Andrew: Hey there freedom fighters, my name is Andrew Warner I am the founder of Mixergy.com; home of the ambitious upstart. And this is a story of a bright entrepreneur with great ideas… who kept failing anyway. And it’s a story of what finally led him to create a company that he sold for one hundred and twenty million dollars. Nicholas Seet is the founder of Auditude, a video ad management company that he sold to adobe.
Today he is running Sivi a virtual incubator that will connect founders like you with team resources and funding without forcing entrepreneurs to move to Silicon Valley. I’m going to ask him about how he built up Auditude and sold it, and I also want to find out a little about Sivi (the company he is working on now). And I can do it all because of my sponsor, Scott Edward Walker of Walkercorporatelaw.com. Go check him out. And I will tell you why he is the lawyer to talk to if you are running a startup and need and lawyer. And who doesn’t need a lawyer? Nicholas welcome.
Nicholas: Thank you, Andrew, I am just so pleased to be on this show, and congratulations on passing the one thousand-interview milestone I was a big component of supporting Mixergy so congratulations on that as well.
Andrew: I appreciate it. It’s so good to have recognition from real entrepreneurs who have built real companies. So because you know me I think I can say this openly… When I first saw you at the launch fest where I was invited to do interviews on stage. I saw you and you just looked so assuming. I thought you were a brand-new entrepreneur who was just trying to figure the whole thing out. I was looking at the way your were dressed, and you were just wearing a button down shirt like you are right now it was actually unbuttoned and tucked in; Unbuttoned all the way and tucked in. And you had a smile on your face and you were just trying to get to know people. And I thought, “This is a new entrepreneur trying to figure it out”. And it wasn’t until you were introduced to me, as the guy who sold Auditude for over a hundred million dollars that I realized there was some big exit in your past. And I’m looking over your shoulder and I don’t see pools, I don’t see champagne. What’s going on here?
Nicholas: Well, I’ve learned over many years that humility is a very important attribute for every entrepreneur. Keeping a very valid perspective on where you are and how you got there. It keeps things real as they say, and for me over the years (and I started Auditude in 1999 during the first .com hay day). And after about 10 years of slugging away, building my company, I kind of gave up on the exit. I kind of thought you know that’s why I was in it to begin with maybe? But after 10 years it wasn’t about the destination it was more about the journey. And I loved getting up in the morning about building stuff with my engineers and my business development folks. And I loved seeing something new and the customers happy, and checks coming in all the time were always nice. But it was less about that giant exit and more about keeping the team happy, customers happy, keeping the eye on the ball and just having a great time while I was doing it. And so like I said,” It’s more about the journey than the destination”.
Andrew: And what a winding road that you took to get to the destination. But before I get to how you figured it out. And what a challenge it was, I think a lot of the people in the audience can identify with the earlier parts of your business. But tell me, did you buy anything after this sale; did you do anything that you couldn’t have done before?
Nicholas: Yea I did make two what I would call “impulse” purchases. And this is kind of a victory lap and something only a guy would probably do. I went and I bought a red Hummer and I bought an RV.
Andrew: Okay why the RV? I understand the red Hummer. It is an extravagant car that is kind of fun to have.
Nicholas: Because I’m also a dad, and that’s something else that happened during my course of Auditude is that my wife and I had two daughters, Anya and Mia who are now age 6 and 3. And now with the family, which might I add is a lot like starting a start-up company. Having children and starting a start-up are both equally momentous, equally time consuming, and mind consuming. So it’s some that I was…
Andrew: I see so the RV was a way to spend time with the family.
Nicholas: Right, I did it for the kids.
Andrew: Okay, alright back in 1999 in fact was it 1999 that you were looking around for an idea, that’s when it all started for you?
Nicholas: I was working for Deloitte Consulting, I went to college, four years later, $100,000 of other people’s money later I have this lofty engineering degree from this very good school I bet you’ve never heard of, Harvey Mont College and I got the job that everybody else wanted, all of my colleagues wanted to be a consultant, so I wanted to be a consultant. So I got the job at Deloitte Consulting and they stationed me in, silly for them, in Silicon Valley during the dot com heyday and I would go to work every day doing something very boring. I was connecting two ERP systems bond to people’s [inaudible 00:49].
And I mean, the code was fun, it was rewarding, but when I delivered this bond to people’s [inaudible 00:56] to the client they said “Thank you very much, our requirements have changed. We don’t need it anymore”. And I was like “What?” Meanwhile, in Silicon Valley I was going to coffee shops and everybody was talking dot coms and big VCs and millions of dollars and this sort of thing and I got it in my head that that’s exactly what I wanted to do. Meanwhile I was sitting in my cubicle thinking how do I do this dot com stuff before I can, how do I participate in this revolution that was going on outside my door. Fortunately for me, my uncles contributed a seed round of funding which got me out of my desk job and into my dot com that I started.
Andrew: How much seed money?
Nicholas: So between my uncles and some other friends we were able to raise around a million dollars.
Andrew: A million dollars. Okay. And you told April Dykman in an pre- interview that you did for Mixergy that you wanted to build a technical solution to your technical problem, like an engineer and developer with no market validation. Can you expand on that?
Nicholas: This is the whole problem, which I call from engineer to entrepreneur. Which I did engineering at Harvey Mont College, so I approach things like an engineer would. I have a great big problem. I have a huge pile of MP3s and no easy way to organize them. I don’t know if it’s track five MP3, I don’t know the, comma, Beatles or Beatles, comma, the. It was a big mess.
Andrew: Oh, let’s see if we lost you for good and if we did of course- sorry, we lost you there for a moment. So you were saying it was all a big mess, you couldn’t tell if something called track four, what that music was. So go ahead.
Nicholas: Right, so I said the engineering solution is how come I can listen to it and instantly identify what that song is and yet my computer has no idea. So we approached that problem from an MP3 automated identification renaming, retagging solution. So my uncles like I said, were interested in me becoming the next entrepreneurial big thing and so they contacted their MIT buddy and he put together the algorithm, which could identify automatically what those songs were based solely on their frequency characteristics.
Andrew: Okay, so you didn’t even create this, it was their buddy from MIT that did it, you were running the company. That doesn’t seem like a problem to me because it seems to me you saw a problem, you scratched your own itch, you understood that other people must have the same problem.
Nicholas: Here’s the problem. It was a problem for me, but in 1999, now many people had mammoth MP3 collections? How many people had heard of MP3? This was before Apple, before everybody. This was an era of Sonic Blue and Creative Labs as being the MP3 people.
Andrew: Got it.
Nicholas: Yes, I had amazing technology, but there was no one there to buy it. And so then if you make this widget and no one comes to buy it, is that really a company? Do you have anything?
Andrew: Knowing what you know today, if you could go back in time and tell your old self how to validate that idea, how would you have validated it to make sure that it was worth pursuing?
Nicholas: First you have to find the customer. It’s all about the money, who’s going to pay for it?
Andrew: Before you develop the product.
Nicholas: Before you start coding, before you start pulling engineers off their product, before you start shelling out money for these expensive things. And that’s what I would have done. Lucky for me there was a humongous customer who actually had a desperate need for that product at that time and that was Clear Channel. Clear Channel was listening to music over the radio and had teams of people listening all day long to the radio, writing down the names of the songs that they heard. They’d listen to a snippet of the radio. They’d type Stairway to Heaven, a seven digit code that identified that song.
Andrew: Why?
Nicholas: Why? [laughs] They’d be doing this nationwide for intelligence purposes. Who’s hot, who’s not? What stations are getting what plays and so it was an intelligence. . .
Andrew: Oh I see. They had stations all over the country. They wanted to see what their competitors were playing to see is there a song that their competitors are playing over and over again? What do they know? Why are they doing it; that kind of thing.
Nicholas: And not just their competitors, but for intelligence. Which artist is hot? Who’s up and coming and so forth to populate those charts and so forth?
Andrew: Got you. And they had humans doing this?
Nicholas: Humans! So, they approached Auditude and said can you help us identify music that our humans don’t want to listen to: smooth jazz, classical, Canadian music, Hispanic music. They didn’t have enough people to do those different genres. So, we said of course we can do that.
We can identify music on an mp3 file. We adapted our technology to identify music on the stream. Suddenly, Auditude was in a position to leverage the recording infrastructure off Clear Channel to start monitoring radio stations nationwide.
Andrew: Okay.
Nicholas: So, we did that for them and that was a multi-year, multi-, big contract and. . . .
Andrew: Did that allow you to be profitable?
Nicholas: Almost, now here’s the rub right. So, you’ve got a contract, you’ve got a great customer, but if you’re a tiny startup and they ask for an exclusive on the deal, what do you say?
Andrew: Of course.
Nicholas: You probably say of course. [laughs] Please, let me sign it for you. But, anyway, so they wanted an exclusive and. . . . So we had the biggest the customer and we couldn’t have anybody else. So, that was the end of that business which is not a large and scalable business.
Andrew: I see.
Nicholas: But, it paid for my MBA.
Andrew: I see.
Nicholas: At the UCLA Anderson School of Business where I went to study entrepreneurship and finance. And, I went there with this amazing technology and this big customer without a market or a customer. That’s when things took a very dramatic pivot, to use industry terminology.
Andrew: What chart. . . I’m sorry for a moment on the pivot. It seems like it happened very quickly then. Yes, you were wrong that there weren’t a lot of individuals that wanted to identify the tracks of music that they had on their computers because they didn’t have that many, but it seemed like instantly Clear Channel reached out to you and you had a customer. Was it that quick or was there a period there where things just felt hopeless?
Nicholas: Yeah, yeah, there were several meetings which were very, what I would say, depressing. You know, you go into the room and you say well the numbers are pretty much the same as the last few. We got few prospects, but they’re almost there, but not quite there. . .
Andrew: In the room meaning with your investors where you go back to them and say this idea is almost there, but it’s not there and you don’t have any customers to show that people want it.
Nicholas: Exactly! That’s when the investors start getting frustrated and why it’s very important to have good investors, patient investors, investors who believe in you, believe in the entrepreneur. . .
Andrew: Did you have that?
Nicholas: My uncles, yes.
Andrew: You’re uncles and their friends. Did one of their friends say, “Look Nicholas, this isn’t working, how about returning the money,” or put any pressure on you?
Nicholas: Never.
Andrew: Never. How long are we talking about, weeks, months, or years of this struggle before Clear Channel reached out to you and basically your first big customer?
Nicholas: It was a couple of years.
Andrew: Couple of years of this?
Nicholas: Yeah, right. Then similarly once we had the Clear Channel deal rolling, it was a couple more years and I was able to go to my MBA school and I was able to do a big pivot there.
Andrew: Okay. So, what’s the insight that allowed you to create the pivot that you’re going to talk about in a moment?
Nicholas: Well, it was basically we had an amazing technology for automating the identification of media. We said well it doesn’t just have to be music, it can be other things. It can be advertising and it doesn’t have to be advertising on the radio, it can be advertising on TV or radio.
TV or radio is a $60 billion market or was at the time. The realization that the people tracking who played what ad and when was my ad played, if you were the advertiser, how often was it played; that was all being done essentially by hand as well. So, it wasn’t people watching television it was it was people going through the broadcast affidavits where the broadcaster says I swear here’s where I played your ad. That was the state of the art of ad verification.
Andrew: I see. How did business school open your eyes up to this other market that could use the same software you’d already been developing?
Nicholas: Because I was able to interface with all sorts of other students from different walks of life, not just the, you know, straight and narrow engineering type approach. I was colleagues with ad buyers at media companies, with people involved in all sorts of different spaces and areas in…
Andrew: I see.
Nicholas: Yeah.
Andrew: So, getting out of your circle of smart engineers and getting into a circle that’s broader of business people in general, of people who had jobs at lots of different industries, opened your eyes to other opportunities. It wasn’t a class that said look, Nicholas, what you have to do is do research. It was the people who you met in those classes.
Nicholas: Exactly.
Andrew: Got you.
Nicholas: Well, one class, ironically, was very helpful in making a mental pivot. Because when I pitched that class I said we use psychoacoustic modeling technologies in order to characterize frequency waveform, blah, blah, blah.
The teacher stopped me, and he said Nicholas I have no idea what you’re talking about, but if you could just reframe that as a business problem. Don’t talk about the technology. Everybody’s interested, but it is an appendix. It is not the beginning of the story.
Andrew: So, if you were to rephrase it based on that one thing that you learned from your teacher, how would you rephrase the business that you had as a problem?
Nicholas: We track ads on TV and radio in order to make sure that those ads were played correctly. Because…
Andrew: I see.
Nicholas: …it’s a $60 billion ad market. We found that upwards of 10% of those ads are incorrectly played.
Andrew: Got you. Again, I’m seeing two problems there. You’re tracking using software. I mean the problem is tracking with humans and the cost of paying for ads that don’t ever get played. I see.
So, what we should take away from this interview, one thing we should take away is if we’re describing what our business is we should describe it as a solution to a problem. We should put the problem forward and our business as a solution. The tech part or the way we solve it comes later on.
Nicholas: That’s right.
Andrew: Got it.
Nicholas: That’s exactly right. And, that concept alone was so powerful it enabled me to win the Rice University business plan competition which is one of the largest business plan competitions in the world with millions of dollars in prize money, hundreds of judges, and, you know, lots of competitors from all the M.B.A. schools from throughout the world. That’s something that was a phenomenal… Put us onto a rocket ship trajectory.
Andrew: Because you won the business plan competition. But I’m wondering why did you even enter the business plan competition. You already had built a business. You had a customer.
Nicholas: A customer. It’s singular. I wanted out of the music identification business as well. I wanted something bigger for the technology. Ad tracking was, I believe, that next step.
We won the competition, and what that enabled me to do was to focus on the advertiser as the customer. And, we went to market with that product. Of course, we had lots of positive support. Everybody said yes we want to know where our ads are playing. I had presentations at General Motors and Nationwide and all these big, big advertisers.
Andrew: I see.
Nicholas: But, what they all told me was that yes, it’s wonderful you can track our ads, but we don’t actually do the ad buying. We don’t actually pay the broadcaster. We don’t actually check the broadcaster’s playlist. Our ad agencies do. So, those are really the people you need to talk to.
And I said okay, yeah, I’ll talk with those people. So, I went to all the big ad agencies with this product with very warm introductions and top floor executive, senior vice president level meetings. What they said was wonderful product, but we’re on razor thin margins. We’ve been checking these broadcast affidavits the same way for decades. Who are you to come in here, make us look bad in front of our customers, and you want us to pay you? Not going to happen.
Andrew: Wow.
Nicholas: So, that was a sad ending to that middle phase of Auditude.
Andrew: But, couldn’t you at least have been saying look, what we’re going to do is cut your costs – you no longer have to have humans go and audit each commercial – and increase your effectiveness because so many of the ads you’re paying for aren’t being played? And, we could keep it secret. You don’t have to tell people that you’re doing this.
Nicholas: I said almost the exact same words.
Andrew: But?
Nicholas: And they said, “No.” They didn’t say ‘but’, they said, “We’ll get right on it. We’ve got a lot of things to do. We’ll put it in a pile. We’ll get right back to you.” And guess what? They never got back.
Andrew: I see. So, you know what, one of my mentors, Bob Piler [sp] says, “Nobody wants anything except for solutions to problems they already know they have or accept that they have.” So it’s not enough even for you to say, “You have this problem.” If the person doesn’t accept it, he’s not going to want the solution.
Nicholas: Exactly right, and the lesson there was that, don’t take a piece of somebody else’s pie. Try and make the pie bigger so everyone wins. And if you can say those words, ‘and everyone wins’, after your presentation or product pitch or whatever, you’re onto something.” So that’s where we said, and in one of those extremely depressing board meetings where all of the directors are just shaking their heads and saying, “Nicholas, it’s not working.” That’s when we have to do the last major pivot.
Andrew: Let’s hold it for a moment. I want to do a sponsorship spot, and then I want to ask you something about the smile that I see on your face right now because I think it’s important. Don’t hold back. The sponsorship thought is for Scott Edward Walker, he is the entrepreneur’s lawyer. In fact, instead of me promoting Scott Nicholas, do you have a legal tip or a tip for entrepreneurs who are looking for lawyers or structuring their company? That could be even more valuable than me doing a spot for walkercorporatelaw.com.
Nicholas: They’re on your side. Lawyers are good, and I’m sure Scott Edward Walker is a good lawyer for startups. They will listen to you and they will not try and do your job. You want a lawyer who is able to take what you give them and turn it around and not be creative and not try and do your job which is to think on behalf of the customer, and think what does the customer need, or what do they want, and what product are you delivering to them?
The lawyer is the executioner of your vision, not the creator of your vision.
Andrew: That makes sense, and in order to find out if Scott Edward Walker or any lawyer is that person, I suggest you reach out to them. But I’ve got to tell you something, Nicholas, one of the things that I’ve discovered is: entrepreneurs will spend more time picking the right app to do calendaring on their phone than they will to pick the right lawyer. When it comes to the lawyer, they’ll pick the one that defend recommends, or the one that’s the biggest name and then they’ll sign up with that law firm, when it comes to an app, they will spend time online, looking at what Life Hacker has to say, trying this app, trying that app. No, it should be the other way around. Your lawyer’s going to have a much bigger impact on your business than any app that you put on your phone today. So I recommend, even if you say, “Look, I don’t trust Andrew, he’s getting paid by Scott, I don’t think this is the right lawyer.”
Even if you have any doubts, include Walker Corporate Law in your list of firms that you check out. It wouldn’t hurt you to talk to them, and my guess is that you’re going to find the same thing that I, a relative of mine that I recently introduced to Scott who’s now a client of his, and dozens of other entrepreneurs that you guys in the audience all know and respect have all come to the same conclusion: Scott is the entrepreneur’s lawyer, the one worth working with.
And I urge you to at least contact him, you can find all of his contact information at walkercorporatelaw.com.
The smile is this: I don’t know you super well, we’re not best buds, but I think I’ve got a sense of you, having seen you in person, talked to you online, even send the e-mail that you send, you’re a happy person! When you’re going through this depressing period, are the depressed the way that I would, are you doubting yourself, or is this personality that I’m seeing here just constantly out there.”
Nicholas: You have to have this consistent sense of optimism, that tomorrow will be better than today, and that is the only thing that will get you through the darkest periods. Surround yourselves with great supporters, my wonderful wife, my mother, my brother, they’ve all been great supporters.
Andrew: But don’t you feel like a fool or a fraud if the environment, the business world, is telling you this idea doesn’t work? You’re getting into meetings with people who are smart, who are in the space that you want to get into and they’re saying, “I don’t want to work with you,” don’t you feel doubt, and don’t you, if you overcome that doubt by saying, “I think that tomorrow’s going to get better,” feel like, “I’m a fraud. What am I trying to do? Trying to fool myself into smiling?”
Nicholas: [laughs]. There’s definitely some of that, but as the CEO, with employees, you are the flag bearer. If you are sad, you can’t go to your employees and cry on their shoulder. It’s something that the buck stops with you, and if you don’t believe in the company, there’s nobody else who’s going to because they’re already betting on you and your belief. So a lot of it is that sense of hope, that self-delusion, whatever you want to call it, but it does get you through those rough times. And indeed, sometimes it is a better time tomorrow, and those are the times you can look back and laugh about how bad it was during the lows.
Andrew: One more question before I move onto the pivot, and that is, you mention business plan competition as being a critical milestone for you. I’m wondering, is it because you wrote a business plan and therefore, you recommend to people in the audience to write a business plan, or was it just the fact that you had a formal, structured opportunity to present to investors, to present to an audience of people?
Nicholas: It is both. Being able to slow down and to structure your thoughts on paper, to do the research without the pressure of customers expecting a product, or developers waiting for their next specification, or whatever. Taking a break and going back to basics and really creating the best plan that you possibly could is a great tool for entrepreneurs. You could structure your entire business on paper without spending a single dollar, and that’s an amazing tool. You can do that in the comfort of your own home, in front of your computer in total privacy. If you’re ready to take the next step, now you need feedback on the plan. And that is, getting as many people as you possibly can to read your plan, read every word of it, and tell you what’s wrong with it. And if you do that with enough people, like at a business plan competition, you will have an amazing plan.
Andrew: Gotcha.
Nicholas: Waiting to be tested by the market.
Andrew: I see. So it was that thought exercise, that forced examination, and not just the forced examination but the opportunity to really think through your ideas and the feedback that you got from it that helped you out, all right.
Nicholas: Exactly.
Andrew: And then you took it out, you got that negative feedback from agencies that said, “Are you trying to cut us out and give our customers a way of seeing how wrong we were? We don’t want to do business with you,” or, “Come back, let us think about it,” which really meant, “We don’t want to do business with you.” Then you pivoted. How did you come up with the last pivot?
Nicholas: Like I said, instead of taking a piece of somebody else’s pie, try and grow the pie. And what helps you to be in a growing pie, or growing the pie is to be part of a large and growing market. And online video was large and growing at the time. During that pivot, YouTube was getting a phenomenal 40,000 uploads a day. 40,000. Unbelievable at the time. Now it’s probably 10X that. Anyway, it was big enough that it was peaking the interest of those same advertisers and those same agencies. They were able to say, “Wow, there is 10X the number of views of this pirated content.” Just say you were at a television studio like Comedy Central, part of the MTV networks. Their Steven Colbert report, pirated as uploaded by a user would get 10X the number of views than their officially syndicated one. So their immediate reaction was, “Let’s take it all down. Shut it all down. This is piracy. Piracy bad.”
And then what Auditude was able to do, we said, “Well of course we can help you with the piracy aspect, but we were able to say, “Instead of taking them all down, why don’t you leave them up there. Instead of making the pirates sad, and the users sad, and the website sad, serve a little ad in the bottom, and now everyone wins. The user gets to keep their video, the viewership numbers are amazing, and you get a cut. So everyone wins. And those are the magic words. If you can say “And everyone wins,” then you are onto something.
Andrew: And really, truly everyone from the pirates to the content creators win, and everyone in between. How did you even know that was a problem that you could address? You’re not in the world of video; you’re not in the offices of Viacom where this problem is discussed endlessly. How did you find the problem?
Nicholas: This is really where it pays to be just doing anything. And when you’re in the weeds, when you’re going through and talking with customers, one of them will say, “Have you talked with,” whoever, Adam Cahan [sp] in my case, who was the executive Vice President of MTV networks. I didn’t know at the time, but MTV happened to be trying to sue YouTube and was looking for a way to identify all of these so-called pirated content. You can see for yourself where that lawsuit ended up. At any rate, that was the driving force.
Andrew: because you kept talking to people over and over, one of them says; in fact not just one, many of them said, “Hey, you know what Nicholas? You should talk to this guy. He’s got this problem that you can solve.” And another one said, “you should talk to that guy and eventually one of those ideas ended up panning out and it was identifying pirated content on, was it just YouTube or across the web on different video platforms.
Nicholas: On all of the video platforms, but YouTube was by far the biggest. It still is.
Andrew: So, was Viacom your first big customer of this new product?
Nicholas: That’s right. They were able to invest. Adam, the Senior Vice- President of Viacom stepped down to become CEO. We were able to then raise $10 million dollars from Graylock and RedPoint and another, $10 million as a follow up to that. And Viacom contributed some money as well.
Andrew: What about the exclusivity then? This was a problem with Clear Channel. They helped support your big idea but they said, No, Nicholas, you can’t take it to anyone else and you were small enough that you feel that you had to take that exclusivity. How did you avoid it this time.
Nicholas: This time we learned our lesson. This was a, we were building a platform. the customer was paying us to build a platform that we would license to other potential customers and we were able to close deals with a license to other potential customers and we were able to close deals with all of the major broadcast studios and were able to grow a significant enough business in that space.
There was one final, semi-pivot which is that we said, “Instead of us identifying and serving ads on just the ‘pirated’ content, why don’t we help you monetize your official, your legal content.” And that was something that was a surprise to use because we thought, “Well, they’ve, probably got that under control.” But MTV and MTV networks and the other, NBC and CBS, they said, “We are using a very old system to monetize our video, we’re using double-click by Google now,” and that is for advertising on web pages.
Web pages have no idea about rights issue, like this video can only be played on every second Tuesday while the movie is not running and only in Southeast Asia, for example. All of these obscure details, like somebody has to pay the writer, the producer, the guy who owns the clock in the background and so forth, all of these things are not captured by a static webpage monetization agent. So, there was an opportunity for which of course we seized to become the de facto video advertising engine for all of our broadcast, clients.
Andrew: The video ad server, but it wasn’t just a video ad server, and apparently it became the fifth largest video ad server, but was it also the video server itself, or were they using their own product to serve their videos and you were just the layer on top to serve the right ads?
Nicholas: Yeah, mostly they were serving the video themselves, and they preferred it that way. We were the video ad server and what was interesting was we were able to form partnerships with the large companies, YouTube included, and obviously, they had forgiven us for past perceived transgressions. But anyway, so we were serving ads to YouTube and Daily Motion and MTV.
Andrew: Was there a period where YouTube was upset with you, where they said, “Hey, this Auditude Company is just, causing too many problems for us?
Nicholas: Different divisions – if you’re talking, with lawyers, you’re going to hear lawyer-speak, if you’re talking with advertisers and content creators and things like that, you’re going to hear a very different conversation.
Andrew: So, YouTube’s lawyers did not like you. They saw you as part of the enemies camp, but YouTube advertisers and content creators, they felt like, This is a company we could work with.”
Nicholas: Yes and no. The only minor “no: is it depends whose asking. If it’s little Auditude, the answer is probably, “We’re a very busy company, we’ve got other people to serve.” If MTV or Viacom is making the ask on your behalf, if the big customer wants you in, you are in.
Andrew: Oh, I see. YouTube didn’t want to work with you; it was Viacom that said, “If we’re going to work with YouTube, we have to have Auditude software in there.
Nicholas: Something like that.
Andrew: Where am I wrong? I appreciate that it’s something like that but I want, to get it more precise so that we have a real business understanding.
Nicholas: No. I’m leaving out the precision on purpose.
Andrew: Why?
Nicholas: This lawsuit, I will never hear the end of it.
Andrew: I see. Okay. Were you dragged into the lawsuit at all?
Nicholas: Yes, I’ve never been [inaudible 00:00:11] and put into a room full of lawyers and asked to answer questions. The same question, mind you, over and over.
Andrew: Oh, you were supine at this time.
Nicholas: It’s a horrendous, life draining experience.
Andrew: Because if- why is it life threatening for you?
Nicholas: Not life threatening, life draining.
Andrew: Life draining, I see, because you had to keep going through this legal process that really wasn’t growing your business, it was a drag on you. It wasn’t that you were going to get sued or anything.
Nicholas: Yeah, and they’re trying to provoke an emotional response. You know, one of those outright breaks, like, “I told you that!”, or whatever. And then they’ll use that out-of-context in some sort of lawsuit somewhere, and so you really have to keep your cool, professional, and just answer the question. Don’t add color.
Andrew: You know, I don’t want to rush over the technology that went into your company. We almost acted like being smart and having the tech was a problem because it kept you from talking to customers, and yes that is true, but it’s also the biggest asset that you had. Even the little MP3 identification software ended up getting bought out, and we’ll talk about that in a moment, it was great technology.
How do you create such great technology when you told me in the beginning, “It was just something that we brought an MIT guy to do.”
Nicholas: That’s the real [??]. If you’re going to build a technology, you have to have a destination in mind, otherwise you will be on the [ten year] road map like I was on, wandering around in the woods looking for that customer, that mythical customer that may not exist. That is the problem with starting with a raw technology. If I’d started with a business that I was passionate about, that I knew there was a problem there, and I knew I could solve it, I believe that would have been a shorter path to success, and that’s certainly what I’m doing the second time around.
And I’m fortunate to be in that position where I’ve had a year off and I’ve been thinking, “What I do next?” And that, “What do I do next?” is everybody should be as liberated as I was after ten years of pain and suffering.
Interview: How do you do that? I’m on your website right now. I see Sivi; I see it as an online incubator. Let me see, “Get energized by inspiring stories. Find out your entrepreneurial profile.” Let’s see what else is on the home page. “Learn fundamentals of entrepreneurship.” Is this just a site like Mixer-G that teaches people how to build a business?
Nicholas: So there’s lots of learning, of course, and there’s lots of ground to cover, and we’ve tried to make it as palatable as possible. Short videos, multi-choice questions, those sorts of things, but learning is really only the beginning. And then it’s time to put pedal to the medal, and that’s what Sivi is all about. It’s about trying to help you form a team, find mentors, and finally, put out a crowd-funding campaign together.
And those three things, if you have a team, mentors, and financing with a good idea, you are on an automatic trajectory for success.
Andrew: How do you help people find a team online? I understand if someone goes into an incubator or if somebody goes into one of the programs here in San Francisco that they’re going to naturally bump into other entrepreneurs and they’re going to partner up, but when it’s done online, how do you help a developer find an entrepreneur who’s a good salesman and help them both find someone with business dev experience that could introduce them to someone else?
Nicholas: How did you meet your spouse?
Andrew: She came to a Mixergy event.
Nicholas: Wow. [laughs]. Good answer. But for a lot of people the answer is online, and online provides lots of the interactions that you need to take place. You need to identify who that person is, what are their skillets? Where did they stand in terms of their current position of their ability to get involved in your business. So we think that, with an online system similar to online dating, we will be able to match entrepreneurs together, and probably in their local community, and if not in their local community, then in their global, virtual community.
Mentors, team formation is one of the biggest value ads of this New Sivi project.
Andrew: It’s sivi.com. What does that stand for? And then I want to ask you about who thought that part of your business.
Andrew: Scalable Innovation Venture Incubator. You sold to Adobe, why? The business was going well, you enjoyed it? Why did you sell the part the part that we just talked about to Adobe?
Nicholas: Well, it wasn’t entirely my call. I had brought in a new CEO who was actually very new, he had just started the previous year. So generally, [health fan], who was the number two at a previously public company and he was able to really bring it all together for building an end-to-end video ad server, and that was something of great interest to Adobe corporation who was building the exact same thing, from create the ad, monetize it, and track it, and they previously Omniture the previous years for a billion dollars [??].
Andrew: How much of the company did you own at that point after raising money so many times, after bringing in a CO?
Nicholas: You can use your imagination. I was pretty diluted with that.
Andrew: You were. Was it more than 10%?
Nicholas: No comment.
Andrew: Really, you can’t share that. The surprising part is that you’re the one who shared what the exit was, it was 120 million dollars, right?
Nicholas: I would correct you there. I didn’t share that number. I don’t know where you got that number from. I agreed with Adobe after I was their employee for a little while that I would not disclose that number. I don’t know where that number came from, so you probably did some Google search, wherever… there it is.
Andrew: I could have sworn that I got that number from you- let me see where I got that number. I could have sworn that it came from Ashok. Ashok Kamal is your co-founder, right?
Nicholas: Right, and I don’t know where he got that number from, so…
Andrew: You know what, I’m glad that we addressed this because I want to be accurate in my data. I did look online to see if I could find any confirmation and what I found was a venture beat story that updated itself by saying that the updated number was 120 million, mostly cash.
Nicholas: No comment.
Andrew: I know, I could understand. And then the other part of the business, the part that was identifying MP3s, who did that go to?
Nicholas: Out to Yahoo.
Andrew: Why does Yahoo what to buy that?
Nicholas: Because they were very interested in the technology that was identifying our content. That is really the irony, was that Yahoo purchased the technology but Adobe purchased the business. So lesson learned is that [same], you know, am I an engineer or am I an entrepreneur story. That Yahoo acquisition was much smaller. I would put it on the order of 10x smaller, that the technology went for much less than the business.
Andrew: And the business, can it still function without the technology?
Nicholas: Well, there were cross-licenses and all sorts of stuff.
Andrew: I see, so Adobe can still use the technology even though it didn’t own it.
Nicholas: Yeah, correct.
Andrew: Wow, I didn’t realize that they’d even want to do something like that, especially for 10 percent more, they could do the technology also. You know, you’re the second entrepreneur, who before we start the interviews, we do the pre-interview, we ask guests for books that they recommend. You’re now the second entrepreneur in two days who’s said, “I don’t recommend books, necessarily, I’d prefer people watch more curated content online.
Nicholas: [laughs] It’s a truism, it’s that life is too fast these days to slow down and do some deep thought and deep reading and so forth. I am a great proponent of online video content, especially curated online video content like the kind that Sivi serves. It is a much more efficient way to distill and ingest those grains of knowledge that come out of interviews with entrepreneurs for instance.
Andrew: You know what? I’m finding the same thing. I’ve kind of given up on books as way of learning for business because it’s just not up to date enough. Like how long did take Eric Reese to write the Lean Startup book after he started talking- in fact, after he did the Mixergy interview? So by the time he wrote the book, yes the ideas are still valuable, yes it’s important to see him really articulate it step by step, but it’s not meant for us who are on the bleeding edge, it’s meant for people who hadn’t yet discovered him through blogging and seen him live, and so I’d suggest that yes, you’re right, watching the Mixergy interview years before the book came out is a better idea than waiting around for him to come out with the book.
The one challenge that I have is, I like book-length dives into a topic. I like sitting there with my Kindle and reading and spending time on it and I think we haven’t yet done a good enough job of turning these interviews into contents you could read on a Kindle like that and I’m not really sure that there’s enough of an audience for it that would want to do that versus throwing it on an MP3 player, or an iPhone, or an Android phone, and listen to it on your commute, or on your run, or at the gym, or whatever, at the desk.
Nicholas: Right. There’s definitely a place for deep thinking, and strategizing, and planning, and all of those things. And if you are in that business creation phase, you spend as much time as you possibly can on that before you have customers breathing down your neck, investors, team mates, etc. The beginning period is that clean slate as Judge Guy Kawasaki said. It’s the untouched snow, the landscape where you can do whatever you want and so take that time to ingest content and really make a good business plan or [??] canvas or whatever your thing is.
So having a good strategy out the gate is a great way to do it and one way we’ve found to do that was we participated in an accelerator in Oklahoma City. [??] and I partnered up to form this [??] venture. The question is how many other people can have that three month of nothing else, focused attention on one thing? Not many people. And it’s not that they don’t have the time. It’s mostly that they don’t get in. I think . . .
Andrew: And your vision is to give them that experience without having to go into an incubator.
Nicholas: That’s right, virtual incubator. We try and we like to say democratize entrepreneurship. How do we level the playing field so that everybody, the stay at home mom, the solo entrepreneur, the person working full-time at the Los Alamos National Lab for instance can still have a shot at having their creative forces unleashed and become the next startup?
Andrew: I’m just clicking through the website here. I should never have your site up while I talk to you because it’s so easy to click around. I want to tell people as a follow-up to this and I’m going to ask you a question to wrap up, something very important that’s more personal, and needs to be talked about more publicly, but first, look. I do love books, guys, and I know that if you’re a reader that you’ve got your Kindle, or you’ve got your books coming in from Amazon, or some other place, and you enjoy reading them because you like to study, and it’s important for us to learn more. But I do believe so much more in this more current learning that comes from listening to entrepreneurs dive into their businesses and talk about them in a way that’s relevant to us today.
One of the things that we do at Mixergy here is, I like to think of these interviews as courses almost where I don’t want to do what every other interviewer in the business space does which is say, “You know what? I don’t know anything just like my audience. I’ll ask the same questions that someone who doesn’t know anything is going to ask.” And that’s what an interview is, me just sitting there and winging it. I don’t fault anyone for doing that and I know that’s the way everyone else does it. It’s just not me.
I like to be very anal. I like to spend a ton researching my guests. I like to spend time and hire actually people to do pre-interviews, to do research for me so that I can give you my listener, my reader, because we have transcripts, my viewer, to give you all a story that is book quality, a story that has the ideas that you need deeply enveloped in it. And that’s what Mixergy is all about and if you want any proof of that, well frankly you have it here by having listened to this interview, but you can go back and listen to Eric Reese’s interview and see lien start-up ideas explained in detail, challenged at times in a way that they wouldn’t be challenged if they were just written in a book.
We have over 1,000 interviews like that. I urge you to take them, to read them, to watch them. And by the way, yes you could read them on a Kindle too. We have the transcripts available. I hire transcribers for every interview so that you can read it if that’s the way you prefer and I know more and more people prefer to just do that, or listen to them, or watch them. It’s all available to you at MixergyPremium.com and in addition to these interviews I also have courses where we go deep into a topic and talk about specifically how do you validate your ideas step by step, what questions do you ask of a customer to understand if the idea you have really is something that they want and want badly enough to pay for it.
How do you get customers to tell you what their problems are that are so big that they’re willing to pay you for solutions? You can’t just talk to them and say, “Hey, what are your problems?” You have to ask them in a way that will really draw them out. Most people aren’t even aware of the things that bug them a lot. You have to really bring it out of them. Anyway, all of that and so much more is available for you at MixergyPremium.com. Thousands of entrepreneurs have signed up. Many people who have interviewed here have listened to interviews along the way just like Nicholas has said and there’s a reason for that.
This is meant for real entrepreneurs to help them build real businesses and it’s been proven over the years to work. Go to Mixergy businesses and it’s been proven over the years to work. Go to mixergpremium.com right now and sign up! Alright, here’s something that you said that I thought was a little bit politically incorrect but important to talk about. You said, to April Dykeman, she’s so good that she wrote this down, she said, “Having kids is like a startup, so if you can, start your business before you have kids.”
Nicholas: Yeah, no, a see where the political incorrectness is. It’s not to say that you can’t do it with kids, it’s just that kids are a major distraction. If you have to prioritize, what’s more important, your startup, or your first born child? So making time for both is extremely had and your time will be pulled in so many different directions by your startup or by your child that it’s going to be a distraction, and that’s the last thing you need, because startups are really an all-consuming thing.
My kids are now at kindergarten, which means I now have 6 to 8 hours a day with nothing else. Wonderful, now what do I do with myself? And that’s where the entrepreneurial juices get flowing again and things get back on track. So I would say that if you have the luxury of in-laws or child-care facilities or deferring having children, you should take advantage of those abilities while you’re doing startup.
Andrew: I get it. I just had a child a few weeks ago. I now understand why people say it’s so tough, because he wakes up in the middle of the night and we have to do something about it. One of the things that we did-
Nicholas: Congratulations.
Andrew: Thank you, it’s been really fun, and I’m glad that I’ve had time away from work so that I could go and spend time with them. But when Olivia was pregnant with her- she was out there pregnant, we went to visit a school, and we said, “Can we enroll our kid here after he’s born?” And they said, “Yeah, but you have to start signing up right now.”
So I started paying for school, for this baby, before the baby was even frigging born.
Nicholas: Guess what? It never ends. [Chuckles].
Andrew: I can imagine, and it’s expensive, and frankly, San Francisco is a really tough place to do it. Really tough place to do it. I’m paying more than I paid for college for a baby that’s not even old enough to go to school.
Nicholas: [laughs] Pay for it, that’s all I can-
Andrew: [laughs] I get what you’re saying. But I should also say that I’ve talked to many entrepreneurs who have said that starting a business after having a child gave them increased focus. There was no screwing around. When they were sitting down, they weren’t wasting hours on Hacker News, procrastinating instead of getting work done. They said, “No, I have this baby, I’ve got to take care of him, I have to show this child that the father this child has is worthy, is there for them, is smart enough, is capable enough, and I’m going to not jerk around, I’m not going dick around, I’m going to sit and work hard, and that’s what brought it out of them.”
Nicholas: A change in perspective is what I would call that, and that is what children are. It’s a life-changing perspective that you now take yourself- you’ve got to be that person, you’ve got tube that dad or that mom or whatever and really live up to the expectations or what you hope the expectations should be.
Andrew: You don’t want them thinking their dad’s a bum. You know, one other thing you said, actually, and we should end in a moment but I want to address this, you said you really have to get your spouse’s backing. I remember even the little things, like running into work. It became a source of friction between me and my wife. It wasn’t until I said, “Look, it’s really important for me to run, and I need to- I need to run into work because that’s the best time for me to get some exercise, and will help me do that?”
Then she started buying into it and helping me and the friction stopped. She was now on board. Do you have an example of how you did that with your wife for work?
Nicholas: Yeah, I would say that your wife or your spouse is probably your most important team member that you can have. She is part of your team, he or she, regardless of the way that you set up your business. And having a supportive spouse is critical to your success because then you can focus on the business-
Andrew: But I’ve had a lot of friends who’ve said, “Look, I want to start this business, my wife is very worried, she doesn’t want me to do this, and I can see that there are, if not outright hostilities, there is friction there. How did you get your wife on board with this idea that you’re going to build this business when it took years for it to really do what it needed to.”
Nicholas: Yep, so it was a- initially, it was a love me, love my business sort of thing, but after that, reality sets in and you’ve got to say, “I’m going to make this work because,” and you’ve got to have a good reason. That is your business plan. You have to have that roadmap. Part of that compromise in order to make that work was I picked up and left the heart of Silicon Valley. I left my pad at Palo Alto where I was living large, just off the Strip. And I left and I now live in Los Alamos, New Mexico. And you’re like, where? I live in the high desert and there’s only one Starbucks, and there’s nothing else except for a few local shops.
Andrew: As a way of cutting down costs so that you’re lean enough to run your business and your wife doesn’t worry about money.
Nicholas: But my wife works at the Los Alamos National Labs.
Andrew: I see.
Nicholas: And so I’m supporting her career. At the same time, I’ve dramatically cut my cost of living. I’ve provided. I used to hate Los Alamos because it was so quiet and everything shut at 6:00 and stuff like that. But it’s the best place to raise children. I love it now. I love it here, that I don’t have to lock my door. I do luck my door, but . . .
Andrew: Good. Did you become a millionaire from the sale?
Nicholas: No comment. Don’t push me.
Andrew: I can’t figure you out. Because you’re right. I’m looking over, on the one hand, you’re living in a place where you’re cutting down costs. And I’m looking over your shoulder to see what’s going on and it seems like you’re living in a pretty modest place. On the other hand, you sold a business that Venture B is claiming sold for over $100 million.
Nicholas: Press. You know? But no, I’m living in the only place that sort of resembles a Silicon Valley condominium. I’ll show you around. Yes, all of these freedoms were bought because of my exit from Auditude.
Andrew: I see.
Nicholas: These are luxury items. I think you look deeper. You ask yourself, would I be as happy living in a condominium in Los Alamos or in an expensive pad in the middle of San Francisco?
Andrew: Let me tell you something. I remember going into the Hollywood Hills and seeing people’s giant homes. I’d be happier in one of those. We’re talking about giant, overlooking the whole city, big pools.
Nicholas: You’d think that. But it’s a maintenance headache, I tell you.
Andrew: It is a maintenance headache, and you’re right. At some point, I don’t want to deal with anything. I want the simplicity that I used to have where I could just live out of a backpack, with a bike somewhere.
Nicholas: Yeah. There are some wonderful stories about people who’ve sold everything and moved to Fiji or whatever, and they’re living the good life.
Andrew: Well, I’m proud to see how you’re living the good life now, always happy, and it couldn’t have happened to a nicer guy. Congratulations on the success. Thanks so much for talking about how you did it. If people want to connect with you, they can go to S-I-V-I dot com. Right at the bottom, it looks like there’s an email address: info@sivi.com. Does that go to you?
Nicholas: It goes directly to the two founders.
Andrew: That’s what I figured. You guys are at the early stage and this is the stage to really connect with you because you’re going to be so incredibly accessible. As the business gets bigger, as the community gets bigger, there might be more and more layers. Today, people can just go right to the page and connect with you.
Nicholas: Exactly.
Andrew: Good time to do it. Thank you so much for doing it. Anyone else out there who wants to connect with this guest, with Nicholas or with any one of my other guests, I am telling you, proven over the years, the best way to do it is to just send a short email saying, “I saw the interview. Thank you for doing it and because of it, here’s one thing that I learned.” People feel so proud of having passed on that knowledge to you. People are so grateful that you’re not asking them for something right off the bat, that it helps build a warm relationship that then can grow into something bigger. And I’ve seen it grow into something bigger. And I’m not going to give you examples of it because I don’t want to encourage people to say thank you just to get some kind of prize at the end. I want you to do it because you’re going to feel good for yourself. Try it right now. Go and say thank you to Nicholas the way I am. Nicholas, thanks for doing this interview.
Nicholas: Thank you very much.
Andrew: Thank you all for being a part of it. Bye, guys!
