What? He Built A Million Dollar Company And Got 0%?

How does a founder build a million business — and NOT get to keep any of it? You’re about to find out, and if you internalize what you learn, you’ll avoid a similar fate.

Jon Pospischil built an online sporting goods company and grew its sales into the 7 figures. I invited him to tell the story of how he did it and why he doesn’t own the company today.

I also want to find out about his new company, Custora, which helps you figure out which promotions to send to which customers. (If you’re an online retailer, I predict Custora will rock your world.)

Jon Pospischil

Jon Pospischil

Custora

Jon Pospischil is the cofounder of Custora, which offers a SaaS that tells online retailers and web apps which of their customers are most valuable, and suggests actions to keep them.

 

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Full Interview Transcript

Andrew: Three messages before we get started.

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Here’s your program.

Hi everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. How does a founder build a million dollar business and not get to keep any of it? Jon Pospischil built an online sporting goods company and grew its sales into the seven figures. I invited him here to tell the story of how he grew the company and why he doesn’t own it today. I also want to find out about his new company, Custora, which helps you figure out which promotions to send to which of your customers. Jon, welcome.

Jon: Thanks so much for having me Andrew.

Andrew: Jon Pospischil. I’ve got that right, right?

Jon: Yep.

Andrew: Cool. So do you remember the day, actually, when you hit a million dollars in sales?

Jon: Yeah that was a really, really exciting thing. So it was the second year after founding the company and it was an exciting time of the year. We were getting close to the holidays and so there’s just a lot of activity going on in general. But we knew we had been watching the sales. We’re getting close, we’re getting close and so we knew probably by mid afternoon that this was going to be the day that we hit it, if we were able to get the boxes out, right?

So we get everyone together once the day’s getting close and the UPS guy’s going to come soon. All right we want to hit the target, you know? So everyone goes down, we all kind of chip in and then we finally get all the boxes out and it was just like palpable excitement. You look around the room. There’s like these stacks of boxes that are all going out. You’re over in the other direction and there’s like shelves of inventory that didn’t exist a year ago and there’s the whole team of people who had worked so hard to get there. Really exciting.

Andrew: You know what? Very few of us actually know the moment when that happens. It’s go to be really exciting to remember that that happened. Now going into this new business. And we’ll find out how you built up to a million and what happened that you didn’t keep the company. I don’t want to reveal too much of the story in the intro, but does having done it once make you feel like in the second company it’s more achievable, that you could do it again?

Jon: It certainly feels like it’s possible, right? It no longer feels like such a gamble. Like is it luck? It’s clear to me now that if you put in enough work, you’ll get there but it still doesn’t really help with the ups and downs you face every day when you’re starting a company.

Andrew: I see. It doesn’t eliminate the doubt when the downs come up.

Jon: Right. You still have doubts about is this the right company? Because I know that if I work hard enough, then the market’s there and we’ll hit it, but you’re still going to face these struggles. It does give you a lot of confidence going and taking on another one.

Andrew: All right well you set me up with a free account on Custora so I can check it out. I got to tell you, I love what I saw and I know that Y Combinator backed the business, which means that they saw something in the team, too. So it looks like you’re on a great path here with this new company. Let’s go back in time and find out how you got here. The previous company and then we’ll spend some time in the end about Custora and explain to people why they need to check it out and how you built it. But going back to high school, were you the guy who was valedictorian, who everyone knew was going somewhere?

Jon: No. Not at all. Actually, when I was in high school I was, well I was barely out of high school. I spent a lot of time just ditching class and things like that. I was actually near the very bottom of my class when I graduated which kind of a big turn around story.

What happened and how all of this story kicks off is that I was very near the bottom of my class and I was delivering pizzas or something like that. I knew I didn’t want to do that and I was getting ready to go to college and then I was like, I need to get a better job than this.

I went out and tried to find something and I got this dealer, a motorcycle dealer was actually like, ‘oh, we need somebody to build a website.’ I kind of pretended to know how to build a website. I knew a little bit of programming. So I signed up for that and I went home and I told my mom, she was like, ‘What are you doing? What are you getting yourself into here?’

She didn’t have a whole lot of confidence in my ability to tackle that but we made it through, we got there. So it was cool.

Andrew: The first thing that you did was built up a website for an existing motorcycle dealership?

Jon: Right. That’s how this all started. They saw that what was happening with the like the internet, right? This was 2000-ish. They’re like, we want to do something for our dealership. They actually wanted to have an e-commerce store or at least for people to post sales about the motorcycles they had in the store, those kinds of things.

I went in and I built something for that. While I was there, I started to see these other opportunities and that’s how the company came to be.

Andrew: When you built up this store, how long did it take you to build up the first website? What tools did you use? What was the result?

Jon: I set up an e-commerce store but it wasn’t actually that, it was just, here’s the events that the dealership has going on, here’s specials that, kind of thing. Like, come in and you’ll save $500 off a motorcycle or something like that.

It was basically, like, it was very basic. Here’s what we’re doing, here’s what’s going on kind of thing. That probably took me three months or so to get the first thing up. Keep in mind, I didn’t know how to code at all. I didn’t know anything about web stuff. I knew how to code but nothing about web stuff, designing stuff.

Andrew: Sometimes just getting that start hooks you on it. I remember my brother, who’s a developer, the first time that he got to build something, I could see almost a change in him. He knew that this is something that he would be great at and he couldn’t stop developing new ideas and bringing new things to life.

All with just the keyboard and his fingers and ideas and you don’t need raw material or anything like that. You just get to go and build something.

Jon: Very true. That’s what kind of happens. I was always kind of interested in development, writing code. Once I got to the web stuff, that’s what kind of fired what you’re describing, kind of ignited. So it was really cool.

Andrew: Then you discovered some kind of deal on wet suits.

Jon: Yes. This is cool. We are in this dealership and there’s like all these people that are selling, like wholesalers sell parts to the dealer. One of the wholesalers is Yamaha. The dealership bought bikes from Yamaha and also parts and accessories.

At the end of the year, they would blow-out whatever stuff they had left from that year’s model of clothing and apparel. One of the things they had was wetsuits and bunch of wave runner apparel. So wet suits, gloves, maybe some boots, things like that.

It was all these crazy sizes, triple extra large. Stuff that they just could not sell. I saw this flyer come through on a fax and it was talking about them. I was like, huh, I bet we could sell that somehow. Personally, I’m thinking, for myself, I’d like a few extra bucks. This stuff’s really cheap.

These kinds of wet suits would sell for $200.00 to $300.00 bucks when they were like at retail six months earlier. They were just blowing it out, they didn’t want the inventory. They were selling it to us for like a $1 buck. It’s like with $1.00 I could buy [??]

Andrew: Literally for $1.00?

Jon: A $1.00, $2.00, $3.00 and very, very low priced.

Andrew: Okay. This stuff usually goes for how much?

Jon: Earlier in the year, it would have been about $200.00 or $300.00.

Andrew: $200.00 or $300.00 and they’re giving it to you for one buck. Okay.

Jon: Or $2.00, $3.00, it was like nothing. They just wanted to get rid of the inventory. It was kind of like a perk for the dealership, like, throw them a bone. You guys can buy this stuff up and if you have these customers, you can sell it and make a few extra bucks.

But the dealership I was at didn’t want it but I did, so I bought it all and took it home. We had like 30 days to pay for it. I bought the stuff for like a $1.00, $3.00, whatever and I ended up spending, I don’t know how much. A few hundred dollars worth of stuff, boxes and boxes of these wetsuits.

Took it all home and then sold it all on the internet at like eBay and Craigslist. Actually sold all the stuff before I had to pay the original $300.00. [laughter]

Andrew: How much did you get for the stuff you sold on eBay?

Jon: I don’t remember what the total was but it was a non-trivial amount for a kid.

Andrew: We’re talking about 1000 bucks?

Jon: Thousands, couple thousand.

Andrew: Thousands.

Jon: Yeah.

Andrew: You put up $300 you get thousands of dollars from selling on eBay and Craigslist. That’s a very labor intensive process right?

Jon: Right exactly.

Andrew: You clear it off so that bug inside you, the one that you discovered when you built that first site is now growing. What’s the next step what did you do after that?

Jon: I thought it was cool but it was this one “off” thing. I wondered if I could find more stuff. That’s just in general.

We had dealt with a big apparel manufacturer called Fox Racing. They did this same kind of thing but they did it regularly.

You wouldn’t buy something for 99% off, you’d buy something for 75% off or something like that.

Andrew: OK.

Jon: Also lower value items. You’d buy something that was 50 bucks or 100 bucks, you might be able to buy it for 25, and maybe you could sell it for 50.

I saw there was this other opportunity here. I would like to do something but I don’t have the capital personally to do it.

I talked to the people in the dealership. I said, “Hey look you guys saw what I did there. I’d like to do it on a grander scale but I can’t do it myself.”

There was a guy there I had become close friends with that had this hustler mentality so he was behind what I was doing and I got him to buy in. I convinced the owner and everyone that this was a good idea. Let’s try it.

Andrew: OK.

Jon: We ended up buying $10,000 or so of this Fox Racing stuff.

Andrew: $10,000 they put up the money you put up the labor. You basically repeat what you did at eBay, Craigslist sale but now you’re looking for ways to systemize it and go faster and less retail.

What do you do to speed things up? It seems to me if you’re going to sell on eBay and Craigslist it’s pretty much all a one off or you’re trying to basically unload it all at once. No?
Jon: Yes that’s what’s interesting is that’s how this started again. It’s all one off sales.
Let’s buy this stuff from Fox but we’re just doing it on a broader scale now.

Instead of having 100 or 50 pieces we could have lots of pieces of merchandise to sell. I still wasn’t thinking about the fact I had this relationship with this customer and maybe I can get more out of it then just this one time sale.

We sold all that stuff and then after that was maturing a bit I started to realize that what was really going on there was this interesting customer acquisition channel which is eBay. We can buy customers there.

We can bring them into our world and try to up-sell them and cross sell them on additional stuff down the road without paying eBay a cut.

Andrew: What were you paying eBay in fees to unload this $10,000 worth of product?

Jon: We paid $10,000 for merchandise and maybe it was $20,000 in sales or something along those lines. I don’t remember specifically on that because it was this ongoing thing but I do remember getting bills that were thousands and thousands of dollars a month.

We thought that sucked because now we have this customer but every time I resell something to the same guy on eBay all I’m doing is giving eBay a cut, for what? They didn’t bring me this guy I already had a relationship with him.

I started thinking that we should build our own store and we can use eBay as this customer acquisition channel and then drive them over here and see if we can convert them on our own.

Andrew: Got you.

Jon: That’s the real bulk of the story. That’s when the company was formed.

Andrew: I see. Even after the fees you paid to PayPal and eBay for all these sales you still were making a profit. You just said, “Hey there’s a significant chunk of this profit that’s walking out the door everyday to this established company and we shouldn’t keep doing this.”

Jon: In some cases it was valuable. We continue to do it forever. If it’s a brand new customer that I had no way of reaching before, I liked it better than doing AdWords.

Andrew: Right.

Jon: It’s not paying for a click, it’s paying for a sale. That was good. You could control the sale amount so you always had margin left over including the commission you had to pay them but when it was a repeat sale that made no sense at all.

I already know this guy’s email address. I know the stuff he likes so I just have to market directly to him without having eBay sitting in the middle.

Andrew: Before we move on with the story I’m curious about what you did to stand out in the eBay store. There are just so many competitors in there.

It’s almost impossible I think to really browse and have a fun browsing experience on eBay because there are too many products and it’s too hard to go through them all. Here you are, can’t get much browsing traffic, have to compete on search with all these other competitors, you’re relatively new and you’re relatively small compared to some of the giants who are coming into eBay now.

What do you do to stand out and make those sales?

Jon: We spend a lot of time on our listing design. We try to build our own store experience within eBay.

Andrew: All right.

Jon: Once we had someone that would look at one of our listings then we would force them through this tunnel where you would see this other stuff we also have available that’s similar to this. We had kind of our own brand within the eBay listing.

We started to build a sense of who we were with the customer. As far as getting people to look at our listings at all we would just post a lot.

Andrew: Right.

Jon: We would put hundreds of listings up so if you were at all interested in Fox merchandise, the first thing we started with, you would have probably just seen us, the sheer massive listings.

Andrew: You didn’t have that many products. Did you list more products than you had?
Jon: For sure. Maybe not on that first pass but down the road we would list things before we purchased them.

Andrew: Let me ask you this, you’ve listened to Mixergy interviews before, right?

Jon: Yep.

Andrew: You and I connected because you were a fan.

Jon: Yep.

Andrew: Right now you’re way ahead of where you were when you were in that eBay stage of your life. Right now there’s somebody who’s at that stage or about to get to that stage who says, “You know what eBay is not going to be the rest of my life but if it’s a good start for Jon I’m going to use it as one of my first steps.”

I don’t want them to have to figure this all out for themselves.

Jon: Sure.

Andrew: Now that you’ve moved on past it share some of the tactics that have worked for you. I’d like who ever this person is, if you do this come back in three years. Don’t just interview but remember Jon’s name and say, “Jon is the guy who taught you this.”

What are some of those tactics that have worked for you Jon?

Jon: We definitely spent a lot of time on listing creations so once they looked at one thing we could increase the chances they would look at something else we had. We would list things we didn’t have to test to see if anyone was interested in that and keep down inventory costs.

Hopefully if you can find someone who will sell you stuff and drop ship it for you that’s ideal. What drop shipping means is you buy something from wholesaler “a” . . .

Andrew: When they make a sale they deliver it to your customer.

Jon: . . . they deliver it to your customer instead of it having to come to you first. We would try to set up those kinds of relationships and in that way all you’re doing is marketing the product.

If you get the sale you never really took on any kind of risk other than the effort you put in trying to make that sale.

Andrew: OK.

Jon: That was a big win. I don’t know if it would work today unfortunately because the quantity of stuff on eBay is enormous now, but we just had a significant amount of listings.

You couldn’t search on eBay for Fox clothing and not run into our stuff.

Andrew: If I understand this right, if you had say . . . what’s a typical Fox racing apparel that you might sell is it a t-shirt?

Jon: A jersey.

Andrew: A jersey. If you had a Fox racing jersey and you wanted to sell it on eBay, you would put one listing for that Fox racing jersey and then actually multiple listings wouldn’t you for the same shirt?

Jon: All the different colors, all the different sizes and many times for the same shirt. I’d put one listing that starts today, one listing that starts the next day, the next day. Sometimes it was a popular item so 12 hours apart, 6 hours apart.

Andrew: I see. If that shirt sold you’d just cancel all the future listings of that shirt?

Jon: Or I’d order more.

Andrew: You’d order more I see.

Jon: I would [??] the extras right to the guy.

Andrew: OK. Drop shipping wasn’t as profitable as buying it on a discount the way you did before. But you could still make a profit on it.

Jon: Right.

Andrew: It gave you another opportunity to just flood that store with as many of your listings as possible and as many different closing times as possible. People often search by most recent auction ending period right?

Jon: Sure.

Andrew: You just keep coming up at the top.

Jon: This wasn’t as true with the Fox stuff but some of the other things we went into down the road, is we would find a lot of other things there weren’t a lot of people selling. For example there was this mini bike craze and we found there weren’t many people selling those things but there were lots of people who wanted them.

If you went on there all you would see is our stuff and so we kind of had that cornered for a little while.

Andrew: Got you. All right now every time somebody buys from you, you get their name, you get their email address, you get an understanding of what they like and now you’re accumulating this customer database and you’re saying to yourself, ‘I don’t want to keep sharing this revenue from these existing customers with eBay, I’m going to build my own store.’

One of my favorite questions is, what does that first version of the website look like? So tell me about version one.

Jon: Yeah. In truth, we probably went too far with version one because we had this really interesting idea which was kind of unique at the time, I think car dealers had done it, motorcycle e-commerce stores were not doing this.

There is this challenge, if you want to buy a part for your bike, if you go to most of the stores you’ll just see listings. Say you want to buy an exhaust, you’ll see hundreds of exhausts, only two of these hundreds fit your bike right?

We came up with this idea, if we’re going to build the website we need to solve that problem so we built this thing that let you choose what kind of bike you have or if you have multiple bikes and we’d just refine everything you saw across the store so that you only saw things for your bike.

That was really cool and it worked really well, the only challenge was it took longer to build. If I could go back I probably wouldn’t have done so much, I might have focused just on apparel at first. In the end it worked, it ended up taking six months to build this thing or something like that.

Andrew: Six months that you didn’t have your own store to sell to your own customers and along those six months you were still paying those fees. I understand the downside of that but if you wouldn’t have built the ability to search and do all those other things, wouldn’t you have lost sales?

Jon: Yeah. It was a trade off. I think if I could go back what I would do is launch the website in a more basic form at first. Just sell apparel or something where this problem doesn’t even enter the mix, it doesn’t even enter the equation.

If all you’re doing is searching for shirts there’s no problem with does it fit you, no different than any other apparel store online which is isn’t a major problem. If I could go back I would do that first and then keep building that business while on the side built out this bike thing where you could choose what you wanted.

Andrew: I see. OK. That makes a lot of sense. You can probably get that basic version of the website up in a matter of weeks instead of months.

Jon: You could even use an off the shelf product in a shop offline [?] store.

Andrew: Did you build your own store? Your own back-end, you own everything?

Jon: Yeah. Because that was the only way we could, I looked recently and I still don’t think there’s something off the shelf that will let you create those relationships on a product that says, filter it by what it fits. This concept of something fitting, like applications I think is what you would call it, like this thing only applies to this circumstance.

Andrew: Got it. Got it.

Jon: There’s no off the shelf product that really does that.

Andrew: Do you remember where sales where at the time that you finally launched?

Jon: That’s a tough question.

Andrew: Roughly.

Jon: I know the first year sales, we were probably at around a quarter of a million dollars or so through the six months or whatever of that year.

Andrew: On eBay?

Jon: Just on eBay

Andrew: And you weren’t doing Craigslist at that point because it was too small.

Jon: I don’t think we were doing Craigslist but we might have been doing, I can’t remember if we had done Amazon Marketplace sales yet but we had looked for other things like that. I know it was mostly eBay but I think there were some other areas that we were going after and trying.

Andrew. Ok. So now you’ve got the market cornered on mini bikes, you’re doing apparel you’re building a website where people can find parts for their bikes. Actually, how big a market is it of people who are buying parts for these mini bikes? I didn’t even know these mini bikes existed and you’re telling me that there are people who spend a lot of money on souping them up?

Jon: Yeah. This is interesting. This another one of the reasons, this is kind of how we moved from just selling this apparel stuff into a more interesting business selling parts and accessories for these peoples bikes. At the time, there was this big craze going on where grown-ups would buy these bikes that were made for five year olds, 50 cc bikes. They’re literally like the size of my monitor.

Andrew: OK.

Jon: Not very big at all. Grown men would buy them, the bikes themselves cost $800 to $1,000 but then they would dump $10,000 into them to make them really fast and look cool and all this stuff. In the dealership I happened to be at, by chance, there was a couple of guys that would come in and do this, I saw this going on and I was like, “That guy’s spending $10,000 on this little bike.” And it’s all accessories, you can’t sell bikes, it’s really difficult to sell them online and ship them but parts are the easiest things in the world to sell.

I’m like, “Well, we can do that. What’s going on? What’s out there right now if somebody wants to buy that stuff?” And it was really a pain because you had to go in, find a dealership. A lot of the dealerships didn’t even care about this stuff, wouldn’t even talk about it, so there was this whole mass of people who wanted this and they really didn’t have a good place to get it. Because we had these guys nearby who were into it and I could learn about it, I’m like, “OK”, and that’s when we started selling stuff on-line or on eBay. And that turned out to be a really good decision.

Andrew: You know, I used to live in Venice Beach and I got this place that was right on the boardwalk and I thought, “This is going to be beautiful. I’ll have a view of the ocean” and, instead, what I heard was a lot of drumming because that goes on in Venice Beach in California. But also, now that you mention it, I saw these grown men on these fricking little bikes. They made a lot of noise. They would go, not one at a time, they would go in these little bike gangs.

Jon: Yep.

Andrew: I admit, it looked fricking fun. I would have wanted to get on one of those. It looks ridiculous and fun.

Jon: Yeah. It was super ridiculous and it was super ridiculous when you would see the kind of money that these guys would pour into these things, but it was a great opportunity, so we went after it.

Andrew: OK. At which point did you bring on more help, or was it just you the whole time with the guys at the dealership?

Jon: Yeah, so, as we started selling these parts for these mini-bikes, I really didn’t know anything about motorcycles, parts, accessories. I knew nothing about this, right? I just saw, “Well we can make some money if we do that, so let’s try it.” So I would get these e-mails all the time and they were like, “Should I buy this part or this part?” Like a 120 cc versus a 8 cc, I think, and I’d be like, “I have no idea.”

Andrew: I’d be the same way.

Jon: I would get all these questions together and I would scramble around the dealership trying to get people to answer them for me. But, meanwhile, I still have all these parts. We were selling a fair amount of things and it was just me so I had to ship all that stuff out, create the new listings, working on the site at the same time, like trying to build that thing, and I’m going to school full-time. So it was too much, right? And I’m like, “Well, maybe we can bring someone in to help do that part because I have no idea what this stuff is. Let’s bring someone in who can help with the customer-relationship stuff because I can’t answer these questions. It wastes so much time.” So we brought in the first guy and he was really into these bikes so it was great. He just loved talking about them and I didn’t, so that worked out really, really well.

Andrew: And he was a full-timer?

Jon: Yeah. He was full-time and he would take some of the load off. I think he might have done shipping right off the bat too so he’d ship everything out and he would answer all these questions that I had no idea what they were and that would allow me to focus more on building the site so that we could stop paying eBay all those fees.

Andrew: You told Jeremy, our pre-interviewer, that at the end of the first year, you guys did, it’s in my notes, roughly $750,000 in sales.

Jon: Yep. Exactly.

Andrew: And you told your Dad and what did your Dad say?

Jon: My Dad, so he knew the story, I just went in here, right, and it sort of evolved into this thing that was a much grander scale than I had ever imagined at the beginning. And I was telling him, “Hey, this is really cool. Look what we did and I’m really proud.” And he was really proud. He’s like, “That’s awesome! What’s going on? What’s the relationship here? Are you like a partner?” Because all the while, this was a really good relationship. I was getting paid really well, getting a big chunk of these profits and all that, but nothing’s formal. It’s like a handshake agreement where I come here and I do this. My Dad’s like, “You should probably think about that a little bit more, iron out those details. Do you own some of this or what’s going on?” And I was like, “OK. I’ll look into it.” So, then, I, it was really after that, talked to the owner of the company and said, “Well, what’s going on? Let’s formalize this. When I’m done with school, I have to either stay here or go do something else. And if I’m going to stay here, I want this to be a partnership thing.” That was all good and she was like, “I agree”, and we had this handshake agreement to split, I think the deal was going to be like half-and-half or something along those lines. And so, that was great and I kind of like, let it go. She’s going to work out the legals. So in my mind, this box is checked. We’re going to be OK.

Andrew: And the agreement would have been, how clear were you guys about what the agreement was going to be?

Jon: We were very clear. I don’t remember exactly what it was now, it was so long ago. There was no ambiguity. It was either 50-50 or 60-40 or something like that.

Andrew: There’s a clear percentage. You’re clearly going to own a big piece of this business. The responsibilities were well laid out. They were basically financing and introducing the understanding of the market into the business. You were building the website and figuring out the sales process, finding customers online.

Those responsibilities were clear, percentage was clear. I see. All right. You’re Dad said, “How legal is this? Do you have your legal ducks in a row?”, as you told Jeremy and why didn’t you do that? Why didn’t you get everything formalized?

Jon: I talked to her about it. To me, that’s like that’s good. I’m not worried about because I had so much other stuff going on. But I think, like now, we’re getting close to the end of college. By the end of college, I was very intense. I was a double major in Comp Sci and Econ. I did an undergraduate thesis and I had a whole lot of stuff going on.

At the same time, I’m trying to keep this business running. I wasn’t really focused on this legal thing. I had a good relationship with this person so I wasn’t worried something bad was going to happen. We talked about it, she said she was going to go handle it and then it faded away. I didn’t focus on it that much which was turned out to be a mistake. [chuckle]

Andrew: All right. We try to say that, always in business you are supposed to get everything written down. You’re supposed be very clear but frankly, the reality in the real world, that doesn’t happen perfectly all the time. A lot of deals end up happening on just a conversation like the one that you had and work out okay. There’s also a danger, as we are learning in this story.

Jon: Yes.

Andrew: All right. eBay is still a customer acquisition source for you guys, right? That’s the main place where you were getting you’re new people?

Jon: Yes.

Andrew: Okay. How did you move people from eBay to your store?

Jon: This is kind of where one of the big things that made Custora come to be today. There’s this interesting thing. You can get customers and it’s fairly easy. One comes and buys one thing on your site but then you have to work to get that additional conversion.

I want to get more than just this one sale out of this guy. That was kind of the whole idea. Let’s bring these customers on from eBay and then we’ll bring them into our world. Then we can handle the marketing. That was kind of the idea.

There was a common trends like people would send out these catalogs in the industry. We would put these things together and we would ship… That was kind of like the first kick-off point to the relationship.

You would buy something from us on eBay, you’re starting to get a taste of us. We set up an account for you, you can build these profiles on our site and share something with your friend, I think.

Andrew: You automatically created an account for them on your site after they bought off of eBay. You built that yourself?

Jon: We built that ourselves, yes.

Andrew: That’s really impressive. So now the person has an account on your site and they can do what with it? They can share what they bought with their friends, also impressive. What else?

Jon: You could build a profile of your bike and share that with your friends. Like, maybe there were wish lists like, I want to build this cool bike. I want this, this, this. You could share that. The other thing was when you made that first order, not only do we set you up with your account but we also would include on of these nice catalogs in this box.

Hopefully, that sits on your workbench or whatever, like right next to your bike. Then you start to think about us a little bit more. That was the idea.

Andrew: Wow. You guys even got into catalogs.

Jon: Yes, yes. That’s quite a bit of work it turns out. You don’t realize how much work it is to do that.

Andrew: So we’re looking at roughly 2005. That’s you’re last year in college. You guys hire more people. Who else do you hire?

Jon: At this point, we have the website. It’s just a manual data entry problem because there’s no structured data that gets passed around in the industry that says this thing fits these four bikes or whatever the case is.

We had this manual data problem. Sales were ramping up and we want to get more and more products on the site so we can get more and more sales, right? We would just bring an additional person on anytime something, like sales, got to crazy.

We can’t handle everything with just the two of us, let’s bring someone else on and in their down time they were able to enter parts onto the site. Then we could create this benchmark. Say we want to add 100 parts to the site everyday? This person when they first come on, that’s what they do.

Slowly, they’ll start spending more and more time shipping product or talking to customers or something like that. As we get down to the point where this person is only listing and adding five items to the site every day, it’s like, OK, it’s very obvious it’s time to add somebody, to hire another person. By this point in time, I think we had three full-time people and two more part-time high school kids or somebody would come in and help out.

Andrew: Now, over the course of a week, you had hundreds of new parts added to the site, and the reason that you were able to add so much inventory is because you were still drop shipping much of it, right?

Jon: Yeah.

Andrew: So you can give your customer a big selection without keeping big inventory and without trying to figure out what they were all going to buy.

Jon: Right. Exactly. At this point we were starting to reach scale. A lot of these people . . . We would only take on inventory that was very good pricing. We ended up having a ton of inventory, but because we were leaving this mini bike place we would be able to get very good deals on the product. Even the stuff that we were drop shipping, we started to give discounts on just because of the sheer size. It was significant amounts, more than most dealers, on their own sell, we would sell.

Andrew: Let me ask you something. This is really impressive. I remember when I was in college and I bought some stock. It did really well. I was strutting around like I was Warren Buffett. In fact, Warren Buffett doesn’t strut around the way that I was strutting around that NYU campus.

When you’re doing this, how do you feel? How does it influence the way that you act with other people?

Jon: I don’t think I really . . . It didn’t change much for me because I was just so overwhelmed at all times. If I have to describe those years in my life, it would just be overwhelmed because there was just so much going on. There wasn’t that much time to sit back and go buy cool stuff or feel so great about yourself. It was like, “Holy crap, I have to do this, and I have to do this, and I have to do this then. It was more like, keep up then revel and make [??].

Andrew: Instead of getting to enjoy it, you were just thinking constantly about your to-do list.

Jon: Yeah.

Andrew: What do you have to do for work, what do you have to do for school.

Jon: That’s right.

Andrew: Were you getting to go out? Were you dating?

Jon: Yeah. I was dating at the time. I had a nice girlfriend. I had some free time on the weekends, but generally nothing about this . . . it just felt that there was so much more to do there. I never felt done to the point where I’d be like, oh, because there never was a pause that said, oh look at the great job. It was always like, we want to do this, this and this. I never paused and strutted around and said, “Look, how great this is”. Yeah.

Andrew: I remember when I was dating someone at Bradford & Reed and I had this big check from Sony. I left it out. I think it was on the coffee table to make sure that she would see what I was doing.

Jon: Nice.

Andrew: If she’s at home looking at the coffee table, there’s a relationship there and I don’t need to impress her anymore, but there’s clearly a problem that I have that I still felt the need to impress her. Did you do any of that? Did you feel like, hey, look, this is who I am. Check out how big I’m getting with this business. I’m going somewhere in this world.

Jon: I don’t really remember. I guess it’s human nature. I’m sure I did some of it. Nothing really stands out that I can remember.

Andrew: It feels like today the thing to do is not to leave that check out on the coffee table but to go on Hacker News and tell everyone else. It’s not what your girlfriend thinks, it’s what do the people on Hacker News think of the site.

Jon: Yeah.

Andrew: By the way, when I now say Hacker News, because I guess Paul Graham is not SEOing his site, when people who are new to Mixergy and go Google Hacker News, they end up with other Hacker News sites because the real Hacker News shows up way down on the search results They email me back and they say, “Andrew, I don’t know what you’re talking about with this website. You’re clearly missing the mark on what’s hot on the Internet.”

All right. So, 40 hours a week in school taking 21 credits. You fell asleep somewhere. I’m looking here at my notes with Jeremy. Did you fall asleep?

Jon: Yeah. So, this is funny. As I was finishing up my last semester, I’m about to graduate, and this was when it was crazy intense. This is like the exclamation point on all that intensity for all that time. It was like, 21 credit, finishing up the thesis, doing the hardest course in economics at the time. It was econometrics.

Doing the company 40 hours a week and with all that going on, and you’re just running on adrenaline at the time, especially when you get to finals time. You’re like, staying up all night studying, running the company during the day and all this. Once I finally finished that last final, I left school and went to work.

I’ll never forget this story. It’s something that happened. UPS didn’t deliver a package or something, and I had called them for whatever reason. And so, at this point we had our own building that we were working on, and we had kind of a warehouse in this back room, and I was back there, sitting on the phone leaning against the wall and waiting for them to pick up. The guy woke me up when he finally answered and after that happened, I was like, all right, I’m out of here. [laughs] And so, I took a couple days off.

Andrew: Oh, wow. I can’t imagine being that tired. It’s been a long time. Do you miss those days when you were working that hard that you were falling asleep on the phone?

Jon: I don’t miss that but [laughs] to be honest, now it’s still the, now with a new start-up, you’re still working really hard.

Andrew: All right.

Jon: Fortunately though, not falling asleep while standing.

Andrew: All right. You hit a big milestone September 2006. What was that milestone?

Jon: Yes. Fourth quarter of the year, once we’re getting there, about to hit the holiday season, we hit the big milestone when we finally hit the one year of sales, $1 million. We still had some time left in the year but that was a big deal. We talked about that at the beginning of the interview.

We all got just so excited. We were all looking forward to this moment. We always are looking, what’s our sales for the year. We’re like, all right, we’re getting close, we’re getting close. We knew that this day we are going to get there. We all go downstairs, we all chipped in on that day to get everything out. It was really exciting.

Around that same time, there was a big race for these mini-bikes that we’ve talked about in Las Vegas. We took the whole company out there and everyone got to have a good time and see, connect with all of our customers. A lot of them were in these races. That was really cool. That was really fun.

Andrew: Cool. There’s this whole sub-culture.

Jon: Yes, yes. It’s pretty wild.

Andrew: I interviewed a guy yesterday who runs a chain of auto service shops. He was telling me about these BMW racing clubs that exist in the D.C. area and about how people get together and they race their cars. If they have Ferrari’s, they race Ferrari’s. I didn’t even know this world existed.

That I can understand. This mini-bike world completely blows my mind and I have to tell, if I was in Vegas and had a little bit of time to do something other than enjoy Vegas, I’d want to check out one of these races. That does sound like fun.

Jon: Yes. It was really cool.

Andrew: All right. You guys were going and seeing this, things are going great. 2007, time for you to finalize your agreement officially. How do you even broach that? I would feel a little bit hesitant. Almost like I was telling the person I was doubting our relationship. How do you do it?

Jon: She was kind of driving the process, just very slowly. Finally, I think she called me over to her house and it turned out to be weird. [laughs] She’s driving this process, getting all these legals set up and we’d periodically talk about it.

Like, here we’ve got these documents and there was some piece we were still waiting for. That’s when she called me to her house and we were going to talk about it and I’m still thinking we’re just going to be signing some papers and everything’s going to be done.

It turns out when I got there, she sat me down and her husband/ boyfriend was there and they say, ‘Actually, we’ve thought about this and we’ve decided we don’t want to do it.’ I’m like, ‘well, that sucks.’ That’s just what it was. We talked about it for a little while and there was just no, they weren’t going to change their mind.

Andrew: What do you mean they don’t want to do this? First of all, why? Why don’t they want to do it?

Jon: I don’t know, really. It’s all speculation for me. What I think and what makes sense is that was a family run business forever, for many, many years. Her father had given it to her or passed it down to her. Even though this was like a separate company, legally, they still viewed it as the same Mom and Pop shop and they didn’t want to put it outside of the family.

It wasn’t like really terrible. They weren’t saying we’re not going to pay you what we are paying you, effectively we were still partners, so I’m still getting like half or however it worked out of the profits. But it was just, we’re not going to set this in, like legally–

Andrew: We’re not going to write this down.

Jon: like 50% equity of the company. For me, that was a deal breaker. I think I stayed for a short period and I continued to make the money but at that point it was like, this is over and it’s time to move on.

Andrew: Do you have the sense that by the time you had this conversation with them, when she invited you to her house, that they had already found someone else to run the business, if you decided that you were going to bolt? No. They still needed you.

Jon: They still needed me, which is, that’s just a mystery that I’ll never understand and I know that they didn’t have someone else because someone else ended up coming in. So it was just a very strange decision.

Andrew: Is the business still running now?

Jon: Yeah but it’s much, much, much smaller scale.

Andrew: . . . smaller. Was it profitable when you left?

Jon: Yes.

Andrew: It was?

Jon: Absolutely.

Andrew: And it’s much smaller now. Why didn’t you sue? You had an agreement with them, just because it’s not on paper, doesn’t mean that it’s not agreed to.

Jon: Yeah, I guess I could have. I actually remember talking about that with someone and I just didn’t want to, I guess. Maybe I should have? I think what it really came down to was, I wasn’t going to do this forever either way. So it was just like, get some equity, make some money from this thing, but I wasn’t really in love. I didn’t care at all about motorcycles so this was just a paycheck thing. It was fun. I learned a ton. I’m not saying that, but this was not like my long-term life plan. So I could have sued and had this whole legal battle go on for God knows how long and it’s questionable whether or not I would have been able to get anything from the lawsuit, right? You have to, like, prove that I gave something else up in order to pursuit it and I was just, there’s like all this fuzziness around it and it wasn’t something that I wanted to do. So I never did that.

Andrew: Weren’t you pissed? I think a lot of people for smaller slights would have been just fiery to this day and here you are with a pretty big loss and you seem pretty chill about it in this conversation. You seemed pretty relaxed when you and I first met a few weeks ago and you told me this story. Why aren’t you more fired up about this?

Jon: I don’t know. I mean, what does it really get me to get fired up, you know? I guess I think a big part of it is that they were never like, “We’re taking everything from you.” They were always willing to continue paying and keep the agreement the same way that it would have been had we had done the equity partnership, but not formalize it. So I still would have made the same money either way.

Andrew: Were you taking a salary or were you taking a split of the profit?

Jon: A salary plus a split of the profits. So, actually, I might have been better the way that I was, in the short-run. I guess as long as I was working there, right?

Andrew: So you get a salary plus a split of the profits, but if you leave, you get nothing because you don’t have an agreement in place. If you decide you want to sell it, you get nothing. If they decide they want to sell it, you probably will get nothing.

Jon: Right.

Andrew: So it’s just a salary plus bonus tied to overall profits.

Jon: Exactly.

Andrew: I see. And you said, “You know, I don’t want to get caught up in this. I don’t want to start going into a lawsuit.” But what did your Dad say about it? He’s the guy who originally was asking you if you had your legal ducks in a row.

Jon: Right. What did he say? I don’t think he talked about legal stuff either, like, as far as actually suing them. I remember talking to some of my Mom’s friends about it. I probably ran it by him. But I think, at that point, he had just kind of had a distaste for how everything was and, in his opinion, he would have just said, “Maybe it’s just time to move on and go do something else.” Like, “I’m young, I can go do other stuff. Why get weighed down in this lawsuit and these bad feelings and all that?”

Andrew: Let me ask the audience. A guy who is listening to me, the woman who’s reading this in the transcript, whatever way you’re absorbing this, I want to hear from you in the comments or by e-mail. Let me know what you think of this story. How would you have reacted? How should he react? What’s your take on this? Do you have a similar story? Come back and let me know. I’m curious about this. Jon, I see that you’re screen just went dark. Excuse me. All right. So life went on for you though.

Jon: Yeah, yeah.

Andrew: I don’t know how I would handle it. I would love to say, “Hey, I would just tear the fricking place apart.” I don’t know. But I’m curious about how the audience would handle it or, if they’ve been through this, how they did handle it. Life for you went on. You moved on and got a job somewhere else. Why did you go and get a job? Why didn’t you say to yourself, “I could redo this from scratch. I know the mini-bike business. I’m now like deep in this space. I know how to build an audience from eBay from scratch. I know how to build a business. I know how to launch it now in weeks instead of in six months like I did before. I’m going gung ho and being an entrepreneur at a start-up.” Why?

Jon: Right. So, well there’s a couple reasons. The reason I didn’t do that exact business was, I thought about it for a long time, but it’s really difficult to get the relationships that we had with the wholesalers. That was one of the key things that made the business work was that we were working through this dealership and, at that time, it was getting a little better by the end, but most people just didn’t want you selling their stuff on the Internet so we kind of had to be a little bit secretive about what we were doing.

Andrew: Well, I’ve heard of this a lot actually, where a store will have a website they’ll buy essentially for the store but really it’s going on the website and that’s how they get around things. The manufacturer often knows and with a wink and nod, we’ll let this pass sometimes.

So that they can test the waters without ever committing and having all their other people say, “I should be able to sell online”.

Jon: Exactly.

Andrew: That’s a situation where it was and that’s why a new guy like you couldn’t come in and sell without that store.

Jon: Exactly.

Andrew: What else? I mean you could have sold other things.

Jon: I could have sold other things. The problem was I just didn’t really like dealing with physical products. I wanted to get more into software.

Andrew: Okay.

Jon: You’d talked about it earlier, I got that bug, right? Writing code, building websites, building web products and that was interesting to me. Like, managing inventory and supply chains, dealing with shipping, that stuff was not interesting to me.

I wanted to move more into this other area, like software as a service kind of stuff.

Andrew: All right. Where did you meet your co-founder?

Jon: That’s when I took a job that would hopefully help me learn some of that stuff, for Enterprise Software Company. That’s where I met my co-founder, Cory. We hit it off right from the beginning. We just started hacking away together. We both had the same goal; we wanted to build a company at some point.

So we’re learning about this stuff in our day job but also at the same time learning the business side during the day. We were trying to learn how to build a software as a service product in our nights. We were learning Ruby on Rails. We would hack together projects. We’d stick around late at work.

We’d work on things that didn’t really matter for the business but we could say that they were our projects, so we would do that.

Andrew: For what benefit, I see this–

Jon: Just to learn.

Andrew: Just to learn. Just the two of you guys saying, ‘We’re not going to sell this, we’re not going to launch this publicly. We just want to figure out this Ruby on Rails and so we’ll build something together.

Jon: Exactly. We just wanted to learn it.

Andrew: Why together? Why not just do it yourself? Why not just say, ‘I’d like to learn. I’d don’t know that I can help this guy.

Jon: I guess, because it’s easier to learn something with someone, right?

Andrew: How do you mean?

Jon: You’re hung up on this thing.

Andrew: I noticed that too, but I don’t that I can really put into words why it’s easier to learn with someone else. Can you tell me why did it work for you?

Jon: I think what it is, is that maybe I’ll get, some things I’ll get stuck on and some things he’ll get stuck on. Hopefully, those don’t overlap so I’m not stuck on the same thing he is and I can help him and he can help me and together move faster than alone.

Andrew: I see. All right. Why Cory? What was it about Cory that made you say, ‘I like this guy enough that I’m going to, even those I was hurt, I’m going to go– How many love songs go that way? I was hurt and I’m not ready to love again. [chuckles]

Here you are, hurt but you were ready to get into another relationship. What was it about Cory?

Jon: It didn’t start like that. We just started learning stuff together. We just started hacking away at stuff and just having fun. We ended up building some little products that we did do to make money. But nothing on a big scale. It just sort of evolved into this really close relationship where we ended up, later, building a real company.

If you had put us together or asked us if we would start a company in that first month that we met, we probably would have said no. We had no idea. It just sort of evolved into where we are now.

Andrew: What is the first thing you guys put together? The first real product?

Jon: The first? The first thing we built was at the company that we worked for. We built an expense tracking and time tracking application. That was just to learn Ruby on Rails. Then, we built a market place for MBA applicants to connect with MBA students to get their essays reviewed.

Like if I’m applying to Wharton, it’s very, very competitive. Well, some people know how to write the essays better than others and that know, are the ones that have done it and gotten accepted. We tried to connect those two groups of people.

That was kind of interesting. It was more of learning how. How do we set this business up? Because I didn’t do that at my previous job, our previous company.

Andrew: Didn’t do what?

Jon: Like learn, how do I set this company up? How do we, like, legally. I mean how do we do all that, those kinds of things? We spent a lot of time learning that. It was never, I don’t know if we though it could ever be anything big. It was more like, let’s learn, figure out how to do this.

Now it’s no longer there. We ended up building another product where you could order from your mobile phone, order food from food carts on college campuses. Then it would wirelessly send something to the truck so you could just walk by and pick up your food and it was already paid for.

Those things were kind of fun.

Andrew: I’m sorry. Hold that thought before you go into [??] Why weren’t any of these businesses, this expense tracking business, the food ordering mobile phone business, the other ideas that you had, MBA meeting MBA business. Why didn’t any of them become the business that you were going to pursue because they sound like great ideas?

Jon: They were fun. I think it was that we weren’t really that passionate about any of those.

Andrew: I see.

Jon: It’s hard. That’s a good lesson. It’s OK, if you just want to learn and figure out how to do certain things, but even then, like we probably would have been better off just doing what we’re doing now. Just starting earlier. Because if you’re not really that passionate about something, you’re never really going to see great success.

Andrew: I see. So you guys were basically taking these ideas out on dates to see do you love them.

Jon: Yeah.

Andrew: Is this something to spend, maybe not the rest of your life with, but a long term commitment with.

Jon: Right.

Andrew: I got you. All right and when you’re launching so many of these different products, how long does it take you to get that first version up?

Jon: By then we were pretty fast. I think we would get stuff together in a few weeks, maybe we’d get the first version of something up, or maybe a month.

Andrew: So within a month you could launch a whole business. It’s obviously not a full working business.

Jon: Right.

Andrew: Right, but we’re talking about more than what some people would call a minimum viable product. It’s a little more advanced than that because it works.

Jon: Yeah it works and you can buy and you can connect. Fortunately Courtney was at his MBA and was at work getting his MBA. So we were able to get a bunch of the people to review to the application. Like that side of the marketplace was kind of easy. We were able to do it pretty quickly and it was beyond MVP.

Andrew: All right and you guys had this realization for lifetime value of customer, which is still under, understood. Not misunderstood. I’ll stick with the awkward phrasing of under, understood. Underestimated maybe and not understood well enough. We all aim for the first customer and we hope that that customer will buy again. We know that there’s some value in having them come back, but we don’t know what that value is.

Most of the software that we deal with online doesn’t give us an indication of the lifetime value of our customers. It just says this is how much money you made from today and you maybe can drill down and see how much each of your customers gave you, but you can’t get an overall understanding of lifetime value of customer.

I’m spending a lot of time talking about this because it’s something that frickin’ bugs me. I’d like a simple way for us at Mixergy to figure out the lifetime value of our customers and to know it going forward and to get smarter about what we understand about it. Here you were a few years ago figuring this out. Where did you figure this out? Where so much of the rest of the industry still to this day doesn’t understand the value of it.

Jon: So the way the business came to me. This has always been a question of mine. Like when we were talking about the early days of my first company where we would buy these customers on eBay, effectively. We want to get more out of them; that was the whole goal. So we get them on eBay, we funnel them onto our site and we want to get more out of them. Convert them from one time customers to many time customers. So it’s always this thing I’m thinking about. So Corey starts taking this course on predictive analytics at Wharton and they’re doing probabilistic marketing models to very accurately predict the lifetime value of the customer. So the typical approach today is let’s look back and divide total revenue by number of customers and that’s lifetime value. But that’s very, very, very bad, right?

Andrew: Say that again so we’re clear on that.

Jon: So the typical approach, well this is the most rudimentary approach, few would actually do this. But you could take total revenue and divide by total number of customers and say that’s my lifetime value. There’s a whole number of problems with that.
Andrew: For example.

Jon: If your business is only one month old and you divide total revenue by number of customers, that’s not even the one month value. It’s grossly inaccurate based on how long the business has been alive. How are you adding on customers this month? So if your customer base doubled this month over last month, but you’ve been alive for a year, then the math doesn’t work out there either. So you have to account for those, what we call cohort effects. So analyze people together and by the month that they join.

Andrew: In the intro I wanted to say that Custora helped companies understand the lifetime value of customers or do some variation of that. And you said, Andrew I think it’s better if we explain to people that Custora helps them figure out which promotions to send to which customers and that’s what you’re talking about with cohort analysis. You get to understand your customers as people who are groups that make sense together.

Jon: Right, exactly.

Andrew: Like are people who come to you from Facebook worth more than people who come to you from Google and et cetera.

Jon: Right, that’s one. So we can help you answer that. What are customers worth based on where they come from and then when you start thinking about promotions, that’s when things really get interesting. So the way that we’re figuring out this lifetime value is it’s really a bit complicated. What we’re saying is we try to figure out what each person’s order frequency is and how long we expect them to stay an active customer and we can monitor changes over time. So we can say this guy looks like he’s going to be a great customer, but now he’s slowing down.

Maybe, that’s the right time to encourage him to come back. Give him an extra discount to do something, right? This guy looks really great, roll out the red carpet for him, right? He’s just a fantastic customer, so if he has a support request, we better do something to make sure it goes really well because he’s worth $10 million dollars to us for the next so many years, whatever it is.

Andrew: And too often the software that we have in front of us, doesn’t distinguish a cold lead from a real customer and either one of those from our best customers.

Jon: Right, right and so we’ve had some great results doing this. Say we wanted to try two different promotions. A $5 promotion and a $10 promotion. We’ve had some great results saying, let’s figure out which promotion to send to which customer, where you get greater overall look than if you had chosen any one of them individually to send to all customers. So it’s great.

Andrew: Looking at the notes here to see where we go next and I realized that there’s accidentally a note here with the name of the company that you worked for that you helped build up to a million dollars. We’re, of course, leaving it out intentionally because we’re not here to pass judgment.

Jon: Right.

Andrew: I want us to be comfortable to tell the story completely your way. OK. You told Jeremy that you found ways, that you asked potential customers before building this site if they needed it. Tell me a little about that.

Jon: Yeah so when we started looking at this math. Is there a product here, was I guess the original question and the way that we answered that question was, we went to potential customers. And Corey was in the class at the time. They had to do this assignment to take data, like take a real world data sample and try and run this analysis and see if it was something meaningful. So we went out and talked to people and said, hey we’re doing this class assignment, are you interested, we’ll do it for free. Then, of course, a couple people bit at that and they’re like, OK, sure I’d love to know these answers for free and it’s like now work. The next step was to say, OK, we’re still willing to do this for you, but it’s no longer free, will you pay for it?

Andrew: And this is before you even did anything for them?

Jon: Well we did something for them first.

Andrew: OK. If you want anymore, we’re charging?

Jon: We were doing that with, like, spreadsheets, I think. Or maybe just using an R, which is a statistical language. Writing some code and getting some answers. We’re like maybe we can turn this into a product, will you pay for it? And when we had enough yeses then we’re like now we’re on to something. That’s when we applied to Y Combinator and that was really exciting.

Andrew: You applied for Y Combinator? Did you have a fully working prototype or were you still doing it in Excel, essentially?

Jon: We had, working is kind of a fuzzy term, but we had a prototype.

Andrew: OK.

Jon: The customers that we had at the time were using the prototype, but we had to do some manual work to make things. It wasn’t a [??] machine.

Andrew: And did you have the credit card numbers of the customers?

Jon: No. Actually, because the amounts are kind of bigger, like the monthly charge. Most people will do like invoice billing.

Andrew: So they were paying, they weren’t just checking off a survey. Full paying customers?

Jon: Fully paying customers, yep.

Andrew: All right. You go into Y Combinator. You sit across from, who’s there? Paul Graham, Jessica Livingston.

Jon: Art Taggart, Gary, Sam Altman, all these great partners. So they helped us a tremendous amount. Really honed the pitch.

Andrew: They helped you get the pitch right?

Jon: They helped us, I say pitch, but really changed the trajectory of the company so at first we were thinking lifetime value, lifetime value, but it’s obvious what you’re going to get if you look at lifetime value and they helped us move from that step. Well let’s move more into the actions because lifetime value on its own isn’t that valuable until you start doing stuff with it, like buying customers. Understanding where the good ones come from and buy more of the good ones. Do this kind of promotional targeting and those kind of things. They helped us evolve into that direction.

Andrew: In that original meeting, before they said, yes we’re going to fund you, we’re going to incubate you, we’re going to love you and help you grow. In that meeting when they’re just talking to you, you’re saying this is the idea, this is the prototype, I already have customers and they’re going no, no lifetime value isn’t the benefit, that’s just a number for most people. I think you should be thinking of your business in terms of benefit and so on. This is the kind of conversation they had with you then?

Jon: During the interview you just kind of explore the idea space and touch on those areas, but it’s not so much changing the strategy or how you’re going to pitch it or what you’re going to build, it’s all about what’s the potential of this idea. Really I think their biggest thing is how good does this team look to us. Corey and I had worked together for so long and that probably took away a lot of the risk. They weren’t too worried that we were going to bail out on each other or anything like that.

Andrew: All right. Let me quickly read something from somebody here and plug Mixergy Premium in the process and then I’ll ask you one final question. Actually, here’s what I want to do today. Today I’ve got to thank a few investors for recommending Mixergy to the start-ups that they fund. Specifically, I’ve got to thank my buddy Paul Singh of 500 Startups. He told the audience at Lean Startup DC about the passion that I put into Mixergy and apparently he said a lot of great things because I got emails the next day from people who heard him. Thank you Paul.

I also want to thank Andrew Bouldin of FCA Venture Partners for sending an email to one of his companies, one of the companies that his firm invests in and he said to them that they need to check out Mixergy. Andrew even went a step further and he actually linked to a specific Mixergy interview that he wanted the founder to check out to understand why Mixergy would help him build his business, so Andrew Bouldin, thank you for recommending Mixergy.

If you guys like the work that I’m doing here and you like the kind of tactical step-by-step, no chatting, even though we’re having a conversation Jon and I, I focus in on how do we get the most useful information out of this conversation as possible. If you like this kind of approach, you should know that at mixergy.com/premium I’ve got courses where I’m even more of a hard ass, can I say that? Yeah. About making sure that every minute that you spend with us gives you tactics that you can use to build your business.

If you’re trying to figure out where to get customers, if you’re trying to figure out how to keep those customers or trying to figure out how to get more leads, all that, I get the right founder to come and sit here with you, virtually with you, they get on camera, I get on camera to make sure it’s guided properly. More importantly, they turn the camera up on their computer and step-by-step they walk you through the process that they take to do what you’re going to be doing.

Ilya Lichtenstein, you probably know him, Jon, he also is a Y Combinator founder from MixRank. He said I used to buy ads on the cheap. I can show your audience how to buy them cheaply and just keep that consistent traffic coming in. He turned on his computer screen and he walked them step-by-step how they do it. He even gave them the email that he used to send out. He said look, copy and paste this. I used to have such a hard time getting these smaller sites to sell to me, this is the magic email that worked for me. Copy and paste it, go on there, and of course people have.

Before I even ask you the final question Jon, we did do a pre-interview with you and I do have a lot of research on you and I feel that we’ve gotten a lot out of this, but is there something that I missed because I’m so strict with the format and I don’t give us room to chat?

Jon: I don’t know, I think we’ve covered everything pretty well. I think the big lesson that I took from doing Power Sports was get these customers and then convert them into repeat customers and that’s kind of how Custora came to be.

Andrew: Find a way to get customers to be repeat customers, and what’s a good way to do that?

Jon: A repeat purchase to increase that customer lifetime. It’s very tempting to optimize for click-through or open rates on your emails or things like that, the big thing to do is make sure what you’re doing is really driving in the long-term impact and that’s kind of how the second company came to be.

Andrew: So what is a good way to get it? If I already have a customer, what have you found is one of the best ways to get that customer to buy more?

Jon: The big thing is targeting based on behavior. When you’re going to communicate with them keep in mind who they are, not based on just demographic thing, like this is a male who makes $75,000 a year. Instead thing like what have shown you through their experiences with you? Are they a frequent buyer? Does it look like they’re at risk if their idle for too long? Things like that. They’re telling you something through those. Those are strong signals that are telling you very meaningful things that are much richer than just demographic data. Keeping those kinds of things in mind when you’re tailoring your re-acquisition campaign, your email campaigns or driving repeat purchases.

Andrew: All right. This is the part of the interview where I tell the audience that they should send you a thank you note, because what I have found over and over is when the audience interacts with a guest they end up doing business together. I’ve found people just send a thank you note and they get a response with hey, you know what, I know your business, I’m so glad you reached out to me. We should be doing some work together.

Sometimes that happens instantly, sometimes it happens years later, but always good things happen when you send anyone who you learn from on the Internet a quick note saying hey, thanks for teaching me. So if you got anything out of this the website to go to is C-U-S-T-O-R-A, I should’ve pronounced it before spelling it, custora.com. Find Jon’s contact information and say hey Jon, I learned a lot from this interview, thanks for being open. I’m sure that good stuff will come out of it. I’m going to do it right here Jon. Thanks so much for doing this interview.

I really appreciate the fact that you came on here, you spent an hour probably doing this pre-interview setup with us, you spent an hour plus doing this interview and you let me use your software, which now I love. I see the direction that you’re going and I’m really excited to be a part of it.

Jon: Great, yeah. Thanks so much for having me. It’s a lot of fun. I appreciate it.

Andrew: Thank you. And thank you all for watching.

Who should we feature on Mixergy? Let us know who you think would make a great interviewee.

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