Andrew: Hey there, freedom fighters, my name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. And what does that mean, “ambitious upstart”? Well, today’s guest is that. He’s a guy who had very little going for him. In fact, he says he came from literally nothing and he had to figure out how to build a business. I know that just as he used to listen to my interviews back when he was trying to figure out what his business is going to be, back when he was trying to figure out where he was going to go, just as he was there, there’s somebody right now who feels like they’re a nobody, somebody right now who feels like they’re starting literally from nothing, and our goal with this interview is to teach you, based on his experience, how you can climb up, how you can figure out what to do, how you can figure out how to turn that idea into something meaningful and how you can impact people’s lives the way that he did.
So how did he impact people’s lives? Well, I’ll tell you a personal experience, that one of the first things I noticed when I hired somebody at Mixergy is I signed up for all the usual software you use when you want to pay your employees, and the software was just junky, just really old-fashioned junky. It wasn’t causing any harm, but it just wasn’t a pleasure to use. Was actually a little bit of a pain, and I just kind of, like most people, assumed that that’s the way the software is. It’s going to be a little painful when you’re hiring and paying people.
Well, I and many other people just assumed that’s the pain that goes along with paying employees, but today’s guest said, “No, it doesn’t have to be that way.” He noticed the pain, he and his co-founders, and they decided, “We’re going to build a solution,” and that’s how his company came about. And today I invited him to talk about how he turned that idea, that realization into software that helps many, many businesses.
Shrad Rao is the founder of Wagepoint. It’s payroll software for small businesses in both the U.S. and Canada. I want to hear how he built it up from nothing.
And this interview is sponsored by HostGator.
You know, I hear a lot of people who watch Mixergy and say, “Andrew has a membership site. I know that what they do is they go online and they do all kinds of research about how to install membership software, how to run a membership site and all that junk.” I don’t do that. I call it “junk” because you don’t need to do research.
What I do is if I’m curious about software like that, how to turn a site into a membership site or how to turn it into a sales site or anything, I just go to my hosting company, and I install WordPress like that, is what it is on HostGator, and I just install the plug-in and I see, how does it work, what can I do? If I had this idea that what my membership software should do is allow free members, and I just go to the hosting company. I install the software that does it, and I play around with it. So I don’t just think about it. I experiment. I play. I test. I see how it works, and you could do the same thing.
If you have an idea for website, if you have an idea for something you can sell, something you can teach, some membership you can create, don’t just think about it; go to HostGator.com, and like that you can run your site on there. They’ll give you WordPress. They’ll give you all the tools you need to turn your site into a forum, into a sales site, if anything, and you can experiment and play. And if you decide that you like it, you can turn it into a business and publish it. Go to HostGator.com. In fact, better yet, go to HostGator.com/Mixergy, and they will give you a deep discount, 30% off of your hosting, and they’ll make it super-easy for you to launch your site. HostGator, I’m really proud to have them as a sponsor.
Shrad, welcome.
Shrad: Hey. How are you doing, Andrew?
Andrew: Good.
Shrad: Going to get a HostGator account right after this.
Andrew: All right. Do it through HostGator.com/Mixergy, and let me know what you do with it.
Shrad: Done, definitely, but we already host our website on HostGator.
Andrew: Oh. You do?
Shrad: We’re already a satisfied customer, yeah.
Andrew: Oh. I had no idea. Well, that’s really cool.
Shrad: Yeah.
Andrew: All right, and we’re going to find out how you built your site, but I want to go back to the day that you got your permanent resident card in Canada. Do you remember that day?
Shrad: Yes, I do. I remember it well and distinctly because it’s taken me years to get there. I basically grew up in Dubai, in the Middle East. So for me, coming to Canada was step 1 towards fulfilling my entrepreneurship goals, because I knew I had to be in an environment in North America so that I didn’t have to deal with the regulations in Dubai.
Andrew: What do you mean? I thought everyone in Dubai’s rich and that you have a really good life over there.
Shrad: Yeah, I mean, some people are rich, and fundamentally it’s a good place to be if you want to . . . I guess it’s a good transient place to be. Dubai is a kind of place where nobody actually calls home outside of the Emiratis that are born into the country. So you can never nationalize into the country. You could live there for 60 years on visas, every three years renewing it, but you can’t actually call it home ever. So you’re one foot is always out the door.
Andrew: Where are you guys from, your family?
Shrad: Ethnically I’m Indian. I never lived there, but that’s where my family’s from.
Andrew: So why did your family end up in Dubai?
Shrad: It’s opportunity. Like I said, there’s no income tax in Dubai, so that helps. And generally, the opportunities are still better than in India, so my parents moved there. I’d be second-generation. Like, if I was born in new U.S., I’d be second-generation American, but in Dubai there is no such thing as second-generation Emirati, so you have to either decide to stay there and continue to live transiently like your parents did, or you have to make some other place your home.
Andrew: Okay. So you get to Canada, and before you get, as you call it, your “PR,” your permanent record card, what can’t you do?
Shrad: Yeah. I went to school . . .
Andrew: “Permanent resident.” Excuse me.
Shrad: Yeah. I went to school, to University, to get a degree. See the thing you have to understand is that at the time that I graduated from school, even though I’m young and handsome of course, I’m older than I look, and at the time, sorry, the time that I graduated from school, we had three months to find a job, from the day you wrote your last exam. If you didn’t do that, you’d be out of Canada.
Andrew: I see.
Shrad: So if you actually think about what kind of pressure that is as you write your last exam and then the clock starts to tick, right, needless to say, you don’t do great on your last exam. But that’s kind of the idea, is like every place you go to you have to first figure out how do you belong, how you acclimatize, and how do you legally settle into a place? So I had to go through all of those things. So I ended up getting that job, but there’s a two-month timeline, and that’s the story of how I got my immigration. So that’s why said it took me like eight years to get my immigration.
Andrew: It took you eight years to get it?
Shrad: Eight years, yeah, [inaudible 00:06:59].
Andrew: All right. So do you remember the day that it came in?
Shrad: Yeah. It was September, I think 19th, 2009.
Andrew: And what went through your head the first time you saw it?
Shrad: Man. I can’t wait to quit my job and start a company.
Andrew: Because now you are legally allowed to do it. You don’t need a job to stay in the country.
Shrad: That’s right. Because I was not bound to a specific employer, I could do whatever I wanted, which was the whole point of my move. So it literally was an exercise in patience, is what it was, and occasional frustration.
Andrew: And then you did what you call “pseudo-dating.” What is “pseudo-dating” for you?
Shrad: I was in St. John, New Brunswick, which is a very small town. So I went from population 2 million to population 50,000. It’s also very cliquish, because small towns tend to . . . you know, people know each other. They go to the same hockey games with their kids and all this stuff, and I don’t have any kids, and I wasn’t about to have any just for this.
So I decided to start looking for a co-founder. And I didn’t really care if they were a tech co-founder, although I knew I was going to build a tech company. I’ve always been interested in business building. It doesn’t matter to me what kind of business. I just happened to like tech. But if you gave to me like a sewage company and you said, “Here’s one location. Can you figure out how to make it ten?” I’d be there. So literally there is like an “insert business” kind of thing. That’s kind of what’s interesting to me. So I started looking for a co-founder, and I started what I call “pseudo-dating,” people that I had known basically having beer to find out shared values.
Andrew: I see. You’re kind of dating for a partner in this business that you’re going to create. And you just wanted to see, “Does this guy have the values that I have in order for us to build a business together?”
Shrad: That’s right.
Andrew: You met how many people during that pseudo-dating period?
Shrad: Between 60 and 70, like in that range. I remember because all that was happening was I was putting on weight because I kept drinking beer every night. And I would just come home disappointed. I’d be like, “Man” . . . Just in the terms of values, it’s so hard to find someone that matches up to what you think life should be about, and for me that was more important than anything else, like finding someone who’s value system was as close to mine as possible.
Andrew: You were starting to get disillusioned, though.
Shrad: Yeah. I mean, it’s tough. Right? You meet so many people, and you’re like, “Man. Is nobody else like me in this world?” Right? And they don’t even have to be like you. They just have to care about the same things or similar.
Andrew: Do you remember one person who you just felt like, “Well, this is a good indication that maybe I’m on the wrong track and it’s never going to happen for me?
Shrad: No. I’m just soldiering on. I never felt that I should stop until I found the right person.
Andrew: Was there one really horrible date that you remember?
Shrad: No. There were short ones. You know, like within 15 minutes I was like, “Yep. This is never going to happen.”
Andrew: Why?
Shrad: Just they said some things that maybe I was like, “Okay.” Like one guy told me he shot a polar bear, and I was like, “I’m vegan, so there’s just no way this is ever going to work.”
Andrew: How are you going to relate to a guy who’s shooting a polar bear? And if your goal is to find someone that you have shared bond with and cultural or the same perspective on life . . .
Shrad: Yeah, 50-50. Yeah.
Andrew: I see.
Shrad: That’s what I mean. You’re like you shot a polar bear, and I’m like, “I don’t know how to respond to this.” So that’s kind of what I mean, chemistry is very important in business building, so that’s how I ended up finding Bill, who was probably my 70th pseudo-date.
Andrew: How did you connect with Bill? Bill is your 70th or so person. He’s 20 years older than you.
Shrad: Yeah.
Andrew: It seems like an odd connection.
Shrad: Yeah.
Andrew: How did you meet up with him?
Shrad: A friend of mine basically said, “Look. I know this guy. He’s tried a couple of businesses,” and that was the first positive indication I got, because most of the other people had never really dabbled in too much entrepreneurship, which I know sounds counter-intuitive when you’re looking for a partner, but again, I didn’t care about anything other than the values. So Bill had actually built some companies, failed at it and then was looking to get back on his feet with some of these things. He had been working at another job just figuring out his next move. So I got connected, again, it was through the network that I had already built in the dating process, to Bill.
Andrew: What would you do to get people to introduce you to people like Bill Murphy, your eventual cofounder, or any of the other dozens of people? Did you just ask around and say, “Who do you know that I should be partnered up with?”?
Shrad: No. I would just meet somebody at an event or I’d seek them out. I’d look them up on LinkedIn. I look them up on Twitter sometimes.
Andrew: I see. So it’s not heavy pressure. It’s just you do research, and you say, “I think this guy could be a good co-founder. I’m going to go to coffee with him.” How do you ask someone to coffee if there’s no real agenda or purpose?
Shrad: That’s the thing, you’re basically saying that you’re interested in starting a business, and you don’t know what it is. Like, I had no ideas at that time. I wasn’t like, “Oh. I know I must build this thing.” Like a told you, for me, business itself is the idea. So for me it was more like just hitting up . . . I would usually find someone who knew that person. Again, it’s a small community, so you can find . . . you know, Six Degrees of Separation kind of thing. So for me, I just basically kept looking until I found somebody was connected to them, and that’s how I got to warm intro.
Andrew: How did you know that he would be a good co-founder?
Shrad: It was almost instantly. Literally, we sat down and started talking to each other. Five minutes later I was like, “Man. This guy’s awesome.”
Andrew: Was there one example, like the polar bear example that told you that the other person was wrong?
Shrad: Yeah.
Andrew: Was there one that told you, “This is the right guy for me”?
Shrad: Yeah, absolutely. He had talked about this company that he founded called Ledgers. It was just around the dot com boom and then subsequent bust. So he told me the story of that and how he was . . . He was so self-aware of his failures and the things he had done right or wrong. That self-awareness translated into clarity, which, for me, is the most important thing. Right? Like if you can’t talk truly to this person and they can’t truly tell you who they really are, faults and everything, then what’s the point in the partnership in the first place? Right? So for me that was the main driver, “Did this guy speak very truthfully about himself?” and that was, I think, one example, when he started to talk about his failures.
Andrew: I know what you mean. I really like people who can analyze their situations, their businesses well, because I feel like if they can give me a clear understanding of how their business worked before, what didn’t work right, mistakes they made, what they were good at, then they’re going to have the same kind of awareness about future projects together and future opportunities.
Shrad: Yeah. That’s exactly right. Yeah. It screams “confidence” in a way. Right?
Andrew: Yeah.
Shrad: And that’s the thing, I love people who are competent. They don’t have to be exceptional. They don’t have to go and bat a thousand. They just have to bat consistently.
Andrew: Yeah.
Shrad: He just seemed like that kind of guy.
Andrew: You know what, speaking of “consistently,” you told our producer, April, something that just stood out for me. You said, “Bill is more of a typical entrepreneur, where he goes through ups and downs a lot,” I’m reading from the notes, but you are more of a stabilizer.
Shrad: Yeah.
Andrew: If I look at the two of you, he’s the guy who’s got more experience. I would think he’d be more stable and you’d be more of an up-and-down, “I can’t believe this is so bad,” or “I can’t believe this is so great.” Give me an example of a time that he was up-and-down and you had to stabilize.
Shrad: Well, in all fairness, we take turns. Right? I just take fewer cycles of de-stabled things. I mean, all entrepreneurs go through peaks and valleys. Right? I mean, it’s a known fact. There are days when you’re like, “Oh my God. I’m going to crush this,” and then there are days you’re like, “I’ll never, ever, ever succeed.”
Andrew: It’s, “Oh my God. I’m going to crush this,” or “Oh my God. I’m going to get crushed by this.”
Shrad: Exactly. It’s the ebb and flow of this whole thing.
So this is an example. There was a point at which he wanted to involve a family in Halifax, in Nova Scotia, that was totally their own fit for us to be involved with at the time that we were involved with. And you have to remember, Bill and I knew each other for four years, and in all that time we never fought. I like to say that “our honeymoon phase is still ongoing,” like still, today, we still are totally, like we love each other. We say that to each other, and we had just met. We’re strangers who just genuinely like each other. But that was one time we fought, because the pressure of having to succeed was making us make bad decisions at a very early stage in the company.
I absolutely do the same thing, but I’m a lot more involved with the business, so I guess I have less of an opportunity to be unstable. Whereas he can do it a little bit more because less people see it.
Andrew: All right. You were saying that you didn’t care about the business, you just needed a business. And the first thing you guys worked together on was completely different from Wagepoint. It was a social network for disabled people.
Shrad: Yeah.
Andrew: Where did this idea come from?
Shrad: It was from Bill. As soon as I met Bill, he had a project that was going on, because he always does. And a big part of what I was saying to you earlier was that he tends to choose . . . like he gets to be able to do a lot very fast. So he will have this . . . Sociability is what we called it. It was called Our Town [inaudible 00:16:31] at first and then we switched it to Sociability. But it was his project that when we met he said, “Can you help me with this?” and I said, “Look. I don’t know how to help someone who has disabilities, and I don’t want to be not genuine about it, kind of thing. I don’t want to do it for money, for example. And I need to know how I’m going to help them,” and he said, “Look. I just need you to help me build this product,” and I said, “Okay. Great.” So that’s my first education in product building, was with Sociability.
Andrew: And you developed the product?
Shrad: I did not code it, but I got developed. But that’s when I realized how hard even that part is, because building something that people use is actually very difficult.
Andrew: What do you mean? Who developed it then, and how did you communicate with them if you’re not a developer yourself?
Shrad: Yes. So what I did was I found a company in India to outsource the development too, and then I started to learn how to build wire-frames, because I realized very quickly that I couldn’t count on anybody else to do that. So I started to be about wire-framing and what it all meant and on how to actually think like a user, and then how to test those wire-frames before you actually get them built.
Andrew: What do you mean? I thought wire-framing was just as easy as firing up a program like Balsamiq or sketching in anything, and then you end up with a wire-frame, and you just are sketching what you think the finished product will look like. How much more involved is it?
Shrad: It’s also about thinking about the user, like user blocks, things that are going to confuse and trip them up. So for example, if you’re building HR software and you think only HR people are going to build it, you have a better connection. You can go to top HR people and think about what they thought about your wire-frames. When you’re building it for persons with disabilities, you have no idea who’s going to use it. So you have to actually take into account a lot of those things before you decide to build it.
Andrew: Okay.
Shrad: You’re going to actually make it accessible, the website and the usability of the website itself, for persons with disabilities. Right?
Andrew: I see.
Shrad: So that’s sort of the way that wire-frames are great, but when it actually becomes part of the entire story of the app, man, that starts to become complicated pretty quickly.
Andrew: Do you have a book that you recommend on how to do that
Shrad: I’ve read every . . . well, not every, but a lot. Most of the stuff that I’ve done has come from just looking up, reading online. So don’t actually read books as much as I read . . .
Andrew: Is there a site that you recommend for how to understand the user and turned that understanding into a wire-frame?
Shrad: It’s been a while. I can’t think of any off the top of my head.
Andrew: All right. Well, let’s continue with the story then. What happened to the social network?
Shrad: Well, the day that we were supposed to get funding from an agency in Canada, the guy who was supposed to write the check had a heart attack. And I was very sad about that, first off. Secondly, I was very sad for us, because we obviously had taken it really far. See, the thing is, the idea was that it wasn’t just a social network for persons with disabilities. It was also going to be a place that businesses could list their accessible locations, accessible programs or persons with disability programs that they had. So a fitness center has rehab programs that they often have for persons with disabilities, and it was a place for them to actually advertise to those people, to the people who need it, that it was available.
So we had signed up Home Depot. We have $500 check from Home Depot that we’ve never returned. I hope nobody from Home Depot ever watches this interview, because . . .
Andrew: Did you cash it?
Shrad: Yeah, we did, because we were trying to show these people who were going to write the check that, “Look. These are real companies,” and we figured Home Depot was good for it. You know? So we had RDC, which is another big bank in Canada. So we had a ton of large brands that had actually written checks to us, but we couldn’t show it at scale because we didn’t have the money to go and develop that channel at scale.
So what happened with it is . . . it was really great, because there were some great success stories from the social network. There was an Agouraphobe that actually started leaving her house and things like that, but it was very hard to monetize, and it’s an extremely un-sexy topic for investors.
Andrew: So it’s hard to monetize, because . . . Well, if you got Home Depot to already start giving you $500, doesn’t mean that there was some money in it?
Shrad: Yeah. See, now that’s the thing, if you live in Silicon Valley and something like that happens to you and you tell an investor, they’ll be like, “Bravo,” but if you live in Halifax, Nova Scotia, and tech isn’t a huge deal, right? So it’s like, “Hmm. Interesting.” That’s kind of the difference. Like, “Five hundred bucks, oh. What about 5000?”
Andrew: I see. They’re thinking, how are you going to keep this business going with just 500 bucks and not this is promise of what’s to come?
Shrad: Exactly.
Andrew: And on the other hand, if you go to investors, the Canadian entrepreneur, and you’re talking about something as un-sexy as a social network for . . .
Shrad: Yeah, exactly.
Andrew: I see.
Shrad: It’s a lose-lose. You can’t prove it. You can’t disprove it. It’s like you’re stuck.
Andrew: And that’s when you were looking around for another idea?
Shrad: Yes.
Andrew: Or did one just happen to hit you?
Shrad: Well, so I’ve always loved small businesses. I totally love small business. I can totally relate to the hard work and the enterprising nature of a small business owner, and Bill’s the exact same. So remember I told you about Value Systems? We’ve always, both of us, love small businesses. It’s not that we don’t like large corporations or anything. It’s just that we like to go and meet a customer and eat soup at his vocation. You know what I mean?
Andrew: Yep.
Shrad: You just like the combination of these things. So for us it was like, okay . . . Bill, he’s a chartered accountant. I would say he had a payroll company that was an offshoot of his chartered accounting practice. So what would happen is him and a bunch of his friends would get together and just send one customer, to customers, to one person who was sitting and doing payroll. So he said, “Look. I have this initial framework,” and I said, “Okay. So what is wrong with this scene?” and he said, “Okay. Tomorrow is our payday,” or whatever. It was two days or three days from then. He’s like, “I want you to tell me how you’re going to pay this person,” the employee who was running payroll.
And I was like, “Okay.” So I login to the system that they were using at the time, which was Great Plains, which is Microsoft. They were just super-old-school. And I was like, “I have no idea how to make this work. This is horrible.” I said, “So who uses this?” and he’s like, “Well, small businesses use versions of this, like ADP in QuickBooks and stuff like that. I’m like, “Okay. How bad can it be?” So I started to find people who had ADP logins and QuickBooks logins and stuff, and I said, “Okay. Let me look at this.” So I took a look at it, and it was horrible. And I was like, “This is awesome. This is an opportunity.” So that’s what we started to . . .
So I guess I stumbled across it because of Bill, but it was then a challenge for me to understand where we would position ourselves in the market, what we would build and why we should build it.
Andrew: So the pain that Bill noticed was one that he experienced himself with this business?
Shrad: Absolutely. Yeah.
Andrew: It wasn’t that he was running a huge payroll business, but he had a guy who’s making payroll on behalf of his clients and other people’s clients, people who didn’t want to deal with that software? Right?
Shrad: That’s right.
Andrew: And now he had to pay this guy, and he had to struggle with software, and a smart as he is, as capable as he is, he was a CFO, he still couldn’t figure out the software, and you as a developer, or not a developer, but someone who understood software, you couldn’t really figure out this piece of software.
Shrad: Yes, exactly.
Andrew: And that’s what showed you, “Hey, there’s an opportunity here. We’re feeling this pain. We can’t figure it out. Other people must be feeling it too.”
Shrad: Exactly. Yeah.
Andrew: I see.
Shrad: Yeah, that was exactly right. He knew how to use it, but he knew that I would struggle with it as a layperson. And he knew that I would be like everybody else, every other small business owner. So he just basically wanted to test me to see if I could figure it out, and I failed his test.
Andrew: And that’s when he hit the idea, and it was going to be the two of you partnering up to build the new software to handle this?
Shrad: That’s right. So we were going to take all the stuff that was being done manually and figure out a way for small business owners to use it, obviously, on the Internet.
Andrew: I see. And you know what, there’s no question of market size. You think of all the companies that are using the software, of all the employees in both the U.S. and Canada, that market is huge.
Shrad: There’s 9.1 million small businesses below 100 employees. I mean, those are good numbers, you know?
Andrew: Yeah. All right. And so they’re using this being thing that stinks, and now it’s up to you to build the first version. Do you start with that?
Shrad: Yes, it was up to us to build the first version. Now, you have to understand that none of us think small, see, because we’re typical, crazy entrepreneurs, always thinking, “How big can we make this thing?” So we never actually wanted to be a payroll company. We always wanted to be an HR tech automation company.
So we think that there’s a lot of value in . . . so there’s a lot of feeders and the payroll. Right? A contractor payment, there’s a feeder into payroll. Something like expense management, paying out your expenses, often times companies pay out there expenses through payroll, but getting that approved and into the system is a feeder back into payroll. So we knew that there were a lot of manual functions that were taking place just above payroll to just get payroll done. So our goal has always been to automate all those things.
But we knew we couldn’t start just anywhere. Right? So we had to start at the thing that was going to be the most burning need, so the pain killer, not the vitamin. Right?
Andrew: So how do you find the most burning need out of all? You’re right, because you’re saying, “Look. There’s tons of different features that our software needs to have. If we add all these different features, we’re going to end up with a mess, and we’ll never get it off the ground. We need to find one, one thing that we can start with.
“If we’re going to start with one, we want it to be in the big pain that people absolutely needs all, not a vitamin that will make them feel better, but something that will eliminate their pain is what we want to create, a painkiller.”
Shrad: Right.
Andrew: All right. So how do you find that?
Shrad: Basically the idea is, if you take a small business life-cycle . . . Right? So that’s what we did. We basically pretended like we were a small business owner, which we are. Right? Even today we we’re definitely still small business-like. Our goal was 30 people who wanted to get [inaudible 00:27:06] that is for to get your EIN. Then you go open a business bank account. Then you start to think about hiring somebody. Then you hire somebody, and then you need to pay them. So it happens so early in the customer’s life-cycle.
So if you think about building a scheduling product, for example, that happened later in a company’s life-cycle. You need to have three or four, five, ten, employees before it starts become an actual pain for you. But if you think about payroll, it becomes a pain for you when you hired the first employee.
Andrew: I see. Yes.
Shrad: So that’s why we picked that. The second reason we picked that is also because of the fact that it has the highest barriers to entry. It is an insanely complex product.
Andrew: Wait. You’re talking about paying the first employee. What’s the hardest part? I don’t follow that.
Shrad: So when you actually hire an employee, you’re automatically now an employer. Right?
Andrew: Okay.
Shrad: Now you have obligations. You have obligations to the government. You have obligations to the employee, his family most times. Right?
Andrew: Yeah.
Shrad: So your job then becomes . . . you now become a different kind of person. You’ve become an employer, and that causes a lot of stress for small businesses, any small business, regardless of who you are. That is the pain or just a feeling of discomfort, then having to do math, because all payroll is purely math. Right? And then owe to all these different agencies, etc., etc., that is the . . .
Andrew: The math of saying, “All right. I’ve got to pay this person X dollars, but in addition to it, I have to withhold some money from X dollars, and I have to add more of my own money. And if I screw that up, then I’ve made a huge mistake either for the government or for this person, but there’s a lot riding on this one decision that I’ve never made before.” That’s the math that you’re talking about. So that’s the problem?
Shrad: Well said, and her. That’s exactly right.
Andrew: It’s helping me figure out where the money goes when I have to pay payroll?
Shrad: Right.
Andrew: Okay.
Shrad: In the sense of using software to do all that for you.
Andrew: Okay.
Shrad: So that was the pain, because as a new employer, you actually don’t know what you need to do, because you were always a regular guy before. Now you’re responsible for another person.
Andrew: I see. I see. So when you said, “Were going to solve this problem,” it’s not going to be for a company that has ten employees already and a system in place. You said, “No. The bigger issue is for someone who has zero employees and is about the higher their first one. That’s the pain that we’re going to address, the transition from zero to one.”
Shrad: That’s right, for new employers, because if you think about, though, the way the market is split up, you have people who are doing this with ADP and Paychex and all this other stuff, and they been doing it like that for years. Those are what we call “the switches,” of people we want to switch from those guys. Then you have manual check writers or people who use QuickBooks, and then they send checks out to everybody, but QuickBooks gives them the [inaudible 00:29:56]. Right? And then you have the third set of people who are just starting their company. Guess what, in the U.S. and Canada there’s 70,000 of those types of people every month.
Andrew: Really? I see.
Shrad: Yeah. Insane, the number of people . . .
Andrew: And you don’t have to convince them that you guys are better than the option they have right now, better than ADP? You just have to say, “I know you have this problem. We can solve it for you right now. Don’t sweat it.”?
Shrad: Yeah. We can be in your consideration set, and guess what, the friction between everybody else and us, it’s a no-brainer.
Andrew: I see.
Shrad: It’ll take weeks to set up with them. It’ll take you minutes to set up with us. What do you want?
Andrew: Got it.
How did you figure that out? How did you figure out that that’s going to be the biggest pain and the best opportunity for you?
Shrad: This is how we initially started the business. We created a website that had Bill is a CEO, and I don’t think I was on it.
Andrew: You were not on it at all. There are other people on the site, Bill.
Shrad: Yeah.
Andrew: Why was Bill’s face on the home page? He had the CEO title and so on.
Shrad: Yes. So payroll is a trust business, right, because what’s actually happening is that someone is giving you their bank account information, and for the most part, they’re saying you can take any amount that you need to pay all of these other things. So there’s a huge trust factor involved in that, and he is a chartered accountant, and he looks a lot older than I do. So it made more sense to have him as the figurehead or the main person at the company.
Andrew: I see. Were you really the CEO?
Shrad: I was always de facto the CEO.
Andrew: De facto CEO, even if you didn’t have the actual title.
Shrad: Yeah.
Andrew: Yeah, his name on the homepage is Bill Murphy, C.A. And then underneath it was, CEO. What does the C.A. mean?
Shrad: Chartered Account.
Andrew: Chartered Account. What is that?
Shrad: A Chartered Accountant?
Andrew: Yeah.
A: All the Chartered Accounts, right now, are crying now when you say this, because it’s such a big deal to get it. Right? It’s basically someone who can approve public company’s statements and say that they have verified it. So it’s a really important or prestigious title for someone in the accounting profession.
Andrew: I see. Okay. Wow. All right. I had no idea that that was a whole thing. All right. So because he had that title, he gets the whole . . .
Shrad: [inaudible 00:32:12] . . . No, that’s awesome.
Andrew: And what do these three letters, “CEO ,” stand for?
Shrad: Chief Experience Officer.
Andrew: That part in you, but Chartered Accountant, I had no idea. That’s the U.S. thing too, it looks like,
according to Wikipedia.
Shrad: Yeah.
Andrew: Oh. No. I see. In the U.S. it’s a Certified Public Accountant. All right. I see the difference. That’s why.
Shrad: Yeah, exactly.
Andrew: C.P.A. in the U.S., C.A. in Canada.
Shrad: Yeah, you probably would recognize C.P.A. in Canada is generally C.A. Though I think in the U.S. also some people use C.A., but whatever.
Andrew: Okay. But that gives me an understanding of why you’d want to use him as the face of the organization.
Shrad: That’s right.
Andrew: You also needed to create a landing page.
Shrad: Yeah.
Andrew: What is that? I haven’t been able to find that anywhere. I did a Google search for it. I couldn’t come up with it. What was on there?
Shrad: If you actually go back to the website . . . If you see the old website that we had, it was payroll software for small businesses, and it said “Payroll Services.” It appeared to be like it was going to be software, but actually it was services. And on the second page of the site, when you were slightly more involved in the process, there was a “Get a sneak peek of the forums that you’re going to need next.” And that form got used like you would not believe. We had probably 300 to 400 sign-ups just from that form on the second page.
And I was like, “Who’s going to want to get a sneak peek of forms?” Right? It’s not really that interesting, but it turns out that when you make it somewhat tantalizing, and there’s no commitment, people are kind of interested, “I would like to see those forms, thank you ,” and that’s kind of what happened.
Andrew: Let me brace that down. First of all, you’re right about that, that you made it tantalizing.
I saw here in my notes that you guys said, “Want a sneak peak of the forms?” I assume that was April our producer’s note to me saying, “Hey Andrew, do you want a sneak peak of the forms?” and I said, “Wait. How do I get before the interview starts? I want to see what these forms are.”
Shrad: You bought into the forms.
Andrew: I bought into the . . . I think it’s because of the way that she . . . it seemed like she was saying it to me, and it was a sneak peek of it, and I thought, “Yeah. I do want to see that.” So I get that.
Shrad: Yeah. That’s exactly what happened. We had, I think it was somewhere between 300, 400 sign-ups that happened. Again, this was a few years ago, so my memory is starting to fade. But the thing that happened is that when we call them, we’d always try to sell them on this service. We said, “Look. Right now we’re doing it ourselves, but in about six months from now, we’re going to have software for you that you’re going to be able to do it yourself,” and of course these guys are like, “So you’re going to do it for me right now?” and we’re like, “Yeah. We’re going to do it for you right now.”
Not everyone can convert it. Some people were like, “No. I must have software.” Other people were like, “Great. Go for it.” I think we had about 60 people or 70 people that had signed up to do the service with us, so pretty good conversion rate. But the most important thing is that every single one of those people that signed up, we talked to them, every person.
Andrew: Everyone who signed up to get the sneak peak of the forms, who basically was giving you their name and phone number and email address, you got to talk to them. I see.
And why do it for them before you create the software? You’re a software company. You already had experience building software. Why not create the software instead of doing it yourself?
Shrad: Because it’s very different when you are the main user of the application. So when the person who was doing the payroll at bills time, and she was doing . . . it was a girl, and she was actually doing the work, it was like the opinion of one. Right? If I asked her like, “What you need?” she’ll tell me something that she needs because she’s managing however many of her . . . 15 companies. Right? But to ask each individual business owner what they needed allowed us to actually create a set of requirements that we could then wire-frame off of.
Andrew: I see, and much more reliable requirements, not guesswork and not based on your personal experiences but based on what they want.
Shrad: Yeah.
Andrew: It seems to me also that there’s an advantage to just being able to get started right away, to do it within the first six months and to start getting customers before you build your software. Is that true, or was that a distraction?
Shrad: Totally. It was totally true. There was a point at which we had to slow down because there was no way for us to continue to service that many customers with our ghetto-rigged process. So we had to actually stop for a little bit and just not do any promotions or anything like that.
Andrew: Not get any new people, but still take care of your . . . it’s now called productized services. This guy, Brian Castle, I think, came up with that phrase where you say, “We’re going to have this service which is going to be taken care of your payroll, but that’s all we’re doing. We’ve productized it. This is the only product that we have, this service.”
Shrad: Yeah. That’s exactly what we did. That’s exactly what we did, because really the definition of productized service is making’s sure that someone is paying your exactly what they think they’re going to pay you and get exactly what you said they’re going to get for that.
Andrew: Got it. They’re not getting to dictate all these other things. They’re not saying to you, “Hey. You know what? You should also do our health insurance, and can you also by our ads for us because you’re a consultant?” It’s this one, single product that you do. You just happen to do it as a service, which means you do it manually.
Shrad: Right. Exactly.
Andrew: Do you think that entrepreneurs who don’t have your experience having built the social network beforehand, do you think that entrepreneurs who don’t have that experience could spend longer in that productized service period, maybe a couple of years even, as they build up their revenue, build up their experience and then create the software? Or do you need to get out of it faster?
Shrad: I think, if that’s not your goal . . . so for example, if you’re trying to build a small business, not a startup, then, by all means, that sounds very reasonable, because you’re still making revenue. Right? But I think, especially today, the onus on having a product that then scales up and you can show clear scale is so important that I wouldn’t say that it would be wise to stay in that zone for very long.
Andrew: I see. All right. And you know what, you also had a little bit of bookkeeping experience, a little bit of finance experience, and it’s because of something that happened to you when you were 16 in Dubai. What happened at 16?
Shrad: Well, when I was 16 I worked for a company, a shipping company, and when I was there, the accountant basically embezzled $300,000 from the owner of the company.
Andrew: 300,000. Wow.
Shrad: Yeah, a lot of money, basically. And I remember when I was, I always thought 16, but I was 17 or whatever, but whatever, and I looked at the owner of the company sitting in his room kind of weeping, and I was kind of like, “You know what, that’s never going to happen to me.”
Andrew: I see.
Shrad: So I went to school to learn finance and accounting so that I could understand the language of business, which, for me, is very much those types of things. I didn’t go to study accounting, so I still am by no means a good accountant, but I understand what’s happening, which is all I really wanted in the first place.
Andrew: Okay. So then if you have this experience, why not put yourself at least on the companies “About” page in in the early days?
Shrad: I thought that it just made more sense to have Bill with his experience and his sloppy hair . . . it just made more sense.
Andrew: Does he have slop . . . Oh. He kind of has floppy hair. It looks really well-organized, but there’s just a little bit also that says, “Yeah, I didn’t overdo it. I didn’t overly do my hair.”
You know what, the other interesting thing about the earlier versions of your site is you guys . . . I don’t know I put my notes. There it is. You guys had payroll services and time and attendance services that you are selling. What’s the deal with [inaudible 00:39:50] and attendance?
Shrad: If you think about any business, there’s two ways you can make money, right, sell more of what you have or sell other things that are complementary to what you have. So recording time in the company is just another recording dollars, because you have to pay those people for the hours that they work. So we found a company that had a time clock that we could integrate with . . . I use the word “integrate” because it was just us basically logging into the time clock company, downloading the files and then uploading it into Great Plains.
Andrew: I see.
Shrad: So we just were testing other products while we were doing this.
So we had a few companies that actually, even today, have time clocks that we had installed at that time. Sometimes we have really funny calls, like one company, and I know this is totally off course, but this is hilarious. One company wanted a clock, the 11th clock, and we said, “Okay. Great. We’ll get it for you,” and they’re like, “Yeah. We want to put it right outside the bathroom.” So they wanted people to punch in and punch out when they were in and out of the bathroom.
Andrew: I see.
Shrad: So takes all kinds. Right? So yeah, so that’s why we know how important it is in a lot of businesses to measure time. So we were just testing complementary products.
Andrew: But you decided that’s not part of your original product when you built the software?
Shrad: No. We totally want that. That is totally part of the plan.
Andrew: From the beginning?
Shrad: From the beginning, from the first day that we conceptualized everything.
Andrew: No. I mean, did you integrate it into the first version of the software that you built?
Shrad: Yes.
Andrew: You did. Okay.
Shrad: That particular time clock company we did integrate into the system.
Andrew: You know what’s interesting about what you said is that you guys would use another software to record the time that your clients were sending you, and then you said, “We added it to Great Plains.” Right?
Shrad: Yeah.
Andrew: The software that you hated, that you’re trying to undo, you used it first, and that was your backend?
Shrad: Yeah.
Andrew: But what you were working on was creating a better interface for users.
Shrad: Yeah, so we didn’t actually integrate Great Plains and that time clock system, of course, but when we did build our software, we had the swipe clock integrated at that time.
Andrew: Okay.
Shrad: Yeah. I told you there’s no straight path through any of this. You go to try stuff, and most often you’ll fail. Once in a while you’ll succeed, and then you move forward.
Andrew: But this is also what Eric Ries would call “concierge VP” where it’s a concierge minimum viable product. You are doing it for your customer.
Shrad: Yeah.
Andrew: Maybe it was a little less concierge. Where concierge might do anything, you guys are more restrictive, but it’s you manually doing it for your customers.
Shrad: Absolutely.
Andrew: All right. How did you get all those people to come to your site to even see this sizzle line of, “Get a sneak peek of our forms”? How did you get them to come to your site?
Shrad: We did all the things that people talked about. So we got featured in places, back links as much is possible. We tried to get organic SEO up. We also did some display ads at that time. We did view targeting. So we get a lot of stuff just to get the initial flow people. But then we also go to events and speak, and all of our speeches are usually funny and silly, because we talk about payroll and basically destroy the entire event. Right? So most of our stuff is about us and who we are and why we care about these things, as opposed to our company and payroll, and “Let me tell you about the taxes of New York.”
Andrew: “Let me dazzle you with my forms.”
Shrad: Yeah, exactly.
Andrew: “Sit back and enjoy the speech.” Right.
Shrad: Exactly. So that’s what we did. And then, you know, to be very honest with you, the customers that converted the fastest, you we used to literally get handed by like one by one by one. So I was telling April this story, like I remember I was sitting at the dessert place, I don’t know, when we first started the company and I was looking for customers. And I’m a friendly guy, but I’m not a natural salesperson. Like I hate anyone feeling overly pressurized by sales tactics and stuff like that. So I didn’t want to be cheesy about it. I just wanted to be very sincere and almost too sincere, like big eyes, like “Please buy my software.”
So I remember sitting, and I was having coffee with my friends, and I was thinking, “I bet you this person would love our software,” like the person who was running the shop. And I wanted to go and talk to him so badly. So I kept getting up, walking towards him, coming back and sitting down, just propping myself to go and actually get a customer. And honestly, those are the ways that we got customers at first.
Andrew: One at a time, but at the same time you did some content marketing, some SEO, some ad buys. How much money would you say you spent on advertising at the time, in the first six months?
Shrad: We probably spent about $10,000, $15,000, in that range.
Andrew: Where did you get $10,000 to $15,000 for the business?
Shrad: Ah. See, now you asked me the right question, Andrew.
Andrew: Okay. “Now”? Like 54 minutes into it I finally get it? Okay.
Shrad: I know. You’ll like it.
Andrew: Okay.
Shrad: No. I’m just teasing. So Bill, because he 20 years older, he has a little bit of extra cash that he can use to help out with some of these things.
Andrew: I see.
Shrad: So if you go and find like two 20 something-year-olds, they’re going to subsist on Ramen noodles, and that’s how you’re going to build a company. But if you find a slightly older co-founder who I like to call “a builder,” or he’s basically co-building it with you, that tends to help. So he actually helped the company out the first few months by putting in some cash.
Andrew: How much money did he put in?
Shrad: In the life of the company, I think he’s put in close to $300,000.
Andrew: Oh, wow. Okay.
Shrad: Yeah.
Andrew: Does he have a bigger share of the business then you do?
Shrad: So funny, because when he first asked me how much I wanted for equity, I was very dumb and I said “5%,” and he’s like, “What? Are you crazy?” I said, “Oh. You think that’s too high?” He’s like, “That’s stupidly low.” And I was like, “Okay.” But my point is that I’m so interested in success, and it’s not that I’m not interested in equity and dollars. I totally am. But I just want success. So I was just telling him, “You tell me what you want.” Right? Like, “It doesn’t matter to me so much.” So yeah, he had a disproportionate amount when we started off. But what’s interesting about him is that a few months ago he actually gave me some of his.
Andrew: Really?
Shrad: Yeah.
Andrew: He just said, “You’re really running the show. I’m going to give you more of my shares,” and he started to take a backseat? He’s now considered on the website “an investor and advisor” and not management.
Shrad: Yeah, exactly. I mean, the timelines are a little off, but yeah, that’s exactly. He just gave me more share. I keep going back to values and all this other stuff. This is the kind of stuff that you don’t usually hear about from a partnership and stuff like that.
Andrew: All right. So you guys are doing it. Who built the first version of the site?
Shrad: The first version of the site? Oh. So here’s the thing, any money I’ve ever spent, the best money I’ve ever spent, is in hiring a designer, a designer full-time, in-house.
Andrew: Okay.
Shrad: So I use the website to find . . . Actually, the first designer I ever hired was from 99designs. I went and looked at all the people who had won the contest, and I started writing for each one of them saying, “Hey. I have a real interesting project,” and if I like the designs, obviously.
Andrew: You know, I’ve seen that, actually, that people do that, and the founder of 99designs, when he was getting a lot of flak in the early days for asking people to do free work, and then if they didn’t to get hired, they weren’t going to get paid for it, he said, “No. People go through my site and they see designs that they like. Even if the person didn’t win, someone will contact them and try to work with them.” My curiosity, though, is why do that? Why not just run a contest on 99designs and see who builds your version the best and then end up hiring that person?
Shrad: I did that too. I did that too. Yeah. I did that also. You want a perfect confluence of events. Right? You want someone who you can talk to. You can pretty much describe something out of your head, and they can actually design it for you, or sometimes you just want to say, “I don’t know. You figure it out.” Those people are not always easy to find, even if you run a contest.
Andrew: So the first person you want to find was a designer.
Shrad: Yeah.
Andrew: You found them on 99designs, and you hired them?
Shrad: I hired them, yeah. That was the first person that we hired. He was a young kid, like 18-year-old kid, nice kid. I said, “Let’s do this together.” I remember the first time that I talked to him. I was worried that he’s going to think this is some older guy preying on a young 18-year-old. So I put it on my Webcam. I was like, “Look. This is who I am. This is what my house looks like,” just being fully aware that, you know . . .
Andrew: Because you felt a little bit weird talking to an 18-year-old?
Shrad: Yeah, a little bit.
Andrew: Can I tell you something? You look like you’re under 18. I think he may have felt a little weird about talking to you.
Shrad: Well, actually, you know what, that’s helped me so much in tech, it’s crazy. Like I go places, and because I fit in as if I looked like I belonged in tech, I guess. So yeah, he was really cool, and we’ve always had a very good relationship with all of the people that we hire. And so he was one of the first people that we brought to the team.
Andrew: Okay. Take me through the development, because it’s really hard to find someone to build a site like this. Isn’t it?
Shrad: I was just going to tell you that I had more hair than this.
Andrew: No. You’ve got a lot of her. You’re good. You’re doing fine.
Shrad: Thank you, but I used to be doing amazing, because I’ll tell you something, like payroll, when you’re responsible for other people’s money, other people’s, not even money, but somebody being able to pay your rent or somebody to be able to pay this . . .
Andrew: Right. You know what, I forget, but if, for some reason, people don’t get their payment, their salary, on the day that they need it, they can’t make rent to themselves. Right?
Shrad: Yes, exactly.
Andrew: That causes all kinds of headaches.
Shrad: Yep. Yeah. So is a huge responsibility. You actually have to be prepared for it, and to want to do the U.S. and Canada. So there’s like 50 tax rules in Canada, and there’s 15,000 in the U.S. So you have to build a system to understand all of those things. Plus the permutations and combinations of the way people actually use payroll are literally endless. Okay. Suffice it to say, it’s complex.
So it is not one of those things where you can go and get a bunch of young Stanford grads and say, “Let’s all build a payroll together.” It just doesn’t happen like that.
Andrew: Really? Why not?
Shrad: Because the HR technology itself is very complex. So you have things like effective dating. You have really complex data models to make sure that reporting is done right and that reporting to agencies is done right. Like right now, as an example, we process almost $20 million a month, and you have to track everything, incoming and outgoing and to the penny. Right? So all of these things are a lot of stress. So you really want people who are very experienced and who understand payroll. So what 20-year-old Stanford graduate will know much about payroll?
Andrew: Okay. So how do you find someone who does know enough about payroll to build it?
Shrad: So what I did is I started to talk to people who already had payroll software built in Canada, and I started to look for someone that they were working with, so like that they had contracted out to. And then, eventually we found the perfect guy who had built the U.S. and Canada before and knew how to code. And I was like, “Oh my God. This is incredible.” It’s like finding Santa Claus. You think he exists, but you’re not really sure. But in our case, we lucked out, and we found this guy.
Andrew: Is that Alex?
Shrad: No, it’s Ryan.
Andrew: Brian, okay.
Shrad: Yeah.
Andrew: Oh. Ryan Deenan.
Shrad: Dineen [SP]. Yeah.
Andrew: Dineen. Okay.
Shrad: Yeah.
Andrew: He is now your COO?
Shrad: Yeah. He’s really more of a product guy. He’s more of our product guy, but yeah, so he is the guy that we found next, which is somebody who actually understands, who’s a subject matter expert, as well as a coder.
Andrew: And his salary was being paid by Bill?
Shrad: His salary was being paid by Bill. You got it. Exactly. Yeah. But we made him a co-founder pretty much right away, because we were like, “Okay. Let’s see. Without him, we’re two guys with an idea and a little bit of cash.” We were like, “Listen. You are the most important guy to the company.” From the get-go he was going to get paid a lot more than me, like 40% more than me, and I was totally okay with that, because in math, like if he’s not there, then there’s nothing in the first place, so why would I ever have a problem with that?
Andrew: You mentioned that in Canada you didn’t get a lot of fraud.
Shrad: Yes.
Andrew: But once you were addressing the U.S. market, fraud came in.
Shrad: Yeah.
Andrew: Why?
Shrad: We launch in Canada about 18 months ago, or actually, it’s about two years now. And then after we launch in Canada, it took us about eight months to launch in the U.S. because of all the rules we had to account for. So we had hundreds of customers or hundreds of sign-ups in Canada at this point, no-hint, no hide of fraud. And if there’s any fraudsters out there listening to this, please don’t try. And then we launched in the U.S., and ten customers later, boom, we had one instance of $27,000.
Andrew: And what kind of fraud? What did they do?
Shrad: You know, Andrew, I’d rather not say.
Andrew: I’m into your software right now. I’ve got an account. Though the way I can imagine doing it is I could put somebody else’s . . . well, should I not say it?
Shrad: What are you imagining, Andrew?
Andrew: I don’t know. I’m trying to think of what I could possibly do. But you guys also, you made me sign something. You wanted to make sure I was a real person, that it really was Andrew and that somebody masquerading as Andrew Warner.
Shrad: Yeah, exactly. So we had up our KYC in the U.S. the way we never had to in Canada.
Andrew: What’s . . . oh, I see, KYC.
Shrad: No your customer. Yeah. So we had to really, really get serious about it. It wasn’t a huge deal in Canada, but in the U.S. . . . like I called the FBI, Andrew.
Andrew: Really?
Shrad: Yeah. I never thought I’d ever say this out loud, but . . .
Andrew: To say, “Here is fraud that was committed on our site. You guys need to help us out.”
Shrad: Yeah, and you know what the best part is? It turns out that it’s actually very, very difficult to indict somebody that has taken money from you. So if I wanted to press charges, I had to pay a lawyer $10,000 to go to the District Attorney’s Office and potentially take my case. So I was like, I’m just going to waste more money then. So it’s actually very easy to get away with committing white-collar crimes.
Andrew: You know, in a past interview, the one that I did with Dave McClure, I mentioned that somebody broke into my office here and stole my Social Security card . . .
Shrad: Oh, God.
Andrew: . . . and shares in a company that I invested in and a bunch of other stuff. It was just such a painful experience, but that guy was prosecuted. He is on his way to jail.
Shrad: Wow.
Andrew: It is not easy, but . . .
Shrad: You’ve got to give me the number.
Andrew: Sorry question Mark
Shrad: You’ve got to give me the number of the person who did it, because, in our case, nobody was willing to take . . . like I was just like, “This is dumb.”
Andrew: I know. It really is. It’s such a pain, and we had situations like that too in my past company, and it sucks. You shouldn’t even say out loud that can’t do anything. You could do something, technically, about, but we shouldn’t even admit out loud that it’s easy to get away with it.
Shrad: Yeah. Your audience is going to be, you know, most of the good guys.
Andrew: Right.
Shrad: So that’s what we count on.
Andrew: The thing that helped me was my landlord was also damaged by it. So there was an interest there.
Shrad: It’s two people. Yeah.
Andrew: And also, the cop who got him was also very committed.
Shrad: Yes. So that is exactly what the FBI said, which is, “Can you prove that it was part of a larger effort?” and I’m like, “isn’t that your job?”
Andrew: Right. Right.
Shrad: I’m like, “Why should I prove that?”
Andrew: All right. So now the software is built. You take it out to your customers, and there’s got to be problems. There’s got to be stuff that they look at and they say, “This is not what we expected.” How do you deal with that?
Shrad: Well, it took us a lot longer to actually watch the product. So those early 60 customers that we had, we put them, one by one, slowly add to the system. And, first off, some of them are so used to us doing it that they did not like to go to an actual system. So some of them were like, “No. You continue to do it,” and we’re like, “Now what do we do?” So we had stuff like that. It took us a little longer to launch because of the complexity. Again, going back to it, payroll’s not one of those things you can have an MBP for. It either works or it doesn’t. You have to pay everybody. All the taxes have to be right. You have to keep track of everything. That has to happen from the first day, because otherwise it’s sort of like you’re a toaster that doesn’t toast. You know what I mean? Like you’re not really a payroll software company or you’re not a payroll company at all.
So my point is that even though we were iterative in the way that we understood our customer, and the way that we understood what the customer wanted, we were not iterative, I guess, up to launch, because we knew exactly what we needed to build in order to actually do payroll.
So after we launched, and a big credit of this is Ryan, because Ryan had so much experience with this, he knew a lot of the trappings to watch out for, so we ended up having some issues, but we’ve never . . . at that time we had never missed a payroll, and we’ve never missed a government payment — never. And at that point, we were already starting to process a couple million dollars a month in payroll.
Andrew: Wow.
Shrad: Yeah.
Andrew: Sorry. I was just looking at your site to get more info on what you were talking about, and that’s why my eyes were suddenly moving all over. But since you mentioned the issue, there was one issue where . . . Where is that? Customer picked the wrong pay date, and what happened with that?
Shrad: Our entire system is based on the timeline. Right? Like if you need to get paid by Friday, then we have to do something . . . like you need to approve payroll a certain number of days before so that there’s enough time to leave your bank account and enter our bank account and then leave our bank account and enter your employee’s bank account. So there’s time that’s involved in this and these archaic systems that we all have to deal with.
So what happened is that the customer picked the wrong date. He picked the Monday, and everyone was supposed to get paid on a Friday. And then he said it was our fall because our system was shitty because it didn’t predict when he was supposed to . . . We didn’t have ESP. So I said, “Oh. Okay. So what would you like us to do?” I want you to figure out how to get paid on Friday. Now, at this point you have to understand that everything is automated, so everything is just clicks of a button. So we had to break processes to do this.
So what we did is we actually . . . one of our employees took $18,000 out of their bank account.
Andrew: Wow.
Shrad: It was mine, actually. Took the $18,000 out of his bank account, went and deposited the next day physically in every employees bank. There were only eight, or whatever, but to hit that, we did that, just so that you could never say to us that we did not come through for you.
Andrew: And that’s why you want to be so selective about the kind of person you work with and not just the skills of the people you want with you.
Shrad: Exactly. You hit it right on the head, because it takes a special kind of person to . . .
Andrew: To go in and pull the money out and expect to get it back and to frankly not just be pissed at this customer and say, “We’re going to lose them. I’m fine with that. I don’t like them.”
Shrad: Exactly, or “Let’s pay them on Monday. Let’s just pay them on Monday. It’s one day.” Right?
Andrew: Yeah.
Shrad: But it mattered so much to this customer. We’ve done some really insane things for customers that if I tell you about you’ll think we’re crazy, but it’s the only way to do this at the first . . . You know. I mean, I hope will always be able to do it, but there definitely have been some things that even the seasoned business people will be like, “That was definitely” . . .
Andrew: Give me an example of something that’s absolutely crazy.
Shrad: In our system you can accrue vacation, or you can pay it out. I see her eyes glazing over already. I use the word “accrue,” and everyone goes, “Oh my God.”
Andrew: So you know, the problem is your blog. It’s so well-designed that I’m looking at it saying, “We’re redesigning Mixergy. Our text should be this clear. It’s the font and the text and the design and the layout of your blog that I just happened to click on to get a sense of what did you used to do, and suddenly I’m looking at going, “This is really polished. This just really makes sense.” All right. I’m going to open up a blank tab so that I don’t get distracted by that. Tell me again what was going on.
Shrad: All right. No. I thought the “accrual” word through you off there, because . . .
Andrew: No. No. Frankly, I understand the significance of that, because I’m the kind of person who says, “Who cares? Let’s just figure it out,” but people’s lives depend on that. They’re planning not just on their own, not just with me, but they’re planning with spouses, with people who they’re going to go visit on their vacation. Those things that you don’t care about end up really mattering to other people, and just because we don’t care about it because we’re going to be at work or can take off whatever we want, doesn’t mean that it doesn’t matter and it shouldn’t matter to them.
Shrad: Right. So our system allows you to accrue vacation. Like you can basically bank it or you can pay it out. So initially there was a bug in our system that even if you had accrued it, it was paying it out. So this customer had been with us at that time, and he had a lawn care business. So he had a lot of seasonal workers. So he called me up and he said, “Look. These five people, their vacation has been paid out every pay period as opposed to being accrued.” So I said, “Okay.” And he said, “They need to have been accrued, because now they’re all getting laid off and they’re expecting a chunk coming in from their vacation.” And I said, “But they were paid out.” He said, “Yes.”
Then he goes and tells me, “Me tell you something about my business. My reputation is very important. It does not matter that they got paid out. If they don’t understand the math, if they don’t actually see the big lump sum of vacation pay coming into their bank account, they’re going to think that I screwed them over, and so you are actually messing with my reputation.” I said, “Is there no way you can host the class, maybe, and just say, ‘Look. You got paid this throughout the entire six months or whatever it is, so you are not owed vacation pay.” He said, “No. I do not want that. I want you to pay the vacation pay.” So I said, “You want me to double-pay your employees? They got paid once, and you want me to pay them now from my bank account even though they’re not my employees?” And he says, “Yes.”
So I thought about it for a couple minutes, and I’m like, “You know what? If this guy’s reputation means that much to him, then probably it is worth $1800 from our bank account.” So we made like 700 bucks from him, and we paid him 1800 bucks. We lost 1100 bucks on that account.
Andrew: You know what, I get why you would do it. You’re just starting out. You want to build your reputation. You want people to depend on you, and you want the team to know that when they tell a customer, “You can trust us,” that they know that they have the backing of the business.
Shrad: Yeah.
Andrew: I get it.
Shrad: Like, if you call up ADP and you ask them to pay your employees their vacation pay, just . . . I mean, you’re a customer, so you should know what would happen. They’d just be like, “Are you insane?”
Andrew: No. Actually, I’ve got an alert to cancel ADP. I was going through my email yesterday with someone sitting next to me, and we looked at the bill and we said, “All right. I think it’s time for us to leave ADP.” But I think it’s a kind of thing but I can’t ask my assistant to do, because only I have the authority to cancel the accounts. I’ve got to do it myself. Otherwise it would’ve been done.
Shrad: Yeah.
Andrew: But this is a lot of money. Where is this money coming from? At some point you’ve got to exhaust Bill’s willingness to fund the business.
Shrad: Yeah.
Andrew: Where’s the rest of the money coming from?
Shrad: So then we started to look for someone else to invest, and this is another thing that when you come from nothing, as I . . . and of course I’m being cheeky. I had lots of good things growing up, but I say “come from nothing” as that I really don’t have the foundation for what I think would give you some advantages. I should say that.
And so we had to start looking for an investor, like someone who put money . . . One of the things that I did that I think I would redo this differently if I had to start over again, we’ve always raise money in tranches. So we’ve taken $300,000, $500,000, and you make very different decisions when you take money in that kind of process, as opposed to going and trying to raise $2 million at the same time.
Andrew: What do you mean? What’s the difference in the decision-making?
Shrad: It’s so many things. First off, you can’t plan. You can’t predict.
Andrew: Because you don’t know when the next tranche is going to come in or not.
Shrad: Yeah, exactly. You’re operating on fear as opposed to operating on opportunity or promise. Right? So that’s the big downside. The good side is that you don’t waste money. You try to figure out ways to be hustley about it, I guess. Yeah, that’s my word.
Andrew: I’ll take it.
Shrad: Yeah, but the point is that there are pros and cons to both. One, definitely, I think, has a gain for you, and one has a gain for your investors. So the gain for you is that you get to relax for five minutes. The gain for the investor is that they get to know that if they gave you money, you know what to do with it. So both sides have pros and cons.
Andrew: If you had an opportunity to do it again, you’d just raise all the money at once, stop looking to raise money throughout the business and know exactly how much you have in the bank so you can bank on it, so you can plan with it.
Shrad: Yes.
Andrew: Your money actually came from the Business Development Bank of Canada, which I think is owned by Canada, right, by the government?
Shrad: Yeah.
Andrew: According to a crunch base, also Extreme Venture Partners, which I don’t know.
Shrad: Yep.
Andrew: Atlantic. Who else?
Shrad: Most of them are Canadian. Canada is awesome because they have programs for entrepreneurs to borrow money at 0% interest, for example, or sometimes even have grants, free money, basically. So Canada’s great like that. So we started to do a mix-and-match of things. So the next bout of funding actually came from another guy that we consider very, very important to the company. His name is Richard Lanza [SP], so he’s also on the “About” page. So he put in the next $300,000, I think.
And even though I like to say that if I have to do it again I would raise it all in one shot, that’s not always in your control. Right? You can’t actually force anyone to give you money. And so what really that means is that you have to position yourself at the best possible place to raise that money in one shot. For me, now when I start another business in the future, I’m going to be a second-time founder. So I’m going to have at least one of those Holy Trinity things I was telling you about earlier.
Andrew: What were those? I think you said it before we recorded.
Shrad: Yeah. So a degree from a good school, that’s number one. Number two is generally a prior exit, however small or however big, and the third thing is generally that you worked for a Google or Facebook, ideally as a first employee or a second employee.
Andrew: You’re saying if you have one of those three things going for you, it’s a lot easier to raise money. It’s a lot easier to find people to work with.
Shrad: It’s infinitely easier. I’m not saying it’s the easiest, but if you actually look at most founders that raise money successfully, if someone did a crunch base thing on that, I bet you I’d be right. Anyway, so that’s what I mean when I say those are some of the advantages that I didn’t start out with. So some of these things are not in your control. Right? Like, I couldn’t position myself. I couldn’t magically transport myself to the U.S. or Canada to attend these schools. I wasn’t born here, so how do I do that? I had to take a very different path.
Andrew: How much revenue do you guys bring in?
Shrad: Were almost close to $500,000 run rate at this point.
Andrew: Five hundred thousand dollars run rate?
Shrad: Yeah.
Andrew: How many customers?
Shrad: Just under 1000.
Andrew: Just under 1000 customers, and how many employees, do you know that, that you’re managing payroll for?
Shrad: Oh. I think it’s over 8000 or so right now.
Andrew: Eight thousand or so employees. These are really big numbers. And the company’s been around since?
Shrad: Officially, the company’s been around since 2012, but by the time we did our [inaudible 01:08:31] and launching and stuff, and because these products, again, are not easy to build, with small teams in particular, it took us a couple of years just to get going. Like this year, actually, we’ve doubled from last year in the first four months of the year. So we are pretty sure. Like our goal this year is just to get to 100,000 MRR as fast as we humanly can.
Andrew: All right. Well, congratulations on all the speed of getting there. I mean, we’re talking about a really tough business to break into. It gives you kind of a moat. There’s a reason why a lot of people don’t jump in. Parsley, they just don’t even notice the pain of it. And second, if they do, they’re afraid of getting in because of all the regulations, because of all the problems if you get it even a little bit wrong, as we talked about, and you guys got through it all.
All right. I want to thank you for doing it, but let me close off by saying this. I started off the interview by saying you used to listen to Mixergy interviews.
Shrad: Yeah.
Andrew: What did you get out of listening to them that maybe someone else who’s listening can learn from?
Shrad: Well, I’ll tell you one thing that I definitely got out of it. So Jerry Kestenbaum, who was one of your guests a long time ago, I don’t even remember when, he contacted me. This was at a time that I was desperate for cash and I was like, “Universe, please send me somebody,” a pretty much that day he sent me an email saying, “Are you guys” . . . Because he owns BuildingLink, which I believe you said your building uses as well.
Andrew: I got to meet him through his son, I think.
Shrad: Yeah, through Zack.
Andrew: Yeah, his son who’s a Mixergy fan who came out to an event, I think. And then he told me about his dad, and I said, “Can you help me get an interview with him?” and basically Jerry’s not huge on social media, he’s not big on doing interviews, but because of his son he said yeah, and he did the interview. So how did he contact you? How did he even know to contact you?
Shrad: He just found us. I think he was just doing a Google search and he came across our site, and because he owns BuildingLink, and BuildingLink has time and attendance. So he said, “You know what, this could be an interesting integration.” So he sent me a note, or he sent the company a note, “Hello at Wagepoint Accounts,” saying, “hey. Would you like to integrate?” So I was like, “I know who you are, Jerry, because of Mixergy.” So two weeks later I had a check from him.
Andrew: Oh, wow. And now he’s listed as an advisor and investor in the business on the site?
Shrad: Yes, he invested in the company. And so that’s one direct way that your website has helped me, because . . .
Andrew: Oh. That’s cool.
Shrad: . . . I immediately knew who he was.
And then, you know the biggest thing, to be honest, has been just knowing that it’s not easy for anybody else.
Andrew: Yeah.
Shrad: You know what I mean?
Andrew: Yeah.
Shrad: That comfort. You feel like you’re brothers in arms, like everyone is struggling and getting through it together. I think that has been the single biggest thing I’ve taken away from Mixergy, mostly at the gym while I was working out for the five days that I did go to the gym.
Andrew: All right. Well, it’s so cool to have you on here. Do you remember I used to say to everyone who’s listening that I hope you guys all get as much value as possible, go build your business, and then come back here and do an interview yourselves? Well, you’ve completed that circle, and I’m really proud to have you on the site.
Shrad: Yeah. No. This is a total honor for me. I told you this before, you’ve been like the apex of all interviewers for me, so I really appreciate the invite, and I hope if I can do anything for anyone out there, even just tell him how to get started, like in a very small way, I’m always happy to share.
Andrew: Well, thank you.
Shrad: Yeah.
Andrew: And website, of course, is Wagepoint. I’ve gone through. I’ve created an account. It really is, if you have employees, if you’re hiring employees, and it feels like the whole process just isn’t for you, it wasn’t built for you. It was built for an HR person that was running the show 20 years ago, and now the software on other sites are just stuck there. So you don’t have to live with it. I signed up.
I’m not getting any kind of commission for talking about this. I have no advantage. In fact, it kind of hurts my reputation a little bit when I recommend the interviewee, because I know it puts in the mind of the audience, “Hmm. Maybe Andrew is not totally impartial here.” But I think it’s worth me saying it because when you go through the site and you actually sign up or you go through it and you get a sense of what it’s like in comparison to your software, you feel, “All right. Andrew’s introduced me to some new thing that actually does make sense,” and my credibility goes up with you guys.
So I’m just saying it’s a much more modern, much more current approach to doing payroll, and I’m proud that you are in the audience listening to Mixergy as you built it, and I’m proud you’re now on the show. And thank you all for being a part of Mixergy. Bye everyone.
