HOTorNOT interview with James Hong – The Quick & (very) Dirty Transcript
Click here for the best version of this interview.
A reader on Hacker News asked me to post the full transcript of my interview with James Hong, co-founder of HOTorNOT. Here’s the transcript I got using Mechanical Turk, for about $35. It’s ugly and full of mistakes, which is why I didn’t post it before. (Really, you should read this version instead.)
speaker 1: Hey everyone it’s Andrew Warner I’m the founder of Mixergy.com, home of the ambitious upstart, and this is an interview with a guy who bootstrapped a business, no outside funding, built it into over five million dollars a year in profit. It’s my interview with James Hong. James today is an age old investor, and on Mixergy.com I’ll have a list of some of the companies he’s invested in, but in an earlier part of his life James co-founded hotterknot, here’s a screen shot of hotterknot so you can see what the idea is behind the business. Basically anyone can submit their picture and the community votes on that picture. Very easy to copy that business, many people did copy his business. Why was he able to defend his business? How did he succeed when all those others failed? He talked about that. How did he grow his audience? He talked about that too. What else do I have here in my notes that we talked about? We talked about, well he charged his users. You know how hard it is to get people online to take their credit cards out, and pay for anything. He got them to do it. He got them to do it over and over again. I asked him how, and I also asked him how he figured out what to charge them. If you want to sell anything.
Speaker 1: …online. You‚Äôve got to listen to that section. What else did we talk about? We talked about a concept of user-selected content and how we could help you and get your users to be more active online‚Äîuser-selected content versus user-generated content, which is what most people think.
We talked about what it was like for him to earn the first million dollars. Listen to that. We talked about how the bad economy might have helped his business.
We talked about how he kept his costs down. Listen to how he negotiated with Rackspace to eliminate his costs and how Rackspace is still benefiting from that. So he didn’t take advantage of them. He didn’t ask for something that he didn’t deserve. He asked for something that you can ask for today, if you know to ask for it.
All that, and so much more. I’ve got pages of notes here from my interview, but I’m going to let him give you the story directly himself.
Oh, two more things. First, number one, we talk about all these books in the interview. I pulled them off the shelf while we talked. So when the interview’s over, I’m going to show them to you in case you want to go out to your bookstore and pick them up.
Second thing is, we did this by Skype and you know that Skype can be undependable, and…
Speaker 1: …at times our conversation broke off. Afterwards, I edited everything back together. If there is still any issues here, anything that didn‚Äôt get edited right, let me know and I‚Äôll fix it, and I‚Äôll have it back up within a day or two.
All right. There’s a lot of introduction. Here’s my interview, and as you can see, I’m very excited about this interview. I’ve been a big fan of James for a long time. Here’s my interview with James Hong.
For anyone who out there for some reason doesn’t know what Hot Or Not is, can you tell them what Hot Or Not is?
Speaker 2: Yeah, sure. Hot Or Not is a website where people can submit their picture for other people to rate on a scale of one to ten. So that was the basic premise behind the website. What we did is, when we launched that, it took off very quickly. Within the first half day, we had about 40,000 people come to the site, which you know, today in the days of Twitter and everything, is not as…you know, things can be much faster now. But back then, that was pretty fast. And by the end of the week, we were doing about two million pages a day. So we started off with that but, you know, with two million pages a day…
Speaker 1: In those days that was really expensive, so what we had to do is we had to figure out a revenue model. So, the natural progression in our minds was “Hey, you know, if you think this person’s hot, maybe you want to date them.” So the next thing that we built was a system where people could meet each other, effectively a dating site even though… although we didn’t call it a dating site from a positioning standpoint because we were hitting a much younger demographic that didn’t want to pay for dating, but they would pay to just meet people. So, we started a meeting site, and we basically turned that into a cash cow that we were running for about five years. But for the first three or four years it was just my partner and I, my co-founder and I working out the living room, and then around year three or four we said “Hey, let’s hire some people because what happens if I die, what happens if you die; we need redundancy.” Frankly, we were tired of having to run the site 24/7 all the time, so we finally hired some people, and the site was running on auto pilot for a long
Speaker 1: And then all the social networks came in and started really having an impact. Our business definitely went from growing organically to… it was still growing but it started flattening out. So we could see where the curve was going, where things were headed. I think we always realized that if you take a product and just leave it the same, over time it will deteriorate, it will get stale. We always wondered what we would have to do at that point. When that started happening we said, “Hey, we’re going to have to make changes.” For instance, the major change that happened between 2000 and 2006 or so was that the cost of starting and running a website dropped dramatically; when we started bandwith cost a thousand dollars per megabit per second. You were around during those days. So it was expensive, and servers were expensive as well, so…
Speaker 1: In 2006, you have, you know, managed hosts out there that were a lot cheaper. Bandwidth was you know orders of magnitude cheaper, two orders of magnitude cheaper. So, what it meant is that these same services we had to charge for to keep the service alive, other people could start and run for free. Because AdSense was bringing in revenue for them. And it was enough to cover their costs. Right? And um… you know, it’s like the same thing that’s happening with Match.com versus Plenty of Fish, for instance. Right? Like Match.com might be protecting, you know, hundreds of millions of dollars in revenue. But Marcus is fine with ten million. Right? And, he’ll undercut you because his cost structure is so much lower, you know, and um… he’s not protecting anything. So, we realized that would happen with Hot or Not as well. So we said, okay, let’s go in and let’s make the site free, let’s make all…
Speaker 2: But before we get into that. That’s the part that I really want to focus on in this interview.
Speaker 1: Okay.
Speaker 2: But there’s something that you said earlier. The word… You used the phrase “cash cow”.
Speaker 1: Yeah.
Speaker 2: People outside of business. People who’ve never taken a business course see “cash cow” as a successful business. But..
speaker 1 – In business terminology, cash cow…
speaker 2 – Ok yeah, I’m not using the BCG, star dog, cash cow…
speaker 1 – You kind of are, right?
speaker 2 – Uh..
speaker 1 – Or you’re not?
speaker 2 – Well you know, like, uh..
speaker 1 – What does cash cow mean for people who’ve taken some business classes?
speaker 2 – Well obviously, for business classes, you know, cash cow is something that generates cash that you use as investments to fund your next thing. Right? So, basically.. but you basically give up on the product. You’re basically just milking it. That’s what the cash cow is, something you can milk. It was a cash cow in the sense that we were milking it, but normally that would go to fund new activity and to grow. Where as we had made a decision early on not to take venture capital. We bootstrapped the whole thing. And so what we said was, “Hey, you know what, like.. we can try to make this thing worth a billion dollars somehow, or… and if it fails, we’ll end up with zero. Or, we can just pocket the money. And then we’ll..”
Speaker 1: We never have to work again a day in our lives, and we can, from a, you know, beyond hot or not standpoint but from a personal entrepreneur standpoint you know we can do this the rest of our lives. Right, so it’s you know like they say you know it’s the first, it’s really the first, it’s the fuck you money that counts. Excuse me maybe I…. euphemisms alright I can say that right? It’s that money that counts the most and so that what we really want to achieve first and foremost and so we uh you know for the first, so we didn’t raise money, we ran it as a cash cow meaning we were milking it and we were pocketing the money.
Speaker 2: And you were pocketing millions of dollar, right?
Speaker 1: Yeah
Speaker 2: Rumor was that you guys were making around 3 to 5 million, any truth to that?
Speaker 2: Uh, yeah, we were doing so, Hunnernut got up to doing about 7 million in revenue with about and we were in the highest run rate for profit was somewhere around 5 1/2 to 6 (million) actually. The rumors were actually low balling it, ha-ha.
Speaker 1: And the money went to the pockets of you and Jim Young, your co-founder, you weren’t reinvesting it? You weren’t trying new aspects of the business?
Speaker 2: Well we had some employees, but we really weren’t utilizing the money to grow the company that much.
Speaker 1: OK, and…
Speaker 2: We never had more than–the steady state was we had about 4-5 employees.
Speaker 1: And so, you took some time away, because the business was able to run itself, and then something brought you back. What was it that brought you back?
Speaker 2: I’ll be honest with you, at this point hotornot had been running for six years or so and when we brought in employees in year four it was primarily because we were tired of running hotornot. For the first four years, it was just the two of us, which makes for a very profitable model, but it also means we were thinking about hotornot all the time. If a server went down, we had to deal with it. If anything happened, it’s all on us, and frankly, it got a little tiring…
[end audio]
Speaker 1: That’s why we originally brought in the employees. And you know, so when in 2006 or so when all the social networks started coming in, we said hey like this model is not gonna survive. We have to come back and deal with it in some way, shape, or form. And honestly, we didn’t know what that would mean, but we had to do something. And so we came back and we said hey, okay, we’re gonna make big changes, because frankly, at that point, the prospect of working on Hot or Not for another five years.. I mean, it’s either we had to commit to it or we had to get out. You know, so we did. I came back in and I said okay, look, I’ll work on this again and see what the landscape looks like and I’ll try to make some serious changes. We basically got out of cash cow mode at that point and said we have to do something with this thing, because as a cash cow, you know, the milk was.. It was still making a lot…
speaker 1: Money but the trend was not looking good, you know. Like five years down the road, where would it be and so we said, “Let’s do something”
speaker 2: OK, and that something was a drastic change. You went from a subscription model where you were charging people to talk to each other and you were actually getting money from them to doing what?
speaker 1: Right, so what we said was like, look, you know, we have this large user base, we can turn it – we went free, right? We said OK, like, screw the revenue model, let’s go free. And um, at that point, we would have to figure out what to do next, you know, um, it’s certainly because we had such a low cost structure we realized that, we could compete, you know like, match can’t go free because they have shareholders that expect the dividends, you know, but we could go free because we had no shareholders. So, uh, the idea was, let’s go free, let’s try to grow the site more, and then let’s try to figure out other revenue models, perhaps it’s advertising based more because that’s how all the competitors were making money and so we did that, um, and that lasted about half a year and that’s when I…
Speaker 1: We kind of made the decision of, “Hey you know what, things were going fairly well with the transition to free” on the other hand we realized that are passion was just no longer in the business. That’s actually why we got out at year four and started hiring employees, is after a while we were tired of thinking about Hotornot. My co-founder and I, I don’t know if you can tell from this interview, we’re both very ADD. We’re interested in the new problem, not the old problems. So, about a half year in, there was just a sort of soul searching. “Hey you know what, I’m just not that into it, like I was last time around.” and so we said, “Fine, and if that’s the case, and if we’re going into a business, an ad business where we don’t have that much experience, or interest.” Because we were more interested in, you know. Why don’t we just sell it to someone who can take it to that level. Then we can focus on something else, and that’s basically what happened.
Speaker 2: Is it possible that what, that the reason…
speaker 1: something that you didn’t have that enthusiasm which you had in the beginning was that going free and building a revenue base model, didn’t become the big hit. It had a lot of, a lot of headaches involved with it, and so now you’re in a business that you were in before, with headaches, and no money.
speaker 2: Umm, I mean that’s possible. It’s hard, it’s hard, for me to really… I haven’t really reflected on what, I mean, I knew what I was feeling, but I haven’t really reflected deeply on why I was feeling that way. But, you know, I think a lot of it was just, there were a few, there were a few reasons that I can think of, umm. It was so much that, you know, the revenue was dropping, because we expected that, umm, so that was not a surprise. And so, it wasn’t, it didn’t really effect my mindset, umm. I think one was, was actually just being tired of hotterknot. I mean umm, like I said, it’s like being given a, you know like a kid you give him a puzzle, he’ll do it 20 million times.
Speaker 1: But when you become an adult, you get kind of tired of doing that puzzle. You want something new. I think that was probably the biggest factor.
Speaker 2: So let‚Äôs go back. Maybe, maybe as we talk…..
Speaker 1: Oh, one other point. One other point. Was that um, we looked at the upside of how big we thought we could grow Hot Or Not under that new model. Versus say for instance, are friends who started YouTube. Or any other, any other….you know, I think, I think looking back in 2000 running Hot Or Not was definitely the right size, right opportunity for us, but at this point we had saved enough cash that we really wanted to work on something bigger. And the realization was that this was not our opportunity. Right? And also, the things that were going to have to happen to the company moving forward were not things that we were good at or that interested in working on. Which was more of the ad based model. You know we‚Äôre just not….we weren‚Äôt ad guys, we were product guys. And so we were more interested in how do you make…..
—–end transcript 14.mp3 runtime: 00:59 ——-
Speaker 1: for the user, from the user, and we just realized it wasn’t for us. The company outgrew us, in terms of what it needed.
Speaker 2: You mentioned your friends at YouTube. Steve Chen and Mike Solomon worked for you at one point, right?
Speaker 1: They never worked for us, we… Back in around 2003/2004, right after Friendster came out, we wanted to create a social network around media sharing, and we were friends with those guys because they were at PayPal which was just right down the street, and we were one of PayPal’s largest users for their subscription service. So we knew these guys. We hung out with them in the, we saw them in the cafe. Basically everyone was working out of the cafe. You know we came up with the idea of media sharing around a social network and we started the site. One of the problems with, we brought in, early on in Hunternot, we brought in a chairman to help advise us. He was a really smart guy, but he also came from a different time frame.
Person 1:
“Where, people couldn’t do things on their own, they needed the company. Like I said, its so cheap now to start your own star up anyone can do it. Before, in his mindset that wasn’t the case. So, what we wanted to do was we wanted Steve and Solomon to start this social networking with media sharing site, but we wanted to give them 51% of the company. We wanted them to take the majority of the company whereas, there were people on our board who did not feel the same way, who wanted to treat them like employees and give them 2%, and at that point, you know, there was just no match. So it didn’t happen.”
Person 2:
“I see, and because you watched them go off and do something else and you missed out on an opportunity to work with them, that’s one of the reasons why you said ‘we’ve got to come in, we’ve got to give our employees shares, and we’ve got to try to make this hot or not. We’ve got to make this go bigger.'”
Person 1:
“Yeah, I mean, I think for us personally, we wanted a bigger opportunity, for the few things, one is that, you know, hot or not in our minds with stag-meeting…”
Speaker 1: In terms of the interest level, and also the fact that you see a lot of our friends with their startups. You know, like [Hutternut] went through the cycle of growing and then peaking, and it was slowly starting to decline, but it was fairly flat, actually, so it wasn’t like a disaster scenario or anything like that. But, we’re adrenalin junkies and we have no attention span, we just want to work on whatever’s cool at the time or whatever we can make cool, and it’s kind of like, “ do you want to”… There’s some people who are good at coming into companies and turning them around, and they tend to be very operations focused and very patient and things like that. And, we weren’t like that at all, we just want to be on whatever is fast and awesome right now. And in some ways it’s almost like, it’s easier to start something new… There are obviously benefits to taking something that already has scale and trying to make it bigger, but you deal with a lot more
Speaker 1: They campaigned. Then, um, working on something with a clean slate and so I think that’s probably a big reason why Jim and I both didn’t have our heart in really continuing to work on Hot or Not.
Speaker 2: The founder.. A lot of people tried to copy you guys.
Speaker 1: Hmm.
Speaker 2: The founder of Facebook before he launched Facebook created a Hot or Not competitor. The founder of MySpace, I don’t know if you know it, tried to create
Speaker 1: Yeah.
Speaker 2: You do know right?
Speaker 1: Oh yeah.
Speaker 2: Brad ___?___ tried to buy you guys and then he tried to create his own version.
Speaker 1: He never tried to buy us. But he.. if you look at the early version of MySpace. It looks like they even stole front-end UI from LiveJournal, Hot or Not, and uh ___?___. So but you know, that’s cool. We’re all, everyone in that community, there weren’t that many people around in those days. So everyone was friends. So, and YouTube actually also started off as Hot or Not with video. If you look at Archive.org, their first screen shot looks like a dating site. But then they realized the opportunity was bigger if we just go to video play. So..
Speaker 2: So why didn’t all those guys succeed?
Speaker 1: What were they doing wrong? Did you sit back, watch them and say, these guys are missing this one piece over here or this element there is what’s separating them from being like us?
Speaker 2: Um, you know, I think…..I mean obviously all of those guys did succeed but doing something else. Right? So you are saying how are we, how did we make Hot Or Not defensive?
Speaker 1: Right, yes. Thank you.
Speaker 2: Um, yeah, so, so, what we realized when we first started Hot Or Not was that yeah, hey, you know what, like we just launched a site in like a week, and it was like two days of coding, so, if we could do that, so can anyone else. And, so they did. I mean, there were hundreds of rip-offs within, ah, you know, a couple weeks. So, what I realized was that….what we realized is that most competitors would either be one of two classes. It would either be someone who already had distribution. Someone like an AOL, someone like a Yahoo or something like that, right? And obviously if they came in that could hurt us a lot. The other type of person was gonna be the guy like us, or the people like us who basically had no distribution…….
—-end of transcript 19.mp3 runtime: 00:59————-
Speaker 1: …and was going to rely on the exact same kind of growth methods as we would.
And at the time, we primarily grew through word of mouth and press. And so what I did, what we did was, basically all I did for the first six months was I got as many articles as I could written about hotornot. Because what I realized was if someone wrote about us, they wouldn’t write about–they don’t write the same story twice. They’re not going to write about copycat number two if number one has already been written.
So my goal was basically to lock out the press from any other potential competitor and get our branding out there. And no one wants to write about number two. And so that’s how we dealt with the smaller competitor and that seemed to work. With regard to the larger competitor, what we realized was “Hey these are all public companies. At the time, hotornot was considered really edgy. It’s not as edgy now, but back then, it was almost like “Woah, is this porn?” and what we…
[end audio]
speaker1: …felt was that, you know what? None of these guys are going to follow us, because it’s too edgy for them. They would never get the lawyers in there, or their CFO was just not going to like it, right? And that was true, too, for about two years, until AOL did copy it with a product called Rate-a-Buddy, through AIM. But by that time…I talked to the guy who actually ran it, and it’s basically…by the time they started it, Hotornot was such a common concept, that we had desensitized the world to it, so it was okay for them to do. So that’s how we defended initially, and over the course of the time it was just a brand, right? Everyone knew what Hotornot was, so…I mean, yeah, you can have the functionality copied, but there was like one place where most people went. There was a network effect. We could get you votes faster than any other site, and there’s some sort of instant gratification to that.
speaker2: Sorry, making notes, and I want to come back to something you said earlier, that you locked out the…
Speaker 1: Rotation for reporters. Most people, most startups can’t even get one press mention, yet you’re telling me that you got so many that you, not had a monopoly on it, but you were able to lock others out. How did you do it?
Speaker 2: Frankly, I mean, I won’t lie. We were lucky. That was number one. We hit the world at a time when nothing else was going on. This was right before the Gore/Bush election, which did actually steal some thunder from us, when it happened, but we luckily got out ahead of that. It was a time when the economy was down, and everyone was kind of like depressed and you know, people were down on the dotcom thing. I think we had a good story. We paid a lot of attention to how we were positioning ourselves. None of it was a lie, everything was true, but we definitely exagerated certain aspects about our story that we felt the press would like, and people would want to hear about. For instance,
Speaker 1: Like what?
Speaker 2: Well, you know, so…
Speaker 1: The time for that company was big because you know there was this backlash against the whole dotcom, venture capital thing. We were two dorky engineers working out of our house in our pajamas doing great. Whereas all these other companies who were so serious, were destroyed, were decimated in 2000. So we were a very light hearted, fun, story, and it was just like, at a time when every story coming out was kind of depressing, it was a nice story. The press really reacted to that I think. On top of that the whole concept was edgy. At the time we were pushing boundaries, you know I think we were the first website that
I can think of, if I’m wrong please correct me, so I never say this again. I don’t need to be right about this, but I think we were the first website where people submitted photos intentionally for strangers to…
Speaker 1: Get the reporters to even hear you out, were you quote “calling in?”
Speaker 2: No, you know it’s funny from the very beginning because it’s so edgy, we had some reporters coming to us. You know, one thing that was valuable was that we didn’t know any reporters ourselves. But we had friends who were friends with reporters, and they were actually the ones who mentioned this story to the reporters. that’s basically how we got most of our press was either reporters reading other reporters and wanting to write the same stories for their market, or it was from friends telling their reporter friends about us. A lot of it has to do with what is the, when you think about what is the motivation for a journalist is, the thing that they’re all really dieing for is the really deep investigative story or, ya know, they all want the scoop. They want to enlighten, they want to do the work that no one else does, everyone and so, one of of those ways that they …
Speaker One:…do it is by having their ears on the ground. Having friends tell them things like, “You should really think about this. You should really think about that”.
And that is how we got our biggest press. So, we got a bunch of press early on. The day we launched salon.com e-mailed us, saying, “Can we write a story?”. That was really the story that got us to super explode because a lot of other writers read salon.com.
One interesting thing that we did for the press is we really wanted the New York Times. PR can flow in one of two ways: one, it can start as a groundswell, getting written about in all the smaller outlets. Then the reporters at the high end outlets, like the New York Times, the Washington Journal, and USA Today. Those guys will pay attention to those small papers, and say, “Hey, I can take this to a larger audience”. That’s one way, but that requires a lot of effort and time.
The other way is to flip that, and say, “Hey…”
Speaker 1: All the writers, the small papers also read The New York Times, and so, and that’s a much faster way, so what we actually did, we actually turned interviews in the U.S. down until the New York Times called, and that took about two weeks. We had actually, we had friends who knew writers at The New York Times, and there was definitely a little “Hey, can you mention us?” or you know, like, it wasn’t so explicit but we were talking to our friends about our success and we’d say “Hey, do you know anyone at The New York Times?” and go, “Hey, you know, like, we think we’d be really interesting for them.” And probably there might, you know [Matt Rictal] the writer on the other side, you know, he heard about it, he read about it, you know, and he probably got multiple inputs about the site, and that’s usually when a reporter will say “Hey, there’s probably something here” and, that was probably the only interesting thing we did, is we saved
Speaker 1: And we also saved a lot of data about us, to give them as an exclusive. So even though we were doing press in Europe, we kept some things secret. We kept, the main thing was we kept our identities secret. You know, this was not as thought out early on, but we didn’t put our names on the for, you know, until the New York Times article came out because it was edgy at the time and we didn’t want to basically be seen as like scum bags or something like that. You know, like, would people be mad at this issue? Would feminists have a problem with it? Which they actually did not, actually, oddly. Especially when we told them that more men were submitting their pictures than women. But we kept our identities secret and that was really one of the things that I think the New York Times like, was being able to break something. You know, and so we saved stuff for them, and that made, I think that really…
This is a random clip that starts in the middle of a interview.
Speaker 1 is talking about some computer website where people put pictures of themselves up.
Speaker 2 is asking questions about the site and how they collected money for the site.
Speaker 1: And look I’m still doing it. Nine years later I’m plugging rack [?] space. When we made the decision to charge, the first thing we did was we launched the product as free because we didn’t want to charge. We felt that we had to charge for a product that actually added value to users, so we took a very different approach to monetizing than I think a lot of people at the time. We basically felt that, “you know what, if people don’t want to pay for the service and continue to pay for the service than we didn’t deserve to survive.” I’m kind of drifting. Let me get back to your question. So when we started thinking about charging, the first thing we said was, “well gee is this something worth buying?” That’s a mistake that a lot of people make. So many people are so….
Some companies are so in love with their product that they delude themselves into thinking that other people would actually pull out their wallet and pay for it, right, but we kind of felt like, look the concept of meeting a girl and dating her and perhaps more or whatever, was probably worth some level of money, and the dating sites had already proven that. So, to a large degree our model was already proven with some of the other paid dating sites. We were just taking the same product, repackaging it for a different user, and giving it to them. The 25 and under demographic is not really paying on match.com, they weren’t paying anywhere. So the question is, was this compelling enough to get people to pay? And the thought was yes, if they have a potential to date or hookup, they’ll pay, right. So the question was how much? My business school that I went to would probably not be happy about this because we didn’t do any testing at all in the beginning, what we did was we said look…
Speaker 1: The whole service basically works like a bar. Like, you go in, you look at the girls, you say who you’re interested in, that’s the same thing as trying to make eye contact or smiling with a girl. If she clicks yes back to you, that she wants to meet you, that’s kind of like her smiling back, and at the end of the day, you go up to her, and someone’s got to buy drinks. So, when we created the product, we used the bar model, and the product ended up mimicking what we thought happened in bars. So we said, “Well, why don’t we mimick what actually happens in bars with the payment, as well?”. So, we basically said, “Hey, it should be six dollars, because it was still low enough that we felt it could be an impluse buy”, and frankly, it was what we figured was the cost of two beers in a bar in the midwest. And that is actually how we came up with our pricing, and we figured, looking back on it, it’s kind of like, well, we were not inventing anything, so why would we try to change anything…
(end of file)
Speaker 1: including the pricing of
Speaker 2: I see, all right, and the first thing that you were charging for was just the ability to talk to somebody, right?
Speaker 1: Yes, so, in the beginning it was, if you clicked yes to a girl, and she said “Oh, yeah, I’m interested in her” and then she clicked “yes” back, then you would become what we called a “double match,” you would have a list of all the people that you both said you liked each other, but to write each other at the end of the day, one of you had to be a paid member. And it was usually the guy, just like it’s usually the guy who pays for drinks, at least in my role, but
Speaker 2: And that’s the way it was Version I?
Speaker 1: Yeah, that’s how it was Version I, so we…that was up around four to five months after we launched the site.
Speaker 2: Okay.
Speaker 1: And then from that point on, we made changes here and there, we added tagging very early on, but for the most part we kept the product exactly the same. There was a very strong aversion to doing anything too risky because it
Speaker 1: … was bringing in, you know, a good amount of money and we felt that the utility of the money that we were making was much greater than the potential for more. Right? We would rather it keep going than take the risk of making more but also, potentially making nothing. And, uh, that was what kind of drove a lot of our decisions.
Speaker 2: Okay. And then once the revenue was there, what did you do to grow it? Once you saw that people accepted it…
Speaker 1: Uh huh.
Speaker 2: And that you saw that you started to bring in revenue directly from sales to your users. What’d you do to grow it?
Speaker 1: Right. You know, the only real thing, so we had a good engine at that point. Right? People came in because of the rating engine and that’s what got people in. Some percentage of those people would create an account, would submit their picture and get, you know, go from voyeur to participant. Once we had those people in there, we would try to convert them to become, from being a rating participant to being a dating participant. Which was not hard, because the demographic of the people submitting was generally twenty-five and under
Speaker 2: So, these people just kind of got roped. Once they had gone in to the rating system we knew, very well, what the metrics were in terms of what likelihood is someone going to end up paying us, right? So that part of it; so we did a lot of little things to try to and optimize the back-end to increase those conversions. Primarily from trying to make the system more efficient for the user. Like, how does someone get more matches, for instance? How do they see more people that they think that they are going to like?
Speaker 1: Right.
Speaker 2: And actually, the biggest one on that is speed. If your site can be fast it makes a big difference in the amount of usage, and the more clicks, the more usage they had, the more girls or guys they saw, the more likely they were going to hit someone that they would match with and potentially pay for, right? So, Lynn [?] was working on the back-end, Jim worked really hard to keep the site as fast as possible.
The other thing was, like I said, if I could get them in to the rating end of things, then…
[cuts off]
Speaker 1: We knew that we would make money, so a lot of it was just keeping in the public eye, doing press work, you know, doing little gimmicky things around Hot or Not that would get attention. People go, “Oh yeah, I remember Hot or Not. I haven’t been there in a while,” you know. They’ll go back to Hot or Not, they’ll find a link of some really hot girl or some really funny picture, they’ll pass it to their friends, and then we would continue growing.
Speaker 2: We’re talking about the funnel now, the sales funnel.
Speaker 1: Yes.
Speaker 2: Get more people in the top of the funnel, you’re gonna end up with more customers at the bottom of the funnel paying you money.
Speaker 1: Yes, that’s exactly right. And so I was kind of like the front end, I was the front of the funnel, working on the PR, trying to get more interest, try to revive Hot or Not from time to time. Jim was working on making the site fast and getting the conversions to increase. You know, so in the beginning I think we were converting… If someone came in as a free dating user, we converted about 8% of them to be paid, in the beginning. By the end…
Man 1: We were converting about 18%, and a lot of that was just through optimizations of the flow. Like all the tactics that people have talked about in previous interviews on your site, we do a lot of that same stuff, a lot of attention to metrics on the conversion side. Then on the front side, it was just about getting attention.
Man 2: I’d love to hear more about how you increased those conversions. To go from 8 to 18 is tremendous. You’re saying speed is one thing that you did.
Man 1: Speed was pretty important.
Man 2: Removing steps was another. So now, whenever I went on the site, on top of women’s pictures I could see the “click here to meet me” button. Right?
Man 1: Right.
Man 2: What else? What about…
Man 1: One interesting thing that we did is we actually added a step that increased the conversions. What this was, was in the very beginning of the site, people were sending messages to each other. What we did is we added notes, which were basically pre-canned messages because what we realized [end]
Speaker 1: was like “Hey this girl says she’s interested in you.” But if she can, in any way, create content that pings you, it’s going to even have a greater effect. So, we actually added a step where people would often send notes to each other, just like ad libs, just fill in the blanks. Like “Hi..” then we had like 5 choices of things to say in that paragraph. Then the next paragraph had the same thing, and that increased conversions quite a bit, because what it really did was it made it easier for people to communicate with each other and get the juices flowing.
I know what the equivalent would be in today’s world of products, but it was kind of like free trial, it was like ‘communication light’ with that girl, so it was like, in a way, a free trial for communicating with this person and that really helped the conversions.
Speaker 2: And that’s a big issue with dating sites. That you don’t …
Speaker 1: I don’t know what to say to somebody who you’re trying to meet. It’s a complete stranger. You’ve got to come up with something interesting to get their attention, and it’s hard to do it on the spot with someone that you’ve never met, and you guys made it simpler.
Speaker 2: Right, so making it easier for users to interact on our site was a big deal. That was one example of things that we did; flowers was another way. The reason that that’s different and I think this hasn’t really been made a big deal of, but one of the companies I’m involved with, Slide, does this quite a bit. We thought about this quite a bit. When huggernot[?] came out and YouTube came out, MySpace came out, everything was about user-generated content, right? Everything is like the user has to create something and then they upload it, but the notion of user-selected content has really never been talked about, but you’re going to get more usage because it’s easier. It’s easier to create content. Just like blogs increased the number of homepages there were.
Person 1:
“You had to learn HTML a lot fewer people did it then when blogger came out, right?
Person 2:
“What is the distinction between ‘User-generated content’ and ‘User-selected content? What’s ‘User-selected content’?
Person 1:
“Well, in the case of the ad-lib, they didn’t have to synthesize what they wanted to write, all they had to do was choose. And the barrier between the conversion of getting people to act when their faced with either selecting content or creating from scratch is pretty large. You know, and, for instance, like with Slide, one of their big products was making slide show presentations, you know, they had this thing where you just picked your pictures and then they make it look nice, right? How many people where creating videos or presentations of their pictures before hand? You know, it only happened at Weddings, basically, right? You had Power Point presentation Weddings, where people had all the pictures, but it was a lot of effort, right? So basically just dropping the bar…”
And then all the social networks came in and started really having an impact. Our business definitely went from growing organically to… it was still growing but it started flattening out. So we could see where the curve was going, where things were headed. I think we always realized that if you take a product and just leave it the same, over time it will deteriorate, it will get stale. We always wondered what we would have to do at that point. When that started happening we said, “Hey, we’re going to have to make changes.” For instance, the major change that happened between 2000 and 2006 or so was that the cost of starting and running a website dropped dramatically; when we started bandwith cost a thousand dollars per megabit per second. You were around during those days. So it was expensive, and servers were expensive as well, so…
Speaker 1: I see.
Speaker 2: Increases the interation between users, and, like I said, the more easy it is to do, the more it’s going to happen.
Speaker 1: Was there–this is a question coming from O. Deno about mass marketing–and what I guess we are trying to find out is: “Was there a reason for your users to tell their friends about hotornot and to get their friends to come back on hotornot?
Speaker 2: Yes. For the people who are using the dating site, there is absolutely a reason. It was because they wanted to brag to their friends–If you’re all of a sudden meeting all these girls, and some of them are hot, you’re going to show your friends their profiles, basically. That’s basically how a lot of the growth on the dating site happened. It was through word of mouth and people saying “Hey I’m actually using this”. You know, look, guys brag. And we were on a dating site that was based around finding your perfect match, where if …
Speaker 1: the site was successful, you were done and you would leave. We were about dating, and meeting people, so if we were successful, you’re just going to keep meeting more people, because especially because this demographic is not necessarily looking to get married. So, in that sense if we were successful you were going to meet more people, and you were going to stay longer, and you’re probably going to tell your friends at that point.
Speaker 2: But, going back to that mass marketing part, if I understood you right, what you’re saying is because my likelihood of getting a match, and getting somebody to even respond to me increases if my rating increases, I have to go and tell my friends to come Hot or Not, and increase my rating, and vote me up, and when they do that I then get more dates
Speaker 1: On the rating side, yes, so on the rating side we grew a lot because people would submit their picture, or they would submit a picture of their friend and it would get passed around like crazy, for whatever, because people wanted to get drive distribution to the picture, it’s…If you posted your picture’s friend, oh, I’m sorry, if you
Speaker 1: Posted a picture of your friend, of course your going to send it out to everyone you know because that’s the joke. If no one sees it, it’s not funny. You’re giving your buddy a hard time, by posting it one there, and making sure that everyone sees it. And yeah, like you said, if you posted your own picture, well, yeah, you’re going to get your friends to vote for you. The dirty little secret is that those votes wouldn’t count. Because the only way to get to your picture was through a link that identified which picture to go to, and we actually did not count those votes. Because it would invalidate the system, you would have, basically the votes would be rigged at that point. We felt that maintaining the integrity of the voting system was important. Yeah, little things like that, and putting the link, like now you have share links, like, add to your Facebook, but back then we added the url of the picture underneath the picture to say, “Hey, send this to your friends.” Doing little things like that to encourage people to pass their picture around was definitely one of the…
Transcription
Speaker 1: Things that we did early on that helped.
Speaker 2: Alright, let’s take some questions from people on Twitter who are watching us live and watch me butcher some of their names. The first one is [?] is saying that her Pandora station has just been replaced with James at the moment, she’s watching you instead of listening to music while she works.
Speaker 1: Awesome, thank you.
Speaker 2: Paul Magee is saying; What was your, oh, he’s asking me, what was my highest Hot or Not rating. It was, I think, eight and then as soon as I hit eight point one, or something, I just quickly took myself out so that I can have that high rating before anyone destroyed it.
Speaker 1: [laugh]
Speaker 2: Tom Moore is asking; James, do you wish that you had attacked social networks earlier? The Hot or Not application on Facebook is way behind, are you [noise],
Speaker 1: Do you mean, do I wish I would have started building our own social network earlier, or do you mean, do we wish that we had done more on Facebook?
Speaker 2: You know what? I think he‚Äôs saying both and so I‚Äôm going to focus this on; Do you wish that you had created a social network …
Speaker 1: here, and I do remember that you did start moving in that direction
Speaker 2: The thing… Separately from Hot or Not, we did start that site [yaher] that Steve and Solomon from Utube were going to help us working on, we did start it. In retrospect, if we had just kept going with that, maybe it would have been a lot bigger than what Hot or Not ended up being for us, but at the time… This is a big lesson for us, we did not have the capability, because we did not hire up, we did not hire a ton of people, we did not have the capability to work on multiple things at the same time. Every time something with Hot or Not came up, all resources that were on the social network just got, like “drop it, let’s protect the cash cow” was our number one priority, and do I regret it?
Speaker1: I don’t regret it. It was a decision we made at the time. Maybe it would’ve been bigger and made us more money. But then again, at the same time, maybe we would have dropped the ball on Hunternot, and not made as much on Hunternot,and
I would be in a different position now, than I would’ve been. So, I don’t really beleive in..I think regret is just a bad idea. Would things have turned out differently, maybe, yeah, probably would have turned out differently. But in which direction I can’t say.
Speaker 2: James when you came back on, the business was doing quite well, you hired people, they were running it for you. You just decided, “okay, now it’s time for me to come back into the business, after having them all run it. You came back in and from what I remember, one of the things you added was more social networking features, into Hunternot.
Speaker 1: Yeah, that’s true.
Speaker 2: You gave people tremendous control over their profiles. I think we even allowed them to add I-Frames into their profiles.
Speaker 1: Yeah, we did the whole MySpace profile type of stuff.
Speaker 2: What happened with that? How did that happen?
Speaker 1: Well, a few things happened. First of all, this…
Speaker 1:scammers really so, so the problem with um user generated content when we were a subscription model was that we could not moderate all the content to make sure that people didn’t get around the system right so thats one thing to note is that like if you wonder why if you do a paid site where your paying to access to people you cant do you cant let people do free u.g.c,because you have to moderate every, every piece of content to make sure they’re not sneaking their email address in um so when we went free we could finally let people do the myspace profiles an an go free form um one of the biggest problems was that
we got really hit up by the scammers, now one of the reasons we created the double match system was and we liked the page system was because it kept the scammers at bay to some degree because it cost them money to try and reach these people and it uh we actually made you know on most dating sites you can pay and you can write anyone um you want so you basically spam everyone you can before the system catches you in our system
Speaker 1: …you had to double-match so it was more work. It was actually, slightly less efficient in terms of getting to the point where you could write someone but was presumably a higher quality lead when you actually double-matched. One of the big problems when we went free-form was all these Nigerian and Russian spammers coming in to the system flooding the system and it was probably more than we could handle at a time so we rolled back. We said OK, wait a minute, we need to work on this before we continue moving forward on it. Look, we have to fix this problem because when you’re a dating site the last thing you want is 99% of your communications to be with someone who asks you, in the end, to wire money, right? So that was probably the biggest problem that arose from that.
Speaker 2: James, we talk about the newspaper industry as having so much invested in the old system they’re…
[cuts off]
Speaker 1: They should ultimately find ways to continue along the strategy that we started. We just decided that after six months or so, that we personally didn’t want to implement it. What did we do? We rolled it back to keep the property from dying, because with a spammer problem the site would die pretty quickly, right? So, we basically put all the plans on pause, and said let’s find someone else that wants to do this with this property, and we’ll get out. So rolling back was not actually, it was not saying that the strategy was wrong. It was saying, wait a minute, this is the right strategy, but I don’t want to work on it. So let’s get someone else that wants to.
Speaker 2: If you hadn’t been tired of it, if you hadn’t been burned out at that point. What would you have done? Would you have gone forward with an ad supported free site?
Speaker 1: We would have continued on along the path that we were working on, you know…
Speaker 1: We would a….we would of left at three…. would have had to….you know, and yes we would have had to taken a large loss on revenue. You know, revenue, you know obviously dropped substantially and we were, we were okay with that part, it was just a matter of did we really want to spend our time on it. The money was actually not the motivator in getting out it really was the fit with the time of our interest and of our skill set too. I still believe that that‚Äôs the strategy that they should take.
Speaker 2: I see. And just go free and keep on building that, building the audience. How much of a factor are personal needs when you’re staring a business, when you’re selling a business? I talked to Alexis Ohanyon, and I said of READIT, I said did you sell READIT at the height? And he said, it wasn’t about the height, it was about what was going on in his personal life.
Speaker 1: Yeah. Yeah. I think, I mean um, fundamentally I worked for me. You know, one of the biggest problems that people have is that they don‚Äôt realize….
—-end transcript 52.mp3 runtime :59 ————–
speaker 1: Or they don’t admit to themselves what they want. They go down a path that they think they’re suppose to go down versus what they actually want. Right? And um, you know so for us, you know, not taking the vencher (?) money deciding, you know, hey, you know, maybe this thing could be bigger, if we invested the money, but I would rather have that money, so I can do this stuff the rest of my life. That was more important to us. So everything that we did was aligned with that. Now, can you repeat the question, cause we went through that whole…
speaker 2: You know what, speaking, let me ask a, whoa, oh, there we go, we’re back on, let me ask a follow up question to that. When you went back to charging, how much of your revenue were you able to recover? What percentage?
speaker 1: Oh, umm, it probably, when we sold, it probably went back to 80%, but it was still rising, so I think it did recover. But probably took about another four or five month after we sold the company.
speaker 2: Wow, 80% so about…
Speaker 1: …four million dollars in profit annually goes back in the business.
Speaker 2: Uhh…yeah. It was more than that actually. I think it was like five.
Speaker 1: Wow. Alright, let’s see some of the questions here that are coming in.
Speaker 2: I’m sorry. Can you repeat that last question though, because I don’t feel like I really answered it.
Speaker 1: Oh What was it? About the personal. How much does this personal needs play a factor in business decisions.
Speaker 2: Yeah. I think it should factor a lot. If at the time what you want is not what the company wants, then that’s the time to get out. I think basically people should always optimize for themselves. Because that’s the only you’re going to be happy.
Speaker 1: I’ve heard you talk about Harvard Business School cases. Do you remember those? Did you have to take those in school…
Speaker 2: Yeah!
Speaker 1: …where you’d read a story.
Speaker 2: It’s never as clean. It’s never as clean, right? Every HBS case is always like oh you know James is sitting at his office looking out the window pondering X, Y, and Z.
Speaker 1: …right? And then yeah, and it’s like OK, he did a, b and c and oh, look how great it was. Now it’s a success or something, right? Or a failure or whatever. But it’s never that clean. In fact, that’s always written in retrospect and most details are kept out, right? Either intentionally or not but, yeah, so.
Speaker 2: They never talk about how well, you he had to make this decision because his wife was nagging him to finally get some security.
Speaker 1: Yes.
Speaker 2: He could have taken this his whole life
Speaker 1: And it also, those cases also kind of like, the way they’re approached kind of, in a way where, people look like they thought everything out perfectly in advance, right? And the truth is that the world does not work that way, right? Your business plan is going to be wrong, right? What you have to have is guiding principles and you just work at it step-by-step moving in the direction you want to move in, and in the end you’ll have a nice story about everything you did, but in reality, in the beginning it’s all a big mess, right? You were just trying to survive, right? I really feel entrepreneurship is not about this perfect HBS case, it’s about survival and doing the right moves…
[cuts off]
Speaker 1: …and in just building your business day by day.
Speaker 2: Who should people study if they wanted to study business? Who has practical lessons to teach? Who do you read? Are there a couple of books that you read that you say “These guys really have it. I understand life because of them”?
Speaker 1: You know, not exactly business, but I always buy for a lot of people the book ‘Influence’ by Cialdini.
Speaker 2: I love that book. Where is that book? It’s somewhere behind me.
Speaker 1: And that’s not so much business as much as product design, it’s motivation, it goes beyond product. It’s anything that interacts with people when you’re trying to get them to behave the way you want them to in your product. That’s a very important book, I think.
It’s funny, I never knew, I read in business school, but I never realized how many other people read this book. Even Charlie Munger, who is Warren Buffett’s right hand man…
Speaker 1: He also talks about this. I had no idea. I always felt like a lone wolf talking about this. But when you start talking about it, you realize that it actually is pretty well-respected.
Speaker 2: I just read a book. Where is it? Right in here. There’s a book about Charlie Munger. You guys should all get it if you’re watching this.
Speaker 1: Yeah.
Speaker 2: Apparently Charlie Munger gave money to Robert Gialdini because he’s such a big supporter of his. He talks about how Charlie Munger’s super cheap. But there are a few causes he believes in. And Robert Gialdini’s research into influence and what makes people think, that’s important to him.
Speaker 1: Yeah. You know, if I was not doing what I am doing now, I would be a social scientist. Right? All the people like Chaldini, the world of behavioral economics, Condemann, Schabersky, and all those guys, I think that kind of work is just fascinating. It really is very insightful into business. They’re not necessarily applying it, but they’re giving you themes that help you understand people…
speaker 1: and understanding what people will like, what they won’t like and how they will behave. I think that kind of stuff is really, really interesting.
speaker 2: What about, what about books like, I know you happen to be in this one in “Founders at work” you got a great story in here. Um, did I just lose you?
speaker 1: Can you hear me?
speaker 2: Um, yah, I thought I lost you for a second. Books like this, stories of other entrepreneurs helpful?
speaker 1: Yah, you know, that book is a really great book and the reason is because every time you read these stories you get pumped up, you know. You’re not going to read anything in that book necessarily that’s like, oh, you should do this. It’s not a guide. But it’s just like, dude, check out these people who have their own crazy stories and it’s crazy for them too, it’s not like the HBS case, they have all sorts of crazy stories in there and basically it’s like well if these people can do it, they’re normal people and like-when you read their stories, like, they’re just normal guys and women and it’s like, if they can do it, so can you. You know, whenever I talk about entrepreneurship to people I realize I’m not really going to help people by telling them what to do, because every business is different it’s a…
Speaker 2: …of an environment now than it was when I was in 2000. The only thing I can really do is tell people, hey look, if I can do it you can do it, too. It just takes a lot of energy and passion and street smarts basically, right? I think that “Founders at Work” book is really good for that.
Speaker 1: If I write, I do interviews with entrepreneurs here all the time. Unfortunately, Jessica Livingston go to you before I could get you in my book; by years. But, I’d like to do a lot of what she did which is interview entrepreneurs and then present those on paper. Is there anything, any advice you have for me in the way that I would do this? What, as an entrepreneur, do you look for in those stories?
Speaker 2: You know what? She was really, Jessica is a really good at just… She didn’t even, the interview for that book was just her and a tape recorder and just like shooting the shit. The reason that it reads so casually is because that’s how the interview was performed. We went to a cafe and just kind of hung out, it was a nice day…
[cuts off]
Speaker 1: and, you know, we just had a conversation, and then she basically, I mean, if you look at the book, it’s like she just transcribed it, and, you know, I think that was prety interesting because it made it so the pressure was alot less, you know, tho come up with the right answer, and, because of that, you just got alot more of the crazy, funny stories. I told her some stories that I never told anybody before. You know, it was just hanging out, and you know, I would say, just keep it, and she really didn’t ask any questions. It was more like, well, she might have started with, well, tell me about Hananah. What happened? Just tell me the story, and then, from there, she just had follow up questions, it was a conversation. It was not really a question and answer session. I felt that was very interesting.
Speaker 2: Very interesting, actually. I just re-read it earlier today before our conversation, and alot of her questions weren’t really questions. They were one line with a period and not a question mark at the end, and I guess that gave…
Speaker 1: It was a conversation, like she might have
Speaker 1: …with a list of questions to ask, but she never pulled it out.
Speaker 2: OK. What was it like to make the first million dollars?
Speaker 1: It was good. At that point where we made the million, I was confident that I was going to make beyond a million, because the run rate was up and to the right. What it really meant to me was that I reclaimed my life. Think about this. When you are in elementary school or high school and even college…college is probably the peak of when you have control over your life. Right? Slowly as you’re getting older your parents are policing you a little bit less. And then finally you’re old enough to get out to college. And then you get a job. And now you belong to someone again. Right? Now you have to do what someone else tells you to do. The realization that, “Hey! I never…”
Speaker 1: have to work for anyone again, um, you know i can do what i wanna do for the rest of my life was extremely liberating and so, i think you know, and the interesting thing was like, i had no inclanation to spend that money, right, like uh, i didn’t actually go out and buy a ferrari or anything like that right away, i just said hey you know like this is the money that is going to buy me my freedom for the rest of my life you know right and that was really the, that was a big moment right because when i started hauternaut i was $50,000 in debt from e-school, i had just turned down a job to pay off that debt and i was kind of feeling like man you know like i may have to if this doesn’t work out im gonna have to go back and get a job and this is gonna suck so ,well you know that feeling right like its that really its a freedom
Speaker 2: I’ll tell you what it was for me, for me it was i remember feeling i was gonna cry
Speaker 1: Felt like a feeling of warmth just washing over me and all those years of reading a lot of these books I’ve had since I was in elementary school, all those years of reading them on the subway and being looked at as a freak with all the other kids hanging out and me reading these books, and all those years of self-doubt, it was just…
Speaker 2: A validation then.
Speaker 1: Yes.
Speaker 2: Yeah.
Speaker 1: Did you ever wrestle with that? Do you have those feelings early on where you said, “Maybe I’m just an idiot with an idea for a business like all these other idiots who have…
Speaker 2: Oh yeah, of course because, you know, like, you know, I started hard or not like a year after I came out of business school and all my MBA classmates where, you know, had really nice paying jobs and it’s kind of like, “Gee, what am I doing,” you know, I could end up with all this educational potential and absolutely, you know, no results at all, right? So yeah, it felt good to me in the same way, right? It was like I made it like I’m no longer an idiot for doing this, you know, and I actually–I probably have it somewhere but when I hit a million, I went…
Speaker 1: …the ATM machine, just so I would have this slip of paper. I stashed it away somewhere you know. You’re right. It is validation. And what it says is if I have the capability to work hard, and frankly if I try enough times, to do something that will create value. And with that, and the fact that I have the money so I don’t actually have to get a job it means that the rest of my life I can do this and I’m not an idiot for doing it. Maybe I am or maybe I just got lucky.
Speaker 2: We kidded before we got started about what your title is. And you said “father” because you’ve got a new baby. How old is your baby?
Speaker 1: Six weeks.
Speaker 2: Six weeks old. But your official title I think on LinkedIn is…well it mentions that you are an adviser to start-ups. What kind of advice do you give them?
Speaker 1: It really depends on the founder and what stage they’re at and so on. I think the most important piece of information that…
Speaker 1: I try to convey top people is for them to really know themselves first, and know what they’re after. What a surprise. Because I think a lot of people just go after what they think they should be doing, which is, you know, write a business plan, build it, or what ever, go raise venture capital, blah, blah, blah, blah, blah.
But you know there are a lot of people who would actually be fine doing what we did, right? And there’s nothing wrong with getting venture capital. I just think that there is often times a misalignment between the venture capitalists motivations and incentives and what the entrepreneur wants, right? Like, the way I like to put it is, one of the things I ask people usually is, “If I could give you two scenarios, in scenario one you have a 5% chance of making a hundred million dollars, and in scenario two you have an 80% chance of making five million dollars. Which would you pick?” Right, because that says a lot, and there’s no right answer to that. It’s about knowing what you want.
Speaker1: And then aligning yourself with everything around you to move in that direction. There’s a lot of people actually would rather have [xx]
Speaker2: It’s true, a lot of people want the big size company. They want the… is it an ego thing you think?
Speaker1: You know…whatever. It’s just what they want, right! like I can’t say it’s because of ego that you want to run a big company. Maybe you’re just a big company guy, maybe you get more than the money. You get feeling of satisfaction when you have a 100 people working with you, and you feel like you’re the leader of a large community. I mean, I don’t know what motivates you, that’s kind of my point.
Like,the reason I ask that kind of question is to get people to think about
– what do they actually want? What makes them happy and then go do that, right! You don’t have to run a billion dollar company if you don’t want to. Or go run a billion dollar company, right! and take every risk, and you know, you’re not going to get the five million dollar payoff. You’re going to make a billion or zero. I think that’s one of the most important things that I, that I…
Speaker 1: …give to people when I give advice is to really find out what they want because a lot of people kind of fool themselves.
Speaker 2: Lets’ go through a lightening round of questions from the audience and I’ll try to take them in order here and we’ll go quickly through them. Lou Hung is watching us live and he wants to know, what was your first big purchase?
Speaker 1: [laughs] It was probably the Porsche. So, but that being said, I just wanted a convertible and I didn’t even get a 911 I ended up with a Boxer because I came to the realization that I don’t even drive fast. I had a pretty bad car accident in ’96, so. The other thing I realized is that no one really, no one I had cared to impress really knew the difference anyway. [laughs] But, yeah, it was probably the car and that’s probably the only, still to this day the only, kind of like, really splurgey purchase. I don’t really believe in buying things as much as buying experiences.
[cuts off]
Speaker 1: …happy to pay for things that, like Zero G is an awesome experience. I don’t know if you guys know about this, but there’s this plane that goes up and down and you go weightless. It simulates space. That’s like, four thousand dollars, but completely worth it. Probably worth more than the car, because the car, things I think you tend to get used to, and you start taking them for granted. After a while the Porsche wasn’t so great, it’s just that all other cars sucked. I kind of got used to it, like it wasn’t so special any more.
Speaker 2: There’s a great picture of you with that Zero G experience up on your blog.
Speaker 1: Right. It’s also dangerous, because when you get the Porsche, then you want the Ferrari. It’s like when does that cycle end, right? You can always keep wanting more. I think the way to be happy, is just to be happy with whatever you have, and I don’t really feel like buying things makes me happier. But if it makes you happier then do it. But that’s the point right, do what makes you happy.
Speaker 2: I think Ben Franklin in his autobiography said, “When you…
Spend a lot of money on one thing, you need to then accessorize it because you can’t have one nice thing.
That’s right, it’s like the house. The house that costs $1000 per square foot is going to cost actually another three or four hundred per square foot to furnish it completely, right.
Right. And you’ve got to have a cleaning person to come in, and all the other things that go along with it.
You see that’s actually the other piece of advice that I give to entrepreneurs, especially the younger ones, like, okay:
One: You should do a start-up if you’re thinking about it, because your liabilities only increase over time. Right, when you’re younger you don’t have a mortgage, you don’t have kids, you may not even be married, blah blah blah. You only accumulate liabilities over time. So what experience you’re gaining in your job, you’re losing in the opportunity of not having these liabilities and being able to take those risks. The other thing I tell a lot of my friends is ‘look If you know you’re going to want to do a start-up’, I tell this to college kids, ‘If you gonna want to do a start up, even if you’re gonna get a normal job, right out of school, don’t spend the money. Save the money. One, because you’re gonna need the money for later, but two, because
Speaker 1: You spend the money, you’re going to increase your lifestyle to a point where you’re going to be trapped by it and you’re going to say “Hey, I want to do the startup but I have my car, my BMW payment, and I can’t because I have… There’s always going to be something that you can’t afford and you’re going to miss it, right? You’re lifestyle can only go in one direction and it’s very hard to pull it back, it takes a lot of discipline and pain. So, if you want to take these risks, then don’t increase your lifestyle until after you’ve already made it, because, otherwise, it’s basically [blow] you’ll be fat and lazy, the whole running lean type of thing, you’re not lean any more at that point.
Speaker 2: And even if you do end up with the nice house and you feel comfortable scaling down because you’re going to go do a startup, you’re going to be embarrassed by your friends and what they’re going to think. Your investors, and the people who potentially can come work with you, are going to see your life scaled down, they’re going to say “what’s this say about him”
Speaker 1: Absolutely, you know Peter Teal from Therium, he was one of the PayPal founders, he had a very interesting thing to say when he was asked, he’s an invester in Face Book and a bunch of other things
Speaker 1: He said “what is the greatest indicator of success for people that you invest in?” And he said “Easily, it’s that I look for people who don’t want to pay themselves a salary.” Basically, people who are willing and want to dive head in to the pain, right, because they know that that’s what’s going to motivate them to work harder and smarter and more efficiently and ultimately, those people tend to win. And, I thought that was interesting. So, anyway, going back to, keeping your lifestyle to a minimum, don’t be… You’re going to run your company the way you run your life. And if you’re not scrappy in real life, then you’re not going to be scrappy in your company, and furthermore, your employees are going to want you and they’re going to act accordingly too, because you’re setting the tone for your whole company, right? Everyone at [Hunternut] that worked there respected the value of a dollar in terms of, if we wanted to spend money on something, they looked for deals. We bought all our machines from
Speaker 1: You know, when Dell had sales, like we were at Anantec waiting for the sale for the server, right, because that was the mentality, they were cheap because I was cheap, and if you’re not cheap, if you fly first class, they’re gonna want to fly first class
Speaker 2: How does a start-up get to you as an advisor or as an investor?
Speaker 1: Usually through friends or just emailing me. You know, a lot of people, these days it’s not hard to reach anyone, right? You just kind of like find them on LinkedIn or find them on Face Book, or something, you just send them a message.
Speaker 2: Do you respond to your own email if somebody cold called you, or cold emailed you and said “James, I have this great idea for a business, will you take a look at it?” Would you respond?
Speaker 1: I do respond to those emails, you know, obviously it takes me a while to get back to some and, you know, it depends on my plate, how busy I am, how fast I can respond. I try to respond to people, you know, I’m not, you know, but,
Speaker 2: That being said, I hope I don’t get like 20 million emails today but, I do respond to people. They email me, I try to email them back. I try to be honest, too. The one thing that I would say though is for a lot of entrepreneurs it’s not always their first idea that makes it. If I, or anyone, ever tells you your idea is not going to work, well, one; maybe we’re wrong and two; maybe we’re right but so what. That’s not really a statement about you as an entrepreneur, just move on to the next idea. PayPal was Max’s third idea, right?
Speaker 1: Wow!
Speaker 2: It was his third company. The first two failed and even within PayPal that was their third model, right? It’s really important, more important than anything is for the entrepreneur to be smart, have tenacity, have perseverance and just keep going. You’re in the business of you, not just…
[cuts off]
Speaker 1: …what your one idea is, right now.
Speaker 2: All right, let’s see if we can get more questions in here. DBG Inc, I guess, says, “How important is it to surround yourself with equally motivated individuals?”
Speaker 1: Look, let me just put it this way. A lot of people are entrepreneurs, because they work in big companies, and they don’t want to work with people who are not as good as them, or better. And that was my motivation for actually…the people that I worked with were really good, but when I worked at HP, as a company, things moved so slowly. Aahh!…
Speaker 2: I don’t know, we’re good.
Speaker 1: So yes, obviously, you will save a lot of frustration by working with people who are good, and hopefully better than you, right Lee?[sp?] That’s the one place where I think ego can hurt people, because there are some people who only want to hire people that they think agree with them, or are kind of like deferential to them, or whatever. Like, you’re not going to succeed hiring a lot of yes men unless you’re really, really that awesome, right? Otherwise, yeah…
(end of file)
Speaker 1: The secret of entrepreneurship. It’s all leverage. You’re trying to leverage these great smart people. You want to try to leverage smart people to make you rich, or do you want to try and leverage dumb people to make you rich? Of course, smart people. Am I comfortable with where I am? I’m comfortable with where I am and who I am in general, that doesn’t mean that I don’t want to do more stuff.
So you asked me what is my title, and you know I don’t really have a title because I just do… My title is I’m James Hong. I work on stuff that I find interesting, and I want to work on, and I want to think about. There is no title for that except, yeah, I’m James Hong. Right? I don’t look at my work as work, it’s just what I’m interested in. Because I actually do believe that the amount of pain it takes to start and grow a company is so great that unless you love what you’re doing, there’s no way that you’re going to succeed. Because someone…
Speaker 1: Someone else is going to be thinking about it 24-7 and they’re going to out-maneuver you. If it’s a nine to five job for you because you’re not that interested in it and you don’t have that passion, you will probably lose.
Speaker 2: So all these people are building companies with the hope of flipping it at some point and getting that exit. How can they ever have the full commitment to do their jobs and to build great companies if they have one foot out the door, at least an eye constantly on the door waiting for the exit?
Speaker 1: Well you know what? Ninety-five percent of the time that that happens they don’t get the exit, right? And you know like, look, if you’re a smart entrepreneur you’re contingency planning all the time. You’re thinking about scenarios. You saying, look, I don’t ever want to be caught with my pants down and one of those really large probabilities scenarios is, you’re not going to get bought out in any time frame that you want. You know? So, I think in reality, you’re just trying to build a business, right? You’re trying to survive, stay afloat and profitable, grow, whatever…
[cuts off]
Speaker 1: and you want to make the right moves for the company. I kind of am of the opinion, that if you’re just trying to build for the flip, what’s going to happen when it doesn’t happen? Your employees who you promised that to are going to be demoralized, everything will fall apart and you’re just going to be really depressed, and I just think that even if you’re open to the idea of selling the company down the road, I think that a lot of bad decisions are made when people optimize for that path and it doesn’t happen.
Speaker 2: Did you have a depressing moment when you were building up Hot Or Not, personally, I mean.
Speaker 1: Yeah, everyone does, like, I’d like to say
Speaker 2: At what point for you?
Speaker 1: Right before we started hiring and when I stepped down out of the day-to-day, I was so bored. You know, like, I’m not an operations guy, I think that’s what I have in my LinkedIn
speaker 1:
My tails is not a operational right,because i really suck it up operations and it’s now i am enjoying doing and getting caught up in roll bed you are not do for free and is not enjoying doing like getting up in the morning to do and that’s an cause you the problem and that’s way i am depresses and I not able to do what i want to do.When you feel compile to do that job you don’t feel freedom right and trapped by this job, this role, that’s the role get out of that role as fast as you can because life is true
speaker 2:
How to realize that had to change?
Speaker 1:
When we talking to each other one time, this can’t be my life forever. You have other aspects and interests. After 3 or 4 years running the same thing just two of us in the house
Speaker 1: We were not like employees, or politics to keep us distracted, it was just, it was a nice lifestyle for two to three years, but we just got bored.
I think you generally know when you’re bored.
Speaker 2: I want to be fair with your time. I’ve already a half hour over with this.
Speaker 1: Oh, no problem.
Speaker 2: I appreciate it. Is there one bit of advice that we could leave people with?
Speaker 1: I come back to what I said earlier actually, because I think it is so important. Know what makes you happy and do that. Like I said, most people I think are delusional, because they accept what society tells them they should want to become happy. You should want to grow a billion dollar company, maybe you do, maybe you don’t, right? The point is, know what you want and go after that. Because one, if you don’t go after what will make you happy then you won’t be happy. Two, if you’re not happy with what you’re doing then you’re not going to put your heart and soul into it, and that really is a critical…
Speaker 1: ….component of success. You know, like they say…..I once said and I love repeating this line cause I think it‚Äôs true, becoming an entrepreneur is a….is volunteering to be….is volunteering to be bipolar. Right? Because….you ask me if I get depressed? Of course I got depressed. And, on the flip side, there were also moments that were like, euphoria. Right? That were like higher than any other high. That is the nature of a start-up. It‚Äôs volatile. It‚Äôs like the stock market today. Right? It‚Äôs like, some days you‚Äôre killing it and some days it‚Äôs like, man it‚Äôs over. And you have to expect that. And go in knowing that is going to happen. Because it is going to happen. And that‚Äôs why, you know, they talk about perseverance and persistence being so important. It‚Äôs because that‚Äôs the only way you get through that pain and keep going. Right? So anyway, yeah, the one, the one thing is know what you really want and go for that. Don‚Äôt let….you know what? No one else can tell you how to be happy.
——-end transcript 80.mp3 runtime :59—–
speaker 1: Someone else could say, “Oh, why would you do that, you could make a billion dollars?” Screw that person, right? Like, get what you want, not what other people want. You’re not living your life for them, live your life for yourself. Um and beyond that-
speaker 2: Do you ever feel that, you’re watching…you’re living an an environment where people are billionaires, where they’re revolutionizing video in the case of two guys who almost worked for you. Do you ever feel a sense of inadequacy? I know I sometimes do. I sometimes interview people and I go “Man he’s really living a life. He’s really changing the world, making more money. He must be looking at me and thinking I’m doing nothing.
speaker 1: You know, you know, I’m fortunate to have a lot of good friends, some of whom, you know, are billionaires, and, um, I’m actually very fortunate that I became friends with them because the realization that I had was that the money – it’s kind of cliche – look I’m not going to say that not having money will make you unhappy, but having that level of money does not necessarily make you a happier person, alright? And to me, I’m…
Speaker 1: and optimized for my happiness, not for my checkbook. I mean, it’s like if I said “Hey, I’ll give you 10 billion dollars but you’re also going to be super unhappy,” would you take that money?
Speaker 2: No way.
Speaker 1: No, I hope not, because you want the money as a proxy because you think of it as a proxy for happiness. The only reason you want the money is because you think you’re going to be happy, right? Well, the realization I had was, you know what?, I’m happier than some of these guys already, and it was at that point that I realized that, hey, as long as I don’t have to worry about money, and as long as I’m working on stuff that makes me happy, because I’m having fun, that’s good enough for me. But I also believe that, if I want to make the most money, it’ll be… It’s just like grades in college, if you’re just optimizing for the test, you’re not going to do as well as the guy who actually loves what they’re learning and they’re going to learn it, they’re going to study 10 hours a day on it, because they’re not studying to the, they’re
speaker1: …is having fun, right? That guy is ultimately going to succeed and get a better grade. I feel the same way…
speaker2: …Paul McGee is watching us, and he’s asking “how do you have all these cool friends?” How do you know all these guys?
speaker1: You know, it’s interesting. After 2000, a lot of the people who just came here for the money left. And the people that left were the people who were actually passionate about the internet or whatever we were working on. So you just…just like anyone else…you bond on those things, right? It’s interesting, if I look at my background, I grew up with modems, I played with…my first modem was a 300-baud modem. I was on bulletin boards and all this kind of stuff. You talked to, like, the founders of Yahoo or eBay, or Andrecin [??], or…everyone’s kind of the same. We all…most of these…
Speaker 1: …people had been saying things to me. We would have been friends in high school, we would have been in the computer club or something. So if that’s the case, then why wouldn’t we be friends now, right? The other reason is because I really don’t care about that level of money. So I don’t treat him differently.
You know, a lot of the people who are billionaires, everyone is coming up to them wanting to be their friend to get ahead or to use them, basically. Me, I don’t give a shit. I am friends with them because we can talk about the ‘Hayes Command Set’, or modems, or the Internet or whatever. Plus, I live in Silicon Valley–go next door, and there’s a billionaire, right?
Speaker 2: You know what I love about this interview? I love that you’re able to be open. Open about how much revenue you made during the height of hotornot. That’s great. But also open about…
Speaker 2: …the depressing moments, open about the tough times, there’s so many people who, when they write books about their past business experiences, they act like Supermen.
Speaker 1: Right.
Speaker 2: That they were going to work harder, that they were going to live stronger, they were going to do all sorts of things without ever acknowledging the down. And then when we, as entrepreneurs read them we say, what’s wrong with us? These guys never have any mistakes, what am I doing wrong?
Speaker 1: Right, like I said, when I give talks to entrepreneurs, one of the things I try to convey is look, I’m a fuck-up just like you, right? Like, I’m not special, I just worked hard and I loved what I was doing and I think that that made all the difference in the world, you know? I am what I am, you know? I’m not perfect, neither are you, and neither is anyone else, right? But I do my best and I just try to have fun and I’ve been that way. I was like that way when I had $50,000 in debt, you know? It’s not just because I’m comfortable now that I can say that. Like, I’ve always been like that, you know? To some degree I think you have to have a positive…
[cuts off]
Speaker 1: In order to go through the pain that you will certainly endure.
Speaker 2: What do you think of the work I’m doing here at MixerG?
Speaker 1: I think it’s really great actually. I looked through a lot of the interviews and was impressed by the quality. I think the Skype video thing is quite an interesting format/ I enjoy your show, and I think the credibility you have, having built your own businesses, makes you infinitely more interesting to talk to than someone who hasn’t. So I think you’re on to something.
Speaker 2: Thank you. Thank you very much. Thank you for doing this interview. Thank you for doing an interview with me, thank you for doing an interview even with Jessica.
Speaker 1: Yeah, no problem.
Speaker 2: Every time you could get your story out there, I think it helps others.
Speaker 1: Yeah, well, I’m happy to do that. I really, it’s interesting, like, the biggest joy I get out of Hotornot is actually looking at the employees. They are now all entreprenears now, and they are all doing very well. That actually…
Speaker 1: To me is more satisfying than any other aspect of the company, so I love helping, You know, if I can do it, anyone can do it and you just gotta love and respect the passion of the entreprenuer.
Speaker 2: Well thank you very much, thank you all for watching live, if you are watching live, you can see some of the conversations that have been going on on mixergy.com/live and you can add the people who have made some great statements here. Add them to your friends list or follower list on Twitter so you can stay in touch after this interview. James, thank you for doing this interview.
Speaker 1: Yeah, thank you.
Speaker 2: Now that the interview is over I want to live up to the promise I made at the beginning of it. Here are the books that we talked about. We talked about influence, you saw James get excited about this book, you heard me get excited about this book, other entreprenuers at mixergy have told you to get a copy of “Influence”, go out to your bookstores and get a copy of “Influence” right now. I’m telling you, you’re going to be just as excited as we are. Next, Founders at Work, full of great entreprenuers you should get a copy of this book too.
Speaker 1: Start off by reading James’s story here, and I think it will be a good follow up to this interview that you just saw. Finally, a guy who I don’t think gets enough attention in the popular press, but should, Charlie Monger. There’s a biography of him. This is the only one that I know of. It’s called “Damn Right”. This guy is known sometimes as Warren Buffets’s business partner, but I think he’s a successful, interesting, entrepeneur that you can learn from, in his own right. Get those books, and, what else do we have to tell you? Come back to me ****.com. Give me your feedback. Alot of people email me directly, and I love it.I am advocating that you email me directly, but what I’m finding is, that if you add your comments publicly, other people on **** can find out about you. Other people can connect with you, and we can all start to build a little community here. If I do say so myself, I’ve got some really smart listeners here, some really successful viewers of ****.com. If you add your comments, and what I’m noticing is some of them will reach out to you directly, and you can build connections with other people.
Speaker 1: …people who are watching and listening to Mixergy. Finally, I’ll have some links up to James’ websites. As you can see in this interview, I have been reading his stuff for years, and I think that you should too. I’ll have links to his blog, to his Twitter and to anything else that I can find online.
Thank you for watching. I’m Andrew Warner. I’ll see you in the comments.