Can’t Get Funding? Try Consulting

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What if you can’t get funding for your startup?

Before launching Tsavo, his current startup, Mike Jones funded a startup through consulting work.

Mike Jones

Mike Jones

Tsavo

Mike¬†bootstrapped userplane and sold it to AOL, then went on to found Tsavo. Along the way he’s invested in and advised startups like GumGum and Dogster. Most recently, he was named COO of MySpace.

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Full Interview Transcript

Andrew: So I wrote a little list here of what you’re going to learn in this interview. You’re going to learn about how to bootstrap your idea. Say you’ve got an idea but you can’t get any investment for it. You can’t get any angels, no friends and family are willing to put up money. Venture capitalists definitely aren’t listening to you, but you still are ambitious and want to see it through. Well, you’re going to get some good ideas from Mike Jones about how to do that, how to bootstrap.

You’re also going to learn, since he’s an angel investor, you’re going to learn what an angel investor looks for when he makes an investment. I think that will give you an idea of what to do and how to pitch when you talk to angels. They’ve got their own criteria, much different from other investors.

You’re also going to learn about how to get the most out of your advisor. If you’ve listened to any past interviews here on Mixergy about getting funding, you’ve learned that getting advisors can be tremendously helpful. What Michael and I are going to talk about in this program is how to get the most out of your advisor. How often do you contact them? What do you talk to them about? How do you get them to really be active participants in your business?

All right. So who is this Michael Jones whose interview you’re about to listen to? He is currently the founder and CEO of Tsavo, and he’ll tell you what that company does. Before that, he ran a company called Userplane, which he sold to AOL. He’ll tell you a little bit about that. We’ll go through his history here in this call. We’ll see how much we can learn about what he’s doing today and that’s actually what we’re going to start this program with and then we’re going to go back into his past and find out what you and I can pull out that will help us build our own companies.

My name is Andrew Warner. I’m the founder of–well, you know it–Mixergy.com. I do interviews like this so that I can learn from as many of my smart friends as I can and I put them up online so that you can learn along with me. And well, actually, that’s it. Here’s my interview with Mike Jones.

Mike, what is Tsavo?

Michael: Sure. So Tsavo is basically a publishing company that’s focused on next generation publishing technologies. We were assembled through a series of acquisitions. The most recent properties that we’ve launched are ones that we’ve both grown internally and acquired and added into our network and put onto our platform.

Andrew: And your funding comes from a company that doesn’t ordinarily seem to fund internet companies or at least is not one of the Sand Hill Road stops that most people go on. Who are they?

Michael: So American Capital is a fairly substantial private equity firm. They own companies in all different sectors. In the internet world, they own a company called FreeConference.com. They own People Media. And they own us and a few other internet investments. We chose to work with them mainly because we were focused on a series of different M&A tactics, and private equity ended up being a really good fit for our longer term strategy versus VC.

Andrew: Can you talk about how much money they’ve invested in you and how much you have to go out after acquisitions?

Michael: No.

Andrew: All right.

Michael: I think there’s no doubt that we can say that we have their full support. So if we see things that make sense for the business and are at the right price, we’re happy to go after it. Luckily I come from more of a build it in-house kind of mentality. We’ve definitely done some great buys to date, but we definitely have a capable team internally that’s working on some pretty exciting technologies.

Andrew: It does seem like up until now you’ve been doing a lot of acquisitions, but what you’re telling me is you’d rather build in-house. So is the focus going forward going to be to build in-house?

Michael: I think you’ll find the core technologies that we’re relying on for our platform we’ll most likely build in-house. Some of the public facing websites that will be part of our public network, we may choose to purchase them and bring them in house versus build them internally.

Andrew: All right. One of the cool things about you is even though you’re a year old or less, you’re profitable, insanely profitable from what I hear.

Michael: Sure. I don’t know if insanely is right, but we’re definitely profitable. Through this initial acquisition, which we acquired basically the selected publishing assets from a company called Moxie Media, that started us off at a pretty strong pace. So they had a good business to start with. They did an incredible job. We’re basically trying to take what their publishing group was doing and bringing it to the next level.

Andrew: One of the things that Moxie Media was doing was getting traffic from Google search results and monetizing it through content, right?

Michael: Right.

Andrew: Isn’t that a dangerous business to be in because if Google shuts you off, a lot of your business just disappears?

Michael: Yeah. That’s 100% true. We have basically a really tight relationship with Google. So anything we do on the paid search side of things, we work with Google hand in hand and their direct account reps to make sure everything fits within their comfort zone. But at this point, almost half of our internal traffic is coming from organic. On top of that, we have a ton of traffic coming in from direct nav.

So we’re looking at all different ways of driving traffic just as any good website should. So we focus on organic. We focus on marketing ourselves. We focus on paid. We focus on partnerships. We have widgets. We have all these other tactics we use to drive traffic. Historically that company was very focused on paid traffic. Today, paid traffic is one of many tools we use to build up our traffic.

Andrew: Okay. Why content? It seems that tools, platforms, communities are what everybody else is going after. You’re going after content. Why?

Michael: Well, Userplane, my former company, did a great job in the social media space. I love that space. I know everybody in that space and really admire all the work that’s been done there. For me, one of the challenges that I saw on the internet that I wanted to approach was say, okay, everybody reads content on the web, right? And it’s expanding. Bloggers are becoming more prolific. Everything is getting bigger and bigger. There’s more and more content every day.

I found if you look at a general user, I look at my mom. She’s not in a routine of using a feed reader, right? She’s not in a routine of visiting 50 different blogs. She goes to a single source to find her content for the day and typically it’s very myopic. She has a very small selection of sources that she’s reading from. There are tons of articles every day that probably very much relate to my mom’s needs that she should be exposed to.

Now, I started saying, well, what I’d like to see is a world where we have an incredible index of all the content that’s being loaded on the web and then we have a technology to basically say, “Here’s my mom. Here’s what she’s interested in,” and regardless of the source where it comes from, we want to source different stories for her and provide her a way to discuss new content. In order to do that, we needed a solid platform.

We needed an internal search index. We need relevancy technology to kind of examine people’s preferences in what they’re reading and what they’re consuming. Then we also need some premiere properties of our own to start with. That’s how we ended up where we ended up now.

Andrew: And the ideal situation is for your mom to go to YourMom.com, her single webpage, and everything on the internet that’s relevant to her will be there for her.

Michael: Yeah. Right now we’re not focused on everything on the internet for her, but I think the subset of premiere content that we’re dealing with, we’d like to get to a point where when she ends up at that destination, it’s very much, as you said, customized and very interesting for her. We’re taking the mass of the internet and we’re going to boil it down to a very digestible content experience specific to her.

Andrew: And how do you make it specific to her?

Michael: Well, we look at certain things like when she’s reading content on our sites, unidentified. We’re going to say, “She really likes this article. She’s clicking on articles about these topics.” Next time she comes back, maybe she’d like to see articles on those topics. So we’re using a variety of different tactics to kind of learn what we think people are interested in.

Then we’re creating a massive index where we basically use open APIs and RSS feeds and all the publicly available ways to consume data and we’re creating a unique DNA for every article that basically gets pushed out to the open web. That DNA lets us profile and say, “We think this article is about x.” We’re using semantic language technology. We’re using a bunch of different ways to scrub that article down and say, “This is what we think this article is about,” and then basically match it up with the right person.

Andrew: Is part of what you’re doing to figure out who I am, is it–actually, I don’t know what it is. It seems kind of magical. I went over to Tsavo.com the other day and immediately you knew what my age was. I actually thought that you were off by a year. You told me I was between 25 and 34 years old. I said you were off by a year. My girlfriend corrected me. She said, “No, Andrew, you’re still 34.” So you guys knew me better than I knew myself.

Michael: Sure.

Andrew: You knew other things about me. You knew my college education. You knew my interests online. How?

Michael: Well, we don’t really disclose the methods we use, of course. That’s part of our secret sauce is determining how we’re going to profile you. But there’s a lot of–whenever you hit one of our properties and you’re searching for different topics, we’re going to examine some of that behavior. Granted, we’re following where we’re not at a point where we’re allowing you to log in or anything, so there’s no actually identifiable behavior back to you, right? We’re just saying, “Well, a user that’s been on your computer is probably interested in technology.”

Let’s face it, you probably ended up there coming from TechCrunch or some other article that probably gave us a little bit of data. Right now it’s all very experimental. So, all the technology we’re playing with on Tsavo.com is really just internal technology that we’re goofing around with. None of our properties right now have actually inherited any of those tactics.

Andrew: When you say you ended up there because you were probably on TechCrunch.com before you got there, you’re saying that you look at my history. You know where I was before I got there immediately before I got to your page. You know what page I was on, right?

Michael: Well, we can’t look at your browser history, but what we can know is–just a very simple example, we know who referred you to our site. So if you went to TechCrunch and clicked on a link to Tsavo, we’re going to know that you were sent to us via TechCrunch. We know some information on TechCrunch. Quantcast and other services give us some information on TechCrunch.

I don’t think this is necessarily that unique, that portion of it. I mean, websites in general have a lot of technologies where they say, “If this user is coming in organically to our site, let’s treat them as an organic user. If this user is coming in through a paid search experience, the user is going coming in from a referring website. . .”

The way that you enter the site is one aspect of understanding what you’re interested in. In your case, we happen to be right. It’s not a point where I say we’re going to be right all the time. I go there all the time and it says I’m a woman. It’s not perfect. But it’s interesting to start playing with and saying how can we get it to a point where when you go there, you see stories that are specifically of interest to you.

Andrew: What I’m getting at is I know you can go into my history several steps back and figure out where I was, not just immediately before I got to your page but maybe a few steps before that. Are you doing any of that? By the way, I don’t have a problem with it and I would rather you do that than have me fill out a form, but I’m just trying to figure out if that’s what–

Michael: If you know a way to let me look at your sequential browser history, I’ll give you a job. I don’t know sequential browser history. I know incoming referring URLs.

Andrew: That’s all there is?

Michael: Yeah. There’s not a way for me to reach back and say what were the five last sites you were on in some sort of specific sequence. Granted, that would be a massive issue if there was. But we know some things about referring URLs. We know what you’re probably interested in. But hey, if you know a way to do sequential browser history and it’s within the boundaries of privacy let me know. I’m very excited to hear that.

Andrew: All right. I will. I’ll pass it on. Actually, Neil Patel, I could have sworn he told me that was possible and he was goofing around with different ways to do that.

Michael: Really?

Andrew: I don’t want to incriminate him here, but he’s someone who said that that was possible and you know if anyone knows how to do it, it’s going to be him.

Michael: Neil is a genius. I will absolutely talk to him.

Andrew: All right. So search is emphasized throughout the network. Every page that I am on, like a nudnick standing over my shoulder, I see a search bar at the top of your page. Why is search emphasized on the site?

Michael: Why is search emphasized on the site? Well, our network is large. We want to drive people back to getting the right article for the right topic. The best way to do this is off of search intent, like you’re putting in some kind of intent of what you’re looking for inside of a search box. We’re going to find the right articles that match the search box.

If you picture our network as kind of a pyramid, Daymix sits at the top of that pyramid. That’s our PR search aggregator. It’s pulling in sources externally, sources internally. So we want people to feel very comfortable with finding content there, which is probably while you’re seeing a lot of search boxes at least in our top level hat that sits above the network.

If you’re inside Manolith and you’re reading articles, then I’m less concerned about you searching. If you’re at Manolith, I want you reading interesting article and sending them to your friends and enjoying the content we have there specifically for you. If you’re looking for a specific bio on a person or some sort of information on an event or place, then a search box is a great place for you to go.

The other thing we’re starting to do in search, specifically in Daymix, which we haven’t really talked too much about is actually some recognition of terms. So, if you go to Daymix and you search for a zip code, you’re actually going to get a different feed source than if you search for a person. So we’re starting to say you’re looking for a place, therefore we’re going to show you weather for that place and events for that place. If you’re looking for a person, we’re going to show you photos, we’re going to show you videos.

So search, there’s no doubt that the concept of aggregated dynamic content is going to be a big part of our thesis here, complemented by high quality original content.

Andrew: Can I put this theory out? Part of your goal is to be a new search engine, to take on Google to some degree. To try to take even one or two percent in the search market is huge. Is that part of the goal?

Michael: Sure. I think that anybody dealing with content–honestly, anybody dealing with the web, we’re just playing in Google’s world. We play in Google’s world just like everyone else. I think at the end of the day with a generalized search query, we’re not going to be the best place to go to for phone numbers of restaurants. That’s not our place. Google’s search engine touches so many different types of queries. It’s hard to say we’re going after two percent of Google’s search queries. I can definitely say there are certain topics I think a rich aggregated search experience are better for.

For instance, I was meeting up with Yossi Vardi this weekend at a breakfast. I went to Google and I searched Yossi Vardi and I got a page of links which was great. I went to Daymix and I searched it and I got photos of him. I got recent blog posts. I got Twitter feeds. I had search results. I had movies. Suddenly in a single page aggregated experience, that was more helpful to me than what Google presented me.

So, I think there are certain queries that a solution like Daymix worked really well for, just as topics or any of these other kind of large aggregators work really well for. But I would never say it’s as simple as–I would love two percent of Google’s search, that sounds great. Again, if you’ve got methods for that, I’d love to hear it. But that’s not specifically what I’m going for.

I’d like to get to a point where you go to Daymix and are immediately greeted with interesting stories that are very specific to you and in addition to that, you probably use us for some different types of search queries that the Daymix layout works better.

Andrew: So instead of going to Daymix to do a search for the local restaurant, I might go to–actually, instead of having Daymix replace Google, you might replace my favorite blog or you might on the fly create almost a blog for me on micro subjects. Like if I’m a fan of Howard Stern, I go on your website and I know there’s always fresh content about Howard Stern, new videos and pictures.

Michael: Exactly. That’s completely valid. We even have a Daymix widget where if you’re a fan of Howard Stern, you can search for Howard Stern, you can grab a little widget on him and it will put something on your blog that says photos and videos and recent news, right? Constantly updating as our index becomes further updated.

Andrew: Jason Calacanis famously when he went out to get Mahalo funded printed out the search page for Paris hotels from Google and his own handmade on Word page of what Paris hotel search could be. To compare you to him, I did a search for Paris hotel on Daymix and I didn’t really come up with anything that valuable. I got Paris Hotel in Vegas.

But when I did a search for Howard Stern, who happens to be in the news today, I got spot on information like what you were talking to me about. I got videos of him. I got pictures of him. I got news stories about what’s going on with Sirius Satellite Radio and it all started at the top with the Wikipedia entry.

Michael: Sure.

Andrew: So, is that the slice of the market that you’re going after?

Michael: Yeah. That’s a great example. I think there will be some aspects of human curated content on our network but it’s definitely not our focus. We’re looking for scalable, technology-focused indexing that scales out really nicely to a broad set of subjects. But yeah, I think the Howard Stern example was a great example on how Daymix was an effective search experience for you.

Andrew: Okay. Let’s talk about what you learned before you started this company from Userplane. One of the great things about Userplane is you got to spot these under the radar companies like Plenty of Fish, for example, was a client of yours long before the rest of the world knew about them, right?

Michael: Right. We worked with Markus early on. I think we were one of his very few external vendors that he works with.

Andrew: Yeah.

Michael: He’s a great guy.

Andrew: So, you got to see how much traffic he was getting. You got a sense of his revenue. It seems that there are a lot of these guys who are under the radar who are making a lot of money but because they don’t have any funding, they’re not on the big blogs. Because they’re not out there trying to sell their companies, most of us don’t know about them because they’re not in major hubs like Silicon Valley, Santa Monica, California, New York. Many of us don’t know about them, but you do. What kinds of companies do you see that are smallish but profitable and that there’s a lot that we can learn from?

Michael: Well, Userplane definitely gave me a good wide view of companies specifically in the social networking space including online dating. I was able to come across quite a few different companies that were undervalued or not really in play because of their location or because of their founder.

I think Markus is a very unique individual. I don’t think he’s clonable. I don’t think there’s–I think if there are ten Markus’ out there, I would be impressed. You’ve got a guy that is near genius, technically motivated, builds things, works consistently and has built up a great business over the last few years because of his personal passion and frankly like his high technical intelligence. I don’t come across very many Markus’ at all. Frankly, he may be the only one.

I definitely do come across interesting businesses. I love looking at them. I think there’s less than you’d expect, especially if you look at the advertising marketplace. If you look at ecommerce and you looked at online dating or subscription based services, I think you’d be surprised at how many interesting businesses there are that are not located in major hubs that make great money and are healthy businesses that are growing that are typically overlooked. I loved finding those. Those are fantastic companies.

But when you look at advertising, it’s fairly well tracked. So, Markus in his own right, you can find plenty of fish as a top 100 site at this point. I’m sure it is, right? So, those are really easy to find. The hard ones to find are when you’re saying, “Let’s find a small ecommerce company located in Kansas that happens to be making a lot of money.” I’m sure there are ones. It’s just tougher to find because their information isn’t as publicly tracked.

Andrew: First of all, I should say Plenty of Fish is a free online dating site. Markus is pretty much a one-man operation running that thing.

Michael: Yeah.

Andrew: How are you finding these sites? You say that every once in a while you come across these smaller sites that are profitable. How do you discover them?

Michael: Well, my visibility is a lot less now that I’m not at Userplane, unfortunately. But just like you, I’m a junkie for the web. I watch a lot of things. Because I’ve worked hard to kind of shepherd a whole bunch of businesses especially in the LA area I’m fortunate enough to get access and introductions to new companies that are starting and I’m always kind of keeping my eyes open. Also because we’re looking at different M&A plays within our company and within American Capital I’m always happy to seed different companies.

So I get a fairly broad view, but I don’t have any kind of secret system yet that’s scanning behaviors on the web to send me data back. I would love that. But I don’t have that yet. I’m sure Google has that. I’ll have to ask them for access, right?

Andrew: Actually, it seems to me like you’ve got a lot of access right now. You said that you saw–you said you saw some subscription-based businesses that I’d be surprised by how successful they are, some ecommerce plays. What are you seeing? Let’s focus on subscription first. Who’s making money in the subscription business? What do they look like, the successful subscription companies?

Michael: I think all the successful subscription companies typically have a very tight focus on return on investment. So they know that when they spend a dollar for traffic or they do some sort of tactic that they can back out to cost that they know that they’re making $1.20 or $1.30 back. When you’re doing a pure advertising business, those metrics are really hard to come by because the numbers are so large.

You need a million users. You need five million users in order to actually see enough page views, nav views that you actually should do in revenue, but if you’re making $20 every time a user signs up for a site or $20 a month if you’re a strong subscription-based business, then there’s a very real value that you can put on buying traffic or partnerships or rev shares.

So I think that subscription businesses that I’ve seen as being very successful are ones that have a very, very detailed focus on return on investment. If they can get those metrics down and that is their primary empowering platform they typically can scale the business very, very effectively.

Andrew: What are they in? Are they in the diet space? Are they in dating?

Michael: I think honestly like they’re everywhere. When I was thinking about Userplane, I did a quick analysis of all the different things that my friends were willing to pay for every month on the web. I made a big grid. Even with my super techie friends, what I was so surprised to see which I would have never expected is like 80% of them paid for credit reporting every month. I would never have expected that, but they were happy to pay $10, $15, $20 a month for some sort of credit reporting, credit monitoring service.

Again, a subscription-based business that we’d probably never really talk about not really that interesting, probably makes a ton of money. I think dating is the most obvious one. Online dating does extremely well. There are starting to become some pay for social networks that I think we’re seeing people talk about with premium subscriptions that will also do very well. Then things like credit reporting–who knew? Like Vonage, communication services, all these different things.

So I think that those businesses are frankly just interesting. In addition to them being run on a very tight attention to ROI, you also find that they’re typically run by very, very small teams, often not in major metropolitan areas so they keep their operating costs fairly low. So it’s like you can find a good dating site or a good small subscription-based business that might be 10, 20 people that make a ton of money that are fairly off the radar.

Andrew: Can you give me more? I don’t want to push too far on this, but I think it’s interesting because most people don’t talk about this because they are so under the radar. If you’ve got any insight on it, I think it’s very educational. So I didn’t think of credit reports. I’ve asked my friends and what I’ve found is Audible people for, people pay for iTunes, people pay for Netflix. But beyond that, they don’t seem to pay for subscription anything. Maybe I’ve got really techie friends who are always online looking for freebies.

Michael: Right.

Andrew: But what are you seeing?

Michael: I have to pull up my research. It’s been about a year since I’ve thought about it. But I definitely felt like it was very easy for me to identify two to five things that friends of mine were paying for every month whether they thought of them or not. They had some subscription they were paying that I was frankly surprised by. Now, granted, I did all this research. I didn’t go into building a subscription based business. There’s nothing that Tsavo really does that’s subscription-based today, but I personally had an interest in those business models as you do.

Andrew: What about ecommerce? You say you’ve seen some successful ecommerce sites?

Michael: Yeah. I really like ecommerce. Again, very specific detail focused on return on investment where you have people that understand the metrics of what’s a customer worth. And if you think about the difference between ecommerce sites, subscription businesses and advertising based businesses. Advertising based businesses typically have the lowest value per user session.

It’s typically going to be in the fractions of pennies, whereas an ecommerce company or subscription-based business is going to have a much higher value per user session, which is why you can find a company that’s doing ecommerce or subscription online dating that only has 100,000 users a month but it’s making $1 million a month in revenue, whereas an online advertising solution, if you didn’t have 100,000 users a day, you’re probably barely even breaking even.

Andrew: So, why’d you go into an advertising-based, content-based business?

Michael: Well, I think what led me to where we are now is I was interested in a network business that had multiple types of businesses that were run underneath its umbrella. I think advertising is a big piece of it. It’s important to have advertising revenue. We have a really strong relationship with Yahoo, which led me to this company as well. They have a very good way to monetize traffic, which is fantastic. I wouldn’t put I passed me.

I’m not going to say we’re never going to be involved in subscription-based businesses. I definitely love that business model. I sit on some boards of some different companies of subscription based businesses. So, I’m a fan there. I can’t tell you exactly why specifically I didn’t just go launch a subscription-based business, mainly because I don’t know, it’s equally as good of an idea. Maybe I should have done it.

Andrew: Is part of it that you want to build a huge site and you can’t build a top 50, top 20 business online if your subscription based.

Michael: That’s true. I mean I think I have probably less ego about it than I originally did. Userplane got to a point where at one point we were reaching tens and tens of millions of users and I definitely love that feeling of having a product out there that a lot of people are using. Userplane granted like a lot of our reach was through an ad network. So it wasn’t as specifically product focused. But we did have a lot of users that used those products, which was fantastic. You’re right. Subscription based businesses chances of them reaching that level scale are a lot less.

So maybe it is the scale issue. Maybe it is that I wanted to go products out there. I think the other side of it is that at Userplane I witnessed a lot of consumer-facing products being built that were very, very large. I got excited about building consumer-facing products. Today, those products are specifically media and search driven. Tomorrow maybe there will be subscription-based business. Luckily we have a broad enough business here that we could explore some different things.

So one of our focuses right now is actually on mobile as well. So we’re doing a bunch of product development within mobile. Because we’re large enough, we can actually have a few people dedicated to R&D to build out new test products in different areas. Subscription has been one that we’ve definitely have been thinking about as well.

Andrew: Let’s talk about some of what you’ve done in the past. Was Userplane your first big hit?

Michael: Userplane was the first big hit. I had one company before that named Pbj Digital that was like three partners, Prentiss, Bernstein and Jones and we built out a digital kind of consulting and development company that had some good scale to it and grew really nicely. But Userplane was the first large exit that I’d ever been involved in.

Andrew: How did Pbj end up?

Michael: I ended up leaving the company bought out by one of the founders and then they imploded through the dotcom crash, basically.

Andrew: Okay. So, when you started Userplane, you didn’t really have much money to build it up with, right?

Michael: Right. So it was started as a consulting practice as well, where we were doing different types of development for a whole wide range of different companies and then migrated that into our own product business.

Andrew: It seems like that’s going to be the option that’s most accessible to startups today. There’s not much funding out there. The environment is tough. What do you think of consulting as a way to start?

Michael: Yeah. I was just talking at the Dealmaker Conference about bootstrapping. I did quite a few slides about migrating a consulting business to a product business to a product business. I think it’s a neat way to go. I think it’s a very hard and long road. It may be the only choice, though.

So if you have a good concept that you really want to pursue and there’s absolutely no way you’re going to get financing because the market is the market or your angel investors aren’t stepping up, then I think a consulting practice can be a bridge for you to get to where you want to go, but it a substantial distraction and a lot of people might not either have the discipline to do it or the stomach for it, right? We luckily did.

A lot of successful companies have done that. In my presentation I talked a little bit about kind of flickers, beginnings and bloggers. There were quite a few product companies that came out of the Web 2.0 world that really started in my mind as a consulting company that were experimenting with a bunch of different concepts typically paid for by larger consulting engagements.

So I think you will see, as you said, more and more people doing that, but I do think that’s a hard road to go down and I consult people all the time. They’re going down the road on how they can start forming a discipline that will let them make that transition.

Andrew: How do you make the leap from consulting to product?

Michael: We finally built out a system where we started really forcing ourselves to quarantine off portions of our time to dedicate into our internal projects, which was difficult to do. We also were able to strike certain corporate relationships where we were able to kind of pre-sell versions to software that we wanted to build and use the financing to actually finance the build of the software. And then we just worked our asses off, right? Between those three things, we were able to put it together.

Andrew: Can you give me an example of what you presold and how you did it?

Michael: Yeah. One of our very first versions of our instant messaging software, there’s a really small client in the Valley here in LA that wanted an instant messaging piece of software that they couldn’t afford a typical engagement for us to build on. We had interest in building it. It’s something we’ve been talking a lot about and thinking a lot about and had kind of sold them on.

We were able to basically strike up a license with them where they agreed to license the product and we basically had already started building it because we’d been doing it on our spare time, but that first licensed relationship really provided us with financing that allowed us to really focus on it. It was kind of like a presale.

Andrew: Yeah. Wonderful. That’s really exciting. Then you end up owning the product yourself and still getting the revenue for it as a consultant.

Michael: Right. Exactly.

Andrew: Mike, do you remember your first million?

Michael: My first million dollars that we made as a company?

Andrew: Yes.

Michael: Yeah, I do. Userplane, I remember Userplane when we broke the million-dollar revenue mark, and I remember some entrepreneurs telling me that was like the hardest thing, like, “Finally you hit $1 million in revenue.” But yeah, I do remember when we finally hit that at Userplane. It was great.

Andrew: Did you know life was going to be different after that?

Michael: Well, I’m not talking about my finances personally. I’m just talking about Userplane as a company. It was still a struggle. It was $1 million in consulting revenue, which means that it was gone within days or something and we had to go out and find our next few hundred thousand bucks.

Andrew: Because you had to pay your employees?

Michael: Right.

Andrew: What are the expenses in a consulting business?

Michael: It’s all primarily human capital. It’s employees and contractors and designers and a little bit of rent. The easiest paradigm that anyone ever kind of talked to me about was basically saying in any kind of consulting business, you’re running towards a cliff and every time you close a job, you’re just prolonging how far the cliff is out from where you’re running because you know you’re eventually going to run out of money. It’s just a matter of when.

That’s the problem with that. That’s why we all love subscription based businesses. It provides some sort of stable, predictable cash flow that you can understand and base growth off of, whereas consulting practices you close a deal and you make $10,000 or $30,000 and then you work out and then you’re out of money. So I hated that mentality of the cliff, knowing that no matter how many deals I closed, we were eventually going to burn through them all.

Andrew: All right. So then let’s ask about your personal first million. Do you remember that? What was life after that?

Michael: I think regardless of any acquisition activity, I think I was raised by a financial planner and a real estate agent. At the end of the day, the best decisions I ever made were buying real estate. So when I was really young and just leaving college, my mom pushed me really hard to buy a house when we moved down to L.A. and frankly I think I made more money off selling that house than selling my first company. I remember transactions like that. That helped us.

I think at the end of the day, regardless of whether it’s your first million or whatever, there’s a solid financial discipline that, one, just needs to adhere to if they want to accumulate a lifestyle that hits their expectations, right? I think it has to do with your discipline inside the office and your discipline outside the office, right? I was always told it never really matters how much you make. It only matters how much you spend.

Andrew: I hear that a lot. You’re saying you get more financial safety from knowing that you can keep from spending a lot of money than you do from having a lot of money.

Michael: Well, I’m sure there’s some level when you have a lot of money that you feel ultimately financially safe. But even today with people seeing such giant losses in the market, I’m sure that a lot of people question their financial safety. But I think at the end of the day, people that are able to accumulate large volumes of wealth, yeah they do it because they do great things that work, but it’s also because they have a very specific discipline on how they live their lives that permits them to be in that position, right?

So I think it’s more of a holistic approach. If you talk to any good financial planner, they’ll kind of push that same kind of philosophy saying there’s a whole realm of how you handle your financial dealings that will lead you to a long-term retirement and a very good life financially.

Andrew: What does that mean for you? You have a great office. But at the same time, I guess I don’t see you spending that much. Is that what you’re saying? You live tightly within your means?

Michael: I think we live within our means. I think for us and for me it’s about providing an environment where I feel confident that my family will be taken care of and a life without certain aspects of restrictions of things I want to do and things I want to permit my family to do and giving my kids that kinds of experiences that I had growing up, right?

I think a lot of us are kind of following after our parents footsteps in regards to trying to exceed where they were financially or at least match where they were financially. I haven’t really thought about words of wisdom around like personal wealth development. So you’re catching me a little off guard on it.

For me, honestly, especially now that I have two kids, it’s definitely a lot about thinking about where they end up, to make sure they get the best education and the best privileges in the world that I can possibly afford for them so when they enter the world, they’ve travelled. They’ve experienced a whole bunch of different cultures. They’re well taught, well read, etc.

Andrew: And just one more question before I move on to the next section, when you say you made more from your first house than you did from the first company you sold, you’re not talking about Pbj. You mean more from your first house than from Userplane?

Michael: No. I made more from my first house than Pbj.

Andrew: Pbj. I see.

Michael: Yes.

Andrew: The company you were pushed out of?

Michael: Yeah. It was an ironic twist, right? I’ve had other transactions between here and there. I think I’ve been operating the web for a while, so there are other dealings I’ve been a part of that have provided me with some financial liquidity. The real estate is great, especially in LA, typically.

Andrew: Like what? What’s given you more financial liquidity?

Michael: I don’t know. It’s probably not appropriate to go into detail.

Andrew: I’ll save that for when we’re having beer?

Michael: Sure.

Andrew: All right. Let’s talk about being an angel and advisor. First of all, I know how much time it must take you to run Tsavo. Am I pronouncing the company name right, by the way?

Michael: Yeah.

Andrew: It must take an enormous amount of time. You’re doing deals. You’re listening to your community. You’re creating new sites. At the same time, you’re advising other companies. Why is it worth your time to do that?

Michael: Well, I think from an advisory perspective, some of them are friends I just want to see successful and that I want to help with. The other side of it is that I think it’s always healthy for me to get out of my head a little bit and look at other businesses. It informs what I do. It helps other people. It lets me kind of utilize the connections and networks that I’ve brought up. So, I think that’s actually a big benefit for me.

When I sit inside of another board meeting and hear about someone else’s business challenges, I think it helps me expand my thinking in regards to how I practice at Tsavo. I also enjoy it. Frankly, I don’t see a big personal differentiation between life and work, like I just enjoy my life and it happens to be that I really enjoy my life inside the office and I really enjoy working with other entrepreneurs. It’s something that I absolutely love doing.

So I do it because it’s pleasurable to me. I don’t do it because I think I’m going to make a killing off of my advisory relationships from my board levels. I’m sure I’ll do well off some of them, but it’s really for fun.

Andrew: I asked Ryan Scott as an angel investor what he was looking for. What he focused on was the kinds of people who are running the company because he wants to work with people who he likes, people who he wants to spend time with. It sounds like you’re saying the same to me, that you pick the people who you advise based on who you can learn from, who you’d want to spend time with, who you’d like to see successful.

Michael: Yeah. I think that’s true. I also want to make sure any kind of board or advisory role that I’m getting involved in I have something to contribute to. So, if I look at the board and they’re already stacked with smart local entrepreneurs that had been through good operation experience and stuff, then I may not really be able to contribute a lot there. It’s probably not in their best interest for me to be on their board.

I definitely want to step into companies where I have a lot to contribute. I can really help out. If I’m quiet through an entire board meeting, it probably means I don’t necessarily need to be there. I may not be the right person for them. In those cases, I’ll withdraw my board position because I definitely don’t want to waste anyone’s time.

Andrew: What else do you look for?

Michael: I think Ryan’s right. It is all about people. If you put the right mixture of people in a room and they’re motivated to build a business, I think regardless of the concept, I’ll probably build a pretty good business. They have good advisors. Maybe they’ll build a great business. So, I definitely look for good people. I definitely look for ideas that I also believe in. If I don’t believe in the concept or I believe they’re going after a very small market, I’m not that interested in being a part of it. But people definitely is a bit part of it.

Andrew: I talked to an entrepreneur this weekend who said he’d like to get advisors, but he’s worried about giving up his ideas to them. You’re in business. You’re in a similar business to the companies that you’re advising. How do you keep that wall between the two companies?

Michael: It’s definitely hard. I never would never join the board of a company I thought we were going to end up competing with. If I ever thought my company was headed in that direction, I would withdraw my board membership, right? So I think there’s an ethical responsibility there just to do that. The other side is I come across a lot of entrepreneurs that are very scared about talking about their concepts.

My position is kind of like look, if your concept is vulnerable just by discussing it, you’ve got a problem with your concept, right? If you found some little clever thing that at the end of the day you don’t want to tell anybody about because it’s really easy to duplicate, you can get there, sure and you and I can both say–let’s say it’s 24 months ago and we said the goal is, “We built a blogging platform that only is a headline. We’re going to call it Twitter.” Sure.

But at the end of the day, it takes a lot to build these services. It takes a lot of resources. It takes dedication. It’s not like you can casually rip somebody off. I think when you come across entrepreneurs that are really scared about expressing their concepts, it’s often because they don’t necessarily realize how much work it’s going to take for somebody to actually build a meaningful offering inside that area. I don’t’ really personally believe in NDAs because I think they’re really hard to enforce.

I’m kind of saying anything I’m willing to talk about I’m willing to talk about it. If I’m unwilling to talk about and I think there are a lot of legal restrictions or it’s vulnerable, then I just won’t talk about it. I’ll just do it and then I’ll talk about it. I think that’s kind of a better position to be in.

Andrew: You spoke earlier about Startonomics, the conference you were in last week. You had a PowerPoint up with all the companies that you advise. Actually, it wasn’t all of them. That’s my point. Some of them were left off. How did you decide which ones do not love the ones that weren’t up on your PowerPoint? What’s the deal there?

Michael: I think it’s probably ones that I had vector logos for on my drive. There are definitely some companies that I don’t necessarily talk about. But I think it’s more along the lines that I’m going to respect the wishes of the entrepreneurs. If the entrepreneurs don’t want me to be listing their businesses and being very public about my involvement because they’re a little more covert or they’re in a startup phase, then I completely respect that.

Andrew: How much of it is some of the startups you advise are top of mind and others just seem to live on their own little islands away from you?

Michael: I think there’s definitely a truth to that. What I try to encourage startups that I’m involved with to do–I think this is true for me and any board member, angel investor or advisors that the more they communicate with their kind of advising associates, the more they’re going to be top of mind. I think it’s fairly important, especially if you’re in a growth build phase to be communicating on a weekly basis with this advisory group to make sure you stay in their eyesight.

I definitely encourage my CEOs who I’m working with to do hat and I do it myself. I send out basically a weekly update to my entire board and all the senior leaders inside my company once a week just so they can all see we can be very transparent of what we’re all thinking about. I think it’s very, very important. I found that more communication like that definitely will enhance your business and you’ll end up using your advisors a lot more effectively than you do if you don’t do that.

Andrew: And you actually read all these companies’ weekly email if they send it over to you?

Michael: Yeah.

Andrew: And you just find out what’s going on with the company and then if throughout the week something comes up that you can help them with, then you’ll make the introduction or you’ll come in, if not that’s it?

Michael: Exactly. It keeps me updated. Yeah.

Andrew: So once a week, anyone who has a startup, that’s how often they should be emailing their advisors.

Michael: I think if they want to get the most from their advisors, that’s a really good practice to be involved in. I think it also helps because a lot of startups do have a lot more founder and you can also get to a point where those founders are equally communicating once a week through this distribution, so I think it’s a healthy practice in business in general. Even if the weekly update is that, there’s no weekly update. I think it’s a good routine to get in. So I heavily encourage it. There are very few startups I work with that have the discipline to do it.

Andrew: And you’re both, just to clarify, an advisor and an investor in many of these companies, right?

Michael: Right. I invest in a few. I advise quite a few and I sit on a few boards.

Andrew: Okay. I know we only have a few minutes, so let’s go through a couple last questions here. The first is you’ve seen lots of entrepreneurs online, both the ones that you’ve advised and the ones that you admire and you’ve gotten to work with, what are some of the characteristics that separate the guys who are actually really going to make it.

Michael: I think it actually goes back to that same question about what makes good subscription based companies. I think very specific attention to detail. Very specific attention to return on investment understanding investment might be time. It might be features. It might be development. I think when you–I think web businesses are metric businesses. They may not be metric businesses when you initially are starting and you’re just building your software, but at some point it becomes about new users per day, new sign ups per day.

I think when you find the companies that are thinking on a detailed metric basis or have talent internally to be able to look at that way, they do find success. I think that’s a very common trend I’ve seen. I’ve seen very few companies that have had a lot of success without being that focused. The greater detail focus they have, the more they optimize and tune their business.

The other thing I really want to push a lot of people on that I think gets lost in the fray sometimes is making sure you’re really driving towards the core single value of your product versus dealing with a massive feature creep where you have 50 features, none of which are actually feeling like a core value.

I think that part of that comes from a discovery process of launching products and iterating and changing and there’s a fluidity to that iteration process, which is really important. But unless you can get down to that core, you’ll be half okay for a lot of people and not break for any people. Getting products and web businesses down to that core is really important. I think that’s true in any business would be my guess.

Andrew: So what’s the core of Tsavo? It seems to me you’re in lots of different businesses. You’re saying you might even get into a subscription business at some point. What’s the core here?

Michael: So Tsavo operates with multiple business units. There are going to be different cores for each one of those units. Our blogs are going to be focused on high quality content that really engage users. Our search experience is going to be about recognizing your intent and driving you to the best possible result set relative to your intent. I think if I was to paint one theme around it, the theme around the entire network would be how do we deliver the right content to the right person.

So just as there has been a lot of investment and a lot of M&A around the concept of dynamically targeted ad networks, I want to use those same principles targeting for content. I want to get it to the point where the right people see the right content in our network and the very, very easy methodology.

Andrew: I see. That’s why it’s important for you to know when I land on your webpage who I am. That’s why it’s important for you to have content from all over the internet available to you and that’s why you also want to have your own writers?

Michael: Right. Yeah.

Andrew: With that, can’t you take on Google? Not necessarily take them over, but take a significant slice of their business, the two percent?

Michael: In a perfect world, that sounds awesome. I’ll definitely strive for it, right?

Andrew: Gotcha. I’ll take that. Thank you very much, Mike. Thanks for doing this interview with me.

Michael: No problem.

Andrew: I appreciate it.

And there’s the interview. All right. I should say that Mike had a big smile on his face when he said that last bit about taking two percent of Google’s search business, as if to say no, that’s not his goal. We did this by video chat and I recorded it for you.

I hope that I got you the kind of information that you can use to grow a business. If I didn’t, I’d love your feedback. In fact, either way I’d love your feedback. You know I do these interviews to hear from you to learn who you are. I figure if you’re somebody who listens to these interviews all the way to the end, you’re an ambitious internet startup and I want to learn as much as I can from you and I want to get to know you.

So find a way to get ahold of me. It’s all up on Mixergy.com. While you’re there, check out some of the interviews. I do several interviews a week to help you build a successful internet company. That’s what I’m here for. I’m here to help ambitious startups grow.

My name is Andrew Warner. Thanks for listening to this interview.

A few lessons from this program

Here’s an edited excerpt from his interview.

Do you have any advice for a startup that can’t raise money?

If you have a good concept that you really want to pursue, and there’s absolutely no way that you’re going to find financing because the market is the market, or your angel investors aren’t stepping up, then I think a consulting practice could be a bridge to get you were you want to go. But it is a substantial distraction and a lot of people might not either have the discipline to do it or the stomach for it.

We luckily did.

When you ran userplane, how did you make the transition from consulting to building your own product?

There was a really small client in the Valley here in Los Angeles that wanted instant messaging software that they couldn’t afford a typical engagement for us to build. We had interest in building it. It’s something we’d been talking a lot about, thinking a lot about, and sold them on.

We were able to strike up a licensing agreement with them, where they agreed to license the product. And we already started building it because we’d been building it in our spare time. But that first license relationship provided us with financing that allowed us to focus on it.

It was like a pre-sale.


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