Before we start, you’ve probably seen posts like this on TechCrunch a lot, right? Where they list all the startups that were recently launched at Founder Institute? Well, I want to call your attention to it because Founder Institute is accepting applications right now, and I hope you apply. Because if you’re accepted, you’ll have access to experienced CEOs as mentors, you’ll get introductions to investors, you’ll have access to the press and other resources to help you launch your company right. They’re accepting applications right now at FounderInstitute.com.
And remember Patrick Buckley who I interviewed? He’s the guy who came up with an idea for an iPad case, and he built a store to sell it online. Well, a few months after he did that, he generated about a million dollars in sales. The platform Patrick used is Shopify. If you have an idea to sell anything, set up your store on Shopify.com. because Shopify stores are designed to increase sales. And because they’re so easy to use and set up, even if you have a friend who’s not a techie the way you are; if they’re looking to set up their store, you can recommend that they use Shopify and trust that they’ll have an easy time setting it up without calling on you for tech support. Shopify.com
Finally, do you remember when I interviewed Sarah Sutton Fell about how she got thousands of people to pay for her job site? Look at the biggest point that she made when we talked? She said that she has a phone number on every page of her site because she says, and here’s a stat, 95 percent of the people who call end up buying from her. And most people don’t call, but seeing the number, a real person that can be accessed by phone, increases their confidence in her and they end up buying. So try this. Go to Grasshopper.com and set up a phone number that will make your company sound professional. Not like one of these freebies, but like a professional, virtual phone system that you’re going to love. And add that phone number to your website and see what happens. Grasshopper.com. You’ve got to try them to know why I keep talking about them.
Here’s the program.
Andrew Warner: Hey everyone. It’s Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. And if you want to see an example of how a strong community can lead to strong business, the guy you’ve got to learn from is Matt Mickiewicz. Matt, how did I do with the pronunciation of your last name?
Matt Mickiewicz: That was awesome.
Andrew: Can you say it just so people can hear it perfectly?
Matt: Matt Mickiewicz.
Andrew: All right. This is now my third interview with Matt, and I’ve had his last name off just a little bit in each of the past ones. I wanted to make sure to at least get it on the record properly. So I asked you to say it.
So, Matt bootstrapped SitePoint into a profitable business with a community of web developers and designers. When he noticed that the community was printing out his site’s tutorials, he created a publishing company and started selling those lessons in book form. When he noticed that his community was trading his designs, he launched 99designs and built the world’s largest online crowdsourced marketplace for design. And when his community started buying and selling websites, he launched Flippa.com, which has done over $40 million in sales. This is his third interview here on Mixergy, and in this interview what I want to learn is how Flippa was launched and how it grew. So Matt, welcome to Mixergy.
Matt: Thanks for having me on again.
Andrew: All right. And by the way, Matt is a sponsor and supporter of Mixergy. Thanks for being such a great sponsor.
Andrew: All right. So going back to when this thing started. Where did it start? It started in the message boards?
Matt: Yeah, in the SitePoint forums, the message boards. We basically ended up creating a marketplace section, and one of the sections under that area was buying and selling websites. So people would post a forum thread, you know outlying the website or blog they were looking to sell and the relevant information about the traffic and revenue, etc. And then people would basically reply to that forum thread with questions or just by submitting bids. And it became really, really popular. But it was also full of problems, because bidding through a forum thread isn’t exactly formalized. People would often back out of their bids. Auctions; so-called auctions would get extended. There would be private deals done via email, and then people would get angry because they thought they were the highest bidder in a given situation, etc.
So it also caused a lot of brand confusion. SitePoint was all about education for web developers. It wasn’t meant to be a marketplace brand. So we thought by giving it its own brand and its own team that runs the day-to-day operations and marketing that business would really help it grow a lot.
Andrew: All right. Let’s take that story and now dissect it and dig into it. You said that there was a marketplace section on the website. Do you guys host it just using the standard vBulletin forum software?
Matt: It started off in vBulletin software, then we hacked together some software in about six or eight weeks time to formalize the process a little bit more. But yeah, it started off in vBulletin, definitely.
Andrew: And the marketplace, was it paid posts that were in there, or anyone could post whatever they wanted?
Matt: Initially, it was completely free of charge, and it was overrun with scam artists, if you will. So we thought rather than deal with all these complaints, why don’t we actually get real money for this and we’ll see what happens. So we started charging people $10 to post a forum thread in vBulletin within the forum software. And we sort of took it from there, and it continued to grow in popularity. The volume of websites sold continued to grow, but we continued to realize and run into these problems that vBulletin and message boards aren’t really the best way to sell a website and to hold an auction process.
So my business partner took on the project of creating some basic auction software around the idea of website sales. I think it happened in 2006, or thereabout. And we gave it its own tab on SitePoint.com, and we decided to see where it would go from there.
Andrew: Okay. Sounds like the story behind 99designs. I remember when I interviewed you about that, you said it started off on the website and vBulletin message board. It then moved on to its own area, with its own tab. And once the community grew big enough, we spun it out into its own business.
Matt: Exactly. The exact same formula, and it’s worked well both times.
Andrew: Are there plans for a third, fourth, fifth? Anything else?
Matt: People like to copy what we do, so. [laughs]
Andrew: So you’re not ready to talk about it?
Matt: Not yet.
Andrew: Okay. But are there plans to do others? Even without naming them, is this a model that you guys are pursuing?
Matt: It’s definitely an interesting way to go because SitePoint has so much organic traffic and such a huge audience and so many email newsletter subscribers that makes it really easy for us to kind of throw ideas up against this audience. It gets you real feedback really quickly, iterate the model, see if people are willing to spend money and then sort of go from there and make decisions about whether there is a real business in it, whether it is part of SitePoint or whatever the case may be. I think it’s an awesome advantage to have that huge, loyal audience.
Andrew: How big is the mailing list?
Matt: It’s over a million email subscribers.
Andrew: Wow. Over a million email subscribers. That’s huge.
Matt: It’s taken a long time to get there, but . . .
Andrew: How long?
Matt: We started collecting emails in 1999.
Andrew: Oh, wow. So we’re talking about over ten years now.
Matt: Over ten years. Obviously, there’s been a lot of churn and people unsubscribing, new people coming on board, so on and so forth. But it’s well over a million people now.
Andrew: And very targeted right? We’re not talking about the average mom and pop who’s coming online. These are web developers, web designers.
Matt: Primarily freelancers and small web design agencies all over the world. Mostly in the US, Canada, and UK, but worldwide really.
Andrew: You said that part of your process is to just toss out ideas to see how far people are willing to go with them; to see if they’re committed enough to them that they’re going to spend money on these ideas. Did you have an idea that you took down this process and somewhere towards the end you realize, no, there isn’t enough of a commitment or enough passion in the community?
Matt: Sure. A whole bunch of things haven’t really taken off like we expected. For example, we had a video tab on SitePoint.com that we launched in 2006 or 2007, and the idea was to sell video tutorials. But really it didn’t take off back then. That’s an example of something we tried. We generated a few videos, tried selling them. People weren’t willing to pay for it. It didn’t get the traction that we expected, so we sort of left it to die on its own.
Andrew: I remember that, actually in our last interview, people brought that up and they said that they liked it. I’m wondering why it didn’t work out? Why didn’t that work out when Lynda.com is doing it? And now I see Carsonified, he’s starting to do something similar to Lynda.com. What did you learn about that space?
Matt: I think that pricing matters a lot, and the format of instruction matters a lot. So in the past four or five months, we’ve actually launched our live training programs and taught the CHS-3, and HTML5, and PHP, which have aggregated 3000, 4000, 5000 people. And they all take a class about once over week three or four week period. There’s a weekly Q&A session with the instructor. There is a support forum so people can discuss issues and problems and challenges that they’re having with the lesson plan. And it’s much attractive and engaging.
I think learning on your own takes a great deal of perseverance. People give up. Like half of all books that are bought in the US never get read. You know people start off with the best intentions. But if there isn’t that support network in place, they get discouraged and give up or just never follow through. But by being able to aggregate a couple thousand students at once and kind of move them through a course, it has worked out much better. So that was an interesting experiment.
Andrew: What are you guys charging for that?
Matt: We charge between ten and thirty dollars per course. So it’s super low cost.
Andrew: That’s for an overall course which is a series of classes.
Matt: For the whole course, which runs two to three weeks. And just an early experiment right now, but we’re still trying this video format.
Andrew: Hey, before the interviews, when I asked you, in fact, to do the interview, you essentially said, “Okay Andrew, I’ll do it. But don’t bust my chops, essentially on revenues.” I’ve been getting some feedback from the audience about that; about asking for revenue numbers. Is this something that you like hearing in the audience but don’t want to reveal? Or is it coming across as too pushy? What do you think?
Matt: I think in some of your interviews in the past you’ve come across as way too pushy. You keep asking the question in three different ways, trying to get an answer from the person you’re interviewing. And if they’re not comfortable disclosing that number, it’s a private company, then . . .
Andrew: You know what? That’s interesting, because I started out asking guests what numbers they were comfortable saying before the interview, and then I’d ask them in the interview, knowing exactly what they’re comfortable saying. And then I started doing these interviews more and more and realizing I don’t need to do as long a pre-interview anymore. I’m comfortable now asking questions. I know where the line is. And what I’m hearing lately is that I’ve been pushing a little too much in the revenue numbers. All right. So I’ll back off. You feel comfortable saying $40 million in sales on Flippa.com, I’ll stick with that. It’s a profitable business though, I can ask that?
Matt: It’s a profitable business, definitely.
Andrew: All right.
Matt: It’s grown. It’s several times bigger now than it was when it was part of SitePoint.
Matt: So it’s been tremendously successful as a spinoff company.
Andrew: How do you measure that? Based how much in sales is done or based on how many domains are sold?
Matt: It’s based on revenue.
Andrew: Okay. So revenue has been growing since it spun off on its own?
Matt: Definitely, definitely.
Andrew: Why? Why can’t it do as well as part of SitePoint with all of SitePoint’s reputation?
Matt: Well, the biggest change that we did when we spun off Flippa.com is we started charging a sales commission. So originally, when it was part of SitePoint forums and the SitePoint marketplace tab, we just charged people a $10, $20, or $40 listing fee to post their website. And we were finding that people were often selling their website for $3000, $5,000, $10,000, even $50,000, and we were only getting $20 of that slice of the pie. So we thought that since we were running a true auction model, where people are bidding on websites, it’s not really a classified listing site, that we should do what eBay does and take a percentage fee. So as soon as we launched Flippa.com, on day one, we started charging a five percent sales commission, capped at $499. And that actually generated quite a lot of controversy and a massive outcry among our existing user base.
Andrew: What was that outcry like? I’m glad you’re comfortable talking about it because I was planning on bringing that part up.
Matt: Yeah, it was definitely painful. We had forum threads on SitePoint and Warrior Forums and TechCrunch and all these other web communities. And people were basically saying that they’ll never do business with us again, that we’re greedy, we’re evil, we should go back to what we had, so on and so forth. People basically for the past two or three years before they were selling websites, making a very good living off of that, and only giving us a tiny fraction of the value that we helped generate for them. So obviously no one wants to pay more. We did expect a little bit of backlash, but it was much more than we had anticipated.
Andrew: Did you at any point second guess your decision?
Matt: We were definitely concerned about the outcry from the community, and they definitely brought up some valid points about Flippa.com and the way things worked. And we worked really, really hard to address all those issues and improve the user interface, improve the systems, etc. And from day one, we basically had a policy that if your website doesn’t sell, you don’t pay us a sales commission. So we’re only getting paid if we generate a successful transaction for the person who’s running an auction.
The thing that happened really quickly is, within a couple weeks of us launching Flippa.com; we had all these competitors pop up. Basically people trying to clone our model and doing it free of charge, or for very, very little money. And we had like 10 or 15 competitors at one point basically. But none of them managed to aggregate an audience. None of them ended up succeeding in any significant way.
Andrew: Why? Why, if they were undercutting you? I mean severely, they were going to zero. Why? Why didn’t they get your customers?
Matt: Because the people behind the website weren’t dedicated to it. It was a part-time project for them. They weren’t willing to put in the hours of time or the resources to do the job well and to overcome the initial hump. When you start in the marketplace; at first you’re really rolling a stone up a hill. It takes a while to aggregate enough buyers and sellers to get activity happening. And the people behind these websites were hoping that they could just become instant, overnight successes. When that didn’t happen after four weeks or eight weeks, they gave up.
Andrew: So it’s been about a year since you launched. That opportunity to jump in there while people are upset is gone. So let’s look back now openly and say and I want to ask you this. If they would have stuck it out, if they would have toughed it out, stuck with the business, spent all their time on it, do you think they would have had a chance to steal a significant market share from you?
Matt: I think, given their pricing was too low, that there wouldn’t be enough financial incentive or the financial resources to do the job well. It would have be a very, very lean operation. And we find that there’s definitely costs associated with running a marketplace, doing customer support and development and so on and so forth. And if you’re doing it free of charge and just trying to make money from Google AdSense, ads, or whatever, there’s just no way you’re going to be able to get a company around it. Maybe I’m wrong, maybe I’m wrong. You know plenty of fish came along and disrupted the dating market by going completely free and running a very lean ship. So I don’t want to say it’s impossible, but it’s definitely very difficult and someone has to aggregate a huge amount of pages to make advertising strategy work.
Andrew: What about this? What about the fact that you have that million person email database and you have all the people who are on SitePoint and who have been trained to go there when they want to buy and sell? Is that such a big moat that competitors can’t cross in? That it could protect your business?
Matt: It’s a huge moat, definitely. Definitely. You could have, you know, hundreds of thousands of dollars in angel money, and you’d probably still be unable to aggregate an audience the size of SitePoint.com. So it’s a massive barrier to entry for our competitors, because we have the perseverance to stick with it enough when times get tough.
Andrew: All right. So you launched it in the message boards. It grew in there, but it didn’t just grow on its own. You guys did some things to keep that community growing and to keep it engaged and to keep it honest. Beyond charging, what else did you do back when it was still part of SitePoint?
Matt: The most important decision that we made was probably spinning it out of the forums and putting it on its own tab on SitePoint.com. Giving it more visibility and hacking together some software too in a more formal auction process. So people would actually submit a bid, enter a number in a box, hit submit and that would be their bid, etc. So it became a little bit more eBay type site rather than a forum auction.
Andrew: How did you know that it was time to do that?
Matt: Basically, the volume of complaints and customer support requests started getting really overwhelming. As in any marketplace, there’s always going to be bad people, dishonest individuals. And as the SitePoint forum marketplace continued to grow and grow, we received more and more complaints and customer service requests saying that people are cheating and that this forum software for bidding isn’t really working well and that we need to do better. So we did.
Andrew: Dan O’Manion, in the audience, is asking if any of the clones sold themselves on Flippa.
Matt: I think a couple of them did.
Andrew: Oh, get out! Really?
Matt: I think so.
Andrew: I’m somehow getting phone calls here in Buenos Aires from the U.S. as we’re doing this interview. This is the first time that I’ve gotten a phone call while I was doing the interview.
All right. So you spun it out. What was the reaction, not spun it out, you moved it into its own tab and you changed the format of it. What was the reaction to that?
Matt: It was very, very positive so, because all of the people . . .
Andrew: No price changes? Nothing but make it easier user experience?
Matt: I think we doubled the price as well. I think we went from a $10 to a $20 price point.
Andrew: Any reaction to that?
Matt: Very little. Very little.
Andrew: Why not? Why exactly then weren’t people complaining?
Matt: Because the majority of people who moved from the SitePoint forums to SitePoint marketplace had numerous sales under their belt. They knew that there was an audience of buyers there, and a $10 price point difference would be insignificant when they were selling multiple websites a week or selling websites for thousands of dollars apiece. So they were very happy that now there was a bit more accountability with the bidders, that it was a bit more formalized, a bit sleeker, easier to use. They were very happy. It was an awesome thing to do for the sellers in the marketplace, give them a much better user experience and the price is insignificant.
Andrew: The way you guys evolved at SitePoint; tell me if I’m wrong here. Was it, first you were offering content, where you were teaching web developers how to build sites, and then the forum happened afterwards?
Matt: The forum was launched back in 1999, so basically a year after SitePoint or the precursor to SitePoint launched. They basically went hand-in-hand together. And the forums were never a big money maker. You can never make much money selling advertising in forums. But obviously we’ve been able to generate two different businesses out of that community. So that’s really where the value of the community has come from.
Andrew: In retrospect, would it have been better if you split it up back then into two different products: one that is a community, has its own domain and has its own identity; and the other, SitePoint, where you teach, where you write, where the content comes from professionals?
Matt: I think that would have been a huge mistake.
Matt: Well, it takes a significant volume of traffic to amass activity in that community, and the best way to attract that traffic is through great content and good search engine rankings and inbound links and email newsletters that keep driving people back week after week to the sites. So starting a community on its own, trying to build that initial user base of people talking to each other and helping each other is a massive uphill battle if you don’t have the content and the traffic on the back end to make it happen.
Andrew: Do you think today communities that are organized the way that yours was in the beginning and still is today would work? Or have we moved past message boards?
Matt: I think in many ways we’re moving past message boards now that we’re having conversations on Facebook walls for companies and chatting with businesses over Twitter, and obviously Stack Overflow and these Q&A sites have gained quite a lot of traction as well. So I think the model is evolving quite a bit.
Andrew: So if someone in the audience is listening to this and says, “Okay. I see Matt’s been building this great community. I can see how it’s just a well that he can keep drawing from and build these other websites and other businesses from.” All right. If they want to do the same thing, how would you suggest they structure their community today?
Matt: I think you have to have multiple communities. You have people who want to interact with you on your Facebook page. You want to have a Q&A community like Stack Overflow or OnStartups has. You want to have multiple mediums where people can communicate and chat with each other.
Andrew: So if you were launching today, you would allow your community to live on Facebook and on Twitter and on sites away from yours?
Matt: Definitely. Definitely. Whatever medium . . .
Andrew: But it seems like you grew your mailing list and you grew your identity by creating the message boards on your site.
Matt: It’s true. It’s true. But many people now are reluctant to participate in forums. They prefer to communicate and write on Facebook fan pages or whatever. They like the ease of use of these Q&A sites. Or they like to chat with people on webinars. Now, if you want to start a community, one great way to do that would be to host a weekly free webinar where you have guest speakers, guest presenters around a topic. You get a couple hundred or a couple thousand people logging in every week and attracting and learning from each other through that medium.
Andrew: Gotcha. Okay. All right. So, you built it out, you moved it to its own tab, you recreated the design of it, and you increased the price. And the audience was happy with the results. What was the next step?
Matt: So we basically let sit for two years. Basically ticked along, continued to grow and grow and grow and made some minor tweaks. For example we started segmenting sites. So it would have premium sites, established sites, and startup sites. That was basically based on how much traffic or revenue those sites were generating. And that was basically to allow buyers to better find whatever they were interested in. So we started getting hundreds of listing a week. And it was just overwhelming to go through all these listings when maybe you were only interested in sites that were only three years old and had at least $1000 in monthly revenue. So by splitting it out into multiple categories it made it a lot easier.
But we still didn’t have a search function, and we still didn’t have a filtering function. None of those things existed on the SitePoint marketplace. That’s really where we thought that Flippa.com could come in and take it to the next level. Likewise, we thought having a separate brand for this idea of a website marketplace would help word of mouth quite a bit. It’s a lot easier to tell someone, “Oh, you want to sell your website or oh, you want to buy a website? Go to Flippa.com.” It’s a lot more difficult to say, “Go to SitePoint.com and click on the marketplace tab.” It’s just awkward. People can only associate one thing or one word with a brand name. So when people think Volvo, they think safety. When they think Ferrari, they think super luxury or whatever. When people think SitePoint in general, they think education. They don’t think auction, website auctions.
Andrew: I see. Okay. And because they think education, that’s why you can have the community and the blog all live in one place, and the publishing company, because all of those are different outlets for education. Once you start getting into web design or start getting into selling and buying domain names, those are different from education and should live in their own property and their own world.
Matt: Exactly. Once a model is proven out and it’s proven to be sustainable, then definitely. There’s an awesome book called “The 22 Immutable Laws of Branding” by Al Ries and Laura Ries. It talks a lot about the branding mistakes that big companies make by leveraging into different categories that are unrelated to their brands. That is a mistake. So we wanted to keep the brand as pure as possible. SitePoint is education. Flippa is website auctions. 99designs is graphic design contests.
Andrew: Basher, in the audience is asking if the majority of sites being sold on Flippa today, are they lower price sites that . . . actually what kind of sites are they? Let me see if I can read his question while I’m talking. Lower price sites that generate revenue or simply domain names at a higher price?
Matt: The majority of sites in terms of the number of listings are the startup sites. Where basically someone registers a domain name, they buy a WordPress theme for it, they throw some content on it, and they sell the site for $50, $100, $250 and the website has no traffic and no revenue. That being said, there is a huge number of websites that are established, have traffic, organic rankings, so on and so forth, that sell for $2,000, $3,000, $5,000, $50,000, $70,000, $250,000.
Andrew: That’s what I see a lot of. The smaller sites that I guess I hadn’t noticed much of, the ones where someone just threw up a WordPress theme, why would somebody buy that? What are they getting?
Matt: They’re basically getting some work that’s done for them. They want to launch a website about the iPhone 4, or they can buy a domain name, a template and get up and running really quickly. They don’t have to spend time investing in putting all the pieces together. People just do it for fun as a hobby, a side project. But the most interesting part of the marketplace for us is definitely the established websites that have traffic and revenue associated with them. I think that’s really where the big potential in the future of Flippa is.
Andrew: I see Scott Simko . . . and this I told you happened last time I did an interview with you, Scott Simko saying, “Andrew, let Matt know that I love SitePoint podcasts. Kevin and the team are great.” You’ve got a lot of fans in my audience. People are just passionate about what you do over at SitePoint. What’s the podcast like?
Matt: Kevin Yank is our Chief Technical Officer at SitePoint.
Andrew: Actually, never mind, don’t say any more. I don’t need competition. Why do we have people go download your stuff? No, I’m kidding, go ahead.
Matt: It’s web development focused rather than entrepreneur focused.
Andrew: Oh, good. What kind of things are they talking about? What are some of the topics?
Matt: New versions of Internet Explorer 9, or HTML5 or what different startups are doing that can help web developer’s scores. They’ve been going for 74, 75 episodes now.
Andrew: Cool. And Scott Simko I met because he helps Jason Calacanis with This Week in Startups and the blog that goes along with that. Right, which you did and I saw you in that office, doing the interview.
Andrew: Okay. So this thing takes off. You see that people like it when it’s in its own tab. It’s time to create a business out of it. What’s the first thing that you did?
Matt: The first thing that we did was put together a dedicated team and grow that team to help launch Flippa. So the development during the time we decided to create the business and by the time it launched, it was well over nine months it took.
Matt: We had to find a brand name. We had to do the redesign. We had re-architect the back end. And we had to switch to this model where we invoice success fees for successful sales.
Andrew: So nine months of building the team, building the site. How much of it was building the site and how much was building the team?
Matt: The majority was building the back end of the site.
Andrew: So even though you guys are the experts at building sites, you’re teaching other people how to do it, it still takes you over half a year to put something together.
Matt: It was definitely a long process, for sure.
Matt: The way it came out in the end was vastly improved over what we had and much more complicated. Of course, as any new launch, we had bugs in the first couple of weeks, but we quickly worked through all of that. We had a lot user feedback as well, and we quickly worked to integrate all those suggestions back into the site. The only suggestion that we connoted was dropping the success fees.
Andrew: [laughs] How tempting was that? Why not just launch it with no success fees and then bring the success fees afterwards so that you don’t shock the audience too much?
Matt: That would have been a perfectly valid strategy as well. We decided that the best way to do it was to create all this massive value by improving the user interface, adding all this advance search and filtering functionality, so on and so forth, and at the same time increasing the price through invoicing for success fees.
Andrew: You believe, it seems to me, strongly in charging for what you create, even though online most people believe in free, everything needs to be handed out. Am I right?
Matt: If people aren’t paying for it from day one, it’s going to be much harder to start charging in the future. If people are paying for you, it motivates you to deliver a better customer experience, because if you’re doing things wrong, people are emailing you or asking for refunds. It really forces you to listen to your customers and respond to their needs because they’re handing you their credit card numbers. And it’s up to you to deliver value to them.
Andrew: Shoutreel, in the audience, asked earlier if you have any tips for young startups to get users. What advice do you have for them, before we continue with this story?
Matt: I think most importantly is to listen to your users, really. On both Flippa.com and 99designs, we used UserVoice.com to collect feedback. It’s basically a giant suggestion box but with a unique twist, because every person who registers on your UserVoice page gets a certain allotment of points or credits and they can basically vote those credits against the ideas that they like the best. So rather than just having a random list of unorganized suggestions and feedback points from your community and your users, you actually see the best ideas and suggestions float to the top, because people are voting using these credits. That was really helpful.
Andrew: I noticed that you don’t seem to have it on the side anymore do you?
Matt: I think we still have a feedback tab on Flippa.com, and there’s a 99designs.uservoice.com page as well. And you can even go click on the completed tab and see all the suggestions that we implemented from our community.
Andrew: I see. What about the idea that . . . I think it was Hiten Shah, who I interviewed about feedback from the audience. He said, “When you use something like UserVoice, everyone, including your competitors, gets to see where your faults are and what your audience wants and they can go and build them.”
Matt: Yep. Definitely. Definitely.
Andrew: It is enough of an issue for you guys to rethink using them?
Matt: I think the positives in general outweigh the negatives. Your competitors will always find a way to copy what you do if you’re good and spy on you. I know that on 99designs that some of our competitors log in every day or every two days. We make a change, they make the same change three days later. It’s interesting.
Andrew: [laughs] We should send someone the wrong direction. We should get everyone who’s listening to this interview to go and suggest something completely dopey and vote it up to see which of your competitors end up copying it.
Matt: [laughs] Exactly. We’ll just send a different page to our competitors.
Andrew: Pedro in the audience says, “He’s right. Better start charging right from the start.” So that might be another bit of advice for Shoutreel. What other advice do you have for a young guy like Shoutreel who’s starting to build a business? I guess Shoutreel is the name of his business.
Matt: I think it comes down to finding ways to create massive value for the people that you’re serving. So with Flippa, we help people sell $40 million plus in websites, and we’ve only collected a tiny fraction of that in revenue for ourselves. In 99designs, we’ve paid out 13 or 14 million dollars to the design community. With SitePoint.com, we’ve helped launch many web development careers, and people have gone on to be successful in their own rights. The thing it really comes down to is bringing massive value to people while only capturing only a tiny slice of that, which is actually quite, it seems, common sense.
Last week, for example, I was at the affiliate summit in New York City. And the affiliate marketing industry is not exactly the most ethical of industries, I would say. Certainly, that’s a pretty broad statement and doesn’t apply to everyone. But there’s a lot of people just making really good money off of teeth whitening offers and Acai berry and diet pills and mortgage offers, work-at-home offers, all these things. People are just thinking about, how can I trick people into giving me their credit card numbers? How can I extract the most amount of money from people? And that, I think, is the completely wrong mindset.
Andrew: I would love to do an interview with one of those guys, with the guy who originated the teeth whitening affiliate program. That would be good.
Matt: That would be interesting. Some of those guys that do the Acai berry pills are making like tens of millions of dollars a year.
Andrew: See if we can get them to do an interview too. If anyone listening can make an introduction, hook me up, let’s set that up.
All right. So you launch, and you get . . . actually I saw two negative feedback. Two issues that people complained about. The first one you said is, “Why are you charging more?” The second big thing is, surprisingly, “Why does it look like a Web 2.0 site? Why does it have that Web 2.0 look?” What’s the deal with that, with the issue of the design of the site?
Matt: I think people were unprepared for the change. I’m sure we probably should have eased them into it a little bit more. People hate change, basically.
Andrew: How could you ease your way into it more?
Matt: Maybe by writing a beta site side by side with the SitePoint marketplace, or by giving lots and lots of previews to people ahead of time. We stopped at a small group that we ran a beta testing with, like a couple of hundred people I think. But we just certainly didn’t open it up to everyone, where maybe we should have.
Andrew: Will the next product be beta tested widely, or will you release screen shots? Do you believe that strongly in it that you can make that statement now?
Matt: I definitely think you have to give people a heads-up and a warning about what’s going to happen. So they wake up one day and see their auction they started on SitePoint being imported into Flippa.com, it upsets them.
Andrew: Why did you make that decision to do it all quickly, all at once, and let everybody see the finished results with their accounts pre-created all on day one?
Matt: We thought it would be the easiest way to get up and going fast. We knew that there would be some bugs and errors and problems, but we could have spent another six months trying to get it to 100% and never launched. I think it’s much more important to get it out the door, find out what’s wrong, fix it, listen to user feedback, and just deal with other fallout that happens. Certainly we had more fallout and negative feedback than we initially expected, especially with people calling us greedy and saying they’ll never use us again and predicting that we’re going to be out of business. We had hundreds of people literally saying that we’ve killed the business, that we’ll go nowhere, and their predictive powers proved very incorrect.
Andrew: Internally did you think maybe their right? This is a big piece of our business. Maybe we shouldn’t have screwed with it?
Matt: No. We thought that if it was a real company, then this is the way the model has to work. If we were running an auction business whether Sotheby’s or Christie’s or eBay, you have to charge a success fee in order to scale up and be able to invest back into marketing and developing and customer service and all these other things. So we were willing to take the risk.
Andrew: Matt, are you really this unrattled? Or, internally, or at times do you ever feel like, “This isn’t going to work. I might have gone the wrong direction here?”
Matt: We were pretty confident that we figured out a way to make it work and that we had enough leverage with our audience and the buyers that it would . . .
Andrew: Are there times when you . . . when are you rattled?
Matt: Seriously. I do get upset when reading negative feedback. It’s definitely not the funnest thing. But it also makes me feel confident that people care enough about what we do to complain. If no one complained, then people don’t care. But people obviously are invested enough in the business that they want to provide us such feedback. And that’s awesome because it gives us an opportunity to respond and to do better.
Andrew: Do you immediately go from feeling like, “What the hell are these crazy people saying?” to “Oh well, you know, at least someone’s paying attention.” Or is there a period where you really internalize it and you go, “Ah, I really screwed up, or I could have screwed up, or I might screw up or I will screw up tomorrow.” Do you have any of those doubts?
Matt: Certainly, no one’s perfect. And I knew that nothing would be perfect from day one. That’s a fact of life. We had to get the new website, the new business out the door. We have to launch at some point. We could have waited another three months or we could have done it when we did it. And I’m glad we got it out the door and saw what happened and dealt with the user feedback and improved the model. I really have to give credit to our general manager, Dave, and our developers, Andrew and Chris, for doing all the hard work. I’m just the one that got to read all the comments and respond, and the forums.
Andrew: Now what is your role in the company? Are you one of the developers? Do you design the product? What’s the part that you do?
Matt: Really, Dave, our general manager runs the day-to-day business. I’m not involved in making too many decisions with Flippa.com. He gets full credit.
Andrew: I see. But what is the part that you do day to day? What is your day to day like?
Matt: My focus is on 99designs right now and growing that business.
Andrew: Okay. Shoutreel Fan. Apparently Shoutreel also has a fan in the audience. Or he’s got a sock puppet. Is that what they call it when there’s a fake name? I don’t know. I’m going to believe that Shoutreel has a fan. I like it. He’s saying, “The website says it’s the number one marketplace for buying and selling websites, is what Flippa.com says. Who said that? Where did that come from?”
Matt: I just based it on analysis of looking at our competitors. We’ve got more listings, more revenue sales. I think any way you slice and dice, it we’re way ahead of the competition. And if I’m wrong, I would love for our competitors to share their numbers, but we’re pretty transparent. You can go on Flippa.com, you can click on the just sold tab. You can see all the auctions that have ever sold, browse through it, etc.
Andrew: Why so transparent? Why do you show your sales numbers right on the website?
Matt: I think it develops confidence in people. They’re seeing that there’s activity happening. They see what’s selling, how much it’s selling for. It helps set proper expectations. So when people overprice their website, which still happens from time to time, they can go back, look at historical sales, and hopefully adjust their expectations in order to meet market demands.
Andrew: The $40 million number that I quoted and got from your website. Is that since June of 2009, when you launched?
Matt: That includes when we launched, and that includes the time that it was part of the SitePoint marketplace.
Matt: So that’s probably going back to 2007 or something like that.
Andrew: Did the business take a hit financially when you took it out as its own product and all those people were saying that they were never going to use it again?
Matt: No. The revenue actually went up.
Andrew: Went up. So while all these people were complaining, it went up?
Matt: That’s right.
Andrew: Andrew SG is asking if you know what the biggest site sold on Flippa was.
Matt: The biggest one was Retweet.com, for $250,000. There’s a pending transaction that’s even bigger than that.
Andrew: Yeah, I think that . . .
Matt: But then the majority of web . . .
Andrew: I’m sorry?
Matt: The majority of websites have selling prices like $2.5 thousand. But in any given week, there are multiple sales over 10 grand, over 25 grand. I think we are sort of sitting at a really interesting place where the investment bankers and the business brokers won’t touch these websites, but it has real value to Internet marketers, affiliate marketers, investors and being able to acquire these website properties that have some sort of established fan base and traffic and content and can give someone a real jumpstart to being able to acquire something that’s in their niche and apply their skills.
So if someone’s really good at SEO, for example, they can look at interesting sites on Flippa.com that they think are under optimized, that have a lot of great content. They can buy this website, make some changes, and two or three months later get back their investment. Or, for example, someone might be good at advertising sales or monetizing traffic through affiliate offers or whatever. So they can find massive opportunities to leverage their specialized knowledge and acquire websites, make changes and either keep the websites running or resell them again for profit.
Andrew: How do you grow your audience if . . . we talked about how the first customers came from the community on SitePoint. There’s a limited number of people who are selling their sites from SitePoint. When it’s time for you now to grow beyond that, how do you do that?
Matt: We’ve had quite a bit of PR for Flippa and the SitePoint marketplace and its entirety of buying and selling websites. And a lot of it has just been organic word of mouth.
Andrew: But then that’s out of your control if it’s just organic word of mouth. It’s not anything that you can tweak, can you?
Matt: Obviously, having a separate brand helps. Obviously providing great customer service helps. Obviously being transparent and showing what’s happening in the marketplace helps. We’re actually, I think, by being so open with what’s happening in the marketplace, that’s helpful to our bottom line business.
Andrew: Are you advertising anywhere? Are you buying ads on Google or are you advertising in other communities?
Matt: For Flippa.com, we’re primarily focused on SEO. I love the pay-per-click advertising, but outside of that we haven’t done too much.
Andrew: You mean SEO on the site? Or SEO community and how to court them?
Matt: SEO on the site. So ranking for terms like “sell websites,” “buy websites,” things of that nature.
Andrew: Who’s leading Flippa.com? Is it your co-founder?
Matt: It’s our general manager, Dave. He runs the day-to-day business for Flippa.
Andrew: Where does it go from here?
Matt: I think it comes down to growing out the high end of the market, so making it easier for people to transact these $10 thousand, $25 thousand, $50 thousand websites; taking some very positive steps in that direction. We’ve integrated Escrow.com in the process so people can have a secure payment facility, increasing trust. Basically, it comes down to the problem that the majority of people who might be interested in selling a website don’t know that we exist. That’s a tough problem to solve. There’s multiple websites and forums and blogs that have traffic and will build revenue but will just abandon them because they get busy, distracted with jobs, kids, and other pursuits. When, really, they could come to Flippa.com, sell that website and realize a gain of thousands or tens of thousands of dollars potentially they could put to use.
Andrew: Yeah, I wouldn’t have thought of that. If I had a blog that didn’t work out, I would just think, “All right, let’s just let it sit there. It didn’t work out.” Maybe I’d kick myself for being a failure or something.
Matt: Exactly. But you could sell it for $500 if it’s a complete failure. And if it has modest success ,it might be worth five or ten thousand dollars. That’s good for a vacation or two.
Andrew: So now how do you get somebody who built up a website, who doesn’t know about Flippa? How do you get them to know that Flippa is an option for exiting?
Matt: That’s our challenge. That’s our challenge.
Andrew: You told me before the interview that you guys were hacked two or three weeks ago. What happened?
Matt: Basically, we had someone who figured out how to log in as an administrative user through our back end, and they posted a video showing how they did it and what they found in our administrative back end.
Andrew: And so they . . . did they do any damage?
Matt: Nope. I think it was the grey hat hacker. Their intent didn’t seem to be malicious. They contacted us. We fixed the problem. We made an announcement in our blog. And people know. We don’t store any credit card numbers, so thankfully no financial data got misappropriated.
Andrew: Have you gotten to talk to the guy? Do you know who he is?
Andrew: What was that conversation like?
Matt: Our general manager had that conversation with him.
Andrew: I see. Would that person be willing to help me out? There’s a guy who’s been pissing me off. I’d like to find a way to hack into his website. Is he that kind of a hacker?
Matt: I don’t know whether he’s a revenge hacker.
Andrew: All right. I have no interest in doing that. I have no interest in hacking. But I would be interested in interviewing that person too if he wants to come here and do an interview about how he hacked Flippa.com. I’d love to do that. Let’s see. There are a bunch of questions coming in from the Shoutreel. Shoutreel, this is interesting marketing what you’re doing. Coming into the chat room and just asking good questions.
What about 99designs? How is that going?
Matt: Very, very good. It’s growing every single month, very steadily. Everyone that uses it loves it. We have like a 99% who would recommend us to their friends or family. Our net promoter scores are off the charts. It’s going really, really well. I’m super excited about the business.
Andrew: This whole thing is all bootstrap, right? No outside funding for any of these companies that we’ve talked about?
Andrew: I asked Jason Fried if he would include you and your story in the “37 Signals Bootstrap Profitable and Proud” series. And I didn’t hear back. Has he talked to you?
Matt: I haven’t heard anything from him, no.
Andrew: For some reason, I don’t see you guys included as one of the role models in this space. Is that because you’re unfunded and you don’t have investors out there who are saying, “Go to the front of the line. Go speak at conferences. Get in front of all these people”?
Matt: I think that is definitely part of it. Having big investors helps in terms of PR and marketing and recruitment even. We do have a San Francisco office or outpost for 99designs that has been helpful. I have been doing quite a bit of public speaking this year at different conferences and events. But certainly, perhaps the fact that we’re headquartered out of Melbourne, Australia hinders us.
Andrew: Where are you now? What city are you in?
Matt: I’m in Vancouver, Canada.
Andrew: That’s what I figured. And with Jason Fried, it wouldn’t be because you’re funded. I’m wondering if with him it’s got something to do with 99designs.
Matt: Spec work.
Andrew: Spec, because you think he believes that it’s spec work and that’s why he would keep you out of 37signals series?
Matt: I haven’t spoken to him about it, so I don’t know.
Andrew: Okay. All right. That’s probably the best answer, and not speculate. I should ask him about it. I wonder what the answer is to that.
All right. Well there it is. Flippa.com. Everyone go check it out. If you’re selling a website or if you sold a website on Flippa.com, I want to hear about it. Come back to Mixergy and let me know.
Matt, any final words?
Matt: That’s it. If anyone has any questions or problems with 99designs or Flippa, I’m always available on email, email@example.com or firstname.lastname@example.org. I’m very accessible.
Andrew: People can all email you at email@example.com or firstname.lastname@example.org?
Matt: Definitely. Definitely.
Andrew: Why do you give out your email? Don’t you get flooded with email?
Matt: I do. But I love hearing from people. It gives me an opportunity to find out what we could do wrong or how we could improve. I don’t think I should hide from our customers. Until six months ago, I had my phone number posted on SitePoint.com. So in ten years, I had my direct cell phone number posted on SitePoint.com. I’d answer the phone whenever people called.
Andrew: What was the reaction from that? I see that Robert Scobel has it, but he gets phone calls no matter what. He gets phone calls from PR people. So he’s not maybe a good example of what would happen if you put your phone number up on the web. What happened to you? How many phone calls were you getting?
Matt: A couple dozen a week.
Andrew: A couple dozen a week.
Matt: Yeah. It was awesome, because if people had a problem, I could solve the problem for them right away or I could point them in the right direction. When things went wrong with the website, I usually was the first person to hear about it. And in general, it was very good. It was awesome to know what was going on, to know what people were having issues with. I think it was very, very positive. If you’re the owner of a business and you’re hiding behind a company name, you’re afraid to put your name behind the business, then maybe you shouldn’t be in that business. All of these Acai berry and teeth whitening guys, they all try to be as anonymous as possible because they don’t want to hear from people. I’m the exact opposite.
Andrew: So why did you take your phone number down?
Matt: Because I’ve been traveling a lot, and on the road it becomes much more difficult to take phone calls. I’m at conferences, etc.
Andrew: Is it for fun mostly that you’re traveling? Or is it all conferences?
Matt: Conferences and work.
Andrew: Still all work?
Matt: Yeah. I was at Search Engine Strategies and Conversion Conference in San Francisco, Affiliate Summit in New York, a bunch of others this year and even more coming up.
Andrew: What are you going to do at an Affiliate Summit?
Matt: I just spoke on crowdsourcing your success and how Internet marketers can use 99designs, FiveSecondTest, UserTesting.com, Trada.com, and all these other crowdsourcing platforms to massively leverage your ability to succeed in the marketplace and get user feedback.
Andrew: All right. There it is, guys. Send Matt an email with your feedback on this interview. And also send me an email. Actually, no, send Matt an email telling him whether he was right to tell me to stop asking people all these aggressive questions about their revenues or wrong, or any other feedback. He’s email@example.com or firstname.lastname@example.org
Thanks for doing the interview Matt.
Matt: Awesome, good chatting with you again.
Andrew: Cool. I would love to have you on again. Bye Guys.
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