Andrew: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy where I do interviews with proven entrepreneurs about how they built their businesses, and you might know that I’ve been looking to hire a COO, someone to help me run Mixergy. And as a result of looking for someone, I started looking at software to manage the hiring process, and I saw that there are tons of different apps out there to find people, to keep track of who you’re talking to, to collaborate with the team on who you’re interviewing or who you’re considering an interview with and so on. And so when I heard that today’s guest had software that did that, I thought, “Huh, what sets him apart?” And I started digging into it, and what I found was that Adam Robinson, the founder you’re about to meet who runs Hireology has created software that does more than that.
Actually, yes, it does offer the tools and technology and the process for helping you hire, but it goes beyond that. It helps you with running the hiring process, onboarding new hires, time, and attendance, and so much else that’s usually done by HR software. And I’m curious in this interview to understand how software can do that much without confusing its customers. How can it do all that right instead of focusing on one? And I know that he’s done well because, frankly, that’s why we’re having him on here. I’ve seen his numbers.
The thing that I didn’t see as I was researching him was how much focusing on one type of customer influenced the success of the business. I learned that from the pre-interview process that he did with our producer, Brian Benson here and I’m excited to talk to Adam to find out more about how he grew this business.
This interview is sponsored by two phenomenal companies. The first will help you hire your next phenomenal developer, it’s called Toptal, and the second will help you host your website, it’s called HostGator. I’ll talk about those later.
Adam, good to see you.
Adam: Yeah, thanks for having me on.
Andrew: Adam, it does feel like there are a lot of other companies that do what you guys do, right?
Adam: There are. If you look at the universe of HR tech companies, right, you look at . . . referred to as NASCAR slide or logo slide, I mean, there’re hundreds if not thousands of vendors in the space, and some of them do everything. They’re the big companies that you, you know, may be familiar with like ADP or Workday. These big companies will do everything for really large organizations, but really, large organizations are only a couple of 100,000 of the 6.5 million businesses in the United States, and so as a result, what you have is a whole bunch of companies doing one or more things for a whole lots of different kinds of companies. And it is so fragmented, and the opportunity so big. I mean, it’s a $70 billion market globally that you have room for lots of people that are trying lots of different things and . . .
Andrew: Seventy billion includes the HR software part of it? Includes what? Includes the software for managing the hiring process?
Adam: So if I look at just the software for managing human capital, that would include talent acquisition, that would include post-hire management and payroll. You know, you’re looking at a market size of $50 billion or so, of which 65% of is in the United States. It’s a massive market, massive market.
Andrew: And what’s your revenue right now?
Adam: Hireology right now runs close to $25 million in ARR.
Andrew: In annual recurring revenue, $25 million, and this is for a business that was founded 2010, about what, 8 years ago now.
Adam: Eight years ago. That’s right.
Andrew: I should also say that you’re also, in addition to running that company, you’re also the author of “The Best Team Wins: Build Your Business Through Predictive Hiring” and a podcast with the same name, “The Best Team Wins.” Let’s understand how you got into this $25 million annual recurring revenue business. Before this, I was looking at what you were doing, and one of the things that you did was you worked at Click Commerce. I looked up Click Commerce. They did a ton of different things and they adjusted and they pivoted and their name was [inaudible 00:04:11] . . . When you were working at Click Commerce, what did they do?
Adam: Yeah. So talk about a lesson in, you know, building a startup. You know, it wasn’t my risk at the time, other than what I was doing with my time and was really fortunate to have the opportunity two years into my career to work for what was then a startup in Chicago about to go public in June of 2000. So actually, after the bubble burst, I think we were the last company to have a successful IPO or one of them. And we sold portal technology to dealer networks.
Andrew: Car dealers.
Adam: Any dealer. Cars, boats, bikes, furniture, heavy equipment, lawn tools, air conditioners, that’s all sold through dealer networks. So if I’m a commercial construction contractor and I want to put an HVAC unit on top of my new building that I built, that’s a seven-figure buy. A dealer will sell you that air conditioner. You can’t go to Carrier and buy it direct. You have to go through a dealer. If I want to buy a John Deere bulldozer or a Case New Holland harvester, those are all sold through dealer networks.
And so they’re interesting markets because these manufacturers don’t own their distribution channel. And so what was happening around the turn of the millennium was you have these, you know, 4,000 or 5,000 dealers, non-automotive dealers selling equipment that they bought from their manufacturer, but they have to, of course, buy parts and submit funds for marketing reimbursement, and do warranty information, and they were doing all that over fax machines.
And so what Click Commerce did was took all of that communication that these dealer networks had with their manufacturer or a franchisor, because Subway was a customer, and put it online. And so what that meant in 2000 was that I, as the head of professional services at Click Commerce, got to fly around the world with . . . and put a $30,000 Dell web server in the back room of the dealership and hook it up to dial-up connection and drop the CD rom into the tray, upload the DLLs, build them a little website, hook it up to the corporate portal, and voila, everybody is online. And so this, you know, pre-cloud, pre-iPhone, pre-everything. I mean, back when companies would have to buy and own software as an asset. There was no SaaS.
Andrew: That’s where you discovered some of the pain that led you to create Hireology. Can you talk about that? What happened when you’d create the system and then people would call you up and say, what? Do you remember?
Adam: Yeah. Our end user was the dealership, and so the general manager or owner of that dealership would call us every quarter or two and say, “Hey, we need you guys back in to retrain our team. Everybody’s turned over.” That was a part of the system. And this just kept happening. So imagine this happening at scale in a $35 million recently IPOed company and our biggest problem is our customers can’t keep people trained on our software. That becomes a business model problem.
Andrew: If I understand you right, Adam, you’re going in, you’re installing the hardware, you’re putting the CD rom and the DLLs, everything else that you said. You’re showing the team, here’s how to use it. They understand it. You walk away, get back on your flight, everything is good. Everybody who you talk to could potentially be gone.
Adam: [inaudible 00:07:43].
Andrew: And now you’ve got to train new people and . . .
Adam: That’s right.
Andrew: Got it. And that’s when you say there’s got to be a better way, and the original better way that you came up with had to do with PDFs. What were on these PDFs?
Adam: Well, so yeah, so I had spent my first two years of my career in the staffing business. So I was going to teach high school history, and I was looking for teaching jobs, couldn’t find one, took a placeholder job at a staffing company and I’m still kind of in that industry and so two years of staffing taught me that recruiting is a sales job. Recruiting is a sales function. It’s not administrative. And so the opportunity I saw was to give these types of businesses, dealers, and franchisees a better hiring process so that they could better drive candidates through the funnel.
And my first idea was to do it for them, and so I set up a business that was an art’s . . . RPO provider and outsource recruiting company, and so you could hire us, we do it for you. And then again, I get the call six months in from the CFO of the dealer group to say this isn’t working, and I would say, “Well no, it’s working. What’s not working is you have no hiring process to follow.” So same problem even when I was . . .
Andrew: If I understand, I want to make sure that I’m still following this. You created a outsource recruiting company where you would hire employees for these dealers . . .
Adam: We were their recruiting department. Yes.
Andrew: That’s it. So you would bring people in and then they would disappear, and they would say, “Adam, you didn’t do a good job getting us the right people.” You said, “No, you didn’t do a good job of onboarding them right.”
Adam: Well, more specifically, we would send them 100 candidates across 30 dealerships to look at, and they’d sit on someone’s desk for a month and then finally get around to looking at them and no one was available, and they’d call and say, “This isn’t working,” and I would say, “Well, what’s not working is you have no process to hold your managers accountable. We’re giving you the output. You’re just not doing anything with it.”
It’s basically like an uncalled leads. A bunch of sales leads you do nothing with, nothing is going to happen. Those leads go cold pretty quick. So I then created a paper-based system, a series of PDFs I would give to these customers and I would say, “Look, you’re going to hire us. You’re going to follow this hiring process. You know, you got to open resumes in two days that we send you or does it count against the service level agreement. You’ve got to run these interviews, ask these questions. I mean, for the love of God, just ask these 10 questions, you’re going to be better off. Score the answers this way, trust me.”
And so what happened was customers started saying, “Well, I really like this system. Can I buy this from you?” And I said, “No,” for years, and then the recession hit in 2008 and really, I mean, crushed the business. That’s a whole other episode of like, you know, how to triage a business that loses 70% of its revenue in 90 days. But what I figured out pretty quickly is that I’d rather be in a product business than a service business, so I sold the service business, and I took all those PDFs that I had created, modified them for mass consumption and literally posted them online on this Intuit home site URL I set up. And then this is back in 2006, when you could run an AdWords campaign, you know, yourself without much sophistication. And so, you know, I’d write an 800-word blog post with keywords. I would write the AdWords copy, doing a phone interview, ask these 20 questions, and then I link to it you could buy it for 24 95. And in six months, I sold $60,000 worth of $25 phone screens, just PDFs.
I mean, literally, managers would come online in a panic and go, “What questions do I ask a sales candidate? Like, right before the person was walking into their office. Find the link, click it, buy it with the company card, and I just saw this behavior happen, and I thought, “Wow, there’s a real opportunity here.” So I took that nest egg of customer revenue and turned it into the first version of Hireology.
Andrew: So first you were in the info market business where you were selling info product business, selling . . .
Adam: And that’s what I had envisioned for Hireology. I was like, “You know what I’m going to do, I’m going to write a book, I’m going to sell back then, you know, the CD pack and the book and the guides and, you know, sell coaching or mastermind or whatever and kind of go this on my own. And two friends of mine who were also in the hiring business had this vision for turning this into a mass market SaaS opportunity, and we agreed to combine forces and, you know, so they invested their resources, I operated the business and so . . .
Andrew: Meaning they put up money, you operated the business.
Adam: Exactly right. So the decision to make this bigger than myself as a solopreneur is the reason that we have a company today. So that was [Hireology 00:12:23].
Andrew: Adam, you mentioned earlier that people asked you to buy it and you said no. Why did you first say no to the selling of the PDF?
Adam: Because as a service provider in the recruiting business, there’s really no competitive differentiation. So you could call any recruiter at least, you know, most companies and say, “Look, I’m looking for a sales manager. Can you find me a sales manager?” And then, you know, you can get 50 companies all scrambling to hire you a sales manager, and for the majority of recruiting firms on a contingent model, they don’t get paid unless they get the fill. So five vendors lose, one vendor wins. That’s a terrible model, and there’s been a lot of innovation in and around recruiting. One of your sponsors, Toptal, is really exceptional at this, you know, how do you do this differently so that everybody wins?
Well, so if you hired me to do your recruiting for you and you loved the system and I sold you the system, you could then use that system and use any of the low-cost providers in the market that were desperate for business. So I just said, “No, if you like the system, you got to work with us because we’re the only company that has this system.”
Andrew: This is the system you were using and you did not want to just give it up to them. Got it, right. [inaudible 00:13:31] . . .
Adam: Right, this is the system we use to do deliver and manage our own recruiting process, and customers could access that and use it. We had a whole manager toolkit we would give them, and they wanted to have that for themselves. And I said, “No, you know, you got to use us to have that, that we’ve invested in this. This is what makes us special and what made us unique.”
Andrew: I’m on the internet archive looking at the first version of Hireology. I heard you say to Brian, our producer that . . . I’m going to quote it, you said, “It looks like shit.” This does not look that bad. It looks good.
Adam: Are you on the time machine right now?
Andrew: Yeah. I’m going back to 2011. What I’m trying to understand is what this first version did, was it . . . ?
Adam: The first version of the commercial website probably didn’t look like shit, but the first version of our product was a little janky. So when you click login, you would go to our first version of our app, and our first version of our product was a way to run a hiring process for a salesperson. That’s it. I mean, so what I thought was the pain in the market was everyone was bad at the hiring process. Everyone is bad at picking the right person, particularly in sales, which is the highest volume recruiting category there is, at least here in the U.S. So I build a process that would plug into other . . . into the eight existing applicant tracking system ecosystem because I didn’t want . . . the world didn’t need another 5,000th product in the logo slide, right? I’m just going to build something that nobody’s built. It’s the interview guide in selection process, and that’s all it did.
So I could manually open up a job. I could manually add a candidate. I could pull down some interview guides and score them, the end. That’s all it did.
Andrew: I’m looking at it right now. Like the phone interview module is one of the things that I could get, and if I got the phone interview module for a salesperson, I would see what I should be asking to help me screen out 75% of their talent pool and then pass the last 25% on to the next step of the hiring.
Adam: And into the next step, and then we had an interview for the next step and an interview for the next . . . And in fact, we still have this in our system, but version one of Hireology was simply a SaaS version of interview guides.
Andrew: Okay, so you just turned this interview questioned PDF into forms online that people . . .
Adam: Dynamic based, so we built a job configuration tool that said, “I’m hiring a salesperson. Are they going to be doing this or that? Are they getting their leads or not? Is it more account management or new account development? Blah, blah, blah. Based on those answers, the system would pull the right interview guide together and give it to you, and then by following these interview guides, what we found is managers were 40% more effective in picking the right person. So pretty powerful, and people loved it.
You know, the issue was there was no system of record for applicants, so everyone . . . what would happen is everybody would say, “Well, I have this CareerBuilder subscription and all my applicants live in CareerBuilder. I really need to get your interview guides into the system.” Well, then that became hard, and I didn’t have the resources to do all that technical integration and CareerBuilder didn’t give a shit about Hireology because who were we?
And so what I found was, man, if this thing is going to scale, I need to build an applicant tracking system. The thing that I swore we’d never do is to be the 5,000th applicant tracking system in the market. So I said, “Okay, we’re going to build an ATS. It’s going to have three features. You’re going to be able to import applicants from CareerBuilder, Indeed, Simply Hired and these other . . .
Andrew: These are job boards.
Adam: Job boards, job board feed, basic resume repository, and access to the interview guides appended to the candidate record. That was it. Three features. And when we did that, the business exploded. It took off because nobody had an applicant tracking system back then. I thought everyone had one, but that was my bias from working with large companies. Turns out, most people don’t and still don’t have one.
Andrew: You know what? I have to say, I had no idea how powerful an applicant tracking process was or system was until I started hiring. You can’t keep track of where people are. Who did you interview? Who just answered the questions? Who needs to go for a second interview? There’s no way to keep track of it and at the heart of it, it’s just a Kanban board, right? Just a series of columns with the names and contact information of each person on a card under each column.
All right, let me take a moment, talk about my first sponsor and then I want to come back and ask you about before you made this change, how you got the first set of customers and just to jog your memory, I’m looking at it again, an early version of your site. Three of the first customers were Popcorn Palace, HomeScout Realty, and Blackman Kallick [SP], if that jogs your memory.
Adam: Oh, yeah.
Andrew: You do know them?
Adam: Very well.
Andrew: So the first sponsor is a company called HostGator. I thought, Adam, what was interesting about you is that you did something that I’ve seen many entrepreneurs do. You said, you know, there’s something that I do really well. I keep my own internal documentation. This is what helps guide me to do really well. It allows me to run a company well. I’m going to sell it.
And on a smaller scale, a friend of mine, Brian Harris did something similar. He has this job scoring process for smaller businesses than the ones that you were working with, companies of one to five people. He said, “We’re a company of one to five people. We have this process that we’ve developed for hiring people and more importantly, for managing them, and for running our group calls. So you know what I’m going to do, I’m going to take our process, a series of Google Docs and I’ll sell them and include with that our company weekly meetings.”
And he sold it on a standard website. I was one of the people who I think I bought it, or I tried to buy it, and then he just said, “Andrew, here, keep your money. I’ll give it to you.” But it was phenomenally helpful for me when I was trying to figure out how to hire. I want to see, how does he think about hiring? What does his job description look like? What are his weekly calls like?
The reason I’m bringing this up is because everyone who is listening to me has some part of their business that they do exceptionally well and they do it well because it’s systemized. I urge you, if you’re doing that, to set up a website and sell that. Sell it as a PDF. Sell it as videos. Sell it as checklist. Sell it somehow. I think you’re going to have two benefits. Number one, yes, you’re going to generate some sales. Number two, you’re going to get something that one of the early hires of Tony Hsieh told me.
I said, “Why don’t you guys keep bringing people into Zappos? Is it because you want to show off?” He said, “Yeah, we do want to show off, and it gives our people a sense of pride in what they do. The more they teach, the more they learn what they’re doing better and internalize it.” So if there’s something like hiring that you out there are doing well or if there’s something like managing, if there’s something like placing ads, like using Zapier to organize your company, whatever it is, if you document it and you sell that, you’re going to instill in your company that this is what you guys are great at and what you’re known for.
And if you need an easy way to set that up and sell it or frankly, set up any website and sell it, I urge you to go to HostGator. This is a company that’s been around since 2002. How many businesses have been around since 2002? And they keep on going strong, getting bigger and bigger, and if you go to HostGator, not only are you going to have a company that’s going to stay around, but also one that will offer you a good low price and will scale with you.
As you get bigger, you’re going to be able to call them up and say, “I want the better package than Andrew’s advertising.” But I’m going to give you the cheapest option as a way of getting started. All you have to do is go to hostgator.com, you’re going to get an option that’s as low as $2.64 a month. That is 62% off the already low prices that everyone else is getting, so you’re paying much less than everyone else. And here’s the URL that you need to go to. Go to hostgator.com/mixergy, hostgator.com/mixergy. You’ll get 62% off, and I’ll get credit for doing a good program that you heard this ad on. All right, thanks.
So, Adam, I’m wondering how you got those first customers when it was just a basic SaaS that was more of a form business.
Adam: Built a pretty strong network of peers, other business owners, and through an organization called Entrepreneurs’ Organization I was a part of for 12 years, and Popcorn Palace was the business of one of the . . . those contacts in EO, Tim Heitmann who still runs Popcorn Palace. It’s the world’s best tasting popcorn. You should try it. It’s awesome. And Blackman Kallick was the customer that my two co-founders, non-operating co-founders had that they contributed to help get Hireology off the ground, so we actually ran Blackman Kallick’s campus recruiting project as our first customer, and HomeScout Realty was the residential real estate business that these two guys owned.
So it was close network of, hey, let me see if this works and if it works and you find value in it, let’s talk about pricing. So I started with 200 folks in the network that I knew that were business owners, all of whom their number one challenge was hiring and said, “Here, try my stuff, tell me what you think,” and from that 200, 20 of them became customers.
Andrew: And did you learn anything from them when you said, “What did you think?” Or was it just they’re friends. They’re helping out?
Adam: No, I mean the thing about friends who were also entrepreneurs is that they’re not going to bullshit you, so what I learned was that the system sucked. They were like, “Hey, Adam, you got a long way to go.” But it was a first lesson that has stuck with me, which is if there are some parts of your product that are always going to suck just a little bit, that’s okay, because if the thing that delivers the most value sucks, you’re in trouble. So take the thing that delivers the most value and make that amazing, and then on the periphery, you can make some choices around whether or not you need to have those features, and so I’ll give you a great example.
Adam: The thing that our system needed to do better than anything else was take a job board feed, reply to that candidate right away so that the business owner didn’t have to always be looking for applicants and manually emailing them, so save them time, get them in, kick it back, send them a survey, score that survey, and put it in front of the manager to review. That automate the first part of . . .
Andrew: What do you mean by the . . . By the way, you just blew my mind. I didn’t know that was possible. That is insane. One issue that we have with our software is people will apply and if they apply on a Monday and I happen to be out busy during the week or somebody doesn’t respond, they feel ignored and then we come back on a Friday and we feel . . .
Adam: They’re gone.
Andrew: . . . guilty. So the idea that we just send them a message saying, “I got you. Thank you. We’re going to go through this process by Friday. We’ll get back to you.” That automation is really helpful. I totally get that [inaudible 00:24:25].
Adam: So here’s the low rent way to do that. You can set up a Google form, have a inbox account that immediately fires that autoresponder back to them and just says, “Hey, thank you so much for applying to our job here at Mixergy. As the next step in our hiring process, we’d like for you to answer some questions about your experience and about what you’re looking for.” And then if any of them are knockouts, you just save yourself a phone call and endless emails, plus you keep the lead warm, you know, absolutely do that.
So that was the thing, people just like you. That was everybody’s reaction. Wow. If you could do that, that’s . . . you’re going to save me four hours a week, and . . .
Andrew: How did you know that was a thing? Because to me, I had blindness to it. I was so busy blaming ourselves thinking we’re a small operation or if we don’t have somebody who runs it or we should get better. I just assumed that we were making a mistake that we weren’t good enough. How did you know that this was an issue to be solved?
Adam: Being in the staffing industry, having been a hiring manager and asking research questions and VP based, you know, crossing the chasm type questions of all of these customers. Like what’s the thing that if I could do one thing would make your life easier as it relates to hiring guide? If you could auto-reply to my applicants so they didn’t go cold and then take a first screen that was valid and just so I stopped emailing people that never responded, that would be awesome. So that was the first thing we did.
Andrew: So you’re going in and you’re saying, what’s the most important thing for me to do? They’re telling you that. I don’t understand the scoring process. How do you do that automatically and tell whoever is managing the hiring process, “Here, few people that you just definitely shouldn’t be talking to”?
Adam: So, you know, oversimplifying somewhat the first build of Hireology. So what we did for the first 90 days was we convinced a number of organizations to let us go in with my interview guides and interview existing employees and then back-test the scores against their performance reviews. So my pitch was, “Hey, let me do this. I’ll back-test them. I won’t charge you if at a minimum you’re going to learn something interesting.” And so CDW, the big computer retailer was one of the companies let us do that. So we rolled out our sales interview guides. CDW got a phenomenal sales recruiting and training culture, back-tested them and tweaked that until it was valid.
So we kept tweaking answers and questions so that I knew the difference from a competency standpoint between a hunter and a farmer and somebody that’s getting leads or not getting leads for making this many calls or that many calls, or closing this size versus that size deal. And I’ve built this algorithm that’s if based on that profile, would ask certain questions and the scores of those questions would tell us high or low risk and so we would label somebody red, yellow, green and give them a score. And that was, you know, kind of the version two of Hireology was the thing that did that automated workflow.
Andrew: If I remember right, that’s right now the first image that I see on your website is that scoring. Right?
Adam: Exactly right. So, you know, so the genesis of the name “Hireology” is the study of hiring, it’s a little more science to it. It’s not a coin flip. It’s, you know, bring some rigor and process. That was our first pitch was your hiring process is broken. You need to run it effectively. We’ll help you get it right 6 times out of 10 instead of 3 times out of 10. That was the whole pitch.
Andrew: I’m looking at my notes. One of the things that I highlighted to make sure to bring up to you was that you sold at first, this first early sales up until about 50,000 in monthly recurring revenue was you talking to people. The thing that I highlighted and want to bring up is that you hired a customer success person. What did that person do, and why was that so important that even years back, you make sure to let us know this is what you did?
Adam: Well, I underinvested in customer, so customer success today in SaaS, I mean, SaaS is a science. Now you’ve got VCs like David Skok at Matrix Partners with his For Entrepreneurs blog who have chronicle . . . everything you need to know about SaaS to be successful. I mean, back in 2009, none of that existed and so you got to figure this stuff out. So customer success was not even a thing then. It was just, you know, account management. And I have one account manager manage by themselves the first 1700 customers we ever got. And so I didn’t have a full appreciation for feedback looped churn rates, revenue expansion, and how to build a real SaaS business at that point.
What I had was my product person doing customers. There was only two of us, right, for the first, you know, bunch of MRR. And so what she would do was not only service customers but then take that feedback and turn it into product enhancements and roadmap and so that early link between customer experience and feedback in a product roadmap and what we do or don’t do with precious resources, that was really a critical a structure we had early on.
Andrew: Wait, you’re saying the developer would do this, would . . . ?
Adam: No. Really, she was a product manager and customer success manager all in one.
Andrew: So customer success now is someone who checks in with customers and makes sure that they get the results that they wanted out of the software, and if they didn’t, they help the customer get the result that they signed up for and come back to the development team and say, “Here’s what’s stopping a large number of people I’m talking to you from getting the success that they’re paying for.” Right?
Adam: Right. Yeah, so when you’re watching a SaaS business, the only thing that matters is new customers. That’s it. You get a year in and then keeping them matters. But we’re to focus on getting new customers and listening to their feedback, and we made the decision that, look, if the product gets better, they’ll stay. We’re not going to try to shoehorn people into staying with contracts or language or scripts or any of that stuff. It’s like if it’s valuable, they’ll keep it. So let’s not worry about it. Let’s focus on sales and product development and, you know, pick through things we could do. We could sell stuff, and we could listen and provide feedback and change products, so that’s what we did. That was really the first 18 months of operation was just that, built it.
I designed the product in PowerPoint, believe it or not, so dragging boxes and making wireframes in PowerPoint. I hired a developer on a, you know, through a contract, a website, and actually took, you know, 2000 of the money, of the dollars we didn’t have, right, flew him to Chicago to make sure we got face to face and developed some accountability and gave him 90 days to build version one and he did. [inaudible 00:31:07].
Andrew: Wow. How’d you know that he would be a good enough investment to fly him out and to depend on him to deliver within 90 days? That’s pretty fast turnaround.
Adam: Yeah, we ran a thorough hiring process. I mean, I vetted him. I had managed lots of developers before Click Commerce and so I had a pretty good sense for it. He was starting his own custom development shop and I was going to be one of his first customers and, you know, that had value to him. So I just am a believer if you’re contracting outsource work, you got to . . . there’s got to be a relationship beyond the work. So I wanted to make sure that he knew me, he knew my people, he knew what was important, I got to know him, and so that when things got hard, they always get hard, you know, he wasn’t just going to bail because we had a relationship. So that was worth the investment of time.
Andrew: I’m looking to understand how the early pricing worked and I have to tell you, I don’t get it. And partially, it’s because I’m looking at old research, but it’s, “Pricing is based off of the number of variables, including the number of locations, total number of employees, average number of hires, etc. Don’t worry, we’ll make our pricing work for you.” So what does that mean?
Adam: That’s overcomplicated way to say, “How much can you afford?”
Andrew: Okay. So when you get on a call with us, we’ll figure it out together.
Adam: I didn’t know what to price it. And we so underpriced our products for the first two, three years, I mean, version one of Hireology was $24 a month. So we could have built a really nicely growing lifestyle business that would support 6, 7, 15 people over time and hugely profitable in percentage terms, but that’s not what I wanted to do. I wanted to build a big business. And you just can’t build a big business in HR tech with a $24 monthly average selling price. It’s never going to happen. It’s just the . . .
Adam: Because the kind of companies that buy at that price are small businesses and small businesses fail over five year period at 60%. So even if you’re exceptional at delivering, your customers are going to be gone, 60% of them, five years from now just because that’s the failure rate of small business. You can’t outrun that built-in churn. You just can’t. So at some point, you just can’t get bigger than $10 million. I mean, the world is full of companies that went after that market and whatever category raised venture money and couldn’t get past 10. It’s just too hard. Not that it’s not possible, there are a couple of examples of companies that do it, but the market has to be so big and the product has to be so sticky that you can’t lose anybody, and there are so many great examples of that, but . . .
Andrew: They’re watching their costs so carefully that if a free version comes out that’s not as good, they’ll just take it because cost matter so much.
Adam: Yeah, I mean, there’s all kinds of . . . So small businesses are a really important part of our . . . well, that’s our whole customer base. You know, you touched on it in the intro, a very specific kind of small business, one that’s part of a unified brand or manufacturer network that has peers that they’re working with and similar businesses that can help and then systems around them to help support them. Those are franchise systems in dealer networks.
Andrew: How did you know that that was it? I’m looking again at early versions of your site and it doesn’t seem like at that . . . in the beginning, you understood that’s where your customers were going to be.
Adam: We didn’t. So my first investor deck when we raised the first million dollars of seed funding, that was my pitch. So we’re going to take the business that we have, which is kind of scattered all around small business and we’re going after service-based franchise brands. We’re going to be the leader in service-based franchise brands. And that’s what we did.
Andrew: Service-based franchise brands are, if I understand right, each one is owned individually. So you’ve got lots of potential customers, not one big enterprise customer and hire a lot of people because it’s service based and they need to keep bringing new people on. That was your thinking.
Adam: People are the product. So if I’m in senior home care, the care provider is the product. He’s not making sandwiches. So in fast food, the sandwich is the product, the burger is the product. The people are not the product. The people are basically machines that make sandwiches. And as much as those brands want to say people are the differentiator, it’s just not. It’s a labor arbitrage business. So you’re not going to pay more to find the right person. Everybody makes 12 bucks an hour, right, but in home care, that incrementally better person is worth a lot in terms of customer satisfaction and retention.
And so furthermore, I didn’t have to hunt these businesses on a one-off basis. I could do a marketing or distribution agreement with the franchisor. They’d invite me to come speak at their annual conference or do a webinar. I could get 400 franchisees on a phone call better, right?
Andrew: Yeah. That makes a lot of sense.
Adam: It’s a demand aggregation, which is, you know, to this data thing we look for an expansion markets, it’s, is there a demand aggregation function? Is it a highly self-referencing network, and are people the product? And is their turnover rate that’s problematic? If all three of those . . . four of those things are present, you know, full speed ahead.
Andrew: Can you give me the third one or if you don’t remember them, just give them to me again because there was one that I didn’t understand. It was a self-referencing thing.
Adam: Yeah. So demand aggregation, right? Can I sell it through a one distribution hub and get to lots of people so I don’t have to do it, right? I get sales leverage. Second is it highly self-referencing? Meaning when I have a business problem, do I call a similar business owner in the network and ask them how they did it? What happens in these networks is these guys all know each other, right? So guys and girls, and so they’ll go into their peer groups or their regional meetings and they’ll say, “Hey, I’ve prompt hiring,” and someone, “You know what? I use Hireology and it’s awesome.” And then eight people will sign up.
And so these highly self-referencing networks, these business models, franchises, dealers, agent networks, they’re built by design to be peer support, and the system lists everybody, so everybody’s playing off the same music and so that really helps. That business owner is going to hear about us because other business owners like him or her work with us.
Andrew: All right, I’ll talk about my second sponsor, and then I’d like to come back and understand how you then figure it out. The car dealerships were important and then why they were. But the second sponsor is a company called Toptal. You had familiarity with them. You knew them, had familiarity. You knew them. What do you know about Toptal?
Adam: Well, I know a lot of the players in the talent space and, you know, there have been lots of businesses that have tried to attack the market for developers. That’s not . . . We’re generally in service-based hourly roles or sales roles for retail, and so it’s just not our business. But I know them because they’ve been so successful. I mean, their model delivers a ton of value and I’ve heard nothing to . . . not great. It’s having a conversation to table five seasoned entrepreneurs, all of whom had exits at lunch last week and the subject of Toptal came up. And through a person, everyone said, “Great product, great businesses. Those guys are phenomenal.” And so, you know, I just know them anecdotally.
Andrew: I don’t understand how it works on the inside. They give me a little bit of a glimpse of it, and then they swear me to secrecy because it’s so private. I know as a customer why it works. It works for me because I call them up, I say, “Here’s the problem I have, and my hair is on fire. I need a solution right away,” and they don’t . . . They say, “You know what? It’s a developer or it’s a finance person you need, we’ll take care of it. Tell us a little bit more.” They question me. They think through the role and then they go and they put two or three people in front of me. I talk to them and then I get to hire them.
I don’t know how that works like that. I don’t know how they could bring people so fast to me and then let me hire them within a couple of days. But I know that it works. If you’re out there and that’s what you’re looking for, you get the best of the best with consultants who will make sure really from the beginning, it’s not just an order form, it’s consultants onboard at Toptal who will talk to you before you ever even talk to a candidate and then work with you throughout.
In fact, I hired a finance person from them. I didn’t feel like I was getting enough from the finance person, but I wasn’t sure what to do, how to say it. I was going to go internally to my team and ask them, “What can I do to communicate to Jack what else we need or how better to work with him?” Before I had a chance to communicate with my team, someone from Toptal emailed me and said, “Hey, Andrew, how’s it working with Jack?” I said, “Okay.” He goes, “Just okay? Let’s talk.” And he helped me think through how we could work better together.
So if you’re out there and you’re looking to hire, don’t just go to toptal.com, but go to the special URL where you’re going to get 80 hours of Toptal developer credit when you pay for your first 80 hours in addition to a no-risk trial period of up to 2 weeks. Just to put it really clearly, if at the end of the trial period, you are not 100% satisfied, you will not be billed. That’s amazing.
Go to top, top as in top of your head, tal as in talent, toptal.com/mixergy, toptal.com/mixergy. Let’s talk about how you figured out who the niche was. What was it that told you? Was it just seeing more customers from car dealerships?
Adam: A little bit of that. I mean, so in terms of business networks, automotive retailers or car dealerships is, you know, right behind residential real estate as the single largest market in the United States. So in terms of economic output, so real estate number one, car business number two, and so you’ve got, you know, one of the largest networks of owner-operator networks, really strong manufacturers behind them. These are big businesses relative to the others, right? So your average car dealer is a 60-employee business, generally, you know, between $12 million and $15 million of revenue and they’re consolidating and professionalizing their business functions. HR being one of them.
And so what happened was we had a couple of franchise owners who were car dealers who brought us into their dealership and then, you know, you know what, the dealer went to their peer group, somebody mentioned they use Hireology, we got two more dealers, and we got two more dealers, and we got three more dealers. We go, “Where are we getting car dealers from? Like, what’s this all about?”
And so we started to investigate the market, and it looked pretty interesting, and I talked to some people who knew it pretty well and we thought, “Well, you know what, I feel like we know enough about this market, you know, to make a bet here.” So we had a lot of success early making that bet, and when that playbook developed, we really saw the potential to scale the business through that and a few other verticals, and that’s when we went and did a, you know, our first institutional capital raise. And the bet we made was that automotive retail would be a huge growth market for us, and that has paid off.
Andrew: Before that, you were able to raise a little bit of money on the back of the, I think it was the $10,000 a monthly recurring revenue that you got, which by the way, it was $25 a month that got you to 10,000 in recurring revenue?
Adam: Well, so we were 25, then we were 35 and then we had some tiering. We would experiment with pricing and job slots in different models, but . . .
Andrew: Okay, and so you working, making those sales, getting to about 10,000 in recurring revenue helped you raise money from whom?
Adam: Friends, family, and networks of friends and family, so folks that, you know, we have one of our larger angel investors was someone that was on the same floor as our first office that, you know, we pass in the hallway every day and he’d ask how it’s going, and he kept hearing stories, and when we raised money, he was interested. My two co-founders have a lot of their families dollars in it. But, you know, we’re talking about $25,000 checks here. Anyone listening who’s ever raised a million dollars through friends and family, you know, it’s the most excruciating sales experience that you could possibly put yourself through. I mean, it’s [inaudible 00:43:58]
Andrew: Tell me more. Yeah, you told Brian that, that you said this becomes your job almost. You have two roles at the company. Why was this so much that it became a job function for you?
Adam: Like any sales function, you’re going to have a 2% hit rate, 1% hit rate, and so, you know, if I need a 1% hit rate, but to call 1% hit rate on a $25,000 check to raise a million dollars, do that math. You know, how many people do I need to ask for that money? So immediately you start going, “I need to be asking for more money. I need to be talking to more qualified people.” And so you learn this process the first time you do it the hard way as you quickly determine when who’s wasting your time or not, you quickly determine that you have to put a fuse on it and say, you know, “I’m going to need an answer by next Wednesday,” kind of stuff, or else, people will just . . . they’re genuinely interested in your business but are never going to write you a check. And so, you know, I learned that lesson the first year of fundraising, and so it is absolutely a job. It’s work the business by day, do the meetings before and after business hours.
Andrew: I’m looking at Crunchbase and reading it right, it was June 2012, about a million dollars raised at that level, $25,000 size checks.
Adam: There were some larger ones, but yeah, our biggest investor was $150,000. There were a lot of 12 fives in there, two people split and shares and all kinds of things.
Andrew: Twelve thousand, five hundred dollars each person bring in, wow.
Adam: You know, to split a minimum share, yeah, we had some of that too. Tell you what, when you’re 3 employees and 12 five keeps the lights on for another month, I’m going to take 12 five. I mean, you just do it, you just do it.
Andrew: And then do you also get people who are bought in who feel like they can help out, who help refer you out?
Adam: I had a few people I sought out in that way and that were helpful, but for the most part, I could not be . . . I couldn’t afford to be that picky.
Andrew: Wow. So then you go into another $6,000 . . . $600,000 that you raised, and then the series A, 1.4, there’s no name next to it.
Adam: That was Lightbank.
Andrew: Lightbank, got it, okay.
Adam: Lightbank, the group on founders here in Chicago have a seed and series A fund and so that $600,000 . . . So I was trying to raise $2 million in an A round. That $600,000 was actually a convertible note, so a convertible note meaning, you know, it’s technically debt if I don’t raise more money, convert it to stock at a price that would make me want to throw up in my mouth a little bit. So there’s an incentive to go raise more money, and I was out there again, you know, hitting the bricks for $50,000 checks. And Brad Keywell at Lightbank who, you know, a phenomenal entrepreneur and investor runs a company called Uptake, now. It’s a unicorn here in Chicago. Basically, he said, “Are you tired of doing this $50,000 at a time? We don’t really do these later, you know, deals? You have enough but tell you what, you’re about to go . . . You’re telling me you want to raise an institutional round, why don’t I just do the rest of your $2 million round?”
And I went, “Okay, great.” Like, done deal. And so he closed it out through his fund. And that was at a time when we were probably 30 days from being out of money.
Andrew: Wow. And how do you sleep at night when you’re 30 days away from being out of money?
Adam: You know, you live with that pressure for a while.
Andrew: It didn’t hurt you in any way? You weren’t getting, I don’t know, I’ve heard entrepreneurs here say they got shingles, they had bad marriages, teeth were breaking from stress, anything like that?
Adam: No, because my last business, that outsource recruitment business that I referenced lost 70% of its revenue in the recession in 90 days. I mean, that thing imploded in a smoldering pile that took me two years to unwind. So I had been through like, what’s the worst case scenario? The worst case scenario is I’m sitting at home talking to my wife, wondering if we should file for bankruptcy or not. Well, the worst case scenario is I die, okay? But like the next worst case is I ruin my family’s finances forever, and then it almost happened. So I’m like, if this fails, you know, I’ll do something else. I’ll figure something else out. Like, I had been through the . . .
Andrew: I get that all the time that I’m going to, I don’t know, somehow go super duper bankrupt, and then my kids won’t be able to go to a good school or they’ll be, I don’t know what.
Adam: That was my fear. And so I launched Hireology and this is, you know, kind of the personal side of this. And I had been married a year and we had a newborn, like probably not great financial planning on my part, but, you know, I wasn’t worried about it. I think if I had really looked at the risks, I probably wouldn’t have done it but whatever wirings . . .
Andrew: You stared at the abyss before and you didn’t die and it wasn’t the end of the world and you bounced back, then you felt like I could do it again or am I [inaudible 00:49:09].
Adam: Yes. I was like, well, worst thing to happen is I can go get a job. I’ll sell something. I can make money. I feel like I can generate income. Like, if I’m solving for, “Don’t have income go away.” I’m solving for the wrong problem. I was trying to solve for, “What life do I want to have?” And if I want to have, you know, optionality and some flexibility in my life and provide a certain kind of lifestyle, I need to be not the 9 to 5, you know, W2 work. I got to go figure this out, and so the only way I’m going to do it is to take another shot, so I need to take another shot. And so the risk of not doing something was what scared me. Like, I had to immediately . . .
Andrew: That’s the other thing I can’t understand about you. Adam, you said you could have had a nice lifestyle business, produce revenue on a regular basis, had consistent profits, but you wanted to go bigger and still, you’re a guy who started out wanting to be a teacher. How does someone who wanted to be a teacher end up wanting to build a unicorn like Uptake?
Adam: You know, the most honest answer I can give is I didn’t really understand what this world looked like. I didn’t have access to this example in my life until I worked for Click Commerce, until I went, “Oh, that’s what this is. I get it. Okay. Like, now I understand.” Like, I guess, I think I was, you know, potential searching for a vehicle to unlock it, and what I liked about teaching is what I love about what I do now, which is I want to help people be at their best, and I liked that about teaching. I don’t need to be a teacher to help people be their best. I can do this and I can help our customers be their best and that can be hugely valuable for them and for me, so I can help people here at Hireology be their best and they’ll do great work for us and for our customers and so I don’t . . .
Andrew: And in the book and the podcast, I’ve seen some of your speaking online. I get it. I can see how you’re someone who wants to teach, who communicates well . . .
Adam: The lifestyle business wasn’t enough. I’m constantly measuring myself against what I believe my full potential to be and it’s, you know, it’s not money or net worth. I’m measuring it against output potential, so like what, am I tracking to my full potential in the world? And a lifestyle [inaudible 00:51:48] isn’t . . . it’s great if that’s your goal. That’s not my goal. I would rather run a break-even hand to mouth financially and have . . . and build a big business, which is what it takes for 10 years if you do it this way.
Andrew: Oh yeah. I saw at some point in the Google doc here that Brian sent me from the pre-interview. You had two kids, Christmas. It felt like in three weeks, you were going to die essentially. That the company was going to die.
Adam: That was the Lightbank, Hail Mary. Yeah.
Andrew: And this is when you had a term sheet from them and people at your company said, “I don’t want you to do this,” and you said . . .
Adam: I quit. They were my business partners who were phenomenal. I mean, they, you know, still members of the board make me better every single day, basically said, “We think we can do better.” And, you know, I had done 250 investor pitches, and I was 30 days away and it’s New Year’s eve day and, you know, I’ve got a term sheet for the deal that we had been pitching for the last 18 months. And like, let’s take the deal. Well, we’re bigger now. We should be doing a new deal. And I said, “Well then you’re going to do it without me because I’m not doing this.” This is like I have landed the aircraft on the aircraft carrier in stormy seas. Here’s the deal, take the deal, or I’m leaving, and it kills me, but I got to go. I can’t do this. And they reconsidered and said, “Okay, do it. We trust you.” And, you know, that’s why they’re awesome partners so here we are.
Andrew: I don’t want to close this out without asking you about the book and podcast, same name, “The Best Team Wins.” Why is it that the best team wins? I thought that when I heard Warren Buffett say that he likes to invest in good companies that are so good that even a bozo can run them because, at some point or another, some bozo will run them, that it was about the business. It was about the product. And still, you hear about get the right people on the bus, best team wins. Why is it that the best team wins?
Adam: Well, to that point, I think, you know, the Buffett bozo business quote worked in an era when innovation cycles were decades, but when innovation cycles are months, there’s no . . . no idea is so good that it’s unreplicable. So the philosophy is everything is replicable. The only thing that’s not replicable is your company’s culture, so it’s, therefore, the only source of sustainable competitive advantage a company can create is by building a culture that out-executes the competition and it’s only through the hard work to do that, that you can really differentiate yourself in a world where customer experience is the differentiator. So that’s a people problem, and so that’s why Hireology exists to help businesses create competitive advantage to their people and to be successful.
And this book was a . . . it’s got a number of real customer case studies in it . . .
Andrew: Can you give me an example of one company that because of its people, did especially well, one that illustrates what you’re talking about?
Adam: Well, you look at a company that’s outperforming its peers, I will show you a company culture that has created that outperformance. And so, of course, you know, Zappos is the biggest example of it. I mean, it’s known for its culture and its people, and if you call and ask them what the weather is in San Francisco, they’ll tell you. They built this business and culture around people and providing service, and that’s, of course, well known. But you know, if you’re not Zappos, if you’re a five-person consulting company, you know, what’s the difference? Well, all right, what’s the incremental value between a B plus account manager and an A plus account manager? The incremental value is that account that was going to go to the competitor does it because they like your person so much that they can’t leave.
So if you’re after the top 25% of the talent in the market, those A players, they’re in the deal for more than a time for money transaction. It has to be more than a fair paycheck and a place to work. It has to be about a career path and balance in life, and non-tangibles in the workplace. And those things can only be built through intention and process and reinforcement management, and if you don’t have those things, you’ll never consistently hire the people that you need to be exceptional. Those people will go work for your competitor, and you’ll be relegated to hiring whoever is left, and that’s the difference. The difference is that person can only work for one company and you want to get up and that, you know, that matters whether you’re a two-person operation or you’re Zappos or Amazon for that matter.
Andrew: All right, man, there’s so much that I see on my list of things to ask you like, how did you get beyond hiring? How did you go into all these other things? Why are you podcasting? I guess I understand why you’re speaking. How can you do all this and still run your company and I have some notes on that. I’d love to have you back on here. I can see how fast this business is growing. It was just kind of interesting to do research on you and see everything that was working within the company and when you see something that’s polished, it’s exciting for a researcher.
The one thing that I couldn’t find and now I understand why is Illuma Group, that was the name of the company that you said imploded?
Andrew: That’s why I kept doing this research and I couldn’t find a website. I couldn’t find anything. I found an old article from “Entrepreneur Magazine,” but I couldn’t find anything else for it. That’s why it abruptly ends in all the research.
Adam: Exactly. It’s gone. So I’d be happy to check in with you later in a future episode and tell you the story. I woke up one morning to find out that the bank had swept my cash balance to pay the working capital line of credit in the middle of the crisis even though I never missed a payment. They took the money, shut it down. I fell below some line in a spreadsheet. The bank shut the company [inaudible 00:57:57]. We had to take every available dollar and shove it into a new entity and fire it back up in about 20 days.
Andrew: And look, this is a business that grew from year one, 1.1 million in revenue, year three, 3.8 million. You are a first-time business owner, “Wasn’t even sure what I was doing,” you said, and all right, cash flow was always an issue even from the beginning. All right, love to have you back on, talk about that or frankly, even the growth of Hireology. I can see the trajectory here.
Anyone who wants to go check out the website, just go to hireology.com. Actually, you know what, I’m going to recommend, yeah, if you need to get good hiring software, good people software, go check out hireology.com. but I think for most people who are listening to me who kind of connect with you, they probably much better off going to thebestteamwins.com. That’s where they can see your podcast, see your book and just kind of get a sense of your philosophy and how it’s implemented. All right, so it’s thebestteamwins.com.
I want to thank my two sponsors for making this happen. The first is the company for hiring developers, finance people, and creatives, it’s called toptal.com/mixergy and the second is a company for hosting your website, it’s called hostgator.com/mixergy, and I’m thankful to them and to you, Adam. Thanks.
Adam: Thanks very much.
Andrew: Cool. Bye.