If you try an experiment with me, I’ll tell you a secret. If you go to freshbooks.com and create a brand new account, of course, refer to Mixergy when they ask how you heard about them, but if you go to FreshBooks and create an account and send me an invoice, my email address is email@example.com, well if you use FreshBooks to send me an invoice, I will respond and tell you how much money I made with this add. I know you must be curious. I’ll answer the questions if you invoice me. The other thing you’ll discover is that invoicing with FreshBooks is dead easy. No more headaches, no more wasting time. You can create your invoice lickety-split. Lickety-split, that’s the word I’m looking for. That’s a phrase. Dead simple. Makes your company look professional because you can design it yourself, and best of all, you get paid quickly with FreshBooks. Go to FreshBooks.com, create your account. Try it out on me. Send me an invoice, and if you do, I’ll reveal a secret to you.
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Hey everyone, my name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart and where successful entrepreneurs come to tell their stories.
Today’s focus is on a founder who’s company was bought out in a talent acquisition. Joining me is Nori Yoshida. In 2005 he founded Kenlit, which started as a question and answer site and pivoted towards crowdsource content. His company was later acquired by Salesforce where his whole team went on to work. Today he runs Curebit, a Y Combinator company that incentivizes your customers to refer their friends. My goal in this interview is to find out about where the idea for Kenlit came from, how the company evolved, why they sold to Salesforce? What happened in that talent acquisition? We’ll find out about before and after the business too.
So Nori, welcome to Mixergy.
Nori: Thank you. It’s good to be here.
Andrew: How many people did Salesforce acquire when they acquired your company? How many people did you have?
Nori. It was three of us. We’re still actually still working out of, one of my cofounder’s living room. It’s me, another guy and one more person. It initially started out with two people. We left. We both graduated from MIT. We worked at Oracle. This was kind of down during 2002 when the dot com bus was in full swing, and Oracle and Microsoft were probably one of the only few companies that were hiring. When went to Oracle, it was almost like a class reunion. We saw so many of our friends, classmates there. After a couple of years, it is a large company, and we decided, “Hey, we want to start something on our own.” The two of us broke off and started working on another product and then we had a friend of ours helping us a little on the side, and he ended up joining us later. In total it was three of us.
Andrew: Okay. And when you sign a deal like that, without a huge payout, but also without a bankruptcy, somewhere in the middle how did you feel the day that you signed the contract?
Nori: You know, it was definitely a bittersweet moment. Certainly, it was a exit. We weren’t profitable yet, and at least from my perspective we hadn’t taken the company to as large as we would have wanted to. On the other hand, it was definitely sweet to be able to just — we were probably about 18 months into the company at that point, and so from a time versus value perspective, it was definitely worth our while. We definitely liked the Salesforce team a lot. I think there were moments where we look back and say, “Okay. Well, what if? What if we had continued? What if we had gone on?” We also look back and kind of think, “Okay. Well, in some ways the struggles and things that we thought would be problems ended up being problems when we were building the product out at Salesforce as well. It was nice to have the large company to help offset a lot of that risk that we knew was coming down the pipe.
As far as negotiation itself, I think a lot of startup founders are probably going to be in a similar situation. If they have a hot startup, there are a lot of companies that are interested in them, you’re going to be dealing with people on the other side, especially if it’s a large corporation who are professional corporate-development people who are looking at deals every single week, and they are used to negotiating. They are used to dealing with the high-stress situation. For a founder, it’s the one shot, or one of the few times we’re doing this in the country’s lifetime, but for these guys it’s a weekly thing, especially if it’s a smaller company, you end up being at disadvantage as you go into these meetings because you can bring somebody experienced along, but he might charge a lot. If the deal doesn’t go through, well, what are you left with but a big bill? I think it’s really good to have a network of experienced entrepreneurs you can draw on when you go into these things to ask advice and go, “Okay. This is a situation. What would you think or how would you deal with it?”
In retrospect, we’re definitely glad that we joined Salesforce because a lot of the sales stuff that had to come from us to be a large company. I don’t think we were prepared to take on and do, but certainly there are a lot of things in the negotiation process that we could have done better or could have handled a lot better, but we didn’t just because we weren’t experienced in selling companies.
Andrew: All right. I’m going to come back to that one sentence that you said, “There were a lot of things that we could have done better in the negotiation process.” I’m going to ask you about that in a moment, but what I’m wondering is do you end up getting a signing bonus? Do they end up buying your company and giving you cash? How does it work at that stage?
Nori: Yes, definitely. What we do is, and I’m sure every deal is probably different, but there’s definitely an amount that you get for that actual acquisition that’s cash and stock; a mix of both. Then there’s also a period where, essentially what there’re buying is not your customer base, they’re really buying the technology you built, the new product that you’re an expert at, and so they want you stay around for a little bit. That’s really understandable. At the size of the company that gets bought out, to a lot of people it’s kind of meaningless, and so usually there’s a one-year cliff where a lot of stock, a lot of bonus, a lot of restricted stock, a lot of options vest. That vesting exponentially decays and usually shave some amount of years where at the end of that they say, “Well, you helped us transition this product into the large company.” I would imagine that usually there’s a price for the company that you sell, so that’s what it was a little bit in our case. Then there’s a good portion of that is also yearly investing bonuses, RSUs and options that exponentially decay out.
Andrew: What size upfront did you guys get?
Nori: I will not disclose. I will say it was sub-5 million.
Andrew: Did you guys have any outside funding?
Nori: No. It was all just self-funded. We literally had no connection with Silicon Valley of VC environment, even though we are living here, we did go in and talk to some VCs we knew. The kind of response was lukewarm so we really didn’t pursue it much further. We just self-funded the entire thing.
Andrew: There were three founders?
Andrew: Less than 5 million, can we say more than 3 million?
Nori: I’d rather not go into it.
Andrew: It sounds like you guys did well then from the upfront payment too?
Nori: Yes, definitely. It was certainly worth our while. We were glad that one, Salesforce was a great team to join, but two, we’re pretty happy with the [??].
Andrew: My goal with the first part of the interview is to just hook my audience, to give them a broad understanding of the product and the person they’re about to learn from, and then hook them by saying, “This is what he did that’s so interesting that you should want to listen to the rest of the interview, which will be about 45 more minutes or so. I think we hooked them here. Let’s now go back and understand how we got here, and then we’ll talk about what happened after that moment. Going back, this wasn’t your first company? It wasn’t your first acquisition . In school at MIT, you did what?
Nori: When we were in school MIT, this was when Windows XP was first coming out, Microsoft was the evil empire. A lot of students really didn’t like Microsoft, and so I think as a response to that Microsoft had a big push into campuses where they wanted to distribute a lot of free software and get some engineers who were just coming out of school to really like Microsoft products and be used to using them as they enter the professional workforce. One of the things that Microsoft was rolling out at the same time was a platform called Dot Net. It’s essentially a programming language that they wanted a lot of people to use, a successor to ASP. It’s called ASPX. A lot of other new languages were part of it, and being on campus, we got early access to this platform, the beta version of this. What we decided was we said, “Hey, this is a market opportunity.” We were aware that there was a lot of stuff going on in the Dot Com space. We didn’t really now exactly what it was, but we were vaguely aware there was a lot of exciting things happening here, so we said, “This Dot Net technology is something that we have early access to.” We could build a first Dot Net community and have a bunch of people who are interested in learning about this new technology, comment and engage with each other, learn from each other and have tutorials where they can learn about this stuff. We created a site called defra.net [SP], and the idea was a slash dot for dot net programming. We got that out there. Microsoft saw it, and they were really excited that (a) there’s a real attraction to platform called Dot Net. We could be students who built this website in a very short amount of time, and it was a fun experience. We had this period called IEP at MIT where we have a one-month period where we can do whatever we want between the first semester and the second semester. A lot of people take things like ice skating classes, or they learn how to fire rifles, lot’s of off-the-wall stuff that really isn’t part of the normal college curriculum. What we decided to do was we said, “Hey, let’s all get into one of the dorm rooms, put all the beds into another dorm room, and we’ll code during this time. There are no classes. There are no finals to worry about, so we put a bunch of desks in one of the rooms, and then we were just coding there, and then the [??] went into another room. That’s how we built the site.
Andrew: There were six of you guys who did it?
Nori. Yes, that’s right. It was a pretty big team. We knew nothing about what to do about startups or anything like that. We didn’t even form a corporation. We were just like, “Hey, we think this is a cool idea, let’s go ahead and do it.” That’s how the site came about. We entered the MIT 50K Entrepreneur competition with that site. We got to semifinals at which point we were like, “Okay. Well, for this final entry we have these things that we need to do. Are we really serious about quitting school and trying to pursue this as a fulltime business? All of us were good straight A student type people that went through high school and just following the book. We were like, “No. Let’s finish school. We don’t want to continue with this thing.” We kept the site running, but we dropped out of the 50K contest. We just kept learning our studies, and the site kept running on its’ own.
Andrew: Let me see if I understand this? This is a $50,000 jackpot, $50,000 prize from an MIT sponsored contest, and you felt that in order to win it you’d have to give up school or risk losing your grade-point average, and that’s what made you drop out of it?
Nori: Yes. It’s sounds crazy now, but that’s exactly right.
Andrew: We’re not talking about smoking pot on the corner here is what you’re — we’re talking about working on a development project. Why was it so important for you to get good grades then?
Nori: It sounds silly in retrospect, but we grew up, especially to get into a good school you generally need a good GPA, my GPA was not that great. I ended up having to cover myself with lots of extra curriculars, but I think because it’s engrained into you, “You need to get good grades in high school in order to get into a good college. Once you get good grades in college, then you’ll get into a good job.” That’s the non-started mentally of climbing the corporate ladder, getting a good job, well-respected job in engineering, whether it’s medicine or law or wherever it might be, and just following the career track was the only path that at least I was aware of. That was what we saw our friend’s family’s parents do, so that was kind of like, of course, we should all be working on getting good grades in college. In retrospect, no one asks me for my transcript from college. They don’t care at all. Yes, it’s definitely something that I got fixated on probably.
Andrew: What did you think that you would do after school?
Nori. I thought I was just going to work at a job, maybe either go into some kind of product management role at a large company, maybe do development. I didn’t really have a good idea at that time. I was [??]. I think I was starting to think about it, but it was six months until graduation. I had to start interviewing and decide what I wanted to the rest of my life.
Andrew: I read an old quote from 2002 where you were describing what it was like to work on the site. I’m looking at the quote here now on the screen. You’re saying that you loved talking at Next House Dorm lounge about and coming up with good ideas that you’d order Kwan’s [SP] Kitchen and trickle into the lounge and start discussing one crazy idea after another. I know for some entrepreneurs I interview here, one crazy idea after another is I’ve got to get more people to pay, or how do we make this more viral. For you, what’s the crazy ideas that you couldn’t stop coming up with? What were they geared towards. What were they?
Nori: Because we did have much of a business background, the ideas were more of, “Okay. Well, how can we do something big, or how can we do something that affects a lot of people?” It was really only after I would say having started my second company, [??] where you really did have to start worrying about money. In college you’re living off of the little money that your parents give you to spend, and so you don’t really have a worry of running out of money and soon I’m not going to be able to pay the rent. All the ideas had nothing to do with profit. It was much more about what can we do that would be really fun or really interesting and mostly focused around the consumer’s base. I think after I graduated and tried to run a startup, and had to worry about things like how much savings do I have left, and when does the runway end, and do we want to raise money? That’s really when I started to realize the importance of things like sales and marketing. Until then, my whole concept of a good company was to just have a bunch of star developers and the money thing we’ll figure out later.
Andrew: You did to seem though very entrepreneurial. At MIT, when you and Jack created something called brainyflicks.com and SAT site to help young people prep for the test?
Nori: Yes, actually, that was a lot later. Jack is somebody that I met at MIT. We’ve been really good friends since. That was something that I started when I was at Salesforce, actually. Salesforce has a program called the Salesforce Foundation where they give these micro grants to employees who want to do something free and good for the community. One of the things that we thought of was that this whole crowd sourcing thing is applied really well in lots of different areas. one area where it’s not applied is education. When we were growing up, flashcards were the easiest way to learn new vocab words, but the cards are boring. The sample sentences are boring. Let’s create something where the kids themselves create something memorable and then the best one slides to the top. That was a project that was much later. I would say where it first got access to entrepreneurship was my parents. Neither one of them were entrepreneurs. My mom is a musician in a symphony. She plays violin. My dad is a philosophy teacher. My first exposure was probably in high school. I got in touch with this doctor. I was doing a lot of 3-D animation type stuff as a hobby in the school computer lounge. One of my friends introduced me a doctor who wanted a patent defense for one of the new surgery procedures he had come up with. He was really an entrepreneurial doctor. He had this new laser surgery procedure for correcting vision. He wanted that illustrated so that he could show how this was different and show how it deserved a patent. I worked with him, and I think that’s really where I got the entrepreneurial bug was. I saw he do all these different projects. He was working on a nicotine gum. Even though he was an eye doctor, he was on the board of a medical startup in Florida. He had a bunch of offices that he was running for his medical practice in St. Louis. That really inspired me. I thought, “Wow. He’s leading a really interesting life. He’s doing lots of cool stuff that really isn’t isolated in just one area. It sounds like a lot of fun.” I think that’s really where I first got exposed to anything entrepreneurial, and I probably took that with me into college and beyond.
Andrew: Interesting. Entrepreneurship is contagious, isn’t it?
Nori: Yes, definitely.
Andrew: All right, so you’re doing this in school. You’re building up this community. You said the site was devhood.com, and I think you said devhood.net.
Nori: Yes, we started out with dot net. I think we owned both dot net and dot com, but the original site was the dot net site. The idea was we were building a site for Microsoft.net, so we should call it definitely dot net. We had both dot com and dot net.
Andrew: Okay. I don’t remember where I saw it anymore, but you said at the time, “And I’m Japanese so I can draw.”
Nori: Yes, yes, yes. Oh, I said that huh? I take it back.
Andrew: It’s funny. Whatever is up online just sticks around, and then when I get ready to do an interview I just come across these things.
Nori: That is true. That is true. I definitely take that back. I think over the years I’ve decided my art skills are not nearly as good as I hoped.
Andrew: All right. Were you born in Japan or in the U.S?
Nori: I was born in the U.S. My parents met in New York for grad school. They moved to St. Louis, and so, yes, I was born and raised in St. Louis, Missouri.
Andrew: Okay. It sounds like they’re Japanese though.
Nori. Yes. I spoke Japanese at home.
Andrew: Oh, you did. Wow!
Nori. Yes. I think the English suffered because of that because they spoke Japanese to us, but definitely helped my Japanese. I can converse fairly fluently in Japanese though because of that.
Andrew: At some point you decided to sell it, or Microsoft decided to acquire it. Can you tell me about how that worked out? How did it start?
Nori. Really one of the things that Microsoft helped us with that we really weren’t aware of at the time was we really lucked out in being able to grab onto the coattails of someone who was pushing a bigger wave. Really we rode Microsoft’s marketing projects to get a consumer site to profitability, not profitability, but to a size where it was sustainable. I think having tried consumer sites subsequently, it’s really difficult to get that initial traction going. Microsoft helped us with that in terms of helping us give away free prizes, having an artist help us with some of the graphics on the site. There is a card game called, “Magic The Gathering” and I was a big fan of that in high school. We were able to get some artwork done from these artists that drew for Magic, and they really helped promote Devhood all the college campuses that they were a part of. We rode that wave. We weren’t really thinking about any [??] strategy or anything like that. It was all kind of just running on it’s own. We true-to-formed our interviews after graduating, and we all decided to go work at different companies. Some of us were still at MIT at the time because some of us were a little bit younger. We were in a state where we had this site, it’s running, everyone wants to go off and do their own thing. I don’t remember exactly what the sequence of events was, but Microsoft said, “We want to keep the site going because it’s helping, it’s a net benefit to the dot net community, and so we’d like to buy that from you, if you’re not interested in running it anymore.” That’s really how the conversation went. We were ready to move on with our careers, and this site is there if you want to take it, we’ll sell it to you.
Andrew: I hate to keep asking about money when we’re talking about technology and creative ideas, but how much did you sell it for?
Nori: This was a very, very nominal sum, so it’s sub-half million.
Andrew: Over $100,000?
Nori: It’s right around that area, if I remember correctly.
Andrew: So here you are, you are students who are just coming out of having a good time at Next House. You’re eating your Chinese food. Is that what Kwan’s kitchen is? I’m imagining it’s a Chinese delivery. Eating your Chinese delivery. You’re building this thing, and not only are people interacting with it, but Microsoft respects it enough that they want it, and not only do they want it, but they’re willing to pay you something for it. What did that feel like?
Nori: It was a pretty good feeling. We were excited to be able to sell. I think that at the biggest thing was seeing the first people using the site, like someone’s actually using this thing that we built. The people of submitting to tutorials. We had the game mechanics setup where if you submit a lot of good tutorials, and people voted on it, then you would get more points. Those points affected how well you did in the weekly drawing. It was just nice to see that people weren’t us were using the site. There was a point in the beginning where we were programming the site in dot net enough that we would have questions for each other about how to do something, or how to do Y. Then we had this policy where Peter came up with, don’t ask any questions. Always post it on the site and then we’ll ask the questions there, so even so your friend was sitting right next to you, you couldn’t ask him. You had to type on the site, and that was a way for us to see the content. We did a lot of surf content generation in the beginning ourselves, and to see it go from that to other people using the site was really exciting.
Andrew: I can only imagine. I was noticing that it’s not so much the satisfaction of selling to Microsoft that you beam when you talk about it, it’s just the development and having people interact with it.
Nori: Right, yes, definitely. I think it’s always fun to have somebody find what you’re building to be useful. Even today, I’ll get some people saying, “Definitely, I remember that site when I was back in the day.” I was, “Oh! Great! Awesome.” People still remember the site, so yes, that’s really cool.
Andrew. If fact, when Kevin introduced us, Kevin Gall [SP], one of the things he told me about you is he sold the company to Microsoft. That’s a reputation maker, isn’t it?
Nori: Yes, it definitely is. It probably has gotten me more credibility then I probably deserve from that prospective, but definitely people perk up when they hear Microsoft and Salesforce.
Andrew: You almost want to, as an entrepreneur starting out, you almost want to pay Microsoft to buy your company just so you can have that on your resume, “Sold your company to Microsoft.” You then go off and you work for three years at Oracle. You take the traditional route that you wanted. What did that feel like?
Nori: It’s funny. I remember when I walked into, and I guess I must have had this entrepreneurialism intention at that point already because I remember I walked in on the first day or before the job offer was extended to me formally, and I told my manager, “I like you a lot, but I have to warn you that I’m not probably going to be here for very long. I want to start my own company. ” And they were like, “That’s fine with us. Come join us.” I do remember saying that. From that point on, on and off, I would talk with a lot of my friends who also worked at Oracle, and we’d get together on our off hours, and wouldn’t it be great to start a company? One of the things with Oracle is that it’s a great place to work. There are lot’s of really talented people there. I definitely felt I was a hog in a large machine. There’s maybe five or six buildings that house thousands of people. You’re working on one small product, one small feature, one small button for this really large thing you don’t really feel like you have an impact in. I think the main thing was I wanted to do something where I felt like I was having a larger impact. We talked about different ideas. We’d go over to each other’s houses and figure out what kinds of startups that we could do? I look back on it and I think, “Wow! That definitely wouldn’t have been a business.” We wanted to start a video game lounge, or gaming center. We looked at brick-and-mortar businesses, as well as internet businesses. Just from talking about it we started to figure out what might work, and what might not. Eventually, we came up with an idea where we thought the Q&A space was very underserved. In retrospect, five years later, it turns out that we were right. We just executed probably incorrectly. We said, “Well, let’s go into that space. This can be as big as EBay. We want to help people buy and sell information, and that’s what we Kumit [SP]. We left Oracle and started that company.
Andrew: I want to get into that, but there’s an observation that I’m making. As I’m looking at you and listening to your story, this is really so much like art, and as we talk, I can see you painting the canvass of your business career. As I look back on people when I do my research, I can watch — did you ever see that EtherPad of Paul Gram typing out a blog post and you can see him because he was using EtherPad in real time. You know what I’m talking about?
Nori: Yes. I know, definitely.
Andrew: A lot of times when I do research on a guest it feels like that. When I was researching Andrew Mason on Groupon, I could see the first version of the point, and it sucked, but it had an idea; then version number two, and then you see version number three. As you go, especially through archive.org, and I did that with you, but didn’t get as dramatic a change, go to archive.org you see this site taking shape, and you see things getting killed and getting shifted, and then it becomes Groupon Dot, thepoint.com. And then it becomes the Groupon that we see today, and you see his personality just get stronger and clearly and more focused. I don’t know why, but for some reason I’m feeling the same things happening with you, for some reason just seeing the creativity. Do you know what it is? Maybe it’s going through some of your old stuff where I see the human behind the project. Maybe that’s why I also brought it up, when you say, “I’m Japanese, so I can draw.” That’s not something people pull off and put online. It shows a part of the real person there, and maybe that’s why I’m connecting with the story, and also seeing that painting of your entrepreneurial career build. I want to get back on track here because it’s not about my observations, it’s about your experience. You have this idea. You want to launch this business. What’s the very first thing that you do?
Nori: The first thing that we did, actually, we would start working on it going to each other’s houses. My initial cofounder was Brian Lynn [SP]. We lived about 15 minutes apart from each other. We would go to each other’s houses, and we would try to program the site on the weekends and at night. What we quickly found out was that just the commuting time, which was not that far, it was out 20 minutes each way, maybe 15 minutes, that really took up a lot of time. We would end of getting there, and we’d have a couple of hours to work, and then it was time to go home. We were like, “This is not going to work. We need to live with each other.” What we did was at the time I lived in [??] frat house, a large house that four or five guys shared. The house was full. We didn’t have anymore space, but I was like, “Why don’t you come live with me and that way we can just talk to each other in the same room. I’ll live in the living room. You can have my room. That’s the only way were going to make any type of progress at all.” At the time, we were experimenting with also different technologies. He had never done a website software format. He was much more of a hardcore-database, backup-and-recovery type person. We experimented with different languages. I moved into the living room. I actually didn’t have door to the living room. When I lived in the dining room, there was not door-to-door between the dining room and the living room, and so I had to hide behind the closet in order to change and things like that. We literally wanted to be closer to each other so that we can build the product faster. For my birthday, actually, my roommates and my friends all built me door. I had a door after a couple of months or so, but that’s how we lived together and started working on it. At that point I’m not sure we had this idea for a Q&A site yet. I think we were just hacking away at various projects. I’m trying to figure out something that we could feel confident enough to leave and start on our own. At some point, the Q&A site idea came up and this was the best idea we’ve had so far. If we’re not going to do it now, we not going to do it. We left Oracle and then we started working on it full time. That’s the evolution of that. At that point, some other stuff happened. Personal wise we, the frat house that we all shared broke apart. People went to law school. People went business school. People left the state, and so we ended up in different apartments because we were going fulltime at that point. I would drive down to his house and then work out of his apartment. We had these weekly sessions where we’d go normal times during the week, but then on Tuesdays we would go until 2 a.m. just to give ourselves more time to develop.
Andrew: How long did it take to launch the first version of the site?
Nori: For Kemlit [SP], the Q&A site, I think it probably took us awhile. I would say maybe two or three months of coding and figuring it out. In retrospect at which we had watched a little bit earlier, but it took us awhile. Ajax [SP] was new then. We were trying to figure out exactly how to use it. We were trying to figure out rails, and how to get all the servers setup and things like that. Fundamentally enough though, we were doing that for awhile, and our attraction wasn’t great. We were getting our friends to use it, but it was clearly not looking like it was going anywhere. We saw Reddit and Digg and how well they were doing. Around the same time they launched.
Andrew: Let’s pause. I want to make sure that I understand the transition really well. I want to spend a lot of time of this. You launch after two or three months. That’s not a long time. I thought that you were going to say a year. That would be a long time. Two or three months makes sense, your first version.
Nori: Yes, two or three months. I can’t be sure because it has been awhile.
Andrew: All right. Give or take. That’s fine. What did the first version look like? What was in it? What could it do?
Nori: You could post questions, and you could answer questions, and I’m not even sure if you could trade virtual currency yet, but the idea was if you had a problem with your taxes or something, and you didn’t want to hire a tax specialist, it was really this one box, 13D, that you had to fill out that you didn’t really quite understand. You come on the site and then ask an expert about taxes. You could pay them a fraction of what you might pay a normal tax person for full-blown consulting advice.
Andrew: You were going to actually pay the answers?
Nori: Yes. Exactly. Originally, it started out with just virtual currency. We just wanted to create a board where people just traded virtually currency and that was it. We decided maybe people aren’t answering questions because they’re not getting paid in real dollars, and so we went to being able to translate those virtual currencies into real dollars so that you can redeem after you got a certain number.
Andrew: I want to stick with this even further because we know that this business has worked for some people for stock exchange, but it’s also not worked for other people, just about everyone who used stock exchange platform when it was available to others. I want to understand what happened? You launch it. You have virtual currency somewhere around the launch, if not on launch day. You ask a bunch of questions. You’re friends ask a bunch of questions. You answer questions. How is it to get people after that? What was the challenge in getting more people? Was it getting them to answer? Was it getting them to ask questions? What was the challenge?
Nori: The challenge is that you have to solve both sides of that situation. You need to have people asking questions, but you also need people ready there to answer questions. I think for us when we found it was harder to get people to ask questions because they didn’t think the questions that they would ask would get answered. The major challenge is building that community. There were maybe two or three other sites that were actually doing something similar at the time, and some of them had a little bit more traction than others. A lot of it was marketing, word of mouth, press. Because we come from a software background, we had no clue how to do any of that. We were like, “We’ll, we built it. How come people aren’t coming? Get our friends to use it.” That was about it. We underestimated the non-technical challenge of what it takes to make a site sustainable, a community sustainable. My experience with Devhood made me a little over-confident because I hadn’t realized at the time that I had this huge marketing engine called Microsoft behind me helping me push that site forward. We didn’t have any such engine. We were doing it on our own.
Andrew: I see. Okay. All right, so you can’t get enough people to participate. You say, “Maybe we’ll pay real money, then we’ll get more people to participate?” You add the financial component, the money component, and what happens?
Nore: It actually didn’t make that much of a difference. You could almost argue that it actually made it harder to get people to use the site. Looking back on it, it might be just because now we were putting monetary components on it, and then people could now use that to value their time. They’d be like, “OK. This used to be worth 5 credits. Now it’s worth $5, or whatever it might be. Is it really worth my time to spend on this site for $5 answering this question, or should I go out and hang out with my friends and have a beer. I think the money component probably dented things a little bit, not to say that we would have succeeded if we didn’t do a money component, but we did learn the hard way that that was probably the wrong direction to turn. Undaunted, we continued, and we would try to make improvements to the site. We would interact with the users on the site, and see what we could do to make the site better. We were always improving the product, but I think we were just in the wrong area fundamentally. We were missing the marketing issue that we would be doing [??].
Andrew: I wrote a couple of notes and even circled them here to say come back to the point where you say you could’ve executed better. The reason I want to come back to it is I want to know is the product what you could’ve executed better, or was it just the marketing?
Nore: I would say it’s probably realizing that it was not just a technical challenge and being able to use that information to keep going. Overall, in terms of an execution perspective, I think one thing that we could’ve done a lot better was reach out for outside help. We didn’t have a very large network of entrepreneurs who had done it before. If we had been able to talk to some people, or if we had made an effort to get in touch with some people who had been in a related space or something like that, we would’ve gotten a lot of useful advise on where we were going? What kind of things we could’ve done to pivot within that space that we were in? Ultimately, what we decided was, “I know we’re doing this thing, but let’s just spend one week and try something different, and we’ll see how it goes, and to convince my cofounder Ryan, I was like, “Okay, it’s just going to be one week. We’re just going to do this. If at the end of the day it doesn’t work at all, we’re go back to Q&A stuff. That transition really came when we noticed Yahoo answers coming about. We didn’t know Yahoo had been working on this very same type of project independently for God know how long? They launched their site probably about a month or two after we were live and beta and trying to get users. They had all the marketing in the world behind it. Bill Gates was on it. [??] was on there. Al Gore was on there talking about the environment. What we can do to save the earth. The president of India was on there asking questions. All of a sudden there was all of this press and activity and all this buzz around Yahoo answers. We were like, “Well, we can’t get that vise, and are we going to continue to try to go up against Yahoo answers?” Certainly there was an argument to be made that maybe we can carve off a little inch of this Yahoo answers market and take those users, but ultimately we said, “OK. Well, let’s try something else for a little bit.” Yahoo answers seems to have exploded onto the scene and taken over this area. Ultimately, I think it was the right decision. The companies that we were also competing against doing Q&A stuff at the time, I’ve lost track of them. I don’t think they’re around anymore. If there are, they’re not doing incredibly well. We made a commitment to doing something completely different.
Andrew: Before we pivot, what I’m wondering about is what you’re thinking and going through at the time because you’re a guy who had a hit with Devhood? You’re a guy who had a great job at Oracle. You a guy who had good grades from a top school at MIT. Now you have a big setback and you’re really taking a risk. Let’s no brush over the way you felt at the time. I want my audience to identify with it when they go through it themselves, so be open. What did you feel?
Nori: It was definitely a tough time. When you’re developing you’re going on your enthusiasm about what you’re building. There would be times where we would just stop working, and we would both lay down on the floor in the living room and be like, “Okay. Let’s kind of reassess where we are. Should we be continuing to do this? What should we do?” These are the features that are wrong. How can we get more users? It was definitely some tough times. The highs are high. Like, “Wow! Our first user.” Or “Our first payment that went through.” The lows were pretty lows as well. I think what really helps there is to have a cofounder next to you where you’re like, “Okay. He’s coming in everyday, so I have to come in everyday too.” So as long as the lows aren’t exactly synchronized, I think it ends up working out.
Andrew: That’s interesting.
Nori: Tough time.
Andrew: You’re right. If it’s like peddles on a bike, where one person is at a low, but the other’s at a high, and then they switch roles, and you can keep each other going in the company moving forward. Was there a situation in your experience where you were at a low, and Brian said something that got you going or vice versa. Something you remember that you said, “Yeah, I can keep on.”
Nori: It’s been so long, and my memory’s kind of bad, so I don’t really remember a situation like that, but I do remember Brian is the more rational, realistic one, and I tend to be more the overly optimistic, things are a little rosy one, so I would always be encouraging him. What I got from him was he would always be encouraging me by his actions. How much code he produced? How much stuff he was doing? I was like, “Okay. Wow! He’s doing all this stuff. I need to keep going and push through this as well.” There were definitely times when we would have to pump each other up.
Andrew: All right. I’ve been there. You make the transition. You start to see that Reddit does well. Reddit does social news site. You say, “We can build something like that.” You convince Brian to give it a shot for just a few days. How long does the first version take to launch?
Nori: The first version was we literally just wanted to get a page up where you could vote on the articles, and then you could submit articles, and then you could put comments on the articles. I don’t remember exactly what the subject matter the first one was, but we got that first one launched in about a month or so. We spent a good amount of time doing it. The idea was we just wanted to get a concept out there, see if anybody would look at it. After we did that, we were like, “OK. This looks pretty good.” We had a pretty positive reaction from the friends that we showed it to, and we quickly realized we were getting much more traction on that then anything we’ve ever gotten on the Kimlet [SP] site. It was almost a no-brainer to switch over to that just because of how much more activity and enthusiasm and attraction we were getting from people that we were talking to or showing the site to. That actually went through several iterations as well. Originally what we thought was like, “Oh! We’ll just create our own Reddit or our own Digg. We’ll just have it in a different subject area. We quickly expanded that to we should do that in multiple subject areas. We’ll be a news network or a magazine network for subject areas that Digg and Reddit don’t cover. We really looked at what they were doing and we said, “Hey, this technology is really the future of magazines online. The cost structure is must better. You don’t need an editor to run something like Reddit of Digg. You don’t need people writing stories. People just find them all over the web and submit them and by definition because the users are voting on them. It’s an interesting story. It’s on the top page, and because they’re only focused on technology and startup news at the time, we said, “There should be applicable anywhere where there’s enough interest that there is a magazine on a magazine stand, so cars or whatever it might be, finance. Anywhere where there is a critical mass, we should be able to do this.” So we tried to start a couple of verticals. We started an automotive one because we thought, “Okay . . .
Andrew: Let me, I’m sorry. I want to pause here again too. I understand where Devhood got its traction because Microsoft was quietly behind the scenes pushing and growing it for you. I understand why Kenlit [SP] did not because you didn’t have the equal force behind you. What I don’t understand is how is Crispy News suddenly get traction. Where did all these people come from?
Nori. I guess I should clarify traction to mean it was more traction than Kenlit, but not as much as Devhood. We just had people using the site, and they were interested in it.
Andrew: Who were they? How did they even find out about it? How did the original people find out?
Nori. We would just spam forums and blogs and stuff like that. Back then it was a little bit looser. We would still get banned from forums a lot and stuff, but we would put up messages that said, “Hey, I have this site that I’m using for sports [??]” Then some people would trickle in through there, and some of them would stay. One of the things that we learned from Kenlit and both Devhood was that it helps to have search-engine juice, so the more pages you had out there, people randomly come in through Google and Finder side [SP]. Some of them or a fraction of them will suffer from spamming. That’s the traction that we got. Certainly there was no marketing machine behind it. It was not like we were completely profitable [??]. It was more like we saw more hope in that than what we were doing. That’s why we continued down that path.
Andrew: Okay. That helps me understand where the initial people were coming from. Was there any virality there. Were there people who were bringing their friends. Were there people who where promoting it on their sites or anything like that going on?
Nori: I would say probably not too much. There would be some people who wanted to maybe promote their own article that would come and post it and then try to fake a couple of votes or get their friends to vote, whoever it might be, but I don’t think there was anything extremely viral about the site itself. Actually, that was one of the lessons we learned, was that we said, ‘OK. Well, we’re creating these different sort of subject areas, whether it’s cars, or finance or whatever is, but we weren’t embedded within the community enough to get those folks to join, and so our way of solving that was to say, “Hey, you know, we’re really not good marketers. We can build this technology. Why don’t we build the technology and partner with the people who do have the connections in the subject area, maybe a famous blogger in the Finance area, or famous guy in the automotive area. They would bring the audience to the community and build that critical mass, and we’ll provide the infrastructure that powers it, and then we’ll do a revenue split based on ads or something like that. That’s where we pivoted to, starting out with creating one to a networks of sites to we don’t know how to build a community out with [??] sites. Let’s partner with people who do know how to do that. That’s where we ended up going. We had a do-it-yourself dig system, similar to [??] and social networks, and we’re in the new sites or community sites. We let anybody that wanted to start their own dig site. We know people who had news on operating systems, had news in other countries, and various things like that. They would just come in and use it however they wanted to. As part of that, we started building a framework that was really customizable, so they could really brand the site and make it look exactly how they wanted to. That actually lead to Salesforce discovering us.
Andrew: How do you mean?
Nori: One of the sites that was on there was a Community of Enterprise Bloggers. They were using our system to aggregate all the blog articles that Community of Enterprise talked about. Enterprise software from Oracle and SAP and Salesforce all shared their articles on the site and discussed them. One of the people that were using the site happened to be a marketer at Salesforce. I think it was Kingsley. He looked at our software, and he was using the software. He said, “Hey, it would be really interesting if we could use this for something completely different. One of the problems that they had at Salesforce was that as the company was growing larger, a lot of feature requests were coming into customer support, and people would say, “Hey, I don’t really want this feature”, but the process of getting those feature requests from customer support where their job is not to handle feature requests. It’s really to solve problems on the existing product and getting those features requests to the product manager so that it gets properly ranked and put into the road map for the product. That whole process was difficult, and it was getting [??] as the company was growing really fast really quickly. They were like, “Okay. Well, can we use this kind of infrastructure to do rank feature request?” Instead of calling the customer support, people would be directed to this website where they could enter their feature request, and then get it voted on by other people. They can even have discussions with product manager and put up screen shots and be like, “Oh, do you mean a feature like this?” And they would say, “No. [??]” From our perspective, if we were like, “Well, that’s completely different from the business that we were thinking about doing [??], so that area would come from Oracle, but we don’t know what Enterprise Sales is like. We were on the product development site. If you’re going to pay us, we’ll definitely do it.” because at this point we had no income coming in, and we had no saving account and be like, “Well, exactly how long do we actually have? Can we go on this before we have to have some difficult discussions.” So we’re like, “Yeah, sure. Go ahead. Let’s do it.” We both went in to talk with them. They had a designer who mocked up the site using the tools to customize the page. That was a big help for us. The fact that they could go in and design however they want this new site [Tape distortion] because we had built a lot of tools underneath. The handle translation, they would use the translation tools, instead translate from English to French, they’d translate from be news site to a idea generation site. They put that up. They were like, “Great, that looks good.” Two weeks later they were like, “All right. Let’s do this thing. How much is it going to cost.” We’re like, “I don’t know. Should we charge $500? Is that too much. Are they going to run away.” We charged them $500. Of course, afterward, I talked to them. They were like, “Wow! Yeah, you charge so little. We were so surprised.” We had no idea about how to do any type of pricing. We sold them the software. They did a little bit more design work on it, and then they launched the site. They way they launched it was they said, “Hey, you know, Salesforce is a new breed of enterprise company, and because we’re a new breed of enterprise company, we’re also going to talk to our customers in a different way. In a way that Oracle and SAP are not talking to the customers. Here is Salesforce’s idea exchange, which is powered by our product. We want to share the voice of our customer directly from you guys. We don’t want it filtered through layers of management and bureaucracy and come here and post your ideas. We’ll respond in an open manner, and anyone can give us suggestions, and if we’re not planning to it, we’ll let you know. Maybe someone who where partners who were part of the stock exchange system will take that up. It got a lot of press. It got a lot of buzz. It was definitely very novel. They ended up getting a lot of interest with a lot of people saying, “Hey, how can we buy this product. Are you guys going to publish it sometime soon as a product that we can buy?” That’s really what got the discussion rolling for an acquisition.
Andrew: I see. All right. That’s what took Crispy News and helped you create Crispy Ideas out of it. I’m wondering, they see that the product works, they have all their data, people are interacting. Can’t they just hire a couple of people and have them rebuild this or bring in new people or take two people that they have confidence in and say, “These guys spent a week launching and maybe a couple of months improving do the same?”
Nori. Yes, that’s actually a really good point. I think that is the dilemma that a lot of company space when they’re looking at a company that they’re buying for mostly just the product, which is building their decision to buy this product or do we build it? As we were going into the negotiation process, that was definitely something that was brought up, and it was something that we thought about. It’s like, “How long will it take for them to build this themselves. How many people would it take.” I think in retrospect, we were definitely much more worried than we should have been, just from the fact that they are a larger company. This is not exclusive in the Salesforce. I would say Salesforce is probably better than most companies in this respect because they move really quickly on lots of things. They are 10,000 times bigger than we are, us being three people, able to touch whatever code we wanted to. The fact that their main focus was on CRM software, and the fact that there was such a difference between the public interaction that we had, and the most internal facing software they had on scalability issues that they would have to solve and overcome. We overestimated how quickly they’d be able to build a product. That was definitely always a question.
Andrew: You said earlier, and I said I’d come back to it, he said we could have negotiated better. How?
Nori: We had no clue about pricing, kind of like how we charged them $300 for the initial product where we probably could have charged them $10,000 a month or something like that given the trash that they were getting. We really had no idea of how to value ourselves or how run through the negotiations. There were lots of psychological things that may not have been intentional on their part, but was certainly a factor in us, probably not getting an [??] of prices, we probably could have. Knowing what I know now, I feel like I would do a much better job going through that process. Having never been there before, it was definitely a learning experience really. Now, for example, I’m use to the fact that negotiations will probably break down a couple of times. It’s not unreasonable for a company to come back to you and say, “Oh, yeah. We’re still friends. Let’s start talking about it.” Back then I think it was much more of a mentality if it breaks down, it breaks down. We’ll get them back again. Certainly, that does happen in cases.
Andrew: Did that happen where their situation — was there a time in there where it did? There was?
Nori: Yes, absolutely. We had one time where it broke down where they offered us a price, and we said, “That’s definitely way too low. We’re not going to do that.” It did breakdown. At that point we were like, ” OK. It’s over. Let’s just move on and gather our stuff and continue working on a product.” Every single time we would have this — that was the one time it happened. The next time things came together, and it went through. Every time we would have these discussions with them because it was the three of us working on it. At this point, Justin had joined us. Justin was helping us work on the product part time for awhile, then he left Oracle to join us. It took up all of our time and the product would go nowhere, so we’d feel like, not only did we have all these negotiations, but now we’re completely behind in the product. We weren’t able to — now we know that’s going to happen, so we can divide our time up more carefully, so that it doesn’t suck up the entire company. It’s small things like that that are par from the course in negotiation that you’re not really sure how it goes. I wish we knew about that.
Andrew: Next company after that is the one that you’re with right now, Curebit? Why did you get funding from Y Carbonator for Curebit?
Nori: That’s really a good question. To be honest with you, originally I was a little against it just because I had done the other two without any outside funding at all. That definitely makes a difference, especially if you’re having a small [??] like the one I had previous ones. You lose 50% of your company. That’s actually a significant chunk. What my cofounders convinced me of was they said, “Hey listen, you’re probably going to be starting companies for as long as you live. I want to see that one that’s really successful and you can continue to work on that. Why don’t you try the other route? Why don’t you try the classic route of raising VC capital, going faster, going after a bigger idea, and a bigger marketplace, and see where that goes? Y Combinator is an excellent program. A lot of startups that I respect a lot have come out of that program. In the end, that convinced me to, “Okay. We are going to give up a significant chunk of equity for joining Y Combinator, but we’re also going to be gaining a network, as well as a lot of valuable advice and access to capital to maybe scale our business faster and see how that process works out.
Andrew: Did you take any funding since then?
Nori: Yes, we have. We’re actually raising [??] run right now, and we’ve taken the DST [??]/SVH money. I think it’s 150K, so we have plenty to go on right now. We’re still running very lenient, three people in an office building. We do have some cash in the bank. We’re going to raise a little bit more, and we’ll see how that goes.
Andrew: Let me describe what this does because I love what I saw. More than that, as a guy who keeps to researching companies and researching people, I’m extremely grateful that it’s easy to understand what you’re company does. Especially young companies. It’s hard to figure out what they do. So here’s what it does, I go online and I buy something. Usually, there’s a confirmation page after I buy that says, “Congratulations, you just own what you gave us money for.” With you guy, if the store was using Curebit, after I bought I would see this small message that said, “If you tell your friends what you just bought, you’ll get $5 off, and they’ll get $5 off next time.” Right? So I say, “Holy crap! First of all, now I have an excuse to show off that I just bought a new I don’t know what? New coffee, new sneakers, and second I now get to have a discount next time that I shop. Boom! Of course, I’m going to post it on Twitter and Facebook and so on. My friends will see it on Twitter, Facebook and wherever. They click. They get a $5 discount on the same store that I bought from, and suddenly, tada, I get more money in my account with that store?”
Nori: That’s exactly right. Yes.
Andrew: I took a long time describing it. It’s even simpler on the site. I freaking love this idea. I love it.
Nori: Cool. Thank you. We’re really excited about it, and I think looking at the early feedback that we’ve gotten from people, we have a lot of people that are really enthusiastic and are like, “Hey, this is exactly what we wanted.” We’re working to the pipeline, letting users in, and hopefully it’s going to be a really valuable piece of software for a lot of these businesses.
Andrew: Yes, I have a feeling it’s going to be. This is great. The website is curebit.com. Nori, the story was great. Thanks so much for doing the interview.
Nori: Absolutely. Thanks for having me on.
Andrew: Cool. Oh, and if anyone goes and tries it, I guess your guys are going to give them a $5 Starbucks card if they tell their friends about Curebit?
Nori: Yes, that’s right. If you sign up for Curebit right now, there’s a beta signup page, refer another friend who has any commerce stores as well, you guys will both get a 50% discount for the first year. Even if you don’t have an eCommerce, but you know friends that have an eCommerce store, if you sign up and send them your personal referral link, and they end up becoming a customer, they’ll get 50% off for the first year, and we’ll send you the Starbucks gift card.
Andrew: I see. I get a Starbucks gift card if my friend signs up.
Nori. That’s right. Yes.
Andrew: All right. Thanks for doing the interview. Thanks for being so open, and also, here, let me say this too. Thanks for not saying how much you sold the company for. I never want an entrepreneur to come in here, and because I ask what did you sell your company for to just go and blurt it out. If you don’t feel comfortable, I’d much rather you say, “Andrew, I’m not going to say. I don’t feel comfortable saying it.” If you do feel comfortable, many entrepreneurs apparently feel comfortable being a more open with stuff then you would expect, then I’m happy for you to be open.
Nori: Cool. Absolutely.
Andrew: Thanks for doing the interview. Bye Nori.
Nori: See you later.