Before we get started, check out Visual Website Optimizer.
Did you know it’s a dead simple way to do A/B testing on your site? Just
enter your site’s URL, and you’re ready to create variations of your current
site’s design. Once you’re done, test it against your current layout and see
which one increases conversions. VisualWebsiteOptimizer.com
Next is Grasshopper. Did you know that in addition to being
the virtual phone system that entrepreneurs love, Grasshopper.com has one
of the most popular blogs on entrepreneurship? Even if you’re not ready to
get a new phone number from Grasshopper.com, even if you’re not ready to
add extensions to your phone, even if you’re not ready to get text-based
voicemail and a toll-free number and everything else that Grasshopper
offers you, check out Grasshopper.com’s blog to learn about
entrepeneurship.
Finally, who’s the lawyer that tech entrepreneurs trust?
Scott Edward Walker of Walker Corporate Law. But you don’t have to take my
word for it, scroll down to the bottom of his site and see what other
entrepreneurs have said about him, including Jason Calacanis of Mahalo
who says, “He’s a great lawyer, who loves startups.”
WalkerCorporateLaw.com. Here’s your program.
Andrew: Hey everyone. It’s Andrew Warner. I am the founder of Mixergy.com,
home of the ambitious upstart and the place where you come to listen
to successful entrepreneurs talk about how they built their business and
teach you what they learned along the way and feed you so much information
that you can go out there, build your own company and hopefully do what
today’s guest is doing which is share what your learned along the way, fire
other people up, and teach them from your experiences.
So joining me today is Ben Milne. He is the founder of Dwolla, which is pretty much
like PayPal but without the fees. My focus of this interview, though, won’t
be on Dwolla. I want to hear about the business he started before it,
including Elemental Designs which averaged apparently well over a million
dollars in sales. And according to someone who I met recently, Ben did you
have a lawn mowing company on steroids? What does that mean?
Ben: When I was like 14, I guess I figured out that I can get paid about
$25 an hour to mow yards. So, I started employing my friends by the time I
got to high school to mow yards. So I guess that was kind of my first
endeavor, but to me it was a way not to work at Walmart at the time.
Andrew: That’s awesome. How many friends did you have working
for you?
Ben: When things were ramping up, the most I ever had kind of helping me
out and working for me were two people. We had more yards because we
overbooked, and we couldn’t finish them all. So I’d give them x amount of
dollars to come out there and help me and they were happy to do that. They
weren’t doing anything anyway and I guess that was pretty decent money for
all of us.
Andrew: OK. I want to find out about that. I want to find out about the other
businesses. I want to find out about Elemental Designs. But people are going
to be curious about what Dwolla is. I gave them that little snapshot, like,
PayPal but without the fees, but can you give us a use case of how
someone can use and interact with Dwolla.
Ben: The reason Dwolla was created was that my old company, as we kind of
scaled, to be honest. When we built my old company, I didn’t know what to
really do with it. So I, just kind of started looking at overhead.
Interchange fees were actually starting to cost us quite a bit of money. So
the whole reason Dwolla was created was that, my old company, we wanted to
get paid by through our website but we didn’t want to pay credit card fees.
So we started going out of the marketplace and doing research, and we
couldn’t find what we wanted so we pitched a bank and thankfully they said,
“Okay. Well, here’s a rulebook on how we do electronic transactions.” So we
kind of built something around that. The initial application was so web
merchants to accept payment through websites. Now it’s kind of become
something that has a lot of activity with mobile phones. And with the next
iteration, retail merchants paying with mobile phones on our network as
well as consumers in a peer-to-peer type environment. One other application
that we see being really successful for us is business to business
transactions, say between five and ten thousand dollar transactions where
they just don’t want to cut a check. They just use Dwolla because it’s so
cheap.
Andrew: And then how does the money eventually get into the account?
Ben: Dwolla is so cheap because it doesn’t use plastic networks. The way we
look at it, the money comes out of your bank account, at the end of the day
to pay a plastic card anyway, so why not just sync up directly with it. So
basically, all the money that goes into Dwolla goes through your bank
account, your checkings, your savings. When it leaves Dwolla, it goes to
another checking or savings account or it could be spent in the ecosystem,
kind of like a PayPal model
Andrew: I see. But, it can just go from one bank account to another,
without being sent anywhere else?
Ben: Yeah. Absolutely. We have this teeny-tiny feature called automatic
withdrawal. When money hits your account, it acts like a sweep account and
sends it to your bank account.
Andrew: Can you say what revenues you guys are doing right now?
Ben: No, not right now. We’re still very early. Transaction volume?
Andrew: Yeah, how about that?
Ben: We’re at about a million a month at transaction volume.
Andrew: A million dollars a month being passed on Dwolla.
Ben: Uh-huh.
Andrew: And how long have you guys been in business?
Ben: The platform itself has been around for two and a half years. We
launched in what I call a public beta, which is to say that we were live in
Iowa and California for about a year. Then we launched December 1st
nationally, which is where we saw an uptake in user and transactions, where
the platform really started to grow. Honestly, it’s not a technology thing,
but more of a regulatory thing. We spent about a year wrapping our head
around how to deal with that. We had some really strategic investors come
in. It was a huge play for us and really did great for us.
Andrew: Let me ask you something. One of the things that’s really standing
out to me as we’re talking, it’s probably superficial and maybe I shouldn’t
be paying attention to it but I can’t help it, you got this look to you.
You’re wearing a T-shirt. You’re wearing a wool hat even though you’re
inside the office. I would expect the guy who is going to be handling money
to be wearing a collared shirt, maybe a tie, maybe a jacket.
Ben: I have a tie, but every time I wear it to the bank they wonder where
my T-shirt is. You know. No, I think that this business is about
reliability, about honesty, just like every other business. And I think one
of the advantages to being in Des Moines, Iowa and being close to Omaha as
well and we have a really strong emphasis on payments. At the end of the
day, a lot of the people we are working with, our financial institutions
and payment experts, care about the product and not what kind of watch I’m
wearing. So, thankfully we’ve been fortunate to meet some really awesome
people.
Andrew: What kind of watch are you wearing?
Ben: None today. I’ve got my iPhone. Why would I need a watch, right?
Andrew: All right. So you’ve had this lawn mowing business. In
fact, why don’t I just jump right into Elemental Designs? What was
Elemental Designs
Ben: Elemental Designs was basically, love the analogy, Dell but with
speakers. Right? So we wanted to . . .
Andrew: Just what with speakers, sorry?
Ben: Dell but with speakers. We basically took speakers and sold them
online as direct as possible from the manufacturer. So, I read your story
about the Jay Crug Returns [SP], and that hit home. I loved music, so
that’s why I wanted to be in a company that funded speakers. I thought that
was fantastic, but I was a terrible musician. So, I funded that company by
selling all my instruments on eBay. I sold a couple saxophones and guitars
and that’s how I got my money. Basically, the whole premise was we wanted
speakers to work in a smaller box in your car. You know subwoofers take up
big boxes so, we came up with the idea to sell speakers that work in a
smaller box. And that idea went from 1200 to a million in revenue over
about four years without outside funding. Once we built it, we didn’t know
what to do with it, so we kind of spent three years in entrepreneurial
purgatory; I didn’t know what to do with my life. And, I eventually sold
the company and started with Dwolla.
Andrew: So the three years of not knowing what to do with your life, you were
still running the business and owning the business?
Ben: Yeah. I was definitely still running it, but it was at the point where
it was self-sustained. I was working like two or three hours a day. I wasn’t
really creating anymore. When I was building it, you know the idea was you
want a white house, a couple foreign cars, yada yada yada. You gotta mow
the yard and keep putting gas in the cars. It was just very boring.
Andrew: What car did you end up driving?
Ben: Well at the time, I guess I ended up acquiring a Scion, a BMW, and a
Lexus just because they seemed like fast, nerdy and I don’t know an around-
town car. I just didn’t know what to do with the money. Then I just
realized what I wanted to do with my life was keep building so I sold the
company and moved onto the next one.
Andrew: What’s the funnest thing that you bought?
Ben: A CNC machine. I bought a 6000 pound machine that cuts wood and
metal. Basically we moved a lot of our cabinet production from overseas to
a warehouse in Newton, Iowa. Just the ability to go from cad, to product,
to paint booth, to out the door. We went from buying 12 speakers from a
company in Omaha to bringing in a container a month to saying, ‘This is
dumb.’ and just making it in Iowa. So we really turned into a manufacturing
company, from a distribution company and at that point it just became a
what do we to do with it. At the time I had absolutely no knowledge of
venture money, what real strategic relationships could get me in terms of
distribution. I was very naive and had no idea. Start up an entrepreneur,
you have no idea and just jump in.
Andrew: I gotta dig into this. This is going to be great. You sell your
equipment on eBay. I want to go in and find every bit of information here.
You sell your equipment on eBay. How much did you get for your equipment?
Ben: I got about $1,200 bucks. I bought 10 speakers, and then sold the
speakers before I got them so just kept turning it over hand over fist.
Andrew: Where did you find the speakers and where did you sell them?
Ben: I bought them from a company called Resonace with a brand name called
Digital Designs, in Oklahoma. Then, we sold them basically through forums.
Kind of like old school social networks were VB boards. When it came to
acoustics and speakers, everyone was on forums. In order to sell 10
speakers, that wasn’t a big deal. But that got me to eat hot dogs for a
week, man, that was awesome.
Andrew: Can you just go into the forums and say, “I bought these speakers.
Buy them from me?” Or did you have to respond to someone else’s question
and in the sig file have a link to your speakers or what was the deal?
Ben: You know the way I did it originally was I acted like resource as much
as humanly possible. So if you had questions, I did my best to answer your
questions and put the name of my company and my signature.
Andrew: So 10 speakers sold from the little line in the sig file after your
name.
Ben: I would say the biggest thing I would get is questions about the
speakers. Once people realize that maybe I could be resource, they started
asking questions about the speakers that were there and then I would just
answer emails. It’s amazing how many company’s actually lose sales because
they don’t answer emails. And, in my case, the only reason I sold them was
because I answered emails.
Andrew: And so were you selling them in an email or were you selling them
on the forums based on your email responsiveness and your connection to the
community?
Ben: I would say that I got my initial hook to the conversation on the
forums but I would sell them through email. Then we built the website so
they were buying them online.
Andrew: Any scam?
Ben: I think back then there was a fine line. Just like now, you can’t go
into a tech blog and say, “You’re talking about PayPal. How about you check
out Dwolla?” You can’t do that. There is something about a certain line you
have to be aware of. Thankfully back then, I had been selling speakers for
a few years. Before I started that company, I used to, are you familiar
with what drop shipping is?
Andrew: Yup.
Ben: Basically I built a website for a guy and he was letting me buy
speakers out of a shop in California and he was drop shipping them to my
customers. So I was selling speakers over the internet out of my bedroom.
Through doing this, I kind of built this small network of people that were
OK with me roaming around their boards and taking care of people. I kind of
already had a client base to build off of. Thankfully, you know how it is,
you get closer to the source, the bigger your margins get. The more money I
could put into other things, more speakers, more lines and things start to
compound.
Andrew: What was the next step after the first forum sales?
Ben: I think the first step was celebration and beer of some type.
Andrew: Uh-huh.
Ben: And then shortly after, we just ordered more speakers. It got to a
point where the 10 speakers turned into a semi-truck coming up once every
two weeks . . .
Andrew: How do you go from that? If I brush over that, then my audience is
going to be pissed. The first few customers are so tough to get. I
understand the first ten in a forum. Anyone can move ten with a little bit
of effort, maybe a lot of effort. But to go from there to a truck is a big
step. What do you do next?
Ben: After you get the truck?
Andrew: No. Before you get the truck. What do you do after you go to the
forums? Were you selling a truck load of speakers through forums just by
responding? You did?
Ben: Pretty much. I spent about 20 hours a day sitting on those stupid
forums. They aren’t dumb but I just spent so much of my life on these
forums I remember specifically part of my couch was dipped in because I
always sat in the same spot and I killed Mountain-Dew for 20 hours at a
time and just sat there and answered questions. I mean I understood that if
I acted as a resource, I got traffic. And, if I got traffic I would
eventually have a conversion and I would have sales. So, as we had
conversion and sales and happy customers, it started compounding. The
numbers we were working with weren’t really all that big. Ten really isn’t
a lot, especially if you sell two at a time, or six at a time, or five at a
time. Then, 10 or 20, and if you can really work hard on making those
customers happy, it doesn’t really become hard to sell a higher volume
until you start thinking, “Well, how do I move 500, how do I move a 1000,
how do I move 5,000?” That’s where I think it really got difficult for us.
And that wasn’t until, at least, four years after that.
Andrew: Okay. But at what point do you get a website in order to sell? Do you
do it before the forum starts? Do you do it after the first few sales?
Ben: No. The way we did it was we built it the second we had a brand name.
The second we had named it, we had a website.
Andrew: Before or after you started selling?
Ben: Absolutely before.
Andrew: So you come up with the idea, you build the website really quickly.
You start making sales in the forums. What does that first website look
like?
Ben: Bad. Really ugly. I think the way we had it was we had a logo and we
took shots of what our initial prototypes were, which looked like widget
prototypes. A few things were photoshopped but at the end of the day we
went and had a local sticker shop build stickers for us and stuck them on
the speakers trying to make them look legit. Then we shrunk the pictures
down small enough so they still look good. And, that’s what we had. That’s
really what we built our first sales off of; that and the specifications
that were out so people knew what to do with the speakers.
Andrew: So Ben, when you say that you were creating prototypes, you weren’t
really reselling someone else’s speakers. You were reselling them, but
adding something to them and adjusting them a little bit? Do I understand
that right?
Ben: Yeah. The first ones we did were what you consider an OEM or a private
label line. They had slight modifications from their ‘house’ products. What
that moved into over a three or four year period was we started doing a
tremendous amount of tooling, overseas and things like that, to where our
products were build solely from our own tools and our own designs. So we
went from house parts to proprietary-owned parts.
Andrew: What was your twist in the beginning before you started creating
your own speakers from scratch essentially?
Ben: I think it was that I stayed up later and answered emails faster than
my competition.
Andrew: Was there anything different about the speakers that you sold?
Ben: They worked in smaller boxes but we had competitors pop up and say,
“Well, our’s work in smaller boxes.” A lot of it was we offered a
tremendous value for the amount of money that you were paying and once we
had a customer base, people were comfortable buying from us. From there, it
all became about customer service. You can buy speakers everywhere. I think
the average consumer doesn’t know a lot about speakers or speaker-
technology. It all comes to, “Who do I trust? Who gets my attention? Who’s
going to take care of me?” We really concentration heavily on, after we had
a good product, working on having a good customer service side. We
struggled with that a lot when we had our growth spurt from about 50,000 a
year to almost a million fairly quickly and without a very big staff.
During that, we had some parts where we didn’t manage customer service very
well and we learned from those very quickly.
Andrew: I’m going to come back to customer service because I could
understand that if you do that wrong you lose everything that built up to
the point where you have all those customers.
Ben: Absolutely.
Andrew: Sticking with the product development, the first product was
essentially someone else’s product with your label stuck on it. What was
the next step in the evolution of the product?
Ben: Continuing to evolve, we got a little bit more money. We wanted to
take the product and make it more ours, make more parts that are ours and
utilizing more things that aren’t off the shelf. For speakers, that meant
custom coils, slight modifications of some things like suspensions, which
are soft materials that you could get from vendors in the United States or
China. So, we really started customizing small parts that were semi-low
cost to customize. Then, as we did that, we got some more money and started
customizing the harder-to-pay-for parts that were more expensive and over
time I think we almost invested half a million in parts tooling to where
they have one of the largest parts tooling catalogues of any speaker
company in the U.S. Their revenues earned aren’t similar to those big
companies, but they have a ton of parts.
Andrew: So the original adjustments, the original customizations, how much
of them were based on what you could do and how much of them were based on
what customers were demanding or what you thought you say in the market.
Ben: Customers didn’t really demand a lot of customization. Customers
themselves, did not. We, ourselves, as a company wanted to differentiate
ourselves from other people as our image became something that customers
recognized as much as the parts. I think that for us, that was a little bit
of marketing. Those new parts gave us better performance, which in turn
allowed us even more marketing and allowed us to make our customers
happier. You didn’t have customers popping up and saying, “You need to make
a new cone, because it needs to be black instead of silver.” They just
didn’t do that.
Andrew: So it was just you saying, “This is what we like to create. Because
we can do it or because we want it or because we think this is the
direction of our company?” How did you decide what to fix? There is just so
much. Part of the problem you have as an entrepreneur is you have this big
vision of what you want to see out there in the world. There is so much you
want to do. For many entrepreneurs they just end up doing nothing because
until they get it perfect, they can’t get it started. For others, it’s I
don’t even know what to do or where to begin and that’s what keeps them
from getting started. You knew what to do. I’m wondering how you decided,
how did you know what to adjust first and what to leave until later?
Ben: I think, to steal a term from Venture Hacks, at that point in time it
was my own monomaniacal vision and there wasn’t a lot of people saying ‘You
can’t do this. Stop.’ For me it was, we can build this. We can build this.
It was like playing with Legos, it was like I could just build more stuff.
So, I just kept building more stuff.
Andrew: I see.
Ben: A lot of it was built around what I wanted to do or being excited
about a new technology. At the time I wasn’t necessarily concerned about
401(k) plans or anything else. I just wanted to build more stuff. So, I think
that’s what really drove it. I just wanted to build more cool stuff. If I
had made more money, then that would mean I would get to build more cool
stuff. So that’s all I did. Then, I hit a point where I wanted to do a
project like I talked about and needed to build something else.
Andrew: How much was the building stuff was going in your home and how much
was going on somewhere else?
Ben: Initially, all of it was going on somewhere else. In my home, we
didn’t really have an office until my kitchen and basement were filled with
sound materials and big brown boxes. We got nervous because we had these
big trucks pulling up and I had three or four friends helping me move brown
boxes into cars to go take them to FedEx boxes so we didn’t have to pay
for pick ups. That’s what kind of drove us to get an office. But we didn’t
really actually start making our own stuff until we were about four or five
years in where we recognized that the suppliers we were utilizing were
really getting everything from Asia anyway and a lot of the problems we had
hitting shipment dates was due to them not managing their distribution
channel very well. So, I got on a plane and went to Asia, spent 3 weeks,
and we started doing business with our suppliers.
Andrew: So when you say in the earlier day that you were slapping a sticker
on someone else’s speaker and adjusting the suspension, I think you said
the word coils, that wasn’t happening by you directly. You were shipping
your sticker to whoever was going to drop ship your speakers. They attach a
speaker and sent it out. They made the modifications you requested.
Ben: Yeah. Initially the process we went through was we would make the
modifications, and then we’d get this flat of speakers, which had nothing
on it. So we’d go down the street and get stickers made. The first speakers
that we shipped, I didn’t have boxes so we had to go to U-Haul and I cut
the boxes inside out. I got packing peanuts from somewhere else and I used
to drive around Cedar Falls, where I started the company, and pick up free
packing peanuts by the dumpsters so I had something to package the speakers
with. Then we’d ship them out.
Andrew: So they’d come to your house, though? And then from your house
you’d take them out to UPS and drive them directly and then you’d ship
them out?
Ben: Yeah. We’d package them in the house. So just imagine a living room
with packing peanuts and tape, just people putting things in boxes. And
then my friends would come, when it was too much to fit into my car, and
help me drive it to UPS or FedEx, and we’d just stack all of it and leave.
And we’d do that everyday.
Andrew: All right. How about another step along the evolutionary path here?
You can only reach so many people from that couch that has the groove from
your butt sitting there, working endlessly. You have to go to the next
level in marketing and getting more customers. What is that next step?
Ben: For us, I think that was curating our client base. Things like direct
mail and newsletters. What we found was that our clients actually did
care. We could actually build a culture around innovating
new products and what was different about them and then it became cool to
have what’s next. It was really cool for us. When our containers showed up
or when we finished a new product, everyone in the company was totally
geeking out and having a great time. We found out that just by informing
our client base, they would also become heavily engaged in that excitement.
So we tried to be extremely religious in keeping our customers informed
about what we were doing and engaging them in product development. A lot of
times that meant developing products that they did want. Maybe not parts so
much, but products in general they want. We could do pre-orders so we could
break even or even make money on a $40,000 or $50,000 parts order before we
even had to pay the full bill, which was really helpful and helped us grow
a lot.
Andrew: How would you do that? How would you talk to the customers and
create the product with them and sell it to them before you even created
it?
Ben: Say that we sold a speaker and we knew that they were always buying
component speakers to always put it together, because we’d see it in
everybody’s signature. So we’d go out and ask everyone what they would want
for a component speaker set, or this two speaker set. And a lot of times
they say they want this and this. Maybe we’d compromise and say, “What if
it did this? If we threw this on top, would that be cool? Would you guys
like that? What if it was 30% cheaper than the current product?” You’d
always almost get an instant, “Yes, I love that.” Or a “No, don’t do that.”
And if they love it, we’d figure it out and put a pre-order for maybe three
or four hundred parts and basically try to sell them before we had to pay
for the parts, ship them out and if people were happy we’d just keep
building more and more.
Andrew: What if you were starting to sell something and you couldn’t get
enough sales to make it worthwhile? Would you give money back?
Ben: We did. Sold it as fast as humanly possible. Just got it out and
turned it into cash and back into new parts.
Andrew: If you are trying to sell a product before you have it and you get
enough customers to make a profit, great. But what if you’re not getting
enough orders, what do you do with the orders that do come in? Do you say,
‘Sorry we’re not going to build it?’ Or do you just create less of the
product?
Ben: If you set a shipping date, then you build it. If you can’t sell
enough, you either get better at sales or you get rid of it. It’s just like
anything else. If you make a poor choice, you get out. That’s really what
we tried to do, but anytime we committed to producing a product, it was on
us as a company. Morally, ethically, however you want to describe it, if we
said we were going to ship this thing, we are going to ship it. And if we have
a loss on it, we’re still going to be build trust overtime with our
consumers because early adopters are still going to get what they paid for
and if as a company we can’t support it anymore, then we got to get out. We
did that have that happen more than once. It wasn’t so bad that we had to
let people go or we couldn’t pay rent. Those actually ended up going well
because we brought so many new customers from a low-cost product that all
of a sudden we had the ability to build trust with another 500 people over
a 5-day period. It ended up being good marketing just recognizing that we
had to get these out of here.
Andrew: What else do I want to know here? How did you talk to you customer?
Was it on the message boards that I see on your site to this day or was it
by email, back and forth individually? How did you get a sense from them
what they wanted you to build?
Ben: What we did was however you wanted to ask questions that was how we
answered them. So, the message board was one place. Some people feel more
comfortable posting on a message board because they want third party
feedback, not just from the company. Some people are more comfortable with
telephone support because they want a human voice and are calling someone
in Iowa. They just want to know that. I think the biggest one for Elemental
Designs that I carried into Dwolla was Live Support. Just the ability that
if I have a question, I can click a button and get a chat window to someone
who knows what they were talking about, that was huge to us. We did that seven or eight years ago before it was a popular thing on the market and I think
almost instantly we saw an uptake in sales and we never turned it off or
looked back.
Andrew: So if somebody wants feedback they can just click on support and
get someone live to give them some feedback. There we go, I see it on your
site right now. A chat box.
Ben: Yup. And if your on Dwolla’s site . . . oh he’s on launch.
Andrew: Okay. Well, I do see it on the site. I see the little pop-up that
comes up and if he’s there he can respond and if not we can send him an
e-mail. I see, all right then. You said earlier that if you can’t move it,
then you have to get better at sales. What did you learn about what it
takes to get better at sales online?
Ben: That’s a good question. To tell you the truth?
Andrew: I mean more that that . . . some of us are telling the trust a little
bit better than others.
Ben: If you can’t sell it, then just say, “We’re clearing these out. They
are 30% off. We couldn’t sell them so we’re going to discount them and they
gotta move. And when they move this is what we’re going to do with the money.”
I think that people get excited about a good deal but they also know that
somebody is not buying a Porsche with this clearance sale and that’s good.
It’s going back to the company. If you can be honest with what you’re
doing, I think it helps the engagement with consumers. In terms of getting
better with sales, just because we chose to sell something didn’t mean it
would sell. There were times where it just a dumb idea and get out. There
were times where we said to our customers, “We aren’t selling enough of
these and we need to get out of it.” Thankfully, that worked, and we had
very strict rules, especially about margins. If we put ourselves in a
margins perspective where we couldn’t afford to clear it out, that’s
probably not a product we’d get into. For us, a 25% margin just was not big
enough because if we had to discount to get out, you’re dead. So we’d
always pre-plan our production around, “Could we discount this and get
out?” and that was always a consideration when going into new production.
Andrew: Okay. Isn’t there anything else that you learned about sales? Maybe
the size of the photo impacted your sales? Maybe the way that you wrote
your copy? Maybe the way that you listed your features? Maybe the place you
went to get your customers beyond the message boards? What else did you
learn?
Ben: Traditional marketing never worked. I know that it’s probably clear to
a lot of people who want this but magazines ads, sales conferences, yada,
yada, yada. No we never got a return on that stuff, short term or long
term. That might of just been our market but that never worked for us. As
far as the web goes, honestly just having product pictures available of the
real product that don’t suck, helps a lot. Having easy to acquire discounts
is really helpful. If you’re offering a discount on a certain type of
product. As long as you can do all of that on the website without calling
someone to get it, that increases your conversion a great deal. I really
think those are big ones. Just product pictures and so on and so on. I know
it sounds funny but the left-hand menu, minimizing that as much as possible
for us increases sales. Every time we shrunk it down, we increased sales. I
think it’s just because people wanted to click through it at a really high
level. And once we got rid of drop-down menus, sales went up. People hated
the drop-down menus, I guess.
Andrew: By shrinking the left-hand margin, you mean fewer options on the
left hand?
Ben: Uh-huh, exactly.
Andrew: They don’t have to hunt down for the topic that they want. They
click it, one out of six, I think you have six up there right now, I know
it’s not your company but they have six or so up there. You just want to
shrink it and make it easier to find that area.
Ben: Yeah. We used to have 30 with drop-down menus and roll-overs and all
this other stuff. So it was kind of anything you want, you can find it
right away. Once we got rid of that, people really liked it.
Andrew: One thing that stood out to me as I saw the site today, and I know
you said you don’t have control over the site today, but I noticed that
when I went to home page I don’t see a list of the items for sale. What I
think I see is a login page? Let me go over to it right now. I was
wondering why that is. Why is it that I don’t see a set of speakers? Here
is what I see, “Elements Designs News” and links to blog posts and on the
left I see “Chat Now,”, which we talked about, “Home Audio”, “Car Audio”,
“Custom Audio” and so on. Why not pictures right on the home page?
Ben: I think a lot of it is, sorry I had to pull it up as well, for us is
news and serving our existing client base, or at least for me
[inaudible]… engage our existing client base rather than looking for that
new customer. As long as we continued to make our current client base
happy, they’d always just continue to bring us new customers. And always in
that market, a lot of people that came to us, came to us looking for
Elemental Designs products and wanted a home product. They know where to
click for that page. But they wanted a BL6T or something a specific model
number. It meant absolutely nothing to them. So we concentrated on getting
them to the type or product they’re looking for and from there the skews
are almost features so the warehouse knows what product was shipped.
Customers don’t really care that much. At least I don’t believe that they
did. It was over-time, we built recognition for the company, where we had
to learn what was new.
Andrew: So something that you’ve said several times, and I’ve wrote it down
earlier, is repeat customers. I wouldn’t think as the speaker business
having repeat customers. I’m thinking in my life, I don’t buy as many
speakers as real music and audio files, music aficionados and audio files.
Maybe I buy one set of speakers every five years, maybe if you’re five
times the fan I am, maybe you buy one a year? So are there people there who
buy more often?
Ben: Oh yeah. Oh yeah. It’s a very niche market. It’s kind of like, ‘Do you
have 22-inch wheels on your car?’ You don’t strike me as the guy who has 22-
inch rims that are chromed out. Maybe you have three pairs this year. Maybe
our customers had that stuff. If you’re building a big home theatre and
have $50,000 put into this home theatre. You’re always building up and
always building until one day your wife is so angry that you can’t build
anymore. But the amount of iterations and upgrades you go through while
starting at stage 1, which is just two speakers and moving up into a
$50,000 system. We really service everyone within that range, and a lot of
it isn’t even listed on the website. That really became powerful for us,
just supporting that. The type of guy who builds up a $50,000 home theatre
system in his basement, the type of people he hangs out with can also
afford to be the same and if he’s happy with Elemental Designs, maybe they
will be. That kind of referral-based system is really hard to market
yourself into.
Andrew: I see. I didn’t realize there was that kind of community out there,
that they were that passionate about speakers.
Ben: Oh absolutely. It’s interesting. It’s huge.
Andrew: So, when I search for the website, I think the first result I see
on Google is for the forums. The forums seem really big. Am I reading that
right?
Ben: Yes. The forums are definitely a point of a lot of interest. You have
some moderation of some type, but 24 hours a day you can get information
about different product and customer experiences, and so forth. I really
think that opens it up and creates a communication that wouldn’t exist
otherwise. And on the contrary, there is eight years worth of data that has
been curated there. So if you search for different product names,
different company problems, different customer service problems you can
find every major event in the company curetted on those forums there, good
for bad.
Andrew: So how do you do that? How do you get so many people to come to the
forum and participate? It’s hard to get a community up and running. It’s
hard to keep them engaged. And it’s hard to keep them talking to each
other.
Ben: For someone who started the company, I think for me it’s lead by
example. We started putting product releases in one place and started
respecting comments that we got and engaging in conversations that were
started, we were to get more conversations. But if we were to just ignore
them and not answer, people would stop commenting. It’s the same thing as
social media now, where it’s engage, engage, engage. It’s just on a
different platform. And VB just preceded Twitter. It’s just a different
platform, but still all about engagement and just kind of leading by
example. You should be engaging, you should be respecting comments and you
should be staying up late, especially someone who owns a company to let
people know that they can get responses 24 hours a day. And if you can’t
afford to pay somebody, then get out of bed early and do it yourself.
Andrew: Be in there and talk talk talk.
Ben: Exactly.
Andrew: You said there were three years there where you weren’t feeling as
passionate? What was going on there for you?
Ben: I think my biggest problem with that company was I always knew what I
wanted in life. I wanted a company that did a million dollars a year and I
had really specific visions about white house, two foreign cars, etc. Then
once I got it, I didn’t really like it all that much. Then I thought what
am I going to do when I’m 30. This just sounds like junk. I did not know a lot
about external financing and distribution agreements and how we can get
into other markets. So, I started traveling a lot and spending a lot of
time in Asia working in a manufacturing facility where I worked on parts
tooling a lot and in that time I learned a lot about myself and that I
wanted to build and it was time for me to move on to a new project. When
building Dwolla, one of my big concerns was . . . I have goals about where I
want to be and what I want to do and I just set them quite a bit higher so when
I reach them, I say, ‘Let’s go build another one. What’s next?’
Andrew: What are the new goals?
Ben: Honestly, I think it’s just to have enough capability to get into
another project. I want to be financially sound. I think financially I’m
just fine right now. But it’d be really great to experience enough growth
and success with Dwolla that I could go into my next project and say, “I
don’t need to get paid. Let’s just build.” Maybe do two or three at the
same time. Say, “I don’t need money. Let’s just build.” I think my goals
have to do with freedom and just build, being around obscenely smart people
who raise my game all the time. It’s not so much about money. It’s just
about freedom. I just want to build.
Andrew: All right. I have got a bunch of notes here that I want to follow up
on. The first is, you said one of your goals was to have a million dollars.
You wanted the house and the car and so on. When you did the first million
dollars, do you remember that day and what it felt like?
Ben: Yeah. I think we all laughed. We had a small office. The
company was four people. I think everybody just felt surreal. That much
money for just a couple guys in the Midwest was just silly money. We were
all so young we really didn’t know what to do. We celebrated and then it
was just, once the celebration wore off, let’s get back to work. Every time
we passed another million, it just became less important. Eventually, it
became about margins and crunching numbers and OK, what did the [??] last
year and how can we extend a line on the bank and yada, yada, yada. What
[??] and how are we going to [??] that? It became more about business and
less about growth and about chasing an ideal, which is where I checked out
a little bit. It felt awesome. I think it felt amazing, but it just didn’t
last that long and it was on to what’s next.
Andrew: I remember calling up CitiBank over and over just to have the
automated system read that big magical number to me, over and over. Did you
do anything like that?
Ben: You know, no. We went out. We celebrated. We probably went to a place
where we had $4 beers and thought it was the greatest thing that ever
happened and everybody went home and the next day we went back to work at
the same time and just kept grinding. That was the extent of it. It was
kind of a similar experience that Dwolla just took it another investment
round. Just kind of seeing the money in the account felt kind of good, but
6 hours after that it was, “Let’s just add three more zeroes to that and
see what happens.” How do we get there and what do we do? It’s all about
growth right now.
Andrew: One more thing that I wrote down that I wanted to come back to
which is customer service. What I found in businesses was that you can’t
get anything done, can’t get anyone to care, can’t get anyone to buy, it
feels like that. It’s not exactly like that. Then, suddenly, everybody
comes in. It’s like famine or feast, that’s exactly it. When that big feast
comes in and everyone is coming to your side and it’s really hard to manage
customer service. Tell me what happened to you in that situation. Let me
identify with the pain and help me to understand how you got over it.
Ben: With my first company or . . .
Andrew: First company and that’s the last set of questions I have on that
company and I’d like to move on. Help me identify with a problem.
Ben: When we first had that first influx of, “Oh my gosh. How are we going
to deal with this?” I’ll come flat out, not all phone calls got answered.
Our response time on email went to garbage. Then we hired and they got
better and we caught up and customers, because we kept them in the [??]
seemed pretty happy with it. We made some mistakes and some things fell
through the cracks but at the end of the day we did everything we could to
remedy the problems. Not everyone was happy, but most people were. There’s
no perfect scenario. It’s not a virtual server system when it comes to
people and phones and [??], you can’t just allocate more resources and have
it all happen instantly, so it’s tough. The way we did it was by throwing
more hours at it. My friends came in an helped. Employees stayed in later.
I worked more.
Andrew: Was there a situation where customer paid but didn’t get his order
because you were so overwhelmed that you couldn’t deal with it?
Ben: Oh yeah. We definitely made mistakes.
Andrew: So how do you fix that?
Ben: You first say, “Could we please ship that out to you and give you a
discount? We are very sorry and this was flat-out our mistake.” Then we
could work towards a lot of automation. Initially, we’d get an order and
print it out on one computer and move it to the back and type it in another
computer and then how much human error is possible? It’s just so much. So
even though we shipped it to apartment 402 but it should’ve gone to
apartment 403 and somebody has a slip of the wrist so we automated that
process a lot to where an order came in it would get automatically routed
through an API to a shipping computer, a label would get printed and
slapped on a box and it’s out the door. Really we just do what we’d want
someone to do for us, and if they are really set on having their money
back, we’d just give it back. You just kind of weather the wrath of how
angry they are ‘cuz frankly you screwed up and you deserve it. There were
times where we deserved it. There’s no complaining about it because we
screwed up and we deserved it.
Andrew: All right. So where did the idea come for Dwolla? Can you tell me a
little bit more about why you decided of all the ideas that this was the
idea that you would follow up on?
Ben: Uh, yeah. The idea for it really came out of Elemental Designs. When
it got to the point where we were doing a million and a half a year in
sales, that’s kind of where we set it as a company if we want to buy another
building or buy more land. How do we want to grow? What do we want to do?
There was enough money that we just stopped growing. We started looking at
overhead. One was freight and one was interchange. That was our two primary
kinds of overhead that were just being paid out to other people, other than
parts. Obviously, I didn’t think I could start a UPS, but I thought maybe
we could figure out this payments thing. We pitched a bank and the bank
surprising said this is how the system works. “This is how’d you’d move
money through us and through the Fed and here’s a big book and if your
system can do this, we’ll let you do what you want.” So we built it and we
went back and said, “Okay, we’re ready to start moving money.” They kept up
their half of the deal so we did. That was about two years ago. But the
whole . . .
Andrew: So you got a bank even though you had no banking experience to move
money to and from it?
Ben: Uh-huh.
Andrew: How did you do that? How did you even get them to listen?
Ben: The first guy who ever loaned us money [skips] it was because of the
person who was the vice president of the bank. Without him we never
would’ve gotten in the door. He was the first guy who basically gave money.
Somebody basically wrote a paper about Elemental Designs in a college
class. He was the professor. He came into the building and said, “Hey do
you guys need any money?” We didn’t know what to do, and because we could
get it we took it. So we paid it back right away. We borrowed almost what
we had in the bank, and we just paid it right back, which was, “ow much
would they give us if we paid it back really quick?” Through that
relationship, it just grew over a period of three or four years and I got
to know him pretty well and it became a personal relationship. I took it to
him and said, “Would your executive team be willing to hear this?” So I put
a suit on that day and went in and talked to the executive team and made a
pitch. They gave me something and we moved from there.
Andrew: I gotcha. You started off with no outside money. Why were you
willing to start the business without any outside funding.
Ben: I got obsessed with the idea. You mean starting Dwolla without any
outside funding?
Andrew: Yeah. It seems like the kind of business that would need a lot of
funding, that would need a lot of backing, that would need the reputation
benefit that comes from having a good board. Yeah. It seems like the kind
of business that would need a lot of funding, that would need a lot of
backing, that would need the reputation benefit that comes from having a
good board.
Ben: I would say that complete naivety about what I was doing was probably
the reason that I did it. I got a tax return and I felt that I could put
the tax return into this new idea or I could buy a few new plasma TV’s.
Well I put it into the company instead of buying the TV’s and I think that
worked out pretty well. The reason we started with no outside funding
because honestly I didn’t think I needed it, when I started it. I started
Elemental Designs with a thousand bucks, $1,200, and I thought I could start
Dwolla with $5,000. I kind of did but I found that it’s not that easy in the
payments business. I learned what a money transmitter license was six
months after when I read the book “PayPal Wars.” We learned a lot about how
the financial system works simply by doing and by listening when a
regulator calls and says, “Hey man, you can’t do that. You gotta do it this
way.” At this point, we now have access to outside funds. We brought in
some really strategic investors. We got some really smart people at the
table, really great advisory board, great board of directors. We gotten
there over a period of time, but when we started we didn’t know any better.
It was just all about the concept of how we could move money without paying
the credit card companies. That was the whole deal.
Andrew: I’m wondering how you overcame the worry I would have being in the
financial business. The worry that, if you piss off the regulator, you are
potentially committing a crime. Whereas, if you piss someone off who is
shipping or getting a speaker from you, it’s really not that big of a deal.
How do you get past it?
Ben: You accept it. My name is on so much paperwork. You just accept it.
It’s a risk of starting a business. Once you commit to a project, are you
going to walk away just because it’s too risky? It’s your project. I think how
you deal with that long term is by being very adamant about understanding
risk, especially in financial transactions and about how to manage the risk
and bringing in experts in managing certain types of transactions.
Electronic transactions are that new. The way that we are facilitating them
is new. But, one of our investors is called The Member’s Group. The
Member’s Group provides financial services to banks and credit unions, and
services, through them, over two million people. So, what they do as a
specialty, is work on security systems, auditing, processes and things like
that for banks. They’ve been doing that for us since they came in the
investment and did that as part of the due diligence as part of the
investment. We have a lot of security knowledge on that side that’s very
helpful. On the other side, one of our investors is a subsidiary of the
Veridian Group [SP], which is a subsidiary of Veridian Credit Union, which
is about a $1.6 billion credit union here in Iowa, a decent sized
institution. You’ve got over a hundred years of money management knowledge,
of being a depository, of how to manage the regulatory landscape. It’s not
the Wild West here. We’ve got some very adult people paying very close
attention to what we’re doing who have a ton of experience.
Andrew: Hey there was a [??] company that was getting into payments via
Twitter. Now that you’ve been in this industry for a while, two to three
years, do you have a sense of why they didn’t work out? I can’t even think
of their name right now for some reason.
Ben: I don’t know their platform, very well. Twitter and Facebook are
features of our system but we’re not built on simply, “Since we integrate
with Twitter, we’re all going to be millionaires.” We think that you have
certain type of financial exchanges and one is simply with people that you
know. Yes we believe that if we give you the ability to exchange
effortlessly in a financial transaction with people you already know, and
then our platform will be valid. That’s a peer-to-peer transaction and is
not every transaction. It is only a small fact of peer-to-peer
transactions. We think that if you can type the first three letters of
someone’s last name and be able to send them money, much like add them [??]
a friend on Facebook. Would that be valuable to our generation iPhone
adopters, Android users, and people who use tech. We think that would be
valuable. That’s how we really harness Twitter and Facebook as a way to
allow people to engage in the type of transactions that they want to, but
it’s not the only thing we do. It’s just an added feature on top of our
platform. Unfortunately, I don’t know why that company didn’t work out but
we think that the Facebook and Twitter integrations are great for
connecting people.
Andrew: But they are just a small portion of the business. There is a full
business on top of that.
Ben: Yeah. There might be if you can get enough traction in those markets.
We’re still very much a start-up company. We’re still looking for our
primary market adoption that really drives what our company is going to be.
Right now we have entrances into consumer markets, financial institution
markets. We have the spots product. We have a financial institution
product, which is being sold to financial institutions directly. I think
that, which product for us takes off, time will tell. But, I think that one
of them will.
Andrew: How do you keep from investing too much time and too much money in
one of these, essentially, tests?
Ben: One of the beautiful parts about being in Iowa is a million dollars
really takes you far in Iowa. You can do a lot with that money. It lasts a
long time unless you become really foolish with it. Developing new products
becomes something that clients are asking for and as long as you make it
clear that you are willing to develop what they ask for. They will continue
to tell you. They will tell you what sucks and you just have to have enough
confidence in yourself to listen to what they say. I think the things that
we also devote a lot of time to, projects that are in the excess of a week
project, we have a lot of market data suggesting that we should put that
time into it. Even shopping cart plugins. Before we develop for a certain
shopping cart, can we have 20 customers lined up with an x amount of
revenue and a potential take on a conversion of x dollars and payments. We
can do all that stuff ahead of time and I think it’s just us doing our due
diligence about getting caught up. We make a joke of a rat race, sometimes,
where we see our competitor doing this and we one-up them. We become tied
with that one-competitor. Because we’re so isolated here, we can just go on
our own path I think.
Andrew: You mentioned spots and kiosks. We talked about them in the pre-
interview. What are they?
Ben: Spots is basically the world’s first geolocation payments platform.
Just imagine if you opened a payments application. That application knew
that that merchant location accepted Dwolla. You can just walk in. The cell
phone recognizes where you are at and allows you to engage in a transaction
right inside of it. No tapping, no swiping, no plastic network at all. Just
simply the recognition that this is where I’m at, and just hitting pay.
Andrew: All right so that’s cool. I walk into a sandwich shop. I say I want
a sandwich. They give it to me and I don’t have to take out my credit card
I just pull out Dwolla the iPhone app. It knows I’m at the sandwich shop.
The sandwich shop accepts Dwolla. I hit a button and boom I’m done. I’m in
a room with a buddy of mine. I need to give him $20. Dwolla knows that he’s
in the room with me and he has an account too, right? And I can just hit a
button and give him the money . . .
Ben: Yup. The way it words with people is, one tab is for contacts and one
tab is for spots. We separated those because we feel that one tab is really
specific for a place that you want to buy something from and the other tab is
really a peer-to-peer transaction where I’m sending it to a friend who’s
probably in my contacts list. So, we don’t map where people are at, largely
because it’s a bit of a privacy issue, if we start where phones are at and
not really getting permission for that. But, in that case you would know
that your friend Tom is right here and you would type in T-O and it gives
you Tom’s name and face and click on that and send him money.
Andrew: What about the kiosk? What’s that?
Ben: The kiosk product is really just a window for merchants. Obviously,
one side of that transaction is the consumer can now pay and that’s great.
But how does the merchant know they got paid and how do they do that? We
built a kiosk product that comes in three forms. One is an iOS application
so you can put it on an iTouch, iPad, iPhone that basically is an RSS feed
for payments. You turn it on, you leave it on and it gives you incoming
payments in real time. So basically, I send you money and in that location
it pops up on your phone, you have my name right away. Another one is a web
portal, so if you don’t want to have an Apple device, you log in and leave it
open. The third form is, thanks to our API, if you have an enterprise
deployment-. Just think in theory you had somebody with 10,000 stores of
5,000 stores or 20 stores that wanted to pipe that into a specific point of
sales system, our API can already make all those connections. It just needs
to be implemented. It’s basically just a way to consume incoming payments
and view them and know that you’ve been paid.
Andrew: So right there at the cash register, they see that they’ve been
paid.
Ben: I think that would be more of an enterprise deployment, where-. We
don’t really integrate, right now, with cash registers. We wanted to solve
the problem with, if I did get paid, how would the merchant know that they
got paid. So, the iPhone and iTouch applications are for people who have
those big brown old cash registers. Then right in between we have people
who are running Windows or Mac OS point of sale systems where they want to
use the web portal kiosk. And, the other side we have a lot of people
running Aloha and those other systems developed as the enterprise product
where we really would like to integrate long term with somebody like Aloha.
We just made sure that the technology and the API was there to do that on
the front end.
Andrew: Hey, what did you sell Elemental Design for?
Ben: Unfortunately, that is private.
Andrew: Can you give us a sense of what it was sold for? What the value of
the company was?
Ben: The company was doing 1.5 a year when I sold it. From there I had
enough to pay my bills. I don’t have to worry for a while. I’m OK. I
probably wouldn’t be able to live on the 20th floor in New York, but I can
live pretty decently in Iowa and I’m pretty happy with it. As somebody who
spent eight years building a company, or if you spent eight years building
a company, and you find yourself in a position where all you want to do is
work on your next project, what do you really want? And what I really
wanted was the freedom to concentrate on it and not really worry about
money for a while. That’s what I got.
Andrew: So you didn’t have to worry about money and you still don’t.
Ben: Not for a bit. I’m okay there.
Andrew: Why Iowa? Why haven’t you left?
Ben: I kind of joke around sometimes that my beach is a cornfield and I
think Iowa is great. Looking out the window at Iowa, one of the things that
makes me happy is hopping on a four wheeler and taking off for four hours.
I love to travel and I can get on a plane anytime, but I grew up here and
you tend to have ties where you are and I don’t know where life will take
me, but for now Iowa makes me really happy.
Andrew: I was there once for Warren Buffett’s Berkshire Hathaway Annual
meeting. It’s a great city. I was able to run through Omaha and feel
very comfortable in the area. I kind of could figure out my way around pretty
quickly because it’s pretty well laid out.
Ben: Yeah. You can live here really well without . . . it’s a good place to
live. The cost of living here, you can live very well. There is a lot of
opportunity for building companies in the Mid West that hasn’t been
realized yet. You can do a lot here without a tremendous amount of money,
which is to say that a million dollar investment from the right people is
going to get us quite far in Iowa. I also think that that rat race concept,
there isn’t a lot of people doing what we’re doing across the street, so
we’re not really getting locked in with anyone and I think that’s allowing
creativity to run free. Lastly, the community here has really embraced us.
I think a lot because there isn’t a lot of companies doing something
similar what we’re doing and that embracement has helped a lotwith building
features and people being early adopters and you know . . .
Andrew: Also [??] news covered you a lot, big fans of your work and I know
the community there is cheering for you. You know I’ve got this theory.
Tell me if I’m wrong or crazy about this. When I was in Argentina, I saw
that there was entrepreneurs who moved to Argentina for a year or two to
live life on the cheap while they build out their companies. I’m feeling
like the same thing could be done in cities like Nebraska, and in the Mid
West. I feel like there’s parts of the U.S. where you could live on the
cheap and have the language that your used to, have the environment and the
culture that you’re used to but not have all the expenses that go along
with being in the U.S., at least not in Silicon Valley, or in New York or
Boston. What do you think?
Ben: I think that’s very true. I think all those areas have major benefits
and I think for companies here to be successful, we have to find a way to
communicate with and network with companies there. Eventually, we have to
have this network that extends outside of this area, but I do think that
there are a lot of talented people here that want to build companies here and
because of Silicon [??] news, especially, for the first time that companies
here have a voice and a connection with the outside world because they
exist. It makes it so much easier not to get on a plane and not to leave
because there is somebody here telling our story. We don’t have to chase
someone to listen to us when we can stay in our back yard and just build.
Andrew: All right. The website is Dwolla, Dwolla.com, and, Ben, thanks for
doing the interview.
Ben: Hey. Thank you very much for the opportunity, I appreciate it.
