Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com. It is home of the ambitious upstart. This is the place where real entrepreneurs come to hear how other real entrepreneurs built their businesses.
Back in 2011 I was doing this and I interviewed an entrepreneur who bootstrapped his company. At the time, I see it here on my screen, his revenue was $45 million–a lot of hustle, a lot of phone calls, a lot of posts online and he got it to $45 million in sales. And today he’s back. He grew the company bigger. I want to find out how he did it. And he sold it to an interesting kind of fun that I think it’s important for us to talk about. I want to find out why he sold it and how life is now.
Then I want to discuss what he’s up to next. His new company is called Mobile1st and it helps companies increase mobile revenue by ensuring that their users’ mobile experience is flawless and optimized for performance. And then entrepreneur’s name is Dan Engel. The company that I interviewed him about that we’ll spend a lot of time in this interview talking about is called FastSpring. It helps businesses sell software, games, eBooks and other digital products online.
And this interview is sponsored by two great companies. The first is a company that will help you book more times with your customers. If you want your customers, if you want your partners, if you want anyone to easily schedule a time with you, Acuity Scheduling is going to help you do it. The second sponsor is called HostGator. If you want a company to host your website, go to HostGator. I’ll tell you more about both of them later.
But first, I’ve got to welcome Dan. Dan, good to have you back, man.
Dan: Hey, it’s good to be back.
Andrew: How did that first interview go for you back in 2011?
Dan: It was great. I enjoyed it, but also it seemed to take off in the audience in that we were able to get a large amount of traffic as a result. We really appreciated that. It’s nice to see that your audience really cared about the topic that you and I decided to discuss.
Andrew: I think you told me at the time that you just built this business with the idea to sell it. How true was that?
Dan: Yeah. I think maybe a lot of people don’t admit it, but a lot of times that is the end goal, right? So, historically it’s, “Oh, I want to sell or I want to IPO.” Well, IPO is a little silly for someone to attach to. Yeah, the idea was the build a business and have it be successful and ultimately just sell it. We were doing it for money. We were doing it for simulation because we needed to be working on something.
We were doing it for the pleasure of working for ourselves and to be doing what we enjoy doing. I don’t think we were out there to change the world like some people talk about. I don’t think that’s the case, honestly, for most folks. We were there to try to have a good time making a whole lot of money. Fortunately it worked out, not that we had a good time the whole time. It got a little bit better the second half.
Andrew: What did you sell the business for?
Dan: Well, I can’t exactly say. Let’s just say it’s tens of millions of dollars. We did the whole thing with $30,000 total.
Andrew: By the way, because you’ve got the iPhone headphone, watch the mic so that it doesn’t hit the collar. Whenever it does, it makes a little rustling sound. There, it’s doing it right now.
Dan: How’s that?
Andrew: Kind of an awkward thing, huh?
Dan: How’s that? Better?
Andrew: Yeah. Tens of millions of dollars, that means that you personally–there were four cofounders, right? Each had equal stake in the business?
Dan: No. I was the CEO and I had the largest stake.
Andrew: So, you did over $10 million personally. Fair to say?
Dan: I’m not supposed to get into the specifics, but it was tens of millions of dollars and I had the largest stake is what I’m able to say.
Andrew: So how did your life change after that? What’s one thing that became better because of that?
Dan: You know, life doesn’t change that much when you go from being regular money-wise to having millions of dollars. Maybe if you had half a billion dollars or hundreds of millions, it’s different. At least in my experience, certain things you don’t have to worry about as much when you go out and eat a nice sushi meal or get to stay at a nicer hotel. I’d say the stuff that changes the most is kind of your thoughts in your mind in that you’re not beholden to the system quite as much.
You’ve got your own money, so you don’t have to answer to somebody. You don’t have to do things their way. You’re just more in control of your life and your time. You also have the success behind you, which can be really enjoyable if it is relatively successful because a lot of people want to learn from that, like we’re doing here. If you’re the kind of person that enjoys helping other people, then it can be a pleasurable use of time.
So, financially, I have a Maserati, that was one of my nice things that I got myself. I bought a really nice house in New York. But at the end of the day, those things don’t really change things much, especially if the other things in life aren’t in good shape. I happen to be fortunate I’m turning 40. I’m no longer one of these young entrepreneurial prodigies. I’m just like everyone else. That was fun, though, for a while. I look at my life and I’m fairly pleased. I have a family with a wife and two kids and a career that I’m very happy about.
Andrew: When you say not beholden to anyone, what do you mean? Can you give me an example of something you can do now because you don’t have to answer to anyone else? You don’t have to live life on their terms?
Dan: Sure. Now I can pretty much do whatever I feel like every minute of every day.
Andrew: But you’re working pretty much every minute of every day, so how are you using this?
Dan: I actually tried to kind of semi-retire or retire after the acquisition, after I stayed a year at the company and it didn’t go well for me. I think some people maybe enjoy sitting around and reading books and watching TV all day. I know people who I think actually would. Of course, the same kind of person who tends to be attracted to entrepreneurship is not the kind of person who likes to sit around.
It was fun for a while, about four months. Something went on in my mind and it wasn’t happy not being stimulated. I realized that I need to be working. You’re absolutely right. But working is still different when you know that you don’t have to be working.
Andrew: How? Give me an example?
Dan: Well, if I don’t like what I’m doing, I don’t have to do it. That’s similar in some cases with other people, but only to an extent. So, when I used to have a job, which was, I don’t know, 12-14 years ago–
Andrew: You worked at Google.
Dan: Well, Google and before that Expertcity, which became Citrix Online. It was different because I had to be there at certain times a day pretty much every day except for vacation. I couldn’t control my time. If things couldn’t work out, sure I could leave but you can’t just keep doing that or you ruin your career, whereas now, I kind of feel a lot of sense of freedom which is very valuable. I can do what I want when I want. It doesn’t just mean I can spend time with my family, it means work-wise. I’ve also had the good fortune of having a lot of successes the last 10+ years, so I can afford a certain amount of failures as well, which is kind of nice.
Andrew: It gives you more opportunity to experiment, to take risks.
Dan: Exactly. I also feel a very strong sense of satisfaction personally. I feel like I’ve been successful. I think I was hard on myself many, many years feeling like if I’m good enough, if I’m smart enough, if I’m x-enough, whatever it is, then I’m going to have a damn good thing to show for it. I feel like I’ve accomplished that now, but for many years, I’ve felt that was a work in progress.
I had built significant successes but they were often for other people and those people reaped a lot of the financial reward–GoToMyPC and GoToMeeting being an example of that. Here, I did it all on my own from scratch with partners. That feels really good and validating. I feel like mentally I’m in good shape in terms of what I’ve accomplished and what I’ve wanted to accomplish and I’m very fortunate for that.
Andrew: I’m also looking at GrapeApe.com on my screen. Man, this takes me back to what the ’90s websites used to look like. GrapeApe.com, trademark symbol on top of that, offers the number one magazine shopping experience. Our strategy is simple–price, selection, superior customer service, extreme convenience. How did that do for you back in the late ’90s?
Dan: Are you looking at the Wayback Machine?
Andrew: I can’t tell if it’s from there or it’s from Archive.is or one of the other sites.
Dan: Whatever. That’s cool. I haven’t seen that for a while. It did not do great for me financially or mentally, but it did wonderfully for me in terms of my education. Not surprisingly, each new business I do seems to come from the prior businesses I’ve done, sometimes very, very directly.
And in the case of GrapeApe, I invested over two years, which at the age of 21 felt like what 10 years feels like today, I’m not even kidding. I was naïve, innocent, didn’t really know what could go wrong and just sort of tried everything and I thought I could accomplish everything and learned a lot of hard lessons.
But in the meantime, I was all over the place in terms of entrepreneurship, things I accomplished, deals I worked on, companies I worked with, just unbelievable experiences that I never could have experienced at a job or another non-entrepreneurial situation.
The amazing thing about it is that particular time is really the only window in the history of man that I’m aware of where a 21-year-old was encouraged to be a CEO. It was a short window, but I took advantage of it and I’m pleased about that and I think I’ve been reaping the benefits ever since. Even today, they want young CEOs, not necessarily while they’re in college. There are exceptions, no doubt.
Andrew: The company that bought up FastSpring is something called a search fund. I’ve never heard of it before. When you and I started emailing back and forth about this interview, you were good enough to actually include a link to the Wikipedia article on what a search fund is, which tells me that other people might have needed it because you’ve kind of included it along with maybe the sig file or something on your email. What is the search fund?
Dan: It’s a good question. You’re forgiven for not knowing. I didn’t know either and most people don’t know, including even venture capitalists. A search fund is something that started in the ’80s, I believe, at Stanford. There’s some really interesting research about ones that have been created and the wonderful rate of return that they’ve given to investors.
For a model, that doesn’t seem all that logical. Basically what it is, is generally one or two but often two entrepreneurial types who are often getting or completing their MBA program, but there are exceptions. There have been a couple that have been doing undergrad, maybe even one that didn’t go to college that raise a few hundred thousand dollars from a group of investors who tend to like to invest in this asset class. It’s kind of its own world or universe of people out there that like to. They take about two years of time.
The goal is to use that money to search for one company to acquire and take over as CEO or co-CEO and then build that company and hopefully flip it anywhere from three to ten-plus years. The most famous example is Asurion, which you may recall from the insurance for cell phones. It’s now a billion-dollar company. That’s the biggest success story.
And I believe this model with that success has returned to investors according to that Stanford study over 30% annualized for over a 15-year period. If you take out Asurion, it’s still well into the 20s. The reason it defies logic is because you’re taking these MBA students who have never built a business before and don’t know the industry and you’re putting them in charge and you’re having them essentially take over for industry veterans, like in our case, and hoping for the best.
Nevertheless, the model has had good success and it’s an interesting one. It wasn’t necessarily our first choice, but we have gone through a number of rounds. It took us a year and a half to sell the company. We have had two deals that went really far fall through. So, we ended up choosing this third one. Fortunately that one completed.
Andrew: So, they get money. They’re basically 20-somethings, right?
Dan: They might be 30-somethings.
Andrew: I see. They’re given this money and they have to go out and hunt for a business that they could run if they bought it and they have to do a better job of owning and running it than you did as the person that founded the company.
Dan: That’s the idea.
Andrew: How do they do better? What do they uncover that you don’t know?
Dan: Not much in our case. But I think in a lot of cases potentially there is a lot that they’re able to uncover. I think often they’re looking for a situation where the owner or owners is sick of the business, getting on, ready to move on to something else, isn’t running it too efficiently, doesn’t know about marketing initiatives that he or she could know about and could be doing.
So, they come in with a pitch to that group of investors once they find it. That $200k to $400k they raised, they then have to go back to the folks plus a much larger universe and say, “All right, we want to buy this company we found for $50 million.” And they have to make a case for why they’re going to significantly improve the situation there.
But part of it is it’s new blood, I guess. It’s the fact that they’re very moldable, these MBAs and they’re partly controlled by a board made up of search fund investors and experts and advisors and other investors that they turn to, to sort of drive things and give them direction and help them. The problem is it’s very hard for those folks to be helpful when they don’t really know the industry. But historically, search funds didn’t do a lot in technology. Ours was kind of an exception.
Andrew: Okay. So, let’s understand how you came with the idea for this business, how you grew it and what happened after our conversation that allowed you to essentially double the business. I think we should start with a use case. What’s one example of how someone would use FastSpring?
Dan: So, the most simple example would be, say, an antivirus software company. They have their own website. But when someone comes to their site and clicks on a purchase link, instead of it going to their order page, they outsource it to a company like FastSpring. The reason they do this, there are so many reasons.
One is it’s a huge endeavor to build your own ecommerce infrastructure for handling all different types of payments from all different types of people around the world in different countries, dealing with the taxation issues globally, dealing with different currencies, dealing with all the different ways people want to pay in different countries, whether it’s China or the UK or bank wires or checks or mail order or online payments, different credit cards.
There are so many intricacies to it. What happens is a few companies do try to do it themselves. They tend to learn the hard way that they end up in the ecommerce infrastructure business. They want to be and should be in the business of selling their software and building their software, not being in the payment space like us, like a Stripe, like a Digital River.
So, they often, after the fact, go back and find out they want to work with someone else. Or they want to do a whole initiative like the way things have moved toward SaaS in software as opposed to one-time purchases. Then they have to build out an entire SaaS infrastructure. Good luck with that. So, we build out those kinds of things for software companies before they need them and then they just outsource it and as the industry shifts, we have that functionality and they can tap right into it all on a SaaS model.
Andrew: When you started, there was one big competitor. Were they Digital River?
Dan: Well, there were a lot of competitors but the biggest was Digital River, at one time a billion-dollar company, which used to mean a lot more ten years ago and probably will again. So, they were the 800-pound gorilla in our space. We had been in their industry for a long time. We had between me and the three other cofounders and myself, sold them, I believe, three companies and worked at their company. We were very much aware of the weaknesses they had and the degree of dissatisfaction their clients had.
So, we felt like those were areas where we could actually fill in the holes. We could have advantages. We felt like they potentially couldn’t keep up. Those areas were price, customer service and next generation technology. And over time, it took a long time, the market validated that thesis.
Andrew: I kind of feel like that’s all you need. If someone is looking out at the market today and seeing an old company that’s doing well, can they jump in and if they have one change they want to make, like maybe emphasize design or emphasize mobile or something like that?
Dan: I think it’s case by case. I think you’ve really got to understand the industry. I think you’ve really got to talk to a lot of the customers. I think you need to come up with a competitive advantage that’s sustainable, meaning that big company is not going to be able to easily replicate it.
Why are you going to be able to have that advantage and keep that advantage? Is that advantage big enough that it’s going to really sustain you and get a piece of their business or is it more of a nice to have and you think it’s the world but other people stick with what they have? It’s very hard to get companies to switch away. It depends what kind of service it is.
In this case, it was a pretty sticky service, your payments. You don’t want to screw that up if you’re a company. But we were able to do it over time, partly because the competition just did such a bad job. And that never changed. It’s still really hasn’t to this day. The only thing that’s changed in the competitive climate, because the cultures of these competitors really hasn’t changed and its’ hard to change them, whereas we had a different kind of culture, is Stripe. Stripe has also a very strong culture. They look at things in some ways that way that FastSpring does as well.
So, that’s been a challenge for FastSpring. But it’s also a very different market segment. Stripe is kind of you have to do a lot of work yourself. You’ve got to have developers, whereas ours is completely outsourcing. You don’t need a team of developers. You don’t have to work with those APIs and what not. But the competitive climate with the exception of Stripe has pretty much stayed the same and the competitors have gotten worse.
Andrew: Did you talk to your customers before you launched FastSpring?
Dan: Yeah, we did.
Andrew: I mean to potential customers. How did you do it?
Dan: Well, in our case, we had been in the industry a long time, so we knew so many different software vendors. One of the partners, he had just built and sold to Digital River the largest backup CD provider. So, he had I don’t know how many clients that were software vendors. Another one of my partners, he had built a company called RegNow, which also sold to Digital River and he had 6,000 software vendors.
Andrew: What I mean is I’m curious about how understanding customers helped shape FastSpring. So, do you have an example of a time that you or one of your cofounders looked at what a customer was doing and said, “We can do better than the competition that’s out there,” or saw a problem that they had and said, “We can actually solve that problem with this new business because we’re noticing people keep dealing with it?”
Dan: Yeah. I would say all the time in the case of FastSpring. That’s why we felt validated in our thesis. You take something like customer service. The internet, at least software forums were full of companies and individuals and software developers complaining left and right about the horrible customer service they were getting, whether it was from our direct competitors or indirect like a PayPal. We felt like we could do that very, very differently. We also felt like we had been in their shoes before. So, we know what it feels like to feel screwed by customer service.
Andrew: I see.
Dan: In terms of pricing, we also knew that a lot of companies felt that they were being excessively charged. Not only that, they were being sort of encouraged to enter long-term contracts at really high rates. We knew we were able to come in at a much lower rate. We knew also that some of these clients were very big and they were very angry.
What would happen was they would get into these two year contracts or three-year contracts. They’d pay a really high rate and they’d be promised all sorts of things, like development work when they needed it. That big company, of course, didn’t deliver on the development work, kept charging excessive rates and the client couldn’t get out of the contract. So, they’d be desperately waiting to get out of their contract and switch away to a much more flexible situation.
Andrew: How did you know that was a problem for them? What did you do that told you that?
Dan: We talked to people in the industry?
Andrew: How? What was your process? I’m curious about how companies learn from their customers. If you want to spend a moment thinking about it, I can do a sponsorship message while you do it.
Dan: That’s fine. I can think of one guy, Max, which was at a really big software company. I had been in touch with him over the years. We had regular conversations and he would bitch about this particular competitor regularly. You multiply that–I maybe had five to ten conversations like that. My partners have had similar conversations. So, it was kind of known in the industry that people were upset.
So, take something like cable TV. You don’t even have to be necessarily talking to customers to know. You know that people are kind of pissed and in general and trying to cut the wire, so to speak, partly because the customer service stinks, the way they’re treated stinks. We know that, right? There’s kind of that kind of situation.
Andrew: Did you do anything like say, “My friends and I are thinking about starting a company that would do this. Here’s what we have in mind. If we do, would you switch over to us?”
Dan: Yeah, sure. We’ve done that. We’re doing that with our new company as well. I do a lot of market validation. I’m talking about often a month and a half of interviews. For this latest company, Mobile1st, we did 25 interviews of potential customers. Each interview was approximately 45 minutes to an hour, I’d say.
We had a whole set of questions that we’d ask them and we’d show them a demo of a product and would ask questions like, “Does this solve your pain points? If it doesn’t, what are your pain points? What could we be doing to solve those pain points? How much would you pay for this?”
Andrew: Let me dig into that. I’ll do a quick message and then I want to dig into this topic with more depth. The sponsorship message is for a company called Acuity Scheduling. Do you know Acuity, Dan?
Dan: I do not personally.
Andrew: Okay. I’ll tell you what they do. When you’re making a bunch of phone calls like you are with people, it’s really hard to schedule it with them. What you need to do is make it easier for people to pick a date off of your calendar when you’re free and put the event on your calendar and theirs automatically. That’s where Acuity Scheduling comes in.
What’s nice about Acuity Scheduling is not only will it read your calendar and let you pick which times you’re free on your calendar that you want to make available to other people, but if you suddenly add a date because you have a phone call that you’ve scheduled or because someone else has picked that date to have a phone call with you, Acuity automatically takes it off your availability list when you’re presenting that calendar to other people.
It’s also helpful because it lets you ask questions. If someone schedules a call with you, you can say what’s the big issue that you want to talk about or what’s your company name or what’s your Skype name or your phone number, etc.–really helpful set of tools. And if they don’t have a tool that you like, they have incredible APIs so you can plugin to other tools and bring them in, like Infusionsoft or AWeber if you want to send out emails or Zapier if you want to do all kinds of other integrations.
Acuity Scheduling is phenomenal. If you’re talking to customers or scheduling calls, you need to use Acuity Scheduling. It’s so much easier than emailing someone and saying, “Can I talk to you at 11:00 a.m. on Friday?” Well, what happens if they’re not free then? Then they have to email you back and then you have to go back and forth to back and forth. It’s much easier to say, “We should get on a call. Click this link and pick the time that is best for you.”
And then best way to do that is to go to AcuityScheduling.com/Mixergy. When you do that, they’re going to give you a bunch of free time, enough that you can actually start using it. Frankly, you could probably use this, book your calls and cancel within the free period that they’re giving Mixergy listeners, but they’re convinced that if you use it, you’re going to like it and want to stay on longer. Go to AcuityScheduling.com/Mixergy.
I’ll come back, actually, to FastSpring, but let’s jump forward a little bit to this new business. You’re saying that you started making phone calls. Who did you make phone calls to? What groups of people?
Dan: Well, we had some theories on the type of people that we felt our product would be attractive to. We didn’t know for sure, which is part of why we used different groups. So, we engaged with a certain number of CMOs, directors of marketing, marketing managers, developers, UX people, designers, even digital agency individuals.
Andrew: That’s pretty broad. You did it because you were trying to figure out who your narrow niche would be or because you thought your product would work with all of them?
Dan: Well, we had seen evidence that those different groups were interested to different degrees. We also had our own thesis about it. We needed to figure out who we really should be targeting, who is this for, who’s going to pay for it. Who says they like it but they don’t pay for it.
Andrew: Ah, so that’s why you went broad, to say, “Who’s the first group of people we’re going to go with? But we also understand that all these people probably would want to use it.”
Dan: Well, and also to develop the product based on what the market was interested in. So, maybe the agencies want it for X and the designers want it for Y. Okay. Well, which direction are we going to go in? Who’s got more money? Who’s really interested? Who actually uses it as opposed to saying they’re going to use it? Who actually buys it as opposed to it? Who’s got the budget? That’s really who made up those 20.
Andrew: You personally made 40 phone calls like this? Is that right?
Dan: I hired a consultant who specializes in market validation. She did a great job setting up all the logistics. I participated in every single call. So, I’m in on the calls. I’m doing a lot of listening. I interject questions here and there, especially at the end as opposed to interrupting the flow she has in mind because she has a certain process. And then afterwards, we do kind of analysis and then after doing a whole lot of them, we do a larger analysis and then we shared it with the rest of the company and talked about where we want to go based on the results.
It was really interesting. You get data like what percentage of those 25 said they would pay X in price and Y in price, almost like a voting process. We kind of had a sense for what our pricing should be as well as all sorts of other things. Should we offer trial? What kind of trial would be adequate to these people? Who do we need to get approval from to make a purchase decision? Above what threshold do they need to get permission from someone else to make a purchase versus something they could purchase themselves?
Andrew: I see.
Dan: We learned a lot about that kind of stuff.
Andrew: I see. Why not just have her make all these phone calls and not even be on the call? You’re a pretty busy person.
Dan: I am a busy person. But when it comes to understanding the market and being able to be in a position to make decisions about the strategic direction of the company, which is important as a CEO, it was a very good use of my time. For one thing, it sounds bad, but it was only really 25 hours all added up, which is just one day worth of hours.
It’s something you don’t want to get wrong. There’s also a lot of subtlety that you want to pick up on. Sometimes I would have a different impression than the person doing the market validation. We also had other people from our company, like our CTO and some sales people listen in on the call so they could hear what the market was saying and hone their pitch based on that and also get other people in the company onboard with the direction that I might be leading us when people might disagree, “Oh, you disagree with me? All right. Here’s what the guy on the call is saying. This is what he wants. Let that drive it. Not my opinion.”
Andrew: So, what did you walk into those conversations thinking and what did you leave it thinking?
Dan: First of all, this was when Mobile1st was really targeting individual consumers. Now Mobile1st is targeting large enterprises. So, we went into it thinking that consumers would be willing over time–and it’s not really consumers like my mom, it’s more individual people that care about the mobile web. It’s that kind of business consumer, whatever you want to call it.
So, I think we went in thinking people would be willing to spend $100-$200 a month and that it was of interest across the spectrum of the different types of people we were talking to in that they wanted to try it first. I’d say we came away with the conclusion that the price range was more $50 to $100 and that also served our interest because it didn’t require approval from people above the people that were potentially using the product. We also did come away with different use cases from the different groups.
So, the one use case we realized that we didn’t serve well, which is developers because they compared us to some very technical tools they already had. Mobile1st is not for technical users. So, when it gets compared to a deep testing tool, it does not win. So, that steered us away from the developer community somewhat.
Andrew: When you were going after what you call consumers, what was the product?
Dan: It’s the same product in some ways but different in others. The product is Mobilizer. Mobilizer is at Mobile1st.com with a -1st or GetMobilizer.com. Really, it’s a tool to see in seconds what any webpage looks like across 20+ mobile devices and to be able to identify where it’s rendering poorly and where you’re getting hurt on conversion, load time and other key mobile performance data metrics because it’s not looking right on mobile or there’s some other issue that needs to be corrected.
And the reason most company including endless Fortune 500 companies look awful on certain devices and have no idea about it is because they no way to check it. So, what we do is we give them a remote cloud-based way to look on actual devices in our lab in Texas at what any URL of their one or 2,000 URLs they have on a website depending how big they are is coming across and fixing those issues.
Andrew: So, you already had that product, then you started making phone calls so you can figure out how you can sell that product to your customers what you should be charging, am I right?
Dan: We had that product. For a while, it was given away for free. There were 150,000 downloads of it, a lot of developers, a lot of people in Japan. Then we did market validation to try to understand better and make sense of things and figure out the best direction forward.
Andrew: Okay. What you left it with was an understanding that what you call consumers I might consider small businesses that they wouldn’t pay $100 for it a month but they would pay $50 for it a month and that they might not be the right market for you to sell to.
Dan: Well, no. I’d say we ended up kind of in the $50 to $100 a month range. They generally were the right market. What I was saying was no so much the right market is actual developers who are doing coding to different devices. They want to do deep testing. We don’t really offer that. It’s more for non-technical people to see visually what any webpage looks like on these devices in seconds and also to see their analytics by device spelled out across along with the visual render of how it’s appearing.
Andrew: I see. What else did you learn from all those phone calls?
Dan: We learned a very large variance in price based on who we were talking to. We had respective customers saying–we wouldn’t tell them the cost. We’d say, “All right, now that you’ve seen it, what should it cost?” And we let them say. So, we had numbers as low as $20 on the consumer side to $5,000 to $10,000 a month. I remember someone at Facebook who we’ve actually found significant errors for the way they were rendering on mobile and that’s a super Mobile1st company, they were the ones who threw out $10,000 for the consumer version.
Dan: Somebody at a movie studio, $5,000. And then we’d have kind of one-off freelance designers who would be like, “Maybe I could spend $20 a month.” So, very different types of audiences. But ultimately, we ended up going in the direction of large enterprises and building an enterprise platform around the original functionality that we had.
Andrew: All right. Let me come back to the previous company–we’re bouncing back and forth.
Andrew: But I’ll come back to FastSpring. But first I’ll use as a segue or as a break my sponsor, which is HostGator. HostGator is an incredible place to have your website hosted. Dan, let me ask you this–if you were to start over today and all you had was a HostGator hosting account, is there a business that you would launch? Start completely over, none of the experience and reputation you have today, just an understanding of the market and an eagerness to bootstrap the business.
Dan: Well, a business that I looked at before I became part of Mobile1st is very related to the first sponsor you mentioned. I looked at trying to solve this problem of this back and forth with meetings and how inefficient it is and the fact that technology hasn’t addressed that to date. So, that’s a business that I looked at one point. I think it’s a problem that needs solving and hopefully the folks that you mentioned have done a good job solving it.
Andrew: I see. Is there a content-based business you would start or are you not at all a content person, you’re more software?
Dan: I looked also at a content business. I think there’s kind of a lack of review sites out there. There are a few. I think there’s an opportunity to more of the Consumer Reports of the internet brand. That’s something I looked at as well.
Andrew: What a great idea, kind of like Wirecutter but maybe for businesses so you can see what software this site recommends for CRM, etc. Is that what you mean?
Dan: Well, I was thinking more on the consumer side.
Dan: But there are some services now–G2 Crowd is one of them and some others as well–that either tell you what other companies are using as their tools or let people use it kind of like a Yelp for business software.
Andrew: Z2 Crowd?
Dan: No, G2 Crowd. A friend of mine did it, actually, and he actually was at one point was part of a private equity deal to acquire FastSpring but he did this deal instead.
Andrew: I see. This is showing what people like. You know what I would love to see somebody create is using the blog format, talk to companies like yours and say what software do you use for your CRM? What software do you use for your analytics? Give me all of this. Who does your payroll services? And maybe a little bit of why.
And then have a post with all the software that you’re actually using and an understanding of why because I think some of it would really open our eyes to different approaches to communicating in a team or different ways of paying our staff. Of course, there’s some revenue to be made from it from affiliate programs.
Dan: Yeah. There is a service like that. I’ve used it. I forget the name of it. It’s relatively new. I think one of the challenges they have is it sounds good in theory, but I don’t think people care that much. There are a certain number of tools that everybody is using and knows they should be using, Optimizely or Moz or things like that, something from Atlassian.
But if your competitor or if other companies are using these top ten tools, once you kind of get through finding the needle in the haystack tool you might not know about because there are only so many of them that are going to be useful, it starts to become really redundant.
Andrew: There’s a site called UsesThis.com that I get into sometimes. I wonder if it’s because they talk about how they use it. It’s for individual developers and designers to list the tools that they use. Maybe it’s not just that I’m getting to see that someone uses an iMac on their desk but how they use the iMac or how they use Slack that’s kind of interesting.
Anyway, I’ll say this to anyone who’s listening–whatever idea you have, whether it’s a takeoff on one of the ideas we talked about or something different, if you go to HostGator.com, you can host your idea really inexpensively and as it grows, you can use their WordPress managed hosting or their cloud solution. They’ve got so many different ways of managing your website and allowing it to grow as your business grows.
All you have to do is go–excuse me. I’ve got a cold. I do definitely have shortness of breath all of a sudden today. All you have to do is go to HostGator.com/Mixergy. They’ll give you a 30% discount and they’ll make it really easy for you to get started. If you’re not happy with your hosting company, they’ll also make it easy for you to transition to HostGator. Go check them out and send me a link to what you created using HostGator.com/Mixergy.
By the way, Dan, I really like the way you analyze these ideas. I can see why you would be a good TechStars what do they call that–a mentor.
Dan: Thank you.
Andrew: So, I was going to come back to FastSpring. Did you make these kinds of customer calls before in the early days of FastSpring to understand what people needed?
Dan: Yes and no. Kind of like I was saying before, we already knew a lot of the people that were having these problems because we had heard their complaints over time. It was often that this was going on for years. We ourselves had the complaints because we had been customers of these big companies like that one that I mentioned.
Dan: So, it was just kind of an ongoing conversation. It was not nearly as formalized as mobile first where we put together a list of the folks that we wanted to interview and then we called them up. Usually it was people that we had some sort of relationship with, not the average Joe Schmo is going to let us take an hour of their time and learn about them and what their problems are.
At the same time, people do want their pain points to be addressed. They do enjoy being part of, especially if they’re at a bigger company, startup learning experience in terms of company spending its time trying to solve their problems. So, there is a decent amount of willingness there.
Andrew: One thing that I did learn about you is you used to go on forums yourself as the CEO of the company talking to potential customers. Who were you talking to and what were you saying to them?
Dan: That was mostly software and gaming online forums. I wanted to send a message that we were different. So, if you were using for your online ordering someone like a PayPal or Digital River or some of the other companies out there that we were competing against, you would never talk to an executive, much less a CEO. They had other things they were doing. We wanted to be different. We were four guys in the beginning and we were the cofounders.
To this day, one of the cofounders runs the customer support and talks directly to customers. It doesn’t mean he doesn’t have a team under him doing a lot of the conversations, but he still has something. That’s an important differentiator. FastSpring blew away the competition when it came to wowing customers and customer support.
We would get comments back that were kind of unheard of for an ecommerce service provider, like, “I feel like working with FastSpring I just went to the spa,” or, “This is the best customer service experience I’ve had in my life, any industry.” We would get those kinds of comments every week or two. We just had an attitude like the customer should be treated like gold and the customer comes first and everything revolves around the customer.
Our competitors happen to have a different kind of attitude. There was some arrogance, I think, and the cultures there, especially at the top and it tends to trickle down to everybody else in terms of how you treat your employees and your staff, everybody else trickles down to how they then treat your customers.
Andrew: So, what did you do in customer service that was so amazing that people felt like they were going to a spa?
Dan: A few different things. A lot of our competitors would send an automated response, “I’m going to get back to you in 24 hours.” The person that would respond to them probably wouldn’t be all that expert in the area that they were asking questions about, just sort of typical customer service situation. We did it differently. The people that we had doing support for the software developers were former software developers.
So, they spoke the language of the customers, very different from using your typical customer service person. They also tended to respond within often minutes. It wasn’t just 9:00 to 5:00. It could be Saturday night, Christmas Eve. It didn’t matter.
Andrew: How do you pay software developers to answer tech support questions on New Year’s Eve?
Dan: Well, I don’t know if we can give away all the secrets. Let’s just say that we treated people well. We hired people that cared about–genuinely cared about.
Andrew: One secret for that–that doesn’t seem like it’s the big Holy Grail of the company. What did you do to get somebody to stay up on Christmas Eve and answer tech support?
Dan: The biggest advantage by far that FastSpring had and still has today is simply its customer service. We were competing against companies that had 80 customer service reps when we had like seven. We were blowing them away. It is pretty critical.
But how did we get people to do that? We didn’t have to ask. They enjoyed their job. We let people work from home wherever they wanted to work from. We respected their time, respected the work that they did. We hired people that really cared a lot about people and cared a lot about people having problems with technology, just the same with if my sister was having trouble on her computer. I would really care about helping her solve her problems.
Also, like I said, they spoke the same kind of language. Sometimes we would give suggestions to the software developers about code and we’d send them code to use, a very different kind of experience. In terms of getting the customer service people to work all those kinds of hours, we hire the kind of people that would sleep with their laptops in bed with them. Nowadays it would be their iPhone. But those are the kinds of people we liked to work with, people that were software junkies.
Andrew: Do you think if I called them up right now that someone would actually take my phone call?
Dan: Ah, we didn’t do any of it by phone.
Andrew: Right now you do or at least they do.
Dan: Perhaps they do. They probably made things different. I doubt their customer service is the same as it once was. The culture has changed.
Andrew: What’s changed in the culture?
Dan: Different people managing it, different worldview. I think it’s a bigger company and the four founders, three out of four are gone. Things are just done differently. It’s not that they’re done better or worse. It’s just different.
Andrew: Do you think their profits have gone down since they sold?
Dan: No, I don’t think profits have gone down. Revenue… You mentioned last time you and I talked revenue was in the $40 million. Now it’s like $160 million.
Andrew: $160 million?
Dan: Yeah, it’s very nicely profitable. When we were running it, it was growing about 38% to 40% a year. It’s still growing over 20% a year, even though it keeps getting bigger. It continues not to lose customers. That was part of the trick as well. We didn’t want to spend all this time getting customers only to spend the other half of the time keeping them or trying to get them back.
Andrew: Yeah. You told our producer your churn was 3%. How do you get your churn down to 3%?
Dan: It was 1.3%.
Andrew: 1.3% annually?
Dan: 1.3% annually, that’s right. That’s 3,00 clients.
Andrew: That means that 3% switched to you?
Dan: Hold on…
Andrew: Yeah, your video dropped. Let’s bring it back. There. That means 1.3% switch from you every year?
Dan: Out of 3,000. That’s right.
Andrew: How do you know if someone switched away as opposed to not charging much with you?
Dan: You can tell. We would get reports of whether they had a transaction in the past 30 days or 60 days. That was easy to run a report on. If someone is going 60 days without a transaction, they’re not really working with us anymore.
Andrew: And you just consider them a churn if they haven’t gone through that, whether or not they went with a competitor. What do you do to keep that churn so low?
Dan: Phenomenal customer service.
Andrew: What else?
Dan: Pricing that didn’t really give them a reason to switch for price. So, it was very easy to make a case versus our competitors that you would save many percentage points per dollar of transaction fees if you switch to us. Our competitors were charging 8% to 12%. They were charging sometimes as much as 15%. Generally around 8% to 12%. We were closer to 7% to 8% back then. So it was very significant savings.
Part of what we did is we offered flexible pricing, including sometimes for larger volume customers we do even lower pricing, where it didn’t make sense to switch to any of those other competitors. It also made sense to use your own merchant account and try to do this yourself or to use a barebones solution like a PayPal or even a stripe where you have to do all the work yourself.
Andrew: Once you build it, aren’t you done? Stripe charges 2.9% plus $0.30 per charge.
Andrew: You charge 7% to 8%, you said. Doesn’t it make sense for developers to develop this and save that difference, the 5% difference?
Dan: It depends how advanced a business they want to have. If they’re doing software, which is FastSpring’s specialty, there are all sorts of idiosyncrasies you don’t have when you’re selling teddy bears on the web or something involved with the delivery of the software, activation codes, piracy issues, all sorts of things related to games and software that are different from other products.
But at the end of the day, the beginning work with Stripe might make it make sense, but there’s ongoing work. The industry changes what you want to do with your order pages to keep them flexible and dynamic and offer the functionality you have in mind as the industry changes and technology evolves. You’re going to have to have a group of developers that all they’re doing is building based on those APIs, whereas with FastSpring, it’s all there for you, you just plug it in.
Andrew: You told our producer that one of the biggest challenges was you started falling behind a competitor. Why do you think you fell behind?
Dan: So, I’m not sure if that was Stripe or Cleverbridge. But for some time, we fell behind Cleverbridge because we took a bootstrap approach and they had $30 million. We both started in 2005. They were able to get the product to market soon enough at a stage that they can get companies to switch away from the competition faster than we were because they had all that money when they didn’t. They started eating our lunch with the large enterprises. So, it became a challenge for us to get large companies to work with us because we didn’t have a lot of large companies already to say hey, look, we’re working with all these competitors or these other big industry leaders.
So, for a while, they got ahead of us. They’re still larger than FastSpring is, but it’s a very different kind of business. They’ve been able to compete in some areas and win business and we’ve been able to compete in other areas and win business. It’s been kind of a shared experience in terms of success.
Andrew: There was also a period there where you were thinking about leaving the business. What had to happen for you to think about closing up and giving up on this?
Dan: I think I was three months away at one point from leaving. I said, “I’ll give it from x-date.” It had been, I don’t know, three years or something where we were slowly getting somewhere but not what we needed to get. I wanted and I needed to be building a large multimillion dollar business. If this wasn’t it–of course, I had two other businesses running at the same time too. If this wasn’t it, then I needed to figure out what was.
Things turned around because we started finding a niche and we took over that niche, which was Mac developers. Mac developers have very stringent demands and expectations. They’re high-maintenance and we were able to deliver where all the other competitors were not. We also stared going to Mac tradeshows and none of the competition had figured out to go to those same shows. So, we quietly started to take more of the Mac software business. Of course, Mac was growing and growing as more and more people were buying Apple computers and we became number one.
Andrew: Did you start focusing on that, almost to the distraction of the other customers or other types of customers?
Dan: Not really. It was more like we kept getting these Mac customers and then they would say, “I really need you to support A, B and C, like a third-party tool. It was only of interest to Mac developers. So, there came a point where it’s like, “Okay, it seems like we’re heading in this Mac direction. So, why don’t we add these things for these Mac developers even if it doesn’t help all the Windows developers which there are many more of?” And then we’ll create this special niche. We did make decisions like that. Does that answer your question?
Andrew: It does. You’re not saying that you stopped paying attention to getting a different kind of customer, you just said, “What can we do to cater to this group of people because we can see that we’re winning them over.”
Dan: Yeah. And we would never take the approach of not paying attention to any customers.
Andrew: I don’t mean existing customers, but going after different kinds of customers.
Andrew: I’m thinking about the Justin.tv model where Justin.tv people started to see gaming was really hot for them and started focusing on gaming and not give as much attention to the rest of the marketing until they became the gaming guys.
Dan: Yeah. We still, just the same, went after Windows customers and other types of customers and gaming customers. But the Mac community is a tight-knit community. The real turning point was there was a guy named Loren who was the founder of Tweetie. Twitter ended up buying Tweetie and he also had a Mac product called Tweetie for Mac. Any of us that use Twitter on our phone now use Loren’s software, which is pretty cool.
People saw the Loren was using FastSpring. I think he might have done a blog post about it. I don’t remember. It started heads in the Mac community. Who were these guys that he’s chosen to use? Hold on a second. Sorry.
Andrew: We’ll bring it back.
Dan: Hold on. There we go. Can you see me okay?
Andrew: Yeah. I can see you.
Dan: Why is he using this company? I’m pissed at the company I’m using, so I’m looking for a new solution. Maybe Loren is onto something. I ‘m paying attention to what he uses for other things and what he’s doing. So, he was an inspiration to other Mac developers. That’s kind of where it started. We started going after Mac companies.
Then I literally went up to a lot of different boots at a tradeshow for Mac companies, Mac software developers and I’d pitch tem one by one. Not all of them were ready to switch overnight, but it started the conversation. Then I followed up and followed up and eventually almost all of them switched over to us. Some of them it took two or three years, some of them did it in a week. It just depends.
Andrew: How do you keep from being a pest when you’re following up and following up and following up?
Dan: Who said I’m not a pest? I think you just have to have some judgment in that area. You don’t want to overdo it. How do you have that judgment? Someone at a show says they’re interested. So, maybe I follow up a week later. Maybe they say, “I’m busy now. Can you get back to me in a few weeks?”
Put it on the calendar, get back to them in three or four weeks and we setup a call and they say maybe they’re interested. The call ends. Then I follow up maybe in a month, check in with them, how are things going? Or pay attention to what’s going on in the forums. If all of a sudden that payment process or that payment partner of there is having server issues or treating people badly or changing their pricing, people are talking about in the industry.
Swoop back in and say, “Hey, how are things going with that payment provider. Here’s our pricing. We’ll do the setup for you. You don’t have to do anything. All you have to do is agree to our agreement and you’re not locked into anything and if you don’t like it, switch right back. I can tell you, nobody ever switches away once they switch to us.” So, it became pretty compelling. Like I said, to this day, people don’t switch.
Andrew: Dan, this is kind of technical, but what software do you use to keep track of how many times you’re following up with them and to know that if somebody has a certain processor that’s getting ripped in the forums that you should find all the people that have that processor?
Dan: Okay. A couple of questions there–there’s no software I was using. There’s actually a pretty cool piece of software my friend was CEO of called FollowUp.cc. So, that’s two cookie-cookie, CC. That’s exactly what it lets you do is it tracks for you so when you don’t hear back from someone that you need to follow up again. Obviously there are ways to do that in Salesforce and all sorts of other tools. But I think doing most of this stuff manually is perfectly fine or Excel sheets. I wasn’t doing the sales forever. I did it for a number of years and got the original clients and then I moved on to other roles in the company. But your other question–
Andrew: So, if there’s a payment provider who’s not having trouble and not taking care of their people, how do you swoop in and talk to–
Dan: Okay. What I did is I hired a person, $15 an hour type of role to go online every single day and look at maybe 70 different sources of conversations, whether it’s on Twitter in our industry, it’s all these different forums, news groups, blogs, TechCrunch, whatever, and aggregate only those things that I as the active CEO should want to see to A, know what’s going on in the space and B, see conversations I can participate in.
So, I get that daily digest every day and then I’d go and respond and post things and talk to people and know what’s going on. It took 20 minutes a day and build a great following for FastSpring as the company with the CEO who would talk to you.
Andrew: That’s really cool. What would you ask her to look for?
Dan: Well, over time, the person would understand the kinds of things. They’d start with on day one not a very good sense of what I wanted, but I would hone it down and say, “This is the kind of post that I’m interested in because of X. This thing over here you sent me, that’s not our industry. We can’t really service their needs. So, over time the person would learn exactly what I wanted to see and not want to see.”
I did it for Mobile1st as well, but it didn’t have the same impact with Mobile1st because I guess you didn’t have the same industry niche groups. Also back then I think you also had a lot of SEO indexing for these comments where today, a lot of that stuff doesn’t end up in the search engines.
Andrew: No. It ends up in Facebook groups that are private and then you have to join them or Slack groups.
Dan: Yeah. That was definitely a very useful tactic and a free tactic. Most of the stuff that we did, our points of differentiation, our marketing tactics, cost nothing.
Andrew: Where do you come up with these ideas? Do you do them yourself or do you have a source for them? I love this idea of having somebody put together all the places you should respond.
Dan: To me it’s just common sense. I just come up with the ideas.
Andrew: You just knew you wanted to be the CEO who participated in the conversation and you kept looking for ways to make it easier.
Dan: in the case of why I did that, one of my partners kept telling me to do it and initially I was hesitant. I said, “Come on.” He turned out to be right. He kept saying, “Follow the forums. Post responses. Get involved.” And then it was easy to tell it was a good move. In those days, every single time I’d post something, we’d get at least one customer. Initially, they were tiny customers. They weren’t worth a lot in value.
But still, there was meaning in that. And then obviously over time it’s quality in terms of the size of the customers grew. It snowballed just like they say. We as a business sort of hit that point, which entrepreneurs sometimes do where you no longer have to do a lot of the outbound marketing. People do it for you. The customers drive themselves. That did really happen.
Andrew: It takes a while to get that going. Finally, you’re now running Mobile1st. What are you hoping will come out of this interview for Mobile1st?
Dan: Well, I just think that most of the people watching this have a lack of insight into what their web pages are looking like to all their users who are using them through mobile devices. Now that’s the majority of users.
If people watching this go to Mobile1st.com with -1st, they can put their URL or their competitor’s URL right into the homepage of the site and start seeing on a few devices exactly how it’s coming across and where there may be issues they can identify where, for example, their logo is cutoff, things that they thought were above the fold on most devices are below the fold. Half of their content is missing. It’s on the side of the page. Users aren’t able to have a good user experience.
The main reason that individuals are not purchasing or companies are not purchasing on mobile devices is because of a poor mobile customer experience. So that’s exactly what we’re honing in on and providing a new insight that didn’t exist before. Nobody offers this. For average people who don’t have deep technical skills but do have websites, to be able to see exactly how they’re coming across on mobile, identify problems, fix those problems and provide optimized mobile user experience.
Andrew: I see. Now I’m getting it for Mixergy. And the examples that you showed up on your site were sites that had a call to action that was being cutoff because it was on a mobile device. Either it was too wide to show up on a mobile device properly or too tall.
Dan: People think, “I have a responsive site, so I look good.” That’s’ not solving the problem. Often, those are the sites we see the most issues with. Also people have this attitude, “Well, I’m sure my site looks good. It looks good on my phone.”
Well, you have one phone or your buddy has another one. I can tell you right now that Starbucks, Facebook, Whirlpool, Taco Bell all have very embarrassing renders of key web pages of theirs that they have no idea about. The only way they can know other than getting 20 devices together and keeping them updated and having someone managing a big lab is by using Mobilizer.
So, it’s a very valuable tool that’s solving problems people don’t realize they have once they improve these problems they identify with Mobilizer, they can see their mobile conversion come a lot closer to their desktop conversion.
Andrew: All right. It’s Mobile1st.com for anyone who wants to check it out. We also talked about his previous company, which is FastSpring.com. We talked about my two sponsors here today, which were Acuity Scheduling. If you need to really make it easy for people to schedule calls with you or meetings, go to AcutiyScheduling.com/Mixergy. If you want your website to be hosted by a good company where you can actually reach them if you have a problem, go to HostGator.com/Mixergy.
Frankly, the first thing you should do after you’re done with this call is go and test your site to see what it looks like on Mobile1st.com. It’s really interesting to see. Mixergy’s button is being cutoff on iPhone 6+ even.
Cool. Thank you, Dan. Congratulations.
Dan: Thank you very much. Thanks for the time.
Andrew: You bet. Thank you all for being a part of Mixergy. Bye, everyone.