Andrew: Hey there, freedom fighters. My name is Andrew Warner. I am the founder of Mixergy.com, home of the ambitious upstart.
You know what? Apart from the fist pump and the error at the start of the interview, there’s something else that separates Mixergy from all the other interview sites that are just popping up out there. There’s nothing wrong with them, but here’s the thing. I feel like the startup world celebrates two things.
Either you have sites like TechCrunch that celebrate the fact that someone just raised $1 million or $10 million or they raised $50 million dollars, had a zillion-dollar valuation–that’s the kind of stuff that they cover that we have a ton of. Look at Techmeme every day and you’ll see it. Or we have the other side. “Hey, look at this guy. He quit his job. Yay. Look at this guy. He quit his job. He made his first $500. Yay.” There’s nothing wrong with that either. Those are terrific stories. But they’re really just getting started.
I think before we celebrate, we should aim a little bit higher. That’s where Mixergy comes in. I want to feature entrepreneurs who didn’t raise zillions of dollars and who did do something phenomenal, something that we’re willing to spend an hour here talking to learn about so that we can duplicate that kind of success or learn from it and build our own success.
That’s what we have here today. Max Shevyakov–speaking aspire to do higher, I should aspire to make sure I pronounce everyone right–Max Shevyakov, he’s created this incredible company based off of an idea that you’re going to kick yourself for not having come up with. I know I did. It’s just so brilliant. He is the founder of BorrowLenses.com, which is the world’s largest online photo and video equipment rental company.
So, if a photographer has a big wedding, needs lenses, needs all kinds of other equipment, doesn’t want to buy the whole thing, just for one big wedding, he logs on to BorrowLenses.com and he rents it, gets it for seven days, gets to return it. It’s that simple. That’s what the business is built on. That’s what he sold. We’ll find out about the sale of the company too. You won’t believe where he raised the money to do it. It’s kind of shocking, but it makes sense.
And this whole interview is sponsored by HostGator. Later on, I’ll tell you why if you need a hosting company for your website, you should go to HostGator.com/Mixergy. But if you go to that URL right now, you’ll get a peek at what it is that makes that URL so great, not just HostGator.com, but HostGator.com/Mixergy.
First, Max, welcome.
Max: Thank you. Thanks for having me on, Andrew.
Andrew: The first money did not come from venture capitalists for the business. It came from where?
Max: From life savings.
Andrew: Life savings?
Max: From mine and my cofounder’s life savings. We basically emptied out almost all our bank accounts and put it all into lenses.
Andrew: How much?
Max: We started out with $15k each, which was like literally all I had to my name at that point.
Andrew: $15,000 from you, $15,000 from him roughly. You end up with roughly $30,000 together. And then the next batch came from where?
Max: From credit card debt. So, we started the company in 2007. If you remember, back in those days, before the big bust, anybody with a pulse could get a bunch of different credit cards. So, one day when we figured out that we have a lot more demand than supply, we opened up like a dozen credit cards each, got $10k to $20k credit lines and just plowed it all into inventory.
Andrew: Is that $10k or $20k total?
Max: No, each, per credit card. So, we were probably about $300,000 in credit card debt.
Andrew: $300,000 of credit card debt. You used your credit cards to buy lenses and then you have to pay what?
Max: Yeah, lenses, cameras, etc.
Andrew: 15 percent interest rate, 20 percent interest rate?
Max: Back in 2007, if you had a good credit score, you could actually get them for 12-18 months at zero percent. So, we actually did not pay anything and we had to balance them. So, we created a huge spreadsheet of like, “Okay, we applied on May 1st. This is becoming due next May 1st. Okay we better get enough money to pay this off. Okay, the next one is coming up June 15th. We need to get another one to pay out until June 15th.” It was just like a huge balancing act. Luckily, we never defaulted. We were never late. We managed this very accurately and very efficiently.
Andrew: And part of the reason you were able to manage it is that the business just grew so well so fast. We’ll talk about why it grew that well because frankly, for me, that’s the heart of the story, the guts that it took to build it with credit card was balanced by the logic of why the business was growing and how you could expect to recoup your money if things went sideways. And we’ll talk about that and then where you raised the next set of money after credit cards because you kept needing more money because of the structure of the business.
But I’ve got to ask you first of all–the audio is sounding a little bit weird. Where are you today?
Max: I actually have a date day in my wife. I haven’t seen my wife in a couple weeks because she has been traveling. So, I’m up here in San Francisco in her conference room, actually. So, sorry about the audio quality.
Andrew: How often do you and your wife have date day?
Max: Pretty often, to tell you the truth. I think it’s important. We have a kid. And I feel like it’s important. Especially once you have the kid, your personal relationship kind of goes on the list somewhere between taking out the garbage and fixing the car. So, we schedule in date nights or date days pretty often just to stay grounded and stay connected.
Andrew: Last week, you were at my office here for this little get together that Jeremey Weisz our producer put on. It was you and a bunch of other entrepreneurs. And I started talking to a lot of entrepreneurs about dates. I want to get back to business, but I’ve got to ask you about this.
One of the things I’m learning is that my wife needs a date night out. I used to think I was doing it. And then she got fed up with me. I said, “Come on. We’re sitting at the table several times a week. What’s the problem?” She meant outside of the house. So, we finally, last Friday, I brought in our nanny, she stayed late. We went out. It was just a fantastic night. It does make a huge difference.
Max: It makes a total difference, for sure. It’s kind of like when you’re working at home and you get the thing where you can’t really separate your work and your life. I feel like it’s the same thing here. You just stay in and you’re in the familiar surroundings, it’s not the same. Just drop everything, go out to restaurants or go out and listen to some music or something like that. It totally resets your relationship. I think it’s really, really important. It’s so easy to just take each other for granted, especially once you have a kid. I overheard that it sounds like you have a newborn as well?
Andrew: I do. Yeah. Eleven months.
Max: Eleven months. I have a 20-month old. So, I know exactly what you’re going through.
Andrew: I don’t know what your date days are, but we seem to always do something just a little bit wrong and it’s just fantastic. This one place, we went into this specialty cocktail place. We got a specialty cocktail each. We loved it. It was jam-packed and we felt like we were going to just spill it everywhere. So, we said, “You know what? How about we take these glasses and we go out into the restaurant that we’re going to go to and we’ll walk around town, Valencia Street, with our specialty cocktail glasses and walk over to the restaurant.” Boy, that was just like a nice, fun thing to do.
Max: That’s awesome.
Andrew: Yeah. We still have them like trophies at home. Good. I’m glad you laugh. I thought, “Well, maybe Max is going to lose respect for me. Max is a decent person. He’s going to hear that and he’s going to get right off this interview.”
Max: I’m sure you paid like $18 per drink.
Andrew: $18 is cheap. No, this was specialty. You know what? If you just add the word “specialty” in front of a cocktail, you just have to throw like a cucumber in, maybe a little bit of mint and you can charge more than $20 for it, especially on Valencia. By the way, who goes on a date day to his wife’s conference room?
Max: Well, you know, we had the interview coming up and I was like, “Where can I tape this? We’re going to be in the city.” I could like tape it at Philz or a Four Barrel. If you’re complaining about the audio here, it would probably be a lot worse there.
Andrew: I’m glad you did that. That does make a huge difference. Thanks for coming into the office just for this.
Max: No problem.
Andrew: Hey, you used to work at Hewlett-Packard. Then you said, “You know what? I’m not getting enough impact there. It just doesn’t feel like where I want to be.” So, you went to work for a startup that was kind of like Myspace with a twist. What was their twist?
Max: It was like Myspace for hipsters.
Max: Yeah. That was like their business model. It was funny because their business model made zero sense, but I went from being a software engineer to a director of engineering at a startup. I was like, “Ooh… director of engineering. I’m going to learn a bunch of stuff here.” And I got a cool title. So, while I didn’t really believe in the mission of the company, I thought it would be a cool experience nonetheless. The company lasted about nine months.
Andrew: Nine months. But you know what? It gave you an entry into the startup world. One of the things you learned is about the crazy hours of startup life. In fact, one time, the COO of the company at midnight walked over to the team and what did he do?
Max: He’s like, “Well, you’re Russian. So, you probably like drinking, right?” And I’m like, “Yeah, I guess.” And he’s like, “Vodka, right?” I’m like, “Yep.” And he came over with the vodka bottle and just gave me a shot of vodka. We chatted for five minutes and he’s like, “Well, this release is going to take a long time. So, have a couple more shots.” So, this was like the day before the big release. So, I was there in the office until probably 4:00 a.m. He just kept coming over like every hour on the hour being like, “How are you doing? Okay. Here’s another shot. Here’s another shot.” So, it was an interesting experience.
Andrew: What do you think of that, actually, the fact that he was just feeding you shots in the middle of the night?
Max: I mean, I respect that because he was like, “I’m going to do whatever it takes.” He didn’t know me too well, but at that point he just made some assumptions, like I am Russian so I like drinking. At least he tried. It was a release that was all technical and he was not a technical guy. But he realized that he needed to be there. He needed to support us. He was like, “Okay, this is my way of supporting you.”
So, I totally get that. I think if I was in his situation, I would have done something very similar. There’s no feeling like the one where it’s all hands on deck. Although some people are coding and other ones are pouring shots, everyone has a part in that equation.
Andrew: Okay. And then you still realized, of course, that this is not the right place for you to be, but you want to be in this whole startup life that you’ve been hearing so much about. And you’ve got more in you than Hewlett-Packard can ever squeeze out of you. And then your friend Mark’s mom has an idea.
Max: That’s right.
Andrew: What’s the idea?
Max: The idea is to rent lenses. She tried to do it at a local brick and mortar and she thought it was a terrible experience, poor selection, high prices.
Andrew: You mean she just walked into a local store and tried to rent lenses for herself?
Max: That’s right. She tried to rent lenses there. Then she went online and found some company in Florida who started before us. Again, the experience was terrible. The selection was not great. And to tell you the truth, Andrew, although we started a successful company, I don’t think we were like the typical Silicon Valley entrepreneur who, since age five, had been dreaming of starting this company. We were like, “Okay, yeah, it might be a cool idea.”
I think Mark’s mom told them half in jest, like, “You should start this company.” And then he came over to my house, not even for that, just to hang out, and happened to just mention this. And then we kind of like were like, “Okay, maybe this does make sense.” And it was off to the races. So, I almost called myself like an accidentally entrepreneur.
Andrew: You know what? Yeah. I guess so. I guess I get it. But she was really coming to you with an idea that made sense and you didn’t just jump on it because she told you that she was having trouble. From what I read, you did some research to see, “Is there any demand for this or is my friend Mark’s mom the only one who’s just needing to rent lenses and is too picky to go into the local store?” What kind of research did you do?
Max: We looked at the competition that was out there and it was all very nascent. So, the whole rental by mail was popularized, as you remember, by Netflix, when they did the DVDs by mail. I think once that idea came through and they got enough customers, people started feeling comfortable with the idea. So, we started in 2007, a few years after Netflix. So, that was one decision point. The other one was that there were a couple of competitors out there. One piece of very interesting information that we found was there was so much demand for their inventory that people found out when Keith, who’s the owner of this company in Florida, did inventory on the website. It turned out to be at 4:00 p.m. They would post on the forums and say, “Okay, at 4:01 p.m., go on this website and reserve the equipment that you want,” because the demand was just so great.
Andrew: That’s the part that I was especially interested in. It wasn’t just that you looked to see was there competition, you looked to see was there demand. And you didn’t do deep research into, “Where’s the market going? What does Forrester Research say?” or any of that, you saw forums, people were waiting for a piece to come out. What forums did you go to to see that?
Max: Photography-on-the.net and Fred Miranda were the biggest forums back then. I was so surprised that people noticed when the guy did inventory in a 24 hour period. Someone gets on, “Okay, go at 4:01 p.m. and buy this.” When you see that, you know that there is high, high demand out there.
Andrew: Is there anything wrong with me revealing who I think that company was?
Andrew: The Lens Pal, right?
Max: It was not. No. It was actually Rentglass.
Andrew: What was it?
Max: Rentglass. They’re no longer based in Florida. They actually moved to Kansas now.
Andrew: Ah, okay. Alright. That makes sense.
Max: He was the original one. Brian was the original person who started this hwole notion of renting camera equipment by mail.
Andrew: But Max, having just a handful of people, I can’t imagine it’s even 100 people who are going on that website and saying, “He does inventory at this time. Make sure to jump in and rent at that point.” That’s not enough research, is it, to know that there’s worldwide or nationwide demand for this, is it?
Max: No, it’s definitely not. To tell you the truth, when we started this business, we thought it would be like income for beer money or vacation money maybe. If we got like super ambitious, it would be $2,000 a year to go on a nice vacation or something like that.
Andrew: I see.
Max: We never thought we’d leave our jobs and then have almost 100 employees at the time of the sale. That was not in our minds.
Andrew: So, you didn’t need to know that there were tons of customers out there. You just needed to pick off the people who the Florida guys couldn’t handle. If you satisfied them, you’d make enough for beer money, the business would be profitable. And then what? You’re not a guy who’s just tinkering with ideas like this. You’ve got a lot of promise in your life. You’ve had a lot of hardships before. Were you really just a guy who needed beer money so badly?
Max: No. I was also intrigued by the entrepreneur angle of it, of course, like running my own business and managing that, number one. Number two, like I mentioned last week to Jeremy, the equipment holds its value so well, so the risk was actually pretty low. So, we said that we put in our life savings and a bunch of credit card debt. If it was any other type of business, I probably wouldn’t have done it, to be honest. But I knew that if I bought these lenses and shit really hit the fan, then I could turn around and sell them at $0.80 on the dollar.
Andrew: But Max, I get that protects your downside. I don’t want to underestimate that significance. The reason you could keep taking financial risk and paying for the business with your savings and then going to credit cards and so on is that you knew you could resell it at, you were saying $0.80 on the dollar and I cut you off, but that’s important to say. What I mean is didn’t you aspire to something greater than that? Didn’t you say, “I need to build a fantastic business?”
Max: Definitely. I think as soon as the entrepreneur bug hit, it was like 110% all-in. We thought from the very beginning, “What does the customer want?” And we treated the customer exactly how we’d want to be treated.
Andrew: I see.
Max: So, we wanted to make sure that people have an amazing experience going to the website, going through the process of the rental from the shipping to the return. I think that’s what actually helped us grow so fast and so cheaply without any marketing budget–word of mouth.
Andrew: I see. So, the dream for greatness was there, but you said, “Hey, you know what? If this little project works, then we’ll figure it out from there. But it doesn’t have to be Mark Zuckerberg production for it to be worth our while.”
Max: That’s right. We never even thought about, you know like companies like, “It’s going to be a multi-billion dollar company. It’s a multi-billion dollar market.” And that makes sense for the economics for the VCs to invest in you and they need the 10x or the 20x return because most of the other startups will fail and they need that huge exit.
But for us, like I was mentioning, we were never aspiring to make this a $1 billion company. We just wanted to tinker with something on the side. We thought it was a good idea. We thought it was pretty low-risk with all the other options on the able. And yeah, it wasn’t like an MBA, Excel, PowerPoint, deep analysis kind of decision. It was like, “That seems to make sense. We did some research. There’s not much risk. Let’s try it and what’s the worst that can happen?”
Andrew: You and Mark met at summer camp?
Max: At summer camp, yeah, when we were not even teenagers. I was 12 and I think he was 11.
Andrew: How did you connect? What was it about you guys that bonded you?
Max: I was actually assigned to be his translator. We’re both Russian and he came over from St. Petersburg and didn’t speak a lick of English. I had been here a couple of years longer than he did and I was assigned to be his translator in summer camp, which was really funny. Sometimes I translated the right thing. Sometimes I would kind of make up my own stuff. It was a good friendship from the very beginning.
Andrew: At the time–I kind of hinted at this, but I think it’s important to talk a little bit about it before we get back into the business of the startup–you grew up dirt poor, you said?
Max: That’s right.
Andrew: What does it mean to be dirt poor here for you?
Max: It’s the typical immigrant story. My parents were both from Russia. I was born in Moscow, Russia, as well. My parents were very successful in Russia. My dad was an engineer. My mom was a movie producer. But when they came over here in ’91, those skills didn’t readily translate over to their new American life.
So, my dad worked sorting vegetables and my mom was like a waitress at a local cafeteria. They went from very white collar, well-paying jobs, well respected jobs in Russia to very blue collar, minimum wage-types of jobs. That’s kind of like the first five to ten years of my life were living with my parents’ income, which I just described.
Andrew: Was it embarrassing to you?
Max: No. I didn’t know any other way, to tell you the truth.
Max: I said that these were their impressions of Russia, but Russia is sort of dirt poor, especially 20 years ago. So, the living conditions didn’t really go down too much from us having moved to America. If anything, there was actually food and grocery stores and there was furniture available. In Russia, those were luxuries. But here, everybody who’s making minimum wage can afford that.
Andrew: What about this? You’re going to school in a country where people have so much more than you and people are almost trained to be competitive and to notice and to compare themselves to other people. They had to have said something to you or made you feel like there’s something they have that you don’t have. Did you feel any of that?
Max: I could see like the have and the have-nots, I guess. I realized that I was part of the have-nots. But I guess most of my friends were also immigrants, usually Russian immigrants as well. So, we kind of hung together. I was not different from anybody in my social group. So, while I realized it, it was not really at the forefront of my mind. But I think it is what made me hungry. You asked about, “Hey, why did you start this company?” Since early on, I guess as simplistic as ti sounds, I was always taught like, “Make a buck. Whatever you do when you grow up, you’ve got to make a buck because that’s what we came here for.”
Andrew: I see. So, if you said, “Hey, I want to be an artist, your dad would say, “I don’t think there’s enough money in it.”
Max: That’s right. That’s right. Part of the reason I have a Master’s in computer science was because I knew software engineers got paid a lot of money. It was not the only reason that I went and got my degree, but it was definitely one of the major ones. You’re right, I think if my parents were like, “Hey, I’m going to major in music or something like that,” not that there’s anything wrong with music, but when you read the reports of like, “Who makes the most money out of college?” It’s not the music majors. It’s the engineers. So, that definitely shaped my decision a lot.
Andrew: How did you know which lenses–actually, at first it was nothing but lenses. How did you know which ones to buy?
Max: That’s right. It was BorrowLenses.com because, like I told you, we didn’t really think ahead that much. We just thought it was going to be lenses. Now we’re up to 1,500 different SKUs with the cameras and the video and anything you can think of. So, originally, we actually just polled some photographer friends and Mark’s mom and being like, “Hey, we have $30,000. What do we buy?”
And you know, $30,000, especially back then was a lot of money to us. But it’s not that many lenses. The average price of a lens is like $2,000. So, we could buy like 15 different lenses. It’s funny. I have the original pictures still. The original inventory fit in two Trader Joe’s bags. That’s what we started with. It was in my San Mateo office in my townhouse and there are just two bags sitting on the floor in Trader Joe’s. It’s pretty crazy.
Andrew: I’m sorry. So, how did you know which ones to buy? Is it something that’s easily obvious? I wouldn’t know where to get started.
Max: We just polled friends who we knew were photographers. Also we asked Mark’s mom, who is also a photographer and well and just kind of took our best guess. We searched on forums, etc. It’s funny. We knew nothing about this. Both Mark and I had like point and shoot. We didn’t have a DSLR. We weren’t photographers. We weren’t really into photography.
But if you’re motivated and you want to learn something, we just did a deep dive into the whole industry and learned it in a matter of weeks. We had the idea in May of 2007 and by early June, we launched everything, including the website, the inventory, the order taking process. Everything was done in three weeks and it was just a deep, deep dive into the world of photography.
Andrew: Here’s what you had. You had the standard lens, the telephoto lens, the wide-angle and the specialty.
Max: You’re on Wayback Machine. I can tell.
Andrew: Oh yeah. I get screenshots from everything. Not only Wayback Machine is good, but even Google is good for showing what a site used to look like and what people used to say about it back then. It’s basic, basic stuff. You’ve said that it wasn’t especially pretty because of what?
Max: For one, we didn’t have much money to spend on like making it pretty. We’re both engineers. But we’re both back end engineers. So, while we could code the back end of the website, the front end was kind of a big mystery to us. It was also just something we bought off the shelf.
So, literally the decision making process was, “Hey, I know how to write Java. What Java shopping cart software is there out there?” Then we found one. We bought that one for like $500 and just threw up the website. At the end of the day, the website could be minimal, but I think the experience has to be great from the very, very beginning.
Andrew: What do you mean? What else goes into the experience?
Max: Maybe at first glance, the website has nothing fancy. But when you pick up the phone and you call us, we’re polite. We’re professional. We know what we’re talking about. If you send us an email, in the beginning our response time was probably under ten minutes. I was always on email. Mark was always on email and we were very polite. It’s funny like in this day and age how far good service gets you.
I think the bar is so low for good service that when somebody human who speaks English picks up the phone and is helpful and actually cares about what you care about and cares about your problem, that goes a long, long way. We’re so used to calling the huge companies of the world and going through the machines and trying to tell our story to four different people and getting transferred all over the place. When you ask a question and you actually get a concise response back, that’s all you need to do. It was crazy.
Andrew: I see that there was LensRentals.com at the time. There was PhotoLensRental.com, Rent Camera Gear. I’m looking at a site. One of the things that I like to do is to search for my guest’s website and limit the search on Google to the first year of launch.
Max: That’s great.
Andrew: There was a site called Photododo that was comparing eight online lens rental shops. Why didn’t it scare you off that you saw eight other people who were already in business when you launched, at least eight?
Max: I think because one, we thought we could do it better. Two, back to the demand conversation, we just knew there was enough demand to go around. All the guys that you mentioned, I actually know the owners by name. I’ve talked to them on the phone. We actually met up in Vegas.
It was interesting because it was a really friendly industry and it still is a really friendly industry. Some people are like Uber versus Lyft, like oh my god, it’s the biggest rivalry and, “We hate Lyft because we’re Uber,” and blah, blah, blah. But for us, it was not really like that. There was a lot of demand.
We were all kind of almost accidental entrepreneurs as well. The owner of LensRentals is a good friend of mind. He is a doctor. This is his second career. He had a successful career as a doctor and this was just like his hobby and he kind of started it. We were all kind of discovering the space and sharing ideas, sharing thoughts, sharing, “Where should we go next from here?” So, it was an interesting competition landscape.
Andrew: I do see, by the way, that Photododo.com says that the problem with your competitors is that things are out of stock a lot. It’s interesting that they didn’t invest in more inventory the way that you did.
Andrew: Why do you think that is? Why do you think they didn’t? Obviously they’re having a problem. They have too much business. Why not find a way to solve it by buying more?
Max: Yeah. The first five years of our company’s existence, that was the problem, not just for us, for our competitors as well. I think nobody went the VC route and take on a bunch of money and I think because, like we talked about earlier, most VCs need that 10x, 20x exit and they need that to be a multibillion dollar industry. This, maybe, was everybody put together brick and mortar online, maybe it’s like a $1 billion industry. So, it’s not a huge, huge industry. So, people just didn’t know where to raise the money.
Let’s go down the list. One, personal savings–everybody exhausted their personal savings. Credit card debt–some people were comfortable with that, like we were and some people were not. So, that was closed to them. You go to a bank. Banks are super risk averse and they’re like, “Well, you need to be in existence for five years. You have to have been profitable for four of those years or else we’re not going to talk to you.” The VCs didn’t see it as a big enough market. So, they were out. So, it’s kind of like a lack of funding and lack of ways to get more funding.
Andrew: How about lack of guts a little bit and also lack of creativity when it came to funding?
Andrew: Am I putting words in your mouth, Max?
Max: No. I don’t think so. Some people were comfortable taking a risk like we were. Some people were not.
Andrew: I should mention again, my sponsor is HostGator. You know what? There’s nothing like launching a site and finally everything is going great because you’re getting customers, you’re getting traffic to your site. Things just feel fantastic until you go to access your own website and you see that it’s down because it can’t handle the load.
Now, with many other hosting companies, at that point, you might decide to look for a number and call them up and figure out what is going on with your site. If you’re one of the lucky ones, you might–probably not–find a phone number on the web hosting company’s homepage. I remember doing that. I called them up and they said, “I’m sorry. This number is for sales. If you have tech support, file a ticket. Filing a ticket happens via email.”
Notice that when they want your money, they give you phone number so you can do it quickly. When you need their help, they tell you to file a ticket and they’ll take their sweet time about it. In the period where you’re going through a crisis that is not what you want. What you want is a company that can stay there and also, in case you have any issues, will give you a phone number that you can reach.
That’s why I like HostGator. HostGator is a company that puts their phone number for tech support directly online. Actually, in a past interview, I called them up. I said, “Look, they don’t just put their phone number online and then send you to voicemail. There will be someone there.” It’s okay if you’re calling the cookie shop. It’s okay if you’re calling up other websites and you get voicemail. But it’s not okay when your hosting company can’t handle your calls.
So, I call them up and within, I think, 90 seconds, definitely within 90 seconds, actually, they picked up the phone. That is what we’re talking about when it comes to HostGator, service you can count on, people who are there for you and, if you need to put up a website quickly for one of your ideas, they will give you unlimited disk space, bandwidth and email, free site building tools–so, if you have an idea and you just want to quickly put up a website, they have tools that will let you put it up quickly and they’ll host it for you. They’ll give you a shopping cart so you can sell. And then if you decide to build on top of it using your own tools or your own development, you can do that too. They have a 45-day guarantee.
But let me give you the one thing that matters more than all of that. If you go to HostGator.com/Mixergy, not only will you get all that, but they will give you 30 percent off and it will give you the right to keep saying, “Hey, Andrew introduced me. Do not let Andrew down by not taking good care of me.”
So, I want you to go to HostGator.com/Mixergy. When you or someone else who comes to you for advice needs a hosting company, when you have an idea for a new site, go there–HostGator.com/Mixergy. They are my new sponsor and I’m glad to have them on here. They’ve bought up a ton of space. Before they even got to see, Max, how well we were doing, they said, “You know what? Let’s just buy a bunch of ads on Mixergy.”
Max: Not bad. Good problem to have.
Andrew: Yeah. How did I do? I keep asking when I start with a new sponsor, I keep asking my interviewee, “How did I do with the message?” You’re here to give me feedback. You’re a guy who knows how to sell. You’re a guy who knows how to present his ideas. What’s your feedback for me on the way that I did that sponsorship message–notice I don’t say commercial: sponsorship message.
Max: I think it was good. I think you turned it into a personal anecdote, which I really liked. I think that goes over well. It’s very seamless into what we were talking about. It doesn’t feel like it was just like, “Beep! Beep! Beep! Now it’s a sponsored message.” It all seemed to flow naturally. So, I liked that. I like that you had a personal anecdote about it and you use it yourself, which is a big consideration as well. “Well, if Andrew uses it, then I can use it as well.”
Andrew: You think the tech support number is something I should be mentioning or is that something people don’t think about and don’t care about when they’re looking for a new host?
Max: No. I think that’s totally right. When you think about a host, its’ like, “Okay, it better be up. But when it’s not up, what the hell do I do?” So, I think that’s totally right on.
Andrew: Alright. So, your website was up. And now there’s the, “What the hell do I do?” moment for you, which is, “How do I get customers here?” And then your cofounder Mark’s mom did something. She went to Craigslist.
Max: That’s right. She went to Craigslist and we went to Craigslist. We just spammed the hell out of Craigslist.
Andrew: What kind of spam did you do on Craigslist?
Max: It was probably against their user agreement or whatever.
Andrew: Oh, it was definitely against their user agreement.
Max: There we go. We have confirmation. But yeah, we just went to every major area, found the photo section and were like, “Hey, check out our new website.” That actually drove a lot traffic, believe it or not. I’m sorry, Craig, for utilizing your wonderful service in that way, but it worked. People would take it down. We would repost it. People would take it down again. We would repost it. Then we would go to the photography forums as well, the ones that we mentioned before. It was funny because we would post them and be like, “Hey, we launched this website. Go check it out.” It was like crickets.
Then we figured out that people really like having opinions and expressing their opinions online. Everyone has an opinion. So, we would go into forums and be like, “Hey, we launched this new service. Hey, by the way, what kind of equipment should we carry? Did we buy the right equipment?” And we just asked open-ended questions and people love giving their two cents. Those threads would blow up.
It was awesome because one, it was market research. Two, it was free advertising. Three, we actually didn’t know anything about photography and it was great that some pros who spent a bunch of their time on photography forums were telling us what to buy next.
Andrew: Oh, that’s fantastic. And then you get more people engaged with the site and that’s how they knew about it. What about this blogger that I saw who wrote about you guys? What is his name, John Watson? How do bloggers like him find out about you?
Max: I think just, again, demand. There wasn’t much marketing outreach. It was funny. I’ve learned marketing as I go. I don’t have a background in marketing. It was just like, “Hey, this is common sense. This seems to make sense. Let’s do it.” So, sometimes bloggers would find us because they need some gear for their personal project or we would reach out and be like, “Hey, check out this new service. Let us send you a lens.” And people like giving their opinions. People like free stuff. So, if you send somebody some free equipment, they’ll write up about you, which is great.
Andrew: That’s marketing later on. The first marketing was just you going to Cragislist and going to forums, promoting yourselves. The number two form of marketing was you going to forums and saying, “What do you think we should carry? What do you think of what we’re doing?” and encouraging conversation. Later on, you gave away lenses to people and said, “Here, this is something that gives you an indication of what we do?”
Max: That’s right, all the time we would contact.
Andrew: Free? Not even a rental?
Max: Free. Not even a rental. No.
Andrew: I see.
Max: Yeah, because we would pick the people obviously who have a lot of reach and a lot of good numbers, blog numbers. Social media wasn’t huge back then, but even social media numbers. We could see who the influencers are in the industry. It was pretty obvious. So, we would go to them and be like, “Hey, here’s a free $3,000 lens.” We wouldn’t even make them promise to write anything like super nice about us, it was just like, “Try it out for a week, see what you think.”
I think back then–I kind of like equate this service to like when the car rental industry started. Now, everybody loves to pick on car rental. It’s not new anymore. It’s not like this novel thing. But back when it launched in the ’50s or in the ’60s, people were amazed by this. You fly into this airport and you can just pick up a car right there? Oh my god. How convenient.
And I think renting lenses was kind of like the same thing, especially back in 2007 when we started, like, “Oh, shit. I didn’t know I could do that.” I’d have to drive downtown to 45 minutes away and put down a huge deposit on my credit card and that’s the only way I can get lenses. I can go online and it will be delivered to my doorstep.
So, people were really happy. They were ecstatic about the service. So, nobody ever gave us a bad review because it was so novel and so convenient.
Andrew: How did you know what to charge to make up for the money that you were paying per lens?
Max: Some of it was competitor research, as much as I’d like to say we came up with all our own stuff and we just strived for whatever we wanted. We looked at the competition. We looked at brick and mortars. We looked at the online players. We knew that we couldn’t be too out of whack. I think you can charge a premium when you’re a premium brand. We definitely got there eventually.
So, when you’re first starting out, you’re not the premium brand. You’re like the upstart. And you’re the scrappy two dudes who are running it out of a townhouse. So, we couldn’t charge anything that was super out of whack. That was one. Two, we had to make our money back within about a year. That was our formula. So, you buy a $1,000 lens and we estimate how many rentals you would do for a year. And that lens needed to pay for itself in about a year’s time.
Andrew: What’s the rental percentage for the year?
Max: When you’ve reached a year or so, we assume that it will be rented.
Andrew: I see.
Max: So, 20 out of 52.
Andrew: Got it. So, 20 out of 52 you assume is rented. You plug that into a spreadsheet. You need to make sure that you make your money back within a year and your price has to be within line of others. I see, actually, that you were on the low end when it started.
Max: We were. Like I said, we couldn’t charge a premium. You can only do that when you’re the market leader or maybe the second.
Andrew: I don’t think there was anyone else who was cheaper than you back then. That was another benefit of working with you, right?
Max: Yeah. I think we were mostly in line. We weren’t like 60 percent cheaper. If we were cheaper, maybe we were 10 percent or 5 percent cheaper, but nothing too crazy.
Andrew: All right. Now I see how you got your first customers. You were starting to do well. You then invest in a little bit more. That got you to what? Like 100 customers in a few months, right?
Max: Yeah, exactly, 100 customers in the first few months.
Andrew: Now it’s time to invest in what you’re especially proud of, which is the telephoto lens. What does a telephoto lens cost when you buy it?
Max: Anywhere from $1,500 all the way up to, if it’s super telephoto, to $10,000.
Andrew: $10,000. Why does someone need to rent a $10,000 telephoto lens?
Max: Imagine you’re going on a safari, like a once in a lifetime trip to Africa. The lion is really far away and you don’t to get too close to the lion. But you want to make it look like you’re up close. So, you rent a super telephoto lens with 600mm and 800mm and those things have amazing reach.
Andrew: I see. For some reason, in my mind, all I thought about was spying on your neighbors.
Max: Well, maybe that’s just your personal hobby. Some people use that.
Andrew: I was at a friend’s house here in San Francisco in one of the few tall buildings in the whole city. I look out the window and they’ve got a telescope. They have no interest, these guys who live there, in space. So, I asked them about it. They say, “Oh, look, you can see the neighbors. Look at what they’re doing.”
Max: A little voyeurism never hurt anybody, I guess.
Andrew: Right. I wonder if after listening to this interview they’ll get a telephoto lens and they’ll get like a $9,000 lens to also take photos with. That stuff is kind of creepy. But here’s someone who actually used it for the purpose that is a little more commendable. Someone rented one of your $9,000 lenses in the early days. He wanted to take pictures of alligators, not neighbors. What happened to him?
Max: So, this is actually a funny story. So, this was our prized possession. This was the first telephoto lens that we bought. It was $8,000 or $9,000, which was, again, a huge chunk of money and a huge chunk of our inventory. We were super careful about who we rented it to and it went out on a couple of rentals. This was like the third or the fourth rental. The guy rents it. He seemed like a good guy. I talked to him on the phone. He took it down to Florida. We’re like, “Okay, everything is cool.”
And then I get a phone call on Sunday. Back in those days, all the phone calls were routed to my cell phone. The customer service phone number that was on our website was my cell phone. I worked 24/7 back then and I pick up my cell phone and I pick up the call and I hear this guy and he is just super panicked.
He’s like, “Oh my god. I’m the guy in Florida who rented your 600mm lens. It’s at the bottom of the river right now.” And I’m like, “What?” And he’s like, “Yeah. So, what I was doing, I had some alligators near my property. I set up the lens on a tripod. The tripod had malfunctioned and your lens fell into the swamp with the alligators.” And he’s like, “The first thing I did was throw up because I know how much that lens is worth and I’m about to owe you $8,000. The second thing I’m doing is calling you. So, what do I do?”
So, I freak out a little bit. I’m like, “Oh my God. What the hell do we do?” The funny thing is that we offer insurance for our products online. He bought insurance. I totally remembered that. I’m like, “Well, if you want to not pay for this, you need to retrieve the equipment. You can send it to me back in ten pieces with an alligator bite. But I need to have the equipment back to get paid.” He was like, “Okay, okay, I’m going to try to do that.”
And then as I was thinking about that, I was like, “This is a unique situation.” I put on my marketing cap and I’m like, “We could probably do something with this.” And I’m like, “Whatever you do, however you retrieve it, take pictures because I want the pictures. So, return the lens to me with the pictures.”
A couple of days later, we get the package. He emails me and he’s like, “Well, I hired divers.” I guess there are guys out there crazy enough to go and dive into an alligator-infested swamp. He got the guys. They dove, scuba dove to retrieve it from the bottom of the swamp. He took the most amazing pictures of this. So, he sent me the pictures and I was like, “Alright. This is free marketing.”
So, we would go on those forums that we started advertising on and we’re like, “Hey, check this out. Our lens fell and here are the pictures.” The threads just went viral. It had hundreds and hundreds of comment. We probably paid for that lens 3x or 5x from all the marketing that we got. It was a pretty interesting set of circumstances.
Andrew: Is his name Mario?
Max: I don’t know.
Andrew: Mario Aldecoa?
Max: Possible. Unfortunately I don’t remember his name.
Andrew: Maybe there are two different people who got their lenses eaten essentially or down with the alligators. I do see a bunch of stories about him.
Max: Yeah. I don’t know. Does it say BorrowLenses?
Andrew: Yeah, BorrowLenses is everywhere. All I need to do is do a search for BorrowLensees and alligator and I get a bunch of search results.
Max: That’s very funny.
Andrew: But if he bought insurance, why does he have to go there and recover it. If he bought insurance, couldn’t he just say, “Hey, it’s your responsibility?”
Max: We don’t cover loss or theft with our insurance. So, it only covers accidental damage.
Andrew: I see.
Max: So, if he didn’t return it, it would have been a loss. The loss isn’t covered. If he returns it damaged, or in this case totaled, then we cover it.
Andrew: You know what actually? I see it. I think there’s another person who had his stuff fall into alligators. It seems like there’s someone else with a much bigger lens. This is like a big thing with a handle on it.
Max: Ours was like one of the biggest lenses that Canon makes.
Andrew: Yeah. There are definitely two different people who have had this happen. Go figure.
Max: That’s really funny.
Andrew: So, that gets us a little bit far ahead, but you still need even more customers. I see how your math works and I can see how within a year, every dollar you spend to buy equipment is going to come back to you and then every year after that it’s going to be profitable. How do you get more customers in the door? One of the things that you did next was go to tradeshows. Is that where you got the next batch of customers?
Max: Yeah. Tradeshows definitely helped. We did some search engine marketing as well. I really like SEM because you can measure everything. You pay $1 per click and your average order is $90 or $150. So, you know exactly when that customer becomes profitable. So, I’m a big fan of investing in online channels only and trackable channels as well. So, I know where my dollar goes and I know how much that dollar returns to me.
Andrew: By 2007 though, that had been done a lot. How are you able to, as a guy who’s not a marketer, who’s a developer, figure out how to compete with all these other people who are buying media?
Max: Just research and hitting the books. I don’t know. I feel like the thing about running your own business, like 80 percent of it is common sense. You need to have the common sense, I guess. But a lot of it is visions that in retrospect like totally make sense and you’re like, “Hey, how much do I say? Each customer is worth $25. What’s my profit margin?” And you just do some simple math and you know exactly how much you can spend on these campaigns from Google or from Bing.
Andrew: I guess so. But it’s still pretty competitive. It’s still a tough space, especially when you’re talking about camera equipment. You’re competing with people who are trying to sell cameras, for whom just a quick sale will result in much more of a profit, the first time, anyway, than yours will.
Max: That’s true. I think what you need to do is put it under a finer lens. There are people are selling camera equipment, but there are also people who are looking to rent camera equipment. So, it’s pretty easy to differentiate those two markets and bid on the keywords that only make sense of for people who are looking to rent versus buy.
Andrew: I see you guys now–and you sold the company now, so it’s still you guys but it’s not just you–are buying keywords like “GoPro camera,” when someone types in “GoPro camera” into a search engine, the result will be “Online GoPro Rental: Test the latest gear out today. No deposit needed. Ship or pickup.”
Max: That’s right. Yeah. But we didn’t start out that way, to tell you the truth.
Andrew: So, you went for the easy wins, the ones where someone was specifically looking to rent.
Max: That’s exactly right. So, some of the best perorming keywords for us are like “lens rental” or “camera rental” or “lens rentals” or “camera lens rental,” things that, like you said, are very, very specific and show the user’s intent.
Andrew: Where did you learn how to do this? You’re saying that you read about it. Where did you read?
Max: Online. I type “advertising” into Google. No, seriously.
Andrew: I thought that you had hired some guy who was the ultimate answer for you.
Max: Not really. It was lots of hard work and lots of research. I didn’t have many entrepreneur friends either. It’s funny. In this day and age, there are accelerators and there’s like groups of entrepreneurs forming everywhere. Back in 2007, maybe it existed but we just didn’t have time for that. So, we kind of just like went at it alone, like, “We need to do this. Okay. What’s the fastest way to do this? What’s the cheapest way to do it?” Cost was one of the components as well because we didn’t have a bunch of money to throw around. So, it was just lots of research and trial and error.
Andrew: What did you think of Jeremy’s event that he did here at the office? You seem more introverted than I am. What did you think of it?
Max: I thought it was interesting. I like the special guest that he brought in.
Andrew: He brought in a mentalist.
Andrew: We put all the couches together and all the seats together. We had like 20 or 30 people who are watching this mentalist. He flew in just so everyone will enjoy themselves.
Max: Yeah, it was watching a magician at an entrepreneurial event. That’s very atypical. That was really interesting.
Andrew: Was it helpful for you to get to see some of the other entrepreneurs in the room?
Max: It was. It definitely is. It’s nice to compare notes. More information is always better than less information. I feel like getting info from people who have gone through something like I have, is a huge positive and I always learn a lot from events like that. So, thanks Jeremy if you’re listening for putting on that event and thanks for hosting us.
Andrew: Alright. Is there anything to the tradeshows? I know I asked you about tradeshows and you were talking about online ad buys being more effective. Was going to tradeshows at all helpful?
Max: It was. It was definitely helpful. That’s kind of like the ones that only [inaudible 00:49:34] for the online only advertising. It was nice because we could meet a lot of customers face-to-face. In online businesses, customers are just like names or emails sometimes. It was actually nice for Mary to come up to me and be like, “Hey, I had a wedding two weeks ago and my camera cracked on me and you totally saved my ass because I was able to make that wedding.” That was just very warming. We hear stories like that where we just saved the day for this photographer, one.
Two, I think it was nice to get more knowledge in the space. A lot of the photographers that we service know a lot more than us about equipment or know a lot more about certain aspects about the photography that they’re interested in. So, it was interesting to talk to them, learn how they think about photography and what they need from a service like ours.
Andrew: Max, a lot of entrepreneurs who are in a space that they don’t know enough about would feel shaky about having to talk to potential customers and users. What they would do is say, “I need to hire someone who is a photographer who is going to go and talk for me and I’ll stay inside and work on the business.” You seem to have felt comfortable going out and talking to photographers. You seemed to have felt comfortable hiring a lot of photographers. Was it an issue for you at all?
Max: It was not. It really was not. I feel like I just threw myself into the photography space 110 percent, both Mark and I did. And by month three or four, we were conversational in it. Before, I couldn’t tell you what an aperture is or what shutter speed is, I could actually kind of bullshit about photography now with you and make it seem like I know what I’m talking about.
And obviously, having access to the best of the best equipment, it’s hard not to pick it up and play with it. So now when I travel or I have special events, I definitely take out special equipment. I don’t want to call myself a photographer-photographer because that’s an insult to other photographers, but I know what I’m doing.
I was going to say you hit upon a very, very important point. I think one of the things we did right and very right is hire photographers. Like every single employee in our company is either photographer or videographer, from the person who answers the phone to the person who ships the package to the person who even packages it, takes the lenses and puts them in the box.
In that way I feel like we introduced a lot of QA, where there’s lots of order, all of them understand what the equipment is and they can kind of call it out, like, “Oh, you’re ordering this Canon lens with this Nikon body, that’s not going to work for you.” Or, you said in your order note that you’re shooting a safari but you ordered a wide-angle lens or something like that, that’s also probably not the lens that you want.
Not only QA, it was actually Mark and I learning from actual working photographers. It just introduced so many different unexpected layers of goodness in our company from hiring the people who are passionate about photography or videography.
Andrew: One of the things that I notice on your website when I look through Internet Archive to see what it used to look like is you had a section called consignment. “Due to high demand, we’re opening up our consignment program to all visitors and customers. If you have some camera bodies, lenses or accessories that you’re not using, you can start getting a monthly check for them now. This program can also be for you if you’re looking to purchase a high-end item and want us to help offset the cost. Please check out the details,” and then you link over to a section for consignment. How did that work out for you?
Max: That worked out wonderfully. By the way, I want to comment you on your sleuthing skills. They’re very polished, very nice.
Andrew: Thank you.
Max: That worked out really well. We didn’t have the money up front, like we talked about in this whole interview. Supply was a real problem for us, so we started thinking outside the box. We’re like, “Hey, how do we get more equipment without paying for it?” And consignment turned out to be a brilliant idea.
Especially here in the Valley, there are a bunch of rich people who have $10,000, $20,000, $50,000 worth of camera equipment just lying around. They’ve kind of gone through the hobby. They have a bunch of disposable income and then they kind of are not too much into it. They don’t’ want to sell it. They don’t know what to do with it.
So, we found a lot of people with deep, deep inventory of equipment that was not really being used. So, we would approach them and be like, “Hey do you have this lens or do you have this camera sitting, collecting dust? Why don’t you let us rent it out and make some money for it? Of course, you can always take I back whenever you go for a trip or you go on vacation, you can always have it back. But meanwhile, make some money.” We found a lot of people like that. We still have some consigners with us to this day that started with us in 2008, seven years ago.
Andrew: That’s such a smart idea. So, you don’t have to buy the equipment. You only pay when you rent it out, when you make money on it. That’s fantastic. So, that’s another thing you did to deal with the constant money crunch, right? We idealize bootstrappers, but it’s tough to find money. In fact, you mentioned earlier, it’s hard to go into a bank and say, “I need money to buy camera equipment.” They tell you, “How old is the business,” right? What else? What was it like when you got turned down when you went to a bank trying to get money?
Max: Well, one it was just like impossible to explain the idea to them. One of the differentiating things between us and the brick and mortar competition is that we don’t take deposits. So, we come into the bank and we’re like, “Hey, we’re nine months old. Here’s what we’re going to do. We’re going to take a $9,000 lens. We’re going to send it to Joe Smith in Kansas and we won’t take a deposit from them and we’re hoping they’re going to return it to us.” And some of the bankers like straight up laughed at us and were like, “You’re going to lose all the lenses. You’re sending to anonymous parties and we’re never giving you money ever. So, get the hell out of here.”
Andrew: You know what? That makes sense. Why didn’t you protect yourselves from that? Isn’t it dangerous that I could frankly go over to the latest Genovese Drug Store or Walgreens, buy one of these Visa cards or American Express cards, add some cash to it, then go online and rent something and then if I don’t respond to you, you can try to charge my card, but the card only has so much money on it.
Max: Yeah. You’re totally right. That happened. And that still happens. It’s part of doing business, just like Best Buy has people who will go in and steal a TV or steal a DVD. There are losses in our business. But we’ve gotten really, really good at our fraud prevention algorithms and fraud protection techniques.
Andrew: What’s one thing that you learned early on to avoid this? What was the easy win for that?
Max: There are just so many. We build an algorithm with probably 100+ different factors that analyze the order and say yay or nay.
Andrew: What’s a factor that you can look at when I’m logging in?
Max: One, I can see your IP. With your IP, I can tell your location. I can see what your billing address is. I can see what your shipping address is. So if like if you are in a Minnesota. Your billing address is LA but your shipping is to Georgia, that’s a huge red flag for me. That’s one.
Two, like I mentioned, debit cards are a huge red flag as well, especially reloadable ones. Credit cards, as you probably know, have BIN numbers. So, the first six numbers of the credit card tell us what kind of card it is. So, if I factor that into the equation and say, “This is a reloadable debit card,” that’s a huge red flag.
There are just a bunch of little tricks of the trade that we learned. The funny thing, Andrew, is there are a bunch of tricks. You can use a computer and we do use a computer, but at the end of the day, picking up the phone and talking to somebody for five minutes can really tell you a lot about the person.
Andrew: So, if there’s any doubt and they’re buying a lot of money’s worth, you’ll just pick up the phone and check in with them?
Max: That’s right. We’ll just talk to them. Being a photographer, our customer service folks being photographers, they can suss out bullshit pretty quick. If you don’t know what you’re doing and you’re ordering a $9,000 camera, something is off. If you’re ordering that type of camera, you know the components. You know why you’re ordering it. I’ll customer service folks will ask pretty thought provoking questions and they can suss it out pretty quick.
Andrew: You guys had to hire a private investigator at one point. Why?
Max: Many private investigators. But yeah, one of the ones that comes to mind was some lady stole a bunch of equipment from us. We found out she lived in a small town. What we did to get our equipment back–we found her Flickr account and we saw that she was using our equipment to shoot weddings. She stole our equipment, used her real name and didn’t want to buy the equipment to be a wedding photographer, so she stole it.
So, we hired a private investigator. We asked him to post as a prospective client, like he has a wedding coming up. We told him to tell her to show up with the equipment as well so he could check it out and make sure that she’s legit. She was stupid enough to come to the meeting and bring her equipment. He snatched the lens. He looked at the serial number that we provided to him and said, “Oh, this is from BorrowLenses.com, right?” And she had this shocked look on her face and he just confiscated it right there and mailed it back to us. It was amazing.
Andrew: That should have been on video tape. You should have had her come into this office. You guys, if you ever need to do this again, will you please do it right here at Mixergy HQ. I have a big office right here. He can sit in my office. He can pretend that he’s very busy. He has to have the person come in. Would you do that?
Andrew: And I videotape it?
Max: You can videotape it.
Andrew: How great would that be?
Max: Marketing material.
Andrew: Absolutely, that would be fantastic marketing for both of us. For you mostly and for me fun. You know what? There’s a sense that people think that because you’re a company, you’ve got endless resources, endless lenses. Frankly, not that I’m saying it, endless glasses for cocktails. Imagine there’s this place where we had a drink now calls us back and says, “We have a special,” and I go back in there. I better return the glass.
Max: Yeah. Maybe you should. If this is going to air, probably you should.
Andrew: The trophy has to go back. Alright. I mentioned you also raised money. You borrowed money from the bank.
Max: We did.
Andrew: So, you finally did get a bank to say yes. What did you say to get a bank to say yes to giving you money and how much did they give you?
Max: They gave us in the beginning–it was like progressive–but at the very end, it was like $5 million was the most that we got from the bank.
Andrew: $5 million?
Max: $5 million.
Andrew: As long as I’m revealing my secrets, let me reveal one other little secret that nobody seems to know around here except for the people who are getting it. Venture capitalists get sweetheart deals from banks because the banks want the business of the companies that they invest in. So, you are working hard. You’ve got this business. It makes a lot of sense. You have to go door-to-door, beg for money.
If you were a VC, an employee at a VC company, you can call yourself a partner because apparently they hand those titles out to everybody, right? Like you’re a junior partner, you’re an intern partner, the works. And then you go to the bank and they say, “Here, here’s all this money.” It’s like when Eddie Murphy played a white guy on “Saturday Night Live” and suddenly people were handing him cash, what they didn’t reveal there is he played a white guy who was a venture capitalist and then he got all the funding.
Max: Yeah. That’s very true.
Andrew: That probably should be some kind of revealing blog post that somebody does, but unfortunately that’s not a Mixergy thing. I’m only here to educate. I’m not here to pull the curtain back too much. Alright. Sorry. So, you finally got them to do it. How did you get them to say yes?
Max: We had to show years and years of profitability–banks really only understand that–and the fact that we’re buying equipment with it. I think those two things are the ones that made banks the most comfortable. And the money was given to us only to buy equipment. It wasn’t to build software. It wasn’t to hire employees.
It was like, “Here’s some money against assets. If you don’t pay, we’re going to come in and take your assets.” By the way, there’s this thing called personal guarantee, which I had no idea about, which means, “Hey, that house that you bought, if you don’t pay us…” although the business took out the loan, they can come after your house that you own personally.
Andrew: Worse than that, if you have a house but Mark doesn’t, they come after your house and Mark just gets to stay in his rental, right?
Max: That’s right. That’s exactly right.
Andrew: And I should say this to entrepreneurs, if you’re early on and you’re not going and getting a bank loan–in fact, even if you’re early on and you are getting a bank loan–you can refuse it and see what they say. Often, they just include that personal guarantee because they can. You want to rent some printer equipment or a copier or something and they just slap the person guarantee for no reason just to see if they can get away with it. Wow. So, you weren’t nervous at all that you had $5 million on your head?
Max: I was. I was nervous. But it was a high risk, high reward situation.
Andrew: That’s what it was?
Max: It was high risk, high reward. Yeah.
Andrew: And you also did the math and you knew the risk was manageable.
Max: The risk was manageable. We knew what we were doing. We were pretty comfortable at that point. It was probably about four years into the company existence. We were the market leader. We just believed in the vision and we believed in the company. We said, “Yeah, let’s do it.”
Andrew: You had big clients–HBO, Discovery Channel, Facebook, Twitter, Google. HBO can’t buy their own lenses? I thought they’d be in the lens business.
Max: Yeah. It’s funny. One, they hire a lot of independent contractors who might not have the equipment. Two, HBO is in the content creation game. They’re not in the equipment maintenance game. So, they can take that piece and outsource it and they have a big fight coming up like they had last Saturday, they can just ship the equipment to Vegas, the photographers pick it up and ship it right back without them worrying about if they’re going to break in transit, is it the right firmware, is ti clean, blah, blah, blah. All those things that go into renting camera equipment, if they can outsource it, they gladly do it.
Andrew: How exciting must that have been to see that these big companies were renting from you.
Max: Yeah. It was awesome. It was totally awesome. You’re right. You would think that a Showtime would have all their own equipment. But they don’t. We knew that if we please them, then their average order value would be a lot higher than Bob Smith in Kansas who’s shooting his first wedding. So, it was a very important relationship for us to build on.
The funny thing is not only do those corporate clients like Facebook or Google, they spend a good amount of money with us, but also, among their employees there are a bunch of passionate photographers, especially here in the Valley. There are a bunch of nerds, nerds like techie toys. We are the perfect business for that. We kind of spread within these companies very organically. There’s a photography group, a videography group, somebody will post about it and be like “Hey, you can go to San Carlos and pick this up.” So, we have a bunch of–if you name it tech company here in the Valley, a bunch of their employees are our customers.
Andrew: Yeah. That’s so interesting how techies are really into these high end cameras. They have iPhones and Android phones with great lenses and you’d think that was enough, but they are passionate about photography. If I read a blog like Daring Fireball, where the blogger behind it actually loves to photography, if he happens to start a post and mention photography, he’s got to go off on the different lenses that he likes ad the different lenses that he wants. At that point, I’m completely lost. I came in there just for the tech talk, but you’re right. They’re passionate about it.
Now, look, I’m not going to ask you what your revenue is because I know that you’re under NDA and you’re not going to reveal it to me even though I’ve got good interviewing skills, I’m not going to kid myself and pretend I’m that good. You’re not going to break an NDA. Do you really have an NDA or is that just something you say?
Max: No, when we sold, you can’t imagine how much paperwork you sign when you sell your company. I think our final definitive agreement was something like 400+ pages.
Andrew: It was how many pages?
Max: Like 400+.
Andrew: 400+ pages of stuff that was signed. So, for all we know, there can be something in there that says, “Don’t do any interview with Mixergy at all about this,” and you’re screwed.
Max: It’s possible. It is possible.
Andrew: Not likely. Come on. Who doesn’t in the Valley like Mixergy? Except for the one guy at Beretta whose glasses I stole on the date with my wife. That guy might be pissed.
Max: I don’t know that story.
Andrew: You know that place, right? Beretta is good.
Max: I don’t know that story.
Andrew: Oh, no, the one I told you about the glasses that I started off on the date night.
Max: Oh, yeah.
Andrew: Beretta is a very good place. Where was I? I know where I was. You can’t say the exact revenue, but I just want to get a sense of how big this can be. Are we talking about like a $10 million business, a single millions of dollar business? What are we talking about for revenue.
Max: North of that.
Andrew: North of $10 million?
Max: That’s right.
Andrew: Why did you sell the business? It was profitable. It was yours. It made sense. You had a passionate following. Why sell it?
Max: A few different reasons. One, we just kept getting a bunch of inbound offers. We never really thought abut selling. That was not something that we were even really considering, to tell you the truth. I think as word spread and as we got bigger and bigger and bigger, people started hearing about us. There are a lot of people out there whose job it is to search for promising, growing profitable companies. And people would call us up out of the blue and be like, “Hey…”
It’s funny. A lot of these people who would call us up, the number one excuse they came up with for calling us up was like, “Hey, my wife rented from you.” We heard that a bunch of different times. I don’t know if that’s the truth or that’s just a line they use, being like, “Hey, my wife rented from you. That’s how I know about you company.” But it was just really comical to hear that over and over again.
Andrew: I guess it would kind of make sense because if they ended up buying your competitors but they admitted that they had rented from you, it would be a little embarrassing, I guess, who knows?
Andrew: So, they would just call you up out of nowhere?
Max: Out of nowhere and be like, “Hey, my wife rented from you guys. I didn’t even know that this existed.” They would research out, probably go on LinkedIn and see how many employees we have. By the time we sold, we had close to 100 employees. So, it was obvious it was becoming a sizable business. They’d be like, “Hey, do you want to sell?”
We’d be like, “No, no, go away.” We’d be polite. Obviously you don’t to burn any bridges, especially here in the Valley where it’s such a tight knit community. So, we would be like, “No, no. We’re happy.” And they just kept knocking down our door. I think two or three years into that, we were like, “Hmm… Okay. Well, let’s think about it.”
One, this is by far way, way more successful than we ever thought it would be. Two, we have never ran a company. We were just like two software engineering dudes. We’re like managing a bunch of people in charge of a bunch of people’s livelihood. And maybe we could use some help of taking this two the next level. Three, like I said, we both came from very modest means. So, a lot of our personal net worth was tied up in this one asset. Any financial advisor you talk to, that’s a big no-no. You don’t want to put all your eggs in one basket.
So, we were like, “Okay, fine. I guess let’s explore this. Let’s think through this. We don’t want to commit to anything.” But one of the tips I have here is if you’re unsure or your thinking maybe. One, think about it and two, don’t take the first offer that comes in through the door. It’s kind of like a marriage proposal. It’s a big freaking deal to either get partially bought out or bought out completely. It is like you’re entering a marriage.
So, what we did is we actually hired an investment bank and went and did the full process, which is a little atypical of a software tech startup here in the valley, but it is typical for a bunch of other industries where you go hire an investment bank and find all interested parties out there and they run a very comprehensive, detailed and organized process for you.
So, we did that and a bunch of offers came in and you kind of go through he different rounds of people adding onto their offers or learning more about the company. In the beginning, we thought it was going to be a private equity thing. So, a typical private equity deal was where they buy 51-80 percent of your company. You stay on. You kind of run it but you get a bunch of capital to invest and people and inventory in our case, that was always the problem from day one.
Then we met with Shutterfly folks and we kind of hit it off. We kind of liked the feel and the executive team. That seemed like the perfect and logical home for us. At the end of the day, that’s who we went with.
Andrew: I’m clicking around as you’re talking to see what you guys sold for. I think Shutterfly is a beautiful business. I love Tiny Prints. The holiday cards that we sent out my wife bought for us. Tiny Prints, they do beautiful work. They’re a good company. I made the mistake of not going through their financial statements before the interview to see what they sold for. Because people may not announce or what you sold for, but even though people may not announce it, often it’s in the financial statements, right? They had to disclose it.
Max: They didn’t do that.
Andrew: You’re a major acquisition for them. They did not?
Max: They did not. It wasn’t in their 10-K. Shutterfly is very, very secretive about that type of stuff. The Tiny Prints stuff is public. You can find the Tiny Prints acquisition but you can’t for us. Again, back to the 400 pages of NDAs that I signed.
Andrew: I bet. Did you become a millionaire before or after the sale?
Andrew: Do you remember the day when you hit that number? I know you remember the day when you made more money at your own business at BorrowLenses than when you had a full time job. But do you remember the day when you became a millionaire?
Max: Yeah. It was around my 30th birthday.
Andrew: Wow, how did you celebrate?
Max: How did we celebrate? I don’t know. I had a spreadsheet and then I kind of crossed over the seven figures and I kind of shrugged and I was like, “Okay, cool.” It wasn’t like this, “Oh my god. This is an amazing moment.” It was kind of just like numbers changing.
Andrew: You didn’t have a shot of vodka?
Max: I didn’t have a shot of vodka. No. It was like anticlimactic, to tell you the truth.
Andrew: Actually, what was on the spreadsheet? How did you calculate it? It was based on how much money was in each of your bank accounts, is that it?
Max: Or my investments, yeah. Obviously, not everything was in bank accounts. It was among different assets, but yeah, all pooled total.
Andrew: Here’s what you do remember and what you did celebrate–the sale. After the sale, you took a few people. Who did you take with you and where did you go?
Max: Yeah. So, when the deal signed, my wife organized this. We sent out emails to all our family and a bunch of very close friends being like, “Hey, you probably know this by now. The company sold. We’re taking you on a one-week all paid vacation to Mexico. We’re renting like a huge villa, private chef, the works. All activities are covered. Just come and celebrate with us.” We wanted to say thank you. This was a seven and a half year journey. A bunch of our family supported us. A bunch of our friends supported us. We just wanted to give back, kick back and just celebrate with the people that are closest to us.
Andrew: Man, what an achievement, Max. You’re acting very humble and relaxed about it. Remember when you were here, there was like this little garbage can. If I’m waddling up a tissue or a napkin after I wipe my mouth and I throw it and I get it in the garbage can, I’m celebrating more than you, like, “Everyone, did you see that? There was swoosh here.”
Max: Yeah. I guess I’ve had a long time for it to sink in as well.
Max: It’s been a long road to this. Like I keep mentioning, it was a lot of common sense vision. I’m not brilliant. I’m not like some crazy person who can like see the future or some visionary. It’s just like we had an idea. We did a bunch of stuff that made sense and here we are. There was no magic to it. It was hard work.
Andrew: Here’s what I got. I don’t see magic, but here’s what I remember from this conversation. Number one, you looked for pain that other people had, right? Anyone else would hear their friend’s mother complain about something and they say, “You know what? Mothers are always complaining.” You heard her complain. Even though she was kind of laughing off the fact that someone should solve it including you, you said, “Hey, you know what? Maybe this is it. This makes sense.” So, looking for people’s problems is a really good indicator of where a good business is.
Number two, you didn’t just limit it to her complaint, you went online into those forums to see how other people were reacting to the businesses that already existed. And you saw that there were complaints there too. It was the good kind of complaints, not like, “Hey, who would ever want to rent? It makes no sense.” It was complaints like, “Hey, I want more than the companies that exist have to give me.” So, that was a good indicator.
Number three, you made sure that the risk was there. Obviously you spent your whole life savings on it. But the protection of that risk was also in place. Worst case, you can go on eBay. You can go online. You can find lots of different places to sell lenses. The market value holds up nicely for it. And so that made a lot of sense. Then you said, “I’m going to start small. I’m not going to go out and buy every single lens out on the market. I’m going to buy the key ones that I think are important and limit myself to that and we’ll see what happens.”
And you came up with a way to do consignment so that you didn’t have to even spend more than you had. You calculated what revenue you needed to make in order to pay for each lens. What else did you do? You took credit card debt, which made sense. But again, it made sense because you knew your financials.
Here’s something else you said. You spammed at first. A lot of interviewees have talked about spamming. Most people don’t’ like to talk about it outside of Mixergy interviews here. I want to be as open as possible. Matt Mullenweg famously, when I asked him, “How did you promote WordPress in the beginning?” He said spam. You can go to the transcript and see that he said it.
But you’ve said something that I’ve seen over and over that I don’t pay enough attention to. You also went to message boards. Now, everyone who I interview who says, “I went to message boards,” seems to say some variation of, “Back ten message boards were big.” Well, you know what? If we say this year in and year out, “Back then, message boards were big,” then maybe message boards are just big throughout the internet’s history. They’re just big. Maybe they go from being the bulletin board on someone’s website to being Facebook groups to being Slack groups or whatever. You took advantage of those.
I think I got the key elements here. What do you think? Did I get the key or am I oversimplifying it?
Max: I think you did well summarizing it. Another thing I would add is we hired a great team. Our team was everything. We hire some very key people, some very dependable people who stuck with us. For example, Lisa, one of our employees who is like our third in command right now, she started working with us from my kitchen table. She has been with the company since the very beginning, very dependable.
Andrew: How did you know that she would be that dependable person who was part of the long-running crew?
Max: In the beginning, we didn’t. We just took a shot. Again, Craigslist ad–she answered. We had a good feeling. Could I say she would still be with the company right now? Probably. Probably not. But I really like people who understand the cause and are committed and who I can trust a lot. If somebody trusts me, I will trust them right back. So, the team really, really made a big difference to us, hiring the right folks.
Taking the risks–some people are very risk averse. But when you’re an entrepreneur, you can’t really be that way. You really can’t. Sometimes it happens that way when you don’t take a risk. But most of the time, it takes some pretty substantial risks for you to succeed.
And then I think having–although we didn’t really do it–having some kind of end goal in mind and working towards that. Although we didn’t know that we were going to sell, eventually that was the plan. We kept really clean books and we had our financials audited. I think when we were going through the selling process, that was a big plus in our acquirer’s eyes, like, “Oh, wow, you guys have a bunch of audited financials. It’s not like two dudes who are like giving me bullshit numbers.” So, it was just preparing the business to be very organized and transparent and a couple of other things that we did right.
Andrew: Yeah. I can see that being really important. One of the big problems I’ve seen with companies that want to sell is that the financials make sense to the founders, but not to anyone outside. There’s a little bit of cleanup time involved, either before or sometimes after the sale. I can see how that would be helpful here.
Max: That’s right.
Andrew: Alright. And finally, take your wife about for date night or date day anywhere.
Max: I definitely will.
Andrew: No. You do already. I’m just saying, that’s the last takeaway I got from this interview. I want to thank Alex Dantas for introducing us and making sure that we had you on here and of course Jeremy for making sure that you and I got to meet in person before this interview. For everyone that’s out there, if you got anything of value out of this interview, even if it’s maybe you should, maybe you shouldn’t steal glasses from your favorite cocktail place–I’ve got to return those, especially now that I’ve brought it up.
Max: Yeah. You’ve brought it up numerous times too.
Andrew: You know what? People should get to know that sometimes I’m a jerk and that my wife likes the jerky side to me, the evil part, I guess. She’s a hippie. But it’s strange that she likes that.
If you like it, please go to iTunes and rate this podcast. I need some people to rate it. Frankly, that’s my need. Let me tell you what’s in it for you. Nothing. I’ve got nothing in it for them. Right, Max? Yeah. If you like this, between you and me, I can’t think of a single benefit that I can give you. I’m not going to send you anything. I’m probably not going to know unless you tell me specifically that you did it, that you’re the one who did it. So, I wouldn’t even be able to thank you.
But you will know that you’ve helped me out. You will know that you helped put this interview that will talk about spam, that will talk about petty theft on date night. You will know that you will help other people discover it. Selfishly, if you want something to do for yourself, what you can do is subscribe to the Mixergy podcast on whatever podcast program you like. If you do, you’ll automatically get every interview that I post here directly delivered to your phone or computer if you choose to use that and then you’ll get all the good stuff.
Max, thank you so much for being a part of this interview.
Max: Yeah. Thank you so much, Andrew. I really enjoyed it.
Andrew: Max, will you subscribe to this podcast? No. You’re not a podcast person. Are you?
Max: No. I am. I already subscribed, actually.
Andrew: Oh, alright. Good. Thank you for being a subscriber. I always assume the worst, like, “You’re not going to subscribe. Are you?”
Max: When I workout in the gym, that’s all I listen to, podcasts. Mixergy is in the mix as well.
Andrew: Alright. Thank you very much. The website is BorrowLenses.com. Max is a subscriber. I urge you to subscribe. Thank you all, honestly, actually, whether you subscribe or write in or whatever, even if you don’t like anything that I’ve said here. Thank you for tuning in and listening all this way. Thank you. Bye everyone.