Andrew: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy.
I get shivers as I think about today’s guest, because I remember when I first used his software. It goes back before I even started Mixergy. I was kind of taking a break from internet companies and going around and exploring how different organizations run themselves, like I would go to Mary Kay to see how Mary Kay runs their organization. I would go into religious organizations—I just wanted to see how do people organize themselves.
I remember this woman who ran a Mary Kay group wanted to send me an MP3. Sending a large MP3, one of the motivational stuff and instruction that she sent her partners at Mary Kay, was too big to send by email and I thought, “She’s never going to be able to send it. She’s probably going to send it in an envelope.” But no. She used this service called YouSendIt.
And my eyes were suddenly opened up. This is a really cool tool. Imagine if I had that back when I was sending large video files or large files of any kind. It was just such an amazing thing to see. I went back into my inbox and I see lots of use of this program, this app, YouSendIt, going back to 2007. I think my use of it predates my use of Gmail, or else I’d be able to go back and find more. My past guests, like the founder of PostSecret, used to send me video files of themselves using YouSendIt.
The company did really well, at least for me, but I wondered were they profitable and what happened to them and how did they evolve. Man, did they really need to evolve because the world changed. It’s becoming easier and easier to send large files. Big companies like Google are even enabling it. So I’ve been wondering what happened to that business. This is an interview about what happened to that business and more importantly about the whole lifecycle of a business, what happens to a company as it starts, evolves with the world and continues to grow.
This business has continued to grow. In fact, it’s changed its name. It’s now called Hightail. Hightail is software that enables professionals like you, you the person who’s listening to me, to collaborate on creative projects. You can easily send and share large files securely and get feedback all in one place. The way they do feedback is really cool, especially when it comes to like images and videos.
All right. We’re going to find out how this company started, grew, evolved, became what it is today and it’s all thanks to great sponsors. The first will help you hire your next great developer. It’s called Toptal. The second has helped me and people in the audience close more sales. It’s called Pipedrive. I’ll tell you more about those later. But first, I’ve got to welcome the founder of Hightail. His name is Ranjith Kumaran. Ranjith, good to have you here.
Ranjith: Thanks for having me, Andrew. I’m excited to talk about kind of the whole story of YouSendIt and Hightail.
Andrew: Me too. I had no idea what was going on behind the scenes until I started doing research and my producers talked to you. Why don’t we skip the end for a second here and just say revenues today, where are they, if you don’t mind sharing them?
Ranjith: Yeah. So this year we’ll do about just shy of $30 million in revenue.
Andrew: $30 million in revenue. And you were a guy who when you were looking at the world said, “I don’t even want to be a part of this Silicon Valley thing. I don’t want to be a Silicon Valley guy.” Take me back to the dotcom boom. Why is it that when your friends were coming here to Silicon Valley you said, “That’s not me”?
Ranjith: Yeah. I’m not even sure if I knew what the Silicon Valley thing was. I grew up, I guess, most recently in Canada before I moved to Silicon Valley. There was a lore of technology startups and a lot of misinformation about kind of the Hollywood lifestyle of what it takes to start a company, and it wasn’t until much later when I started visiting on business trips and things like that, that I kind of got the sense for this is how real companies are built and what the story behind the story was.
So I really think I came out of an academic family. I’ve got a degree in computer engineering. Growing up, I’m sure you’ve heard this, growing up in an Indian family, I had two choices. I could be an engineer or a doctor. I’m an engineer. My sister is a doctor. I never even considered starting a business. I really thought I would be applying my skills to something, either science or tech. And of course, Silicon Valley blends business and technology together. So that’s really how I got the bug.
Andrew: It does. And the idea came from a company you’re working in. You were working hardware design at a startup. You said one of the frustrations was that you felt more invested in the business than even the people who were running the business and then it got sold. Talk to me about what happened there.
Ranjith: Yeah. It was kind of a classic story of right place at the right time. So a friend that I’d gone to college with actually called me up. He was one of the ones that moved to Silicon Valley. He called me up and said, “Hey, we’re hiring and you’re a resourceful guy. You should check it out.” So not thinking much about it, I flew down to do the interview for an engineering position, but then I discovered they were hiring across the board. So I said, “Hey, it would be interesting if I could check out what your sales team is doing.” And I actually ended up being hired in the sales team. So that was—
Andrew: Just so you could learn about the sales part of the business?
Ranjith: Absolutely. Yeah.
Andrew: Why? Why would a guy who was pretty much born and raised to be an engineer, why would he care about sales?
Ranjith: Yeah. I think that came from the first job I had out of college. I was a software engineer working on embedded tools, of all things. And one of the lines of business that we had was a services offering where we would build tools for other companies, open source tools. They assigned me to a few companies like Motorola and Intel to build software for them, and I really got to understand what our customers were thinking and their pain points.
That was really interesting to me. I was one of the few engineers that loved getting out of the office, getting in front of customers. And then when I had the opportunity to work in Silicon Valley more in the sales umbrella, I said that’s more what I enjoy doing. It’s still technical, but you get to meet other businesses and solve real business challenges on the front lines. That’s why I was so interested in it.
Andrew: Okay. Then, as I said, you felt like you were really invested more than other people in the company. Then within six months, the company was acquired by a much bigger company. And what was life like at that point?
Ranjith: Yeah. Actually, the sequence there was I did three years at that startup. The business changed quite a bit. But I got to do a ton of things. I got to hire a team, manage a team. I got to visit customers, do business development. At some point, I was even helping pitch investors. So that was really the full education of how to start an early-stage company. At some point, I thought, “I could probably do this. This might not be the time, but I’m starting to learn some things.” I actually left that company to join in marketing—so now I’d been an engineer, I’d been in sales and now I’m in marketing—at one of our customers. It was that company that got acquired almost immediately.
Andrew: I see. This is Verisity Design?
Ranjith: Correct, yeah.
Andrew: Got it. It’s the US, the Mountain View and Israeli company, got acquired by Cadence. I see. Okay. That’s a design company now. You’re really veering off where you started.
Ranjith: Exactly. But kind of what I thought was I wanted a full education. I kind of understood what technology was about. I had some exposure to sales, running a small team there and kind of to round it out, I said, “Hey, this marketing team at one of our customers is interested in having me on board. Sure, why don’t we go check it out and see what marketing is all about?” That one was short-lived. We got acquired six months after I joined. There was just a lot of sitting around waiting for product lines to be killed and who’s going to be my boss. I didn’t do well in that environment. That’s when I started thinking about starting a company.
Andrew: I see. Now I get it. If you’re in a design company, you absolutely need to move big files around. In fact, the designers were the ones who were using those old Zip drives. What was it called, Iomega or something?
Andrew: What is it?
Ranjith: You remember the purple drives.
Andrew: Yeah. What was the name of the company that made them?
Ranjith: That’s a good question. I think Iomega may have been the original company, but they got acquired as well.
Andrew: Right. Because as a designer, talk about the problem that you experienced with large files or as a design company.
Ranjith: Sure. So it was multifaceted. It started early in my career where even in technology, you’re trying to move technical documents and specifications, chip design, things like that. Those are big documents. We struggled with that. We were technical people. I don’t know if you’ve ever used FTP.
Andrew: Yeah. I always thought FTP made a lot of sense. It’s like Finder or Internet Explorer for the internet. What was the problem with using FTP?
Ranjith: So what I discovered was for technical people or technologically savvy people, FTP makes a lot of sense. You can figure out the username, the password, the permissions. You can navigate directories, but you put that in front of a client. Let’s say you’re a design agency and you ask a client to log in to your FTP server and they can barely spell FTP.
Andrew: Because they need to install an FTP client, which I assume everyone had, but no. They need to understand what the URL that you give them is. Is it called URL for FTP?
Ranjith: That’s a good question.
Andrew: Yeah, uniform resource locator. Then they need to find the right folder, remember the username and password and, in fact, to me it looks beautiful and simple, but to them, it must be an ugly interface, which is a problem. You were telling our producer there’s also a password issue where customers were starting to do what with their passwords?
Ranjith: Yeah. This was a real challenge for us was we would give access to a client or a customer to our server with our username and password, and they’d start sharing it with other people at their company and sometimes it would get outside the building as well. They’d share it with partners, and suddenly we had people who shouldn’t have had access to those files coming into our server and that was exposure for us.
Andrew: You want to know something? I was in school when I first discovered FTP, and if I found an FTP server that was just unprotected and available, I’d just upload my stuff because I had no room on my computer just to save it up there. It didn’t occur to me that this could be an issue for some people. I get that problem. Okay. So you’re seeing this problem and you think there’s got to be a better way and you immediately think, “This could be my next business?”
Ranjith: No, not at all. I think we just slogged along with it. We were using FTP servers and burning CDs and driving them over to the convention center when we had to do—it sounds like you’ve been there, last minute demos and things like that. So there was a partner company we worked with and they had an inelegant but interesting system. So I believe it was ADNET Systems, another hardware company. They had a secret URL that you would go to their website. It had a dropdown box with the entire employee directory of ADNET.
So totally insecure. There’s personal information being shared. You would choose who your recipient was, then you would attach a file and hit upload. Then you would go back to your email and say, “Go to that secret website. I just left a file for you there.” But it kind of worked. Even though it was really circuitous, it kind of worked. That’s when we started thinking about, “That’s pretty useful. I bet we can make it a lot more user-friendly and elegant. We think it would have a lot of appeal.”
Andrew: I see. Again, this was a business or not a business?
Andrew: I see. This was just, “We need to create it for ourselves.”
Ranjith: Yeah. It was something we wanted to do for ourselves, but we quickly as we started showing to our coworkers, they started using it for things that they shouldn’t have. There were design documents and mission critical intellectual property going through that service. We’re like, “We need to make sure this thing is secure and there’s a whole service built around it.” So we got there very quickly.
Andrew: And that’s when you said, “All right, we need to go start this as a business.” The two cofounders who you had on, who were they and why did you guys partner up?
Ranjith: So, in all honesty, they were the only two people I knew that wanted to start something. My network was pretty light, and that’s a story we’ll go into later on, how important it is to choose your cofounders. They were literally the only people I knew in my network that were also kind of of the same mindset, wanted to start a company, were interested in it and we had pretty complementary skill sets as well.
Andrew: I see. What were you bringing to the table, and what were their skills that they were bringing?
Ranjith: So I’d done a little bit of sales and a little bit of marketing. So that was kind of my sales and go to market experience I was also fairly technical and had a lot of product experience. One cofounder was the technical guy. It was a very talented technical engineer, had a network of engineers he could draw upon. The other cofounder, who was his brother, had been in ad sales actually.
That was an interesting—how do you monetize the service? Originally it was a free service. So could you monetize it through ads? What were the different business models that we could explore? It actually worked out really well. We had early-stage chemistry because it was exciting. It was the first time we were doing it and the business started to scale.
Andrew: You then built a demo. You took it out to friends and you took it out to colleagues also at the design company?
Andrew: What was the feedback?
Ranjith: It was funny. The feedback was like, “Well, that’s pretty simple.” It was kind of underwhelming feedback. But usage started right away. Even though the feedback was pretty even keel but nobody was raving about it. Nobody was poking holes at it. They started using it right away. That’s really all I cared about. It doesn’t matter what the feedback is. It’s the usage that I was interested in.
Andrew: I see. I guess nobody jumps up and down and says how amazing—actually, I did. I got excited about it. I guess if you’re more — I don’t know why people are so jaded. I got excited about it. So they were still using it and you were looking at the data. To me, when you don’t yet have a business model, going back to that period, we’re talking about what, roughly 2007?
Ranjith: Earlier than that.
Ranjith: 2004, yeah.
Andrew: 2004, storing data is expensive, right?
Ranjith: It was. Yeah.
Andrew: Who’s paying for all that?
Ranjith: We were paying out of our own pockets for the first eight or nine months, and it was getting expensive. So we built our own hardware. We’d rack the servers. We’d install the software. We were doing all that ourselves. There was no Amazon Web Services. I think Amazon Web Services launched in 2005. There was no cloud computing. We were doing all of this ourselves. The model we came up with was if you remember the early days of YouSendIt, you could only store a file on the server for seven days. So the model was to keep costs down and kind of ensure the transactional nature of the business, we would flush the storage every seven days. So that’s really how we managed kind of the growth of storage.
Andrew: Still pretty expensive.
Ranjith: It was.
Andrew: How long did it take for customers to pay enough for you guys to support the business?
Ranjith: I think before that happened we raised venture capital. Revenues were starting to grow. If we weren’t paying ourselves, which for most of that time, we weren’t drawing a salary or paying employees. It was just kind of the early-stage camaraderie. The operating costs were breakeven. But if you added on human capital costs, it would not have been profitable.
Andrew: I see. Enough people were paying for their accounts, for premium accounts to justify the cost of the free.
Ranjith: The primary revenue in the first year was actually poorly targeted ad revenue. So we would actually put ads on the download page for software, for similar services, productivity services and that would actually pay for the service.
Andrew: Really? I guess because there’s nothing else to do. You’re just kind of sitting there waiting for the download to come in looking at that screen. I see. So it’s going to have a better response then the average banner ad.
Ranjith: Yeah. That was hard to scale because, again, it was hard to target. There wasn’t really any demographic, or it was a very horizontal service. So it quickly became clear that we needed to get on a track to build premium services and premium subscriptions and more business productivity software.
Andrew: The investment came from an investor who you guys met at a demo. You just created your demo. You went to an event and you started demonstrating it. What was the event?
Ranjith: It was TiEcon. That’s the [inaudible 00:16:58] entrepreneurs and kind of low barrier of entry for me. I didn’t give them my heritage. Honestly, you never hear stories like this, where it’s entrepreneurs get a demo together, go to the event, get it funded. It never happens. It happened to us. We just happened to meet the right person at the right time. It was an associate that worked at Cambrian Ventures. He said, “Oh, you guys are growing quickly. It’s an elegant service. You might want to come in and pitch us.” It went extremely well. It was unprecedented. You never hear stories like that.
Andrew: Especially back then. And you guys raised how much money from him?
Ranjith: So the first check that we got was like $50,000 just to keep the lights on.
Andrew: As a convertible note.
Ranjith: It was. And then that turned into a $250,000 investment as we hit our growth milestones.
Andrew: I see. Okay. Where did you get your users?
Ranjith: Very good question. We seeded the user base. We thought about, “Who is the target customer for this service?” Obviously, it’s someone that’s generating large files and sending it around. Back then, it was photographers, videographers and creative professionals. So creative folks were the first ones we thought of. We literally just cold called online communities of designers and photographers and videographers and said, “Hey, we have this service. If we white label it a little bit for you guys and embed it into your community, would you consider it?”
And communities back then were message boards. These weren’t blogs. These weren’t social groups. These were literally message boards. So we kind of made a plugin for message boards for these creative communities and they introduced it as, “Hey, it’s a value add to our community. Go check it out. It’s free.” To this day, we’re very strong in the creative community because that’s kind of where the viral nature—
Andrew: So if Mixergy had a creative community where people can show off their work, I wouldn’t want to host all the files because they’re so large. I would have a white label version of Hightail to offer my audience — it’s now called Hightail, not YouSendIt — a white label, so it would look like Mixergy’s media upload center.
Ranjith: File portal or whatever.
Andrew: I see. That makes so much sense. Then would I get a commission every time someone buys or I just get the service?
Ranjith: No. You get the service for free. We bear all the costs and just expose it to your user base and we’ll take care of them. It was very popular. We grew to a million users within eight, nine months. So a million doesn’t sound like a lot these days, but back then, that was a pretty substantial—
Andrew: You know what? For a professional tool, it still sounds like a lot.
Ranjith: It is.
Andrew: It may not sound like a lot for photo sharing for families, but for this. All right. Let me take a moment to talk about my sponsor and then I’m going to come back and ask you about how even though you had this really brilliant way of getting new customers, you still were burning through cash and I want to talk about that.
But first I’ll tell everyone about a company called Pipedrive. I’ve been talking about Pipedrive for a long time, long before they were even sponsoring Mixergy. One of my listeners, Bill Griggs, sent me an email thanking me for talking about it on Mixergy. Here’s the email that he sent me. He said, “I started the trial.” They offer a free trial at Pipedrive and Pipedrive, by the way, for anyone who doesn’t know, it’s a CRM that helps people close sales, one-on-one sales.
So he said, “I started the trial back in February of 2017. I was marketing software to the members of my private Facebook group when a member express interest, I would place them in the pipeline.” Now, if you guys don’t know, Pipedrive forces you to say what are all the steps involved in closing a sale.
Each step gets its own column in a pipeline within Pipedrive. So you’re very disciplined about your sales process if you use Pipedrive. Pipedrive can hold you accountable to keep moving people forward towards the sale. So what he’s saying is when a member of his Facebook group expressed an interest in buying his product, he would add them to the first section, the first part of his pipeline.
Then he said, “I sat task to follow up with them and the following day I would. I’d answer their questions and I’d ask them for the sale.” So, Bill goes on to say, “The first quarter that I used Pipedrive, which included five days in February, all of March, I converted 98% of the people who I put in my Pipedrive, which is $8,270 worth of sales. March, 2017 was actually 100%,” meaning 100% of the people he put in his pipeline he closed, which means $7,595 in new sales to his program.
He says, “I enclosed screenshots so you can see the results and correct any inconsistencies that you may note in the way that I’m using the software because I’m still new to the software.” And the screenshots he’s sending me are the ones that show how efficient is he at moving people over. How many new people is he getting into his pipeline? How fast are they moving over?
One of the reasons why I like Pipedrive is beyond forcing you to articulate and add to the software every step of your sales process, it gives you metrics to show you how many people did you really add to your pipeline in the last week? How many people did you move forward? Did you think that you were doing a lot of work but really you were doing busy work and only moving one new person forward or did you get a lot of work done and maybe you’re reaching the wrong people? It gives you tons of great data.
Bill, you’re using it great. Thanks for showing me how you’re using Pipedrive. Anyone else out there who’s heard me talk about Pipedrive and hasn’t tried it, it’s the best way I know to close sales. Get organized. Get Pipedrive. Here’s the URL where they’re going to give us a lot of free time because they’ve become big fans of Mixergy. If you want to try Pipedrive right now and get a lot of free time to actually close sales, here’s the URL. Go to Pipedrive.com/Mixergy. And I’m grateful to them for sponsoring.
So, coming back to the story, how did you burn through money?
Ranjith: Yeah. So it was kind of the classic venture capital story. So we ended up raising ultimately a $10 million series A based on pure growth metrics. We had a few experiments of subscription services in the early days, but we needed to do a lot of customer development and product development. So that was primarily feeding the build more product, build the sales team and build the go to market because ultimately our business was converting online. So we were converting individuals online. We also had an offering for larger companies. So that was really where most of the investment was, building more of a team’s version of the software.
Andrew: And when you say selling into them, it was building and also selling it, would you guys look to see who was signing up for the free version and then contact them? That’s your process?
Ranjith: Yeah. That was the biggest channel was seeing who was signing up for free. That was essentially our trial and selling over the top per usage. So, for example, when we went to—I’m trying to think of some of the early customers, but Intuit was an early customer of ours. Their entire support organization was using Hightail for free to collaborate on files. They were drawing customers in and providing support services. So we would call the support organization going, “Hey, you have 50 or 60 free users. Don’t you want to be able to manage them and give them permission and have an audit trail?” Nobody said no. They would either say, “We want to shut you off,” or, “Of course we want to manage those people.”
Andrew: I see. Because the cost of this software, it might be a lot for someone who’s just trading a video file in his bedroom, but if it’s a business, it’s pretty insignificant, but it gives you a lot of control over what’s happening with your data.
Andrew: I see. Okay. What kind of controls did you offer companies back then?
Ranjith: So the ability to manage groups and restrict the types of files and give reporting on who was the most active. Again, maybe because it’s a simple service, you want people to use it the right way as well. So it gave kind of a lot of oversight and permissions and granular control of what people can do in the system. That’s important for large companies that have stricter security policies and audit trails and things like that.
Andrew: So the business is doing well. You have a process. You have revenues. You have real customers. Why did you personally leave? I read in TechCrunch about your exit. I read about your return. Why did you leave?
Ranjith: For me, I’ve been doing it almost six years. We’d built a management team. The company was growing nicely, even when I wasn’t in the building. Most of my last year was spent acquiring small companies. It wasn’t a huge amount of deals, but I met with dozens of small startups in the productivity space and ended up acquiring two teams. That kind of got the juices flowing a little bit around, “Gee, there are a lot of innovative things going on. There’s a lot of different things I want to explore.”
Don’t get me wrong. The company was treating me well. I’ve stayed on the board for the last 12 years very close to the company, and I could have stayed and just put my feet up and continued to do the same thing. I just felt like I’d learned a lot about best practices and starting a company. I’d built a network. And there were different problems I wanted to solve. So I ended up popping out in 2010 to start my second company.
Andrew: That company, I won’t spend too much time on it, but it was called PunchTab. Was it acquired after you left or before?
Ranjith: Right around the same time. So, as I was making my way back to Hightail, we’d already kicked off M&A process. So that was, again, something I was like, “I’ve seen that movie before.” I personally thought I would be starting my next company, but the board at Hightail called me and said, “Hey, we’re considering a product reboot. You know where all the bodies are buried.”
Andrew: Why did they need a reboot? Before we go into that, I just want to do a quick overview of PunchTab. It was a loyalty program for, as I understand it, places like Kroger, Arby’s, Nestle, right?
Ranjith: Yeah. It was loyalty analytics for consumer packaged goods and retailers and that’s what the company did.
Andrew: Okay. Did you guys have a good exit or flat, or how was that?
Ranjith: It was a reasonable exit. I would call it more of a soft-landing exit. The story there was it was a much different business. It was 60% software, 40% services and that’s very hard and expensive to scale.
Ranjith: I got to the point where it’s like, “We either need to raise $50 million to scale this, or we need to find a new home.” So half the team went over, the product engineering and some of the services team went over. The rest of the team scattered. It was kind of a fairly typical outcome for most startups, but a very different business than Hightail.
Andrew: And it was acquired by Walmart, right?
Ranjith: Walmart, one of our first customers.
Andrew: I see. Okay. So what happened to Hightail as you were going away? Why did they need a reboot?
Ranjith: Yeah. I popped out in 2010, and I was away for almost four years. During that time, cloud computing and file storage and a lot of competitors came into the segment, companies like Google and Microsoft, big companies that had a lot of resources to throw at it and literally they were giving file transfer away with things like SharePoint and Google Docs. So it became increasingly harder to compete with a very horizontal service.
So we did a rebrand before I came back in 2013 to Hightail to really drive usage around creative professionals and serve their workflows. So what magic needs to happen when a creative person uses the service versus a very horizontal generic service? And there were a lot of ideas, but the product execution just wasn’t there. The product just never got built. So, ultimately, the board said, “Look, we’ve been waiting 12 months, 18 months for the product to get rolling. We just need to change. This is a broader problem and we need somebody with a product background in the chair.” That’s when they asked me to come back.
Andrew: So how do you go about figuring out—well, before you even went about figuring out what the new product was, I’m looking here at a Recode article. It looks so bad. You know this one?
Ranjith: Yeah. I probably know which one it is.
Andrew: They even weren’t doing illustrations of their own at the time. So it’s a man holding a box with Hightail on it and all this stuff in there because the headline is, “Hightail Chops Workforce by Half in Wake of CEO’s Ouster.” So CEO is out. You come in and all these people are out. It just looks really painful, but it actually needed to happen, you told our producer. Why?
Ranjith: The funny thing is I think a lot of companies face this reality that they’ve gone down a path. They’ve invested a lot in it and investors have invested a lot in it. The tendency is to continue to go down that path and kind of make it work. That’s why we end up with a lot of venture-backed companies that get to a certain point, plateau and then what. That’s kind of a—they kind of limp along and that’s not a company that I wanted to run. I wanted to come back and really give it a go at reinvigorating growth, reintroducing new innovative product sets.
The company that we built up to that point was good at selling the product that we had and was trying to do more of the same. I wanted to take it back to basics and focus on what’s working and grow from there to a product set that would really drive growth. We didn’t need 200 people to do that. We needed 100 people to do some very basic stuff. We got the company profitable, and that gave us the runway to build a new product and bring it to market.
Andrew: I’m wondering how you knew creatives were the right people to go after.
Ranjith: Yeah. The story I told around earlier around we seeded the communities, creative communities in the early days, 80% of our revenue was coming from creative departments and creative companies. So it wasn’t rocket science. We knew our core user base were sending image—you could look at the volume of files going through there. It was images, videos, PDFs, very visual.
Andrew: So if 80% of the people who are coming in are creatives, does that mean the business up until then was still trying to get more of the people who are making up 20% of your company, like the Intuits?
Ranjith: Yeah. I would say we’ve gone to the point where the whole sales model was selling into IT departments and not the line of business that marketing and creative teams were responsible for.
Andrew: I see how you figured out, “This is the group we need to focus on. They’re bringing 80% of our usage anyway. Let’s focus on them.” How did you know what features they wanted? What process did you go about to understand how to customize it just for them?
Ranjith: I think most companies look at their data and they see trends. It’s very hard to kind of change your behavior and build product around new workflows. But we were seeing even from the early days. I would send you a PowerPoint deck or something like that. You would download it, you would make your edits. You would rename it to _v2. You would send it back to me. We saw a lot of workflow usage like that. Nobody just sends files just to deliver the bits. There’s always some sort of conversation or collaboration.
We did a really good job taking the email attachment out of email, but we left all the metadata in the email. That’s really the mindset. For the creative process, how do we bring all the review workflows, all the approval workflows, all the collaborative workflows into the product versus forcing people to pop out into email or into generic tools like Asana and Basecamp to manage their projects?
Andrew: Was it enough to just look at usage to help understand it, or did you do anything like go and sit down with your users and see how they went back and forth or any kind of investigation beyond?
Ranjith: Absolutely. We’ve been doing that all along. The intent was to really nail the use case and build that product.
Andrew: What was that process? What was the process of understanding how people use it?
Ranjith: Yeah. The good news is we have over 1,200 large companies using the service, the original service and many of them were in creative agencies and creative departments. So we had a front seat to just following them home and sitting down with them, interviewing them and seeing how do they think about creative process? How are they managing the tools?
Andrew: Meaning go to their office, someone from your company, from Hightail, would walk into their office and say, “Hi, I’m the person who works at the company whose software you’ve been using. Can I watch as use it, etc.?” That’s what would happen. Would you ever do any of that?
Ranjith: Yeah, absolutely.
Andrew: You personally did it?
Andrew: Could you describe one time when you did it, where maybe you were a little nervous or when your eyes were open to something brand new?
Ranjith: Yeah. I think maybe the biggest learning and probably the biggest learning and kind of pivot stories in general are there’s a lot of muscle memory with your entrenched user base. So a lot of the places I go, the very tough places to go are still—we sold a product into the IT department and they are very risk averse. So they’ve adopted the tool and they don’t want to rock the boat. They don’t want to have to retrain their users. A lot of my work is getting in front of our IT champions, making them comfortable that, “Hey, we’ve got something for your broader organization and let me talk to those guys.”
So we’ve done that at numerous agencies, numerous retail. That’s, I think, the hardest part. You’ve sold into an audience, one set of tools into a specific buyer. The buyer has changed and the workflow has changed, so how do you connect the dots between those two.
Andrew: I see what you guys are doing. I see how you’re going through it and you’re reshaping the company. The first features that you added, were they effective? Did you hit the mark with it or no, you didn’t? What were the first features and what happened when you implemented them?
Ranjith: I think the first features that we introduced—we were pretty thoughtful about how we introduced it. We actually introduced the new feature set under a different brand, totally different website. Nobody actually knew it was the same company. I mean if you followed the terms of service and links deep enough, you knew it was us, but we actually showed it to a brand new audience just to get unbiased feedback.
That actually went pretty well. It was like, “Okay, it’s new. It’s innovative. We like it. Sure, the feature set is not robust, but it was early adopters.” So we took all that learning, kind of reintegrated all that back into our core product to our traditional user base and people lost their minds.
Andrew: What was it that made them feel uncomfortable or angry?
Ranjith: Well, everyone from—you’ve used the standard service. It kind of walks you through. It’s one, two, three, fill out these two boxes, hit this button and within 15 seconds—this is more workflow. There’s a little bit more setup. You need to set up your team, know what your process is. I think just even the UI changes. So we went from a—I kid you not—from a white background to a grey background and people lost their minds.
So there was a lot of entrenched — it’s muscle memory is what I call it. We moved people’s cheese and we had to be really thoughtful about how to introduce that. So we’ve had a few iterations of, “Okay, what’s the best experience to land people on so we can onboard them properly?” But we didn’t do a few things like, “What would happen if we landed a thousand people, heavy users, into the new product experience? What would their visceral reaction be?” That’s very important to know.
Andrew: You mentioned Basecamp. Jason Fried, the founder of Basecamp told me that if he were teaching a course in school, he would tell people to write a paper and then to cut that down to I think it was like two pages and then to one page and one paragraph and one sentence and I think even one word because he said it all comes down to editing and removing features.
Andrew: When it came to creating Basecamp 2 and Basecamp 3, the guy who says, “Get rid of the old and get rid of what’s necessary,” actually kept Basecamp 1 and Basecamp 2 and Basecamp 3 because he said business people don’t want to have the tool that they’re used to removed or changed. That’s how he handled it. What have you learned about since you are willing to get rid of earlier versions, what did you learn about how to introduce new features and a new product to business users?
Ranjith: Yeah. I think while the service looks like it’s gone away, 80% of the features still remain. You’re still able to send files easily. You’re still able to track. All those are available. There was kind of the 20% use case that we don’t support anymore, where it wasn’t profitable. The user base wasn’t that big. But we continue—I think the way I described it was we need to have a soft landing for these people so that—
Andrew: How do you create a soft landing for business people?
Ranjith: So I think what we did was there were different onboarding paths to the new product experience for users that were already familiar with it. We would literally land them on different landing pages. The users that were used to something, we would land them on something very similar with a little bit of messaging around, “Hey, try our new stuff,” whereas the new users, they don’t know any better, so we’d literally land them on the brand new experience.
Andrew: I see. It was, “Let me show you around your new home that I’ve just redone for you until I see . . .” Got it. And business people, for a tool that they use on regular basis are willing to go through that because they do want to understand it, where consumers might blow it off.
Ranjith: Well, I would say 95% of our business users were like, “Yeah, get out of my way. Let me do my work.” But over time, they come back and they start poking around. It’s a very slow roll for business users. That’s what we’re working through right now. For very little effort, 5% of our install base are starting to use the new service, but it’s really net new audience, net new use cases, net new processes that we’re focused on.
Andrew: So what was the one killer feature that people were actually really excited about and showed them that you understood who they were?
Ranjith: I think out of the chute it was our video review capabilities.
Andrew: That’s the one that caught my eye. I don’t know if I said it in the intro or talked to you about it before. Yeah. Talk about what the looks like.
Ranjith: Yeah. So there’s a lot of video review and editing tools, but they end up being built for heavy production. So if you’re making a two-hour feature length film, there’s a lot of tools out there for you. We don’t live in that world. We live in the two-minute video. So it’s an intro video, a demo video, a campaign video, and there’s not a lot of robust toolsets that allow you to quickly record a two-minute intro video to something, send it off to your colleagues, get feedback without having them watch the video and then type an email saying, “At the 10 second mark, we need to remove the shadow.”
So what we allow you to do is preview any type of video — two-minute videos, two-hour videos, you can do all of it — pause on the specific frame, draw on the specific frame saying, “Let’s get rid of this specific shadow.” There’s a clear timeline and you can have a discussion. You can assign tasks around that. So if people are like, “Oh yeah, that makes sense. You can assign a task to the editor to do that.” So it all lives in one place. You don’t have to go to email to send it and a project management tool to assign the task. It all lives in one place.
Andrew: Yeah. And as a video creator, I can tell you, that’s really tough. Even if you get on the phone with someone, which often will clear things up fast, it’s very hard for me to say, “Wait, go to the 10 second—share my screen, do you see this part right here? Let me highlight it. You should record the time so that . . .” Right. I see how that would—
Ranjith: Yeah. We made it transparent so that it doesn’t matter if it’s a video or an image or PDF or any visual content, PowerPoint, it’s the same process. You can go to the specific place, annotate specifically what you want changed, assign a task and that all happens seamlessly.
Andrew: Okay. I see the excitement for it. Still, when we come back in a moment, we’ll talk about why you said, “The founding team was a train wreck,” and what you learned about that. I love that you’re willing to talk about that and then also about the need for more cash. You guys, when you’re looking at the business, at one point you guys were burning $2 million a month in cash. We’ll talk about what you did to get more money.
But first I’ve got to tell everyone about a company called Toptal. Have you heard of Toptal, by the way?
Ranjith: I have not.
Andrew: Great. I’m about to open your eyes to this brand new—actually, at this point, they’re not even brand new anymore. Here’s the deal with Toptal. They looked around at Silicon Valley and they said the biggest challenge is hiring developers, not just hiring developers but screening developers to make sure you get the right person in the right job. That is a huge undertaking that especially for smaller teams can take months, literally months to do.
So what Toptal said was, “We’re going to go out and do the screening ahead of time. We will spend all of our time finding the right people and put them in our network and not just finding them but testing them and checking them out and bringing other people in to test them to make sure they really do know their stuff and then we’ll organize them in a database so that when a client comes to us and says, “I need a developer for this project, for a WordPress project, for an iOS project, and I work using this method and I need someone who’s available at these times, they can go into their network, find that perfect person and make an introduction.”
That’s the way they’ve done it for me at Mixergy when I wanted to hire a developer, for interviewees at Mixergy who wanted to hire developers and for people who have been listening like you. If you guys are out there and you’re looking for a developer, use the company that helped us go from weeks to months of finding the right person to literally two calls. I remember we hired a developer after having one phone call with the matcher. They found us someone. We came back, they gave feedback. They found us someone else. We started with that person within two days.
It’s started by Mixergy fans, two cofounders, both Mixergy fans. So they’re giving us something they’re not giving anyone else. If you’re looking to hire a developer and also a designer or MBA, but if you’re looking to hire the best of the best of those skills, go to this URL which I’ll give you where you can get 80 hours of Toptal developer credit when you pay for your first 80 hours and that’s in addition to a no risk trial period of up to two weeks.
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Partnering up with the right people is tough. You actually told me in the beginning of the interview, “Look, I didn’t know that many people in tech. So I went with the people who I knew whose skill sets . . .” Why would you call it a train wreck in your conversation with our producer?
Ranjith: Yeah. It was a speaking series I did several years ago, I think I called it “My Founding Team Was a Train Wreck and What I Learned from It” or something like that. It’s catchy word, but it’s also a really important part of company building is partnering with the right people in the early days because all the clichés are true.
It’s like a marriage. It lasts longer than a marriage, and there are days when there are going to be really high highs and really low lows and you need to know how people react under pressure and circumstances of where there’s opportunity. That’s my counsel for a lot of early-stage teams is like just date first before you get married, all those clichés. I did that for my second company.
And kind of my personal story with my founding team was they were the only guys I knew that wanted to start something. It seemed like a good idea at the time, so we split the equity a third, a third, a third and off we went. That worked fine in the early days. Honestly, until we had investors come in. We were our own bosses and we called all the shots. But then suddenly we had bosses.
We had venture capitalists, who were holding our feet to the fire as they should. We made a lot of commitments. There was a little buyer’s remorse from one of my cofounders of like, “Hey, we should return the money and go back to the way it was because this is a lot of pressure.” I was signed up for that job. Maybe we didn’t have that honest conversation about, “Are we all signing up for that job?” That’s very important to have. That’s really what started the downward spiral of our founding team dynamics.
It’s very common. At the time, I thought I was alone and I messed this up, but I talk to my investors, I talk to my startup buddies, and they all raise their hands and say, yeah, there’s always one founder that can’t deal with the pressure or wants to do something else and it’s very tough.
Andrew: I see. They want the business to be more of a lifestyle business, but you just signed up for a go a thousand miles an hour or crash and that’s not what they’re looking for.
Andrew: I see. Okay. What about investing? I imagined since you guys split up the equity a third, a third, a third you had to change the ownership too?
Ranjith: Yeah. I remember the first term sheet that we signed to get investment in the company. It was probably the most dilutive deal I’ve ever done, but it was also the best deal I’ve ever done, meaning it opened up so many opportunities. Within six months, we were in front of every investor on Sand Hill and a lot of interest in the company. So if you can — I think a lot of entrepreneurs ask me, “Hey, how I should I optimize this deal?” I was like, “You should be thankful that you have a deal.”
If you need the money and need the capital, go get it done because your next deal will be better and your next deal will be better. That’s kind of what gets the snowball effect going.” I think a lot of entrepreneurs worry too much about optimizing the first term sheet that they get. It’s really not about that. It’s really about getting the right people around the table who will support your company, and even if it’s dilutive, it’s the cheapest money you’ll ever raise if you’ve got the right investment partners.
Andrew: I see how one founder is thinking I need to fast, another thinking, “No, let’s go back to the old days when we had control of this business ourselves,” I see how that would be a different set of dynamics. But how did it lead to a train wreck? I’m still not seeing the train wreck there.
Ranjith: Yeah. I think there was no going back. Obviously, we raised the money. It wasn’t like we were going to unwind the cap table, get rid of all the employees. So taking it forward, the one cofounder kind of sat and stewed and was onboard, but I felt obligated as my cofounder to bring him along and help him, and that just wasn’t working. So it was very destructive. It was just a toxic environment for the rest of the employees. Ultimately we had to fire him.
Andrew: I see. Okay. So one got fired and then the other left also, right?
Ranjith: Yes. The other left. I think, again, it was a difficult time and they were brothers. That was the other hard part.
Andrew: I see, right, Amir Shaikh and Khalid Shaikh.
Andrew: Am I pronouncing the last name right?
Ranjith: I think it’s just Shaikh.
Andrew: Shaikh. Okay. Got it. They were brothers. One got fired. The other must have had hurt feelings about that. And then they also didn’t fully vest before they left?
Ranjith: No. Obviously, we’re not going to fully accelerate given the circumstances, so we treated them as well as we could. But much like a lot of founding teams, I haven’t really spoken to those guys since the early days.
Andrew: Wow. That’s really tough.
Ranjith: It is. Yeah.
Andrew: At least if you’re in a marriage and you have a baby, you go see the baby daddy.
Andrew: So I actually saw an article that you wrote for Fast Company about five years ago where you said, “I learned from that experience and the second time I started a company, I did things differently.” What did you bring when you started PunchTab to the formation and the partnership?
Ranjith: Yeah. So my cofounder, Mehdi, who’s a brilliant CTO and I think he’s starting his next one, at PunchTab, I worked with him at YouSendIt. He was one of the early engineers at YouSendIt. We worked in the trenches five years building products, building a company for five years. Later, when we decided to start a company together, we still went back to basics.
We were like, “Let’s just make sure we’re both on board with the idea. Let’s run a few experiments. Let’s figure out how we’re going to work together in this different environment where it’s just us and a couple of engineers in a room with seed money and the clock ticking.” We actually went back to basics, cobbled together a few experiments just to figure out what we were interested in, how we worked together. That went fairly well. We built a prototype of a service we had no intention of bringing to market, but it was just an exercise to kind of go through the learning process together.
Then we sat down and said, “This is how we’re going to split up the equity. This is how we’re going to split up the responsibilities. We’ve got to be totally aligned on what we want to do here. We want to build a sustainable company. This is not a lifestyle business.” We had that talk. That was really healthy to get that all on the table on day one before you had all the pressure of running a million miles an hour.
Andrew: I see. I read somewhere that you said, “When we started YouSendIt, all of our business cards said cofounder on them. Then we started raising money and the investor said one of you guys needs to be the CEO. Who gets CEO on the card?” That’s a really brutal decision to make to tell somebody, “You’re not in charge. I am” I think the phrase was the first among equals, which is actually not even true. That’s a nice way of putting it. I see. You’re saying second time around, I said, “Let’s be clear. I’m going to run it. It means I’m going to have to learn . . .” What was it, Python or something? I’m trying to from memory remember all the different things you said.
Ranjith: Some of the things I’ve learned is at an early-stage startup, you need to be a technical CEO as much as you can. I’m a pretty technical guy, but I took the time to figure out the technology stack and learn it and just write some bad code just to demonstrate that I’m in the trenches with you guys and we’re going to do this together. It wasn’t sitting off in a high castle saying, “Go do this, go do that.” You really need to win the team, win the customer. These are all first principles, things you need to do in the early stage of startup.
Andrew: I see. “I’m taking on the responsibility of being a CEO. That means getting the title and the power, but also means spending Christmas learning all this stuff so that I could come back in for the new year, 2011, strong and ready to do this.” I see. Why did you use this phrase when you talked to our producer? You said, “We had to acknowledge that we needed capital for a reboot.” Why was it so hard to acknowledge when you’re looking at expenses and you’re realizing, “Hey, this company doesn’t have much of a runway?” Why did you still have to come to terms with it?
Ranjith: Yeah. I guess just to clarify that, when I came back to run Hightail, we were burning $2 million a month, and we had 86 months of runway in — that’s being generous — in that burn rate. You need time. You need time to figure out business. I wanted to get to a point where we had at least a year runway to bring a new product to market and figure out the growth levers and then we could reassess how quickly we can move. So we ended up going from burning $2 million a month at Hightail to profitable in four months.
So the concept of runway just went away. We were actually adding to the bank balance based on the revenues that we already had. There were a lot of tough decisions made around restructuring the company and winding down some partnerships and winding down commitments, and that’s all the hardest work I’ve ever done in my life, but this is what you need to do. People think of bringing capital in as, “Let’s just go and raise more money.” That was my financing was getting the company profitable.
Andrew: I see. So did you raise more money afterwards?
Ranjith: No, we haven’t.
Andrew: I see. So it wasn’t so much, “We have to get more capital, so let’s go and raise it.” It was, “We need more capital. We need to fix this. We have to make these tough decisions.” You said some of the hardest part of your life was unwinding partnerships. Why was that hard and what did you do?
Ranjith: So that was a big learning experience for me was we’d gone into a mode of the four years I was at where we were white labeling the service for a lot of partners. As a company, we just weren’t ready to take on those projects. So those were languishing. We were spending 85% of our engineering resources supporting those partnerships versus building our own core product set for our core product users.
I had to disappoint a lot of partners. I went back and said, “Hey, look, a year and a half ago, we said we’d build this thing, not so much anymore because it’s not part of the strategy.” Some of them were understanding. A handful of them got very upset and came after us. We had to figure out terms to settle.
Andrew: Because you had an agreement with them?
Andrew: Yeah. I remember Mark Suster telling me he had the same situation. He was running a company that was basically in trouble and he had to go back to people and say, “I know we have an agreement. I’m a man of my word, but I can’t keep my word here, so let’s acknowledge it now before the whole company goes down.” That’s a tough situation. You’re saying legally they came after you and you guys had to find a way to deal with that.
Ranjith: It all ended — all’s well that ends well. I think there was a lot of disappoint there from partners and from the company, but these are the tough decisions you’ve got to make. When you’re reinventing a business, you’ve got to go back to basics, not have so many distractions and just give yourself time to figure this stuff out.
Andrew: So we do research here as a team to prepare for interviews with guests. We talked to you, our producer talked to you. One of the things we always wonder is, “What did we miss?” So we asked you before the interview, “What did we miss?” And you said, “The operational fundamentals that go into retooling a company.” So why don’t we close out with that? What do you mean by that and how did you do that?
Ranjith: There are three phases of the company as I saw coming back. One was the finances, obviously. That’s well understood. Private equity kind of exercises around getting the financial fundamentals around. I knew coming in that was there. We were making enough money, but spending a lot, so we just had to right size things and focus on the few things that were working. Like I said, that was about a four-month exercise, very painful exercise of winding down partnerships and product initiatives and international sales offices that weren’t hitting plans and that was straightforward, but absolutely brutal. That was four months getting the company profitable. That was phase one.
Now we had time to execute. Then you’ve got to start looking at other departments to look at, “Can we even build a new product?” And it had been a long time since we had actually brought a new product to market, a long time. That was kind of the next how do you crawl, walk, run on getting the product engine going again.
So this is a product problem. Other companies it may be go to market or sales execution, but you’ve got to identify what was the slowest gear and get that going. That was a year of rewriting the entire code base, forklifting tens of millions of users from one platform to another. You’re getting the experience right and only then can we declare victory on, “Yeah, we know how to build product. We know how to build a sustainable platform and new features.”
Now it’s the go to market phase where, okay, we’ve got an MVP starting to get product market fit and how do we really get to the watering holes where our core customers are, how do we speak to them, how do we message them. This is two years in to the pivot and this was all the work that needs to get done.
Andrew: You came back what year?
Ranjith: End of 2014.
Andrew: 2014. I see. Okay. That explains why somewhere around 2012 I think it was there was a campaign by your company that said — it competed with Dropbox and Box — it said something like, “Your files should neither be dropped nor boxed.” Essentially you were taking them on exactly.
Andrew: I see. So when you came back, you said, “No, we’re not going to try to be Dropbox. We’re not going to try to be Box. We’re going to say our creatives are our future. What do we do for them that’s different?” That’s what you did. In order to do that, you had to rewrite the code base, you had to rethink about how to come up with new products. I see, and unfortunately let go of people. I say unfortunately because you’re a person who measures success by how many people you employ.
Andrew: Today we talked about revenue was, what, $30 million?
Ranjith: About $30 million. Yeah.
Andrew: And your number of people at the company?
Ranjith: We’re about 85 people today.
Andrew: That’s impressive.
Ranjith: This can be done. It’s funny because when we went through that exercise and we preserved revenue, built new revenue with a much smaller team, there were a lot of questions asked about like, “Gee, what other companies are out there? Are there efficiencies that we can . . .?” I think it was very eye-opening for my investors and the employees about like, “You can do a lot more with less if you really focus in on kind of the 80% that’s driving your business and you should be doing that constantly.” That’s something we take very seriously is what are the areas of focus that we need to have and do we have the right people to do it?
Andrew: All right. The company is called Hightail. The website is actually not Hightail with something at the end of it, but Hightail.com. Even though it’s a professional piece of software, it actually has a free version, right? People can try it and see all these features that we’ve been talking about. Frankly, as a product, you guys are really good with your demos, so if anyone out there is curious about it, not only can you try it, you can actually see a really nice demo at Hightail.com.
And of course, the two companies I told you about who are sponsoring Mixergy, the company that will help you close more sales because they’ll systemize your operation, go check out Pipedrive.com/Mixergy and the company that we and so many other people who I’ve interviewed and who have listened to Mixergy have used to hire developers, designers and MBAs. It’s called Toptal—top as in top of your head, tal as in talent, Toptal.com/Mixergy. All right. Thanks so much for doing this interview.
Ranjith: Thanks for having me. It was a lot of fun.
Andrew: You bet. Thank you all. Bye.