Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy where I interview entrepreneurs about how they built their businesses. And I have to admit that even for me there are times when I think, “Well, you launch a business and you can sell it at any time. And it’s so easy if it’s done right, you know.”
But the truth is that most businesses last, especially if you do it right, for years and years and years and the sell off, the pay off, the freedom that you hope for when you think, “I’m going to start a business so I can get financial freedom,” is so far in the future that it’s hard to count on. And that’s what today’s story shows.
Joining me is entrepreneur who started his company, get this, this is back in 1999, through that period of raising money, changing the world, being changed by the world. There was a lot of evolution, a lot of, frankly, I hope you don’t take this the wrong way coming from Germany, slap downs. I feel like the environment, the world slapped you guys down quite a bit and you stood up and I want to understand how you did it.
Eckhard Ortwein is the founder of several companies, but the company we’re going to focus on today is a company called Paybox Solutions. They set out to make money mobile back at the time when PayPal did, really, launched around the same time. They decided people should be able to pass money to each other, to businesses using mobile phones. That world exists today but back then it was ahead of its time. They raised money and we’ll find out what happened but I’ll cut to the end and tell you that they did sell the business to Sybase for . . . well, I’ve got it here but I’ll have him tell you. Today’s he’s working on a business called Lean-Case, which we’ll talk a little bit about because I think it’s useful for every entrepreneur who’s listening to me.
What they do is they help you plot out your company’s financial model. Most people do this in spreadsheets, lay out where their income is going to be, where their expenses are going to be. He has this vision that they should be using a tool that’s made for this, for developing your business case. It’s called Lean-Case. We’ll talk a little bit about that all thanks to two phenomenal sponsors.
Eckhard, people heard me talk about these sponsors forever. But there’s a reason why they keep hearing it. It’s that the ads work. People are actually going over and when they need a website hosted, they go to hostgator.com/mixergy. And when they’re ready to hire the best of the best developers, not only do they hire from Toptal, but I’ve been noticing even on Twitter when somebody says I’m looking for a developer, I’m working through this process, my audience will tweet back at them and say, “Hey, why don’t you go check out Toptal. Andrew is recommending them.” But I’ll tell everyone about those later. Eckhard, I’ll welcome you and say good to have you here.
Eckhard: Good evening, Andrew, here. And thank you for your nice introduction on the slap down, so we’re getting on right.
Andrew: I’m looking at articles here, including this one from Network World from 2009 talking about how Sybase acquired mobile payment player Paybox Solutions. I don’t see how much they acquired you for here. What was the acquisition price?
Eckhard: The acquisition price was about $15 million.
Andrew: $15 million. Do you remember the day that you signed that contract or the money came in? You do?
Eckhard: Obviously, yeah, it was Dec 31st, 2008.
Eckhard: And it was a good New Year’s Eve after almost 10 years of hard work.
Andrew: What did you do to if not celebrate, to at least mark the occasion?
Eckhard: I think we took a vacation at the coast in the winter, and I just relaxed for 10 days because the due diligence happened so hard and it had been an ongoing process for 9 months selling the company to Sybase. And before Christmas they had a call and they said, “Well, if it doesn’t happen or that doesn’t happen, the deal might not happen Christmas,” they stressed but then no. So I was really relaxed that eve.
Andrew: I bet. I understand the way you got into entrepreneurship is you worked at Proctor and Gamble and this experience sent you to Silicon Valley to consult. And Silicon Valley changed you. What were you doing in Silicon Valley?
Eckhard: Actually, I started at Proctor and Gamble and then I worked for a consulting company Arthur D. Little at that time which was BCG was a spinoff or Arthur Little was from Boston. They sent me to Palo Alto, and we had a research office there and people coming from really all over the world. And we were taking like the German corporates, like Lufthansa, or Volkswagen and we were taking them to Silicon Valley in ’98 from the year of . . . there was Monica Lewinsky and we were taking them to Silicon Valley to show how the startups in Silicon Valley worked.
Andrew: Arthur Little the management and consulting company brought German businesses to Silicon Valley to show them how the world was working in the tech sector here?
Eckhard: Exactly, exactly.
Andrew: Got it. And then what was in it for the tech companies? Why did the tech companies invite all of these businesses in?
Eckhard: Well, for example, there was a big project for Lufthansa at that point in time and they were looking for technology for their lines with United and so the vendors we picked that we visited were all potential suppliers for those kinds of projects.
Andrew: Okay. So there was potential partnership, potential clients coming from this. And so what was it that led you to start your own company then? What was it about this experience?
Eckhard: Well, obviously working with the startups and I’m getting that atmosphere of working in Silicon Valley and not with stiff German corporates.
Andrew: Was there one company that was especially meaningful that way that you looked at internally and said, “Wow, this is a new world”?
Eckhard: I remember Vitria, that was a middleware company. And Vitria was, yeah, they went . . . they went public. Yeah.
Andrew: So what was it about them that attracted you? What was it that made you change who you were?
Eckhard: It was entire approach. It was the technology. It was the way you could use it with technology, it was their way of presenting it, it was their way of selling it, everything was just spot on and really nice.
Andrew: Got it. And brand new from the beginning?
Andrew: Like a whole new way of thinking, a whole new way of doing things.
Eckhard: And the way they put together a team, the team was very experienced. They all had their different competencies and it was very impressive. I was very impressed.
Andrew: So where did the idea of payments come from?
Eckhard: The idea came from my friend who actually founded the company so I was his cofounder and he was also in Arthur D. Little at the point in time. And he came up with that idea on an overseas flight in the middle of the night somewhere over the Atlantic. He thought, “Well, we have to improve payments. The mobile phone are there. Why don’t we use the mobile phones for it?”
Andrew: The mobile phones back then, we’re talking about those old things that were called candy bar phone, right? Which is a small phone with just the 9, the 10 digits plus the star and pound, was a flip phone. That’s what we’re talking about?
Eckhard: Yeah. The only thing it could do was actually doing voice calls and sending SMS. That’s what they could do.
Andrew: And he thought we need to make these into payments. And why did you believe that that would work? Why did you believe it was even necessary?
Eckhard: In payments, you could already see a lot of fraud and the internet was coming and you could see credit card fraud on the internet. It was also the same reason why actually PayPal got up, and you needed a good way of authenticating a payment and securing a payment. You could do it with a phone call, and the idea was very simple. I went to the merchant website and instead of entering my credit card number, I entered my phone number and I pressed “I want to pay this merchant,” and then I got a phone call. And the phone call would say, “Hey, this is the Paybox helpline and so I heard my name as a security saying if you want to pay to the merchant Mixergy the amount of $49 for a wonderful subscription. I heard all of this, yeah, I just press this button and I enter my pin, and then pin was verified and obviously the selection was posted.
Andrew: So it wasn’t the people were giving the credit card number over the phone, it was that they weren’t being authenticated over the phone.
Eckhard: They weren’t being authenticated over the phone, and they didn’t have to give their credit card number to the merchant. They only had to give their phone number.
Andrew: Got it. Because you would take the credit card over the phone?
Eckhard: Well, the credit card was stored for the payment, or the bank account details was stored in our system. They were only stored securely once in our system.
Andrew: On the web?
Andrew: Okay. So you imagined would go create an account on your site, put their credit card information one time and then from then on when they needed to make a payment instead of retyping it in, they’d get a phone call saying, “Hey, Eckhard, do you want to authenticate this? Do you want to authorize this?” and it would go through. Got it. That’s an interesting idea. It’s an interesting take. Let’s talk about the first version. You told our producer I built an MVP, minimum viable product, which is interesting because this predates Eric Ries and the Lean Startup. What was your minimum viable product?
Eckhard: Well, the minimum viable product was actually between two phones and you can use. I would basically play . . . you would play the merchant, right, and you were calling into their Paybox number, and then you were then entering my phone number and the amount.
Andrew: When you say, you, you mean . . . so the minimum viable product was you got two different phones and you pretended one was being held by a customer and the other was owned by a business that the customer wanted to buy from, the merchant. Okay. So what did you set up? The customer would do what?
Eckhard: The customer would call into the number. He was asked by the IDR machine and was asked from whom do you want to request money. So he had to type in my phone number and then second question was how much do you want to ask for and you would enter $49 and then the transaction would, like from the internet, the transaction would go to us and we would call on the customer’s phone and the customer would say hey, this is the Paybox of Eckhard. Do you want to . . . same authentication process. It would work the same way. And that was something we built in probably a month.
Andrew: Was there software involved in this? There was.
Eckhard: There was software, special software involved I remember from Inbox at the time that could facilitate these things.
Andrew: What were you trying to prove? The reason people create minimum viable products is to see what that first prototype, that first version would look like. But it’s also to prove something, to see if something is possible. What were you trying to test?
Eckhard: We were really trying to test the whole process. I mean, it was early days of internet.
Andrew: To see if it was technically possible or to see if consumers would understand it or if businesses would use it?
Eckhard: Both technical feasibility. We didn’t really know how long it would take to receive the call and what pace do you need it. And then to also have an experience, right? Test it with consumers and we would test it a lot and go out with that to raise money from investors.
Andrew: But you talked to investors before you even talked to merchants because you wanted to make sure you had something strong enough for merchants to incorporate into their payment.
Eckhard: Totally. With their payment if you go out with a payment proposition, it’s always about the chicken and the egg problem, right?
Eckhard: We have merchants so you can acquire some consumers and yeah.
Andrew: But still, I think in retrospect it might’ve made more sense to talk to merchants too, right? Don’t you agree to see what merchants you want them to have them say if you build this, we would sign up so you could go to investors and say I actually have a plan that customers would like and merchants would sign up for.
Eckhard: It was so brand new I think that’s why we said, okay, let’s immediately raise money from investors. But at that point in time that wasn’t the right timing also. But today you would do it differently I agree.
Andrew: Yeah. And let’s also be clear that 1999 was the height of a lot of money being thrown around to new companies and so you said, all right, let’s jump in. And you were one of the last ones to get it, right?
Eckhard: We were, yeah. We were a bit behind this big wave. At the end of ’99 you could feel it became much more difficult to raise money so we were in this last slot.
Andrew: Okay. And so who did you raise money from?
Eckhard: We raised money from Deutsche Bank.
Andrew: Yeah, a company that’s now struggling a lot. But at the time was impressive to get funding from Deutsche Bank.
Andrew: Okay. Especially if you’re a payments company. So you got your payment, it’s time now to go out and . . . actually, you know what, tell the story about how you demoed it investors and what happened when you were trying to use the phone.
Eckhard: So we had our MVP rating just 10 before we went into our investor meeting. And I was so nervous and so excited because I didn’t know if it would work and we were in the parking lot and we used this MVP. We’re like, yeah. So I played the merchant and so when Paybox asked me, “Well, from whom do we want to request money?” I was so nervous, I didn’t punch in my friend’s number so he would expect a call. I punched in my own number and I would actually receive that phone call. So actually that really was asking to request money from myself.
Andrew: Because you were so nervous about doing this.
Eckhard: Absolutely, yeah.
Andrew: All right. Let me talk about my first sponsor then get back into the rest of the story. My first sponsor, Eckhard, is a company that you need to know about. It’s a company called Toptal for hiring developers. I’m actually going to back away from that ad for a moment and talk about one of my earlier sponsors. It was Shopify. And I remember interviewing Tobi and said to Tobi why are you sponsoring with me. Tobi was the founder of Shopify.
And Tobi said we’re kind of a new company. We know your audience may not be a good fit for Shopify yet because your audience could go and create their online stores because they’re developers. Your audience can use different opensource tools to create their own online stores because they’re tech savvy. But your audience, he said to me, is also the people that everybody else turns to when they wonder how should I set up a store. Everybody else turns to because they’re wondering how do I get my online store built.
And so that worked for them. A lot of my people ended up making referrals to Shopify and look at how big Shopify is. I’m not saying because of us it grew, it’s because of that strategy, because he understood if he reaches people who everyone turns to because they are the authorities, he can then get to the people who are his customers. I think Toptal is doing the same thing. They’re recognizing that, yes, many people in my audience are going to sign up for Toptal. In fact many of my interviewees are saying I’m hiring developers from Toptal. We’re talking about the founder of Grasshopper, Hiten Shah the founder of FYI and formerly Kissmetrics, Neil Patel the founder of multiple companies now Neil Patel Digital, I think is the name of his company.
Anyway, lot of people have but they’re also recognizing if you’re in my audience many people will come to you and say, “How do I get this built?” and they’re going to futz around with developers that are inexpensive and not very good. But what they should be doing is going to the best of the best developers. If that’s who you’re going after, if that’s who your friends, if that’s who your contacts are looking for, send them, head over yourself to toptal.com/mixergy. This is not the cheapest developers online. This is the best developers online at a reasonable price because often they’re working internationally and they don’t have to pay Silicon Valley prices for homes, for school, for everything else.
So where do you go? Toptal.com/mixergy. When you use that URL, Eckhard, even you, when you use that URL you’re going to get 80 hours of Toptal developer credit when you pay for your first 80 hours. Think about that. And a no-risk trial period. If you’re not happy, Eckhard, you just say, listen this didn’t work out the way that I wanted. They will not take your money or they will not charge you for it. But what they will do is still pay the developer because they’re mensches, because they want to make sure that the developer gets taken care of. To get the details go to top as in top of your head, tal as in talent, toptal.com/mixergy. Oh, you will thank me and your friends will thank you. They’ll love you for doing it.
Let’s continue on with the story. You built your first version, you got some funding. Things were working out. It’s time now for you go out and get customers. Or is that what you did first? Or did you end up going and building a bigger and bigger team? Be open.
Eckhard: I think I have to admit we built a bigger team and actually, yeah, we went out in German, we went to the German market and we launched the German market and actually there was still decent and the first five months to build the propositioning, going out into the market, and we had a nice marketing strategy. And actually eBay Germany became one of our anchor merchants so that was [inaudible 00:17:39].
Andrew: So you got eBay Germany? Got it. Wow. How did you get eBay Germany?
Eckhard: eBay Germany, the nice use case with the way we convinced them was basically after you use Paybox for the authentication of the payment, we send a SMS as notification, “Hey, the payment was done.” And to the merchant who was selling on eBay. And that was early days. That was basically the notification of, “Hey, I was paid, I can now ship it.” And so shipping was, the merchant typically shipped a day earlier than [inaudible 00:18:18].
Andrew: Oh, it wasn’t the eBay needed this authentication, they were comfortable doing their own authentication or they actually had lots of other tools. They were using PayPal and encouraging people to use other [inaudible 00:18:27].
Eckhard: They were using PayPal. And that was even before they were using PayPal, they used Paybox in Germany for the authentication but at the same time the second benefit coming with it was that the merchant got notification and then the merchant was . . .
Andrew: Right. That was the thing that they liked. They wanted notification. But Eckhard, as I remember it, eBay didn’t encourage people to use payment. They didn’t have payment built in. They would say to their people, to their auction merchants, “Go use whatever you want, figure out a way to get paid. Get paid by check. Do whatever you want. We’re even not in that business of figuring it out,” right? So what was you partnership with them then?
Eckhard: I think it was the early days and there I think every country was pretty independent and the German payment space is very particular. Because it’s more direct debit, there’s less credit card and it took some days during those times to get a payment posted. So I think it was like the German situation [inaudible 00:19:28].
Andrew: So Germany was different. Were they recommending you guys? Were they building you in? What did you get them to commit to?
Eckhard: No, they were building us in for . . . Yeah, they were. Yeah.
Andrew: So whenever a merchant would go onto to their platform, start to auction something like this vintage looking robot. If I were to go and put that on eBay, eBay would say to me, “Accept payment from Paybox”?
Eckhard: And the consumer could sign up and say I want to pay with Paybox on eBay Germany. And we pay a referral fee for every consumer we paid to that tool.
Andrew: You paid them?
Eckhard: We paid that to eBay. There was also financial incentive behind that.
Andrew: Got it. And did you also give them a lump sum money upfront?
Eckhard: I don’t remember. I don’t think so.
Andrew: Okay. A lot of these bigger companies were taking advantage of smaller startups at the time. They said, hey, you need some reputation from us.
Eckhard: I remember we paid a big lump sum to AOL at that point in time.
Andrew: AOL was big on that. And what did you get for that? They give you like a tab on their site or something useless?
Eckhard: Not a lot.
Andrew: What were they supposed to give you?
Eckhard: I think they were supposed to give us some hundred thousand, 300,000 consumer signups and we got like maybe 10,000 or something like that.
Andrew: But they weren’t guaranteeing it so you didn’t get any of your money back.
Andrew: And what they were doing was they recognized that people were so hungry for credibility and they so believed that they were going to get rich fast that . . . or flip the company to someone else and get rich fast that they said, “Yeah, partner up with us. Get your press release out there into the world and go figure out how you can go public with that or get more money from that.” But they were clearly taking advantage of startups, right?
Eckhard: Right. I would agree.
Andrew: Okay. So you actually had a client and another partnership with AOL and then at some point early on you started growing your team really fast. Am I right?
Eckhard: Yeah. So what happened after the German launch, we did TV advertising even because we were so well funded. What happened after the launch, Deutsche Bank got so excited about it and said, “Well, we have to do this across Europe.” And they sent us a truckload of consultants and they said, “Well, you will now do Paybox in four other markets, which was Austria, Sweden, the UK, and Spain.” And yeah, then we had this truckload of consultants. We really weren’t sure who was paying for them and we were instead of like focusing on building our plan diligently and what we should do, we just started to rollout. Money was not the problem. And I think we did all the mistakes that you do if you have too much money and no time.
Andrew: What’s one big mistake that you have that you made in retrospect?
Eckhard: For example, in retrospect, we built our organizational structure. We built tech entities so everything was tech optimized. We had separate entities in every country, holdings in between so that we could.
Andrew: Oh, got it. You’re setting up such a structure for something big that will come down the road, meanwhile you don’t have the customers to support it yet.
Andrew: Yeah, yeah. On a small level I feel like a lot of people do that too. That they end up getting all of the computer equipment and all of the software that they need and they get all of the . . .
Eckhard: [inaudible 00:23:03] and all of the registrations and say like, “Well, can we focus and can we get something?”
Andrew: And then also I wonder if it was, “Hey, these guys are smart. It’s Deutsche Bank, they believe in us. They think we’re going big. I should listen to them.” Was it that too?
Eckhard: I was a bit like that too. Yeah, yeah, it was . . . so we . . . yeah.
Andrew: You told Brian Benson our producer, “We had 200 people even though we didn’t really close any business. All of these countries that we worked with, all five of them, each one had their own CEO because we thought that we needed that.” This is what you were going for and you had just a bit more than zero revenue. Then 9/11 happened, right? Planes started crashing into buildings here in the U.S. What happened as a result of that for your business?
Eckhard: Well, as a result, we could feel we were at 200 people, right. And the idea had been we wanted to have investors in every country and that we needed separate management boards in each country. And so we had all these tech holdings and all of the management boards and . . . well, it was very professional, the hiring process. Everything was completely professional and then we found ourselves with 200 people, right, so investors . . . Everything was ready so that investors could roll into all these countries. Our management boards were pleased on the local level. And yeah, 9/11 happened and we could feel, “Oh, shit.”
Eckhard: The world will not be the same anymore and you could feel that everyone got so protective, and we could feel what we have done here a bit too much. We have overengineered the entire organization. And so as a consequence of that, we also asked by Deutsche Bank restructure and we did our first restructuring and we closed basically the subsidiaries on the local level, all those management boards that we had just established. We had to let go 140 on one day so we restructured to 60. That was really tough. But we had a good company culture. I was responsible for the UK. I brought the message to the UK team. We got really drunk that day.
Andrew: Couldn’t been easy.
Eckhard: Yeah, it was like that. And then what we found out actually is that with 60 people we were more productive than with 200, right?
Eckhard: At the end of the day because we organized us in a way that we had our central role was instead of decentralizing everything into [inaudible 00:26:00]. Central hats for operational things and yeah, it did work really well with 60 people.
Andrew: I do find that happens in business a lot and in life that we accumulate all this stuff, all these people, all these everything. And then when we’re forced to cut back, it feels so dramatic and painful but in the end, we are actually happier. I image there are a lot of people who go from bigger houses, scale down to smaller houses and in that scale down they realize I had all of this junk that was just weighing me down emotionally, weighing me down psychically. It’s still not easy. I want to get into the emotional part of entrepreneurship too. You were on a scuba vacation at the time. Am I right? Scuba diving when . . .
Eckhard: That was the second scale down.
Andrew: This was the second scale down?
Eckhard: The first scale down was after 9/11. The second scale down was actually, Deutsche Bank . . . well, at that point in time they changed their strategy and they said actually was they’re closing down days as investment bank. They said we’re doing investment banking now, and we’re getting rid of all of our subsidiaries. So that was the end of 2003. And they said, well, we’re selling off Paybox to another company. And I was on my first vacation after two and a half years and I learned scuba diving and Saturday morning was my first scuba dive. And Friday I was just like expecting the call, “Hey, we’re selling Paybox to this company or to this company.” There were two alternatives. And I was just expecting that message. Is it company A buying us or company B buying us? What we received was a message actually it’s none of them. We want to close it down, but a Deutsche Bank subsidiary cannot go bankrupt. How much money do you need to close down the company properly?
Eckhard: And I was like, “Oh, no way.” I did not expect that. I went to my scuba dive the next morning and first time in the Atlantic Ocean going down 30 meters and I was like, “I’m going to stay here.”
Andrew: Don’t even want to come back up.
Andrew: Why didn’t you say, “Okay. Deutsche Bank is going to close it down. I have an excuse. It’s not me it’s Deutsche Bank. Never do business with a big bank. They always want to shut you down.” It’s a story you could tell the world and you could go off and start something new. Why didn’t you say, “Great. I’ll accept this and start fresh”?
Eckhard: It was we were so into it. We were in so much love with what we had done. We could see we were really on a mission. We did not expect it that day. Yeah. Retrospectively, actually, it was the best thing that happened to us. I was very low that day in the Atlantic, but it was actually a good thing because . . .
Andrew: I want to get into why that was a good thing. I’m intentionally cutting you off before you finish the sentence it started with because . . . but why didn’t you say, “I’m done then. I get to go and scuba dive. I get to find my new life. I get to go back in management and consulting.” Why did you decide I have to stick with this business? Because that’s a big decision for a lot of us to decide, do we close it down or start over?
Eckhard: Yeah. Well, I think there were two things. First of all, in Austria we had already built with one of the operators a very good lighthouse showcase. And we could . . . You’re on mute, Andrew.
Andrew: Sorry, I’m interrupting you. What does that mean the lighthouse showcase? I saw you tell Brian our producer that.
Eckhard: Yeah. So we already built a Mobilkom in Austria is the leading operator there. They had become actually the local investor in Austria to Paybox, and we did mobile payment for the internet. We did mobile payment for gambling. We did mobile payment in vending machines. We did mobile payment for [inaudible 00:30:02] payments for parking. So we had the entire portfolio of mobile payment, and we could see this is happening, this is working and we just wanted to replicate those solutions elsewhere.
Andrew: That even though you hadn’t made it big enough for Deutsche Bank to want to keep supporting you, even though from as I understand it, you weren’t even profitable, you saw that there was a little bit of traction. You said we can’t give up on this. If it worked here, we can take it to other places. Am I right?
Eckhard: You’re right. Right.
Andrew: Got it. Okay. All right. And so you believed in it enough. They didn’t and you were starting to say why that was actually the best thing that could’ve happened to you. What happened as a result?
Eckhard: Well, what happened Deutsche Bank, we call it a management buyout with a negative purchase price. Actually, Deutsche Bank gave us enough money to close down the company, and we restructured to 30 people then kept the entire tech team. And we had been diluted so much already. Deutsche Bank was 70 or 80% at that point in time. Now all of the sudden the founder team got back the entire company with 100% again. We spent some of the money to obviously restructure further, but then we didn’t close down with the other team. We restructured Paybox into a reposition it to B2B business. Our largest client was already our investor in Austria.
Andrew: Who was that?
Eckhard: That was Mobilkom that was the telecom operator that has the lighthouse showcase.
Andrew: And then how much of your company did you own before this transition and how much did you own afterwards?
Eckhard: Well, before Deutsche Bank had put so much money into the company, they were already 70% or 80% at that point in time. Yeah.
Andrew: They owned 70% or 80%. Which by the way, was the way business was done back then, the entrepreneur had very little and even that was super meaningful. And after the restructuring?
Eckhard: We got 100% back.
Andrew: You got 100% of your business . . . you just yelled into the mic. You did?
Eckhard: Yes. Yes.
Andrew: You and your cofounder. Wow. And did you have to pay them anything to get that back?
Eckhard: No. We got money to close down the company. We had enough money. Yeah, to close down basically. They said, “We don’t want to worry with this anymore. We can’t let you go bankrupt,” right? It’s a Deutsche Bank subsidiary. Here’s the money. You have to sign you’ll spend the money wisely and close down. Yeah.
Andrew: You kept the money that they gave you to restructure and close down. And you used the money to keep the company running.
Eckhard: They gave us the money to closed down, but we didn’t closed down. We just restructured.
Andrew: How much money did they give you?
Eckhard: It was another $1 million, something like . . .
Andrew: A million which is tiny for a payments company. By the way, this is not the first time I’ve heard an entrepreneur say this. Sahil Lavingia from Gumroad was in a similar situation. He was on an upward trajectory, all of the investors believed in him. Everyone, especially him, thought that he was going to make it big. He believed he was going to be a billionaire because of his business and then the company couldn’t grow anymore. He couldn’t raise another dollar. The company started to flatline. He had to, I think, lay people off, and his investors just said, “We don’t believe in you anymore and want to get you off our books.” They said, “Tell you what, give us a dollar and we’ll give you your shares back.” And so he started buying back his shares for like pennies because they just want to be done with him and then he turned his business around.
I did this whole interview about how he did it. It’s available on Mixergy for anyone who wants to listen to it. And his business now has turned around and I have to say the investors aren’t pissed that they didn’t get rich off of this. They’re happy for him from what I could see. I imagine it’s still too small for them, but it’s a big win for him.
All right. So you ended up getting money back and getting your company back and then partnering up with . . . I forget the name of the company again, the mobile company.
Eckhard: Mobilkom in Austria.
Andrew: And they gave you money and then you gave them equity in your business too?
Eckhard: Well, they already owned . . . we actually gave them all the shares in Paybox Austria so they own the consumer business in Austria, and we basically became their technology provider.
Andrew: So Eckhard, that’s the thing I couldn’t understand as I was trying to follow your history. It seem like there are these different businesses that weren’t owned by you, that were divested in different ways. Can you talk about that? What happened?
Eckhard: So there was Paybox Austria who built all these nice mobile payment ecosystem in Austria. And yeah, at that point in time when Deutsche Bank divested, basically we cut a deal with Mobilkom. Okay, you’re now . . . you’re become 100% shareholder of Paybox Austria, you will run the consumer business in Austria, and we in Germany are the holding the tech team and we were called Paybox.net.
Andrew: Okay. Those are the only ones, divestiture you had, or was there another one?
Eckhard: No. We had to close basically all of the country organizations and at that point in time we renamed Paybox.net, we renamed it to Paybox Solutions more toward the B2B business.
Andrew: Got it. And that’s why I keep seeing different types of Paybox over the years as I look through Internet Archive to get a sense of where you were. Okay. So you had these customers. What happened next with the business?
Eckhard: Well, obviously, we were four founders at that point in time who got the money back. We were all a bit stressed after those years and we weren’t and then we wanted another RFP from [inaudible 00:35:53] basically the day after Deutsche Bank said yeah, we want to close down. We also won a RFP so that was the second customer we got. We won a big project in Kuwait. So we had enough project to feed the tech team for two years. And we said as the management team let’s give our project managers here at the second level a chance to run the business because among the founders there was tension. We couldn’t agree. It wasn’t enough to feed the four of us. So what I did, I actually worked for a Mobilkom in Austria for almost three years.
Andrew: You took a side job, [inaudible 00:36:35].
Eckhard: Yes. And I worked for Mobilkom, which was basically our biggest customer. I worked for Mobilkom and help build that ecosystem. For example, we negotiated the first mobile payment consortium between operators in the world. There were four mobile operators plus one bank in Boston and we negotiated that consortium for a certain amount of time.
Andrew: All right. I’ll take a break to talk about my second sponsor and then I want to come back in and see how this evolved and why you sold and whether it was a meaningful exit for you.
The second sponsor is a company called HostGator. If you’re hosting any website at all, go over to hostgator.com/mixergy. You’ll get the lowest price possible and what I love about HostGator is you get complete control of your site. Yes, with one click you can install WordPress and other platforms. But if you don’t like HostGator or in the future there’s a better option out there, you just take all of you stuff and move it to other hosting company. Hostgator.com/mixergy. Super low price, easy to get up and started, and frankly, you’ll be supporting the work here at Mixergy.
They’ve been doing great for you. They’ve been doing well for me, really well for me, and I appreciated everyone who goes through and uses my URL. Yes, you’ll get a low price but it’s already low even without that URL and you’ll get all of that stuff that they give you like unlimited disk space, unmetered disk, like tons of stuff. In the end what you’re really doing is saying I believe in the work that Andrew is doing here. I want to support him by using the company, the hosting company that supports him. So hostgator.com/mixergy. Go with that gator.
What finally happened that allowed you guys to grow, to take off, to stop with this difficult process.
Eckhard: So at the end of 2005, the company ran into a problem again and then we decided, well, our strategy didn’t really work. And we decided that I would come back and run the company as a CEO with a B2B solution with a B2B positioning.
Andrew: Eckhard, why didn’t it work? What was the part that didn’t work? It was going consumer to consumer?
Eckhard: No, it was the B2B part that wasn’t working and there wasn’t really a sales DNA in the team that was in charge and the sales didn’t work. So they didn’t grow the customer base significantly, and we could see that we would run into more problems so we decided that we had to change something.
Andrew: All right. So you’re saying you came in that wasn’t working, you decided to change it. What’s the change that you made?
Eckhard: Well, we put a lot of focus on sales and projects that we were selling at that point in time were big projects all between starting from 200, 300k going up to 2 or 3 million. So it was B2B selling and at that point in time or even today if you have to answer an RFP for a bank or an operator, right, it can easily take you two weeks with a few people to answer these things. And there was nothing that we could reuse. So we really built a sales structure into it.
Andrew: You didn’t have a sales structure to respond to an RFP request for proposal from a business that could be your customer?
Eckhard: Absolutely. There was nothing.
Andrew: Wow. Okay. So you started to work on that.
Eckhard: We started working on that and it took a few months and with every RFP, obviously, we learned and we took that process down from answering an RFP in two weeks to two days and also making sure the quality would work much better. So what we call about today, we you call funnel and nurturing, we built a PowerPoint at that point in time to say what is the company opportunity that you have? What are the case studies? What is the architecture behind this? What is the product reselling with price [inaudible 00:40:36] and all these things because it was really complex stuff.
We were selling for example mobile remittance solutions between the U.S. and Columbia. We had Royal Bank of Canada as a customer who wanted a person to person payment. We had Singtel in Singapore as a customer who wanted to have an internet payment. We had a customers in Africa. So every solution was different and we really needed to get to a common grounds on how to sell this.
Andrew: And did that work out?
Eckhard: It did work out. Yeah. We were invited because everyone in the world at that point in time who wanted to go into mobile payments, they knew [two installations 00:41:25] and M-Pesa from Africa, which is still there and they knew Paybox in Austria. Yeah. So that’s how we attracted a lot of awareness.
Andrew: Wait, how did they know about you? Because you did what?
Eckhard: Because everyone in the world who wanted to get into mobile payments, they became aware of Paybox in Austria.
Andrew: How? How did they know about Paybox in Austria?
Eckhard: Because the ecosystem in Austria was so immense, right? The gambling, the betting, the vending machines, everything was . . .
Andrew: Austria is a fairly small country that’s not known for pioneering technology that the world treks out to learn from.
Eckhard: The nice thing is Austria has a population of about 10 million and 4 million of those are in the area of Vienna. So if you want to do something, you do it in Vienna and you have a nice reputation, you can build in a nice . . . scale up solution nicely there.
Andrew: What did you do to get the word out to let people know that mobile payment was working there?
Eckhard: We went to a lot of conferences, especially the Mobile World Congress, which happens always in February in Barcelona these days. [inaudible 00:42:42] in France those days and conference, conferences, conference, and trying to get speakers thoughts on the conference the first days, and making sure that you poll all of the people who attended your presentation. Brilliant marketing so it was a lot of foot legwork.
Andrew: And showing this is what’s working here, we can bring this to the rest of world. Got it.
Andrew: By the way, I see that there are Estonian companies that are doing that now. That Estonia has gotten really tech savvy and they’ve created this whole thing including like moving their government online and all that. And I see a lot of Estonian companies have conferences doing what you were talking about saying this is working in Estonia. Let us bring it to you.
The other thing I want to highlight is your advice of speaking the first day is gold. Unless you’re a nervous speaker who needs to see what others are saying before you feel comfortable with yours, give your presentation the first day, then you’re the . . .
Eckhard: Thursday morning.
Andrew: Thursday morning. Right. When people are all attending before they start to break up, and then after that people get to know you and because they know you, they’re more likely to have conversations with you right there at the conference. Absolutely the best way to do it.
Eckhard: For a shy guy like me it’s much easier to walk up and to [inaudible 00:43:47] people.
Andrew: I didn’t think of that. Right, right. Because they’re coming to you even at the end. I will even say I will be here and invite them come let’s talk afterwards.
Eckhard: It’s worth a lot. It’s really worth a lot.
Andrew: Yeah, that’s absolutely a great way to do it. Why did you decide to sell your business?
Eckhard: What we could feel already at the beginning of 2008 was the mobile apps were coming, iPhone was coming. We were brilliant when it was voice technology and SMS technology and all like there was [USD 00:44:19] technology on the phone. But we could feel because we were so tight always from a financial perspective with investments to build our capacity to build good apps and we could already see companies that were much ahead of us in doing that. And we felt well, maybe it is better to look around and sell at this point in time. Yeah, that’s also where we got the traction from Sybase in early in 2009 in February, and then over the summer we could see the prices coming, right, the big crisis.
Andrew: It already started to hit, the big financial crisis.
Eckhard: Yeah. It was coming in the summer. We had signed our first term sheet in . . . signed our term sheet in June. And then people were saying, “Okay, can you feel the crisis?” I said, “No.” I was so confident I said, “No it doesn’t impact us.” But in September I was thinking already.
Andrew: You were starting to feel it?
Eckhard: Yeah, yeah.
Andrew: And you say you get your first term sheet from the company that acquired you guys, from Sybase?
Eckhard: We got that in June.
Andrew: In June before we all realize, hey, things a really dangerous right now.
Eckhard: They did due diligence over the summer, due diligence went okay. We got to September but they also could see the crisis coming, right? So they presented the final contract and we took a hit on the term sheet.
Andrew: How much was it supposed to be and then what was it afterwards, the acquiring price?
Eckhard: I think they wanted to negotiate us down by 20% at that point in time. We got it back to 10%, something.
Andrew: Okay. All right.
Eckhard: It was okay. I think it was fair.
Andrew: That makes sense. We’re really seeing the country fall apart and the rest of the world too. I remember actually seeing banks in San Francisco with lines of people waiting to get their money out because they were worried about it. I googled it right now to see when this happened. According to Wikipedia, they’re calling it the financial crisis of 2007-2008 because by 2007 it was already starting to impact people. All right. How did you find your acquirer? What was the process to get Sybase interested?
Eckhard: I think it was we built it up over the few years also being on the conferences we made sure . . . Sybase was actually not only database company at that point in time, they were also in terms of sending SMS text messages, they were the seventh largest send of text messages in the world, so we were always looking for those strategic partners.
Andrew: Why were they sending so many text messages?
Eckhard: It was part of one of our business units, one of their business units was basically . . .
Andrew: Enabling other businesses to send out SMS?
Andrew: Got it. And they were also doing mobile payment via SMS at the time, weren’t they?
Eckhard: Those were mobile payments on the phone bill where they were charging for content.
Andrew: Got it. So if you wanted a ringtone or something, they could pay and then the bill would come to their phone bill. Got it. Sybase did that?
Eckhard: They did that. Yeah.
Andrew: They was really cleaver. That was clever at the time because people don’t pay attention to small changes in their phone bill and, you know, they accept payments that way. It was also an acceptable way of getting payments. It’s shocking that the phone companies lost that.
Eckhard: We were really complimentary to them and the transaction made a lot of sense for them.
Andrew: How well did you personally do from that exit? You owned half of the business at the time?
Eckhard: We were down to three founders at that point in time. I owned about 30%.
Andrew: 30%. All right. So it was meaningful. We talked about what you did afterwards. You took a vacation. Let’s talk about what you’re doing now. Why Lean-Case? Why did you decide this is where I’m going to spend my energy? This is my next big business.
Eckhard: Well, I did a second startup with a team from Israel in the mobile authenticator space, and we sold that to Ping Identity about four or five years ago.
Andrew: Was this Accells?
Eckhard: That was Accells, yes. Correct. The product now is PingID. At that point in time we presented a lot of businesses cases of our model to VCs. I’m a bit of a number cruncher, and I fell in love with the SaaS model, and I downloaded the template here from David Skok, and I loved it, and I built it up.
Eckhard: David Skok from Matrix Partners. He’s one of the really SaaS gurus. And yeah, then I had this nice model and I tried to present this to the VCs and they VCs liked the model but they could tell I had no clue about what the type of data I was entering.
Eckhard: I knew what it was but I didn’t have the experience [inaudible 00:49:29] benchmarks. I said this is crazy. Everyone is starting to do this over . . . every entrepreneur goes through this process, they have to building the model, they have to know the data they find in Excel. And since then basically I’m also working as a M&A advisor. I do business angel investments, and I work in a small VC company and we see . . . I see this process from an investor prospective and as an investor you’re getting 10 spreadsheets. And you open it and [inaudible 00:50:02] too simplistic and you open the ninth one, which the [inaudible 00:50:07] and the tenth one is a good spreadsheet.
Even if you had 10 nice spreadsheets, right? You can’t compare them. Everyone is using different definitions and no one is getting to that important question of unit economics. Is your customer lifetime value is significantly higher than your cost of acquisition? It’s difficult to do. So that’s why I said if I ever have time, I put something like that into a cloud and that is Lean-Case. And Lean-Case is really solving you the problem of business [planning 00:50:37] on the revenue side, right? Every business has the same three questions. How do I create leads? How do I convert leads into paying customers? And how do I grow my paying customers? And that’s something which is really hard to model for someone in Excel and often it takes them weeks. We bring that process into the cloud, and it takes less than two hours.
Andrew: And once somebody has that, do they still need to keep this going? They raise their money, they’ve created their financial plan. Do you lose them as a customer?
Eckhard: That’s a good question. We’re working on tracking functionality so we will have tracking functionality and Lean-Case is a tool to improve the communication process between the decision maker and their startup. We want to also improve the communications on a monthly basis where you record your numbers against your plan. So that’s one thing. And we are selling Lean-Case to startups. We’re positioning startups I call it on the decision-maker side. Consultants who do business cases for clients. Investors who have a portfolio of startups. Accelerators who have a portfolio of startups. Every batch they can renew their licenses.
Andrew: You’re selling it to people who work with lots of startups because . . . got it. Because they keep getting . . .
Eckhard: [inaudible 00:52:05] case for Lean-Case will be really difficult.
Andrew: Yeah. Do individual entrepreneurs buy it too?
Eckhard: They can also buy it too. Yes.
Andrew: Okay. All right. It’s lean-case.com. What happened? Was Lean Case without the hyphen not available?
Eckhard: That’s some luggage that you can buy.
Andrew: Oh, really. Yeah.
Eckhard: It’s a suitcase you can buy. Yeah.
Andrew: Is it? I don’t know. This company hasn’t touched their website in years from what I can see. All right. So Lean-Case or Lean-Case, you know, put one of those line in between the two words, lean-case.com and congratulations, Eckhard, for doing so well.
Eckhard: Thank you, Andrew. It was a pleasure being here on your show.
Andrew: I want to thank the two sponsors that made this interview happened. The first is HostGator from hosting your website, go to hostgator.com/Mixergy. And the second, if you need to hire developers or your friends need to hire developers, go or send them to Toptal.com/Mixergy.
Finally, these interviews are going great. We’ve done a lot of research as a team. We prepare. Eckhard got to talk to one of our producers. We internally did a lot of research to make sure he was the person that he says he is and all that. And the reason we can do all of that is thanks to all of the Mixergy Premium members. If you’re a Mixergy Premium member, I talk a lot about how you get all these courses as part of your membership. I talk a lot about how you get all these advantage from getting courses taught by proven entrepreneurs.
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Eckhard: Thank you.
Andrew: Bye. Bye, everyone.