Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy. Joining me today is Jamie Wodetzki. He is the founder of Exari.
What does Exari do? Let me look at my notes here. It’s a global company that provides contract management and document assembly solutions for organizations around the world. Jamie, I think a lot of people tuned out as I even gave that one sentence. I think we need to give them an example of what you do and then we’ll talk about how you built this business. The example you gave me earlier was a company that might be a client of yours has how many contracts?
Jamie: Well, let’s say they have about 1,000 contracts. The chances are that they don’t really know what’s in them. So, despite all the expensive lawyers that they pay to prepare and negotiate and fight over those things, they will very often end up in a drawer or in a file system, and people won’t necessarily be keeping track of are they doing what they promised to do? Are they tracking whether they’ve got exposures to particularly their risks?
So the problem we solve, I guess, is companies that actually are now starting to worry about whether there’s a financial crisis or whether there’s a merger and acquisition event in their future or they think something bad is happening on one of their major projects or maybe one of their suppliers is turning hostile. All those sorts of things can happen. And at that point, everybody wants to know what the contract says.
Andrew: It’s one of those problems that exist but we don’t even notice them. Even frankly you’re talking about a company that has hundreds or 1,000 contracts, even one my size, where I don’t sign that many contracts but when I do, I just put them in the drawer and then I go on with my day-to-day life and I have a relationship with the person who signed the contract with me that tells me how to deal with them. And we just ignore the contract. But frankly, when there’s trouble, the contract is all that matters, and the way that we’ve been working together often doesn’t matter nearly as much.
All right. I want to talk about how you built up this company. I’m curious about how much revenue you got from it. Is it too early in our conversation and relationship for me to ask you what your revenues are?
Jamie: So we don’t publish the exact details of our revenues. We’re a private company. For various reasons, we don’t give out the details. I can give you an order of magnitude, which is in the ballpark of–
Andrew: Yeah. So, what is the order of magnitude?
Jamie: The order of magnitude is sort of $10 million. And that’s about as much as I’m allowed to divulge.
Andrew: So, you’re saying over $10 million, but you’re not going to go more specific than that.
Andrew: That’s impressive that you’re able to do that. How much outside funding did you guys take on?
Jamie: We took on, I think, roughly $2 million–I’m trying to think of the exact time. It came in dribs and drabs, basically. We got angel funding. Actually, we had a strategic investor early one, so one of the big legal publishers. We did a little bit of angel funding in a similar time, and then we had a venture capital investment in the beginning of 2008.
Andrew: How much was that?
Jamie: That was–actually, I’m trying to remember the exact details–that was several million.
Andrew: And you don’t remember how many million?
Jamie: Well, I do, but it’s not simple to calculate because there was a kind of a merger of entity in the mix.
Andrew: I see.
Jamie: So, it wasn’t as simple as a pure, clean capital raising.
Andrew: All right. Well, what CrunchBase shows–maybe they’re over-simplifying–CrunchBase says 2014, you took on $1.1 million in funding; 2008, you took on $10 million. But it’s not that clear, as you’re saying. Let’s get into it in this interview and understand how you got there.
And it all started because you noticed that the world was changing. Frankly, the world changes all the time, and it’s in those change moments that we need to figure out where is the new opportunity. For you, we’re talking about the late 1990s, about the year 2000, you looked around and saw what was different in the world?
Jamie: Well, pretty much was everything was perceived to be different. You probably remember 1999. It was the height of the dotcom frenzy. So everybody was looking at everything and assuming that there was gold lying on the streets and all you had to do was go and scoop it up.
So we were looking at the legal profession because I was a lawyer and some of my cofounders were lawyers. We kind of looked at particularly the way lawyers create contract documents, the way they draft documents, which, if you look at what lawyers do, half of what they do is create and negotiate commercial arrangements and then half of what they do is fight over and litigate and get into disputes.
Jamie: So, I worked on the create side of the fence. So we looked at what we did as lawyers in terms of drafting documents and we thought, “Well, I could teach a machine how to do this.” And that was about the time–if you look at what happened since then, there were companies that setup like Rocket Lawyer and LegalZoom, these consumer-facing legal document services. So, we kind of decided–we had a similar idea, but we decided we wanted to build the software that would enable that type of, if you like, computer-based drafting of contract documents.
Andrew: I wouldn’t have thought that that could be computerized. But let me just take a moment here and just understand where the idea came from. It was you saying, “The world is changing and there seems to be money in finding a business in this new changing world. I’m just going to look around at what I know and see if there’s something that I know that I already do that I can modernize, bring into this new world and make some money with it the way that all these dotcoms seem to be.”
So that led you to look at your world and say, “Hey, there’s this thing about contracts that’s so simple, I can teach a computer how to do it. I will find a way to do it.” But Jamie, it doesn’t seem to me like writing contracts is that simple. What’s so simple about it that you felt it was very routine and could be systemized?
Jamie: So, like most things, there are extremes. There are some things that are very simple. There are some things that are very complicated and there’s a lot in between. I guess most of the legal profession has an interest in everybody thinking that it’s very complicated and lawyers are usually trained to worry about the complexities. So, they tend to focus on those things.
But the contract is basically serving interests–if you look at business contracts, it’s supposed to serve as the interests of those two business entities. It’s supposed to help them achieve something. It’s not all super-complicated. It’s the sort of thing where you can come up with a set of rules. If it’s a type of transaction that has been done many times before, what most of the lawyers discover is there’s just a pattern to it. There’s a pretty predictable way that this type of deal gets done.
Andrew: I see.
Jamie: So, if I’m selling software, there’s only so many choices that I need to make to decide how I should structure a software licensing–
Andrew: So, what would you do back before Exari started? Would you go into your–I guess you guys were probably using WordPerfect–and open up a file of a similar contract you worked on before, pull out the sections that are relevant to this new deal and then consider the additions and changes that you need to make and that’s it. But you start out with some contract you’d already worked on before.
Jamie: Yes. That’s right.
Andrew: I see.
Jamie: In a law firm, you would typically start with a template. It would have been a WordPerfect document once upon a time. These days it’s a Word document. It will contain all the stuff that always goes in and then there will be a bunch of clauses and paragraphs of language that goes in if certain situations are true. Typically a lawyer is going to have a checklist of things they’re going to ask you and depending on what you say they either leave it in or take it out. That’s what they do. They ask you questions and depending on what you say, they delete things or add things.
Andrew: I see. So, the first version of the business was actually called SpeedLegal. I guess you were going to speed it up for people. That’s why on the early version of the site, I see that you told lawyers all they have to do is–here it is–“You create the Smart Precedent content and you define what questions need to be asked. Then we’re going to gather information through browser-based virtual interview asking you questions that are built into the Smart Precedent. Then we automatically will customize a draft for you based on the answers we get.”
So I see the idea and I see how you executed it here. But you’re not a developer. You’re a lawyer. How did you find somebody who was going to build this out for you? Excuse me–you are a lawyer. You’re not a developer. How did you find a developer who was going to build it out for you?
Jamie: Yeah. So one of my cofounders originally was both a lawyer and somewhat technical. He had left his job as a lawyer and been working as a consultant at IBM for a while. And then another friend of mine, another person who I had worked with was another lawyer and an old friend of his was an engineer as well. So, we basically had two technical people and two non-technical lawyer people.
Andrew: Gotcha. So was it a total of four cofounders?
Jamie: Originally, yes.
Andrew: I see. And you gave those two technical cofounders equal shares in the business?
Jamie: Actually, me and one of the others were the very first. So we probably had more and then the next peer that came along had less.
Andrew: I see. And it was you and one technical cofounder at first and then you brought in the other two.
Andrew: Got it. All right. So, that one technical cofounder built out the first version of the software, the one that I’m looking at here?
Jamie: Yeah. I think we had built at least a prototype within several months. The product got sort of rebuilt and refactored a few times over the first few years. But we had at least done a prototype, I think, within three or four months.
Andrew: You’re really proud that you used XML technology. That means that the information was structured as opposed to just flat HTML pages. Is that right?
Jamie: Yeah. So, again, historically when people looked at this problem–and we weren’t the first to look at how you could make legal documents more automated. But everybody else had tackled it as, “Oh, I’m going to just plug in to my word processor.” What we did was we decided to use XML as a document format, which was, on the one hand clever, on the other hand stupid.
It was very early days for XML as a sort of document format. I mean, XML is a standard for documents and data. Some people use it as a data interchange format. Some people think of it as a document format. In fact, these days, Microsoft Word is an underlying XML format. But back then, it wasn’t. So, what’s good about it is it’s very structured. It’s good as a structured document format. It allows you then to manipulate and apply rules to the content in a more robust way.
Jamie: But it was a lot more hard work because we had to figure out–it was unfamiliar to most people. We had to build an authoring tool that made it possible for you to kind of look at the document and turn on a paragraph and say, “If this is true, put this paragraph in, if it’s not, take it out.”
Andrew: I see.
Jamie: So, we had to build a lot more stuff into it.
Andrew: Why was it so important for you to be so cutting edge with technology considering that you didn’t have a tech background? You’re catering to lawyers who are not the most tech-forward group of people, right?
Jamie: True. Well, I guess originally we were really focused on being web-enabled. We wanted the web to be the delivery mechanism.
Andrew: No desktop software.
Jamie: Exactly. We didn’t want to live in the past of word processing, right? The web was everything. I was a technology lawyer. So, although I wasn’t an engineer, most of the people I worked with were in the technology space and I guess I had a natural history of working with and being deeply, at least deep enough inside technology to want to do it properly, if you like.
Andrew: Okay. You also needed a little bit of money in order to do this. You couldn’t raise money because we’re talking about the year 2000 where–what did they call it? The nuclear winter for funding and tech companies already had hit. You couldn’t just go out and raise buckets of cash the way others did, like Cosmo.com. And instead, you did what you mentioned earlier. You got a strategic funder.
Andrew: Who was that? What does it mean that you get strategic funding?
Jamie: So, it means that you look for someone who–it’s usually a corporate investor. So, who we got was one of the big legal publishers, Wolters-Kluwer. So, there are sort of three big global professional publishers–LexisNexis, Thomson Reuters and Wolters-Kluwer. Wolters-Kluwer–I think they’re headquartered in Amsterdam but they’re a very big global player–they, like most publishers, were worried about the internet and free information and were looking at ways they could diversify into software that helped them become something other than a pure information content publishers. So, they happened to be doing minority investments in software companies.
Andrew: So, what it means is they gave you both money and they helped you get clients because their clients were potential customers of yours too?
Jamie: That’s right. Yeah.
Andrew: How much money did they give you?
Jamie: They really gave us enough just to get started. It was about half a million Australian dollars at the time.
Andrew: I see.
Jamie: So it was our first round. It was, I think, closed in January of 2001 from memory. And for us, that was a lot of money at the time.
Jamie: But it was sort of we were able to just give up a minority of interest, get enough money to sort of fund more development and, as you say, if nothing else, they provided an extra sort of brand recognition assistance because if you’re a small startup and you have no big track record, it’s very hard for people to–a lot of people will sort of stay away from you.
Andrew: Especially when you’re talking about legal documents. You might trust somebody with your goofy photos if they’re a brand new company, but you’re much less likely to trust your legal documents to a brand new company. By the way, you mentioned something that I’ve got to bring up. You mentioned Australian dollars. You guys are headquartered in Melbourne, Australia, right?
Jamie: Well, not anymore. At the time we were, though.
Andrew: Oh, I see. CrunchBase let me down again. So, you’re not in Australia right now? Melbourne, I’m looking it up. It’s 4:30 a.m.
Jamie: Headquarters has been in Boston for the past seven and a half years.
Andrew: I see. They’ve got to get it together over there at CrunchBase. Apparently they’ve been wrong twice now in this one interview.
Jamie: Oh well.
Andrew: I wonder if anyone actually even cares about CrunchBase anymore. It feels to me like all the data on funding seems to have gone over to Angel List because it’s so more functional there. You update your information and as a result you end up with potentially more funding. Whereas CrunchBase, there’s not incentive for you to update your information. It’s not like TechCrunch is the leading tech news site anymore. So, maybe I shouldn’t be using TechCrunch and CrunchBase and instead I should be looking at only Angel List. What do you think of that?
Jamie: I’ve stopped tracking these things very closely. In the early years, you follow those things. You’re sort of obsessing about where your funding is going to come from. And then once you’ve sort of gotten over that hump and you’re trying to build something, you tend to pay it a lot less attention.
Andrew: That makes sense. Right. There’s no need for you to go update any one of them. It’s not like you’re out there and going to go fundraise. You guys are now at SEC level. I’m looking up here. Where was that? I saw an SEC doc, SEC Document D, Form D. I don’t even know what this.
Jamie: Nor do I.
Andrew: It is… Oh wow, and you’re a lawyer and you don’t know what that is. Here’s what it is. You guys raise money and you don’t want to disclose how much money you raised. So, you needed to file this document. I’m hunting in your life, Jamie. It’s a good thing I’m a force for good and not evil.
Jamie: Indeed. Yes.
Andrew: You know what? Now’s a good time for me to talk about my sponsor and then we’ll come back and ask about the difficulty you had getting your first customers when you were a nobody because what you did to get over that is something that a lot of us can learn from.
But first, my sponsor is a company called HostGator. HostGator lets you host your website on their platform, on their servers, which of course, you can tell from the name–I’m looking all over my screen. Where’s my tab with HostGator on it? Let’s just open up a new one. HostGator.com/Mixergy–they give you unlimited disk space, unlimited bandwidth. They give you email. They give you 4,500 website templates, shopping cart, forum–all that stuff.
But here’s the good part. Whatever you build on them, you can take to another hosting company if you’re ever dissatisfied with HostGator. One of the best things that you should do for your business is allow yourself to build on a server that is solid, secure, strong, but also doesn’t tie you in the way some of these new companies do. With HostGator, as long as you love, them, as long as they keep producing for you, you can stay with them. If they don’t, if you’re unhappy, if you decide you want to go somewhere else, it’s easy to move your website.
Now, Jamie, before we started I asked you if you had nothing, none of these relationships, no more Form Ds in your life, no more of this business Exari, you just had to start fresh with nothing but a HostGator account and the ability to build a brand new website, what business would you launch if you were to start from scratch?
Jamie: Yeah. So, I thought about this briefly and I don’t really have a good answer. I would probably do an online food review site.
Andrew: Food review. Why food? Are you a big eatie? Eatie–are you a big foodie?
Jamie: So, one of my hobbies for a while, although I haven’t done it lately, I was somewhat obsessive in the early years of blogging. I became a food blogger and I wrote nothing but breakfast reviews. So, it left me thinking that if you did a very good job of figuring out how to syndicate a particular model of food reviews and you got that right–it’s become quite crowded since then, but a simplified model of how to do food reviews feels like it would be something that would be fun to do. Everyone seems to be obsessed with it.
Andrew: You know what? Every time I go to Amazon and I see someone who wrote a long review, I think, “Why did they put it here on Amazon instead of putting it on their own website?” Some people actually are so detailed in their analysis of products on Amazon that they do this over and over again and they get nothing in return except they’re helping out Amazon.
And you’re right. If there’s something you’re passionate about, whether it’s food or electronics on Amazon or maybe it’s just the start of community, if you’re going to review it on someone else’s website, if you’re going to review it in your head, if you’re going to review it somewhere other than your own personal property, reconsider it.
It doesn’t take much to launch your own website and put your reviews on your own website, build your credibility so when someone looks you up, they can see what you think about whatever topic you’re covering. So, I don’t think it’s huge business, but I do think it’s something easy to start and I think it’s something that could lead somewhere more important.
So, here’s what I would do. You’re right. Food is probably crowded. I would probably find something like business apps and I’d review those. And then I would talk about how I would use them and frankly, I would disclose that I’m linking out to them, kind of like what Wirecutter does for electronics. What they’ll do is they’ll say, “Look, there are all these different cameras. We’re going to review them. We’re going to tell you the perfect one to get and we’re going to also be honest with you and say that when we link to a store for you to buy it, we make a commission off of that.”
Well I would do that Wirecutter-type business for business apps, where I would review CRM and say, “Here is the number one CRM for a company that’s 1-10 people big. Here’s why I like it, how it works. Here are the other ones that we recommend if you need alternatives.” And every one of them gets a link that’s an affiliate link, so I would make some money off of that.
And what it would do for me is yeah, it would make some money. It would also help me understand what’s going on in software and frankly some of those companies would reach out to me and it would help me build my connections to them. There’s one idea that I’ve got.
Whatever your idea is, take it to not just HostGator.com, but if you’re out there listening to me, go to HostGator.com-slash… not slash-AndrewWarner, not slash… slash-Mixergy. HostGator.com/Mixergy, they’ll give you 30 percent off and frankly, it’s also very good for me because then they’ll see that my ads are working and I’m really grateful for them for sponsoring and to you guys in the audience for going out there and checking them out.
How did that feel, Jamie, to be roped into my sponsorship message?
Andrew: Going back to your first customers–so, you didn’t have a reputation. You had this website. You had XML. How did you get your first client?
Jamie: Well, we had some connections. We came from law firms. So, we had some connections. We leveraged those to some extent. We also had the relationship with the legal publisher, with Wolters-Kluwer. I’m trying to think who was our very first client. Yeah. It was definitely one of our friendly law firms, someone that we knew from personal connections.
So, I think the quick answer is you probably need personal connections to start with and you need to find the right profile of client, someone who’s willing to do something a little bit–who’s trying to move ahead of the crowd. You don’t want to find someone who’s a cautious buyer. That won’t happen.
Andrew: I see, because a cautious buyer is a lot harder to convince and a cautious buyer is not going to be typical of the kinds of people you want as follow up buyers afterwards.
Jamie: It’s more that they’re very hard to commit.
Jamie: They’re just very unlikely to buy from an unproven startup. I think the biggest challenge a startup faces, frankly, is getting its first customers. It’s extremely difficult.
Andrew: So, even though you had all these friends, why was it difficult for you to get your first customers?
Jamie: Partly because we were learning on the fly. We were building a product on the fly. We were trying to get customers before the product probably had the rough edges knocked off it. So, that’s the quick answer. You really need a first customer to be a co-developer.
Andrew: How much, Jamie, did you guys have built out before you got your first customer? Anything?
Jamie: We had something. There were sort of two important pieces to what we were doing. One was the piece that the end user saw, which we actually had in reasonable shape. Once you’re creating a document, this is the sort of web-based interview process, that was pretty smooth. The piece that we were working on was the tool by which you built the template that powered everything.
Andrew: The front-end that a user would see when they were logging in and trying to find the right contract with all the clauses they need into it?
Jamie: No, that bit was fine. What we were doing was also empowering the customer to turn their Word document into a clever XML template. So, we had to provide tools that allowed them to do that. That was extremely difficult.
Andrew: I want to make sure I understand this right. They would bring their Word document with their contract into your system and you would templatize their document.
Jamie: Yes. We would help them to and then teach them how to do it themselves. So, there’s a power user, if you like, someone who’s designing the flow of questions and thinking about connecting the dots between, “If I ask these 50 questions and get these 50 responses, what do I do?” So, there’s sort of, if you like, a design tool.” And then there’s the consumer tool, which is just the web browser questionnaire. So, the hard work is empowering the customer to design a template that has all this logic inside of it.
Andrew: And you hadn’t built it out before you got your first customer. So, your first customer was building it out with you.
Jamie: Yeah, we had built out enough that they could start to sort of build out their template. But our first customer was very much a [inaudible 00:28:43] customer.
Andrew: How do you convince somebody to not just focus on their work but to help you build this solution that’s supposed to simplify their work when in reality, because it’s not built, it’s going to make their work more complicated because they have to help you think through your business while they’re dealing with their business? How do you convince somebody to do that?
Jamie: Yeah, [inaudible 00:29:04]. So, we sort of partially succeeded. When I think about it, the people who were the early customers never became long-term customers because we went out too early. Basically you make mistakes. Unless you’re maybe a genius, but frankly even if you’re a genius, you’re going to make mistakes.
So, we made the mistake of trying to go out with a product probably before it was ready. And again, if I had it over, I think the best thing you can do is find a customer who really has a big problem and is motivated to fix it and work with them to build it. You need to figure out how to fund your way to building something for nothing. And the bargain is that customer will get a product that is tailored to solving their problem ahead of everybody else, but they have to be a strong reference for you.
Andrew: I see. They’re almost like a consultant client, where you go to them. You build it for them but you have the right to take this product out and sell it to other people.
Jamie: Yes. And you need to have a strong opinion of what the product should be. There’s a real danger in having a single customer [inaudible 00:30:26], like that’s extremely dangerous. Again, in our case, we were working in our own industry. I was thinking about what I did. You’re constantly trying to figure out, “How would I make my life better if I was still doing what I was doing?”
Andrew: I see. So, if you were to just work for one client, you would make it too specialized for that one clients need and probably not relevant to other people. But if you were to work for one client and bring in your opinion based on your experience and your understanding of the problem, then every time the client’s asking for something that’s too specialized, you can say, “I think we need to balance that with the need that other people are going to have and in my experience, I think that need is…” etc. That’s the way you would do it?
Andrew: I see. And if you don’t have that experience yourself, you can balance your first client’s needs with research that you’ve done by talking to other clients?
Jamie: Yeah. The truth is I think it’s very dangerous to try and startup a business if you don’t know the industry. You might pull it off occasionally. But the best thing you can do is have some familiarity with the industry and how it works and what its problems are. It’s not rocket science. Every venture capitalist will tell you the same thing. You’ve got to find a problem, find a pain point and then do something to fix it that nobody else is doing.
Andrew: You showed me how you found the first pain point, the one that led you to start the business. You had this process that you were doing over and over again, kind of like a robot. It’s mind-numbing and you know that you can simplify it by bringing in robots or software in this case. What about once you started a business? How do you find the next big problem that you’re going to solve that you can create new product for that will allow you to expand?
Jamie: You just have to have your eyes and ears open the whole time. You’re going to stumble into problems. In our case, we actually started with completely the wrong customer focus because in the legal services market, law firms have historically sold time. Basically, their billing model is to charge by the hour. So, what we discovered was when you come to them with a productivity solution that makes them more efficient, their first reaction is fear and panic. It’s like, “What? If I do this quicker, I can’t charge as much for it.”
Andrew: I see.
Jamie: So, that was a real problem for us. We eventually realized that it’s better to focus on the lawyers who work inside of companies than the law firms who sold services to companies. The lawyers inside of companies are not selling time as much. They’re thinking about how to help their company, whereas law firms are thinking about how to sell their time.
Now, that’s changed. But it was really only until the financial crisis that suddenly there was pressure and law firms changed their billing model and started to see more about providing a fixed-price service to their clients. It’s only when you have that switch that they have a strong interest in being efficient.
Andrew: And by then you’ve already discovered that what you want to focus are in house lawyers, the people who are definitely not charging by the hour. I see. That’s a huge leap.
Jamie: Yeah. It took us a while.
Andrew: Is that what got you into the insurance and financial services world?
Andrew: I see.
Jamie: So, we had evolved a little bit. We had a sort of slow evolution during the first, say, five years where we eventually had to wean ourselves off the familiar turf of law firms because we realized that they had this real conflict in terms of incentives. And then we sort of connected up with people in the insurance world first through an old contact of mine. I had met someone who was deeply involved as lawyers in Lloyd’s of London, which is a big global, high-end, complex insurance market.
Andrew: Sorry, the connection broke up but you were saying Lloyd’s of London, the insurance people.
Jamie: Yeah. So, the Lloyd’s insurance space is a very complex, high-end documents for commercial and, if you like, difficult to insure things.
Andrew: Yeah. Whenever a celebrity has her legs insured, you always hear it’s Lloyd’s of London that’s doing it.
Jamie: Right. So, they do that and they do all sorts of other things. They do that. They have this problem where they were still very slow to produce the policy documents they were producing because they were very heavily negotiated and quite complex. They had this thing where there was a real lag between when they would actually do the deal and agree to cover somebody and actually produce the complicated document that came with that policy.
So, they were under pressure to fix that. We kind of became connected with some people who were familiar with that space. So, we started to get into insurance documents. From Australia, we then opened up sort of a presence in London. That also got us into the banking market because there are a lot of big global investment banks headquartered in London.
Andrew: Jamie, let me go back to the question I asked before. I think a lot of people that are listening to this interview and some of my other interviews, frankly, who say, “All right, I’ve got a company. I don’t want to know how to come up with the original idea for a business. I’ve got my revenues. I’ve got my clients. I’ve got everything. But I see the logic of looking for a big problem and solving that.” How do they do it without shifting to a brand new business?
You’ve done that. You’ve created several new products, right? How did you find the big problem that led you to, let’s say, Contract Hub. Contract Hub is what allows companies to find that one contract and what they need to know about in their contracts if they have hundreds of contracts, right? They have hundreds of contracts. They want to know what’s in them that’s important. This is the product we talked about at the top of the interview. What was your process for uncovering the problem that eventually led you to create Contract Hub?
Jamie: So, again, it’s all about keeping your eyes and ears open when you’re talking with customers. So, customers would come to us with a bunch of problems. But the ones that we were interested in historically was, “How do I help you streamline the way you create contracts?” But the truth is, if you’re a company, you don’t create them and then forget about them. You create them and you need to store them and you need to perform them and you need to keep track of them and you need to manage them and you need to understand them.
So, historically we had so much work to make the creation piece kind of a strong product, that we kind of shut our minds to the bigger problem. Once we got to the point where we knew we were very, very good at creating contracts, we opened our eyes again. As soon as we had some breathing room, we kind of opened our eyes and we kind of realized everybody comes to us for help in contract creation has another problem. Actually, they probably have the other problem first. The other problem was, “I have all these existing contracts and I don’t know what they say.”
Andrew: But how did you know that? It’s so easy to be blind to the problems that people have. I’ll give you an example. I didn’t realize–and this seems so obvious–there are a lot of people in my audience who have businesses and also have jobs and they don’t know at what point they should quit their jobs and focus on their businesses. Now, I never would have thought that was an issue because, frankly, in my world, I would just quit my job as soon as I had the idea and focus on the idea obsessively just because that’s who I am.
So, I’m so blind to the alternative that it didn’t occur to me that someone would do it differently and it didn’t occur to me that they would need to know when to leave. It wasn’t until someone came in here for a scotch and pushed me and said, “This is my problem. Why aren’t you asking it?” that I realized I should be asking that question.
But we’re blind to people’s issues because they’re not our issues. Frankly, we’re even blind to our own problems because we’re so used to dealing with them. So, how did you uncover your customers’ problem of understanding what was in those contracts they had signed dozens and dozens of times?
Jamie: It wasn’t particularly difficult. I think we always knew that people–firstly, our customers would tell you this. Secondly, I’d say it’s obvious. The problem is obvious. How to fix it wasn’t obvious. So, I think that’s the nature of the problem.
Andrew: Were they calling you up and telling you this? Were they saying all the time, “We have it?” Was there some mechanism for you to keep track of it?
Jamie: So, I think the problem is a lot of people, the real problem is a lot of people kind of suppress things. Things that they’re not sure how to fix, they just rationalize and learn to deal with.
Andrew: Right. So, they become blind to those problems.
Jamie: Right. So, contracts as a problem, if you like, the fact that they’re hard to track, hard to know–they’re long documents full of words. That’s unstructured information. It’s very difficult to know how to get on top of that. The other thing is that contracts are shrouded in mystery because there’s a legal community who likes the mystery. That’s their job, to sort of help manage that mystery.
So, again, as a lawyer, I know what they are. And actually, as a lawyer who’s spent 15 years running my own business, I’ve come to look at things from a, “What does a business person care about?” kind of perspective. Eventually you try and dissect–you try and dissect this thing. You say, “Here’s this piece of paper that people fight over and then bury. What is it and why is it there?”
And it probably takes you a while to sort of–you get so carried away with the day to day of one problem or another that you don’t really have the time to sit up and pay attention. Occasionally we’ll sit up and look at this thing and say, “What is it and why should people care about it? More to the point, why don’t they apparently care about it?” We had examples–go on.
Andrew: What you’re describing is–I forget the actual phrase for it–but one of the founders of IDEO said that it’s something like tourist eyes. They try to look at things like they’re completely new, complete foreigners to a situation and say, “What exactly is going on in this crazy new environment that we’re in? Why are people doing things that they’re doing? How are they doing it? Where are the problems that we wouldn’t ordinarily look at?”
Just like if you’re walking around your city, you don’t notice all the potholes, you don’t notice all the problems, but when you’re walking through a foreign city trying to figure your way around, you ask yourself, “Why don’t they make it easier for me to get around? Why are these stores open and shut when they are?”
So, that’s what you’re describing. And then you were starting to give me a little more detail on that.
Jamie: Yeah. That’s exactly right. You assume that things are the way they are for a good reason.
Jamie: That’s not always true. So, it’s really good to get into the habit of questioning and questioning and thinking things through for yourself. Early on, we assumed that other people were solving the contract management problem because we knew that people had been–we had spent ten years focusing on the contract creation problem.
So, we assumed that other people must have spent ten years figuring out how to manage contracts better. What we discovered was they hadn’t. They had just, for a bunch of reasons, it had not been done very well and it had been done in a way that most customers were probably dissatisfied with what it achieved. We came at the problem with those tourist eyes.
We came at the problem fresh again to say, “Why should people care about contracts. We know that they should care about them. If you take the big prize, if you’re a company that’s in growth mode, it’s hoping to be acquired, you’re going to care about them a lot at the point that you are likely to be acquired. They’re going to look at every single one of those things, especially the revenue contracts and they’ll try to punch holes in them. And if they can punch holes in them, your evaluation is going to go from here down to here.
So, the truth is in the day to day contracting, they’re not thinking about, “Well, if this thing can be terminated for convenience or if I don’t have the right cause that lets me assign the contract to a new owner, at an acquisition moment, my valuation is going to get trimmed really badly.”
So, we started to look at the contract as sort of, “Where are these big picture problems that people are just not grappling with?” And eventually we sort of realized that you can be very systematic about it and you can come up with a model of, “These are the pieces of data, like 20, 30, 50 pieces of data,” then if you can get that information quickly, when a bad event happened or a good event happened or in particular if an M&A event happened, you wouldn’t be going, “Oh…”
Andrew: So, how do you solve that? How do you categorize all the information, all those contracts so that they’re useful when they’re needed?
Jamie: Well, you figure out what sorts there are, and there are a handful of major–the two big categories are your contracts for selling things and your contracts for buying things. So, sell side and buy side are the major categories. The contracts where you’re selling things are the things that provide you with revenue certainty and the contracts where you are buying things are your supply chain certainty and then you think about what is it inside those contracts that’s going to either protect you or hurt you. You’re going to get hurt in various ways.
Andrew: Does that mean that a lawyer has to go through every one of the contracts that’s registered with your system?
Jamie: It means that somebody needs to know how to classify different provisions. Yes.
Andrew: I see. So, you’re basically tagging up each of the provisions so you can call them up based on tags.
Andrew: I see, the way I might organize my phone book by tagging people with customer, friend, drinking buddy, etc., and then go look up all the people who are drinking buddies when I need them.
Jamie: That’s right.
Andrew: I can see how you would assume that somebody would have worked on this problem because it is a huge problem and there’s some starting point for the solution, as you just described here. You mentioned earlier that your last investor or one of your last investors also included a buyout. What was that process like? What are we talking about here?
Jamie: Well, this was back in, I think, 2008. When we took the investment from our US investors, they had some technology and a company that was itself kind of in the right space. We had structured a European entity, but it was run independently. It was more like a franchise. So, what we were trying to do was to bring everything together. So, in conjunction with the capital raising, we basically merged our kind of European–
Andrew: Affiliate. And the European affiliate wasn’t wholly owned before?
Andrew: Not at all.
Jamie: It was very close and friendly, but it was independently owned. And we had to do that because at the time, it was kind of an effective way to expand to the UK without having our own capital to fund it.
Andrew: I see. So, did you give these guys know how? You gave them software and you said, “You guys can now use this to build a version of our business in the UK?”
Jamie: Yeah. So, we gave them essentially–it was really like a franchise. We gave them sort of exclusivity to do certain things. We taught them how to use the products, how to sell the products. They setup their own entity that was then going to particularly target the insurance and banking markets. So, we had done that for several years before we secured the US funding.
At the time of the US funding, we decided it would be really good to just roll everything tightly together. So, it was more complicated than simply selling an interest for some capital. We merged a couple of things back together.
Andrew: All right. I want to ask you about one last thing that I see here in the pre-interview notes that you put together with, I believe it was April that you talked to. Yeah, it was April. But first, let me just acknowledge something that people who are watching the video portion of this interview have noticed. I’m not wearing a jacket. I’m now just wearing a regular shirt and a T-shirt.
I went to Tammy, the stylist who helped me find those jackets and those button down collar shirts that would have made me stuffier than you Jamie. Jamie, you’re very relaxed here. I used to wear those jackets and feel like, “I’m a little overdressed for my own interviews.” If a lawyer is more underdressed than me, then there’s something wrong with it. So, I went back to Tammy and I said, “Help me look good on camera but also casual and relaxed.” She took me to a bunch of stores a few days ago and we found a lot of new clothes. I’m much more comfortable with them.
The shaving of my head, that was all me. I just wanted to change things up in my life. So I went in the shower with my clippers and I just buzzed it down and I like it. It feels good. I don’t think my wife likes it. It doesn’t have enough style or substance for her. It feels a little too uncared for. But so far, I’m loving it. So, you guys will get to see more and more of my jackets.
I was trying to think of do I talk about that at the top of the interview, Jamie or later on? I think top of the interview makes it a little more important than the conversation. Later on in the interview means there are some people going, “What is Andrew doing? Is he now slacking off? Is he now relaxing?” No. I am now paying more attention to my outfits. I want to look very handsome for my audience because people do judge us based on the way we look. Am I right, Jamie?
Jamie: This is true.
Andrew: Right? You’re a little prouder to do this interview today because you saw how handsome I was, I’m betting. All right. Not to that degree. But they do, to some degree, judge us. I don’t want to give them impression that this is a very stuffy conversation, which it obviously is not. So getting into more comfortable clothes allows me to do it. I do feel more comfortable. This I would actually wear outside as opposed to those jackets and the button down collar shirts that I didn’t.
Jamie: I haven’t seen your jackets, so I can’t comment.
Andrew: I will be bringing some jackets in, but they’re much more casual. I spent a lot of time picking out jackets that will make me look like I spent no time at all on them, including one that was all wrinkled that took me forever to find that was just the right kind of wrinkle. We’ll see how that goes over. So, the audience will get to see it and the interviewees will get to see it in upcoming interviews. But for now, let me end it by asking this one thing.
Jamie: Okay. I lost you for a minute.
Andrew: I’ve got to promote the good stuff in the interviews and my outfits, apparently, are very important. Here’s what you told her. You said, “Every time I hear something bad about a competitor, it brings a smile to my face.” I get that feeling.
Jamie: Yes. It’s true.
Andrew: We’re not supposed to admit it. You don’t have to tell me who they are. In fact, I’d rather you not because I think it will be more open if you don’t. Is there one you’re just looking at and you’re going, “I can’t wait for these guys to go down.”
Jamie: There’s more than one. No. I think it’s a healthy–I think you said earlier, if you had an idea you would just quit your job and be obsessed. I think you need to be obsessive. You need to be obsessive about being the best. You therefore need to be obsessive about crushing the competition.
Andrew: I’m obsessive.
Jamie: You need to be friendly to the competition. But we make a point of relishing every bad thing that happens to a competitor.
Andrew: You mean as a company?
Jamie: Yes. I think so.
Andrew: Have you had anyone leave Exari and go out and create a competitor and then you’re watching and waiting for them to go away?
Andrew: No, not to that degree. All right.
Jamie: No. We’ve had pretty good loyalty.
Andrew: All right.
Jamie: I get a perverse pleasure from watching bad things happen to my competitors.
Andrew: I get it. I used to sit around and wait for them to go under. They’d call me up all friendly, “Can we do some coopetition?” “Coopetition? You’re trying to copy my business and you want a coopetition?” But it doesn’t work that way in the interview business. In the interview business, dealing with your competitors that way doesn’t make sense. Our competitors are television. Our competitors are all the other things that are going online. Competitors are NPR–I’ve got to take those guys down.
Meanwhile, your website, really easy. It’s Exari.com. What does Exari mean?
Jamie: It means to dig up and to write, dating back from when they wrote on wax tablets, which meant they were digging them up.
Andrew: That’s so perfect for you as a company that helps people figure out what’s in their system by digging up all the data.
Jamie: It is. Yeah.
Andrew: It’s full contract management and you get to own the name. I don’t see anyone else using it for anything. You guys own the Twitter account? Yes. That’s you. Yeah.
Andrew: Like Mixergy. It’s very hard for someone else to go and call themselves the same thing as I did or you did. Well, congratulations on all your success. Thanks for coming on here and doing this interview.
Jamie: Thank you.
Andrew: You bet. Thank you all for being a part of Mixergy. Bye everyone. Let me look back. Look at this shirt, guys. Bye everyone.