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Here’s the program.
Andrew Warner: Hey everyone, it’s Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. You guys know what we do here every day. I bring on a different entrepreneur or someone who’s building an incredible company to come here, to talk about how he or she did it, teach us what they’ve learned along the way so that you guys can go out there, build incredible companies and come back and do what today’s guest is doing, which is do an interview on Mixergy and teach what you’ve learned along the way.
So, today’s guest is Haroon. Here’s my camera coming right back. Hopefully, there it is. Today’s guest is Haroon Mokhtarzada. Haroon, can you please help me with the last name?
Haroon Mokhtarzada: Yeah, Mokhtarzada.
Andrew: Mokhtarzada. How did I do?
Haroon: Perfect, that’s great.
Andrew: Haroon Mokhtarzada, founder of Webs and Social Gaming Network. In 2001, he noticed that everybody had an email address and thought, well, maybe, one day everyone is going to have a website, too. So, he launched a company that became Webs, a website and creation hosting service. Today, Webs hosts millions of websites and is built on the freemium model where basic sites are free and upgrades cost a monthly fee.
In 2007, he noticed a rise of social gaming and a success of apps like Mob Wars. And he launched the Social Gaming Network, which makes games for Facebook, iPhone, iPad, and other platforms.
Welcome to Mixergy.
Haroon: Thanks. Well, one small interesting fact there. We actually started the Social Gaming Network well before Mob Wars. We were one of the first social games, and it was a game called Warbook on Facebook right after the platform launched. It was kind of just a fun project that we did, and it ended up taking off and that is what got us into it.
Andrew: Ah, I see. I thought one of your guys created Mob Wars. You guys saw how well it did, and then you started getting into the business.
Haroon: Yeah. He did that after we had started the gaming stuff. He’s a great guy, and he had left the company and did that, but that was afterwards.
Andrew: OK. So, what happened was you guys created Warbook. He then created Mob Wars. You guys had a dispute over who owned Mob Wars because he was still working for you. And employees sign contracts that say that whatever they work on belongs to the company.
Haroon: Right.
Andrew: There was this big issue. He ended up taking that app, and you guys were able to create similar apps. How did I do in that summary?
Haroon: Yeah, pretty good. And we had a really great amicable settlement with him, and so we’re good friends.
Andrew: You guys are good friends. Have you guys gotten together for a beer or for anything since then?
Haroon: Oh, yeah, yeah. Me and Dave are good friends.
Andrew: Really? All right.
Haroon: Yeah.
Andrew: And even though you sued each other?
Haroon: I guess technically. It never went to court or anything like that.
Andrew: How did you become friends? How do you breach that? How do you get back together and say, “Hey, you know what? Let’s just bury the hatchet here.”
Haroon: Well, you know, I was never not friends with him. We found out what happened. He kind of agreed that kind of everyone had a good point. And so, it was more focused around getting to something that we could agree upon in terms of a settlement.
Andrew: So, he was able to take that game completely, to go off and manage it, and you guys could create your own alternatives. But you didn’t get a piece of that huge action that he got from building that incredible app?
Haroon: I mean, the terms of everything are all confidential. So, I can’t really discuss it.
Andrew: All right. Let’s go back to how this whole thing launched.
Haroon: Sure.
Andrew: To safer ground here for us. Did you guys really launch this business with a couple of servers in a basement?
Haroon: Yeah, it was FreeWebz originally, FreeWebz with a Z.
Andrew: FreeWebz with a Z?
Haroon: With a Z. That’s how it began.
Andrew: I didn’t know that.
Haroon: The S was taken, and so we bought FreeWebz with a Z. We launched it, and what happened was there was some equipment that had . . . the dotcom bust was happening. So, expensive equipment was going on eBay for cheap. And so, we bought a couple servers, and we put it in a, actually in a closet first. It was in my brother’s apartment in a closet. We ordered a DSL line, and that was the hosting line.
Andrew: And who created the software for FreeWebz?
Haroon: I sort of did the front end, and my brother, who’s the CTO, Zeki did all the back end.
Andrew: And are you a designer?
Haroon: No.
Andrew: Is he a developer?
Haroon: I did OK. Yeah, he is an engineer.
Andrew: OK.
Haroon: I’m more of a product guy.
Andrew: What did that first version look like?
Haroon: You know, you can pull it up on Archive.org, and I think it’s still there. It was still blue, which has always been our primary color. It said FreeWebz at the top, and it had a signup. But it was definitely old school.
Andrew: What kind of features did you have in it?
Haroon: Well, what’s really funny is if you look at the home page, it’s got a plethora of features. And we probably only finished those features one or two years ago. It had like 20 different features on it that I was sort of ambitious in claiming that we were going to have. And it took a lot longer to build all of those different things, and a lot of them weren’t necessary.
But originally, the main innovation was to really simplify the process of creating a website, and we just thought GeoCities and these guys were doing a horrible time. I’ll give you an idea of one of our first innovations that I think made a big difference. As far as I know, we were the first person to do the following. When you created a new page on FreeWebz, it would add that page to the navigation bar.
As simple as that sounds, that wasn’t taken for granted by the other website creation companies. So when you added a page, you had to go and edit each of your pages, then change the nav bar on it. We sort of automated stuff like that and made it really simple to do. It took off pretty quickly.
Andrew: Who was the audience that you were going for that would make you think that they’d need these kinds of tools?
Haroon: You know, when you’re young and starting up, you don’t really know that you’re even supposed to think about that stuff. So, I’ll be honest. I gave no thought to any of that. I didn’t think of a business model. I didn’t think of an audience. I just thought, there’s a lot of people asking us to make websites for them, and that’s not going to scale. And so, let’s do something where we can provide that service for a lot more people.
Andrew: It looks like TechMadly in the audience is saying that the first website that he or she created was on a Webz.com site. So, you got a lot of people going with the Internet.
Haroon: Actually, we did, and that’s something I’m really proud of is a lot of people, even developers, engineers, people who went on to be entrepreneurs, when they were 13 or 14 they were building sites on FreeWebz. We did get them kind of started, and then they kind of graduated into coding and things like that. We have those stories all the time. There is a company. It’s called WhateverLife, and she’s been on all kinds of, like, CNN and things like that. She’s a millionaire now, but her first website was on FreeWebz. So, it is nice to hear those stories.
Andrew: Right on. So, you said you had a list of features on that first website.
Haroon: Yeah.
Andrew: What were some of the features that you had there? What were some of the features that you had and you envisioned that at some point you were going to create?
Haroon: So, a website and then be able to create web forums, and then I wanted to have discussion forums. I wanted to have stats. I wanted to have photo albums. Blogs didn’t exist back then, and I didn’t have the imagination for that. So, blogs wasn’t on that list. You know, being able to sell stuff, like eCommerce type stuff was another idea. So, those are all of the things that I’ve wanted to have within the system.
Andrew: All right. Now, how did you have a list of features on your website without being a liar to your audience? You must have had some kind of “coming soon” or something, right?
Haroon: I mean, when we launched it, the whole thing was we didn’t have any users, so I didn’t care. The footer read something like “brought to you by.” We just threw a bunch of buzz words, like B2B Broadband, BlenX, something like that, OS, every sort of buzz word that was at the time there.
So, a lot of it was just, you know, we were kind of joking, and then it ended up going live. Then, we kind of peeled it back once we started getting users.
Andrew: I see, OK. And so, which features did you have when you first launched? I’m always fascinated by what people launched with.
Haroon: When we launched, we had the website, which had templates and an editor. Then, I think, either at launch, not at launch but probably shortly after, we released Photo Albums which people liked.
Andrew: A website and an editor and people could create as many pages as they want?
Haroon: Yes. Originally, people could create as many pages as they wanted.
Andrew: Would they be able to create their own domains, or sub-domain, I mean?
Haroon: Everyone got a slash. So, FreeWebz.com/, whatever. And then, later we started getting requests for domain names, and so we worked that into the system.
Andrew: OK. And that’s one of the freemium features, right?
Haroon: Yeah. So, the way freemium came about . . .
Andrew: I meant freemium.
Haroon: Yeah. We were originally going to just do ad driven, because AdMart was huge just at that time, and then it completely collapsed. And so, there was no way we were going to get any ad network to touch us.
So, we said, “Okay, we’re going to do FreeWebz hosting with no ads.” And no one was doing that because it’s a crazy thing to do. So, that obviously helped us get users, but it also forced us to think about other models.
Then, this great service called PayPal came out that let you sort of create subscriptions. PayPal launched the subscription platform. So, you could have subscription payments. So, I was like, “Look, let’s do FTP access as sort of a faster way to upload, and let’s just charge for it.” So, you could upload single files at a time, but you could pay $6 a month, I think it was, for FTP or $6 a year, it might have been. I’m not sure.
Literally, a couple of days after we put that button there, the first email came in and said you’ve got a thing and we were just ecstatic. It’s a great moment when you get your first actual paying customer, and then they just continued to come in. It was one a day. Then, it was two a day. And we said, “Look, let’s add more services. People are buying stuff.”
That’s where we started adding different services, removed the footer, do this, do that, get more pictures in a Photo Album. And then, we created one called the Full Service Package where it’s just like everything for, you know, a little under five bucks a month.
Andrew: I heard you tell a story about what you had when you launched that FTP access. Can you tell people what you built before you launched the FTP access, before you started selling it?
Haroon: What we built, sorry? What exactly are you referring to?
Andrew: Here’s what I heard. Instead of leading into it, I’ll just say it. I heard that you just put that button up there. You said you had the service, but you didn’t really have it. You wanted to see if anyone would buy it. Then once you got orders, you manually started turning on the features for people individually, and then you built the system.
Haroon: That’s right. That’s why I was like, I’m not sure what you mean by what we had built because the answer is we didn’t build anything. I put it up there, and then I forced Zeki to build it because I was, like, look, I’ve got customers. The really funny part was the way we were provisioning was these emails would come to us from PayPal, and then we would log into the system and manually provision it.
And then, what we started doing is we just created a robot, a spider, to read these emails, parse through them, and set up the accounts based on what was in the actual text of the emails. We didn’t do the API integration or anything and that thing would just process. We were on that for years.
I mean, it would just process a couple times a day and read the emails. And the only time it broke was when PayPal changed the format of their email, and then we had to go back and fix it. But, that’s the kind of hacky stuff you do when you don’t know what you’re doing and you’re just starting up.
Andrew: How long did it take your brother to create that FTP service after you started selling it, after the first order came in, let’s say?
Haroon: He got it up pretty quickly. It was something I had talked to him beforehand. And I said, “Is this going to be doable?” And he kind of said, “Yeah, we’ll be able to do it.” So, it was probably within days.
Andrew: Oh, OK. So you just said, “Look, I have the orders. I’ve got the justification for it. This is a good direction we’re going. Let’s start building it.”
Haroon: Let’s do it.
Andrew: In retrospect, having just a couple of orders, is that enough to build a whole new product? You didn’t have more than a couple dozen?
Haroon: Yeah. I wouldn’t consider it enough to create a whole new product. This was a feature. It wasn’t like a whole new thing. It was something that I felt, based on my brother’s feedback, fairly confident that it wouldn’t be that much work to create it. And so, yeah, is it worth a couple days to tab a business model? Sure.
Andrew: Can you talk more about why you stuck with a pay version instead of finding more ways to keep the service free and adding more advertising?
Haroon: Well, yeah. We actually didn’t initially. When the advertising came back, we thought we were going back to advertising. And we got Google on our site, and we started realizing how much money that’s making because we did have a lot of traffic, and it’s good traffic. It’s not like social networking traffic because the sites are topical, and they’re about stuff. People aren’t hitting 500 pages at a time quickly. They’re kind of browsing through these sites.
So, we started making money and we said, “Let’s go after this ad model.” At the time, if you think about the MySpace era, of when marketing and ad dollars was the big thing and uniques was the big thing, we’re like, look, we had at that time probably six million U.S. uniques. It’s a pretty big property.
We built a sales team in New York. We were getting brands like Nike and Paramount Pictures and Reebok and Adidas, all kinds of people buying directly on our system at really high CPMs. So, we did go after that. We actually ignored our premium services and kind of put that on auto pilot while we were doing a lot of this stuff.
So, the real question is why did we come back to premium services? And I’ll give you two answers. The first is that to have a sales operation like that, it does generate revenue if you can sell. We had stellar people selling for us, and our revenue did kind of explode during that time.
But it’s also really costly. It’s not just costly physically and sort of the employees you need and stuff like that. What ended up happening is there was a lot of custom work that the agencies were demanding, and in order for us as a smaller property and not a MySpace to close these deals, we kind of had to offer, look, we’ll build this. We’ll do this cool thing, and we’ll do a contest and this and that.
And all of those things started taking cycles, and primarily not just sort of development costs but opportunity cost of not building and not improving the product and stuff like that. And often, even sacrificing the user experience for something that the brand is asking for. So, they want it bigger. They want everything bigger and more prominent and stuff like that. So, that was the problem. While the revenue was great, the cost was really high. And I just felt like that trade-off, it just wasn’t worth it to pursue.
The second thing is I personally believe, and I could be proven wrong and I’d love to know what your viewers think, I don’t think user-generated content is really great for advertising, especially brands. And I don’t think it’s going to be, really. Even if you look at YouTube, monetization on the user-generated stuff is not great and if you look at websites that are being created.
So, where it is good is if you’re a blog and you could consider that user-generated content, I think of that more as professional premium content. If you’re a blog and you’re talking about a subject, you’ve got thousands of viewers or tens of thousands of viewers even, or hundreds, that’s a very targeted thing that a brand can say, “I know what’s on this site and I’m going to be on it.”
But, if you say to a brand, “Look, I’ve got a million sites. They’re about all kinds of stuff.” And even if you categorize it, they don’t want to be involved in that. And so, you’re going to be stuck with remnant ads. And so, I don’t think UGC businesses are the right businesses to go after ads, personally.
Andrew: It’s interesting. When you give away the free sites to people who are just getting into the system, how do you monetize that?
Haroon: Well, we do still have ads on that. It does make a portion of our revenue, although a minority of it. But the ads are almost an additional reason for the user to upgrade. That’s the way we look at it is it’s kind of something else. We’re putting this here. Basically, we cover the bandwidth costs of your site and stuff like that. But it’s kind of one more reason to upgrade.
Andrew: I see, okay. You mentioned earlier that it was good to have a business model and convert people into paid services. What I was wondering was how did you get the first users that you then converted to paid?
Haroon: So, that’s another funny story. We had built this system or I should say we were 70 to 80 percent done with it, and we saw users start joining the site. And we were, like, “What just happened. Where are these people coming from?” And it was like a trickle.
And then, my younger brother, who was 14 at the time, who was actually helping us build the core editor, he kind of was smiling. I said, “What?” And he said, “Well, I kind of listed us on this site called Dmaz.org. And Dmaz was the directory that Google was using to populate its search results initially. And so, basically, we just got into Google before we were ready, and the users started coming in. And it kind of forced us to scramble and try to tie up the loose ends. So, that was it.
And then, what I did was I just went to all of the directories. There’s a lot of them for free for web hosting or free web hosting or website building, and I just started adding our listing to them. I just added it across kind of the whole Web manually and probably submitted ourselves to a hundred or so directories.
And that brought in sort of the initial base. We were doing the tech support, which I think is really useful for founders to do. You’ve got to talk to the customers yourself, and they gave us some really great early feedback that helped determine the direction of the product long-term.
The second, sorry, one more thing is these sites had a footer at the bottom that said, “Get a free website at FreeWebz.” And so, once you got these users in, there was sort of a viral mechanism where people would see those sites and then build their own.
Andrew: How did you get feedback from users?
Haroon: It was just through the support channels. So, we had the customers submit their stuff. They would email us, and we would email them back.
Andrew: That initial base, I did a little bit of reading in preparation for this interview, and it sounded like it wasn’t hundreds of people or thousands of people, it was dozens of people who came in.
Haroon: Yeah.
Andrew: Was dozens of people enough to be a foundation for a business?
Haroon: I don’t know if I’d call it a foundation for a business. It was enough to tell us what were the blatant problems with the product, and that’s what you want to do with your initial bid to the customers is to iron out big problems. You’re not going to get to product perfect, product market fit and that kind of stuff on dozens of users.
You probably need more for that. But you do need some early users just to get in there and tell you about major problems. Like, I clicked this button and nothing happened. Or why is this page limited in this way? I want to be able to do this with it. So, we got some key insights from them.
Andrew OK. So then, once you got the key insight and you had the initial user base, how did you grow it from there? What was the next big leap?
Haroon: You know, there wasn’t a next big leap. It was organic from then on out. We didn’t spend money marketing, and not all businesses are like this. But, freemium businesses are often like this, because there is such a low barrier to entry. And we were offering a lot for free that it turned out that there was a lot of demand for free websites.
Also, some of our competitors stopped offering free websites. So, Homestead was a big competitor, and they basically shut down free and went to free trial only. And so, there was a bunch of people who suddenly wanted to get to it. X10 was another one, I think, it was called. Not X10, that’s a camera company. There’s something with an X in it, and it was like two letters or something like that. And that was another one that kind of went under. GeoCities didn’t innovate
And so, really the growth rate just slowly grew, which is great because that means your second derivative is positive, you’re exponential. So, we were growing exponentially. But it was a slow, long kind of haul. It wasn’t like we were slowly growing, and then one day we were suddenly getting a thousand users. It was like we were getting 30 users a day, then 40, then 60, then 80, then 100. And then 150, then 300, over time, over years that gets now to the 20,000 to 25,000 a day range.
Andrew: So, why did you stick with it if it was doing that and it was such a long haul? What kept you going?
Haroon: Huh, that’s a good question. Well, you know, the revenue was growing every month. It was bigger than the last, and to me that was enough. And you have to understand, as a student, when you’re just out of college or you’re a student, making even a thousand dollars a month on something you’ve launched is a milestone. It feels really good.
My life goal was always to be sort of independent of having to have a boss. I’m just a kind of born entrepreneur in that I’ve never enjoyed having a boss. And so, anything that got me anywhere close to that was where my passion lied. And so, I just kind of saw the trajectory and said, “If it just keeps going, it’s a 1,000 now. It’s going to be 5,000. Then, it’s going to be 10. Then, it’s going to be this, and then it’s just going to keep growing. And if you extrapolate and go out over time, it starts looking like interesting business.”
Now, did we think it was ever going to get this big? Absolutely not. But we would have been happy, actually, with a business that was . . . let’s say it was profiting $20,000 a month and giving me and my brother each $10,000 a month that we could take for ourselves. I would have been happy with that at the time. I wasn’t trying to become like a billionaire or anything like that.
Andrew: With the idea, though, that you would use that freedom to create the business that would make you into a billionaire or something like that, to use your words.
Haroon: Well, my real passion is actually in non-profit work and kind of solving big problems in scale the way it’s using technology. And so, financial freedom to me is not about making billions. It’s about being financially free to then go and do those types of enterprises. But, yeah, that wouldn’t have been enough for me to do that. That would have been enough to create the next thing that would have given me enough money to then go and do this non-profit.
Andrew: As I was reading about you, what I kept seeing was started a lemonade stand, did magic shows for money, apparently, that you were the entrepreneurial kid who had that in you.
Haroon: Yeah, that’s right. Yeah.
Andrew: So, how does that square with the need to just have enough to not have a boss?
Haroon: Well, I think at the core, entrepreneurship is the desire not to have a boss. That’s one of the things that drives it is I don’t want to have a boss. But, the second thing is I want to retire, where retire doesn’t mean I don’t want to work. It means I don’t want to be forced to work.
So, the $10,000 a month thing, the idea is you could put that in auto pilot. You could hire someone to manage that. It’s called a lifestyle business, right? You could hire someone to manage it, put it in auto pilot and not work on it at all. And then, you have freedom to go and work on other stuff. And that’s kind of why I think that would be interesting.
Andrew: So, at what point did you know that this was going to be more than just an auto pilot business? This was going to be a business with enough potential that you should focus your life on it.
Haroon: So, that was probably some time while I was at law school, probably midway through law school. We had millions of users at that point. It had grown from hundreds of thousands to now several million, and it was starting to generate some serious revenue to the point that it could actually start paying us a meaningful salary. And, literally, before that, we didn’t take a dime for ourselves. It would all just go back into the business and the costs and everything else.
And I was faced with a decision which is, look, go and become a lawyer, and I got some really great offers from firms, or go and do this full time. What I came to realize is that I’m not going to shut this thing down, and it’s taking more and more of my time. And it’s going to be able to pay me and pretty soon probably pay me as much as that law firm might have paid me, at least, as the starting salary did, maybe, if it grew a little more.
And so, I called my brother and I said, “You know what? I think we should go all in here.” And he agreed, and so he quit his job and I graduated and didn’t take the bar. And we just went all in.
Andrew: Wow. And was there any point there afterwards where you said, “What did I do? This could be a mistake. I’m worried for my future.”
Haroon: You know, fortunately, no because we were getting a salary, and I hated the idea of working in a law firm. I did a summer, and it was a wonderful firm, but I did not enjoy it. My passion wasn’t there.
Andrew: Why do so many people who go to law school don’t want to be lawyers?
Haroon: For me, it was that as a lawyer there’s nothing scalable about it. You’re working on one case at one time, often for months, and then you get a new case. You’re just doing things one up and nothing builds up. It’s not like work you’ve done here built up to this other work, and now you can service 10 clients and 50 clients and 1,000 clients. Ten years later, you’re still servicing one client at a time.
To me, that’s was what was not interesting about it. And then, they work you really, really, really hard. They expect a lot out of you, which mostly you don’t feel like that work is for yourself. And so, it’s just not as rewarding. You’re billing on hours, and the firm is taking a rider on your hours, and that’s the way it works. I think, maybe, once you get to partner, it might be a little more rewarding because you’re kind of taking some of the pot. But that’s a long haul and it’s a lot of work.
Andrew: So, if it was producing profit on a regular basis, why did you take money in, let’s see what year it was. Was it 2007 you guys took, I think, a little over $10 million?
Haroon: It’s 2006, actually. That’s an absolutely great question to ask, and there’s many things to say about this that entrepreneurs need to understand.
Andrew: Let’s see if the video doesn’t come back and we lost the connection, I’ll just call him right back, and unfortunately Joe will have a little bit more work to do to edit it. Oh, there we go. Sorry. So, you were just saying that’s a great question, and we lost you.
Haroon: I think it’s absolutely a great question. So, I think if I knew everything now, would I still do it again? Probably. That’s the first thing to ask. Would I do it again? Yes. But, mostly because of how much I’ve learned as a result of this whole process. I’ve really matured in sort of understanding how you grow a business. It’s not like an at home [29:37].
Why do it at the time? So, what happened was we were actually looking at opportunities to maybe try to sell the company in ’06. And so, we started talking to people. We said, “Yeah, if we could get just a little bit of money for this thing, and then go on off and do our next thing, let’s do that.”
Well, one of our advisors, his name is Bobby Yazdani, who sits on our board now and was our first board member. He said, “Look, I’ve seen a lot of different web companies that pitch me.” He’s an angel investor and stuff. And he said, “None of them have anywhere near the type of scale you have. You think it’s so easy to just create a company with this type of scale, but it’s not. This is the number one hardest problem, and you guys have already solved that. I would not sell this business. This isn’t the one you want to sell early. If it was something else, I’d say yeah. It’s the technology. I’d say, sell it early and do something else. This one, I would double down on.”
And so, it was really that conversation that got us thinking, like, yeah, okay, maybe there’s more here.
Andrew: In a situation like that, you’re also taking a little money off the table in addition to getting money that you can use to double down, right?
Haroon: It depends on the investor. I mean, usually if you’re taking money as a founder and it’s a first round, they don’t tend to let you take money off the table. If they do, it’s a very small amount. Now, would I recommend that founders do it? If they think it’s not going to turn off investors, probably just because it gets rid of some of the fear, I guess, of did I just screw up everything because you’ve gotten something for it.
Usually, investors will only do that if you’re generating revenue and you’ve got a profitable company and stuff like that. It’s not anything that you can retire on. It’s just kind of like, okay, I have a little bit of cushion, maybe to start up a new thing.
Andrew: I’m seeing that happen more and more that entrepreneurs who have profitable businesses will suddenly announce that they’ve raised money, and people say, “Why? What are they planning to do?” And I’ll have a private conversation with them where they’ll say, “Between you and me, I wanted to take a little bit for myself. I don’t want the world to know that I’m pocketing some cash because I want them to see that I’m still hungry and as invested. But I want a little security.” Now, you did that, too, right? You and your brother?
Haroon: We don’t discuss it. But if we did, it would have been a small amount.
Andrew: Okay. Fair enough. So, how did it help you rethink the business?
Haroon: How did the funding help us rethink it?
Andrew: Yeah. You said you learned a lot through the process. I’m wondering, how did it influence what you did? Do you have specific examples, maybe one?
Haroon: Yeah, absolutely. I’ll tell you the main way it changes the business. Once you have venture money in, they are looking for a venture return. It took me a lot of time to understand what that really meant. A venture return means they’re looking for a 10X or more on their money. We were growing, let’s say, 30 to 50 percent a year. You’re growing 30 to 50 percent a year. That is a great business to have by anyone’s measure, but it’s not really a venture opportunity. A venture opportunity is when you just scale like a Facebook or something like that.
And the way venture firms work is they invest in a lot of companies and a bunch die. And then a couple of them explode, and that’s where they make their money. So, what happens when you take money is the pressure is to stop making incremental decisions and start deploying your resources towards stuff that could be a big opportunity.
The problem with that is often those things are a complete waste of time and were wrong for the business. So, you are doing all of these things that are like a 10 percent chance that it’s a win, and you’re making all these bets and spending money on those bets, even if you don’t necessarily fully believe in them because they’re the only major opportunity.
And the stuff that would come naturally to a product person, let’s tweak the signup flow. Let’s do this and let’s do that are incremental changes that don’t really generate a venture opportunity necessarily. So, I think that’s the biggest way it changes things.
The second thing is there’s an expectation that you hire executives. And that was really new for me, and I think would be new to most people is you suddenly have all of these other people with all this experience coming in. And you don’t know whether to just listen to everything they say because they’ve got a lot of experience or to continue with your own intuition or what to do.
What I would tell people now, looking back, is you have to continue, you have to be the CEO. You have to trust yourself, no matter how much experience someone else has. If they can’t justify why they want to do something to you and you don’t believe in it, you can’t just let them do it just because they have more experience than you.
Andrew: You said that you pursue ideas that have a small chance of having a big result. Do you have an example of an idea that you pursued that just flopped, that you said this has a small chance and it didn’t go anywhere. And then I’ll ask about one that had a big hit.
Haroon: Well, I do think going after the advertising, for example, it had a big opportunity associated with it. You’d have a media business. It would have been tens of millions of dollars if it had worked, but again it was a long shot in terms of creating a sustainable business on that. And we went after it and we spent a good deal of money on it. It ended up, I wouldn’t say it was a complete flop, but it ended up not being what we thought was the right long-term decision.
Andrew: What about one that did work out?
Haroon: One that did work out. After the ad thing, we made a decision to pivot completely to premium services, and that worked out really well because we were able to cut down staff because we didn’t need all the support around ads. And we were growing our revenue at bookings at the same time. So, it actually took us cash flow positive within a few months of making that decision, and that was tremendous, I think.
I think another example was SGN, which had nothing to do with what we were doing here. But we saw the opportunity right in front of us, based on how fast Warbook grew. And then, we launched a second game called Street Race, which also grew really quickly. And we knew it was the right opportunity. And just that small sort of “let’s focus on this quickly,” within a few months we raised $15 million for that business from Greylock and Founders Fund. So that was, again, I think taking a bet and it being successful.
Andrew: For the transcribers, that was 1-5, $15 million. 2007 is when you did that, when you launched it.
It seems so different from your main business, that it’s almost a side project that an unfunded company with a lot of spare time can pursue. It doesn’t seem like something that fits in with the rest of the business. Why did you get into that at all?
Haroon: So, accidentally. We wanted our developers to learn about the Facebook platform. So, we had a Facebook GM day where every developer had to develop an app. One of our developers decided to make a game, and we all thought he was really stupid. But it turned out to be brilliant, and he ended up taking two weeks, not one day on it. But literally, the day it launched, it just took off. It really, really took off.
We had a board meeting shortly after that, and we just said, “Look, this game is now generating half the page views of all of Webz combined. That’s how quickly it had taken off. Now, were those pages view worth that much? No, because there’s a lot of clicking. But still, that was just unbelievable to see. And the board themselves said, “Look, we understand this has nothing to do with what we’re doing, but this is a big opportunity. Spend a little more resources on it.”
So, we did and we replicated it. And then, you were right. It has nothing to do with it. So we made the strategic decision to completely spin it off into a separate company. We said it belongs in the Bay Area. We moved it to the Bay Area, and Shervin, who was the president here at the time, went and became the CEO there. And then, I stayed here to kind of take Webz to its conclusion.
Andrew: Why did you want your developers to learn about the Facebook platform?
Haroon: You know, it’s good for developers to keep up on major trends like that. We knew that the Facebook platform was a really big thing. So, we sent some developers to F8, and then they came back and trained the other guys. It ended up paying off hugely, because as a result we launched our own platform, and we were able to base a lot of it off of the Facebook platform. It would have been difficult to do if our developers hadn’t all been involved in sort of creating Facebook applications.
Andrew: How’s your platform going?
Haroon: It’s going great. We now have over 20 applications in the system and, at least, another dozen being developed by third parties. It’s just been tremendous. We have a lot of small business customers. That’s really the customers that we want to serve the most is kind of small business guys for many reasons, and one of them being that they convert pretty well.
If you have a new company or a new product and you want to get to an audience, that is the most difficult part, especially if you want to get to someone who has a website or someone who’s got a small business. And so, being able to have a test bed, a playground where you can take an app, launch it and get it in front of hundreds of thousands and millions of users. Let them install it. Get feedback from them. Have a baked in subscription payment system so you don’t even have to handle payments or anything. It’s a huge win for these guys.
We’re seeing both large companies, like Constant Contact, showing interest, who wants access to our channels and CafePress and also startups saying, “I’ve got this new thing. I need to get it in front of users. Marketing is really expensive when you’re a startup, and so I’m going to put it in here and all the marketing is free.” And it’s just been great for them.
Andrew: Do you have an example of one of the small app makers who’s doing well, a guy who had a small business who was able to grow?
Haroon: Yeah. There’s a company called Buzzworthy. It’s done a great job of using us in that manner, and they’ve done . . .
Andrew: What’s Buzzworthy?
Haroon: What it does is it lets you put in topics, and it pulls in sort of what the buzz is on those topics, from the Twitter sphere and the real-time Web. So, if you have a site about something, let’s say you have a site about plumbing or something like that, and you want fresh content on your site. You don’t want to just have static content. You can install this app. It adds a page that is all about the topics that you care about, and it just automatically populates itself.
And so, the point is to get more people interested, to get Google seeing that your site is getting updated and things like that. They’ve gone through multiple revs as they’ve gotten feedback on what especially the business users are finding useful for them and running surveys against those users and seeing how much they’d pay for it. And now, they’re going to be rolling it out their premium plans on the platform and all that stuff.
Andrew: Why did Ning fail?
Haroon: I don’t know if it has failed yet
Andrew: The free version failed. They had to scale back tremendously. This isn’t a small pivot. This is a huge change. These are the guys who had backing by one of the pioneers of the Internet. They had tens of millions of dollars in the bank. They were offering free social networks to everyone with an upgrade to paid versions where there wouldn’t be any ads, where you could get your own domain. Very similar to what you were doing, but almost a Web 2.0 version. Why didn’t it work?
Haroon: Here’s what I think about that. What I think Ning realized is they were getting two groups of users. They were getting all of these casual signups that either failed, they created a network that didn’t do anything, because it’s kind of a high bar to actually create a whole social network yourself. But they were getting people doing that and using it casually.
And then, they got this other group who was using it professionally. For example, let’s say there’s a site out there, like NPR Radio. They need a community for their website. They would create a Ning site and link over to that and immediately flood it with traffic. It would populate. It would be alive and well and everything like that.
The product and the features that those two groups of people need are very different, and that’s why I think they pivoted is they realize that the money is going to come from the professional, larger clients and organizations and all of these things that are going to use them. In order to focus on that, you can’t kind of do everything. And so, they needed to focus on those features, that set of users, and I think they realized that the other users actually just weren’t useful.
Normally, the reason why you keep free users around is because their lead generation, they’re your marketing angle for everything else. So, we’ve got all these free users, people see those sites and they come in and then some of those convert to premium. But Ning had these two different categories of users.
So, these casual users are not going to drive NPR to go and use Ning. They’re just going to drive other free casual users. And so, once they realized we’ve got to go after these higher end users and these free guys aren’t really driving higher end users to us, then we don’t need the free at all any more. That is what I think happened.
And so, now they have a lot more focus. They know who they’re going after. They know what products and services they need to build for those people. Will it become a billion dollar opportunity, which is what the valuation demands of them? I don’t know. Can they get cash flow positive on that? Maybe.
Andrew: What do you think of Posterous, quick blogging via email? They seem to be right. Did they try to get your users to switch to Posterous?
Haroon: We haven’t seen anything like that, because we’re not as focused on just blogging. I think Posterous and Tumblr are going to have to go at each other a little bit. I like it. I think the innovation of saying, look, you don’t even have to create an account, just email us and start. Everyone uses email in sort of leveraging that. I think it’s smart.
So, I like it. I don’t really get necessarily what the long-term business strategy behind it is. But they’re really good about getting new users to sign up and get in and it being brilliantly easy to use. I think Tumblr is the same. I have a lot of respect for Tumblr as a product. I think everyone has something to learn from both of their signup funnels. If I was advising someone, I would say, “Study the two of those.”
Andrew: Funnels? I see that you’ve got an interest in funnels. In fact, I checked out your Twitter in preparation for this interview. You had just one list on Twitter and just one person on that one list, and that was KISSMetrics, which was into funnels. And it was an ambitious list. You were going to collect all of the people who were into funnel and data into a list. KISSMetrics is who you ended up with. But it made me wonder, what’s the fascination with this, with funnels, with conversions?
Haroon: In a freemium model, the first-time user experience is where I would say 90 percent of your leverage is. And that means getting a user, not just signing up but getting him to a point where he has experienced something gratifying. And that, getting someone to a gratifying experience as quickly as possible, within the first-time experience, is pretty much all that matters before you scale. And the way you do that is by funnel analysis.
So, you set up a funnel with something like KISSMetrics or MixPanel or Google Analytics, you can do it now, or Coremetrics. There are several of them. And then, you make modifications and you test those modifications and you try to improve that first-time experience.
Andrew: Do you have an example of something you’ve learned as you’ve gone through this so many times over the years?
Haroon: Yeah. One really important thing is that a funnel that increases the amount of people who sign up is not necessarily the best funnel. You’ve got to be very careful about what metric you’re actually looking at for your success metric. Your success metric could be signups. It could be, let’s say in the Webz example, that they publish their page, or it could be they actually bought premium services. And each of those, you could have different results.
So, with Webz, the question for us was how much should we collect right at the time of signup and pre-populate their site with versus should we just let them sign up and then dump them into the site builder. Obviously, if you just have a very simple signup, you’re going to get more people in, but then they’re entering a more daunting experience because they’re in this site builder.
And so, we found out that if you put more questions in the signup, it’s true you get less signups, but those people that are dropping off weren’t probably going to be, they didn’t matter anyway. They weren’t serious users, and so all you’re doing is you’re weeding out fickle users.
And so, we looked beyond the signup metric to things like, what happened two weeks later to these guys when you look at their premium subscriptions or what happened a week later when you look at their log-in experience. How many times did they log in, or did they return? Did they log in a second or third time? And so, you’ve got to look beyond just the signup. I think that’s a really important thing.
Andrew: You know, that’s interesting because before I did this interview, I went and took a look at your registration form, and it wasn’t the dead easy, give me your name and email address and password, maybe, and we’ll deal with the rest later. It was a long form, and I thought, well, I’d like to meet this guy to see if he’s someone who just hasn’t touched his registration form in a long time so it’s out of date. Or is there a method to it, and now I see the method. What system do you use to keep track of your funnel?
Haroon: I think I’ve lost you.
Andrew: There we go. I was asking what system do you use to keep track of your funnel? Is it MixPanel? Is it KISSMetrics? What do you recommend people use?
Haroon: What do we use to do the testing?
Andrew: Yeah.
Haroon: So, we started with Coremetrics. For external pages, for example, we use Google Website Optimizer. But we ended up having to build our own internal system because we couldn’t find something that did what we wanted, which was track a user who has seen a certain flow over a long period of time. Not did he click this button or that button, but did he purchase premium services two weeks from now?
And so, we needed something in our own database that said, this guy here who bought these services logged in this many times and was part of this test group. And this other guy was part of that test group. So, we invested time and energy to do that. It takes time, but it was definitely worth it.
Andrew: I’ve got a list of questions here from before the interview that I want to run down.
Revenue. I saw an article from last year that said you hoped to do $10 million in 2009. Did you do that?
Haroon: Again, we don’t give exactly our sort of revenue numbers. But, we’re seeing between 30 and 40 percent growth per year now.
Andrew: Here’s what I’d like to do for the headline. We’ve got the audience listening. They might as well know. I’d like to say something like “How Webs.com was launched in the closet and became an X million dollar company or some big growth, some big number.” So, it doesn’t even have to be an accurate. “We made 9.75 million last year.” But if it was more than $8 million, I think that would be interesting. More than $7 million dollars would be interesting.
Or if you gave me even like a number of websites that were hosted or a number of paid customers. And again, it doesn’t have to be accurate enough to get the guys at Posterous to want to steal your business, just enough to let us know where you stand.
Haroon: Sure. Let’s see. What can I give you? So, yeah, I would say in ’09, we were over . . . let’s see. I’m not supposed to give these revenue numbers out.
Andrew: Go significantly lower than the number that you’re not supposed to. Then, we can . . .
Haroon: Significantly lower?
Andrew: Yeah. You could say over a certain number without . . . like, if it was 8.5, you could say over 7.5 or over 7 million, and nobody would know. Nobody would care. I’m not looking to get information into the Dow Jones. I’m looking to let just people know, to give people a sense of scale.
Haroon: Yeah, about 100,000 customers.
Andrew: Over 100,000 customers, 100,000 paying customers.
Haroon: Paying customers.
Andrew: Is that last year or overall?
Haroon: Well, that’s the accumulation over time.
Andrew: Okay.
Haroon: Of active, paying customers.
Andrew: All right. There we go. I just want to give people a sense of size, especially if they hadn’t been on Webs.com or hadn’t experienced the service. I want them to see just how big it is. We talked about lots of millions here. We talked about millions raised, millions in sales. The big question I have is the first million. What was that like?
Haroon: The first million. Well, the way I always thought of it was not in yearly figures but in monthly. So, it was more like the $100,000 a month landmark. That was definitely a big deal to us, and that’s why making a decision on whether to go with the company full time wasn’t that difficult when you’re near that mark.
I don’t know exactly what the revenue was when we made that decision. But when you’re making tens of thousands of dollars a month, it’s not that hard to say, “I’m not going to take a job. I’m going to work on this full time.”
One quick thing I want to say is most people look at entrepreneurship as a very risky thing, and you have to be a risk prone person, willing to take risk. I think that’s right if you’re trying to build a billion dollar company. But I actually also think that, while that may encourage some people, it might actually discourage a lot more people who would be great entrepreneurs.
What I would say to those people is there is a way to do it where you’re not betting the whole farm on your one endeavor. And a lot of people, it takes several ideas before you get something good going on. And so, I think it is possible to keep a job and to create something that’s good enough that you can get it on the market and get a read on whether people are going to pay for it or not. I encourage people to do that.
I don’t think that the only way to start a company is to raise, even angel money, and to work on it full time and not have a job. I think many companies that are great companies were started in other ways.
Andrew: And yours was. About 10 years ago is when you launched it. You’re still with the company. Most people, it seems in this industry, every three years they start a new business.
Haroon: Yeah.
Andrew: I know at one point you were thinking of selling. How is it now, 10 years in? What are you thinking?
Haroon: You know, it’s a great question. As an entrepreneur, you always have an itch to do new things and new ideas come about. Fortunately, within this company I’ve had opportunities to work on new stuff. So, SGN is an example. We pivoted the business, and each time you do that it feels like a different business and a different company, and that’s always fun.
We’re actually in the process of . . . we have a stealth project that’s in production that’s a new site, but it will be much more closely integrated with what we’re doing here at Webs. And so, it’s kind of a startup within a startup and things like that. That’s going to launch in September. So, that’s one way to keep it interesting.
The other thing that I’ll say is, yeah, it’s been 10 years, but I really love the company that we’ve built here. I love the people I work with. I enjoy every day of it. There’s stressful times and there’s less stressful times. But I enjoy it. I like what we’ve built. And there’s no other place I would rather work than the company here that I built.
And so, the only competition for me is that other company that I could be building, but we’ve still got a major stake. We didn’t get that diluted in our round. We’ve got a major stake, and we’re growing really well. And we think we’ve got great opportunities, and I want to see it to the finish line.
Did I think I would be doing this for 10 years? No. Does 10 years feel like a really long time when people remind me of it? Absolutely. Am I still challenged, and is it still fun for me? And am I still sort of engaged in the company? A hundred percent.
Andrew: All right. Well, let’s leave it there. That’s great place to end it. Thanks. Great meeting you. What city are you in?
Haroon: We’re actually in Silver Spring, Maryland. We have an office also in Palo Alto.
Andrew: Oh, cool. Actually, I heard you guys got the Google and PayPal office.
Haroon: Yeah, we did. We don’t have that one any more. Actually, the new one we have is in Sunnyvale, but we did have the initial Google/PayPal office.
Andrew: It’s supposed to be the lucky office. Was it?
Haroon: Right, the lucky building, they call it.
Andrew: All right. Well, it seems like it was. You guys grew a lot. Well, thanks. I hope next time I’m in your city I get to meet you in person. Until then . . .
Haroon: Absolutely, come by. Come see the Discover Building. Come visit us.
Andrew: I’d love to. Let’s end it there. Can you point the camera towards that building and let people see that shark that’s right in the building? It’s right outside his window. Do you guys see that? There’s the back. All right. If you guys were watching the video, you got to see that. If not, I hopefully described it well enough.
Thank you. It’s great to meet you. Thanks for doing the interview. Everyone, check out Webs.com, and thanks for watching.
Haroon: Thanks a lot.
Andrew: Cool.
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