How Being Scrappy Made Grasshopper Profitable Within 2 Months

If you like my interview, please vote for it on my favorite news site. –Andrew

In 2003, Siamak Taghaddos and his friend, David Hauser, launched a voicemail service. Within 2 months, the entrepreneurs were profitable. By the end of their first year, they did $423,504 in sales. By their 3rd year, they did $8.8 million.

How did they do it? And what can you learn from the creative way they built Grasshopper into a profitable business and lifestyle brand? That’s what I invited Siamak to Mixergy to talk about.

Siamak Taghaddos

Siamak Taghaddos


Siamak Taghaddos is the CEO and co-founder of Grasshopper. From the company’s About page: “We started out as GotVMail Communications in 2003, after identifying the need for an easy-to-use virtual phone system for entrepreneurs that wouldn’t break the bank. … As of May 2009, we became Grasshopper. Why the change? Quite simply, the name ‘Grasshopper’ evokes the power to propel forward. And that’s exactly what our service does for entrepreneurs like you: gives you the tools to propel your small business forward.”


Full Interview Transcript

Andrew: Siamak. I’m going to do the intro live. I usually will record it, let’s do it live. Hey, everyone, it’s Andrew Warner, founder of, home of the ambitious upstart. How do you build a profitable company? Don’t most people online want to get more eyeballs, want to get more traffic? I got a guy with me today who actually wants more profit. Go figure an entrepreneur or a businessman who wants profit, like the good old days. Right, Siamak?Siamak: Right.Andrew: (laughs) His name is Siamak Taghaddos. He is the CEO and Co-founder of Grasshopper. And, um, actually, what is Grasshopper?Siamak: Grasshopper is a company based on empowering entrepreneurs to succeed. We [xx] entrepreneurship, but the product that we offer today is a virtual phone system for entrepreneurs to make them sound bigger and stay connected to callers.

Andrew: All right. So, I get a phone number from you guys, and I get to pass it on to my clients, I give them extensions, and it sounds like I’ve got a big company behind me.

Siamak: That’s right. You can be three employees working from three different cities in a row and you guys sound like you’re connected to the company callers.

Andrew: All right. We’re going to get into that, we’re going to find out how you built that business. We’re going to find out what your vision is for growth, because as you said right here, it’s more than just voicemail that you have in mind. But first, I want to go back a little bit and understand you as an entrepreneur. Were you always an entrepreneur? Were you the kid in school, like me, who was selling candy?

Siamak: I was since the day I was born, I think, as my father said. We moved here from Iran in 1986, and ever since then, any kind of business that I can get into right, I was at middle school and high school and college.

Andrew: Wow! So, you’re from Iran, too. My Dad is from there, and it feels like they breed entrepreneurs there.

Siamak: (laughs) They do, exactly. Yes.

Andrew: Sorry?

Siamak: Especially the families that have to immigrate to the US or abroad, they’ve got to have some sort of entrepreneurship in their blood to be able to make it in a brand-new country.

Andrew: You know, that’s a good point. I think that immigrants, in general, in this country, tend to be more entrepreneurial, probably for the reason that you just said. If they’re making the trip all the way out here, they’ve got a little bit of pioneering entrepreneurial spirit in them.

Siamak: That’s right. Yes.

Andrew: All right. So, what was your first business?

Siamak: My first real business that I had?

Andrew: No, no. Let’s go back like the first like even lemonade stand. I want to get a sense of the fun businesses that you started as a kid.

Siamak: The fun businesses, well, it was when a lot of kids were getting Nintendos and Sega Genesis and everything, and my Mom kind of forced to buy a computer for me. I started playing with it and then getting into Internet when dial-up just came out. I was getting into kind of Web design and consulting, and things like that as a 14 or 15-year-old. Then, I tried that, and finally, as soon as I got into the Internet, I started a pager distribution company. It was Pager Wholesale, it was called.

Andrew: Really? How old were you when you did that? I didn’t realize that was so young.

Siamak: I think I was 16, 15.

Andrew: Sixteen. So, why, at 16, would you want to do that instead of playing video games or trying to drink more beer than your friends? What is that?

Siamak: I think it’s a balance of both actually. You still have fun, but at the end of the day, there’s only so much fun you can have with friends and socializing. I think, when it comes to me, every time that I see a problem that I have, for example, when I was in school, finding a cheap pager, I figure a lot of kids have that same problem and I just try to fill that void.

Andrew: Really? I like to just try to make money. Every time I see that somebody has a need, I say, ‘Well, is there a way for me to profit from that?’ Any of that in you?

Siamak: Of course. Yes, the problem comes with finding a pretty good void and filling it, but it should have the aim or the focus.

Andrew: So people needed pagers back then.

Siamak: They did.

Andrew: All right. What kind of pagers are we talking about?

Siamak: Just cheap ones that a kid needs. This is before cellphones became popular. So, every kid has a pager to stay connected to their friends. I’d looked around and I couldn’t find anything that was cost-effective. Kids in my school were in the same way. So I got into high school and everybody had this problem, and I found the distributor in California, and I called them. It was actually two guys running a website and selling pagers. I just became kind of a distributor outsource to actual product fulfillment before that became popular through eBay. I set up the website for it and market it to all the kids around the country and just start getting a lot of orders.

Andrew: Are you seeing me, by the way, on video or am I just seeing you?

Siamak: I see you.

Andrew: Oh, you do see me. All right. It’s kind of weird. For some reason, I don’t see my own video.

All right. That’s pretty good. How did you find the distributor?

Siamak: I just searched. It took me a few days to search online, calling different companies, looking at phonebooks and finding, you know, one company that was actually legitimate and could fulfill orders quickly at an effective price.

Andrew: OK. All right. And, was it fun to sell or were you intimidated in the early days selling pagers to your friends? Most people hate selling.

Siamak: No, but it wasn’t selling per se, like one on one sales. I’m not a salesperson whatsoever. I couldn’t sell anything to anybody, but I can market well. So I think what it was is could we create a nice looking brand? This was before websites became very, very cool and trendy. I set up the site myself, made it look good, made some postcards up and I sold through branding. And I think that’s when I realized how important branding was. Even more important than the sales process, you have to have a good brand to be able to sell.

Andrew: That’s interesting. I wouldn’t have thought. So, looking back I wouldn’t have thought that somebody your age would recognize that or be able to execute on it. So, how did you execute on the vision for a brand? How did you design a site? How did you design the logo?

Siamak: It was just a…I don’t know. I think it was just in me, branding. It wasn’t something that I researched or tried to understand or learn the process. I just figured, you see all those companies out there. The most successful ones have the best brands. And I’m not even sure what I used back then for a design software. But I remember I just came up with a logo. It was a very, very simple site, but for back then it was kind of a web 2.0 site back in the day. So it wasn’t a lot of text based. It was just very, very simple icons and some buttons and an order form. And there wasn’t even a secure process to sign up. It was just a very, very simple site.

Andrew: All right. And how much money did it cost you to set it up?

Siamak: Nothing really. It was a web hosting plan and software to make the site. And I think back then it was all these free shareware, html builders that I used to make it. And then when Front Page became popular, I started using Front Page. It was as bootstrap as can be.

Andrew: Wow. All right. And buying the pagers you wouldn’t buy them until you got the order,or you’d automatically forward the order over to the company that had them?

Siamak: Yeah, I didn’t even buy anything. I just got the order, I looked at it to make sure it was legitimate and I just forwarded the email to the guys. Oh, no. Actually, back then I used to fax them the orders. I used to fax them to the guys and then they would fulfil it and send me a commission check once a month.

Andrew: All right. And how much money did you make from it?

Siamak: It was…for a kid my age it was pretty profitable. It was like probably a few thousand dollars a month I would make from it.

Andrew: In profit?

Siamak: Which was good back then, in high school.

Andrew: Yeah. I bet. I know a lot of people now who would actually love to earn that much money. I watch them read the ‘how to blog’ websites, hoping to make…sorry?

Siamak: No. I’m saying from the Google AdWords and how to blog and make some money on the side? Yeah.

Andrew: Yeah. You know what? Let me see if I could just play with the camera a second. I feel a little uncomfortable with the camera not being there. Somehow I lost you now. There we go. I think. All right. You should see me. Can you hit the camera again? I want to make sure I record the whole thing and not go through this interview and lose what we’re saying. No. We might have a bad…oh. All right. It looks like I could either see you or I could see myself here, so I’m glad that I at least see you. We’ll leave it as it is then.

Siamak: Well, I’m seeing you. And it’s amazing this is supposed to be a very high tech, high speed internet office but…

Andrew: No it is. It is. It’s coming clearly. It just might be a Skype issue. All right. So you build up this pager company and then…is Babson your college that you went to?

Siamak: Yes.

Andrew: So you went there for undergrad?

Siamak: Yes.

Andrew: Okay. And is that where you met your co-founder at Grasshopper?

Siamak: I did yes. David. At school.

Andrew: What was your relationship like before you guys started the business?

Siamak: With David? I had not met him until basically my senior year in college. And when we met, a week later, we partnered up. So we didn’t have a relationship before then.

Andrew: Okay, so it was just to start a business is how you guys connected?

Siamak: It was just to start a business.

Andrew: How’d you guys know that you’d fit well together?

Siamak: We didn’t. Call it being naive back then. It wasn’t that trendy that every kid in school started their own company back then, when I was at Babson. It was kids started water bottle businesses and local food delivery services. So when we got together it was very, ‘Hey. You’re good in technology and operations. I’m good at marketing and sales. If we don’t partner up we’re going to compete so why do that? Let’s just partner up, handshake.’ A week later we started building products.

Andrew: Really?

Siamak: Yeah.

Andrew: So weren’t you afraid to partner up with somebody and give them half of the business when you didn’t know him well, when you didn’t know how you guys would deal with each other in a fight in a tough moment when you didn’t know what you guys were made of really?

Siamak: Well, I thank that’s what being naive is. You don’t really know that. Today, I would never do that. If you were like, “Hey Siamak, let’s partner up,” I do my due dilligence, make sure and see who you are. We look at your social network and have a hundred different conversations with you, but back then it was kind of a handshake. You know, and if someone gets along in the first interview, in the first meeting, and I’m not the easiest person to get along with when someone first meets me as I’m told, then it was pretty clear to us that we would work well together. And the thing about being an entrepreneur is that we take that risk and if it doesn’t work out, it doesn’t work out and you walk away. It’s not like it’s the end of the world if you fail.

Andrew: I was going to say, so did you guys think that this was going to be the huge business or did you say ‘hey we’re in school, let’s try something together. If it works, it works; if it doesn’t, doesn’t matter’?

Siamak: No, it was going to be huge from day one. We had the vision to make, and I think that’s what was important. There are so many kids whose vision is ‘let’s just get started and see what happens and have some fun with it’. No, I was finishing school and I couldn’t get a job. I could get a job but I decided not to get a job. And I can’t just not get a job and ponder with somebody and say ‘let’s just wing it’; so we made sure that we at least had the same vision of making this a huge success.

Andrew: What did making it a huge success mean? Were you guys going to become a big phone company? Were you going to become what you are today?

Siamak: Back then, being that age and starting under the brand Gotvmail as it was before we rebranded to Grasshopper a few months ago, it was a vision to be big, it was not a real ‘we want to be this kind of company’. All we knew was that, we saw all the good companies out there, and we just wanted to be a good, big brand that everyone respected.

Andrew: But, you weren’t sure what business you were going to be in?

Siamak: Well at first, it was going to be the telecommunications industry.

Andrew: No I mean, sorry. Oh I see. So you were going to be huge in the telecommunications industry but you didn’t envision yourself being a competitor to AT&T and Verizon, or being something beyond just big. It was just that fuzzy ‘I want to be big in this space’.

Siamak: Yeah it was not going to be, we weren’t going to be AT&T. We thought of ourselves as ‘We’re better than them, we’re smaller, we’re going to be much more nimble, and we’re going to target entrepreneurs.’ And I think that’s what the big corporations didn’t know how to do, which was find their niche, and then focus just on serving that niche. That’s where the disconnect was.

Andrew: What year was this?

Siamak: When we launched, we launched in 2003, January, and we went live in June.

Andrew: So, 2003, there were already systems that allowed anyone to create a voicemail, there were already systems that allowed companies to look bigger. I remember even reading The Village Voice and there’d be businesses that offered voicemail to actors that made them look like they had a whole department behind them. Weren’t there a lot of competitors back then?

Siamak: Yeah there were. There were a handful, not as many as there are today. I think the difference was, David and I, we’re entrepreneurs. We had companies. We had a need for a service like this, and nothing truly existed how we wanted it to work ourselves. And so, if you are the market that you’re filling, you kind of understand what it is that you need to build. And with a lot of feedback from fellow entrepreneurs, we developed a system, the virtual phone system, in a way that worked for entrepreneurs.

Andrew: What was different about yours from the other ones that were out there?

Siamak: Well, the functionality of it, first of all. In terms of the multiple extensions set up in a way that would forward callers to me if I want to set up a small business, make a more intelligent product, it’s not like setting up a phone system, but it’s setting up a way for my extensions, my employees, and departments. But moreso, it was the company behind the product. You know, you can have the same product in five different companies but you’re going to have to have a company that is reliable, that knows what they’re doing and understands their target audience. We knew that, so we knew how to listen to them and see what we needed built.

Andrew: Okay, and what about the business model? How much of that did you guys work out before you started?

Siamak: Not really, it was, you know, it was something that we knew what we wanted to do before we even got started, so the business model, as long as it was filling a void that we faced ourselves, as monthly reccurring revenue, that was all we cared about. We didn’t….

Andrew: So you…

Siamak: We didn’t…

Andrew: No go ahead, you go ahead, sorry.

Siamak: We had a business plan forwarded, it even won the Baston Business Plan Competition. But it was written not because we wanted to see if it was a viable business, it was written for the competition. You know, the thing with a lot of people today is they spend too much time doing research and doing group analysis and seeing if the financials make sense and everything, and we just knew that this was something that we could make successful because our gut told us that it would be, and we just started it that way.

Andrew: So, your gut told you it would be. You knew that there was a need that entrepreneurs needed some kind of system that made them look like they had a big elaborate phone system, and a big elaborate company behind the number and you knew that you wanted recurring revenue, right? You didn’t want people to just pay you once.

Siamak: Right.

Andrew: OK, beyond that, you didn’t… did you know the expenses of putting something like this together?

Siamak: Well, of course. There was the telecommunications company needs millions of dollar to get started. And we started with basically nothing. I think what that does is it trains the entrepreneur to be very entrepreneurial, in terms of getting started. I think you were the same way, you started your company with the credit card, and very creative funding. So, we did the same thing. We contacted vendors who could kind of understood our vision, versus ‘I’m a big company, I just got $50 million in receipts, let me spend $10 Million building up the network’. We built it in a, ‘if you work with us, you will be become successful as we become successful’. I think thats what allowed us to build the company.

Andrew: What kind of equipment went into building this business?

Siamak: On the tech side?

Andrew: Yeah.

Siamak: That’s a question for David. He’s the technical genius of the company.

Andrew: Can you give me just a sense…

Siamak: Boxes and servers.

Andrew: Sorry?

Siamak: Lots of boxes and servers, and IVR equipment and things I really don’t understand.

Andrew: Yeah, I was going to say. It’s not as easy as starting a website. If you wanted to create, to recreate Twitter today, it takes… you know what you need, right? Its not servers, necessarily, you can use the cloud, you know the development that goes into it, but to create a voicemail system like this, seems a lot more involved. How did David even know where to get started?

Siamak: A lot of research. The thing with David is that he had started a few companies before this, and was involved in the tech side. But then, a great thing about David is he is able learn a lot very quickly, and do a lot of research, and reads a lot. So very quickly we understood what we needed to get done, in terms of building out the infrastructure. So while he was focusing on that, I was focusing on the branding, and developing, and the marketing and everything. So the day we launched, it was, we were getting orders. On day one we were getting signups. Because we kind of worked together to make sure that it was planned out well.

Andrew: On day one you had paying customers?

Siamak: Day One.

Andrew: OK I want to come back to that in a little but, but first I want to understand that David did have experience, but experience in business, in the tech business, in tech business specifically, but he didn’t have any experience in the phone business, right? He wasn’t setting up pager companies the way you were. He wasn’t doing anything in voice mail before this. You’re telling me that he just learned it in preparation for this company.

Siamak: Correct. Yeah.

Andrew: And all the servers you guys got, its through deals with the supplier, or did you pay in cash for any of them?

Siamak: What we had to pay cash for, we did. We gathered up the funds to be able to buy the hardware and the equipment everything and software and the program. So whatever we had to pay for we did. The rest of it was very creative contracts with vendors.

Andrew: Can you give me a example of a creative contract with a vendor?

Siamak: Well one was, we have our actual product the software that we developed. in terms of the functionality, the IVR software, the systems, and everything. And that that to me, to us, we couldn’t have developed it all ourselves on day one. So, we kind of planned it out this way. We were going to start this, by building on top somebody else’s infrastructure. And so we found a good vendor who was very very helpful in working with us. We customized the solution to make it work the way we wanted it to work. We paid him based on our own growth. We knew that a few years down the line, or when we get to a certain threshold, we were going to build it ourselves with enough cash. So when we got after, I think, about two and half years of growing the business, learning what customers wanted, how they experienced how they got email servers and then, looking at all the data and trends, we then put that all into our own application.

Andrew: I see.

Siamak: So we kind of rebuilt the platform from the ground up.

Andrew: So, at first, you were pretty much reselling somebody else’s product, with your own customizations?

Siamak: Yes, exactly.

Andrew: I see, and were you paying them on a per customer basis?

Siamak: Yes.

Andrew: I see…

Siamak: Per customer basis.

Andrew: So you didn’t have to pay them if you didn’t get a customer, and when you did get a customer, you only paid them a share of the revenue that you got from that customer.

Siamak: Yes, exactly.

Andrew: I see. Alright. That’s pretty clever then.

Siamak: It was great. So rather than paying this guy a million dollars up front on day one, and then have to break even point some few years later, it was, ‘We’ll pay you as we grow, but he saw the vision, he understood where we were going to be, and so we worked, and we got our own developers and our own engineers to be able to work with the system. We weren’t just reselling someone else’s when we launched. We developed it based on what we wanted it to be.

Andrew: I see. So, there was more customization than I imagined. You’re not reselling it exactly as it is, you’re just repackaging it and you’re working with their technology and making it your own?

Siamak: Yeah, exactly.

Andrew: Okay, and why did he believe in you guys? Why did he say, “You guys are worth banking on, you guys are worth partnering up with and wasting my time on” – or not wasting my time. Why didn’t he think that he was wasting his time on you guys?

Siamak: Well, I think it was one phone conversation and one face-to-face meeting. I think it’s when you’re that young and you’re that entrepreneurial and you’re that excited and from the guy’s point of view, he had nothing to lose. What is he gonna lose? This offer’s already built. He’s not gonna be the one that’s gonna spend all the time customizing it and programming everything and there’s only upside for him.

Andrew: I see.

Siamak: We’re spending all the money on most of the hardware to make it work anyway, so…

Andrew: How much money did you spend on the hardware and everything that went into making it work?

Siamak: I think we spend about a quarter million dollars in cash.

Andrew: Where’d you guys get that?

Siamak: Ourselves. Family, savings, credit cards, all that good stuff.

Andrew: I see, I see.

Siamak: Same way how you got started.

Andrew: I got started with Bradford and Reed by returning my J.Crew clothes and bringing in money. Did you guys do anything like that?

Siamak: No, I didn’t return any clothing, but we couldn’t have. The good thing about me personally is from a very young age, my parents taught me how good credit was…

Andrew: Uh-huh.

Siamak: …how important credit was, and so I had signed up with American Express and the credit card companies, even before we got into this. So on day one, we, we went in with a nice credit line from Amex and ever since then they’ve been amazing to us and helped us grow.

Andrew: You know what, actually, somebody gave me advice, or maybe it was an article in the Wall Street Journal that I read before I graduated from college. It said, “When you’re in college, you’re more likely to get a credit card than the day you graduate.” Because when you’re in college, they assume if you can’t pay your credit cards, that your parents will pay it, and when you graduate, they have to start looking at your own personal finances. And I said, “Alright, I am going to fund a business with my credit cards once I graduate. I better apply for every frickin’ card that I can, build up that credit line, and like your parents said – my parents said the same thing to me – always watch that credit. And I made sure to always pay everything exactly on time, never late, just so that I could have good credit and leave school with a bunch of credit cards. I say that it was mostly my, my J.Crew refunds that started my business, but the truth is it was over $70,000 in debt – a lot of it, maybe 50,000, on credit cards.

Siamak: Mhmm.

Andrew: I don’t know that you and I could, that you and I could recommend that to other students who are going through school or other entrepreneurs. Others may not deal with credit the way that we do, or may not be able to go to sleep if they have that much debt, but…it worked for me and it sounds like it worked really well for you.

Siamak: Yeah, it’s just one of those things that it’s where parents become very, very helpful in kinda teaching you that at a young age. Yeah, but I, I wouldn’t recommend to anybody, like, to everyone, just to go start a company with all the credit completely used up. It has to be a calculated risk, obviously.

Andrew: I see. Alright, fair enough. And, actually, I did an interview with the founder of, who said that he grew up in a family where entrepreneurship was encouraged. Around the dinner table, people would talk about entrepreneurship. You guys have the same experience?

Siamak: Yes, my father. I’m basically reliving my father’s life as I learned recently. It’s like, I have the same – at a very young age, he had a company and employees. He’s like, very entrepreneurial. And so, I learned, basically the ins and outs of entrepreneurship from my father and my mother at the same time. So, so both of ’em very entrepreneurial. And again, when you move to a foreign country without knowing the language and giving up your entire life and making it from zero again in the U.S. And I lived through that because of their experience. I learned a lot from them.

Andrew: What was their business, or what is their business now?

Siamak: My father’s always been in, in accounting and finance. So, in Iran, accounting firm employees here, and in financial advising. So, finance, and I think that’s very important for a kid, a young kid to learn, is the ins and outs of money and management. And, you know, if I didn’t learn a lot of the values of savings and how to manage money from my father, I, we wouldn’t have been able to start a company with no money, basically.

Andrew: And you know what, and what I find is; a lot of American families don’t believe in talking about business around the dinner table, that it just shouldn’t – it’s one of those conversations you shouldn’t have with kids. But, it sounds like you benefited from it?

Siamak: Yeah, of course it wasn’t as – it wasn’t necessarily the, the ins and outs of,of the business…

Andrew: Mhmm.

Siamak: But it was kind of the values that I learned from that. So it was, you know, if we went out and I was gonna buy something, it was a question that my father asked me; “Is this the smartest decision, or should you be doing it this way, or what do you think you should be spending your money on?” Versus “You’re not allowed to buy this, or you’re not allowed to do that, or let me do it for you and spoil you.” The whole time, even when I was seven or eight years old, it was my father and my mom treating me like I was a 30-year-old adult and talking to me about financial management, and so I learned at a very young age about that.

Andrew: So what did they think when you said “Hey, I’m partnering up with this guy, David, I don’t really know him that well, but he seems like a good guy”?

Siamak: They were all for it.

Andrew: Yeah?

Siamak: I think one valuable lesson that I learned from my brother especially is when I was very young, I lost a lot of money in the stocks and by a lot of money I mean about a hundred thousand dollars I lost in the stock market.

Andrew: Oh wow, I thought you were going to say by a lot of money, a couple of thousand. How did you lose a hundred thousand?

Siamak: I did, and it was all because of Yahoo, even to this day, Yahoo is kind of screwing people over with their stock, right. And so what happened was, I expected all hell to break loose, basically expected my father to kill me, I lost one hundred thousand dollars of his money. And so he looked at me and he said, “I just hope this is a very important lesson you’ve learned, and that next time you’ll be more careful.” So when I went up to my father to ask for some of the money that we needed to get started, buying the initial servers, the initial investment, I really expected him to say “No, you’ve already lost a lot of money a few years ago for me,” but overwhelmingly, I was very impressed, he just said “Sure, you’ve learned your lesson and if you think David is a good partner, go for it, I’m all for it.” And I think that’s what really helped us get started.

Andrew: I see. Alright, so you get started, you’ve got a quarter million dollars, you’ve got a business partner, you’ve got an idea of where the business is going, and one thing that I heard, early on that helped. I’m sorry, I’m battling, if anyone is watching me and seeing all of this hesitation, I’m battling with the technology today, for some reason, Skype’s not cooperating, some days Skye is my friend, and some days I have to wrestle with Skype, I think I lost you for a second. Alright, you’re back on, not as clear, but you’re back on. We’ll make it work, the ideas here are what is important, right?

Siamak: That’s right.

Andrew: Alright, so negative cash converting cycle financing, that’s something I read in one of the articles about you, I was hoping you could explain to people what that means.

Siamak: Very simple, we didn’t spend money until we got it. So, in the first months, if our revenue was five thousand a month, I made sure I spent $4900. So what that does is, we don’t hire unless we need to, we don’t spend unless we have to and we’re very very conscious of where we spend our money.

Andrew: So why did you need a quarter million dollars then?

Siamak: Sorry, say it again?

Andrew: Why did you need a quarter million dollars then?

Siamak: Oh, that was for the infrastructure, so to get started, we had to buy some equipment. So we had to, it was just, necessary investment that we had to make, so everything after that, after the initial setup, when we are able to launch and get customers is when we kind of used that negative conversion, cash conversion cycle.

Andrew: Okay, and I promised I would get back to how you made money on day one, let’s go back to that. What did you do before day one to get yourself setup for this.

Siamak: So, imagine we knew that June was going to be our launch. And David was working with the vendors setting up the equipment, at the same time I was making sure Google AdWords was ready to go, setting up all the creatives, all the banners, all where we’re going to launch, so if it was radio advertising, so it was kind of planned out that way so that on day one when we go live, the Google ad hits, so that’s where we got our first customers from , it was AdWords. When we got a little bit more money, it was print ads, like in “Entrepreneur”, and back them, I used to love the magazine “Business 2.0”, and so, some ads there. So, in the first year, even before we launched, it was all planned out, how we were going to spend the money, month by month.

Andrew: Did you have any experience with Google AdWords before then?

Siamak: I did, yes, even for the pager company, I used to, but before Google AdWords started, it was Go2, and then Overture, and that became Yahoo Search, so I started all the way back then with that. Then with Gotvmail, using those tools as well, and when we launched, when we relaunched company into ad with our own service, you know, with our own product, basically, I had learned a lot from doing it before.

Andrew: Okay, what did you learn about it? How do you do AdWords successfully?

Siamak: Oh, today it is a lot harder, like today I wouldn’t be able to do it like I did before. Back then, no one knew really what it was, our competitors for sure didn’t really know what it was. So, it was a lot easier, a lot less noise, and much much cheaper. I could spend 25 cents a click on a keyword, a voicemail word, where today it is some ridiculous $20, and so it was much cheaper. So, I learned when there is not a lot of noise, you can make a lot more money.

Andrew: I talked to Roy Reuben, the founder of Magenta, and I think he told me that he bought an ad on Google for a quarter a click that translated into hundreds of thousands of dollars in business if not millions of dollars in business. And he said back then, you could just go in cheaply and convert like mad. So, what were your conversions? What were you paying for a new user back then when you started?

Siamak: It was on-line it was probably $15 to $25 a CPA.

Andrew: So for each customer you were paying $15, to how much?

Siamak: To $25 dollars.

Andrew: OK. And what were they paying per month?

Siamak: Anywhere from $10 to let’s see $60-$70.

Andrew: Per month?

Siamak: Per month.

Andrew: And how long were they staying with you?

Siamak: Over a year.

Andrew: Wow.

Siamak: Our customers, the average ticket is between $40-60 a month and a customer is over a year. It all depends as how as a small business they do. So if they go out of business, they can let their service drop.

Andrew: But otherwise they pretty much locked into you because you have their phone number. The number on their business cards all belongs to you.

Siamak: That is true, it belongs to us, but they can move it over. So we don’t have any long term contracts, we don’t force anything. That was one of those things that was very important to us. You yourself understand I understand how companies kind of lock customers in. We said, you know what, we are going to lock them in by the service and support and a good experience.

Andrew: So a customer could take the number that they got from you guys and move it over to Verizon on their cell phone or move it into their office if they got a more advanced system.

Siamak: Exactly, they can move it over to a competitor, Verizon, anywhere. So we locked them in quote unquote with service.

Andrew: I see, I didn’t realize that. All right, first year in business do I have this number right? Was it the first year that you had $423,000 dollars in revenue?

Siamak: That’s right.

Andrew: Wow. And all of that through Google Ads?

Siamak: Well Google Ads we started up but then it was word of mouth and then radio advertising. But a lot of word of mouth. Again because the service was new for entrepreneurs(?) to our competitors it was easy to kind of spread the word of mouth. And the Babson community was great. All the kids starting companies at Babson they used us just because we were alumni.

Andrew: I see, did you do anything to encourage word of mouth?

Siamak: Well, again through good experience, for customers making sure the support was always there to make sure that the system worked as efficiently as possible.

Andrew: But there wasn’t anything in place that would encourage it like did you give a customer a discount if they referred a friend who ended up becoming a customer? Or did you ask them to upload their address book the way a lot of people do now? Did you do anything like that?

Siamak: Well we had an affiliate program where they make money. But a true entrepreneur isn’t going to refer somebody because they are going to make $25. Right. I’ll tell everybody about Mixergy but if you tell me say Mac I’ll pay you money to refer everything, I don’t like that. I don’t like that brand. So people prefer if you asked them to just because of you asked them to if you like the service please refer your friends. Its as simple as that.

Andrew: How would you ask them?

Siamak: On phone calls, by emails, you know we hope you like the service. Tell your friends, refer a friend, etcetera.

Andrew: Ok, alright, year not year 7 but 2007 which was I think year four of the business, or year three of the business. 8.8 million dollars in revenue?

Siamak: 2006 8.8 million

Andrew: 2006, 8.8 million.

Siamak: That’s right.

Andrew: Wow. What you do that helped you grow that much so quickly?

Siamak: Again the customer experience and branding. So it was just I knew from day one how important a brand it was going to be for entrepreneurs. I think what kind of set us apart is that we were targeting entrepreneurs we weren’t saying a lot of people came up to us and said “why don’t you offer VoIP service? why don’t you sell your service to large companies?” A million different things. And we said no, our focus is on entrepreneurs one to five employees and that’s it. And I think the community caught that.

I think that by being an entrepreneur having won all those awards at Babson and after between myself and David I think the word got out there. If I’m an entrepreneur I gotta sign up with Grasshopper.

Andrew: How would you communicate that to your customers that this is the home of entrepreneurs.

Siamak: Through the brand.

Andrew: How?

Siamak: Before, the tagline was: “The entrepreneur’s phone system.” Just very very simple and specific. It was our branding, the messaging, the copy, the mascot, they were all entrepreneurs. So, we had a fun thing on our site before, it was a character; it was a guy that looked like a 1960’s drawing. His name was Gary, and Gary is an entrepreneur. Here’s a picture of him in Rio on a business meeting. You saw him in a plane flying over to Rio. It was like, we had a lot of fun with it. We had it in our messaging as well when someone called our customer support.

Andrew: I see. Were you selling them an aspirational message? That this is what all entrepreneurs want to do, which is fly to Rio and still stay connected to their business and still grow it. Or was it identifying who they were and then mirroring back to them?

Siamak: Of course it was aspirational, the whole thing was aspirational. When we switched the messaging from small business owner to simply entrepreneur, again that was one of the push backs we got. But not everyone sees himself as an entrepreneur. The local mom & pop shop doesn’t see itself as an entrepreneur, they see themselves as a small business owner. And, exactly, my response was entrepreneur is aspirational. You know, you might not be an entrepreneur, you might think of yourself as a small business owner, but in reality you’re an entrepreneur and you should aspire to that. And if you create an aspirational service, people will come to you.

Andrew: How did you know that they didn’t respond well to the word entrepreneur?

Siamak: From the feedback?

Andrew: What kind of feedback? What does your feedback loop look like?

Siamak: It was employees coming saying, “Hey, I see you guys want to change it to focus on entrepreneurs. Do you realize that not everyone sees themselves as entrepreneur?”. I would ask some people, “Hey, do you see yourself as entrepreneur or small business owner?” The people we wanted as customers, they said to me “I’m an entrepreneur”. The people who we didn’t want as a target said, “I’m a small business owner”. And if you think about it, if you’re selective as a business, who do you want your customers to be, then you’re going to get the customer base that you want, that’s going to spend more money, that’s going to have more word-of-mouth, that’s going to stay with you longer. So an entrepreneur to me is somebody who is not afraid of spending money to grow their business, who has an American Express card, who’s kind of versatile on the road. So if you’re a “small business owner” and you run a dry cleaning business and you really don’t care about expanding it or being global or just being more than just a mom & pop shop, I really don’t need you as a customer because you’re not going to grow with us. And we want to help entrepreneurs grow.

Andrew: I see. Alright, I mentioned earlier that you’re aiming for revenues right from the beginning instead of eyeballs or customers or any of the other nonsense – not nonsense – any of the other things that a lot of Internet start-ups go for. Why? Why didn’t you say to yourselves “We want to be THE destination site for entrepreneurs. We’re going to start with phone numbers, we have to find a way to get the most people on our service. Let’s give it away for free today so we can make zillions tomorrow”?

Siamak: Well, of course we said we want to be the brand for entrepreneurs. And I think that’s why we switched over to Grasshopper to make a global brand.

We want to be what Virgin is to consumers, as Grasshopper is to entrepreneurs. So of course we wanted that. But the reason why we didn’t say our strategy is not going to be just customer acquisition is because, again, we want to have a select group of people be our customers. Our big goal at the end is going to be having a million entrepreneurs as customers, right? To me that’s a lot different to having a million subscribers or a million small business owners. We want a million entrepreneurs. And entrepreneurs to me are a lot different, it’s a different breed of business owners than the rest.

Andrew: But doesn’t everything need to be free online? You’re mostly advertising in Google in the early days, mostly advertising in magazines like Business 2.0 whose readers are trying to create businesses that offer their services for free. Why did you buck the trend?

Siamak: To not offer for free? Because it costs money.

Andrew: Because you didn’t have enough money?

Siamak: No, it’s not just that. It still costs us money to run the service. So if you get a phone number and if you make phone calls, we have a cost for that. We have a cost for everything. But then I think it’s a different kind of person, it’s a different kind of market that signs up for free service that it does for paying service. I myself would not sign up for a service that is free to help my company grow, because I’m not sure who the company behind it is, I’m not sure if they’re a very smart company by giving their service away for free. So what we did is we said we have a 30 day money back guarantee. You take the risk with us, you sign up and if you don’t like it, cancel. We’ll give you all your money back. I think that’s what was different with us. We had that no-risk sign-up.

Andrew: Alright. I heard that you had a deal with FedEx in the early days. FedEx would refer you to their customers. How did you get that deal?

Siamak: By kind of looking at different companies out there and saying “Who are the companies we want to partner with?” And so, one of the ones that I loved, and because he was just a very entrepreneurial founder, was Fred Smith, with FedEx, a very entrepreneurial company. So, to compare FedEx and UPS, you see that FedEx, their energy is entrepreneurship, right? And so, it was one of the first companies we targeted, and they understood our vision as a company that supports entrepreneurship, and it was just a very easy partnership, because we both understood where we wanted to be.

Andrew: How’d you know who to call up in FedEx to make that deal? How’d you know even where to get started?

Siamak: Well, that was our VP or Biz Dev found their VP of Biz Dev and it was just a quick phone call and interview with me. And that’s all it took. They did have a partners program so it was easy to find out who to contact to be a part of their partner program.

Andrew: Really? I didn’t know that. So if somebody’s listening to us right now and they have a business that should be partnering up with FedEx, they have a partnership program, a department that’s ready to take this listener’s phone call?

Siamak: Of course, yes.

Andrew: Who knew? I didn’t know that.

Siamak: Just Google FedEx small business partners and you’ll find it.

Andrew: How’d you come up with the pricing for the business? With what you were charging your customers, I mean?

Siamak: Well, back then it was kind of we looked at what was out in the market and we looked at what we wanted for the average revenue per customer per month. And so we knew that some of our customers were going to sign up for the $10 a month plan, some were going to sign up for the $100 plan and so we priced it so that we knew that 70 or 80% of customers are going to sign up for $10 a month plan and then, as they grow their business, they’re going to grow their usage and then upgrade their plans.

Andrew: When you were getting people coming in from…let’s focus on Google again. Even though I understand that that’s not the only place you were advertising. But it’s an easy place to test different pricing. When you were advertising there did you have different landing pages with different costs? Did you have different landing pages with different offers?

Siamak: No, not different offers. Not pricing. Pricing…the way that we do it is not testing it. We saw…we put the price that we ourselves wanted to pay, that we would have paid as entrepreneurs. And then we saw what happened. And I think when we first started off it was more a la carte pricing. ‘Sign up, add this feature, add that feature. Pay this for this feature and that feature.’ And then as we started getting customers and listening to them and speaking to them, we saw that entrepreneurs they just want to get something that works and not have to worry about ups and downs and a la carte pricing and everything. So we said, ‘You know what? Let’s just go and have all the features included for a base fee.’ What that’s going to do is it’s going to reduce per customer revenue but it’s going to increase adaptability. It’s going to increase conversion because it’s such an easier service to understand. Then on our base plan we didn’t offer any included minutes. So we spoke to customers and they’re like, ‘You know what? I’m getting started up. I’m signing up for this service. I need to set up my account. I’m using minutes. It would be great to have some sort of included minutes so that I don’t feel like I’m being…I’m paying for learning how to use the system.’ So we said, ‘Our base service now is going to be 100 minutes a month.’ So we changed that way. We use a service called Buzz Agent. That’s b-z-z agent dot com. And it’s a great service to put up a product and to see what the feedback is from their agents. And they go and we got thousands of feedback and comments. Either we love it, we hated it, we love this, we hate that. And we kind of put that together, studied it and said, ‘Now what do we need to change?’ We also used; I think it’s a great service for quickly seeing if people understand your site and navigation and userability. For $30 a person.

Andrew: Thirty dollars per person who uses your site, you get their feedback?

Siamak: Yep. So imagine you just put up a site or a new landing page on Mixergy and you go on and say, ‘I want five people to look at my site and give me candid feedback about how they feel about the site.’ So you see a kind of voyeuristic look at their screen, when they’re done and they’re navigating and you can listen to what they’re saying and their feedback. And then you have to be smart enough to know what changes you should make on your site based on that feedback.

Andrew: Yeah. How do you know what to accept and what not to? If people are asking you to go one direction and… Well, how do you know…if people are going to be asking you for lots of different things how do you know what to say yes to and what to incorporate in your business.

Siamak: Well, two ways. One is, how many people are saying it? If it’s three people out of a 100,000 customers saying it, then we kind of look at that and say, ‘Could this be a bigger problem that not everyone’s saying,’ right? But if it’s not a major problem, then we just kind of discard it. But if it’s not going to go to our mission, into our brand promise, or our core values, we’re not going to incorporate it in.

The other one is, you need to understand your customer. So, if I’m watching a usability test, and I see some guy moving his mouse around and kind of being like, ‘Um, anyway,’ and then moving to the next topic, I look at that and say, ‘What was that guy doing that he couldn’t understand, even though he didn’t say it, he didn’t comment about it, but what’s the reason he was hesitating there?’

Example — so if you’re the same as your target, you understand what his problems are, and then you kind of make those changes.

Andrew: OK. We talked earlier about how the company changed its name so that it can grow. Why did you decide to change to Actually, is the company named Grasshopper or

Siamak: Grasshopper.

Andrew: Grasshopper. So why did you decide to become Grasshopper?

Siamak: Well, we launched with the brand GotVMail, and every year, David and I, I think once a quarter sat down and said, “You know what? If we just had a better name, we would have a lot more money and customers and a better brand.’ And so, we heard feedback from people. When I used to call and say, this is Siamak Taghaddos from GotVMail, I just heard dead air. ‘What? What did you say?’

No one understood my name nor the company’s name. Was it GotEMail, was it Government Mail? Got Voicemail? And then from a branding perspective, if you’reÖif someone sees an ad with a company name that most people don’t remember, you’re going to have to spend a lot more money marketing to them.

So we had to get 60-second spots, for example, on Cirrus, just to be able to spell the name for 20 seconds. So just imagine, a brand like Grasshopper, it would be a lot easier to brand the company. And we want to create a global brand, so like a Monster or a Virgin, like a Yahoo, it has to be a name that people remember and not associate with one single product. But what we stand for are entrepreneurs.

Andrew: And part of it is that you want to grow beyond just voicemail and beyond the telephone to help entrepreneurs in as many different ways as they need help.

Siamak: Correct, yes.

Andrew: Why did you decide to go that way instead of saying, ‘We want to go deeper into voicemail, maybe offer transcription services, maybe offer voicemail with transcription to companies like AT&T.’ Why did you decide to go broader instead of deeper?

Siamak: Well, we’re going to do both. Speaking of transcription, we actually just launched this. It’s coming out tomorrow. So we’re still focusing on growing that, looking at feedback, and building the voice product out. At the same time, there are lots of different voids for entrepreneurs.

We face it, a lot of different small businesses face it, and so what we did is, we started Grasshopper Labs to create those products for entrepreneurs. We just launched our first product called ‘Chargify,’ a few weeks ago, again for Web 2.0 companies to build. And so we’re going to continue growing the Grasshopper brand with products that help entrepreneurs, regardless of the industry.

Andrew: I see. All right. And for you personally, what’s next? Beyond business, what do you do?

Siamak: What I do beyond business. Well, I love to travel. I don’t think there is such a thing as beyond business for me. It’s just a part of my life, and continuing growing different products. I think, for me personally, I love brands, so I like to start different brands, not tech companies, but just branding. So, if I can continue finding voids to fill, and building solid brands behind it, I’m happy.

Andrew: Well, what about the whole idea of having a balance lifestyle, of having hobbies and interests? Doesn’t interest you?

Siamak: Oh, of course it does. For me, I love to travel. I think the best ideas that I get are from traveling, from reading.

Andrew: How much traveling do you do a year?

Siamak: A lot.

Andrew: Really.

Siamak: I can’t even count how much traveling I do. I think, what it is is, me personally, I can’t handle too much structure, so I need to have a very flexible schedule. Because one day I might wake up and say, ‘You know what? I feel like flying here, because I need to move. I need to get out and see what else is out there. So, then that day, I do that.

But if you’re in a repetitive cycle every single day, and you can’t get out and experience the world and travel, understand different cultures, and different needs, and perspectives, that to me, will kind of hinder my growth personally.

Andrew: How do you get work done while you’re traveling?

Siamak: There’s a great service called, ‘Grasshopper’

Andrew: [laughs]

Siamak: that forwards callers to me. There are so many services available today that you can work remotely. One is Grasshopper, instant message, you have employees remotely. So I think you can stay connected anywhere in the world.

Andrew: So, you’ll be sitting in a coffee shop in Paris, for example. You get your phone calls, I understand that, but you’ll do your work on your computer and you can still stay in touch and stay productive that way?

Siamak: Of course, yes. It’s very easy for me, but at the end of the day, there’s something to be said to be in the office and walking around with employees and making sure you have that one-on-one interaction. So, I think there has to a balance with that.

Andrew: OK, so Tim Ferris is right. You can travel and still run a business.

Siamak: That’s right.

Andrew: Well, thank you. Is there anything that I missed? Anything that people need to know?

Siamak: No, just congratulations, I hear you’re getting married.

Andrew: Yes! In three days, I think Sunday. I don’t know how many days away that is. I’m going a little dizzy from all this.

Siamak: Nice, nice, it should be exciting.

Andrew: Yeah, well, thank you, I’m excited about that, in fact I’m about to go get ready, try on my suit to make sure the suit fits before Sunday. First, I want to say thank you to you for coming to do this interview. I want to tell everyone who’s watching us to give us me many comments as possible and especially on the video and audio, I’m so curious to see how well that came out, with all those issues that we’re having. Is there any way for people to reach you, to say thank you to you, if they want to, directly?

Siamak: Sure, they can e-mail me directly at my initials

Andrew: All right, thank you, thanks for doing it, I look forward to everyone’s comments. And click around, make sure, there will be tons of other interviews for you.

Siamak: All right, thanks, Andrew. Take care. You bet.

Andrew: Bye

A few lessons from this program

They were ambitious

I asked Siamak he launched Grasshopper with a plan to be like AT&T. He said, “we weren’t going to be AT&T. We thought of ourselves as ‘We’re better than them, we’re smaller, we’re going to be much more nimble, and we’re going to target entrepreneurs.’ And I think that’s what the big corporations didn’t know how to do, which was find their niche, and then focus just on serving that niche.”

Instead of paying upfront, they got creative

To keep their costs low in the early days, they inspired suppliers to believe in their potential. He’s an excerpt of Siamak telling me about one of his first deals, “It was great. Rather than paying this guy a million dollars up front on day one and then having to break even point some few years later, we said, ‘We’ll pay you as we grow.’ But he saw the vision. He understood where we were going, and so we worked together.”

They focused VERY narrowly

“I think what kind of set us apart is that we were targeting entrepreneurs,” Siamak told me. “A lot of people came up to us and said ‘why don’t you offer VoIP service? Why don’t you sell your service to large companies?’ A million different things. And we said ‘No. Our focus is on entrepreneurs. One to five employee companies. And that’s it.”

They built a brand

Here’s an excerpt of Siamak’s response to my question about what kind of brand he envisioned. “Of course it was aspirational, the whole thing was aspirational. … And if you create an aspirational service, people will come to you.” He went on to explain that he specifically looked for customers who saw themselves as “entrepreneurs” and not “small business owners,” because the entrepreneurs were trying to grow their companies and he wanted his service to grow with them.

They charged their customers

I asked Siamak why Grasshopper didn’t offer its service for free, the way other web sites do. Here’s an excerpt from his response. “It still costs us money to run the service. So if you get a phone number and if you make phone calls, we have a cost for that. We have a cost for everything.”

He also said that charging makes his service MORE appealing to entrepreneurs. “I think it’s a different kind of person, it’s a different kind of market that signs up for free service than for a paying service. I, myself would not sign up for a service that is free to help my company grow, because I’m not sure who the company behind it is, I’m not sure if they’re a very smart company by giving their service away for free. So what we did is offer a 30 day money back guarantee. You take the risk with us, you sign up, and if you don’t like it, cancel. We’ll give you all your money back. I think that’s what was different with us. We had that no-risk sign-up.”

They spotted simple opportunities that others missed

I asked Siamak how Grasshopper made a deal with FedEx to get access to FedEx’s customers. I wasn’t sure how a young company would even find the right person at FedEx. His response was so simple that I can’t even find a quote that does it justice. Basically, they Googled “FedEx small business partners” and saw that the company had an office whose job was to help companies like Grasshopper partner with FedEx.

Sometimes they just “winged it”

Here’s an excerpt of Siamak talking bout how Grasshopper came up with its pricing. “We used the price that we wanted to pay, that we would have paid as entrepreneurs. And then we saw what happened.

“I think when we first started off it was more a la carte pricing. ‘Sign up, add this feature, add that feature. Pay this for this feature and that feature.’ And then as we started getting customers and listening to them and speaking to them. We saw that entrepreneurs just want to get something that works and not have to worry about ups and downs and a la carte pricing and everything.

“So we said, ‘You know what? Let’s just go and have all the features included for a base fee.'”

Full program includes

– How he travels the world for fun and works remotely. If you envision yourself building a business while traveling with your laptop and cell phone, listen to how Siamak does it.

– Why he changed his company’s name to Grasshopper from GotVMail. Listen to how the name change and the rest of the company’s brand is used to impassion his customers and you’ll see how you can grow sales by making your product stand for something.

– The influence of his family on Siamak’s business thinking. Did you grow up in a family where business was discussed at the dinner table? Listen to how being open about business can help a child grow up to become a sharp entrepreneur.

Who should we feature on Mixergy? Let us know who you think would make a great interviewee.