Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. I think this is a first for me. We’re using Google Hangouts because we had trouble with the usual Skype connection here. So things will be a little bit different and I’m curious to see how this works out.
Joining me today is a founder who drove down the street, found a problem and came up with a business idea. Then he evolved and grew it. After about six years, he sold the company. I invited him here to talk about how he did it. His name is Shuki Lehavi. Now I have to actually click his face to bring it up. I can’t count on Joe doing it in the post. His name is Shuki Lehavi. He is the founder of Gumiyo and we’ll find out what that name means.
But the business does mobile publishing. It’s a mobile publishing platform that makes it easy for people to do it. It’s all part of my Mentor Night series. Mentor Night is an event that goes on in Los Angeles. I asked the founder of it if he would introduce me to some of the people who have spoken and are a part of the event and Shuki is one of them. So, we have him here today.
I also have to say one more thing. That is that this interview is sponsored by–hey, check this out, I can actually show their website because we’re on Google+. Can’t I? Wait. I thought I had it up there. No, I don’t have to rely on anything. We’ve got to bring it up. Let’s use it. If we have the technology here, we’ve got to use it. There it is. Toptal–look at how beautiful it is that I can actually show their website.
More importantly, what I should say is that if you are looking to hire a developer and you don’t want to go through the long, drawn out process of finding the right 20 people and then screening those 20 people and hoping that a few weeks, a few months down the road, everything goes right with them, go to Toptal. They’re a network of the top developers, proven to be, as you can see at the top of your screen, among the top three percent by their peers.
Go to Toptal. Let them know what you’re looking for. They will find the right developer. Look at all these different platforms and languages that they can find developers for you for. Go to Toptal.com.
Shuki, welcome.
Shuki: Thank you. Thank you. Thanks for having me.
Andrew: Hey, you were driving down the street and what was it that you saw?
Shuki: So, I saw a car parked on the side of the street with a little “for sale” sign on top of it. What hit me is that someone will stop and make a decision to buy or not to buy the vehicle based on just a little bit of information–the picture of the car, knowing who to call and sometimes even the price.
What occurred to me is all of it can fit really nice in a cellphone. I started asking myself what role will cellphones play in exchanging information between buyers and sellers and connecting buyers and sellers. I started asking these questions about four years before the iPhone came in and web penetration on mobile devices was 0.3 percent.
Andrew: I saw early versions of your website. One of the interesting things was you had flip phones up on those sites.
Shuki: That’s exactly right. Yeah. We were adjusting the mobile web to the Motorola Razr, which hopefully most of the folks watching today don’t even know what this phone is.
Andrew: So, the idea was, “Hey, you know what? Even with these phones as they are, they can show much more information and be more interactive than a sign. I will find a way to do what with that?”
Shuki: To connect between the buyers and sellers at the beginning, to really give you an opportunity if you’re trying to sell the couch to snag the picture of it and send it to the cloud. And then someone else will get alerted, someone who’s interested in that same couch will get alerted. They can take a look at it on their mobile phone. They can see the price. They can see a little bit of information, just enough to say, “I’m interested. Hook me up and let me connect to the seller and talk to them.”
If you think about our lifestyle, we moved from the letter to the email to the text message to the one picture swap of Tinder. So, we thought immediately to translate the same thing into buyers and sellers and commerce and use the mobile phone, which was then the emerging platform, for that.
We discovered that while the idea was novel, it really didn’t catch up as far as a business model. It required a huge amount of buyers and sellers and products all at the same time to really reach any level of traction.
Andrew: Shuki, how long did it take you to get to that point where you said, “Hey, this isn’t working?” Was it still in the idea phase? No, because I saw a website, I saw, in fact, several iterations of the website that showed buyer and seller and tried to encourage people. So, how far deep into it did you get before you realized it?
Shuki: So, we fell into the same track that every startup falls into, which is the TechCrunch/disrupt/whatever track, where you’re thinking, “Okay, let me just build a prototype. Everyone will like it.” You get on every possible blog. As far as dollars in the bank, it doesn’t translate to anything meaningful.
Right around eight months after our inception, when we had every technology partnership that you can imagine, there was a lot of interest in the product but not dollars in the bank, one of the business directors who I work with, a gentleman who was over 67 years old showed up one day and said, “Here, I’ll solve the problem for you.” He had all this beautiful technology.
He literally took a $20 bill and threw it on the table and said, “Here’s $20. What do I get?” I said, “Well, let me talk to you about the cloud and the feature and everything.” He’s like, “No. Here’s $20. What do I get?” I said, “I don’t get it.” He said, “Exactly right. Here’s $20. What do I get?” I said, “Okay, well, if you’re a real estate agent, maybe I can give you mobile marketing tools for $20 that will help you generate some leads.” He said, “Great.”
So, we started thinking from the direction of the value first. People will look to monetize it. So, instead of inventing a problem, we went out there and talked to businesses and businesses came to us and said, “Hey, this is great that I can list one car on your website, but here’s the deal. I’m a car dealer and I have 700 cars and I want to list them on my website.”
Andrew: Wait, so how did you get all these dealers to come to you in the first place and say this? Was it that you were calling them and trying to get them to list and that’s when they said, “No, I don’t want to be on your platform. I want to be on all these others?”
Shuki: That’s exactly right. We started with these types of partnerships. We’d go into these businesses and really going out there door-to-door to the first probably 20 businesses. I walked up and down Sherman Way and knocked on doors and got the first 20 car dealers. Once you start talking to them, you’ll learn about the business problems. They were the first to say, “What you have is cool, but here’s the real business problem that I have and I’m willing to pay to solve.”
Andrew: And actually, when you walked over, when you had a marketplace that worked on cellphones, they said, “Yes, we’ll pay you for it, but here’s this other thing that you want to buy.” Why did they pay you for it?
Shuki: Exactly. They were looking to effectively take their inventory on the go. If I’m a car dealer and I’m out there in a conference or something and I meet someone who’s interested in the car, what I want to do is turn my phone number on and show them the inventory that I have.
Andrew: I see. So, it’s not that thought, “Shuki’s got this great marketplace. People are going to login to it and buy.” They just said, “Hey, you know what? We’ll put it in the marketplace. We don’t care. It would be a bonus if somebody buys. But if we’re having a conversation with someone and we need to show them what we have, we now can show them easily with the phone in our pocket.”
Shuki: That’s exactly it.
Andrew: Got it.
Shuki: That was kind of the first mobile website product that was on the market and it was awesome powered by us. Then again, we were six maverick mechanics. We got to the point where we said, “Okay, now we’ve got 20 people that we sold that are willing to pay us. But how do we get it from 20 to 2,000 to 30,000?”
Andrew: Okay. And this 20 people came after the guy came to you and said, “Here’s $20?” No. This is even before that.
Shuki: Right.
Andrew: You’re still struggling and he comes to you and says, “Stop with the marketplace and the big cloud and the mobile and the future. Just tell me–I’ve got $20. What do you give me?” So, at the end of that, you said, “Marketing is what I give you.” What did you mean by marketing?
Shuki: We realized that consumers are out there on this mobile device. They’re texting. They’re reading. They’re going online. And businesses have no way to communicate with them. And businesses are spending all these marketing dollars, but no one is really doing anything in mobile marketing. There’s no way for the businesses to let consumers text and get information, visit the mobile site.
So, we started asking, “How do businesses and consumers communicate together in this world of mobile devices?” So, we stared building very simple, for $20, mobile marketing tools for these businesses.
Andrew: What’s the first mobile marketing tool that you built for them?
Shuki: The first one we built was a code, a code that you can place on a site. Someone can text that code and get more information. Now, today this is a common product. But we were the first one to get it. In fact, in most industries, this code, where you text and get information, is called a go code, which is a term that we coined. We started it.
So, that was the first product. And we sold it for $20 for real estate agents and said, “Hey, here’s a great opportunity for a consumer to text the code and get information about the house when you’re not there. But guess what? As soon as they text that, we will alert you right there and connect it to you right there on the spot.” And for a real estate agent, it turned out that the house was now an interactive house. The consumers with any mobile device could text and get information.
We started with $20 for the real estate agent and then $75 for the car dealer. And then from that, we moved into $150 and $250 and $400. We kept adding more and more and more features and increasing the price point and seeing where the flex is. Once we got to about $500, we said, “Okay, now this is a product that is interesting enough not just for us to sell, but for channels to go and be engaged in the market.”
Andrew: Let me slow it down here and just ask about that first product. I get how cool it is–and useful, I shouldn’t just say it’s cool–but useful for a customer driving down the street to see a number, dial it and get some information back. But that’s not easy software to put together, especially when we’re talking about a pre-Twilio age where you have to create it all yourself. We’re talking about roughly 2007-2008. How did you do that?
Shuki: We had to cobble everything together. We had to build a platform that transforms images so they support on every mobile phone. We had to work with the cellular carriers to get the text message and reply things back. We had to build everything from scratch and we were a small company. Lucky for us, we early on bet on the cloud. We were the first commercial application to go live on the Amazon cloud. So, we had the support of a very big company behind us. But we really had to put everything together ourselves.
Andrew: How much did it cost you to do that? How could you put it together? I know you have experience. I’m looking here at your background. You have experience in mobile.
Shuki: Yeah. I come from a development background. I come from a development background, which made it very easy. And then my rule is always to hire craftsmen, people who really enjoy creating the best tools out there. You can read on my blog, but I identify those guys with, “Hey, check this out,” those who really drag you into their test to show you. I’ve collected a few of them throughout the years.
When I started Gumiyo, I brought them over. We treated them very well and we made sure that they had the creative freedom to create something. We’ve come up with a concept together and let them go ahead and create amazing tools and improve on technologies that were out there.
So, we were very innovative. We’re always able to stay ahead of the market, both in terms of our technology and in terms of the business that was side-by-side with it.
Andrew: How much money did you have in order to build all this and to hire these people who are so committed that they would even do this in their spare time and on weekends because they loved it?
Shuki: Without going into the exact number, I can tell you we actually raised not a lot. What we did is we didn’t spend time chasing too many VCs or taking a shotgun approach. We approached key individuals who are passionate about marketing. We’re talking CEOs of AT&T, Verizon, Qwest Communications and large companies who were very interested in mobile.
Andrew: How did you get them?
Shuki: With these two elbows. No, you develop a relationship. You go out there and through your board members, you get the introductions. Through the introductions, you seek these people. You try to get in front of them. We built a fantastic relationship with Amazon thanks to the fact that I just walked past Jeff Bezos’ security and sat down and said, “Hey, I’m going to build a business on your platform.” And he was very open to that.
Andrew: Wait. You just barged in. I shouldn’t say barged in. You just walked right into Amazon and you got talk to Jeff Bezos?
Shuki: Yeah. Let me tell you this secret. This is good for every entrepreneur. If you smile, wave and you are very focused, you are going to get past pretty much every doorman or anyone who prevents access to anyone else. As soon as five security guys watch you walk very calmly to Jeff, wave to them, just walk straight forward, none of them can catch you. So, you just have to have that ability to say, “I need to talk to this guy because I really have a serious matter to talk to him about.”
Andrew: I’m looking at an old TechCrunch article form March, 2007 about you and it says that you guys were built on the Jajah platform. I remember Jajah. TechCrunch used to talk about them a lot. It was one of these services where I would get a phone number for somebody who was outside the country. I’d dial the phone number. Then they’d dial out on my behalf. I didn’t realize that they also powered software like yours.
Shuki: Correct. Very quickly we evolved into a communications center. We evolved into a center that really connected the buyers when they were out there on the golf course with the sellers, who might be somewhere else. What we wanted to do is establish, as soon as the two of them were interested, at that point of interest, we wanted to make sure the two of them can connect and connect securely. Jajah was one of our first partners to do that. They made sure that the connection happened and you didn’t have to set that up yourselves.
Andrew: Exactly.
Shuki: And do that in a secure way where we don’t disclose the phone number or the cellular phone number of both parties.
Andrew: Right. That’s what this post is about. It says, “Gumiyo adds anonymized phone numbers to classified listings.” So, that’s where you were back then, March 22nd, 2007. Then from there, you evolved to this “text for more information” business. You were talking to real estate brokers. They were excited about it. But how did you get more of them. You can’t keep walking door-to-door and get your customers. Where did you get the next batch of customers?
Shuki: So, very soon, we identified that there is a pyramid in every market–automotive, real estate, healthcare. When you think about it–and I’ll just take one for an example, automotive–if you’d like to sell to every car dealer out there, there about 100,000 dealerships between independent and franchise car dealerships. So, that requires a huge marketing budget, which we didn’t have. If you want to knock on doors and get four with 4,000 dealerships, that’s a long sales cycle and we didn’t have the time.
But when you look at this pyramid, where at the bottom you have 100,000 car dealers or a million real estate agents and at the top you’ve got the franchises, Toyota, Ford or, in the case of real estate, Century 21 or RE/MAX. You understand that in the middle of that market, there are a lot of vendors that touch smaller numbers of dealers or real estate agents and you [inaudible 00:16:38].
So, in our case, our first partner was a guy who goes to dealers and takes pictures of the used vehicles on the lot. He serviced about 70 dealers. We spoke to him about the product, tested with him about how to activate him as a reseller and he sold to 30 of his 70 car dealers our product.
Andrew: Wow. And he wasn’t a guy who ordinarily sells. He’s just a guy who takes photos.
Shuki: Exactly. We just needed presence. We just needed someone to spend five minutes in front of the dealer and have a financial interest in showing something to the dealer.
Andrew: Okay.
Shuki: He was our first reseller serving 70 dealers. After him, we found someone who served 200. After them, someone who served 1,200. After them, we reached all the way up to the top of the pyramid, reaching vendors in the automotive space, like Reynolds and Reynolds and a home net that covered 12,000, 10,000 dealers. So, we never wasted our time at the top of the pyramid wining and dining the executives of the franchise and we didn’t have a marketing budget for the bottom, but we found a lot of interest.
This way, within about a year, we got to the point where I would walk into digital dealer, which is the leading industry convention in the automotive space, and maybe ten vendors on the show room floors were selling a mobile website. Out of those ten, nine were powered by Gumiyo. We white labeled all of our solution and teamed with everyone. We had a very good agreement that allowed us to do so.
Andrew: I see. And that’s the difference between you and the way other people might approach it. They might try to reach each person individually or, as you said, go to the top where it’s really tough. You found those slabs in the center that have lots of access and are much more readily available for a conversation.
Okay. You do all that. Now, I understand the first product that you came up with that worked. What’s the next big product that you came up with?
Shuki: So, the next big product was the mobile website. So, starting with the iPhone, people used their mobile phones for consuming content. Most of the websites out there were not ready for consumption on their mobile phone. The technologies were not there. They would use flash that didn’t work on half of the phones like iPhones and what not.
We created a platform that allowed everyone to create a mobile website, whether it’s a two-page website because you have an event or whether it’s a car dealer and you want to showcase all your inventory networking. That was our next product. We started working, again, at the beginning with the small mom and pops and then with larger and larger resellers.
Then we started working even with publishers. On our platform, we ran the mobile version of LATimes.com, Chicago Tribune, KimKardashian.com and many other brands. If you remember, it used to be that when you go to a website, it would redirect you to m.LATimes.com. So, we served those m. websites and mobile versions.
Andrew: These sites that you’re talking about, like the LA Times and Kim Kardashian site, did you guys do that with permission or did you just say, “We’re going to show what our software can do and we’ll just repurpose their content as an example?”
Shuki: No. We looked at our technology and we said, “Okay, we’ve got this business where we have all the tools for these small, mid-size businesses.” But actually, we were gaining more and more skills in mobile and in the field of creating mobile sites and applications and networking. We started having a dialogue with some of our resellers and they said, “Go talk to the LA Times.”
Again, through business development relationships we’ve got with these clients, we had a winning argument, which is always great when you’re trying to sell technology, in which we were able to go to someone and say, “Hey, let me show you your website on my phone. It looks horrible. Now let me show you what I built in five minutes. It looks great, right?” And that would be the sales pitch.
Andrew: I’m seeing that that’s the way even to this day companies do it. You set that up. You’re building it up. This is roughly 2010/2011. What kind of investors–actually, you told us the kind of investors. How did they feel about the revenue and the profits? Is this the kind of business that they wanted to invest in, one that was going to start making profits? I see you’re nodding.
Shuki: That was a huge debate around the boardroom table that lasted for a while. In 2006 and 2007, we thought that we were going to be a venture-backed company that grows and really doesn’t care about the metrics of regular business management, like revenue and profits and everything. But what happened is in 2008 and 2009 as we were going out there to raise money, if you remember, the market shut down completely. Those were really tough years.
Andrew: 2008 is the “Rest in Peace: Good Times” presentation that I think it was Sequoia that sent out to their companies that they invested in.
Shuki: Exactly. And without naming names, there was actually one VC in LA and I called him on Monday and said, “Hey, I’m going to be there for a meeting on Wednesday.” They said, “No problem.” And on Tuesday, I decided to just drive around their office so I could see where the location is and they were closed. So, 24 hours later, they didn’t even know. The money dried up so quickly.
Andrew: Wow.
Shuki: And we understood that we have to be self-sufficient. We put a plan to take the company and turn it into a cash flow breakeven company. We decided to do that in 12 months and were able to do that in 8 months. And once you have revenue, once you’re actually making money, it almost doesn’t matter how much money, but when you’re making money, you have options. All of a sudden you’re not spending yourself out of control and you can take the time.
In fact, the exit that we had in 2013 was a result of a product that we developed throughout 2012. And that product required significant investment. That entire product was funded based on our profits. We didn’t go and raise money. We just invested our own profits in growing the company and that led to the sale of the company.
Andrew: I’ll come back and ask what that product was. “What was the product that you self-funded?” I’m writing it down in my notes. But what I’m curious about is that you went to real estate owners–excuse me, real estate brokers–you went to car dealers, what did you do after you maxed out those two markets? Did you add more features and increase the prices on those current customers, or at that point did you start reaching out to a broader audience?
Shuki: So, I want to answer your previous question with this question together. In your previous question, you were talking about VCs. Very often, when you have a company that develops a capability, a VC view is go out there and expand to as many markets as you can very quickly. Get five percent in each market and establish yourself in each of these markets. An owner perspective would be, “No, focus, extract the value. Extract the revenue and profits from your current market.”
We had the discussion around the boardroom table. We were saying, “Should we go out there and become a mobile player in the field of media and real estate and automotive and healthcare and many other verticals, or should we focus on automotive?” We chose to diversify at that time, rather than just focusing on a vertical.
But what I want to tell you is each and every company today that is asking themselves, “Well, should I focus on a vertical and what happens after I finish that vertical?” Dealer.com, that focused only on the automotive play, just sold themselves for $1 billion. So, I think that there is enough, and definitely as far as the profit opportunity, the deeper you go into a vertical, the more profit you can make.
I’ll give you just one example of that. Wix.com sells a website for free or for $5.
Andrew: Wix.com, right?
Shuki: Right. You can buy a simple website on there for $10 a month, right? The same website, the same number of pages, if you go and say, “This is a doctor’s website,” you’re going to sell this for $200, $300, $400 a month. So, just being very deep into a vertical gives you an opportunity to hike the price tremendously as we’ve discovered in some of the verticals that we were in.
Andrew: I see. So, you’re saying, “Look, Dealer.com sold for $1 billion.” I didn’t know that. If you would have stuck with just the automotive industry and serviced them with everything you had and not looked outside, that probably would have been the better direction and you would have sold for more money.
Shuki: I don’t have a crystal ball, but I’m saying that definitely today my recommendation for small companies is focus, not diversify. Once you’ve got a product that works in the market, go into it. Don’t be afraid of the size of the market. The size of the market is typically larger than you think. If you have a first mover opportunity and a good product, just stay in there focused and extract a good $100 million of revenue out of it.
Andrew: The other thing that I noticed is throughout you were doing recurring revenue. The whole business was about that. You weren’t selling a website and a web presence that people would pay the $20 a month, they would pay you the $79.99 a month, etc. That was also part of your strategy, wasn’t it?
Shuki: Correct. Recurring revenue is way better than anything out there because of the fact that it produces a repeatable revenue model and a predictable revenue model. If you really understand the recurring revenue, you can get into a very predictable revenue model. That helps two things. It helps your company. So, now you can plan ahead. But it also helps attract resellers.
One of our best partners were resellers who have a business model on a one-time fee. For example, MLS– your MLS membership, if you’re a real estate agent, you renew once a year. Well, what does the MLS do with the other 12 months or 11 months of the year? How will they generate revenue that keeps going and flowing throughout these 11 months? We offer them partnerships that offset their one-time revenue with a rev share on our recurring monthly through the websites they sold to us. And that was a very successful partnership.
Andrew: You know, as we’re talking here I’m still doing some research and checking my information. Yeah. Here’s the thing that I found before we talked and now I’m confirming. There’s just not much about you online, especially if I limit my search to, say, the end of 2013. There is an article in socalTECH which I found really helpful in getting familiar with your business in preparation for this. There was a TechCrunch article. There were maybe three others. Why is that?
Shuki: That was actually by design. We quickly understood that for us to grow, it’s not going to be about going out there and building a brand. It’s going to be about building a relationship. The type of companies that we’ve worked with, when you look at the day we sold the company, we had about ten very large customers and eight of them were over $2 billion companies each–very large companies.
We understood that we’re not going to invest the money because we want to create a very profitable company. So, we’re not going to invest the money in advertising to consumers or to our customers. We’re going to be very focused throughout finding the resellers. LinkedIn, conferences became our key tools. That’s where we invested a lot of our money and time.
Andrew: How do you hire people who can sell the way that you just described, to sell to identify those people who have a lot of customers underneath them, open those doors, sell to them and do it consistently?
Shuki: Exactly. Exactly.
Andrew: How? How did you find those people?
Shuki: So, we’re very crafty. The first thing we understood is that signing up a new reseller means absolutely nothing–nothing.
Andrew: Because?
Shuki: Getting that reseller to the point where they have sold now additional licenses, that’s the key. A lot of companies confuse that. They see the deck comes in and they’re like, “We have these ten beautiful customers with huge brand names.” But the traction per brand name is very low. So, we treat our resellers–we didn’t care about the brand name. We cared about how many units can you move for us every month.
So, we would go to these conferences. Frankly, we didn’t even have enough budget for a booth in the conference. What we would do is we would shorten the time that I would go to a conference. At a five-day conference, I would go for one day. We would go ask everyone on LinkedIn and say, “Shuki is only going to be at that conference for one day.” And we would actually secure–people would line up to secure 10, 15, 20 minutes.
So, these guys would come to us and meet with myself and our VP of accounts, who managed these accounts. And then we had a success program for each one of our clients. We called it, “From Zero to Mobile Hero.” It was about giving them all the tools that they needed in order to get out of the gate, sell, evolve, grow and create some thought leadership in their own market by selling our products.
Andrew: What are some of those tools that allow somebody to sell your product to their customers?
Shuki: The first thing you have to understand is that anyone that is trying to sell your product has two sales. The first sell he has to do is to introduce you as a vendor inside their organization. They’re taking a risk. They’re taking your products and putting it on their shelves. They are taking a risk. Otherwise they could put someone else’s product.
So, you have to give your champion all the tools and all the education they need in order to sell your product. In our case, it was mobile. So, we gave them all the stats about the mobile industry, all the reasons about why our tools are better than everything else, case study success. We would fly there and wine and dine and spend time with them. On the other side of it is now you have to give them the tools to go ahead and be effective in their market. And you have to do it while you are giving the same tools to ten other vendors. You have resellers. And we did not give anyone exclusivity.
So, those resellers would compete. We would sit with each one of them and the first thing you’ve got to ask your client is, “What’s your goal? What are you trying to achieve this year?” And then ask yourself how my products can help you achieve your goals this year. When we would do that, it was a win/win opportunity.
Andrew: One of the things that helped you get there was you invested your own money in the business. To allow yourself to build the software that you needed to sell or allow your resellers to sell for you, you put your own cash in. How much of your own money did you put in?
Shuki: So, in the first year of the business, before we generated revenue, my cofounder and I, we each didn’t take any salary in the first six months and then we took a half of probably the lowest salary we’ve ever taken. On top of that, we each brought some money from home. So, we were heavily invested in this thing. And I recommend that to every entrepreneur out there. The feeling of, “I have to sell. I have to generate revenue. This has to work.” That scarcity, I think, can really drive you to be creative. It really drives the necessity. It also drives the commitment.
Andrew: Do you have an example of the time that you did something that you couldn’t have done unless you had this kind of burden or this kind of risk?
Shuki: Well, you know, in one of funding rounds, we had investors who brought in very hard-earned cash. You’re sitting there and you’re looking at salaries, you’re looking at where you’re spending money and you really feel like you need to be very accountable for every dollar you’re asking them for.
Today I’m a mentor. I’m involved in the Los Angeles Venture Association. I see a lot of companies. I see a lot of deals. I see companies that are just blowing through millions of dollars of their investors and just going out there and raising more and raising more. We just had a very different level of accountability for every dollar. We really cared about it. We treated every investor’s dollar as if it was our own money.
Andrew: What about some of the challenges? One of the challenges that you had was hiring. We talked about the great people who helped promote your products to resellers who then re-promoted it to their own customers. What about people who weren’t doing so well. I know that was a big challenge. Can you talk about that?
Shuki: Sure. Hiring is always tough. Hiring is only as tough as firing as well. There are two sides of it. Getting a team and operating a team, it’s not easy. I can tell you that there were areas of the company, for example with the developers, that we hired some fantastic individuals. These are exceptional developers that I’ve been proud to work with. There were some areas where we made mistakes.
Probably the biggest problem we did was we were so committed to people that we didn’t sometimes evaluate them based on their passion, based on their commitment, based on their work, but not based on their net contribution to driving the business.
Andrew: How do you measure that? I understand how you measure net contribution for sales. I can understand even for developers. But everyone else in an organization, even people who are critical to it, how do you measure their contribution?
Shuki: The reality is that these are the only two functions you need in a startup for the first five years of the business.
Andrew: The people who create the product and people who sell the product. Everyone else is just in the way.
Shuki: That’s exactly right.
Andrew: And you can measure both of those.
Shuki: Anyone else typically represents a wrong investment for the lifecycle of the company unless you’re Facebook and now you need to go public and you need the CFO. But even in these two categories that you mentioned, very often I see a sales person who stays with them.
The most common mistake I see are startups that create commission structure or they hire a VP of sales and they go into a commitment of $200k to that person with $140k base, which leaves no interest for that person to even go out there and sell it. They’re not hungry. And then they’re bringing those. And we made several of those investments, bringing the right people at the wrong time and the wrong people at the right time.
One of the things I’ve learned is when I get an idea, when I’m working on something, I’m so passionately invest in these things. I’m so passionate about the people and everything. I’ve learned to balance myself with those who would take the more non-involved view, more unbiased, just saying, “Okay, let me look at every person and see if I would rehire them tomorrow.”
Andrew: And then you could do that. But you’re in California. Are you actually allowed in California to say, “I wouldn’t have hired this person. It’s time for them to leave.”
Shuki: California, that’s right. It’s an at will employment. That works both ways. That also means the person can say, “Hey, we’re done here.” But I never thought about this way. When we hired a person, we wanted to make sure that, for example, that we can sustain their salary for a period of time that will accomplish whatever we thought of as the learning period plus an acceptable time to show results.
Andrew: Shuki, I’m looking at my notes here. One of the things we asked you in the pre-interview was, “What was your lowest moment?” And you said, “I took things really personally at one point because I was so emotionally invested. This was my dream. This was my brand. This was my baby. It’s hard not to get that involved.” It sounds like you’re talking about a specific time. What was that time?
Shuki: So, there was a point in time, I think, where we had to pivot. We absolutely had to pivot. The numbers were all pointing at it. But it’s really hard as someone who’s so personally invested in your idea to look around and to see the numbers and to realize the numbers. You’re always thinking that you can catch up.
I recommend to every CEO and young entrepreneur to run a marathon. What you learn there, other than the high achievement, trying to get to the finish line before the guy with the banana suit, what you really learn in a marathon is you cannot catch up in the last mile to an eight minute deficit. A lot of CEOs do that. They tend to do that. The first quarter, they don’t meet the numbers and they don’t meet the numbers in the second one. They always believe that they can catch up and, “No, by the end of the year, I’m going to have that big deal and everything.”
For me, there was a moment where I hired a CFO who became a good friend. One day, he kind of said to me, he asked me a question about a person and said, “Why aren’t we taking actions with that person?” I gave him every excuse in the book. He kind of turned to me and he said, “Shuki, when will you let me do my job?”
Andrew: I see.
Shuki: He said, “When will you actually understand that I have many years of experience? When will you listen to me as an equal voice?” I’m like, “You’re right.” So, I did. I kind of sat back and let him do his job. I let him go in and face the numbers. When I looked at the numbers, I finally saw what he saw. When I looked at the people that we were arguing about, I finally saw what he saw. You need that honest smack in the head of someone who has the unbiased view, someone who can balance you and give you this real, real view of the business.
Andrew: One of the other problems that you had was that somebody copied the idea. In fact, it was a customer of yours, wasn’t it?
Shuki: Correct.
Andrew: Who was it? Now that it’s years from now, you beat them, you did well, who was the person?
Shuki: Things on the internet stay for a long, long time. So, without getting into the detail, we did. We had a case where we felt that someone actually tried to take the idea, to take some intellectual property and to walk away with it. Again, this is where, as a business owner, it eats you alive. This is your baby. You’ve developed it.
The good news for us is they actually copied an idea that a) is and was protected and we kept a good tight lid on it and really followed them and their use of the idea. But b) they copied and misused it and haven’t really reached any useful or any meaningful business traction from this thing. But again, it goes back to what are you focused on? I know as entrepreneurs, there are all these loose ends. You didn’t figure out your IP portfolio and you really don’t have a solid HR tool.
These things hit you. It’s just a matter of when. If you run a little frat house and everyone is everyone’s friend rather than running the company as if it was a company with clear HR policies and what not, it’s going to hit you one day. Someone is going to make a mistake and then you’re going to [inaudible 00:41:06]. It’s an experience of learning. You didn’t run a tight IP portfolio and protected your trade secrets and what not. It was more, “Hey, we’re all friends. We’re all in this together.” And then someone will try to steal it. So, it’s a gradual process of improvement.
Andrew: Why did you sell the business?
Shuki: We sold the business for two reasons. One is we actually felt like we are in a good point in time to go ahead and capitalize on where the business was. We were coming off a few very good years financially. We had a good brand name. We had great contracts with large clients. We also had a product that we just developed and was very promising. So, we looked great.
We knew that right now there were several outcomes for the company. We could carry on as we were going, but the competition was heating up. Mobile was really heating up. We could raise money. Then effectively you’re selling a big chunk of your company to someone else. For most of us who can actually run the numbers and do the Excel file, you’ll find out that the dilution is not worth it. When you’re raising money, you’re committing yourself to two, three, four, five more years before the exit, assuming risk in the market and others who might play in the same market and you have sold a big portion of the company.
So, when we did that math, when we kind of looked at that, we said, “Hey, it makes more sense for us to sell right now with a correct ownership rather than raise a lot of money, be further diluted, take another three years before potentially the next exit.” We started talking to companies. We saw that there was interest in the market. We saw that people were getting back to us and interest in what we do and how we do. We decided that it might be time to go and sell the company.
Andrew: What about you personally? Were you at that point, after about six years of fighting, after a year of finally hitting profitability, were you just saying, “I’m exhausted. There are new players and I’m just too tired to keep going here. Let’s see if we can cash out while we’re doing well before I get back in on a personal level to another fight?”
Shuki: I think so. I think it was a very rewarding experience for me. I can tell you going through a sales process when you’re selling the company, those four, five, six months when you’re going through the sales process or as exhilarating as everything you’ve done.
But I kind of looked at the company and I started from an idea in my head to two servers in my garage to raising money to building a product to monetizing it through profitability and growth. Now we’re looking good and it’s a good opportunity. It’s a good time. I also looked at the competition that was coming into the market and said, “I don’t think that we’ll have a better opportunity than the one we have right now.” So, I was willing to go through that process. I think it went very well for us.
Andrew: What did you sell for? How much?
Shuki: We’re not disclosing…
Andrew: Was it over $100 million?
Shuki: No, not even close. But what I can tell you was that we were lucky enough to have multiple bidders when it came the time to talk to several companies about buying us. That’s very important. I think that every CEO goes out there and gets to the point of thinking of how to sell the company needs to get to a situation in which there are multiple bidders.
Andrew: What tip do you have for getting that? I remember one of the best part of Ben Horowitz’s book, “The Hard Thing About Hard Things” is how when he had a bidder, how he found another bidder just so they could play off each other. What did you guys do to get a second one?
Shuki: You have to be very careful about doing that. In most cases, you’re not legally allowed to do that. I don’t think we even tried to do that. But we were at the point where we were going out there and talking to multiple companies. At a certain point, we had an opportunity to execute the transaction with one company. We really wanted that company and we really wanted that transaction. We felt very positive about the CEO of that company and how serious and how quickly they could close a transaction.
Andrew: Did they pay cash?
Shuki: Yes.
Andrew: This was Talus Labs, right?
Shuki: No, again, I’m not mentioning.
Andrew: Oh, you can’t even say the name of the company?
Shuki: One of the nice things about NDAs is that they last for many, many years.
Andrew: But can’t you say who bought it?
Shuki: Oh, no, no. The company who eventually bought it was Talus Labs.
Andrew: Yeah. Talus Labs. They don’t seem to be up anymore. Are they still around?
Shuki: Yes. They are. They are renamed to Colony Logic. They are a great company that provides a fantastic platform that allows people to sell products online. They are actually talking about multiple bidders. As we were going the route of talking to several bidders–and as I said, one of them was very positive about the company and we were very positive about them–Talus came in and they were very aggressive about making a deal and making a deal now. I’ve seen both from their CEO, chairman of the board and other folks, they handled the transaction swiftly and they were just very aggressive about making the deal and getting the deal done.
So, to answer your question, we didn’t go out there and try to pit these people against each other, but we were just lucky to have multiple companies who really wanted to buy this at the same time.
Andrew: I see. I don’t think we got to what the product was that you self-funded just before the sale of the business. What was that?
Shuki: The product was MySite Anywhere. MySite Anywhere, after we created all of this mobile websites and websites that work now with every device, from tablet to mobile to PC, we realized actually assembling a website together is very hard.
So, we asked ourselves, “Is there a way to take the pain out of the equation and create something where we can have a dialogue with business and ask the business fair business questions and get the answers and then have a system that automatically builds the best website based on a business interview?”
So, instead of asking you, “Do you need the 3.4 gigabyte hosting package?” We just say, “Hey, so you are a bakery. Can you name the three best cakes you have?” What we found out is when we talked to the business, when you ask them online these type of questions, you get the answers very quickly. Not only do you get the answers that are reaching keywords that help SEO, they’re also giving you all the content, telling you, “Oh, yeah, these are our best three items on the menu and here are the pictures of these things.”
So, we built a system that automatically collects that information by interviewing the business online and then assembles a website for you that works on every device and is fully integrated. That was a killer product. We patented it properly and submitted a patent and everything. Again, at that point in time, Talus Labs, now Colony Logic, was very interested in this product because, as I said, they have a fantastic menu selling tool and they could sell this to their businesses. That was, I think, one of the main reasons why they looked at us.
Andrew: Alright. So, here’s what I got out of this interview before we end. First of all, start out by looking for a problem that you have and then see if you can solve it. Number two, when you do solve it, don’t talk about all the different technology. Don’t even think about the different–in fact, just come back to the $20 on the table. Somebody throws $20 on the table, concretely, what do they get for those $20?
Once you have that product and customers are into it, don’t look to get them one at a time by knocking on the door. If possible, go to that person in that tier that’s not super high that has access to everybody in your space but has enough people to make sense, go partner up with them and encourage them and make it financially rewarding for them to promote the product to all your people, right? You do all that and it’s not enough to just partner with them, you need to activate. You’re going to be really proud that this guy partnered up with you, but in reality, you probably aren’t going to get any sales unless you push and give them an easy way to do it.
Number three, focus, focus, focus. We talked about Wix and how Wix for a couple of bucks sells a website. If they focus their whole business on just, say, the medical community, they’d be able to charge multiple times that for a website, a website for a doctor. Finally, if you sell, of course, see if you can get a couple of different sellers. How did I do there?
Shuki: Perfect.
Andrew: And once you do all that, go to Mentor Night, apparently. Why are you a part of mentor night? What is it that you get out of it?
Shuki: So, I had the pleasure of working with great mentors throughout my career and my tenure at Gumiyo. Mainly my board members, all four of them, were fantastic and really helped me and gave me great advice. And then in every industry, I had several mentors that really shared with me their thoughts. What I like to do is I like to go to Mentor Night–Tony is a great guy–and ask tough questions. I believe that by asking tough questions and by sharing some of the lessons that I’ve learned, I’m giving back to the community.
So everyone knows, we don’t get paid. There’s nothing. There’s no exchange there of value, only exchange of opinions and advice. I like that. I think as an entrepreneur, this would have been a great experience for me and great advice. I’d like to share that back with the community. That’s also the reason why I try to be at LAVA, the Los Angeles Venture Association and other organizations that give me an opportunity to go back to the local LA startup community and just help the companies.
Andrew: Yeah. I should say Mentor Night is in Los Angeles. If you’re there, guys, check it out at MentorNight.com. That’s the way we connected with you Shuki. I had Tony on and I said, “Hey, you have lots of great entrepreneurs who are coming to you events. Can you introduce me to some of them that I can have here on Mixergy? We’ll call it a Mentor Night series.” He did it and you and I connected. I’m really glad to have had you on here. Thank you so much for being on Mixergy.
Shuki: My pleasure. Thank you.
Andrew: You bet. Thank you all for being a part of it. Bye everyone.
