Hey, before we get started, if you need a web-app built, or a mobile app built, who do you call? Check out Koombia.com, they’ll take your idea from PowerPoint to product in just a few weeks, and when you go to Koombia.com I recommend you look at that top tab, the one that says work on it to see their previous work and understand what Koombia can do for you. From a minimum viable product, to a full blown web-app, they have you covered. They work on Ruby on Rails for web, they can build an IOS or Android app for mobile, Koombia.com
And if you need a phone service, a phone number, who do I recommend? Grasshopper.com Because with Grasshopper.com you can get unlimited extensions, that means that when a caller calls your company, they can basically be screened before they come to you. If they’re looking for sales you direct them to one place, if they’re looking for tech-support to another place, if they’re looking to just get on your blog, maybe they go into voice mail and you respond to them when you have a chance. Lots of extra features at Grasshopper.com That’s one of my favorites, go to Grasshopper.com, and understand why the virtual phone system they create is the one that entrepreneurs love.
Finally, if you need a lawyer as a tech-entrepreneur, you need to talk to Scott Edward Walker, of Walker Corporate Law. Why? Because if you go to the high-end law firms they’re going to charge you an arm and a leg and probably expect to take a piece of your business, they want shares in many cases. Or if you go to the mom and pop law firm, the one that your friend recommends, that lawyer is probably not going to understand the issues that you go through as a tech entrepreneur. I recommend, go to the guy who specializes in start up entrepreneurs, Scott Edward Walker, of Walker Corporate Law. Here’s your program.
Andrew: Hey everyone, my name is Andrew Warner, I’m the founder of Mixergy.com, home of the ambitious up start, the place you come to listen to entrepreneurs tell you how they built their businesses and what they learned a long the way. Our goal is to share their best ideas with you, so you can go out their and build your company and come back and do what today’s guest is doing. And I met today’s guest through a friend, he introduced me to a file sharing site that’s absolutely crushing it, but has been getting hardly any press at all. So I invited the founder on here to Mixergy to teach us how he did it. Joining me is Jesse Lipson, he’s the founder of ShareFile, which allows companies to setup a password protected area for their clients where they can securely exchange files that are too large or confidential to be sent via email. I’m obviously reading that directly from your website Jesse. Welcome, thanks for doing the interview.
Jesse: No problem at all, my pleasure.
Andrew Warner: Hey, how many customers do you have right now?
Jesse: Well, we have over 16,000 paying corporate accounts, and that’s spans over 2.5 million total users. We actually, recently did a tabulation, it was pretty surprising, we wanted to see, within our customer base of 2.5 million users, how many of the Fortune 500 were represented, and actually we have over 99% of the Fortune 500 also represented within our corporate customer base.
Andrew: And what are the prices?
Jesse: Unlike a lot of services out there, we’re not a premium service, we strictly focused on the business market. Our price point start anywhere from about $30 a month, for a couple employees, multi -user account, and then they go up to several hundred dollars a month if you have several hundred employees in your company that you want to get licenses for.
Andrew: What size revenues are you guys doing?
Jesse: We haven’t disclosed our 2010 revenues yet, but we will be soon and in 2010 we were probably in the neighbor hood around 8 million, and in 2011, we’re going to keep that a secret for a little bit longer. But we’re experiencing some great growth this year.
Andrew: And what about the investment in the business, I know you didn’t get any investment right, it’s all boot-strapped?
Jesse: Yes, that’s correct. No external investment, and actually, no internal investment except for a bunch of sweat equity in the beginning.
Andrew: I thought you put in some money from a previous company, you’re saying you did not?
Jesse: I didn’t, no. Basically I did have a previous company that I sold, which I think probably gave me a little bit of financial security to take the risk and go ahead and start this company. But I’m a software programmer, I’m a self taught software programmer, and so basically I coded the application. I had another product that I was making a few thousand dollars a month from, and I just started with the Google Ad Words account, and did the support, sales, engineering and started to just fund it with cash flow that came from customers that I got.
Andrew: One of the things that I like about the way you go through a company is the research that you do and the tests that you conduct. I read a test that you did about calling customers up and evaluating the results. Do you know what I’m talking about? Can you tell people that story? I think it’s really interesting and shows people how you work.
Jesse: Sure. This is back in 2007, 2008. We do tests regularly. Just about every month we have a test running. what we did was have a free trial for a web-based service. Something that’s very atypical for a web-based service is, if you open an account with this offer as a service company, you probably never get any kind of personal communication from someone at the company. And, so, what we decided to test was, if we do a phone call follow-up during the free trial process, what happens to the conversion rates of the free trial and does that justify the cost of actually doing that in personal interaction? What we found is that it does, and the cool thing about that is that it shows our testing focus and our data driven focus that our company has, but, second of all, it also shows our customer-centric focus.
One of the things that is very different about our company from our others, if you look around particularly in the file sharing space, is that we do extremely personalized level of service and follow-up. If you open a trial with us and provide us with a phone number we will call you and talk to you about your business, talk about your needs.
What we’re really trying to do is flip the traditional notions of customer support and service with technology on their head. Traditionally, people have always been thinking about looking at that as a kind of a cost center and how do you reduce it, how do you potentially off-shore that, and we take the exact opposite approach in a very similar way to what Zapos has done on the consumer/retail side. We’re taking that same approach on the software/business side.
Andrew: The way I read it is that you took 50% of your free trial members and you just left them as a control group, the other 50% you made phone calls to.
Jesse: That’s right.
Andrew: You had a 61 conversion rate on the people who got a phone call and a 57 conversion rate on people who did not get a phone call. Then you plug those numbers into your model and your realized that it made financial sense to make more phone calls, and, bottom line, that change resulted in an additional half a million dollars in profit for the company over the next few years. Such a small percent, four percent has that much of an impact.
Jesse: Yeah. It’s amazing when you create what we call a “water fall model” with software as a service business and do a what if and change that conversion rate and see the impact it has over a period of years. It really is amazing how much an impact optimization can has on your business.
Andrew: What do you say to customers in that phone call?
Jesse: Well, it’s evolved over time, but, really, we try to not be too salesy with the phone call and really just try to understand why the person signed up. The question I like to start with, since we’re in business service, is “what business were you in?”, “tell me about your business and what you’re looking to accomplish with the service so we can help guide you and point you in the right direction of some features that you might want to look at and some settings that you might want to enable on the account.
So, I think it’s more about, instead of telling them about share file, guiding them through their first file transfer and also learning about their business. They might have signed up because they have one gigabyte file that they need to get in an emergency project the next day. but then we can tell them about how we have certain features that fit into their daily work flow. I think it’s all about just coming back to the customer and treating them as an individual customer and establishing a pro-active relationship with them.
Andrew: All right. I want to know more about that thought process as we tell your story. Let’s start off with what you were doing just before. You mentioned that you had a business running before Share File, what was that business?
Jesse: There were actually two. A year out of college I started a web development business and at the same time I took over my dad’s business. He had a one man pharmaceutical market research business. And he passed away unexpectedly in the spring of 2001, and so basically I took over his business and at the same time tried to launch, basically a services business doing website development. And it’s pretty challenging to, a year out of college, to run two businesses. One which, had no instruction manual on it. You know, basically, I literally drove up to Baltimore, got his computer, drove down and tried to fish through his computer to figure out how to run his business. I used a bunch of DOS data base commands to use his old Dbase, database, and just kind of fumbled my way through, getting that business stabilized and on track.
Andrew: I see. I read that you increased sales by 500% by actually, over 500%. Can you give me an example of one thing you did to get that kind of result?
Jesse: Sure. Really, the main thing I did in that case, keep in mind I was, I think 22 or 23 year old person, trying to sell pharmaceutical market research in a pretty traditional world. Really what I did is, I’m not a sales person. I partnered with, a couple of business partners who were alumni at Duke University, where I went to college, and I really focused on the technology side of the business. In really automating that as much as possible, and they went out and helped increase the sales. Eventually they actually bought the majority of the company, they bought a 65% stake in the company and continued to grow the business. And then eventually we sold the whole business to a public company called Greenfield online.
Andrew: How much did you guys sell the business for?
Jesse: It was $5 1/2 million.
Andrew: Why are you willing, in fact, you’re not saying this for the first time, according to my researchers, you’ve already talked about this to Duke magazine. Most people who I ask how much you sell your business for, won’t tell me little lone some magazine. Why are you telling people?
Jesse: I guess I’m just an honest guy, you know. I try to be as straight forward with as much information as I can be.
Andrew: Well, that’s pretty impressive. By the way, we are looking at you, you are in your hotel room right now. I should bring up the background since people are probably peering over your shoulder to figure out where you are. Where are you?
Jesse: I’m in a hotel right now.
Andrew: Where? What city?
Jesse: I am in San Jose.
Andrew: San Jose, all right. And where do you guys work out of?
Jesse: We’re in Raleigh, North Carolina.
Andrew: Cool. And actually here’s another thing I think we should share with the audience, we started this connection using the internet connection that the hotel made available to you and then the connection broke, and Joe will edit it so the audience won’t know about it. What happened, why did they drop the connection on you?
Jesse: Yeah they blocked my connection. It said they quarantined me for using peer to peer software, so now I’m back online using my Verizon 4G MiFi. And it seems to be holding up pretty well, for now.
Andrew: Well Skype is peer to peer, right?
Jesse: Yeah, I guess so.
Andrew: OK. So you had this idea for a business that became ShareFile as we know it today. What was that original idea?
Jesse: It really kind of evolved out of my website development business. I started to see, we primarily work with small to medium businesses at the time. And I started to see kind of a theme where people wanted us to build a sort of password protected area for their clients. Where they could log in on their website, set up folders and exchange files. And so I saw a trend and decided rather than paying a web development firm a few thousand dollars to develop something like that, why don’t we just productize it. It seemed like a lot of the requests were really similar, and it was not a new idea at the time. I mean, this was, the end of 2005 when I launched the product. So it was like, maybe the beginning of 2005 that I was seriously thinking about it. There were other players out there, Xdrive was a big one at the time. And there was another one called Streamload, and so I wasn’t trying to come up with some new ground breaking concept, I saw there were products out there. But a lot of the small businesses I talked to, had never heard of those products. And they weren’t using them, and so I figured there’s at least some kind of a niche in the market to develop a product like this.
Andrew: Why didn’t you just decide to give your customers FTP access? You could have done that pretty easily, it would have cost you nothing.
Jesse: Yeah, I mean, I was a heavy user of FTP, in kind of the web design and advertising industry. And it’s a notoriously cumbersome tool. I know that we experienced a lot of frustrations doing transfers that would time out, the user interface is not very good for non-technical people. But even as a technical person, for me it’s really difficult to manage users. I know that we had a client in the early days in our web design business that was a major Fortune 500 company, and managing users on the FTP was so difficult they just gave all their vendors the same user name and password, and so, we could just go in and see all the other work that the other vendors were doing. Every once in a while, like every couple of weeks, they would change the password, so we’d try to log in and it wouldn’t work, and it’d be like 7:00 at night, we couldn’t get in touch with somebody. And then the next day they’d be like, oh, yeah, we changed the password form test to test123. Just super cumbersome. Their IT would always clear out all the files from the FTP to avoid it being too bogged down and cluttered, so like after two or three days the files would automatically disappear. So, sometimes they would send us files on the Friday, and be like, make sure you download those before you leave today, ‘cuz Monday they’re gonna be gone. It was just a huge hassle. And so, really, part of what we set out to do originally was just have something that was better than FTP. You know, we’ve circled back a little bit on that. We’re actually one of the only companies that is also compatible with traditional FTP. So while we want to be better than FTP, we also realize that there are a lot of companies out there, and FTP is pretty well engrained and sometimes people prefer to use files that are some kind of FTP software in order to do what they need to do.
Andrew: Okay. And you told Content Matters that when you decided to launch the business you wanted to create a simple model in Excel to help you think it through and manage it. Why, and what was that model?
Jesse: Originally, yeah. I created a simple model, this was back at the end of 2005, which was pretty much like a waterfall model, where I took basic assumptions, like cost per free trial, free trial conversion rate, average revenue per customer, and churn rate, and things like that and put it into basic out of a cascading model where I could see what my paid customers were one month, see how much advertising I was planning to spend, you know, month after month, and try to predict where I’d be and do what-if analysis. What if all of a sudden I quadrupled my advertising spend? What’s going to happen to my valuation and my customer base? That model, probably 80% of that model is stuck around even today. And I really love modeling–just doing it as a back-of-the-envelope exercise. I think any business can really come up with a pretty simple model that really can help them figure out what they need to do to drive their growth.
Andrew: What was in the 20% that you missed?
Jesse: I’ve gotten a lot more granular. One of the things in our current model is doing stuff like projecting churn rates changing over time. You know, if we have an initiative happening where we’re trying to reduce our churn rates, or we expect that our average revenue per customer’s going to grow over time. Just little refinements to make the waterfall more comprehensive and granular, I guess. But really, the core model still works pretty well.
Andrew: You’ve used the term waterfall often here in the interview. What does that mean?
Jesse: Basically what it means is you have, say, for example in Excel one result that follows from the previous month’s results based on different assumptions. So, I could have rows that go out five years, and I enter my current data for the first month, and then based on the churn rates and the other assumptions, that kinda falls into the results for next month, and how many new customers I’m gonna add. So, by just dragging values down the spreadsheet I’m able to see what the projections are for sales, and customers, and everything, several months or several years out into the future.
Andrew: Okay. And what were the key areas of this assumption of the models that you made early on?
Jesse: One of the interesting things that kinda fell out of the model was the importance of churn rate in building a SAS business. As I tried to do what-if analyses and play with, well what if I could reduce the churn rate by 25%? What if I could increase my conversion rates by 25%? I think that it helped me understand the value of customer retention, because churn rate basically has kind of a double bonus, is the way I like to think about it. On the one hand reducing your churn rate increases your lifetime value of a customer. On the other hand it reduces the number of customers you lose, so it creates like this double-bonus effect when you reduce your churn rate. It helps you in a couple ways – you effectively have more customers and each customer is worth more.
Andrew: Right.
Jesse: It became, it was interesting, it was surprising to me when I played through it, that I realized that churn rate is probably the most important thing for us to optimize in the long term.
Andrew: Have you found that there were more people sticking around with you, or fewer people sticking around than you initially expected before you launched the business?
Jesse: It’s interesting; I think that a lot of my initial assumptions were actually fairly on-target, even though I had no data to support it. I think probably right now we’re roughly, you know, tracking to what I initially expected. We experienced some different effects over time.
When we first started off we had a small number of customers and very targeted advertising, and so our churn rate was extremely low because we just weren’t that aggressive about getting customers unless they were super-motivated and interested in our product. Over time we start to really grow our advertising and grow our customer base pretty rapidly. So we started to get a lot of riff-raff, I guess you could say, in the customer base – especially with the file sharing model like we are.
We get a lot; if we open our advertising funnel too wide sometimes we can get people who are, who want to share their own personal photos or movies and that’s not what we do, we’re a business service. So, you know, we’ve kind of navigated that over time, but really a lot of the initial estimates were pretty on-target.
Andrew: What’s your churn? How many people, what’s the percentage of people who drop every month?
Jesse: That’s one of those numbers that we don’t release publicly, but we look at a lot of different ways. First of all we look at it by channel, and so it varies greatly by channel. Another thing that we look at is whether the person signed up with a free e-mail address or a business e-mail address, kind of indicating whether they might be somebody who’s in the wrong place, who’s a free user signing up for this business service that doesn’t really want that in the long term. The churn rates are dramatically higher for those guys.
The other thing that we found is that it changes over time. So once somebody has been with our service for six months or a year, the churn rates are probably about as low as you can get in the SMB market. Probably equal to the percentage of small businesses that go out of business.
Andrew: Oh, really?
Jesse: Yeah. But during the initial year . . .
Andrew: So the percentage of people who you lose is similar to the percentage of companies that go out of business every year?
Jesse: Once we’ve gotten past that first year of shake-out period, of people . . .
Andrew: What’s that percentage of companies that go out of business each year?
Jesse: I’d actually have to double-check on that.
Andrew: Roughly what are we talking about?
Jesse: I think what I saw is something like for small businesses in their first five years of operation (of course people are going to look this up after the interview and I’m probably totally wrong).
Andrew: That’s OK.
Jesse: I think it’s something like half of the small businesses fail in their first five years.
Andrew: I see. Okay, so you had this model; you had this vision for what the product would be. You understood how it was different from the existing products. What’s the first thing that you did after you decided, ‘Time to go’?
Jesse: The first thing I did was, after we’d built the product – we finished it about the end of November, or sometime in November, 2005 – the first thing I did I guess was set up a Google AdWords account. You know, I’ve told many people that I don’t know if we’d be in business today if it hadn’t have been for Google AdWords, because it allows you to get started so cost-effectively. We could’ve probably started and made this business successful without pay-per-click advertising, but in the old days before that kind of Internet advertising, you would need to build a brand, go to trade shows, you know, do telesales. And it’s very, that does work but it’s very expensive, and it takes sometimes years to get there.
And so I opened a Google AdWords account, put my credit card in; you know, made a landing page, and I think in our first month, in December of 2005, we got 20 free trials or something, and four of them signed up for a paid account. And then just continued to optimize and increase and grow the business from there. It was about six months before I hired my first employee, and it was a part-time employee. The only reason I really hired him was I was due to get married in August, and literally if the servers went down I was the only person in the company and I was the only person who could answer the phones and we were getting married in Alaska, my wife who’s from Alaska, and so I was going to be gone for two weeks and that was really what drove me to hire my first part time employee. It was another year after that before I hired any additional employees.
Andrew: You had money before. I mean I, in a very pushy way, asked you how much money your previous company sold for. You had some money. You were a millionaire, right?
Jesse: Right. Right.
Andrew: So why not take that money and say, ‘Hey, you know what? I’m going to hire people to help build this software for me. I’m going to pay money for advertising to drive more customers to me.” Why did you want to wait to earn a profit before you spent?
Jesse: It’s a good question. You know, I think I’m fairly loss [??] person, and surprisingly I think a lot of entrepreneurs are despite the common portrayal of entrepreneurs. The other thing that I kind of liked is what I like to call the “MacGuyver” type challenge of boot strapping a company. I like the fact that it was really just me and my laptop, and I was on an equal playing field with everyone else out there. I enjoyed, I still enjoy programming, but back then I really enjoyed the process of building the product myself and really learning about a lot of different areas. Now if I sell my company eventually and start another one, will I have the patience to do that again and start from one computer, one desk, hacking away and do it the same way? I don’t know. But, there is a certain satisfaction I think that I got from just creating something from nothing.
Andrew: On a side note, it’s pretty early. It’s 11:00 your time, it’s 10:00 your time, and your bed is already made. Are you a neat person? What’s going on there? Or did you just dress it up for the video?
Jesse: I think I’m just blocking the part of it that’s not made.
Andrew: No I saw you get up earlier and set this, to set up the blinds behind you for the interview and it looked pretty good.
Jesse: Right. No, I’m not a super neat person. I wouldn’t say I’m a messy person, but I’m not a obsessive compulsive type person that was out jogging this morning after a 7 hour flight and that kind of thing.
Andrew: I see. So, tell me about hiring that first employee? What was the challenge that you saw as you hired him?
Jesse: You know, I think that it ended up working out pretty well because I was able to hire this entry level employee part time and so literally at the time, six months into share file, I was still working on my other business that my wife and I worked on together, which was this web development online advertising business. So I was literally still coding stuff for clients that we had. And, you know, this guy came in, he was a computer science major, and really just chipped in doing everything I was doing, which was everything from customer support, to the occasional programming. He spent his other half time working in our other web design and ad agency business. So, you know, it was – we were still, at that point we didn’t have our own office space, we were still literally working out of the office space of the other company. So I didn’t have to worry about a lot of things like setting up benefits and really starting to be a real company for about another year before I hired my next employee.
Andrew: When you brought the first and then the second person on what was the organization that you used to keep them on track? I see that you made your bed, and I know it’s not indicative of how organized you are overall, but you also created an excel spreadsheet that was very thorough and helped you think about the business in a way that other entrepreneurs might not. So you seem to have some structure to the way that you produce in the world. Tell me about how you set them on the right track.
Jesse: Yeah. You know, one thing that we did early on, I guess I’ve always really been somebody – especially because I like programming – who’s like to automate processes, and so one thing we did really early on was I built a, I started to build it and then this first employee used it as kind of a training ground, basically kind of a while account management internet system for our company. Where we could do billing, we could see the activity of our customers, we can deal with support tickets, and it started off as just a few pages that I built so I could build customers. Then over time it started to just grow more and more powerful and complex and when I show people some of the systems that we’ve built now, they’re amazed with what we’ve done. That we’ve automated so much and we’ve built such a robust system. I think it just kind of started off with being a computer programmer and liking to build stuff that makes things easier to deal with and manage and preferring to spend an hour coding something than to spend an hour manually doing the same task, or maybe even preferring to spend two hours coding something than to spend an hour, you know, doing manual data entry on some kind of task. And so I think that’s probably what drove our processes.
Andrew: Again then, you’re making yourself the way you decided to create your own file sharing system and then of course you productized it. Why build it yourself? Why not use an off the shelf system for billing and a different system maybe for support or finding a unified system that someone else has built?
Jesse: Right. I don’t know. You know, I think usually for the systems that we build they start it off pretty simple for something that we couldn’t buy an off the shelf solution for. For example, we have built our own CRM system and it started off as just a system so that when we scheduled demos with potential customers we would coordinate our schedules so that one person was scheduling a demo it would automatically find a time slot that was open for somebody else. Which is not something that really a future of a CRM system. It just kind of started off with the demo system and we called it “Coffee” after the Glen Gary, Glen Ross movie “Coffee is for Closers”. And then it just kind of grew from there. And organically we added more pages and added more functionality and then all of a sudden we got to a point where we were like, “Oh, we built a CRM system”. The cool thing about it, I think, is that when you do have a custom built system it does take resources to make it happen. But, you can build something that has everything you want and nothing you don’t want. And end up with a much more efficient business process than if you use some kind of cookie cutter solution, which might be slow and hard to use and it might be missing some crucial aspects of your own process.
Andrew: I’d always worry that I would get sucked into creating this whole other product that’s not the direct thing the customers are buying from me and then I’d get distracted by it.
Jesse: Right.
Andrew: Why didn’t that happen to you?
Jesse: Um, well, what we started to do with our kind of internet where we used to manage customer support is when we hire new engineers we would put them on that almost as like a learning ground before we put them on production code, we would have them work on our internet. And so it was kind of a win win. It’s a good way for them to safely do some coding, get familiar with everything. And so a lot of our core programmers were not actually working on that. When I hired my first employee that’s what he worked on and that freed me up more to work on the production code and the system. And so eventually now we have a full time engineer who just does our CRM system, our internet, a group that we call “Internal Projects”. So, we’re able to isolate it so that the same engineers that are working on the production stuff aren’t working on those systems.
Andrew: Why demos? I noticed that you said early on you sold through demos. Why not let the website sell for you?
Jesse: We do both. Most of our customers buy through a free trial, but we also have customers where we do a demo instead and show them the product and then they buy directly after the demo or without the need for a free trial. I think it depends on the channel that we’re selling through and the customer themselves. So, there’s a lot of – I think it’s easy to forget being I’m a software programmer, I’m a pretty savvy tech user, I’m sure you’re a very savvy tech user, sometimes it’s easy to forget all of the mainstream small business customers out there who are in kind of the flyover territory. They’re not in Silicon Valley and they really want somebody to actually show them the product and what it can do and answer questions rather than being left to go figure it out for themselves and so I think there’s a large base out there that is neglected by the Facebook crowd out in Silicon Valley who just kind of assumes that everyone interacts with technology the same way that they do.
Andrew: You take so much time to do a demo and then to repeat it over and over again, doesn’t that take time away from coding or from learning from users by just watching what they do on the site?
Jesse: Well, you know, we have different employees working…
Andrew: What about in the early days when it was just you, maybe you and one other person?
Jesse: Yeah, I mean the way I’ve always looked at it with customer interaction is that customer interaction is the best R and D that we can possibly get. And so I always love talking to customers and I look at it as an investment in our product more than anything. I still read almost every customer support ticket that comes in. I think sometimes a few conversations with customers can just be so valuable.
Andrew: Give me an example. You said it was the best r and d. I wrote that down, because I know the word best is not one that you use lightly. Give me one example of what you learned by doing a demo that helped improve the product and grow the business beyond making that one sale?
Jesse: Sure. I mean, almost all of our features come from customer suggestions. And so, one example I can think of is we have a new feature that we are just rolling out called Folder Templates, where we had several accounting customers who, they used ShareFile, they set up a portal for all their clients. An average accountant might have 75 to 150 clients. So an accounting firm that’s 5 or 10 people, they might have 1,000, 1500 clients, and they want to set up their folder structure really similar for each client you know? Tax returns, 2010, [??] 2009 with a bunch of sub folders, and so through the customers suggestions they said, ‘hey, we have 1,000 folders set up on your system for 1,000 different clients. What happens when 2011 rolls around? We need to manually go add a 2011 folder for all these clients? And interactions like that helped us decide that we needed to build this feature called Folder Templates, where they could make a template for all their client folders and sub-folders and then duplicate that for all their clients. And then if they wanted to add a new template or a new folder in all they do is add it into the template and it automatically gets pushed out to all their clients at the same time. It’s those kind of little things where not being an accountant or a construction general contractor, it’s really hard to guess the kind of features that they need. Sometimes they’re very simple work flows, but it’s only really in interacting with the customers that you get that level of knowledge. I see it as just a great way, I think also customers are great testers of your product as well. If they feel like they have an open dialogue and can talk to you, can kind out about issues and fix them quickly.
Andrew: How valuable is that to the business? Can you measure how much extra revenue you’ve got from that the way you knew how much more money you got by making phone calls to trial users?
Jesse: I think it’s much more difficult with product r and d. One example I will give you is we developed a separate kind of sub-product called a Virtual Data Room and that really came from customer suggestions. Customers who were in the mergers and acquisitions and finance space and said hey, we’re using your service as a data room, and it’s way cheaper than a lot of these other solutions out there and if it only had x, y, and z feature then it would be super useful for us. And so we built those features and now the data room is actually a very large line of business for us. It was about 2 years ago that we first launched our data room project. I mean that’s an example that is easy to measure. A lot of the other smaller features are more difficult to measure. But we feel strongly that our product would not be nearly as easy to use and as relevant to a specific industries if we weren’t structuring the support system and the feedback with the customers in the way that we do.
Andrew What about this, when you talk to a customer, you tend to really emphasize with them, and you said, ‘boy, this guy’s got a problem, he’s a customer of mine, I love him, I feel the pain, I better go build the solution’. And you’re much more likely to think emotionally and go build the solution that they’re asking for then rationally and say, ‘wait, let’s make sure there’s other customers who want this if it fits in with our scope.’ Did you have – tell me about the issues that you have with that. I see you nodding a lot.
Jesse: Yeah, yeah, I mean I think it’s always the classic in product design, it’s always the classic problem of you don’t want to end up with a bloated product that just has tons of features and then becomes difficult to use. We’ve come up with a very good way to solve that and we have what are called “account preferences”, where we have literally over 100 different preferences that we can set on the back end of the account to turn on and off different features and functionality. If we get suggestions from a few different customers, but we’re not really sure we want to complicate the interface for everyone, we can add an account preference and then maybe people in a certain industry will want to have that preference turned on, but we can keep the interface simple for everyone else. We have account preferences where if a customer wants to come up with their own password requirements where they want the password to have to be at least 11 characters and have a special character, whatever. We don’t have to decide, ‘Hey, are we going to apply this to everyone or are we just not going to honor their request?’ We are able to capture that through account preferences. When we have a dialogue with someone and say they’re in the financial industry, we can say, ‘Hey, maybe you want to consider increased password strength. Let’s turn that preference on for you.’ That’s how we’ve dealt with trying to keep the product simple, but also listen to feature requests that people have.
Andrew: That’s an innovative solution. In all the interviews I’ve done here, I don’t think I’ve heard anyone give that as an answer to the problem that I just had about too many feature requests. Let me challenge you a little bit on that so that I can understand it. It seems to me that that creates bloat. Features that you have to keep up with and maybe update as you update the rest of the product, then maybe make sure that people internally understand them, and then anticipate that if a user has a problem, it could be as a result of one of these hidden features. It’s a lot to maintain, a lot to talk to customers about and it’s products that maybe are meant for just a handful of people. Doesn’t that create confusion?
Jesse: I don’t think it creates confusion from the customer’s standpoint. Most of those preferences are not even…
Andrew: I mean from your point of view, because you have to maintain it all.
Jesse: Yes, it’s a challenge to make sure that our employees who are providing support are knowledgeable about all of the things that we can do. What I like to encourage with both our customers and our employees is to tell the customers, ‘Hey, if you think our system can’t do something, give us a call and ask us. There’s a chance that it can.’ Get back into that same kind of consultative approach. The same thing with our new employees. If you are a new employee and a client asks you, ‘Hey, can I restrict access by IP address?’ ‘We’ll bubble that up to somebody else and we will figure that out and let you know if it can be done.’ The other way that we’re trying to address the issue is taking this vertical focus which is something that is pretty unique, at least in our market. What we want to do is say, ‘Hey, if you’re and accountant then we expect that you care about security and you care about…[SS]…
Andrew: I see.
Jesse: …accounting files to deal with, so we are going to give you ShareFile for accountants. We’ll turn on these 15 preferences and we’ll turn off these other 10 preferences because you probably don’t care about viewing PhotoShop files if you’re an accountant. Basically, it’s taking a lot of the thought out of the process and kind of defaulting people to what the recommended approach is for their industry, and then if they want to ask about overriding that, they can.
Andrew: Can you give me another example like the phone calls example, something that you did that helped sales increase early on?
Jesse: I think that another thing we did and there’s a lot of ‘secret sauce’ behind it so I can’t go into a ton of detail with it, but we do a really good job of optimizing our advertising channels. The real secret behind that, without going into too much detail, is really trying to figure out how to connect an individual click. Say if you’re doing pay-per-click advertising, how do you connect an individual click as closely as possible with the lifetime value of that customer on the other end? It sounds simple to say that, but it’s actually very difficult and most companies do a pretty poor job of it. The average company that’s doing, say, advertising or paid-search advertising, as a specific example, they’ll look at their cost-per-free-trial or something. Digging down several levels and understanding everything about the time of day when that happened, the information that the user entered, what country they’re from, what operating system it’s from, and building sophisticated models to help predict how does that correlate to the lifetime customer on the other end? Ultimately with advertising, what it comes down to is, paying the exact right amount for every click or every lead that comes in, and if you can price it correctly, then you’re doing about as well as you can possibly do. So, that’s been a big thing that we’ve focused on over the years.
Andrew: To know the value of a customer based on the time of day that he came in based on the email addresses you mentioned earlier that he used to log in, based on what information he used in the form where he logged in, that helps you understand the lifetime value of a customer. How does it help you decide where to buy ads and where not to? Because by the time the person has entered the information you’ve already paid for the ad.
Jesse: Right. What we do is we can kind of aggregate that information and then roll it back into the channel that we use to advertise to see what the real value is that we’re getting, what kind of lifetime value we’re getting, and therefore how much we’re willing to pay for that banner ad and that click or that phone call or whatever it is. So, we found some interesting stuff. We look at it really granularly down to – we look for all kinds of variables, like are they Mac or PC, did they type their name lower case or all caps or proper case, and find some interesting information. So I think we’ve been very kind of relentless or rigorous with our modeling process. I think that’s helped us a lot.
Andrew: What are some of the channels that you use? You talked about adsense being, I guess adwords and adsense, Google ads being the first thing that you went to. What else did you do that worked?
Jesse: Organic search is also a good channel for us. Direct type in traffic we get a fair number of customers come in through word of mouth, through direct type in traffic. We also have a traditional outbound sales force that targets what I was mentioning before about our vertical focus, it targets specific industries, like for example [??] being one of them.
Andrew: What being one of them, I’m sorry?
Jesse: Accounting. Where we developed industry relationships, go to trade shows, we call into that industry and tell them about our product and ask them to schedule demos. So, you know, really a mix of very modern web 2.0 stuff like PPC, and then also very traditional sales like telesales.
Andrew: How do you reach out? How do you – I’m trying to learn a little bit about the outbound marketing, who do you call on and how do you get their information?
Jesse: We call in [??] a variety of sources, anything from you know, if we attend the trade show and they attended the trade show as well, to some research that we do to see what customers might be receptive to our product based on their business or things like that. So we have a variety of ways that we build the list and like I mentioned, we also try to warm up our customers in given industries by really taking the time to understand the industry, all the products they use, develop relationships with experts in the industry, go into the trade shows, and so it’s definitely not a just open the phone book kind of a sale for us. The industry targeting really helps us be relevant when we contact them and know that the hot topics that are going on in their industry.
Andrew: There we go. The audio cut out on my side. What about drop box? I know that you guys were around before them, but they’ve left ahead of you in terms of number of users and maybe even number of paid customers?
Jesse: Sure. Yeah.
Andrew: Why?
Jesse: You know, I think that in many ways drop box is going after a different market than we are. I look at them as primarily consumer based, primarily back up, and devise synchronization. We are really focused on the business markets, specifically mostly the small to medium business market. Mostly focused on external collaboration, so when you’re a professional and you want to exchange files with clients, vendors, partners, and so I think from a spreadsheet standpoint we’re very different than drop box. That being said, we still consider them to be a competitor because of the enormous success that they’ve had. They have a huge amount of awareness and there are some businesses on the very low side, the pro[??] especially sole proprietors and so forth that use their service for business purpose. And so, you know, there’s somebody that we definitely keep on our radar, I’m not seeing them with the way they architect their product, making a lot of overtures to really move into the business market, and I don’t see a big reason for them to do it. They’ve been enormously successful with the model that they have right now. It’s just never been the model that we’ve gone after as a business.
Andrew: I’m looking through my notes here to see, is there a challenge, is there some big set back that Jesse suffered, that we can talk about how we overcame? I don’t see any. You didn’t talk about it on any of the sites that we used in our research. But maybe you can talk about it here for the first time. Tell me about that one big scare.
Jesse: Sure. You know, I mean, on a very personal level, as I talked about my background with my companies and [??] and so forth, I think I mentioned early on that I was in business with my wife. We had this web development business that kind of transformed into an online advertising optimization business that’s part of the reason I know so much about testing and optimization. Shortly after, what we decided to do is take our web development business and split it into three separate businesses. One would continue to focus on website development, the other would focus on online advertising, we had AOL as a really big client and my wife kind of ran that line of business and that was our greatest source of revenue at the time. And then the third business is my business today which is going to be a product business. We’re going to basically build products. And about six months after we decided to go ahead and split up and I was starting to work on my business, my wife actually had a stroke which, she was 23 I think at the time, and just completely out of the blue, lost the ability to walk and talk, was in the hospital. That was a tremendous challenge, a tremendous setback and basically I decided to – this was early 2004 so, I put my business on the back burner for about a year and a half and worked full time in her business trying to keep that going and move it forward. Fortunately she’s fully recovered and is great today. Her business is still doing really well. She’s got about a 25 employee advertising agency now. I mean, that was certainly a very difficult time for us and was a real challenge to try to balance these two businesses. I literally remember being in the hospital writing copy and stuff like that for emails for AOL. I had a connection plugged into the telephone line at the hospital at the time. That was more of a personal setback. I think that from a business standpoint in terms of setbacks for share file, I think that one of the tough things that we’re dealing with now is I mentioned that when we first launched really the space we were in, I didn’t feel like it was anything special. There were other companies out there like X-Drive and Streamload at the time. I’m going to get into this pretty un-sexy, niche business and then basically in mid 2007 Cloud Computing exploded. And so it’s a great thing for us because our market is much bigger than we thought it was going to be. On the other hand it’s very challenging because you talked about drop box, we have a couple other competitors who have raised 50 million, 75 million in funding, hundreds of employees, even drop box I think has raised 10 million, rumor is they’re getting ready to raise a bunch more. And so, how do you compete as a boot strapped company in one of the hottest markets that’s our there right now? And that’s been a challenge for us. We’ve really had to think about competitive differentiation. How do we use the fact that we are not a premium service and that we are a boot strapped service, and that we’re focused on business. How do we avoid commoditization? How do we compete against guys who have millions and millions of dollars to burn? One of the sayings that I really like, I can’t remember who said it, but is basically the market can stay irrational for longer than you can stay solvent. That’s one of the things I worry about. Even if our competitors do something totally stupid, it might be stupid, but it can still adversely affect us. Over the last six months those have been some of the top strategic things that we’ve had to think about.
Andrew: And yet when we talked before the interview, I asked you what’s a message that’s important to you to leave with the audience and you said it’s to challenge entrepreneurs to bootstrap. Why?
Jesse: Yes.
Andrew: What’s the benefit for you considering all these competitors who have raised money and raised their profile?
Jesse: Right. You know, I think there are a few things. One thing that I tell people is, just as a starter, if your business idea requires you to be funded, most likely you’re not going to be funded and, therefore, most likely your business idea is going to go nowhere. I feel sometimes I’m like the grouchy wet blanket, where I look at a company like Facebook or Twitter and say, ‘That’s like hitting the lottery. That’s like getting stuck by lightening.’ You read about those things that happen in the news, but it’s a big world out there and there’s going to be the occasional company that hits the lottery, but if you try to do that, it’s kind of like the equivalent, if you’re an entrepreneur who’s thinking that that’s the main way that you can be successful. It’s kind of like a kid dreaming of becoming a rock star or a professional baseball player. The smarter thing to do is to study and become a doctor or something like that.
For most entrepreneurs just out of the gate, if you try to come up with something where the only way you can launch the business is to get funding, you’re probably not going to be successful; whereas, I think there are a lot of ways you can be creative. Bootstrap your company and build something that is successful. Maybe it won’t be a multi-billion dollar company, but maybe it will be a multi-million dollar company or even a multi-hundred million dollar company. You have a much higher likelihood of success if you bootstrap. That’s one reason. There are several other reasons which have been covered.
Andrew: What’s the big benefit that you got as a result of being a bootstrapped company?
Jesse: I think the two big benefits that you get are, one, the ability to have a successful smaller outcome with the business. When I originally started the business, for most people if you sell a business for $5 million, $10 million, $20 million, that’s a life changing event. When you take on a lot of venture funding, you basically take that option off the table. Those type of exits are a lot more common than venture exits for multi-hundreds of millions of dollars. I think that is one of the benefits that you get. I like to think you have a long career ahead of you. Why not hit a double or a triple or whatever? Then with your next business when you’re a multi-millionaire, go try out for the billion dollar company. I think a lot of people just think about it in an illogical way when they’re thinking about launching a company. That’s one reason.
The second reason, I think, has to do with control of the company. I’m pretty plugged into the entrepreneurial community and I have a lot of friends who have gotten funding. I think taking on an investment can be a huge burden in terms of the Board control that investors have. The pressure that they put on you, sometimes grow a business beyond what its natural limits are. I think that with our company since we are basically controlled fully by myself and my executive team, we can make those long-term decisions. If there is a quarter where we’re not going to hit our plan, we can say, ‘That’s OK. Let’s lay the foundations for a really strong long-term business that provides great value to customers, provides great support, a great product and we’re not chasing the latest sizzle that’s happening on Techcrunch.’
Similar to what you see on Wall Street where one of the big critiques is that these public company CEOs are managing the business quarter-to-quarter and they don’t have the ability to take the long view and do something that is way better for the business in the long term. With venture-funded companies, that happens on a smaller scale quite often.
Andrew: All right. Well, that’s a great place to leave it. I want to also thank the person who introduced us: Doug Kaufman, the founder of Spring Metrics is the guy who introduced us. He actually signed up for a Mixergy Premium membership, which gives him access to all the old interviews and all the courses that we do.
Anyway, he happened to be here in Washington, D.C. and we connected in person. Then right after that dinner that he and his wife went on – I’m telling the story poorly. Anyway, we had this great dinner; he helped me change my website around a little bit by using Spring Metrics – I can now figure out where my customers are coming from. Then he introduced me to you; how do you know Doug?
Jesse: I actually met him pretty recently; I think that we did some judging of a Duke entrepreneur competition together. Then he reached out, I think he started Spring Metrics fairly recently, like in the last six months or so.
Andrew: Mm-hmm.
Jesse: So he reached out, and we’ve gotten together a few times to talk about some of the stuff that we’ve talked about here: customer acquisition, optimization; you know, as a subscription company how do you do these things? And so I would collaborate a little bit from that standpoint.
Andrew: What do you think he’s missing? His website by the way, for people who don’t know it, is it lets me know what pages my customers went on before they ordered. So it makes it very easy for me to tag where the order confirmation page is, and then they tell me exactly what users did on their way there. So I figure out where the rough edges are, I see what key pages help increase conversion and so on. What could he do to improve his business?
Jesse: You know, even though, like I mentioned before, I’m an honest guy. I hesitate to talk too much about his business, but, you know, he’s getting started. I think they have a great concept, which is basically analytics for companies that are a little bit more non-technical, so allowing the marketing person – and I actually have not used their product, I think we fall a little bit out of what their target market is. I’d be interested to hear what your thoughts are on the product.
Andrew: Mm-hmm.
Jesse: I think it’s a great concept because I’m a big believer in optimization and testing, and all these model things that I was talking about earlier. I think the big challenge for the business is there’s a huge need to get non-technical people savvy with analytics and optimization. On the other hand it’s a challenge for a reason, and it’s hard to get non-technical people interested and comfortable with setting up analytics and looking at it. And so I think if they can crack that code there’s a lot value, but for small businesses to be able to [TD] their business is a challenge, because many small businesses are just not that savvy when it comes to that kind of stuff.
Andrew: All right. Well, good luck to him. I’m looking forward to using the software. I can’t believe that I’ve fallen into the non-technical user category, but I kind of do. I like the idea that I can just tag a landing page and know what happens on the way over to it, and not get too deep into Google Analytics or any other packages that are out there – which are great, but aren’t as simple.
All right, the website is ShareFile, ShareFile.com. Jesse, thanks for doing the interview!
Jesse: Thanks a lot Andrew, I really appreciate it.
Andrew: Cool. And the Verizon MiFi help up really well.
Jesse: It worked, yeah.
Andrew: Go figure; it’s a great test case.
Jesse: Exactly.
Andrew: Cool, man. Thanks.
Jesse: Thanks.
Andrew: Everyone, thanks for watching.
