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Here’s your program:
Andrew: Hi everyone. It’s Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. Big question for this interview is, “How does Ryan know my hand signal?” That’s one big question. (laughter) And the second big question, how does a programmer build an online education company that does over a $1 million a year?
Ryan, the man sitting here in front of me, is the founder of Treehouse which teaches web design, web development, and IOS to everyone in the world who wants to learn. I invited him here to talk about it. Welcome Ryan.
Ryan: Thanks. It’s such an honor to be on the show. I’ve always wanted to join you. This is great.
Andrew: Thank you. I always hate interviews that start off with gushing guests and gushing interviewee and interviewers. I’ve been a huge fan of yours, I’ve been reading about you since the Naked web app, which I hope we’ll get to talk about and I’m glad you are here to do this interview.
Ryan: Thank you very much.
Andrew: You had this big conference business. You did the official Twitter conference Chirp. You did the’ Future of Web Apps. You did all these conferences, what happened to it? Before we get to Treehouse, what happened to that business?
Ryan: We sold it.
Andrew: You did!
Ryan: Yes. One thing I’m sure all your listeners want to hear about and understand is, how do you sell a business? It’s one of those things I think is in the back of every entrepreneur’s mind. You don’t talk about it all the time but it’s, kind of there. Eventually we got to the point where we had run that business and I was excited about focusing on Treehouse, I felt like it was time to put it on the market.
We did that, found a buyer and went through the acquisition process which, man, it takes forever. Everybody says it takes a year to do that, they’re right. It definitely takes a year. It almost fell apart at the very end. We had this last minute negotiation they tried to do and we ended up closing the sale.
I am currently in a one-year-earn-out. The way those work is, you get paid about 20% to 30% upfront and the rest on completion. It was exciting and I learned a lot.
Andrew: All right. I’m going to come back and ask you, I wrote a note to come back and ask you “How to sell a business” and what you learned from that process. This is now the second business that you’ve sold. The first one was the one that you blogged about very openly, when you were telling people how much revenue you were earning with DropSend. What did you call it, you called it the Bare Naked app.
Ryan: My first business that I sold was DropSend, yes. It was used to send large files. I’m comfortable saying how much we sold that for, it was $0.5 million.
Andrew: Half-a-million dollars for this app that you built in public?
Ryan: Yes. The thing to learn about that is, basically, I think I got screwed on that. The reason why is we had recurring revenue on that app, about $25,000 a month. Almost no expenses, we didn’t even have any full-time– It was just me answering the emails. Unfortunately, I got to the point where I wasn’t passionate about this problem. I didn’t want to solve the problem of sending large files, and it was either go big or sell. So we sold and I just didn’t know what I was doing back then. I should have gotten a 5x multiple on revenue, at least, or 10 on recurring revenues normal and just got nothing compared to that, but it was my first sale. It was nice for my wife and I. We built a new kitchen and put some money in the bank and it also saw the events company through some rough times cash flow wise. So that was good and I learned a bit from that and that sale happened in 2008.
Andrew: All right. Let me do this. First of all, let me suggest that you put Skype on Do Not Disturb so we don’t hear it every time somebody bounces in and out of your Skype list. Second, I’m going to come back to all of those. There’s so much that I want to ask you about and I love your openness, so I’ve got to spend as much time here as you’ll give me to ask those questions. Let’s go back to this Treehouse business and online education. Make that the focus and we’ll come back to the others. The reason that I want to make this the focus is, you’ve given up the events business, which you are known for, for this. You feel a certain passion for this, that you didn’t before. You’re seeing a certain kind of traction here that you didn’t before, right? You didn’t make as much revenue off the other business as you are off of this.
Ryan: Correct.
Andrew: So take me to that spark. What was the spark that made you say I’ve got to launch this business?
Ryan: All right. It was actually a conversation my wife and I had where we had done the events business for awhile and events they’re sort of about training, but also about connecting people and we just thought there’s so many people that can’t afford to come to our events. Future of Web Apps and Future of Web Design are very expensive and you’d have to fly to be there and we just thought what’s a better way to do teaching and how do we bring down the price. Instantly you just think about video. We realized we could definitely launch a video training service, but how should we do it? What’s involved? What I did is, I did true MVP style, minimum viable product.
I basically mocked something up in Go Mockingbird, which is a simple wire-framing tool. I wire-framed the homepage and then the typical video page. Two key pages in the app, then I tweeted and I said, “Anyone who is a web designer or a developer, can you please DM me back and I’d like to show you something.” I did this while I was on vacation in Florida and I’m sure you and all your readers and listeners understand you can never stop thinking. So I tweeted that out and got a good 10, 20 people responded. I DM’ed them the link to the Mockingbird mockup and my question was, “What is this and would you pay for it?” Immediately I got back, I think it was roughly 90% positive response, “It’s a training site, yes I would pay for it.” I thought this is good and then I went back to those people and I said, “How much would you pay for it?” We’re thinking about charging $25 a month and I think a good percentage of them said, “I’d do that.” That was my go. That’s when I knew this is somewhat of a mild business. Now we just need to figure out how much it’s going to cost to launch it.
Andrew: Let me pause right there and ask you this. What was on this mock up?
Ryan: It was kind of typical 37 Signals looking homepage. What is it? Sign up now. I think it was a guy in a video player pointing to something and it just said, “Learn Web Design and Web Development.” Because we weren’t even doing iOS in the beginning. It had some of the topics we’re going to cover. Ruby, Rails, Django, Pyton, UX, all that kind of stuff. That was the homepage and then I had the price on the homepage and then on the video page it was the product. So a big video screen, a description and that was basically it. So very simple. I’m not a designer. I have a computer science degree. I have never been a good designer, but I recognize good design. So this was pretty yucky looking wire-frame.
Andrew: So all they were saying, though, was, “Yes I would pay for online education. I would pay to learn programming.” Right?
Ryan: Yep. Yeah, but you knew that something was happening.
Andrew: It’s what?
Ryan: You just knew that something.
Andrew: How did you know? Because, to me, if I put that out there and people said, “Yes I would pay,” I would feel like they want to be nice to me. First of all, this is a pool of people who specifically want to go out of their way to be nice to me, that’s why they’re following me on Twitter. That’s why they’re offering to look at my mock up.
Ryan: Right.
Andrew: And who knows if they even have money to pay for it and if they do, why wouldn’t they go to some other service?
Ryan: Right. Now this is, I think, the key to this whole interview. Right now, I’ll share the biggest thing that I have ever learned is that relationships and doing your time in a community is the key to an overnight success. So I spent seven years doing events in the web design, web development industry. Meeting everybody, being the person who’s at the center because I was hosting the show and I knew everyone because of that. I mean, that’s how we met. I think the key there is if you want to really establish yourself as influential in a market that you want to launch a business into, do an event and do an event that is cheap that you don’t make any money on, but start to get people around you and become the connecting point.
If you do that for a year or two, then what happens is people start to gather around you and you’re onstage all the time because you’re emceeing. People immediately see you, “Oh you’re at the same level as these amazing speakers.” We have people like Mark Zuckerberg and Kevin Rose and Paul Graham on our stage and I’m jumping up there and interviewing them and talking to them and in the audience’s eyes, “Oh Ryan is equal somehow.” He’s friends with these guys. That’s kind of crazy and the truth is I was basically a shmuck who basically emailed them and said, “Hey will you speak?” and I got lucky.
After time passed, I became good friends with these people and that established me as, I guess a leader in our little niche. So that’s how when I knew I asked these people, would you pay for this? They were the right people to ask. Yes they probably had an affinity for me or something, but I was also an asset of credibility. So the key is spend time building relationships and a great way to do that is launch an event in your vertical and don’t try to make money out of the events, that’s really hard to do and it’s exciting, but don’t try to make money and then read How to Win Friends and Influence People. It’s amazing.
Andrew: Throwing an event, though, it’s a lot of work. It’s a lot of work. It takes a lot of time, just to make those connections.
Ryan: Yeah, but how valuable are they? I say, the most valuable thing I own is my contact list. Hands down it’s the amazing people I know. I think Jason Calacanis said something that I think is absolutely true and he said, “All business is personal.” There’s none of this it’s just business. No, it’s all personal. Everything that’s happened to me that’s good is because I worked hard at being a value to somebody and then offered them value back.
Andrew: All right so you tweet this thing out and people come back and say, “I’ll take a look at it.” You get 20 people to take a look at it. Some of them say that they understood what it was and some of them said they’d be willing to pay for it. Now you have an indication that there’s probably something here. What do you do next?
Ryan: So the next thing I did is I worked backwards on the cash flow to figure out, OK, how much is this going to cost to launch. It wasn’t your typical web app where all you need is a coder and designer. It was I need two teachers who are going to work full time for me and record video in a studio. I need a lot of video equipment, but this isn’t super cheap. So I worked backwards and I think it cost us about $150,000 to get the business going. What I did is I used the events business to fund that. Basically sucked all the profits out of the events company, funded it into the training product. I worked backwards. It’s going to take us about this long to get the product live and then I told the guys, and again I got really lucky with the two guys that I hired and I said, guys we’re going to try this for three months and you may not have a job at the end of this or you may. I don’t know, but we’re going to see how it goes and if we break even, just on our minimal costs, then we’ll continue.
Andrew: Right. I’m sorry. I’m going to dig in a little deeper on the cost part of this stop process, but before you tell me about the launch, tell me about where you thought you were going to get your customers. Not where they ended up coming from, but when Ryan was sitting there saying I think there’s a business here. What was going through his head about where the customers for that business would come from.
Ryan: So, we had a choice. Do we launch this as a product name on its own, or do we piggyback it on one of our current products? And we had been running a website called ThinkVitaminMembership.com since 2005 or 2006, something like that, which is a blog for web designers and developers. It’s as simple as that.
It was up to about, I think, three or four million uniques a year at the point when we wanted to launch this video training product, and I decided: you know what, a great source of customers is this blog, so let’s name it ThinkVitaminMembership. We really agonized over that. It’s kind of a weird name, but all of these people will trust it. Let’s hang it off that brand, and that’s where I believe most of our customers would come from, and indeed, they did.
Andrew: I see. Why did you have a blog? Why did you spend so much time on your blog?
Ryan: It goes back to the same reason that we did events. It’s something deep down I knew that I needed to put in the time to create a resource that was valuable. I always knew it would pay off.
The real reason why we did the blog was similar to that, but it was basically we felt we needed to stop calling in favors to sell tickets to our events. We were kind of asking speakers to tweet about it or blog about it and always begging people to talk about it. I was like, this is crazy. We need to build our own marketing channel that will be sustainable, that we own.
So, let’s launch a blog, and that’s why we launched it, but we didn’t realize how beneficial it would be in the future for launching other products. That goes back to my advice. Decide what niche you’re going to attack and then do what Brad Felt calls it marketing through thought leadership. That, I think, is the real key.
Andrew: So, hey, you figured it would be $150,000 to get it started. You were gong to hire two teachers, one full-time and one, I think you said, part-time?
Ryan: Both full-time.
Andrew: Both full-time. What were your monthly expenses going to be?
Ryan: Boy, let me do the quick math on that. It would have been about – I think I know exactly. Here, let’s see. I’ll do a quick little math here for you. Just for the teachers, we’re looking at about 13-1/2 grand. And then we add on top of that – it depends if you want to count my salary or not. See, I did the sly thing of having our events business pay my salary.
Andrew: So, let’s assume not. And your wife, who I think was also the co-founder in this business?
Ryan: Correct.
Andrew: Let’s assume her salary is also included in the other businesses you guys have.
Ryan: OK. Great. So, really it was primarily salary. We hit a clever deal of [?] on video, and we said: we’ll give you some free sponsorship for our events if you can give us free video hosting. And that would have been a good, probably $3,000 a month. So, I managed to get that for free. I would say it was only, probably about 15K roughly.
Andrew: Let’s up it to 15K. If we’re talking about $15,000, roughly all you need are 60 members who are going to pay you 25 bucks a month.
Ryan: Yep.
Andrew: That’s what you went into this thing thinking and, of course, that’s break even but also painfully break even because you can’t focus on it full-time and not get a salary. You can’t even focus on it part-time without getting some return on it. But 60 is doable, that was your thought going into it.
Ryan: Exactly. Yeah. It was the low bar I thought. If this doesn’t happen, wow, it’s a real failure.
Andrew: Why did you say recurring revenue instead of saying to yourself we’ll create one course and sell it and then another course and sell that individually?
Ryan: It’s through my pain I went through of the events business where you don’t have recurring revenue. Man, recurring revenue is just like manna from heaven. It’s just wonderful because it makes your revenue last. I don’t which way your listeners are going to view it, but it makes it go up consistently and steadily and you know where you’re going to be whereas with our events business with its wild ups and downs in cash flow and profitability. I just thought this is too stressful. I want a business that has recurring revenue.
What’s interesting a lot of our members told us that they needed that. Why can’t I just buy the course I want, like I don’t want user experience. I’m a developer. I just want Ruby. Stop making me pay you monthly. That’s the only time I’ve chosen what might have been best for the company instead of for our members.
Now, it makes sense because with Treehouse we have badges that you unlock, and as you learn you know the profile. So it makes sense to keep going. Its kind of like your charter Accountants Institute or something like that. Back then it was just video. I had to say, “Guys, it a choice we made and we want to build a community.” Not sort of a one time, hit-and-run customer experience. We want you to be involved and stay with us.
Andrew: I should say to the audience too, the company did eventually become Treehouse. That’s teamtreehouse.com, if you want to go check it out and follow along with us. I’m going to continue the narrative in chronological order but let me see where this part comes in.
I know you did an online conference with Jason Calacanis and Paul Graham and others. Did this happen after your launch or before this launch?
Ryan: It happened after. A great lesson I learned I’d like to share with your users is, don’t ever be afraid to completely change your business. When we launched ThinkVitaminMembership, which is now Treehouse, initially the offer was a bunch of online conferences that were included, a bunch of video and then a bunch of video from our events, as well.
What happened is the online conferences were very hard to get in. You were kind enough to walk me through, set me up Skype and [??] that and just a total nightmare. I think about six months ago, [??] because then I basically told all the members, the guys were scrapping on my conferences, they’re gone. I’m really sorry, they’re just not working. We are going to replace them with a master class which is just a more in-depth video.
That was scary because people were paying us money for something and I was going, “The product that you’re buying is totally changing. I’m sorry.” What I learned from that is, communication is key. I just communicated a lot about it and a lot of email, a lot of tweets. We have a Facebook group…
Andrew: What you are basically saying is “Hey, these online conferences that you thought were going to be part of the package, I’m not going to do any more of them. All the old stuff is yours to keep and watch and enjoy but don’t expect any more, it’s just going to kill me”.
Ryan: Exactly. (Chuckle) Yes.
Andrew: I want to come back and find in a moment, why that didn’t work out. I’m going to write another note for online conferences but let’s continue with this story. So now you know where your revenue is going to come from. You know where your expenses are, roughly, going to be, it’s time to launch.
How long does it take from that Florida sketch you created to launch?
Ryan: We took two months.
Andrew: Two months. What happens in those two months?
Ryan: Just busted our asses, basically. (Chuckles)
Andrew: To do what?
Ryan: You know what? Actually, my figure is totally wrong for the monthly cost because there was a one-time cost for design. What wasn’t included, design and development.
Andrew: That’s OK. I also didn’t include the cameras and I didn’t include the lighting. In fact, since you brought it up, break that down to me. One of the things that I loved about you back when you did Bare Naked app was you talked about your expenses to the penny. You even said, “Here’s how much it cost us for letterhead.”
I remember, I forget where it was, but you were on stage somewhere saying that and you also said, “I don’t know what we were thinking, that a start-up needs letterhead?”. I even, almost, remember the exact number. It was like $1,500 bucks. I dug how you remembered it. I dug how you analyzed it and how you beat yourself up in public for, basically, wasting money on it.
Do the same thing here. Where does the $150,000 go?
Ryan: The developer cost 12,500 pounds which in dollars is $20,000 [grand].
Andrew: $20,000 to develop what? What has to get developed here?
Ryan: It’s the back end, the membership engine, the sign-up process, the billing, the video engine that categorized all the video. It’s basically the web app. That was built on Ruby on Rails and I found a developer that worked remotely on that. I’ve worked remotely a lot. I’m based in the UK but my entire team is in the US now.
So it was about $20,000 grand for the development and I would say a similar cost for design, probably $25,000 grand US for the designer. You’re looking at about $55,000 grand, just to get the app designed and built. That’s paying a designer and developer for about two months of their time.
Andrew: OK, OK.
Ryan: Then, paying the video teachers to be recording this whole time because were frantically trying to get the library big enough so when we launched it wasn’t embarrassing. You know looking back, it was embarrassing and I’m just so thankful and if any of our members are watching, I’m so thankful to you guys for investing in us. Back then, paying us your hard earned cash when, really, the library was small, very simple.
That’s what they worked on for two months and I sat by the designers side, he was local to me in Bath. I mocked up every single page. Even though I’m not a designer. I believe that I’m OK at user experience. So, I marked up every page and then gave it to him and basically said it completes the design. I believe he also did he front end in HTML and CSS and then passed it over to the developer to integrate it into Rails. So, it was a crazy two months, and that’s, I think, quite a quick time.
Andrew: A friend of mine recently said to me, “Hey, they’re doing interviews like yours on TV with entrepreneurs”. And I said, “That’s great, but I’ve got a feeling they’re not like mine” because I don’t think the general population is going to be interested in the minutiae of how many dollars and pounds went into the launch of a business.
They want to know like, quickly, tell me the story and then tell me about the yacht that the guy bought afterwards or about the woman that he has on his lap in the yacht. The details like this would bore the friggin’ lights out of most people, and that’s what I love about these kinds of interviews. I appreciate you indulging me this kind of in-depth, kind of “tell me step-by-step what you did”.
Ryan: I totally love talking about it because I think every entrepreneur will want to understand: wait a minute, how much did that cost you? How long did it take you? Because otherwise it’s these vague numbers like, yeah, we spent 150 grand to get it launched. It’s like, well, what was that? So, yeah, I’ll share as much as I can.
Andrew: Let me ask you this. Why spend $20,000 on development? Why spend $20,000 on design? I know that you have a great design eye, but couldn’t you have done the same thing with WordPress and a nice theme? Couldn’t you have done the same thing with WordPress, a nice theme and some membership software?
Ryan: Yes. But I think we decided that because we had the money to invest in it, we should do it as right as we could. We wanted people to see it as a serious option. Our biggest competitor is lynda.com, and we just thought we got to take these guys on. Lynda is a $70 million business.
Andrew: Is that right?
Ryan: Yeah.
Andrew: Worth 70 or does 70 a year?
Ryan: Does 70 a year. I’m mildly comfortable [?] and I know some of that because of the Inc. I think they’re on the Inc. 5000 or 500, so they shared the revenue figures and talked to some people who used to work there, and they sort of gave me hints about what they’re at. We need to take them seriously, and also we want to teach properly.
A lot of our competitors now are launching these kind of platforms where other people do a lot of the training. I think that’s fine if that works in some cases, but in something as technical as web design and web development it’s just we feel like we need full-time teachers who are guiding members from knowing nothing to becoming advanced web designers and developers. Otherwise, they’ll be kind of this disparity of what they’re learning and the consistency of the curriculum.
Andrew: All right. What else do I want to know? How did you find the teachers? Programming is hard.
Ryan: Yeah.
Andrew: Finding guys who know programming is hard. Finding guys who can teach it is every tougher. You, by the way, are a great interviewee because you’re good at teaching things. You’re good at breaking down exactly what happened and trusting yourself that if you slow down at times that it’s going to be interesting for the audience.
It’s not an easy talent. It’s not an easy skill. How did you find the right people?
Ryan: Well, thank you, that’s kind. I got lucky. It came to our events business. The two guys that I hired actually did a show called Doctype, and Doctype was your typical online TV show where there are two guys in front of a camera. It’s funny because I tweeted out, hey, we’re looking for teachers. I’m lucky; I have something like 30,000 followers or something. So thankfully, I have enough people out there that I got a response.
These two guys have been to our event, Future Web Apps Miami, and I actually met them, and they’d never crossed my mind. I got an e-mail from one saying: that job description is kind of us. They were already packaged. They were friends. One was a designer, one was a developer, and it was almost too good to be true, but this is funny. A little peek behind the curtain.
So, I was doing this show, Cash Flow Projections, and I said to them, “So, I can afford to pay half. I can afford to pay you 3,000 bucks a month”. And they came back and said, “Oh, we really need about $6,000. I was like, “Oh, for both of you” “No, each”. And I was like, “Oh, wow. OK. Interesting.” That’s just the going rate. That’s actually on the mid-view. That’s not even high end for web designers and developers. I just had to renew the cash flow. It actually got scary. I think really pushed the events into debt. Not debt, but it really crushed our profitability, but I just had to believe that it was worth it.
Andrew: By the way, we don’t do any editing here, but we’re also not revealing exact numbers. So even though I know exactly what revenues you’re doing, I’m not saying it in the interview. We’re going with over a million dollars. The same thing for their salaries. We’re not pulling out their W2’s and giving people exact numbers, but we’re saying roughly here’s what happened. We’re talking about double his projections
Ryan: Yeah.
Andrew: By the way, a lot of people from the outside were watching your events businesses, saying that Ryan is swimming in cash, he must be on a boat somewhere and maybe it’s his wife sitting on his lap with their baby in her arms, but they were saying that you were living that life and it’s interesting to hear that what we see on the outside is not what’s going on, on the inside.
Ryan: No. I mean I might as well share it. I pay myself about $100,000 a year and it’s been like that for a long time and that’s U.S. and as a founder that’s been running the business a long time, I think that’s pretty affordable. I guess I never wanted to take too much money out of the company. I wanted to really let it succeed as best that I can. So no, not swimming in cash. I’ve been able to save some money, but I went from this thing where I used to drive a really nice car because I was foolish and young and now I drive an $800 car.
Andrew: $800 is what the car cost?
Ryan: Yeah. I paid in cash and it’s great.
Andrew: Does it have four wheels?
Ryan: It does.
Andrew: $800 bucks?
Ryan: I mean I went through this phase where, and your readers can probably somewhat relate, but I read a really amazing book called the millionaire next door and it completely changed the way I think about wealth. I just realized true wealth is not at all connected to the stuff you own. The reason why you buy that stuff is you feel insecure about who you are. I want to drive up in a pimped up Range Rover because it makes me look awesome, but actually the truth is, like I’m pretty confident in my success, so why not get a really crap car, have no monthly payments and instead pay off our mortgage faster. I’ve become comfortable with that. It’s still a little hard. I still want to drive up in a nice car and let everybody know that I’m doing OK, but I’m not doing that right now and it’s kind of fun.
Andrew: It is kind of fun to get the focus on the stuff that you really care about. It’s also fun to go the other direction at times.
[laughter]
Ryan: I can do that later, though.
Andrew: All right. So now we understand the whole thought process behind the business. We understand the money, we understand the vision. Now it’s time to launch. What happens after you launch?
Ryan: Wow, so we launched with a big blog post on Think Vitamin, because it was Think Vitamin membership and we also launched at one of my shows. So the other handy thing about doing your own events is you can launch it at your own shows and normally you charge people a lot of money to do that. We launched at Future of Web Design and immediately we broke even on a recurring basis.
Andrew: So about 60 people signed up within that first launch?
Ryan: Yeah it was just so exciting. I was like, ‘Oh my gosh, we did it.’ That was a good way to launch. I think that’s another reason to do an event. Put yourself in the middle of that. I think as a side point, and you’re starting to do this, but you’re placing yourself really well to launch a business into the entrepreneurial market. You’re doing exactly what I did, but your niche is entrepreneurs and I think you’re quite close to figuring out that exact same thing. You’ve got this amazing platform. So we did that. We launched at our own show, didn’t charge ourselves a dollar for that and it went really well. Tweeted a lot.
Andrew: Why did it go well? Why is it, Ryan, that you didn’t, or did you, get feedback from people that said, “Information wants to be free. Offer it for free and run advertising on it. Ryan, you’re doing so well with your conferences, you should be giving this stuff away. Ryan, I’m a young entrepreneur or I’m a young programmer and I can’t afford to pay, why are you charging me, you evil thief.”
Ryan: Right.
Andrew: Tell me about that.
Ryan: You just have to ignore those people. You have to believe that your product is worth paying for. I’m not a big fan of the freemium model. We always try to charge from day one. It’s amazing how many people will pay you. We just launched Treehouse and we had thousands of people sign up in the first week and all these people are paying us. These are not just visitors.
Andrew: Thousands of customers who pay you on the first week.
Ryan: Yeah. OK, well that was from the Treehouse launch which happened last week. When we launched ThinkVitaminMembership, it was probably a couple hundred, maybe. Maybe, I should have checked this, probably about a hundred that we got from that first launch period. It was enough to realize I think this is going to work.
Andrew: Nice profit, then, not even break even.
Ryan: Yeah, a little bit. Nothing that you’d feel comfortable with, but at least we knew that we weren’t going to fail.
Andrew: There’s the good and the bad with a launch. There’s good for you is that you end up with enough revenue to cover your costs. Tell me about what you learned that was bad, that said, Ryan you’ve got this part off or you misunderstood the market in this way.
Ryan: Right.
Andrew: Was there any?
Ryan: There was. I think probably the main thing that people said was why should I pay for this? If I do want to pay, I just want to buy more course. Why are you doing it like that, and it’s pretty overwhelming. That was a lot of e-mail about that, and we just had to stick to our guns, knowing that if we can make it over the recurring revenue hump, the profitability hump, then you’re set. That’s the key with every recurring business, recurring revenue business. If you just get past that hump, then you’re profitable and every dollar then you add as a dollar of profitability. And then, you’re set. You’re gold.
So, we just had to believe it was the right way to go. I could have been wrong. We could have failed. I think the problem with a lot of success stories is people make it seem like, oh, it was obvious; of course, I knew it was going to work, but I had no idea it was to work, and I was really scared about it. And it just happened to be that our bet was the right one.
Andrew: ThinkVitaminMembership and now Treehouse, both recurring revenue based businesses. In either one, was there ever a down month considering the recurring revenue model?
Ryan: Yes. We had two down months with ThinkVitaminMembership over the summer, and that freaked me out because we had been growing consistently every month, and it was the first summer that we had gone through because we had launched in August of 2010. This was kind of at the end of the summer, and then in the summer of 2011 we saw a dip and I was starting to panic, like, what’s going on?
Andrew: Dip in growth or dip in revenues?
Ryan: Dip in revenue, so dip in recurring revenue. We were at this much, and instead of growing it started to go down.
Andrew: Wow.
Ryan: This is pretty scary, like, wow. We’ve invested our whole life in this product. If this continues, we’re screwed. At the time we were working feverishly on relaunching as Treehouse at TeamTreehouse.com. It was one of two things, either it’s summertime and people cancel because why would they pay for a learning product over summer when they’re traveling or the product is flawed, or for the third, hey, they’re waiting for the launch of Treehouse because they know that it’s going to be better.
Thankfully, almost like clock work in September, it went pop! And it popped back up, and it was growing again. So, that was definitely scary.
Andrew: All right. What did you then think you needed to add afterwards? What did the market tell you that you didn’t know is what I’m trying to get at after your launch?
Ryan: Got it. The thing that we didn’t do that now we do at Treehouse is we allow people to take quizzes and co-challenges to prove what they’ve learned and then unlock badges after they’ve learned it.
For instance, we have an introduction to programming badge now. It basically teaches you nothing about programming. It’s a variable, it’s a loop. You watch the videos, and then you take a quiz to prove you’re learned it, and you unlock the badge. It really is important for people to be rewarded. It’s not hokey; it’s not like a trick. It’s definitely part of our human psyche, and we’ve unlocked 23,000 badges in the first week of Treehouse.
Andrew: Of Treehouse. ThinkVitamin, did it have any badges? No?
Ryan: No.
Andrew: How did the market tell you: we need badges?
Ryan: That’s interesting. It was one of those gut instinct things where I didn’t really hear that a lot because your customers aren’t going to tell you like, hey, if you just add this feature, it’s a silver bullet usually. Sometimes, you’ll hear the same thing over and over again; we need badges, but we didn’t hear that. I think I knew it was the thing we had to do, and we also had to guide people through the process of learning. With ThinkVitaminMembership we just said, here’s everything, learn however you want. Every topic you could possibly want to know, here you go. Whereas with Treehouse, the whole thing is tell us do you want to be a web designer, web developer, or iOS? We literally walk you through everything.
This is the order you should learn, here’s an introduction video explaining the whole landscape and now the first badge you should do is HTML and you can obviously skip that and go wherever you want to go. The next thing is once you learn it, you want to be able to show people you’ve learned it. I had a gut instinct, I think this is really important and then scary thing happened. We were about to launch Treehouse and something called Code Academy launched and this is the darling of Silicon Valley, because when it launched, it had a wonderful on-boarding process. You literally start using the product on the home page and you start unlocking badges. You know, “I unlocked the Javascript introductions badge and I’m not even paying for anything. In fact I haven’t even signed up. This is exciting.” I don’t know if people curse on this show so I won’t do that, but I was like damn.
That’s the happy version of what I said and I was freaking out because I thought they beat us to it, but the thing is they didn’t have a complete picture of OK you can start at nothing and then you can get to Javascript. So I kept charging forward and two months later we launched and thankfully it was wildly successful. So that was a entrepreneurial gut instinct.
Andrew: So that’s it. You just said that I know that they might be asking for other things. This is what I feel what we need to do and that’s what you did. Before then, after you launched and you were getting customers. All you kept doing for awhile there was just adding more topics. How did you know what topics to add? How did you know what languages to add and what not to add?
Ryan: This is the importance of being and expert in your niche. Because I was a web developer and we did conferences about web design, development, I knew exactly what we should teach and what we shouldn’t teach. So thankfully I have domain knowledge, but I will say one thing I’d like to add about your last question. Which is, how did we know we needed to add reward badges. I also knew that we were having too much churn. So churn is cancellation. Our churn was too high, it was about 12% per month.
Andrew: 12% a month. That means every month 12% of your current members go away. After 10 months, you’re pretty much at zero.
Ryan: Yep. Yeah, you’re dead in the water if you don’t grow at more than 12% a month. Right? So I thought this is too high. I talked to some of my friends. There was another web app business, and I can’t share the name, but he said their churn rate was 1% and they’re an app that’s hard to get out of so it’s different, but I thought whoa, something is wrong here. I thought a great way to keep people from churning is get them more engaged in the product and give them a reason to stick around. With building a profile that you put a lot of work into on Treehouse, you’re going to see the value of them continuing that process. It was also a gut instinct, hey we need to decrease churn. So far it’s worked amazingly well. If you have high churn on your web app, look at why people are canceling and fix that. It’s the biggest thing you can do to affect your revenue. It’s wild.
Andrew: Sure.
Ryan: If you just decrease your churn by 1%, your revenue goes up a massive amount.
Andrew: Well you told me how you knew what other courses. All right. New customers. So Think Vitamin can only get you so many customers or can it? Were you able to get more customers from Think Vitamin?
Ryan: I think at some point we would hit that ceiling. We haven’t yet, but we’re not going to change the world by just piggybacking on Think Vitamin. There was a process and I’d love to talk briefly about it. How do we decide to change our name and why did we do that?
Andrew: Let me just touch on two things and then I promise I do want to know about the name and now I’m adding that to the list, name change. But you get 60 new customers day one or 100 new customers at launch. You have to still build on it. How do you get more customers?
Ryan: Well it was all through Think Vitamin. So we put a badge at the top that said sign up for our newsletter and get 50% off your first month. All we did is use Mail Chimp for that and as soon as you entered in your email into the Think Vitamin newsletter, then the thank you page said great here’s your code, sign up now. We got a ton of sign ups from that.
Andrew: OK.
Ryan: The second thing we did was we just placed ads on our own blog. Big ad on the side, ‘Learn web design, web development,’ and then what we did is we put free videos into a lot of posts. Hey here’s a free video on Ruby. Here’s a free video on PHP.
Andrew: And those are basically sections of the bigger course?
Ryan: Right. Yeah just make this one video free, the rest you have to pay to see. We basically copied lynda.com on that. Some of the videos are free, some aren’t. That worked pretty well. The key thing to do is if you’re building a web app, make sure to build in what are called campaigns. A campaign is something you tag onto the end of the URL, so say you place an ad, you know, Teamtreehouse.com, that’s a URL you use and ?campaignid=1 or 2 or 5 or whatever and then in your app, whenever people hit that URL, you record it and when they sign up, you record it as a successful conversion on that campaign. That allows you to simply track which campaigns are working and which aren’t. Everyday I get an email that says who signed up and what campaigns they came from and it gives you this really rough idea of what campaigns are working and what ones aren’t. Our 50% off first month one works great. It just converts tons of people.
Andrew: I can imagine. I never even thought of that. That’s a great idea. I might even use that for my site, too.
Ryan: Yeah it works.
Andrew: I’m going to use a lot of what I’ve learned here. By the way, lynda.com, according to Inc Magazine, 2010 revenue is $49.9 million dollars. That’s a 250% three year growth. 2007, she did $14.3 million. I interviewed her, I believe in 2009, and she told me her revenues, but she wouldn’t, or maybe it was her profits, but she wouldn’t let me talk about it in the interview.
Ryan: Interesting
Andrew: And the reason that her revenues, I think, I knew her revenues because she split the revenues with her instructors, with some of her instructors at least.
Ryan: That’s right.
Andrew: So internally, people knew the numbers and they told me about it in preparation for the interview and we chatted and we agreed, just like you and I agreed, not to reveal the numbers at that point and then of course she stabbed me in the back and went to Inc Magazine, which is a much more prestigious publication. No, I guess it was time for her to share the numbers. So I see this is huge growth. This is the market that you’re entering.
Ryan: Yeah, no it’s super exciting. It’s clear education is being disrupted. The way people are learning is changing. There’s things like Khan Academy. Khan Academy is amazing.
Andrew: Yep.
Ryan: It was proven with Lynda that people can learn with video, but what we believe is that the way people are learning is a blend. Watching video, actually coding and building, and then taking quizzes. It’s a mix and all that can be done online. This is the first business that I feel I can be a part of that can literally change the world.
Andrew: Yeah.
Ryan: I could die and be happy I did this business as my only business because I get emails all the time now from people in 2nd world countries saying, “Oh my gosh you’re changing my life because I couldn’t afford proper education before,” and I’m so thankful for that and I get goose bumps thinking, “Wow.” It makes me want to drop the price even more and I think as soon as we get really profitable, then I will. Let’s make this as affordable as possible. We’re going to introduce a student plan at $9 a month.
Andrew: Don’t start talking about this stuff now. One of the things that I learned from Bergman, the famous PR guy, famous Hollywood PR guy, was he only lets his guys talk about one thing at a time. You can never pitch what you’re going to do in the future. You only pitch what you have right here because people can’t pay attention to two things and in your case if you tell people that you might have a discount in the future . . .
Ryan: Right.
Andrew: . . . they may not go after a Mixergy interview and go buy from you right now. Which is bad for them because they’re going to miss out on months of actually knowing the stuff and it’s bad for me because I won’t show you the power of the Mixergy audience . . .
Ryan: Right.
Andrew: . . . and how they can go over to Treehouse and sign up. Teamtreehouse.com, there we go. All right. What else did I want to know? So then you had this idea for a conference. In my mind, the conference is a great idea because now you’re bunching in Jason Calacanis, Paul Graham, you had a bunch of people.
Ryan: Yep.
Andrew: What was the problem with that? All online, all teaching, one specific topic.
Ryan: So are you talking specifically about the online conference or the physical conference?
Andrew: The online conference. What was that called?
Ryan: Yeah we called it, I can’t remember. Something.
Andrew: Like it was named after a number and each one of them was supposed to come up with that number of things. So maybe it was Jason talking about 10 ways to get traffic . . .
Ryan: Yeah.
Andrew: . . . and Paul Graham’s 10 ways, I don’t know, 10 ways to get funding or something. It was more like them giving a presentation than teaching. It was more like what you would see at a conference, but you had big names. I thought that would get you a lot of members. What happened?
Ryan: So the thing that I learned is that it’s important not to rely on outside talent. So no matter what your business is, be careful about that. With our events business, it was always about how do we get the key people on stage or with an online conference, how do we get the key people to talk and if you can’t get them there, you’ve got no business. I think what I realized is I spent a lot of my time convincing people to speak for us instead of building the business. What I need to do is I need to hire talent and put them on a permanent, full time basis and build their profiles to the point to where they’re a big name. And yes they may leave or they may not, but the point is that it’s internal talent that we’re paying full time and they’ll do what we ask.
I had exited the event business, but I had I recreated the same problem in my new business, which is relying on outside talent. We drew a hard line in the sand and said we will not get any outside teachers now. No matter what, no matter how tempting and we’re just going to have full time teachers. So that’s why we’re up to now six full time teachers who work for Treehouse.
Andrew: See, Lynda goes the other way. Actually she does both. What else, what was I going to say. Oh was it good for getting new members? Jason’s a big name; Paul Graham’s a big name. They’re the only two, for some reason, that I can remember, but I know that there were other high caliber people.
Ryan: Yep.
Andrew: But weren’t they good for drawing in people?
Ryan: They were but, you know, that kind of stuff probably isn’t as great as you might think, or your listeners might think. We’re fortunate to have Kevin Rose as an ambassador at Treehouse. He’s got 1.7 million followers on Twitter and he tweeted about Treehouse and you think that would be amazing and it is, but at the same time it’s a one time bump. It’s not something you own that you built. So that’s where building a marketing channel that you own, like a blog or full time teachers, it’s a much longer game, it’s a two to five year game, but it’s much more valuable at the end.
Andrew: So teaching is a marketing channel?
Ryan: Yes. I definitely believe what Brad Felt said about the best way to do marketing is through thought leadership. So if you want to be giving that information out from your company. Treehouse, we do a lot of let’s write about interesting things on the cutting edge, let’s teach interesting things, let’s be seen as the experts, let’s be seen as helping people. This is one reason why it’s so great to be on Mixergy is because I’m trying to help people and be a thought leader and somehow that will come back. It’s kind of a karma thing. That’s the best way to do marketing, I think.
Andrew: Damn right. You told me, maybe five years ago at this point, you said, here’s how I built this app and the idea that you would do it in public just so blew my mind, that it just said to me that there’s something new going on here and I have to look at it. It was one of the reasons I decided to go back into tech. After Bradford and Reed I said I’m so done with the Internet, I’m so done with online. I don’t even want a website anymore.
Ryan: Right.
Andrew: Then I saw what you were doing and I saw what was going on with Tech Crunch and I saw Jason Calacanis, I think at the time, just showed me there’s so much that’s going on and anyway brought me back in and I’m so excited to be here because this is where we’re really changing the world. You’re getting emails every day from people from people whose lives you’re changing. Multiply that by all the people you’re touching and the people Sal Counter is touching and it’s huge.
Ryan: I know. It really, really excites me. We are now allowing people who are in blue collar jobs or what I call underemployed. They’re working jobs they hate, to retrain and get hired for jobs that are unfilled right now. One thing that’s really exciting is we’ve partnered up with big companies like WordPress and Living Social and Bank Simple and we’re about to announce two really big ones as well. They’re going to start hiring out of Treehouse, so they’re going to grab a pool of people that have unlocked certain badges and start hiring them. So the thing that excites me about this, not only can we train you, but we’re trying to get you a real job.
Andrew: This is such a beautiful part of your business that I haven’t seen other places. I’ve been studying the education market. I almost want to do a Mixergy for education because there’s so much that is happening right now that I want to talk to the people that are making it happen and help them all share ideas and help me learn in the process. But what you do is, say learn, collect badges, and then use those badges to show your knowledge to potential employees. Use them to build a start up if you want an so on, but that part of get a job, will really get people to hustle their way through the program and not see it as the kind of thing that competes with television, but see it as the kind of thing that opens doors, that really competes with schools.
Ryan: Exactly, and it allows someone who’s in Cincinnati, who would never have a chance to work at a Silicon Valley firm, to get that chance without even having a degree. And I think degrees are great, I have a computer science degree, but man it was expensive. I probably spent forty grand, or my parents did. And most people cannot afford that, or if they do, they come out laden with debt. So, I’m so excited – if you think you are interested in web design and web development, we can get you there and potentially get you a job in six months for a hundred and fifty bucks. It’s insane – and I truly believe that.
Andrew: All right. Now I’m spending a lot of time gushing instead of going over my checklist here of things that I need to talk to you about. I want to learn and I want my audience to learn. Help us understand name changes – that’s a tough decision. Think Vitamin had already been branded, you own the domain Think Vitamin. Treehouse – you need Team Treehouse – so there’s a lot that you’re risking here, why do it?
Ryan: Well, I think I was listening to this weekends startups, and they were talking about really bad names, and I just knew – I was like standing on a wall or a painting listening to this, and I was thinking, I just know Think Vitamin membership is a terrible name. It’s hard to say, it’s got a terrible domain – it was membership.thinkvitamin.com. We didn’t have the Twitter handle, so it was awkward to tweet about. It doesn’t invoke excitement, so I just thought, this is a problem and we better switch now, because what if the business continues to grow and it was and it gets really big and we have to change later. So, I had a big long talk with my wife. I was like, we’ve got to change our name, we have to do it, and let’s tie it in with the re-launch of the product, with a badge system. And we spent ages on coming up with Treehouse. We couldn’t get Treehouse.com because the company that owns it wants a million dollars for that. And my goal is to buy that someday, but not going to happen anytime soon.
Andrew: You mean, you’re completely uninterested in it, they should just understand that Treehouse is not a very valuable name anyway, not a lot of type in traffic, your goal is to brand Team Treehouse – come on we’ve go to negotiate from here.
Ryan: Yeah, come on guys.
Andrew: No, I mean, we don’t care about this name.
Ryan: Yeah, I mean I called them up and I made the mistake of explaining, yeah, we want to buy it, we’re a business. And the guy said, listen, the founder, he gets tons of offers, he’s not going to part with it for any less than a million, and I was like oh, oh well. So, we went through a ton of – well first of all, where did Treehouse come from? I mean, it was just this big long process of using name generators with URL generators – there’s a really good one, I need to find it, and I’ll find it so you can put it in the show notes, but it checks domain names and also all of the social media handles. So it checks does anyone own that on Twitter, Facebook, etcetera. And we decided on Treehouse because it didn’t mean anything to anybody really.
There wasn’t a product that came to mind with Treehouse and it invokes good feelings of excitement and wonder, and so we went through the process of checking a couple of trademarks, there wasn’t anything major trademarked on that, and so we proceeded. Now, @Treehouse was owned by a startup that had failed – you know, the Twitter handle – so I contacted them and said we want to buy it, and we went through a negotiation process and we ended up paying two thousand dollars for that. So, I felt it was really important, if possible, to have the Twitter handle, so we got @Treehouse.
Andrew: So @Treehouse was more important to you than Treehouse.com?
Ryan: Well, we just couldn’t afford Treehouse.com, so it was kind of a triage situation, so we had a bunch of domains that we possibly liked – gotreehouse, etcetera, but we decided on Team Treehouse because it invoked a feeling of, hey we’re a team. When people join Treehouse, it’s about joining something. And you can say it pretty easily and it wasn’t confusing, and we decided on that name. And it was scary, especially because when we chose it, we didn’t realize there was a TV station in Canada called Treehouse, just for children…
Andrew: Go figure…
Ryan: Yeah, dammit, I can’t believe I missed that, especially because we have lots of Canadian customers. So that was scary, and we did that pivot, and we were profitable, we were successful. So, I think it’s important for people listening, if you know something is wrong with your business, you’ve got to change it. Your customers are more flexible than you think they are.
Andrew: It was a huge bump when you made that change?
Ryan: Yes, so we launched TeamTreehouse.com last week. Again, through hard work and networking I have good relationship with TechCrunch and was able just to email them and tell them the exact story and they were kind enough to post about it. We have really big name investors; Reid Hoffman, David [Zee] , Kevin Rose, Mark Schuster, Greylock. All [??].
Andrew: Mark Schuster, personally?
Ryan: Yes. Well, no. He’s investing through GRP. I really wanted him personally but he doesn’t do angel deals, really.
Andrew: He doesn’t what?
Ryan: He doesn’t really do angel deals.
Andrew: OK.
Ryan: We were only raising $600,000 grand US. I’ll talk about that if you want to know that. But, big name investors, got through to TechCrunch, big launch. It went better than my wildest expectations. We increased our revenue by 38% in 7 days. We increased our number of paying members by 46% in 7 days.
You know it took us a year, then you’re at 15 months and then we increased our number of members by almost 50% in 1 week. I guess that is through a mix of good coverage on launch but also a product that, thankfully, my gut instinct was right. Yes, badges are important. A good product is important.
Andrew: When you consider the process, I know Mark’s a great product guy. Did he help you think it through? Kevin Rose, of course, one of the best product guys in the business.
Ryan: Not really. I would have loved that but by the time they invested, we were three weeks from launch. By the time they all came onboard, the product was done.
Andrew: Why did you need the money?
Ryan: We were profitable and we didn’t need it. It was more about, I wanted a cash-cushion, to say, “Let’s get a little bit of cash in the bank so we can grow faster.” Also, I now I’m going to learn from these guys. I’ve never raised money. I literally didn’t know what is convertible debt? Excuse me? What’s a term sheet? I don’t know anything. Now I know all that, I’ve done it and we did that successfully.
It was almost a personal goal. I’d like to raise some money from the right people to learn about that. Also, now I have this ridiculously talented list of people that I can ask questions. And they paid me for that. I mean, it was, “What!?” The thing I’d tell your listeners is this, don’t raise money until you’re profitable, if possible. You get a much better valuation that way. We only had to give away a tiny percent of the company to get those guys involved.
Andrew: How much did you have to give away?
Ryan: They said I’m not allowed to say.
Andrew: Are you talking about over 25 or under, percent?
Ryan: Much, much less.
Andrew: Less, much less than 25%?
Ryan: A lot less. Yes.
Andrew: Oh, wait though, you did convertible debt which converts and…
Ryan: It converts at a Cap, basically, they chose evaluation, [recent] negotiated evaluation. I actually think I didn’t negotiate hard enough on that. It was my first stab at that and you’re like “OK” and I was like “Damn”. It more about, what do I think these guys own to have something of value? We did that.
Andrew: I have a whole bunch of questions here but let’s spend just a little bit more time. I know that our hour’s up but I have to take more time, if you don’t mind?
Ryan: [Ask away]
Andrew: I’m going to ask the audience if they want you back on here, to come back and tell me what they want you back on here for and hopefully we’ll get you back. Another way to support and encourage Ryan to come back is to go Team Treehouse.
All right. Any split with the teachers, ever, at any point?
Ryan: No. I’m hoping at some point we can offer options, so folks can actually own some of the company. I just don’t know when or how it’s going to happen.
Andrew: But unlike Linda, where she pays some of her teachers based on a percentage of overall views, at times how much revenue is coming in or anything like that. You don’t do anything like that? They get paid a salary, they work full-time.
Ryan: Yes. We’re not going to do that and that’s because those folks don’t work for Linda.com very much. I mean some of them do but it’s really about an out-sourced model. I’m never going to do that, ever again. That was the hardest things about events, being reliant on the outside talent.
Andrew: I think she then ends up having to have a… it’s the producer then who becomes the big talent because the producer has to guide the instructors through the process. The benefit for her, I think, I don’t know her business as well as you do. She then bring in teachers who have reputations in their space. Like, The Author of The Book on this Language, or on Photoshop or on whatever. Why give all the videos at once?
Ryan: Sorry what was that?
Andrew: No, you say what you were going to say and I’ll cross off another item.
Ryan: So one, that thing that we were really lucky with that is helping us do this, is that Wiley Publishing, you know the big multi-billion dollar company, came to us and they said they want to launch a Treehouse imprint. Which basically means in Barnes and Noble you will see Treehouse books.
Andrew: Get out.
Ryan: Yeah, no it’s crazy. It’s one of those things, like wow. They asked for a meeting and I was like what’s this going to be about? They said we love what you’re doing, we’ve heard about Treehouse, we want to do an imprint. I was like what? Really, what does that mean? They’re like, you’ll have distribution at every store in the world and Amazon. I was like, what? So the thing is that we are using our own teachers as authors for that because again it’s about building the credibility of our teachers. So you were saying when it goes to the person that has written the book, well we’re going to create that person in house.
Andrew: And then go write the book.
Ryan: Exactly.
Andrew: Why give all the videos at once? You gave the example earlier of someone who says that he wants to learn a language and he spends six months on your website learning it. He could zip through it, if he wanted to, in three weeks and be done before the month is over. Why not space it out?
Ryan: Because web design, web development, iOS, and eventually Android, those topics always change. So the trouble is you can learn Ruby or Rails, but what you’ll learn is Rails 3.0 and then Rails 3.1 will come out and there’s stuff you need to know. So it’s the one industry where it’s important that you stay up to date. We’re not doing that to tie anybody in unnecessarily, it’s the nature of the business. That’s why it pays to be a current member because we feel that we offer an editorialized view of the entire market. We choose what we think you need to know. You know, you can get distracted by a million things, but we try to pick the things that will actually matter to you and that’s the value of sticking with us, hopefully.
Andrew: All right. I think that’s all my notes on this business. On TeamTreehouse.com, but is there anything else I missed before I go back to some of the open questions we have on Naked App and selling the business?
Ryan: Not really, no. I’d love to hear from your readers what they think about it. I’m @ryancarson or @treehouse, so I’d love to hear from you guys.
Andrew: We haven’t even finished yet. I’ve got a few other questions. Selling a business. You said that you learned a lot from that process. We don’t have enough time to go through the whole process, but what are some of the big lessons that you learned about how to sell a business?
Ryan: The first one is that if you are selling your first business and you have to sell it, you won’t have a strong negotiating position. So I knew that we needed to sell the events business so I could focus on Treehouse. The events business wasn’t terribly profitable, therefore I had no negotiating power. Negotiation is very much like poker. It’s all about calling people’s bluff and I don’t think we got as good a deal as we could have. Well I know, if it wasn’t profitable and we didn’t need to sell. That’s one thing.
The second thing I learned is do your own negotiation. We had an M & A guy, a mergers and acquisitions guy help us and he found the buyer, but he also did the negotiation. I think in the future I’m going to negotiate, because there’s too many dynamics going on. The M and A guy may tell the buyer, “Ryan will do the deal if you offer this. Really, let’s get this done.” Whereas you would never do that. You would always wait to fold until it was clear that they weren’t going to fold.
Andrew: There’s actually a story in Freakonomics about how there’s disincentive for a mediator to help you increase your price because he only gets a small percentage of the overall increase, but he loses the deal, he loses his whole commission.
Ryan: Exactly that dynamic. So hire and M and A guy to help you find buyers if you need to.
Andrew: So even though you published, publicly, your numbers and you said publicly, “I’m willing to sell,” and you got people who came forward, publicly, saying, “I’m interested in buying.” Your buyer came through an M and A guy?
Ryan: Oh no, so the events business was sold.
Andrew: Oh the events business was through the M and A guy. How’d you find an M and A guy?
Ryan: Through friends. Basically I had a buddy who was the CEO of a large company and he had done some deals with this guy and he was pretty good. They ended up taking, I think it was about 80,000 pounds, or whatever that is in dollars, as a fee. So it was pretty chunky, but he did a lot of work. I mean there’s a lot of negotiation that happens. The second thing is, be prepared. The due diligence process takes forever and stuff can fall down at the very last. So I would say know your balance sheet like the back of your hand and know your P & L and understand the mechanics of your business and what turns those levers because the buyer is only buying because they think can increase your profitability and unless you know what that lever is, they’re never going to buy it.
Andrew: A lot of that business, though, is you. You are so identified with that company. How could a buyer take it over and still expect to not just maintain, but grow it after you?
Ryan: That was a lot of the negotiation. How much of this business is you? I was obviously trying to downplay it and they were trying to up-play it and that was the negotiation that almost made the whole thing fall through at the end. We had agreed on a price, agreed on a date and then they said, “By the way we want to buy Carsonified,” and what they were buying was the events business, not Carsonified, which was really me. I was like, “What?” and the whole thing almost fell through and it took a whole another month and in the end they didn’t buy Carsonified. They just bought Carson systems, which owns Future of Web Apps, Future of Web Design, Future of Mobile . . .
Andrew: Carsonified owns Think Vitamin, too? Is that the distinction?
Ryan: Yeah, so we de-merged the business. Carson Systems was events, Carsonified was Think Vitamin and now we’re moving away from Carsonified as a business name and we’re focusing just on Treehouse. I don’t want my employees to be overshadowed by me all the time. It feels like Ryan is the big name and I don’t want that. I want the team to shine, not because I’m trying to sell the business, but I think it’s unhealthy.
Andrew: And frankly it’s also happening right now. When I saw, frankly was in reference too, when I saw that Treehouse launched, I went over and I saw this guy’s video and I thought this is interesting, who’s this guy who just launched this Treehouse and I watched his whole video, it was great camera work, white background. I said I don’t know anything about him and he just launched this business that everyone’s been waiting for and it took me awhile to put two and two together for some reason and realize, ‘Oh this is what Ryan wanted to come to Mixergy and do an interview about.’
Ryan: [??]
Andrew: Ryan, why do an interview on Mixergy? I know I have developers, but how many developers are you going to get for this hour and a half that you’ve spent with me, including the pre-interview?
Ryan: Well, number one, because the show is hugely respected and I’m not just kissing your ass. I think you built an amazing thing. So it’s an honor to be on the show and it’s fun to talk about entrepreneurship. It’s one of the things you don’t get to talk about very often. So that’s one reason. Second reason. We’re aiming for the world. I’m not just interested in the little niche that is web design, web developers. I want people who are a teller at your bank to start using Treehouse to learn web design, web development because they’re not happy with their job. What’s crazy is it’s working. We had an email from a guy and he’s like, “I’m in finance and I just want to know how to build websites,” and that’s the customer that we’re looking for. So hopefully there are people that are listening to this know nothing about design and development, literally nothing. Those are the people that we’re looking for.
Andrew: All right. Let me just do a brief message and then I’m going to ask you a couple of tough questions. So far it’s been good, but light.
If you guys want to learn any more. In fact, if you want to take our relationship to the next level, go to Mixergy.com/premium and that’s Mixergy’s premium membership where you learn we actually do bring in guys like Nancy Duarte, author of Slide:ology. I invited her on, she’s teaching a course on how to create presentations and specifically how to tell stories in presentations so that people want to listen to your message and spread the word. So that’s the kind of person that comes onto Mixergy.com/premium and teaches. If you’re already a premium member, you’ve got that course. I’m almost done editing it or our guys are almost done editing it. It will be on there. If you’re not, I hope you join Mixergy.com/premium and sign up for the membership.
Ryan: Can I just speak to that?
Andrew: Yeah.
Ryan: I think what you’re doing with Mixergy premium is super valuable. There’s been many times when I was just about to sign up, but because I was so busy with Treehouse I put it off, but I’ve actually bought a lot of your courses and I haven’t watched them yet. So if anyone is listening, I think Andrew’s built something pretty amazing for entrepreneurs.
Andrew: Thanks. I wasn’t sure if you wanted to be anonymous or not or should I say it or not, but you did and I’ve got to tell you as a guy that’s followed you for so long to see your order come through we got excited. I think it even leaked out in emails to you. You saw that these guys are a little to giddy that I just signed up.
Ryan: Yep. I was like, my god this is so valuable and it’s content. I thought I got to understand that. There’s so much stuff you’re doing about marketing and measurements and landing pages and I just thought this is good stuff and I need to watch it. That’s interesting because that was a one time purchase. I think if you would have gotten me on the monthly membership, I would have paid.
Andrew: At the time we weren’t really making it clear that people could get monthly membership, and now I’m getting better at it, partially because I’m learning how to create better landing pages that explain things like that.
Ryan: Ah ha.
Andrew: All right. Here is a tough question. Let me give you a little back story. One of the reasons why your events, in my mind became so big – I remember things like Kevin Rose at Big at his height announced that he came out with – what was it – Open ID. I remember you saying, “Kevin Rose is going to make a big announcement and he did. He made this big announcement that he was going to open up his membership to Open ID which, at the time, was huge. Guys make huge announcements which it helped you and it helped them to promote their message.
I’ve got a number right here on a piece of paper with how much revenue you’re bringing in. I will not say it, but would you be willing to announce it right here to make some news and save this number to the audience. You’re going to surpass it next month anyway.
Ryan: Whew. Oh, man. That puts me on the spot. Let me think about this. What would be the point of saying that? Yeah. Yeah, I would.
Andrew: So, drum roll. Team Treehouse is now doing how much revenue?
Ryan: $1.7 million.
Andrew: $1.7 million. That is taking monthly revenue and annualizing it.
Ryan: Correct. Yeah.
Andrew: Congratulations.
Ryan: Thank you. That will actually be a lot more because we’re growing really, really fast. I’m kind of nervous about that.
Andrew: That you released it? That you’re nervous about the growth?
Ryan: Nervous about I said it.
Andrew: That means you did a great job. The guys who we respect, the guys who we admire, are the ones that push a little bit further. That’s why you and I talk so much about Jason Calacanis here because he was willing to be that open, about Kevin Rose and about others.
Ryan: Thanks.
Andrew: I appreciate you doing that, and I hope everyone who was listening appreciates that, too, and goes over to team Treehouse or talks about it. I know you’ve got employees who are developers. You want to train them. Go to teamtreehouse.com. All of the guests, by the way, are now offering a percentage of the sales that they make in these interviews, I’m not asking for it. I specifically do not want it.
I want to make sure that everyone who is listening to this, when they hear me get this excited says, “Andrew’s not getting a back end deal. Andrew’s not getting any extra revenue. Andrew really went through the process. He talked to other people, and this is a good quality product worth him getting excited about it.” That’s why I’m this excited. That and the fact that you helped me by revealing your number. Thank you.
Ryan: Don’t mention it. I’ve never told anybody that, and TechCrunch doesn’t even know that.
Andrew: Take that, TechCrunch. I don’t want to start fires or fights. Take that, Mixergy audience. Thank you all for watching. Ryan, thanks for doing this interview.
Ryan: Thanks for having me. It’s an honor.
