How to pivot from a consulting service to SaaS

Joining me today is a guy who had a great idea for software, but he couldn’t actually build it out. He didn’t have the money. He didn’t have the resources. So, he and his cofounder created a consulting company that basically did what his future software would do.

It’s kind of a manual way of doing what software should be doing automatically.

And then every dollar they made as consultants they squirreled away and spent to build the software that today they’re here to do an interview about. What’s exciting about them is how bootstrapped and scrappy they are.

Pini Yakuel is the founder and CEO of Optimove which develops and markets customer retention software.

Pini Yakuel

Pini Yakuel

OptiMove

Pini Yakuel is the founder and CEO of Optimove which develops and markets customer retention software.

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Full Interview Transcript

Andrew: Hey there, freedom fighters. My name is Andrew Warner. I am–and this is, actually, I should say–home of the ambitious upstart.

You know what that means is that this is a place where people come to listen to interviews with real entrepreneurs talk about the details of how they built their business and my audience is full of people who are either right now or very soon to be building real companies, which is why they want the details behind the companies that I interview. They don’t just want to hear that some guy had an idea, quit his job and started a business and, “Yay!” How did you really do it? Let’s get into the details of what you did.

So, joining me today is a guy who had a great idea for software, but he couldn’t do it. He couldn’t actually build it out. He didn’t have the money. He didn’t have the resources. So, he and his cofounder created a consulting company that basically did what his future software would do. It’s kind of a manually way of doing what software should be doing automatically.

And then every dollar they made as consultants they squirreled away and spent to build the software that today they’re here to do an interview about. What’s exciting about them is how bootstrapped and scrappy they are.

His name is Pini Yakuel. He is the cofounder and CEO of Optimove. They do customer modeling that helps customers automate their communications in smart ways and increase the lifetime value of their customers. I’ve just said the word “customers” like a million times. Basically, if you work with them, they’re going to help you really understand your customers, intelligently communicate to each one as an individual so you make more money with them and your customers are happy and using what you create more.

I got the okay twice on that one. Good. This interview is sponsored by two great companies. The first one will help you host your webinar, which will help you sell more and talk to your customers better. They’re called GoToWebinar. I’ll tell you more about them later. The second company will you hire your next great developer. They are called Toptal. I’ll tell you more about Toptal later on.

First, Pini, good to have you on here.

Pini: Hey, Andrew. Thank you for having me.

Andrew: You and your cofounder were just out there looking for ideas, knocking on doors of companies like Celcom asking for what. As outsiders, what did you want to know from a cell phone company like Celcom?

Pini: So, these were like very early days. Essentially what we wanted to do was we wanted to understand the market, understand what types of problems people are dealing with in our field of expertise. Our field of expertise was, and still is, machine learning, data mining, predictive analytics. So, we knew we wanted to solve customers–sorry, solve problems that are related to customers because all of the customer-centered revolution, the customer is in the middle and everybody knows that this is the way to compete in the modern age, right?

So, we thought about applying our experience and academic knowledge into that field. So, looking for different businesses and which types of problems did they have. So, Tel Aviv is kind of like a small place. So, it’s very easy to get meetings with like even big companies, especially if you come from academia, you have a PhD and you’re kind of like the smart guy that did all of different things in academia. They’re willing to listen and share ideas and thoughts.

Back in the day, it was before the smartphones where the telecom providers, today they’re different types of companies, but at the time, they had a lot of direct interaction with the customer. They even controlled content. So, it wasn’t the time of the apps that it is today. So, they were very interesting ones to meet.

Andrew: How would you understand a customer–they’re not even a customer at that point–how would you understand a company’s problem? What was your question? As a questioner I’m especially curious. What was your questioning like to understand their problem?

Pini: So, it’s probing. At the beginning, you’re trying to understanding, “Who is looking at customer data? What’s happening here? In the beginning, we met with like people that did stuff around the call centers and optimizing stats and metrics of the call center, but then they said, “We have this unit which is called the churn lab and these guys are analyzing data about customer churn and trying to fight churn.” They do predictive modeling and they use the techniques. We knew this was one of the popular problems. So, once we met the team, it was like that’s. This was the jackpot.

Andrew: I see. They actually have a churn lab whose whole job is to look for churn and figure out why people are churning, meaning cancelling their accounts and switching to another service provider.

Pini: Exactly.

Andrew: But is it just you saying, “We are machine learning experts. We are experts in data mining. What kinds of problems do you have that you think our expertise could solve?” Is it just that simple?

Pini: Yeah. Also, it’s not that difficult. It’s kind of known, right? You know that at the time, we knew that people are solving a few problems. For example, we knew that a lot of people are doing segmentation. Like segmentation is a big challenge. So, we knew that people are kind of like struggling with segmentation. People are fighting churn. People are trying to predict and maximize lifetime value.

All of these problems are also known in academia. So, you’re not completely lacking of reference. You do know what you’re looking for and it’s a question before, the focus is we knew that we want to solve problems that are around customers because it’s in the world of marketing, world of the customer-centricity revolution.

So, something drew us towards doing analytics but customer analytics, not just predictive analytics. You can predict stuff for a factory, for a company that does medicine–for a ton of different applications, you can use predictive analytics. But we knew that we wanted to do customer analytics.

Andrew: I see. So, if Celcom would have told you, “We have this analytics problem about our traffic. We don’t know exactly how to reroute our traffic during high-peak queries.” I see you’re already shaking your head and you said, “No, that’s not expertise and not our passion.”

Pini: You’re right. They do do that. You’re exactly right. The beginning we met with the call center guys and they did a lot of things around reducing the wait time and doing a lot of modeling and this was more like operations research modeling, so optimization around these different types of metrics. But this is the operations world. We didn’t want to be in the operations world. We wanted to be in the marketing related, customer centricity world.

Andrew: I’ll tell you why I’m bringing this up. I’ve noticed a lot of companies that I’ve interviewed here start by finding a pain that their customers have and then building these businesses to solve that pain. What I’m curious about always is what leads you to understand where the pain is. What I see about you is you guys were university students. You might have recently graduated at the time, right?

Pini: Right.

Andrew: So, you were already smart and curious and had this reputation of coming from school. So, I can understand businesses opening themselves up to you and saying, “All right, student, come on here. We’ll tell you a little bit. We’ll share with you.”

Pini: Exactly.

Andrew: I also understand that for a company that size, maybe their problems are a lot clearer. You come in to Mixergy and you say, “Andrew, what’s your problem?” I don’t even know where to begin with where my problems are. Either they’re completely invisible to me because I’ve found solutions for them or I have nots of little issues like I have to mail something and I need to figure out which one of the receptionists is going to do it and how do I communicate to her how to mail 20 different things for e today. I see. All right.

So, they tell you about the churn lab. You get in there. You start to notice a problem. What is this problem that sets you off on this journey that we’re going to hear about in this interview? What’s the problem? How would you sum it up?

Pini: So, the problem is basically creating–it’s an old classic CRM problem, right? So, the world of CRM and the customer centricity revolution starts around the fact that 20-25, 30-35 years ago when you had a vendor, typically let’s say your local store of the convenience store, like you go in, you know the guy, you say, “Hey, Joe,” and he says, “Hey, Andrew. That special type of raw fish that you like just came in.”

And you have this feeling of intimacy with Joe and when you walk in there, you smile. He knows that you’re having a bad day so maybe he’s not going to upsell you that day because you’re having a bad day. Human beings were able to have the most sophisticated and elaborate CRM system in their brains as long as there’s no more than let’s say 100 or 200 subjects, right?

Andrew: Yeah.

Pini: But when companies come around, companies have thousands and millions of customers and then all of a sudden each customer becomes this kind of entity that gets a letter or gets a very technical, mechanical response or message and companies realize that if they’re able to create a certain level of intimacy–actually, today, we’ve evolved that notion. We talk today about emotional intelligence.

So, imagine if companies could build relationships with having emotional intelligence. So they’re knowing not only how to speak to you in a personalized manner, but also with a very elaborated notion of context. So, Andrew is a specific type of customer. I need to talk to him in a specific language, in a specific time.

If they created intimacy–think about the brands you love. The brands you love, you are so loyal to them. They have you for life, not only that you’re amazing marketing vehicle, you talk to your friends, they talk to their friends–you are an advocate of that brand. You have so much more value besides the money you actually spend there.

Andrew: I see. You’re right.

Pini: Intimacy–it’s intimacy, emotional intelligence. This is, as I see it today, kind of like evolving that problem in my mind and doing this for seven years, I would say that–I think that still today we’re getting there, like it’s still not at the point I can say a person with emotional intelligence–there are tons of studies that people that do that well, they’re very successful and they can build long-lasting relationships.

Imagine if brands could do that. Brands have an identity in their logo, in the way they copy, copy write. The way they speak–imagine if they could adjust the way they speak to different types of customers than you get a lot of value.

Andrew: Yeah. That’s golden. We here at Mixergy will tell you something different depending on whether you already bought from us or not. So, we’re ideally not trying to sell you if you’ve already bought. Sometimes the software goes a little haywire. If you express an interest in something, we’re more likely to tell you how you can buy it than if you said you weren’t interested. But we don’t go beyond.

But you’re saying, “How do you go beyond even further?” Kind of like my barber–I go and get a haircut and me they greet as Andrew. There’s this older guy who gets greeted as Mr. James. They can keep that in their heads. That’s the kind of experience that you want to create with people.

Pini: Right.

Andrew: So, did you then go and say, “We can create software for this. There’s tons of software on the market that does a little bit of this but there’s nothing that does it the way we want. How do we start plotting it out?” Did you start to think, “We’re going to create software that does this?” or did you say, “I can’t even get to that point?”

Pini: Always. From the beginning, I remember we had meetings at coffee shops and we even wrote it down. It was a very short file. We said, “We want to be a software company always from the beginning.” There are many reasons. But we wanted–this was always the case because technology, machine learning, it’s a very exciting technology. You don’t want to keep it–there are many things I like about the service business, but it’s not as scalable and at the end of the day, it’s not as creative.

When you build software, I think that product is one of the most creative places you can be in as a startup entrepreneur, founder, whatever. So, always, I think we were always drawn towards having a software company. This was the dream from the beginning.

Andrew: So, then since you couldn’t create the software, you didn’t have the money for it, was it more than lack of money, lack of expertise to or was it just money?

Pini: Obviously in the beginning, it’s lack of money and expertise. So, I always envy when I watch the movie like “The Social Network” when you see Zuckerberg building Facebook himself, I was like, “Damn, I wish I could do that.” I had to wait for three years and accumulate money bit by bit and hire developers. So, that’s one thing.

But on the other hand, I got to hone in all my business skills and become very strong at selling, building a business, identifying talent, doing products, all of the things which are not coding. So, at the beginning, you wish you would have that. You wish you could build it. But also I must say that there was a very positive thing for the services and consulting part because that helped us kind of like formulate our identity. That’s right.

We had this model that we wanted to productize, but it doesn’t mean you know exactly what it is at the beginning. You actually don’t. You have a very vague idea and what you need to do as time goes by is to forge your identity, like who are you as a business, why are you there? Just like a young man or a young woman, teenagers, they’re all over the place because they’re still kind of forging their identity. I think it’s the same thing with young startups.

We were fortunate it enough to do it with clients. Because we sold consultancy, we were there. We saw their problems. We were in meetings. We came up with ideas. We came up with thoughts. We saw kind of the technologies they had, the tools the techniques. We listened to them, but besides listening to them, we brought our own academic knowledge and creativity.

So, we came in fresh. We never worked anywhere. We didn’t copy/paste something we saw at some department that we were working for. This was our first job. So, all we did is kind of like looking, experiment, understanding what people are doing, exploring and then having our own interpretation. I thin until today that’s the reason our product is different and is a bit more original.

Andrew: Let’s get into specifics. What’s one specific need that you saw when you were working as a consultant that changed the way the software ended up becoming.

Pini: A need that I saw…?

Andrew: Yeah.

Pini: Oh, like changed the way the software became at the end?

Andrew: Yeah, like what’s one interaction with the customer that created a piece of the software that never would have existed otherwise.

Pini: Right. There’s one huge thing. So, the whole engagement portion of the software–the software began as something that shows you great insight about your customer. So, we’re going to be like this amazing intelligence hub, like you go in there and you see patterns and you see behaviors and you get tons of ideas and that’s it. It was a business analytics play, no more.

Then what we saw–so, our model is always able to recommend on the best action for every customer. This is why we’re called Optimove, like the optimal move you can do for the customers. So, we were saying to these companies that we worked with at the time, where’s the action? Where are the engagements? Where are the interactions with the customers? Can I see some campaigns, something that you ran for a group of customers?

Then I want to get the results and start recommending. If my predictive engine gets a ton of different customer actions, like campaigns that you tried on them, we can show you what’s the best campaign. What is the thing that worked best, how you should operate next? They never had this data. It was, “Oh, some of it is in the email vendor and some of it is in Excel and some of it…” So, they never had it.

So, we were never able to feed our predictive model with action data, which would then allow it to recommend. We said, “Wait a second…” There’s this thing with Muhammad and the mountain. Muhammad wants the mountain to come to him but the mountain never comes, so Muhammad just comes to the mountain. It’s kind of like an idiom.

So, we said, “Wait a second, we need to build ourselves the parts that run all of the customer interactions, all of the customer engagements, all of the campaigns.” Then we’ll have all this data and we’ll be able to recommend on it.

Andrew: I see. That makes total sense.

Pini: Yeah.

Andrew: Your assumption initially was–

Pini: We became campaign management. At the beginning, we used to call it like the brains and the muscle. So, at the beginning, we only had the brains. We said, “Yeah, we’re a system for the brains. I don’t care what they’re going to do with it. As far as I’m concerned, they can take out a list outside of our software and use it. They can talk about strategy based on our data. They can have ideas and maybe tactics and things like that.”

Then we said, “Hey, if we don’t have the muscle ourselves, we actually limit the brain. So, we need the muscle here.” This was, by the way, this specific mini-pivot or big pivot was what kind of changed the company and made us a big success.

Andrew: This is before you even created software, the understanding came before you built software?

Pini: No. We already built software, but it wasn’t really yet kind of–it was a very early version. It was like when we had beta versions and things like that. So, it wasn’t like a commercial version of the software. The first commercial version of the software came out with the muscle.

Andrew: I see. Just to be super clear about this, you’re saying our software can tell you what ad and what to say to customer if you know what made other customers like him buy in the past and other customers like him buy in the past and other customers like him click links and email in the past. Tell us what other customers did. They said, “We don’t know it. That data is locked.”

Pini: Just a minor correction there–all you need to do is just like show us where’s the data of all the interactions you had with your customers. So, customer A received message B.

Andrew: And they never had that because it was all buried in different software. You said, “We can’t have our customers go into their email software and get us this data. We also have to do the email marketing for them.” Is that right?

Pini: Right. So, roughly yes, to be more specific–

Andrew: Yeah, be more specific.

Pini: So, I’ll try to rephrase it. So, Optimove was a system that was originally built algorithmically. It’s able to recommend on the best action for every customer very time.

Andrew: Okay.

Pini: What’s an action? An action is a communication, a coupon, an upsell, a cross-sell, a piece of content, whatever. So, the best action for every customer every time. To recommend on the best action, the system learned via trial and error. You need to see all the actions that were taken, all the actions that took place.

So, if you don’t have the data of the actions that took place, if you don’t have the data of all the communications that took place, you’re not able to recommend the best action. You need data to trial and error, right? To see everything that happened and say, “We tried for this segment. We tried five things. This works best. Let’s only do that from now on.” This is the recommendation.

Andrew: Okay.

Pini: At the time, this data, they had some of it in the email–actually, they never had it. It’s another need. They never had one place where everything is organized. So, we started out–our masthead was not even the thing. We didn’t send out the email but we connected to email system, but we built kind of the conductor, the place that orchestrates all of these actions to the different messaging channels in one place. And then we had the data.

Andrew: Okay. I think I follow it.

Pini: We would send a list of customers that needed to get action A via email. So, then we knew, “Okay, these people got action A. Great.” Make sense now?

Andrew: I think so. I want to look for another example. But let me do a sponsorship message first for a company that you know. It’s called GoToWebinar, GoToWebinar.com. When I told you I was going to do a sponsorship message for them, you said, “We use them all the time.” What do you guys use them for?

Pini: Webinars.

Andrew: Why do you do webinars at Optimove?

Pini: We do webinars whenever we do a version release. So, every couple of months we do a version release so we get all of our customers to participate in the webinar and we show them the new stuff in Optimove, new capabilities, what is up next.

Andrew: Why do you do it in a webinar instead of just email them a list of all the new features or a video?

Pini: We also have the version release notes, but this is–the webinar is more interactive. They can ask questions. Then you record it. Afterwards we upload into our academy. We send it to them, the video itself. So, it’s an amazing tool. I think also besides–this is when do versions whenever we have a new version, but also some webinars can be about thought leadership.

So, if we want to talk about like hacks and customer analytics, different types of techniques so we’ll have a presentation and maybe we’ll have like a SQL app and maybe you’ll have some Optimove to show you how you can do interesting things. Again, we’ll record it. We’ll use it as an asset. We use it all the time together with GoToMeeting, so both.

Andrew: I have both also. You brought up a good point about GoToWebinar, which is that even if you were to create a video explaining the new features to your audience and publish it, you’re better off doing it as a GoToWebinar because you get some interaction with people. Just having you or someone at your company talk into the camera for an hour, have some slides for an hour, it gets a little boring and you lose touch with what real listeners want.

When you do it with a live audience using GoToWebinar, they get to ask questions which directs you in a new way that you might not have thought or helps you clarify an issue that you thought was super clear the first time you said it but needs a lot more explanation. It gives another voice, even if you’re just reading feedback from people.

Pini: Exactly. In the middle they say, “Wow. That’s amazing.” So, we know as we explain about a feature, they get excited and they comment on it.

Andrew: Yeah.

Pini: So, we see it and it makes you engaged. It’s not like you’re a radio broadcaster and there’s nobody there so you just talk and talk and talk out in space. So, it’s a feedback.

Andrew: Here’s a little tip for people who are new and maybe don’t have a huge audience yet or afraid they may not–you can hide the number of people who are watching your live GoToWebinar using GoToWebinar. They say, “Do you want to show everyone who’s in there or do you want to hide it?”

If you’re afraid you’re not going to get enough people, maybe two or three, that’s enough. Just hide the number of people who are there. You’ll get a little interaction with the people who do show up and it will add an extra element to the conversation that makes it more interesting.

There are also polls, so you can say, “I’ve got 20 features here. I put them in this poll. Tell me which one you want me to spend the most time on.” People have some way of knowing what you’re going to talk about and it also gets them clicking their mouse and coming back to see the poll results. You get to ask questions ahead of time using GoToWebinar.

So, you get to collect good data on users. It connects with your other marketing software. So, if you collect someone’s email address and some information about them because they registered for a webinar, you can save that information and know that you can market to them in the future. So many new features to it, such a good product. You can go and try it for free right now by going to this URL–GoToWebinar.com, those three words, GoToWebinar.com.

You know what the code is for Mixergy? I don’t know either. Usually sponsors give me a special code so they know how many people I’m driving to them. I really want GoToWebinar to be an ongoing sponsor. I don’t know how they can measure success from these ads. And they paid a lot of money for them. I’ll tell you this–if there is some box in there saying how you heard about it, I would appreciate it if you said Mixergy. They don’t even want to know it. I want them to know it. Let’s see if we can help them know that Mixergy is a really good place to be discovered.

For you, if you’re listening to me and you haven’t tried webinars, you should. You owe it to your sales department to try a webinar as a way of increasing sales. You owe it to your product department as a way of showing off the new features you’ve had. You owe it to your current and prospective customers. It’s a really good way to get engaged. I’ve had a GoToWebinar/GoToMeeting Citrix account for years, maybe as long as five years–really good product and I’m proud to have them here as a sponsor.

All right. You know what? Actually, let’s move on. Now you’re a consultant. You’re starting to get some feedback from people. I see how it’s shaping what you’re business is going to be and you’re acting on it–actually, you don’t know how to code the software yourself. How do you start, once you’re making money as a consultant, hiring developers to build it for you? You’re shaking your head. It wasn’t an easy move, was it?

Pini: You start with the first one. By the way, the first one still works with us today. He’s our head of product, seven years later.

Andrew: How did you get him? Let’s talk about him specifically.

Pini: We had a bunch of people coming in and interviewing. He was a bit older at the time. He already had big software positions and was already making good money in other places. He had like ten years of experience.

Andrew: Are we talking about Alex Margulis?

Pini: No. We’re talking about Paz.

Andrew: Paz, okay.

Pini: Paz Holender. So, he was working as a developer. He was really excited about joining a startup. After work at big, big companies, he was very excited to have a lot of impact. He felt that before, he didn’t have enough impact. He was a part of big companies. He’d try to say what he thinks, different strategic direction, things like that. He felt that he was never able to be influential in a meaningful way.

Andrew: How did you even find him?

Pini: Job and whatever.

Andrew: Just a standard job board kind of thing?

Pini: Yeah, the equivalent of Craigslist and stuff like that.

Andrew: How were you able to figure out that Paz is the guy who had what it took to build your software for you? What kind of tests did you run with him?

Pini: I had a friend from uni who studied with me but then he went to the army and the army made him this crazy this developer. He has another startup today, by the way. He was helping me with coding. I think one of the most important things about entrepreneurs, you have to be extremely curious. You always have to poke around and speak to people and get to understand how stuff works.

So, for me, whenever I’m in a party or a family gathering, if there’s somebody new and they do something, I’m going to ask them and I’m going to try to understand their world. I always consult, but not from a place of not being certain, but from a place of gathering knowledge, I think that people, it’s something that I found very weird. I’m not like a big reader.

I think people are an amazing source of information in the sense that they would–you could read about a new field. You could go online and read about it for 20 days and then you could sit for 30 minutes with an expert. In that 30 minutes, you’re going to get curated information to the point that it saves you so much time and it’s just beautifully handed to you. This is the beautiful thing about people and the knowledge that’s in their brains. It’s just available. They love to say what they do, the challenges they have.

So, I had a few friends–this guy is a developer at that company, this guy is a team leader at that company. I’m trying to extend my knowledge in that field. So, when Paz came in, I had one of them interview him as well and do kind of like a coding test. They said, “This guy is the real thing. He’s just a bit rusty, but that’s fine.”

Andrew: A bit rusty.

Pini: Yes. He was ten years developing and he managed a small team, so it was a bit back in his game. He came in and very soon he got the rust off.

Andrew: How’d you get the test for him? I see him, by the way. I see his LinkedIn profile. He was at a company called TACT for seven years.

Pini: Right.

Andrew: Then he left to, I guess, Applied Materials for a couple of years.

Pini: Which you know.

Andrew: And then he comes right back to TACT.

Pini: Right.

Andrew: And then he goes to you. So, what tests did you give him that told you he was your man?

Pini: I think that probably one cultural difference between Americans and Israelis, I think Americans are a lot more organized and meticulous and try to kind of like–sometimes it’s very good and sometimes it could be over-analysis paralysis. In Israel, by the way, I didn’t have a ton of offers because beggars can’t be choosers. I wasn’t in a position to attract the biggest talent out there–Paz is an amazing talent, but there weren’t too many like him. Sometimes by elimination, you get to do your decisions.

So, it was just liking the guy, connecting with him on a personal–seeing that his attitude is in the right place. He really wanted to be in a startup. He had ten years of experience, which was a big plus for us because we had no idea–

Andrew: Sometimes someone who has ten years of experience at a different company is bringing a lot of baggage into your business, a lot of old ways of doing things instead of the startup ways.

Pini: Right.

Andrew: One of the things that Hiten Shah when I interviewed him about this question, I said, “You’re not a developer, Hiten. How did you keep hiring all these developers?” One of the things that he taught me, he said, “Give the person a small project, see how you work together, see how that person works and then you can decide whether you want to continue.” Did you do that or did you just jump in and say, “You’re my man, Paz?”

Pini: Jump in.

Andrew: Okay. And it started working for you. What’s the first thing that he built?

Pini: The first thing, he took the piece of code–I told you that getting the grant from the chief scientist–six months after we started the company, we already had this development house working on the–

Andrew: An outside development house.

Pini: Right.

Andrew: Got it. By the way, this is the grant you and I talked about before we started. You said the Chief Scientist of Israel gave you guys a grant. They don’t get a percentage of your business. They’re just giving you some money. I think it was a couple of hundred thousand?

Pini: It was shackles. Yeah. In the beginning, it was $25,000.

Andrew: Sorry?

Pini: $25,000.

Andrew: $25,000, okay.

Pini: At the beginning. Then you get another $20,000, then you get another $50,000, something like that. The beginning was $25,000. So, we took this $25,000 and we went to this development house and said, “Here’s the backbone of our predictive model. Can you productize it? Here’s the pseudocode. Here’s how we want you to build it.” That guy built it. When Paz came in, he got that code to own it and develop on top of it.

Andrew: I see. When you went to that development shop, did you say, “Here’s what we’re doing with our clients. We need software to make it work better or did you come up with a brand new approach?”

Pini: It was mostly the approach form academia. It was mostly to basically code the specific mathematical algorithms to make them work, to code the backbone of kind of like accepting data, crunching data, outputting results, storing it in some places. It was still–it was even product work, I would call it. It was more like software architecture. So, it still had nothing to do with working with customers.

Then when Paz got the code, he started and he hired another guy called Eddie, who still works for us and today is a team leader. So, he got Eddie and together they started to build the front end and the entire kind of like GUI that are customers are still using today.

Andrew: I see. Okay. And no one used it until Paz started getting in there and Eddie Rozenblat started getting in there, no one, not even you guys internally.

Pini: No. It wasn’t fully functional. When we got the codes from the other guys, it was a good piece of backbone, but it wasn’t even tested properly.

Andrew: Thanks by the way for the compliment on the name. One of the things that I’m doing is looking at your team list. I realized you’re listed on your site as founder and I think I introduced you as cofounder. The reason I did that is because when we started talking before the interview, you told me about how, “We did this, we did that.” I assumed that we, meaning your friend, became cofounders. Was he still there when you started?

Pini: Yeah. I had a proper cofounder from ’09 to 2011. In 2011, my cofounder left. Ever since then, I’m running solo.

Andrew: Running solo, it sounds easy but you told our producer that you had a very manic depressive internally experience after he left. What does that mean?

Pini: I said that manic depressive feeling is kind of like the startup vibe and I still have it.

Andrew: What are the ups and downs that happen when your cofounder leaves?

Pini: Okay. So, generally it’s manic depressive, the experience itself. But when the cofounder leaves, first of all, it’s a lot of–it’s more baggage, right? It’s more emotional baggage in the sense that you need to kind of like step up and be responsible for all the responsible, also Optimove is a business that we don’t have any investors. There’s no board. There’s nobody older that helps you get through it. We’re always successful, but it’s kind of like it’s a road that’s full of surprises, some of them are good, some of them are bad.

Andrew: Now it’s all on you. There’s no other person to share that.

Pini: Exactly. It’s all on you. Anything that happens–if a great employee wants to leave, it hurts. Also, if you hire an amazing person and you fall in love with them, you go up. If you sign an amazing account, you go up. If you write an amazing piece of blog, you fly. All these things make you super-excited, but you also take in all of the negative things. You learn to deal with it and as time goes by, you get rougher around the edges and you get tough.

But in Optimove, it’s a very specific experience because we play a big game, like all the companies that are VC-backed and we’re not. We need to have a different type of characteristic to hold it all in.

Andrew: I get it. When he left, did he end up with a piece of the business too?

Pini: Yeah. He still has a piece. We had like a good founder’s agreement. So, that piece is very important. So, when he left, we were able to stay friends and close it off nicely.

Andrew: Not a 50-50 split because you guys had a vesting period, it sounds like.

Pini: Yeah, exactly. We had reverse vesting.

Andrew: I have your growth numbers in employees, starting for 2013 and they’re good. It doesn’t seem like you guys were doing that great in 2011 when he left.

Pini: In my mind, I think in 2011, there was no impact, there was no direct impact when he left.

Andrew: It wasn’t like he left when you guys weren’t doing especially well. He just left at some point.

Pini: He just left at some point. He was hoping to get a quicker result and was kind of like feeling that it wasn’t a place for him anymore. He saw other employees grow and maybe do some of the stuff that he used to do. He just doesn’t find his place anymore. We always did good. Every year we grew, I think, between 70% to 100% every year. So, there was never a–obviously there’s the year that we kind of boomed. But for me, it always felt roughly the same.

Andrew: Let’s continue then with the story. How did you find your customers? The very first customer for the software, was that someone who was a consultant customer?

Pini: Sorry. Come again?

Andrew: You know what? Let me take a sponsorship break and then we’ll come back and talk about how you got your first software customers. The sponsor is a company called Toptal.com. Anyone who’s listening to use right now has heard you, Pini, say that your first version was actually built by an outside development ship. It’s not unusual for a company to say, “We want to get into software. We don’t have the resources right now to do it. Let’s hire someone else to do it.”

One way to do that is to hire a full development shop. But another is to hire someone directly, have someone that you get to work with. A great place to do that is a company Toptal–top as in top of the mountain; tal as in talent. When you go to Toptal, you tell them what you have in mind, what are you about to build? Who do you need? How long is the engagement? Maybe it’s just a small project. They’ll find the right person. You get started with them.

The good thing about that is if you like working with that person, you can keep working with that developer forever, if you want. You’ve got a direct one on one relationship with that person. Or if you’re done because the project is over or the project didn’t go so well, you don’t have all the headaches involved with having a team of employees that you have to let go of and have to file all the paperwork for.

Toptal is fantastic for it. So many people have signed up because of these spots that I’m doing for them. They just keep re-upping and trying to buy all of my ad spots. I’m really grateful to them for doing it. I’m glad that all of you guys are receptive to Toptal. If you already have a development team, you can get more resources, more people, maybe even one person from Toptal. If you’re just starting out, you can go to Toptal and get your very first person.

They’re a great team of people to work with. I urge you go to check them out at Toptal.com/Mixergy. When you go to that URL, they’re going to give you 80 free developer hours when you pay for 80. If you go directly through them, of course if you have any issues, I’ll be happy to help clear them up because I’ve worked with them so long that I know them. I’ve had the founder to my house. I’ve talked to them. We’ve got a really good relationship and I’m proud to recommend Toptal.com/Mixergy.

So, getting back, Pini, to your customers, you now are starting to have software. Where do you get your first client?

Pini: So, the first client was one of the customers from the consultancy. So, it’s a very smooth transition when you already have existing relationships with people that they trust you. You know their problems. And you say, “Hey, let’s just give it a go.” They say, “Hey, from the moment you have it ready when it’s built, I want a piece of it.”

So, this was kind of like the beginning. After that, I would say that the first interesting meaningful account that we had was when we completed that pivot and built this additional muscle into the software, the engagement piece. We went to a tradeshow in London and we got like a customer in London. I think from that tradeshow, we got the first customer in London.

This was, at the time, a local gaming company from London. This was the beginning. It was a nice-sized deal also. It was kind of like a very nice and chunky deal. Knowing today, I think they paid a bit too much, but I didn’t know how to price, so I just went up and it worked at the time.

Andrew: How did you–I guess you just made up a price, is that what you did for the first version of Optimove?

Pini: So, you know you have some anchors, right? You know, for example, how much you’re paying for the employees. So, you can get into–pricing is an art, I think. But it’s a super important art. I think that the way you price your product, it affects tremendously on positioning and strategy. It’s a huge strategic decision. I think here again we have a lot of kind of street smarts and intuition in terms of making it happen. We went high.

I think we sold the product for–it was a bit easy because you see this very fancy machine-learning algorithm which nobody else has because it’s original, as I said, we did it. So, maybe for some people, they say, “Hey, it’s not for me. It’s overkill.” But if somebody likes it and wants it, typically they’re going to pay premium.

So, we went a bit high and I think it was very good. It’s not like crazy high, but it was on the high end, and I think it was a great decision for us in building the business, but it’s an art. You try a lot of stuff, sometimes you get–we call it in soccer, you get a red card. If you price somebody too high and then they don’t respond to your emails–you need to be cautious.

If you climb too high on the tree, you need to have ways to go down and say, “Hey, of course, it was including all of our features. If you want just a core version… Here’s a sweetener for the six months.” So, there are options. But it’s truly an art and a lot of iterative trials and tests to get it right.

Andrew: It seems like it’s easier–

Pini: They’re trying to understand the value that you’ll bring them, the alternatives, stuff like that. A lot of searching and iteration until you get it right.

Andrew: It seems easier to go down if you have too high of a price and offer people a discount or give them some time off of charging them if you see that someone can pay a little more.

Pini: You can’t go up because then if you promise, if I promise you I’m going to sell something for $10, I can go after you say, “Okay,” and then they say, “Sorry, I got confused. It’s $15.” It’s like an asshole move. You can’t do that.

Andrew: Plus I’m looking at early versions of your site and marketing material. You didn’t offer price on the site. So, you had a lot of flexibility.

Pini: We never did. We said it’s like a few thousands of dollars a month. It depends on how many instances of the product you’re going to have. We didn’t have this pricing page.

Andrew: You still don’t, as far as I can tell.

Pini: We still don’t. I think it’s–for of all, it’s a B2B play, right? We’re selling to businesses. Also, it’s not like a zero touch play. It’s not a SaaS offer that you just put in your credit card, next, next, next and you become a client. It’s more of a consultative sale. We’re going to talk to our clients. We’re going to go through a process with them and hopefully at the end signing them. So, we never felt it was a problem.

Andrew: Roughly what prices are you guys charging?

Pini: So, today our average is around $75k a year.

Andrew: $75k. I’m looking at my notes here with the pre-interviewer. They asked you what’s your biggest challenge and you said, “Working in the tension of catch-22.” Do you know what he means by that?

Pini: Working in what?

Andrew: That there’s some kind of tension or catch-22.

Pini: I do know. Yes. So, it sounds like me. So, the catch-22 is basically whenever you try to–imagine for example the catch-22. So, I want to go into the US. So, I go into the US and I want to get new clients in the US. But I have no brand in the US. Nobody knows me. I have an accent of an alien. I’m trying to make some business. So, customers are saying, “I don’t trust you. I don’t know you. Why should I listen to you?”

So, the catch-22, there’s always this tension that you’re always trying to build something out of nothing. I think with a lot of stamina and perseverance, you’re able to crack through and maybe get one or a few people that trust you and then it kind of like opens up. You always find yourself in the situation as an entrepreneur that it kind of feels impossible.

You’re saying, “If I want to get more money, then they need to agree to debt, but they can’t because the competitor is offering this.” There’s always a situation. It’s hard for me to articulate it not. But entrepreneurs will relate. When you analyze a situation that you’re in–so, you don’t have money and you need amazing talent to build a product that’s better than what’s out there with a big brand, right? So, how can you do it?

As I told you even at the beginning with hiring the best developers, Google is getting better developers. So, how do you build a great product that sells?

Andrew: How do you deal with that? I wouldn’t necessarily use the phrase catch-22 to describe it, but I see what you’re saying. It’s a lot harder for a smaller startup. You also use the phrase, “I feel like I’m constantly looking up to people, like a midget constantly looking up to giants.” How do you deal with that, then?

If you’re trying to hire people when Google has so many other perks or so much more to offer, when bigger companies have better brand recognition and people are more likely to trust them, how do you do it?

Pini: I think it’s an accumulation of small wins. Maybe I’m going to meet this great talent. That guy will grow. They like me specifically a lot. They appreciate what I’ve built. So, boom, I get a nice win there. I can have a very interesting talent that’s never going to work for Google because it’s two big. It’s going to feel like a small piston in a huge machine.

So, I think accumulation of many, many small wins and just creativity and innovation–at the end of the day, people and startups today, what you do all day long is you build. You build departments in your company. You build your software, obviously. You billed your organization,. You build your culture. You build content. Build and create, build and create, build and create.

If you do that well and you have some wins there, you drive growth. I think this is the key to unlock growth. It’s across the entire organization, you need to build and create, build and create. If you do it in an innovative way, a creative way and it’s different and it’s unique and it’s done right, you unlock growth.

Andrew: Let’s look at how growth comes from sales. What’s your sales process?

Pini: So, the sales process–as I said, it’s a consultative sale.

Andrew: Where do people come from? I was looking at SimilarWeb to see where you were getting your traffic. It seems like you’ve been doing a lot of posting of articles online.

Pini: Right. So, we are immense believers in content marketing.

Andrew: Content where you’ll write for sites like Read Write Web?

Pini: Thought leadership.

Andrew: Also, you have something called Optimove.net, which is your academy, right? You’re teaching people that he was a hero. Is that the stuff you mean?

Pini: No. So, the academy is basically for Optimove showing the how to–

Andrew: I see. I can’t access the article.

Pini: .Net is actually the URL that they access. So, people get their own Optimove instances with .net.

Andrew: Got it. I see. Okay.

Pini: It’s kind of confusing. Yeah.

Andrew: I feel like I’ve got a ton of information as an outsider, but I can’t possibly have enough. So, it’s not then your thought leadership on your own site, is it?

Pini: It is. So, what we do, the process–so, you’re saying how do we get customers?

Andrew: Yeah, how does a stranger find out about you, what happens next, how do you turn them into a customer?

Pini: So, we turn them into a customer by engaging in an initial conversation. We do some qualification to see if–

Andrew: How do they even find you to engage you in that conversation? I mean, before they even come and talk to you?

Pini: So 40% of our customers are word of mouth, right? So, we are a company that champions relationships with existing customers.

Andrew: Okay. Let’s pause on the 40%. Word of mouth doesn’t happen naturally. I have a lot of great things that I enjoy here, including this freaking pen. I never talk about this pen with anyone else, as much as I love it–I bought another box of pens, I didn’t have the patience to return it, I tossed it in the garbage, I got this.

Pini: You know why? Nobody is going to call you with a question, “Hey, what do you do for pens?”

Andrew: Right. Is that what it is, that people call each other much more when it comes to conversions?

Pini: I think if you operate in a specific cluster of people or social circles, people in social circles are close to one another. They see each other in many events and shows and stuff like that.

Andrew: Do you do anything to foster that or is just naturally that you happen to be in a very buzzy community?

Pini: So, you can choose where to go by where is the buzzy community. It’s very easy–speaking of small companies competing with Google and stuff like that–you’re not going to conquer the entire Europe within one second. You should start by conquering a small pond. You go into a place where it behaves like an ecosystem.

It’s small enough for you to go in there and win it. If you’re able to do that, you get a lot of word of mouth. The word of mouth is nurtured by many things. First of all, have an amazing product. So, your existing customers, the ones that use it, they need to talk to their friends and say, “Hey, this stuff is really great.”

Second, thought leadership–write, show them that you know your stuff. This concept of what you do, it’s in your blood. You dream about it at night and you have some interesting, innovative, original thought about it. That’s another thing. If that happens–we just looked at our customer acquisition costs figures and they’re very low because of the word of mouth. So, it helps you tremendously.

Andrew: Okay. So, that’s 40%. Where do the other 60% find out about you?

Pini: So, another 40% is tradeshows. We do a lot of tradeshows. When we go to the tradeshows, we have a booth. We speak to people. We shake their hand. They like us. We show them what we do. We do like an onsite demonstration of the product in the show. We go to the parties of the show at night. We mingle and become a part of that specific community and then we get another 40% from that.

Andrew: What’s your follow up on people you just hang out with after the show at night? Do you take their email address and have a specific process?

Pini: Yeah. Typically we collect a bunch of business cards or you scan them the day of the show. So, you collect a lot of the cards. We have like this filing system that we say we kind of rank the quality of the leads. So, we have like A, B, C, not relevant and biz-dev, which are all the people that try to do partnerships and stuff like that. They’re not really prospects. And then we send a blast email for everybody at the show. And then we also are going to follow up personally with A, B and C. That’s what we do after the show.

Another great source of leads for us is search. So, we are extremely strong with SEO. By the way, this is driven today mainly by the content. So, it goes back to the content. The site equity–so, Optimove.com comes up in tons of search results because this website is being pointed by many, many–so, by Inc. and by Entrepreneur, by TechCrunch and all of the places we write in, they link directly to Optimove. If you look up customer segmentation online, you’re going to see that on page one.

Andrew: According again to SimilarWeb, segmentation is a big phrase for you guys, customer is a big phrase for you guys, churn is a big phrase for you guys. Okay.

Pini: People are looking for how to bail out churn or customer retention tools or stuff like that. They find us online and then they become–we get their information and they become a lead. We start a process with them. We demonstrate the product. Then we do a technical call, maybe another demonstration.

Andrew: You also do some ad buys, it looks like, right?

Pini: Right. Another thing we do, we have this whole philosophy that starts from the content and then people come in, then what we do, we do retargeting for all the people that come in. What we serve them is with blog pieces, with our content. We’re actually going to shuffle all of the different blog pieces that we have.

The good ones–if you went in to Optimove, we’re going to follow you across Facebook and the web. But we’ll follow you with different types of content. It’s not direct promotional stuff, like hey, just give me your details. Maybe there’s a few of these, but most of the ads are going to be about other blog pieces. So, again, I want you to read what we say, like us and then you’re more likely to recommend on Optimove and also maybe come in and be a buyer.

Andrew: I see. So, maybe an article that I might see on Facebook after having seen you guys on your site would be customer churn prediction and prevention. I’d read the article. You’d have nothing distracting on the page. I get down to the bottom and it says I can contact you and request a demo if I want to learn how Optimove can help me with my churn.

Pini: Right. Or you see an article talks about giraffes in your data, which is, “Beware of Giraffes in Your Data.” This is like a philosophical piece about how to analyze data in a smarter way. It has nothing to do specifically with your problem, but you say, “These guys are nice. They’re smart. They’re really excited about what they do.” It gets me intimate with them. I want to work with them. I will choose them over the competition.

Andrew: I see. That was an article you guys did for Gigaom, “Giraffes in Your Data.” That leads back to you.

Pini: It’s smashing head. Everyone loves a giraffe. And then we push it through Tabula and Outbrain and all of the content systems.

Andrew: As a redirection or is Tabula working as an original source for customers for traffic?

Pini: We use them. We pay them. We use them get traffic into our site. But also, by the way, Outbrain is an Optimove client. So, it’s kind of like they use us to nurture the relationship with their customers.

Andrew: I see. Both of those companies do those little article-like posts on the bottom of ads that are basically paid content on other people’s sites.

Pini: Exactly. They’re both Israeli, if you didn’t know.

Andrew: I didn’t realize that. I can see how you guys are all getting to know each other, all helping each other. Now you found a way to get someone into your site. What you want to do is get them to request a demo. They request a demo. Is the demo a one on one conversation?

Pini: Yeah. It’s a very–it’s a consultative sale. We probably do a few meetings unless the person is super in a hurry to close or they heard so many good things that they’re like, “Fine, let’s get it done.” But you do a few meetings and then you do legal and then it’s signed.

Andrew: So, you get in there on a call with them. I’m guessing that you probably do something to weed out the people that are not likely to buy, right?

Pini: Right. We do some qualifications. We had somebody in marketing that gets all the leads and he does a ton of other stuff in marketing but his main responsibility is get to all the leads and then assign them to the different sales reps. He does the qualification as well. When he gets the company. He looks at the company online, looks on LinkedIn, tries to see who’s the people, read about them a little bit and setup an initial discovery call to qualify the lead.

Andrew: What do you guys have, 1,000 customers now?

Pini: No. We have 180.

Andrew: 180 customers.

Pini: If we had 1,000 customers, we would do IPO a long time ago. But as a company, we’re at 80 employees today. Our main office is in Tel Aviv. We’re opening our office in New York now. I’m actually relocating with my family April 1st. I’m very excited. Everybody, wife, baby, dog going to live in Brooklyn.

Andrew: To be closer to your customers?

Pini: Exactly, be closer to and boost our American presence directly from Brooklyn.

Andrew: Cool. I actually threw out a number because you said you weren’t comfortable saying what your sales were, so I thought maybe you wouldn’t tell me how many customers you had and one thing I learned was throw out a number and if it’s a shockingly low or shockingly high, the person will come back and really correct you fast.

Pini: You have your tactics.

Andrew: Why don’t you say what your revenues are?

Pini: I think there’s no… By the way, we do believe in tons of transparency. So, as you see, we just released our end of year stats. We show our growth stats and we show tons of interesting stats in our blog. There’s like a 2015 infographic. But I think it’s a bit–people could guess, could ballpark it, but I think it feels like you’re telling, “How many girls have you been with?”

Andrew: We’re talking about millions of dollars in sales, though?

Pini: Yeah. It’s in the seven figures.

Andrew: For sure. So, one other method I’ve learned is take the number of employees and multiply it by the average salary that someone in their space makes–

Pini: By the way, there’s also stats in SaaS that tell you. There’s a known metric in SaaS of how much revenue you get per employee. You can look at the ballpark and do a multiplication and try to understand what’s the right number.

Andrew: What is the right number for SaaS?

Pini: It depends. It’s all the way from, I would say, $130,000 to $250,000. So, if it depends. There are areas in which a company is very good or not as good. So, you can do this direct multiplication of number of employees times revenue. But it could be misleading because a lot of these companies that get a ton of VC funding, they’re going higher up and higher, higher, higher. But they don’t have the revenue. So, they could have like 80 people but have the revenue of 25 people.

Andrew: That’s why it worked better for bootstrappers, but with bootstrappers, the other issue is often people aren’t full-time employees or maybe not even employees. They’re kind of 1099 part time but they get listed on LinkedIn and on the site as employees as a way of juicing it up.

Pini: I never did it. For us, I never had like–maybe, I don’t know.

Andrew: I don’t think–I guess some people do it intentionally. The reason I care about that is just to get a sense–I do research before accepting a guest on. I just want to get a sense of where is this company? Is it a brand new company? Is it a company that’s struggling and needs to come here to do an interview with me to show, “Hey guys, I’m doing okay,” even though they’re not doing okay? Those people I need to find a way to reject. That’s why this kind of metric is so important to me. That’s why the math of how many employees–it’s important. I see those people.

Pini: We are a very interesting success story, I think. But also, as I said, I always feel like a midget because whenever you cross another step and you go up, you look up and you see, “Oh my god. There’s so much more to do,” and then people start to label you. And they’re saying, “Hey, it’s nice what you did but still there’s this and that.” I think doing it as a bootstrap, no external funding and do it from Israel, which at the end of the day, we’re not where the market is at. So, we always have to do it from afar with GoToMeetings, by the way.

Andrew: And having this phone number at the bottom of your site that says, New York phone number, 212, etc. That’s not a real office, was it?

Pini: It is. It depends what time. Today, we do have an office in New York. We have employees in the US, but it’s scattered. So, we have a guy in Boston and we have a girl in Portland. So, it is a real office. At the beginning, I forget what’s–we published the number only after we had the first guy in the US.

Andrew: All right. Well, you did a lot. Are you guys profitable?

Pini: Yeah, bootstrap, you have to, man. We’re very profitable. We’re very profitable and 2015 was a very profitable year for us. You just have to. Our gross margins are very good. Our unit economics are very good. It’s a solid, true business. The challenge now is to build a big company out of it.

Andrew: You’re on the way to doing it. It’s a good thing you went to New York and not to San Francisco. You’d have been wanting to throw up in your mouth when you see some people here who have no ideas and have it so much easier than you because they have all this money. They didn’t have to do the consulting that you did.

Pini: Yeah. It builds who you become. I feel blessed in many ways. I think it’s such a better way to do it. New York specifically for us, because of the seven-hour difference, it gives you three extra hours in a day to work with an Israeli team. So, my wife is an actress. So, I could never take her to San Francisco. I must take her to a place in which she can find interest.

Andrew: Yeah. You’re not getting much acting work here.

Pini: Yes.

Andrew: Well, cool. The website is Optimove.com. If you like this interview and want more, remember, just subscribe to the podcast. Every single episode will come directly to your phone for free. Ordinarily, we charge for the archive, so if you subscribe, you get them all for free and you can save them forever.

If you want to take this relationship to the next level, we have something called Mixergy Premium, where you get access to over 1,000 interviews that I did way before this one–years of deep, researched interviews and courses too and the courses are taught by entrepreneurs, many of whom that I’ve interviewed here on Mixergy.

There’s one that’s come to mind by a guy named Jerome Griggs. I interviewed him about how he does marketing automation and we had a really helpful story from him in the interview. I said, “Jermaine, would you come back and teach it?” He said, “Sure.”

So, he basically took screenshots of his whole marketing automation process and said, “Here’s what I do. Here’s why I do it. Here’s how many who’s listening to me can duplicate it. That’s one of over 100 courses we have. That’s part of Mixergy Premium. In addition to those interviews and those courses, we also have a community of other entrepreneurs that you get plugged into. To find out about it, go to MixergyPremium.com.

Finally, my two sponsors for this interview are a company that Pini and Optimove use. It’s called GoToWebinar. If you need good webinar software–I know there are a bunch of free options out there, but the good software that’s’ worth paying for will really help make your webinars look better. It’s GoToWebinar.com. Finally, when you’re ready to hire a developer, go to Toptal.com. They’ll help augment your team or start your team, Toptal.com/Mixergy.

Thank you. Thanks for being apart of this, Pini.

Pini: Thank you, Andrew. It was a pleasure. I hope it was helpful and beneficial to other entrepreneurs and people that see this.

Andrew: It was and I’m glad you’re here to do this. Thank you all for being a part of Mixergy. Bye, everyone.


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