This Entrepreneur Went From $78 Million To Nothing. Now He’s Back In The Ring

Keith Smith started an internet company at 27 years old, built it up to $78 million in sales, but later ended up having to close the company. From there he picked up the pieces and he launched a new company. Today he’s the co-founder and CEO of Big Door a site that helps publishers monetize traffic online.

I asked him to come to Mixergy to tell us how he built his $78 million company — as well as what he learned from the way up and from the way down.

And, since both his past and his current companies help sites monetize their users, I asked him to tell us what he learned about online monetization.

Keith Smith

Keith Smith

BigDoor Media

Keith Smith is the Co-Founder and CEO of BigDoor Media, which helps web sites monetize. Before that he co-founded ePipo, which, as you’ll hear in this interview, went through many name changes but stayed focused on helping users get free access to content and software in exchange for viewing ads.

 

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Full Interview Transcript

This interview is sponsored by Haystack that’s where you’re going to find the right web designer for your next project. Check them out haystack.com

Andrew: Hey everyone I’m Andrew Warner I’m the founder of mixery.com home of the impious upstart. I got with me a guy today Keith Smith who started an internet company at 27 years old. Built it up to 78 million dollars in sales and as will see he ended up having to close the company.

From there he picked up the pieces and he launched a new company. Today he is the co-founder and CEO of Big Door a site that helps publishers monetize online.

Keith how did I do in that intro? Did I sum it up pretty well?

Interviewee: Yup, I think that’s a good summary statement.

Andrew: OK, when did you guys launch Big Door?

Interviewee: So we started the company June of this year and we launched our public beta I guess about a month ago. So it was in October of 2009 and was in the customer feedback process at this point in time.

Andrew: Alright were going to come back to that were going to spend a little bit of time focusing on this business that hit 78 million dollars in sales. But before we get into both of those I want to go way back. Your a entrepreneur I can see it from the conversation we had by email in the conversation we had before we starter this interview. Were you always an entrepreneur even as a kid?

Interviewee: So as a kid it was interesting my parents had these very good friends that would come over on a regular basis they played rip together. And they just started a clothing store and so I kind of sat around and attempted to play cards with the adults. And would listen tot hem talk about there stories about them starting this new business.

It was just fascinating to me it was something that triggered at a very young age that this was the thing that I wanted to do. I saw them struggle, I saw them grow, I saw them buy the big house on the hill, and I saw them expand to quickly. I saw them have to contract and ultimately have to sell there business in a real down turn.

Oddly enough it became a little bit of microcosmic for and now I guess to my own some of my own experiences. But yeah, I saw this at an early age; I saw it was just fascinating. I wrote up my business plan for what business I wanted to start when I was 7 years old and so it planted a seed I think very early for me.

Andrew: So you saw them go into trouble, you saw them have to close up there business and it didn’t keep you from wanting to be an entrepreneur why?

Interviewee: You know it’s interesting I have a good friend who made this comment to me recently. He’s an entrepreneur started his own business and his comment to me which resonated with me he said, “He can’t possibly imagine working somewhere or doing something that doesn’t have a big potential for a big payoff.” It doesn’t necessarily mean it’s going to happen, most likely its not going to happen.

But the potential for the possibility for it the idea for working for a 5% Christmas bonus at the end of the year is not just the kind of thing that it seems to make sense to me. It certainly doesn’t make sense to my friend who was making this comment.

So part of is that I also being able to influent a deep desire I think to shape the world around you. And it seemed problems, seeing things that you don’t like, seeing things you wish were actually there and being able to go and create something where nothing existed before. It’s just a really cool thing so I think that there was a little bit of that early on. And it is certainly something that germinated over time with me.

Andrew: Whoa, so well said. I felt the same things I never wanted to do a job where I knew every year my salary could increase 5% that my life could get maybe 10% better year to year. Just doesn’t thrill me the idea of a possibility of one day it could be in fluently big even if it’s unlikely is enough of a draw to get me to suffer through the pains of down cycles.

Of taking on debt that I can’t meet of potentially being embarrassed in front of my friends who seen me start a business and watch me fail absolutely. And at the same time like you said to that building and shape the world I don’t see very many people with the power today to shape the world more then entrepreneurs, more then people in business. Do you agree?

Interviewee: Yeah, I think that’s exactly right, I think there’s this thing inside of us that says, “We rather then having a reliable consistent stair step up in the world we rather you know blow it out by our own. And be in control of it then have someone else be able to be the person who is kind of dictating or progress in life.” I think that is true about ourselves in terms of what we want to accomplish and certainly I think cortiles as well to just how we see problems and how we see challenges, and how we want to fix those challenges. That if we have ideas, if we have things were passionate about, energetic about we want to be able to go out…

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Interviewee: we want to be able to go and try to solve those problems. And, you know, it’s, yeah, it’s just something that, it’s a sickness. There’s something. Most founders that I know are inherently flawed individuals, and deeply flawed individuals. But they’re a lot of fun to be around, so.

Andrew: Yeah, exactly. They’re deeply flawed individuals, and sometimes their flaws are what make them so much fun.

Interviewee: Precisely. Precisely.

Andrew: All right. I’m want to get into the next stage in a moment, but first I’ve got to acknowledge all the people who are tweeting out to their friends and telling them to come watch us live, including Elnac Gado, including Jay Negretti, who, thank you, by the way, you’ve got Mixergy on your personal icon, so people every time they see you online, they see Mixergy there. Dewitt En, who’s a big supporter, Brian Carey, who’s a big supporter. Doc Doug, who’s a big supporter, telling people. And again, I told you this before we started, I see that Kirsten Winkler is watching us all the way from Europe. You are in the U.S. in North America. I’m in South America. She’s in Europe. If there’s anybody watching us in Asia or Antarctica or Africa, please tweet. Let me know that you guys are out there. OK. Let’s move on to the next piece of the story here. This is the piece that Neil Patel, whose helped me find incredible entrepreneurs here for Mixergy. No secret that you’ve been a big help to my work here on Mixergy. This is a guy, who in his late 20s, started a company, that hit it incredibly big, can you tell people what that company did?

Interviewee: Sure, sure.

Andrew: Originally.

Interviewee: Sure, so I, Neil, by the way, is a great guy. He’s, I haven’t known him for a long time. I’ve known him for a little bit, but the guy is a maniac. He’s fanatic. He’s fantastic. And an example, you know we talked about an entrepreneur as a kind of person that you will, who wants to go shape the world around him, and so he’s a good example to all the rest of us.

Andrew: Not only that, but I’ve got to say this, that yes, he does want to shape the world around us, but I get the feeling sometimes that more than anything else, he wants to make money from the world around us. And that’s part of what, that’s part of his charm, his openness about it.

Interviewee: You know, it’s funny. There’s somewhat of a side-track here, but there is a, I was thinking of a business class early on, and this was like a class for entrepreneurs, and there is a, an older, you know, entrepreneur, that you know, had been through the ringer many times. And he’s this old, kind of scarred entrepreneur, and he made the comment. He said, “There is one reason to start a for-profit company, and that is to make money.” And so, while that can’t necessarily be your mission or your purpose, it’s certainly the reason to start a for-profit company. And there’s also other companies that you can, you know, there are lots of organizations that you can start that don’t need to have a focus on profits. But I absolutely agree. I think that making money is a core reason to actually start a company. And…

Andrew: And you know, and in the process, you end up having, even if you don’t start out that way, if you build a successful business, you have to think about, about the world around you, and how you can shape it for the better because nobody’s going to just hand you their money, unless you give them something in return. And so as an entrepreneur, even if you start out with the most selfish of goals, of just making money, just showing everyone else that you’re smarter than the rest of the world, whatever selfish goal you might have, you have to take a step back and say, “What does the world want? I want the money in their pockets. I can’t just go and rob everybody. I don’t have that kind of time, so instead, I’d better think of a way for them to come to me with their money. And what can I give them in return?” And the bigger your solution for them, the bigger your jackpot.

Interviewee: That’s right. And it’s up to, I think it’s a core thesis of mine, which is that the revenue that you are generating as a business is a great measure of the value that you add to the world, because people are smart. People don’t separate with their dollars easily. And so if you are over, you know, able to, over a long period of time, over a sustainable period of time, able to generate significant amounts of revenue, then it is a pretty good indication that you are adding some significant value to the world. And so I actually, I think it’s one of those core metrics, that obviously not only measures the things that are going to make your company profitable and healthy, but it actually is I think, good measure of the value that you add to the world.

Andrew: OK. All right, I want to come back to that, and people who watch us live can see that I keep jotting down notes of what we need to come back to. And that’s one of the other issues that we’ll come back to. So, going back to E-Pitbull, the business that you started at 27, what was your original vision for it?

Interviewee: So the original vision was pretty simple. I had started two other companies before that, and hadn’t been successful with either of those companies. The company just prior to starting E-Pitbull, was a company that I ended up selling. But I went deeply into debt, you know, in my early 20s and spent a couple of years working for another company digging myself out of debt and saving up a little bit of a stash that I could take and start E-Pitbull. And at that company, the company that I was working for. I was in charge of online advertising, and this was, you know, early on and there weren’t a lot of people who were spending money on the internet.

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Interviewee: On the internet. And, and, the models were out, but what I saw pretty early on was that the, the internet promised the ability to be able to track advertising spent. The challenge was that very little of the actual tracking was really going on, but it had the ability to be able to do that, and so we started the company with the simple idea that we said, we want to be able to have a, a performance based advertising platform that delivers the right advertising message, to the right person, at the right time. And those, we felt like, were the three core things that were critical to be able to deliver relevant targeted advertising, and so not really knowing anything about advertising other than the fact that I had been spending a fair amount of money online and buying online advertising. We went out and, and you know took this bold idea and said we’re gonna make an advertising platform that does that, and that’s how we set out.

Andrew: Okay, and the idea was that, I’m not sure how much to, well the idea was that when somebody was on a website, you wanted to show them a relevant ad. So if I had to be on a website looking for travel you wanted to show me an ad for maybe Travelocity or Expedia or whoever was out there at the time buying ads in that space. Is that true?

Interviewee: That’s right. This idea of right message to the right person at the right time led us to the idea that what we really wanted to do was to be able to get the consumer to install a piece of advertising software on their computer and buy an optiman in installing that piece of software we’d be able to see everywhere that they go, everything that they do to make sure that we deliver that right marketing message to the right person at the right time. And that led us to this idea of having that client side software application that is actually going to deliver ads, and we tried a lot of different formats and a lot of different things and finally we stumbled our way onto an ad format that actually worked. But that was the critical thing, and then, you know, in this idea of being contextual, and this is before the word contextual really meant anything in the online advertising world is, you know, we could say not do we know that this person is interested in buying a vehicle, but we know that right now they are actually researching buying a vehicle. And so that’s when we’re going to show them an ad about vehicles, and so it’s actually going to be relevant, it’s going to be timely for them, it’s not going to be as annoying or intrusive, and it should be better than for the advertiser because it’s going to be so highly targeted.

Andrew: There was a company at the time, very well known called All Advantage, and what they did was, they would ask you to, I think it was install software and as you browsed the internet the software would show you ads based on the sites that you were on, and also it would pay you based on how long you had this, this, this program running. For you guys, was your solution inspired by All Advantage the way that I read it was?

Interviewee: It was, it was inspired by it and we ended up being direct competitors in both companies kind of evolved, but you know, they raised one hundred million dollars and we raised the hundred and twenty thousand dollars that I had saved in my bank account. And so, we weren’t, while we thought we were competitors, they probably didn’t even know who we were or that we even existed and, and it was interesting too because you said you need to give the user some value for putting our software on their to, onto their computer, so, you know, being a good entrepreneur, and of course in my mind the ultimate thing of value is money, and so that’s what we did, we basically struck a revenue share with the consumers and we said, we’ll pay you some amount of money, for, for the advertising that you’re going to view, and we’ll put it into your account, and we’ll pay you at certain intervals, monthly etcetera. And so that was how business started and started evolving, and we started getting some initial traction.

Andrew: All Advantage would pay you based on, I think, time that you spent with it. Are you saying that your program didn’t pay based on time, it paid a percentage of the revenue that you guys made?

Interviewee: We tried a variety of different models. We ultimately decided on this idea that you actually earn, earn some points for the amount of time that you were spending online as well as earn points for the people that you told and referred, to us, and so you ended up, you know, if you were somebody who was really, you know, what we would refer to as a sneezer, a person, who would tell lots of people and get some other people interested, then you could generate a significant amount of money. If you were the kind of person who, you know, would simply install this and let it run while you surfed the internet you could make a few bucks a month, but it wasn’t really going to change your whole life a whole lot. So, yeah, so it was interesting model. It paid out better to those people who were actually, you know, kind of promoting the morality of the application.

Andrew: Alright, and there was a time there when all of the advantage was just, they were, it seemed like they were taking over the internet, that they had a brand new solution and everybody was using it and guys like you and me and others in the market were watching them and trying to jump into this space. I remember advertising.com, which was in the ad serving business.

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suddenly launched their own version, he basically programmed it over a weekend. Everybody was desperate to jump into that space. Meanwhile we were all jumping into the abyss because all that they were doing was chucking money at their users without building up enough revenue to cover their expenses, they were building a negative business true?

Interviewee: Yeah that’s true, right yeah I mean, the problem is that, and we experienced this ourselves, is that as soon as we separated, as soon as we went away from a ref-share model and said we’re going to pay you a flat amount of money for the amount of time that you spent on the internet, then what happened is that we expected that ad rates were either going to stay flat or improve. Of course what happened is that ad rates just, you know, got decimated. And so at the time you could go, it was amazing, you could go as a publisher on any site, and you could sign up on ad networks and get CPM advertising, and 468 x 60 banner ad. You could get a $7 CPM just like that. And so it was just it was an insane time, the amount of money that was coming was crazy. We all expected the numbers to go up, and of course the numbers fell off a cliff. Pretty soon we found ourselves at a point where we would be ecstatic if we had a $1 CPM, because all of a sudden we had to take advertising that was CPA and CPC based, instead of just CPM based. And of course that created a huge delta between what we were paying our users and what we were actually generating. We ended up reacting very quickly to that and changed our payouts to our customers so we didn’t dig ourselves in a huge hole, but it created a hole for us and at the time it seemed like an immense hole for us.

Andrew: Okay, I want to know both sides. I want to know how big did you get before the market tanked? And I want to know how deep a hole did you get into? So let’s start with the height. How big did you get before the bubble burst?

Interviewee: So that whole business didn’t get very big at all. I don’t think we ever did a million dollars a year in revenue with that business. So, it didn’t get to be a big business. What it did do was it started us down a path of saying okay so there is real value to being able to target advertising messages when you have a client side software application. There’s real value in the data that you’re able to collect. There’s real value in the contextual aspect of that targeting. And we also, it started us on a path of saying we need to give the consumer something of value that doesn’t have a direct correlation of cost to us. In other words, there’s not, you know, just by adding another user and paying them out, doesn’t add incremental cost to us. Instead we need something that’s going to act more like software economics, where the incremental distribution of your product is not going to actually cost you additional money. And so that’s what lead us to this idea that what we really needed to do was we needed to add content that the consumers like, that consumers enjoy, that’s very very popular content. And give access to consumers to large amounts of content, content that’s far in excess in terms of the value of that content to what they would actually be quote unquote paying through their advertising. But now all of a sudden you have a business that can scale, and when it starts to scale then your costs are fixed costs for content rather than variable costs as you pay out users directly. And in terms of your question about the hole that we got ourselves into. If I recall, it was a long time ago. It was probably nine years ago. I believe we were in the hole about $200 000 is what we were in the hole.

Andrew: And this was you personally in the hole for that much money?

Interviewee: The company. So like myself personally, I took all my lifesavings and I put it into the company, it was all about $120 000. I went without pay for a couple of years. At that point in time the company had about $200 000 that it owed to consumers and when the advertising rates kind of fell of the cliff.

Andrew: I see so it was, it not only, not only did you lose the money you put in but you were also further in debt….to your end-users.

Interviewee: Yeah, precisely.

Andrew: Which is embarrassing because they’re the ones who you’re hoping will help get you to growth. It’s not like being in debt to suppliers, to Dell, to server manufacturers.

Interviewee: That’s right. It was extremely embarrassing and it was very humbling, a very humbling experience to go through this process where we were kind of touting to say this was a regular model to all of a sudden, oh wow ad rates have fallen off a cliff. We need to change the thing entirely, and so we changed it, and then we ended up you know turning off the whole model and the whole program. But, we still paid out the users, and so we still went back and continued, you know we tried to be as transparent as we could. We tried to talk to users and tell them exactly what was going on. And over time we paid them all back. So it was embarrassing at the beginning, but it wasn’t as embarrassing a year and a half down the road when we were actually still writing cheques to users, and everybody else had gone away and disappeared. So we were kind of like…it was kind of this..this early in our beginning

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Interviewee: The bad part about it was that it allowed us to keep doing things that didn’t work, probably longer than we should have. So we kept at it for quite a while, and finally realized that, you know, what we really needed to do is need to change our model entirely. We need to not show advertising. And instead, what we need to do is, we need to have this, create this client’s software application that he was going to allow users to opt-in, to be able to install it on their computer. And all it’s going to do, it’s going to collect information about them, and then we’ll share that information with publishers. And as the user goes around to different websites, a publisher who’s opted into our system, can then show much more relevant ads to the consumer on that site than they would otherwise. So, we figured this was a brilliant, a brilliant approach, and it made a lot of sense for us to be able to… The pitch to the consumer was you get cool content, in exchange for opting-in to install this piece of software. And when you go to websites that you like, you’re now going to get more targeted advertising.

Andrew: OK.

Interviewee: So that was the idea, and the model changed completely, so now we’re working not to show advertising at all. All we’re going to do is collect this non-personally identifiable information.

Andrew: Ok, so then you were, you went on to saying, let me see if I have got a good case. If I have a good example. Somebody launches a website around games, wants to give the games away for free because they know that users online are too cheap to pay for anything. Needs a way to make some money. Turns to you guys, says give me a, give me something that will help me make money. You give him a program that his users will install on their computers, and will run ads on the game site based on those users’ experiences. But only ads on the game site?

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Andrew: You give him a program that his users will install on their computers and will run ads on the gamesite based on those users’ experiences, but only ads on the gamesite, or was it also going beyond it to any ad on the internet that they saw?

Interviewee: Go beyond that as well. So the idea was, then, user goes from the gamesite to another site, and if that site happens to be partners with us, then we would real-time, share information about that consumer when the consumer went to that website, and now that publisher would be able to show more targeted, more relevant ads to that consumer. So consumer, of course, is at the end of this, they understand what’s going on, but they get free content on one site, and on another site, now they’re able to get more targeted, more relevant ads to them that actually, kind of, tie in to what their interests are.

Andrew: Okay, and what I saw from my research, you started off with webites, but you moved on to software that users installed, so if a user were to install some piece of software that they got for free or maybe that they paid for, they would also get your software in addition to it, and then that would run ads on the websites that they saw.

Interviewee: That’s right, that’s right.

Andrew: Is that the incarnation of the business that brought in 78 million dollars?

Interviewee: That’s the beginning of it. So what was fascinating about this is that we had this whole business model, we had the beginnings of the technology built that would do this data-sharing and pass these behavioral tokens and categorize users etc. What we realized was the amount of revenue we could generate was very, very small, and certainly until we had a whole lot of publishers who were paying us for that data, then the amount of revenue we would generate would be just infinitesimal. And so, what we decided was, well, until we get to a point where we have a lot of publishers who are actually subscribing to our data, let’s show some ads, and we’ll show a pop-up style, pop-up form of an ad. We’ll tell the users, “Hey, we’re gonna limit the amount of ads, we’re not going to beat you over the head with it, but we’ll show you a few ads a day, they’ll be targeted, they’ll be relevant, we’ll use the information ourselves to be able to make sure we target these ads, and we’ll only do that for awhile, and then at some point in time, we’ll be able to change the model, we’ll go back to this data”. We never went back to the data. That model worked, and we started a skill business.

Andrew: Okay. What was it like when you started bringing in serious money? Were you taking home a salary by the way?

Interviewee: I hadn’t been for a long time. We didn’t believe it at first. It was, I mean at this point in time, we were really beaten down. We had no money, we’d had to lay everybody off, we’d do a little bit better, we’d bring everybody back, we’d lay people off, we’d drawn up to, I think about 19 people at the peak, and at the trough it was me, and so I had kind of gone through this cycle many times. Personally, I was going through a divorce, it was just a very traumatic and very tumultuous time, and so when we actually started to scale and to grow, we just didn’t believe it. We just, we were still very much in hedgehog mode, and we let the revenue grow well in advance of us then, making any investments in any fixed cost to start to really grow and scale the business.

Andrew: When you were going through your divorce, were you guys making money as a business or losing money?

Interviewee: We were losing money, yeah we were getting killed.

Andrew: What did you feel like at the time?

Interviewee: It’s interesting, you certainly feel like you’re under attack. And you always feel like there’s- you’re the only person who gets it. Nobody else around you gets it. Your fam-

Andrew: Who gets hit, you mean.

Interviewee: No, nobody gets what- What I see, this light at the end of the tunnel, this beautiful prize that I’m going for, nobody else sees it. I must be the only guy who sees it. And there’s your family’s telling you to go out and get a job, your wife’s telling you to get a job. You know you can go out and get a decent job, and make a decent amount of money and you can pay the mortgage, but for some reason you’re just stubborn and you stay doing what you’re doing. So you know, it’s a time where you feel a little bit alone. The good new for me was that I was surrounded by a bunch of people in the business. There were 4 or 5 people that were in the business who absolutely stuck with me through thick and thin, and even when it came time to, you know, we were out of money and they needed to go get other jobs, they still did moonlighting for the business, they still stayed involved, and as soon as we started to generate some revenue, they came back to the business and helped. So there was a core group of people who absolutely stuck with it and had a lot of-

Andrew: Who were these people? How did you know them?

Interviewee: So they were, some of them were my friends. When we started the company originally, there were 6 other folks plus myself that started the company. Nobody was getting a salary, but everybody got a little bit of equity, and then continued to give in grant more and more equity as we went along. And some of the people were in that group, some of them were not in that group. One was an intern that we hired who started with us as an unpaid internship and then she started working for us and literally did every job in the business from traffic manager to office manager to bookkeeper and ultimately ended up in sales.

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Interviewee: Yeah. And it was, you know, the money, yeah, it was great. It was, yeah, there, the fact that we had persevered through that, I think, meant much more to all of those people than, than the actual check. And it wasn’t till probably six months or so later that, that people actually started to, kind of, spend some of that money. It started to, you know, resonate and go, “”Oh yeah, it actually, it’s actually money and you can, you know, do different things now that you got some money.”” Yeah.

Andrew: I get that. I get that. Okay, so it seems like if this was movie that would be the height. Maybe there were other heights, but this is part, part, if you were Scarface in the movie. And I remember this Scarface movie I watched on VHS. The end of the first VHS he’s in the tub, big house, watching a TV smoking a cigar. The second tape is where things start to go bad.

Interviewee: Yeah.

Andrew: So we’re on the end of the first tape. You’re smoking the cigar. You’re in a good spot. You’ve proven the vision, the light that you saw at the end of the tunnel was true. Then it seemed like you guys changed the software. Changed the business. Got a little bit more aggressive with it. True?

Interviewee: Well, so, I, I think a lot of things happened. A lot of dynamics changed at that point in time. As much into that whole experience all telling each other we’re not gonna let this change anything, it did. The, the reality is it did change things. And so, so I think several things happened. One is we, we became a bit of a target. We got some decent press. You know raising forty million dollars in, in Seattle, and it was officially called our Series A because the prior Series A that we raised, we actually bought that stock back, back from those investors. So this was a Series A. It was the largest Series A in, inSeattle at that point in time, you know. So it was, it, it got some press, made us a bit of a target, and, and it also really exposed some of the weakness of, of our business. And so, up to that point in time we had, you know, we’d, we’d lived like paupers for a long time as a company. And, and so we always built our infrastructure, hired our employees, everything after the revenue was, was built. And so we felt like that was the conservative thing to do. We felt like it was the right thing to do. It, it ultimately ended up costing us a lot, cause what happened is we didn’t have the infrastructure in place to be able to properly police this thing that we had built. We had a business that was doing fifty million dollars a year in revenue.

And, and, you know, at the time, probably eighteen million dollars a year in [EBATAH] it was throwing off a lot of cash and it needed more infrastructure than what we’d given it. And so, what was interesting as, as you look back, hindsight being 20/20, is that the very thing we felt like we were doing to be conservative was the thing that we were doing that actually ended up risking and costing the business a lot. And specifically what that meant was we had an affiliate network of, of publishing partner that we worked with. Whether they were software developers that have their own software or other publishing partners that, that just distributed you know, had, had content, games, videos, etc. That would distribute our software for us.

And, and so we always had very specific rules for those folks, which was, we’re gonna give you our software, you’re gonna go out and distribute it, you have to make sure that you say the following things to a user before they opt in to install our software. Here’s the things you have to say. Here’s how you have to get their permission. Etc. So, we were always very specific about that. We always got publishers to sign up on, you know, sign off on the contract that said that they would do that. The vast majority of them did that, some of them did not. And when they did not we didn’t have the proper, you know, just infrastructure to police that and be able to find the guys that weren’t doing that properly and to be able to shut them down.

Andrew: I see. Basically what they were doing was they were installing your software on their users’ computers, in some cases not even their own users’ computers. And the software would run these ads on there and you guys would pay them for getting the installation of the software and you guys would get paid every time their ads were run on, on user’s sites.

Interviewee: Yeah, so interestingly, we probably wouldn’t make much money, cause we, we had a very performance based ad network. And so, so if a user, all of a sudden, got our software and they didn’t expect it, they didn’t opt into it, they didn’t know where it was coming from. The likelihood that they’re gonna respond to an ad and actually, you know, buy something through this ad, is very, very low.

Andrew: But they don’t know that the ads are coming from you. You guys are popping up ads, your replacing ads on sites, or links. They don’t know that it’s you, especially if you guys haven’t, if you guys don’t have a real app of your own. You’re just piggybacking off someone else’s app.

Interviewee: Yes, so we did have a real app of our own. We had our own uninstall. So the user would go and they would, you know, if you go to “”Add/Remove program”” it’s always right there in “”Add/Remove programs””. You can uninstall it out of “”Add/Remove programs””.

Andrew: By app I mean you guys didn’t have your own GUI. There was no graphical user interface to your site. There wasn’t a big box that, that sat there on their screen saying this is, this is Keith’s site. This is Keith’s program. Right?

Interviewee: That’s right. That’s right. Yeah, and, and so while our ads are, you know, were labelled and the user could tell where they were coming from, the reality, and, and by the way we didn’t replace

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Andrew:Yeah and the money was great. The fact that we had perservered through that, I think, meant more much to all of those people than the actual the check. It wasn’t until probably six months or so later that people actually started to started to spend some of that money and it started to resonate that “Oh yeah, it’s actually money and you can do different things now”.

Interviewee: I get that, I get that. Okay, it seems like if this was a movie, now would be the height. Maybe there were other heights, but this is the part where if you were Scarface in the movie, and I remember the Scarface movie I watched on VHS. The end of the first VHS he is in the tub, big house, watching a tv, smoking a cigar. And the second tape is where things start to go bad.

Andrew: Yeah.

Interviewee: So, we are on the end of the first tape. You are smoking a cigar, you are in a good spot. You have proven that the vision, the light you saw at the end of the tunnel was true. Then, it seems like you guys changed the software, changed the business, got a little bit more aggressive with it. True?

Andrew: Well so, I think alot of things happened. Alot of dynamics changed at that point in time. As much as we went into that whole experience all telling each other we are not going to let this change anything, it did. You know, the reality is that it did change things. And so, I think several things happened. One is we became a bit target and got some decent press, you know, raising $40 in Seattle. It was officially called our series A because the prior series A that we had raised, we actually bought back that stock back from those investors. So, this was a series A. It was the largest series A in Seattle at that point in time. So, it got some press, made us a bit of target and also really exposed some of the weakness of our business. So, up to that point in time, we had lived like paupers for a long time as a company. And so, we always built our infrastructure, hired our employees, everything after the revenue was built. We felt that was the conservative thing to do, we felt like that was the right thing to do. It ultimately ended up costing us alot because what happened is we did not have the infrastructure in place to be able to properly police this thing that we had built. We had a business that was doing $50 a year in revenue and at the time probably $18 in ______. It was throwing off alot of cash.

It needed more infrastruction that we

Interviewee: Yeah. And it was, you know, the money, yeah, it was great. Yeah, the fact that we had perservered through that, I think meant much more to all of those people than the actual check.

Interviewee: Yeah. And it was, you know, the money, yeah, it was great. It was, yeah, there, the fact that we had persevered through that, I think, meant much more to all of those people than, than the actual check. And it wasn’t till probably six months or so later that, that people actually started to, kind of, spend some of that money. It started to, you know, resonate and go, “Oh yeah, it actually, it’s actually money and you can, you know, do different things now that you got some money.” Yeah.

Andrew: I get that. I get that. Okay, so it seems like if this was movie that would be the height. Maybe there were other heights, but this is part, part, if you were Scarface in the movie. And I remember this Scarface movie I watched on VHS. The end of the first VHS he’s in the tub, big house, watching a TV smoking a cigar. The second tape is where things start to go bad.

Interviewee: Yeah.

Andrew: So we’re on the end of the first tape. You’re smoking the cigar. You’re in a good spot. You’ve proven the vision, the light that you saw at the end of the tunnel was true. Then it seemed like you guys changed the software. Changed the business. Got a little bit more aggressive with it. True?

Interviewee: Well, so, I, I think a lot of things happened. A lot of dynamics changed at that point in time. As much into that whole experience all telling each other we’re not gonna let this change anything, it did. The, the reality is it did change things. And so, so I think several things happened. One is we, we became a bit of a target. We got some decent press. You know raising forty million dollars in, in Seattle, and it was officially called our Series A because the prior Series A that we raised, we actually bought that stock back, back from those investors. So this was a Series A. It was the largest Series A in, inSeattle at that point in time, you know. So it was, it, it got some press, made us a bit of a target, and, and it also really exposed some of the weakness of, of our business. And so, up to that point in time we had, you know, we’d, we’d lived like paupers for a long time as a company. And, and so we always built our infrastructure, hired our employees, everything after the revenue was, was built. And so we felt like that was the conservative thing to do. We felt like it was the right thing to do. It, it ultimately ended up costing us a lot, cause what happened is we didn’t have the infrastructure in place to be able to properly police this thing that we had built. We had a business that was doing fifty million dollars a year in revenue. And, and, you know, at the time, probably eighteen million dollars a year in [EBATAH] it was throwing off a lot of cash and it needed more infrastructure than what we’d given it. And so, what was interesting as, as you look back, hindsight being 20/20, is that the very thing we felt like we were doing to be conservative was the thing that we were doing that actually ended up risking and costing the business a lot. And specifically what that meant was we had an affiliate network of, of publishing partner that we worked with. Whether they were software developers that have their own software or o

ther publishing partners that, that just distributed you know, had, had content, games, videos, etc. That would distribute our software for us. And, and so we always had very specific rules for those folks, which was, we’re gonna give you our software, you’re gonna go out and distribute it, you have to make sure that you say the following things to a user before they opt in to install our software. Here’s the things you have to say. Here’s how you have to get their permission. Etc. So, we were always very specific about that. We always got publishers to sign up on, you know, sign off on the contract that said that they would do that. The vast majority of them did that, some of them did not. And when they did not we didn’t have the proper, you know, just infrastructure to police that and be able to find the guys that weren’t doing that properly and to be able to shut them down.

Andrew: I see. Basically what they were doing was they were installing your software on their users’ computers, in some cases not even their own users’ computers. And the software would run these ads on there and you guys would pay them for getting the installation of the software and you guys would get paid every time their ads were run on, on user’s sites.

Interviewee: Yeah, so interestingly, we probably wouldn’t make much money, cause we, we had a very performance based ad network. And so, so if a user, all of a sudden, got our software and they didn’t expect it, they didn’t opt into it, they didn’t know where it was coming from. The likelihood that they’re gonna respond to an ad and actually, you know, buy something through this ad, is very, very low.

Andrew: But they don’t know that the ads are coming from you. You guys are popping up ads, your replacing ads on sites, or links. They don’t know that it’s you, especially if you guys haven’t, if you guys don’t have a real app of your own. You’re just piggybacking off someone else’s app.

Interviewee: Yes, so we did have a real app of our own. We had our own uninstall. So the user would go and they would, you know, if you go to “Add/Remove program” it’s always right there in “Add/Remove programs”. You can uninstall it out of “Add/Remove programs”.

Andrew: By app I mean you guys didn’t have your own GUI. There was no graphical user interface to your site. There wasn’t a big box that, that sat there on their screen saying this is, this is Keith’s site. This is Keith’s program. Right?

Interviewee: That’s right. That’s right. Yeah, and, and so while our ads are, you know, were labelled and the user could tell where they were coming from, the reality, and, and by the way we didn’t replace

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Interviewee: …place ads in sides. We didn’t replace lanes. We didn’t do any of that kind of stuff. What we did, we didn’t even get to the business model I described earlier which was share the data with other publishers. What we did was we delivered popup ads. That was it. And it was based on real time behavior what the user was actually doing. And so what happened though is that in the relatively rare instances where a publisher would go and start installing our software without proper notification of the user. The user would all of a sudden see this application show up on their computer and they don’t know where it’s coming from. It says, “Oh look its Side Zango or its one eighty solutions, you know. And then it’s automatically its Zango or One eighty solutions is the person or is the company who installed the software on my computer when in reality, you know, we’re sitting in the background and had no idea that this was going on. Once we figured out it was going on, scrambled to try to fix it. And realized very quickly that we didn’t have the infrastructure, we didn’t have the ability to go out and properly police that. So it took us a lot longer than it should have to get our arms around that particular problem and to solve that problem. As a result, it created a massive problem for us.

Andrew: OK. The research that I done was showing that you guys replaced affiliate links with your own affiliate links. That if I went to Amazon.com directly what your software would do is really redirect me to Amazon.com through your affiliate links. You’d get paid for it but I wouldn’t even know that that was happening. Was any of that being done by you guys directly?

Interviewee: No. No. It wasn’t at all. And whets fascinating about it is that if you read on the internet about, you know, all of the..because there was a whole, you know, group of folks that really truly became haters of our company. That you would read this stuff and it is absolutely fact, you know, as far as they’re concerned. I can tell you is the guy who was the primary pride manager in fact that, you know, I know the guys very very well who the primary developers of our software, you know, through that entire period of time that absolutely not. What we did do was we delivered ads in what we thought was a very ingenious new ad format. And its funny how it came about is that we realized when we were going to start showing these popup ads and we said, “You know what, we don’t have creative for these ads and we don’t have the creative ability to be able to create the ads so let’s show the landing page. Lets not show a piece of it, you know, a creative, you know, in between or some sort of ad in between. If the advertiser wants the user to get to the landing page, let’s show the landing page. So this was in our minds…

Andrew: In the popup you mean.

Interviewee: In the popup.

Andrew: Um hm.

Interviewee: So what it actually did is it would just watch a new browser window, you know, fully qualified URL. It was just as if you launched a new browser window with this destination site inside the browser. So this was a great idea. It worked great because we were able to quickly sign up new advertisers who wanted to work with us. And we started this whole new ad format and this whole new metric called cost per visitor. And it wasn’t quite a click. And it was more than an impression. It was a visitor who actually came to your site but the visitor didn’t come through a typical click. So cost per visitor, you know, great new model. What would happen in that, when we would deliver a webpage, is that the advertisers who track usage and track affiliates based on dropping cookies. The way they do that is when you go to their webpage, then they drop the cookie. And so what would happen is that we would launch an advertiser [inaudible 43:33] advertiser’s webpage, their site would automatically drop the cookie on the user’s computer. And they use typically what’s called a, you know, a last in first out kind of a model. So whoever was the last person who happened to have their cookie dropped on this user’s computer is the person who gets paid the affiliate commission. So what’s interesting is that there is an incredible amount if hysteria about this issue as it related specifically to affiliate marketing, affiliate advertising. And so we spent a great deal of time with the major affiliate companies because we did a lot business with them at the time, to figure out the problem and get our arms around the problem because we weren’t out there, you know, replacing lanes. We weren’t trying to, you know, cookie stomping. All we were doing is delivering an ad format that works great over here. All of a sudden in the affiliate world it was causing challenges. So the actual data..if you look at…because..the affiliate networks all knew exactly, you know, how many times, you know

, publisher A came along and delivered there cookie and how many times we would step on top of that cookie. The actual data showed that we were doing that about one point five percent of the time. There tolerable level was higher that that for more publishers. And in fact they had publishers that would regularly step on cookies five, seven, even fifteen percent of the time. So we were well below those numbers. But the hysteria around this idea that we were this client sets out for applications. Somehow we were evil. We were going out there and actually perpetrating this….

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Interviewee: Just caused a lot of noise. So ultimately we ended up having to part ways with the major affiliate networks, but despite the facts on the internet that you’ll read about us being as malicious and evil guys in the back room figuring out how to steal commissions. It was never the case, we never did it and, and to the extent that it happened it was, it was a byproduct of the actual product, and it happened on a very small amount of cases. And in fact, one of the solutions that, that we came up with, well came up with a lot of solutions as to how solve this, but one of the simpler solutions was one of the affiliate networks contracted this. They see when you step on a cookie but don’t pay us for those, we didn’t want to get paid for those, we didn’t, we weren’t trying to purposely get paid for those, just don’t pay us for those, and, and, you know, despite that we came up with a very kind of common sense solution that would make sense in the world, kind of the public outcry that was going on at the time.

Andrew: What about the, eth, bef, one last thing

Interviewee: I hope I don’t sound defensive Andrew, you can tell it’s, you can tell, it spires this kind of this argument that I had to face, you know, for several years at this company. So when the facts are on your side, but you know, you, the public tends to make you a bit of a, a bit zealous about your position, so

Andrew: You know, I’ve got to say that, I made a mistake in a interview earlier where I made a statement where I said the only way you can make money is by figuring out what your users want and figuring out what the world wants and then giving it to them, and because I made that statement I couldn’t allow this interview to continue without addressing the, the questions about whether you guys are really doing that, or whether you guys were just out to see if there was money in cookie stomping, whether there was money in misleading users, whether there was money in some of the shadier part of the business. So, that’s where that, that’s where that came from and I, I, had to bring it up.

Interviewee: No, I’m glad you brought it up because I, I was always happy to have this conversation, especially when we’re in the middle of this whole battle. I was always happy to have this conversation, the problem that we ran into was that a lot of times you are just not able to have the conversation. And because, it’s, you know, it becomes a well known fact that you’re, that you as a company are doing something, then everybody just kind of believes it and assumes, and never actually gives you a chance to explain what’s actually going on, and so, I’m happy to have the conversation as long as nobody’s

Andrews: You know there’s some companies that have done some other things, there’s gator.com that actively replaced banner ads on peoples websites and showed up pop ups and there was eventually, in conversations with Microsoft and what I understand about it’s sale to Microsoft. So there were people who were exploring this space it was just a type of space to be in because, because you were battling with publishers about popping up ads on their sites because users are kind of clueless as to what it is going on, on the internet. There are a lot of users who will still double click hyperlinks on a website, and so it’s hard to expect them to understand what’s even on their computer beyond what they’re looking at on their screen and there’s other issues. Now, also, one last thing on this, two last things on this area that the virus programs, the virus sites gave you guys a hard time, and I think identified you guys as spyware and adware, and there was also an FTC issue around it, right?

Interviewee: That’s right, yup, exactly, so, so these were some of the headwinds that came sort of, after, after kind of we went through that initial scale, how we raised this capital and then on top of that there were some other companies that were, you know, well known adware companies and all of a sudden we found ourselves in this space called adware that we, we, you know, that was a little bit foreign to us, that certainly wasn’t were we intended to be going in the first place but, yeah, the business model that we were out there executing on, we were saying site that have users that are coming to their sites aren’t making money off of the, of their existing advertising platforms, need a way to be able to make money and so we’re helping them make money and we’re paying a lot of money to publishers. Content providers who are providing lots and lot of content, games, videos, etcetera, that are having a lot of difficulty monotizing in that, we’re helping them monotize that. Consumers who want access to that stuff, want access to that and they don’t want to have to take out their credit card and pay for it, so if they opt in and install our software, then they’re able to, to get access to that stuff for free and of course advertisers who want to have a part in a targeted platform who want to get the consumers will be able to have really reliable, effective advertising and we were providing that for them. So, we were out their executing on that business model, turns out, what, what everybody, you know, not what we were doing, but a fair number of people felt that we were doing was stomping on affiliate cookies and stealing affiliate links, and, you know, and things that

Andrew: In retrospect, how to you battle that. Now that you’ve got twenty-twenty hindsight, what could you have done differently in that situation?

Interviewee: Well, it’s funny, you know, I don’t think I have twenty-twenty hindsight as it relates to this. I think I think I have better vision now, looking back, then I did at the time, it’s, it’s

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interviewee: I guess what I would say is that it doesn’t matter that you are rightof people, and alot of loud people feel and proclame that you are doing something other than what because if a lot is reality there reality will probably trump yours.What happened to a large degree, whats interesting though is that we continued to grow the business and the business continued to be increadably successful, we continued to have more and more consumers come to us and opt in to install our software, and the more we made it, you know, even more clear and more, you know messages in front of them, and made sure that after they installed our software we show a full page add that said, and by the way you have our software installed and you can uninstall it any time there is always an icon in the systems tray and you can uninstall it, you know, and it will all ways give you full instructions and you can always go to add and remove programs and every single add that comes up, it always shows our name in the top and there is always this full little bar at the bottom that says by the way you can click on this link and it will tell you all about how to uninstall our software you, know everytime there is a message to the user there are mutiple outs. Even when we did all of those things business continued to grow , continued to scale advertisers were happy with us, you know consumers were happy with us. The people that weren’t happy with us were a couple of folks, some of them were people that felt like we were cheating them out of there affiliate commisions witch was not true, and as i mentioned it just wasn’t the case. Some people that were not happy with us were the people that had a vested interest in finding the boogie man, and these people, i really looked at them ultimately as competitors. So somebody who is selling an anti- spywear application has to be able to convence the user that there is a reason that they should pull out there credit card and pay twenty dollars to buy t

his softwear.

Andrew: And you are an easier boogey man to go after than somebody who is faceless and in another country an creating some software that is hard to understand here you guys are, with a face, with a reputaion

Interviewee: Yes we can stand up and say this is us, this is were we are at, you know, here is a one eighthundred number on our website, you know, there is ,you know, you can get to one of this way. You can find us we are not hiding were are not playing any silly games with a client were we are trying to unistall other software applications are hide from other spyware applications or any of that other stuff , this is where we are at. and so We had a little friendly term inside the company were we called our self the tallest midget. So , you know, we were the guys that were standing out there and saying this is us and of course we were getting our heads shot off. but the business contines to grow.

Andrew: What happened at the end of it, how did it end? I want to get to the end of it and then what we learned from this business and what other people can take away from it and then move on to big door. So what happened at the end?

Interviewee: So at the end what ultimately happened was that we faced a couple of significant headwinds that ended up having a temorary decrease in the business specifically there was a virus that spread through the network that ended up costing us about seven million dollars and this was a critical time were we had taken on some additional debt to buy and additional company and this was right at the time that the finacial world was fixing to collapse and our lenders were very very very nervous and so we missed a covenant and that the lenders began at that point and time actually sweeping cash out and our business it was pretty simple you need to go out and pay publishers to get users to install our software and we need to pay them and we would spend, you know, at the peak two and half million dollars a month to publishers, they would go out and they would and get users to install and then based on the users that install and then we gereate revenew on those users over the susequent six months so when you have a big chunk of your user base that suddenly dissapears because of this virus that effects your profits for the next x number of months you need to invest more money at that point and time to build the audience back. Because our cash got swept by very very nervous lenders we didnt have the capital, to build back the audience or even to sustain the audience and beyond frankly this death spiral of just having every single month having less and less money to spend on new user acquisition and it was amazind where you see a company that ,you know, was was that was doing nine million dollars a month in revenue and and shrunk very very quickly under that presure and i mentioned, I think earlier we had twenty four consecutive quarters with positive evida so six years every single quarter we had positive evida and we had one quarter that had negative evida and getting to that one quarter of negative evida and having that happen at the exactly the wrong time which was

when the world wide finacial crisis was happening in late 2008 forced our lenders into a position where they forced us to look for a buyer to acually , you now, come in and buy the business. That is ultimately what ended up happening.

Andrew: You know what, its verey interesting i read biography’s of billionaires all the time and often, no matter how much money they make all have the feeling that it all going to go away at some point. The authors, the cant understand it they incredulous [Why would these guys believe ]

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Andrew: [Why would these guys believe] that their money could go away just like that? Well, you know what? ‘Cause it could! ‘Cause one thing goes wrong and then another thing follows, and then the environment around you isn’t there to support you and it all just suddenly goes away. And maybe it doesn’t happen literally overnight but man, it sure feels like it happens overnight. Um, so you gotta…

Interviewee: Well, I pulled out an email that I’d sent to my father a couple years before all this happened and in it I said to him, you know, look, I attempted to, to scale and grow my business, so the result means that any amount of money that I make I’m probably going to put it all back into the business and that at some point in time, people like me fail, and everything that I had could very likely disappear and go away, in which case, only to pick myself up and keep going, and that it was almost, you know, as I looked back on that email, it was very prophetic, you know. While I didn’t pour all of my money back into the business, I did pour a lot of it back in, you know, millions over the course of this process while the business was suffering.

Andrew: That cheque that you took out, you put some of it back into the business?

Interviewee: I put everything liquid I had, and took, you know, houses that were paid off and mortgaged them and put that money into the business as well. Yeah, so, all in, about four million dollars I poured back into the business in order to try to save it during that last period.

Andrew: So did you have anything at the end of it? Your debt from what I understood, your shares from what I understood, were worthless, I think. I read a quote where you said that your, your debt to the company was worthless too.

Interviewee: Yup. That’s right.

Andrew: So did you have anything personally afterwards?

Interviewee: Yeah, I had some things. Uh, you know, nothing liquid, but yeah, I had a lot of experiences. I’m wealthier for that all by itself. But yeah, from a financial standpoint, it didn’t wipe me out. I did actually… This is a whole sidetrack we won’t get off on but there was a actually a lawsuit during this whole period of time as well that forced me to have to file temporarily for bankruptcy protection. But as a part of a sale, that lawsuit went away and so I immediately got out of bankruptcy protection and so itso it was…

Andrew: Financially, were… did you have anything left financially, anything significant at the end of the business or not?

Interviewee: Yeah. Yeah I did. Yup.

Andrew: And if it wasn’t liquid, what was it we’re talking about, stocks? We’re talking about assets?

Interviewee: Yeah. Real estate and stocks and that kind of thing. And uh, I don’t know if you’ve read the newspapers but real estate hasn’t done [worked] in the US either but uh… so that certainly had its own set of challenges, but yeah, sure, I, you know, it was okay.

Andrew: So now, let’s go back. What do we learn from that business that was right? Because you clearly have done things right. You built up a business from scratch and you got it up to incredible heights that most people will never reach. What do we learn from that? Is it, is it the drive? Is it? What do you think?

Interviewee: So, it’s a couple of things, I think. As I look back at what really worked in my business… and so… some of the things that worked really well were that we created an ecosystem that allowed other people to be able to make money. And that’s a really powerful thing. If you can create a, you know, really, an economy for other people to be able to make money and to make more money than what they’re currently making, it’s a powerful thing and it’s a powerful motivator. And so, that’s a great thing… that I also realize is a powerful motivator to go beyond and do negative things. So any time you create that you also have to create controls and rules and the ability to properly police that. Now that’s obviously a big lesson for us, and the whole experience, but I think that’s a powerful thing. And that’s something certainly that I carry over to our new business. And I think, you know, the idea of whether you’re helping publishers to make more money from their sites, or you’re helping the advertisers because they’re able to use your platform and they’re able to put a dollar in and be able to get two dollars out, those are both really powerful things and they can work together to actually grow a business, I think, exponentially, if you can create, you know… figure out how to make that work and how to make it saleable.

Andrew: Now here’s what I’m seeing about you. There’s a FIGHT to you. As we’re talking about, fair to say, that you went from $78 million to nothing, to practically nothing, and then you’re back in the ring?

Interviewee: Yeah, it’s, you know, it was… for me, it was simple. It was, you know… There wasn’t really a choice. You know, I needed to… Well, first of all, I saw a huge opportunity. And I saw an opportunity that we weren’t able to take advantage of at my last company because we were, well… some of it was because we were doing a lot of fire fighting, some of it was because we were just in a different business. And I saw a lot of opportunity just generally speaking on the internet in other areas that as an enterpreneur, you’re just kind of always thinking of new ideas, and so there are a number of those ideas just kinda rambling around in my head. And so it felt to me like sitting around and you know, crying in my beer didn’t make any sense. And shaking the dust off and going made more sense.

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Interviewee: going made more sense and so that’s what we did. You know, I took about 10 days off I went to Mexico and sat on a beach and drank some tequila and read some books and then I came back and dove right back into it.

Andrew: Andy Lou I told you I interviewed yesterday. He’s a partner at the Founders Co-Op which is investing in your current business in Big Door. He told us that he wants entrepreneurs who are willing to walk through walls to get where they are going. Do you feel that way about yourself?

Interviewee: Yeah, I think I’d rather walk through a door, but you know, I think in my own experience, unfortunately, I’ve chosen more walls to walk through and stow. I think part of starting the company when I’m 38 instead of 27 is trying to be a little bit smarter about which walls and maybe I’m a little more selective about which walls I’m willing to knock down…

Andrew: What do you mean? What kind are you willing to walk through and what kind are you not willing to walk through? Let’s start with that.

Interviewee: So I think, you know, I’m not at all interested in this whole argument that we eluded to earlier that I probably got overly passionate about discussing and defending because I don’t need to defend this company that I’m not involved with anymore. But, this whole thing about Adware, Spyware, etc, we may have been right about that I am not interested at all in the slightest of continuing to have that discussion. That’s something that is, I want to learn from those experiences and am certainly not shy about sharing those experiences. It’s not something that I feel like I need to go start a new company that proves myself right. The walls I guess I’m willing to knock down are the walls that are things like when people say it can’t be done or when people say that you should give up on a particular idea…

Andrew: But are you even more passionate now because now you’ve got more to prove?

Interviewee: Yeah I think so.

Andrew: Right.

Interviewee: There’s a bigger eco-system of people who are watching me that are involved in my success or my failure, yeah, that puts a lot more pressure in a good way, I think, to force you to continue to go forward.

Andrew: Okay so, getting back to now Big Door, that’s the new idea. The vision here is similar to the previous company. Right? Now we’re about an hour into the interview. We introduced the previous company as E-Pippo. It went through some name changes, but regardless, what you’re running now, Big Door, is similar to that in the sense that in order to get content, in order to get something for free as people want online, they have to accept something in return. In this case it’s some kind of legion or some kind of ad that they accept and then they get access to the site. True?

Interviewee: I guess I would say there is, the only similarity between the last business and the new business is that in a very, very broad sense it’s trying to solve some of the same problem. By that I mean that there are entertainment related sites on the internet and entertainment related publishers. So you may be developer for the iPhone or you may be developer on Facebook or you may just be a website if you need a website and it is very difficult for those types of publishers to generate significant amounts of revenue. So we are trying to help those publishers generate more revenue. So, in that sense we’re trying to solve some of the same problems. The tools that we’re using, the things that we’re doing to help solve that and to help build a platform for those publishers are completely different so those don’t compare at all. So, you eluded a little to our first product and so our grand thesis was that there was a better way for those types of publishers to be able to monetize their content and their users. What we decided was that our initial scope and our intial vision for Big Door was kind of a boil the ocean kind of a vision.

You know, it was too big, too broad we knew that when we developed it. We all had kind of a big game plan. So we decided we really need to focus, we had limited resources, and plus we want to be able to go very quickly get a product out on the market place and get feedback from publishers. And so we really focused on what is the minimum marketable features set. What is the very minimum that we can do to build a product, get it on the market, get feedback from publishers. We did that and got very consistent feedback from publishers and so now it’s great because we’re in this loop where we have relationships with our publishers, we have them using our product. We have them giving us feedback, telling us what can be better and we’re back to the drawing board now and we’re integrating and improving upon it. What’s happening now is we’re broadening the scope again but in a different way and applying kind of different techniques than we probably would have in the beginning had we just gone out and tried to go forward with our initial plan. So listening to customers, you know, it helped us a lot in our last business and it’s still a good thing.

Andrew: One of the challenges in this business is what makes the most money is the offers

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Andrew: Is like the ringtones that people maybe don’t know all the details of. How do you stay away from them and still earn enough money to keep going?

Interviewee: So, I don’t know if those offers earn the most money, we don’t, and haven’t provided those kinds of offers or let those kinds of offers come through our offer platform and we are on a very small scale at this point in time. And so we’ve kind of been able to watch, there’s been a lot of noise recently, and good noise, I think, about this whole space, and about you know, good offers versus bad offers. And so I don’t have any insight into those companies other than what they’ve publicly doing or what they’re profiting from, but I think a good hot shower, you know, and a good scrubbing is good for the space. It’s relatively new, this idea of figuring out alternative ways to be able to monotize virtual currency, beyond just having somebody pull out a credit card is relatively new, and, and the worst thing that could happen to this industry is, it starts to rely on things that are shady or in gray areas. And so the fact that, you know, “Aaronteam” came out and, you know, and called a bunch of people, you know, basically scumbags is great in my opinion because we can’t have an industry that is relying on things that are going to rely on the ignorance of consumers in order to build a scaleable business and this has got to work for consumers, publishers, for the advertisers, the offer providers, and if it doesn’t work for all those folks then it’s not work long term. So I think it’s fantastic and we’ve been able to, fortunately, watch it from the sidelines because we haven’t been involved in any of that.

Andrew: And you’re talking about the series of articles that Michael Arrington wrote in a crunch about the way people are monotizing on facebook, by showing ads that, that are shady.

Interviewee: That’s right.

Andrew: Alright, we’re almost at the end of the interview. Let’s play visionary, lets see you and your vision for this space and business. Where do you see it going?

Interviewee: So it’s a great question, I think, there’s a great line that one of our board members have which is when he refers to financial projections, and I think this can be applied a lot wider than just financial projections, but he always says, we know they’re wrong we just don’t know how they’re wrong yet. And I think the same is true about, you know, a vision when you start out a company as well as your strategy and the execution and everything in your product, you know, it’s all wrong in the beginning, and the way you make it right is by listening to customers and iterating and improving upon it and making it better. With that said, what I have a clear vision for is

Andrew: Sorry, can you say that again. What you have a clear vision for, and then we broke off but you’re back, can you repeat it please?

Interviewee: Oh, sorry, yeah, so what I have a clear vision for, I think, is what the problem is, I don’t know that we have a clear vision yet for what the solution is going to look like, but the problem is that, that, we have a, a massive amount of consumers who are shifting their entertainment habits and they’re moving from mediums like newspaper, and television, and radio, and they are moving them online. And whether that’s on an iPhone or that’s on a Facebook app, or it’s just on a regular website that they’re, they’re, they’re transitioning their attention to those sites, and we as an industry have a great job of building a huge infrastructure for developing that content that those consumers want, you know, developing the connectivity, so they can be connected to the internet as well as the connectivity amongst each other and amongst friends. We have this great infrastructure now where we entertain those people. What’s amazing to me is that we have yet to build a business model that will sustain that, and so there’s a very clear business model in the offline world for entertainment content and monotize that and it works and what it allows for is that it allows for reinvestment into the content and into the entertainment for the consumers so that the consumer continues to have fresh content to entertain them. We’ve done a very good job of that, what worries me is that we haven’t build a business model that will make this sustainable online yet, and so what’s needed is a good business model that will work. The fact that there are sight out there that have, you know, five to ten million consumers who are coming regularly to their site and they are being entertained and they are using this content that the site provides, and the site is making maybe a couple million dollars a year. It’s crazy. You know, that’s not sustainable, that’s not enough for that site to be able to do that effectively in content that is going to be able to engage the users. We need a busine

ss model for entertainment related content.

Andrew: What do you think that’s going to be? You’ve been in this space longer than most people have even been aware of it, right? That’s why the guys at the founder’s co-op are supportive, that’s why Neil Pottel’s recommending that I talk to you. What do you envision?

Interviewee: I envision, I think it’s going to be a lot of things, I don’t think it’s going to be one thing, and in the same way that you take the movie industry, as much as it may be something that’s being attacked it’s, it’s, it’s worked for a long time, and so we can learn lessons

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Interviewee: from, from the way the they went about monetizing their content. And they had very specific, very different windows that they used to be able to monetize and it starts out with something that is, that is high friction, but high revenue per user. And that is that you have to get in your car, you have to drive down to the local newspaper, or to the local theater, and you have to pay you seven or ten or twelve dollars. And you have to go and you sit down and you watch you movie that way. And, and then they go from there to DVD which has slightly less friction and slightly less revenue per user. And then ultimately then end up as the movie of the week and movie of the week has very low friction and very low revenue per user but very wide distribution. And so, so I think we can learn a lot from, from, if not those specific types of windows, at least that there is a varied approach to the business model that will work to, to be able to allow consumers to engage in the content and be able to allow the producers of the content and the publishers of that content to be able to continue to invest in and distribute good, quality content and, and entertain us all. So, I think it’s going to be varied and, and I think there’s going to be a lot of pieces to it. And, and we won’t probably have the, you know, the corner on the market on it. I think there’s going to be a lot of people who are going to, to help to solve this problem for the whole industry.

Andrew: Alright, and I’d like to have you back on here and just talk to you about Big Door. Just talk to you about where you see the opportunities in this space. This could, this is huge. There’s a huge problem in this space that you’ve identified, which is that, as you said, sites aren’t making enough money. And if sites today aren’t making enough money they’re going to go out of business or they’re gonna start to, they’re gonna start to struggle and pull back on, on the benefits that they give users. At the same time, there are new sites that won’t even come to being, that won’t be created that, that, that won’t be created unless there’s a way for them to monetize. Unless there’s a pot of gold at the end of that rainbow, they’re not going to slave away and try to figure out how to do that.

Interviewee: Yep.

Andrew: And if you can solve that and if somebody listening to us can be a part of that solution it helps everybody.

Interviewee: That’s right. I completely agree. There needs to be an ecosystem that’s healthy that creates, you know, appropriately profitable businesses so that they can continue to invest and continue to build something that is sustainable for online entertainment and not something that is funded by venture capitalists and then goes away, you know, two years later. So, and, and, and we’ve built a lot of the core pieces we still haven’t built the business model and I think that still needs to be developed.

Andrew: Is the Founders Co-op actually an investor in the business or they’re just, they’re people are supportive?

Interviewee: Nope, they’re an investor.

Andrew: They are?

Interviewee: Yeah so we did, we did, did a round that was led by Founder’s Co-op and then other Angel Investors participated as well.

Andrew: Okay, alright. When you’re not working, finally, what do you do?

Interviewee: That’s it. I, I, I’ve, I’ve told everybody in my life, friends, girlfriend, everybody else, that I, I have two priorities at this point in time. It’s my kids, and it’s my, it’s the company. And, and, and I think that there’s, you know, there’s a, I have a recognition of the imbalance that starting a company creates. And I’m okay with that for, for some period of time, whether that’s two years, three years, whatever. And I’m, I’m trying to embrace it. So, so, it’s, it’s my hobby, it’s my, it’s my mistress, it’s my, you know, everything else that my kids are not. And so I’ve got kids and I’ve got work and, and I love it. I’m having a blast, it’s a lot of fun.

Andrew: Still in the ring. So many other people would have left way before you, way before, way before the end of the last company, way before, way before you got that check. Way before…

Interviewee: It’s fun. You love it.

Andrew: Way before every milestone.

Interviewee: Same, same thing for you right? It’s fun. You enjoy it, it’s, there’s a, there’s a thing about it that is just, it’s, it’s a lot of fun. And so that’s, that’s…

Andrew: It’s fun. I also feel that it’s a need that you, th at you just can’t do without it, you know. And, and also it’s painful. Also there are nights that you wake up and you go, “What am I doing? How did I, how did I get myself into this? I took on this debt or I gave this, my word to this other guy or now the guys at the Founder’s Co-op are expecting so much or now maybe I went on Mixergy and I said or he asked me to be a visionary and I was a visionary and now everyone thinks that, that I know the future. What happens if I’m wrong?” Most people can’t handle that. Most people have just one of these concerns, one of these issues in their heads and they go, “Forget it. What do I need this for? I’m gonna go and work for somebody else. I’ll go take a job and watch from the sidelines.” But there are a handful of people who see that and they go, “It’s painful, but I’m going in anyway. It’s tough, I could get, I could get hurt, but I gotta go and do that.” And those I think are the people who are, who are going to leave their mark on the world. I think, I think we look back today and the guys who started American Express and the guys who started the car companies and we look at them as pioneers, as visionaries. Kids in schools study them. Same thing, fifty years from now people will be looking at us and see us as visionaries as people who took this economy, this country, this world to the next step. Not all of us. Some of us are actually gonna be hurt and be forgotten, but the ones who leave their marks, I’m telling you school children will be studying us. They’ll, teenagers will be admiring us and waiting to graduate from school so that they can go out and, and follow in our footsteps. And the world in general will be


21 thoughts on “This Entrepreneur Went From $78 Million To Nothing. Now He’s Back In The Ring – with Keith Smith

  1. Ruben says:

    No matter how many times I hear about it, I'm still amazed at how quickly a company bringing in millions of dollars can go out of business.

    I like that he kept trying regardless of the failures they had; it's a great lesson for first time entrepreneurs like myself — persistence is key.

    Regarding the text summaries and excepts, I'm good with a quick summary like you gave with this interview. I think what one of your interviewees said would be better though: a quick statement that tells the viewers (me) how they'll benefit from watching the interview. Of course, this might be a little tough since people get different things out of the same interviews.

    And I'm loving the pace of the interviews you're doing. It's actually faster than I can keep up with since I'm also working on my own business right now, but that's not all that bad. (just hope you don't burned out going at this pace.)

  2. briteguy says:

    I like this interview. To Ruben's point, I heard again and again the key is cash flow for a startup. It is pretty much a survival game I guess.

  3. Giang Biscan says:

    It is amazing to watch the energy and passion from Keith's talk. My favorite quotes from this interview:
    – A deep desire to shape the world around you.
    – Sometimes it doesn't matter that you are right.
    – If you can create an ecosystem that allows others to make money, that is a very powerful thing. You must also create controls and rules and be able to properly police that.
    – We are in a “stupid phase” (referring to the exploratory journey that startup entrepreneurs go through)

    Andrew, I vote yes on a second interview. It seems like we barely touch the surface of Keith's vision and how he plan to shape BigDoor.

  4. ahh. That's interesting. So many I don't need to sweat the long summaries, but just offer a paragraph or two. Thanks.

    And I love the pace of the interviews too. It helps me build momentum with viewers.

  5. Great points. I hope everyone who sees this post reads your comment.

  6. Great interview. You'll often see magazines feature entrepreneurs who gross mega-millions at their peak with their companies. You rarely see follow-up articles to ensure that their success was sustained after the big peak. I'm sure Keith's story happens more than reported. Very insightful and informative.

  7. steepdecline says:

    Totally off topic
    Miss you in Santa Monica Andrew

  8. Since it happens more than is reported, I need to work even harder to keep finding those entrepreneurs. If anyone reading my site knows of stories like this, help me out. Make an intro.

  9. chrisleis says:

    Andrew, I enjoyed listening to the interview – you are doing entrepreneurs a big favor with mixergy.

    I'd always like to hear as much detail as possible about how the business model really worked, why it is/was successful in this particular point in time. Why it was better than alternative services. How it was marketed and gained so much momentum. Maybe that would be interesting to hear in a 2nd interview: what exactly was the distribution channel? (did they approach every single business customer (like games developers etc.) directly?

    Inventing a nice new business often is only the first step…The marketing is often the really tough, and costly thing….I guess there's a lot of nice business-models out there, but they die, because nobody knows about them.

    (Yes, I am! Incredible pace. But I have problems listening to them all. Normally I only have time for at most 2 per week).

  10. Jing Liu says:

    Hey Andrew and Keith,

    I've been listening to the all the interviews religiously often listening to some 2 or 3 times over. And this by far is my favourite interview!! I just love Keith and his story. It's amazing, very emotional ride that he went through.

    The part that really hit me is when he didn't remember the amount of money but just the memory of all his partners working so hard and going through so much trouble for so long, and finally making the millions together. That is amazing! Story of struggle, controversies, success and losing it all.

    This would make a great Hollywood movie. Serious! Amazing life.

    Hearing about his childhood of listening to his parent's friends success and failure and eventually living it himself, reminds me of Secrets of the Millionaire Mind by T Harv Eker. Eker wrote about the negative cycles that we subconsciously learn as children. Would recommend he checks it out.

    Keep it up! Let's get Keith back for a second round Andrew!

  11. louwrens says:

    Hi

    I just went through this time where I worked very hard for six months on my first big project, just to find out its not working.

    After all I went through I also found myself burnd out. I had to sit down and replan my live. I had to replan my daily program and I had to limit myself on woring on the internet.

    At the moment I went from 24/7 thinking and doing internet business to max 2 hours a day for only 6 days a week.

    I think I have a small understanding of what Keith ment and I realy admire him for coming back after it all and trying again.

    This inspired me ones again to hold on to this dream that I can not get out of my live, of having a great website!

  12. Will says:

    Wow – I could feel the emotion when Kevin talked about when times were really tough – especially during his divorce – I bet he had to dig deep down inside to channel all the strength necessary in order to keep pushing through.

  13. I am absolutely addicted to your interviews.
    This is a great thing you're doing here for us fellow entrepreneurs. I love the personal aspect of the conversations, relationships, family, partners etc. Nobody can understand the partner/associate relationship unless they experience it first-hand, thank you for bringing out the human side of the web business.

  14. Thanks. I never want my interviews to be kibbitz sessions where all we
    talk about is the personal stuff. But I think we'll never get a clear
    view of the process if all we see is what happens in the office?

    Sent from my mobile

  15. wesmahler says:

    Although I don't have the time to remark on all of the good ideas shared here, this was a very good interview I throughly enjoyed.

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