Andrew: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy, where I interview successful entrepreneurs, especially in the tech space, about how they built their businesses and I do it for an audience of real entrepreneurs who want to understand how these entrepreneurs—there’s a lot of entrepreneurs—they want to learn from my interviewees so they can build better businesses.
I’ll be honest with you guys. I’m starting this interview 17 minutes late because we had a challenge with the team. Our team weekly call ran a little bit over and partly ran over because our new COO said, “We should probably take a little bit of time to celebrate what we’re doing right before we talk about how we can improve this process.” I said, “Yeah, I guess we should.” She says, “I’m not telling you to spend the call doing it, but if we only take 30 seconds to celebrate, to throw a little bit of confetti in the air, to talk about how things are working, and then we can get into how they’re not, then I think we’ll actually be a team of—I forget what she even said.
At that point I said, “I can’t even do 30 seconds. That’s not my personality. My personality is to say here’s the things that aren’t working right and how can we improve it and just keep shaping the business by improving things that aren’t working right.” I know that is not the right way to run a company. They’re asking me, actively asking me to celebrate the fact that we spent months getting this whole thing right, that we’re actually performing well.
We had somebody else on the call, a Facebook ad guy, to come on and give us feedback on our ads. The ads are doing well, the funnel is doing well. He’s telling me compared to everybody else we’re doing better. We’re doing better than Russell Brunson in some ways, and that guy is fantastic at funnel creation. Still I think, “Thank you guys, you’re absolutely right. Let’s jump into the mistakes.” I know that’s not right.
Today’s guest runs a company that helps entrepreneurs like me stop being this, frankly, ungrateful and unaware of how their team is doing. His name is Raphael Crawford-Marks. He is the cofounder of Bonus.ly. It’s a platform for employee recognition via peer-to-peer micro bonuses and rewards.
So imagine if I’m the jerk who doesn’t ever say, “Hey, great job writing this copy.” I do that. I’m not here to put myself down too much, but imagine if I’m the person who doesn’t say, “Hey, Rebecca, thank you for putting everything properly into our CRM and increasing our sales and giving us the numbers whenever we ask for it,” maybe somebody else on the team will go in and say, “Rebecca, great job on that. You made my life easier,” and not just said, “Hey, pat on the back and do one of the clapping emojis, but actually was able to give her a little bit of a bonus, a little bit of real rewards.”
That’s what Bonus.ly does. I invited him here to talk about not just how I can improve. That’s going to be a little tiny part of the interview, but how he built up this business from this product he said was pretty crappy, that he put together nights and weekends but he sold and he built it up.
All right. This interview is sponsored by two great companies. By the way, guys, I bet you if you really were open with yourself, you could identify with me. We are all hard-driving entrepreneurs. We push ourselves beyond where we should. We push our other people too. We need to be a little more aware of that. The two sponsors are the company that will help you hire your next great developer, Toptal, and the company that will help you host your website right and host my site. It’s called HostGator. Raphael, you’re smiling as you say this. You recognize this stuff, right?
Raphael: Yeah. I recognize it in myself too. I certainly share those characteristics.
Andrew: Do you remember a time when you said, “I should have said something?”
Raphael: Yeah. I certainly after most interactions will look back on that, because I’m always focusing on how we can be doing things better, including whatever I’m saying to the team. One thing that is helpful is, of course, we use Bonus.ly at Bonus.ly. So while I acknowledge I am focused on what we can improve and in my real-time conversations with the team focus on that, I also know that we have a system in place that empowers everyone to give timely recognition. So employees are getting recognized much more frequently and regularly because all their team members can recognize one another, even if I miss an opportunity to do it.
Andrew: I understand as an entrepreneur that this problem becomes an issue for the business, that it’s my weakness, one of them. I’m curious how you came up with this, how you understood it. It wasn’t that you go to work every day. No one’s recognizing you. You wish you got a bonus. It was you and a buddy sitting at a bar in Brooklyn talking about what.
Raphael: Talking about two problems that were two parts of the same coin. These were both problems that we had experienced firsthand in different roles. We were both veterans of the technology industry, working at both small startups as well as larger, more scaled technology companies and had both had both individual contributor and manager roles.
So issue number one was on the individual contributor side, particularly companies start growing, even not that large, but once you get past 10 or 15 employees, it becomes very easy for employees to start to feel a little bit disconnected from the goals of the organization, start to feel like their contributions are getting missed, start wondering exactly what the impact of their work is or what the purpose of it is.
Andrew: Did you feel it yourself?
Raphael: For sure, yes.
Andrew: When? I’m looking at your background. You’re a guy who was at the Peace Corps. I imagine that they don’t pay you in cash, so they pay you in compliments and appreciation at the Peace Corps. But where was it in your history? Was it Looksharp? That’s an internship company. Where was it that you weren’t appreciated and recognized?
Raphael: I think virtually every employer I had it happened at one point or another to a greater or lesser extent. I do remember right after the Peace Corps, I came back and I wanted to continue doing good, but I also wanted to get back into exercising my tech muscles, which I hadn’t been using in the Peace Corps. So I taught IT and software quality assurance at a nonprofit called Year Up. There, I developed an entirely new training track. They’re a workforce development nonprofit.
I worked myself to the bone, like 20-hour days nonstop to get this track off the ground and did not get really any sort of appreciation or support from my direct management. Certainly my peers knew what I was doing, but they weren’t empowered to give any sort of formal recognition at all either. That was very frustrating and led to me leaving, which ultimately was a good thing because I landed at Looksharp.
Andrew: You left because of that, because of lack of recognition?
Raphael: Oh, yeah.
Andrew: I get it. Now, you’re sitting around at this bar with a buddy of yours. You’re tossing around, as I understand, lots of ideas. It wasn’t like you sat down at this bar and you said, “No one appreciates me. We need some software that does show appreciation. We hit on our billion-dollar idea.” It was more of a brainstorming session. Talk to me about the structure of it, some of the ideas you went through. Put me back in that Brooklyn pub with you guys?
Raphael: Yeah. So issue one, employees not being recognized. Issue two, managers and leaders are the only people empowered to give recognition and don’t have the time to do it. They have so many other things on their plate. For conscientious managers and leaders, this is a tremendous source of frustration, as it was for John, my cofounder, who had worked a variety of engineering leadership jobs at places like Digg and Gilt.
He knew there was all this expertise at who was doing what and who was kicking butt on the team, locked up within the team, that because he’s one person, has limited time and resources, just couldn’t see all that. He really wanted to make sure (a) that his team was getting the recognition they wanted, but also (b) wanted that information to be surfaced so it could be used in different ways to make him a better leader. So that was issue two on the manager side.
So kind of batting around ideas, the idea that really stuck out to us—John was the one who brought this up—was this idea of peer-to-peer bonuses. The first we had heard of it, the first John had heard of it was from a man named Philip Rosedale, who founded Linden Labs, that created Second Life. He rolled his owned peer bonus program at Linden Labs and became a huge evangelist for it. This was back in the early to mid-00s, so definitely very early for such a radical notion. But John had, I think, attended a talk of Philip’s and that had kind of stuck in his head.
Andrew: I see it right here. There’s an article in Inc. Magazine from—I think this is from 2012. They try to hide the date so it always looks like it’s current on Inc. Magazine’s website, but the headline is, “Why employees should decide who gets bonuses,” and Philip Rosedale is the first person mentioned in there. The other thing that just happened is they auto-played video. I hate that.
I see what you’re saying. That little message stuck in his head and when you guys were brainstorming issues to solve, this came up as an ideal issue and you said, “Great, we’re going to jump in on it,” But you both have jobs, so you can’t do this full-time. Instead, when do you decide you’re going to work on this?
Raphael: Yeah. We both have jobs and we both have families.
Raphael: We really needed to derisk this venture. From the get-go, we just decided to approach it as like, “This is an interesting idea. We like building stuff. We have some time on nights and weekends to do it. Let’s just do that and see what happens.”
Andrew: Let me pause right there. You have kids?
Andrew: What the hell? How do you have time on nights and weekends then?
Raphael: At the time, I did not have kids yet.
Andrew: Did he have kids?
Andrew: Now that you have kids—what must have happened, his wife must have taken the kids on all the time?
Raphael: Yeah, very, very supportive partners, just finding ways to squeeze it in.
Andrew: Was it like a formal arrangement with them? I always like to get into the nitty-gritty of how things are done because I know there are actually getting things done here in my audience. Was there a formal conversation with his wife, do you think, where he sat down and said, “Look, I have my buddy Raphael and I. We’ve got an idea. We’re going to come up with a way to build this out. I need you to take care of the kids on nights and weekends. I need you to do a space to do this,” or was it more like, “We’re kind of putzing around other people who play videogames. In the videogame time, I’m going to work with my buddy, Raphael, and make this work.”
Raphael: I’m not sure if there was anything formal in place. Certainly there was a lot of help from John’s wife and then once we had kids, my wife. Even before we had kids, housework and all that, getting a lot of support from our wives for that. But both of our wives knew how passionate we were about this, how much we liked building things, liked creating new technology.
So, yeah, we found time, whether it was videogame time, movie time, iPad time. When John’s daughter was at swim class or soccer class, he’d fit in meetings then. Also, John’s daughter would come to a lot of our meetings, and we’d have them at a park so she could play on the playground while we worked and did markups and stuff like that.
Andrew: What year did you guys launch the first version?
Raphael: We started working on it in late spring of 2012, and we were kind of piloting an alpha version with a few companies that we had personal connections to by late summer, early fall of 2012.
Andrew: I’m looking at the first version of the site. I wanted to confirm that this was it.
Raphael: It was bad.
Andrew: I wouldn’t say it was bad, but since you said it, yeah, it is. I feel like this could have been created in 1998 even. It’s just so basic. The only thing that’s different is you have a hero image. I know it’s a hero image because the alt tag on it is hero, 400 x 400. But the main message here is reward employees effortlessly. The main business model is there, up to 20 users are free, always free up to 20 users. I can see how I can go in and apply. What I’m curious about is what are the features that actually worked—you say launched December 2012, at least on the website—what are the features that were there and actually worked at that point?
Raphael: Yeah. So the features there, the core of Bonus.ly, what still makes up the foundation is peer-to-peer micro bonuses or peer-to-peer recognition through the exchange of micro bonuses. That’s what we started with. So a company could sign up, pick a monthly allowance of points or even brand their currency in some other way, and every employee would get a certain number of points each month and the only thing they could do with those points is give them out in small increments to their colleagues to recognize great work.
Andrew: So all that worked?
Raphael: All that worked. Yes.
Andrew: Including user accounts and company owner accounts, that whole thing worked?
Andrew: How long did it take you to create that?
Raphael: A few months’ worth of nights and weekends.
Andrew: That’s fantastic.
Raphael: Early June, late May of 2012 to the fall of 2012, yeah.
Andrew: Okay. The design is pretty basic, but the logic of it makes sense. So you’re not going out there with just a thin site with nothing on it.
Raphael: No. We built a working prototype, a fully working MVP.
Andrew: So it fully worked. Now you’ve got to take it into companies. Here’s the thing about companies. If you’re a buddy of mine and you send me an app, I might hesitate for a second, but I’ll install it on my phone. I’ll go and install your Chrome browser plugin, which I hate to install, but I’ll do it.
But once you start messing with my company, even though I’ve got a small or with some of your clients, I’m very reluctant to try something new, especially when it comes to bonuses. That’s people’s money, people’s livelihood, people’s sense of self. How did you get your very first customer, your very first user, let’s call them, since I’m imagining they’re free, to say, “Let’s roll the dice on Raphael”?
Raphael: That’s a great question. It was a friend of—I think our first two users, one was a friend of John’s, who is an SVP at a large public software company, but manages a unit of maybe a few hundred employees. He was willing to gamble on it. He and John go way back. They’ve been coworkers at a variety of places. I’m not sure exactly what made him willing to do that, but he was willing to try it.
Then our other first customer or user, because they were free, was Looksharp, which was where I was working. Back then, they were called Intern Match. That was also a pretty early stage startup. I was the first engineering hire there. The founder, Andrew, just believed in me, believed it was worth giving this a try. So that was really fortunate.
Andrew: I see that a lot, actually, in enterprise sales, people who go back to the companies they worked with or the clients they had at their previous companies and they start off with them as the first customers because they give you feedback, they trust you enough to try it out, and they’re basically doing you a favor or even by talking to you in some cases. So you’re giving it to them, I’m imagining, for free. They still do fund it because the cash is coming out of their pockets for their employees to give to each other? How was the result? What was the usage rate or how did you track it?
Raphael: Yeah. It took us a little while to figure out exactly what we wanted to track, but what we settled on was a percentage of employees who give at least one bonus each month. Our goal was to get as close to 100% as we could. The reason why we chose giving a bonus rather than logging in or receiving a bonus is giving a bonus is a much higher bar. You have to log in and do something, put yourself out there, give recognition to someone.
We figured if we could create a system that got employees giving each other meaningful recognition at high rates every single month, essentially it’s a software platform that helps people form habits around giving recognition, we’d really be on to something. There was just nothing on the market that had that sort of effect. So that’s what we measured. We were amazed for both of these early pilots. I don’t remember the exact numbers, but for the first few months, it was 75%, 80% or more employees getting recognition each month.
Andrew: I’m seeing here from what our producer got, 90% using it.
Raphael: Yeah. We’ve gotten even better. Our metrics are even better. I think our first couple months, they weren’t quite that high, but yeah.
Andrew: So that’s off the chart. That’s phenomenal, right? I actually frankly am seeing that 90% of employees aren’t using Slack, and that’s the way the company talks with each other. They just don’t want to deal with it. So that’s really positive. Then you decide that you’ve got to get more customers. How do you go beyond your friendship circle to bring in more companies to use your software?
Raphael: Yeah. This was super challenging, and I think I want to definitely be sure to acknowledge the role of luck in this part of our story because there definitely was some of that as well. So both of our backgrounds are in product development, John and I. So, in terms of developing the product, writing code, all of that, we had that down. But in terms of selling an enterprise or a SaaS software product, we had virtually zero experience.
So what we did have experience doing, that we’d gotten from other jobs, is content marketing and SEO. That’s what we focused on. We started blogging. We started targeting different keywords. Back then, peer-to-peer recognition, employee recognition as a whole was a much less competitive space then it is now. We actually were able to start ranking for a number of search terms, which actually got a trickle of people in. But then what really moved the needle for us was—
Andrew: Let me pause right there and save it for after this ad. “What moved the needle for us. . .” I’m going to put it as a note. I’m going to come back. First, I’ve got to tell everyone about Toptal. Check this out—dude, I’ve been talking about Toptal as a place to go hire developers. I did talk about Toptal as a place to hire designers. We did it at Mixergy, love the work we get from them because there’s somebody there, you go talk to them. You say, “Here’s my problem, here’s what I need,” and so on and then they go and match you with a designer, match you with a developer.
I’ve never used their finance people until recently. I had this problem—Raphael, maybe you could identify with this—I’m looking at the books as the CEO of the company on a monthly basis. My bookkeepers are looking at it all the freaking time. Maybe it’s more than a monthly basis that I got through it. But it’s me looking at it. I want another set of eyes and not just another set of eyes who’s looking at my books over and over, someone who’s seeing multiple companies’ books.
So I went to Toptal and I said, “How about if we could get—do you guys have like a CFO-type person that I could hire who could look at my books on a regular basis and tell me what other companies they’re working with do, tell me what other ideas there are for how I can track things?” They said, “Yeah, I think we could do it.”
So I get on a call with a matcher. You schedule a call with Toptal always with a matcher. Then the matcher goes and looks for the right person within their network of top three percent freelancers. This guy is listening to me. He says, “I think I’ve got what you need.” He emails me back. It turns out he redid the job title. It’s not a CFO that I’m looking for, like a part-time CFO who’s looking at others. He changed it to profitability advisor, which I think makes sense. That’s what I’m looking for, someone to think through the profitability of the business and help me understand it.
Then this guy goes and gets me a list of people to look at who are going to do this for me. I’m not going to mention their names, because I don’t know if they want people to know they’re doing this on the side. I’ve got—this is a guy here who is a former McKinsey partner—McKinsey is phenomenal. They shouldn’t be advising companies like me.
They advise companies like Chrysler. Carlyle Group principal, 30 years international experience, was a CFO, was a COO of two different Carlyle companies—Carlyle is an investment group—this one dude who’s doing this now because what I’m finding is it’s people who have experience who are trying to say, “I have an experience at these bigger companies. Let’s see if I can get an understanding of how these smaller companies work,” or maybe they have experience at smaller companies and they want to see how other businesses do things. He’s one person.
There’s this other woman. She worked as investor relations. She has tons of investor experience including Deutsche Bank. I think she even was working for a VC. This is the people that I get. The money, we’re not talking about cheapo freelance rates from those cheapo sites. The internet is full of them and they’re fantastic. But we’re not talking about an arm and a leg either. If all I need is a couple of hours a week, $200 an hour to get someone with this kind of background to look at my books?
Phenomenal. When I think about why, I can’t say exactly why. I’m going to find out tomorrow when I do my conversations with them to pick out who the right person it. My sense is they would pay almost to get a look inside my books, to understand my business so they could grow their understanding of how companies like mine work.
Anyway, the reason I’m telling you this and everyone else is if you’re looking to hire designers, developers and MBAs, Toptal has the best. They have an incredible screening process, incredible reputation which brings in these kinds of people that I’m going to be getting to work with. If you want to go check them out and work with them, go check out Toptal.com/Mixergy. That’s top as in top of your head, tal as in talent, Toptal.com/Mixergy.
If you’re a Mixergy listener, you’re going to get 80 hours of Toptal developer credit when you pay for your first 80 hours. That’s in addition to a no risk trial period of up to two weeks, 100% satisfaction. We’re talking about the best of the best so they could stand behind them. I’m excited to work with them in this new capacity but I’ve worked with them in the past and I urge you to go check them out at Toptal.com/Mixergy.
Raphael, I didn’t even give you a chance to get in a word edgewise. I was engaging you in conversation, then I talked right over you before you even got to open your mail. I’m excited about it. We’re going to talk about this because hiring for you has been an issue too. We’ll talk about in a moment, though, because you said, “If I can leave people with one lesson, here’s the big issue, here’s the big opportunity.” Why don’t we go with what we said earlier? You’re talking about blogging and then you said, “What really moved the needle for us was. . .”
Raphael: Yeah. So what really gave us that initial spark where we had piloted with some other companies, gotten good feedback, we put up a sign-up page, but no one’s finding that sign-up page, no one knows about it, we got some press coverage. It literally just fell in our lap. We did not push for it at all. Someone did some searches and found our blog and wrote an article about Bonus.ly just on a relatively small tech blog.
Andrew: This is Jessica Naziri?
Raphael: Well, then—yeah, Jessica Naziri of the LA Times saw that blog post and reached out and did a feature piece on us for the LA Times business section. That created this whole cascade of follow-on articles and a boom of signups. So that was like that initial spark that got us several hundred signups in the door. I was just on the phone figuring out how to talk to companies and get them onboarded, providing support and sales, writing code.
That got us enough companies using Bonus.ly that by the end of that point we had probably several dozen unaffiliated companies using us, so people that we didn’t know that we hadn’t gotten through friend connections. Getting positive feedback from them was much more validating for us. Obviously, it’s good to get feedback from friends, but when unaffiliated companies are saying, “This is worth something to us and we’re getting a lot of this,” then we know, okay, we’re on to something. Let’s keep building this.
Andrew: Okay. I get that. If my boss comes in and says, “A guy who used to work here just created software. He used to be one of you guys. He’s a good friend of ours. Let’s support each other,” I’d be much more likely to use it than if it was a brand new company that was completely unaffiliated.
What I like about this LA Times article does she go into the purpose of it and she talks about the things that we’re talking about here, but she also has a screenshot of what the site looked like at the time she wrote the article in May 2013. I can see it. It seems like everyone gets their own page on your site or at least at the time got their own page on your site, complete with how long they’ve been a member of Bonus.ly and a link to their LinkedIn profile, a big button that says, “Give John a bonus.” Then underneath it I see a running feed of who gave John a bonus and for what and who John gave a bonus to and for what, very basic, very clear, very clean process.
I see how that works. You guys didn’t even take the money from the company, right? You just facilitated this and then the company would give it out?
Raphael: Yeah. At that time, we did. I think relatively shortly after that, probably in late 2013, we added the reward element to Bonus.ly, which enabled us to facilitate the monetary or gift compensation of employees.
Andrew: Because you don’t want to take cash and hand it out and be in charge of taxation and everything else related to that, but if someone’s giving a bonus and you take a prize, you can give it to the person who receives it, right?
Raphael: Right. So, by late 2013, we’ve added functionality to kind of fully automate that, which is probably the top request and also really improved our participation rates because a lot of companies, when they first started using Bonus.ly at that point were making points essentially valueless. So they didn’t actually translate to money or rewards or anything.
Andrew: You mean they didn’t connect any money internally to it. They said, “We have this thing, go use it.”
Raphael: Yeah. We noticed that companies that were fulfilling bonuses in some way, either by cashing them out on the paycheck or giving out other rewards had participation rates that sustained at high rates over time, whereas participation slowly degraded over time when companies were just like, “Hey, these points don’t mean anything. It’s just this gamified leader board system, but it doesn’t actually translate to anything real.”
Andrew: I see. There are tools and simple ways of doing this kind of thing in Slack. I just talked to an entrepreneur who had a Slack room, where anytime you complimented someone, it would go into the Slack room so everyone could see who’s getting compliments. There’s a plugin for Slack that does it, a bot that does it that you could give someone applause, but I get it, all those things are cute, but unless there’s some monetary result in it, people aren’t going to use it enough.
Raphael: Yeah. Well, the mechanism that we settled on was a little bit more—we wanted to find a nudge that would help people get into the habit of giving recognition. That was the fundamental question we were trying to answer is how do you encourage people to remember in the moment when someone does something great to take those 10 seconds to give recognition? That’s a habit that we need to engage in some sort of behavior change and design the software such that we foster that behavior change.
What we settled on, our kind of intuition was if the currency, the points, or whatever you want to call it, has some real world value, if you can exchange it for gift cards or cash or something, and you have a limited number of those to give out and it’s going to expire at the end of the month, you’re going to be inherently averse to letting that just disappear and being the jerk who’s not giving it out to your colleagues.
So even though across the board it’s almost entirely really small amounts of money, just having it be worth something dramatically improves participation rates because people don’t want to be wasteful and so it’s going to be a nudge for them to be like, “That stuff is expiring, let me think about who did some great stuff around me recently. Oh yeah, Joe helped me out a lot yesterday. Let me go recognize him.” That’s how it starts, and then in a few months people don’t even think about it that way. They’re just in the habit of giving recognition right away after someone does something great.
Andrew: So you were saying earlier that once you started to get a real onslaught of interest, you got on the phone, which made me wonder what was your sales process. It was never just a landing page somebody goes and starts paying or using it. It was more than that. Talk to me about what the onboarding back then when it was just you two, you and John. What is it like today for getting a customer?
Raphael: Yeah. The sales process was basically there wasn’t any. We really did envision Bonus.ly at first as something that companies could just sign up for and start using without us having to talk to them. So, in those early days, me getting on the phone, I was getting on the phone with people who had signed up and then written an email being like, “Okay, what do I do? How does this work? I don’t understand.” We hadn’t built enough onboarding for them. It was really much more consultative of, “What are you trying to achieve? What do you want to do? Here are the different configuration options.”
That eventually evolved over years and hiring an actual marketing and sales team to we now do a ton of different marketing. Still content marketing is the centerpiece for marketing initiatives, but a ton of other stuff to generate leads and then we do have a small sales team that does demos, shares decks, helps companies start with pilots. They want to pilot it to test it out, share metrics with them. We’ll close them. But we’ve also built onboarding internet of things the app. So small companies that don’t want to go through talking to a salesperson can sign up and start using it.
Andrew: Using that free account for eight people, I imagine. You even do a free 30 days on the other stuff too.
Raphael: Yeah. Companies up to about 50 people tend to want to self-serve, so we get a lot of self-serve revenue, new small companies signing up to use it. Then we sell at companies up to 5,000 or 10,000 people, so in that range of like 50 to 5,000, we have a more traditional SaaS inside sales model.
Andrew: I’m going through the process myself to see how it works. I can as an employee sign up and then I can also create a company account through you guys, but there are two ways to do it. Either I do it myself doing this, or I ask for a demo and the demo is what you guys do as an onboarding thing. When you were doing this yourself, what did you learn by talking to potential customers one on one?
Raphael: I think there were a few key learnings. One was the importance of providing an automated way to fulfill the bonus points or for employees to redeem their bonus points for something with real-world value.
So that insight led us to build out the entire rewards functionality in Bonus.ly, which was key to improving participation and also just having a product that companies were excited to get because it was save—a lot of times we’re talking to HR managers or operations managers or at larger companies like VPs of HR and they’re like me or a member of my team is spending all this time buying gifts and gift cards and keep them in a drawer and have to keep track of them is a huge pain in the young know what. So you can you automate that? When we say yes, we can automate that. We can literally have your recognition program run with no administrative overhead. That gets their attention.
Andrew: As I’m going through this, I like to test everything as we’re talking about it to feel it, to see it. The demo thing, I think you could improve it. Here’s my suggestion for that. After I fill out a form requesting a demo, why not just take me directly to a calendar where I pick the date and time I want to talk or take my number and have somebody immediately text me. If you’re emailing me to schedule, that feels like an extra step that takes too long.
Raphael: Yeah. You’re absolutely right. We’re actually doing that right now, where it’s underway. There’s one little sticking point with showing a calendar, which based on the information provided in a sign-up, we want to direct you in different ways. So we’re just working with HubSpot, our CRM, trying to figure out how we can do that in an automated fashion through HubSpot to direct you in a couple of different ways to what you report.
Andrew: I get it. You also want to take that data and put it directly into the calendar so you’re not asking me for my name and email address on the first page and then when I book the meeting, asking me for my name and email address again. It feels like [inaudible 00:34:30].
Andrew: I get it, without having to roll your own—the Toptal people do that, but they’ve created their own system, which I think is just too intense for every company to put together. But it does help to get them on faster. So, I see what you’re doing. We mentioned earlier that you did have some challenges with employee hiring, right? Without mentioning the person’s name or mentioning their situation or their position, what is this problem? It feels like it kind of scarred you guys as a company and made you better at hiring. Describe it to the best of your ability.
Raphael: Sure. I think John and I, because we were bootstrapped for so long and not just bootstrapped, but worked on entirely as a side project, so we had to be as efficient with our time and resources as possible is still this really strong, scrappy impulse in us in trying to find the—finding a way to accomplish what we need to accomplish in as efficient a way as possible. When it came time to start hiring after we had raised our first seed round, we tried to apply that same ethos to hiring and just took some shortcuts. We ended up—our first hire is still with us. We made a lot of great hires early on, but we made some mistake in hires, probably. I’d say our hit rate in making good hires out of our first handful of hires was maybe 50%, which was not good.
Andrew: What’s a problem that you had that you can share with us that we can learn from?
Raphael: So we didn’t put a lot of time or effort into structuring our interviews into putting candidates through multiple stages that were designed to very rigorously evaluate the talents and abilities we were looking for. We took a much more subjective approach, where we asked a few questions, maybe with developers. We do a little bit of a coding exercise, but then we’re much quicker to pull the trigger on making an offer to hire someone if we had a good feeling about it. There was a less rigor around hiring.
Andrew: Now what’s the rigorous process?
Raphael: So now it’s very much transformed. Every candidate goes through three or four stages of our hiring process, and every stage of that hiring process is defined with what questions we’re asking, how we’re evaluating those answers.
Andrew: Who? Is that what it is? It seems like you’re doing that who process.
Raphael: I’m not familiar with that.
Andrew: What is your process? You’re saying at every stage you define it.
Raphael: Yeah. What we do for any given role, what we’re defining ahead of time is what are the skills and traits that the ideal candidate will have to be successful in this role. Then we work backwards from there of what questions or tasks or simulated assignments are going to help them reveal those skills and traits. Then based on how involved it’s going to be to get them to reveal that, we break that up into stages. So we’ll have the easier questions to ask as part of a phone screen that will be part of our initial screen out maybe 50% of applicants, and then the stuff that coding and technical challenges that require more time commitment from staff are parts of the later interview stages.
Andrew: I see.
Raphael: Then everything is documented. Every response is scored. We’re trying to eliminate as much subjectivity from the interview as possible.
Andrew: So, while you’re talking to a candidate, you’re asking a question and scoring their answer in real time?
Raphael: If possible or else taking notes and then right after the call—
Andrew: Scoring it. So that way you can see how they all relate to each other.
Raphael: We try to get as much as possible apples to apples comparisons between candidates.
Andrew: What if you were going to do a more subjective thing, a more subjective role like design? How would you break down the skills and the tests involved in that?
Raphael: Well, there’s still things that thinking about design, we actually did just hire a product designer a few months ago. What we did was, of course, still start with an initial phone screen that helps—the phone screen is really screening for traits. You can ask questions to—hypothetical questions to employees to get them to reveal things about their personality. So that’s very helpful.
But then for the product designer, we took real challenges we were facing with product design. I think one of them was our reward check outflow. We asked them to redesign it and present it to the team. We were able to define kind of ahead of time okay, we don’t know what a great design will be, but we know what evidence we want to see of how much time they put into it, how much thought they put into it, how empathetic they were to users. Did they try to understand our specific business case? So there were things they could say up front that we were going to be screening for.
Andrew: This is Mark Peck, the guy who used to work for Sumo and Booking?
Raphael: Yeah. He’s great.
Andrew: But he’s in Colorado, isn’t he?
Raphael: We all are.
Andrew: Oh, you all are?
Andrew: I didn’t realize that. I don’t know why I assumed you guys were here in San Francisco.
Raphael: No. John and I lived in New York when we founded it, but then shortly after raising our first seed round, first John and then later I both relocated to Colorado.
Andrew: Okay. Let’s take a moment and then I’m going to find out about this raising money process. It seems like it would be easy. It seems like it would make sense. You guys have the numbers. It’s still dozens of no’s and then it will come up with what happened that helped you finally turn it around. First, I’ve got to tell everyone about a company called HostGator. Do you know HostGator, Raphael?
Raphael: I’ve heard of them.
Andrew: Yeah. I feel like we all have heard of them and they kind of, to be honest with you, merge in my head with every other freaking hosting company, Bluehost, HostGator, this host, that host. So then what separates HostGator from everybody else?
What I like about them is this—super cheap, super easy, but when you’re reading to scale up, they have everything you need to scale up. We used to be with a super cheap hosting company that I found online really fast, cost me like $7 to get started with them. I don’t even remember their name.
At some point, when Mixergy got too much traffic, they just choked on the traffic. So I had to get out. Actually, first I thought it was my fault. Then I realized no, it’s not my fault. It’s their fault. Then I realized it’s not their fault or my fault. I bought a really tiny hosting package on a shared server. It’s not meant to grow.
So I had to go and find a way to grow. So I found a bigger hosting company. The problem with the bigger hosting company, they did a little bit of everything, and I was a tiny little flea on their butt. So nothing I did mattered to them. So that didn’t work out. Then I went to one of these WordPress managed hosting sites. These guys are way too strict.
This whole idea of managing WordPress sites is, “We’re going to tell you what you can install and what you can’t.” It’s like somebody saying, “We’re going to manage your iPhone and we’re not going to let you install crazy apps. We’re only going to let you install these 10 apps.” That did not work for me because I like installing crazy apps. I know the plugin makers. I know which ones I want. I want them on my site. I couldn’t do it with those managed WordPress hosting guys.
I discovered HostGator. I did a lot of ads for them. I signed up my new business with them, Bot Academy. I knew we were going to get a ton of traffic. So I said, “I’m not going for their cheapest one. I’m ready to go straight to the top. So I signed up for the cheapest. Then I immediately called them up and said, “Upgrade me, baby.” So they upgrade me to the very, very top—actually, it wasn’t the top most.
Just this week, I said, “Why don’t we sign up for the most expensive one? Who cares? What are we talking about? We’re talking about peanuts here. Hosting costs nothing?” He said, “You know, Andrew, you told me you want to feel what our customers feel, so the likelihood is that if they’re ready to go for an upper-level plan, this is the one they’re going to go for. That’s what we’re doing. We want to experience what our audience experiences. I said, “All right, that makes sense.” So we did it.
The reason I’m telling you guys this is that HostGator is the plan that I use and I recommend. If you’re looking to host a new business, go with them. They’ve got cheapo plans. These cheapo plans start at $3.48 a month. They’re going to give you unmetered bandwidth, one domain at that price, unlimited email addresses. If you’re ready to scale up a little bit, for $4.98 a month, you get unlimited domains.
I’ve told you guys in the past, when I was courting my wife, I created a whole website for her because I had unlimited domains. Who cares, right? I can create a whole site. And then if you’re ready to go up even more, you can talk about everything including managed WordPress hosting where they’ll do backups and everything for you.
All you have to do if you want to get these rates and also come in as a Mixergy member, which means you get my full standing behind your experience, so if you’re not happy with them, let me know, if you are happy with them, I want to know that too. Here’s the URL where you get that discount, where you get to come in as a Mixergy person. You get my big mouth behind you. It’s HostGator.com/Mixergy.
Think of that gator with his teeth chomping your head off—HostGator.com/Mixergy. When you do, you’re going to get all of that and $100 Ad Words offer, $50 search credit from Yahoo, Bing, etc. Easy to set up, scales up with you and I’m grateful to them for sponsoring.
All right. You started to raise money. You had no experience. What was your original goofy, “I can’t believe I did that,” experience in the beginning before you figured out what to do?
Raphael: Well, the way we approached it was we asked a few people we knew to join as advisors. So each of the two friends who are first users, so Andrew from Intern Match and then our friend Rajesh joined as advisors. Then we were able to add a few other advisors, including Phil Rosedale, who had that early peer bonus idea with Linden Labs.
Andrew: You got him because you said, “We took your message seriously and we created software that does what you said?”
Raphael: Yeah. I think we got an intro from a mutual connection. We were like, “Hey, we’re productizing your idea and we’d love to talk to you.” Then Jay Adelson, who had been at Digg—
Andrew: Because your cofounder worked at Digg at one point, John did?
Raphael: Yeah. It’s another personal connection there. So through them got advice on how to raise and got some intros to VCs and then also we were in New York at the time, so I spent all this time going to mixers and networking events and applying to incubators. We didn’t really know exactly should we do an incubator first? Should we apply for a seed round? At this point, we had paying customers in a product, but it wasn’t like it was huge. So probably what wasted the most amount of time was me going to all these networking events, which was not a great way to spend time, other than giving me reps for talking about Bonus.ly, which is helpful.
Andrew: Yeah. I guess the nice thing for you is the more you go out there even talking to investors who say no, the more you’re telling potential customers and people who can talk to your potential customers and possibly getting customers in the future.
Raphael: Yeah. It was months and months of pounding the pavement. We have an Excel spreadsheet that has 60 VCs on it, probably several dozen angels and several dozen incubators on it, all of which I reached out to—ultimately, we had two VCs invest in us. You can imagine everyone else on that list was a no.
Andrew: Was there one that was especially painful?
Raphael: Well. . .
Andrew: There was. I can see it. Which was the one? Tell the story.
Raphael: There were some VCs that were extremely disrespectful, just like wasted our time.
Raphael: I remember pitching this one micro VC in New York, just a single partner deal and I went to his office to meet with him. He was super late. He sat down. He never made eye contact with us. We were presenting our numbers. He had like an arithmetic error in his head multiplying some numbers together. He’s like, “That’s totally wrong. This will never be profitable.” I explained the problem to him. He’s like, “You’re wrong.” He just had this fixed idea of what we were. He knew he was going to say no from the get-go and just kind of wasted our time with the whole meeting and was frankly just a jerk to us. That happened with a lot of VCs. Then there’s the VCs who just have crazy, cockamamie ideas like one VC was like, “You know what you need to do?”
Andrew: Let me guess, cryptocurrency coins attached to it? No? What was it?
Raphael: You need to start making stickers and then when people get bonuses, you mail them a sticker they can stick on their laptop to show that they got a bonus.
Andrew: I thought that would be stupider. That’s not the worst. Why don’t you like that? That’s not so bad? I was expecting stupid.
Raphael: It might be an entertaining thing to do. The whole idea for Bonus.ly is to find an easy to way to bring recognition seamlessly to wherever your employees are working and not make them have to do any work. To worry about sending out stickers and then if one gets lost in the mail, I don’t think it’s particularly feasible and it also doesn’t support our end goal of fostering a recognition-rich workplace. It doesn’t do anything to increase participation.
Andrew: I used to do that with APIs. It is just about bringing up their name on their laptop. I don’t know that I would stick it on my laptop. Who knows? I get the difficulty of it. What I didn’t realize was you were so low on money, there was a chance you and John at this point, when you were trying to raise money, when you finally nailed the product, would have had to quit this business, would have had to get a job or work on it nights and weekends, right? Because of what? Where was your money going? I guess groceries.
Raphael: Yeah. So what was happening was Bonus.ly got to the point where it was too big to run nights and weekends. So we couldn’t stay at our jobs. But Bonus.ly was not making enough money to pay for us to work on it full-time, let alone hire people. It was trending in that direction, but we didn’t know how long it would take. We only had so much appetite for risk. We had to have some cushion in order to continue working on this.
So I had a job offer that I eventually turned down, but that I was going to take if we didn’t raise money. I think it was something like five or six months from when we started fundraising to when we finally got it of us really wondering. We were down to kind of like the next month, we were both going to find other jobs.
Andrew: What year was this?
Raphael: This was 2014.
Andrew: 2014, I should have done this sooner. I’m looking for tweets from you from 2014 to see were you optimistic in 2014? Were you? On Twitter, did you act like you had it all nailed?
Raphael: That’s certainly what I tried to project to investors. I certainly didn’t feel that way. So what kept me going was we had a lot of customers who really loved the product.
Andrew: I see.
Raphael: So I felt like as long as I had that, I felt like we were on to something and as long as we get even just a little bit of money in the bank to keep working on it, we can make something out of it.
Andrew: Mike from FreshBooks told me the same thing, that as long as he got positive feedback from customers, those emails from people saying, “I love FreshBooks,” got him to keep going and keep building it, even when the money wasn’t exactly there and he could have doubted himself. I see. I’m looking at what you were tweeting at the time. “For VCs comparing startup to past successful models is a good heuristic except when there’s actual quantitative data on the startup use.” I see you’re getting a little agitated.
Raphael: I was getting a little salty there. At the time, the idea of peer recognition was very new. Certainly, because we were ranking for search terms like employee recognition, we had a lot of larger, more old-school companies calling us and asking what we did. Then we told them we do peer-to-peer recognition, I got laughed at on the phone. The idea that you would empower employees to give each other micro bonuses was—they were like, “How can you trust them? How can you trust employees to do that right?”
Andrew: I see.
Raphael: “Only managers can be trusted to do that” kind of attitude. Surprisingly, as forward-looking as VCs are supposed to be, we got a lot of that same attitude from VCs of like “This will never work. Only managers can do this.” One very prominent angel investor in New York, I emailed him and he just wrote back, “This will never work.” That was it. “This will never work.”
Andrew: I wonder why they do that. Is their thinking that they need to give you clear feedback or else they’re wasting your time, or is it that they’re just naturally jerks? I don’t get it. There’s one thing though that finally helped you. There was one guy, Clark. I know Clark, he’s a long-time listener. He told me that his wife, when she was in school studying business was asked by the professor or assigned by the professor to listen to Mixergy interviews, which was fan-freaking-tastic. I like the guy a lot. How did you connect with him, and how did he change the direction of the company? The founder of InVision, if I didn’t say who it is.
Raphael: Yes. Clark is the founder of InVision. InVision signed up for Bonus.ly when they were like a 20-person startup and became a paying customer, super highly engaged. Very early on, they were that small and already had someone in the role of director of employee happiness. Clark was always very forward thinking about building his team. It’s an entirely remote team, put a lot of effort into figuring out how to make an entirely remote team work. So this director of employee happiness was in charge of making sure that team was happy and working well and decided Bonus.ly would be a big part of that and gave us great feedback and then—
Andrew: Clark did or the person on the team?
Raphael: The person on the team, his name was Avi. Also, I did speak with Clark a couple times, but of course, growing a scaling business like that, his time was a lot more limited.
Andrew: He was also in New York and you were in New York at the time. So you got to connect with him. I get it. Okay. So, as a user, how do you then transform this user relationship into an advisor?
Raphael: Well, we had just gotten our first yes from a VC, but only for a very small amount of what we wanted to raise for our seed round.
Andrew: What’s the amount?
Raphael: I think we were going for $1 million, and we got a commitment of like $250k or something. We needed to fill out the rest. Even with that, even saying we got this commitment, we were still getting no after no after no. So, finally, decided we have all these customers, some of them are venture-backed startups, maybe a warm introduction to one of our customers to their investors would work.
So I immediately thought of InVision and reached out to Clark. He said absolutely. I think that day I had an intro to Amish at Firstmark, who’s one of the partners at Firstmark, who invested in InVision and we had a meeting like the following week and then a follow-up meeting the week after that and they said yes. It was so fast. It was because we had that in through InVision and InVision could say, “Here’s how we’re using it. Here’s the impact it’s had. This is a great product.”
Andrew: What did these advisors get? How do you structure the relationship with them?
Raphael: Yeah. It’s investing shares, so there’s a really lightweight kind of contract that’s written up based on getting a certain amount of help or a certain number of contacts with them.
Andrew: So you’re very clear with them. You say, “I’m looking for this kind of help from you, this number of times per year or per month or per quarter.” What else are you saying from them?
Raphael: Yeah. That’s basically it. That’s what we’re looking for and in exchange, they have an investing side to the business.
Andrew: What is it, a quarter of one percent? What’s the number usually people use?
Raphael: It varies a little bit because we brought on some investors before we raised any capital and then some other advisors after we initially brought on our seed round. Obviously the more mature the business was, the less risky it is, so we offer a smaller percentage. Early days, it was maybe a quarter of a percent or something.
Andrew: So the big thing that I’m getting is it helped a little bit that you got advisors who were well known in the space and respected, but the best is an advisor who’s well known and respected and also a customer of yours who could talk about your product to their investors.
Raphael: Oh yeah.
Andrew: You shared investors then.
Raphael: Yeah. Firstmark, I think, led InVision’s seed and series A and they led our seed as well.
Andrew: Before I close out by asking you numbers and customers, let me ask you this—going back to the problem I started out this conversation with, if we were on Slack, it would be no problem for us to use you, but the truth is I don’t like Slack. It’s just too distracting. We’re using Basecamp. I know you guys connect with Campfire. You connect with HipChat and all this other stuff. Do you connect with the current Campfire? Can I actually use you in our Basecamp?
Raphael: I believe we do. We do through a bot called Hubot to Campfire, there’s a Bonus.ly connector for that.
Andrew: How is that spelled?
Raphael: B as in boy.
Andrew: Let me see what Hubot is. I’ve never heard of Hubot. Oh, that’s a GitHub project. I see.
Raphael: There’s a little bit of technical expertise required.
Andrew: I see. All right. I’ve got to try you guys. I’ve got to play around with this.
Raphael: Give it a try. Do you guys use Google Apps internally?
Andrew: We do.
Raphael: Everyone logs in essentially like a company Gmail account to do email and stuff?
Andrew: It kind of goes into whatever app they use. I recommend they use it to whatever Gmail, iPhone app, whatever they use, desktop app.
Raphael: The other thing we have that I think will work with Basecamp is do you have any sort of employee—do your employees use Basecamp to communicate with each other and are there any like knowledge base pages?
Andrew: Google Drive, but hardly anyone goes to it unless they need it.
Andrew: I see. I’m advocating everybody live in Basecamp, but I get it. If we had like a Google sites thing or our own internal Wiki, which I’m seeing a lot of companies have—
Andrew: That’s the advantage of using Slack, that everything plugs in to Slack. I’m telling you, I went to see a startup just a few blocks away from here, if I rang their doorbell, no exaggeration, on Slack. Close it out with this—where are you with revenues now?
Raphael: So we’ve just past $1.5 million in revenues this summer.
Andrew: In annual recurring revenue?
Raphael: In annual recurring revenue, yeah.
Raphael: We do have some other non-recurring revenue sources. Our total revenues are a little more than that.
Andrew: What’s not recurring for you guys?
Raphael: On some rewards, we get a discount because of how much of a volume we do now. So we do make a little margin on that. It mostly just covers credit card processing fees, but we’ve finally hit the point that it’s actually going a little beyond that now. So it recurs as long as we have customers, but it’s not strictly subscription-based recurring revenue.
Andrew: And your customers, who are some of the names that I’d recognize in addition to InVision?
Raphael: Yeah. So obviously InVision, Chobani, Hulu—
Andrew: The yogurt people?
Raphael: The yogurt people, yeah. They’re amazing and a really cool case too because we’re rolled out to the entire company, so factory floor workers, corporate everywhere. Concur, Hulu—
Andrew: Gilt, where I think John worked for a little bit. CB Insights—CB Insights is a killer company.
Raphael: They’re amazing. Yeah.
Andrew: I did a great interview with their founder, who’s a long-time fan of Mixergy, Typeform, they’re very discriminating, Headspace, which seems like they don’t fully use the stuff, they’re not getting distracted by software. And Oracle, Oracle is a customer?
Raphael: Yeah, a business unit of Oracle, not all however many hundreds of thousands of employees.
Andrew: Let me close it out with this final question. What’s one way that you celebrate? You told our producer we celebrate small wins here, we try to do it often, which I get, that’s the whole thing behind Bonus.ly. Give me one example of something that you do that you celebrate something small. Maybe I can learn from that?
Raphael: Outside of Bonus.ly, you mean?
Andrew: Yeah, outside of Bonus.ly.
Raphael: Well, we do a few things. One thing we do, I’ll just pick one because he asked me to pick one, we make sure we have lunch all together as a company once per week every Wednesday. So that will be tomorrow we have our team lunch. There’s nothing explicitly being celebrated at that point, but it’s an opportunity for us to all get together and chat, catch up, whether it’s about work-related or not work-related stuff and just get face time, even though almost all of us are under the same roof, we’re sitting in front of our computers must of the time, so just taking a little bit of time to have some face-to-face contact is fun and invigorating and helps build team spirit.
Andrew: All right. For anyone who wants to check it out, the website is Bonus.ly and I’m going to go check it out too.
I have to remind everyone my two sponsors are the company that’s helping me find a new not CFO but profit advisor, somebody to look over my books, also in the past they helped me find a developer, designer, so many of the top of the top freelancers there in that network. It’s called Toptal. Check them out at Toptal.com/Mixergy. And if you want a hosting provider that will scale up with your business, you can start off super small, super cheap, you can keep adding to it as you build your business, go check out HostGator.com/Mixergy. Raphael, I’m grateful to you for being here.
Raphael: Thanks very much. Great being here.
Andrew: Cool. Bye, everyone.