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Andrew: Hey everyone. It’s Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. How do you use funding to focus and supercharge your business? Well joining me today is Kirk Yokomizo. He’s the co-founder of Lithium Technologies. Before the company took funding in 2007, they did all kinds of things, including games and some wireless support for a device that you guys are going to hear about that I’m betting many of you don’t even know about, and definitely haven’t had. We’ll find out about what they did before. Then they took funding in 2007, and wait till you hear how much funding, and that forced them to really tighten their focus on creating communities of super fans for brands. And we’ll explain how that t-shirt and the words on that t-shirt fit in. But first, Kirk, how did I do with your last name?
Kirk: Perfect.
Andrew: Good.
Kirk: Very good job.
Andrew: The pre-interview helps. If I got nothing else out of the pre-interview, but I got to pronounce Yokomizo, that’s fine. In fact, Yokomizo’s not that hard, but I had this little mistake that I’ve made a few times, as we were prepping. All right, one of the things that I told you that I’d asked you, is about funding. How much money did you guys take?
Kirk: So, to date, we’ve taken 39 million total in funding across three rounds. So the first round was in 2007. That was a 9 million round. The second was in 2008, which was 12 million. And the last one in, was in 09, which was 18.
Andrew: That’s a ton of money. All right, are you guys profitable?
Kirk: So, we’ve discussed this internally and we decided we’re going to close the curtain on you around the financial information stuff.
Andrew: I see. So, it’s Lyle Fong, Dennis Fong, Kirk, and maybe a small group of people who get to hear about the profits, but you guys decided Andrew is not involved in that conversation again here.
Kirk: Right. Maybe at the end of the interview.
Andrew: Oh, you know what, if I win you over. I like that. I like that there’s a prize if I do a good job here. Hey, 39 million is a lot. Usually when I have conversations with founders who take that much money, they tell me that they took a little bit off the table and that’s why they’re such a big round. True? That’s what happened here at Lithium?
Andrew: What do you mean exactly by ‘take a little off the table’?
Kirk: I mean all 39 million doesn’t go into the company; the founders take a little bit of money for their account so that they can sleep better at night, and they have a little bit of an exit.
Andrew: I see.
Kirk: I think for the most part, as far as I know, we have been feeding all of our investment into the company. We definitely have used the financing to power our acquisitions that we have done in the past couple of years, so I would say by and large, the money is going right back into the business to help us grow.
Andrew: When you say ‘by and large’ are you saying no money came out as far as you know for the founders?
Kirk: As far as I know, no.
Andrew: Did I ask you about revenue? Give me the neighborhood of revenue. I know that you can’t give me the exact revenue size. I just want to get a sense of how big this company is, after all the money that you guys took.
Kirk: What can I tell you about revenue? I can tell you that revenue growth has been very strong ever since we took funding and we will probably get into this a little bit later but the funding kind of helped us accelerate even faster than we were prior to funding. Our customer base and our revenue base have been growing significantly since the first round, and continue to today.
Andrew: I’ve got a note to come back and get some more information on that. But let’s understand the before and after a little bit. I mentioned that there was an AT&T device that you guys did a little bit of work on before. Tell me about that, and then I’ll ask about what you are doing for HP and Sephora now, so that we understand how things have changed. What was this device that you did?
Kirk: AT&T had this idea to build a wireless device, but it wasn’t a phone. The concept was, I believe, one they were trying to piggyback on the instant messaging trends that were becoming popular. They built this cellular device which had a clam shell design and it had AOL instant messenger; it had YAHOO on there. Basically, you would use it to send instant messages. You couldn’t use it to make a cell phone call; you couldn’t even use it to send a text message I don’t think. Here it was, this portable device that you could connect to your YAHOO instant messenger on.
The thing that we did for them, because we powered the community for AT&T, is we had a chat application as part of our community platform and their agents would be in the chat app. When somebody on one of these cellular devices popped it open and went to the HELP area, it would connect the community with the actual end user of this device. We built all sorts of technology to make that connection possible. We kind of went into some new technology that we weren’t familiar with and learned how to deal with all the instant messaging protocol, so it was an interesting project.
Andrew: All for this one device, for this one customer, for this one-shot deal? What else did you do? You were saying earlier that it was kind of all over the place. Give me a sense of how all over the place it was. Just give me a few product titles or product descriptions.
Kirk: OK. We definitely had this support community concept, where people would come, ask questions and get answers. That was pretty prevalent. We did an integration with an actual game, a massive multiplayer online game, where if you were in the game, you could actually participate into the community through the game itself. We had to write actual game code for that. We also did a couple of integrations with media sites where they wanted to infuse community with their articles. They had static articles, but they wanted people to talk about it. This was before the days when you could drop in a Facebook widget and have commenting below it. It was some heavy lifting back then and we went outside the box to get new business.
Andrew: So for every customer, you created a whole new product, essentially?
Kirk: I wouldn’t necessarily call it that. The base platform was the same, but definitely writing a lot of connector code and integration code with different technologies.
Andrew: OK. All right. Then afterwards, I want to understand what you do, and help my audience understand. Let’s talk about what you do for HP and Sephora [sp?].
What do you do for HP? What do you do for Sephora [sp?}
Kirk: HP is one our larger customers. They have, I believe, somewhere in the neighborhood of 20 communities with us right now. They have a bunch of different use cases, but I think maybe the most successful one is the communities that they have created around their product brands. They have a community for printers. They have a community for desktops, laptops and a community for software. These communities are a place for people who already own HP products, who need more information. They’re also for people who are looking to buy HP products or maybe looking to puff up their own products that are not HP and see what the response is in the HP communities.
HP has been very successful with this use case, which is getting people who care about the HP brand, either they’re interested or already involved, and connecting them together on the community.
Andrew: Over $5 million in revenue a year? Can we say that at least?
Kirk: Oh yeah.
Andrew: We can say that. All right. Sephora, that’s the basic product that you create, right? HP gets a Q&A, a place for questions and answers for their users, they have a forum for tech support where they can all talk to each other, their users could, where HP could talk to their customers too, and Sephora is a little more sophisticated, what do you do for them?
Kirk: Before we leave HP, I would say HP is using the standard use case, but they definitely built a lot of stuff on top of it. As you’ll see, all of our communities are external you can go check them out for yourself and see what they’re doing. They all look a little bit different. People are doing different things.
Sephora is definitely doing something a lot different than HP because they have more of a brand community around connecting their commerce, they’re online commerce with a community. They’ve created this concept of a beauty advice and a beauty talk community. One of the cool things that they’re doing on there, is the users go into this community, they ask questions about products, how to use products, they’ll submit photos and ask people for opinions on whether-or-not the products look good.
There are also these other sub-communities going on in there. One of them is around this story where they have this project called Sephora Box, I think that’s the name, I’ll probably get in trouble for misnaming it, but the concept is there is a box of Sephora items, it’s a collection of random items, you don’t really know what’s in it and people sign up to participate in this program.
The box gets sent to the first person on the list. They open it up and they pick out three things that they think are interesting. They use them. They post photos on the community. They ask questions about the products that they’re using. Then people respond and they have conversations about them. Then their job is to put three new random products into the box, tape it up, and ship it on to the next person who takes on the next step in this chain. It’s pretty cool because things like this just spur up out of the people who participate on the community. They’re not necessarily programs that are forced onto the community, people are just coming up with this stuff. It’s really cool to hear those kind of stories.
Andrew: You built the community platform, the software that enables those kinds of ideas to just spring up, and for the community to run with them. I want to find out how you got here. Also, I want to find out if it’s more than $10 million a year in revenue, can we say that?
Kirk: This is like the, this is some game show, I think, but yeah, we’re above $10 million in revenue right now.
Andrew: Above $10 million. By the way, I remember once having Andrew Mason on saying, ‘How much revenue do you guys do?’ and he said, ‘We can’t talk about it.’ I said, ‘Is it more than $100 million?’ He goes, ‘Of course, so much more than $100 million.’ You never know, you just toss out numbers you find out, a number I thought was crazy high can suddenly be really tiny and you can feel comfortable talking about it. So, just keep trying until you feel comfortable, you answer and maybe at the end of the interview I’ll have worn you down, you’ll give me everything including your co-founders Social Security numbers, we’ll see how well I do.
Seriously, the more important thing is how you got here. How did you build this thing up? Go back about ten years ago it was you and a few other people at another company that came up with this idea. What was the other company?
Kirk: The company before Lithium, was Gamers.com. Actually the concept of community and the first iteration of the software, was written before I joined that company. The first iteration was written by Lyle. They had a gaming website where they talked about new games that were coming out. It was actually a media site and they talked about hardware. They found that posting these articles would cost them a certain amount of money, and the site was run off ad revenue, and people would read the story and they’d leave, because there’s no interaction beyond reading the story. So Lyle wrote the first revision of the message boards and that was the first incarnation of community. Now there was a place for people to talk about the article, to compare hardware against other hardware, exchange gaming tips, it just sort of took off from there.
Andrew: So now the company didn’t have to pay for and create their own content, people were creating their own content and the ads were just surrounding it.
Kirk: Exactly, right.
Andrew: Lyle is Lyle Fong, he was the co-founder of Gamers.com, right?
Kirk: That’s right, mm-hmm.
Andrew: And actually, was it-oh, never mind, I’ll get back to it. His brother was a co-founder, Dennis Fong. A pro-gamer, right?
Kirk: That’s right.
Andrew: What does it mean to be a pro-gamer?
Kirk: A pro-gamer. Well, first of all it means you’re really, really good. I’ve had the privilege of watching Dennis play several times, and have been destroyed by Dennis several times too.
Andrew: What do you mean by the privilege of watching? I don’t understand how pro-gaming actually works. I understand the guys who are playing are having a great time, and one of them ends up winning, which means that he gets a lot of money and has a great time, but to watch it? Can you watch it the way you might watch baseball, the way you might a football game, or is it just watching two people play, and waiting for your turn to finally get up?
Kirk: I think it depends on the game. I mean, one of the games that Dennis really good at was the first-person shooter-style games. Watching him predict what was going to happen, you know, firing things before someone would be there and then they’d be there? It was pretty amazing. He’s just kind of operating on a different level than the rest of us gamers.
Andrew: OK.
Kirk: We were all gamers, but there’s a certain amount of talent and foresight in that type of gaming situation that you can’t really learn. That’s why I feel like it was pretty cool to watch him play.
Andrew: Salon Magazine called him the Michael Jordan of gaming.
Kirk: Yeah, yeah. Actually, you know, there’s an interesting story that one of the other co-founders, his name’s Matt Ayers, he and I, when I was in high school, we used to hook our computers with the D&C cables, the old-school networking stuff? We’d set up sort of a LAN at his parents’ house every weekend, and we’d play against each other in Doom. Then I saw something on the local news, and it was Dennis, and it said something like “Here’s this guy and he’s winning all these tournaments,” and I thought “There’s no way that he’s better than we are.” Actually that became the first time that I met Dennis in person, at a tournament in Berkeley that I went to with Matt and yeah, he was much better than we were.
Andrew: According to Wikipedia, his prize winnings and endorsement money was approximately $100,000 a year while he was a career gamer.
Kirk: Mm-hmm, and he-
Andrew: Alright, so-
Kirk: Go ahead.
Andrew: So they’re the co-founders of this company; what’s your role in this business?
Kirk: If we’re still in the Gamers phase, when I joined Gamers I was a software developer. Actually Lyle convinced me to forego my computer science degree at UCLA to join the Gamers startup. I was a lowly developer, building this gaming database website that we had big aspirations for. The first few months I actually got a chance to work on the message boards with another one of the founders who is still here, who is Mikey Yang. That was sort of the first exposure I had to this sense of community. There was so much traffic being generated on these communities and people were so passionate about what they were talking about, it was kind of a cool project to work on.
Andrew: At its height, what size revenue was Gamers.com doing? Now we’re talking about a 10-year-old company, no secrets now.
Kirk: Yeah. I actually don’t know, at that time I think I must have been…maybe 21? I never really remember how old I am. Lyle explained it to me. I came back to the Bay area for the summer to do a co-op at Sun, so I was only supposed to be there for six months. I talked to Lyle about a month in, and he said “Things are going so well, it’s the dot com boom, and Gamers is going to go public in six months anyway. You can keep on your schedule, come December we’ll be public, you can go back to school.” Somehow I bought that. I think it was being part of a gaming company, being in downtown Berkeley, and just being in the midst of all this web activity was what really got me stuck in there.
Andrew: What happened to the business? It didn’t go public, did it?
Kirk: No. We-I guess I can tell you this, but rumor had it that a there was a chance for us to be acquired by a media company in December, so the dream could’ve come true as Lyle described it. But we decided, you know what, we think there’s a real opportunity here, we want to grow this to be a big company. So we decided instead to take funding. And so we took funding in late ’99 and we grew pretty big. I think I was employee 13, lucky number 13, and we grew to 160 in two months. Moved into the stereotypical dot come warehouse. I think there’s a video of us on ABC News riding scooters around. It was fun, it was a blast and we learned a lot but, we were a little bit reckless back then I think.
Andrew: How?
Kirk: We weren’t business types, and we looked for help outside, we tried to get a lot of guidance from our board, we brought on an experienced CEO and just, I think at the end of the day, the business model was around online advertising and that just kind of caved in on us in 2000. So we hired a ton of people to develop content, we developed that content, we probably did have the worlds largest gaming database, and we were in hot competition with GameSpot, who lived past the dot com explosions.
Andrew: And what happened to you guys?
Kirk: We shrunk down again and it kind of came back to that core crew. It was the same sort of founding crew. We were all developers or IT guys and we were doing odd projects to keep revenue coming in, we were doing new websites, we were doing workflow code for O-photo at the time, doing projects like that.
Andrew: So basically you guys became consultants. You went from almost going public from getting a little media attention, from having a great opportunity to sale, to consultants, wow, what happens to the morale of the company when the company goes through such a big change?
Kirk: Well it happened so fast. We had this huge warehouse with all these people in it and it just felt like a month went by and it was empty. We were still having a good time, we were working hard, working on technology, the stuff we enjoyed and, I think the moral of the founders was this is just another phase in the game, and we’ve got to figure out how to power through it. Definitely one of the themes for us and our core whenever our core was this gaming background. Where you’re playing a game it might get boring or might get difficult, you might keep making the same mistake but you know that there’s something right behind it. So you keep trying different things until you figure it out. And I think that’s probably a good description of that lag time between Gamers and Lithium.
Andrew: And then something happened in 2001, what was that?
Kirk: So 2001 is when we decided to form Lithium.
Andrew: Brand new company, away from Gamers.com, right?
Kirk: We borrowed a couple of things from Gamers, we took the two customers that we had, paying customers for our community platform. It was Deal and Sony Playstation, and we took the technology. And the technology was written on the Microsoft stack, and so right away we kind of had this dilemma. We don’t have a lot of money, J2EE is kind of becoming enterprise but not really, Java really wasn’t a slick performing code structure to write on, so we made the decision we’re going to to go all open source. And so we moved out of our old colo [sp]. Re-wrote the entire stack in Java, and we started using My Sequel and instead of MS Sequel, and Apache instead of IS. We kind of said, we don’t ever want to be in the position where we don’t have control over our own destiny. And what we want to do is start boot strapped, we don’t want to take funding. And we want to grow slowly and make sure we maintain profitability.
Andrew: So how do you spin off of this company that has outside investors who own shares of the business, and do you own 100% of the business, did the founding team get to own 100% of the business at that point when they’re taking an asset?
Kirk: So what happened was out of Gamers we formed GX Group, and GX Group was across three different properties. One was the gaming website, one was Lithium, it might have been called the Gamers Extreme League, which Denis kind of ran with on his own arc after he left Gamers and went on to work with X-Fire who eventually got acquired and now he’s doing Rapture. He kind of took that branch of it. The Gamers website scoped way down, Gamers.com is still a live website they still have content, they still have community there, but that kind of ran it’s course. And then Lithium, just kind of off in its own direction. And we were part of this conglomerate of companies and so a certain par part of the business was owned by that holding group.
Andrew: And how many co-founders was it at Lithium?
Kirk: I think there were five of us. And I say I think because I’m only remembering how many people helped move furniture from the Gamers office to the Lithium office. In the early days is when we hired our CEO, we hired our first sales rep, so those guys I still consider as founders.
Andrew: Let me ask you this. The original invitation to do an interview went out through an introduction I got Loa Fung (________). Loa said meet Kirk, Kirk will be happy to do the interview. My sense at the time was Lao was blowing me off saying I’m too busy for this website. Kirk will do it, even though Kirk isn’t necessarily a co-founder, he was one of the first hires, he was there at the beginning, he’s just enough for Andrew’s criteria for his interview but, he’s not really a co-founder. How do you feel about that? You were nodding as I said it.
Kirk: Well I definitely agree he was probably pretty busy, so I agree about that park. I think the class of people that call themselves the founders right now. Which would be Lyle, myself, Mikey and Matt, we very much consider ourselves founders. We were there at the very beginning and that’s important, but we put in our blood, sweat, tears in the first early stages where we were splitting the entire revenue base across five people.
Andrew: Did you get shares in the beginning when it spun off?
Kirk: Yeah.
Andrew: You did.
Kirk: Yeah.
Andrew: Not options, full vested?
Kirk: That’s a good question, and I always get harassed by Lyle on this, he’s kind of like, you should know this from the top of your head. But…
Andrew: We lost the connection for a moment and you were saying I understand why Lyle wouldn’t come, I don’t even have solid technology, he should wait for CNBC, or someone with real technology. All kidding aside you were saying that you get harassed by Lyle for your understanding of your own shares in the company that the two of you co-founded. What were you saying bout that?
Kirk: Just that I should know these things off the top of my head.
Andrew: I see, and you don’t know it.
Kirk: I was thinking, my entire time at Lithium I’ve been concentrated and focused on the product and the customer not really as much on the whole finance aspect of it I guess.
Andrew: Are you a millionaire from the company yet?
Kirk: Well it’s been ten years and how much money have I made over ten years. Maybe, I can’t give you a definitive answer on it.
Andrew: That’s a goofy question, it’s not relative to the story here. I was trying to be a little provocative. The thing is I’m trying to find a way to add extra energy to this interview and I feel like I’m pushing the extra energy, and it’s coming across as force so I’ll hold back. The reason that I think it’s a goofy question is because you explained that you guys didn’t sell the business. You didn’t cash out when you raised money. You didn’t sell a previous business, all you got is salary and whatever valuation there is in this company, and that’s not relevant. So I see you guys started out with your new business. You’ve got two customers that you’ve launched the business with, what’s the next step.
Kirk: The next step was trying to get more business. The way we did that was entirely word of mouth. So I think if you go to the way back machine you can probably see our website from back then. But we weren’t really a marketing focused company. And basically what happened was, we were cold calling, we had an awesome sales guy, and he was cold calling new customers and telling them about the Lithium story, and really leveraging what Dell had already done. I think AT&T was a very early customer and one would expect them to take us through an RFP process and security evaluation, but they basically said, you know, Dell is a good company, they’re using you guys, so I think, you know, that’s enough for us to get started. Those days are past us, but I think that willingness to jump in to a new technology that wasn’t necessarily proven yet helped us a lot, and it just kind of snowballed from there. Once we had AT&T, the other cell providers started looking at what they were doing and saying, hey how come we’re not doing that? And they would talk to us and that’s really how we grew.
Andrew: There was no outbound marketing that wasn’t a sales call to Sprint, Verizon, to other companies?
Kirk: Just on behalf of sales, we weren’t really running…
Andrew: What do you mean on behalf of sales, you mean on behalf of sales that were coming into the business?
Kirk: Oh no, it was all outbound – 100%
Andrew: Oh, so you guys were calling the others, but you’re saying it became a much easier sale process when you were able to say, “Hey, AT&T’s already on board, do you guys want to join too.”
Kirk: Yeah, yeah.
Andrew: OK.
Kirk: So our customer list kind of carried us, and spoke for our reputation.
Andrew: Who did sales in the early days?
Kirk: Sales was two guys, it was Nadir Alizada and Greg Joy; Greg’s still here…
Andrew: And they were dedicated salespeople?
Kirk: Well, Nadir was office manager, facilities, I mean he was kind of managing the rent of the place, he was doing all that stuff for us, legal also.
Andrew: OK, so you guys were making some sales calls; it became a lot easier once you mentioned the companies that were working with you, and you were taking lots of different products. Most new companies want to stay focused on one thing so that they can, because they don’t have a big engineering staff, because they don’t have a big sales team that can explain different products to different customers, they want to keep things as light as possible – you guys went the other way, why?
Kirk: Let’s see, so are you asking about the product decisions?
Andrew: Yeah, the product decisions. What was the mindset that got you to create so many different products?
Kirk: So, I think the core of the product was the community platform and the secret sauce was the ranking and reputation engine, which basically turned the community into a game for the people who joined. And that was the base. And as different customer use cases came in, you know, we figured out how to use that base for their particular case, so if they wanted to run a focus group or get real customer feedback into their product teams, that was a perfectly applicable case to our core platform, which was get people in, get them active, and get them to stay and come back and contribute. And so, using that base, which Lyle tends to describe as the battery, you know, that you can have all this technology but without that base of users, you can’t really run anything. And so what we built was a platform that was really good at doing that, and from that base, pretty much anything was possible. And yeah, I think in the early days we were pretty flexible about what type of opportunities we took, even if it was something that we would have never imagined building ourselves.
Andrew: Why? Why were you so flexible on what kind of projects you took?
Kirk: I think we were – it was all in the spirit of growth, so you know, we didn’t have a large customer base at the time, and we loved engineering and technology. If somebody came to us with new technology, we would be studying that, and that was what we liked to do, so we kind of just followed what we enjoyed doing, which was exploring new technologies and figuring out how to make it work with a community. So, I think, the reason we took that stuff on, primarily was to keep the business alive, you know, not being too reliant on too few customers, but in the background, I think it was really that we love technology and we liked to chase whatever people brought to us, because anything was possible with our crew.
Andrew: Can you talk about the pluses and minuses of doing that? I think we always assume that if you take on too many projects or too many diverse projects that it’s just all negative. Why don’t you start – I guess you started by telling us some of the positives of it, that you guys got to try different technologies. Can you be a little more specific, and then I’ll ask you about some of the issues, some of the problems, the challenges of doing that, being so diverse.
Kirk: Yeah, so on the technology side, I mean, just because of our base decision to go with a Java stack, instead of something that was more tried and true. We actually had to do quite a bit of pioneering in the performance arena with Java. And we were working with the Java community with the HotSpot compiler, all the stuff back then that was kind of cutting edge that not everyone was using yet. So, that was good because it gave us this core understanding of how the base of our platform really worked. And it’s great that the people who wrote those original versions are still with the company because that’s something that’s really, really difficult to pick up quickly. As far as the negatives, it’s all the things that you would expect, it’s too many different types of projects that don’t relate, you just simply run out of time. And I think the way we dealt with that was just sheer will power to be honest. People were working around the clock playing multiple rolls, wearing multiple hats, we kind of just assumed that that’s how it was going to be. We tried all these different things and many of them stuck so I think it wasn’t a bad thing at that time that we were trying so many different product decisions. I think we guessed right in a lot of cases and that really benefited us.
Andrew: How long did it take you to get back to the height you had at Gamers? You guys were back at the beginning, back to two customers and looking for a third, which I guess was AT&T, and growing and growing, how long did it take you to get back to where you were?
Kirk: Not that long, I mean there was sort of a start up period where we weren’t exactly sure what we were going to do yet. And we were working against a couple of pretty strong market forces. One was no one wanted to spend in tech in 2001. No one really thought community was all that interesting either. The newsgroups and message boards have been around for decades. And the other thing is our delivery model which was an ASP model, or a SAS model. A lot of the larger companies weren’t comfortable with us hosting their data, especially in the financial area. Those were the things that were preventing us from thinking this thing is going to grow crazy. But it probably only took us about, I would say a year to get back to a comfortable point where it kind of felt stable, stable that we made the right decision. And that was a lot of hard work and rebuilding that platform. Actually at that time we were re-bidding for Deals business, and they were driving us on the product side of what they wanted to see out of the product.
Andrew: What about as far as sales, how long did it take for your sales to be as high as they were back at Gamers?
Kirk: That’s a good question because I’m not sure exactly what our revenues were at Gamers. I tend to look back at that time and assume that we weren’t making much money at all there, because we were definitely spending quite a bit. I think one of our sister websites at that time was doing pretty good. But the gaming website was super expensive. So I don’t think it took us very long. I mean when we started Lithium we reset everyone’s pay grade so we would be profitable. The whole thing was we didn’t know where we were going to be in two years when we started so we kind of said, we absolutely always have to remain profitable so when the time comes for another company to come pick us up we’ll be ready. And that kind of defined our culture back then, which was don’t spend too much, don’t spend ahead of revenue, get the most out of everything that you have. We were all hardware geeks so we over clocking all of our production servers, just trying to make the most out of the least.
Andrew: How else did you squeeze the most value out of every penny?
Kirk: Well, we probably worked about 120 hours a week, so we were definitely getting good efficiency out of our staff. I think that was another thing that, because of the word of mouth nature of the business we didn’t have to spend too much on programs and running things as out reach.
Andrew: You said earlier that one of the reasons why companies signed up with Lithium in the beginning is that you guys can bring a base of users to their communities, and a community with out that early base of users is just going to languish. How did you do that?
Kirk: I think it goes back to the gaming roots. Basically what we think of ourselves these days is more of a party host. We’re setting up the venue, we’re making it easy for people to get there, and once they’re there, we’re making sure they’re talking to the right people. The whole concept around building nations and the brand nation concept is that people who join the community and participate become rabid fans, and they’re addicted to this experience.
Andrew: So you’re saying once you get a few people in the beginning, they become such rabid fans that they start to build a nation within this community.
Kirk: Right.
Andrew: How do you do that? How do you get the first few people to not just say “Boy, there’s nobody else here, I’m never coming back,” but to actually get so excited that they make a party there, that they have that nation feeling.
Kirk: I think if you ask some of our folks in our customer success department, some of them will tell you that it’s really a numbers game. If you can get enough people to show up, and a certain percentage of those people actually take initiative to actually participate, and an even smaller portion of those people will actually be really engaged in the community, and so-
Andrew: So how do you get a certain number of people to show up, that number of people you need to spark the flame?
Kirk: The biggest thing is around promotion. Making sure that people know the community’s there, getting a link on the front page. You can just kind of run the numbers; if you’re doing these key things, people will show up. If you present an experience to them where they’re curious, right? They’re trying to figure out what they should do on the community. When they take a certain action, something about their profile changes and they don’t really know what it is, but they want to know what the next thing is. That’s kind of the gaming concept. We make the-
Andrew: Oh, I see, so it’s promotion, which they could do whether they were using Lithium or anyone else, including vBulletin.
Kirk: Right.
Andrew: They get that. But as soon as the user comes to the community that Lithium creates, you guys are good at engaging that user and showing him just enough to make him curious about what else is there.
Kirk: Right, right.
Andrew: When you say something happens to the profile immediately, what kind of things happen to the profile?
Kirk: The ranking and reputation engine which powers all of this, it can affect the way the user’s display name shows, it can assign them a new badge like “Hey, there’s a new guy who just joined the community, come talk to him,” it can give them different permissions on the community. One of our visions is around these sort of self-policing communities, where it’s not really necessary for you to have the more heavy-handed community management tactics. People who are recognized as responsible members of the community actually automatically get promoted to this moderator status. The application can assign privileges, they can assign access to different features, different areas that other people can’t see. It does start to feel like a club, I mean when you sign up you don’t really know yet, but as you participate more you start to discover more things on the site.
Andrew: How did you guys figure this stuff out? What process did you go through to figure out that if you show people just a little bit at first, and then surprise them with something else, they’re going to be more engaged, and all the other-
Kirk: I think, and I’m going to keep coming back to this I guess, because I think it is really core. All of us were gamers, and we understood why we enjoyed playing games; the early phases where things need to be easy, otherwise if it’s too hard you’ll just leave. Building that in to the actual product so that when a new user joins it’s relatively easy to see that they’re progressing, but as they participate more and stay longer, things get progressively harder. You don’t know what’s up next, you don’t show them the entire path, they have to discover it themselves. I think because we were gamers and because we understood that progression of difficulty and complexity, and also because we use the product. We were always talking about games and hardware on our own product, so we knew what we wanted and we’ve always kind of felt like we know what’s best for the product, so we’ve made our decisions based on that.
Andrew: Is there some kind of feedback mechanism that you guys use to let you know whether you’re building the proper product, whether you’re getting the response that you need?
Kirk: Yeah. In the early days it was all end-user feedback. We would give them a place to tell us what they wanted, or tell us what wasn’t working, and we’d make adjustments based on that. Communities today still do that. Each one of our communities has a feedback area where they can give their opinions or in a more formal way, they can run an idea exchange where they submit new ideas and then people vote on them. Now a days, with such a large customer base, we have customer advisory boards, we go out and work with the existing customer base to find out what their initiatives are and how we can map our product line to what they’re trying to do. It’s a lot more formal now, but the feedback is always there. That’s the nature of the product, people are always able to tell us what they’re thinking.
Andrew: I mentioned 2007, you raised $9 million and you and I talked about how it helped focus the company. What did you guys shed so that you could focus on these specific kinds of communities?
Kirk: In ’07, you remember the three things that we were talking about, which we felt were holding us back from being a successful company? All of those things had done a complete 180, people were spending in technology again, it’s right around the time of MySpace and soon after Facebook, also, our buddies at salesforce.com, kind of proved out the [??] model. Even if it’s sensitive sales data or financial data, it’s matured to the level where you can feel pretty safe about letting someone else control your data.
I think the biggest changes were, we said, ‘Hey the markets here,’ and we just happen to be right in the middle of it, lucky us, and we have a good customer base. Let’s try and grow this thing faster. What that meant for us, on the growth side, was taking the first round of financing, of course, but actually building out a more formal marketing department and bringing sales up to a size that was reasonable for the growth that we wanted and hiring more engineers.
Andrew: You also said that you were focusing in on a specific kind of product. You weren’t going to create communities for 18 [??] devices that were going nowhere. How did you sharpen that focus?
Kirk: We decided our best use case and the one that’s very easy to understand, very easy to explain, very easy to sell was support. We already had such a large contingency of support base communities that we said that’s what our focus is. Just by, I would like to say just by saying that, but because we put that stake in the ground it focused everyone across the entire company on a single objective, which was how do you make the best support community product, how do you sell that product, how do you market it.
We already have all these other customer use cases. We can come up with a way to show people that it does work. On top of that, there’s some built in ROI metrics that we can leverage. If somebody gets their question answered on the community, that’s one less time they have to call in or send an email to the call center. Customers were able to make sense of, this is how much Lithium’s platform will cost and this is how much I’m going to save and it’s like disproportionate.
Andrew: How can you show them that ahead of time?
Kirk: I think a lot of it is around, well these days we can show them actual case studies, with financial data, but back then it was more of, let’s go check out some of these communities because they’re live. Put it in the browser, check it out. Here’s the user who’s answering everyone’s questions, he’s pretty much working a 50 hour week on your community, and we’re not paying this guy. It was very visible, even today if you just send somebody to a Lithium community you’ll see it in action. I almost feel like, at that time, especially for that use case it almost sold itself.
Andrew: Was there anything that was especially tough to not work on because you guys were focusing so tightly on support communities?
Kirk: Well, for the very first time in our history, started saying no to some of these more interesting use cases. That was a big change for us because we still to this day believe anything’s possible. If someone comes at us with a gnarly use case, then we want to figure out how to solve it with our technology. That was hard for us, at that time, but we really did focus, that first year, on support and I think it really helped us.
Andrew; I said in the intro that it supercharged your business to raise the money to focus so tightly. How did that show itself day-to-day in the office? How was life different after funding?
Kirk: I think it took a little while because the previous mindset was “Be very frugal, don’t spend ahead of revenue, and get every last drop out of every employee and every server.” It took us a little while to transition but it was very visible because we actually moved offices. First of all we made the office look more like a place that was fun to work. That’s going to sound horrible, but before, it was very beige walls and cubicles, and this was more fun. Lyle’s a big ping pong player so we got a couple of ping pong tables. It felt like we were kind of coming back to try to have fun and see what we can really do. One thing I would say that we shed was the reigns of not going after something.
Andrew: Like what? What couldn’t you have gone after when you didn’t have money, that you suddenly had the ability to chase?
Kirk: I think our growth was sort of like this, and then it lulled. We would consistently get new business, but it didn’t really feel like we were growing as fast as we could. We felt like we were holding ourselves back, so when we got rid of that mentality when we started taking more risks. “Hey, what if we tried this particular product idea?” Well, OK, let’s just try it, if it doesn’t work then at least we tried it, and we know it doesn’t work. We weren’t really exploring our potential, I think.
Andrew: Do you have an example of a product that came out funding that couldn’t have come out before?
Kirk: Yeah, probably almost everything we built post-funding was something that we probably wouldn’t have tried.
Andrew: Give me one of those as an example.
Kirk: One of them was that concept of the idea exchange, where people could post their ideas and other could vote on them. We kind of did this more controversial rating system. Before we had one to five stars, but we went more to a Digg-style, all-positive reviews. We got a lot of pushback from our customers on that but it was something that we really believed in; that you should promote positivity, and not necessarily get into the gaming dynamics of people down-voting everyone else’s idea to promote their own. With decisions like that, we felt like we had the freedom to make those decisions and see what happens. That product I don’t think we would have built previously, we would have let the customer take us in a certain direction as opposed to leading with our own ideas.
Andrew: You were also saying that you were able to hire more salespeople. What did the new sales department look like after funding?
Kirk: I think we tripled sales, almost in the first quarter.
Andrew: Because you had more salespeople.
Kirk: Yeah.
Andrew: Because you couldn’t have developed anything brand new in the first quarter afterwards, it was just sales?
Kirk: Oh, sorry. The sales department? The sales department looked quite a bit different.
Andrew: Wait, did you say that you tripled sales within the first quarter after funding?
Kirk: Yeah, the sales department, sorry.
Andrew: Ah, the size of the sales department, I see. You tripled sales in the department. Tripled it within three months, OK. How do you manage a department that grows so quickly?
Kirk: That’s an excellent question. I think that’s maybe one of the challenges I point to in the growth period; figuring out how to keep up with that growth. We all came from a more entrepreneurial background and a development background, so we learned a lot of this stuff as we went along. In terms of management we kept everything extremely flat. We still kind of have that type of structure. It was all education on the fly; all new sales reps would learn by basically partnering with the existing reps and seeing how they were selling, and trying to learn as fast as possible. It was very unstructured at that time, but that’s how we got it done.
Andrew: Partnering with existing salespeople so they could train them.
Kirk: Yeah.
Andrew: OK, what was that like? How do you have each sales person train, I guess you’d have to have them train two new people because you tripled the department.
Kirk: Yeah, yeah. There were a lot of round-table sessions where people would share their successes and some of the challenges they were having in the sales cycle, just a lot of open dialogue. That’s another thing about the Lithium community here; we’re a free exchange of ideas without too much fluff, I guess. I mean, we’ll tell each other what works without worrying about whether or not someone else is going to take my deal or something like that. It’s more about let’s get all the facts out there and be transparent about it, so people can get moving.
Andrew: Alright, so…over 20 million in sales a year?
Kirk: Yeah, we’re over 20 million in sales.
Andrew: Over 20 million in sales. Over 30?
Kirk: Yeah, we were over 30.
Andrew: Get out! And this is huge growth over what you guys were doing before!
Kirk: Yeah. And I’m probably going to get in trouble, so I’ll have to figure that out. We’ve chosen this sales model where it’s subscription based, and it’s a model that allows us to be very predictable with revenue. We’re kind of just layering it on every month so it’s very stable, we don’t have a lot of ups and down in the revenue stream so we feel like as we add good customers to the base, we’re just kind of investing in our own growth.
Andrew: I see. There is some kind of lock-in here, because when Dell or HP use you guys as their support community they go and switch to someone else easily, right? The software’s already embedded in the site, the content’s embedded inside the software. It’s predictable for you, it’s predictable for them, so it’s a great model.
Kirk: Yeah. I mean, I’ve been kind of on the war line for customers that are leaving other vendors and coming in to us, and vice versa, and it’s tough. It’s tough to migrate. It’s not just a technology challenge. If you change the background color of a community, a certain percentage of the users will go crazy. Just a minor change like that. We’ve seen some migrations where people will transition from forums off of the Lithium platform to another platform and there’s kind of a revolt because it’s a different exercise. People have their work flows, I mean I’ve experienced this too on some of the forums I participate in.
Andrew: How do you keep customers happy, and how do you get customers to switch when any little thing can set them off?
Kirk: From a product perspective, the approach we’ve taken is that we don’t introduce any end-user changes automatically. As a SaaS business we’re updating the platform every month, multiple times a month in some cases, and we’re not upsetting the end-user experience. We’re giving that control to the actual community manager.
Andrew: If, say a computer manufacturer wanted to switch from their current software to you, and have all their community conversations be Lithium. How do you make that shift, how do you transition their audience?
Kirk: There’s sort of a best practice around that migration. One thing we like to do is to assemble a good subset of their super fans or their super users of that community, and get them to experience the new platform. Kind of give them their own sandbox area where they can learn the new platforms, answer their questions, get them excited about it, so that when we actually do the transition and people are upset, the respected members of the community can say “Hey, this is actually a change for the better, here’s how to do these things that you used to do on the new platform.”
Andrew: I see.
Kirk: That’s a big part of the migration plan, and then just communication. We’ve seen some transitions that just go overnight, it’s just a completely different platform. Instead there’s a lot of messaging on the existing community about what’s coming up, there’s promotions about it, newsletters that go out to the base. There are things that you can do right in a migration to help ease that transition, for sure.
Andrew: So communication helps ahead of time with the whole community. They all see emails, they all see on the website messaging that the communities are going to shift. Then there’s a sandbox for the top members so they can experience it, ask questions, and be prepared to answer questions later on. What else, can you give me a few other tips for how to transition a community?
Kirk: Let’s see. I think a huge component is bringing over the existing community members’ rank and reputation; so the last thing you want to do is have someone build up such a good reputation, and then they come into the new environment and they’re a newbie. That’s the worst. So, we make sure that we transition all the key metrics over, and of course, all of the content that they posted; so that when they arrive in the community they’re already sort of slotted in at the rank where they should be. That’s really important.
Andrew: I see. So all their old messages are saved; the rankings with the number of messages, days that they’ve been part of the community all get saved. What else? Give me one more tip for switching communities.
Kirk: Let’s see.
Andrew: What do you do about the fire storm that sometimes will break out. You do everything right. You communicate with the top members, you communicate with everyone else, and transition all they key information, and still people get upset. How do you deal with that?
Kirk: A lot of that just comes down to good community management, best practices. I mean, you kind of outline the right guidelines that you expect people to adhere to as they participate on the community, and you enforce those things. And it’s not a heavy handed approach; it’s more of talking to the members, if they’re getting a little bit out of line; talking to them one on one. A lot of these things are just sort of core best practices of how to manage a community properly. Instead of, you know, getting into a flame war in a public view, often times if you just say, hey, let’s step aside and talk about this through private messaging, or a separate area. And users really appreciate that, just as any of us would if we were really upset about a product or something like that.
Andrew: All right. Well, that’s a great place to leave. Over 40 million?
Kirk: I got the stuff.
Andrew: All right, the company is The Lithium Technologies, plural. And the website is lithium.com. Kirk, thanks for doing this. Actually, Kirk, let me read an email. I’m trying to read emails from people before the end of these interviews. Let me see if I can find a quick one to read with the audience. Oh, I’ve got this great one from Adam Bell. Adam Bell sent me an email and he said not only did he sign up for Olark, which was a previous sponsor, a long time ago. He said, ‘I signed up for them, and I emailed them and said that I first heard about the Olark on Mixergy.’ So, thanks, Adam Bell, for doing that. I just pulled out an email, the latest in the inbox.
What can I do here to make my community a little better? You’re the community expert. I’m trying to share the emails that people send me privately. I try to jump into the comments. What else can I do?
Kirk: I think you’re definitely doing the right thing if you’re communicating out. That’s a huge piece of it. Do you have a more structured forum area, community-style area on your site?
Andrew: You know, I don’t. I had one. It’s a pain. It’s tough to do, tough to manage a community and get it growing. I said I’ve got to focus on the interviews and focus on the [courses], so I stepped away. But at some point in the future, once what I’m doing now I feel is strong and is systemized, I want to add a community. And I know at the time I’m going to feel hesitant because I’ll feel like, what if nobody shows up and no one talks? What if the conversation isn’t useful enough, and it’s just people chatting. What if I get sucked into it and have to spend five hours a day dealing with it? What do you say to someone who has my kind of concerns?
Kirk: Well, I think, you know, looking at your site, you won’t have a problem with participation. You definitely have people who want to talk, and they want to share ideas.
Andrew: I do?
Kirk: Yeah. Any time you’re posting one of these interviews, you have a lot of commentary. And those are people who kind of take the time to submit the content. If you made it a little bit easier for them to do so, or provided them a different venue to do that, then I think they’d really appreciate it. And, you know, everyone always worries about that. You set up a big party, and nobody shows up, but I think it does kind of come down to a numbers game. And I think you guys would do fine. I think if you did get sucked in to the community it would be a good thing.
Andrew: Why? Why would it be a good thing to spend five hours talking to people in the chat boards instead of spending the same five hours prepping for an interview, or finding the right guest, or figuring out whether I need to add a different kind of course, or doing other things?
Kirk: I guess when I think about it, it’s almost like you can do sort of smaller interviews in stream. You can do the video interviews, which has a different experience. There’s video and audio components, but then there’s also people like myself who are a little bit more comfortable talking over email or on a forum, so you’ll get different types of insights and I think it’s just another channel that you could do interview style question and answer, along side …
Andrew: So you’re saying instead of you having you come in here and do an hour interview by Skype, you might want to spend an hour on the chat board taking questions from people on the topic that you especially feel comfortable with and they want to learn from you about.
Kirk: Yeah, I mean, and I probably wouldn’t get in trouble as much, because I could look at my answer before I answer. But, yeah, we have a lot of customers that have done that. They run events with a celebrity and everyone joins to ask them questions, more like a live …
Andrew: What would it cost for me to, can I add lithium or do I need to be someone like, now we’re just talking here, we’re still in the interview but now it’s just you and me talking. How much would it cost for, actually the first question I had was, can a site my size afford a lithium or do I have to be as big as Sephora or HP?
Kirk: How I would explain it is, definitely our target at this point is to go after those huge, huge brands. Because we’re more of like an enterprise cell, but we have price points that can make sense for any size company. So I wouldn’t worry so much about the cost. We would find something that works.
Andrew: Can you connect with my usernames on WordPress?
Kirk: Yeah.
Andrew: All right. I may need to talk to someone. What’s that?
Kirk: I was just going to say, we’ve got to replace WordPress.
Andrew: Oh, you’d replace the whole WordPress platform? Now that’s scary. But can you use the usernames that people created within WordPress?
Kirk: Yep.
Andrew: You can use that whole thing?
Kirk: Uh-huh.
Andrew: Look at this. (________), my researcher, she gave me a few, actually she gave me a lot of info about you. One of the things that she made sure that I noticed was the names of the clients. She goes look at these guys. They got Best Buy. They’ve got A.T.&T. They’ve got Research in Motion. They’ve got Univision. They’ve got PayPal. Now, as we’re talking I’m thinking of all those big brands and Mixergy. That would be interesting.
It’s kind of intimidating. Actually it’s very powerful to see the big brands on your site, but it’s also intimidating. I wonder if other people feel the way I do. They say lithium is way too big. That’s for the big guys who have tons of revenue and tons of users. Do you find that that’s a problem?
Kirk: It’s hard to say because it would be hard to measure the people who don’t contact us. But I think you’re probably right. I mean how we’re kind of messaging out to the market is probably resonating with large organizations, I guess. But I don’t know. I mean, as people go through the process of evaluating all the vendors, I’m sure they will kind of come back to the fact that the lithium community’s actually tend to work and that probably is what attracts a lot of the … you know, it doesn’t matter what the deal size is really. But that’s a good point. I haven’t really thought about it in that way. You’re probably right.
Andrew: One final question. The t-shirt. I didn’t explain to the audience. Why does your t-shirt say Nation Builder on it?
Kirk: So, part of our customer conference this year was revealing our new brand. So our brand is around, Brand Nation, with, we have this concept of flags, so customers have their own brand flags. And they represent their communities. And so, as part of the customer conference all of the staff got different colored shirts that say Nation Builder and it was kind of just a cool like sea of rainbow shirts, on I think it was Day 2 of the customer conference.
Andrew: I see. And what you guys do is you don’t, I kept using the word community, but you don’t see it as community building so much as nation building. You want to build a nation for HP. Not just a community. Not just a chat board. Not just a message board. You want …
Kirk: Right.
Andrew: … to build a nation of fans for them.
Kirk: Exactly.
Andrew: And do the same thing for Sephora for everything else. All right. Cool. Thanks again, Kirk. Thanks for doing that.
Kirk: All right. All right, no problem.
Andrew: Thanks you all for watching. Let me know what you think of the community. I’d love to hear it guys. Bye.
