HasOffers: Charging Changes Everything

Lucas & Lee Brown had a successful product, but it was draining.

You see, HasOffers, the software they built to enable advertisers to create affiliate programs, was free. So every time they were “successful” and landed a new user, they were also landing a potentially expensive customer service obligation.

Then they removed the free option and started charging. Catch the interview to see how that one move made them profitable and gave them the freedom to get creative again.

Lucas and Lee Brown

Lucas and Lee Brown


Lucas Brown and Lee Brown are brothers and Co-Founders of HasOffers.com. HasOffers software allows advertisers to create action-based, revenue producing campaigns and incentivizes affiliates to generate leads. It helps companies like SEOmoz make money and unlike Commission Junction, advertisers can manage their affiliate programs in-house to see how they’re impacting their business.



Full Interview Transcript

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Here’s your program.

Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy.com. Home of the ambitious upstart and it’s a project where founders come to tell the stories behind their businesses so that others can learn from their experiences. I recently got an email from my friends over at SEOmoz and they said, “Andrew, you’ve go to check out this company called HasOffers.” It’s run by twin brothers who are helping companies like SEOmoz make money, and so I invited them here to do the interview.

Joining me today are Lucas and Lee Brown. They are the co-founders of HasOffers, which provides software that allows advertisers to create their own affiliate programs. Guys, welcome to Mixergy.

Lee: Thanks for having us.

Andrew: Cool. So guys, I know that you know Mixergy, so you probably know the format that I go by. I like big numbers to highlight how big and successful you guys are today, and establish what exactly the product is. Then I go back in time and figure out how we got here. Then we leave off with maybe a little bit of advice and some ideas about where you’re going in the future. So hit me with some big numbers. How many people are using HasOffers today?

Lee: We started out in 2009 with a freemium model. That really allowed us to scale up to about 6,000 some-odd clients. From there, we transitioned from our freemium model to a SaaS space model and now we have about 850 paying clients.

Andrew: 850 paying clients. I looked at your price list on your website. It’s $99, $279 or $799. That’s pretty much what they’re paying.

Lee: Yes, exactly, but we also have a lot of clients that go over enterprise version so we have clients that are in the range from $10,000 to $20,000 as well. It just really comes down to activity.

Andrew: And all of these numbers are monthly, right?

Lee: Yes, we don’t lock our customers in. At least 98% of our customers, we don’t lock in more than a month.

Andrew: What can you tell me about the revenues, the annual revenues now or monthly revenues?

Lee: Last month we did $330,000 and have been profitable since August 2010. We’ve been plowing back our earnings and building our teams to provide a better product for our clients.

Andrew: Okay. All right, I want to understand what the product is. Let’s start with just a very basic question that might even make some of my people feel like I’m insulting their intelligence, but I want to be as inclusive as possible with this. An affiliate program is what? And then I’ll understand what your software does that’s different from Commission Junction and all the other affiliate options out there.

Lee: An affiliate program allows advertisers to basically come in, create a campaign, and that campaign is tied to some sort of action. Is it a sale? Is it a lead or some other revenue-producing action? What our software allows advertisers to do is to go in, create a campaign based on one of these actions and then incentivize affiliates to actually come in and generate these leads or sales.

Andrew: Okay. So, Lee, for example, you guys have, I think, Groupon as one of your customers. Is that right?

Lee: Not Groupon. We have LivingSocial and every other daily deal website, but Groupon.

Andrew: So LivingSocial has what kind of a deal that they’re offering using Has Offers?

Lee: They do an email submit. So it’s come in, and a user will submit their email address, and when a user submits his email address, I don’t know their payouts, but they usually pay out about $1.50 to $2.00 per email address.

Andrew: Okay. I, as a user, go to LivingSocial, I think all my friends need to know about this, and I need to get paid every time one of my friends signs up for LivingSocial, I give LivingSocial my email address, basically it’s giving it to your software?

Lee: Exactly.

Andrew: LivingSocial spits out a URL, I spread it all over the internet on my site, to my friends via email. Every time one of them signs up, I get paid. Now, how is that different from commission junction and all the other affiliate programs that are out there.

Lee: So what we do is we now have advertisers to actually manage it in-house. So advertisers can go to networks, like Google affiliate networks, Linkshare. It doesn’t give them many power or control. And it lacks transparency. And when we come into the game, is we allow our advertisers to come in, actually create their own affiliate programs, and mange it themselves. It’s kind of the same thing that happened with search engine optimizations. There were a lot of agencies doing it, and the advertisers really didn’t know what was going on. As soon as there are companies like us and come in and give technology to advertisers, they are able to come in and actually see how it can really impact their business.

Andrew: I see. Okay. So commission junctions, a great place, a market place where you can find, I keep going to commission junctions just because they’re the leaders and they’re top of mine, but the idea is that if I were to go to them or if commission, or if LivingSocial were to go to them, they would be in charge of their affiliate program, by going to HasOffers, the company itself is in charge of its affiliate programs. Cool.

Lee: Exactly. In today’s age, it’s becoming more valuable to those advertisers to develop those relationships with the affiliates directly.

Andrew: Okay. So I told you that before I did this interview, I did a little bit of research on you, and someone asked you, “Are you bootstrapped or funded?” And you said, “We’re bootstrapped with $2 million.” Where did you guys get $2 million to bootstrap a company?

Lee: My brother and I, when we were in college, we started an ad network, an affiliate network ourselves, and we didn’t plan on it being successful, but it just kind of sprouted out, and we made some good money at it. Throughout the whole process, my brother was architecting a lot of the technology, and that’s where the core technology from HasOffers is from, this ad-serving technology that we’ve been building for six years now.

Andrew: Okay. You know what? Let’s talk about that business before we get into HasOffers. If that business spit out $2 million for college students, Lee I see you are looking over to the side, is it uncomfortable for you guys to talk about the past company? Nothing secret there that . . .

Lee: No, there’s nothing secret there. We just love where we’re going now.

Andrew: Okay. Let’s talk a little bit about that. If, for no other reason to establish credibility and to answer my curiosity about how did these guys, college students, end up with $2 million in the bank? So, what was the original idea behind the previous business?

Lee: Well, we started out with affiliates, just doing lead generation for insurance officers, ZIP submits, and ringtone packs, and that was in 2006, actually in 2005. We just started doing it, and we didn’t really plan on that company

Andrew: How did you guys get traffic to your offers?

Lee: So, back in the day, we started our first company with a $150, and from there we had content websites back in the day. Now we have YouTube, but before there was YouTube, there were specific content sites, so if you wanted to go find celebrity videos, we had a celebrity video website. And in that process, we realized, well, before that we were affiliates, and we were buying all of our traffic from the search engines, AdWords, MSN, and Yahoo. And then we started doing our content websites, and then from there we were on the flip side of things. Instead of paying these search engines, providers for traffic, we were now getting paid from these providers. So from there, it was like, must’ve been about two years in, we realized that we aren’t in any new position from before. So before, the only way we came up with, is that we have to develop our own distribution channel. From there, we built our own ad-serving platforms specific for banner ads, and started doing MediaBuys at promoting affiliate offers, via our ad-server platform.

Andrew: So you guys created your own ad-server platform?

Lee: Exactly.

Andrew: So let me see if I understand this right. I’m a little bit slow on this stuff. But basically, did you buy ads from Google and then send it to your ad serving program, and?

Lee: We bought ads from MySpace, Facebook, Tagged, a lot of the dating websites that have the banners on them.

Andrew: Okay.

Lee: A lot of the social networking, dating websites is where our focus was.

Andrew: And you sent it directly to the ringtone offers and others that you mentioned.

Lee: Yeah, it was arbitrage back in the day. You buy on a CPM basis, and you back it out to CPA offers on the back end. That’s where we got this experienced [inaudible].

Andrew: What kind of CPMs were you paying back then?

Lee: We would go in, they would tell us the high end brands and stuff, and we would only buy remnant stuff, so it ranged anywhere from 10 to 80 cents. Sometimes it was a $1.20, but it was a lot of the remnant traffic that we would gobble up. It was before there was actually players in the markets base that resold ruminant traffic, and so we were some of the first people buying up all the remnant traffic and monetizing it. Before you could dump it up on media exchange or blue book con or anything like that.

Andrew: Oh, this is awesome. All right. Back then I couldn’t do this kind of interview because it was also secretive. Now that we have some years behind us, and this stuff doesn’t work, I want to get an understanding of what was going on back then, to understand how business works online. So $0.08 to $0.10 CPMs, I remember those ads. What kind of conversion rates were you getting?

Lee: Less than 1%.

Andrew: Less than 1%. Okay.

Lee: It’s the standard banner ad and your click through rates, maybe are 1% click through rate, and then it’s a 1% conversion rate. Occasionally there are some sites that you get a 3% conversion rate on it, but it’s hard to find those.

Andrew: Still really good, though, I mean, for 8 cents. Even if you get one person to click over, $0.08 cents a click is not too shabby. And then, you convert them, you’re saying, 3% of those people end up converting into using their product.

Lee: That’s a very high end banner.

Andrew: That’s a very high end, okay.

Lee: Just by lots of banner ads.

Andrew: All right. Do you remember one thing that worked that was surprising about those banner ads? Was there one, like, adding a picture of a woman worked? Or was it something else?

Lee: Just, probably it was maximizing the conversion rate, or the click-through rate to be honest.

Andrew: How do you do that?

Lee: Just, those annoying flash banners. The games that you see are still out on the internet at the moment. Anything that drive engagement. It’s different. There are really two different types of advertising. You have brand advertising and you have direct response. The key with direct response is that it’s direct. So you have to drive some sort of engagement. We had the interactive flash banner ads, so that’s kind of what we were good at doing. Interacting, driving, engagement on websites that would produce conversions.

Andrew: What kind of interactions were going on? What were the games and the banners?

Lee: Just the fun, flash ones. Cut the nose hair. Just fun stuff like that you would want to click on.

Andrew: Okay. Who created those banners for you? You guys have anyone in house?

Lee: Yeah, we had a team of graphic designers that would build them all out.

Andrew: Okay. All right. So those kinds of games increased conversions, or increased click-throughs. What did you learn about the conversions? Were the conversions even on your side? Or did you just send traffic directly to the programs that you were affiliates of?

Lee: As far as after we get paid, like, back in monetization, or?

Andrew: No, after people clicked, where did they go.

Lee: To an affiliate offer. So they still received their step cement or mole subscription offer.

Andrew: I see, and it was all on the merchants’ websites, right?

Lee: Exactly.

Andrew: Gotcha. So that you didn’t have much control over. It was just about finding the right rates and getting the right clicks, and picking the right offers, but not increasing conversions yourselves. All right.

Lee: It was interesting. Back in the day, one of the ways we were able to do that is, we were very frugal with our earnings that we produced. So to scale up our media buys, we would go into the websites and basically prepay our entire budget. Because that’s the only way we could get MySpace and tag to work with us. So it was an interesting way for us to come in. We would, as new guys in the block, we had to go in and show some credibility at pre-payments. So it was an interesting thing to be a part of on the internet and how it was working.

Andrew: I see. We talked about the money that you pulled out of it. Instead of going into the big numbers, but do you remember the first million that you earned in profit from that business? What was that like?

Lee: The first million in revenue we actually had a college party. So that was pretty fun.

Andrew: So wait, you were still in college, in your dorm you threw a party?

Lee: Yeah, it was our junior year in college. So it was the million dollar party.

Andrew: How did you feel about having everyone else know that you guys pulled in a million?

Lee: You’re college kids. You like to flaunt it off, I guess.

Andrew: I see.

Lee: And we were also in an entrepreneurship community, so we were staying at an E-tower, all four years we were in E-tower so it was really more about celebrating our accomplishment and trying to empower all the rest of our friends and everybody else who was just interested in business.

Andrew: This was at Babson?

Lee: Yep.

Andrew: Man, over and over I’m seeing Babson come up in these interviews. I never heard of Babson before I started doing these interviews, but now I can’t stop hearing about it from entrepreneurs who’ve gone through the program. What is it about Babson?

Lee: When you start there your first year they just tell you to start a business with your classmates. There’s a lot of stuff in starting a business that you never even think about. And it’s even stuff that you learn, not from the curriculum. It’s like how do you work with people, right? There’s not a course of how you work with people, but when you have 15 people you’ve got to build a business with, you’ve got to figure that stuff out.

Andrew: So is this the business you guys built at Babson?

Lee: HasOffers?

Andrew: No, the previous company, the affiliate.

Lee: Yes.

Andrew: It is? So they said, “Build a business.” And you guys built a business that you were able to have a million dollar party with? No.

Lee/Lucas: No.

Lee/Lucas: No, I sold blankets in mine and . . .

Andrew: Did you sell blankets? [inaudible]

Lee/Lucas: I don’t know. I sold blankets in my college company, so it was just blankets with the logo on it.

Andrew: I see. They were the little products that you did there, but your big project was going on at same time.

Lee: Yes.

Andrew: I see. Awesome. Wow. Was that the first business you guys ever did, the affiliate stuff?

Lee: No, not really. Since middle school my brother and I used to film all the sports games and we would film them, put them on VHS tape and then sell them to parents so they could watch the games and we would make $10 a pop on that stuff.

Andrew: That’s unreal. Do you remember something that you learned back then about entrepreneurship? Something that stuck with you?

Lee: Not really. We just did it for fun because we were from a small town and so it was just kind of our way to entertain ourselves, I guess.

Andrew: By the way, if anyone heard a door just shut, the receptionist just brought me a printout that I was trying to make earlier. I need an “On Air” light for the door out here. Let people know, “Just wait an hour. We’ll be done. You can pop in anytime after or before.” But I’m glad that there’s somebody here to print stuff out for me.

All right. So why did you guys leave that business? What do we call the affiliate company? Was there a name? What was the business name?

Lee/Lucas: Tatto Media.

Andrew: What was it?

Lee/Lucas: Tatto Media.

Andrew: Tatto Media. Okay.

Lee/Lucas: Yes.

Andrew: So, Tatto Media. In fact, before I get into why you guys left, I know about the party. What else did you do that was more personally fulfilling as a result of it?

Lee/Lucas: As far as what?

Andrew: When it became profitable and you guys saw, “Hey, there are very few people on this planet who have IT, who are able to make a million dollars.” Most people spend their whole lives trying to do it. Here, you guys are still in college. You hit it. It’s revenues. Right? It’s not like it’s going into your pockets but it’s still a major accomplishment.

Lee/Lucas: Yes.

Andrew: What do you do to celebrate that on a personal level? What do you buy? How does life change?

Lee/Lucas: Well, we celebrated it by paying off our education. Education is incredibly expensive and that was our biggest priority. Our mom and dad already made a big commitment to send us to college. So we took it upon ourselves to pay them back for allowing us to have such and awesome education.

Andrew: Okay.

Lee/Lucas: Life hasn’t changed much. I mean, we’re pretty humble.

Andrew: Did you buy new clothes, anything like that?

Lee/Lucas: Not really.

Andrew: Go on some kind of great date with the girl you guys were dating? No.

Lee/Lucas: No.

Andrew: Alright. So then why did you move on? What happened?

Lucas: Lee and I, we love technology, but what we really like doing is, how do you build technology to actually change industries? And what we were doing there, it was more arbitrage and just the relationships and we weren’t really using the technology we built to actually change the industry. And that’s what we’re really trying to figure out. That’s what we really enjoy doing is, how do you build something that actually changes things?

Andrew: Okay.

Lucas: Long-lasting rather than short-term gains. It’s fun for a while when you’re going to college or after you graduate college and stuff, but at some point you really have to bet big if you want to win big. And it goes, not even just monetarily, but just on the people that you can empower. I think one of the most fulfilling things that we do here in Seattle is our Christmas party, because it’s so empowering for everybody to bring their families and just to look around and say, “Wow, we support all of this.” Not just my brother and I, but all of us support the other 25 people that are here tonight. It’s probably one of the most empowering days of the year for us to just kind of see there’s families out there that are looking to us as leaders, which is pretty cool.

Andrew: You guys are 25 years old?

Lee: 26.

Andrew: 26. Got to feel cool. The company was called Tatto?

Lee: Tatto.

Andrew: What’sTatto mean?

Lee: We won a business plan competition at college, and it was for scrubs as fashionable lounge-wear. Tatto supposedly meant feeling in Italian. We won this competition, and they incorporated a company for us called . . .

Lucas: It’s called Tatto, which was for ‘feeling’ in Italian. We never ended up using the company for anything, We met out third business partner at the time, and he did a corporate shell to wrap our [inaudible] in, and that’s where the name came from.

Lee: There’s no meaning behind it besides. It was . . .

Lucas: It was free.

Andrew: At what stage was that business in 2009 when you guys launched HasOffers.com?

Lucas: It was doing well. Lee and I’s passion was more in building technology, so . . .

Andrew: Did you close down Tatto?

Lucas: No, Lee and I just parted ways and wanted to focus on doing what we’re doing here.

Andrew: The business is still on-going then?

Lucas: Yep.

Andrew: I see Peter is in the room with you guys. Is Peter upset with anything that we’ve said so far?

Peter: I’m okay so far.

Andrew: Peter, I’m getting a little personal. I’m not even going into HasOffers, the company that you’re with, the company that we’re supposed to be talking about.

Peter: Yeah.

Andrew: I haven’t even begun to ask about the women in the “about” photos on your Web site.

Andrew: Usually, I go to a company to go look at their ‘about’ page, and I usually see a dorky picture of a tech geek who ended up making it big. With you guys, it’s like fashionable James Bond with the James Bond women in each picture. I’ll get to that later, if we have time. So you guys want to leave your mark on the industry, and you say, “We’re going to create HasOffers.” What’s the opportunity that you saw? What did you see that was wrong in the market that made you say, “I’ve got to get in here and fix it?”

Lee: When we got started in affiliate marketing, there was really no technology out there for us to use, which is why we started building our own. Looking back on that experience, if we couldn’t even find the technology we wanted, how are advertisers and other people in on-line advertising going to get involved? It was, ‘How do we take the technology that we’ve developed and empower other people with it?’

Andrew: There were some companies that were offering software for affiliate management, right? They still are today. You guys have competition. What was the problem with the ones that were there?

Lee: It’s like [inaudible] versus Salesforce, right? [inaudible] was obviously doing good, and Sales Force came in, had a newer, more innovative business model, and they crushed them. They just had a more flexible business model. If you have a more flexible business model, there’s just an opportunity there. And one . . .

Andrew: Go ahead, Lee.

Lee: One of the other things that we really wanted to address is when we were working in our previous company, there weren’t a lot of advertisers in the space. The same advertisers were on multiple networks. The other main thing we wanted to accomplish here at HasOffers was really to educate people. As Luke mentioned, the [inaudible]. The problem is that there are only so many people that can get to [inaudible] and say, “Hey can I use your platform?” So here, HasOffers is our chance to really . . . affiliate marketing is so broad at the end of the day. It’s in email, it’s in display. It’s one of the only marketing channels that’s crossed channel. That’s one of the things that we saw, and we wanted to really enable advertisers to come in, use our platform, and figure out how affiliate marketing works for them. That’s why we do have the flexible business model at the moment and try to do as much as we can to educate our clients on how to make it work for themselves.

Andrew: The [inaudible] analogy, in that analogy, are you talking about Commission Junction or are you talking about the software vendors who require a license?

Lee: Yeah, that software vendors require licenses.

Andrew: And you were saying that it’s too expensive, it’s too big, it’s too inflexible. You guys wanted to come out with a web-based version that had a free option, that you guys could iterate on because it was all on your system.

Lee: Exactly. Our competitor sales processes are just really long and it just prevents people from wanting to get involved.

Andrew: Okay.

Lee: We want people to get involved so we’ve set up our business to allow people to get involved.

Andrew: Okay. So that’s the vision. What’s the first thing that you guys did?

Lee: Well, I think that’s what we’ve accomplished right now. We wanted to come out and make an impact on the industry and get as many new advertisers signed up. And we’ve done that. Right now [inaudible].

Andrew: Was this in the beginning? You guys went after advertisers first?

Lee and Lucas: No, we . . .

Andrew: What was the first thing after you had the vision?

Lee: Well, since our software we created was for networks because of where we came from, it was just empowering networks and affiliates to get involved. Because that’s what our software was built on and then it was . . . the vision was to empower more people to get involved but it wasn’t tailored toward advertisers. So, over the past two and a half years the advertisers have been coming to us wanting to implement our software. And so it’s how do we continue to improve our product offering for those guys?

Andrew: I’m sorry I’m not understanding it. I guess what you’re doing is, you guys are skipping ahead to today, and I’m looking at the time and realizing, oh, wait, we have half an hour here to kill so we’d better go really slowly with this. Otherwise, I end up with like 15 to 20 minutes just talking about the photos on your website. So going very slowly here, you guys have the idea. What’s the next thing that you do right after you have the idea. I want to understand how you got here, including some of the iterations that you’ve already made and maybe we can talk about what you guys are planning to do in the future with the beta that’s coming out.

Lee: So, we, in February 2009 we decided that we wanted to launch a SaaS space platform for affiliate programs.

Lucas: Well, originally, this office was supporting our previous company, Tatto Media, and it helped us build out the original technology. And so at that point, I guess, as a developer, most internal projects only get finished 80% and the other 20%, because it’s an internal project, never gets completed. So that’s what we basically did is, we said, “Okay, other business partner, we want to really take our technology and finish it to the extra 110% instead of just leaving it at the 80% and rolling it out to everybody else.”

Lee: So, yes, we spent from February until June 2009, we spent that time actually taking our technology and building it in a way that we could white label it and turn it into, at that time, a freemium model. So the whole goal was just to allow people to get involved at that time. So there was no business model really, it was just, “Let’s just impact the industry.” And so we had a freemium model from June 2009 all the way up to March 2010. So almost a year of a completely free business model. And we honestly didn’t have any traction as far as revenue goes. Our free version was really good and people loved it and they used it a lot, but it made it tough for us to generate revenue from that model.

Andrew: Okay. So in the five or so months that you guys were building it out. You said, “We built it.” How many people did you hire to build it out?

Lee: We had four developers at that time, I believe.

Andrew: And they were developers that were already working with you guys on other projects.

Lee: Yes.

Andrew: You were redirecting them to this. And did you say that you were taking a software that you already had internally and were using and white labeling or making it available to others online? You were just spending those months adjusting it for others.

Lee: Yes, it was very primitive to what it was when we launched but there was that core technology that we did take as the core for what we did launch.

Andrew: I see.

Lee: The biggest part of our technology that we have which sets us apart is our ad servers are built in a very low-level language. They are built in C where most of our competitors’ ad servers are built in higher level interpretive languages. And so our ad servers are incredibly efficient. And so that’s the real core piece of technology that sets us apart from everybody else. We were able to provide a freemium model for a year because our ad servers are so efficient compared to everybody else at the end of the day.

Andrew: What about talking to customers, did you guys have any conversations with potential customers, you’re nodding, tell me about some of those?

Lee: When we first started?

Andrew: Before you launched, what kind of conversations, if any, did you have with potential customers?

Lee: I don’t remember to be honest, time flew by.

Andrew: How did you know that there would be a market for this, on a free level, or not?

Lee: It’s just by going to the conferences, we’ve been going to industry conferences AdTech, SEM, and Affiliate Summit, and just one of those things, walking around the floor, with time you realize that there’s an opportunity, and you can’t justify it, but that’s what entrepreneurs do, is they follow their heart, and they find something that they believe in and that people will buy. And that’s what we did, we found the opportunity just because of what we were participating in, allowed us to kind of figure out, what’s next [inaudible].

Lucas: Yes, we went to business college and you’d think that we wrote a business plan or something, and new the size of the market, and how many customers we’d have, but we didn’t have any of those plans when we started honestly, and we didn’t have any plans when we started our first company for it to get as big as it did. It’s all about initiating at the end of the day, we’ve just been executing since college, or since we were in middle school.

Andrew: Now looking back, you’ve had some experience, you’ve talked to real customers, you’ve sold to real customers, you’ve sold to real customers, you’ve had lots of real users. Can you tell me like were there some places where you were naive, where you say, “Oh man we were wrong about . . .” Yes, what were you wrong about, I’m seeing some smiles of recognition?

Lee: Probably moving from a free model to a SaaS based model sooner. It really stressed Lee and I out to be honest, we have tons of people working for us, and it was not a stable business model.

Andrew: And when you say freemium, it seems to be from reading those old articles, your emphasis was on free, with the ‘Oh by the way,’ there is, or there will be, I don’t know if there was anything you guys were charging for, was there in the early days?

Lee: There was one hiring version, but very few people were at that level.

Andrew: I see, so your vision was, this is going to be free, and some people are going to pay us. The free is going to get our name out, and get our recognition, and all kinds of stuff, and I did see that in the earlier articles about you, that free was what it was about. Would you say that was the one place where you were naive, I understand the pressure internally, but what is it about the market that this didn’t work out in?

Lee: It was so we have free people, but then our support teams, our sales teams, and our whole company’s catering towards free people, and then we’re unable to actually support the people that are really paying us, because who are those people, and so it was a matter of soon as we moved to more of a real SaaS based business model, we can focus on the clients that actually want to use our technology, and that will get real benefit out of it, and before then it was just, it was kind of chaos.

Andrew: What kind of chaos?

Lee: It’s just like anything that’s free, it’s tough if there’s not a defined set, everything in life is worth paying for, and by having a free model, it’s tough to define a scope of what you’re providing to your customers, and that’s really the one thing, as we grew and we gained our customer base, having the paid versions rather than just the free version allowed us to basically focus and provide those [inaudible] additional resources to get our clients up and going.

Andrew: I want to come back to that in a moment, but let’s talk about the launch, and I’ll tell you why, I want to know some specifics, I want to really feel what you guys were going through, so I’ll come back to freemium. But let’s go back to the day you guys launched, you finally have this product you that you’ve been working so hard, it’s going to help you guys move to a different stage of your life, you launch it, what happens?

Lee: Just work our butts off.

Andrew: Did customers come, did you also do something to bring in users?

Lee: Yeah, we had lots of customers come in.

Andrew: How did they find you?

Lee: All word of mouth for the most part.

Andrew: How did you guys generate word of mouth?

Lee: Telling our friends in the industry, we have a lot of great supporters, and going to conferences.

Andrew: So did you guys go to conferences and talk this up, and that’s why you ended up with customers on the first day you did? Take me through the process. I’ll tell you why. Because, well here’s where I come in a little bit pushy, but I swear in real life I’m not pushy. But I’ll tell you why. I got someone who is listening to me right now, lots of someones, but at least one person who’s listening to me right now, saying, ‘I had a hit with one product. And I now launch a second product, and no one is coming to my site. And if Andrew blows past this point of how these guys launched a product and no one came in, the whole hour that I’m investing in Andrew and these guys from HasOffers is a waste of time for me.’

So I want to dig in a understand that. How did you guys get anyone to notice day 1 when you launched?

Lee: We found one of the best internet marketers in Seattle, hired him, and he has been shamelessly promoting us every day and has been destroying it.

Andrew: Who’s the person?

Lee: Peter Hamilton.

Andrew: And how has Peter Hamilton been promoting you guys?

Lee: He has a background in SEM and did some consulting work. But he stepped up and managed basically our social media presence, making sure we’re responding to our LinkedIn accounts, our Facebook, our Facebook Fan Page, Tweeting consistently. It’s just basically about having a presence online, and participating in as many communities as possible.

Andrew: Is this the person who’s behind the camera right now?

Lee: Yeah, I see him.

Andrew: Okay. So you guys hired Peter full time to come in and Peter’s the guy responsible for getting traffic to the site and getting new customers, who at the time are new freeloaders?

Lee: Exactly.

Andrew: I see. At what point did you guys hire Peter? Was this before the launch, or after?

Lee: It was right in the middle.

Andrew: Right in the middle. Do you remember what he did first to get you guys some original traction?

Lee: Well, we were affiliates in the day, so the first thing we did was write a blog post and we told all of our friends to, “Put it on your blog,” John Chow, shoe mate. There was a big list, as so leveraging those friends that we have in the industry and telling them that we have something new, and them communicating that with all their followers.

Andrew: Gotcha. So, how do you, by the way, get John Chow and [inaudible]? These are pretty big guys in this space. How did you get them to want to promote you? What was it back and forth? I always thought that affiliates were very tight, quiet, lonely people because they couldn’t share any of their ideas with other people.

Lee: Well, there’s a trick to working with them, and that’s the beauty of why we’re all able to promote each other. And I think that’s our secret sauce.

Andrew: You had a, what do you mean? What kind of a relationship did you guys have with the other affiliates?

Lee: Oh, yeah, it’s just like your friends. You have friends, the same friends we have, basically. They just do stuff for you, because you’re going to do stuff back for them.

Andrew: I see. What kind of things did you guys do for each other in the affiliate days?

Lee: In the affiliate days?

Andrew: Yeah. I mean to build up this relationship where it was give and take that you can draw on it when you’re launching new products?

Lee: Just sheer [inaudible], when we go to conferences, I mean. It’s, “What are you guys up to? What are you doing?” Just sharing that relationship that we had, and just developing relationships.

Andrew: I see. Okay. All right. So you then go back to them and you say, “Guys, we launched this new product. I think it’s the perfect match for your audience. Help us out with this, and also, you’ll be helping your audience.” They promote it, and of course, traffic I can now see how traffic would come your way. Peter’s supporting it, and growing it further by using social media, and also buying ads for you guys. Was he buying ads, too?

Lee: Yeah.

Andrew: And he was buying ads for you guys. Perfect. You get the first launch. What’s the first piece of feedback that you get? That’s always a big surprise for a company.

Lee: It was a big list of feedback. It was, ‘You don’t have this feature. And, you don’t have that feature. The product was awesome, but we’re looking for something else, as well.’ And so, it was an uphill battle for awhile, because we were competing against some pretty strong competitors, and they’d been around since 2000, and one since 2003. So in order for us to have an effective feature set and compete with them we had to develop a lot of features in a short period of time.

Andrew: You know, [inaudible], he’s been telling me, “Be specific on brands.” Do you guys mind saying the names of the companies that you’re talking about? We can talk about them.

Lee: Yeah, DirectTrack, LinkTrust, and HipHack.

Andrew: DirectTrack, and Trust Impact?

Lee: No, Link Trust, and HipHack.

Andrew: I didn’t even get those. I got those so far from right. But, all right, we got them in the transcript, clearly. What else do I want to know? All right. So of all the things that people are telling you they want, what’s the one thing that you wish you added in the first version?

Lee: First version? Well, it’s interesting. I think we’ve accomplished everything in the first version that we needed to accomplish. It’s more, where do you take your product next?

Andrew: Good question

Lee: So we thought our current product is awesome, and it does an amazing job at serving the current market with the current competitors that we’re competing against.

Andrew: But in the early days when you have the first version, you get all this feedback, which is natural. People are going to have opinions, especially in the space where money’s on the line. What do you do with all that? How do you decide what to go, where to go next?

Lee: We put it in a project management application and go through all the suggestions, and sit around and talk about it with the team and prioritize what we’re going to be working on next.

Andrew: Okay. So what did you decide to work on next out of all the feedback?

Lee: There was a huge list. We’ve closed out — so we have this project management software, and I think we’re up to 3,000-some odd closed tickets. These are all feature requests or bugs or whatever; small things to big things. So there’s over 3,000 things we’ve closed out in the past two and a half years; it’s a giant list.

Andrew: Okay. All right. Was there anything that was; I’m trying to understand what happened next. I’m trying to understand what that next version looked like. Was it that you said we’re going to add more features to it? Were you taking it in a new direction after that initial launch? It feels like after you launch your product hits reality and it changes somehow. And even if there are a lot of little changes it feels like there’s a way of categorizing or describing the next step that I’m trying to get at to understand what happened afterwards.

Lee: Well, I think we provided a freemium model at the beginning, so we didn’t, our product didn’t have to change that much at the beginning.

Andrew: Okay.

Lee: So I think that’s the major — it changed things a bit. Everybody loved the product because it was free. There was nothing else to compare it to.

Andrew: Okay.

Lee: It’s like billing features, [inaudible].Yeah. And some of the major things that we’ve done, I mean, we’ve implemented a whole billing system to manage affiliate payments, multiple currencies, multiple languages. As soon as we have a free product they want it in Chinese now; they want it in Russian, in Spanish, and then they want the application to work with liras and pounds. It was big list, and we just kept on, kept on slowly; not slowly but swiftly adding all these requests into it. And it just kind of morphed into what it is today by being consistent at it and listening to our clients.

Andrew: I said I’d come back to freemium because I know that going from freemium to full-out paid product was a big change in the business. Can you help me understand why you made that change by maybe describing one customer interaction that’s representative of what’s going on throughout the business?

Lee: We set it up to [inaudible] San Francisco is when we actually switched from a freemium model to our SaaS model. And so it was, if we’re going to make this change we’re going to make this change, and we’re going to do it well. We’re a sponsored AdTech, so here’s our pay version now.

And it was just an overwhelming amount of people that our support people had to deal with. I don’t — it wasn’t that the client interactions were bad, it was just that our ability to support them versus [inaudible] no money.

Andrew: I see, right.

Lee: At some point we have to balance those two so that way we can hire more support people to support the clients and allow them to grow. It wasn’t one client, it was just, ‘How do we manage this machine?’

Andrew: What was the feedback when you guys decided to stop offering new free accounts?

Lee: It was good and bad. We actually got a bad, people gave us a bad rap because we were free. And because we were free, more people had the opportunity to do bad things, I guess. And we kind of got that rap for a while and as soon as we moved from this to a paid version, you get rid of those guys.

Andrew: What kind of bad things were people doing?

Lee: Well, it’s a free platform. They’re just sending bad traffic that they’re not supposed to, to advertisers. And because we’re free, just like Amazon’s free; Amazon hosts WikiLeaks. So there are those outliers that just takes us time to put processes into control.

Andrew: Okay. And the advertisers, I see people were sending bad traffic to advertisers. Your clients, though, are the, not the advertisers but the merchants, right?

Lee: Yes. So when we started out our main clients for the first six months were networks, since that’s what our software was built for, because we had our own.

Andrew: What do you mean by a network? Like an affiliate network?

Lee: Exactly, an affiliate network.

Andrew: Okay.

Lee: And the plan was to get advertisers, we just weren’t ready when we launched to get advertisers, because we didn’t honestly know how that sales process worked, nor did we have the connections with advertisers directly. So it was just a matter of growing the software to a point where we could actually sell it to advertisers.

Andrew: I see. So going directly to LivingSocial as opposed to a network that might introduce you to a LivingSocial?

Lee: Yes.

Andrew: I see, okay.

Lee: And so it’s building upon that model. First it’s affiliates and networks that are our clients, and then after we get our technology to a point, and our software to a point, now we can sell it to advertisers.

Andrew: I see, okay. I might have had my terminology a little confused. I kept calling those guys merchants throughout, because that’s the way I thought they were referred to in the affiliate space. Here you’re saying it’s the same thing, advertisers are the way you guys are calling them, I happen to be calling them merchants. Okay.

So you guys didn’t have connections with them. You went to the networks. How did you get the networks? Did the networks find you on John Chow’s website, or was there another way that you guys got the networks?

Lee: It was a mixture of both, definitely a strong social media presence, but we exhibited at the shows. I mean, it’s kind of, it’s crazy to think that people still need to be involved when you’re selling technology, but there’s a big need for people to be involved in this whole process.

Andrew: Okay. Let me ask you guys something on a personal level here; not about the girlfriends on the pictures.

I kind of feel like I have emotional intelligence, but it’s a little bit hard to pick up on things in a video Skype, or even in an interview in general, because it’s such an awkward situation to be in — one person drilling you with questions instead of having a natural conversation. But I feel like something happened early-on in the interview that made you feel uncomfortable, and I feel like I should bring it up now. Did I ask a question early-on that made you guys say, “What the hell are we saying to this guy? What are we even doing? We’ve got to fire Peter for even introducing us to Andrew!” No? Was it the question about the revenues? I thought maybe that’s where things [inaudible] a bit.

Lee: No.

Andrew: Are you guys comfortable revealing revenues?

Lee: No, we just got back from Vegas this morning, so . . .

Andrew: What were you guys doing in Vegas over the weekend?

Lee: Relaxing. My girlfriend lives down there now, so just taking a break. We aren’t gamblers so it was more just enjoying the sunshine, as we lacked it here in Seattle this last week.

Andrew: So you’re not gambling but you guys are going out there?

Lee: No, just showing.

Andrew: All right, since Lee brought it up, the girlfriends — these are both girlfriends in your pictures on the About page?

Lee: The girl in my picture is not a girlfriend, no.

Andrew: Just some friend?

Lee: Yes.

Andrew: Okay. Is she single, because someone in my audience might be single and might want to send you an e-mail.

Lee: Yes, and we can probably make the connection.

Andrew: Guys, you’ve got to live up to it. You’ve got to see the picture; you can’t just send an e-mail blindly because he’s said that. You’ve got to really prove yourself here – dominate an industry and then ask Lucas for an introduction.

And Lee, the woman in your picture, is that the girlfriend you just mentioned?

Lee: Yes, it is.

Andrew: All right. So now you guys are figuring something out. We had a conversation before the interview started about how you’re going in another direction now. You guys are doing well, you’re profitable, $300,000 a month, it doesn’t make it uncomfortable to mention here on Mixergy. Things are going well but you want to go in another direction still. What’s next; what do you envision?

Lee: It’s not another direction, it’s just over the past year and a half a lot of advertisers have been signing up to our software and using our technology, and it’s how do we actually create a better experience for advertisers? When we started out our original technology was built for networks, and so this new version is just a more tailored edition for advertisers to make them even more successful.

Andrew: Gotcha. So before it was great for networks that had advertisers within them, that they were connecting advertisers to HasOffers. Now, advertisers can work directly with HasOffers. You can have a much more tailored experience for them. And that’s the difference.

Lee: Exactly.

Andrew: When are you guys launching that?

Lee: We have a beta page that’s going out tomorrow, I believe. And the official beta launch is March 1st, and then we’re rolling it out to the public at AdTech New York in the first of November.

Andrew: All right. First of November is when it’s going to be launched to the public. Anyone who gets in the beta program can get access before. What’s the URL that we send my audience to if they want to get access before?

Lee: So, it’s Adtribution.com. So, the traditional spelling of attribution with two Ts, but instead of two Ts it’s a-d-t.

Andrew: So, replace the first T with a D?

Lee: Think about advertising and attribution coming together and you get adtribution.

Andrew: Gotcha. Okay. Does it bother you that you guys are going to have to keep making that distinction for people on the phone? No? That’s cool.

Lee: No, because we actually have a domain name, adtribution.com, and no one else bought that before us.

Andrew: Which one do you have? Attribution, also?

Lee: No, just Adtribution.com.

Andrew: Gotcha. Okay.

Lee: In today’s tech world, it’s really hard to find an awesome .com.

Andrew: It is. You guys found a good .com, with that. Believe me, as long it’s not Mixergy. For some reason everyone always goes to mixology, I don’t know why. Mixergy’s not very good. All right. I think we got everything in here. That’s it. Any advice for entrepreneurs who are listening to us, who are saying, “Hey, wait a minute. These guys are doing pretty well. I’ve listened to Andrew for about an hour, I didn’t get enough.” What do we give them in one piece of actionable advice that will make them say, “All right. This was a good interview for me. I got something I can use.”

Lee: Just execute.

Andrew: Execute.

Lucas: Yeah. Lee and I meet tons of entrepreneurs. They all have ideas, and it’s great if you have an idea, but you just need to execute. Do it. And if you can’t execute, based on your current vision, scale it down and think about how you can execute what you want to accomplish. Maybe it’s part of it, or maybe it’s the whole thing. But just execute. If you don’t execute, then the idea’s only an idea.

Andrew: All right. Let me ask you one more question, about the happy day from business. All they talk about is how it feels. I just did a series of interviews with entrepreneurs who failed, because I feel like that’s how we learn. But I want to show people the positive, the great, happy part of business. So if you have a memory, hold onto that for a moment. First I want to read this anonymous email that I just got. It’s actually not anonymous, but I’m going to keep it anonymous, and you guys will understand why. So the email says, “Sometimes we all don’t want to get out of bed to code.” It comes from a developer. “But thinking about, and watching your daily videos really pump me up, because no matter what happens you are doing it, Andrew. And that for some reason is a huge motivation. Thanks for inspiring,” he says. So first of all, yes, I do these frickin’ interviews every frickin’ day, even on days when this guy’s in bed I’m doing the interviews. And I hope that, knowing him, doing these interviews gets him out of bed. Second, you guys have done more than get out of bed. You guys have built something great. You had that party in college to celebrate the first million. I can imagine how it motivating it must have been for everyone else in the school, especially Babson. But what about one other, like really positive, we hit it, we get to enjoy life; we’re not just sitting here in the office type moment.

Lee: Well . . .

Andrew: If it was at Vegas this weekend it’s all right to talk about it.

Lee: No, I think that’s what the conventions are really for. It’s for our team who works so hard every day with clients. That’s our chance to go out and relax with the crew.

Andrew: How do you guys celebrate at conventions?

Lee: What’s that?

Andrew: How do you guys celebrate at conventions? What’s the big party, the big happy moment?

Lee: It’s just the standard, go out, buy some bottles of liquor and have fun.

Lucas: But our biggest win here in Seattle was profitability. That was our biggest win. As soon as you make money, then your business changes. I think that kind of goes back to your original question, “After you launch how does your business change?” Switching from getting profitability changed our business, I believe, because then you’re not worried about how much longer it’s going to take. Or, how much longer should we support our current business before we should move on? And that’s what profitability does. As soon as the business is sustainable, then everybody around here, they have nothing to worry about, for we had diversified revenue. And so now here comes the fun part, because now everybody’s jobs are perfect. There’s nothing at risk, and now it’s how much better can we make it for everybody else at the end of the day.

Andrew: All right. That’s a great place to leave. That is like a real big turning point. You’re no longer worried. You’re now thinking about what you can do with the world of possibilities in front of you to get things better.

All right. Lucas, Lee Brown, thank you so much for doing this interview. Peter, thanks for being in the background and for helping put this interview together. And Mr. Anonymous emailer. I know who you are so I’m going to thank you directly, and actually, I already have. So I’ll just thank you and everyone like you out there who’s moving out of bed, making things happen. And I hope you Mr. Anonymous will come here one day and do an interview and motivate others that Lucas and Lee Brown just motivated me. Thank you guys.

Who should we feature on Mixergy? Let us know who you think would make a great interviewee.