Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy, which is home of the ambitious upstart. And I remember as an ambitious kid going and working for this telemarketing company where they’d have you pound the phones and sell. I think we were selling the newspaper, the San Francisco Chronicle back from New York because they wanted I guess the New York hunger to sell. And then one day . . . these people didn’t care about anyone who works for them.
One day, they just fired me. They didn’t even say, “You’re fired.” They just handed me the piece of paper and they said, “Sorry, you’re not a good fit anymore,” and I left. And I never picked up my final paycheck because I was so embarrassed that I was fired. I was so embarrassed by it.
And the reason I say that to you is because today’s guest, so you might see on camera is a smiling guy, he was fired. And I’m looking at my notes from his conversation with our producer. The dude is kind of proud of it. He’s going, “You know what, I actually deserved to be fired.” And it wasn’t like you’re fired from some company that was doing some BS telemarketing thing. You were fired from a pretty good company. And as a result he ended up going off and starting his own business, a business that I’m going to be honest with you not only has a lot of competitors but I’ve interviewed his competitors and for him to still be doing well with all these competitors I wonder how. And we’re going to find out how he did it.
The guy who you’re about to meet, his name is Fred Stevens-Smith. He is the cofounder of Rainforest QA which offers modern testing for web and mobile apps. Was that even mean? We’re going to find out in a moment. And I want to thank the two sponsors who made this interview happen. The first will host your website right. It’s called HostGator. And the second will let you hire your next phenomenal developer, it’s called Toptal.
Well, first, Fred I got to bust your balls. Are you good with that?
Fred: Sure.
Andrew: I know your revenue. It’s super impressive. That’s why you’re here. You don’t want to tell the revenue to the audience. Why?
Fred: I mean, I actually, you know I can actually tell you why. There’s no good reason, it’s just ultimately, you know, I think a big part of our job as entrepreneurs is to make sure that the narrative to the rest of the look like the reality, right? The reality is like that, the sine wave.
Andrew: Up and down and up and down?
Fred: It’s the straight line.
Andrew: Right.
Fred: And so if we share the kind of point in time revenue numbers then, you know, our competitors have more intel, the investment community has more intel. The beauty of being a private company is that you get the ability to control your own narrative, you know, so that’s why I don’t tell people like you.
Andrew: And you don’t want someone next to you to say, “Hey, you know what, he did X. Now he’s doing X, a 30% of that.”
Fred: Exactly, right. Yeah.
Andrew: You’re just okay . . . do you have a lot of up and downs? What gets you . . . I thought of your chart recurring revenue that you have consistent upward revenue, no?
Fred: Of course, we do. Of course, we do.
Andrew: I’m going to ask you about later on, about what brought your revenue down. But would you give my audience like a sense of it? Are we talking about over a million, over 10 million, over a hundred? Can you give me anything like that to give them the sense of it?
Fred: Totally, yeah, between 10 and 20, yeah.
Andrew: Between 10 and 20?
Fred: Yes.
Andrew: Okay, great. Good.
Fred: Yeah. And I should clarify, we’ve never contracted ever. It’s just the growth rate, right? It’s the growth rate.
Andrew: Oh, the growth rate goes down. Got it, okay. That makes sense. So it’s not like people are leaving you in droves and then they come back?
Fred: No.
Andrew: All right. I asked you earlier for an example and you said, “Look, I could talk about big companies, I could talk about small companies,” and I feel like we were kind of spinning out of control in that pre-interview conversation that we had and I realized actually, I don’t need the big examples. I would love a small, like you say you even would work with a Shopify store, right? That’s kind of a small company. Someone has, well, not necessarily actually but if someone has a Shopify store, why would they need Rainforest QA. Give me an example.
Fred: Yeah, totally. So I mean if your business is dependent on your application or website working and if you will make some revenue from that business, then typically you have to test. And probably for a lot of smaller creators that takes the form of, “I check, everything works, once I click updates,” right, in the Shopify store example for, you know, mid-stage data but it’s more like a, you know, 10s, to 20s, to 100s of people involved in a multifaceted process to make sure nothing is broken, everything works. We help from the individual creator who clicks publish all the way to, you know, the 20,000-person company that employs thousands of people to do this. And basically, what we do is we give them access to a QA team that’s on demand through an API.
To give you a very concrete example you have a checkout flow on your Shopify store, you have a checkout flow on ticketmaster.com and you want it to work a certain way. You create the test case in Rainforest, you run it, within about 30 minutes, we’ll have sent, you know, several hundred testers depending on the volume of testing you’re doing, through that checkout. We will have verified that it works. We will have recorded all their interactions. We will return that report to you. You can do with it whatever you want. Usually what people do is they adjust that programmatically and they release the production based on the results of what Rainforest tells them. So you could think that it’s replacing or augmenting the traditional role of kind of human QA.
Andrew: Because, you know, what happens with us is I switched to using Safari instead of Chrome and our developers said, “Great, now we’re going to know if our site works on Safari.” And I realized, “If I didn’t switch to Safari, we’d never know that? There are like little dots that show up on some of our forms?” And that is the truth of it. And then I don’t check our email subscription form even though it works. And then someone a few weeks ago said, “Andrew, do you understand that when someone hits a button, the email subscription form doesn’t pop up. And so no . . . ” and I didn’t even think to look at that. And that’s what you’re saying.
I could set up a system where automatically every week or every month or every however long a bunch of people using . . . oh, you’re nodding so much. I got it, right? But let me ask you this, about the shopping cart. I want people to go to the shopping cart. Does that mean that they have to use their own credit cards to go and buy through my shopping cart?
Fred: No. So we actually have a partnership with Silicon Valley Bank that gives us basically on-demand credit cards that our testers use that our customers fund to obviously then refund.
Andrew: Okay. So it comes into my bank account and then we immediately refund it back.
Fred: Exactly, right. Yeah.
Andrew: And you test on a lot of different platforms. What would it cost if I just wanted to test my email form a bunch of different ones?
Fred: I mean it depends, right? If you’re continuously deploying that email form and you’re deploying it a hundred times an hour and you want to test it across all major browsers and devices, then it’ll probably cost you hundred grand a year. If you wanted to, you know, do a high level testing in a few browsers once a week, it probably cost you, you know, 10 grand or 20 grand.
Andrew: A year.
Fred: Yeah, a year, exactly.
Andrew: Okay. All right, I got a sense of it. I’ve got a sense a little bit of you except that I’m hearing an accent from you. Where did you grow up?
Fred: I grow up in England.
Andrew: In England. And you ended up somehow in Berlin. What were you doing in Berlin?
Fred: Berlin was my first real . . . well, I graduated university and frankly, I had a place on a graduate scheme, you know, the university banks’ high grads, I had a place in one of those and I realized I don’t . . .
Andrew: Wait, you had a place where?
Fred: On like a big banking graduate scheme, you know, an investment bank. Yeah.
Andrew: A job basically at an investment bank. You are on the path to get it.
Fred: Exactly, right. Yeah.
Andrew: But weren’t you a designer though? I thought you learned Photoshop and as a result of that your life change and, yeah.
Fred: Yeah. Well, I did that. That was all for fun, right. Like for me it was like, I studied economics. So it was like economic for money. Design for fun, right? And so, am I allowed to swear on this?
Andrew: Yeah, do it. I said I was going to bust your balls, might as well.
Fred: I just swear naturally, so I’m just trying to make sure that I don’t have to constrain myself. Yes, anyway, I mean the TLDR is I was, you know, two weeks away from starting this investment banking program and I was coming back from a rave in East London, I was living in London and it was 5:00 a.m. and I was coming through basically in the financial districts of London, Canary Wharf and I saw just this hordes of well-dressed, beautiful hair-cutted young people, you know, my age walking grim determination into these office towers and I thought, “I’m fucked.” There’s no way I can compete with these people.
I was coming back from a rave and they were going to work looking perfect. And I realized that was really an incredibly pivotal moment in my life. That was the like visual metaphor for the rat race. I realized that these people get ahead by working harder, dressing smarter, getting there earlier, leaving later, I’m not like . . . none of those things I standout in. And I realized that if I’m going to actually be successful in life, I’m going to need to separate myself from this race, and honestly that moment was when I realized, “Fuck this investment banking thing. I’m going to go and do something myself.”
I had put myself through college which is not that impressive in England, right? It’s a very different cost strategy to here, but it sounds great to Americans. I put myself through college with a little web design agency that I built and I realized, “Hey, I could do this but at bigger scale.” So it just so happened that two days later my friend called me and said, “Hey, I just moved to Berlin. There’s tons of beautiful Swedish women, it’s really cheap, you should come here.” And so I bought my easyJet ticket and move to Berlin and yes, I spent a couple of years there building my first business.
Andrew: And still since, you do curse, I’m looking at what my producer said about you. You told the producer “Fuck Berlin.” Why fuck Berlin?
Fred: Yeah. That’s in the context of like where you should start startup.
Andrew: Okay. So as a designer it was fine to be there but when you said, “I’ve got to start some kind of software company?”
Fred: Berlin, one of the best countries in the world, like one of the cities in the world.
Andrew: Yeah.
Fred: No question, amazing, amazing place. The problem is is like you go to Berlin to be an artist and so the kind of . . .
Andrew: Ah.
Fred: You know what I mean?
Andrew: Yeah.
Fred: The kind of lifestyle you have, it’s like trying to do a startup in Santa Barbara. Like, no offense to anyone who does it, that’s awesome, but just like it’s too lax for me. Like I wouldn’t be able to do it. You know, I wouldn’t have the motivation.
Andrew: Okay. And so you said, “I got to get out of Berlin if I’m going to do that.” You ended up going back to London. That’s where you got an internship at Seedcamp. And I think it’s kind of interesting that a guy who already had his own business would end up being an intern?
Fred: Yeah. Well, you have to be. I mean, dude, the thing that I’m lucky enough, six years into this journey, you know, we’ve raised $40 million. We’re lucky to work with like some of the best investors with amazing people throughout the community. They put their faith in us and through that I’ve managed to meet a lot of people who are far more successful than me.
And the thing that I have learned, one of the cool, common traits is just this continual humility, right? This continual thing of like not being afraid to be the noob. In fact, that was one of our core values as a company early on, “Be the noob.” Because this idea was like, you know, you always get to these point in life where you start to feel like, “Okay, I’m pretty good at this thing.” That’s when the learning stops. You stop improving, right?
And so for me it was like I don’t give a shit what my is as long as I’m learning towards my end goal which was to start a venture-backed business. And so I thought there was no better way to do that than to go and work at this nexus of all this new startups which was Seedcamp, which just for those that don’t know is essentially the kind of European version of YC. So, yeah, to me it was completely logical but, yeah, and my parents had the same feedback.
Andrew: So you go to the European YC, the European Y Combinator.
Fred: Yeah.
Andrew: And that’s where you got fired? Why did you get fired from them? How did you get fired as an intern?
Fred: Yeah. I know it’s impressive. And sidebar, I also got fired from my first ever job and also most jobs subsequently which was actually telemarketing.
Andrew: Like me.
Fred: Yeah, like you, and just a fun little side story. So my parents, I think I was 15, my parents bought me the like all good little kid suit, right? You had to wear a suit in this telemarketing job and they dropped me off my first day. And so I did all my calls. I was on the headset. You know, all the crap. And then at the end of the day this guy came to me and he was like, “How did you like your first day?” And I was like, I’m a pretty honest human and I always have been and so I said, “Oh, it was horrible. It was the most boring thing I’ve ever done in my life.” And at the same time the janitor was walking past towards the restrooms and I was like, “She has a more interesting and exciting job than I have.”
And it turns out that guy was the founder of the company and the next day I came into work and there was a little note saying, “Freddy, please see HR.” I was totally ignorant as to what that meant, so I was like, “Great. What’s HR?” So I walked down and get fired. And the kicker was I was so ashamed that I’d been fired for my first ever job and that my parents had bought . I’d never told them that summer. I went back to work every single day that my parents dropped me off . . .
Andrew: In your suit?
Fred: In my suit and then I just walked to the library, sat there all day reading.
Andrew: Wow.
Fred: I only told them a few years ago and we had a good laugh about it, but, yeah.
Andrew: Wow. You know what, I can’t believe that they make you wear a suit. That doesn’t seem like a kind of job that . . . but I am really happy that I did some telemarketing work. It took away all the fear of calling strangers. What did you get out of it?
Fred: Well, in a day that’s not that much life-changing insight that can get but I got out of it that I never want to do that kind of job ever. And I also got out of it that I probably am not a good fit for roles which require a lot of repetition. I wished I had stuck longer but I didn’t. So anyway, to go back to you why did I get fired from Seedcamp. I mean as I told your producer, I’m just an exceptionally bad employee. Right?
Andrew: So what did you do though? What did you do that made you so bad?
Fred: Well, just imagine the employee that questions every single thing you tell them to do that is always coming up with fun, creative ideas on how you can improve your core business, which you really didn’t ask them to or want them to do, and who was perpetually late to the office, late for appointments, late for projects. You know, I’m just a bad employee, right? I’m not designed to work for someone else unless it’s in the context where it’s more like a partnership, you know? But, yeah, it’s just not for me and . . .
Andrew: I got to say, you showed up late for this interview? Do you show up late for work on a regular basis?
Fred: No.
Andrew: You don’t?
Fred: No. That’s one of the few, I mean, you know, Rainforest is about 110 people today and that’s one of the few that my kind of sense of kind of servant leadership to the company, to the people that work for me, to the people that work for us, that work with us, that is something which I take really, really seriously. And that’s one of the few things as my friends and my parents and, you know, everyone else in my life except for Rainforest will tell you like that’s one of the few things that I have actually improved and I’m never late for meetings now, just a few, but not . . .
Andrew: I’m not either. I take meetings very seriously because it’s scheduled on someone else’s calendar.
Fred: Exactly.
Andrew: But for getting into work it took me a long time, many, many years of being an entrepreneur before I finally found a way to show up on time to work. It’s tough.
Fred: What is it? What’s the [inaudible 00:15:07]?
Andrew: What I did was I realized that it all started with me waking up too late and I every day shaved a few minutes off, worked on it. What else could I do? I mean I experimented with things like, “All right, what if I have caffeine as soon as I wake up?” So I put a can of Coke right by my bed and like lots of little techniques like that to get myself going. What if I put an alarm in the kitchen, so if I don’t want up from the bedroom, I have the alarm in the kitchen for it, right, that kind of thing. What did it for you?
Fred: For me, it was a similar thing but just realizing like how basically from like when my eyes first open to when I’m like in the door of the office that’s going to take two hours. And like it doesn’t matter what I try and do is just going to take two hours, otherwise, I’m going to feel rushed. I’m going to feel discombobulated. So for me it was just, all right, first meeting, I wake up at least two hours before that and, you know, I’m lucky that we have a reasonably large number of customers now in Europe so I travel a fair bit and that jetlag keeps me on there like 5:00 a.m. wake up, you know, so that’s fantastic for me, honestly.
Andrew: You know what, I also have the Apple watch which has several apps that are, there you go. I have the old one too that I use as a sleep one and I have several apps that are supposed to wake you up at the exact like perfect time within [inaudible 00:16:15]
Fred: Do those works?
Andrew: No, not one of them do, and they break in the most like weird ways. Like this morning, at 5:55 two of them seemed to go off at once and I couldn’t shut them off. And the reason I bring this up is that it’s broken in a good way. It will not shut off, I have to wake up, get my head together and figure out how do I deal with this because otherwise it’s going to drive everyone crazy.
Fred: Yeah. It’s a cool concept. I mean I always love that idea that when I was in my lightest phase of sleep it would wake me up, but, yeah.
Andrew: Right. They don’t have working app.
Fred: It’s no curtains that’s what’s worked for me, no curtains.
Andrew: No curtains, because then the light will go. I do actually like the Apple watch if you’re in a relationship before waking you up because I want an alarm clock that doesn’t wake up Olivia but does let me know, so the vibration lets me know. All right, I see how it’s going. By the way, as someone who used to be a bad intern, a bad employee, you have lots of employees. You know what it takes to be good and bad at a role.
Fred: Yeah.
Andrew: How much mentoring do you do with someone who works with you and give me an example?
Fred: Yeah. I mean, it’s right. I think what you see, you know, it’s funny. As you become bigger, you get into like the concept you focused on become more abstract and you find yourself talking more in jargon. So that’s my disclaimer if we’re about to launch into that. There is a real thing that I’ve seen which is people taking complete ownership of their own careers, and I would tell you that the people that progressed the fastest who have the, you know, the kind of best trajectories in their careers are the people who are just so fucking relentless about that. And so, you know, anyone can put time on my calendar, anyone can slap me, anyone can email me and they’re encouraged to do so all the time.
And, of course, you know, my direct reports, the execs, the people that I work with every day is about, you know, a team of eight who I spend most of my time with. You know, we do formal one on ones. We do coffees, dinners at my house, all that kind of stuff. But, yeah, for the broader organization, you know, what I’ve seen is that the people who really get ahead are the people who are just constantly in that hungry, learning mode. For example, I can give you one specific example. There’s a guy, Alex, Alex Lin.
Andrew: Alex Lind?
Fred: Yeah, Lin, L-I-N. You should honestly interview him. He’s a fascinating guy. He was a paramedic in the LA County Fire Service whatever. That was his job which he designed his entire life for and he got like 27 and he was like, “Oh, I repeat this until I retire and that’s my life.” And so he took a hard pivot into tech. He applied to Rainforest because he kind of . . . you know, our culture and our values resonated with him. He joined as an SDR, right?
You know, for those who are not familiar with the jargon, the most . . . like a telemarketer, the cold caller. He joined as an SDR and less than a year later, he’s already one of our top performing sales reps. He’s a SMB account exec. He did 400% of quota last month and he is someone who is just so . . . he’s so exemplifies that idea of total ownership. He is constantly saying, “Here’s what I want out of life.” He’s trying to spend time with anybody who can who he thinks is better than him and who can help him level up.
Andrew: So how would he do that with you? Would he ping you on Slack? What’s one example or something he did with you?
Fred: So for example, yeah, he would say, “Hey, Fred, I’m going to get a coffee. Do you want anything?” And I’ll be like, “Actually, yeah, I could do it as a break. Fine, let’s go.” And then on the walk he would, you know, share like he’s starting a business. I very much encouraged him, I was like, “Dude you’re a natural entrepreneur. You need to start a business like Rainforest is lucky to have you for a couple of years. Then you should go do your own thing.” You should honestly interview him but his whole life plan is to have an organic farm on Hawaii and he grew up with nothing. He’s first generation immigrant. You know, his parents moved here.
So he’s really, really focused on building that safety net and that kind of passive income so that he can, you know, focus on the kind of lifestyle he wants to live. And he was just asking me like “How did you do this? Like what do I need to do to get to that point? What skills do I need? What do I need to improve? What assets do I need to build?” You know, just asking those kinds of really important questions that for most of us it’s like we want to ask these questions. We are just a bit intimidated to do it, you know?
And I think there’s a set of people and I think a lot of them are entrepreneurs who just see something that they want to achieve and going back to your earlier point, they’re not ashamed to be like start from scratch. They’re not ashamed to say like, “Oh, I don’t have a job. I’m working on my own thing.” You know, they don’t care about that. What they care about is that end goal. For Alex, it’s being on that farm in Hawaii and he’s relentless in getting that farm.
Andrew: I’m looking at his profile right now. Firefighter gone tech is how he lists himself on LinkedIn. All right, let me take a moment to talk about my first sponsor and then come back in and ask you what you said to the producer, “Look, I’ve burned all my bridges. I had to get into Y Combinator.” I want to know what you meant by how did you burn bridges and then how did you get into Y Combinator, because it’s not easy, even in 2012 when you did it it was hard.
All right, the first sponsor is a company called HostGator. Do you know HostGator at all, Fred?
Fred: No.
Andrew: I’m going to tell you what it is. Here’s the deal, tons of different hosting companies out there. Who would did you . . . did you guys when you were a designer did you create websites for your clients? You did?
Fred: Yeah.
Andrew: Okay. And one of the things that if you’re designing sites for your clients you want to set them up with a hosting company and so what I’m noticing is a lot of people in my audience who do this, they just use HostGator because it’s easy to fire up a bunch of websites with HostGator. In fact, if you get the unlimited plan, you can actually create unlimited number of domains, unlimited number of sites for them. And then when your client starts to level up, you could move up to the next level with HostGator. Maybe you get a dedicated hosting, maybe you get Managed WordPress, whatever it is. They scale up with you.
If you’re out there looking to create a website, I urged you to go check out hostgator.com/mixergy, where they’ll give you up to 62% off. And frankly, if you’re with a hosting company now that you don’t love or you’re spending too much money, just reduce it. We were with someone else. We didn’t . . . no, actually, we went directly to HostGator. I take it back but we have looked at other companies. They charged way too much. They don’t give you the same thing. It’s not worth it. Go to hostgator.com, low price, it just works and they’ll scale up with you. Whatever you need they got it for hosting, hostgator.com/mixergy.
What kind of bridges did you burn?
Fred: So I was working on a project at Seedcamp, which basically we were discussing spinning out into a standalone startup. And so, you know, whether it was their strategy to kind of let me down gently or whether they were really intending to do it, when they fired me they kind of said like, “But we’d be pretty interested in funding that startup.” And I was so a combination of, you know, youthful arrogance which is slowly leaving me as I, you know, wake up to the realities of the world. I just turned 30, so, you know, I considered myself old. You know how it is.
Anyway, basically, in my youthful arrogance I was kind of like, “Fuck you guys. We’re going to YC. We don’t need your stinking money.” You know, that’s the TLDR. Now, the problem was we had not applied to YC at that point. Let alone I got an interview, let alone I got a place. And so I had become very, very obsessed, me and my cofounder, Russ, we had been working for six months or so on various different side projects, evenings and weekends, while I was at Seedcamp. And we got very obsessed with Paul Graham’s essays and through that we got to realize that there was this thing, YC, and through that we realized like, “Okay, well, that’s the thing we should do one day.”
And being fired was kind of, you know, and being fired and claiming that I had already got in, you know, when we hadn’t even applied . . .
Andrew: I didn’t get it. You claimed to who that you got in to . . . ?
Fred: Like my boss who was firing me. He was saying . . .
Andrew: You said, “I don’t care because I got accepted . . . ” Wow, okay.
Fred: Yeah. So I don’t recommend it, like don’t lie, but in this case I did and I think in some ways it was the best thing we did because it literally burned our bridges, right? Like they were offering to give us money and help me spin this into a startup. Like I said I don’t know how real that was but that was the conversation in a meeting. And, you know, I was like “Fuck off, no. We’re going to YC.” And so we had to get into YC. Like I was not going to, you know, enjoy the shame of being like the reality surfacing, like, “Oh, they didn’t even get an interview to YC after they claimed all that bullshit. And by, they, I don’t want to include Russell in this. This was . . .
Andrew: This was your bullshit. When you and Russell . . . I’m imagining you guys met through Seedcamp? Is that right?
Fred: No.
Andrew: How do you know?
Fred: So we actually met, Russell is like four years older than me and we actually met because my dad, he’s . . . I mean I don’t know how much detail you want here . . .
Andrew: Go for it.
Fred: My dad coerced a web designing company that build his first, he’s business is a professional website to take me as an intern for summer. And Russ and I met there. He was the lead developer at that website company.
Andrew: And then how did you win him over as a younger guy and showed him that he should be partnering up with you?
Fred: With my wining personality, obviously. No, I mean we had no idea about that. It was honestly that I’ve always been like this. I came in and I was like, “All of it sucks.” Like I redesigned their logo. I redesigned their website. You know, they were building on tables. I was like, “All of this is bullshit. CSS is the future.” You know, so I came in and kind of, you know, created a lot of havoc in that company and Russ appreciated that. And we became friends with just basically through a shed sense of humor.
And then in Berlin when we started having some scaling challenges with some of the ad stuff we were doing for customers, I remember that Russ was kind of infrastructure . He came and spent two weeks living with me and we solved the infra problem very quickly and then we started thinking like, “Ha, what are different ideas we could work on?”
So we started hacking on stuff and, yeah . . .
Andrew: What are some of the ideas that did . . . what’s one idea that did not work that gives me a sense of how you’re thinking poorly about entrepreneurship?
Fred: Gosh, well, so one of them was basically . . . and most of them went to do with crowds but it was a crowdsource photography site where basically if you needed a stock photo of something, you could kind of put it bounty up. And we were thinking it would be very geographic. One of the photo of the [inaudible 00:26:35] that example, and I want it at night, and I’ll pay [$5 00:26:38] for it right, and so built that as a kind of a prototype MVP.
Andrew: And so why do you think that was a bad idea?
Fred: Oh, I don’t think it was a bad idea. I just think that we were building startups in like the anti-lean startup way, right? We went from kind of initial theory to completed product without ever testing it with the user.
Andrew: And then when you finally build this thing, because I kind of like the idea when you finally built why didn’t it work?
Fred: It didn’t work because no one wanted to pay for photos.
Andrew: Ah, right. You know what, if I either want stock photography that’s pretty inexpensive or super free, now, right, there’s, what’s that? Unsplash is free or I don’t want something that’s stock. I want something that’s a little pro high-end, I see. And so you thought that this was the problem people had. They want to pay a little bit of money for stock photography and in reality they want to pay a lot or none.
Fred: Yeah. And also, I would say it’s also about skill set, right? Like I’m more the kind of like business design type and Russ is more the kind of like really prototypical like levitating genius. And neither of us really had any marketing chops, you know? And so I think like as much as anything a lot of those early prototypes and ideas totally failed because we just didn’t have . . . you know, we didn’t put the energy into distribution that we needed to actually test the ideas, you know?
Andrew: Okay. And then how did you get accepted into Y Combinator ? What was the idea that got you in?
Fred: Gosh. So I mean it was a combination of two things. One, Russ’s infrastructure consulting business was really, really successful. He was charging some egregious hourly rate for him and that was the first, you know, it was kind of 2010 to 2012. That was the first wave of AWS, right? And so he was basically helping enterprises get onto AWS in Europe. And what he saw and what anyone who used AWS at that time would be familiar with was that you could have massive overspends and you would only realized it when you already spent the money. Right? You turn in on an Excel instance and you get billed 20 grand and you don’t know that your bill has gone up by 20 grand until the end of the month.
So he kept running into this problem with his customers that he was consulting for and so he started building basically an alerting system that would tell you like, “Oh, your spend has jumped above the threshold. Like there’s a problem.” And as he would say it is, you know, the worst designer in the world and so he asked me to like design the interface and we just got deeper and deeper and deeper into that idea and problem until we’ve been working on it for six months. That was the prototype we applied to YC with. Yeah.
Andrew: And then I heard that you started to talk to other companies at Y Combinator to understand the frustration they had. Why talk to them at that point instead of talk to AWS users, the Amazon Web Service users?
Fred: Well, honestly, what we . . . so I mean, the reality is that Paul Graham, who is the founder of YC basically told us like, “This is not an exciting idea. Like what you got, like to do what you want do . . . ” and we told him we wanted to like build a company like an IPO, ” . . . to do what you want to do, you have to wake up every day for the next 10 years excited to solve this problem.” Like you’re not going to be excited to solve this fucking problem, and he was right. You know, like . . .
Andrew: And the problem was what, of alerting people that they were using too much of Amazon services?
Fred: Yeah, like in the macro sense, the problem was save some infrastructure spending money for big corporations, right?
Andrew: Yeah, I see you’re shrugging, literally shrugging every time you say that. Okay. And the reason that you guys were doing this is you identified a real problem. There was money in it but it wasn’t it. Okay, so then you said, “Okay, we should go and find a real problem.” When Paul Graham sent you out to find the real problem does he actually say that we need to find the problem that you care about?
Fred: Yeah.
Andrew: It’s “Find the problem.”
Fred: Yeah, and I think that you know, I mean obviously, PG has taken a big step back from YC now and, you know, I don’t think he probably tells many people that anymore but that was kind of a rite of passage, right? Like if PG kind of cared about you and kind of cared and thought you have potential, very often he would kind of test your commitment by doing that. And so I don’t know if he . . . like in retrospect, I don’t know if he actually had any opinion about our ability to focus on that for 10 years. I think as much as anything it was kind of a test.
Andrew: I see. I do that with guests too sometimes. I just say something that’s not true just to see if they fight back which makes it more interesting or they agree and then I feel like, they feel like I’m super smart for knowing it. All right, so you were called out. You actually said “This makes sense. We don’t love this problem.” You then go and you start talking to whom? Now you actually are talking to potential customers. Who are they?
Fred: Yeah. And I should say, by the way, we had our first set of customers for CLDRDR which is the thing we’re talking about the AWS thing it was just that we identified that big customers and little customers wouldn’t case about this for various reasons. And you just have a very narrow slice of the market to sell into. You know, one of the most important traditions of YC is the Tuesday dinner and the Tuesday dinner, you know, they invite along Zuckerberg, Airbnb founders, Peter Thiel, you know, all the rest of it. And so they come and they give a talk and typically, they tell you how fucked their companies are, and that’s literally the point, right?
Andrew: Like temper, like not how fucked their companies are?
Fred: Yes, totally.
Andrew: So Mark Zuckerberg will come in and go, “Here’s how fucked we are today.”
Fred: Literally yes, yeah.
Andrew: Wow.
Fred: And it’s totally off the record and, no cell phones, no recording, no tweeting, no . . .
Andrew: And I’ve never seen it leaked out before whether it’s at Paul Graham’s house or, where was it when you did it?
Fred: It was already in Pioneer Way, at the big warehouse, yeah.
Andrew: Okay, all right. So no matter, I hadn’t seen it. Okay. So continue with the story. Sorry, I was just shocked.
Fred: Yeah. I mean it’s impressive, right? It’s never leaked but I think that speaks to the community that YC honestly. So the Tuesday dinner and the tradition is, you know, there are some very terrible like chili or some horrible food and at 7:00 p.m. you have a talk, it goes for an hour or two, everyone swarms the talker at the end and that’s it. But the important part of the tradition is that most people show up early in the afternoon and so you end up with every single startup in the batch and there about nearly all of these startups are just two or three founders at that point. And every single startup comes and demos what they’ve been doing to their friends in the batch and so the Tuesday is this regular weekly cadence of like what did you improve and fix in the last week. And it becomes this thing of like, “Well, you guys didn’t get much done,” you know?
So it becomes incredible accountability mixed with customer development because for many of us we were building things that our batchmates would be using, right? Whether it’s B2B, SaaS, whether it’s a social app, you know, Coinbase was in our batch, Boosted Boards was in our batch, Instacart was in our batch, and, of course, we saw the evolution of each of those services on a week by week basis, right? As we were like this is dumb, that makes sense, this is . . . you know, so that real value of YC is that you’re surrounded in this kind of collegiate atmosphere by these incredibly smart people who are all trying to do the same thing as you. And so there’s absolutely no, like, “Oh . . . ” you know, there’s no kind of ego into it. It’s just I want to help you so you help me, you know, and that’s the real value of YC and I don’t know why I start talking about that, but, yeah.
Andrew: Because at that, in those meetings you are starting to walk up through these guys and not just show what you did, actually, maybe not even show what you did. You were asking them what’s the problem that you have.
Fred: Exactly, right. Yeah.
Andrew: And the thing that I wanted to ask you about that was did you literally go in and say, “What problem do you have?” and keep it that open-ended or you’re a little more guided?
Fred: Oh, god. No, no, that’s just like they’re like, you know, in hindsight that’s what we were doing but in actuality we were just flailing around. Right? We identified the set of ideas we thought we could work on. We started building prototypes. We continue to do the unlean startup thing, right? We didn’t validate these ideas. We built a prototype and we went out and try to sell it. One of those was this thing which we were calling “rebench” and the idea was you would authenticate your GitHub and every commit we would benchmark the application and we would tell you who was the like, you know, dev that made it the slowest and dev that made it the fastest. We’d basically gamify performance.
Andrew: Okay.
Fred: And so, you know, we worked on a bunch of ideas like that, a combination of Russell’s deep nerdery and my like okay design skills, right? Like ideas where you could help solve some developer problem. And then we would go to our batchmates and say, “Hey, we’re taking beta users. Do you want to buy it?” You know, and you can imagine how that goes. Usually, they’re like, “Fuck off,” and in the rare case they’re like, “Yeah, this is cool.” I’ll pay like $10 a month for this. And so we went through that a few times and bear in mind, the clock is counting down to demo day. Right? You start like when you get into YC you get an email the next morning saying, you know, “90 days until demo day.”
And so then from then until demo day . . . and demo say is where you stand up in front of 500 of the world’s best investors and you spend 90 seconds pitching what you have with the hope of raising a seed round. Right? And so, you know, as a first time founder that’s pretty fucking scary. And so we would see that countdown and we realized like, “Fuck, we don’t have an idea,” like we don’t have anything. And so with about 30 days left we in pure desperation, just emailed everybody that we got a hands-on and said, “Do you have a problem in your development process that we can solve that you would pay a $1000 a month for us to solve?” And, you know, for us that was a sheer desperation, right? Like that was like the dumbest thing we could have possibly done in our minds, right? We were like embarrassed to do it. But we were like we keep coming up with these ideas that worth $10 a month to people. We’ve got to work on something more valuable.
And so, you know, that’s kind of where we started down this journey. Like everyone that replied told us testing or QA. Everyone, you know, at that time in 2012 our batchmates were the first wave of people implementing continuous delivery, right? This idea was brand new. I’m not going to run say a scripts to deploy. Like I’m going to hit a button and it’s going to run a set of processes and it’s going to deploy it automatically and that was starting to pressurize the quality piece. And so we were just in the right place at the right time to have the market tell us, “Hey, this is a problem for us today and by the way, which is what we figured out, this will be a problem for every software company over the next decade.”
Andrew: Because they’re all going to be moving as fast as Y Combinator companies were moving back in 2012 when you were in Y Combinator.
Fred: Exactly.
Andrew: And so you ask them, “Would you be willing to pay a $1000 for it?” You then went and you created a version. Was it a lean version or was it the beefy version as always?
Fred: We finally did it.
Andrew: You did. How was it?
Fred: It was literally no product. It was me and Russ behind the web form and the response, the report structure was an Excel spreadsheet.
Andrew: But then who was testing?
Fred: Me and Russ were.
Andrew: It was just the two of you?
Fred: Yeah.
Andrew: So someone would pay you money and then you would have their name in a spreadsheet and then each column I’m imagining in the spreadsheet, it would be them in a row and each column would be check using Safari, check using Chrome, check using Firefox, check in . . .
Fred: Yup, exactly.
Andrew: That’s it. You’re nodding the whole time I say that. That’s it.
Fred: That’s it.
Andrew: So finally, you went lean.
Fred: Yeah.
Andrew: Finally, you found a problem. Finally, you found customers. But let me ask you this, I have here my notes that I forget how many people. It was like maybe 30 companies said yes, we’d pay for it when you were finally . . .
Fred: No, not yet. I would say probably 30 said yes and 9 ended up paying us, yeah.
Andrew: And they literally ended up paying you once you took this on. How much?
Fred: A grand a month.
Andrew: These are companies that have a lot of money. They just raised a tiny amount of money from Y Combinator, right? They’re eating ramen or what you called bad dinners.
Fred: Yup.
Andrew: I actually, I was going to say bad chili but I don’t want to say that necessarily because isn’t it Paul Graham who made the chili?
Fred: That’s where it started back when the dinners were at his house but there was outsourced to a catering company but from what I’ve heard it wasn’t materially different in quality.
Andrew: So let me ask you this. My wife just started work at PagerDuty. PagerDuty is a Y Combinator company. Don’t they do essentially the same thing and didn’t this exist?
Fred: No. I mean the short answer is no, they don’t. The answer to . . . PagerDuty is a great company. I think their CEO, Jennifer is absolutely fucking bad ass and their founder is a super smart. We’re friends with Andrew who’s the CTO there. But anyway, basically, yes, plenty of things that were trying to solve this problem existed in the market. And, you know, I think the first thing you have to do when you hear very loudly that there’s a customer pain that they perceived to not have been solved is try and understand, “Am I just in a weird bubble here?” Like do these people just not know there’s a solution that already exists?
And so, of course, you know, as soon as we . . . the reason we actually didn’t build anything is because we were so skeptical that these problem wasn’t solved, right? I mean it seems so obvious, like every software company ever has to test if their shit works. And they have to do it every release. And so surely, someone has run into this problem enough that they actually have gone and solved it. And so we spent probably six weeks researching, digging into all the different ways people did it, digging into how the market was evolving, digging into how people were thinking about it and ultimately, we came to the conclusion that nobody was thinking about it the right way. Everyone was thinking about it either we basically outsource a bunch of humans and we put it somewhere else and we do it in a professional services manner, right, or we get robots and we program the robots to pretend to be users.
And the problem, you know, and without going to problems, basically, we saw that no one was out there trying to build like a AWS for QA. No one was out there trying to say, “What the customer wants is an API end point that they can ping and get a ping back from that tells them what works and what doesn’t and they don’t have to hire people. They don’t have to write code. They don’t have to do any of that bullshit. They just outsourced this entire problem, this entire department to our kind of service.
Andrew: And was the API that was a major change?
Fred: I mean, yeah, it was . . . I mean the API is one manifestation of the different mindset. The mindset was there shouldn’t have to be a QA team. The reason that a QA team exist is the kind of same reason that a sys admin team existed 10 years ago, because it was a fucking hard problem that you had to solve yourself in order to deliver a good product experience to your customer. The problem with that being like there’s so many of those hard problems, right. And we’d been on that kind of . . . we had a front row seat to the AWS transformation and we’d seen companies go from managing their own server data centers with teams of sys admins with lots of internal tooling and process and BS to consuming that as a service from Amazon and paying by the minute.
Andrew: Well, actually I’m going through my own site. I just put in QA into my site. Applause is a company that does $100 million doing QA. There was also . . .
Fred: I do know them. Yeah.
Andrew: Do you know them?
Fred: Oh, yeah.
Andrew: Kristel from Testlio. She was on. She has a system where it goes into . . . it gets outsourced a bunch of people who get to kind of compete for the work? Right?
Fred: Yup.
Andrew: And you guys . . . they weren’t doing the same thing?
Fred: No, not a tool. No. So even though those companies are both crowdsource QA companies, right?
Andrew: Yes.
Fred: But the difference is that how they approach the problem is like this. You want humans to do your testing and you want to interact with those humans and speak with them and be involved with them, but you just don’t want them in your office. You wanted someone . . .
Andrew: Ah.
Fred: You wanted someone, and maybe you want a web form is the way you interact with them but fundamentally it’s the same shit, a QA team put somewhere else. What we do is like Uber, right? If those guys are like the kind of taxi service where you call up, you say, “Tomorrow, I want a cab to the airport at 7:00 p.m.” And they’re like, “Okay, we’re assembling the team.” Like with us you ping our API, 30 seconds later you have 20 humans running through your flows. Right? This is an Uber model versus a kind of black car service. That’s the difference.
Andrew: Got it. Okay. All right, let me talk about my second sponsor. In fact, I’m going to ask you a question here that you’re probably going to regret the answer to because you’ll find a better answer later. Here’s what it is. My second sponsor is a company called Toptal. I keep saying that great developers have an outsized impact on the business. Do you have an example of how Russell had an outsized impact on Rainforest or of a developer that you’ve seen come up with something that you never could have? And I know that like five minutes after this interview is done you’re going to go, “I wish I’d said this other thing that’s even better.” But give me one.
Fred: Yeah, I know. No, I got the answer. I mean we, Rainforest in some sense is three different businesses in one. We have a testing infrastructure business, we have a crowd management business, and we have a test case management business. If you look at the rest of the market those are separate businesses. Right? Sauce Labs is testing infrastructure, crowd management is CloudFlower, test case management is, you know, TestRail. These are entire businesses that do just one of those three things. Without Russell . . . Russell is the prototypical 10x engineer. Literally, this stuff that takes him a week, takes a very good engineer 10 weeks. He is just exactly the person you’re talking about. Rainforest wouldn’t have even got a seed round without him.
Andrew: Would you have said if you had to, would you have told them “I need all three of these” and to work together or did you just tell them here’s the problem and he comes up with that idea that it has to be together?
Fred: Oh, I mean it was much messier than that, you know? It was, we started with the crowd and then we realized we needed a UI, and then we realized that like the crowd was often sending reports of like screenshots that they’ve taken of like porno or gaming rather than the web form. So we built the infrastructure to alter screenshot. You know, it’s much messier than that but, yeah.
Andrew: All right, if you guys are looking to hire a developers, this is the kind of developer that we’re talking about here. There are tons of places where you can hire these freelancers who are inexpensive, and you can tell them exactly what to do. This isn’t what Toptal is. Toptal, top as in top of your head, tal as in talent, T-O-P-T-A-L. Toptal is about hiring the best of the best developers. And what they did was they put together a network of them and when you’re looking to hire you go to Toptal, you actually speak to a human, and you tell them how you work, you tell them what type of developer you need, sometimes it’s even a team of developers, sometimes part time, sometimes full time. You tell them the whole thing and then they come back and they get you people who don’t just do the type of work that you’re looking for but also can work with you. Because you got in the sense, guys, if you’re listening to me, that Fred is a different type of entrepreneur than the other entrepreneurs that I had before, right?
You don’t just want to take someone who’s anal and very like by the book, and if Fred accidentally curses by Slack, they take offense. You want to take Fred’s personality if he’s interacting with the developers into account so that he can find someone who’s not just brilliant but also can fit in with him and collaborate with him and that’s why Toptal wants you to talk to them first and then they’ll go and find that person. And if you jibe with them and you convince that they could do the work that Toptal says they can, you can hire them and often get started within days.
If you’re looking to hire from them go, not just use their homepage but use this special URL where you’re going to get 80 hours of Toptal developer credit when you pay for your first 80 hours in addition to a no-risk trial period of up to 2 weeks basically. At the end of the period if you’re not 100% satisfied, you will not be billed. They are that confident it’ll work but they’re also saying, what I’ve said in the past was, “Hey, guys, if you know someone who could use this, please give them that URL.” They’re explicitly saying, “Do not give the URL to people who’s not a Mixergy listener. They’re not looking for this to spread around the internet. They are longtime fans of Mixergy who support the program and they want you guys to get that but sorry that I kind of fucked up and said that this should be spread. Here it is toptal.com/mixergy, toptal.com/mixergy.
I thought, “Oh, they spread it, then I’ll increase my results.”
Fred: Yeah, that coupon code ended up somewhere on some website somewhere and fucked them, didn’t it?
Andrew: Yeah. That’s what I was assuming too and I thought, “Well, that’s great. That means I am . . . ” no, it’s not great for them.
Fred: Yeah.
Andrew: Okay. So I see that the first batch of customers came from YC.
Fred: Yeah.
Andrew: You couldn’t rely on that forever. Actually, you relied on it for a little bit. I’m looking here at my notes, first 40 to 50 users came from your personal network.
Fred: Yeah.
Andrew: How did you find beyond the YC? What was your network about that got you to do that?
Fred: You know, honestly, it was referrals for us and it was, you know, QA is the kind of problem that the engineering leaders are thinking about. You know, the individual engineers, the PMs, the people on the ground, they’re like, “Yeah, this sucks and like that’s that.” The engineering leader is more in this mindset of like this is a machine, this is a system that I’m trying to optimize and they recognize very frequently that QA become a bottleneck to improving the whole system. And so what happens is they end up saying like, “Okay, is there a better way to do this?”
So anyway, we sell to the engineering leader and we still do today. We did six years ago. And yeah, we just started getting referrals from customers who were, you know, in this tiny little . . . you know, the CTO of a five-person YC startups would refer us to their friend that they work with the last startup that was now a VP engineering of like a . . .
Andrew: And you personally would ask for this or it was just kind of luck?
Fred: No, it’s just luck, pure luck. Like I said we’re terrible at marketing. Like we did . . . none of this was by design, you know? If you look at our ARR charts before we hired our first salespeople like it’s just like . . . and it actually did go down and up. You know, like it was just incredibly spiky and lumpy because we put really no energy into distribution which for us was right because we had to actually invent shit.
I mean, think about, you’re building an Uber for QA, it’s not, you know, no disrespect to a lot of SaaS companies but a lot of SaaS companies are basically a crud app, right? They’re just, you know, a database with the UI on top. And that’s cool. If they can make tons of money doing that, more power to them. But we actually had to invent shit that was unclear whether we would be able to make it work. So we spent a couple of years really just working you know, not even thinking about selling. And so the head of steam that built up in our customer base was without any deliberate effort from us, which I’m not saying is good. It’s just what happened.
Andrew: Did you raise money at that demo day that you talked about?
Fred: Yeah.
Andrew: You did. And then at some point, well, how much, and from whom? Actually on who’s page was it, it was on somebody’s LinkedIn. I saw the list of people who invested in the business and really . . . yeah, there it is, Alex Lin. I was installing as I was looking for it. Alex is so proud of the company. He’s got like a list of all the backers, Bessemer Venture partners, Rincon Venture Partners, Marc Benioff, Andreessen Horowitz, Storm Ventures. I like how proud he is.
Fred: Amazing, isn’t it?
Andrew: Yeah. Actually, those are . . . anyone of those names is impressive to have them all together.
Fred: No. I was saying, amazing how proud he is. That’s the [inaudible 00:49:56 ]
Andrew: Yeah, both are. So then it went well but then I heard at some point you guys are trying to raise another round and it didn’t go so well. Which round was that?
Fred: I mean, so listen every . . . so from my outside, right, everyone is like “This is the easiest environment to raise money in forever.” Like people that say that have never fucking raised money. Like it’s hard to raise money in the hottest market ever in the world. It’s hard to raise money. And so each of those rounds took us at least four months to do took hundreds and hundreds of meetings, hundreds of no’s, many, many maybes . . .
Andrew: And it’s you doing all of this?
Fred: Oh, yeah. It’s me doing all this, yeah. Five yeses, you know, and so, yeah, I mean each of those rounds was brutally difficult and the thing is is that as entrepreneurs, a founder, especially in the venture-backed world, you’re typically building a business where the idea is that you actually lose money for quite a long time because you are reinvesting so aggressively and you’re growing so far ahead of your revenue curve. You know how it is. And so the reality is you don’t have that many external milestones to really validate what you’re doing. And so, unlike if you have a manager where you’re like, “Am I doing a good job?” And they’d be like, “Yes” or “No.”
As entrepreneur the validation you get is really from those funding milestones and so you’re out there in the market essentially saying, “Am I doing a good job?” And you ask 300 people and 295 say, “Fuck, no, you’re doing a horrible job.” Right? So it’s a brutal process. It’s a brutal process. And, yeah, every round we raised was difficult. We raise 1.5 million on demo day and by on demo day I mean from conversations. We started on demo day that took four months to close. We raised another two and a half million two years later. When we look in our bank account we realized we had too much cash left.
And then we started getting series and then we raised the series A from Bessemer with Mahomi [SP] Byron and then we raised a big series B at the beginning of this year.
Andrew: What did you do to turn things around when you were a couple of months away from losing, from running out of cash?
Fred: I mean, we did nothing except from go and raise money. Like we . . . it’s not that the business was weak. It’s just that we haven’t been looking at our bank balance, right? Like we really, like I can’t overstate this enough, right? Like you have to be amazing at a small number of things to be successful as a founder and never give up. Right? These are the two things.
And, yes, it’s embarrassing that we didn’t look at our bank balance for like two years after we raised money but guess what, when your personal burn rate is 50 grand a year for two people, you look at $1.5 million and you’re like, “I could never spend this in my life,” you know? So that’s where we were coming from. So, anyway, we fucked up so many things but what we got right was we got the timing of the market, the product market fit, and like how to solve this problem, you know?
Andrew: I’m looking at your AngelList profile, I see Emmett Shear is an investor and Garry Tan. Garry Tan I think people know. Emmett Shear, I don’t think enough people recognize his brilliance. I freaking love him.
Fred: Yeah, genius.
Andrew: You’re nodding. What is it about him that helped you that makes your nod so excitedly?
Fred: Oh, dude. I mean so going back to the validation point, right, like honestly I think most and like, you know, it’s going to be a combination of humility and bragging because at this point, I’m 30, I kind of know that I’m quite intelligent, right? And like that’s a really douchey thing to say but it’s important to know your strengths and weakness. I’m hyper-disorganized for example. But anyway, one of the things that I think intelligent people who are very driven struggle with is constantly kind of doubting and second guessing themselves. And so in YC we kind of looked around us, something like there’s Instacart, which was already like just very clearly going to be a success. There’s Coinbase, which we all thought was super dumb and that Brian was like dead weird and we had no idea what it’s going to be [inaudible 00:53:51]
Andrew: It might be the most successful from the whole batch.
Fred: Yeah, probably long term it will be. Yeah. And we saw Boosted Boards, you know, we just so, all of these incredible startups and we’re like, “We’re terrible. Like we’re bottom quartile, if that, of this batch. And honestly, Garry was the first person to ever say to us, with a kind of tone of obviousness, like, “Well, of course, you guys are going to make. Like you guys are great.”
And you never . .. you know, that’s what I’m trying to remember now, now that people . . . like now that I work with people for whom I like, I can say those kinds of things, those throwaway comments. That changes your whole life trajectory, and I know for us we walked away from that meeting where Garry was like, “By the way, you guys are really good. I want to invest in your seed round.” We walked away from that meeting. We were like, “Oh, my god, maybe we’re good.” And Emmet was homies with Garry and Emmett also put in some money and, you know . . .
Andrew: Did they put their own money in, or was this one of those syndicates that AngelList is doing?
Fred: Oh, this was like way . . . this was before AngelList even existed, so, yeah, this was, you know, this is [inaudible 00:54:52]
Andrew: Wow, that’s a real book. Here’s another person who invested that I don’t think it makes sense that he invested, Jason Lemkin. He doesn’t like people like you. Maybe he wasn’t clear about it at that time because Jason doesn’t he like companies which are really good at sales, or is it that he thinks that he can help you be good at sales and that’s why he invested?
Fred: Well, you know, I think the thing with QA is that a lot of people who have found us have had personal pain points with it. Right? And so, you know, Jason’s whole rubric for investing, at least when he invested in us in early 2015, he’s whole rubric for investing was, “I want to believe that the founder CEO is better than I was when I made EchoSign and I want to really, really care about the problem.” And so he had every single startup he’s ever built, has been fucked by QA in some way and for whatever reason he thought that I was better than he was. I wouldn’t agree with that but he felt that, that’s why he invested, so, yeah.
Andrew: So he’s really big. I didn’t even know this, he has a coworking space here in San Francisco. I learned this about a year ago just for entrepreneurs who are in sales.
Fred: Yeah, CoSelling space.
Andrew: Sorry?
Fred: CoSelling space, it’s called.
Andrew: That’s what it’s called?
Fred: CSS, SaaStr CSS, CoSelling space.
Andrew: I had no idea. I went in the space. It’s pretty cool. I think I rent from Regis, so Regis has office in the same building as he does, so it’s kind of interesting to go through it.
Fred: Just down the street from my house, yeah.
Andrew:Oh, you live near there?
Fred: Yeah, Potrero Hill, baby.
Andrew: Yeah. It’s a really good spot because it’s sunny. So here’s the thing. You’ve mentioned SDRs. A lot of companies don’t know about SDRs on the whole sales process. You guys eventually did get good at it. How did you get good at it and what’s the process today that works so well?
Fred: I’ll give you a concrete answer but as the usual I think about this philosophically and basically, there is no problem in business that is like impenetrable. Every problem is a problem that can be solved with the right experimental scientific mindset. How to generate opportunities to close into deals is just one of those problems. And for us we realized, you know, we hired our first salesperson. Our first salesperson was fantastically good and he closed. He became our first VP sales in fact. And he closed all of the leads that we’re just sitting around that I’ve been kind of fumbling around. We got to 500K of annual recurring revenue with just me selling and I’m really not a good salesperson.
Andrew: It would be somebody coming to your website hitting that demo button, right, which is a step forward for someone who doesn’t know how to sell, you did it well. Be a, request a demo, you do the demo and then you close them on the sale and you got to 500,000 in recurring annual sales that way?
Fred: Yeah, exactly. Yeah. And so, you know, it was very clear, at least now it’s very clear, that the reason we got to that is because the product market fit was so strong. Right? In retrospect it felt like sheer pain, you know, three and a half years, I mean not even. Right? It was like two years of selling and we got . . .
Andrew: So it’s two years of you getting on the phone doing demos with people .
Fred: Yeah.
Andrew: Okay. In retrospect, would you have still done it that way, or would you have hired a salesperson faster?
Fred: Oh, hired a salesperson instantly.
Andrew: Instantly, someone who could do the demos. You didn’t learn enough about the product to make the business better through those calls. It was just sheer time.
Fred: Oh, I did. It was just there was like the . . . if you look at our revenue ramp, right, like it’s two and a half years delayed from where it could have been and that’s what it comes down to. I don’t regret it. You need to make these mistakes yourself. You know, I read “The Lean Startup” by Eric Ries before I built like five anti-lean startups, you know? So you have to learn these problems yourself, but, yeah. And anyway, we hired our first sales guy. He closed all of the leads and then he was like “Where are the leads?” And that’s when we discovered SDRs.
Andrew: And so SDRs do what for you guys now?
Fred: So SDRs generate sales. And so basically, if you think about it very simply, you have a lead who is someone who is interested in buying your product and you have a customer who’s someone who has bought your product. Typically, what is known as an AE, you know, account executive, a salesperson, that’s the person who actually closes that leads. They tell them, “All right, you want the product, it’s 30 grand, these are the terms, we’re going to get started like this, let’s do this.” They send over the contract, all of that good stuff.
An SDR is someone how lives kind of above them in the funnel. What the SDR does for us is they do a combination of outbound campaigns. So they will be emailing people, calling people, LinkedIn-ing people, all kinds of crazy stuff.
Andrew: And you give them some parameters but they can go out. In your system, they go out, they find their own people, add them to your database, they own them in your CRM for a bit, and if they get the person to say, “Yes, I want to get a demo,” then they get passed on to a salesperson.
Fred: Exactly right. Yeah. And we’re pretty specialized now and pretty optimized to the point where there’s a set of criteria that each sales qualified opportunity has to hit. If there’s any questions, then the SDR has to get on the phone with them first. And so basically, you end up specializing, you know, typically, right, in the early stage the salesperson goes and finds their own opportunities for themselves. Overtime you specialize with these different roles, right? And so yeah, for us, that’s the role they perform.
Andrew: Okay. I get so many emails from these SDRs and . . .
Fred: Probably us as well, sorry dude.
Andrew: Here’s the most clever one that I got recently. It was someone who said, I forget the names, something like “Betty, my CEO asked me to follow-up with you because she really . . . ”
Fred: Yeah, we do that. Yes.
Andrew: You do that?
Fred: CEO forward play, it works.
Andrew: Right, and then on the bottom it’s like a note from Betty and Betty says, “Hey, I was up last night on Mixergy. I really like this site. We should get them.”
Fred: Yeah. It works dude.
Andrew: It works?
Fred: The conversion rate of that email is like 3X higher than any other campaign. Yeah.
Andrew: So good, but it’s just like what they did was they copied an email from Betty, they put it and fill in the blank for company name and, yeah. Good. How does word get around about this? I guess one person does it. Someone else says, “I got to try it too.”
Fred: Well, they get outbounded, right? They get hit by a Rainforest email that says, “Hey, my CTO, Russ, you know, did this.” And they’re like, well, usually what happens is the nerds get it and they’re like, “Fuck you. This is this disingenuous. This is bullshit,” and then they do it themselves.
Andrew: All right, I get how the business works. Let me ask you about enterprise and then just one question about YC because I want to know your understanding of what worked and what doesn’t. Enterprise, how do you get enterprise customers? So there’s IBM gets some like SDR person who contacts them?
Fred: Yeah.
Andrew: That’s how you got them?
Fred: Yeah. Well, actually, no. With IBM and most of our enterprise customers have either just super randomly found us and just I literally gone through a demo form and we’ve been like, “Wait, is this a typo? Adobe, is trying to buy Rainforest?” Or we’ve had startup customers be acquired into them. With IBM that’s what happened. Yeah.
Andrew: Okay. And you know what, actually, no, the early days your homepage didn’t have a button that said, “Get Demo.” You were really big about start using it now for free.
Fred: Yeah.
Andrew: And then you would call them up after they tried it.
Fred: Yeah. Huge mistake.
Andrew: Why?
Fred: Well, because like with QA and with products where, you know, a big part of the success is the strategy of how you use it. It’s really fucking hard to effect strategic change through a website. And so the reality is is that you want to control the experience because otherwise what happens is, you know, it’s like with Salesforce, amazingly powerful platform. You drop into Salesforce, you can go, “I need a CRM online.” You’re like, “What the fuck is this? How am I supposed to use this?” Right? So it needs to be setup, it needs to be designed, it needs to be designed inappropriate way for your business.
Andrew: Does the salesperson do it or does the salesperson just explain it to them, close it, oh, they do? They do some strategy and then they sign them up and then someone else like a success person gets, okay, gets to take on this sale. All right, I heard you talk to our producer about like, you said, look, there are 85 different people and 85 companies I think in the cohort when you were in Y Combinator. You said, “Look, there are only 10 of them left.” And I heard you have some theories about why. Why are 10 successful? Ten of them are the Boosted Boards and the Instacarts and the others went away.
Fred: Yeah. So I mean, listen, I mean all of this without value judgment, right? And so I don’t want anyone to feel like I’m judging them in anyway. And I think it’s our society that’s judgmental and what I mean by that is that basically entrepreneurs are kind of like, well, the word is lionized but probably it goes like those probably lost in translation. Entrepreneurs are very much hero-worshipped, right? And I think in general we kind of like if an entrepreneur is successful, they’re awesome, if they failed, they’re a loser. And I think the problem with that . . . and that’s society’s view.
Andrew: Yeah.
Fred: [inaudible 01:04:09] believe that at all. I think it’s just that there’s a set of skill sets that usually make you a deeply weird and unhappy person that also correlate with being a good entrepreneur. And my view having seen a YC cohort where 85 companies started, and like I told you, we thought we were, like among the worst. And so we didn’t think we’re . . . and we weren’t smarter, we weren’t . . . we didn’t have better insights. We weren’t like more charismatic or more handsome or better at coding. Like we really didn’t that we were that good in comparison.
And none of those attributes fucking matter. That’s what it comes down to. What I’ve come to believe six years in having this cohort of 85 companies each year slightly shrink, right, by the companies that failed, that got acquired, that ran out of money, that whatever. My strong, strong belief at this point is that the only thing that matters is to not give up. The only thing that matters to being a successful entrepreneur is to never ever give up.
Andrew: We’ll add more nuance to that because there are a lot of people who are going to do the same thing for the rest of their lives. It’s not going to work and they’re just going to continue eking it out. I worry about that frankly for myself too because I’m the “not give up” type person.
Fred: Yeah.
Andrew: But it’s more than just give up, it’s not give up and then what?
Fred: Well, you’re right. Maybe let me reframe it. The only way you can fail is by giving up. You can also never give up and never succeed.
Andrew: Right. So the ones who succeed are not giving up so they’re not failing and doing what? What else do you see? And I’ve heard Paul Graham say the same thing, “If you don’t give up, you’re not going to fail.” And I was surprised to hear him say that and I always wanted to ask him this follow-up question that I’m presenting to you. All right, not failing mean, I mean not giving up means you’re not failing.
Fred: Yeah.
Andrew: But what do you see in the ones that did make it?
Fred: So I think it’s a combination of having that mindset that, well, I think also going one layer deeper and this is kind of answering your question and it was actually PG that said this to me, right? About a year and a half in we had a really bad couple of months and we were totally burnt out and this was the first time that we’d really taken any vacation in the first two years and the first time that we’d really spend any amount of hours just not obsessing over the computer screen and we were flat on revenue.
And I sent . . . it’s customary in the earlier years of being a YC startup that you’ll send an email address that I wouldn’t share that gets all of the updates and multiplexes them to all of the partners. And so we sent our update email and it was basically seven paragraphs of text explaining why we hadn’t hit the objectives that we laid out in the previous update.
Andrew: Okay.
Fred: And PG replied with literally and, of course, it’s always reply all. So you have all the partners see this. PG replied with like, “Good companies don’t make excuses.” And as with most things, PG, there’s like a surface level to understand that and then there’s like a much deeper kind of like Zen kind of paradigm underneath it. And the Zen paradigm is kind of the more important version of not giving up like you say, right? Like, okay, it’s pretty easy to imagine how not giving up because just the fucking meaningless empty phrase. But what PG meant in what he said there by saying, “Bad companies make excuses,” is that all of these excuses are totally valid. Right?
All of like every company finds it almost impossible to raise money. Every company has HR issues that almost sink the company in the early days, has founder disputes, has, you know, get sued for IP infringement, like can’t sell because the competitors are too big and sexy, can’t, you know, buy because they don’t have enough cash like every company has a long, long list of things that are the reasons why this company should be dead. And the successful companies say, “Yeah, fuck all that. We’re going to do it anyway.”
And so I think really, it comes down to this attitude whereby you attack every single problem from like the biggest ones. How do we raise money? How do we come up with an idea? Down to the smallest ones, right? How do we get half of percentage of improvement in our conversion rate on a demo form? You attack every single problem with this idea that there is no legitimate excuse for not doing it.
Andrew: So identify the problem and then say how do we solve it? Just like you said earlier, I noticed your attitude about that at least once in the interview and several times in our conversation today, and that is that marketing is hard but there’s always a solution out there for it, and so you figured it out.
Fred: Yeah.
Andrew: Got it.
Fred: Another way to frame would be take total accountability, right, and have enough belief in yourself and in the people around you that you can solve the problem if you try hard enough.
Andrew: You know what, I kind of feel like even that sound clichéd.
Fred: It does too, yeah.
Andrew: Tell me if this makes sense. It’s take the problem and turn it into a question about how to overcome it, and I notice that in you that old you would have said “We’re sucked at marketing.” The current you is, “We’re sucked at marketing, how do we sell SaaS to other developers?” That kind, I kind of wish that I could be around you for like a year. Forget like you interning at Seedcamp. I would like to intern with you just to see this. Are you like this all the time?
Fred: What do you mean?
Andrew: Like this personality that I’m seeing here, or is it just that I caught you on a good day? I remember Paul Graham did this post about how when he was interviewed by someone at the Wall Street Journal and he was in his specially good place that day and so he was in an especially good interviewee. Is this the way you usually are or did I just happened to get you on a great day?
Fred: Yeah, in theory [inaudible 01:09:45] for the people around me this is my normal energy level. Yeah.
Andrew: All right, for anyone who wants to connect with you, you are here in san Francisco. I urge people find a way to get together with you in person.
Fred: Don’t email me. Don’t ping me.
Andrew: No, nothing. Rainforestqa.com is the website, go check them out. I want to thank you so much for doing this interview. I also want to thank my two sponsors for sponsoring. The first is a company that will host your website right. Go get your website hosted right, hostgator.com/mixergy and the second one is a company that apparently gave us such a good deal that they’d rather that I don’t tell people to go spread it out, but I’ll tell you. It’s toptal.com/mixergy and you’re welcome to use it to get a really great offer from them.
And finally, if you like this interview, please remember you’re getting all these smart speakers in your house, use them to listen to me. Say “Alexa, play Mixergy podcast” or “Okay, Google, play Mixergy podcast,” or “Hey Siri, play Mixergy podcast.” My Siri did not go off. Siri is not that smart. All right, thank you so much for doing this Fred. Bye everyone.
Fred: Bye.
Andrew: Cool, all right, I better run. I actually have a conversation with inDinero, the bookkeeping company.
Fred: Nice.
Andrew: Also Y Combinator.
Fred: Jessica Mah. Yeah. she’s a gangster. Yeah.
Andrew: Yeah, love her.
Fred: Cool. Bye dude.
Andrew: Thanks, bye.
