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Here’s the program.
Andrew Warner: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. This is the story of a guy who decided that he didn’t want to work for someone else if he could launch his own company instead. Dan Martell bootstrapped Spheric Technology, which grew an average of 152 percent per year before he sold it four years after launching.
I’ll ask him to reveal the clever ways in which he got customers. I’ll ask him to be open about the mistakes he made along the way, and I’ll ask him how much he sold his company for.
After that, after Spheric he founded Flowtown, which makes social media powerful. But I’m going to cut the part of the interview out where we talk about Flowtown and make it into its own standalone program, because I think what he said about Flowtown and the lessons he learned from that need to be studied on their own. So, I’ll make that into part two, and this we’ll consider part one. Let’s jump in.
So, Dan, I’ve got a big agenda here. Welcome to Mixergy, and thanks for doing the interview.
Dan Martell: Thanks for having me, Andrew.
Andrew: So how much did you sell that business for?
Dan: So, part of the agreement was that I not disclose it, but it’s safe to say it was over a million.
Andrew: OK. All right. Let me tell people this that you and I agreed before the conversation, before the interview, we did a pre-interview where we talked about what we’d be discussing in this interview. And we agreed you’re comfortable with saying that, and we won’t say any more than that.
Dan: Yeah, I’m a pretty public guy. So, by all means, go for those questions and we’ll see what comes out.
Andrew: Oh, good. How much of a salary can you take now that you’re backed by investors?
Dan: My salary, I do take one after the longest time, is about, I think, $60,000 is the norm. So, Ethan, my co-founder, actually said when we raised our seed round that he only felt right if I took something. But, yeah, obviously I did pretty good on my last company, so it’s more of a token than anything.
Andrew: You know what? I kind of threw that out as a jokey question to challenge you on what you just said, that you would be willing to talk about it. I didn’t figure that you’d actually say it. Oh, this is going to be a great interview.
Dan: There we go.
Andrew: Let’s build up to how we got here today. What’s Spheric Technology? What did it do?
Dan: So, Spheric was a company, it was a predominantly service based business. We focused on enterprise portals. So, in the world of Procter & Gamble and Dole Foods and Johnson & Johnson, those are some of our customers, they had bought these Internet products, and the thing that we did was specialize on making them social.
So in 2004, I felt that much like Internet email and instant messaging was eventually going to be big in the enterprise, how can we . . . it was funny. I wasn’t a product guy. My background is engineering. It’s how can we build tools that help these technologies be more social, and socializing the enterprise was Spheric’s positioning.
Andrew: Can you give me a use case? How would somebody who works at Johnson & Johnson use what you are selling?
Dan: Yeah. So the best use case, I mean, was probably Procter & Gamble because they were very innovative. We worked with their team to deploy a product that looked at all of their search technologies. So, it’s much like Socialcast or Yammer today. The news feed for Facebook, before news feed, it was there were these social activities going on around these enterprise tools — time management, project management, asset management.
And there was value in being socially aware, so I called it the social sixth sense. But it wasn’t actionable. How do you service that without asking anybody to do anything? So, for instance, the social graph in an enterprise, we believe that existed in instant messaging and email. It turns out email is a really tough nut to crack with the security guys there, so we went after instant messaging. We said, “How can we extract your buddy list using Microsoft Instant Messaging to seed the social graph?” And then, for the feed itself, we used the search infrastructure.
A lot of these companies had different search technology that managed access control lists and security in normalizing that. So, I’m going to geek out. So, tell me if I have to bring it up more.
Andrew: Actually, I need it even simpler than that, because what I’m curious is a guy who works at Procter & Gamble, how does he benefit on a daily practical level by what you’ve built for them?
Dan: It was really knowing . . . Procter & Gamble had a great philosophy where everybody was very flexible. They knew that the next generation was like the younger people, and they were used to using these technologies like Facebook. So, they wanted to adapt their enterprise tool set to that. So, the value they would get is knowing what was going on amongst their team without having to be in meeting after meeting.
Andrew: I see. Okay. So kind of like tools like Yammer, you said. If I was sitting at my desk and I wanted to know what someone sitting two doors down from me was doing, you were helping me figure that out.
Dan: Yeah. Absolutely.
Andrew: Gotcha.
Dan: HR used to sell it as a great employee retention thing. They had some stats around like if somebody engaged with a new employee within the first month and had lunch with them, they would stick around. And if they didn’t, they would bail.
Andrew: Interesting.
Dan: I just find the use cases, and I’ll sell it to anybody.
Andrew: Where do you come up with an idea for something like this? I would never think of that because especially you were a young guy, you weren’t deep in these corporations saying to yourself, I see a problem. I don’t know who else is working with me. Someone’s got to solve it. I’ll be the guy who does it. If not that, then how do you come up with the idea?
Dan: Again, it was this belief that whatever is being adopted by the Internet would eventually make it into the enterprise. And I had learned this platform called Plumtree which eventually got bought by BEA. So, that was my background in regards to the tool set. People ask me, why did you go after Fortune 500 companies?
The company I got hired to do BEA implementations was only dealing with those types of companies. I didn’t know any better. And really it was just, how can I create a world which I found exciting in the enterprise, because building these huge financial systems just wasn’t that much fun, and I needed to figure out how to make that fun.
Andrew: Okay. I see. So, you’re saying you’re not going to build this big boring software, but you’re going to find a way to get people together within companies, bring about what you’re learning from consumer products to the enterprise.
All right. I could see that. Now, what’s the first thing that you do after you come up with the idea?
Dan: So, I had the idea for Spheric when I was 24, so in 2004. And I had worked as an independent consultant for about two years, saved my money. I got paid really well. I mean, when I was 22, I was making $75 an hour. Eventually, it got up to about $150. I got lucky. I was really bad at money management. I remember the first check I ever got. It was about $15,000. I worked for a month. I got a check, and I flew my little brother out to meet with me. I was in Alberta on the West Coast of Canada at the time. We went for a three week road trip through the mountains. We went snowboarding, and I essentially blew through the money within almost a month period. I learned that there were things about taxes, cash flow, a bunch of stuff.
So, after that point, I essentially said, “What do I need to live?” And all my expenses were paid. I was making really good money. So I got lucky and I think I took a $50,000 salary. That was really the fun money, and everything else I put away for two years. So, when I started the company, I was lucky enough to have that there. From day one I hired three people.
Andrew: So, you started to store money away, put it aside, don’t go snowboarding with it, just in preparation for starting this business and you had the discipline to keep that money not touch it, not try a bunch of ideas before you had enough?
Dan: I drove a 1983 Jetta. Eventually upgraded to a 1992 when I was making $150,000 a year, just because I knew that some day I was going to do something, and I wanted to not have to beg, borrow and steal to do it.
Andrew: I see entrepreneurs constantly have ideas, and it’s really tough to hold back when you have a lot of ideas and wait for the right one. Did you have a lot of ideas, and was there difficulty holding yourself back?
Dan: Yeah. I would say Spheric was number . . . you know what happens, everybody does these side projects. While I was working doing independent consulting, I had the weirdest one was this thing called X Lights. It was this service that would put your Christmas lights up. I just felt that there was a certain part of the population that wanted to show off. They had the income, but they just didn’t know how to put these up. So, I launched this site called X Lights, and I tried to market it. But with all of those, I had Maritime Vacation which was a vacation rental site. I had WTF, Want the Future, which everybody thinks is stood for the other. So, I had all of these ideas, but they were all side projects.
For me, the reason why Spheric was this investment is I knew I had to do nothing but that. It wasn’t until I made that commitment and pulled the trigger, and honestly hiring people was a great way for me to say, “This is serious.” It was almost like I knew myself well enough that if I didn’t have other people dependent on me, I may, like the other projects, just kind of played around with it for three month and then get bored.
Andrew: What came first? Was it saying this is serious. I need to focus on it, and then you got the money and the success that comes with building a business? Or was it that this project started to heat up, and then you decided to get serious?
Dan: My quick answer to that question is when I hired those first three guys, the two of them I knew before and the third guy I didn’t. But the other two had been working with him and convinced him. Said, “Hey, Dan is a really smart guy. You should come do this with us.” It was the day that I was driving over to his house to give him the HR paperwork, the letter of employment.
He had quit his job the week before. It was just formalities. And a three year old girl opened the door. I was like, “Hey, Andrew, is this your niece?” He’s like, “No, that’s my daughter.” I thought Andrew was the youngest out of all of us. I thought he was like 21, 22, but it turned out he was 27, just looked young. Then, his wife stands up behind him, and she’s pregnant. I was like, “Holy crap.” That moment there, I realized I had to get really serious really fast.
I don’t even know if it was happenstance or if it was luck, but it definitely was not planned. But there are certain things that just happen where you start focusing a lot more.
Andrew: How did you get your first customer?
Dan: The first customer was a company that I was doing independent consulting for, and then I just sold them back in under the existing company.
Andrew: I see. So, while you were doing work as a consultant for another company, you were doing independent consulting. And then, you took one of those independent consulting customers, and you said, “Hey, can I do this other thing for you?”
Dan: Absolutely.
Andrew: How is this other thing different from the independent consulting that you were doing?
Dan: It was cheaper. I think everybody is a consultant. I heard I’m being billed out for $250 an hour. It’s like, I’ll do it for $100.
Andrew: I see.
Dan: Yes. I’ve learned now don’t compete on price. But yeah, when we were starting off, that was really it.
Andrew: Okay. What was the first big customer that you got in the door?
Dan: I think it would have been NAV Canada. So, NAV Canada was the aviation department for Canada. That contract and five years later, I can safely say, or six years that I will never do work for the government ever again. Hopefully, this comment doesn’t hurt me, but it’s true. It’s just after doing that project, I realized that my employees’ happiness and opportunity to work on cool stuff was worth more than revenue.
Andrew: Why wasn’t it a happy way to work?
Dan: The people, they just didn’t . . . they would buy into the vision, but then, they wouldn’t execute. I was part of that initially, because obviously I was still working in the business, and then the guys were there. I would ask them, like, what’s cool, what’s new? Everybody else on the team was working on really hard, fun stuff.
It wasn’t good for the company either, because we’re trying to build our team and learn new stuff and be progressive. But if you’re working with the government, usually it’s very non-innovative. Instant messaging was the new hotness, and like there’s this whole new world around social things that can change things.
Andrew: All right. I can understand that. What I don’t understand is how you could get a customer like that? You see, in our world if you want to partner up with WuFoo, there’s a guy like you at WuFoo. He’s a young guy. He’s answering his own email. He’s looking for opportunities, and he’s welcoming the conversation with someone who wants to partner up with him. If you want to sell to the Canadian government, I wouldn’t even know who to call. How did you find the in?
Dan: I hustled. There’s no doubt. One of the stories that I think could help your audience is a guy taught me once if you want to be the best, let’s say, office supply sales guy, you want to follow the trucks. And his analogy was follow the trucks. So, if you’re a sales guy, go find out when your competitors ship their trucks to find out when the timing of people’s buying cycles was.
And he said to me, he said, “Dan if you’re socializing enterprises using these other people’s platforms, Microsoft, BEA, Oracle, SAP, you need to follow their trucks. You need to find out when people buy their software.
And I thought to myself, well, how am I going to know? The sales guys at these companies or the companies themselves are not going to tell me. How would I know when these people have bought the software? And I realized, well, obviously they put job postings. So, I would go in that way. I would essentially pretend I was applying for the job as somebody else and then hit up the company at a different angle and be, “I’m Dan from Spheric and here’s what we do.” And they just think it’s happens. They’re like, “Oh my gosh, we’re actually looking for people to help us do this.”
Andrew: I see. So, they were buying the software. They needed somebody to implement and manage it.
Dan: Yeah, huge implementation.
Andrew: And they’d say, “All right. Let’s hire somebody.” They put a help wanted ad up. You’d see the help wanted ad. You’d call up to find out what kind of work they were looking for.
Dan: The hiring manager, the team, the size of the deal, and then I would go in the other way.
Andrew: Okay. I see. And so, would it still be you, or would you call up as someone else doing research?
Dan: Somebody else.
Andrew: I see. Okay. All right. I used to have a fake name that I would do research under. You call up and you ask questions and you figure it out.
Dan: Yeah. Well, I used to be, even for the longest time, my title at Spheric was Director of eBusiness.
Andrew: Why?
Dan: I was never CEO because I was interacting with these customers. I was 24, and I wore a suit and tie. People think that’s funny knowing me today, but you had to play the part. It’s just a lot of people, they think they can’t. I didn’t know any better. I started doing it. Then once you feel the friction, you’re like, “Crap, that hurt. How do I make it work because I kind of committed to it?” When you’re just trying to make it work, there are a lot of things that are on the table to try.
Andrew: All right. And when you were going in, were you pretty much pitching the same work that they were going to hire a full-time employee to do or a set of full-time employees, but you were doing it? What were you offering that was different or better than hiring a full-time employee?
Dan: So, the variable costs and then the expertise. Our team had been doing it for a while. I was one of the first few people in Canada that were trained in this technology, so my background, our project experience. I mean, for the most part they really wanted somebody that was going to make them successful.
So essentially I used the other channel to qualify the opportunity, and when I would talk to them about our ability, I would just match the words they use and just said, “We really believe in these things.” I mean, I wasn’t lying. I really did. It’s just you learn to say certain things, like, based on what you know they’re going to respond to you.
Andrew: That’s one of the best stories I’ve ever heard here. I love that.
Dan: It’s like scrappy bootstrapping kind of stuff.
Andrew: Do you have any other techniques? How else would you sell to big companies?
Dan: Once I started doing that not realizing that it really didn’t scale, and I was all about scaling. The visa issue, so 98 percent of our customers were in the U.S. We were Canadian-based. So, one of the scrappy things I did is I opened up a U.S. office in Bangor, Maine, so I could sponsor our own visas.
Andrew: So, what that means is you just had an empty office essentially. How does it work? How would having an office help you get visas?
Dan: I wish I would have known how hard it was before I did it. It took us 10 months and a pile of papers. It was crazy. But essentially, before that when we got the contracts with these companies, they would always be concerned. They’re like, “Well, you guys are Canadians. What about the visa thing?” And I’d say, “Oh, it’s simple. You just need the legal team to do this, and we’ll use that to get across the border and get our own visas.”
And the challenge with that is that was just one extra friction, one piece of friction. So, I said, “Well, I’ll just figure out if I can do it myself.” And you can. You open up a U.S. office. You say that you’re going to create new jobs, and you do a bunch of paperwork. You get it, and you just do it.
It took 10 months. We did have a shell office there. We did hire a couple of U.S. people, but for the most part it was really, like, our expertise was so specialized you couldn’t hire people per se. It really had to be organic from our team, but that allowed us to grow that 150 some percent per year for four years.
Andrew: I see. Why Maine of all places?
Dan: It was the closest U.S. city with the right legal infrastructure from where I was at in Moncton, New Brunswick.
Andrew: All right. How about another technique for making sales to companies like Johnson & Johnson or Procter & Gamble you gave me earlier?
Dan: A lot of it was relationship based. So, the reality is that it was after going to a lot of conferences and making friends with people. I learned that within any enterprise there are essentially your advocates, and they are usually the people that are kind of like on the bottom. And if you could get them really excited about what you’re doing and the experience, they would sell it up to their managers.
The other thing I would say is find . . . so, we started partnering with System Integrators. That was really another part that scaled. So, finding companies that already have relationships with those companies. So, System Integrators would be like IBM Global Services. What was Ross Perot’s last big company? EDS, I think was one of them.
Andrew: That was his first big one, I think.
Dan: Yeah, like these huge consulting companies. And they’re like the go-to or vendor of records, and you know that they have this line item like we provide portal solutions. And you just let them know. So, we started selling that way into the customer, and we would be part of their huge . . . they would sell the servers, the software and all that stuff, and we would come in on the services side.
Andrew: I see. Okay. So, when they needed this service or when a client asked for this service, they said, “All right. We’re not going to do it. We’ll call up Dan. His company will take care of it.”
Dan: Absolutely.
Andrew: Gotcha. Okay. What about that time when you went nearly bankrupt? What happened?
Dan: So, that was a funny story. So, the three guys I started hiring, I think . . . I had a good chunk of money in the bank. What I didn’t realize is a thing called cash flow, and I’m hoping most of the people watching this have learned about it or they should. But essentially by the time I did the work, invoiced for the work, paid my team, incurred the cost of travel, etc., it was close to 120 days before I saw any kind of payment.
I thought I’m cool, but then the part that almost killed us was our banks in Canada froze that money for 30 business days because we were a new startup, a new company. It was a U.S. firm they didn’t know about, and that was the deal. So, I had to learn quickly, and I did. I sold my receivables, so I factored them. It sucks. I gave up like 20 percent on the value, the face value of the receivables, and I was still on the hook for it, which was crazy.
And if I didn’t, they would call my customers and tell them. So, I was like there is no way any of this could happen, but yeah, I learned really quickly. You better negotiate better payment terms up front. You need to understand how to keep your cost under control. And because we grew organically for four years, I think I ran a very . . . after I learned that mistake, much like when I took that $15,000 with my brother and traveled around the Rockies, once you’ve learned that, then it changes your perspective.
Andrew: How many days did you say it took you to collect after you started doing the work?
Dan: My very first, because I didn’t know any better, 120 days. You might put net 30. You’ll do the work. You’ll invoice net 30. These big companies, they don’t care about your net 30. You’re part of some bigger machine and printing press, wow.
Andrew: They’re not saying, oh, well, this guy asked to be paid within 30 days. That guy asked to be paid within 120 days. Let’s rush Dan’s money quickly.
Dan: Exactly.
Andrew: I see. Okay. So, how do you fix that?
Dan: I did this thing called variable pricing.
Andrew: Okay.
Dan: So, the idea was simple. First, I would let them know that we had different pricing based on different payment terms. The ultimate would be invoice every two weeks, payment real time, so net zero and wire transfer. And then, on the other scale it would be like net 30, maybe, net 45 would be the worst that I would do, 30 day payments, and then a check which is just crazy because you have to deal with mail, and things get messed up.
But the trick is I never told them the pricing variable, and then they would tell me what it was. And they’d be like, “We can do that.” And I’d say great. Then they would say, “What’s your price?” And I’d give them the same price. So, it was kind of neat. It was just like sales. You first get the number from them, and then you tell them what it is. So, I would get them to commit to what they could do, not necessarily what they normally do, and then they thought they were getting the better price. But I always gave them the same price. I don’t know. It wasn’t deceiving. They asked me what it is, and it was just variable pricing matrix.
Andrew: I see. Okay. All right. And that’s something that they do pay attention to as opposed to a small line on the bottom of an invoice that says when you want to be paid.
Dan: Yeah, because they think that I go discount the invoice. So, the trick is that . . . my dad taught me this. He said, “Even if you give somebody a discount, always put it in the invoice so they remember that that discount was for this.”
Andrew: I see.
Dan: I would still put the higher rate and give them the discount based on the payment, but they knew that to maintain that discount they had to do that. If a big company’s finance department didn’t pay it, it would affect the manager I was working for’s budget, because all of a sudden he would get hit for a 25 percent cost more they didn’t plan for. And then, it was his battle with finance to fix that.
Andrew: Now, I wrote a note here to come back and ask you why services and not a product. Services seem so tough to build as a business because you have to scale up by hiring more people, because you have to go out and sell it to each customer, because you start to live for other people’s demands instead of creating a product that can scale up on its own and can grow and you can build it from the comfort of your office in Canada.
Dan: I wish we would have had this talk six years ago, Andrew. The reason why, I guess, is I didn’t know any better. The thing about services and I think every consultant that does independent consulting, they feel that it’s essentially a cash cow. I remember the day, the specific day, where I thought if I had 10 people working in my position, I knew somebody else was making $75 an hour off my time. I was like, wow, if I had 10 people like that, that’s a lot. That’s $750 every hour that’s net profit to me, and all I have to do is build a sales and marketing engine. That’s a pretty cool business, but it doesn’t scale.
I read this book called “The E-Myth,” the entrepreneurial myth by Michael Gerber. I was convinced that his method was the way I combated that problem. I’m going to build this repeatable franchise system. We built operation manuals, and we built processes. And I think that’s, to a large part, why we grew so fast without going crazy.
It definitely never felt like if I ever stopped working, things were going to stop happening. I don’t care how much you automate stuff. People are people. At that level, you’re not building a repeatable tool, you’re building people. And we’re different, and we’re dynamic, and we’re interesting, and it’s a lot tougher to scale.
Andrew: I see. Okay. You know what? Once you talked about the E-Myth, I got it. You start to understand. You systemize the work. You could then hire lots of people to do the systemized work, and it scales. Okay. Was there a point there where you realized that no, that’s not going to happen, E-Myth is not going to be my salvation, I need to pivot or create a product that’s completely different? Did you attempt that?
Dan: No. What I did learn in the enterprise world is they love methodologies. So my friends that decide to go down that path regardless of how much I try to convince them not to do it, I just say, “You’ve got to build a methodology. That’s your product.” If you’re in services, you need your IBM squared or your Live In Five or something that makes you different, because at the end of the day it’s not.
But while I was doing Spheric, I don’t know, maybe a lot of services companies do this, I did try to build products. We tried to build this real estate application for renting, apartment renters. We tried to build . . . I don’t even remember. Oh, we built this development tool that would allow you to have code snippets and stuff.
What’s hard is that when you have your resources from the company working on those products and you have a customer that says, oh, I’m going to scale our project and I need two more people, those two resources don’t work on the product and (a) you don’t give it enough mind share and real focus, and (b) you’re always grabbing resources and pushing them over. As much as people say you can do things on nights and weekends, I don’t know. I personally can’t.
Andrew: Let me see if I have it. I want to make sure that I understand this issue because I do talk to a lot of service based companies that create products. And sometimes, it feels like it’s a no-brainer. I’ve got this operation. Lots of people are doing service work for other clients. All we do is consider ourselves a client. We create our own product. It starts to make money. Bing, bam, boom, we’re in the product business.
But no one talks very openly about the issues with that. And what you’re saying is, first of all, you create this product, but you’re always going to have the temptation to move the people who are working on it to one of your clients.
What other issues are there in creating a product within a service based business?
Dan: Well, there was the biggest one. It cost me probably about $400,000. It was essentially productizing what we called Ensoar, the enterprise social architecture, which is essentially how you build a news feed-like solution for any enterprise. I was committed to that. I even negotiated one of our customers to help finance it. So, we negotiated an IP ownership. That was my breakaway from services.
I hired people, and I kept them separate. I was like, all the things I learned, maybe the times I tried before, I said I’m going to do it different. And what happened is my revenue took a dump, because I was so focused on this new product that I used to be going like this. And then, for two months, I had flattened out and I was essentially making zero profit.
To my fault, honestly, I didn’t give myself enough credit to say I’m smart and capable and I can make this work. I listened to some bad advice. And the advice was, “Well, things are bad. Why don’t you go back to what you know how to do?” Worse advice ever.
Andrew: Instead of . . .
Dan: Building that product.
Andrew: And taking the hit temporarily on the revenue and the profits and having a product that eventually becomes an asset.
Dan: Yeah. I mean, if you look at Socialcast and Yammer and all these tools today, that was in 2006. And it was legit, and I had a Fortune 500 company subsidizing it. There was a reference customer. Everything that I know now would have been perfect. I even had a VC firm in Boston that we were talking to, because they were like, “Wow, if you make this work, we know that this is an opportunity.” And I didn’t give myself enough credit that I could do it. I got scared, and I didn’t pull the trigger.
Andrew: Let me see if I understand it. And that’s because you were taking resources, in this case people, you were taking people’s time and saying, “Do not go and work on clients’ work which is going to bring us money. Work on this which is going to be an investment and may or may not work in the end.” And doing that for a long time sucked up a lot of energy from you, a lot of your direction for the company. More importantly, a lot of the time that you were going out there and selling.
Dan: Yeah. The big thing was I didn’t even use my existing team. I hired separately and used our profits to do it.
Andrew: Oh, okay.
Dan: I tried in the past and there was this whole distraction. These were qualified people for what we were doing, and I said I’ll hire new people to work on this. And I’ll take my personal, everything I had saved up, and do it. I didn’t expect the revenues to start dropping on the other side, and that was rare.
Andrew: And if you could go and give yourself advice back then or maybe talk to someone today who’s in the service business and building a product, the advice you would give them is what? And yourself?
Dan: Double down on the product.
Andrew: Double down on the product.
Dan: Cut it. If you know it’s a good idea, I should have done it. And that was the motivation to move on from the last company. We were at a high. I didn’t plan the October crash in ’08, but I got out in May. So, it worked out really well for me.
But I really wanted to build something that . . . you see, when you’re doing services, here’s the thing. You’re making everybody else’s goals successful. And I was just, if I’m going to make Procter & Gamble’s collaboration awesome, or if I’m going to make Dole Foods . . . it’s like why don’t I do it for myself and then earn on the upside versus just get paid for the transaction? If you’re a smart person and you really think you’re that good, then I would say, “Go build something.”
Andrew: Did you have to let people go in order to do that? In order to shed the product, did you have to let people go?
Dan: Yeah. I had to let the two people that I hired to work on that product specifically, after, yeah, when I decided to not do it anymore. We delivered what we promised to the company that essentially subsidized the investment and then decided not to build it.
Andrew: Wow. And even with the subsidy, it still didn’t make sense because the subsidy I imagine was paying part of these two people’s salaries.
Dan: It was essentially paying half of the total costs. So, there was still half that I was paying myself as an investment. No, it wasn’t going to cover. Enterprise software, unfortunately, is not like Web 2.0 stuff. It does take a lot of investment when you’re talking about security and infrastructure and all the systems that we were trying to make it work with. So, yeah.
Andrew: All right. And the reason you wanted to sell . . . I actually have one other note before we go on and pass this. System, you said. Customers in enterprise, they want a system. Even if you’re coming in there and you’re hired hands, hired support, replacement firm employees, they still want you to come in there and say, “The system we’re going to use is this. Here’s the name that we gave it. Here’s how we’re going to do it.”
Dan: Yeah.
Andrew: And it’s largely . . .
Dan: Ours was called the iCircle. We called it the iCircle. It was essentially a playoff of Agile Development and the whole waterfall. We did this chart of ROI, and if you do Agile you get ROI throughout the project. I mean, it was just a bunch of repurposed stuff. But, yeah, they expect that. The good ones, they’re going to pay a premium. If you want to charge $150, $250 an hour, I mean, yeah, you need to differentiate. And for us, it was our iCircle methodology. We did have amazing . . . our team was one of the best. But that methodology was kind of a positioning of the product in the company.
Andrew: That’s interesting. So, if I were to ever sell to corporations, whether they’re large or small, this seems to apply. You’re suggesting make a methodology. Give it a name. Maybe take Eric Reese’s methodology for launching a product. Make a couple of variations, a couple of twists. We all do it anyway when we apply someone else’s ideas. Give it my own name. Call it the iSquared Methodology and sell that, and that’s what you’re offering. Give it a name.
Dan: Yeah. That’s how you productize a service company.
Andrew: I see. Okay. All right. Cool. And that’s how you build a brand, it looks like, around the service that you’re offering.
Dan: Yeah.
Andrew: All right. So, you decide to sell this company to whom?
Dan: So, originally it was Imagine Bio. So, it was three of the guys that were kind of the senior management. I had an opportunity to sell it to two companies in the U.S., and for me it was I wanted to keep the culture. The other companies I don’t think, would have. They were looking more at our customer list and essentially just taking the team and turning them pure into services and not being focused as we were. So, they essentially went and raised the money and bought me out.
Andrew: Okay. What was that day like when you got that check?
Dan: It was over time. Honestly, it wasn’t a one day payment. It was nice. The day that was weird for me was the first day where if I did nothing, nobody cared.
So, you went to Argentina recently. I don’t know. When you sell your company, there’s this day where if you did zero, nobody cared, like there’s no employees. There’s no HR. I didn’t have to go do payroll. It was really weird. I honestly felt a little sad. It was almost like I lost my purpose. Like if nobody cares if you do anything that day, do you really matter to anybody? It was a really weird emotion. I can honestly say that I was sad. I felt like wow, this is, I guess, what retiring felt like, and I was just not ready to do that.
Andrew: I had that same feeling, and it’s one of the reasons why I moved to Southern California. But after feeling sad for not having to do anything or feeling kind of weird about it, I suddenly felt a sense of freedom. Did you feel that same freedom?
Dan: Yeah. I quickly said, “Okay, what am I going to do?” So, I bought a brand new wakeboarding boat. So, that kept me busy. I got a cottage down the . . . I mean, I lived that summer because it was May, and pretty much June, July and August I had probably one of the best summers. Prior to that, I was working a hundred some hours a week. It was pretty unhealthy.
So, yeah, it was a great moment. But then I kind of thought, what am I going to do next? And, honestly, I didn’t have to. I did really well prior to that. The exit was really a good outcome, and I lived in a town where, honestly, if you made $70,000 a year you were pretty awesome.
Andrew: This was in Canada. Where did you live? Calgary?
Dan: No, it was a place called Moncton, New Brunswick, East Coast, Atlantic Ocean.
Andrew: What’s with Calgary? Why did that stick out?
Dan: Oh, that’s where I moved to in 2001 to do independent consulting.
Andrew: All right.
Dan: No, I lived there. I got to this point where I thought, if I don’t do something and it was back to that, why didn’t I pull the trigger on the product? It was the reason why September 1st I moved to San Francisco. It was funny because my dad thought I was crazy. I was halfway done building a house. I had just bought a boat and a cottage. And he was like, “What are you doing?” And I just said to him, “If I don’t do it now, I’ll probably never do it. I will not have that regret.”
Andrew: So, you got the boat. You built that cottage with the idea to do what? What was your vision? Before you decided to go do something new, to start another company, what was your vision for your life? It was going to be what?
Dan: Just relax, just essentially have everything I want. My big thing is family. So, the cottage, the first person I gave an extra key to was my sister because she had my niece and nephew, and I was like, I want this for you.
It’s funny. I do have some pretty big aspirations. One of the things I want is my own plane. And people are like, why do you want your own plane and all of this stuff? I want to be able to go visit my friends and family whenever I have a spare moment. Because the thing is when you’re doing anything that’s interesting, you do have to be somewhat reactionary to opportunity. So, if this weekend’s open, I want to fly home to Canada, have brunch with my sister, and then fly back. So, that’s why I get up and hustle every day and try to do what I do.
Andrew: Okay. So, it’s family, it’s freedom. Were you thinking you were going to get married at some point soon and have kids and fill up that place?
Dan: No, Actually, the house I was building was probably the coolest bachelor pad ever. It was very hard to sell. I was halfway done building my house, moved, and I kept it for a year because I couldn’t sell it because it was very much one bedroom, huge house. It was stupid. It was funny. At some point, I just knew that it’d probably be later on in my life, 35, 36 before I settled down on that front.
Andrew: All right. And you were how old at the time?
Dan: 28.
Andrew: 28. All right. And that’s the story of Spheric Technologies. If you want to find out about Flowtown, Dan Martell’s follow-up business, I think it’s so good that it deserves its own program. And I hope that you catch that to listen to how he came up with his product.
Thanks for listening, watching, or reading, whichever way you decided to enjoy this program. And I’ll see you, hopefully, for part two.
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