technology that were, you could maybe figure out a product strategy to align them all, but. . .
Andrew: Can you give me an example?
Michael: We bought an integration company that allowed us to, in theory, hook up our content management system to any enterprise system out there. The reality was, that integration component and business was being used for all sorts of business process management stuff that Vignette, as a company, had no core competencies in. In the end, it really distracted us from our core domain expertise around content management. That was a good lesson and that served as some discipline.
I think the other thing is we’ve tried to stay as lean as possible in terms of people and that forces focus. You can only do so much. I think rather than going out and burning a huge amount of VC money and hiring as fast as possible, we’ve actually always made sure that we feel, as a company, a little bit of pain before we actually move on to the next employee. In 2008, 2009, when the economy was exploding around us, that proved to be really smart for us because we weren’t overextended, and we could organically grow based on customer investments.
Andrew: You know what? I was spying on you. I was watching the video that Robert Scoble did with you and as he was interviewing you and you were talking about enterprise and the software and all the data that went behind the scenes, I was looking around your office. I said, “What kind of office does this guy have?” I saw the monitor that you were showing Robert Scoble, how beautiful your software looked, that monitor was sitting on top of three books, three programming books. I said, “All right. They’re not really spending that much money. If he doesn’t have something to lift his monitor up, if he’s still using books, he’s keeping it lean.”
Michael: We use books. The printer paper disappears all the time because people are propping up their computers, laptops, and that. You got to be hungry, is our opinion. We would rather invest in technology and things that are going to help our customers than make sure that we have the perfect office space. That’s just a bit of a differentiation. That’s why we’ve been able to be profitable for a couple of years, too.
It doesn’t mean we’re skimping. Our employees have probably, we think, one of the best overall nurturing corporate environments out there. That was a big important thing for us. It does mean that we don’t do ridiculous launch parties and such. They were fun back in the day and I wish somebody else would do more of them. We focused on reinvesting and that served us really well.
Andrew: Where’d the original money come from? Outside investors?
Michael: We actually went to friends and family and raised a very small amount. I’ll tell you, when I first started thinking about starting a service, it’s always been tech oriented in my world. The low tech stuff I actually find interesting now. There’s plenty of high-margin businesses out there, but tech has always been a focus.
The world changed so dramatically, between let’s say 2000 and 2007, when it came to rolling out a new hosted service. This was even just as EC2 and the Amazon stuff was starting to come on as a utility. But in our world, we could invest in managed services providers, the folks who had the big data centers, and could provide a personalize experience and not have to spend hundreds, if not millions, of dollars to get started.
From our perspective, we took as small amount as possible. I think it was about 100k initially. That was to get us our infrastructure going and to work at home, in the proverbial garage, for the time being to get the business off the ground, get the service ready, but also to still be able to deliver a service with the SLAs that these big enterprising government organizations need.
Andrew: 100,000 is tiny. How many people gave you that?
Michael: One person. Fortunately, it was my father, who was running a VC company. He said, “I’ll give you this angel. We’ll see how you do.” I’m pretty sure he expected to never see that money again, and was being kind. As an entrepreneur, when you take money from friends and family, at least personally, that is a real motivator to be successful because you do not want to not be able to pay those guys off fast.
Andrew: Was it easy to ask your dad for money?
Michael: No. It was horrible. When I talk to him now on business, he’s Senior. He happens to be Michael Senior, so he’s Senior, then otherwise he’s dad. But when it’s business, in fact, I had an interesting meeting this morning with him, he was definitely Senior.
Andrew: You’re saying when you call your dad and you say, “Hey. I’ve got an issue here. I want to talk to you about this business.” Or, “You called me up, you want to know about this investment.” Or whatever. You say, “Senior, this is where that money went.”
Michael: We got to separate the two. Otherwise, I think all. . .
Andrew: Does he call you Junior?
Michael: No, he doesn’t.
Andrew: All right.
Michael: I’m whatever he feels like calling me.
Andrew: [laughs] How long has he been a venture capitalist?
Michael: I think since about 2000, 2001.
Andrew: Oh, wow. So you had a dad since 2001 who was a venture capitalist? I would have thought that you’d just keep hitting him up with investment ideas.
Michael: The problem with that is he’s going to judge you a lot harder than he might judge somebody else.
Andrew: Ah. Yeah.
Michael: For me, I didn’t feel like I was ready. There was a sense that I needed to spend some time understanding how you run a business, how you launch a product, how you sell a product. Until I had that toolkit, I felt like I’d fail as an entrepreneur. Looking back on that, I think, actually, you learn so much more by just doing it.
Part of it is, you just got to leap, because the learning curve as an entrepreneur is so steep, you know this as well as anybody. I think no matter how well you think you’re prepared, you’re not. You’re going to learn everything on the job. I think maybe I could’ve done it a little bit earlier, but at least I got a little bit more personal confidence that I might be able to pull it off, even though the odds say you’re not going to.
Andrew: How much else did you raise?
Michael: We raised that. We went back about a month or two later for some additional to help us get to this, we had a major deal that we closed. I won’t disclose who it was, but we closed a deal in the first couple months that really helped us get started. It was, and still is, a very significant deal for the company. That allowed us to then start paying back those investments that were made.
Andrew: You paid back?
Michael: We paid back. Yeah. We were cash flow positive in four months as a result of that deal, and we negotiated some upfront to help us actually pay some of that back while also investing. Then we were able, I think, in 13 months to actually pay back all of the loan.
Andrew: So Senior has all his money back?
Michael: He’s got all his money and then some.
Andrew: Wow.
Michael: He still has his piece of the company, which is important, and he still is an active advisor and on our board, so that’s fantastic.
Andrew: Right on, Michael. How did you get to, I looked you up when I saw that within four months you were cash flow positive and 13 months after launch you were profitable. I looked you up and said, “Is this guy for real? Can I trust these numbers?” Everything. Great reputation, stellar. Once I saw that, I said I have to have you on and ask you how you did it. How do you get to cash flow positive within four months in an industry like this? When you’re selling to enterprise, it takes forever to make decisions.
Michael: In the case of this initial deal that we landed, it was with a partner that we had a couple year relationship with, so the senior executives there were people that knew us, trusted us.
Andrew: Was this with Adobe?
Michael: It was actually not with Adobe.
Andrew: Okay.
Michael: A different partner. It was somebody that we had a working relationship with.
Andrew: Back when you were at Adobe.
Michael: While we were at Adobe. Exactly. That made it a little bit easier for us. We went in with credibility, and they also went back and talked to Adobe and other people that we’ve worked with and said, “Are these guys real? Can they really deliver?”
I’ll be honest and say, when we won the deal, it was for an account with roughly 75,000 users. So the joke was, I went to Chris, my co-founder, and said, “Chris, you take A through L and I’ll take M through Z on the support side and we’ll try to figure this out.” There was definitely some concern, but we also had this confidence on the technology that we could pull it off. How do we get there? We were lean. For the first year, I’d say, we were basically two people.
Andrew: First year with thousands of users, two people are basically running the company?
Michael: Yes.
Andrew: Developing the software, too? Or did you have someone . . .
Michael: Yes.
Andrew: . . . developing in-house, supporting it, looking for new customers?
Michael: Yes. It was a difficult year. [laughs]
Andrew: I bet. And you had a new baby.
Michael: Actually, my co-founder also had a new baby.
Andrew: Oh, wow.
Michael: We’ll add that to the mix. Fortunately, we were passionate about what we were doing. We could see immediately that we had a real business. That’s inspiring and helped fuel. We also saw that we were making a difference for the end users in this case. Those three things, for us, were enough to get us cranking away.
Now, we should have, in retrospect, hired some people sooner. But like I mentioned earlier, there’s this general idea that you need to feel some pain before you start to take on people. We felt the pain. Our families felt the pain. It was brutal, but I think you have to do that as an entrepreneur.
I’ve seen recently some articles that talk about, oh, being an entrepreneur and starting a new business doesn’t mean you have to sacrifice your life and everything else. I, frankly, don’t believe that at all. There’s nobody else in the world who cares more about the thing you’re trying to start, and if you’re not willing to make those sacrifices, how are you going to expect to find a team that’s going to be willing to do that with you?
For three years, both my co-founder and I have been on all alerts. So every three a.m. call, we know about. We may not be able to do anything about it, but the intent is to make sure that our team knows and understands we’re willing to go all the way and support these customers in any way possible. It was a brutal first year.
In fact, until February of last year, 2009, we were four people. We went from four to roughly 40 in the last year and a half. That’s when the pain was pretty obvious. Being very conservative on that front. We also had the ability to leverage some technical resources as part of our managed services arrangement, where they could help us with some of the raw infrastructure. We were responsible for the applications, the service and support of that, and then obviously the sales and other business development work. It was a busy time.
Andrew: [laughs] All right. I see this a lot with enterprise. With entrepreneurs who get into enterprise, because it’s a long sale cycle, it takes forever to even get your foot in the door and even longer to close the deal, it seems that they have a relationship that leads to sale and the relationship starts before they even launch the company.
I talked to one guy who, I can’t remember the name of his company, but he worked for Microsoft and as soon as he left and started his own company, guess who became his first customer? Of course, it was Microsoft. That helped him grow and go from there. Is there any conflict of interest in a situation like that, where maybe Adobe or the company you’re working with says, “Hey. Why aren’t you just doing that for us? Why do you leave us to go and take our customers or take our money?”
Michael: It was a huge concern of ours. My co-founder and I both were at Adobe, and we decided to resign on the same day. We also decided to be completely transparent with what we wanted to do. I’ll never forget the conversation I had with my manager at the time, who basically started cussing me out and he was cussing me out not because he was really angry at me, because I think he sensed that this might be coming. But he was cussing me because he was frustrated that he couldn’t really be angry with me.
The point was I was leaving to pursue a dream of starting a company, but I was actually doing it in a way where I could extend and help around the product set. As opposed to going out and starting a competitor, or just going off and selling toasters, I was actually coming up with a solution offering that we all felt would help the overall business.
For us, a key point there was to be completely transparent with what we were doing. I think if we had been less than that with the company, we might have had a more strained relationship with Adobe. As it was, we were solving needs that the company couldn’t solve at the time internally and doing nothing but focusing on how to make their customers successful so they would come back and buy more.
I think in the last year, something like 75% of our customers, joint customers, went back and bought more software from Adobe in that first 12-month period. That speaks to the success and commitment we have to make those customers successful, and that’s obviously a great situation for an organization like Adobe.
Andrew: That question. . . sorry. Go ahead.
Michael: There’s a whole community of people who’ve done similar things where they’ve been working at a company, they’ve left amicably, and actually come back with a complementary service that helps them build a business and ultimately helps the larger company or corporation that they leave.
I think that’s actually a whole interesting topic. I’m kind of interested, based on my own experience, and then talking with some other people, there’s probably a lot of folks like me who were working at large companies, saw opportunities, decided it might not be something that that larger entity was willing to do, but was a totally viable business to do on the side.
Andrew: I see that a lot. I’ve got to see if I can find more examples of it. I don’t know how you would start off as a company without that. I guess you’d need a whole lot of money to sustain you as you build those relationships. All right. That came from someone in the audience who’s anonymous. I see the other questions you guys have. I want to go back and ask a question that I had from earlier about pricing. You adjusted your pricing and you wanted to tell us and I didn’t give you a chance to do it earlier.
Michael: We started with a price point in mind. We looked at competitors. We looked at similar offerings. There really wasn’t something like what we were trying to accomplish that’s part of our defensible strategy. We came up with a number.
When we started working with organizations, prospects, we started to test those numbers. We would come in with numbers that we thought were astronomical at the time, because we really didn’t understand the services we were providing. Most importantly, if we didn’t provide the service, what was it going to cost the company we were selling the service to?
And over time, actually pretty quickly, we realized that we were actually undercharging and that we could still make a very strong case around ROI for our customers by charging more. To charge more, you have to deliver value, and there can’t really be a question around the value you’re offering. Otherwise, you’re not going to get the renewal.
Andrew: How do you go back in and you say, “We’re a new company. We just made an agreement. I’ve got to charge you more than we agreed to. We’re raising our rates already.”
Michael: That is impossible, in my experience.
Andrew: Okay.
Michael: Unless you come back with more services. There’s no company in the world that’s going to say, “We loved the service last year. We’re willing to pay 2X this year.” You have to come back with more value, otherwise it’s an easy deferral or “No thanks. We’re done.”
Andrew: What else did you add that you were able to add without distracting yourself?
Michael: We, as two people running this kind of a service, one of the first things we said we needed to do, and it’s served us incredibly well, is to automate. If you don’t have people, you need a system that actually self-corrects, does maintenance tasks at 3:00 in the morning while you’re hopefully sleeping, and only alerts you if something fails.
We spent, really, the first six months, Chris basically went into engineering land, said, “Michael, go figure out all the business stuff. Go get the partners online. Get us some customers. I’m going to solve a problem of not needing to hire 25 people to do a job. I’m going to try to make that into software to manage the system.” It was the best thing we could’ve done and allowed us to stay much smaller.
Andrew: Do you have an example of that?
Michael: A good example is weekly maintenance tasks need to be run on this software to keep it tuned and scale. One way to do that is to have people manually do it at midnight on a Saturday night and when no one else is using the system. A better way to do that is to schedule a recurring task, which at midnight, takes care of that for you. That made our lives a little more possible in this context. Lots of examples, and we’ve continued to add on to that over time, which has been really important. You still there?
Andrew: Yeah. Did you lose my video? Now I lost your audio. Can you hear me? Yeah, but your audio went away.
Michael: I’m back.
Andrew: There you go. Yeah. What’d you do?
Michael: Sorry about that. My screensaver went on.
Andrew: Oh. Okay. How about not related to the product? Did you automate anything else? Like something a little bit more personal. I mean business. I’m not trying to figure out how you automated raising a kid.
Michael: Oh. Oh. In general? One of the things, we looked for timesaving opportunities. Opportunities where we could potentially, for example, a good example is customers kept coming to us and saying, “Hey. I need a monthly report on usage.” I’d have to go dig into some databases and figure that out. That gets old the first time you do it. We decided to actually expose a whole set of reports directly to customers that allowed us to be transparent with them and I no longer had to build these custom reports for them. That immediately gave me hours back a week, which was really important.
In terms of personal optimizations and such, we went down the brute force, we’re going to spend as much time as we need in this company to make it work. I hired an admin in January of this year. And in looking back, I’m very angry with myself for not having done that a lot earlier, because not only do our employees get responses faster to important things around HR and such, but I’m a lot happier because I’m not doing that work from 10:00 p.m. till 2:00 a.m. every night.
There are places to automate. There are places to look at the value of your time and how you could potentially do it even better with somebody else or another resource, and that’s still a learning process for me.
Andrew: I can see how organized you are. In fact, I knew it as soon as we booked this interview. Unlike, I think, I don’t think I’ve ever had another guest who did this. You sent me a Google calendar widget thing that automatically added our interview to my calendar. This morning, I think it was at like 7:00 a.m. or 8:00 a.m. I got an alert to say we’re having this conversation. The alert was because I added that, but I wouldn’t have even been able to add it if not for the little thing that you sent me. I said, “Ah. This seems like an interesting guy.”
Michael: When you work with large enterprise and government agencies, they are used to working with 10,000 person systems integrators or massive consulting companies, and they have their stuff together. They’re organized. They know how to run projects.
Andrew: Government’s organized when they’re dealing with you maybe. They’re not organized when they’re dealing with the rest of us.
Michael: Absolutely. They expect the people they work with, at least vendor wise, to be organized.
Andrew: I see.
Michael: How they actually run their business or affairs, different matter entirely. That I think has been something that’s been interesting for us as a small company, you need to project a much bigger image than you might actually be.
I had a fateful conversation once. We won the business. But we had a prospect in the office, which was a borrowed office at the time, who came in to say, “We’re a multi-national company who’s supporting massive global organizations. What happens when there’s an issue with the service?” Chris, my co-founder, already had his hands on the table. I put mine on the table and said, “You know what? When there’s an issue, it’s all hands on deck.” Chris basically kicked me under the table laughing, because all hands were on deck at that precise moment.
You have to be able and be confident that you can actually deliver and you have to project an image that’s appropriate for these kinds of customers. It’s not a small, medium-sized business where they’re hacking stuff together just like you are. You have to, in certain ways, present yourself a little bit differently.
Andrew: I see. You’re helping people do video online essentially.
Michael: Mm-hmm.
Andrew: I’m doing video here. Look at the way I look. I mean, it’s really dark. I’ve said this before, my eyes are all dark because the light is right overhead, that’s the way office lighting happens to be. There’s still audio issues here. People are walking in the background, you probably hear it on mic.
Michael: Yep.
Andrew: How are you helping your customers deal with that?
Michael: It’s a good question because everybody is trying to figure this out. I’ve been doing video conferencing for almost 10 years now, so it’s not new to me. But the problems that are out there are the same. There’s a technology opportunity for improvement.
This experience, it’s pretty good, but it’s not perfect. We have blips. You’re fuzzy occasionally. We’ve been working really hard on the technology side to be able to actually deliver HD-quality video over standard broadband connections and even at less than that. There’s a huge amount that can be done and is being done and our company focuses on delivering a great personal video experience for you, whether it’s you and I talking or 10,000 people on the other end.
There’s also a fact that humans are not yet used to being in this scenario where we’re talking to computers. Yes, I see you and it feels like I’m talking to you, but I am actually talking to a MacBook Pro right now. There’s a piece of a cultural thing that we have to get used to and a way of communicating. I think the new iPhone with Facetime and such, that’s going to actually be interesting to see how people adopt that. I don’t necessarily want to be talking to you visually, though, when you’re walking by Starbucks or wherever you might end up being. That’s a whole new way of working that’s going to be interesting.
The other thing is, frankly, there are environmental issues. The overhead fluorescents that almost every corporate office has decided to use are terrible for video. I have something sitting right here. It’s a light that I use because I know, if I don’t have it, I’m going to be much darker.
Andrew: Is it shining on you right now?
Michael: It’s shining on me.
Andrew: Directly on. . . I see. All right.
Michael: From the front, as opposed to overhead, where then I look like I have even more gray hair than I do. There are elements like that that are actually important to consider, and I’ve yet to see any standard office configuration that’s ready to go for high-quality video. I can’t tell you how much lighting makes a difference. Even a cheap, $10 webcam, with good lighting, looks pretty good.
Andrew: Yeah. You know what? I wish somebody would make lighting for conversations like this. Something that doesn’t make you look yellow. Something that doesn’t beam you in the face. Maybe somebody in the audience. . .
Michael: Let’s talk about that offline. I hear an opportunity.
Andrew: There’s a business for somebody in the audience. You got bigger things to worry about right now. Let’s see what else I got here in my notes. Balsamiq. How big a share of Balsamiq do you have?
Michael: Zero.
Andrew: Zero. Balsamiq is a bootstrap business. They create mockups, or they’ve got a software program that creates mockups of other software. I talked to Peldi, the founder of the company. I asked him about his advisors. He’s got great advisors. He says he didn’t give them any shares of the business. I couldn’t believe it. You’re confirming it for me.
Michael: Yep.
Andrew: I’m wondering why you would do this. The guy’s making money. He shows you on his website how much money he’s making. Why are you working for him for free as an advisor?
Michael: Working for Peldi has been an unbelievable experience. He’s done, where I’ve gone into the big enterprise and government space, Peldi said, “Let’s blow it out and try to get this software to everybody who will possibly listen.” For me, it’s an interesting opportunity to see from the inside a very different kind of business.
Peldi and I worked together for many years prior to him jumping to Balsamiq. In fact, I jumped from Adobe to start ConnectSolutions prior to him starting Balsamiq. When he was getting ready, we had a lot of conversations about what was it going to be like, how is he going to pull this off. For me, having had the opportunity to work with Peldi for a long time prior, I knew that wherever he was going, I wanted to stay involved, because he’s such an exciting and dynamic guy.
His vision of this micro-ISV at the time, it’s a little bit more than one guy now, but his vision for being a hardcore engineer who loves building great products and will try to figure out the business later, was exciting. I started a bit from the other perspective.
Andrew: What’s in it for you? I ask in a kidding way, but the serious part of it is, I’ve got people in my audience who would love to have co-workers or other entrepreneurs as advisors. They can’t give them shares because it would take lawyers and would take a whole other process. They just want to get started. They need some help. I want to know how Peldi was able to get someone like you and hopefully my audience can go and do the same thing.
Michael: Peldi was a friend to begin with, someone I really trusted and vice versa. When he said he was thinking about this, he came to being, his career has generally been in engineering, where I’ve spent more of my time on business. So I felt like I could maybe help him to a certain extent, although he doesn’t need much. For me, it was exciting to see somebody else going and, frankly, as an entrepreneur, more access to startups and such is actually just a good thing. You learn from every experience whether it’s in your own startup or somebody else’s.
For me, it was an opportunity to get some more exposure, again a very different kind of business. That was a learning process for me. Frankly, I think entrepreneurs in general should reach out more directly to folks if they’re interested, because my experience has been everybody I’ve reached out to talk and say, “Hey. Can I get some feedback on your experiences?” Every single entrepreneur I’ve ever encountered has said, “Absolutely. I’d love to share what I’ve learned, and I would expect that you share some of what you’ve learned as well.” Nobody is the uber-entrepreneurial genius. I think part of what I learned is it’s just helpful to ask people. It’s amazing what you can. . .
Andrew: Do you have an example of what you learned from watching him build his business?
Michael: He, in his early days as you may recall, decided, “I’m going to expose all of my financials to the world. I’m going to show on a week to week basis how many units I sold, how much money I made, and what my profits were.” When he first did that blog post, I called him up and said, “What the hell are you doing, Peldi? This is insane.” That process ended up being a huge reason why he became so popular. He was giving insight to the world, anybody who bothered to read his blog, on how you might start a company.
Back then, there weren’t as many resources as there are today to give people like us some guidance on what the hell do you do and how you make it successful. He decided, “I’m going to open up the kimono completely and show this to anyone who cares.” That actually got him on things like Hacker News and 37signals, You. It’s amazing what’s happened as a result of that. From my perspective, his approach to an open business and sharing what he’s learned was a really important lesson for me and I benefited hugely by trying to do the same thing with other folks.
Andrew: How much have you guys made? What are your profits?
Michael: [laughs] We have opted not to do a blog post about that. I can tell you we’ve been profitable for the last two years. I won’t give any magic numbers.
Andrew: Does that include the salary?
Michael: It does include salary. That’s all in. All of our operational costs.
Andrew: Wow.
Michael: Looking at the net. . .
Andrew: Is your salary now what it was when you worked at Adobe?
Michael: No. It’s less, but that’s actually a really important point. I talked to several people who say, “How much do I pay myself when I start a company?” My answer is as little as you can because there’s probably opportunities to invest those dollars differently and perhaps more effectively.
As part of the opportunity costs, when you’re looking at doing a startup, you have to realize you’re going to make less money, likely, than you are today. Any business model needs to account for the fact that you personally are going to make less money. You also have to assume that it might fail. Can you live with that knowledge? My end result was yes, I can live with it because I’m so excited about the opportunity to go start something and build a company the way I’d always hoped to be able to work in a company. The tradeoffs made sense.
People are different. I’ve seen some folks who pay themselves a lot of money. For me, I’d rather invest it in our people because I know that that helps the overall value of the company and ultimately everybody will win.
Andrew: Yeah. Much rather leave it in the business and invest in hiring another person than take it out and invest in another dinner.
Michael: Exactly.
Andrew: All right.
Michael: Otherwise, you’d be eating part of your computer every time.
Andrew: Finally, any advice you want to pass on to other entrepreneurs? One very important thing that you learned that you think others need to know.
Michael: I think maybe one or two items. The first is that I spent at least a year mulling over different business models before I finally got the courage to go out and do it. As we mentioned, talked about earlier, my business model was way off. I think most are. That’s okay.
I think I was always intimidated by the idea that there were probably thousands of other people thinking about the concepts that I was mulling over in those business models. What I’ve realized in the last couple of years is that there are, actually, thousands of other people thinking about your business. The only difference, and it’s a huge difference, is that in an entrepreneur’s case, they actually decided to go and try to make it happen. Taking action, particularly when you’re in that warm, cozy blanket of a bigger company, which was my scenario, it’s really hard to do. But if you are doing it for the right reasons, the best thing you can do is actually make the jump. That was, I think, and continues to be one of the things that, in my process of over a year of mulling about, has been a lesson learned.
Another huge important part of a startup and being an entrepreneur is the iterative process. Whatever your original business model is, it’s going to change. Whatever product you think is the future, might not be the future. Having an open culture where people can tell you, “This is wrong. This isn’t working.” In particular, having a culture where customers tell you what isn’t working is extremely valuable. We’ve done a good job of leveraging customers to help fuel the future direction. As we talked about, we’ve also done a good job of telling them no when it was appropriate to stay focused.
I think that the focus piece is an important part and, frankly, just getting the courage and throwing caution to the wind and actually trying it out is, hopefully will be rewarding for a lot of people.
Andrew: Well, thank you. Thank you for doing the interview. Thanks for that advice. I see Dan Blank’s very grateful for it in the audience. Actually, one more thing. You said you’ve watched my interviews before. You were saying something about them before the interview started. I thought maybe I’d get you on the record, maybe I’d get a testimonial out of Michael.
Michael: Absolutely. When I was trying to get the courage, trying to get information to help me make a successful jump, I scoured the Internet for business models, examples of startups that had been successful. At the time, it was very difficult to find other people who’d been through that experience sharing what they know.
Today, the world has changed. The first time I visited your site, I sat back and went, “My God. Where was this three years ago?” It would’ve sent me on . . . I would’ve had confidence a lot faster had I known there was a resource like that where people are sharing their ideas. It’s amazing to see the kind of changes you’ve put out there and the amount of experiences that are out there on public record. It’s really fun for me to see that as a resource and know that that’s going to help some entrepreneurs out there actually get the courage to make the jump or if they’re in it already, how to tweak their businesses to be successful. A big thank you to you for that. It’s exciting to see resources like that.
Andrew: Thanks. Thanks for contributing to this mission. Michael Fitzpatrick of ConnectSolutions. Thank you. Everyone, check out the website. What’s the website?
Michael: ConnectSolutions.com.
Andrew: ConnectSolutions.com/blog is also worth checking out.
Michael: Yep.
Andrew: Thank you all for watching. Come back to Mixergy. Give me your feedback and take these ideas, go build incredible companies, and do what Michael did, which is come back here and share what you learned from building your company. Thank you all. Bye.
Michael: Thank you.
Andrew: Cool. All right. We’ll edit this and we’ll post it next week. I’ll send you a link.
Michael: Awesome. Thank you. I really appreciate it, Andrew.
Andrew: Cool. thank you.
Michael: Congrats on starting this. It’s such a great idea.
Andrew: Congratulations to you, man. This is incredible that you’re now up to 40 people.
Michael: We used to dream that maybe one day we’d be able to feed the whole company on two pizzas. We’re now up to five because I eat one myself.
Andrew: I was going to say I could go through one myself, too.
Michael: Yeah. I pinch myself. We’re actually, on Sunday is our third anniversary, so that’s kind of cool. We’re going to do a fun thing on Monday with the team.
Andrew: What are you guys doing?
Michael: We’re going to have a party. They don’t know it yet, but we’re having a party.
Andrew: Wait, wait, wait. We’re still live. Is it okay?
Michael: Ah. Yes, it is.
Andrew: All right. It’s not part of the interview, but it’s live.
Michael: Okay. Yeah. We’re going to do that. We started off with an idea that we could be successful, but we never envisioned we’d be 40 people and have the kinds of customers we have. That’s inspiring. It creates a biggest beast of, “Wow. We could maybe take this a lot further.” It’s been fun.
I was telling somebody yesterday about your sales tactic of naming the company. I’m like, “Man, we should think about how to do that as well. It’s genius.” It’s good. Is this your full-time or are you doing other things right now?
Andrew: Yeah. I’m here in Buenos Aires for, well I was supposed to go back to the U.S. a few weeks ago, but I’m here for maybe another few weeks. As long as I’m here, I’m going to do another interview every day.
Michael: Wow.
Andrew: Then we’ll see what happens after.
Michael: That’s fantastic.
Andrew: Cool.
Michael: Well, I look forward to keeping in touch.
Andrew: Thanks.
Michael: Yeah. Keep these rolling. It’s super useful. I’ve actually been pointing a bunch of people, friends of mine who are thinking, “Hey, if Michael can do this, I should be able to do it.” It’s like, “Great. Go. Go take a look at this person.” I’ll drive some traffic your way.
Andrew: I appreciate it. Thanks a lot. I hope to do the same for you.
Michael: Thanks.
Andrew: Let me know if you need anything. Bye.
Michael: Thanks, man. Bye-bye.
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