Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. I’m smiling because today’s guest, has heard me say this so many times and this interview is about a community that he helped grow. You know, one of the coolest benefits of building a startup after you build a community, first is that you have people there to help you out. Your community members become your first subscribers, your first customers, your first supporters. and that’s the path that today’s guest took.
Aaron Epstein first grew Color Lovers, a community for designers, then he followed it up by launching Creative Market, an online marketplace where designers could sell their work directly to customers. We here at Mixergy had bought several of their web designs and used them for micro sites and individual pages that we needed to explain new ideas that we’re working on. The designs are beautiful, it’s so easy to buy from them and it’s inexpensive so we just buy. And you’ll hear more about how he built up this marketplace here in this interview.
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Aaron: Thank you. Thank you for having me.
Andrew: Hey, I mentioned that you listened to Mixergy a lot. In fact, before we started, you told me about your Y Combinator days. You were listening to Mixergy back then?
Aaron: Absolutely! So besides spending about 24 hours a day working on Color Lovers at the time, we also would spend a lot of time dialing into your podcast every single day. It’s awesome to hear the regular advice that you had and in addition to all the advice that we’re getting throughout Y Combinator, that was really awesome to hear too and I’ve learned a lot from that as we’re going through that program.
Andrew: That’s so cool for me to know that you’re listening. You are the kind of person that I aspire to have in the audience, someone who’s really building things, someone who’s creating something that’s having dramatic influence on businesses like mine. And you’re the kind of person who’s hard to reach, hard to create a good interview for and that’s why we have a research team and that’s why we do so much work to get these interviews out. I mentioned that you built a community, but the community was something that was already there. You partnered up with the people who created it and what you built that you brought into that partnership was software. What was the software that you created?
Aaron: Yeah, so when I was in college about 15 years ago, my freshman year I had a web design company with some friends. And a lot of times, clients would give us their logo as a starting point for a website and that logo typically had one color in it. And so we would take that client logo and have to build a website and figure out what harmonious colors would go with that. And so after tinkering on Photoshop forever to try to find colors that match, I thought to myself there must be a way to just give a tool a base color and have it tell me what colors go well with that. And so I couldn’t find anything at the time, this was 1999, that would just give me harmonious colors. And so I went and did the research on the color theory and I actually just built it myself. And I called that ColorSchemer and it was a web-based tool and eventually created some downloadable desktop software for PC and started selling that.
And so I was making some nice spending cash as a college student which is pretty cool. I’m actually spent my spring break coding it up while a lot of other kids were out in Mexico or something like that. And got it to the point when I graduated, I was like, “Oh, I want to see what I can do with this.” And so, it was just me for a number of years building and designing, developing, marketing, handling customer support around the ColorSchemer software. And I did that for a number of years by myself and eventually, I just got bored. Everything was so automated where I was making money in my sleep. People would just pay online to unlock the trial and eventually got connected with Darius and Chris, who had started Color Lovers in around 2005 also. So they had this great community. I had this great software and we got together and we decided to merge our two businesses together since we are both big players in the color space. And so we did that in the middle of 2009 and that’s how we went to go on to focus on Color Lovers.
Andrew: So I always thought that the colors that match were up to the designer, that beauty is in the eye of the beholder and so you, as the designer, are getting paid to figure out what goes well with what. But that’s not the way you saw it.
Aaron: Well, so there is that but at the same time, there’s color theory that has been studied and established over really decades of research around what colors go well together, which are harmonious. And so I wanted to look for something that was a really good starting point that would take a lot of the guesswork out of the way I and many other designers were doing things at the time. So the software did that. If you are looking for something to just tell you what went well together, then ColorSchemer would do that. That was actually the really nice thing about partnering with Darius and Chris on Color Lovers because they kind of had the opposite approach rather than giving it a based color and it spits out a bunch of colors that go well with this. They actually had this community that they had started where people were creating their own five color pallets and sharing them with each other.
So if you are more into just looking for inspiration and finding pre-made pallets that would work really well for you, then Color Lovers is great for that. If you just kind of wanted to be told, we actually had a lot of people that were color blind that really relied on ColorSchemer to find matching color pallets. So if you just wanted to be told what went well together and move on to the next thing in your project, ColorSchemer was great for that.
Andrew: You said you did it over spring break. Were you the kind of person who would work throughout college or were you social back then?
Aaron: Some social but I really found my passion in building products and actually at a very young age, I grew up on the internet. I’m 33 now. I remember in ’94 or ’95 learning to make websites before the image tag was the thing and HTML so I go away back there. But what I loved about it was because I grew up on the internet and grew up making websites, I found that I could actually make websites much better than, say, Coca Cola could make a website, right? These major big players. So I couldn’t make a car as good as Ford can make a car, but I can make a website as good as anybody else in the world. And so that was really exciting to me to have that power to create something out of nothing, and that’s why I love spending endless hours working on it even over spring break when I had a lot of spare time and wasn’t in school or hanging out with friends.
Andrew: How much money did you make with ColorSchemer?
Aaron: So ColorSchemer when I was in college, I think I was making about $1400 a month when I graduated which is not really enough to live off. Well, it is as a college student but it’s great spending money as a college student. So I never had to hit up my parents for money so that was great. They certainly appreciated that, but when I graduated, I was making $1400 a month and I said, “All right, I’m going to see what I can do with this.” So I focused all my time on making upgrades to the software, building out a Mac version, things like that and eventually got it up to months where I was making $10,000, $15,000, $20,000 in a month and it was largely automated where the only responsibilities that I had on-going were handling customer support, which was really important to me or building out new versions of the software. So I did that for probably nine years.
Andrew: So how did you get to do that much revenue? What was the change after college that allowed you to grow so much?
Aaron: So when I was in college, I had this downloadable PC only version that I sold for $25 and it worked but it wasn’t kind of my full vision with all the tools that I wanted to add to make it more powerful. And so what I actually did was I created a new version, it was called ColorSchemer Studio because I made a mistake with the original ColorSchemer software of offering free lifetime upgrades for customers, which actually turns out to be a bad idea for them because there’s no incentive on the developer’s part to continue improving them.
So I made this much more advanced version of the software called ColorSchemer Studio, and I priced it at $49 up from the $24.99 that I was charging. And I actually kept selling them both, and I used the $24.99 one as kind of an anchor point to prove the value of the $49 one. And so when I launched that, I had this mailing list of all these people that had bought my software or signed up through the web-based tool that I had put together in 1999 to be notified of any updates to the product or the software. And so I was able to send out an e-mail to all those people to let them know and then I even offered a 30% upgrade discount for anybody that had bought the previous version of the software. So right off the bat, I went from making $1400 a month to, I think, $6000 a month just by launching this new software and offering upgrades to customers that had already purchased.
Andrew: I see an old version of the site here from 2005, it’s ColorSchemer.com. “The ultimate color tools. With tools from ColorSchemer creating harmonious color schemes has never been easier. Instantly match colors, find harmonies and learn about color theory all while building your own dazzling color schemes.” And you’ve got a forum. How active were the forums and how helpful were they in getting sales?
Aaron: So that actually weren’t that helpful on a ColorSchemer side of things, but they were a major driver on the Color Lovers community side of things where people did interact. The biggest drivers were I would do web-based ads or word of mouth and, like I said, support was really important to me. So anybody that wrote in, got a reply usually within an hour. And I try to be super helpful, super friendly, bending over backwards to help people out because word of mouth was so important and I knew that if they had a great experience, they will go tell their friends and their friends will then buy it too.
Andrew: So you are getting profits, you are doing $10,000 to $20,000 a month, I think you said. Do I have that right?
Andrew: What did Chris and Darius bring to the business partnership?
Aaron: A lot. So I consider myself a jack of all trades and a master of none. You know, here I was for nine years doing every facet of this business from coding to designing to marketing to customer support to business strategy, all that stuff. But these guys were really A players that had built something in a similar space. And it’s kind of funny, we got together to talk about merging up and we actually discovered how similar we were. Darius, his birthday is one month apart from mine. He went out when he was doing some fundraising for Color Lovers, spent some time in New York City, crashing at my place and went out to dinner with my wife one night. And then they came back and my wife said, “That was really weird. It was like talking to you with a different head and body.” So it’s kind of funny. We just connected because we fell into these color products that we were building but we’re actually very similar and had a lot of the same passions and goals.
And then Chris is just one of the best developers I’ve ever known, and he’s a great leader on our development team to this day, but he goes so much deeper in his depth of technical knowledge of building a site. The Color Lovers community grew up to, say, 15 million page views a month and a couple of million members and Chris single-handedly built and scaled the site that supported all of that.
Andrew: Was their business generating profits at that point?
Aaron: So they sold ads through the Color Lovers community, and I was making probably a similar amount of money selling the ColorSchemer software but when we merged up, we knew that what we were currently doing wasn’t the big scaleable business that we wanted to build. And so it was actually summer of 2009 when we ended up merging up, and for me, I was bored with the ColorSchemer stuff that I was doing. I was looking for that new big opportunity and so when we connected, I knew instantly like this is what I wanted to do.
And so shortly afterwards, I was living in DC area at that time. We had a townhouse there that I had bought and my wife got a job up in New York City at the Food Network. And so because I could work anywhere, I just kind of followed her wherever she went and so we’re trying to rent out our place in the DC area and we were trying to find a place to live in New York, and I get this text from Darius and he had gone to startup school and talked to Paul Graham there and Paul Graham said, “I love Color Lovers. You guys should apply to YC.” And so at that time we thought, “Well, isn’t not just for a couple of kids out of college and with an idea and here, we’ve had these businesses we’ve been running for a little while that are making money and seemed like not the right demo.” And he said, “Eh, just apply.”
And so Darius sent to me this text. “If we could do Y Combinator, would you want to do it?” I was like, “I got to rent out my place in DC. I got to find a place to live in New York. I’ve got about a month to do this.” And I said, “Screw it. Let’s do it.” Because it’s not every day that opportunity knocks like that and you’ve got to be able to open the door. I found a place to live in New York. I found renters in DC. The week after Christmas, I moved my wife up to New York City into our apartment. I spent a week there and I said, “Okay, see you in four months.” And I flew out to the West Coast to live with Darius and Chris and do Y Combinator for a few months, and by far it’s one of the best decisions I’ve ever made.
Andrew: And you’re still here?
Aaron: I’m still here.
Andrew: You’re still here, and the wife?
Aaron: And the wife moved out here too.
Andrew: Wow! Way to go.
Aaron: After Y Combinator, I moved back to New York City and we lived there for a few years and we continued building the team remotely because that’s sort of how we started. Darius and Chris were on the West Coast. I was on the East Coast so we just scaled like that and now, I’m back out here on the West Coast. It’s the first time we’ve moved for my job. So that’s been fun for my wife.
Andrew: By the way, you’re on a Mac, right?
Andrew: I’m hearing every time one of your friends joins Skype or logs in for the day that we’re hearing some kind of bubbly noise. All you have to do is go to the top of your screen to the menu bar; click on the bubble that I guess is a green bubble and turn it to the red bubble which is do not disturb.
Aaron: All right.
Aaron: There you go.
Andrew: Yeah. You must have an older version of Skype. The newer ones don’t make that noise anymore.
Aaron: Yeah, that would be nice.
Andrew: Yeah, I used to actually have to tell every interviewee before we started to please go to do not disturb.
Andrew: So you applied to Y Combinator, Was it just easy for you to get in? What was the meeting like? What was the evaluation like?
Aaron: Yeah, so it’s a 10-minute interview, as you know probably. And you go in there and for us, it’s just the four original partners. Now, YC has scaled much beyond that. But it’s just kind of a rapid fire what could this be back and forth kind of thing. I think we probably were in a unique situation because obviously it already had these businesses that we’re running. And so for us, we focused our time during Y Combinator trying to figure out what’s the big scaleable business that we think we can turn this into. And so our interview was basically 10 minutes of back and forth on, “Well, what if we did something like this? Could it be something like this?” And then we kind of give our take on that and offer up some other ideas on what we thought it could be. And it’s just a lot of back and forth like that and I think through that process, they’re able to discover how much the founders know each other, how well they relate to each other. If it’s the kind of people that Y Combinator wants to associate with, and so fortunately they made us an offer to join that night.
Andrew: And this was for Color Lovers?
Andrew: They were investing in that business? Now, I remember in the past, I’d interview Y Combinator entrepreneurs and they’d say that in the meeting, Paul Graham would help them think through what their business was going to be. I think that’s what happened with the Wufoo Team.
Andrew: For you, it wasn’t like that. They just accepted that you’re smart-thinkers, that you get along with each other, that you know each other well enough and that you could figure things out. You got in with Color Lovers, at some point, you changed. What got you to change direction and leave Color Lovers behind?
Aaron: Yes, so while we’re in Y Combinator with Color Lovers, we actually re-launched the site to Version 4 actually it was, so I’d been around that long. And Paul Graham kind of had this vision at the time that Color Lovers could change the way the world looks is how he described it. And so, we actually partnered with a bunch of like pattern and textile manufacturers and here we had all these pallets and patterns and shapes and things like that that people were creating. And so we actually made it so you could click a button and order that pattern that you saw in the site as fabric or as wall art or things like that. So we saw this potential opportunity there. We also, at the time, thought that what our business might be; could be this big color data company.
So if you’re familiar with the company like Pantone, they typically are the world’s color experts where they get a couple of people in a room every year and then they say, “Okay, the color of the year next year is going to be fuchsia.” And because they declare that, they then put out their trend report that goes to all the same industries. Those industries take it, they say, “Oh the color of the year is fuchsia. We better start incorporating that color into all of our product lines.” And it becomes a self-fulfilling prophecy where they’re actually always right. But everybody is operating off of the same data there.
So what we had was tons of color pallets and patterns and people loving them, interacting with them, saving them, sharing them and so what we envisioned we could do is actually put together like a real time color trends, graph or database that we pair up with demographics. And so if you’re a Microsoft, rebranding the X box, you want to know what colors 18 to 24-year-old males are trending now. We could give you a front end too, all of the data we had. So that was one idea. And then the other idea was the marketplace and we were kind of torn going back and forth between each of those ideas until something happened. I think it was around November of 2010, where Met Life reached out to us because there was a pattern on the Color Lovers site that they had seen that they wanted to use for their Thanksgiving display to wrap two floors of their building across from Bryant Park in New York City. And so they wanted to pay $250 for this. And so the light bulb went off in our heads where we said, “Here’s somebody who is just playing around and having fun on the site spending their free time there.” And they’ve actually created this pattern and content but another business finds really valuable and he’s willing to pay $250 for it. And so we actually did that deal. We took the $250. We gave it directly to the member that had created it and that was what set us on the path thinking that marketplace was really going to be the way to go.
And so we started building a marketplace around the Color Lovers Community and thinking we’re going to build tools where people could actually just play around on the site, have fun, build content and then offer it for sale. And then we actually ended up realizing it’s actually much bigger than that, the types of creative content that people want to buy.
Andrew: Which is not just colors and pallets.
Aaron: It’s not colors, pallets and shapes. There’s fonts. There’s website themes. There’s photos. There’s Photoshop files and graphics and illustrations and all sort of things. And so that’s what led us to spin off Creative Market. It’s on a separate site.
Andrew: So I’m actually looking at what this site looked like in 2010 and I should say that for anyone, who is not a designer, this just feels like complete geeking out on something that just we would never even know was important. I’m looking at one page here that’s got one, two, three, four, five stripes of different colors in a rectangular box. That is what people are rating and I see a bunch of people rating stuff like that. I see someone else who’s got love plaid and that person is called My Fantasy Realm. People are hearting it, if someone hearted that. And then there’s a whole design. That’s the stuff that you’re talking about and that’s why you said “Hmm, if people are buying this, this is interesting but it’s not big enough. We want to go much bigger. But you did start selling the patterns on ColorLovers.com at first?
Aaron: No, we actually never did. We started building a marketplace on top of the Color Lovers Community and then part way through, we realized, we’re going through all these different things like Color Lovers user accounts it’s going to be the things that people use to buy. And it’s tricky because we had over a million members on Color Lovers at the time and there were so many people that just loved and knew about the community, loved spending time there. A lot of people had their best friends were on the site. They’re meeting people through the site. The Color Lovers Community was actually nominated for a Webby award for best community five years in a row, which is a pretty great honor. So we built this great community but …
Andrew: I know you’re going with this. You’re about to start talking about Creative Market and I’d like too, but I have to stop and ask you about that. What did you guys do to build such a great community in an environment, where people, I don’t think are very trusting of communities or companies? I know they’re not trusting outsiders. I couldn’t come in and create a community of designers. So what did you guys do to foster this community?
Aaron: Yeah, so the biggest thing that we did was just being engaged. When there’s a platform for people to interact with each other and then they see that the creators of that platform are also engaged, then that just goes so far for making that a place where people want to hang out and belong. So there’s that, but also just kind of the inherent nature of Color Lovers was it was a place for people to express themselves. You think about like the real name to be on something like Google Plus. We didn’t require people’s real names. They could come on here and the simple act of picking out five colors that go with each other and call that a pallet was just something that anybody could do. So there’s something very inclusive about the community that we built where everyone really felt like comfortable expressing themselves or comfortable creating art and comfortable being a part of it.
Andrew: Y Combinator has Hacker News, an incredible community of entrepreneurs and coders. I remember interviewing early Hacker News users about why they participated and they said, “You know what got us really in there is things like Paul Graham said, the founder of Y Combinator, that he would pay attention to who was most active in what they said. That I think if you are a top member, you might be invited into Y Combinator for a meeting which was pretty interesting and stuff like that that got people involved. What allowed those early people to bring even more people in is I remember, I used to post Mixergy interviews on there and I want others to vote on them so that they would go up higher. And every time I do an interview, I’d say and if you like this, go vote for it on Hacker News. So I was encouraging more users. Did you do things like that to bring people into the community? Did you do things that got them to be more active in the community? What did you do more actively that what you’ve said so far?
Aaron: Yeah, so I mean the biggest thing is giving people ownership, I think, is what you’re describing. We took feedback from the community very seriously and all of our communications to them was all about this is your community. We’re building the community for you, it’s not our community. And so …
Andrew: You know what, Aaron, I see a lot of people do that. And then nobody cares. Thanks for giving me my community. I have my community on Facebook. I have my community on Slack, on tons of other places. But I know that there are some tools here that helped create more of a community. Maybe it was the pallet rating and I want my pallet to get more ratings, maybe it was the ease of hearting it. Maybe it was the way that you allowed people to share the pallet by embedding it on their site. I’m not sure. What else is there that encouraged more activity in the community?
Aaron: Yeah, so the biggest thing is Facebook has liking and Color Lovers has loving. You love a pallet and we even have likings today on Creative Market wherein people post products. And so, for example, somebody may not have a sale but somebody came and liked their product. And so it’s that feedback cycle, that appreciation loop where you’ve taken the time to create this work of art, which for Color Lovers, was putting five colors next to each other and creating a unique pallet and then somebody else came and they loved it and they gave that feedback and then all of a sudden, you feel appreciated. You feel rewarded for the work that you’re putting in and you want to come back and continue to create more and continue to be a part of the community.
So Color Lovers members, they are really two types of members. There were the professional people that were coming because I’m working on a project for a client, I need a color pallet so I go over here and I just search for whatever the top-rated pallet is and I find something great. And then I pull those color codes back into Photoshop or whatever it is that I’m designing. Then there were the other people that really were the more active content creators and they were the ones that were spending hours a day on the site, have their friends on the site, were really engaged and really driven by a lot of that feedback loop that was created when somebody loved your pallet or commented on it or left you a note.
Andrew: Okay, so you decide you’re going to create a new site. Creative Market is a great name for it. What did you guys pay to get that domain, CreativeMarket.com?
Andrew: I actually have it in front of me. I often ask questions that I know the answer too so that I can hear it from you.
Aaron: I didn’t even know that that was out there.
Andrew: I’m going to guess $1250.
Aaron: You would be correct, yes.
Andrew: Yeah, all right. That’s a damn good price.
Andrew: You just went out to a marketplace and bought it?
Aaron: No. I think it was a company that had it and they weren’t really doing anything with it. They were just kind of redirecting it to another one of their sites and so we reached out to them, obviously not using any of our domains that we already had in existence and at first, they wanted $1500 for it and we got them down to $1250 and we called it a day.
Andrew: I think it was iwmarketing.com is the site that had it at that time. So you bought it from them, it’s now not enough to have done to just get the domain. You put up a landing page. Everybody puts up a landing page but you created a secret post that you gave me access to where you talk about what you did to promote it and you say, “Here is our landing page and why it works so much better than other people.” Can you describe what it looked like and why it worked?
Aaron: Yeah. So we had this teaser page that we put out because obviously when you’re building a marketplace, it’s really difficult because you have this chicken and egg scenario. Nobody wants to sell on your marketplace unless there are people that are coming there to buy and nobody is going to come there to buy unless there are actually products that people are selling. So what we had to do was try to build up the buyer side of the marketplace by getting people involved early on and getting them to come join Creative Market before we’d even launched it. So we built this teaser page and what we did is we offered $5 in free credits to anybody that came and put in their e-mail address prior to our launch. And so we did that and then once you put in your e-mail address, it gave you kind of this viral refer page. It was the only other thing that was visible on the site. So you put in your e-mail address, you sign up for the site, you get $5 free credits and then it says, “Hey, share this with your friends and you can earn even more money to spend when we open the doors.” And so we actually had different tiers, so if you refer 10 friends and they come join, then you get 10 more dollars, so on until …
Andrew: Give a name. It’s actually I’m looking at the supporter level five refers gets you $10. The ambassador level means that you referred 20 people, you get $30. VIP is the title you get if you refer 50 people and that entitled you to $200 in Creative credit money to spend on work on there. That’s incredibly smart but it’s dangerous too. If you’re handing out $200 that you then have to use to pay for people, I mean it’s not coming out of thin air. It’s not that you eventually have to give that money to the designers, right?
Aaron: Yeah. So we had raised about a million dollars in funding at this point. And to be honest, it was nerve-wrecking putting this live. We actually had a lot of people that ended up referring 50 or more people which was $200 in Creative Market credits you’d have to spend. And so it felt kind of risky but at the same time, it felt like something that we had to do is really powerful way to drive new sign-ups and it really worked because come launch day, in addition to a couple of other things that we did, we actually had 70,000 people that were signed up over just a few months of this viral teaser page being live.
Andrew: What else did you do that helped you get 70,000 people?
Aaron: Yep. So the other thing that we did is we had this page that we put together that was called Free Goods. And so we’re thinking about it and we’re like, “What are something that our target customers would be interested in that we could give them for free now? So that when we launch later, we’ll have their e-mail address and user accounts so we can start marketing to them.” We’d found that the e-mail marketing worked really well in the early days of ColorSchemer and so we had a feeling that this was going to be a big path for us, for Creative Market as well.
So we put together this Free Good stage where we reached out to allow the people that we’re creating content on other sites, on their own sites, and we said, “Hey, if you want to make something offer up for free to Creative Market users, then we’ll give you more exposure. You’ll be one of the first shops to sell when we open the doors to thousands of potential customers.” And so that was actually how we initially started seeding the seller side of the marketplace too. So we got actually 30 different products from various content creators; fonts and WordPress themes and things like that and we put them altogether on a page and you could download them all entirely for free. You just had to sign up to Creative Market in order to do it. And by the way, you also got $5 in free credits to spend when we open the door. So those two things combined the viral refer program and the Free Goods page were the biggest drivers of new users before we even had a website.
Andrew: You still do that to this day. So we have a company account but in preparation for this interview, I was checking out your site again and I hit the join button which is easy because I just had to click the Facebook button but I remember seeing, I get something for free. Now, the day that Ping, what is it like? $10, $20, $30, whatever it is for your design, the day that that become so pressing for Mixergy that I need it free is the day we’re close to shutting down the business. But I still got excited about it. I said, “Great! I can’t believe I signed up and I got this stuff. I can’t wait to go back after this interview to go see what I got for free.” It’s amazing how powerful it is because you got a price tag on all the other content. When I get some of it for free, I get excited.
Aaron: Yeah. It’s actually really funny because we send out a few weekly marketing e-mails when people joined the site. And we actually will get e-mails to our support staff if an e-mail accidentally ends up in somebody’s spam folder or something like that. They’ll say, “Hey, where’s my e-mail this week? I didn’t get the new Free Goods this week or the new products that are released on Creative Market this week.” And the reason why is that I think people actually see those is really inspirational and that’s probably the biggest thing that I’ve learned over the years around e-mail marketing is if you make the content actually useful and inspirational to people that receive it, they’ll want to receive it. They won’t think you’re sending me spam or you’re just marketing to me. It’s the types of things where people actually want to see that every week and click through to it and come back to the site and you increase this engagement a lot.
Andrew: Aaron, you said something else. You were a little worried about giving out so much money or so many credits to people but not incredibly scared of it because you’d already raised a million dollars. How did you raise a million dollars for a product that you haven’t even launched? All you have is a really clever viral landing page. What is it about your idea that got investors to say, “Sure, we’ll pony up and you figure it out later?”
Aaron: So following Y Combinator, we got out at the end of 2010 and to be honest, going into Y Combinator, we weren’t even thinking of raising more money. Here, we’ve been making more money and we’re profitable all this time and so we thought we don’t even really need to raise money. We’re just going to use this as a kind of a springboard for us. As we got closer to demo day in Y Combinator, we realized the opportunity that was in front of us to build something bigger and to pitch a lot of top level investors. And so we decided we were going to raise money.
And so we went out after Y Combinator and we’re actually more focused at this time on building the Color Data Company. And we had a tough time raising around that because investors weren’t just as excited about it. And then once we made the switch that we were going to build a marketplace then all of a sudden, those same investors actually became really excited because they’d seen the community that we had built. They knew that we could build this consumer platform and we had derisked a lot of the potential investment there and they obviously saw much larger opportunity in building the marketplace versus building this Color Data Company. So really, it was on everything that we had built prior and our track record, coming out of Y Combinator, and then the vision for the business that we wanted to build and the investors seeing that as a really big opportunity.
Andrew: I’m looking at Tech Crunch article from May 3rd, 2011 about the million dollar raised. So Color Lovers raised a million dollar to make everyone an artist. They were under the impression that that’s what you’re going to do. I’m assuming that’s what you said to the world that we are going to make Color Lovers into a site that more people are part of. But I’m looking at your investor list, people like Alexis Ohanian and Matt Mullenweg, Dharmesh Shah, who seems to be investing in so many of the hit companies. You told them the future really is going to be a marketplace. This is what we’re going to do, transition some of the people who are in our community to this marketplace where they could make money and then bring in others to buy. I see.
Aaron: Yeah. So it was tricky at that time because we hadn’t fully launched Creative Market but a lot of people knew Color Lovers. And so we’d raised this money and it’s not as much as of a PR story. If you say Creative Market raises a million dollars and everyone says whose Creative Market? If you say Color Lovers raises a million dollars, then all of a sudden, that resonates with people a lot more and there’s a frame of reference for what we’re building. It was interesting because we had raised this money and the investors obviously knew what we’re building but the core kind of in that headline was everything that we’re doing with Creative Market was to make design simple and accessible to everybody. And so Color Lovers touched on that at the basic level around color and patterns but that’s really what Creative Market was built around from a consumer perspective is just making all these great content just a couple of bucks and instantly, you look like a rock star designer.
Andrew: I’m looking at the comments that’s why I’m smiling as you’re talking. The comments are from people like Neha Baldwin, Dan Martel, Jeff Laborsky, Ted Rheingold of Dogster and so many others, all these people are really well-known in the tech community and really smart entrepreneurs. They’re commenting about how excited they are about this company. Bobs is one of my favorite people in the world says talking about Darius but Dan Martel is also a big fan of Darius. Rob LeFavre is fan of Bobs. That’s the power of having this community that I said at the top.
Aaron: Yeah, absolutely.
Andrew: By the way, everyone loves Bob. I don’t see a single person say I love Aaron.
Aaron: Bobs was the CEO and he was the one doing the fund raise and he was the one connecting with a lot of these people. Bobs or Darius, as we call them, and I had a lot of common but we also complement each other in a lot of ways too. And so the way we structured the company was he did a lot of the external fundraising partnerships and he’s just the incredible CEO and fundraiser. If you haven’t read it, you should go read his post on Tech Crunch about fundraising which was kind of like a bible. A couple of years back, when he published it for a lot of startups that were trying to raise money, so he’s exceptional and a great co-founder and that’s why I’m very fortunate to have the team that we did which made all of this possible.
Andrew: And I guess it has that cool name. Anyone whose known as Bobs online. I just want to use that word all the time. John Crawford, he’s a guy who is from Store NB who I interviewed here on Mixergy. He and the comments, first of all, the fact that he joined the comments to add his, anything to attach Tech Crunch articles. It’s interesting but he in the comments mentioned you and it’s really interesting to see the kind of passion that you get for this community that you tell Paul Graham, I am with Color Lovers and he says I love Color Lovers and he’s essentially recruiting you guys for Y Combinator is a really big strong statement about the community you guys built.
All right, you’ve got this whole thing set up, you don’t have a chicken and egg problem anymore because you got tons of eggs. You got tons of people who are waiting or I don’t know tons of chickens. You have tons of people who are waiting to buy from this marketplace. Many of them have cash, how hard was it to get the designers, the artists to join the community?
Aaron: It wasn’t hard because the way we’re trying to do it was scaling up the buyer and seller side at the same time. So in the early days, when we’re launching, we didn’t necessarily want a 100,000 people selling on the platform because if we have 100,000 people selling and only 70,000 people buying, then that means a lot of those sellers are not going to get sales and they’re not going to feel good about being a part of the platform. So what we did is we had that initial group that was making the Free Goods pre-launch for us and so we reached out to them and to more people like them and we gave them early access before we launched so they could set up their stores and start uploading their products for sale and things like that.
So I think we probably had just a couple of hundred sellers when we first launched but the value proposition to them was not hey, you’re going to make a million dollars on day one. A lot of them had participated in other marketplaces and they were starting to feel drowned up by them because there were so many people creating products for sale. It was really hard to get that exposure that they were looking for. And so we came to them with this pitch of we got this brand new marketplace that isn’t filled with a ton of people selling a lot of random products, some of it a lot of crap on other marketplaces, that they felt devalued their own work. And so we said if you get in early before we launch, then we’re going to promote the heck of you guys because there’s nobody else to promote and you’re doing great work. So it just meant more exposure for them for the ones that were willing to take a shot on us really early on before we had launched.
Andrew: So that’s something that I’ve heard a lot in my interviews and I think the first time I ask about the chicken and egg problem was to Jason Freed and he said, if I remember right, “Focus on the part that’s hardest or focus on one and then the other.” And in your case, by focusing on the buyers, it was much easier to recruit the sellers. The other thing I was going to ask you is what about big marketplaces like Envato Market where there were places to sell themes, PSD files, etc. And what a great answer to that. You already beat me to it. You said you went to those people who you wanted to sell and say, “Hey, you don’t want to be in the big marketplace because you get drowned out. Be in our place, it’s smaller, more exclusive and will help promote you.”
Aaron: So it wasn’t just that too. We’re not obviously the first marketplace to sell digital design assets but everything we do is very different and our mission for the seller side is to empower independent creators to make a living doing what they’d love. So this is what we discovered on Color Lovers. There are people spending a lot of time doing what they love. And so now, how can we transition that to help them make money off in just following their passions?
And so everything that we set up in the early days, the terms of the marketplace was built to support that mission. And so what that meant was everybody gets a 70-30 split. So they get the 70%. On a lot of those other marketplaces, if you’re exclusive or not exclusive or whatever, then you can oftentimes get less than 50% of each sale. When you’re the one who spent all the time and energy and hard work to make the product in the first place, we fundamentally felt like that wasn’t fair. And so 70-30 split for everybody. You didn’t have to be exclusive with us. You could sell on your own website. You could sell on another website. It was up to us to prove that we were the best platform for you to sell. The other thing is we didn’t review on a per product basis. Instead, we review it on a per shop basis so you think about Rovio, they sell Angry Birds in the app store. They put out the first Angry Birds, it’s a massive hit and then they want to put out Angry Bird Seasons and Angry Bird Star Wars and Apple still puts them through this review process wherever you’re at.
Our approach is let’s just approve Rovio because they make great stuff and now everything that they want to sell going forward goes live instantly because we know that they’re really great. So we approve people to open a shop and then they can upload their products and they go live instantly. They can set their own prices. They can change prices instantly to do AB tests and feedback or run sales or whatever they want to do. So really it’s all about giving the creators more control over the products that they were selling which was something that was just completely 180 degrees from all the other marketplaces that were out there.
Andrew: I mentioned at the top of the interview that it was because you had all this huge community that they became your first subscribers, your first customers and I also said your first supporters. And I gave a couple of examples about how Neha Baldwin and others are supporting you in the comments of a Tech Crunch feed but it’s more than that. How else did your community support you in the early days and help you get going?
Aaron: The community within the buyers and sellers or the community …
Andrew: Color Lovers. This community of artists who’d known you because they’ve been a part of Color Lovers or known you and respected you because of the work you’ve done there.
Aaron: Yeah. Well, first of all, on that teaser page, before we even launched Creative Market, we said from the creators of Color Lovers on there. So we used it as a way to establish credibility with people in the design space that were already familiar with us. The other thing is we actually used Color Lovers to market Creative Market so we had e-mails that we send to the Color Lovers Community. We had ad spots and integrations and things like that we would do to let the Color Lovers Community know. “Hey, we’ve got this marketplace that is either coming soon or has just launched.” And so we were able to actually get a lot of people to move over from Color Lovers and create accounts on Creative Market because we have this credibility and because we’re able to market to them.
Andrew: But did they support you in any other way by maybe writing more articles about you, by talking about you in the ways that others hadn’t gotten conversation? What else did they do? Well, if they didn’t, it’s totally fine. If what they did so far that I’ve discussed is all they did.
Aaron: No. So that’s another thing is because we’ve been in the design space for such a long time, we had a lot of contacts and connections at a lot of the most popular design blogs and design writers that made it easier for us to help spread the word. So we used our connections there whereas if we were just trying to launch Creative Market, this marketplace with no track record and no history and a brand new industry for us, it would have been much more difficult. So we had that. A lot of the names that you mentioned that were commenting on that Tech Crunch post, those were startup friends from within the Bay Area, like you mentioned, are really well-connected. And so for those guys to feel positively about what we’re building and excited about it, they helped passed that word along within the investor community and within the startup community which helped get a lot of people excited about what we’re building too.
Andrew: So we talked about the fear of credits eating up all your revenue or all the cash that you’ve got from investors. According to my notes here, you got within a few days $3,000 in sales, $2,000 of them were credit sales, $1,000 of those sales came in cash. So not bad. A lot of people you said to our pre-interviewer didn’t even redeem their credits. What percentage of the credits that you gave out were redeemed in, say, the first year?
Aaron: I don’t have that number offhand but just to give an anecdote, for giving away $5 to every single person who signed up before launch, and we had 70,000 signed up, that’s a potential liability of $350,000 right there. And that was nerve-wrecking. It’s exciting to be able to send that e-mail on launch day that says, “Hey, you remember that $5 in free credits that we gave you or even more if you actually invited other friends to come join? Well, now we’re live and you can come spend that free money.” So we’re thinking who wouldn’t want to do that? Who wouldn’t come back to the site to spend that money?
So with this $350,000 liability, we send out that email to everybody in the community and day 1, we had $3,000 in sales. So we didn’t know before we did that, if we’re going to have $300,000 in sales on day one and burn through all of our money and then we’d be in trouble or if things would go slower. And we actually found that giving away the free credits beforehand was a great tool to get people to come sign up and it brought them back to the site but ultimately, it didn’t hurt us or put us in the hole as far as increasing our burn and having to go raise a lot more money.
Andrew: So those numbers were from the first day? I would have expected even more than $3,000. You did too. Why do you think it was so low?
Aaron: It’s tough to say. It was obviously day one and we had so much to learn about the product we are building and the community that we were serving, so part of it is we only had a couple hundred products altogether. So just because you have $5 for you to spend, doesn’t necessarily mean you’re going to find the exact thing that you’re looking for. So now, we’re up to, I think, like 180,000 products within the marketplace and it’s much more likely that you can search for something and find what you’re looking for so it takes time to get to that experience. In day one, we expected more but we also sort of didn’t really know what to expect.
Andrew: And part of it is also that there isn’t much to buy for $5. It’s really inexpensive like I’m looking right now at a guy named Arslan who created a minimalist business card design that I can buy but that costs $9 so even if I have $5 credit, I’d still have to pay another $4.
Aaron: Yeah and that was part of the strategy around $5 too. If you give out $10 or $20 or $50 to everybody, then all of a sudden, they can just keep living off of that for free buying everything that they need without needing to get their credit card out. And another thing is we worked really hard to make this super fast streamline purchase process and part of making that really great is getting people to put in their credit card the first time so that when they come back again, it’s just like the Apple App Store. It’s two clicks and boom, you bought it and you’re good to go. And now, if you hook up your Dropbox account, we’ll even instantly sync it to a folder in Dropbox for you so you don’t even have to download it afterwards. It just shows up on your computer. And so we spend a lot of time with that but part of it was just getting people to put in their credit card the first time so that kind of hook them in and made repurchasing really, really easy.
Andrew: The form is so simple. I don’t even have to put my name into the form. I just have to put my credit card number, expiration date and CVC and I’m guessing that’s because you have my name already in your system. Yeah, you do. I’m just looking at the top of the page and you got that because I wanted the free bundle. I wanted the free designs. Here is something else that you did, you created bundles where you package a thousand dollars worth of goods for $39. How are you able to do that with your creators?
Aaron: So we actually worked with them to put together those bundles. So we typically have 10 shops as we call them, or creators, that participate in each one. And we give them all 5% of each sale, so for them, just by saying “Yeah, I’ll opt my products in,” they make thousands of dollars in a week just for participating in this. So for a lot of people that’s really life-changing to be able to do that and furthers us towards our goal of helping people just make a living, just creating these products and selling them on Creative Market.
Andrew: Did you expire the $5 credit?
Aaron: So we did at the end of the first year. So we launched in October 2012 and then at the end of December in 2013, we expired that if people haven’t used it.
Andrew: I see so it doesn’t stay a liability on your books forever.
Andrew: Here is something else that I’ve seen about that you guys do for getting the word out. You have an affiliate program right at the top of your site, you call it partners and if I become a partner and I recommend that people go out and buy something, I’ll get 10% of that sale and for the next year, 10% of anything else that they buy through their account. What percentage of your orders come through that?
Aaron: It’s probably something like 10%. So the affiliate program is great because it enables people to make money even if they’re not creating content and we actually have people that are making thousands of dollars every single month just for referring people to the site. So that’s awesome to see but it’s also great for SEO because now people have more incentive to write blog posts about us or link over to content. So there’s a lot of benefits there that that program takes time to scale up something like that and get those back links and help people build up their referral base so that they’re making a good chunk of money but we’re seeing some really great gains since we launched that about a year ago.
Andrew: What are you doing with Dribble that’s sending so much traffic to you? Is it just that people post on Dribble and then link over to where people can buy more of their stuff?
Aaron: Yes, so Dribble, those guys are great friends of ours. We actually noticed that a lot of our early sellers and our early buyers were coming from Dribble. They would create these products for sale in Creative Market and then they would post them on Dribble and then link over for people to purchase. And so early on we discovered that those guys would be a great partner for us and a great source of traffic and revenue. So we’ve since partnered with them. Now they’ve built it integrated into the Dribble site where if you’re uploading a product or a shot as they call it, to show off your work or something that is available for sale, you can actually embed your Creative Market purchase link and they’ve added it to the side bar where it says “Buy on Creative Market.” So that way, it draws more attention and it becomes a better channel for people to get kicked over to Creative Market.
Andrew: I didn’t realize there was a partnership directly with them but of course, that makes sense. What about BHands?
Aaron: BHands in our early days would link over to us too but we just don’t see quite as much traffic or shop owners as we call them posting a lot of their work on BHands. BHands is really great for kind of long form in-depth sharing of what you’re building but I think Dribble is really great because they have this big audience that’s constantly checking the site and it’s just this little contained shop where you can show off how great the product that you made, looks and works and then that I think inspires people more to get kicked over and eventually make a purchase.
Andrew: How long did it take you to hit a million in revenue?
Aaron: We did that on the one year anniversary to the day of our launch.
Aaron: So that was October 18th, 2013.
Andrew: Wow! And then soon after that or was it on that day that you got a couple of buy-out offers?
Aaron: Yeah so it’s actually two weeks later, we had two acquisition offers on the same day so that was kind of an interesting experience.
Andrew: How did they come to you?
Aaron: So we’ve been talking with one company for a number of months just about partnership kind of stuff or ways that we could work together. And after a number of conversations, we started to feel like there might be an offer coming soon. And so we actually reached out to a bunch of other either partners, people we had worked with, people that we have connections to, to see if we could drum up any other interest if anybody else might be a good fit. And so one of those companies actually was Autodesk and we met with them on a Monday. And we went into that conversation and came out and just felt like, this felt very different than a lot of our conversations with the other company. It was more about we’re bringing your whole team. We love what you’re doing rather than like well, how many people from your team do you really need to come over if you were to join our company?
And so we just had this really great feeling like it was a much better fit after talking with Autodesk. And so three days later, it was Thursday morning, Halloween of 2013, we get the first acquisition offer from the first company that we have been talking too. And to be honest, it was way below our expectations. They were factoring in things like well we can have x million dollars for salary for your team over the next three years and they were calling that part of the acquisition price. And they also structured it in a way where well x dollars can go back to your investors just to give them their money back but really you guys as founders should take most of the money. And so they were kind of playing games with the offer and so we were not interested in it. So they talked about entrepreneurship and startup to being a rollercoaster and so we get this offer and “Hey, somebody loves us and wants to buy our company.” Then we look at it and it’s like, this is not interesting at all.
And then sure enough a couple of hours later, we get another offer from Autodesk and it’s significantly higher than the one before and it was just all cash, clean and simple with really fair terms we felt like. And so at that point, it just became are we going to take the Autodesk offer or are we going to keep growing as an independent company because we’ve been growing about 12% month over month revenue at that point.
Andrew: You’ve kept the number quiet. I don’t even see speculation about how much. But it feels like a small amount. Did you personally become a millionaire from this sale?
Andrew: You did.
Aaron: It wasn’t a small amount.
Andrew: It wasn’t?
Aaron: Say that. Yeah I’m not allowed to talk about it but yeah I can just say that it wasn’t small.
Andrew: So was it more than $40 million.
Aaron: I can’t really say it.
Andrew: You can’t even say that?
Aaron: I can’t.
Andrew: Why sell? How long had the company been around?
Aaron: Well, that’s a great question because Creative Market had been around, by the time the deal closed in February 2014, it had been around for, say, 15 months but as we started this conversation with me and you, my story actually started 15 years ago in my dorm room and it’s been a continuation of that ever since and it was the same for my co-founders. So to say we’ve been doing this for a year or so, really doesn’t factor in kind of all of the depths of what we’ve been through but that wasn’t the only factor too. At that time, we really felt like this valued built in a lot of future value for where we were at and where the company was going. And ultimately, it’s a very personal decision for each of the founders and thinking about …
Andrew: How was it for you? I remember Alexis Ohanian said the same thing at that time he wasn’t ready to talk about it and years later, he wrote his blog post about what was going on in his family and his mother was going through something, I think, and that’s why he needed to sell Reddit. Can you talk a little bit about what it was that made you decide to sell? What was going on personally?
Aaron: Yeah, so personally, I was torn on the decision. It was a very difficult decision. I really believed that the company would be more valuable in a year that it was at that point and we’ve had great growth to that point, but at the same time one of my goals even since college was to build and sell a company. And so here I had this opportunity in front of me that, as you just said, would make me a millionaire and bring a lot of stability to my family and our kids and everything like that. And so if I passed up that opportunity and a co-founder got hit by a bus or something happened with the business where we stopped growing or we would have probably raised a large A following that, and if we’ve done that, then there’s the delusion that you have to factor in and potential exits become much higher. And your potential exit targets become much smaller, so there’s a lot of different things where I just kind of felt like if I didn’t have this opportunity again in the future, then I would have a really tough time living with myself about that. And it’s hard now with the hindsight of the company continue to grow even beyond our expectations which is really awesome and largely due in part to the fit, I say that we actually have one of those rare successful acquisitions where the team is really happy continuing to work on the same products, serving the same community, same team.
Andrew: You’re still around. I know that they required you to stick around or they incentivized you too but …
Aaron: They incentivized us too but we’re having fun and my boss within Autodesk, first time I’ve ever had a boss by the way, the only thing that he says to me is to just keep growing and he gives us the resources to do that. And so for me personally, I spent longer than I can remember working 24/7 nights, weekends. I lived, breathed, working and building Color Lovers, ColorSchemer, Creative Market and to now have the freedom where I don’t have to worry about well, if I don’t spend five hours working from 8 p.m. to 1 a.m. tonight, then the whole team might lose their jobs. I have the comfort where now I can just relax a little bit and so that’s been really valuable for me personally. So I relax in the sense that I don’t go a hundred miles an hour but our team is still working really hard and super passionate about everything that we’re building and want to continue to see that succeed. So it’s been a great situation and I think the team is largely really happy with the way that it turned out as well.
Andrew: If you can go back in time and talk to the person who is listening to Mixergy interviews back when you were building the business, what’s one piece of advice that you would give that person?
Aaron: So my favorite quote is “The best time to plant a tree is 20 years ago and the second best time is now.” So you have to start today. It’s easy to say, “I’ll do this at this point.” But every long journey begins with a single step and so you just have to start. Start putting something out there. When I was building ColorSchemer, I was kind of saw it as a hobby thing, right? Because it wasn’t this big scaleable thing but it was making me, as an individual, a lot of great money. And I met with these lawyers one time and I said, “This is just a hobby until I figure out what the next thing that I want to do is” and they said, “Well, maybe this could be the thing that puts your kids through college.” And I was like, huh, I hadn’t really thought about it like that before and I was able to, because I had done ColorSchemer, trade that up into partnering with Darius and Chris from Color Lovers and merging our company together.
And then we were building Color Lovers and we’re able to trade that up into launching the marketplace and building this big marketplace and community around Creative Market. And that was all because I started in my dorm room when a lot of other kids were out partying in Mexico or something like that. And it was just something that I was driven by and passionate about. And so you have to be passionate about what you’re working on because it gets tough and you run into a lot of shit and you got to be able to push through that. And if you’re not passionate about the product that you’re working on and the company that you’re building, then it’s really easy to just throw your hands in the air and give up and walk away.
Andrew: The website is CreativeMarket.com. I think if you’re looking for a website, this is not going to really change your bottom line there but if somebody needs, and I’m going to speak to my audience. I know you guys sell brushes and PSDs and all kinds of other stuff, but frankly for us, we sometimes just need a page. A page that just will communicate something really clearly and we can’t hire a designer for it because it’s just not worth it. I just need a page for my web, for my personal site or to sell something, whatever. Creative Market is such a good shortcut. You go in there, you get the page, you get to make some changes at HTML and you can publish it. And if you want to take it a step further, then you can also buy the designs and have somebody turn them into HTML pages or templates that you can use. It’s just been such a nice find for us here at Mixergy. I’m really proud to be one of your customers. Thank you. You actually suggested yourself for doing this interview. Am I right about that?
Aaron: I’ve been a big fan for a long time, so it’s an honor to be on.
Andrew: Then you remember that for years that I used to say I would love for anyone who is listening to build a company based on what they’re learning here and then come back years later and teach it and you just did it. I’m incredibly grateful to you for doing it. I’m also grateful to April Dykeman for having that pre-interview conversation with you. She’s here on the Mixergy team and she helped me get as much information as possible. Research was also done for this interview by Andrew Schumann and posts will be up on the site.
Thanks to Aurie Disermo [SP] which means that if she gets a headline that you don’t like, you can email her directly and say “Aurie, can you adjust it? We’re going a little too aggressive to get some traffic, Aurie, but here’s what I think would be better.” Aurie, thanks for continuing to push the envelope on those headlines and getting us traffic.
Thank you all for being a part of Mixergy. And Aaron, thank you for doing this.
Aaron: Thank you, I really appreciate it.
Andrew: Thank you. Bye everyone.