Andrew: This interview is sponsored by Walker Corporate Law. Do you need a lawyer? It’s not the local guy that doesn’t really get startups. Not the really expensive guys who want a piece of your business. The one who really understands the startup community and who’s there to help you. If you do, go to Scott Edward Walker of Walker Corporate Law.
It’s also sponsored by Grasshopper. Do you need a phone number where your customers can dial in, press one to go to sales, press two to go to customer service, etc.? And maybe even all those numbers actually lead to your cell phone, but it makes you look big. Do you need that kind of feature and so many others? Go to grasshopper.com. Alright, let’s get started. Hey there, freedom fighters. My name is Andrew Warner. I’m the found of Mixergy.com, home of the ambitious upstart and home of entrepreneurs who build phenomenal things. And that’s why I’m especially excited to have today’s entrepreneur back on.
In this interview, I want to find out how you scale a company. How do you take a company that’s a startup and scale it up into a big business that actually can grow without you? Last time he was here Collis Taeed was the co-founder of Envato. Talked about how he bootstrapped his idea. Where he came up with his ideas for businesses. He actually talked about the notebook that he came up with them in. Today I want to have a conversation about how you scale it beyond what you can do on your own. His sites include Market Places, like ThemeForest, where last time he was on I talked about how I bought a theme for a landing page for only eight bucks.
His business also included educational sites like Tutsplus and freelance service market places anchored by Microlancer where for something like a hundred bucks you can have someone design a book cover for you. Or for, I think, 150 bucks someone could design a landing page for you. How did I do with that Collis? This empire that’s so diversified. How did I do explaining it?
Collis: That was spot on. I’m now going to use that sound clip for all of my [??].
Andrew: Well, thank you. It’s not easy describing this whole thing, and I can’t imagine how tough it is to describe it to people who you want to manage it and to organize it all. So, let’s talk about the challenge. Most people would look at you, Collis, and say, “Hey, last time, this was about two years ago, the guy was running a multimillion dollar business. Everything flows well when you get to the multimillion dollar business stage.” But you’re wincing. There was an opportunity that you missed because everything does not go well. What happened?
Collis: Yeah, absolutely. I think…First of all, yes, there’s a lot to be thankful for. I don’t want to sound like I’m going to cry in my milk or anything. But there is a lot of pain, I guess, as well. A couple of years ago, when we spoke, we had gotten to a point where we were getting trashy with our products. We had a bit of a disparate group of products, but we weren’t that large and we weren’t that well staffed, I suppose you could say.
I think at the time I had almost 20 people directly reporting to me. Which is kind of painful in the sense that you need to give everybody attention. You can’t just ignore a bunch of people. And there’s stuff coming at you from all sides. And because of the approach that we had taken at Envato, we had multiple products. It also meant that your attention was kind of drawn to different places. Like where our Microplace is, which is the largest piece of the business, tended to take up a lot of mind shares. That combined with 20 people meant that some of the other parts of the business were being left behind a little bit. And I particularly find Tutsplus, which at that time, Tutsplus, half of it is free. It’s like free tutorials we published. Then there’s a piece which is subscription. So that’s where we actually make a lot of revenue.
Andrew: What kind of tutorials are on there?
Collis: So it’ll be anything to do with design, development, audio production. We even have some stuff about craft, like knitting, but that’s more recent. We teach all kinds of stuff and our mission is just really to teach.
Andrew: And it’s teaching stuff for free, but if people wanted to go a level deeper, they can sign up for premium where for a monthly fee they could take courses, and they are video based. And I think I see here the latest course that was published is Object Oriented Design and Refacturing Patterns in Ruby. That the kind of course that you’re offering.
Collis: Yeah, so they’re pretty good, pretty high tech. And that time two years ago, it already had a subscription and it was generating almost a million dollars and year in revenue. Which is fairly significant, but the product was like, the worst thing you could possibly imagine. I was constantly- I would wake up and be amazed that people were willing to pay for this!
Andrew: Right, what made it so bad? It still did a million dollars a year almost.
Collis: I think it was making a million dollars a year in revenue because the space of online education, as you know, is really hot. There’s a lot of interest in that space and I think where you happen to have a product out there early on, which was tied to a really big network so it just naturally got a bit of conversions and attraction. That’s value, don’t get me wrong. It was like the content had value, but the product itself, the actual mechanics of the site were super poorly made and horrible.
Andrew: Give me an example.
Collis: So, to get content, instead viewing it on the page we would make a download zip file and then you would have to pen on your own. There’s a search but it was really hard to find. You literally had to go through page after page to find something you’d seen last week.
Andrew: And you still got to almost a million dollars. And anyone who wants to see how you got there, in the previous interview we went step by step into how you got there. You didn’t allow me to talk about the revenues publicly but you were doing well. So, here’s something I want you to talk about before we continue, do you remember why you charged nine dollars as opposed to seven dollars for a monthly membership? Seven dollars for a monthly membership on tutsplus.com?
Collis: We had another product, a jump board, which was seven dollars and it was kind of hard to differentiate subscriptions and PayPal if they were the same price so I made them two different prices. That was the main reason.
Andrew: So, this is the kind of issue that you were a growing business but the operation wasn’t keeping up with the growth and frankly, you’re obviously not here to cry about that but I do want to point out that for a lot of people the business gets really big and they can’t control it, things fall apart, and they think that it’s the market place that changed. They think that it’s a bigger competitor that came in and that’s part of it. They think it’s all these outside sources bur they don’t realize the root cause is they were never able to take this business and make it professional like a real, growing business.
So, you described a few problems; people were coming to you, your accounting system was at the point where you had to charge nine products for one product and seven for another just so you can keep track of where the money was coming from, and people had to download zip files in order to watch them and all these other issues. As a result of that you watched- can you be open about this? I’ll let you be as open as you want. Yeah, you’re nodding. What did you watch happen outside of your business?
Collis: It was around that time we started to realize, around the time that I last interviewed with you, we needed to get more attention to these products. I can assume its potential and it needed real effort. Anyhow, so we’d started gearing up to do something but you know with that many people reporting to you and that much stuff happening everything is real slow. It was like, achingly slow, so much slower than you ever hoped it would be and in the meantime we watched another competitor, another really fantastic company called Tree House.
At that time I think they were called think vitamin, and they also decided to focus in on the same space. They also had a small product, similar in size, and around the same period. They must have come to the same conclusion of ‘oh, there’s a lot happening in this video space’. So, I suppose we were kind of neck and neck except we didn’t give it a lot of attention and sort of watched them go out in front of us. They took a big round of funding and started hiring out. I think at one point they had eight times as many people assigned to the same sized product. We could see the revenue was similar but the amount of resources being poured in there was so much greater and sure enough you could just see the products starting to pull away.
It was so painful to see this thing where you know you’ve got the potential, you know you have the pieces there, and you can see a competitor coming in and just like you I’ll just take that lunch and I’ll have that! So I mean it’s a good problem to have; these are all good problems to have but they’re problems still in some ways.
Andrew: Actually, if I remember right, you were ahead of them for a long time. There was no way that Ryan Carson would think vitamin- I shouldn’t say no way. I don’t believe he was at that level where he was doing hundreds of thousands of dollars or close to you.
Collis: Yeah, look, I think we might have been a little ahead and a bit more public about the revenue. I know when they launched Tree House we were pretty much neck and neck and within six months to a year they were out in front. Before that, I mean, Ryan Cox is fantastic. His product’s great, so they may have been a bit further ahead than I realized. I like to tell myself, you know, “We were in there.”
Andrew: Okay. So this is a problem that you’ve got under control right now. I want to understand how you went from where you were to where you are today. You are today, right now, with three different divisions in the business, the ones that I described at the top: marketplaces, education, and freelance services. Each division has its own head. Each division is organized.
You said at the top before we started the interview, and you and I were just chatting, you now have an HR person, you have the whole operation in order. That does not happen overnight. What is the first thing that you do when you say, “Okay. It’s time to bring order to this business?” What’s the first thing?
Collis: I guess the biggest thing was just realizing that we actually started needing to be. . . Look, I guess as an entrepreneur with no real background in companies, I’ve never really worked anywhere else, the first few years my focus was entirely on making products and getting them out there and getting some money in the door, which I highly recommend is a good focus for any entrepreneur.
It was a few years in that I suddenly realized that’s only going to get you so far, and then, it’s almost like I needed to realize that our focus had to shift internally a little bit and start being about company building. We needed to build up an organization structure that could then support those products, otherwise we were going to keep hitting problems like this one we were having with [??]. You know, the will was there, the foundations were there, but those. . .
Andrew: The opportunity is there.
Collis: . . . opportunity, yes. It’s so painful, as an entrepreneur, I think everybody listening will understand how painful it is watching an opportunity going away when you know you could do it.
Yes, I think the realization was that we needed to put a lot of effort into company building. Then, after that, it was a matter of figuring out what’s the right structure, how’s this going to look? I guess one thing I learned early on is this. . . well, two things. One, that most company structures kind of look similar, actually. In the end, there’s always. . . I mean, not everyone, I’m sure [Val’s] or whatever, new management, maybe there’s those companies, but most companies tend to come out with a finance department, a legal department. That said, the structure needs to fit you and your strengths and what you’re pursuing, and that company’s goals, and what have you.
So, in our case, it was realizing that we would need HR, and we would need somebody with [??] legal. It wasn’t enough just to be outsourcing to a legal company anymore, or to a contractor.
Andrew: Do you wait until your costs are so big, your legal costs are so big, that you say, “It’s time to bring someone inside?” That is what you did.
Collis: Yeah, I think for us, especially, because on our marketplaces it looks like we’re transacting files, but actually we transact in licenses, or intellectual property. I think the additional business, global, are legal requirements were strong enough that actually that was one of the first things we brought in was general counsel. Arguably, for lots of companies, you get a bit bigger than we were. I think at the time we had 30 employees, and maybe another 20 outsourced, 30 contractors. It was quite small for a dedicated general counsel, and she’s quite a heavy hitter [??].
Andrew: Because when a designer posts his design on ThemeForest, he is giving you not exclusive rights, but he is giving you some rights to resell it, and he’s giving your buyer some rights, but not all rights, and those agreements need to work internationally.
How do you get someone who understands that, and understands it on an international level?
Collis: Yeah, it’s challenging. You have to. . . I guess the key was searching. As it happened, we really lucked out with our general counsel. She was the general counsel for The Lonely Planet, the travel guides, and did a lot of intellectual property [??], because at the end of the day they have material and content [??].
Andrew: [??] Is it a headhunter?
Collis: That was a jump ad. We put out a jump ad, and the most amazing luck happened, and this fantastic woman walked in the door. Other times we’ve used headhunting firms. We interviewed many, many times for every role, many issues for each person. I’ve discovered, as we’ve scaled up, we’ve maybe. . . Since the last issue we’ve quadrupled our staff. It’s close to 200 now, and bringing that many people in in such short order, culture becomes really important. You know, you’re bringing in a lot of new [techs] people, when it used to be all products people, all the sudden we’re bringing in like more business people.
Collis: Honestly, I was the business guy, and I was like, “Oh, no. I’m not the business guy. These are the business people. They use Excel and tools like that.” So, yeah, culture is important, making sure that that doesn’t. . .
Andrew: So the first thing you did is, the first people you hired are people who you were spending so much money on externally anyway you might as well bring them internally and have them be part of the company, reduce your costs. Do you reduce your costs at that point?
Collis: Yeah, look, I don’t know if it reduced our costs but it certainly reduced headaches. So sometimes when you’re doing stuff externally you kind of think to yourself, “Yeah, yeah, yeah! This is all just getting done.” But the reality is you still have to manage that stuff and if you’re using multiple different external people and you’re kind of trying to skill them up on your particular business – like, when you’ve got an online global internet company, it’s really different to what most lawyers, at least here in Melbourne might be used to dealing with. So you need to constantly be explaining what you’re doing and teach them – having someone in house means that they’re [??]
Andrew: They get it.
Collis: They’re really dedicated, they understand the business.
Collis: And so we started with that side of things, like the HR, Legal, Finance bringing in some roles for things that I and the other founders didn’t naturally know how to do. That seemed logical, like let’s get experts in for things we’re really not very good at and then from there the next focus was about the management for the different business units. And so, as you mentioned, we’ve now got three business units. And for me, especially in the last maybe 12 months or so, one of the biggest innovations with businesses has been bringing in a general manager for each one.
So finding someone who’s kind of the little [ECO] almost of that unit. They own that business, they have their own product team, they have their own tech person, their own-
Andrew: Their own income statement, too?
Collis: Yeah, that’s right. So they manage their own income statement. We call them profit and loss statements here, P and Ls. So they have their own-
Andrew: Most people call them that actually, but let me ask you this. It seems like unnatural to break up your business into these three departments, but I don’t know if it seems like unnatural because we’re looking at it with 20/20 hindsight or if it’s just the natural way to do things, because I can imagine someone else saying, “I have all these different kinds of products.” I don’t know, you had dozen of sites, right? Dozens of products, yeah.
And with dozens of products you could cut it up in so many different ways or what you could say is, “We are not going to break this business down by product. We’re going to break this business down by function and someone will be responsible for educational material and that will go on different sites. Someone will be responsible for handling the membership software and that will go on all our sites.” Why didn’t you decide to do it that way? How did you come to the conclusion that you need to organize it by these three products?
Collis: That’s an actually interesting question. So I’ve always been mildly opposed to functional organization just because I guess I think like what would I want to manage and for me, you know, being an entrepreneur I like the idea of managing a small business. So I was kind of thinking if we could build small teams running each business and it’s like a really holistic team so they have all the pieces for that business they’ll be closer to the ground, closer to the customer, closer to that product and getting what that customer or community’s needs are.
So for me I suppose I was thinking, “Well, what would I want to be hired for?” and like working backwards. But yeah, it’s interesting you do always wonder, would we be more super organized if we’d gone with a different like organization structure? At the end of the day I liked the idea that if we could figure out how to have businesses within the company each one with a business leader that we could, in theory, just keep making businesses which as you know from my last interview, I love the idea of.
So we’ve now got three and I guess I’m already starting to think, “Well, what’s the fourth going to be?” And now. . .
Andrew: And the benefit is you get to still create a fourth business within Envato and have it be its own organization and if it doesn’t work out the rest of the business isn’t impacted. And so-
Andrew: It’s because you wanted to get what feels most comfortable for you, what you feel most comfortable managing, what’s more familiar to you. I got it. And the advantages to this are – tell me if I’m wrong – one of the advantages is that they all get to compete with each other. They get to learn from each other and share resources but they also get to see who’s growing faster. Is that right?
Collis: Yeah, look, I think you have to be careful with competition that you don’t let it become – like I know there’s healthy competition and then there’s like, “We’re not helping you! You stay over in your corner.” So I think we have a mild level of healthy competition. They’re fairly cooperative and it helps that, for example Tuts is quite a different business to Marketplaces so they’re not at each other’s heads or anything or stealing community members or anything like that.
Andrew: I see.
Collis: But at the same time, yeah, there’s a little bit of competition. They get to share resources. They get to cross promote each other, help each other out. It means there’s like three peers in the sense that there’s three general managers and they can compare notes. Hopefully, there’ll be a [xx] at some point. The three can, then, support that one to get off the ground faster. I don’t know if it works every business. So far, it seems to be working for us. Today, I only have four direct reports, which is nice. That is dramatically down from the 20…
Andrew: Three head of the departments, of the business units, and what’s the fourth one?
Collis: A COO. The COO then heads up finance legal, all the [xx] services, business intelligence. That structure seems to be working. I get the sense the structures change, as you get bigger and that it’s…I’ve even got the sense that, maybe, there’s a pendulum effect between that functional management, and then, product management.
There’s some level of…you go, “Yeah! We’re all going to be product focused!” Then, actually, there’s all these efficiencies when you get there.
If we went back to a more functional…ah, I like the way we are.
Andrew: So, the first thing you said was, “I’m going to lay out what the finished product looks like. The finish product is a business that has many businesses underneath it, and shared resources and shared people. HR would be shared, finance department and the lawyers would be shared.” That’s the vision that you had.
Now, it’s time to start breaking things up. I’m imagining you had to say, “I’ve got to pick three guys to lead it.” I say guys, but I mean guys or women. I need to pick three people to lead it. Then, I need to start divvying up the designers. I need to start moving the developers around.
Is that the next step? Or, is there something else? It is?
Collis: When you have people…there are people being shared across products, but, usually, they always have a majority focus for each person. We assign them into those groups. Over time…at first, we continued sharing resources between the units. I’m a big believer that you get the form first, you figure out what it’s supposed to look like, and then, the function follows.
So, in this case, we started splitting up the teams, saying, “You’re the marketplace team but, oh, by the way — you still do work for this team, you still do the work for that team, you still do this and this and this.” It was, kind of, hazy at first. Then, over time, just naturally, those boundaries got a bit stronger.
The general manager, actually, two of the general managers are women. So, they are actually “gals” rather than “guys” but…
Andrew: I think that, you know what, for some reason, guys is a word I always use. Lately, maybe it’s because I live in California now, dudes. I call everyone dude. [laughter]
So, how did you find three people who were going to run it, dude?
Collis: The three people, one we hired, rather we promoted from internal. He’s has fantastic product background, also, tech operations. He runs Tucks [?]. Another for the marketplace, which is the largest group.
We hired, just, the marketing director for Seek [?] which is like a global jobs company. It’s actually bigger than Monster in company evaluation, but, they own a big Chinese jobs site. Then, she had a management consulting background.
We wanted someone…management consultants, from what I’ve come to learn, are fantastic at going into businesses, understanding them, having a really holistic view of them. Having said that, someone who’s only been management consulting, I’d worry, maybe, jumping over have they been on the product side. So, it was good, she had also been in the actual business for some years.
Then, the third role is a micro-manager, because it was a brand new product. The GM is from a very heavy, innovation product background. So, she was very good at starting new things, getting them up to a certain size.
For each role, we looked for a different type of person. Two came from outside, one we promoted from inside.
Andrew: What’s the big challenge in hiring for this? What’s the gotcha that someone, who doesn’t watch this interview, is possibly going to fall for?
Collis: For the marketplace? Which is the big engine…
Andrew: No, for picking people who are going to run it. There’s got to be some issue that, I want us to be prepared for.
Collis: Well, I guess, picking the one for the largest part of the business, and the interviews. When I interviewed various people, I’d get…to get someone who is able to run a business like that, a lot of the candidates that I met, I had the sense that they were, a bit like, “All right. Step aside, son. The calvary has arrived.”
Andrew: I see. “Hey, you just lucked into this, and, you’re a guy who doesn’t know business. We’re going to really be the business people and handle it.” I see.
Collis: Exactly. And, you never know, maybe they were right, I don’t know. But, it’s a bit hard to manage a person who’s like, “Hey, look, I was a CEO of a list of companies. Now, I’m going to come in here and be a general manager, but, just so we’re both clear” I could do your job [??] challenging. You want someone, in my opinion, humiliating and like a sort of learning posture. They feel they’ve got a lot to bring, but also a lot to take in.
I was a key [??] also a culture and [fit] expert for the first time in, bringing general managers, and as I said, I used to have half the company reporting to me, and then we suddenly scaled up. Lots of new people, and now we’re bringing in an extra layer of management, and they’re reporting to these people. That was a transition I think for a lot of the staff, they were a bit like, it’s all changing, it’s not like it used to be.
Andrew Now, I get, “You’re my friend, we’ve had drinks forever. Can I just tell you what I need to do?” “No, go and talk to the guy.” How do you make that transition without being a jerk?
Collis: That was hard and I think some of it was just time, letting time pass. Some of it was hiring people who were so fantastic everyone quickly realized wow, this person is going to deliver massive value to our team.
Andrew: So what was I doing following that other amateur? Here is the guy [??].
Collis: Thank God, he stepped aside.
Andrew: All right. I see the issue. What do you say to somebody who comes to you and says, Collis, I know what needs to be done. Now you’ve created this artificial barrier between us, come on let me just clear the way here.
Collis: Look, I guess, I always make sure that people realize my doors open. I would still meet every new person and take them out for coffee, and chat with them about the company, and make sure they felt like there was some level of direct line.
Even as we’re growing they’re might be multiple layers of management between me and that person. I think that helps, and I always kind of say look, “We’re happy to chat.” We’ll just grab the other person in, we’ll have a three person chat.
I think over time, then it’s a naturally a safe contrast. I have relationships with those general managers. To be honest, I think a lot of it is time and being conscious that this is a culture problem, bear none.
We also had to really invest in internal communications, because for the first time it wasn’t good enough to, like when you’re small, you’re all just kind of around a bunch of desks. People just hear stuff and you kind of know what’s going on. All of a sudden, we’re over multiple levels of an office and there were people who didn’t know who those people were, and had no idea what was happening.
We instituted all hands meetings, brought in an internet, and started having a lot more planned company social things. It was kind of weird actually realizing that you needed to invest in just making sure that everyone knew what we were all doing. That we’re all walking in the same direction.
Andrew: Actually, that’s an even bigger problem for companies where everyone isn’t all in the same place. In fact, you mentioned Ryan Carson. I did an interview with him and he announced in that Mixergy interview how he got the three million in revenue for tree houses. I also asked him to come back and teach a course for Mixergy Premium, where he talked about how he enables people to talk to each other. How he keeps a company where everyone is working from a different part of the world, how he keeps them united? I did that partially because I need to know how to do it. It’s not an easy thing to do.
Collis: We actually have 80 remote staff. There are 100 people here in Melbourne and then there’s 80 spread around the world. We had a similar problem, we had that problem, how do you keep them all feeling connected, but also how do you stop them from feeling disconnected when there’s this hub of activity in Melbourne, with 100 people all next to each other and it’s all . . .
Andrew: How do you keep them all feeling connected and not feeling like, ah, that’s just some remote thing I send my work to, and money comes out of remotely.
Collis: I think we could do a lot better job, frankly, so keep that in mind. We started investing lots in videos. We record all of our all hands meetings. There’s a guy there with a big video camera making sure it goes [??] within a couple of days. The internet itself helps, Yammer like a [cluster] of social tools on line.
We actually have an internal communications officer who’s this fantastic woman, whose sole job is to make sure that everyone’s kind of connected. For example, next week is actually I shouldn’t say what’s happening next week because I haven’t seen it, but a few weeks ago we had a big celebration in the office because we passed a big milestone. We made sure we were sending out these little candies with embroidered logos, and hand written post cards out to all the remote people, so they still felt like they were part of things. I think we had a remote social event where they all Letterpress, the letterpress tournament for remote people. I think just trying to create that sort of vibe.
Andrew: You mean letterpress the game, the iPhone game?
Collis: Letterpress the game, yes.
Andrew: So they all play against each other and that feels like if I play then beat you or you beat me, I at least get to know you and you’re another person, you’re not just another name on the intranet. You’re a person who I’ve played and gotten to know.
Collis: Exactly, something beyond just a work coding or a name. A year ago we were a little bit smaller we were still sizeable, but we also had a big company meet up, so we all went to Kuala Lumpur in Malaysia we took 50 staff or so. Thirty people from Melbourne, we all went, and 25 or so remote people some of their families and partners all came along. We spent 2 weeks in KL working in a hotel. So that kind of helped as well.
Andrew: Do you pay for that? Did you pay for them to all come? That’s a lot of money.
Well we’re pretty strapped, so we’re pretty good at finding cheap ways to do things. Later, I got an events company and told them how much we spent and they were kind of shocked at how little it was. It was still awesome we picked a place in KL where the flights are still expensive in but once you’re in you can stay for ages. The food is really cheap. The accommodations are really cheap.
Andrew: I see.
Collis: Yes, it was a lot but I think of it’s an investment in people. You think of how much you spend on salaries and whatnot. For me this was an investment in culture. We knew we were hiring heaps of people, and we knew we were going to be bringing in a lot of people from a lot of different places so it was important to get everyone together and have a bit of, what is this company . It was during that meetup we established some of the company values, set out goals for the company. Just talked about what the goal was about and, of course, ate an atrocious amount of food. If you’ve ever been to Malaysia, then you know that it is all about food there.
Andrew: You had 200 or so people at the company. Did you say only these 50 can come or did you open it up to everyone?
Collis: At that time, this was a year ago, there was about half that. There were maybe 80 or 90, and 50 something came. There were some people who had family obligations or whatnot.
Andrew: But you opened it up to everyone?
Collis: Everyone, yes. As long as you had been with us more than a few months, which also ruled out a few people.
Andrew: Now we’re getting into something that you kept saying over and over, and I didn’t stop to dive into it. I almost brushed it aside, but trust me I wrote it down so I can come back to it. Culture, you keep saying. I keep going to software. You keep telling me culture is important. I keep asking you about specific hiring you say culture. So, it seems like at this in-person meeting is where you started to formalize the culture that you wanted for the company.
Collis: Yeah, exactly. There had been a culture in the company already. I think it was at this point that we realized it probably wasn’t enough to just assume it, if that makes sense and assume we were going to keep having it. I also have the belief that culture is infected into other people so that it starts with the founders and the first hires you bring in, the choices you make about who you hire, the choices about how you promote.
Those things all spread the culture of the company and as it grows those people are then hiring other people and it just keeps spreading. At that point when we knew we were likely to massively ramp up in how many staff there were. It was really important to make sure we all stuck to what actually do we value in this company what are we actually doing what are we working towards and even just making sure everyone kind of met each other and had a sense of what the whole vibe of the place was.
Andrew: Tell me a little about the culture before this intentional meeting. And I want to ask you in a moment about what you did. I wrote down that you said that you wrote down the values of this meeting and so on. I want to understand what you did there, but what happened to the culture up until that point?
Collis: I guess that a lot of it was kind of organic in the sense that, as you said people you hire for example that’s probably the key place where you are spreading culture. When you hire people you’re deliberately making a choice about the kind of person that is going to be working at the company and what their values are. At the end of the day it is very hard to give values to somebody. If your value is about teamwork and you hire some super maverick guy. You can keep telling him teamwork all day long but if they didn’t genuinely share that value it is always going to be a little bit of a put on at some level.
Most people, including me I must admit, don’t know what their culture and so if they’re facing someone and it doesn’t jive with them they say it doesn’t jive, but I can’t identify why it doesn’t jive. What I can identify is, this guy has the background that we need. This guy has the ability. He has the willingness. She is here. She knows what she’s doing. We’d better hire her.
Unless you’re clear on it, you bend the rules. Or other people can’t…do it.
Collis: So, the things I used to…[SS] the things I used to always look for and I still look for are — people I like. I guess, maybe this is the luxury of being a founder. I want to work with people I like. Friendliness, it’s really important to me that a company is a friendly place where it’s not too much trouble to help somebody out. That they’re smart, I’ll take smart over experienced.
I want someone who’s going to grow to be really sharp, pick things up. The, kind of, I don’t mind doing different types of things, willing to grow with the company. I guess, there are things…I’m sure that, most people are…maybe just subconsciously, we have a list of things they kind of like to see in a person. Then, there’s all the experience and what not.
To me, the important thing is, you need to be willing to throw out a fantastic opportunity to hire someone when they don’t meet those cultural things. Sometimes, that’s really painful. You’re like, “Ah, this person could solve so many problems! Their resume’s beautiful! But, they’re just a bit unfriendly, but, it’ll be fine. We’ll friendly them up!” But, it doesn’t work that way, I think.
Andrew: I’ve made that mistake. Then, you end up with people who cause trouble forever and you’re more in debt to them. Or, you’re deeper in their world, you can’t get out.
This one person, forever, we were supposed to let him go. It just, the longer we waited, the harder it was, because, he knew everything. He knew his job, and no one else did, because, he’s unfriendly.
Collis: Yeah. Often, you grow to like a person and have a bond with them. You don’t just want to throw somebody out or anything. It’s much better to be, at the gate, discerning about, these are the things that are important to us. It definitely helps if you’ve mapped out those things early on.
I suppose, my move is just, “Do I like this person”? “Do they seem like a person I want to spend time with”? Because you are spending a lot of time with them, in the office. You spend a lot of time finding people to have a relationship with, so, it makes sense you should spend a lot of time with the guy you’re going to sit next to for eight hours a day, making sure that’s the right kind of person for your company.
Andrew: So, then, you’re in Kuala Lumpur and it’s time to formalize this, so that other people know who belongs in the company, how we work at the company, what we do at the company. It was a pretty formal process, or, organized and thought out. It didn’t just happen with people sitting on beanbags saying, “Oh, what’s our culture”?
So, it sounds like what you did was, you said, “Let’s list our values first.” Is that where you started?
Collis: So, the values process took two years, actually. The thing I was most terrified of was going, “Our values are, integrity, respect…” and then turning out to be Enron, somehow. Where the values are dissonant from natural organization.
It started off with, I did a draft long before we went. I was like, “I think these are the things that are important.” Then, I met with person after person in the organization, just running it past them. We got to a, what I would call, a working draft by the time we went to KL.
When we got there, we had a big section with everybody where we had them up on the…went through them on the screen, discussed each one in detail, then, had a big open discussion. We’re little enough to actually have a discussion, it’s 50 people in the room. It was a more full-on discussion than I’d imagined.
There were tears and everything. So, that was good, in the sense that it really went there.
Andrew: When you talked about what your values were, there were tears?
Collis: Yeah. There were places where we hadn’t done a good job of…I guess, most importantly with values is that, you live up to them, right? So, there were times where…it turned out there was a group of the remote staff who were constantly fearful for their jobs. Because, they were so far away, they’re like, “I don’t know, I don’t get much feedback.”
Andrew: Now, he’s going to replace me with someone local now that they don’t have to have remote people to save money. So, I see. How did that make people cry?
Collis: That’s completely different to our values of, we’re going to focus on people and make sure they’re empowered, have the right environment. So, finding something like this out, clearly we weren’t doing a good enough job.
That, I guess, prompted a lot of soul searching about, A, do we really value these things? Some of our staff are constantly worried about losing their job. And, if we really do, which we did, how do we bring up the level of what we’re doing?
From that meeting, we continued working on the values, and, it took me another like nine months to finally actually roll them out. The values I suppose for me are the keystone of the culture both because they encapsulate various things we hold important but also they’re supposed to be like decision making tools.
Collis: To me the bigger you get the more times there are points in your business where you actually have to make some key decision and you need something to go back to. So for example, one of our values is tell it like it is, like a sort of transparency value.
So a year and a bit ago we had a big password incident where we’d been storing some of our passwords in clear texts in the Tuts premium product that I was talking about before. It was just like shoddy system we were using. We hadn’t upgraded it. I’d known. I was like, “Ah, you know, it’ll be fine. We’re building this new thing. It’ll all be okay.”
Anyhow, it got hacked and so all of the sudden we were faced with I guess a cultural values and moral decision, like what do you do? How much do you disclose?
Andrew: There was an issue where you guys were hacked, passwords were exposed, and so how does being open with each other come into play here?
Collis: I guess it’s just like when you find out that some security issue’s been compromised and you’re users’ data is out there, you’ve got a bunch of different choices, right? You can be like, “Everybody, you should change your passwords.” Don’t explain why, don’t explain- you know, just a notification and I’m sure you’ve seen some of these like every now and then, like, “Hmm, I wonder what that’s about.”
Or you can be like, “Hey, we’ve been hacked and you should change your passwords.” Or in our case it was, “We’ve been hacked and it turns out we were doing something [sort of] dodgy because we were holding clear texts passwords and you should change your passwords really urgently because we haven’t been doing a good enough job.”
So that was the one we went with. We were like, well, we’re supposed to tell it like it is. And that’s the way it is. Unfortunately we were doing something dumb. And then I guess the (?) of that was that in a company with lots of fantastic software developers their reputation ends up on the line for something like that.
Andrew: Oh yeah.
Collis: And people were like, “Their devs are like a bunch of bums. What were they thinking?” As it happened, the day before on Nettuts we’d published a tutorial which was about how to store passwords properly. Anyways, so in a situation like that, you know, I guess it was important to make sure people understood actually this specific request to not fix it had come from me. It wasn’t like it was some guy off somewhere who’d made a dumb decision. It was like, “Nope, the CEO called this one and it was a stupid call.”
So I guess our value came into play in the sense that it was a clear cut decision that we should tell everybody. We should make it clear that this wasn’t some scapegoat guy that we’re now going to get rid of. It was like a foolish decision. We then refunded people. Subscriptions dropped right off. We gave out three months of this and that. And (?) you do after that but-
Andrew: How much money did you lose because of that?
Collis: I’d say just under a million dollars.
Andrew: Under a million dollars.
Collis: Yeah. Yeah. It was about. . .
Andrew: And that’s because you weren’t taking payment from people for the next three months and because people left you as a result of this.
Andrew: And other people might have been nervous about signing up but does that even count into these figures?
Collis: So look I think about half a million was the refunds and the actual payouts. Then the drop offs was another couple hundred thousand and then probably there was even more, as you say, in terms of like brand reputation, what it says about you as a company. Yeah, it was pretty bad. It was definitely one of the worst things that’s happened in the company’s history.
I remember sitting there late at night being like, “Oh man, I’ve ruined this product! I totally called it wrong.” We’ve come back from there. We did manage. . .
Andrew: Do you feel alone in those situations? As a guy who doesn’t have investors who have money at stake and have a real interest to buck you up and to help you out, you don’t have that.
Collis: I guess, well, we’ve got the team. The team was very supportive.
Andrew: I see.
Collis: So the management team and as you might remember some of my family works with me so that’s always nice. My wife was like, “It’s okay. It’s going to be alright.”
Andrew: What about this – I know that in a few minutes you have to go because you have a board meeting. What kind of board do you have as a bootstrapper?
Collis: It’s probably a slightly less formal board. So it’s actually, my board is my wife, my big brother, my dad – I can’t remember if I told you last time, but (?) my dad has joined the business – and my best friend. So that’s pretty cool. Our finance director and general counselor (?) the general counselor’s the company secretary and companies that train running through finances. The board, for a long time, was very informal. This is another example of bringing in form and then letting the function follow. We decided, look we’re going to meet every month as a board.
We all went and did company director training which we have here in Australia, I assume there are similar things over there, learning about the responsibilities and what you’re supposed to do. Over time it just started adding more and more knowledge. Now it’s becoming a more and more useful thing. I guess it’s a chance to step away from the business and think of it more holistically and…
Andrew: …I see…
Collis: …we’ve also had a couple of founders have sort of stepped back from the business a bit. They also have a little bit more perspective…
Andrew: …They’re on board also.
Collis: Yeah. We don’t wear suits…
Andrew: …I see you’re in a T-shirt…
Collis: …people did at board meetings.
Andrew: Here’s something else. Here’s something that I noticed as I re-read the transcript of our previous interview.
Andrew: This was just an offhand remark. You said, like in our accounting there’s lots of different tabs in Excel, if you like each one, so you see which ones are abysmally. You know what? I shouldn’t have read it literally. Basically, what you were saying to me when I said you have a lot of different businesses, you said, yeah you should see our Excel because the spreadsheet has lots of different tabs – a tab for each one of our different products. That way we can see which one is performing abysmally.
What I registered as I re-read that is he’s using Excel to run his business. That is so painful. You have to go from Excel to formal accounting software that takes into account that you have all these different people in the company. That is not something that you want to go and evaluate the software for. It’s not something you want to implement. It’s not something you want to get wrong and then correct and so on. But, you can’t also lay out the rules for someone else to do it.
So, at that stage of management, when a new thing needs to come on board, how do you get someone to do it the way that you need it for the company? How do you manage that?
Collis: I guess for something like this we transition to an accounting software package, although we’re depressingly looking for another one again. I’ve come to the conclusion accounting software packages’ future businesses are not great, some of them. We hired a finance structure. I think for me, at the end of the day, I just don’t know that much about accounting software. How effective am I really going to be?
It came down to hiring the right finance structure, then bringing the right IT support, and figuring out how it was going to connect to our various parts of the company. We made some headway. We got something which is better than what we used to use, but still not where it needs to be, though. I think the reality is a lot of accounting packages out there are constructed around other types of businesses.
For example, integrating with PayPal, and the very hazy world of PayPal reporting, is really complicated and turns out to be very difficult. With products like our marketplaces they almost have an entire accounting system inside them as well. Reconciling these things is really challenging.
Andrew: So, how do you get someone to find the right kind of software? Depending on what you’re looking for, the software that they pick is different, right?
Andrew: So, how do you explain what you want and then get it? Or, even just how do you send someone out into the world to find that?
Collis: Yeah, look, so it took months. The last round we spent six months and ended up with no software. Just continued on with our old, slightly inky-dink package. Because I guess you have to map out the requirements. The requirements are quite complicated.
There’s also different architectural ways you can set it up. Our most recent stab at this whole thing of finding a new ERP system we’ve hired two consulting companies to help us map out the possible architecture we could possibly use. I’ve reached out to other entrepreneurs.
I contacted a CEO at [?]. I was like, hey I’m an Australian as well. Want to meet up? Then I was like, what do you guys do. I guess drawing on networks and trying to figure out what other people are doing and how they’ve solved similar problems, I think that sort of helps. Having said all of that, we haven’t solved this problem, so I don’t know if I should give any advice on this.
Andrew: There is a question of how do you give directions. When you’re starting out, the way to give directions is to say, here is step-by-step exactly what I want. Very similar to what Tim Ferriss does for his outsourcers – very explicit, and they do it, and they mostly get it right. He even says when you pass this on to someone else, I think he suggested reading about letting bad things. Because you have to expect it. They are not going to do it exactly like you. Even when you lay it out like that. But that’s the first step. The next step is what? It’s to give some guidance. To say…
Andrew:…this is what we stand for. Here are the things we are looking for and the solution. Go to town. But come back to me and tell me.
Collis: What you?
Andrew: Actually I don’t know. You tell me.
Collis: I think context is the key. At some level you want to, especially as you get more senior people. You want to give all the context they need to be able to make the decision…
Collis: …as if they’re the owner of this problem. And there is a famous TED speaker, Dan Pink, who speaks about motivation for staff. And what motivates people is mastery, autonomy, and purpose. So in the case of mastery, you know they want to master their craft. And autonomy, which I guess is the key one for point, is wanting to have some level of ownership over what they’re doing. And I think good people will make good decisions if you give them the context, the information around the decisions. So this is how the business works. These are the things that are important. These are how we will make decisions. Now you figure out what’s best for this. And at the end of the day.
Andrew: How we make decisions. Is that a formal thing? Or is that?
Collis: These are our values. Or these are our, this is like I guess. Yeah, sometimes there will be some formal aspects of, for example, if we business chase things for a particular type of product decision. You might say, “Oh this a kind of business chase we might do.” And some of it is as I was mentioning before, values. Like this your compass we are making. And certain types of decisions.
Andrew: We value privacy. So if there is a better solution in the cloud. No, our value is privacy so you go to the…
Andrew:…slightly worse solution for when its on our servers.
Collis: Yeah. Yeah. And that’s a great example. Yeah so the, I think giving a person all the tools to make those decisions. And like at the most simplest level, the example you gave is like almost down to like step by step directions, is the simplest version of giving them the tools to make whatever decisions they need to make. But as you get more and more people, and more senior people, you want to give them less and less specifics. Less and less prescription. And more and more the things around it. And for me I guess I always think about like what would I want. I inherently don’t like bosses and don’t like too much structure. I just like people giving me the headlines. And then I’ll figure out the best way I know how to do it. And so I think that works more delicative rather than directive approach.
Andrew: What’s your current annual revenues?
Collis: Well last time I think I told you one million. I’ve just given the card away about that, I said touch screen (sounds like) was making one million all by itself. Today we’d say more than ten million. And beyond that we don’t really.
Andrew: I was doing quick math here to see where you were, and I could tell it’s at least ten million. Last time actually I don’t think you allowed me to say it publicly. You said we are private. And I always say to guests, I think I might have said that even to you before we started today. I’m going to push for questions, you feel comfortable revealing what you want. But I don’t want you to ever feel like you have to. Over…
Andrew:…ten million dollars. For a guy who is basically an artist.
Andrew: It’s amazing that you’re able to organize things the way that you are. That you’re able to, frankly, this isn’t an insult to you. It’s the way the world works. Businesses have a hard time hanging on when they grow as much as you do. They have a hard time growing to this size. And they have a hard time hanging on to that growth. And it’s amazing what you have done, and it’s an inspiration to watch you build up this business.
Collis: Thank you. It’s been super hard, it turns out.
Andrew: Why do you want to do an interview here on Mixergy? You and I were chatting via e-mail, and you said “Hey, maybe it’s time for me to come back?” You got everything you need, what do you need an interview on Mixergy for?
Collis: Look. I guess we are both big believers in education and teaching and I like sharing experiences. And you were just saying like “How do you?” Well you don’t know very much about these kinds of things. How do you grow a business like that. And I think it’s just by learning from others, observing. I always found job interviews were a really good place to learn. Because every time we interviewed people for something, like let’s say we are hiring an HR director. Every candidate who comes in, I try to learn about HR’s.
And by the time we hired someone, like “Hey, I have a vague working knowledge of this field.” And I think the same with entrepreneurship. You just like learn as much as you can from everyone around you. The reality is that each person’s path is a little bit different. But you just take a little hodge-podge of things from different people. And yeah, I guess for me, coming on Mixergy is hopefully sharing (?), some stuff I wish someone had told me.
Andrew: Well, there it is, guys. Thank you all for watching this interview. I hope the next we do this interview that Collis’ revenues will be $100 million. And he’ll be telling me more than $100 million. We’ll see. Actually beyond that, beyond the revenue, it’s just inspiring to watch you build up this business. It’s inspiring to watch the individual products develop and to see the creativity that keeps coming out. I don’t think last time we did this interview, I’m looking here at the list of products, Microlancer was not on the list.
Collis: Nope. Three months old.
Andrew: You keep just developing these businesses, high quality companies and it’s cool to watch them develop. Thank you for doing this interview. Thank you all for being a part of it. Bye guys.