Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com. It is home of the ambitious upstart. It’s the place where I interview different entrepreneurs about how they built their businesses.
You know, I hate to admit it but I feel like I’ve got this mindset that just focuses on the same kinds of companies over and over again–the ones that are in the news, the ones that are all either catering to small businesses or to consumers because those are the ones that we read about a lot.
Meanwhile, I feel like I know that there are these big companies growing in sectors that I don’t pay any attention to and because I don’t pay any attention to them, I’m not learning about them. My hunch is having talked to you, the person who’s listening to me and so many other people who are listening to me that the same thing is happening to you. That’s why I invited today’s guest on here. I want to find out what he is doing to grow a business in a different part of the world that we usually are focused on.
His name is Scott Burns. He is the CEO and cofounder of GovDelivery. It’s a platform for helping government communicate with the public. That includes email, text and social. Don’t worry. Don’t be afraid. We’re going to get into everything that means so that it’s really easy. I say don’t be afraid because I think as soon as we talk about government, it feels like, “Well, this is too big for me.” We’re going to get into what that means and how he built up this business.
My two sponsors for this interview are the hosting company that’s going to help make hosting your website a breeze. It’s called HostGator. I’ll tell you more about them later. And the second sponsor is a company that will hire you an incredible developer. I’ll tell you more about them later. For now, I’ll you they’re called Toptal.
First, Scott, welcome.
Scott: Thanks for having me. It’s good to be here.
Andrew: Scott, I’m looking at a PDF on IN.gov. I guess that’s Indiana’s government website. The headline on this is “What Is GovDelivery?” which is what is your company, answering the same question that I think a lot of people who are listening to us have.
And as a way of explaining it, it says you could connect with citizens via email, but as a way of explaining it, it then compares you to another email system that’s just like a consumer-based email system or a small business email system. Is that really the only difference, that you guys target government and the other companies target consumers and businesses?
Scott: That’s a great question. It’s one that I think is important when you’re looking at having a vertically-oriented company. Our vertical government is a very broad vertical. It’s not a segment. It’s a sector. So, the public sector is depending on how you measure it, maybe 40, maybe 50% of the global economy. So, it’s pretty large. It’s not like we’re just serving convenience stores or hospitals or whatever.
Our approach has always been and my approach even talking to others who are looking at a more focused market is that you’ve got to bring something unique, right? So, if you’re in government and you need an operating system, you’re going to use Windows or you’re going to use Apple or whatever. If you need a database, you’re going to use one of the systems that they use in other sectors, for sure.
There are a lot of things that apply across markets. In our case, there are some really specific things about how government does digital outreach and digital communications that are fundamentally different than how a marketer might do it in a private company. That’s allowed us to bring really unique value.
Andrew: Like what? What’s so different about the way government does things that you can’t just take a consumer or small business product and slap a government logo or government description on your homepage?
Scott: I’ll give you three things. I’m going to end on the most interesting one.
Andrew: Okay.
Scott: The first from a functionality standpoint is automation. So, governments are complex entities, lots of different kinds of content. The city of Saint Paul where I live, the mayor is in charge of a zoo, a catering company, a parks department, a police force. It’s very complicated.
The types of communication they offer are just as variable, right? They don’t have a consolidated marketing team or department who’s going to finesse exactly what the messages need to be. So, we had to create a much more automated way of managing communications where you kind of create once and grab content and send it out rather than force it through a marketing department.
Andrew: And send it out to who? It would be the mayor’s office who’s sending it out to people who are members of the zoo?
Scott: No. It turns out that you think about who the audience is for content for the city of Saint Paul and it’s highly variable. It’s the guy who cares about neighborhood alerts on crime. It’s the person who’s interested in those zoo events. It’s somebody who’s interested in the mayor’s transportation initiatives or whatever, the bike paths. I can go on and on.
The mayor needs to do two things to be successful in communications in his office. He needs to reach the people who are interested in what he’s doing and he needs to reach them with the right information. You have to have a lot of reach and you have to get the content out.
But the mayor’s office is just a small subset of who needs to communicate. I didn’t say the mayor’s office communicated. I said the mayor is in charge of all these things. Deeper down at the zoo, they’re going to produce their own content on events. The Parks Department is going to produce its own content and our system basically allows them all to build up an audience, digital audience, and be able to send content out just by keeping the website and social channels they’re already managing up to date.
If they want to get crazy and do A/B testing and a great marketing newsletter on the new polar bears that are coming to the zoo, they can do that with our system, that kind of traditional what we’d think of as marketing capability. But a lot of times, it’s just telling people their bus is going to be late. That’s a much different use case. So, that sort of automation and federation across a big organization really matters.
Andrew: So, the reason we’re talking about it from the point of view of the mayor is it sounds like it’s the mayor’s office that picks the software and all these other–I wouldn’t call them departments–but all these other agencies then use the software that the mayor’s office picks. Is that right?
Scott: That happens sometimes. My point of making the comment of what the mayor is in charge of is really that people think of government as relatively simple, right? You’re the mayor of the city. What’s so complicated about that? Well, my point in saying what the mayor is in charge of is that the mayor of Saint Paul, which is not a huge city, a few hundred thousand people, he has a more complicated job than the CEO of Wells Fargo.
To try and get his organizations and the organizations under him communicating well across zoos and police forces and everything else is very hard unless you have the automation capability and the ability for each of them to build up their own communications while still being on the same platform.
Andrew: Okay.
Scott: So, sometimes it’s the mayor’s office buying–this is one of the challenges with our market–sometimes it’s the mayor’s office buying, sometimes the Parks Department buys and then talks everybody else into it later. It really does vary by organization.
Andrew: Okay. That’s one thing that makes you different. What are the other two?
Scott: So, the second one is just general compliance and security. So, when you’re hosting a database of lists and digital outreach, you really have to, when you’re working in the government, we work with cities, but we also work with all federal departments and we work across the UK in their central government. When you do that, there’s a very high security bar and there’s a very high compliance and accessibility bar so that people can actually use the system, read the messages, administer it, whatever, even if they have disabilities or other issues.
Reaching that standard and investing in security the way we do is critical. We have major economic and emergency data going out through our system. If we didn’t treat it appropriately, that would be a huge risk to our client. So, that’s number two, major investments in compliance and security so that our clients can use this functionality. The third thing is the most unique and that is that our clients don’t compete with each other.
But where they struggle is they struggle to build audience. Marketers are very focused on how to build a bigger audience, bigger database, all those things. Government struggles to do that, in part because the bottom of their marketing funnel is very ambiguous. It’s not always got dollars at the bottom. It might be flu shots, adopted kids, pets, whatever it is.
It’s ambiguous. They don’t focus as much on reach. We brought to them the ability to cross-promote content with each other through what we call the GovDelivery network so that if you sign up for updates from a city, you can get updates from a county and a state and the federal government at the same time.
We actually source over half of the digital outreach from most of our clients. So, if they were getting 500 people signing up a month without the GovDelivery network, they turn the GovDelivery network on and they might get 1,000. Sometimes it happens at an even bigger scale.
Andrew: You find the email addresses of the people they’re going to communicate with.
Scott: Or text or whatever people want to use to sign up, but it’s basically like some people know the concept of a coreg network. You sign up for updates from Federal Emergency Management and you get to sign up for updates from CDC at the end.
Andrew: I see.
Scott: It’s just modeled off of Amazon, right? What government has never done well is this American tradition of, “Do you want fries with that?” They make you go to a separate office for everything when you realize you need to. We’ve introduced, “Do you want fries with that?” to the government.
Andrew: That’s such a good concept. We don’t do that, I think, in my industry that well either. Like if you sign up for A/B testing software, would it be so bad if they also had a coreg checkbox that said, “We prefer this email software that also does A/B. Do you want to sign up for that or do you want to get email from them where they’ll tell you about it?” We don’t do any of that.
Scott: Right.
Andrew: So now this seems like a really impressive business. How big is it? What kind of revenues are you guys doing?
Scott: Last year was $35 million. We have about 225 people.
Andrew: Wow. So, it feels a little bit overwhelming. Let’s go back and see how you built it up to this point back when it was simpler. Where did the idea come from?
Scott: So, the original–I started this business when I was very young at the of the dotcom boom. It’s actually a pretty old business even though we’ve been much faster growing the last five years.
Andrew: Since 2000.
Scott: Right, the end of the dotcom boom. I was sitting on campus as a college student initially and basically I was on one of the first campuses that had email and I was interested in politics and government. I was in New Hampshire because there was a lot of politics and government there because we had the first presidential primary.
What I found was there were five kind of nerdy men and women–no offense to nerds, I’m kind of in that group myself sometimes–those were the people who were involved in these issues–we had at the same time this connected campus with one of the earlier versions of email called BlitzMail on the campus. I started testing ways of using that to motivate people to come to events, to participate so we could start getting football players and hockey players and other kinds of people coming to these events.
We were able to have an incredible impact taking this small group, making it much larger, getting 100+ people at events instead of 15. So, I got excited about it then and then got excited about using digital tools to generate interest in things I thought were important. And then I was reasonably good at it, but most of my candidates lost when I was a political organizer on campus.
So, I went to work at McKinsey for a couple of years, got interested after that in working in technology and SaaS businesses. But I was doing a SaaS business that was successful but was screening renters out of apartments and it didn’t feel very meaningful.
Andrew: Out of apartments?
Scott: We were doing renter screening.
Andrew: Before they got the apartment to see if they were the right people.
Scott: That’s right?
Andrew: Okay. How did that go?
Scott: it went very well. I was the eighth person hired and the business made it to 50 people when I was there in a year and they went on to get a great exit even after the dotcom crash happened. But I was waking up every day helping property owners screen renters out of apartments. It really wasn’t fitting with the sort of double line that I was looking for.
Prior to that–I left the political organizing, but I got this itch for the power of this technology. I went from there to McKinsey, from there to the technology startup where I was the eighth person–this all happened very fast because we did everything fast in that dotcom era. Nobody stayed anywhere for too long. Then I came back and started GovDelivery based on an idea from a friend of mine. We had this idea in the back of our minds and then we got the city of Saint Paul into our office, got them interested in it and sold them it before it existed, basically.
Andrew: What was the idea? At the time, how would you describe it?
Scott: The idea was that they had this concept of putting city hall online. Everybody was excited to get a website up and put city hall online. They were starting to do that. There were city websites, county websites all over the place but they hadn’t really thought about how they could actually do things differently because of technology.
So, we said, “Instead of just putting things online, why don’t we get more proactive and help you use the new tools to reach out to people, get them to move their car when the snow falls, get them to join the neighborhood group?” Even though our technology is infinitely better now, the concept we pitched in 2000 to Saint Paul was nearly identical to the concept today–reach more people, get them to do what you need them to do.
Andrew: Meaning at the time it just email, right? Obviously socially media didn’t exist. But it was just get their email addresses, communicate with them so you could get them to take action. At the time, there were email systems that did that. What did you guys do that was different?
Scott: Initially we brought more scale and usability to that like any sort of SaaS system would. And then when we started to take off, it was because we really built the robust workflow and automation capabilities that I described earlier into the system. It actually took until 2008–so, this is one story where the ramp was pretty darn slow initially, but it took until 2008 that we had enough clients to turn on that network effect, kind of coreg effect I described. That combined with going into much larger clients allowed us to really take off at that time.
Andrew: All right. I’m going to do a quick sponsorship message and then come back and ask you about what that first launch was like because you didn’t have a product and you still had a customer. The sponsorship message is for a company called HostGator. I’ve told you for a long time that if you want to host your website right you should use HostGator. Then, Scott, I did some research on you guys. You sold a majority share of your business, right?
Scott: Uh-huh.
Andrew: To what’s the name of the company?
Scott: Actua.
Andrew: Actua. So, I went to their website last night and it turns out their hosted by HostGator. This company that invests in other businesses, that has tons of interests, I think that most people wouldn’t know that it was run on WordPress. My audience would probably know it.
But then when you look to see who’s hosting their business, it’s, as far as I can see, it’s HostGator, which is phenomenal because HostGator can host any kind of business. You see new businesses that are getting started. You see people who I’ve interviewed here hosting their companies with HostGator. You see these big companies that buy out companies like Actua host on HostGator. There’s a reason for it. I’ll tell you what I love about HostGator.
Yes, when you sign up you can get somebody on the phone, but that happens everywhere. It’s the tech support when times are rough that’s phenomenal. When you’re in trouble and you really want some help, you don’t want to have to file a ticket. You don’t want to have to go back and forth via email. You don’t want to have to look up another support article that makes no sense in the first place. You want to be able to pick up the phone and talk to someone.
That’s what HostGator is good for. They’ve got a phone number where you can call somebody, talk to them 24/7, 365. They also have incredible hosting. If you want to check them out, go to HostGator.com/Mixergy. HostGator.com/Mixergy will give you 30% off and it will also mean that you’ve come from me. They’ll take really good care of you.
So, go check them out and if you don’t like your current hosting company, you don’t have to stick with them. Go to HostGator.com/Mixergy. They will even migrate your WordPress site for you for free.
I am really dealing with the last of a cold. I don’t know about you, but I refuse to believe, Scott, when I have a cold. So, I took some medicine to overcome some of the symptoms and I just kept working and working. It wasn’t until I couldn’t move that I finally decided to take my temperature and I realized I had a 104 fever. That’s when I relaxed and watched a little bit of television on my laptop. Are you like that too?
Scott: Oh yeah, I fight through it way too much. I have three young kids. If I’m not sick, something is wrong. They’re bringing germs back all the time. You fight through it and sometimes you have to take the temperature to realize it’s time to relax and watch the movie, like you said.
Andrew: That’s what I have to now learn. I feel like I’m impervious because I’m not around people who get sick. If you get sick, stay home. But now I’ve got someone who could potentially be sick at home every moment. So, every time I plan, I have to plan what would happen if my kid got sick. If I’m doing a big event, what happens if my kid gets sick? I can’t prevent that.
Let’s continue with your story though. So, you had this idea. You sold it. I didn’t realize that governments were willing to buy without seeing the solution. I thought they were much tougher customers.
Scott: Well, we had the benefit that it was the time period where government maybe had a little more extra cash on hand because it was after the surge in our economy that happened in that time period. They were in our backyard and a very innovative government we have here in Saint Paul. So, basically that was part of it.
The other part is we did a pretty good mockup for them. It was a clickable mockup. We might have given the impression that the product was a little further along than it was and it certainly didn’t mislead anybody but we made them confident that we could deliver. They got to kind of check it out, feel it out a little and gave us about, I think, four or five months to deliver. We also gave them a very low price just to get in the door and get that first client.
That’s how I like to do things as far as market testing and market research when you’re in the startup phase. Even our business still, we don’t test things by researching and doing surveys and whatever. We take a lean approach. We get stuff out the door, show it to people, see if they’re interested in buying it and follow up quickly.
Andrew: What’s one thing you did that with recently now that you’re a much bigger company?
Scott: A good example is we’ve made big investments in security. There are a couple of security certifications and different procedures that we’ve invested in. We weren’t sure if they were important enough for our clients to pay for them or what. We came up with some ideas, went out to clients and talked to them about we need you to invest in this if you really value it. Here’s what that might look like. Does that fit into a model that you would be able to support?
Andrew: When you say might look like you mean here’s what you’re going to get, here’s what we’ll have to do, so as a result we’ll have to charge you for it.
Scott: That’s right.
Andrew: I see. Versus the old way of thinking would be, “We need these certifications. That’s what we need to do. Let’s go sign up, get it and we’ll start using it.” That’s the mistake that people make.
Scott: Yeah. And sometimes it’s sitting around the office and being afraid to go talk to people. So, you come up with what you’d like to charge for something or what you’d like to tell people about it. A lot of companies–everyone says they’re lean now but particularly technologist-led companies make this mistake all the time. They sort of imagine what the wish the world was like, write it on the whiteboard and then take it out and they sort of try to jam that idea they come up with in the office into the marketplace.
I go much more towards talking to the customer first, but not saying as much hypothetically, “What do you think about this?” We might actually if we’ve got a new module we’re thinking of building, we say, “We’d like you to buy this new module starting at the beginning of next year. Here’s what we’d like to charge you. What do you think? Here’s what we think the benefits would be.” And if everybody says no, we don’t build it.
Andrew: And how do you know who to talk to about that, which of your customers or potential customers? Do you have a process? The reason I ask is because if you talk to people who are too diverse you’re going to end up with responses that are too diverse to do anything with, right?
Scott: Right.
Andrew: So, how do you do that?
Scott: That probably is one of the benefits for being at this as long as we have. You get dialed in on which customers are–we were talking about the benefits of business school. Well, business school is not useful if you study things that aren’t applicable in other areas, right? And if you start to understand when you have a market focus which of the customers are applicable to other customers and which of them are more anomalies and really that’s how we do it.
So, I would say that we have a very robust list of the clients that we think are leaders that might be two years ahead and the clients that we think are more typical. We use that list to our advantage and we’ve built it up. It’s 1,300 clients, so we’ve got a lot to pick from.
Andrew: So, the first thing you had was PowerPoint that was basically clickable. People could experience what this final product could look like. When you built it, how long did it take you to get this first version that you mocked up?
Scott: The first version was pretty light compared to where we’re at now. It was way back in 2000. That was back when we outsourced all of our technology. Now we have all of our technology here and all the people here, of course. So, I would say it was 120 days that it took us to build it. I think something that light we could probably build in an afternoon now because we’re a lot faster and the technology is a lot better for building it.
It took about 120 days, I think, from the time they agreed to the time we launched it. They were very happy with the first version. I don’t think their standards were as high as anybody’s would be now. But it worked fine and they were able to migrate over some old email lists and do a lot more than they’d ever done. We thought we’d be billionaires within a couple months.
Andrew: Was government sales that easy afterwards? It kind of feels like for you government sales was really easy. But I always imagine that it’s going to be a set of requirements and a set of forms that never ends.
Scott: You know, everything looks hard if you’re not doing it or good at it. If I watch a rugby game that looks insanely complex to me, I’m much more comfortable with soccer. This is the market we’re in. We’ve learned it over time. What I’d say is it complex. It is difficult. Anybody who’s ever tried to sell to an insurance company or a bank or a hospital has probably found the same thing. But we learned and got better.
I think that the reality is we thought we’d sell one city and then all the other cities would come along. What really happened was this was a product that needed to be sold and wasn’t just bought. People didn’t come to us, the lead gen wasn’t very good for years. It’s much better now. But basically we had to go tell this story of Saint Paul to everybody else and sell it. Look, if it was really fast and easy, we would have hit $35 million in year three. It wasn’t that easy.
Andrew: So, we talked about the first customer. How did you get the second customer? What was your process?
Scott: We sort of looked at it as this was our theory at the time–I think it’s a good theory–is to identify the right starter market and then build out from there. We said we want to get a local city, local county, adjacent cities, adjacent counties and branch out beyond that. So, really what we did is we had Saint Paul. We looked at South Saint Paul. We looked at Ramsey County, which is the county we’re in.
We got all these customers, a few other suburbs, a few other cities and counties around Minnesota. Then we started looking at other states. We made the very wise move of going to California, where we picked up a lot of counties right away and branched out from there.
Andrew: How do you even get your foot in the door? I don’t even know how I would reach somebody in government on the phone.
Scott: Well, you can go to the website and look up their phone number.
Andrew: Is it as easy as that? You look up their phone number, you make a call and you say, “I’ve got this new software. It’s going to help you reach your constituents a lot easier. It works via email. Who do I talk to?”
Scott: You know, in a lot of cases, you’re going to them. What worked for us at the time, it’s a little different over the years. What worked for us at the time is you pick up the phone and you say, “We’re working with the city of Saint Paul. We think you have similar needs. We’d like to come in and show them to you, educate you on it. They would take those meetings. Did the same happen two days later? Absolutely. Now, it took real time, maybe 180 days even back then.
Andrew: Wow.
Scott: It was a long, long sales cycle. Not always because of a full RFP, but just the deliberations and whatever. But that’s how we would do it. Now we use more modern marketing techniques. We’re using content marketing, obviously, very intensely. GovDelivery actually owns the largest social network, kind of training network for government people called GovLoop, 200,000+ members.
Andrew: That’s how I met you. I think you bought that company. The founder of the company said, “You’ve got to get to know Scott Burns and interview him.”
Scott: Yeah. So, we’re more modern now than we were back then, but in the early days, it was just look up the phone number, call people up. Then sometimes we would get contracted with some local representatives in a market, particularly in bigger cities, you kind of needed that local help.
Andrew: So, GovLoop is that network that you talked about. Are people in government looking at this website, interacting on the message board and then saying, “I think what I need
” I guess what they do is get one of the PDFs, one of the resources, give you their email address and that’s how you stay connected. It’s kind of like a sales process for private sector businesses.
Scott: That’s right. If you go to GovDeliver.com, we’ve got the same whitepapers and blogs and lead pages and all kinds of stuff to draw people in. GovLoop is more of a community where we’ve built up that government community. In fact, it’s like a 365-day online conference. We actually have a number of our own sponsors.
So, it’s not a huge part of our business, the sponsorship thing, but we have great sponsors, technology companies all over the industry how want to present to government and then GovDelivery is a major sponsor of it. We’re our own favorite sponsor. So, if you’re reading a whitepaper on digital marketing, we might see if we could contact you. Like you said, it’s pretty typical of how you’d market in any business now.
Andrew: I see you also have a set of courses. People can enroll in them. They watch videos. They learn. That’s how you bring them in.
Scott: Yeah. Does that sound familiar?
Andrew: Yeah, it really does. So, if somebody is listening to us saying, “Maybe I should be selling to government. Maybe governments have more money than individuals. None of my friends are thinking to sell to them. Maybe I should do it too.” What are they missing? What’s the tough part they should be aware of before they get started?
Scott: I think that the hassles and the stereotypical stuff of it’s hard to get procurement done and there are a lot of compliance requirements and everything, a lot of those things are real. If your goal is to start the fastest growing company possible and make the most money possible and have the fastest exit possible, I would say stay out of the public sector. It just doesn’t make sense as a startup.
Now, there are some ways you could serve public sector as part of another business to touch on it or get some benefit out of the market, but it’s not a place you go because you’re driven primarily or singularly by that sort of growth objective. There are a lot of reasons why at our scale we’re able to grow very fast.
So, now I think GovDelivery is in great shape, but you pay a big price early on. The reason to get involved with it–I think the people who get involved with selling to public sector are the ones who say, “Look, I want to serve my country. I want to help me city. I want to help the county. I want to help the world. I really want the double bottom line in my life.”
For us, we’re able at our scale to move faster. We have all the compliance things covered. We know how to do the procurement. But early on, honestly I left a job at McKinsey and a great startup to do this and the only thing that kept me going for the first five years is I’m passionate about the mission. Personally, I would rather struggle to grow helping more people get flu shots than grow quickly helping more people get high interest credit cards.
Andrew: So, how do you feed yourself for the 180 days between the time you get your first customer and your second?
Scott: Ramen noodles.
Andrew: Did it really get down to you cutting down personal costs to that level?
Scott: It did early on. Obviously we were part of a national joke, 24-year old raising some venture capital, raised about a half-million dollars, to going, things slowed down and we were part of a national joke at that time. It was an odd environment, right? You’re a young guy raising money and it’s hard to do that. So, we had to hit real milestones before the funding would come back in.
We did pare down. It was very easy to do because at 24 and the other founders were young too, we just pared down and basically settled in for the slog of the first 12-24 months while we gained some scale. I don’t think we made all perfect decisions, but that’s how we handled it. There’s sort of lean like Lean Startup and then there’s lean like, “I’m not eating very much.” We were often in that second bucket.
Andrew: What was your go-to meal? Mine in that tough period was vegetable fried rice from the Chinese store in Queens. It cost a buck. It was inexpensive. I thought, “Vegetables, that means it’s healthy.” I was so wrong. Those vegetables were fried to death.
Scott: Cheap, very cheap meat, tomato sauce and noodles.
Andrew: And you’d actually make the meat at home?
Scott: I would cook it up at home. I was buying sausage and ground beef or whatever. You know your story is painful when you can remember that. I swear I must have had that like 200 times.
Andrew: Meanwhile, you’re a McKinsey guy. Do you ever doubt yourself at that period? Do you say, “I was working for maybe the greatest consulting company that’s ever been created. Look at who I am and now look at where I am.” Did you feel any of that?
Scott: Yes. It was dark. I think a lot of entrepreneurs go through that and many don’t get to where I’ve gotten. I’ve had an exit. I’ve had some success. It’s an amazing thing to get to this stage. But it’s like back when I was doing the political work. I once had a politician say to me, a guy who was running for office who had been successful before, I said, “What made you want to be a senator?” He said, “A lot of people want to be a US senator.” He said, “I had to get excited about running for senator.”
I think if you want to be an entrepreneur, you have to learn to embrace at that early stage, you have to learn to embrace that tough period and say, “I can be at McKinsey right now staying at the Ritz-Carlton on a client engagement. But instead I’m doing something where I’m really able to test my ideas and make it happen,” and just embrace it one day at a time.
When the darkness sets in, make sure the team doesn’t notice because you’ve got to keep the happy, ambitious, optimistic face on. Of course I second-guessed it. I gave up business school, all kinds of things to do it. I really felt like maybe I am part of this national joke. But then we’d go talk to customers and they could tell they needed what we were doing. The work we were doing was very kickass. We just said, “There’s something here. If we grind it out, we might get it to the next level.”
Andrew: When you finally showed the first version, what did your client think? Was it different, actually, from the HTML PowerPoint thing that you created? It was. How did it differ from that?
Scott: It was a lot better. So, we got lucky and we took a risk. We sort of went back to the firm that had helped us with the mockups and they were going to be pretty cheap. I remember it was like $35,000 or something to build what we needed them to build. I decided to sort of look around and find someone I felt would be a good comparison. We brought a firm in. That firm ended up quoting $80,000 or $90,000, which was way more than we wanted to spend at the time.
It seems like a lot to be honest, now, for something that is relatively light. But it was a different era. We actually chose the more expensive one and got them to invest a little in the business. They just did a bang up job, did fantastic work. So, we delivered to the client who is actually better than the mockups. They were pleased about it and it worked and honestly at the time, we’re sending a few thousand emails at a time, in the minute I sent that sentence, we probably sent a half-million emails or text messages, maybe more.
So, it was a very different scale but it worked, it did the job and it was enough so that our first 50 clients were all great references. In our market, where you acquire clients slow, you better do awesome work and keep them forever or the model is going to collapse.
Andrew: All right. Second sponsorship message and then I’ll come back and ask about this challenging thing you told our producer about–the sponsor that I’m going to tell everyone about now is a company called Toptal. Do you know them, Scott?
Scott: I’ve heard of them on your podcast.
Andrew: That is the place where a lot of people hear about them for the very first time, which is probably why they’re plowing so much money into ads here. I actually had an email from our ad sales person who says, “Andrew, how aggressively do you want me to look after new ads?” I said, “Very aggressively.” He goes, “But Toptal and HostGator just locked everything down.” I said, “I don’t want to kick them out but is there a way to test new longer term advertisers?” He’s going to work on that. The reason is because people keep discovering Toptal here on Mixergy.
Here’s the thing about Toptal. They’re a network of top developers that are already pre-screened, that are already pre-vetted, that are already pre-tested that are already the best of the best. 97 out of 100 people who want to be Toptal developers are told no. The top 3% are the only ones who survive.
So, when you call them up and you say, “I’m working on this project. Here’s what language we’re working in. Here’s how we work. Here’s how we interact with each other. We use Slack or we use HipChat or we use text message.” I don’t know what it is. They will then go to their network and find someone who has that ability to work within your framework, within your quirks and with your company for however many hours you want–full-time, part-time, protect-basis. Some people hire full teams from them.
Scott, one of the things that you did was you hired the first development work that was done for your company for GovDelivery was actually done by outside developers. Look at how amazing it was. It actually ended up being better than you expected. That’s what Toptal is aiming for, to be that company that gives you developers that do a much better job than you expected so you can stun your customers the way that Scott did with his.
If you want to sign up, you can go directly to them. They will give you 80 free developer hours if you use this URL. It’s Toptal.com/Mixergy. When you do, they give you 80 free developer hours when you pay for 80. They will make sure if you’re not happy within two weeks, you will not have to pay, but they will pay the developer so the developer is not upset and not going hungry because you’re not happy. They want to make sure you’re happy and they want to do right by the developers. Go to Toptal.com/Mixergy.
I always hold my cough until the very end of the message. Gaining traction slowly, you told our producer, was a challenge. Then acquiring GovLoop both was difficult and help with that. Why did you want to acquire GovLoop, that social network that you talked about earlier?
Scott: When we were moving through things between 2000 and 2008, really 2000 to 2005 was just a slog trying to get traction, trying to get scale. 2005, we started to have this vision for this network we’d create, go after larger clients.
Then you arrive at 2008 and your company looks poised to grow fast but you’ve also lost that startup energy. Meanwhile, social media had become a critical part of the environment for our clients. They were starting to think about communicating that way, starting to question the direct channels like email in particular and wonder if those were even going to persist.
I think we’ve all realized that all of those things have a role to play now. Back in ’08, everyone thought it’s going to be 100% social within a few years. So, we looked out and what we saw was that our clients were sending out these email messages and then people were posting them to Facebook, posting them to other places and we really saw a lot of potential there.
Now, our first choice for acquisition would have been to go buy Facebook at the time. That was a little out of our spending range. So, we went and saw this government only social network where government people are talking to other government people. Basically even though it was outside of our space, we realized that our business is really about making important and relevant connections across the government and across the people they serve.
We took a look at GovLoop. They already had 5,000 members, growing fast. Really it was just a guy, no revenue, running it out of the basement. So, I had to go into my cofounders. I had to go into my board and basically make a pitch that we were ready to take this kind of risk, invest in growing this business, invest in buying this business, going to a space we didn’t really know that well.
I had to explain to them we saw a role, that connection of a lot of people with government information and connecting people in government with each other was going to be part of that formula. We made the pitch. Some people, there was a little bit of screaming in the board meeting and probably our first discord amongst the team, but we plowed forward–
Andrew: Why? What was their hesitation about it, Scott?
Scott: You know when you’re eight years old as a business and you’ve just started to gain some traction and momentum, you just look like your head is above water with the equity, taking a risk to buy something, do something different. It’s tough. I think that’s why companies often that don’t make it within two or three years kind of lose their edge and linger and fade. Honestly, I had to try to make sure we were giving ourselves a shot in the arm over and over again.
So, that business ended up being a shot in the arm. It got us more into social. It brought new talent in, attracted new talent. It said to our customers and frankly to Actua, who went on to buy us a year later, it said these are people who think they have a future and are investing in the future. They aren’t just sort of riding out the investment of the last eight years.
So, for a whole variety of reasons it was amazing. The guy who ran GovLoop, that one guy who was running it out of his basement, is now the CMO of our entire company and running GovLoop as part of it.
Andrew: Steven Ressler.
Scott: Yeah.
Andrew: Long-time Mixergy fan, one of the first premium members on the site. I think we only used PayPal at the time when he first signed up, which was just me getting started.
Scott: He told me he mailed you cash.
Andrew: We might have needed him to do it at the time. I have no idea. It was so far back when he signed up. It’s amazing how far he’s come. But was it just a forum at the time? He had a forum and content, right?
Scott: Yeah. He was writing–you remember Ning?
Andrew: Yeah.
Scott: Yeah. So, he was writing–
Andrew: Is that what he was using?
Scott: Yeah. He was using a Ning social setup. It wasn’t about the technology. It’s about connecting people and having the right cultivation of that community. Imagine government people, they’re being bashed in the media all the time, they wonder if they should have taken that private sector job after they got their graduate degree and they feel disconnected from others and training dollars are the first things to get cut. Steve had experienced that. He had been within government. He knew that they need to be connected better. That forum ended up taking off because it was the right thing at the right time.
Since then as it’s grown and gotten a revenue stream, we’ve been able to invest in it and launch this thing that’s more like a Mixergy or a Lynda.com where there are actual courses and more premium content on the site. We fund it through sponsors instead of subscriptions. It’s pretty amazing. People can get better training on GovLoop, Academy.GovLoop.com if they’re in government and they can get in a lot of the government trainings that are paid for.
Andrew: Why did you sell your company once you were on track, then?
Scott: That’s a great question. I would say that the investor base we had–we raised about $5 million over the course of building the company. We had just raised a couple million when we were getting towards the end of 2009 and a couple things happened.
One is my cofounder, my main cofounder who is an amazing guy, he’s like my brother, he was getting pretty burned out and really wanting to start something new, didn’t like having all these different investors second guessing us all the time. He really frankly just wanted to cash out. That was an important part of the calculus there. Then, the other investors had been in for a long time. We found when we went back to them with new ideas, “Should we invest in this new thing? Should we add more investors in the future?”
There wasn’t a big appetite for it. Eight or nine years was already too long for a lot of them. So, by going out and finding a new partner, I didn’t take a full buyout. I got this partner. They bought out everybody else, but a lot of the management team left a good amount of equity in and we were able to basically hit the refresh button and recraft the company.
Andrew: I see. They didn’t buy your shares. You still own it. That’s what I thought. I thought it wasn’t an acquisition. I’m doing research now to see how I could get this wrong. So, they acquired a majority stake and that’s what it was. Did you sell any of yours to give yourself some security?
Scott: I did. Yes. I needed the security. I was very broke at the time. For any entrepreneur, entrepreneurs are often reticent to give up any control. The first big decision you have to make is are you going to take on investors. That’s a big decision and that’s not for everybody.
For me, taking some money off the table in ’09 actually gave me a higher risk tolerance than I’d ever had because I was able to get that money in the door. It wasn’t a ton. But it was enough to pay off the debts, get into a nicer house, make my wife stop wondering why I didn’t have a real job and then we could focus on taking a little more risk and taking the business to the next level.
Since then, I think it was around $7 million in revenue, at least the software part of the business was that still exists today and then we’ve gone up 500% since then. It’s been good for them and it’s been good for me to have left some skin in the game. But I’ll tell you, the first check is the one that feels the best.
Andrew: Do you remember it when the first check came in?
Scott: Yeah. I was on vacation with my wife and I saw the wire. I thought the only time I’ve seen these kinds of numbers associated with my name in the past was the debt I had to guarantee.
Andrew: Wow. You personally guaranteed debt?
Scott: Oh yeah.
Andrew: Did that keep you up at night?
Scott: It’s nice being 24 with no kids and everything else. By the time I was getting a little older and had my first kid, guaranteeing the debt–I don’t stay up at night.
Andrew: You don’t?
Scott: I sleep well.
Andrew: I do now too, but when I had personal debt, it kept me up at time.
Scott: Early on, it was a good time to take risk. I never worried about going under, going bankrupt or whatever. I guaranteed the debt and that’s what you do if you need to do it to survive and you believe in the business. I wouldn’t do it tomorrow because now I actually have assets and kids and a wife to worry about, but back then it felt okay.
Andrew: They were called Internet Capital Group when they acquired you, right?
Scott: They were. Yeah. They were really famous back at the end of the dotcom era, hit some bumps in the road. Then they’ve reconstituted themselves as a holding company or an operating company of four different vertically-oriented cloud businesses and we’re one of the four.
Andrew: What do you they bring to the table beyond the money?
Scott: They bring a lot of expertise and knowledge and connections. The other companies are facing a lot of similar issues to us. So, we leverage those. They bring legal. They bring quick access to finances and they’ve put quite a bit of money in to fund the four acquisitions we’ve done since they acquired. They’ve been small acquisitions, but it was still nice to have quick access to capital.
I haven’t had to worry about raising money in six years, which allowed me to focus on actually growing the business, which I think has been a critical change. They were involved in building a couple of other successful businesses in public sector and helped us think that through, think through building the team, the kinds of things you hope investors are going to bring–capital, expertise, connections. They’ve brought them all.
Andrew: I was wrong. I don’t know what I did last night. But when I looked you up, I was really spending a half hour, 45 minutes prepping for our conversation this morning. You were acquired and then I looked up who was hosting their website and I saw that it was my sponsor. Now I can’t reproduce that and I wonder what URL I was looking at. Maybe I was looking at a previous one for Internet Capital Group. Now I can’t even tell who’s hosting their site. Anyway, I want to be open about my mistakes and I think that was one of them.
Scott: You want to go to Actua.com.
Andrew: Yeah. That’s what I did. I went to Actua and I went to a wrong URL by accident, one that was dead because I like to see older pages and see how they exist on the site. I saw the HostGator gator saying, “Sorry, this page isn’t here.” I realized, “Let’s file that away tomorrow.” And now why is this page not here? What am I missing here?
So, then I went to Internet Archive and I looked them up and I saw some changes. I also looked you up by the way in Archive.org. For some reason, even though I can see these really cut old versions of your site. Everything is so simple back in 2005. I can’t get any further back than 2005. Was the company called something other than GovDelivery before 2005?
Scott: It was called GovDocs.
Andrew: GovDocs. Okay. Is that the first thing that you did, you created those documents, those government documents that people need to put up in their offices?
Scott: Yeah. That company still exists. My cofounder bought it out from us. It was really the first thing we did but they almost launched at the same time. That was sort of the first incarnation. That actually is why we only had to raise $5 million because that business cash flowed from day one.
Andrew: Because businesses need to buy those things to put in their office, those posters and other docs that you need to keep around. Is that right?
Scott: That’s right. Yeah.
Andrew: So, when you were talking about that PowerPoint slide that was your MVP, that wasn’t for GovDocs. That was for GovDelivery.
Scott: It was. At the time we called it the GovDocs Document Delivery System.
Andrew: I see. That’s a big name. I can see why you needed switching.
Scott: It got better. Now I see the different sites here on Archive.org.
Andrew: Congratulations on everything you’ve built up. Thanks for waiting, by the way. My past guest had so many computer problems and I appreciate you working around that so we can have this interview today. I really want to have you on. For anyone who wants to check out your website, they should check out GovDelivery.com. My two sponsors are HostGator and Toptal. Of course, if you haven’t yet, please subscribe to the podcast in iTunes or whatever other podcast app you like. Thank you all for being a part of Mixergy. Thanks, Scott.
Scott: Thank you. It was great.
Andrew: You bet. Bye, everyone.
