Andrew: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy, where I interview entrepreneurs for an audience of entrepreneurs. Hey, go look at that–real entrepreneurs are listening to these interviews building their companies based on what they’re learning from these conversations.
And joining me today is a man with a really unique story. He started a company, sold a company and now he’s running it again in an interesting way. And so I invited him here to talk about how he did it and talk about also how he launched the business and why it succeeded. His name is Craig Malloy. He is the founder and CEO of Lifesize. They provide enterprise and business class video, audio and web conferencing solutions.
That means that if you were working at a company that had Lifesize in their conference room, you’d be able to just walk into that conference room, turn on Lifesize and have a conversation with someone who was outside of that office, maybe the other part of the world, other part of the country as if they were in that room with you, and if you needed to, you could even bring in someone else into that conversation with you and all three of you could be anywhere but it would be like you were sitting around the same conference table.
This interview is sponsored by two great companies. The first will help you hire your next great developer. It’s called Toptal. And the second one will make your emails, well, smart, the kind of emails that people actually want to read. I’ll tell you more about them later. They’re called Active Campaign. First, Craig, welcome.
Craig: Thank you, Andrew. It’s great to be here.
Andrew: You know, I was looking at the notes that my producer took on her conversation with you and what struck me was at one point, I say about this was over 10 years ago, clearly, you had a VC call you up as soon as you left Polycom, the company you sold the previous company to, just call you up and he said what to you?
Craig: He said, “We’d like you to start a new video communication company and we’d like to invest in it.”
Andrew: He said to you, “I want you to create a new company for me to put money into it. Please go start something for me to invest in?”
Craig: Yes. It was a gentleman by the name of Vab Goel at Norwest Venture Partners.
Andrew: What was he seeing in the world that he thought you could help solve? What was that gap he wanted you to help him with?
Craig: This was 2003, so the technology has changed dramatically. It was actually the end of 2002. He had seen how successful we had been with a really unique product solution at the company that I sold to Polycom. Norwest likes to invest in successful entrepreneurs that are doing it again in the same industry, to do another leapfrog technology product in the same industry and they’ve had pretty good success doing that.
Andrew: You said the technology had changed over the years. Back then, what was video conferencing like and what did he imagine you were going to help create?
Craig: Well, when I left Polycom, video communication was very low resolution, worse resolution than your television. If your TV looked like this, you wouldn’t watch it–very low framerates. It was just starting to work over IP networks. In the early days, you couldn’t do a video call over an IP network. What we envisioned, he said, “Put together some ideas and come out to see me. Come out to see me in Palo Alto.”
So I did, and 10 minutes later I’m in the partner meeting, which I had no idea. I thought I was still going to have a one-on-one conversation. So I just made some notes like, “Well, here’s what I would do. If I were to start a company, here’s what I would do.” The concept in 2003–this doesn’t sound very interesting today–was around building a system that could do high definition video communication over the open internet.
So that was kind of a fanciful concept because there really were no HDTVs or very few HDTVs around or no HD camcorders. There was no HD content. It was just the very early days of being able to get HD content through DirecTV or something like that. So this was the very early days of HD. So the thought that we could do real-time video communication in high definition over the open internet just with normal business B2B bandwidth . . .
Andrew: Craig, I’ve got to ask you a pretty basic question that I’m still wrestling with, which is why would business people care about HD? If anything I would think that they wouldn’t care about the video quality because it’s just about the content and they’d want worse video quality because who needs all the pores and everything visible. Why did you think that they would need it? And obviously you were right, but why?
Craig: You know, because back then I had started watching HD content on TV. I’m a sports fan and watching an NFL football game in HD or watching a channel on Discovery Network in HD, it was just amazing how much better it was than standard television. I knew that if we did that for businesses, that people would want to use it, even though all the analysts were saying what you just repeated, like, “Who wants HD?”
Andrew: It just looks so much better. Then once you get used to it in your house, you can’t get into the office and experience something that feels years behind.
Craig: Exactly. Yeah.
Andrew: And the reason that he came to you was you had experience in this. In fact, you started a company back in–when was this previous business started?
Craig: 1996 and sold it to Polycom in 1998 and then ran the video business at Polycom for five years.
Andrew: And what was that business?
Craig: It was a previous generation of video communication equipment. That leapfrog technology was based on building a very small, low cost set top box with a graphical user interface that was approachable and installable by any business person. So we were the first company to build something that actually had a pleasant to use graphical user interface.
Andrew: This was in the ’90s. You moved to Austin. You took a job as a product manager for VTEL back before then. What was VTEL?
Craig: VTEL was one of the early pioneers in video communication in the very, very early days where the user interface was a command line interface with a C:\ prompt and you had to actually type in the code to make a video call.
Andrew: Really? So if I worked in an office that had a VTEL device in it, I would have to go to command line and type in something to get another human being?
Craig: Yes, in the mid-90s, you would have had to do that.
Andrew: Wow. I never experienced that and I guess people would have used it, right?
Craig: Yeah, for people who really wanted it, the market was very small. It was the classic, very early adopter innovator market in the flow of technology products. If you really had to have a remote video call, you would spend $80,000 and look at terrible video and type a command line interface to be able to make that happen.
Andrew: And the original idea was for what for ViaVideo?
Craig: It was to take that $80,000 product and condense it down into something that cost $5,000, sat on top of your TV set and had a graphical user interface. Funny story–we were trying to figure out what would be the model for our GUI or UX on this little device. I had just given my son at that point, who was like 8 years old, a Nintendo 64 if you remember that game for Christmas. We used that same orange box Nintendo 64 UI. So our very first product, which was called the ViewStation, which Polycom would make very, very successful and we sold the company to them, the user interface in that product was designed by looking at a Nintendo 64, but it worked.
Andrew: How did you get your customers back then?
Craig: Primarily resellers, 80 resellers. When the product was launched, Polycom bought our business right when our product was coming to market.
Andrew: I see. So you didn’t even need to do much marketing for then.
Craig: Yeah. We used their distribution channel. We flowed our video product into their audio conference phone distribution channel. That’s how we got off the ground.
Andrew: Why did you sell that company so soon?
Craig: Oh gosh. I was a very junior entrepreneur. I had never done it before. Here’s a public company offering us–Polycom was a fairly small company at that point as well. They were only doing about $30 million in revenue, but somehow they were a public company. They offered us one-third the shares of their company.
Andrew: Oh wow.
Craig: Yeah. It was a great deal. The founder of that company was a guy named Brian Hinman, who had started a previous video conferencing company called PictureTel. So he was kind of famous in our industry. We actually had common investors. So we knew common venture capitalists. So I knew those guys. It just sounded like a really good opportunity to scale the business quickly.
Andrew: And they were everywhere. I think they still are. I think I actually just saw one right here in the conference room. They have those triangular phones in conference rooms, the ones that will pick up even the person in the corner who’s kind of quiet. We’ve seen them everywhere.
Craig: That’s how they got their start. Then they bought my company ViaVideo and then they got into video communication in a big way. So that was how they–they actually make a lot more money on video communication products than they do on the audio conferencing.
Andrew: Okay. I would have thought–this is maybe a crass question to ask–but I would have thought you got filthy rich from that, but it seems like you didn’t from the story.
Craig: I did okay. Nobody’s feeling sorry for me. I did fine. But when that happened, I was 36.
Andrew: Oh, really?
Craig: Yeah. What was I going to do with the rest of my life? I’m a worker. I like to work. I like to have a project that I’m interested in. I like the leadership aspect of it. I like the technology aspect of it. So I sold the company and I didn’t have to stay at Polycom. I needed to stay a while to work off my shares, but I stayed there for a total of three years, three and a half years after I sold the company. And then Polycom was getting very big and I’m kind of an entrepreneur and I didn’t want to work for a big company where I was a general manager reporting to the CEO. So I left.
Andrew: You know what? You told our producer, “I had a good run, but I’ve got to be honest–I burned out and frankly, they were tired of me and I was kind of tired of them.”
Craig: Yes, they were tired of me and I was tired of them. I’m probably not a very good employee.
Andrew: What do you mean? What were you like as an employee?
Craig: Well, once you–I’m sure if you interview entrepreneurs, I’m sure a lot of men and women would give you the same point of view. Once you have been a founding CEO of a company and scaled it and had that success and you’re mentally well-suited to be a CEO–some entrepreneurs are not, but if you are, it’s very difficult to then go into a much larger organization where you’re not the CEO and they’re running a lot slower than you are. It can be very frustrating. I think most entrepreneurs who sell their business to larger businesses don’t stay that long. So it’s pretty typical. I probably stayed longer than most.
Andrew: Yeah. I’ve talked to a lot who wouldn’t even stay until the end of their earn out, which means they were giving basically free money because they couldn’t handle it.
Craig: Yes, some people couldn’t even handle it, so they would walk away from all that money. So I stayed because it was interesting. Part of it was interesting because Polycom was scaling very, very quickly. This was really the go-go days of the tech bubble. So we were growing very fast, learning how a public company operates. So there were some really good learning experiences there as well.
Andrew: You say you’re an entrepreneur, but when I look at your history, I don’t see much that says entrepreneur. First of all, you had a long career before that and, second, you were a nuclear weapons officer on the surface of a warship? What was that?
Craig: I was a Navy officer. My undergraduate degree is from the United States Naval Academy. I was trained as a Navy officer. That’s a four-year education. So I got my bachelor’s degree there. I graduated and I was an officer in the Navy for five years. That’s not a very good training ground for entrepreneurship, but it’s a great training ground to be a leader. It’s a great training ground to learn how to be accountable and responsible and not wilt under pressure. You’re doing very dangerous things with lots of people at a very young age.
Andrew: Do you have an example of a time you were forced to be a leader at an early age when most people wouldn’t?
Craig: Yes. So, when I was 22 years old, I reported aboard this surface ship, this warship in San Diego, the USS Fletcher, just gotten out of college, gone through a couple of Navy schools. I walk aboard and I’m designated the anti-submarine warfare officer. That was my job. That was the opening that–the ship had that opening. Somebody else transferred out. They transferred me in, typical job, division officer job in the Navy. “Craig, you are the anti-submarine warfare officer and nuclear weapons officer on this Naval [inaudible 00:14:05].”
I had 60 people working for me on day one, all of whom were older than I was. They were all–I was the youngest guy there, had grizzled chief petty officers who had been in the Navy for 30 years and I’m responsible for all the hundreds of millions of dollars of SONAR equipment, all the torpedo systems, the anti-submarine rockets, which at that time–they don’t have these weapon systems anymore–10 kiloton nuclear warheads that we would go on deployment with.
That was my job. I was responsible for all this stuff and all those people. I really understood how none of it worked. I was responsible to the commanding officer of the ship to make all that stuff work, keep all that stuff going. If we ever were in a war and needed to be in a combat situation, the training of my people to make sure we executed all that stuff properly.
So it was a lot of responsibility. And then when we were out at sea on deployment in the North Arabian Sea near the Persian Gulf, lots of crazy stuff going on over there, I would be the guy on the bridge of the ship responsible for the safety of the ship in the middle of the night, the 8,000 ton warship with 300 people aboard in the middle of the night in the ocean in monsoons. It’s a lot of responsibility for a very young person. After that, nothing really in business seems that scary.
Andrew: You know what? I get that. I had a friend who ran a publicly traded company in his late 20s, early 30s. I remember when he hired a CFO who was what he thought was the best CFO he could possible hire and in a quiet moment, he told me, “Andrew, I’m a little intimidated to talk to him,” because the CFO was older and more experienced. He felt like inadequate about leading this guy. And then of course they ran into financial trouble and I can understand why one thing was connected to the other.
It’s kind of tough, first of all, to lead people at all and to feel, “I own this position,” and second to lead people with more experience. I always wanted to be in the military in some form for that reason. Frankly, even right now as you sit there, you carry yourself different from other people, you carry yourself and you sit up in a way that shows that you’re a military man, a leader. I want that, but here’s the thing–I wasn’t ready. I was too chicken to go into combat even potentially. I was too chicken to even get my clothes a little dirty. I guess maybe that’s why you need to go in because then they break that.
Craig: Yes. You come out as a different person. So even though I did not stay in for my–that was not my chosen career, I did a total of nine years, four at the academy and five out, it was a fantastic experience and the lessons I learned, the things I did stick with me to this day.
Andrew: Why stick with it if you felt like it wasn’t for you? You sensed it pretty early on.
Craig: The military as a career is as much a lifestyle and culture decision as it is a vocation. At that age, I wasn’t sure about that’s what I wanted to do. I had kind of followed my older brother down the same path. He went to the Naval Academy. He served on surface warships. That was always his dream as a kid. He had Naval Academy posters all over his walls. He’d make me play Battleship.
Andrew: I see.
Craig: Stratego. He was in the junior ROTC in high school. That’s just who he was. That was his dream to be a career Navy officer. And he did. He stayed in for an entire career. I followed him because it looked like a great opportunity. It was a fine educational institution. I didn’t have a passion I was following in sports or music or engineering or something else. I go, “Okay, that looks like a cool place to go to school. I’ll go to college there.”
That was the difference. He had a real passion and drive to do that for his career. I didn’t. I loved my time there. I still feel a strong affinity to the Navy and frankly the further it is in the rearview mirror for me, the more I appreciate it. It’s not what I was passionate about as a career. I was more passionate about becoming a business person, becoming a leader in business, primarily because of my father and his experience.
Andrew: Your father used to work at a manufacturing company and then they moved from Pennsylvania from California, if I’m understanding this right and he said, “I don’t want to do that.”
Craig: He grew up in California.
Andrew: From California. Got it.
Craig: We grew up in Southern California. Then when I was getting ready to go to high school, he worked for this giant manufacturing plant. It was the coolest thing ever as a little kid. It made desks and lockers, those old steel desks and lockers. It had giant rolls of steel in one end and you’d see the steel being cut by these presses and folded and painted and assembled and out the other side on the docks are these beautiful desks that were like precision instruments.
I just thought that was amazing to watch these huge rolls of steel with the big crane arms picking it up and then that whole process, we’d go down there every week where I’d walk around and I just loved that factory. Really I just really liked that whole process. And then they were going to transfer my father back to Pennsylvania and he didn’t want to go because we had a life in California. So he left and he bought a small manufacturing company of his own that made precision gears for the aerospace industry.
I used to watch my dad, how enthusiastic and excited he was about running his own business, combining his love for manufacturing with running his own business and being an entrepreneur. I kind of got the bug for it, being an entrepreneur, having my own career like that, but also in a company that made stuff, that made physical products. I really enjoyed that part of it.
Andrew: I get that. My dad was in manufacturing. He manufactured women’s clothing, had an office in Manhattan. I remember there were times when he felt exactly like you just described your dad, that he was just making his life his own. His desk was the way he wanted it. He loved to put his feet up on his desk, and it was that kind of environment. He could take off if he was feeling a little bummed and go buy a sports jacket in the middle of the day, or he could sell like crazy and he loved it.
I always think about how as an entrepreneur, that’s the way I want to be, then I also remember times where he was a little burned out on it. I have to remember before I get to that, I have to stop and adjust and fix something because I can’t get to that point because as an entrepreneur, that’s a disaster. There’s no one to pick you up if you’re feeling like that.
Craig: Yeah. That’s right.
Andrew: I get how you were made. Let’s get into this business in a moment. First, I want to tell people–we’ll get to Lifesize next–but first I want to tell people about my first sponsor. It’s a company called Active Campaign. You guys might have heard me talk about them for a little while.
They frankly tested the waters, Craig, with me. They said, “Let’s buy a few ads. Let’s see if Mixergy is a really good fit.” And they did and now they bought a bunch of extra ads because apparently this has been clicking with our audience. The reason that it’s clicking is because it’s marketing automation. Do you guys do marketing automation?
Craig: We do. We do a lot of marketing automation.
Andrew: What kind of marketing automation do you do?
Craig: Well, we have a whole suite of products that we have in the way we find customers at the very top of funnel. We do a lot of AdWords campaigns. We do account-based marketing. We’ve done a whole variety and mix of digital marketing campaigns we use to find customers. That’s how B2B customers find products and educate themselves.
Andrew: This used to be accessible largely to big companies or to marketers who have like hours to geek out on this stuff and then Active Campaign said, “Well, why is everyone else just sending out bland emails, the same thing, same email newsletter. We can make it simple now for the everyday user to actually have some smart marketing automation.”
Marketing automation, for you guys who don’t know, just means this–imagine someone comes to your site and gives you their email address. Then they click a link that tells you that they’re a new business. You want to send them new emails afterwards that are specifically targeted to someone who’s a new business.
Then if they come to your website and they start to click on a new SaaS business, you want to start adjusting your emails to them based on the fact that they told you they’re a new business and they have a SaaS-based company, software as a service. The only way you can do it is with smart marketing automation. That means the ability to easily sketch out that if someone tells you they’re a new business, you send them to this section of your messages. If they then further classify themselves as a software company, you tag them as that and start to send them the set of messages you have for small software as a service companies.
It seems a little bit complicated to draw information from the web, from email, from activities and it often is, which is why Active Campaign spent an enormous amount of time coming up with a simple, simple workflow, this flowchart-like thing that if you’ve ever been in school creating a flow chart you can operate.
All you do is drag the item over and say if they do this, then I want you to do that. If they click, then I want you to do that. If they give me their email address, I want you to wait one hour and then send this email from the CEO so it doesn’t feel like an automated email, but it feels a little more like a considered message.
Then two days later, if the person didn’t respond to the CEO’s message, I want you to send a follow-up message. If they didn’t use our software after buying it for a week, I want you to send an offer to do a call with someone on the team, all those kind of if-then, understanding what your customer does types of analysis is marketing automation. It’s really hard with a lot of other software. You guys might have heard me complain about it. Active Campaign has taken this process really seriously and said, “We’re going to make it really easy.”
If you’re listening to me and you want to try it, they’ve got a special URL for us where you’ll get a month free service from them. You’re going to get two free one on one calls with their consultants. They’ve got platform consultants who are experts at marketing automation so they can help you think through how to do this and they’ll migrate you, so if you’re on an old fashioned system and you want to implement marketing automation, just let them know you’ll take all your contacts and move them over to Active Campaign and they’ll set you up so you can start off just right.
It’s easy to do it and that’s what they’re all about. You’ve heard many people who I’ve interviewed use them and I urge you to go check them out. Go to this URL to get that offer I just gave you. It’s ActiveCampaign.com/Mixergy. I know that they probably want you to click that “start your free trial now” button and I might actually lose credit for you as a customer if you don’t do that, but I think you’re better off ignoring that start right now button and instead looking for the features section to really dig in and understand how marketing automation works.
Frankly, even if you don’t use them, you should just see the thought process behind how to message people based on what they do on your site, how they interact with your email and who they signal to you that they are without actually telling you explicitly. It’s, I think, a really useful site in that way.
And of course, if you want to join and give me credit, go to ActiveCampaign.com/Mixergy when you’re ready and they’ll give you that free month, the two free one on ones and they’ll migrate you and I’m grateful to them for sponsoring.
All right. That one felt good. I like when a sponsorship message feels–when I feel happy doing it.
Craig: That’s a critical capability. We spend a lot of time and a lot of money on marketing automation.
Andrew: What’s the software that you use? Don’t worry about giving out a competitor. I’m okay with it.
Craig: We use Eloqua today, but I think we’re switching to Marketo.
Andrew: Yeah. I think that’s who Active Campaign is kind of going up against, Marketo, to be honest with you. Even when they signed up, they said, “Look, Marketo and HubSpot are big all in one services. We want to focus on email and allow people to do the rest using whatever best of breed software they want.” I can understand why you guys would, considering the kind of clients you want, go with Marketo.
Craig: Now that I heard your little pitch for them, I’m going to talk to our CMO and have them check that out. It seems some really cool little automatic routing features depending on actions by potential customers.
Andrew: It’s really well done. I’d urge you to check them out. I think you’ll be happy with them. Again, even if you don’t end up going with them, just the logic of what they’re doing could be implemented anywhere else and it’s worth checking out.
Craig: It will be very useful for what we do. It’s right in our wheelhouse for the type of marketing that we do.
Andrew: Boom. Another customer, potentially.
Craig: Maybe so.
Andrew: All right. Active Campaign, we’ll see you again for another six months. All right. So, you had the conversation about the future of video conferencing. You had the conversation about HD. And then here’s the thing that surprised me. This was back, I think, in 2003 when you had that conversation?
Andrew: And then you launched the product when?
Craig: We launched the product at the end of 2005. The product actually worked well in the middle of 2006.
Andrew: Wow. And that’s shocking. You would stick with it and your investors were patient. This is before the Lean Startup movement. Were your investors patient during that period?
Craig: Oh yeah. You have to remember, this was the very bottom of the internet crash.
Andrew: Right, 2003 people were still recovering.
Craig: Yes. So VCs were hardly investing in anything. The only thing they would invest in would be like serial entrepreneurs who were doing another company in the same space. That seemed to be a safer sort of thing in kind of a known market. But unlike starting up a software company today, there are so many advantages and ways to get things going faster 14 years later, obviously, but we were building hardware.
We were building boards. We were programming FPGAs. We were programming DSP chips. We were actually building our own high definition pan-tilt-zoon cameras and taking image sensors and custom lenses. It was very complex, deeply technical across a wide range of disciplines, audio algorithms, video algorithms, communications algorithms, hardware, chip design, mechanical engineering, making all this stuff, optics, image processing.
It’s super complicated. It took us–we started in 2003, 2004. It took us really three years to get the product, kind of our first product out the door.
Andrew: Did you work with customers at all during that period or because of your past experience, did you feel like you knew what you needed to build?
Craig: We did mostly through our experience and what we thought we should be building. There’s a danger in going out and asking customers what they want because they’ll just–kind of back to the Steve Jobs mentality, they don’t know what they want. They know what they’ve experienced. So if I went to a customer and say, “If I built a high definition video communication business, persistent for your business, would you buy it?” They would say like you said earlier, “Why do I need high definition?”
Andrew: I get it. Isn’t your logo also the–I don’t know what it’s called, but an image of the camera that tilts and moves all over, right?
Andrew: If you were to ask a customer back then, “Do you want that?” I imagine that they wouldn’t value it as much. Am I right?
Craig: Yes. If I said, “Hey, do you want a high definition video communication system that works at one megabyte bandwidth, would that be interesting to you? And most of them would say, “I don’t know. That doesn’t sound . . . I don’t need that. I don’t need HD. I can just pair ISDN lines together and do my video calls that way.”
But we knew if we built this, people would love it. You have to balance that, what you believe and your vision for what you’re trying to build with the market realities because you can be too earlier. You can be so early, so advanced that there’s really no market for it. That’s the trick. You kind of have to hit it just right at the right time. We were fortunate that we did.
Andrew: And so when you came out in 2005 with that first product that you said still needed some work, who did you take it to? Which clients tried it out and actually experienced it?
Craig: It was companies that had remote offices who valued the conference room experience and had remote offices.
Andrew: Was there anything special about them? Did you have a connection with them before? Did you have any experience with them or was it just–how did they find you?
Craig: Well, we worked with the resellers, the integrators. They had a lot of the contacts with customers. We’d do marketing. We’d go to a lot of shows. We’d go to these audio video shows, communication shows. There’s a whole range of tradeshows around the world where people come to check out new technologies. This was before internet marketing and companies like Active Campaign were around, where that marketing automation science really wasn’t–so, people went to tradeshows. We did a lot of tradeshows and found customers that way and kind of built from there.
Andrew: And even though it was not a product that was stable yet, you’re saying it was still better than the market, still better than what existed?
Craig: Yeah. I still remember our first tradeshow in November of 2005 in Las Vegas. I forget the name of it. We showed our product in the booth. It was kind of what you’d call beta. It wasn’t fully stable. It was amazing. It just blew away everything else at that show.
Andrew: Because of the clarity?
Craig: Because of the clarity. It’s the first time anybody had ever seen a high definition video call, real time video call with no delay, hardly any delay over an internet connection out of a tradeshow live. People thought we were faking. People thought it wasn’t true. They thought we were faking the whole process. So it was so much better than anything that was on the market. We knew we had a hit.
Andrew: How was pricing compared to what was there?
Craig: It was about the same price as the crappy stuff everybody else was selling, the low resolution products that Polycom and Cisco were selling.
Andrew: Is that really the reason why you didn’t need to do customer development conversations? You knew what existed. You knew how far they were from making HD possible and if you could make something that was much better than the competition at roughly the same price, it doesn’t matter. You don’t need feedback. You know that’s what it is, that it’s going to work.
Craig: Yes, exactly. We did the same thing with the previous company, with ViaVideo, just in a different value proposition. The value proposition of ViaVideo was small, low cost set top box graphical user interface. That was advancement. At Lifesize, the advancement was high definition over IP networks. As you said, it was so much better and about the same price, why wouldn’t you buy it?
Andrew: So you grew really fast. Within four years, you hit, I’m guessing–tell me if I’ve got this right, $80 million in revenue within four years, annual revenue?
Craig: Yes. Our 2009 revenue was $82 million. That was four years after we started.
Andrew: Wow. You were selling the hardware and then people could connect it to the internet on their own, right?
Andrew: So what would it cost if I had an office in New York and one in Los Angeles and I wanted to have both conference rooms connected?
Craig: At that time, it would have cost about $80,000 per conference room, for the conference room devices.
Andrew: I see.
Craig: Then you would just need a TV and your internet connection.
Andrew: I see.
Craig: It was more expensive than it is now, but you just get an amazing experience.
Andrew: So, so far I’m seeing you as a leader. I’m also seeing you as a technologist. What I’m not seeing yet is where’s the marketing coming from? How are you able to take this new piece of technology and explain to people why they should spend money for it and why they should trust that it will work?
Craig: Well, at that time, there was a well-greased distribution channel, global distribution channel for these types of products. It was a worldwide network of 80 integrators, distributors, resellers who would market and sell these types of products. Really all you needed to do is sign up these resellers and win mindshare with the resellers and build a sales organization to work with the resellers to sell your products.
We would do some branding. We’d have a website. We’d go to shows. But at that point it was not that–it was very different than we do marketing today, only marketing where customers do a lot more research and education before they even engage with your company.
Andrew: Yeah, by the way. I’ve got to tell you about your marketing right now. It’s driving me to distraction here because I have your YouTube channel up from before the interview started, I started researching. Then as you and I talk, I keep going back to just confirm a few things in the video. For a channel that doesn’t have a lot of subscribers, you guys invest in really good, polished videos that keep on freaking moving. So I can’t stop watching them.
Craig: Thanks. We’ve got a great marketing team.
Andrew: Really, frankly, for a company that goes to enterprise, your stuff could really be ugly and nobody would notice the difference. No one would care, but its’ polished. The editing is quick. It’s better-edited than this interview is going to be and I’m in the interview video space.
Craig: Thank you.
Andrew: All right. I see what you were doing back then. You’re saying there was already this channel established. I just got right in there with a better product, roughly the same price. We ended up growing sales tremendously fast. And then you sold. How did the sale happen and why?
Craig: I remember this very clearly. I was on summer vacation in San Diego. I had just gone out for a bike ride in the middle of the day. I got a call from an investment banker that said, “Hey, Logitech would like to talk to you about buying your company.” I kind of laughed, “Logitech, the guys who make mice and keyboards? Why would they want to buy an enterprise video communication company?” So it intrigued me.
Anyways, we started engaging with them. And Logitech was trying to diversify out of consumer retail and get a little bit more into B2B. They had some products in the webcam space that they were using for desktop video conferencing. They ended up making us a very good cash offer of $405 million for Lifesize, five times revenue even though we were growing very fast.
That seemed like a really good–this was in 2009. This was the summer of 2009. So you remember back what was going on in 2009 for kind of the depths of the financial crisis, a company offering a startup $405 million in cash, a real company not trying to buy your stock, that was a serious offer.
Andrew: All right. I want to come back and ask did you stick around this time and how was that and then what happened with this other company, Bloomfire and then also why are you back? Why is LinkedIn still showing that you’re the guy at Lifesize? But first, I’ve got to tell people about a company called Toptal.
You know what, Craig, here’s what happened to me. For a long time, I was doing interviews and maybe for the first year it was easy to find my interviews because you could just do a search or scroll through the list of interviews, but as I got to about 500, 600, 700, people couldn’t find them. I tried all these different search tools to make it better and it just was not working.
And then Toptal came on and they signed up as a client and I said interesting, if I was building a big powerful app, I would want the best of the best from Toptal. That’s what they’re good at. They will get you the best developer or developers and I know there are some people who hire full teams from them. But all I have is just this WordPress site.
And at some point, I just brought that up. I said, “I wish I had something bigger because I’d want to have someone fix this really troublesome issue.” People can’t find the right interview. If you’re looking for an interview for enterprise, you don’t want to search for 800 interviews of SaaS companies aimed at consumers or whatever.
They said, “We can help you. We have developers for any platform.” I said, “Great.” I gave them my credit card and I bought just like a customer even though they would have done it for free. I did the same process anyone else would do. I got a phone with one of their matchers. I told them how I worked. I told them the quirky things we do at Mixergy. They matched me up with a developer who within a week solved our search problem, made it look so good that you could actually say, “I want a SaaS company,” or, “I want a VC’s interview,” etc.
And it just worked beautifully. So we paid them much less than I expected and we got going with a brand new search and then we reskinned the site to make it look better because the search was so powerful I thought our design should match it.
The reason I’m bringing this up is that anyone out there who has an issue who’s been kind of backburnering it or not paying attention to it because you don’t have right person and maybe when you can, when you will, when you should, you’ll go find the right person. Maybe that’s what you’ve been saying to yourself. You don’t have to say that anymore.
You can just go to Toptal like I did and even if you’re not sure they’re a good fit for you, just fill out their form and you’ll get on a call with a matcher who you could tell about your issue. If there’s a good fit, they will find that person for you and you can get started with them like we did. Within a manner of two days we got started with our person.
And a lot of agencies do this. They will have a specialty in iOS, but if you then say, “I also need an Android app,” they’ll say, “Oh, we’ve got developers for that.” And their secret, “We’ve got developers for that” answer is they call up Toptal afterwards and they say, “Now we need our Android guys from your staff on our team for our client.” So, a lot of the agencies you’re working with are actually secretly working with Toptal. If you need a developer, you might as well go straight to them.
Here’s the URL–Toptal is giving us 80 hours of Toptal developer credit when you pay for your first 80 hours and that’s in addition to a no risk trial period of up to two weeks. That special URL is Toptal, top as in top of the mountain, tal as in talent, Toptal.com/Mixergy.
All right. You then, Craig, were at a new company again, back to big business. Did you feel more comfortable in that role this time?
Andrew: No? Let me see here. But it looks like actually you sold it in 2009, but according to your LinkedIn, you stayed with them until 2011.
Craig: Yes. So I have this personality disorder. I felt like I needed to stick around and make sure I delivered them the business which I had sold them. I wanted to make sure that they were happy with what they bought and integrate my team and stay there and take care of my team and make sure it was well-integrated and everybody was happy and the business was doing well.
Andrew: I feel like that might be the same reason you stayed in the Navy as long as you did, even though you knew a few years before that you were ready to move on. This sense of completion, this sense of doing it right, is that what it is or am I playing armchair psychologist?
Craig: No. I keep telling myself it was probably not a great thing, but I do get emotionally invested in teams and the business. I think that’s what makes me successful as an entrepreneur, but there’s also some downside to that as well. It’s hard to–I don’t look at it just like a financial portfolio of assets. These are real people. This is real business, the culture here.
Craig: I felt like even though they cashed me out, I couldn’t just walk away and leave my team there without making sure they were well-integrated and taken care of. So I stayed for two years, and we actually doubled the business again within Logitech. When I left, we were doing $160 million a year.
Andrew: Wow. I see. And you did right by your family. You got yourselves some financial security, I imagine, from this deal.
Andrew: You did right by your investors at a time when a lot of them were maybe licking their wounds from 2008-2009 financial crisis. You did right by them. And then you moved on and you started something called Bloomfire. What’s Bloomfire?
Craig: That’s knowledge sharing for businesses. If you’re familiar with the platform Jive, it’s kind of a simpler, lighter weight Jive, social knowledge sharing for businesses. You can ask and answer questions, find and follow experts, share non-real time content. I’d always been in the real time content sharing, the video collaboration space. This is more about non-real time content. How do you save all the great knowledge people have within–
Andrew: Within the company?
Craig: Within the company, yeah.
Andrew: So, for example, if Ari did a pre-interview with you and realized she said to you in the pre-interview, “How was that failure?” and you bristled and you pushed back, she would go into Bloomfire and say, “We don’t use the word failure because it upsets some entrepreneurs.” Then the next person who does a pre-interview would be able to access that. That’s over-simplifying, but that’s essentially what we’re talking about, right?
Craig: It could be anything. I started that. I wanted to get into SaaS. I wanted to try something new. I wanted to get into SaaS. I wanted to get into software just to try a different type of business because I had done two hardware companies from 1996 to 2011. It’s like I need to do something different. So, actually, I had bought a small company with our investors. We bought a small company in Utah, moved it to Austin and then built around that core so we didn’t have to start fresh.
Andrew: And Bloomfire is still up. It’s still running. I can sign up for $9 for the basic plan or $17 a month per user for the plus plan. That’s basic SaaS pricing. How is that going for you?
Craig: Well, I’m no longer involved with the company. When I left, I did that for a couple years. Then Lifesize came calling.
Andrew: How was the experience, though, before we move on? I just want to get a sense of how was this change. Everything you’ve done until now seems to have been about bringing people in real time, allowing them to talk, allowing them to collaborate and then you moved to SaaS. How was that for you?
Craig: It was fun. I learned a lot about SaaS. I learned about the SaaS business model. I learned a lot more about developing software. But I missed video communication. I missed making hardware products, at least a portion of hardware. I missed the physical aspects of what we had been doing at Lifesize.
Andrew: I get that. It also feels like a different business in that it’s $17 a month as opposed to $80,000 per unit, and it’s a whole other mindset. Again, going back to my dad, he used to sell dozens of shirts or pants or everything, whatever he made, at a time. Then he opened up a store and he said, “Kid, to sell something for $9.99 with a customer who’s upset that it’s not $8.99 is driving me nuts.” He’d rather go and charm a store than try to get somebody to feel comfortable with $9.99.
Craig: Yes. Lifesize had a bigger scale. We were global. It was a different type of business. I’m glad I did that, but I stayed connected to Lifesize along the way as an advisor.
Andrew: And then they came calling. Why did they call you?
Craig: Well, in 2012, 2011-2012, 2013, the world began to change, kind of on premise infrastructure was going by the wayside in favor of cloud services, SaaS business models.
Andrew: What’s the difference between cloud versus–what’s the alternative that you guys were doing before?
Craig: We were building large dedicated kind of on premise devices that would go in some of these data centers.
Andrew: I see. That’s the part that I don’t usually look at with your finished product. I see the camera. I see the software, but I didn’t realize they would also have to have hardware in a data center. You’re saying the world changed. People didn’t want to have hardware. They didn’t want to have data centers. So Lifesize was going through a transformation. I see. How did it affect their business that they were in the business of selling stuff that you put in a data center?
Craig: Well, Lifesize 1.0 from 2003 to 2011, that was our business, the conference room devices and also the data center infrastructure, which could be a $100,000 to $200,000 or more piece of equipment that we sold as a one-time purchase. Now nobody wanted it anymore. There were services like Skype and other B2B video communication services that just worked on Amazon or some other cloud-based — the problem that Lifesize was having is they weren’t going through a business transformation.
We were making buggy whips and wagon wheels. We were making flip phones in the era of smartphones, an easier analogy. It was classic technology transition, technology inflection point where we were of the old world. There’s a whole new technology transformation that was underway and our company was not in a position to take advantage of that.
Andrew: Why do you think you weren’t?
Craig: Because it’s really hard. Why doesn’t Nokia exist anymore?
Andrew: I see. The transition was such a big difference. It seems to me like, “Well, you just take the hardware from their office and move it into the cloud and it seems easy,” and you’re saying no, it’s a whole hard, difficult problem to solve.
Craig: Yeah. Why couldn’t Polaroid start making digital cameras?
Craig: Because it’s hard. You don’t have the right skill set. The executives, the board of directors, you have this momentum. Your current customers, you’re still servicing your current customers, but the new customers are buying something else. They’re not even talking to you. It’s coming back to our earlier point is don’t get wrapped up into too much of what your current customers are buying and miss the next thing. In tech there’s always a next thing.
Andrew: All right. You then said to them, “I can do this. But I realized something about myself. I’m not a company man. I can’t be part of some hierarchy where you come in and say Craig’s going to join the organization and be told what to do.” So, what do they do instead for you to accommodate the way you work?
Craig: Well, they asked me to come back to Logitech to fix the business. Because of my deep experience in video communications and my two years of work at Bloomfire, I understood SaaS. I thought I can take our hardware and pair it to a cloud service like Nest or Dropcam or Fitbit. It’s like wouldn’t it be amazing if I could take our conference room devices, our conference room cameras and deeply pair it with a collaboration service like Apple TV?
So that was kind of the epiphany that I had. It was like, “Oh, that’s how you could turn around Lifesize.” So I talked to the guys at Logitech about that because I kind of stayed connected as an advisor. They asked me to come back and do that for the company. There’s no way I would have gone back as an employee at Logitech, as an executive of Logitech running a division. I just had no interest. I said, “But I will come back if you let us spin it out and have Lifesize become an independent business again.”
Andrew: And that’s what they did. They spun it out.
Andrew: You told our producer, “When we sold it, it was a $405 million business. We doubled the sales while I was still there. But by the time they brought me back, Logitech valued it at. . .” how much?
Craig: Well, they had written it dead, completely written it off.
Andrew: So it was nothing to them?
Craig: On their balance sheet it was nothing. The business had rolled over. We were starting to lose money. We no longer had a competitive product. We had 550 people when we probably only needed 250 people. It needed to get scraped down to–to use a Navy analogy, scraped down to bare metal and repainted.
Andrew: Yeah. It sounds like it. They spun it out. You raised some money. You bought it back for how much?
Craig: $20 million free money valuation.
Andrew: Okay. And then they still stayed on, Logitech, as part owners?
Craig: Yes. The deal was I went back to my series A investors from Lifesize and one of the investors that invested in me ViaVideo, Jeff Brody at Redpoint and raised $20 million from these venture capital firms I’d worked with before. We crafted a deal where the VCs would own 50%, Logitech would own 30% but passive investment, no board seat, no voting rights. Then employees and management would own 20%. We’d be a freestanding, independent company ready to rock and roll as a small venture funded growth company that had a great product in a new even bigger, faster growing market.
Andrew: Maybe this is my ignorance of how VC works, but I’m wondering why even take VC? Why not say, “I did well for myself. I’ll invest my money in this business and then I don’t have to give up the 50%. I could take that for myself.”
Craig: It’s just risk.
Andrew: Okay. It’s still such a big risk to turn this business completely around that it’s like starting a brand new company with all the risks involved there.
Craig: Lifesize, if you looked at it from a financial perspective, in 2015 when I started this process, it was a bit of a train wreck. Our revenue was in freefall because the old business was going away. The new business was starting to work, but it was very, very small. It was in the midst of laying off 300 employees. It wasn’t–I knew in my heart that we could make this work, the product solution they were building, but there is a lot of financial risk and I didn’t know how much additional capital we would need.
And frankly, it’s not just–if you get good top-tier venture capitalists, it’s not just about the money. It’s about the expertise and the governance and the help they can give you. I worked in a SaaS business for two years, but there was a lot about that that I didn’t know. So, there was a lot of benefit to working with those guys.
Andrew: I see. And by the way with the layoffs, you had to do that. You told your producer, you had to look people in the eye, some of them, one specifically was 50 years old and how did he take it?
Craig: Most of them, the vast majority of them understood what we were doing. We over-communicated, weekly company meetings, “Here’s what’s happening. Here’s where we’re going. Here’s what the P&L looks like. Here’s how much cash we have. Here’s how we have to right size the business.” Most of them were completely understanding. Many of them were grateful for the time they had spent at Lifesize.
It was a terrible, terrible experience to do that. But it was necessary and the vast majority of people were completely understanding of what needed to be done. They were sad that they weren’t going to be here, obviously, but they understood. If you handle that with integrity and dignity and honesty and compassion, then you’re going to get a good result even though everybody is sad and feels bad about what’s happening.
Andrew: So you–I love that Greta–your team is so good. So Greta is on it right now and she’s just checking it. We were supposed to end the interview about three minutes ago, so she’s checking in with me. We’re almost done. I’m curious now–first of all, where’s the revenue today? We’ve talked about it being all over. Where is it now?
Craig: Yeah. Well, we’re not disclosing our current revenues. It’s lower than at our peak, but we are a real sustainable business. We have almost 4,500 customers on our new cloud collaboration service. The vast majority of those customers have a conference room camera paired to the service, so exactly the vision for our product solution we had.
Andrew: That’s the difference. There are meeting apps out there that I can install on my phone, on my desktop. Yours is one of them. I can actually just use this, as I understand this, I can go to Lifesize.com right now and I can get a beautiful hosted cloud-based conference software with screen sharing and video and everything else. What separates you guys–and tell me if I’m wrong, if I’m missing something–it’s that you also have the speaker that has this digital screen on it. You also have the camera that goes along with it, the experience, the hardware. Am I right?
Craig: Yes. The conference room experience is what matters. You mentioned a few minutes ago you have a Polycom conference phone in your conference room. You have that because probably your experience with putting your mobile phone on speaker or using a desktop phone in a medium to large-size conference room doesn’t work very well. Nobody can hear, nobody can speak.
If you start trying to do a video call, the video aspect would make it more difficult. So, you use the right tool for the right environment. Customers who value the conference room experience–most of our customers do–we have this beautiful conference room experience and we can extend that to desktop and mobile users.
Andrew: Here’s what stinks. When I talk to some people who setup their own like Skype-based conference in their office to do an interview, here’s what they look like. I know a lot of people are not going to see this, but they have a conference room, they have a webcam. It might even be a Logitech webcam and look like this, like that at the desk, really tiny and I have to tell them I know you have this really beautiful setup that you like.
You’re going to look so small, people are not going to take you seriously and they’re going to think you’re lying, when in reality it’s the camera angle that’s not good. Please go get your laptop and set it up on top of two books and it will look a lot better. I promise that that’s going to be better and you can save that conference software for somewhere else. It’s such a small thing. What’s the difference? Why does your camera not do that?
Craig: We build very high quality pan-tilt-zoom cameras for use in conference rooms that have very high resolution, very high framerate, work well in low light environments. So it’s perfectly optimized for a conference room environment, whereas if you put your laptop at the head of a conference room table and try to have 10 people have a video call, you’re not going to be very happy with the results.
Andrew: I’ve seen that too.
Craig: It’s funny you mentioned about the framing. I’m sure you noticed that I’m perfectly framed for a video call because this is what I do for a living.
Andrew: People don’t recognize this, Craig. I’ve got to tell you. I used to have guests that were really good, well meaning. I checked their background. They were smart people. My audience would be so skeptical about what they said. I didn’t understand why? What did this person do?
And then I realized it was a few little minor things like if they put me on big video screen, they were looking towards the center of their camera, it looked to the audience like they weren’t paying attention to the audience or to me because their eyes were down, when in reality, their eyes were paying attention to me.
So I now learned to tell people move the video of me next to the camera so when you look at me, it will give the audience the impression you’re looking them in the eyes and then that subtly communicates trust. If you look small like this on a camera, where the top of the screen is empty, people think you are too small to have achieved what you say.
It’s so subtle that I have to laugh sometimes when I tell a guest to frame yourself right. people will not trust you even though you’re saying the exact same thing you would say with the camera right, they won’t trust you as much. Weird, right?
Craig: I’m laughing because I’ve been in this business for 22 years and it’s the same issue.
Andrew: So small and it’s such a psychological thing. As a business person I feel like no one should care, but they do.
Craig: They do. Sure.
Andrew: Yeah. I guess it’s kind of like if you meet someone at a meeting at a conference and they shake your hand and they never look you up in the eyes, you feel something is wrong with them.
Andrew: All right. Anyone who wants to go check this out can go check out Lifesize.com. I think the first thing you should look at is the cameras just because they’re beautiful and I’m a hardware enthusiast. I love seeing well-made stuff–Lifesize.com. And of course my two sponsors are ActiveCampaign.com/Mixergy and Toptal.com/Mixergy. I’m grateful to them and to you, Craig. Thank you.
Craig: Thank you so much, Andrew.
Andrew: You bet. Congratulations. Bye, everyone.