Andrew: This interview is sponsored by Grasshopper, the virtual phone system that entrepreneurs love because you can us your own phones and manage it on the web. Check out Grasshopper.Com. It’s also sponsored by Wufoo, where you can go right now to get embeddable forms and surveys that you can add to your website for free. Go to Wufoo.Com. And it’s sponsored by Shopify. When you go to Shopify.Com you can create a store in minutes and have all the support and features you need to make that store grow. Check out Shopify.Com. Here’s the program.
Andrew: Hey everyone, it’s Andrew Warner, founder of Mixergy.Com, home of the Ambitious Upstart. How important is boot-strapping to you? Well, today I’ve got with me an entrepreneur who raised 25 million dollars for his first company and then had to, well, Vahid, how did it work out?
Interviewee: It was the challenging times. I started off that company called Warranty Now, back in 1999 and it was one of the greatest times in the history of the internet. We had tons of money. We were able to raise all our capital Angel investors as well as large corporate investors so we never went the VC route for raising 25 million dollars but unfortunately, those warranties, extended service contracts, being profitable was not the focus of a lot of the retailers, at the time, that we were partnered with. Why.Com was selling products under cost, same with Merkata and a lot of other sites. So the business itself went through a great boom and followed with a bust and it got acquired for its assets and technology by Siemens in 2001.
Andrew: Okay, so, what I’m looking for is a word to describe what happened. I’m going to say you raised 25 million dollars and then went bust or had to close?
Interviewee: That’s exactlyÖ.that would be a very accurate statement.
Andrew: Okay. And the person you’ve heard talk is Vahid Razavi. Today, he is back with a company called BizCloud. He boot-strapped that business. It became profitable within two years of launch. It’s been seeing an 80% revenue growth quarter to quarter. BizCloud is what? What’s the simplest way to explain it to people?
Interviewee: We’re a social utility focused on promoting small businesses and demystifying the whole concept of technology and clout-computing for the masses. So, our target audience is a little different than your traditional companies in the Silicon Valley. We’re going after the large audience of 18 to 19 million small business owners in America and getting them familiar with the idea of clout-computing and how to leverage technology so that they can grow their business.
Andrew: Ok, and we’re going to go through now what you learned from Warranty Now and raising 25 million and losing or spending 25 million but before we do that, I’ve got to ask you a couple of questions about BizCloud. Where’s the revenue coming from?
Interviewee: The revenue comes from three sources. We have an online network of properties that we manage, including a directory of over 19 million US businesses. That accounts for a portion of our revenue. The second piece of it are software service products that are third-party software service products, such as Microsoft CRM, McAfee Antivirus and others that we do services and integrations around. And finally, professional services. Application development, custom development for companies and organizations. We will be launching a BizCloud infrastructure platform very soon but that’s still in the works.
Andrew: What was the first one of those three that you listed?
Interviewee: It’s advertisement revenues from our sites and that’s been very profitable for us.
Andrew: And we talked about that in the pre-interview. What you have, essentially, done is created a LinkedIn page for millions of businesses and if they want, they could come in and build it and adopt it, right?
Interviewee: Absolutely. So think of a CRM system, or a customer relationship management system, turned inside out. So customer relationship management is great for communicating to your executives within the company or deals, opportunities or forecasts are. Same with LinkedIn, it’s a great way to keep track of your professional network but in the case of a business you have partners, vendors, suppliers, customers, groups, forms that you need to create addressing their needs and the ability to communicate with them on a one-on-one basis. BizCloud network and BizCloud itself was established on ‘How do we get the message across from the SMB companies with less than a thousand employees to a larger audience that they serve?’ Rather than promoting individuals in an organization, we’re promoting the entire organization and its products and service to its customer base and to partners.
Andrew: Alright. Let me ask you this, do you have any programs running in the background, because I’m not getting as strong of an internet connection as I’d like.
Interviewee: I am going to close out all the other browsers.
Andrew: Thanks, and if you have Outlook running or iTunes running it would be great if you shut those down because they take up a lot of bandwidth.
Andrew: And while you do that I’m going to tell my audience something. One of the things that I think separates my work here at Mixergy from other sites that study successful businesses that bring on entrepreneurs is I also like to talk about the businesses that failed. I think there is a lot to learned from the hits, but I think there is even more to learn from the ones that didn’t work out. And, if we only study the hits, I think we have a skewed vision of what it takes to build a successful company because a lot of the things that failed, that we think lead to hit businesses also happen on the way to business that closes. I know that has happened for me. I wanted success just as badly for the businesses that didn’t work out for me as I did for the ones that did work out for me. So you can’t say that wanting it badly is a secret to success. So, let’s with that in mind start off Warranty Now. What was your vision for Warranty Now?
Interviewee: The vision was twofold. On the product side we noticed that companies were selling products on the web but are not profitable. If you go to any retail stores, old Circuit Cities, when they used to be in business or Best Buys, you’ll notice that the warranties and the extended service contracts that they sell are actually what keeps them profitable. It’s not the underlying product. Because margins on products are very very thin. So our focus was on making companies profitable. The second focus was always my philosophy that reuse is better than to recycle. If you get a warranty for a consumer in the world of globalization, where we’re so used to turning products and two years later replacing our coasters and our TV, well that creates waste in our communities. So, by having warranties and extended service contracts on products, you’re cutting back on that waste; you’re helping the environment; you’re reusing products. You’re in Argentina, you know how some places, third world countries; can use an appliance or a tool for so much longer than they would than in the US. Here we just look at it as disposable. So, the goal of warranties was to make it less disposable. To make people consider the purchasing decisions they make based on quality, the fact that the product is going to last for them and be able to then get the service and support they need. And the promptdesk (UNCLEAR)keep the companies profitable on the web that weren’t profitable before. The companies that were selling products back in the days, as I said earlier, were selling it below cost just to get market share. You lose money on every deal but you make it up on volume, it just doesn’t work that way. And, unfortunately a lot of them went out of business Andrew. What ended up happening was being profitable wasn’t a priority for them and then all of a sudden when the bubble bursted we lost ninety percent of our customer base who we had spent time to integrate into their shopping cart. If you thi
nk of warranties, service contracts, well somebody has to service it. There is an insurance company that backs that and an underwriter. And then what ends up happening is that these products have to be matched up with your product database so you have thousands and thousands of products in a particular catalogue, well what are the exact warranty options for that. We did all that in real time, integrated in shopping carts and sold our warranties through merchants, not through our own product. And when the bubble bursted those merchants went away so we lost ninety percent of our revenue stream in the course of a few months.
Andrew: Ok, let’s talk about how you even got to all those merchants in order to lose them. In fact, let’s go back even further. You have this idea; you have this vision that you’re going to eliminate waste by creating warranties that will let people fix their products. Actually, let me stop right there. Warranties don’t allow you to fix your products, for the most part if you have a bad telephone that’s under warranty, you send it back to the company, they send you a new one. Right?
Interviewee: Exactly. But that old phone gets refurbished, gets reused and gets resold to another market. So actually in the case of Warrenty Now we had relationships with 55,000 service centers across America. It wasn’t just the warranties it was the installation and hook up and getting that product into your house. If your TV went bad, yes you send it in, but that gets refurbished and then we remarket it. So, in a way, the recycle keeps going. And a lot of times the repairs can be done and the product will be sent back to you, in the case of a lap top a lot of times they change something on the mother board or your power goes out and they’ll send it back.
Andrew: Ok, I see. I see how you’re reducing waste with Warranty Now and profits I can understand how you’re going to increase profits because you’re going to give merchants something else to sell; something that had a very high margin. How high a margin did a warranty have? Roughly?
Interviewee: You know warranties where the retailer range anywhere from a 40 to 60 percent margin. Where average products ranges from 7 to 15 percent margin for selling a piece of consumer electronics. Back in the days, Circuit Cities of the world, they would generate just as much revenue from the extended warranty sales as they would across all their product sales. It was a big chunk of their business.
Andrew: What kind of conversion rates were they getting?
Interviewee: It depends. In a Sears store they get about 60 percent or more conversions.
Interviewee: …[in a Sears store} they get about 60% or more conversions when you buy a Sears appliance, because it’s face-to-face. You meet a sales rep and they talk you into getting the Extended Service contract. In the case of online, you get anywhere between 10 to 20 percent conversion rates from people that would actually buy the warranty. And again, about 10 to 20 percent of that would renew with the service contract. In our case, you know, we went out of business when all the warranties were backed by insurance companies, by third-part administrators, so they were still- the paper they had was good and they could go and claim and get serviced for it.
Andrew: I see. Ok. So now you’ve got this idea, and we understand the idea and the premise behind the business. What’s the first thing that you do to act on this idea?
Interviewee: You know, the first thing we did was we went out there and we talked to as many people as we could. You know, patenting an idea is one thing, but nobody- I’m convinced that if somebody steals my idea and does it, more power to them! Because that means they have your vision; that they had a better way of executing it. So, what we did was we talked to everyone. You know, our first client- and the most important thing for any business is where you get fractured, right? And at first, when you’re hungry enough, you’re gonna go and talk to as many people as you can and our first client was MC Hammer. He was gonna make Hammer comeback CD at the time (this was 1997-98). It was gonna be a site and he was gonna be selling products, services from walkmans, stereo products. And I met him up at the Denny’s and he’s a great guy, he’s an ordained minister. I’ve seen him a number of times and he agreed that he would carry our warranties on this pre-launched store, that actually never went up, but it was a piece of paper that we had that yes, there was a valid market; that somebody actually cares for extended warranties and somebody sees the value. And the most important part was that it doesn’t matter if you’re boot-strapping or going to the VCs, deals count! Paperwork counts. It counts in your own set of books and value that it has for your organization as a win, but it also counts for the VC community. Of course, from that point on, we used that momentum to go and secure much larger deals with companies like Buy It Now, CNet, Mercana- all those players that were in the space back in 2000. But, it’s that first deal and getting those first contracts and if you have to do that based on relationships, based on whatever the resources you have, I think are really key to any business, either boot-strapped or venture-backed.
Andrew: So, before you even created a product, you started talking to merchants about using this product?
Interviewee: Absolutely. You gotta get the idea out there, talk to merchants about it, get the people signed on that it’s gonna be valuable to. And it didn’t matter, you know, if the guy had an ambition regarding a website tomorrow, he would be somebody we would want to talk to all the way to established companies with a eight million dollars in financing.
Andrew: What kind of commitments would you get before you had a warranty product and a business up and running?
Interviewee: You know, the commitments we would get would be depending on the size of the organization, a simple MOU or an understanding between us and the company. In other cases, we would come in and show a demo of what the product would be able to do, or how we would be able to do it. [We would] come in with a team that was knowledgeable on the warranty space- we hired a number of people from that industry. And they would come in and vouch that yes, the system would work, and then talk to their architects and get actual deals signed. Where it would be upon us to deliver the shopping cart as long as they opened up the shopping cart… So it was a two step sale cycle.
Andrew: But, the idea was that you wouldn’t even have a product and in some cases they didn’t even have a store- you would put together a deal with them that if you had a product, and they had a store, you would work together? Is that right?
Interviewee: Exactly! We would have a memorandum or understanding around what they were planning to launch. You know, they had a business plane, they had a business case for what they wanna do. We of course had a business plan and a business case around what it is we offer and we would see if synergies would be. And a lot of times in business, it’s not about nailing down the terms when you’re in start-up to the nth degree. It just needs to have flexibility from both partners. Both your customers and your partners are the same, really. So, we would have flexibility in the way we approached it, how we would integrate with them, how we would work with them in the future. And they were willing to, because it was a novel/new idea and new revenue source and it added value to what they were doing- they were willing to be patient with us.
Andrew: Ok, so now you have a few memorandums from people who want to do business with you, if you’re up and running and if they’re up and running. What do you do next?
Interviewee: Well, what we did was we assembled a team of really experienced entrepreneurs. At the time I was 23, so I was the founder of the business. I was the youngest guy in the meetings, but the people that I brought with me brought the credibility that we needed in order to go and get the financing. We went out and talked to angels. You know I worked for a number of companies like Exodus..
Andrew:
Interviewee: …I’ve worked for a lot of companies like Exodus Communications at the time, people that had relationships with the VP’s or the executives. They were the one’s that gave the blessing to the idea and actually Sal Muhammad and a number of others from the SVP’s of Exodus Communications sat on the board of my business, mentored us, coached us, and provided us with the infrastructure support we needed. So, a lot of the time, it wasn’t even about making a cash investment or a financial investment. It was about making a conscious investment that would help us in our business. But if that means giving us (…Audio Skips…). with the equipment we needed. Providing us their names and their credentials as advisors. All those things were sometimes much more valuable than any amount of actual money that we recieved from them. So…
Andrew: How did you make these deals happen? Did you go in with the idea that you’d like to get money first, but if money wasn’t available, that it was a better option that you take that? Or did you say, “I’m gonna go in and explore what’s available from this person? Would he be a good consultant? Does he have hardware? Does he have money?” And then whatever makes sense, we’ll go with that.
Interviewee: I think it was everywhere we went, we went with the idea that we want a close business. And we want to do deals, and, yes, we’re here to promote ourselves, to promote our products and our services. But at the same time, with or without that particular individual signing on, or that organization signing on, the concept of warranting on is going to continue and we’re going to build on it. So
Interviewee: …we all have that gene. From the minute that we go and ask our mother to be fed with milk and we sell the idea that we need this and that, we know how to do it. Some people hone in on those skills, you know, as getting up in front of a group of people in your school and doing a talk and having the presentation skills, to go and engage an audience, to formal sales training. You know the first formal sales training that I got was working at a computer store, selling computers on the floor. Actually, that’s where the warrantee now idea came about because I noticed every computer we sold, the warrantees had more margin in it than the actual computer. So, ten years later, time goes by and I’m no longer selling computers for eight dollars an hour, the idea was, well, what are you going to do with this business mall. So, selling is something that… it’s a skillset that, you know, it didn’t come to me in any one particular job. There’s ongoing training, there’s ongoing benefits at Bay Networks and Nortel. They give you a six week of sales training. Then you go to another established company that… they provide you with sales training around their products and…
Andrew: What are some of those lessons that have stuck with you about sales?
Interviewee: It’s the persistance. And it’s the presentation, the persistance, the networks, the relationships. You know, sales is not a job for people that come in from being a teacher, or construction worker. And they get a sales job and want to succeed in it for a couple of years and then they get tired of it. And they move on. Sales is a job for people who really value relationships. They value solving other peoples problems. Not in a way that you have to buy my products and services at (Bizclow???), but I want to understand what you’re doing to benefit, if I can help you and you can help me. And in that effort, we will see if there is an opportunity to partner, to work together. And if not, we’ll still shake hands and be friends. I’ll come back and revisit the relationship. I think a lot of times, sales people get a bad rap, because they view sales as something that you have to be convinced of or you have to get pushed on. But in reality, it’s not that. It’s understanding the other guys needs. Getting familiar enough, caring enough, for the success of your fellow man and the business that they have. And for you to understand how you can make them successful. That is the most important part of sales.
Andrew: Angel investors. What do you think they want?
Interviewee: I think angel investors, they’re after… Just like any other investor. They’re putting money and they’re making a bet that this is going to give them the kind of return on investments that they hope. So, getting an early on a deal, getting a five times, ten times return back on money that they put in. And we had investors that were professional angel investors that, at that time, invested in forty different companies. Each with a quarter a million, a half a million. You know… Ten years later, the numbers have changed. I see all these sites popping up putting ten, twenty-five thousand dollars into business and I wonder, why even bother with that amount. It’s like you go get a job at starbucks, you could make that and start a company. I think the dollars have changed, but the angels, they’re still after the same thing. They want to have return on their investment, they want a sound business, sound management team. And they want to be a part owner. And they want to get updates. And they gotta be… And proper angel investors, brings in the relationships. Brings in a whole set of roledex. Is a mentor to your whole organization. And we had the privelege of having some of the best angels in the valley that supported us at the time.
Andrew: Okay, so let’s continue then… you now have some funding. How much funding did you get before you left?
Interviewee: Well, we launched the site the minute we got it built after that first hundred and fifty thousand dollars. So, get your idea out there. Get it tested. Be okay with fine tuning the business model when you need to. So we launched it. At first it was just a… We did a one or two shopping cart integrations. And then we raised the two million dollars, subsequently, with multiple millions of dollars financing from Cnet. And that went through, really for not the back end infrastructure, but for advertising, marketing, getting the brand out. Doing all those things that cost money. And building our team, our sales team, and sales organization across the country.
Andrew: So then, where do we take it next? You got the idea. You got the funding. You start to build this out. Let’s talk about hiring. How did you hire the first people?
Interviewee: We were looking at people who had complimentary experience. The technology guy. So we brought in a VP of sales onboard to the company, who had warantee domain experience. We brought in executive management teams from companies like Look Smart and Peoplesoft, that had experience on growing your business and growing your venture. And, frankly, at some point, I think the models have changed. Back then, it was get big fast. So it was, how can you go out, hire the best people, you would pay them top dollars even if they came from other industries, to help grow your business? Ten years later, it is, not necessarily get big fast but get profitable sooner…
Interviewee:Ösooner, and how do you get to profitability sooner now? How do you get toÖ positive cash flow sooner? So, instead this time around, we didn’t go and higher top management into the company. It’s a very flat organization. We have operation teams in Europe, in Asia, as well as the US, and sales and development, business development folks. And the organization is completely flat. So I think the business conditions have changed, where ten years ago we went out and hired the who’s who of the valley to be our executive management team, this time around, you’re looking at him.
Andrew: Help me understand what happens when you hire too much. What were you seeing in the company day to day, with all these new people?
Interviewee: You know, I think as a founder, it’s great to have the mentoring, and the connections and the rolodex and the experience, and the season experience, ofÖ senior managers, and people in the industry that join. At the same time, it’s a draw back. Why? Because ultimately you know your business inside and out. You care about it more than anyone else. You’re willing to work the graveyard shift. Where, when you get somebody who comes in from a corporate world, from 8 to 5 job, even though they’re a senior executive, they’re not willing to put in the weekend to write proposals, to weeknights and all those activities. So, there is a drawback from being in very seasoned, senior executives, to having a very flat organization at first where you’re the one that’s making the decision. The bigger the organization the decision making gets, the harder it is to change the business model. The harder it is to adopt, and we’reÖ
Andrew: Did you have to adjust your business model?
Interviewee: Well, we adjusted our business model towards the office, towards what the original business plan wasn’t. You know originally we envisioned having 11 employees, two years into it, being cash flow positive after a year. But once we started raising money, once the model changed to get big fast, once the expectation came in from outside investors, then we went out on a hiring spree, and we went out on a massive marketing spree. You know we had an amphibious vehicle with our logo all over it. We did trade shows, with the biggest amphibious vehicle you’ve ever seen. You know in San Francisco, [inaudible]. So all those things even though we’re spending money on it to get the word out, it’s also hurting us, both in equity, cash flow perspective, and the fact that sometimes business just takes it’s time for people to get to know you. You can’t rush the system, just because investors, or your business partners, want a return on their investment really quickly. You can’t rush those cycles. It still takes time to get the deals done, understand the market, and, wait for the internet wave to really hit like it did in these past few years, before you can reach profitability.
Andrew: You’re talking about investors sometimes rushing returns. How, how did they do it with you?
Interviewee: In the case, you know, we were very lucky. To be honest with you. WeÖwhat our angel investment community we had a great relationship. They supported us every step of the way, they were involved. One deal that we did that was, what I considered a bad deal, was we partnered with a large corporation. We received some capital, as an investment into our company, five million dollars. And then we agreed, very early on, as part of that investment, to go and start marketing, alongside their various networks. So now we have a huge obligation and we’re paying this company in warrants, in capital, in marketing because we received their investment. And of course two of them were not tied together, but they made us very, very obligated to go ahead and advertise. And now we went from a company of having eleven employees, and keeping it profitable for the long haul, to increasing our burn rate just to keep up with marketing that we really didn’t need because, not all the products were baked. So that was a pressure that was really put on by, by some of the investors that came on in a later faze. And we took that money knowing full well, well if we don’t get big fast, we’re not gonna have a business, so let’s go out and spend these marketing dollars. So it’s a double edge sword, when you get into a relationship, and you get, tangible assets like cash, plus untangibles like marketing dollars, to spend, sometimes those marketing dollars don’t really help you early on. You know you gotta fine tune your business before you go out and bring in the masses. You know BizCloud as an example, I think we’ve done one press release the whole time because we’re still fine tuning our model. You know we get the word out organically, we’re very active in social networks, we get the word out in email lists, but yet, you know we’re not taking that big plunge, and spending millions of dollars in marketing right now and raising capital for it.
Andrew: Can you give me the example, I want to see how what you’ve just said now relates back to your business? Can you give me an example of marketing that you did for a product that wasn’t fully baked or wasn’t refined enough and so it was wasted money on a product that it shouldn’t have been wasted on?
Interviewee: YeahÖ I can give you some examples. You know some of the deals that we did at the time were with companies that were selling products, you know some guy sold wrist watches over the web.
End of transcription.
Interviewee: over the web, and now we are giving them co-operative C-Net dollars in order for them to become / sell our warranties alongside their watches, their XYZ products and so what ends up happening is you know our products are not fully integrated, the shopping cart wasn’t integrated but because we have obligations to spend these marketing dollars we went out and gave away this funny-money of marketing on a C-Net’s network or a NBC’s network. Well that doesn’t really help my business. I mean yes it does, thanks for the dollars it gets the word out, they sign another customer but that’s actually rubbing you dead I lose my money on my equity side or on the cash side and that’s not good business strategy. Back then it was, back then the model was getting big fast.
Andrew: I see. What is co-operative C-Net money? What did it mean to your company ?
Interviewee: Yeah, what we did was we spent money alongside Cnet, so we would put in one dollar they would put in one dollar in advertisement so we would have two dollars of advertisement on CNet.
Andrew: So I see. Basically, what they were doing was to give you two dollars of advertising for every one that you spent.
Interviewee: Exactly !
Andrew: And why would they do that ?
Interviewee: Well, it’s basically good revenue sense for them, right. They can grow their bottom line revenues, they can show they have more ad partners and they can have bigger logos and it can help their ..
Andrew: How did they record that as revenue ?
Interviewee: Well, we were spending money, so we were spending dollars alongside of theirs and ..
Andrew: I can understand how your dollar grows their revenue but how does their dollar grow their revenue ? Is that because they are investing in your company by giving you these co-op dollars ?
Interviewee: They would invest in our company so that they would receives warrants back for those dollar
Andrew: So I see, they gave you a certain amount of money in advertising in exchange for your business.
Interviewee: Exactly.
Andrew: And you could then spend that money only on CNet which would help grow their revenue. So basically what they were doing was increasing their revenue and getting a share of your business. Very clever, and I see
Interviewee: Exactly. But you know, when you are a small company, and you wanna get big grow and you want to get noticed, especially during the dot com boom when you have hundreds and thousands of companies. That kind of an year back then and me being twenty-three, I thought it made sense. Looking back on it, I would have rather kept the company with eleven employees and never touched that CNet money. An angel would have came-in and support us all the way through.
Andrew: That is an very helpful example and that teaches you a lot. And I can see, who is that ? Tanya the happy blogger in the audience is saying that it’s smart and I feel the same way. It is clever on CNets part and I can see how it would be a shot that you would wanna take, I can see it being a risk worth taking. Can you give another example like that ?
Interviewee: Really, no I think, what comes to mind right now was the one that has always sticked out from the time when we did the warranty now, and my experience with that that we did now and when I look back, I think I would have done it differently. I wouldn’t have raised all the capital. You don’t need all the money and the capital that you think you need in order to run a business, especially in today’s economy. You know things have changed from ten years ago. Right now, you can go and do, if you are an entrepreneur you are sitting at the best time of your life I think, for starting your own business . Companies are willing to give you software products, they are willing to give you infrastructure, resources are available, employees’ pools are available, marketing is cheaper than what it used to be because you are not spending as much, you are not competing with so many people that have deep pockets. So the best time to start a business in a lot of ways and do is right now ! And I encourage every entrepreneur out there, that hasn’t received capital or hasn’t received financing, hey, go find a bunch of friends, use them as a resource, let them help you, give them equity to build your venture. It is just as valuable as getting a vcn.
Andrew: Let’s talk about the days just before you closed down the business. What were you feeling at that time?
Interviewee: I didn’t have the guts for it. You know, I have done many lay-offs in the past, I have worked in organizations, I have done waves right up and down but you know when it is your baby, I left a couple of months early so the same senior executive manager that I brought in were kind enough to go through the steps and close the door. So, it was pretty; it was the most devastating piece of my life in terms of my career because you know you have hit of all your personal relationships, all your personal network, you have raised this capital from friends, family, people that you know and they trusted and they invested in you and your business. So going back to them and saying well this has failed, was a personal failure for me. Its a .. I lost a lot of my own personal money, everything that I had ever gained and all I got was a good tax bill from the IRS for money I owed them. So I totally feel at loss. Unfortunately, I didn’t have a better answer for them. But, entrepreneurship and starting a business this is not just something that you do once in your life and then you expect immediate success and gratification and its done. You know, I am in this business for a long haul and same is with some of those angel investors, some of the advisers that helped me with my first business geared back in and they were just as enthusiastic
Interviewee: (CONT’D) You’re back in an they’re just as enthusiastic and they’re just as supportive now as they were back then because they view themselves as a professional investor, they want to go and build on that success and so they want to be part of it again and they have faith that people live and learn- we learn from our experiences- and now we’re better business people because of it. And I think I’m a better business person not because I’m a serial entrepreneur from starting one company to the next; I take my time, Andrew, and I think it’s very important for entrepreneurs out there to go and work for established companies, spend a couple of years working for different companies that they look up to, they admire, in different positions – learn the ins and outs, because the processes – how the companies account for revenue, how they market. how they manage – are so valuable in growing a business that you can’t get that with an MBA anywhere, so if you have done one venture, and you feel like burned out, there’s no shame in going back and getting a job and carrying it back and talking and then taking some time off and regrouping and coming back when you have more experience to start the next venture. Your contacts will be there for you, your relationships (the ones that matter) will be there for you. They want to be part of that success, so I don’t feel like I have to go and start another thing right after this.
Andrew: Did you say that these old investors are back again in BizCloud? Do you have investment money from them?
Interviewee: No, we haven’t received any – we haven’t raised any investment money or gone out and received it – to be honest with you, we’ve been too busy trying to do deals. That’s where-
Andrew: But you think they were willing to do it?
Interviewee: They’re willing to, yeah, absolutely, their advisors to organizations. You know, there are multiple ways that a company, that somebody you can ask as an investment. These people are putting in their products, they’re putting in their search technology, they’re putting in their time, their resource- helping us with our business models, with our connections, getting more projects, providing valuable feedback that you cannot even put a price on this. To us that’s –
Andrew: Are you going to ___________ in return?
Interviewee: You know, they are listed as advisors in our company, they have equity in our organization – we look for these people for advice, and we-re happy that they are a part of our business, and, you know, I want to make it up to them for the previous investments and for future investments. It’s just my personal philosophy, because you invest in a person just as much as you invest in a business.
Andrew: Okay, I’m writing down questions as follow up to what we’ve talked about right now. One of the questions I wrote down earlier was tax bill. How did you have a business that went bust and still had to pay a lot of taxes?
Interviewee: I didn’t – being 23, you just think, and especially in those days, you thought you oculd make money like that all the time. So I took a lot of my personal money and didn’t do good accounting around it, and invested it in warranty now, invested it in early on, in hardware, in call location services, and all sorts of things for the business. And didn’t really plan on counting the beans on the back end of where this money was going. So, I thought we were going to build another exodus, and this is going to be a huge company by itself, so I ended up with a lot of tax obligations, even though the company –
Andrew: Why? If you lost the money why do you have to pay taxes on it?
Interviewee: Again, it was because of just a lack of accounting on my own personal finances –
Andrew: Oh, so you don’t file taxes for a few years, they ding you, they fine you, and that’s what it is, that you just invested but you didn’t get your chance to account for it, and they fined you for not filing-
Interviewee: Exactly. So count your beans along the way.
Andrew: Okay, I thought maybe there was something going on there with the tax system that said if you lose your money, you still have to pay taxes. Let’s see what else. The other thing was, you said that before the company closed, you handed the keys to the professional manager and basically said, “Look, I can’t – I don’t have the heart to close this down. You guys can look at it more professionally and close it down.” Is that what you did?
Interviewee: It was more about looking at it more professionally in terms of selling the technology and selling the business itself. The vision was not to walk away from it and have it fold, but the vision was that these guys are professionals and they have done this before, they have senior management experience in these big companies, maybe they can find the right acquisition kind of company for our business or they can find a way that we can now write off some of our bad loans or investments that we have, take over the assets, and run the business. Unfortunately, both of those things did not pan out, and then a few months later we had the September 11th attacks, and the company unfortunately just went bust and the technology got integrated – the good thing is the technology got integrated as part of CNET data services. So the work that we did still lived in within CNET data services, which was the data feed round product catalogs to all the retailers so that it had warranty now’s products incorporated in it. So, in that sense, the company survived, but unfortunately for my investors, it didn’t give them the kind of return that they wanted.
Andrew: I see. The assets get sold. The money from the assets comes back in, pays off employees, and some other debt if it’s possible. And investors don’t end up with anything in a situation like that.
Interviewee: Exactly.
Andrew: OK. I’ve had setbacks like that before. I know that one of the hardest things is getting yourself back up. How did you feel, and how did you do it? How’d you get yourself back up?
Interviewee: You know, I think it’s like they say that if you’ve gone through a divorce, now I’ve never gone through a divorce, but the example that I’ve heard was when you go through a divorce, it takes you about half the time of that relationship for you to get over it. And nothing is, I think in the case of, warranty. Now it took me, you know, it was a four year business run that we had, from ’98 when I was working on it while I was at Exodus, until 2001. It took me a good year and a half, two years, and you know, I kind of went sideways. You know I worked for Quest Communications. I took on the Waring job. I went to a sales position again, building my network up again, building my relationships up again. So it’s kind of like a divorce, my friend. I think, Andrew, it takes a while to get over something like that. And it was a very difficult time of my life. But you know, I think I learned a lot as a result of that process, and I’m better for it.
Andrew: How? How are you better for it?
Interviewee: I think what we’ve learned is how to be frugal with our money right now. This time around, we value every customer that we get, every deal that we have. And the money that we’re spending is accounted for. And we’ve done a lot of things to keep our costs down, you know. I set up shop in Belgrade, Serbia. I mean an Iranian-American operating a software development shop out of Belgrade. And of course, you know you would say, “Why would you pick Belgrade?” It’s a part of the world most that most software developers from the U.S. won’t go. Most entrepreneurs won’t go. And there is amazing talent, really good developers, really knowledgeable staff, marketing staff that we were able to bring on. So we’re keeping our costs this time, very much under control. And trying to scale that way. I think that was one of the biggest lessons. Getting big fast is not all that it’s cracked up to be, you know. It’s better to be a small and nimble player, but be in it for the long haul, than to go out with a big bang. And that’s really the other aspect of the business that I learned.
Andrew: I want to learn from what you’ve learned about bootstrapping. So let’s start with Belgrade, since you brought that up. How did you start off with hiring people in Belgrade?
Interviewee: I basically, a year and a half ago, a week before the financial market crashed, I decided to leave the country because I saw the bubble approaching. And a week later, Lehman’s files for bankruptcy. And I’m in Belgrade with all my assets. And the reason I found those people was, they did a number of projects for my brother’s companies, for people in the industry that I know, and we were very happy with it. So I went over there with the intent of staying in town for a week, but when the financial markets crashed, there was no reason to come back here because there was no money and no investors. So we had to change the business model. And I spent four months there. And I lived alongside my employees. You know, I work out of the kitchen, so that I can be the boss, the executive, and the cook, and the janitor, when needed. And we built an amazing, talented set of employees, that I’m very lucky to have. And they’re 100% dedicated to our business, and vice versa, you know. And going back…
Andrew: And you hired them full time, to work for you, in this apartment that you essentially were living out of?
Interviewee: Not living out of. It was our office, so we have an office, you know, up here.
Andrew: I see. So you got an apartment that was going to be your office, and everybody was working in there together, and eating together.
Interviewee: Absolutely, absolutely.
Andrew: And they were your employees 100%?
Interviewee: Absolutely. So we have been able to build this from scratch, and we’re very proud of the team that we have assembled.
Andrew: What fraction, what percentage, of the costs in the U.S. was it to hire these guys in Belgrade?
Interviewee: You know, there are two things. There is the what is the cost associated with our numbers, in terms of dollars and money that you’re paying. And that’s anywhere between a third to a fifth of the cost of what it is in the U.S. But the real cost is also the communication costs, the time that you’re online between midnight and three in the morning, and then seven. And I mean if you looked at my schedule, sleep is overrated. You cannot, when you have offshore development teams like we do in Asia and in Serbia right now, we’re on pretty much 24 hours a day, 7 days a week. And that takes a different toll and a different cost out of your system. And also, communication is a bit harder, right, because there are language barriers. There are communication issues, documentation, work hours. And so those costs add to you, to the overall cost. So you know, the saving for us, was that we could find a lot more resources than we could in the States. And we didn’t need the VC community to back us.
Interviewee: … a lot more resources than we could in the States. And we didn’t need the VC community to back us. We didn’t need the investor community. I could go out with…
Andrew: I see. So instead of raising more money, and then using the money to pay these developers, you’re paying them less money. But you’re staying up a lot later. And you’re spending a lot more time documenting. And it’s more energy on your part. But it’s the bootstrap way.
Interviewee: It’s the bootstrap way. And you control your own destiny. You can launch new ideas. You can change the business focus. You can go pursue more deals. And you don’t have somebody that you have to answer to. And we do answer to our advisors. We do answer to our board. We do answer to people that provide guidance to our business. But it’s not the same. I would have no job guarantee if I came out and changed the business model, like I did a year and a half ago, two years ago. And we have tweaked the business model. It has gone back and forth. Because of the economic downturn, we had to tweak the business model. And ultimately, it’s worked well for us. And the equity that I was going to give to the venture communities, is going to my employees now, and to our guys that are engaged in the business, rather than to the VCs.
Andrew: OK. What else? What else have you done? By the way, how much money did you put into this business personally?
Interviewee: It’s been close to… Well, it’s around seven figures. So personal investment has been around seven figures.
Andrew: Wow! Around seven figures.
Interviewee: Yup.
Andrew: And the reason that you’ve got this investment to make, is it because you worked at Fast Search and Transfer, which was sold to Microsoft, and you had shares in that business?
Interviewee: Well, actually there was that. There was also, I’m not proud of this, nobody’s ever proud of going out and suing their previous employer, but at Neo Case Software, when I worked for the French company, I had a lawsuit that went all the way up to the Appellate Boards. It’s a very interesting case, but… And I write about it in my book. And you know, that was actually a key lawsuit that I won a couple of weeks before leaving town, and was able to secure my business with that.
Andrew: What did you sue them for? I didn’t actually read the book?
Interviewee: I will send you a copy, Andrew. It was around wrongful termination. I was their Rekit Sales and Marketing, and the Director of HR and Finance at 555 California, gets wasted. Believe it or not, brings a girl into the office over the weekend, steals a company check, and on Monday, tells me to be quiet about it. And of course, I was running the U.S. Operations. And it ended up being that I sued him for back compensation, because they terminated me instead of him. And that’s basically the reason for the lawsuit and we were able to settle that. And that company was mismanaged by the French management team that was forced upon us, and I was able to finance the business through that.
Andrew: Did you report it before you were fired? Is that why you’re saying you were terminated?
Interviewee: Yeah, absolutely. So, I reported it to the outsource, a [char] company that we had. They did an audit, and some European companies like to keep things under the wraps. In our case, I defend every employee. If your expense check, if your assets are stolen out of a business you work at, it’s the management’s job to protect its employees. So, when a charter and finance director fails, I stepped up to the plate and did that and was punished for it. And we were able to secure that lawsuit and finance the business through it.
Andrew: All right, let’s talk about other bootstrapping techniques. What else did you do?
Interviewee: We did so many deals. I mean, we have done, we did non-profit organization’s web site development. We build websites for companies in the States, for small businesses, large companies, job and development projects, just doing everything that we could find in this past year. And now we’re much more focused on what is the right kind of business that we’re going to pursue.
Andrew: Did you take on outsourcing work?
Interviewee: Absolutely.
Andrew: I see. So you had these developers, and you said ‘I’m not making enough money with the main business. I will take on jobs from my developers to do, and with the profit from that, I’ll build and bootstrap my business.
Interviewee: Exactly. So, we did that very well. We did that very well, Andrew, and that’s been our success. We have done projects for the largest autistics center in North America for autistic kids. We did a small website design for a dentist’s office all the way up to search implementation using Lacine and third party search software for enterprise search implementation. So we did the whole range of projects that we could find just to able to make it through this past year, because it’s easier for me, I don’t know about the rest of your audience, but it’s easier for me to find deals, opportunities, leads than it is to go and ask people to invest in my business.
Interviewee: Opportunities and leads, than it is to go and ask people to invest in my business. It takes a lot less time. I have done the work. I know what our team is capable of. We have samples. We have a great set of Flexjava.net developers that we have built as part of an internal team. So, getting projects for them is so much easier than going out to the investor community, especially in this kind of market. It’s just not going to work for us.
Andrew: Alright, that’s great to see actually and I’ve heard other entrepreneurs on mixerG here say it is easier and smarter for a business to go look for customers than it is to go look for investors. They are both sales processes. One is directly related to the business that you plan to build and the one that you know best and the other is completely different. You pick which one you want to do is essentially what you’re saying and others are too.
Interviewee: Absolutely.
Andrew: Okay, what else did you do to reduce costs or bring in revenue in the tough times?
Interviewee: You know, sales is what I know best. Ultimately at the end of the day, you’ve got to go back to your roots. Some people know how to build great technology and great software. Well, that’s really up to our team. The one that’s been developing the technology. My job is to go out there and close those businesses. One thing we did was we didn’t shy away from any size business. When you’re in a tough market, you’re back is against the wall. You need to bring in revenue to keep your doors open. You’ve got to out there and do the $10,000 all the way to the 5-6 million dollars in infrastructure cloud computing deals and we have done the full range and the full spectrum. You know, if you looked at my proposals, I have proposals on just about everything. You know, we have proposals decks that we use, and we put our best foot forward and we work on these proposals for sales, for marketing, website design, for java development and we turn these around really quickly and that’s been our savior. At the end of the day, our ability to get deals done.
Andrew: Okay, what else?
Interviewee: Besides that we’ve been blessed, I think having the reduced cost infrastructure of Serbia. Having talented multilingual staff within our team which is something like, I’m sure that now that you’re in Bornal Cyrus you don’t take it for granted. We have people in our staff that speak fluent Arabic, they’ve got degrees in Arabic, in Serbia, Italian, English. They’re our editorial staff they write about business issues in the US and they blog and write in various languages about biscloud. So, we can do multilingual support. You know, some of those resources really expand our reach to a much larger audience than just a US audience. I think a lot of times people are reluctant to launch their site, thinking that the whole world is watching, people are going to copy what they are doing “let’s go into stealth mode”. Our view has always been different. We launch web properties, we launch nuances in various languages all the time, just to see what’s going to work what’s not going to work. We’re really innovators and it goes across the whole company and having people in multiple languages that can fluently communicate in that language is so valuable to the business and I think that’s another great asset. Ultimately, the people we hire, we look for one major characteristic and that is that can do attitude. None of these guys have done this before, I haven’t done it before. I mean yes, I worked in Exodus years ago selling collocation to managed services but cloud computing is a new thing, its been a new thing for that past few years. So it’s all new to us, but the team we have; novelty excites them. They want to go and tackle problems. As an organization, we’re okay with mistakes. We accept that not everything is going to be a hit the first time, but we’re willing to work on those things and we’re willing to constantly improve those and having that flexibility and having a very knowledgeable team that’s going to tackle any problems. It doesn’t matter what language w
e throw at them, they can do it.
Andrew: So, let me ask you this, seven figures invested in a business. Seven figures is a lot of money for a bootstrap operation to go through within two or three years. Isn’t it?
Interviewee: In reality it’s not and the reason being that everyone’s definition of a bootstrap is different. You know, we’re looking at it as one twenty-fifth of what we did last time around, when we launched a business 10 years ago and the reason we are able to do it for a lower sum of money is because I think we’ve gotten the best talents on board and they’re not in the US. Otherwise, for us to do the projects that we have done, for the size of team that we have today with over
Interviewee: …to have the size of team that we have today, with over 25, 30 employees now abroad, it would have been impossible. And so seven figures, it’s a decent sum of money. It’s basically, I put everything I had into this business. But as an entrepreneur…
Andrew: Could you have gotten away with doing it smaller, with maybe doing a $50,000 investment, and just hiring somebody to scrape or buy the content that’s already out there about businesses, put that out in that LinkedIn directory sort of way that you and I talked about, and have a simple way for people to own that at first, and then build your advertising, and then build the rest of your business?
Interviewee: I think, you know, we have done it in that way that you described. You know I didn’t write a check from Day One, and say, “This is all the money I’m going to go and invest into this business.” We build it incrementally. But the thing is, you know, as you know Andrew, when you have operational teams abroad, there’s travel costs. You go back and forth. There’s training costs. There’s communication costs. The costs of things that we did that did not work. And we’re going to go redo those again. They’re not dead projects by any means. You know, we tried our hands at Facebook application, for example. We spent a lot of money on building a Facebook app. Well, it didn’t really work. It didn’t really meet the needs of Facebook users. Now that project is kind of put on the sideways; we’re going to come back to it. The code is still there. The software’s still there. So we’re going to come back and re-invent it again. So some of the things that we did was not our primary business focus; they were tangents. And they did not take off. But we had a lot of things on the Bunsen burner, on the stove, at the same time.
Andrew: That’s what I mean. Is it too many things on the Bunsen burners, on the side burners? And at the same time, too much money invested in these things? Because Facebook app doesn’t seem to tie in directly to what you’re doing, and you’ve said that you spent a lot on the Facebook app. Is there too much?
Interviewee: Exactly. You know, and that is something that we have learned over time. Yeah, we like to take on very challenging and big projects. And you know, we have done that. And in some ways, yes. The whole shock of this market, I don’t think resonated with me until I came back to the States. When you’re still in Europe, and the whole Obama presidential race is going on, and you have all of that going on, I wasn’t here for it. You know, I would see what’s going on, on CNN, and I’m thinking…
Andrew: How does that impact on your business, that the economy is suffering?
Interviewee: It has really, it has impacted our business in terms of, you know, the size of the projects are smaller. It’s harder to find deals, and the margins are lower on deals and opportunities. You know, the world is flat, so we’re competing with everybody else for those same dollars. But in another sense, you know, it’s actually worked to our advantage. It’s harder to bootstrap a company when you have 50 other competitors in your space. And they’re all well-funded, you know. And the VCs are throwing money. You know, resources are much more expensive. People are much more harder to find. So you know, in some ways, it’s been a double-edged sword. Yes, our deals are smaller. It takes longer to close. It’s a bigger struggle. But we have better talent. We get better resources. Our cost structures are lower. We can do search deals, you know, where we’re doing with companies for software, for third-party products, at a much lower cost to the organization. So those things are really the benefit of it, I think.
Andrew: OK. When you say that the business is profitable today, is it profitable without the pro services that you guys do, without the custom development work that you do?
Interviewee: I’d rather not get into the specifics, but it is profitable. Well, to answer that question, yes, without the pro services businesses, we’re a profitable business.
Andrew: OK. All right. Finally, I want to ask about the book. You brought it up a few times, and I didn’t get to even introduce it. What’s the book, and what’s it about?
Interviewee: Oh, absolutely. The book is called The Age of Nepotism, and it has nothing to do with, necessarily, with business, but more with travel. You know Andrew, I’m a gypsy at heart. Even though I was born in Iran, I love nothing more than travelling and seeing the world. It’s been one of my biggest passions. Every five years I take off for a year, and go six months, and go travelling. And every year I try to go to two countries that I haven’t been to before. This past year was the only year that I wasn’t able to live up to that commitment, just because of work. But I try to write about similarities, around politics, around humanity, and around the needs of humanity, in places like Iran, Serbia, and United States. I think people are much more similar, the more you go and you travel. And it’s better to notice those similarities, rather than differences.
Andrew: What are you noticing that’s similar on your travel?
Interviewee: What I have noticed is, for example, you know, the hospitality.
Interviewee: What I have noticed is, for example, the hospitality, you know, the Southern hospitality, the Iranian hospitality. I witness the same and serve you, you know. I notice that the nuances around language, around facial gestures, around, you know, the cultural similarities, music similarities. And those kinds of things I think resonates with me, and I like to write about them. It’s also a story of just my own travels. You know, if you want to go and see. You know, a whole life is not worth writing about, clearly not. Mine is not. But a three-month window, 2008, where there was a presidential election, where we had all this change that was going to be taking place, we captured. And we wanted to create a new media. By we I mean the same team I have in Belgrade, Serbia. My editor is from Serbia. We created it in Serbia. We turned it around in three months. We tracked all the news headlines, 1,500 new headlines, now that were going on in the course of a three-month window. We brought in stories from Wikipedia around the backgrounds of Belgrade, Iran, you know, the Axis of Non-Allying Nations. The history of the region, what has happened to a place like Yugoslavia. Now you look at a place like Iran, with religious fundamentalism. And I write about some of my own political views towards the foreign policies of the U.S. We cover headlines, like you know, Kofi Anon saying we don’t have ten billion dollars to feed 10,000 kids that die of hunger each day. Whereas…
Andrew: Where have you covered all this?
Interviewee: The book is called The Age of Nepotism. And we documented the headlines, the news headlines from Serbia, from U.S., from around the world,
Andrew: Ah, I see. OK.
Interviewee: For that three months, four months that I was in Serbia. And now with The Age of Nepotism site, you know, I don’t make money out of. It’s just a way for me to feel good about getting my views out. I’m Iranian-American, so I can’t run for office for anything in this country. But I feel that people should have a voice in business. And it’s important to get entrepreneur’s voices in business and politics, and getting their voice out in politics, because politics impacts all of us. The politics of war, peace, health care, impacts business. And so when entrepreneurs say they have no interest in politics, it’s like I wonder if they’re saying I’m not interested in the world that effects my corporation or my company.
Andrew: I have to say, I’m not interested in politics, and I’ll tell you why. And I’d like to hear your feedback on this. My feeling is two things: First of all, if I take a stand on politics, I’m going to be alienating half my potential customers for something that’s not directly relating to my business. That’s the first issue. The second issue is, if I want to interact with politics, I’m going to be one voice out of 300 million in the country who have a voice. Yeah, maybe my voice will be louder than some others, but it’s not going to be nearly as loud as those people who are professionally doing it. Why not take my focus and put it in a business where I have the most votes, more voice than anyone else, where I can maximize the return, maximize the impact, do it really well in the business. And yeah, sure, the world around me impacts my business, but I can always move my business to another country or another part of the country. And I can always adjust to whatever’s happening in the country.
Interviewee: You know, first point. You’re right, you will alienate a bunch of people. I have alienated, to be honest with you, a lot of my new conservative friends. People that I thought in the past were backing every venture I had and every business… They walked away, and a lot of them defriended me, they deleted my numbers, they don’t bother to call me back. But I would argue for the friends and the people that are following BizClub now, because of the stance we took for example on our blog for health care reform. We built a loyalty just as much as you do alienate others, you build a loyalty and following for the people that you do serve, for the people who are really your true audience. And business needs to have a personality. This whole idea that I want to sell to both sides of the aisles, I don’t care if the guy sells guns or sells booze, I want him to be my customer. Yeah, I live by that. I build business around that for many companies. But at the end of the day there was something that I wanted to be able to fall asleep at night. And I want to put my energy into things that are going to benefit my views, what I view humanity should go towards, rather than to take away from that. So, yes, maybe I agree with you, maybe my market size is not that big, but neither was Apple’s. But Apple built a following around a killer product. And I think in this day and age, when you have the Chamber of Commerce in the States, where you have business associations that represent the very big interests. Then what you need is somebody that goes out and represents the interests of the small guy, the smaller business owners, the 70% of Americans who work for those. And that’s what we really want to target, and that is our target audience is the companies with less than 1000 employees. Are we going to alienate some people along the way? Absolutely. The second part is, businesses and politics go hand in hand.
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