Andrew: Three messages before we get started. If you’re a tech entrepreneur, don’t you have unique legal needs that the average lawyer can’t help you with? That’s why you need Scott Edward Walker of Walker Corporate Law. If you read his articles on Venture Beat, you know that he can help you with issues like raising money, or issuing stock options, or even deciding whether to form a corporation. Scott Edward Walker is the entrepreneur’s lawyer. See him at WalkerCorporateLaw.com.
And do you remember when I interviewed Sarah Sutton Fell about how thousands of people pay for her job site? Look at the biggest point that she made. She said that she has a phone number on every page of her site because, and here’s a stat, 95% of people who call end up buying. Most people, though, don’t call her. But seeing a real number increases their confidence in her and they buy. So try this. Go to Grasshopper.com and get a phone number that will make your company sound professional. Add it to your site and see what happens. Grasshopper.com.
And remember Patrick Buckley who I interviewed? He came up with an idea for an iPad case. He built a store to sell it, and in a few months he generated about $1 million in sales. Well the platform he used is Shopify. If you have an idea to sell anything, set up your store on Shopify.com because Shopify stores are designed to increase sales. Plus, Shopify makes it easy to set up a beautiful store and manage it. Shopify.com. Here’s the program.
Hi there, freedom fighters. My name is Andrew Warner, I’m the founder of Mixergy .com, home of the ambitious upstart and a place where I’ve done over 800 interviews with entrepreneurs who come here to tell you their stories. One of the things that I’m especially proud of is that founders trust me with both the stories of their setbacks and their triumphs. In this interview, I’ve got the chairman of one of the most respected agencies to talk about both.
Clark Kokich is the Chairman of Razorfish, one of the world’s largest digital marketing and technology agencies. I wanted to ask him about how he helped build up that company, and about what he did before that, the swimwear company that he ran. Clark is also the author of “Do or Die?”, the First Fully Interactive Business Book for the iPad. Clark, welcome.
Clark: Thank you. How are you?
Andrew: Good. You were working at Cellular One at the time when you walked to your boss and you said what?
Clark: Well, I loved working with Cellular One. This was in the early ’90s, the cellular business was exploding, and Craig McCaw who founded the company ran it just like a startup, even though it was a $2 billion company. We had a lot of freedom, a lot of opportunity to innovate and move quickly, and one day I was driving down the street and I heard on the radio that we’d been acquired by AT&T. I knew that was not necessarily a good development. Within a couple of months it was obvious that I had to get out of there, and I had this idea for starting a business that had been percolating for years. So I actually went to my boss who ran the division, I was the head of Sales and Marketing, and quit, and then instantly solicited him for investment, which unfortunately for him [laughs] he became an investor in my venture.
Andrew: You told Jeremy who pre-interviewed you that you had to do this at some point in your life. What was it about entrepreneurship that made you say I’ve got to do this?
Clark: That’s a really good question. Part of it is I came from a family, my mother had built the business, not a big one, but it always paid the bills with their own businesses, and what I really get a kick out of is building things. I was at McCaw at a time when I could see, I knew, and met, and saw a bunch of people who had started that thing with nothing but a dream, and turned it into a tremendous company, a terrific company, and created a lot of value for themselves and for shareholders. More importantly, they had really done something forever. When you walked around and saw the cellular business you knew that there was a handful of people that had been there from the beginning and had just made it happen. That had a lot of appeal to me. In fact, when I quit, I remember I was at a Sonics game with my boss and he had made one last pass and offered me a job that was extraordinarily attractive, and from a financial standpoint would have been a much smarter move. I just knew at that point – I was in my early 40s – I just knew if I didn’t do this now, I’d never do it and I would be regretting it all my life. It was just something I had to do. I don’t know. I don’t know where it comes from.
Andrew: I remember reading about Craig McCaw as a kid and idolizing him because of how big a company he built and how, in some ways I felt like I could relate to him. I remember one Wall Street Journal or Forbes article about how he wouldn’t come downstairs from a conference because he didn’t enjoy, couldn’t talk to people on a social level. I thought, I don’t know how to chit chat either and you can still succeed? What was it about seeing him in person that you noticed that I might not have back then?
Clark: That’s a great question because he was… I don’t think it’s news, or I’m speaking out of line to say he could be a bit socially awkward. He had that unique ability to see something that other people didn’t see, or that other people saw and were talking about, but to bet everything on it. He took his father’s company and leveraged it to the hilt and bought all these licenses at prices that people thought were ridiculous and just made one big bet on the future. That takes a lot of vision, but more than vision, it takes a lot of courage. I look back over the last decade at some of the things that we saw coming in digital and we all kind of agreed, oh, that’s going to be big, and I never had the guts, once Razorfish became successful, I never had the guts to walk away from that and make another big [inaudible]. It’s pretty unique for someone to you know… and he came from an affluent family, didn’t need to do that. He wasn’t trying to prove anything. Again, it was just in him. It’s really something undefinable.
Andrew: Now that you took this plunge I want to know what you did next, but first I’m curious about you as a person. Were you the kind of kid who even in school sold candy, who tried to shovel snow, or tried to do anything to start your own business, or were you a natural salesperson?
Clark: I was more of a natural salesperson, and the one thing… I would start things in school but I wouldn’t finish them. I had a lot of frustration early on. Finally when I got into the workplace – and I think part of that just coming from a lower class family, not being exposed to people who had really done big things – didn’t really understand what it took to get over the hump. Some of my early efforts, both in school and early in my career, I think came up short because I just didn’t really understand what a big role tenacity played, just that commitment that you’re going to see it through to the end no matter what. Once I saw people who behaved that way and decided to change, things have really turned around. Even though Calla Bay failed, I never gave up. Calla Bay’s a swimwear company; I never gave up until we had exhausted every opportunity. When Razorfish during the dot.com boom/bust in 2001, I mean, it looked dark, we just never gave up. That one worked out. That’s tenacity I think is really an underrated virtue when it comes to entrepreneurs. It’s just a willingness to keep going and gutting it out no matter what, and I honestly didn’t have that when I was young. It was something I had to learn and develop.
Andrew: What’s an example of something that you didn’t get over the hump that shows that you didn’t understand that you need to keep persisting, that maybe you regret years later?
Clark: That’s a good question. Well, I had planned to start an advertising agency and the gentleman who I was going to start it with, we had planned for four months. We had it all figured out, we had the business plan, we had it all ready to go, and the day before we were both going to quit our jobs, he backed out. I wanted to do this more than anything. I’d felt my entire career was built up to this point, and I was so discouraged I quit and went and got another job. Everything’s worked out in the long run, but that was a mistake. I had made that commitment, I should have just found another way to do it. I lost about a decade of my career working for other people when I could have been working for myself.
Andrew: And by working for other people though, you did see others who were willing to get over the hump. Is there one moment that makes you say yeah, I’ve seen it. Or is there one example of that that is especially memorable? Of someone else getting past the hump that you use?
Clark: Not somebody personally. But I mean the experience at Macaw was an eye-opener for me because it was at that point where it was still small so you could get exposure to the founders. But there again it was 2,000 employees and it was a big company and it was growing 40% a year. When I came to understand and meet these people and understood, like there was a guy Steve Hooper who eventually became the president of the company under 18, too. I just realized he had just been a financial kid like me at some point. Just kind of looping around Seattle trying to get things going and became a part of a group that just decided they were going to do something big and were going to take huge risks and drive forward to do it. Steve is extraordinarily highly regarded and he made a lot of money and he’s a great guy. He transformed who he was. I remember thinking, you know, if he can do it I can do it.
Andrew: There’s something to be said about seeing people who are ordinary like us succeed.
Clark: Yeah, exactly. Yeah. All these people that seem bigger than life at some point were just Joe Shmoes like the rest of us. I really think the thing that sets him apart is just the first step and the last step. Those are the two hardest. The first step is deciding to do it, to take the risk. The last step is just not giving up. That’s what I learned in that experience.
Andrew: Your mother was in the swimwear business. My dad was in the manufacturing business, he manufactured women’s clothing. Seeing that made me say I never want to get into that business. It’s so tough. What was it about seeing your mom in the business that made you want to go into it?
Clark: She was doing custom swim and so she had a store where women would come in, get fitted. The thing I liked about it is unlike most manufacturing there’s no inventory so you don’t have to make bets on what women will want next spring and hope to God you’re right. There was none of that. It had very high margins. It was all custom made. Extraordinarily happy customers that just kept coming back and coming back. She had built, with absolutely no investment, one location where she both sold and manufactured the garments and she had a very successful business going.
I would talk to women about it, about buying a swimsuit and they all said oh, my God. It’s the worst experience you can experience. In fact there was a TV show once, Murphy Brown, and on the show Murphy Brown, I think her quote coming back from lunch was well, I’ve had the worst day of my life. I think I’ll cap it off by going and trying on swimsuits under fluorescent lights. That’s how women feel about it. It just seemed like my mom had solved the big problem. And had an economic model with no inventory, all custom made, that was much better than the traditional clothing manufacturing business. Decided to take the plunge.
Andrew: When you go into it you did something that I wouldn’t have thought to do when I was even considering my dad’s business or starting out in my own business. You immediately quit and also tried to raise money. How did you know to start raising money so soon instead of thinking hey, bootstraps the way to go?
Clark: You know, I believed, and it turns out I was incorrect, that in order to do this we needed to be in mall locations where there was a lot of traffic. Because I couldn’t figure out how, we were either going to spend money on marketing which required capital. That could be really expensive. Now it would be a lot different because there’s a lot of tools for marketing that are less expensive. But then that would have meant paid advertising to support one location. That would have required capital either for paid advertising or capital to build a store. To build into Bellevue Square Mall, which is kind of our premier, high end mall in Seattle it was hundreds of thousands of dollars to build that store out. You had to hire staff and they had to be there, you know, seven days a week.
It required a lot of cash so I raised $700,000 in order to get the business going. Because then we also had to build a manufacturing facility and design all the suits and acquire fabrics and hire people and experiment and learn and do all that stuff. It required a lot of cash.
Andrew: At your mom’s store, did they make the swimwear there at the store?
Clark: In the back, yeah.
Andrew: They did.
Clark: It was just two of them so it was highly efficient.
Andrew: Wow.
Clark: I just decided well, she can do it on a small scale. I’m going to do it on a big scale.
Andrew: You actually talked to 100 people about raising money?
Clark: At least.
Andrew: At least.
Clark: At least, yeah.
Andrew: What was their reaction?
Clark: It was poor at first because I had written a business plan and most of these people, virtually all of them were men and they would read it and kind of go I don’t understand this. I had a little slide deck that was going nowhere. I rewrote the business plan to make it more readable and less jargony. I would just have lunch with somebody or meet with them for coffee and instead of giving them a presentation I would just talk through the plan. I would give it to them and say give this to your wife. Have her read it. When I started doing that I started getting checks. As it turned out they would go back and women would say oh, my God, this is the best idea I’ve ever heard of.
Andrew: You know what? I remember Tony Shay saying that. Back when he started speaking about Zappos he would say to the audience you may not have heard of us but talk to your wives, they’ll tell you. So you raise your money, it was time to build out the business. Well, actually before we even do that, how does it feel to be rejected by so many people? I was, with my first business plan, rejected by maybe five people and I wanted to just rip, not rip their heads off, but I wanted to go in fighting and show them how wrong they were. What was your reaction to that kind of rejection?
Clark: It didn’t bother me. I think that comes from coming from a sales background. I just understand that you’ve got to create a funnel. If you talk to ten people and close one, that’s success. The nine rejections are just the steps along the way. I was lucky in that that didn’t bother me. I just kept plugging and plugging and plugging. It took about four months.
Andrew: OK. Is there a book you would recommend to someone who wants to learn how to plug, and plug, and plug away and become a better sales person?
Clark: I can’t think of one right now.
Andrew: OK. Who was it? It was Joe Gurad [SP], I think it was, who used to create these sales funnels? I can’t think who it was.
Clark: Yeah, it’s any good sales person who is experienced will focus more on the top of the funnel than the bottom of the funnel. Because they’ll know that if they’ve got a lot of people in play and they have a good story and they’re good at sales some of them will become customers. At first I wasn’t so sure but after I got a couple of them on board then I said OK, I can do this. Then it was just call, call, call, call, call.
Andrew: Focus on the top of the funnel and the bottom will take care of itself?
Clark: If you know how to close. I mean, that’s the other thing. I have some friends who have tried to raise money and I think they had some good stories and they’ve stumbled and not been successful. Someone gave me some good advice. Go to these meetings, have the subscription agreement with you and when you’re done give it to the person and ask them to sign it and write a check. You’ve got to be willing to close. You’ve got to be willing to ask for the money and stand there and wait for them to write a check. At first that made me uncomfortable but after a while I found it to be really fun. It was a challenge. This person wants to invest, can I get them to write a check?
Andrew: You actually had one person who, after writing the check, had second thoughts about it?
Clark: Yeah, I was sitting there talking to this guy and I had my little folder and I have a check and a subscription agreement sitting there. We keep talking and talking and then he starts talking about his doubts. Well, what if this happens and what if that happens? I could see him starting to panic and he looked at the check. I just slowly closed the folder over the check and we just kept talking. You know, it’s a sales skill, it really is, the ability to close and to work the funnel.
Andrew: Then you went and you opened up your first store. How was the first store?
Clark: Well, that was the problem. The first store was a huge success right off the bat. Within a month we were beating all the numbers we had expected. It was great. Let me see, I think it was three weeks in I got a call from our store manager who was working that day. She said jeez, we just did $2,000 today. We’re going to be rich! I remember thinking oh, God, this is fantastic. How easy to just do this, to open these stores. We need more stores. It turned out we didn’t need more stores. What we needed to do was to spend time to get it really right and to expand slowly and deliberately so that we could be sure we knew what we were doing.
Andrew: I’m going to write that down to come back to talk about when we talk about Razorfish because that’s something that you did there. Wanted to make sure that we needed to spend the time to get it really right. Spend that time and get it right.
Clark: Absolutely.
Andrew: I’m actually writing it down on my computer. But you said that it was a problem. Why is that first success a problem?
Clark: Well, I didn’t have any experience in taking a small business and turning it into a big business. I was not aware of the challenges that you’re going to hit along the way. One of the big ones is the challenge of scaling up operations. Particularly in a business that depends so heavily on customer service and the quality of the product. We had over-engineered the first store. We hired a very senior person that I had a lot of faith in, that I had worked with before that came from Nordstrom to run the store. She hired a bunch of ex-Nordstrom people. I was right there with the production facility. We had a good person to run production and we were on it. The volume was not particularly heavy. We were able to deliver a high quality product and a high quality experience right out of the get go because we just kind of over-engineered it.
Then we decided boy, this is great. We went back to the original investors and they ponied up a lot. I think almost $2 million and we decided to open five more stores. We did that within 14 months. That was a disaster. I just simply didn’t understand the challenges of growing at that rate from such a small base, what that really implied for the business.
Andrew: I’ve heard that nothing’s more deceptive than success. It seems like that’s what happened here but I don’t understand why. Because if it’s over-engineered and it worked in the first store couldn’t you just duplicate the over-engineered process?
Clark: Well, I think we could have done that if we had opened one more store in the next year.
Andrew: I see.
Clark: But we were at one point opening a store every two months and we’re a tiny company. There were like 30 of us. We were running and we were doing it in multiple cities. We were in Seattle, Phoenix, Las Vegas, Northern California, San Jose, and Walnut Creek in California. We’re flying around the west coast. We’re opening stores, we’re signing contracts, we’re hiring people to run them that we’ve barely met. You know, you do some interviews, check their references, great, you’re the store manager.
We didn’t have the procedures in place and as a result at the end of a year and a half we had two stores that were successful and four stores that were not. More importantly it became obvious they never would be. They were in the wrong location. We had signed multiple year leases with stores in the wrong location because we just didn’t know. It’s too easy to make a mistake when you’re expanding at that rate and you’re not yet an expert in your business.
Part of the fun of the being a startup is you’re not an expert so you get to experiment and explore and try new things and learn. You make mistakes and you don’t have a boss saying hey, that was stupid. You just kind of go oops, I’m not going to do that again. It’s a gas. It’s really fun. But when you’re expanding at that rate those mistakes can really multiply and you can get into a situation where you just can’t get out. That’s what we did.
Andrew: When did you notice? What was the first sign?
Clark: Well, after we had those six stores opened and in the first few months after that I really felt like we were just behind the eight ball all the time. Just struggling to get the product out, to get it on time, to hire people. You know, you’re constantly getting feedback. This sales person we hired wasn’t doing a great job. I had gone over to the first store and I had talked to customers all the time. I couldn’t work there, obviously, because of the kind of business but I spent a lot of time there talking to the customers. I was just getting great feedback on what a great job we’re doing. Then I stopped getting that in some of the new locations. It just became apparent that we had over-reached.
Eventually, maybe six months after that, we had solved all the quality and service issues so we were doing a good job again. But we had dug ourselves a hole with the customer base in those locations. Then we had four bad locations. We figured out that it was a higher end product than we thought it was and we had to be, maybe, if we could be in the top mall in every major city we would have something. But it was too late. It wasn’t too late to fix if we had unlimited capital but once you start losing money and can’t show you’re going to fix it no one wants to raise money anymore.
Andrew: How could you fix it?
Clark: How would I have fixed it?
Andrew: How could you fix… it seems the hardest thing to undo is bad locations. How would you fix it?
Clark: Close those four stores, take a million dollar write-off, and start over.
Andrew: Do you pay off the landlord, or do you find someone else?
Clark: I had not personally guaranteed… that was one of the things I to promise my wife is that I would keep the house. That if this thing blew up we would still have the house, so I had not personally guaranteed the leases, I had not been forced to. So since we were a corporation there was no real recourse. So it was just a matter of losing a lot of deposits and inventory and very expensive. But it was possible. If we’d had a couple million dollars more, we could have closed those four stores and opened a third one and then kind of grown more slowly. That’s what I was trying to do. I was desperately trying to raise more money but it just wasn’t working. I remember I got a moment of hope. I got a call from a venture capitalist in Connecticut who specialized in retail and had been in our store in San Jose. Called and said geez, we love what you’re doing, want to hear all about it, so I flew to Connecticut and it was just kind of the last ditch hope. I had this presentation, and I went through the whole concept the [inaudible] and they’re loving it, loving it, loving it, then I show them the story on the four stores and you could just see they’re just like, oh, we don’t care anymore. And I had this answer, where we now have two that work but we’re going to get… and it’s like, no. We don’t want to. We’re not going to get involved in something where two-thirds of your locations aren’t working. So that was, that was when I seriously thought, okay, I may be in trouble.
Andrew: What was the situation like with your existing investors?
Clark: They were great. I had got some good advice from somebody beforehand, from my attorney, who said whatever you do, you don’t want to get sued when this is over so you never, ever, ever say anything that isn’t true to your investors. More importantly, or even better, tell them everything that’s going on and keep them informed, because most startups they take the money and then they really don’t keep in touch and they don’t stay informed, so every month – and this was back when most of them didn’t have email, so I would actually write these, stuff them in envelopes, and send them out to my 40 investors – one page. Here’s what happened this month. Here’s the numbers, here’s the good things, here’s the bad things, and here’s what we’re doing to fix the bad things. Literally, it was four bullet points. I just sent those out every month. I’ve run into virtually all of them since, and they’re all disappointed obviously, nobody likes to lose money, but I’ve never had a single expression of anger or frustration over the experience from any of them. In fact, one of them hired me at [Admiralty Way?], it’s how I got this job.
Andrew: You went from zero to $2 million in sales in less than a year.
Clark: It was about a year and a half.
Andrew: A year and a half. That’s phenomenal. But you were losing money along the way.
Clark: Yeah, and in the retail business, it all depends on the store economics. If the stores are making money but the company is losing money because of the overhead you can still raise more cash to generate more stores. But if the stores are losing money? You don’t have a hope. No hope.
Andrew: What about manufacturing? Your mom didn’t need a manufacturing operation but you obviously did because you were going big. How did you learn that and how did that work out?
Clark: There were challenges, but that worked out pretty well. There is a pretty big apparel business in Seattle, most people don’t know that, and there’s a lot of production talent, both in management and actual sewing skills. There are a lot of suppliers and it’s easy to get the equipment and the people to do the work. The interesting thing is the person that actually ended up running it after the first six months didn’t have any sewing production experience was just a very good operations person, and she just had a great sense of organization and operational skill and learned the sewing side of the business. So that was a challenge but that’s always fixable. The real challenge is the sales and the stores and covering the cost of those stores.
Andrew: I see. How would you even know how to hire someone coming from the cellular business? How would you even have a friend who worked at Nordstrom, who you trusted, who understood.
Clark: [??] Nordstrom as well. We started with four people. It was the woman who would run the stores, and I had worked with her at Cellular One. A financial guy, because we had to set up a point of sales system and all that. So I needed a financial guy right from the beginning. He worked at Cellular One. Then I found a guy who had run production, just through, I don’t even know who I found him, advertising, interviewing, word of mouth. Just putting the word out and I found a few people and I hired a guy. So there’s three of us who knew each other. We had worked together. And the four of us sat down and just plotted the whole thing out.
Andrew: How did you come up with the company name?
Clark: The retail group that we hired to do the store design also came up with the name and the logo. They did all the branding for us.
Andrew: Gotcha. And then there was this one time, this was so powerful in the notes that Jeremy took on the pre-interview. You went to the movie theater to see movies by yourself. Can you tell that story?
Clark: Yeah. Well this was soon after I came back from Connecticut and I was desperately talking to all the investors. You know, investors, they can smell it when things are bad. It’s hard to fake it and you don’t want to lie to them, so you have to be totally straight. This is the fix we’re in. This is the plan. We’re going to close these stores. We’re going to do a turn around. This is what it’s going to look like. But you can just tell that their interest level was just done
So I went one day, and I didn’t want to look depressed in the office with all the people, so I went to see “The Avengers” and sat through it two times. And during that I was just literally doing all the numbers in my head. If we could do this, we could do that. If we could do this, we could do that. Just trying to come up with anything that would finally work and about midway through the second showing, I just realized, you know, it wasn’t going to work at all.
So I went back at the end of that day and got the management team together and said we had to shut it down. The next morning I got on the phone and called all of the investors between 8:00 and noon. The ones I couldn’t reach I left a message on the phone, invited them to call me if they had questions but just let them know we’re going to shut it down. Then that afternoon we contacted the stores and let them know they should lock the doors and go home. That was a bad day.
Andrew: I bet. Things end up changing, as we’ll see in a moment, but to get them to change, you have to stay positive, I imagine. How do you keep yourself from getting sucked into depression?
Clark: I’m kind of lucky that way. I was once described as one of those clowns that you punch in the face and they go back and the keep coming back up. I get upset and depressed and sad, but I’m lucky, and I don’t know why, in that I don’t internalize it. I don’t start thinking I’m worthless and stupid and I’m never going to have another chance. I just kind of get exhausted, like, ‘Oh, my god. I’ve got to start all over and do this again.’ At this point I was 47, 46, I guess, when we closed the stores. And I was, like, ‘Ugh, geez, I’ve got to go find a job. I’ve got to start all over.’ It just sounds so depressing. But I don’t let it stop me from moving forward and I don’t really know why. It’s just kind of a gift, I guess, from my family, or mother, or nature. I don’t know. I’m lucky that way.
Andrew: I wish I was like that. I sometimes take things too much to heart.
Clark: People ask how can you develop that, and I really have no idea.
Andrew: It’s just who you are.
Clark: Yeah. I have other weaknesses that get me in these pickles.
Andrew: For example?
Clark: Well, I can be impulsive. I’ve made a lot of job changes. Marriage changes. Decision to adopt children. Doing a lot of things with a limited amount. Starting jobs, starting businesses with the limited amount of evidence that I could actually pull it off. So sometimes they don’t work. So I’ve found myself in a pickle a few times. Serious pickles. This being one of them, obviously. I just kind of, like, get going. I might mope around the house and not shave, not get out of my robe for a week or two, feeling like crap. But eventually I get going.
Andrew: And then you go and have a conversation that led to Razorfish.
Clark: Right.
Andrew: Before we get into that conversation, how do you keep other people from seeing you like a loser? Because, all right, maybe you can bounce back but their perception of you lags behind the reality of who you are?
That I don’t like, because it was clear that people thought I was a loser. [laugh] I find that irritating kind of and motivating, like, geez, I got to fix this. I don’t know if you’ve ever been unemployed and there’s nothing to do and you wander around downtown, everybody’s walking fast and they’ve got their stuff and they’re going places and you, it literally feels like you’re in one of those scenes in the movie where you’ve stopped and the world is spinning around you, and you feel like an outsider looking in, and you just sit there and go, oh this just sucks so bad. I am just a nobody. It just forces you to keep going. So I have experienced that a lot.
Andrew: Because you don’t want to be a nobody any longer, you keep going, as opposed to giving in to that.
Clark: Yeah. I don’t like it. And I don’t like it when people go, how you doing? You OK? You doing all right? Oh, I just want to kill myself, it’s so irritating.
Andrew: I love the head tilt.
Clark: Yeah.
Andrew: So what was this conversation?
Clark: So Nick Hannauer [SP] was one of the last investors in Calla Bay and he likes to joke that he lost his investment – and he’s invested in a lot of companies – lost his investment more quickly than any investment he’s ever made. He had started Avenue A, he had been one of the original investors in Amazon, so this was in 1999, the height of the Internet boom, so he’d obviously done extremely well with that and taken some of his capital and started a digital advertising company called Avenue A. I knew they were growing rapidly and looked like a company I’d like to work for, so I got an invitation to go talk to him. I didn’t have the guts to call him myself [laugh] since I lost his money, but I go in to interview with him and his team. I’m practicing, the whole time I’m going over this – geez, what am I going to say to this guy? I just lost his money, he’s going to think I’m an idiot.
So I had rehearsed this opening line which was, “Well Nick, I’m a failed entrepreneur seeking redemption.” And Nick goes, ‘”Ah, easy come, easy go! Don’t worry about it!” Like maybe easy for you, didn’t seem easy for me, it was horrible! He just didn’t care, and one of the things I discovered when you’re looking for work because I talk to a lot of companies, being a failed entrepreneur is actually something good to have on your resume these days. I’m sure that wasn’t always true, but it is now, at least in a city like this where there’s a lot of entrepreneurial activities. So Nick hired me, and I went to work there in 1999.
Andrew: Why is being a failed entrepreneur an asset? I would imagine that people would think, well this guy’s never going to want to work for himself. He’s going to look for an opportunity, he’s not manageable which is why he probably went off to start his own company. There is no job position within a company for entrepreneur. There might be for CTO so congratulations if you were a developer of a failed company, but anyway, look at all the things that go through my head. Why is it an asset? And I have noticed that it is an asset.
Clark: Well, I think… I hadn’t really thought of the negatives. I’ve interviewed people who were failed entrepreneurs and you can pretty much tell if they’re compulsive, have to be the number one guy or not, and I like to run things. So the job Nick offered me was to run a portion of the business. So I would have a lot of independence, take a new enterprise that they were developing and go with it. I didn’t need to be the CEO or be the top guy in the organization. I didn’t have the ego need to be number one, but I had… I guess it’s ego, I have the need to run something, to be in charge of something and make it happen, and they gave me that. But I think if you can give somebody that within an organization they’ll be thrilled. The nice part of it is you know you just get a check every two weeks and it’s good. You can pay your bills, so it’s this gigantic relief. We were well funded, they had some significant VC infusion of capital so we were able to do things, and I loved it right from the beginning.
It never bothered me that I was not the CEO of the company, and the company broke up into three divisions and I became the President of Avenue A which was the digital media agency, and then we acquired Razorfish and merged and I became the CEO of Razorfish. At no time – and we were a public company – was I the CEO of the corporate entity. I was running a $400 million dollar business until I gave it up a few years ago, and had a lot of autonomy, and it was a gas. It never bothered me that I wasn’t the top gun. I’m not sure that that’d be true for everybody, but you can figure that out when you talk to people. Do they have strong egos? The kind of ego that will want them to succeed and perform? That’s great. If they’re egotistical, then you don’t want them.
Andrew: Having and ego vs. being egotistical. Good distinction. We want to know what you learned from Calla Bay that you brought to Razorfish, and one thing was to listen more. How did you used to be, and then how did you bring listening into Razorfish?
Clark: Well, it was humbling, because there were a lot of people that told me you’re expanding too fast. Investors said you’re expanding too fast, our finance guy and our head of production, so of the managing group of four, two of them say we’re expanding too fast, we shouldn’t be doing this, and I was just pretty damn sure I knew what I was doing. And turned out I didn’t, and I had been humbled in the most humiliating and public of ways. I just kind of decided maybe I don’t know everything, and maybe there’s other smart people around that know things as well and I just decided to listen more and particularly in digital marketing, where nobody knows what the heck is going on. Constant change, constant innovation. There aren’t any experts, and you can’t be one even if you tried. Seeing that and combining it with my prior experience and going okay, I’m not an expert. Am I going to pretend to be one like I did last time and fail again? Or am I going to start listening to people? So I really did try to pay attention.
After listening to them I would still make decisions and say this is what we’re doing, this is where we’re going. We kind of had a saying that the what we’re doing is not negotiable. So once I, as the leader, would say okay, we’ve had the debate, this is what we’re going to do. We’re going to go take this hill. The how you get there and how we do it is 100% negotiable. I’m going to listen to everybody’s ideas and give people a lot of freedom to do it the way they think it right. I would often walk around the office and see what people were doing and think, oh my God, that’s not going to work. I’d give them a chance to say all right, let’s see what happens, and sometimes I was right and sometimes some of the things I thought were stupid turned out to be huge successes for us, so…
Andrew: For example?
Clark: There was a head of one of our divisions who wanted to create a unified data analytics platform for all of our clients. I couldn’t figure out how we were going to make money at it, I wasn’t sure if it was going to be a big business, and he conned me into investing a small amount of money, I think it was a couple hundred thousand dollars to get some servers and hire a guy to see what would happen, and this guy Tim Barnes turned that into a very profitable $10 million dollar business within a few years. It became a core differentiator for our company, and I didn’t see any of that. Three years later I’m talking to people about, jeez, this is a huge differentiator for the company, this is [inaudible] strategy and it’s who we are and it’s profitable, and in the back of my mind I’m thinking, they probably think I thought of this! [laughs] I did not! There were a lot of those things that happened. A lot of them.
Andrew: It’s because you told Jeremy- I’m so glad we did all this work in prepping for this interview, because . . .
Clark: I have to say, you guys did more prep than any of the [inaudible]. I think it really helps.
Andrew: I appreciate that. I want to be respectful of your time because I know the company that you’re involved with, I know the people who you have access to and I say, I don’t want to rob him of time at the company, time with the people, time with important issues. So I’m glad that when we ask you to do this that it pays off the way that it has been here, and I appreciate what you said about it.
One of the things that I actually underlined, bolded, enlarged so that I can talk to you about is what led you to give Tim Barnes all this freedom. It was that you went from an emphasis of technology to falling in love with the problem that you solve for customers. What does that mean? To fall in love with the problem?
Clark: So I see this in a lot of startups. I get a lot of presentations and I’ve invested in a couple of startups. I see very strong people with great technology experience that are, they just love the technology and they’re absolutely sure it’s going to transform the world. And we love that technology and we were sure it was going to transform the world, and it did, but how we ended up looking, organizing and providing that technology and service to the customer is nothing like we anticipated. It’s 180 degrees different. The reason I think we were successful is because of the dot.com bust in 2001 and we lost 60% of our revenue and had to fire a couple hundred people and kind of start over. We just went around to our customers and said okay, what do you need done that we’re not doing? We didn’t really analyze too much whether they were right. We just did it, and we fell in love with the problems. Instead of saying we’re going to convince people our technology is right, I said we’re going to keep adapting and changing what we do and how we do it until we solve this problem. And the problem was how to purchase and optimize digital media at a time when most people thought it didn’t work.
It’s hard to imagine now because there’s tens of billions of dollars being spent on digital media, but in 2001 everybody’s going, oh, that didn’t work, we don’t have to worry about that anymore. It was the only business we were in. We had to prove to the world that it did work, and that was the problem we were trying to solve, and we would do anything and go anywhere and build anything that was required to do it.
Andrew: As long as you stuck with that collection of problems, buying digital media, you aren’t going to go into ads in magazine. Or were you?
Clark: No. Well, we have since, because the problem changed, but in from about 2001 to about 2004, that was the problem. Prove that digital marketing works. That was it. And we’re going to do that, so we changed everything to pull that off.
Andrew: How do you know which problems to answer? If you’re going and asking people what’s your problem, you could get caught up with a small problem that’s not a big enough issue to build a business on, or a small collection of customers who aren’t worth investing time and money to solve their problems.
Well, we knew we had a big opportunity because in the U.S. alone, advertising is a, I don’t know the exact number, but it’s about a $300 billion dollar business. We believed fanatically that a good chunk of that was going to move to online, and that the reason it hadn’t is that we just hadn’t gotten it right yet. So that huge addressable market was one of the driving forces and I think that’s… and we were a public company so we couldn’t be successful via by being stopped. We had to do something big. So we tackled the big problem and we’re successful and solvent.
Andrew: So you had a setback, you go and get a job. You’re in this company, things are going great, you guys are celebrities in the tech space, and then nuclear winter hits in our space, and I think the best way to exemplify it is another story that I’ve bolded, underlined and made bigger in my notes here is the time that Go.com was your client and you called them. How much business were you doing with them and what happened when you called them?
Clark: They were our biggest client. This was in January of 2001. Things were just starting to get sketchy. About a month before that, clients had started to cut budgets and some of the small dot coms, some of the crazy cot com clients we’ve had, had gone broke. This is Disney, you know, Go.com is owned by Disney. It was a $15 million client for us, and they happened to be in the same business. They were headquartered in Seattle, they were in our building, same building, about four floors up. And I remember someone coming into my office and saying, Jesus, we’re calling Go.com and they’re not answering the phone. I said well, you got to go up, see what’s going on. Somebody went up, came back said, they’re all gone. They’re just all gone. [laugh] It doesn’t exist, there’s nobody there. And that’s when we thought oh my! [laugh] This is a big problem. There’s that moment that for the next four months that our business just melted. I mean literally, lost 60% of our revenue in four months.
Andrew: You talked about what you did to recover it and what you did to build this business up, but what I’m wondering is what you did internally? Is it again just the clown bounces back up, same smile on its face as it had before it got hit? Or was it something that you had… because you had a setback before that was public, this was your redemption as you said to the investor who hired you and now redemption is falling apart, what do you do mentally?
Clark: Well, it was interesting, I mean we were lucky because we had a lot of cash in the bank. So, we had gone publics, we had money. So, we weren’t worried about paying the bills. But we still were a failing company, so we had to figure out how to make this work. And I remember, this was, it’s funny how, as you go through life, you know, the horrible things that happen. Everybody says, well they become lessons that you can apply later. And I think that for a lot of people, that I swear. I use the word, bullshit, for a lot of people. You go, yeah, fine, Greg, I don’t buy that. But that’s exactly what happened. I remember thinking, OK, we had a $200 million dollar business that’s now a $70 million dollar business is what I think it was. And we’re not making, we’re nowhere close to making that. And rather than try to grow, let’s just get this business right. Let’s not do again what happened Pala Bay. Let’s not take something that’s broken and just kind of grow our way out of it. So, we sat down and we identified 13 clients. I think we probably had about 20 left, 13 clients that we believed we could serve profitable. And we resigned the other seven clients, which meant we lost another 10 or 15 million dollars in revenue. And had to fire even more people than we anticipated. But we got down to these 13 clients in the Seattle office that we thought, let’s just get really, really good.
Let’s not go out and pitch new business. Let’s not try to grow. Let’s just figure this out. And get a core group of people that can, that knows how to run this business. And so we started over. And we redefined everything. All the processes, all the procedures. And a year later, those clients were growing like weeds. We had learned how to make them happy. And at that time, in digital media, most companies had either gone broke or given up on it. So, doesn’t work and from the agency’s standpoint, we can’t make money at it. We said, it does work. And we know how to make money at it, and we’re good at it. And we spent a year just getting good at it. And then we started growing. It took a while. We started adding clients and then from 2002 to 2005 we picked up tons of big clients, big national clients. Nike, and then others. And, we were winning virtually every pitch we went on. Because we had taken the time to get really good at our core business.
Andrew: And that’s the thing that I wrote down, and spent so much time typing to make sure that I included it. Giving up revenue, to focus on doing a few things right and then expanding those. That’s what helped you turn things around.
Clark: Yeah, I mean any turnaround, if you look at anybody that goes into a broken company, and what do they do? It’s kind of always the same thing is they stop doing anything that’s not profitable or speculative or hopeful. Let’s stop kidding themselves and say let’s not waste money on all this stuff that isn’t core to the business. Then figure out what is it that we’re, really need to be great at? And they focus the entire company on that. And cut their costs and get their costs in line with the revenue. And I can remember in 1999. We’re growing like crazy, we’re losing money. And people would say, I can remember having these conversations. Probably when we get big enough we’ll make money on it.
So, I’m not so sure. I mean, I think the way to make money is to spend less than you’re putting out. And I remember thinking, that’s old thinking. I was kind of the old guy. Everybody else is in their twenties, and I’m you know pushing 50. I was in my late 40’s. And, that’s old guy thinking. But about a year and a half later, they kind of came back, said now what was that you were saying, Clark? And we had this much revenue. And we need to make a profit, so we put in profit and that means we can spend this much money. So, we just did it. And I can remember great kids, probably 22, 23, one of the people that we kept. And he kept in, and he came into my office, and said, Clark, I just don’t understand how you make you these decisions. How did you decide that we could, we were down to 75 people. And we have 2300 global now. But we were at 75 people in the summer of 2001. How did you decide that 75 people were enough to do all this work? I said, I have no idea, but it’s just going to have to be enough. Because that’s all we can afford. And it’s going to have to, these 75 people, us together as a team are going to have to figure out how to make these clients happy and make money. And it was literally no more difficult than that.
But, a month later, we got everybody in the office, we did this in May and June. We got everybody together at the end of the month, and said, well, we just had our first profitable month. We made money and all of a sudden we’re surrounded by an industry in turmoil and everybody’s just feeling like losers. And I said, “You know, of everybody in digital marketing, the 75 of us in this room are the only ones that are successful. We’re making money, and we’re providing a good service, and we can build on this.” And it was really invigorating and it really pulled everybody together. And the core of that group, those 75 people, are scattered all over Seattle, and the West Coast and the U. S. now, but they’re still some of my best friends. That was a wonderful experience.
Andrew: What’s an example of a typical project that you do for a client back then when you guys were 75?
Clark: Well back then, we were strictly digital media optimization. So it was a service and technology combination. We would buy digital media, banners primarily, serve the ads and then track and optimize those campaigns. Today we do everything. We do creative website design, mobile, social, search, everything.
Andrew: I hesitated earlier when I said no magazines, because when I read the “About” section of Razorfish’s website and it said offline also.
Clark: Well there are a couple clients for whom we’re doing offline advertising. Things have changed. I think within a few years there won’t be digital agencies and traditional agencies. There will be agencies that do everything, and the will have either come for a digital traditional or come from an offline tradition. But we’re all going to be doing this, and that’s part of what I was just talking about, just the constant change in the industry. If we ever had become rigid in defining who we are I think we would have died. You have to keep adapting.
Andrew: You know, Clark, I interview entrepreneurs who run $1 million agencies, $5 million agencies, and many of them, most of them are not going to become $1 billion companies. Why? What do the people that don’t make it past that admittedly very high success, why don’t they break through to that stratospheric number?
Clark: You know, so much of it is luck. I know everybody will tell you that. Right time, right place. The biggest challenge agencies have is differentiation. They all look the same. If you look like your competition, you haven’t got a hope of getting big. You’ve got to find a new model, a new way of organizing, a new way to attack the problem that can attract big clients.
That’s the other thing. In order to get big, you have to work with big companies. You’ve got to have a story that is completely differentiated. You have to have a story that is focused on making money for the client, because that is all they care about. And you have to get one referenceable big client.
For us, it was Eddie Bauer was our first. We had a slew of dotcom companies that nobody had ever heard about, but we managed to get Eddie Bauer to hire us and we had a huge success story. Then we used Eddie Bauer to get Microsoft, and then once we had that, we had credibility. Then we could go to anybody and talk to them.
We had that formula. We had a differentiated story at the time. Nobody else had their own ad serving technology and was focused on using it to optimize campaigns the way we were. And we made money for clients. We could show them that we made money. In fact, our pitch was if you hire us we’ll get you promoted, because you’re going to be going to your boss and showing him how much money you made. Then get one substantial client who can become a referenceable client.
And you got to want it. You got to focus on that breaking out. The reality is the $10 million or $20 million agency can make a lot of money. So you also have invest so you have to give up some of your profits. I mean a $10 million dollar agency can make $2 million a year in profits. But to get big you may have to give up a million of that for a few years.
Andrew: Alright. We’re almost at the end of our time, but I can’t let you go without asking you two questions. The first is about the book, Do or Die; what made you decide to write the book?
Clark: Well, I know there’s a lot of confusion about where all the change that’s going on and what companies should be doing about it. And I have a particular view on what people are doing wrong and I have a few examples of companies that are doing things well. So I wanted to take those examples and build a book about it.
The basic principle is that traditional marketing is all spent saying things to customers. Marketing today is really spent doing things, building environments, building experiences, creating social environments. And that when you decide that’s what you want to do it turns out that our entire industry is not well equipped to do that. We’re not organized correctly. Clients, agencies, media–we’re all trying to take the old model and squeeze it into a new one. It’s not working. So this book–I think there’s eight cases in the book that I thought were doing a great job. Doing it correctly.
And then I wanted to do it as an iPad app just to do something exciting and new and different.
Andrew: That’s the first thing I noticed when I went to DoOrDieBook.com–let me make sure I do it clear to get it right for the transcribers–there was a link to the App Store, Kindle, Kindle Fire, and Nook but there wasn’t a link directly to the book. So I thought maybe they left it out. So I went to over to Amazon and that also was linking me to the Kindle, without paper.
Clark: Now there is. I actually had a contract from Mcgraw Hills to write a book. And I didn’t sign it because I kept wanting to talk–we need to do something different. We can’t do a book about innovation without innovating ourselves and they just had no interest in it.
So I never signed the contract and instead decided to do it as an App. So we built it exclusively as an iPad App first and then we adapted it for the Kindle Fire and then we did a Nook and Kindle version. But it just seemed appropriate to just do something completely different. It’s worked well. I meant the main reason to write a book is to get attention and the fact that it’s so different has gotten a lot of attention. So it’s served it’s purpose.
Andrew: And the site as I said before is DoOrDieBook.com. Thanks so much for doing this interview.
Clark: Yeah. You bet. Enjoyed talking to you.
Andrew: And thank you all for being a part of it.
