Andrew: Hey, you’re about to listen to an audio-only interview with an entrepreneur who’s had setback after setback after setback. And still, he triumphed. But before we get into that, I’ve got to tell you about my three sponsors. The first is WooFoo. I’ve used WooFoo for years for forms and surveys. You can create your own forms quickly there, embed them in your website, and they’ll just look beautiful, and are easy to use. By the way, they’re so beautiful that on my wedding RSVP page, I used a WooFoo form. It was that beautiful and that easy to use that I didn’t even have to explain it to my mother. She could just fill in her RSVP and get everything taken care of. So check out WooFoo.com. And I use them for my website all over the place. Also, check out Shopify.com. It took me five minutes to create a store on Shopify. And I had all the features that I needed for an online store. Check out Shopify.com if you need an e-commerce website. All right. Grasshopper, finally, is the virtual phone system that entrepreneurs love because they’ve got all those extensions and all the features that you want. And you can manage them online, on a website, and use your current phones with them. And by the way, if you can’t use all those features yet, because you’re not a big enough company, like you can’t use extensions because you don’t have tons of people working at your company, use the features anyway. Pretend, and give the impression that you’ve got a big company when you need to. I’ve told you how that’s helped me, and how that helped me in the early days of my first company. And I think it might help some of you entrepreneurs out there, too. So check out Grasshopper.com. All right. Here’s the program.
Hi, everyone. I’m Andrew Warner, the founder of Mixergy.com, Home of the Ambitious Upstart. And today I’ve got an audio-only interview with Herman Heunis. He is the founder and CEO of MXit, which has 18 million users in 120 countries, and transmits upwards of 250 million messages per day. And Herman, I’m looking at my notes as I read this, and I realize I described the numbers, but I didn’t describe what the business does. So let me turn it over to you and ask you, what is MXit?
Interviewee: Well Andrew, we are a mobile instant messaging company, and when we started in May 2005, we were pure, just stick by mobile IM. But today we’re also much more than just instant messaging. We also do certain aspects of social networking, sharing off multimedia with our users. And then obviously other services such as games, text replies, and so on.
Andrew: And it’s all done on mobile, right?
Interviewee: Yeah, we recently started to move also into the web space with a web widget that would enable guys and maybe even bloggers to ask or make a presence on the site so, but primarily, it’s mobile. We supported this search well over 1,950 different phones. And obviously that recollection of phones are updated all the time.
Andrew: OK. And before the interview started, you asked me if I was in Silicon Valley. I’m not, but I’ll ask you a very Silicon Valley question. And that’s, how much funding did you get for this business?
Interviewee: Well, I funded the thing myself. MXit actually started off as a section of the R&D division of a company that I founded in 1997. So my company and myself funded the entire operation. And then in September 2006, we actually broke even. And then just after that, Mashpar bought some shareholding in MXit, so ah. But, you know, the funding initially was out of my own pocket. Quite an episode in my life.
Andrew: I can imagine, actually. And I’m going to ask you about that because I want to hear the ups and downs. I especially want to hear how you got out past some of the downs. And I want to put, for anyone who’s listening to us, in perspective the fact that you broke even in 2006 is especially impressive, considering that you only launched in May 2005. Right?
Interviewee: Yes, that’s correct. Yeah.
Andrew: OK.
Interviewee: You know, I think it was a great offer. When you’re really desperate, and you’re really against the wall, you become very creative. And I think that was the case. I mean, I remember calling the guys. And we were a very small team. I think we started off by the number of six, seven, and then we grew to about 12, or so. And I remember calling them all in and saying, “Listen boys, we’re out of money. That’s it. We have to shut down because the mother company that’s doing the funding is also in danger.” And then you get very creative. And one of the chaps said, “Now, let’s start with chat rooms and charge for that.” I mean, a crazy idea, if you think of it today. But we started making money out of that.
The transcript for minute 5 till minute 10 is BELOW this line.
Interviewee: We started making money out of that and, but we were still, still growing. And then, obviously, advertising started kicking in and that was it, 2006. A very, very happy day in, it was a very happy day in all of lives and, yeah, we broke even.
Andrew: Okay, before we get into how you did that, and I want to get deeply into the story here. I want to understand a couple of things. Where we started and where we are. When you said that you funded it yourself, can you say how much money you funded with?
Interviewee: No, that’s unfortunately confidential. We are a private company and, but it’s, it’s substantial. It’s in the millions of, of dollars.
Andrew: Wow. In the millions of dollars you invested, and since we are talking internationally, are we talking in the millions of dollars U.S.?
Interviewee: Yes, that’s correct.
Andrew: Wow, okay, and can you say how profitable you are now?
Interviewee: Unfortunately, also, also not, we, we are a private company and those figures are confidential.
Andrew: Could you, could you do the same thing that you did for the investment? Give us a ballpark or way of understanding the size of the profits?
Interviewee: Unfortunately not, Andrew.
Andrew: Okay, okay, fair enough. Then let’s, let’s go back and understand this story and how we got here. May 2005, you launch the company. You told that it was part of a, of a different business at first. What was that different business?
Interviewee: That was, that’s a company that sold development work for telcos, for mobile network operators, and when we launched, we actually launched in January 2005 as a paid subscription service. But that was a complete failure. I think we got a sum total of something like 40 users after three or four months. So, that, that was a complete failure. And then in May 2005, we, we launched it as a pure vital system. You can’t have exact plans how to monetize it. We had some faint sort of ideas what to do to sort of monetization in the future, but, but no definite plans. And…
Andrew: I’m sorry, but I, I, I want to get deep into this story, so I’m gonna go really slowly with it. And, and so, before we even get into this story and, I, I just want to understand what that previous company was. What, what was it? What, can you help me understand it?
Interviewee: Okay. The mother company of MXit is called Swiss Group Technologies.
Andrew: Okay.
Interviewee: And that company is a company that I started in 1997. And that company focused primarily on development of software for telcos, for, for mobile network operators.
Andrew: And was that also a company that you self fun-, that you self funded?
Interviewee: That’s correct, yes.
Andrew: Okay. Okay, and now today is it still operating or have you transitioned completely to MXit?
Interviewee: It’s, it’s not as active anymore. It’s more a. a investment company at this stage. That original business was spun off to another company, which is called Swiss Technology Solutions. And they still continue doing development work for mobile network operators all over the world.
Andrew: Okay. Alright, so then, what made you decide to get into a different business?
Interviewee: Well, I think it’s, you know, to be in B2B business, especially in the telco space, is, is quite a demanding space. It a very overcrowded space and, and I always wanted to get into, into the consumer business. And so, that desire was there for many years. We tried a number of things and many of them failed. And, and if you look at the history of MXit. The original idea was to create a community via a massive multi-player mobile game. That, that was the original idea, and that’s how MXit actually started. Now that failed because a number of things were not in place. You know, instant messages in South Africa are horrendously expensive. We didn’t understand the market. The phone penetration wasn’t great. And a number of other obstacles. So, when we launched the original game to create a community with, the parameters were just not in, in, in order. So, and we tried a num-, a couple of other things and eventually we decided, “No, listen, let’s stop all this other nonsense, just go for instant messaging. Create a community with that.” And capitalize on the fact that instant messages are horrendously expensive in South Africa. And, and see if we can’t make it work. And, and I think our timing was absolutely perfect. You know, if we launched a bit later, it, it would have been a different, a different story.
The transcript for minute 10 till minute 15 is BELOW this line.
it would’ve been a different story but we at first had moved the advantage from the word and obviously a number of factors have played a role… We mainlined traces of Africa for a number of reasons, a lot of that —
Andrew: Let me slow it even further. I, by the way, Herman… You got to understand, I devoured this stuff and I want to take every bit of detail that you’re willing to share with me which is the only reason why I’m slowing it down. It’s not that I want to, it’s not that I want to change your story or move you in a different direction. I just want to get every bitof this that you’re willing to share with us.
Interviewee: Yes?
Andrew: So the first question here is, what was the — what was the game that you had in mind? The one that you said failed that you had to then recover from?
Interviewee: Yeah, it was an astral game that we developed in about 2000 – 2001 and the whole idea was to have a million people playing this game simultaneously and the game would run for a week to–to not to have all the pitfalls of latency and that sort of things. In other words, the game would start on a Sunday and would end on a Friday — at a Saturday evening, and this is an astral game. You have to steer your ship through a number of obstacles. You send a SMS to adjust the direction, and the speed, and so on. And avoid this and then avoid that and make maximum use of — your energy, and —
Andrew: And it was all text based? There was no images, no graphics, it was just text.
Interview: Yes.
Andrew: Via SMS, text driven.
Interviewee: It was text based on the phone but also we had a web-based interface where you can see graphics. So for the guys, and you must remember that the internet connection in Africa was very, very low. I mean, it’s really a fraction of what you guys have. So, but for the guys who had DCs and access to internet cafes, they could go there and see a graphical representation of where they are in the game. But the main focus was you steer your ship using your mobile phone.
Andrew: I see, okay. And you told us earlier that text messenging costs, the SMS costs as you said, were too expensive then and that’s what did your, that’s what did this game in. That’s why it didn’t take off, right?
Interviewee: I think so yes. And I mean also, I mean also the whole idea was — we wanted to make the game free. In other words, the user — don’t pay for the SMSs’ but that big brand would sponser the SMSs’. And they simply couldn’t understand and I mean, we spoke to many of the big, big international brands and they couldn’t understand us and eventually we gave up. We got to the point where we, it was just not — it looked like it’s going nowhere. So we pulled the plug and … but it’s very difficult to just show off something that’s your brainchild and obviously we resurrected, tried to resurrect it a couple of times. Tried to do different things, use the code that was developed very extensively for a number of other things and … I think it in 2003-4, we actually started to develop it for its current form.
Andrew: Okay–
Interviewer: And so we launched in 2005.
Andrew: I imagine as an entreprenuer, and I know myself… When things don’t go right you feel like you have to just find a way, there’s always a way. And here you are with a game and things didn’t work out and you had to just keep trying to find a way over and over and over. Did you at any point think that maybe you should just give the whole thing up and stay away from the consumer market? Did you decide maybe that you weren’t able to, did you think maybe you lost your touch? What were you going through personally?
Interviewee: I think there were days when obviously you start doubting the whole consumer drive. But, I mean, we were busy with other things as well. We had to keep the pot cooking and generate money on – in the background. So … many, I mean if you look into 2001, 2000 – 2001, the game was developed. We had different … expeditions to get the game going again, and just … a different angle. Some such we were playing with a search engine using the original code for mobile phones. That didn’t work, then we tried a buy and sell community base using the original code. So it was almost the case of you park the idea for a while but then it starts haunting you and then you get to the point where you
The transcript for minute 15 till minute 20 is BELOW this line.
[The transcribers are still working on this section. Check back in a few hours.]
The for minute 20 till minute 25 is BELOW this line.
Andrew: …massively multi-player game. It doesn’t do well. You then, from what I understand, move onto, is it mobile search engine plus some social component that you tried?
Interviewee: That’s right, yes.
Andrew: What was that like? And how did it do?
Interviewee: Not much better. As a matter of fact, I think actually, worse than the first one. I think it is around about that time, that GPR Ace was on the horizon. It was not available yet, but there were rumors and all the signs were there that the talkers in South Africa are busy to go out to GPR Ace. And that obviously, that time was very exciting because, if you’re not reliant on FM Ace any more, and you can do it using GPR Ace. Obviously, the landscape changes quite dramatically. So, but, yeah, the search engine was not a great idea, and that was followed by a sort of classified system, also with community aspects. In other words, checking between buyers and sellers and so on. That was also not successful. And I think then we laid off for quite a couple of months that we did nothing. We didn’t touch the product, and I think that we went through a phase there where it was touch and go whether we would proceed or not. And then, one day, we sat around the table again and then said, “now, come on, there must be a way.” And the one girl actually said, “no, maybe we make it too complex for the user base”. And I think in that meeting we decided, no, let’s stop all this other nonsense. Just focus on instant messaging. Just text messaging between users. And that thing, that’s how it started.
Andrew: I see. So, the thing that was an issue for you up until then which was that text messages were too expensive, suddenly became the opportunity. You said, “if text messages are too expensive, let’s see if we can find an alternative. The easiest alternative is to just allow people to send instant messages which don’t go over text but go over the mobile web”. And that’s what did it.
Interviewee: That’s correct, yeah.
Andrew: All right, when you gave up on the…
Interviewee: I think that…
Andrew: Uh-huh.
Interviewee: I think one very important thing there is, is that when we started developing MXit, the GPR Ace cost was quite expensive, but will give you an indication. It was close to about 1890 USNs per megabyte.
Andrew: Uh-hmm.
Interviewee: So, what we did was to really fine tune the protocol and over it, if the protocol, to make it as light as possible for the user, because they’re obviously paying for data. And that proved to be very successful later on. So, even if you look today, there are a number of other instant messaging solutions out there but we must definitely are still one of the lighter ones in terms of better usage for the user. But especially for countries where GPR Ace is still very expensive.
Andrew: OK. I want to understand a little bit more about what you were going through in that period. You said something earlier that I wrote down, was that desperation creates creativity. And…
Interviewee: Yes…
Andrew: I want to understand some of that desperation, because right now when you look back on your story, it seems like, all right, he had a couple of bumps in the road, things didn’t work out the first time, but they never work out well the first time. You recovered, life is good. And I know for myself, that when I had setbacks, it was never that easy. It was just grueling internally, in addition to the pain that it caused my bank account. And so, I was wondering if you could tell us a little more about what that felt like. What was going through your head? What were some of the doubts like? What were some of the voices that you were hearing in your head? It maybe sounds like you got schizophrenia, but you know what I mean.
Interviewee: [laughing] You had me worried there for a moment. No, I didn’t hear any voices in my head. But what I can tell you is, basically to summarize that experience, I made the comment recently to someone else. And I said to him, “never again will I take that much risk in my life again”. I think you have the energy for one of those excursions. But not two. To know, when things were really, really tough, my coach here, he decided to call it a day, and I had to buy him out. Now you can just imagine a situation where you’re burning a lot of money for months, and also to make things worse, the mother company, [NatSearch] made its first loss, ever. We were late on a very big development project, and obviously our revenues didn’t come in until the project was delivered. So, put the facts on the table…
The transcript for minute 25 till minute 30 is BELOW this line.
Interviewee: Put the facts on the table, we were making a loss and my other company was making a loss. We were burning substantial amounts per month running MXit, buying service, paying developers, and so on, and so on. And then to top it off you have a shareholder that walks out and wants his shares to be paid for. So, the sort of experience that I don’t think I will ever try and repeat again. Many days I drove back home and I said to myself, that’s it. Tomorrow morning I’m calling everyone in and say to them, that’s it, we shut down, there is no more money, we’re basically, technically bankrupt. And then, the next day would come and it’s a Friday and I would say to myself, you can’t do this on a Friday, let’s wait for Monday, and call everyone in on Monday. And, by Monday, there’s a sparkle of hope and so now, okay, let’s wait another week. And, really, it’s a sort of really desperate days. Very dire straights sort of days. And, I think you have to be … Some people call entrepreneurs, actually, it’s an illness. And, to some extent, I can almost agree with that. Because, you get to a point where you almost become irrational. All the facts are there that you are really failing but, still, you continue. It’s that absolute trust in that it will eventually work. And, I think, that’s the difference between true entrepreneur and a non-entrepreneur. It’s that you get to a point where you say, this will work and it will work. I hope it makes sense.
Andrew: It absolutely does make sense. And, I see somebody here in the live chat room is saying, wise words are being spoken, right now. And, I relate to that completely. So you think that the reason that other people maybe give up earlier is because they’re not true entrepreneurs. True entrepreneurs have this illness where they just can’t stop and that’s what sometimes causes trouble, but it’s also what allows them to go through adversity and come out the other side better people.
Interviewee: I think so. But, I think, what is also important is that, as you get older you tend to do things better. And, I’m asked on a regular basis, especially in South Africa, on a regular basis. What are the advice that you would give potential entrepreneurs. You know, one of the first things I always say is that, listen, do your homework. Do the research, do the analysis, and crunch the numbers. And, I think, once you have done that, you tackle this thing and then you proceed. And, you never query your data. In other words, [xx] is the fact that this will be a success. Based on my calculations, the potential uptake is going to be this. There’s enough users. My business models are fine and, once you’ve done that, you pursue and you don’t stop until you reach success. Having said that, sometimes you do fail and, I think, that is part of the game. And, that is why, well, one of the other pieces of advice that I’ve said to young entrepreneurs, especially younger guys. I say, listen, if you can’t take a beating don’t get into this business. Because, not all your ventures will succeed. That’s a fact.
Andrew: OK. I agree with you completely and it is … I’m trying to figure out where to go next and I think the next questions that I’ve got to ask are, how do you go from coming up with something that works, to now ending up with 18,000,000 users? How did you get the first 1,000,000 users? How did you get, in fact, the first 100,000 users?
Interviewee: Listen, I’m actually writing a book on this whole expedition or experience, whatever you want to call it. I think our timing was absolutely perfect. You know, at that stage, there were a number of programs here in South Africa on this fat cat telcos making billions of rands, even billions of dollars, and there was a bit of a user revolt against these guys. So, our timing was absolutely perfect. I don’t think we could have timed it any better.
The transcript for minute 30 till minute 35 is BELOW this line.
Interviewee: I don’t think we cound have timed it any better and we had a number of very creative guys that understood viral marketing very, very well. So, we created this almost subliminal, anti-establishment, very secretive, almost like a cult sort of status. Obviously, the priests didn’t like that so much. I mean, we were labeled from the devil and I don’t know what else.
Andrew: Actually, how do you get labeled like you’re from the devil in the media? Frankly, I would like that.
Interviewee: [Laughs] Listen. Obviously, when you deal with social networks, you will find users that will abuse it. I mean, we had users that sent pornographic images. Eventually, when we started bringing in multimedia capabilities, they sent pornographic images to each other and the priests got hold to that. Kids met people in chat rooms and ran away from home. I mean, we were blamed for all the sins of society. Obviously, we took a severe beating but I think it was good for the brand. It obviously took a long time to recover from that and I don’t think we’re completely out of the wods yet but it helped. We had a number of other very interesting sort of techniques that we used to get users. You know you get to a point with a viral system that it just becomes self-sufficient and it starts to self-propel. I think it was about close to 80-90,000 users and then it just starts to grow exponentially.
Andrew: I see. So getting into 90,000 users is what started off with the viral marketing snowball. Let’s talk about then how we got to the 80-90,000 users. What kind of things did you do to attract those people to this new service.
Interviewee: A number of things. I mean, we had like very secretive sort of posters that we put up places where we weren’t supposed to put them up and they were actually pieces of art. We actually time it. I mean, the longest one that stayed after you put it up is like a minute or two and then they’re gone. They take them down and they keep them.
Andrew: You mean people took them down and kept them?
Interviewee: Yes! Yeah, people.
Andrew: Because they were so beautiful, they wanted them.
Interviewee: Yeah, they were great.
Andrew: Who created this and what was the art?
Interviewee: It was one of our graphic designers, a very talented young woman. She created them and they were just absolutely fantastic.
Andrew: What were they?
Interviewee: Excuse me?
Andrew: I’m asking what they were because here we are in the U.S. and in South America. I’d like to copy your ideas here.
Interviewee: [Laughs] It was like a, I wouldn’t say a cartoon but close. Beautiful, really beautiful sort of graphics of people but very secretive. I mean, you looked at this picture and there’s actually a story in it but you really have to look very carefully. [inaudible]
Andrew: Okay, what else?
Interviewee: The press. Obviously, the press was a hinderance but also an assistance through the whole thing. We had…
Andrew: How did you get press in the early days? I mean, every new company, every new product wants to get press and they’re all fighting for attention. Very few of them get to stand out and get the attention they’re looking for. How are you able to get it?
Interviewee: Oh, we didn’t speak to the press. We had a policy that we don’t speak to the press and that made them absolutely crazy. So they started attacking us. That also played a role but I think some of those sort of techniques, they could backfire. They could really hurt the brand so one needs to be very careful if you do play those sort of techniques.
Andrew: I see we’ve got Andrew SG in the audience. He runs a website called styleguidance.com. He’s not talking to the press, either. The reason he’s not talking to the press is because he’s too busy coding his website but the press isn’t hounding him, trying to get him to tell his story. Why were they hounding you?
The transcript for minute 35 till minute 40 is BELOW this line.
Andrew: Why did they care so much about your story?
Interviewee: I think it’s all the, all of the stuff that our users did. I mean, all the sinister stuff that they did. I mean, they ran away from home. They met people in chat rooms and obviously…
Andrew: I see, so you allowed an anything goes environment in a country, an environment that didn’t, that didn’t have that. And so, because of that, because anything went in this environment it was so different and so shocking that the press had to find out about you. And so, they came to you to get your message, and you weren’t willing to talk to them. And, and those two factors kept building up on each other. The more you wouldn’t talk to them, the more scintillating the story was. The more scintillating the story was, the more people who were going to do crazy things on your site or crazy things with you service were attracted to it. True?
Interviewee: Yes, that’s, that’s, that’s about it, yeah.
Andrew: Okay, alright. So, that’s the press. We also talked about some of your, we talked about the posters. What else did you do to get attention and to get to that 90,000 audience?
Interviewee: We, we started a forum also, which, which, which became almost like a window to support our user base. Obviously, the initial days were, were quite difficult for our users because you must remember to tell someone how to set up GPRS or 3G on the phone. All the phones are different on, on certain, in terms of Nokias you do it this way and a Samsung you do it that way. So, we had to start a forum to, to educate the user base to, how to set up GPRS and then to load MXIt, and to get going. And the forum became quite a popular place for MXit users to meet. And I think we accumulated something like a 100,000 users on the forum within a very short time frame. So, they would actually go to the forum to chat to each other and place messages and so on. So, I think the forum played a, a major role. But you must remember that was in 2005-6. If you look at the landscape, how it changed today, I don’t think that’s gonna work. It’s a, you have Facebook, which at that stage you didn’t really have, you have Twitter, which at that stage wasn’t there, and so on. So, I think to say that you should have a forum for, for, for the sort of company that we have, yeah, I don’t think that’s gonna work. You have to look at the landscape as it is today and then make choices as to what you can do and, and, and hope for the best.
Andrew: Yeah, that’s a good point. You know what? Every time that I have an entrepreneur on here who has an interesting story, an interesting approach, I’ve got this internal instinct to just copy it exactly. But the truth is that once it’s done, it’s done. And the whole, the whole environment, the whole world has changed and you can’t repeat it exactly because we’re not living in the same environment anymore. But we can still learn from it. And what’s interesting is that by educating people, by, by engaging the community, you were able to draw more people into the community. And bring more people onto your service. So that’s useful. Is there anything else? Did you also buy advertising? Did you do anything, kind of, old school that we can, that we can learn from?
Interviewee: No, never.
Andrew: No advertising at all got you to 90,000.
Interviewee: Our, our certain marketing budget for year one was less than, let me just do the calculation quickly, convert to U.S. dollars, was less than $12,000.
Andrew: Wow. Okay, so then, I see, so, sometimes there are products that are just such a good fit for the market that you don’t have to do that much and they just take off. Just like your other products, no matter what you did nothing worked for them. Here you had the exact opposite, you didn’t have to do anything and it would just take off. Not, not that you just sat back but you didn’t have to do anywhere near as much as you did before.
Interviewee: Yeah.
Andrew: I see, okay.
Interviewee: Yeah, I think that, that is, that is, I mean it is like composing a song.
Andrew: Mm-hmm.
Interviewee: Is that, with some songs you think it’s a great song but no one else thinks it’s a great song. And then you compose a song, not that I’m a composer I’m just speaking on behalf of, of musicians, is that you compose a song and, and everyone likes it and it goes to the top charts. And so, I think, and I think that, that’s the secret. There is, the, the secret of, of, if starting new companies, is that, listen, not everything is gonna work. And, and you must find that very, very unique proposition. And, you know, I read a book a long time ago, I think it’s called “22 Immutable Laws of Branding and 22 Immutable Laws of Marketing”. And, and one thing that I remember of that book is that, if you cannot compete in a category, create a new category.
The transcript for minute 40 till minute 45 is BELOW this line.
Interviewee: And I think that’s the…that must be one of the core principals of starting a new business because if you just want to be a “me too”…I don’t know if you’re familiar with the term. It’s a term we use quite often in South Africa; in other words, I just want to copy you, that’s not going to work. Yes, in some cases you might be sort of lucky and you might get some traction or you might make some good revenues but that’s not the sort of advice I would give someone. If you can’t create compete, create a new category. And I think if you look at the Facebooks of the world and the twitters of the world and so on, there are still people trying out there to compete with them and I don’t think that’s going to be successful. I think the next successful social network business is going to be something that’s got a new category. In other words, it’s not a social network only; it’s a social network with something. Or whatever term you want to use. But I think that’s quite important, if it makes sense.
Andrew: Yeah, it absolutely makes sense. And I also like your analogy with a song. That just like with a song you can work all day long but if the song stinks no matter how much work or how much time you invest in getting people to like it, it it’s not going to happen. Same thing maybe with companies and with products. No matter how much you work at some products it may just not be the right fit for the market, for the time, for the country, for…for anybody ever. And you just have to maybe step back. So then does it make more sense then to, in retrospect, with all the experience that you’ve had now over the last nine or eight years, does it make more sense if you’re going to start a company today to go smaller, to experiment a little bit, to see if the market loves it enough…to see if the market loves it enough to demand for you to invest more time and money in it and for unless they love enough to make that demand, maybe you take a step back and you try a different product.
Interviewee: Absolutely. I think that’s the closest…that’s the best advice and I agree 100% with you. You know, gone are the days of you sit there and you develop for two years and then you launch something and you say to the user or to the consumer, “Okay, this is what I concocted. You should like it if. You will like it.” Those days are gone and you know, even in today if I look at the roll out of new products, we prototype the thing, we launch it as a prototype – we say it’s a beta copy. And within a very short timeframe you get the sort of feeling, this is going to fly or this is not going to fly. And if there’s a hint of this is going to fly, you start changing parameters, you do a bit of advertising – I mean we own a big advertising platform too –bit of advertising, you start changing code, you put in more developers on the project and we launched a classified system like that. As a matter of fact, we launched it I think in June, July of last year. And I think we’ve got a figure today was 1.6 million users. It was launched as a prototype. It fell over a couple of times a day. And obviously being a social network you get the undesirable element that will misuse and abuse whatever is available. So we got spammed with porn and we had to bring in moderators. We had to change the code. We had to put in profanity filters. And I’m talking here about days, not even weeks, changing code. I mean we had guys developing 24 hours a day just to get it out of the woods. I mean, the last thing I wanted was make headline news in South Africa again for launching a porn site or a porn classified system. So I cannot agree more with you. Gone are the days of developing for a very long period of time, spending million, launch something and then hope for the best. Those days are over. Do it small, check the market, make changes, make more changes, check the market and it’s just a repetitive process.
Andrew: Okay, that actually answers Joan in the comments question. She’s saying, do you use stealth mode when you launch? And it sounds like if you did before, you don’t do it now. What you do is you launch before it’s even ready and you get your feedback from users and even if they smash it or try to smash it or try to spam it or try to do whatever damage they want to it it’s still better because you now get to see what needs to be addressed.
Interviewee: Absolutely. I cannot agree more.
The transcript for minute 45 till minute 50 is BELOW this line.
Andrew: …or try to spam it, or try to do whatever damage they want to it, it’s still better, because you now get to see where they’re, what needs to be addressed.
Interviewee: Absolutely, I cannot agree more.
Andrew: All right. Let’s take Joan here, for example, because it seems like she’s one of the active participants in the live comments here. We don’t know anything about her, but let’s assume that she’s a younger entrepreneur, who wants to start a business, who’s maybe even started a business, and wants to start launching a successful product. What advice do you have for her, based on your experience here, the ups, the downs, the big hits recently?
Interviewee: I think once again, she should do her homework. You know, I’ve been saying to a number of guys, it’s not pretty website, or a pretty picture that’s going to make you fly. I think it needs to be something unique. You need to have something that will entice people to come to your site, or to use your product, or to use your service. So once again, I cannot reiterate it enough, is that if you cannot compete in a category, create a new category. And I remember the examples of the beer companies, I think it was in America. That, I think it was Miller Light,…
Andrew: Hmm-hmm.
Interviewee: that wanted to launch a beer. And the market was extremely overcrowded. And they came with the concept of this launch, a light beer. A new category.
Andrew: Hmm-hmm.
Interviewee: And they were extremely successful. And I think that’s the thing, if you cannot compete in the category, find something that is different. How will you be different from the guy next to you? And I think that’s the main thing. A lot of people are wasting a lot of time, a lot of money, maybe even some of their savings, to launch products that are identical to other people. I think that’s ludicrous. That’s crazy. You have to find something that’s unique. I think, do your homework. I mean, find out, what is your potential upside going to be. I mean if you launch a product for a very, very niche sort of group of people, and you’re out to get only 5 or 10 percent of them, you might end up with a user base that you can never, ever make enough money to cover your costs. So you need to do those sort of calculations, and see what you’re potential user base is going to be. And then, obviously, funding is a major, major issue. You know, many businesses just go under because they cannot find funding. And I was, as some said, when we ran out of money, I was looking at all alternatives. I mean, I had to consider going to the stock market as a public company. I considered over the counter shares, a sort of private company. I considered loans. I considered VCs. I considered everything. And that’s very stressful. And I think, what I want to really highlight is that, do a business grace. And you know, I spoke to many entrepreneurs that want to start something, and they’re not asking themselves, “how much money do you need?” And they can’t tell you. And you say, “How much money do you need next year? Give me your three year plan. Give me your four year plan. What are you going to spend on advertising, or on marketing?” And they can’t tell you. So I mean, then you’re doomed, because you’re going to go into this business. You haven’t done any calculations. The slightest hiccup that you’re going to encounter, you’re going to start querying your
own abilities, because you haven’t got the facts. So, I cannot stress it enough. Do your business case. Calculate your costs. Calculate your potential revenues. Work out what you need. Look at your competitors. How are you going to differ from your competitors?
Andrew: Now, would you have done that in the beginning? Because there weren’t competitors when you started out. There weren’t people who were doing…
Interviewee: Yeah, well.
Andrew: Uh-huh?
Interviewee: Yeah, we lucky. But I mean we had a very good idea of how many people have got mobile phones in South Africa? How many of them were in our demographics of between 16 and 21? So, yes, we had a very good idea that we could quite easily get to 10 million people using our software, just in South Africa.
Andrew: I see. So, you did your homework in the sense that you knew how many more phones were going to come on, were going to get turned on over the next few years. You knew how many people at your age group were going to be online and you said, “we have to find a way to get at them, and maybe it’s not going to be this multi-player game that we came up with. But, the audience is still going to be there, and there needs to be a way to get them. Maybe it’s going to be this mobile search engine with the social component.” You tried that, and that didn’t work. But the product failed, your understanding of the market was still true. More and more people were going to come online with cell phones, more and more of them were going to look for something to do. You then tried another thing, and another thing…
The transcript for minute 50 till minute 55 is BELOW this line.
Andrew: You then tried another thing and another thing and another thing and none of them worked but your belief in your own homework, in your own understanding of how big this market was going to be and how it was going to grow, still held true and that’s why you were able to continue. And that’s why you’re saying that homework is so important.
Interviewee: Absolutely. Yeah, remember what I said right at the beginning: we didn’t have a definite idea or a clear idea as to how we would monetize this. We knew that the number of users that we could get and I had this long spread sheet, it’s still actually in the company. It’s about four meters long of every potential revenue, every potential cost. I did the spreadsheet and as a matter of fact we were fairly close to spot on the first two years on the spread sheet.
Andrew: I see. I see. Okay. All right. That helps a lot. That helps me understand the situation and it also…it’s also very good advice for somebody who’s going to build any kind of product. I’ve got another question about your experience here coming in from AshNYC. And actually, let me change your question a little bit Ash, I’m sorry. But I’d like to know what the advantages are of being in South Africa, or being outside the US and Silicon Valley as a tech company.
Interviewee: I don’t think there’s any advantage.
Andrew: Really! Okay.
Interviewee: I think you guys…to start a business in America is substantially easier than it is in Africa, first of all. You have all the technology there. You’ve got an abundance of software engineers and ICT skills. You’ve got the numbers in terms of population. I mean, you’ve just got so much more available to start a business with. In South Africa we’ve got a small population, not even 50 million. A lot of them are unemployed. Our internet infrastructure is a fraction of what you guys have got. We’ve got a serious shortage of software engineers in our country. So it’s not as easy as you would think to start a business here.
Andrew: Does it help though that you don’t have as many competitors? Here there are not just lots of competitors for mobile but even in individual categories, like mobile location social networks now are becoming very competitive. Does it help that you don’t have that kind of competition?
Interviewee: Not really because we are an international company. I mean, we’re competing with…
Andrew: What about in the early days? At least when you’re getting going you don’t have to compete against Silicon Valley [INAUDIBLE] companies. Does that help?
Interviewee: Absolutely. No. You’re quite right there. Early days we had virtually no competition. I think there was one company somewhere in Europe that was about the only competitor when we started and they only focused on smart phones, on [INAUDIBLE] at that stage. No, you’re right. Early days for us it was easier and I made the comment a number of times saying that expect competitors to show up within 11 months or so. And so they actually only started showing up almost two years after we started. So we were really lucky to choose the time, the time of launch…we were very lucky with that.
Andrew: And also AndrewSG is saying that it probably helped…in fact, he’s saying that the lack of infrastructure probably helped your core business in the early days. That, yes it hurt you that text messages were expensive but it also helped you that they were expensive and that people weren’t able to use them because it allowed you to create an instant message based communication system and then from there transition to other products. Is that true?
Interviewee: Yes, absolutely.
Andrew: And Joan, in the audience earlier, when you were talking about the difference between South Africa and the US, in fact…I guess she was thanking you at that point. And I thank you for your honesty too there. It’s easy to come on and say, “My country’s the best, my city’s the best. Come on, Silicon Valley, you’re not as big or not as great as you think you are.” It’s a lot harder to be as open and as honest as you are. Okay. All right. Is there anything I missed? Do you have any last bit of wisdom for entrepreneurs who are looking to build internet companies?
Interviewee: I think just do your own work and be persistent and enjoy the ride. It’s sometimes it’s a tricky ride. It’s sometimes it’s very difficult. Sometimes it’s soul destroying but…
