Andrew: Hey there Freedom Fighters, My name is Andrew Warner. I am the founder of Mixergy.com, home of the ambitious upstart and as all my guests now know, the owner of a clap board, which actually I didn’t realize it actually does something . It helps us to align an audio. But that’s not why you are here to watch this interview. You are going to hear about an entrepreneur who built a successful company. And today, you are going to learn about a guy who said that he had an idea, it almost hit him like a bolt of lightning. What would you if you had an idea like that? Well, for him it ended up well leading him to build a multimillion dollar business. And I have invited him to talk about how he did it.
Scott Hill, the man you see here on screen is the founder of Perq, a marketing technology and promotions company that helps businesses attract consumers with incentives and this interview is sponsored by well frankly a free sponsor I am giving, free sponsoring that I am giving my friend who is helping me lower my churn. If you are selling something on a month to month basis you probably are having a lot of people lose their memberships because of credit card issues and other problems. My friend is helping me solve that. I said, you are helping me so much, I got to give you a free spot here in Mixergy. I will tell you more about him later. If you are interested go to Mixergy.com/lowermychurn. Tell you more later. First I’ve got to meet Scott. Scott, welcome.
Scott: Thanks, I do.
Andrew: Scott, you were before you started this business, I was going to hear so much about, you were a regional director for newspaper advertising. What is a typical day like for you as a regional director?
Scott: Well, I will have to go and grab a bunch of $150 from a local market.
Andrew: How much money?
Scott: $150 for the time. Local newspapers. So, I was in charge of three smaller newspapers, all in circulation between five and ten thousand. So I was in was charge of three [??] and so my job is be able to come with creative ways to be able to motivate that staff and also by the fall had to come with creative things which is offered from the newspaper to be able to get them to want to spend money for that particular month.
Andrew: You know Scott. I got to catch myself and admit I was smiling as I said that and I ask myself, why was I smiling, what’ so funny. It’s a respectable job, it’s a good job and I realize it’s because I read your story. I know what we are getting to. You seem so much bigger than that the job. But now I am seeing, you learned a lot there. Now that I know your story I could see how it helped you. So, you mentioned you learned to incentivize the team you learnt yourself. Can I teach us some of what you learned as a sales person?
Scott: Yes. At that newspaper, one of the first things that we walked in to was when I walked in to was really a bad negative [??]. You know it was a corporate owned newspaper. And it was kind of just basically managed by numbers from far. And the team was really negative. And I was I think twenty three at that time. And I just recently got promoted as an advertising director at this newspaper. So that I had come in, I was able to bring a newer energy to them by my personal energy. Because while I was after and try achieving and then try and make things a bit more enjoyable. We practiced business as a main philosophy here trying to make everything fun and enjoyable.
Andrew: Can you give an example of how you did it back then when you were just in your early twenties?
Scott: Yes. Back then, first thing was always like everyone should be able to have some fun here. What we are striving to accomplish. Before it was months and months of sort of thing. So we just started with the basic concept. Okay, here is what we are trying to achieve. I have figured out a goal, plastered all over the wall. Figured out some of the ways to remove some of the junk work the reps were having to do. That kind of thrown to them, hey, you got to do this maintenance job. It was like, No, that was taken off you guys. I am going to sell. Then we achieved the goals we celebrated it. Their pays were an extra little bit higher and you get a little bit more minimum. You just kind of keeping it moving forward. Once you get that ball rolling it’s easier to able to keep that going, so.
Andrew: All right. One more thing before we get in to Perq. And piffany[sp] that allowed you to building this successful company. Can we have a sales technique that you learned back then? This is really, it was a matured market. And you weren’t walking in and having an easy time selling. What one thing did you learn that we can take away as an audience and use it wherever selling?
Scott: Well so. One thing that I learnt is to come up with new ways to be able to make something all seem fresh. So in a newspaper, quickly this has got some kind of inciners [sp] and ideas and stuff that have been showed on my own came from there was, we have this newspaper at the time. People looking at it how is that we can create something new. We had a $1000 in our local park and built our own [??] clues and sold ads around it. Just be able to have something new to go the advertiser and say here is something new that people are going to pay attention to. So there is always ways to be able to try. At the end of the day even with an all matured market like that just be able to have something new to say. And some of the bigger things again on the new kind of concept was diversifying was diversifying our product portfolio was when I start up there we could basically sell our ads in the newspaper while I saw a lot of these vents being taken around us that all these automotive dealers were doing and they were producing a bunch of inserts at that time.
Andrew: This will be a [??]. What are the inserts that you saw that led to this business? What it means
Scott: We saw we all saw inserting these inserts these newspapers announcing these big automotive sales. And so recently we had decided we could go out and print those. We could send those out to a printer. But that rather just than have those inserts delivered to us we could go out and try to procure that printing.
Andrew: You mean you as a newspaper or you as an individual?
Scott: As a newspaper.
Andrew: As a newspaper. You said, all these dealerships are giving us their inserts they are paying us to put in the newspaper and deliver to our customers along with the newspaper. And you said, you know what may be we could print it. It’s a high margin business. We could do it and save come of that money for ourselves as a company. That’s what you saw, when you were working there.
Scott: Yeah, Interesting you said high margin, so high revenue. And I was paid off with that revenue. So also a learning lesson that came in to this when I started running my own company whereas they could give me a pay plan. So they had kind of designed a gain from me if you will which is, here is how your rewards are going to come if you go perform and do this well, that was all based on revenue. So I can go and sell $150 ads and go with that and hopefully get excited and get excited with that and up sell the $600 one or I could go and sell 6000 $2000 print jobs. So I decided to going outside our market to go procure up these print jobs. My sales remember started doing that as well. Everybody is making a lot more money.
Everybody is receiving a ton of accolades. Picked up the nickname, Wonder boy. A very big ego time for me. But interesting on the margin, the newspaper ads were actually tremendous margin. Because that newspaper was going out no matter what. So I sell a $500 ad on it, is basically became a profit at that time for that newspaper. When I sell a $6000 job that still seems a loss to the printer and that I will be making $15 on that and we are making $900. I really did nothing with the newspaper that much. After about six months or so with this, growing totally. Eventually accountants all said our numbers come through. And I said Wow, you have all time revenue highs, but we also have the lowest growth profit percentage we ever had historically as a newspaper. Remember in the newspaper business, historically you know I did worse than a lot of people. And that’s still . . .
Andrew: That’s a big history.
Scott: That’s come back by 120 years to be the worst gross profit margin for a newspaper. So I have the, my boss called me up and Said, you know what going on down there. I thought we should still be having a lot higher profit. Because where our revenue was, so we could be talked. So I started to explain to myself I think this opportunity could be something that we could build upon and obviously generate more revenue. So this obviously was not flushed out all the way. And so [??] strikes something for me I can send it to my bosses. I started working on a current business plan. A kind of what I have been putting it together and how I have been growing with it and very quickly I had the yaya woowoo. I could go do this on my own. So pretty much didn’t go to sleep well that night. Went home and had a roommate at that time. I am sure he went to bed earlier than he normally does. Because all I could do was just not stopped talking that I was going to go starved.
Andrew: The idea was you said, Look, these guys at the dealership they need customers. They are willing to spend money on both people and also on ads. Right they are paying for the newspaper and for the print job. Horrific. I can find, I found something way better for them and I can turn that it to a Business. I don’t understand. What is that something that’s way better?
Scott: So that way better is I always l tell people that you are going to need to have what is going to be your short [??] of sphere that you can establish that it in the ,market place. Innovation comes in many forms. I think when we think of innovation, we automatically started thinking Steve Jobs and Apple type innovation. Well, innovation for me was what is something that I can do that nobody else can and offer this particular unique segment of the market. And I knew Newspaper so well that at this point they were doing this kind of large events by inserting the newspapers. And I approached them and said that I know newspapers. I know the true cost of inserting this. And I know you could get a lot lower rate. But you don’t know that and I could go and get that for you. I can take care of the design of the advertisement. I can schedule all of the newspapers I can get you a lot lower rate. And you don’t have to do any other work now.
Andrew: Rate for printing it.
Scott: For printing and designing it and inserting it in to the newspaper.
Andrew: I see. What you realize if I understand it right is Scott you said, Look the newspaper doesn’t want to get in to the business of printing up these people’s inserts. And it’s not enough of a margin for them. And they are going to pay for their sales people. Too much of a hassle. But the companies that they are already working with are charging more than I could. I could give them less of a price and make some money for myself. I could be in business printing better than they could. Got it. That’s the big aha moment.
Scott: Basically, it was instead of you having to work with 15 newspapers and schedule all that and pay too high of a rate, let me just do it for you. I’ll call the newspapers, I’ll be able to negotiate the rates because I know what their true costs are, and I can work with the printer to be able to get it printed, and I can work with a graphic artist to be able to get it designed. So I just basically formed this very, very niche little advertising agency built around truly the differentiation of me being able to call and say, “You’re talking to a bunch of newspapers, I used to be a newspaper executive, I know how to be able to negotiate the rates lower.”
Andrew: You used the phrase “tip of the spear” meaning that there’s more to this. Yes, it’s small, but the business could be bigger. At the time, did you know the business could be bigger or did you just see an opportunity to make some money and jump in and took it?
Scott: Oh, I just jumped in and took it.
Andrew: I see.
Scott: My market research was talking to a few customers and saying, “Are there more of you out there doing this?” And the way I looked at it at the time was I needed to get a seat at the poker table of business. Let me sit down.
Andrew: Because you were a business person. That’s the other striking thing about where you started in life. It clearly wasn’t going to be your finish because as I look at your past, you’re a guy who was very score oriented, you had an entrepreneurial bent, right? Growing up, for example?
Scott: Yeah. Well, once I discovered that business was a game is when I became very passionate about it. And when I say game, it’s a very competitive endeavor, there’s a score, there’s competition, you’re doing it with a team, so it’s very hard for me not to see how business is the same as any other game. We just have livelihoods attached to it versus more the other games that we play for pleasure. But when you get past that component of how important success at this business, at the core of it, there’s a lot of game mechanics that are there that I enjoy very much. At first I thought I’d just taken a job, but then all of a sudden I recognized that I had actually just gotten my first start in a game I was going to be able to play for the rest of my life.
Andrew: All right. Now, I’m a storyteller as an interviewer, so let me do a little bit of foreshadowing here for the audience and tell them that there are two sides to that. When things are great, the score is great, and you’re feeling terrific. When things go bad, it’s also a personal hit, and you’re feeling pretty lousy. And we’re going to get to that later, but at this point in the story, where we are is great idea comes up, you realize it makes sense, and I thought it was striking that one of the first things you did was you went to Staples. Do you remember why you went to Staples?
Scott: Yeah, that’s when you actually had to go get business plan software at the time. So I was the first person in Staples that morning right after the idea getting business plan software to go put down together the plan and then go try to raise a little bit of money to get that started.
Andrew: Were you able to raise money with that business plan?
Scott: I was. I went to the bank of the father. My dad is not an entrepreneur, but he is very much a businessman. So my idea of business growing up was watching him come tired and exhausted late in the evening, eat dinner, and then go back downstairs and stare at spreadsheets. So growing up I wanted nothing to do with business, and it wasn’t until I recognized it was a game, it wasn’t this horror thing that I was watching my dad go and do. So he had to hear all my life that, “Dad, I’m not like you. I don’t want to do business. I want to do something I’m passionate about, something that I can give back to others, something I wake up every day excited.” I just didn’t realize that business was going to be the vehicle to be able to make all that happen.
Andrew: Did he smile and go, “Ah, so you came back to me, little punk. Now you need my money and you need my support.”
Scott: Yeah, “Now you can back. Now you want to be like me when you need money.” So he gave me a small loan.
Andrew: How small a loan?
Scott: I went to him and asked him, I figured I needed $30,000 to be able to cover myself and pay while I got this thing going. And he said okay. And he said, “I’ll take the risk on you, but this isn’t a gift.” And I’m like, “I know you, Dad. I’ll pay you back.” And he’s like, “No, this isn’t a loan, either. This is a venture capital back. If you make it, I want five times my money back.” And I’m like, “Are you kidding, Dad, oh, sweet dad of mine? How could you possibly be doing this?” And he’s like, “No, I think this is a horrible decision that you’re making to possibly give me five times the money, but go find somebody else that’s willing to give you $30,000.” So that was the first lesson of he who has the gold makes the rules and then the person that needs it usually has to adhere to those.
Andrew: I see. Wow. That’s really impressive. All right. So you got $30,000 from your dad, how much from the bank?
Scott: That was it. Just the 30.
Andrew: Oh, that was it. All right. Terrific. So that’s not that much money. You’re ready to go. And you mentioned earlier, talked to a few customers. I thought that was also pretty interesting about your story. You went in to talk to a dealer, and he sat you down, and what did you say to him that got him to be so open with you and help guide you?
Scott: Well, first of all, I was extremely young, looked even younger, and I think that there’s a certain time period in your career and age where people go out of the way to want to help someone who’s showing ambition, has the right humility to ask for help, and is looking for advice. I do truly believe that people like to help someone at that state and to be able to know that if this person makes it, it’s going to be partially because of what I helped make happen for him.
Scott: So I think that was a huge part of it, and I just started talking to people, explaining that I see this opportunity. Am I on the right track here? So I laid out to them the possibilities of what I was going to go and offer and then, again, asked him does he know of other people that he could introduce me to that do the same thing. And he said yes, and I made sure I was like, “And is there enough people out there for me to be able to build a business around it?” He told me, “It’s dog eat dog competitive environment, but, no, there’s enough of us there that are doing this type of thing.” And that was all I needed to hear.
At that point I was making good pay at the newspaper with my executive job, especially for that age, and I was in a small market, so money lasted well there. But I still was only a year and half removed from living off $100 a month and eating Ramen noodles at college. So it was like, “Okay, I can make this work.” I dropped my pay down to as low as I could and then just went after it. So I just needed, again, to get that seat at that poker table. Give me a change to get chips coming to me and going out and coming to me and going out, and I’ll figure out how to build a larger stack and then I’ll start deciding what we’re truly going to go do.
Andrew: Your revenue is going to come from them paying you to print and also from them paying you to place the ads at a lower rate than they could get themselves.
Andrew: This is something that we have to keep emphasizing because there are too many people in the entrepreneurial work who say, “I will never get a job. Real entrepreneurs don’t work,” and all that b.s. We can see that absolutely real entrepreneurs work. What separates them from other people is their ability to find opportunities the way you did here and say, “I can, because I’m on the inside, talk to dealers and get some feedback in a way that no one else could. I can, because I’m on the inside, know what the prices are, and I could get a better price than someone who’s on the outside.” You learn so much more from being in a company than I think most entrepreneurs recognize.
Scott: Yeah, I learned a tremendous amount. I definitely had a lot of management learnings that occurred there, managing a team of people, pricing, coming up with new ideas and packaging. So I was definitely able to learn for the first couple of years a lot of things to do, a lot of things not to do, but definitely it was a good springboard for me to be able to have that experience at such a young age, managing a staff of 15, 20 people and then in charge of a $6-7 million of revenue. I felt confident enough that yeah, I’m going to go and do this.
Of course I’m going to figure out a way to be able to make it. Downside is that I had a lot of experience at that smaller company to where I was able to get promoted early on, but when the company grew, I didn’t have experience in a larger company. All of a sudden, the company I owned, was the largest company I’d ever worked in, and that became a little bit of a shortcoming.
Andrew: All right. And I want to get into a little bit of that, but if all you were doing is printing, we wouldn’t be here having this conversation because there’s not that much growth. Well, who knows? I don’t know if there is. I do know that you ended up going in a different direction, going digital. The kiosk, was that the next step or was there something in between?
Scott: Yeah, so the path to innovation we were doing, we printed up inserts and flyers and then we soon saw that direct mail was a better way. After we started growing, it became annoying to us. We’d get a job and then we’d have to go call on 15 newspapers and get everything scheduled. It took so long. So selfishly, it was, “Well, does direct mail work enough that for the same cost of the business, can we actually deliver the same results into that dealership?” Because that would be a lot quicker. And we found that it could. The problem was that direct mail at first class postage was so expensive it actually would throw it a little out of whack.
Again, that’s another path in the innovation of it doesn’t have to be this huge technology thing, it just has to be what is it that you’ve brought new to the market? Well, it drove me crazy saying, “Why can’t we do this with standard postage? It’s so much cheaper.” But our campaigns would hit somewhere in a two to three weeks’ timeframe over that mail versus in the two to three days that we needed like you can get first class mail. So we played around with it and eventually found a way that we would actually take the mail to the post office, get it all sorted and labeled and everything the post office does, and rather than have them send it on to the final destination, we would take it back from them and then put it on a FedEx truck and ship it to the final location, purely to get it out of the hands of the post office so that we control the reliability of it.
Andrew: So you go to the local post office, they put the stamps and do everything to it, you ship it locally to the local post office, and then the local post office delivers it locally to people. I see. That’s how you can get mail to someone overnight.
Scott: But still pay a standard postage rate at the post office.
Andrew: Oh, that’s brilliant. That makes so much sense, yes.
Scott: And it took a lot. We lost our butts on that for a while and getting it figured out. And how to have the time frame, the deliverability of it. But once we did it all of a sudden we could approach all these businesses and be able to say, we have a new form of postage that we’ve created. And it’s much cheaper than first class. But gives you the reliability of first class.
And of course they were always skeptical at first, but then when it would work out all of a sudden we started growing rapidly. That was one of the biggest fields for our growth. We didn’t even realize it at the time, this little tiny innovation of seeing something through that like we should be able to do this feels so much. Really because we could call people up and have the same service they were getting but now just at a cheaper cost and all they had to do was start working with us.
So at first, when we first started growing the company we were a low cost provider, purely because we have found a way to drop our cost of goods so much lower than other companies have. Now eventually they caught up. But for a three year run there so we were seeing phenomenal growth purely by steeling business, because we could do it cheaper.
Andrew: What are the years were talking about here? What year did you start and what year did you start this [??] system.
Scott: You know, I started the business in 2001 we started doing direct mail probably in about 2002. And then the next innovation piece was the KeyOSC part to it, that once we were starting to do direct mail and we were starting to run into were low price just isn’t enough. What’s the next thing we do to differentiate ourselves. It was direct mail should be much more of a science then in it an art. Only we’re coming up with these creative ideas and then we have to judge how good they were by how well they sell and how does the dealer feel about it after the end of the campaign.
So I started coming up with well is there a way to be able to find out the true data around these campaigns. Well the only way to do that was to be able to find out truly how many people were coming in the doors of the dealership from these direct mail offering. So we sorted out and figured out ways to be able to kind of create our own KeyOSC, we created and wrote the technology to be able to put on it. To were now anybody who came into the dealership was almost forced to interact with our technology.
So even if the dealer didn’t care that much in order to be able to give the consumer the experience they were supposed to. They now had to go through the technology and we stared getting the data back and all of a sudden we tripled our response rates within six months. And so that become the next round of probe and innovation that we had was around that differentiation.
Andrew: The KeyOSC did . . . first of all I’m surprised to hear you say, the dealers were finding that they weren’t interested in some customers. I though dealers as soon as someone walks into their dealership they pounce on them.
Scott: So that’s great from the dealerships perspective because they’re getting what they want. But if the dealership just takes them and goes and doesn’t engage with any kind of technology on our side of it, then we have no idea that person even came. So I say it’s not the consumer, of the course the dealer to work with the consumer, we had to come up with a way to make sure that the sales team was forced to interact with the technology before they just got into their normal frenzy of making sure that they sell.
Andrew: Oh, so it’s not the KeyOSC that the customer was engaging in, it’s the KeyOSC that the dealer was engaging in. his . . . I’m sorry.
Scott: Yeah, so the dealership, the sales person talked the customer and engages wit that technology. But you may [??] sales staff no matter what is always difficult trying to get them conform to the controls you put in place. On a dealership it’s even worse, you have a bunch of people who haven’t been there for a while or new, and just old that bad management, whatever you have.
So we know that we had to create the technology in a way that the consumer would be saying, I’m here to be able to find out about this discount. I’m here to find out about this prize. I’m here to find out whatever it may be. In that they had to engage in our technology we provided for them to find out…
Andrew: Oh, I see because you’ve got that offer to them in the mail. They walked in with it, and you now created a KeyOSC that would allow the dealership to know this offer worked, because someone walked in and we know that someone walked in with this because our employees, our sales people were forced to type into the KeyOSC that information.
Scott: Correct. And we hate to say forced but for the sales person it was a force, for the dealership they like it because we create a lot of other value, we could provide during that selling experience. But of course sales people would rather just do whatever they want to do and they have their own routine. So we had to break them out of it.
But it become very successful for us and was our key part of the differentiation that lead into the recession that we made this large capital investment to go and add these KeyOSC to everything that we did. And that was a huge company transformation. I mean, everything at that time was that we were low cost, low cost. And then all of a sudden we were having trouble beating people on price.
And so now all of a sudden, I’m going to sales team and saying or we’ll actually going to have you… your cost are now going to go higher because we’re going to charge you this fee for the KeyOSC that’s now going to be included in every one of our conversions.
Our sales staff hated the idea of what I was bringing to them say, this is what we’re going to go and do. Purely because no customer was asking for KeyOSC there wasn’t a single customer out there saying, why don’t you give me some technology in a KeyOSC
Scott: Their saying, why don’t you give me some technology and a kiosk along with my direct mail campaign? But, I think it’s the job of the entrepreneurs not necessarily, to keep, the customers will never tell you what you need to do. But you have to know your customer well enough that if you were in their shoes with what you know about as a company, that you could create a solution that they wouldn’t know to ask for, because they don’t know your business that well. But you need to know their business well enough to be able to know how is it that I can create these solutions. So, once we have the offer in front of them, it really took off.
Scott: And so, you, was this in reaction to others getting into this market of delivering first-class mail faster and cheaper? That’s what it was,
Scott: that you were seeing, you know we’re losing our revenue, we need to find a way to justify our existence to our customers. What’s a problem that they have? Where are they right now? Let’s put ourselves in their shoes, Ah-ha. The problem they have is they’re spending this money, they don’t low if it works. We can show them if it works and then by doing that, help them increase how well it works. I got it.
Scott: This is roughly what year?
Scott: That’s roughly about 2006.
Andrew: and then something happens, and before I get into that I have to come back in and touch on what I said at the top of the interview. This is something that’s going to be very helpful to anyone who’s listening to me and who has, either, software as a service business, which I know many people out there have, or, maybe they are selling membership sites the way I do, where people pay on a monthly basis to get access. Regardless, you probably have the same problem I do. Where you look at your sales and you realize, hey, a lot of people are not canceling, but they’re dropping out because of credit card issues. Because their credit card expired. Because of other related issues like that. What do you do? Well, in my case, I went and talked to my buddy Karim, and I said, “You ever have an issue like that?” He said, “Yeah”. So what did you do about it? He said, “I have this product”. I said, “Can I use it, too?” He said, “Yeah”. And he started productizing it. I was one of the first people to ever use it, and now I’m an ongoing user of it.
It’s dramatically better, than just doing it yourself because you don’t want to go in and try to figure out everyone’s credit card information. Frankly, I don’t even know that I have that data. And you don’t want to remember, or force someone on your team to remember to go follow up with people who have credit card issues. You want some software to do it better than you could. Anyway, Karim created the software for me, he’s making it available to a few people in the Mixergy [SP] audience. Very few. And, if you’re interested, he’s not even going to give you his web page. I’m going to give you a form that he created to allow people from my audience who are interested in getting early access to participate. So, usually I say you don’t need to write anything down, now, I’m giving you some time to go into your notes app or into your email app and email it to yourself or whatever.
Here’s the URL I want you to write down. Mixergy.com/lowermychurn. Mixergy.com/lowermychurn. C-H-U-R-N. Fantastic, I’ve known Karim for years. If you’re lucky enough to get in on that, then, I think you’ll be very happy. If you’re not, maybe he’ll make it into a product that’s available to people beyond, but it works beautifully. The guy does good work. Mixergy.com/lowermychurn. So then Scott, things are going well, and, now we get into a bit of an issue right?
Scott: Yeah, so I think the first issue at that point, was the business had grown and outgrown my ability to lead it.
Scott: You mentioned earlier that being a manager, when, your biggest experience was working at a smaller company became a challenge. What does that challenge look like on a day-to-day basis?
Scott: So, I think that everything was growing extremely well. We had to start another division, similar to what we had done, just in a different market. Things had been growing very rapidly and we had approached, we were at about $37 million in revenue, 90 employees. And, I was bored! So I can tell you that it looks like, when you don’t know what you’re needing to do next, it felt like boredom. But really what it was, is I did not know the next level of the game to go and do. So, if you’re playing some sort of game and, you’re not aware of any other levels that occur in it, and you feel like you’ve stalled at that level, then you just kind of get bored. That’s really why we’re back on it.
There should have been warning signs there, earlier. But at a certain point, it was like, okay, I need to do something about this, and, the little expression, “When the student is ready the teacher appears,” came true. I overheard a conversation about a Harvard business program. So I went to a Harvard business school Owner/President program. It’s a 3-session program over a 2 and 1/2 year period, 3 weeks at a time, and basically a fast-track MBA for people like myself that have no business degree or upbringing really and are all of a sudden running a company. It was fantastic! It was one of the most amazing experiences I’ve had and what I learned and all the business components that go into, of all the levers and pieces that you use to be able to build a business.
So we came back and started looking at how to move the business much more into the technology side of things, and the kiosk time and the Harvard thing kind of came together at that point and that’s where it gave me the wherewithal to go ahead and push that through. Even though, my entire team was kind of anti-against it, because I recognized, long-term, we have to start moving in a different direction than just print brokerage and that this technology could be a possibly a way to be able to go. So we made this investment. The technology started moving forward and then all of a sudden the bottom fell out of the financing market, obviously the recession in 2008.
We started slowing down the first part of 2008 and then obviously the crash ended up occurring. So we went from 37 million in revenue to about 15 over a just, by 2009 we did 15 million in revenue total as an organization versus the 37 that we did in 2007 and it was even worse than what those numbers sound like on how much of a crash that was because it happened so fast. People talk about the hardest time you get. You grow and then you start trying to make as much profit from that and the cash cow as you can.
Well, for us we were growing so quickly we were always staffing and trying to stay ahead of that growth so we were staffing, staffing here and all of a sudden it just goes the opposite direction so we actually had . . . it was almost like we were a larger company than 37 and then had to figure out ways to be able to survive as that revenue was just plummeting down as everybody was just sucking up and not wanting to spend any money on advertising.
Andrew: You had 90 employees at the time and you went down to how many after that?
Scott: To probably about the low 30s.
Andrew: I mentioned earlier it is a game with a score but it’s more personal that a basketball game for example or a chess game. How are you personally as a guy who started this company who so identifies with it, how did you personally handle it?
Scott: It was rough. I so personally identified my success with the company especially at a young age and basically I’d been going blackjack, blackjack, blackjack, blackjack over and over again. It became this is who I am. So when that business all of a sudden plummets it hard to not all of a sudden be like this okay, that’s not who I am, that’s just the business, that’s just the game that I’m playing.
Andrew: Could you garner that right away or did you immediately go to maybe I was wrong all this time thinking I am the guy who can create the blackjack hands every time I sit at the table.
Scott: Yes. A lot of self -doubts, a lot of depression. I didn’t realize how depressed I was until I came out of it. After we finally got through the recession a couple of years later.
Andrew: Well a lot of people, in fact me too. We don’t realize that we are in that low period until afterwards. Do you have one memory that makes you say “I should have known. This is clear black and white experience that should have told me that I had depression”.
Scott: No. I think . . .
Andrew: You weren’t sleeping in or thinking . . .
Scott: No. Well, okay. So I was drinking more than I should. Okay. I am just going to get real here. I was drinking way more than I should. I was playing way more golf that I should. Mostly just because I felt so handicapped by the business that I wasn’t able to do anything with it. I would wait to see if we were going to survive the next day and don’t get me wrong. I made a lot of moves during that time and I’m sure I wasn’t doing that stuff as much as other people may but for me at that time I was definitely looking at ways to bury my head in the sand and almost just not want to see what was happening so if drinking helped that, the golf course be able to escape that helped it. So during that low part we had three layoffs. I mean it was just a horrible time. I went from always wanting to be around the people in the company to not wanting to as much. Again, I just almost wanted to be away from it.
I remember being jealous of the people that would leave the company because I wish I could have. Like wow, I wish I could go find a place that wasn’t as miserable as this. And there was a certain period of time where it was like okay well if you wake up in the mirror and I think it might be a quote from Jobs. I know that I’m stealing from somebody but if you wake up in the mirror and miserable for too long a period of time well that person in the mirror is the only one that’s ultimately going to figure out how to change that. So it was time to suck it up and say “Okay, what are you going to do”? But when we got through the recession we finally survived. It ended up being one of the best things that happened to us and we had people telling us during the time and I wanted to punch them in the face because it felt like the most miserable experience ever. It was just a great way to be able to force in some good business discipline.
We had gone to Harvard. We had learned a lot about how to build a business but now we really got some understanding of how to go through a decline. We know in business there is always good times. There is bad times.
Andrew: What did you learn that made you into a better business man and made you into a better business; made your company into a better business?
Scott: We really always took growth for granted. We took that is was just easy because it always just happened. I remember my dad at one point had said “Wow, you are really growing fantastic. What do you have planned for when growth slows down?” I remember thinking, “Dad, you are so old. That is just not what’s going to happen.” I obviously would just go start another business because I have already done this twice now. We are just going to keep it going. So all of a sudden we had kind of lost focus on creating value for the customers and celebrating ourselves too much so it really just all of a sudden showed the other side what can occur in business to make sure that there is much more discipline and appreciation for when times are good, but also when times are good leveraging and preparing knowing that that can change very quickly.
Andrew: Do you have a specific example of how you made the business better because of the recession?
Scott: So we are an entrepreneuring bill of business so with those first few employees it was almost like building a family. So we were carrying a lot of people that weren’t going to be the right people to be able to do this for. We were paying a lot of people because we never want to let people go, so recession really just gave us a chance to be able to clean house and it just really forced in that the most only talented people we were going to keep here. So that really was one thing it enabled. It also forced us to really get control of our expenses when we were growing like crazy. The vendor management and price negotiations and stuff weren’t as good as they could have been, we found that out later. So when you can’t get a revenue you start focusing on how you can reduce your costs, so we got really good at that. Then as we started rebuilding then we were able to add people into the team that were much more conducive to the technology direction we wanted to go versus the old legacy print [??] that people were having trouble buying into that anyway.
Andrew: I see, and then if you don’t have to make those tough decisions, it’s too easy not to make them, to keep people on who aren’t a good fit, because hey you are growing you have to try to meet the future growth of the company, you need more people, you can’t get rid of people who aren’t good.
Scott: And too, it’s almost kind of like you’ve hired somebody when they are twenty three, you’ve put them through a career, you’ve done this together, you survived downtime, whatever it may be. Nobody I think wants to fire someone unless they have to. In that recession in that case it forced a have to, to where we were keeping a bunch of B players, B minus players, C plus players and paying them like more than that, and the recession, again I’ve definitely gone from the idealist twenty four year old entrepreneur to much more of the thirty eight entrepreneur with business experience to where I am much more interested in being able to build that right team to go accomplish those next goals,
And I go into it with an understanding that I want to be able to give a great career and have a great experience with the people that come on board to go accomplish this goal, but it’s also with the reality that a lot of the people that get us to where we’re going to be down the road might not be some of the people that got us to this point. And they can be very successful in another company at a different phase.
Andrew: You also renamed the business around that time right?
Scott: So we just went through a rebranding about a year ago actually now so that was leveraging the two divisions together that we had [??], focusing everything much more around the technology that we’ve created to be able to help businesses improve their advertising, and so that really got everything much more cohesive and less disjointed with us as an organization.
Andrew: The name Perq, it’s so cool that you got you’ve got your own domain, P-E-R-Q, and it’s because of the incentives, the perks that you give the end user, your customers customer that you call the company Perq.
Scott: So one of the reasons, so we are always trying to take advertising and make it have a much higher call to action. So we definitely do not like informative advertising here. There is a place for it, it is just not something that we do. When a business is spending money to go advertise we want a consumer to try to engage with that at the quickest and highest level possible. So we do find incentives whether it’s a coupon, a prize, a register to win, a contest, whatever it may be, we specialize in organizing that for the business, and then run that through our FATWIN technology that organizes and controls all the data and helps run the promotion to be able to give a higher response and conversion to that business.
Andrew: FATWIN, all capital letters, all one word, F-A-T-W-I-N, what is FATWIN?
Scott: So FATWIN is the technology that we use to be able to give a higher response to businesses advertising, as well as increase the conversion of people that respond to that advertising…
Andrew: Can you give me an example, I’m looking at your site right now and I see that you do inserts in flyers, brochures and menus, postcards, banners and posters, direct mail, can you pick maybe a concrete example of a specific kind of customer that you have and talk to us about what perk you’d give their end user and how FATWIN helps to improve it?
Scott: So H.H. Gregg is a decent sized national retailer, they’re headquartered here in Indianapolis, so when they do grand openings they wanted people when they are coming into that store to collect as much consumer data as possible. So they one would be leveraging our kiosk to be able to spread around our store, now they put on a promotion with prizes where people can go there and have a chance to be able to win a variety of H.H. Gregg’s offerings.
Andrew: It’s just walk in clean off the street. You can go to a kiosk and you are incentivized to engage with the Kiosk and to give some information that would allow your customers to know more about their customer.
Scott: Correct. On their marketing before their grand opening. And this for dealership communicate either want to have a URL attached to it. It’s a print form of advertisement or if its digital to whether some sort of incentive that causes one person to say wait a minute, what going on in here. Let me check this out or I want to have a chance to win it or whatever may be. So, like click on that, we try to have a call to action that causes higher click through or higher engagement with it. Then when they go to the technology we are doing many things through the micro site experience to be able to have that consumer want to engage and give the information necessary that helps dealership or the retailer be able
Andrew: For example, what would you do for H.H. Gregg?
Scott: H.H. Gregg, we started asking questions like have you shopped at H.H. Gregg before, what are you in the market the way you are looking to buy, what brands are you most interested in.
Andrew: How do you incentivize someone to answer all those questions? It’s a lot.
Scott: When you get somebody actually who is involved first of all [??], then once they are going in to experiencing it, they naturally are going through it. So, you don’t have to get 100%. But we are looking at trying to be able to get as much as we possibly can. But then you are actually sweetening the experience with incentives throughout. They are only going to get one chance to be able to win. Okay, answer these questions and now we will give you two chances. Share it with your friends on social media, we will give you the third chance.
Andrews: I see
Scott: So, once you have that person’s [??] reason is that someone engaged, now we will tie it to the business as much as possible. And so when television H.H. Gregg, okay we know this person is somewhat thinking about the market in a television. So, when we go on to the experience we can give additional tie in to that business, but also we get in to consumer to be able to give more and more information to be able to have the retailer to be able to follow up and lead nurture that. What specific content that is relevant to the consumer. But then also to be able to feed the information to be able to leverage additional services, to be able drive that consumer in to the store in to the business web site with that special offer.
Andrew: That’s how you help them grow from 50 registrations to a 1000 registrations. But along the way, the tweaks that one makes, is it based on the feedback. is it based on how customers engage that it changes the way it talks to the future customers.
Scott: Yes, we get the data back to be able to know what things are performing best to be able to keep increasing response rates from the technology. So, yes as a customer answers a question, we can drive them to a different special offer. So, for a dealership, if someone is telling us that they are not in the market for a vehicle but through that experience they are servicing the vehicle with another dealership. Soon they are able to go to a special service offer that is going to tell that dealership to be able to tell that person to respond that way.
Andrew: And you know whether it works. And if it works, you keep growing. If it doesn’t you change it. And that’s more than a circular than you have done years back. Do you remember when you went from, you were losing money at some point because of the recession. Do you remember when you finally turned things around and started to make the first profit.
Scott: Yeah. It was basically like a don’t move scenario. It was like, I think we have just achieved cash flow positive, don’t [??] believe, don’t anybody move. And so and that’s really, you know I said we fought so hard to make sure to keep the business alive. I may have got down to a point where I needed a bankruptcy attorney because I wasn’t sure we are going to pull out before we totally crashed. And so we won’t be walking away with that and then I would say we probably operated you know without really doing anything about thinking about even how to have the business grow, just surviving, cash flow positive way for about. At that point, we were so deep in to our line of credit . It’s not like we have got money to spend it anyway. So, one of the guys came to me, two of them actually, two of the mangers that we had. And there was a certain [??] yeah, what do we plan on doing. What’s next? I think it was kind of a wakeup call. Is that I ceased to be an entrepreneur working on what I know I am good at and what may be successful. Seeing what’s new out there that we can go and create that could provide value to Businesses.
Although I wasn’t able to have that enjoyment it was more of always trying to figuring out how we get the costs down in order to be able to survive this debt. At that point, I realized that I better put my entrepreneurship instincts on hold and now is the time to start thinking about that again. And that’s what we took the KeyOSC technology and started offering the entire platform. We started innovating on that developing it out to be able to attach it to any businesses advertising or digital or offline and not just in a KeyOSC form but anywhere form.
Andrew: Mobile phone for example if that’s what I have and I don’t go towards KeyOSC.
Scott: You got it.
Andrew: Right there something to follow up. If you like this program and you get a sense of the way that I work here, you should understand that I have over a thousand other interviews available to you in our vault of entrepreneurs, including the founders of Dropbox, AIRBNB, Reddit and so many others that in here, often in the early days, to talk about how they made their companies successful. Of course since then, they have gone on to incredible heights. One of the people I think you should follow up and check out is the founder of Twitch TV. Emmett is fantastic at explaining how he came up with this idea, how he talked to customers to have them inform his idea, and how he launched and built it. This was before he sold Amazon for about a billion dollars. His thinking was so crisp that I asked someone internally, I asked April Dykeman the person who talked to Scott before we started, said can you please write this up for us as a team so we can learn from him.
It is such a good interview that if you have listened this far and you understand the power of talking to customers early on, especially the way that Scott did, you should go and type into the search bar on Mixergy, Twitch, T-W-I-T-C-H, twitch and you will see Emmett’s interview and it’s fantastic. But of course, we have over a thousand other interviews so if that’s not the one for you, search around, look and follow up. It’s a great service and I don’t just say it because, yeah I do. I say it because I am the guy who created it and I wouldn’t have created it if it wasn’t perfect or great. Maybe not perfect yet. Scott, here’s a thing you told April. You said “Look, we need to talk about, and you guys on the Mixergy team didn’t ask me about, planning.” And that’s something that you started doing, right? With that first Staples trip. What should we as entrepreneurs take away from your experience and learn about planning?
Scott: Well, I think that it’s not necessary to plan, it is planning that makes all the difference. I think being able to set that stake in the ground and say this where you are going to go, this is what you are going to do, mapping it out. How to be able to get there. The exercise is much more valuable than the actual outcome of what happens from that exercise. So I was talking to a lot of entrepreneurs, it’s like, no, just grab it and go. And trust me, I sat in a lot of meetings here where I just really wanted to grab it and go. I was like, this is over kill what we are doing. But the planning process is so much more than what entrepreneurs give it credit for because we always hear about a story so much without a business plan or your business plan was junk after the first six weeks and so there’s a tendency to just kind of discredit and think it’s all in the magic of energy and right timing and opportunity, and kind of discount how much of actually sitting down and visualizing what you want to have happen and being able to live the future part of that plan you created as much as possible.
I’m a big believer of when you are visualizing something that you plan to have happen, and you have actually created and planned out the steps for it to have happened the more your aware in that time of this is what’s going to happen, the natural steps to be able to help you get there seem to appear. There’s an expression; ‘ If you don’t know where you are going, any road will do.’ Well, as an entrepreneur we can be pretty hustlers and go after it and go make it happen. Well, if you don’t have a plan and don’t know where you are trying to go, you can take that energy and start going in a circle very quickly rather than actually moving forward where you intend to take the business.
Andrew: I remember my first business, a greeting card business. I sat down and I created a business plan because I thought that was what I needed to do in order to get funding, and it didn’t work out. It didn’t work out in that I didn’t get funding and also my plan didn’t end up working out the way I expected. But what I learned from that process was how much is a new user worth to me? If I could get a new user on my mailing list, then I can find some opportunities to sell to them. And so that was something that helped me figure out how much I can pay affiliates. If my whole plan doesn’t work out, and I just discovered this new thing called affiliate program, I now know how much I could pay them because I have a sense of what a user is worth to me and I can gauge whether I was right or wrong because I had something to measure it against and it wasn’t just this sense of, ‘I think it will work out if I use affiliated programs because everyone else does’. So I see what you mean.
Scott: Yeah, you waste a lot of time not actually having a lot of that done.
Andrew: Before we close it out today, where’s your revenue?
Scott: We will be approaching over 30 million this year, but at a lot higher margin than what it used to be when we were just doing the print brokerage piece.
Andrew: So, more profitable and roughly the same sales. Your back to where you were revenue wise, roughly, and you are exceeding where you were with your profits.
Scott: Absolutely. And making tremendous investments in the technology to be able to have a much higher evaluation. So everything we are building on right now is to be able to have that recurring revenue model around the technology that we are offering so we are starting to get in that place that the investment in technology is the tradeoff for having higher profits. But we are much more in line with having a long-term business model and wealth creation as a businessman versus where we were before which was entrepreneurs figuring out how to go generate revenue.
Andrew: Did your dad turn his $30,000 into 150.000?
Scott: He did.
Andrew: He did? You gave him his money back.
Scott: I did, yep.
Andrew: Way to go. Congratulations.
Scott: Thank you.
Andrew: This is a fantastic story. I was really excited to have you on here and now that we have done it I’m even more excited about your story. I hope anyone out there who got anything of value will find a way to connect with you and say thank you for doing this. If they want to follow up with you, is there a good way for them to do it?
Scott: Yeah, it’s my email. SPhill@pert.com and then pert.com and fatwind.com will get more information about us as a company.
Andrew: Yeah, it’s a really cleanly created website. I was actually so interested in how you did it that I did view source, and I could see that you are using WordPress. You guys did beautiful things with WordPress and kept it simple. I saw that you are also building your connection to your customers using Hub spot. I learned a lot just by snooping around your website and I hope people go and follow up by checking out PERQ.
Scott: Thank you very much.
Andrew: Thank you for doing this. Thank you all for being a part of it.
Scott: Thank you.