We at Foundora were excited to see how Spreadable would evolve over time, ever since David Hauser had mentioned about it in his interview with us. But, when we heard about its shut down, we were simply curious to know how it happened, what went wrong and more importantly learn from them. We reached out to Jonathan Kay, the Ambassador of Buzz at Grasshopper and got an interview arranged with Mike to speak about the Spreadable story.

In the interview we try to learn from Mike how Spreadable happened and the reasons for the failure, his lessons learnt and a lot more.

Interview Overview

• The Spreadable concept and how it worked.

• The germination of Spreadable idea and how it evolved?

• A bit about the CustDev process for Spreadable.

• The time, money incurred for product development; lean startup principles used.

• Pre-launch and the alpha/beta testing.

• Detail explanation of the various pricing tests performed for Spreadable.

• User reaction/feedback to Spreadable v1.

• The biggest mistakes that lead to the shutdown of Spreadable.

• What influenced the decision to pull the plug off Spreadable?

• Finally, what’s next on the cards at Grasshopper Labs?

Can you start by explaining what exactly Spreadable was and how it worked?

Spreadable was a referral marketing tool that helped our customers create tell-a-friend programs for their businesses. Using the app, our business owners could create a customized referral form that allowed their happy customers to share a customized offer with their friends. Our customers’ fans could share that offer with friends through email or through a variety of different social tools.

Spreadable tracked all of the referrals being sent and what actions were taken when the referees received them. After setting up their referral form in the app, our customers could implement an embeddable version of Spreadable on their web sites or link to a referral page that we hosted for them.

We were trying to solve three big problems: 1) People find it hard to ask satisfied customers for referrals 2) It’s hard to quantify the impact that referrals have on your business 3) Developing a referral program from scratch takes significant time and effort.

How did you guys come across the idea of Spreadable and how did it take shape?

A couple of years ago, we faced the same set of problems for Grasshopper (our virtual phone system product). We knew we had a lot of passionate customers who were referring us to their friends, colleagues, and family. On any given day, around 40% of new sign ups were saying that they heard about us via word of mouth. So the question became, how can we get more of our customers to share Grasshopper with the people in their network?

We experimented with a bunch of different referral platforms and none of them really did what we wanted – so we built our own. What became the “Refer an Entrepreneur” program for Grasshopper was actually the first prototype of Spreadable. We realized that the powerful thing about referrals is that they don’t come from an organization; they come from some one you know and trust. People are much more likely to open an email from a friend and take action than they are for standard marketing messages.

The Grasshopper referral program was such a huge success that we saw an opportunity to systemize the program we had built and turn it into a SaaS platform.

Okay, so Spreadable was born out of the success of “Refer an Entrepreneur” feature on Grasshopper.com. So, once you guys decided to build Spreadable as a service, did you start talk to people about it(custdev) or just went on with the assumptions that if it worked for you it would work for others too?

We just started building. This was probably the single biggest mistake we made. We made the assumption that since our program worked so well for Grasshopper, we could just port over the same functionality to Spreadable. There were major problems with that logic. First, very few of the customers who came to us had businesses like ours. We learned later that there is actually a threshold in terms of customer count for a Spreadable powered referral program to be successful.

Second, we missed several key components of the actual problem people wanted to solve. We found this out later when we started talking to customers and had to backtrack on our development roadmap.

We did spend some time looking at other competitive offerings that were out there. What we saw were several players in the enterprise space and many small apps that didn’t have great brands.

How much time and money did you guys invest in building the product and bringing it to the market? Did you use the lean startup principles of rapid prototyping?

Prototyping, yes. Rapid, no.

The first version of Spreadable, which was eventually completely scrapped, took about 3 months to build and wasn’t shown to anyone outside of our internal team during the development process. We scrapped it because we weren’t happy with how the app performed. This in itself was a big mistake. We would have greatly benefited from getting something in front of customers earlier despite the fact we were a little embarrassed by it.

We got a little bit smarter the second time around and built a small group of brand loyalists to get feedback from. However, we waited far too long to engage this group of people and the results still weren’t great.

The second version of Spreadable was over-complicated and confusing for a lot of our new customers. We had issues with duplicated functionality throughout the app and the user experience just wasn’t good. The experience was the result of 1) Not learning enough from customers and identifying what core set of features were important and 2) Not working with real UX designer early in the process. We called it an Minimum Viable Product, but there was really nothing minimal about it. It was a mess that resulted from design by committee and a lack of real understanding about the problem we were solving.

In terms of man-hours and marketing, we spent over 500k to bring Spreadable to market.

Spreadable had the pre-launch landing page up for a good amount of time. Were you guys building the product and test it internally only or were you doing alpha / beta testing with external users simultaneously?

While the landing page was up we weren’t testing with any outside users, just developing internally.

How much was Spreadable priced at. Can you go deeper in the various pricing tests you performed and their results?

When we started charging real dollars at the beginning of 2011, we launched with a fairly straightforward pricing model: Two plans, monthly and annual, $49 & $489, respectively. Conversion was unacceptable using this model, so began a barrage of experimentation to improve it. Pricing was really just one part of the experiments we were running.

From January 1-March 1, we churned through multiple marketing site mini-redesigns, a full redesign, a copywriting overhaul, seven different iterations of our sign up flow, five price changes, introduced a free trial, and produced a three minute video about the product. Here are the big pieces of learning we took away in terms of increasing conversion:

Anchor Pricing

Launching with two plans seemed like a simple way to present our product. We learned a lot about pricing strategy as our market invalidated that assumption. There were two big takeaways:

First, prominently displaying the annual plan at $489 on the first iteration of our pricing page deterred many new customers from signing up. $489 is a scary number for most folks and it wasn’t immediately clear that this was for a yearly subscription. The visual emphasis was in the wrong place.

Second, when we launched a pricing page with multiple plans, we saw a notable increase in conversion. In fact, the increase can be attributed to a theory called anchor pricing. The high level idea behind anchor pricing involves setting a potential customer’s “anchor” at a higher price than what you actually want to charge them. In our case, we set our anchor at $199 for a monthly plan with some additional features. In reality, we didn’t expect anyone to sign up for it.

Not only did overall conversion increase, but we saw about half of customers signing up on the middle and top tier plans. Had we scaled the business and kept the same sign up mix, it would have meant a substantial increase in revenue over the old pricing model.

Throttling

Observing the change in sign up mix from the pricing model shift, I wanted to dig deeper into the thought process of people signing up on our more expensive plans. There were a couple of differentiators between each plan, but I wanted to find out what was motivating the people who signed up on the Grow or Max plans.

It turns out that the absence of certain features on the lower tier plans really wasn’t it. Instead, it was the fact that we were throttling the right key activity across the plan mix: Referrals.

By capping the number of referrals you could theoretically receive, people instinctively chose the plan where they believed they would never have to worry about missing out on receiving a referral. Since in most cases a referral was worth more than the $25 difference between Start and Grow, people felt more comfortable paying for that security.

The Power of Video (or lack thereof)

As we struggled to get conversion up to an acceptable place on the marketing site, we learned from many potential customers that it just wasn’t clear what Spreadable actually was. To remedy this, we made some significant copy changes to the site and hypothesized that a short video would go a long way in explaining our product and increasing conversion. We looked into working with a couple of the well-known studios in the space, but quickly realized that price was going to be an issue. So, we started hacking a solution instead.

We used Mechanical Turk to transcribe the audio of four product videos we really liked and then dissected each script to find out what made them so good. We discovered that there was a pretty consistent framework used throughout all of them and set out to develop a script of our own.

When the script was done, we worked with a talented motion graphics designer to bring the video to life. When it was done, the reaction we got from people was that they finally got Spreadable and the value it could create for their business.

Despite the reaction, the video didn’t have the effect on conversion that we expected. In fact, it had the opposite effect. After adding the video to our primary landing page, conversion went down. There are too many potential reasons to guess at why this occurred, but the key learning here is that people had a better understanding of our product and still didn’t sign up. This served as another red flag as to why this market may not have been right for us.

Fake It

Earlier I wrote about how impactful moving to a three plan mix was on conversion. Well, guess what? We didn’t actually have any of the features advertised on the more expensive plans. We were faking it.

While we were actively working on those features, putting the new pricing page out there was really a big experiment. As I explained earlier, we had hypotheses around the effectiveness of throttling and the plan mix itself. If we had launched the three plan pricing page and continued to see dismal conversion, we would have had a very different problem to solve in terms of our product offering. Instead, when we launched the new page conversion doubled.

I get some funny looks from people when I tell this story. In some ways, it feels a little bit dishonest to be selling something you don’t actually have. But imagine the alternative. You spend all of this time and money on a product that no one wants, when you could have simply created a pricing & sign up page to tell you if anyone would have bought it.

We didn’t actually take anyone’s money either. If a new customer signed up on either Grow or Max, I personally reached out to them and refunded their first month. I thanked for them choosing us and explained that I needed their help to shape our future offering. I enlisted them as an advisor and used their expertise to help us build a better product. I didn’t get one negative reaction from a customer.

In your experiments, you may not have such a forgiving customer base. In those cases, just apologize and make it right. There is only one thing a customer likes better than signing up for your product and having a great experience, and that’s being apologized to and having a situation rectified.

How many months was Spreadable in business and how many paying users actually signed up?

We worked on the app from May of 2010 until the end of March 2011. In the three months that we were charging for the service we had 361 paid sign ups.

What kind of a feedback did you guys get form the users. Did they readily like what worked out for you guys at Grasshopper or did they asked for some other features too?

Our customers liked product, but I wouldn’t say they needed it. There’s an important distinction there. It goes back to the vitamin vs. pain killer analogy. Pain killers solve issues that cause real discomfort for people. Spreadable was a vitamin for the simple fact that most businesses won’t die because they don’t have a referral program.

While we had focused so heavily on the solution (the referral form and its various implementations) we learned from customers that that was really only one part of the problem.

The real pain for a lot of people was around thanking their best customers for making referrals. What they wanted was a very a lightweight system to incentivize people to make referrals on their behalf. Customers wanted to reward their customers with small tokens of appreciation like gift cards or branded t-shirts. Affiliate programs were too much of a hassle and asking your best customer to be an affiliate just doesn’t feel right. They saw Spreadable as an alternative. Since we hadn’t learned this early on, Spreadable wasn’t equipped to solve that problem for people when we launched.

What do you think were the biggest mistakes you guys did in Spreadable that may have lead to this outcome?

1) Not talking to customers early in the process. We didn’t really understand the problem that we were trying to solve until much later in the process. From the very beginning we were way to solution focused and never took a step back to understand what our customers really wanted to achieve. We put too much faith in our own referral program, believing that if it worked for us, it could work for anyone.

2) Being too aggressive with marketing dollars/PR/Buzz before product/market fit. We spent a significant amount of time reaching out to the press and trying to build buzz, but the product really wasn’t at a place where it should have been getting covered. We made the mistake of thinking that a marketing launch and a product launch needed to happen at the same time. This also put a lot of unnecessary stress on our development team as we increased pressure on them to meet these artificial deadlines.

3) Re-architecting our platform to accommodate power users. Right before we started taking paid accounts, we made a critical decision to fundamentally change how our widgets rendered on customer websites. Without going into too much detail, we removed the iFrame that the referral form rendered in and directly injected the form’s HTML & CSS into the customers’ website. Though it gave power users the ability to more directly manipulate the visual look of the form, it created a massive support burden for us.

Customers’ who had other pieces of JavaScript or Flash running on their sites saw very strange bugs that were specific to their install. It made it very hard to triage the support requests, as every one was the result of an outside factor influencing our code. In the end, we went back to the iFrame and lost significant development time making the switch back.

What influenced the decision to pull the plug off Spreadable?

One of Grasshopper Group’s core values is “Always Entrepreneurial”. What it boils down to is that everyone in our company is always looking for innovative ways to solve problems: whether it’s in our everyday work or launching a new business like Spreadable.

Part of being an Entrepreneur is knowing when an investment, time or money, isn’t the right investment to make. There wasn’t one standalone reason why we made the decision, but a combination of many that led us to shut Spreadable down and refocus on our other products. In summary:

• The market for a word of mouth marketing tool is significantly smaller than the markets our other products reside in
• Spreadable was best sold in a way that is not a core strength of Grasshopper Group
• Cost per acquisition and customer payback were too high to scale
• There was little confidence that a large investment in Spreadable would have yielded a return equal to a similar investment in our other products.

How would you sum up your Spreadable experience?

This was by far the most rewarding experience of my career. I got the opportunity to work with an outstanding group of people to launch a new business. I not only learned a lot personally, but we learned even more as an organization. From that perspective, this process will change the way new products are conceived and launched at Grasshopper Group.

Finally, what’s next on the cards at Grasshopper Labs?

We’re focusing on our other two established products, Grasshopper and Chargify, in the near term. Chargify is quickly becoming one of the most robust recurring billing platforms out there and we’re building on a new suite of mobile apps to complement Grasshopper.

We’ve also got a new product launching soon, which we’re hoping changes the way people think about surveys. Stay tuned.

Laura is credited with explaining Twitter’s business value to Guy Kawasaki, at a Google TechTalk, at top business schools and to thousands of others tech leaders. She’s been speaking professionally about the business use of Twitter since October 2007.

She even launched the first Twitter for Business consultancy in 2008 and began working on oneforty while writing Twitter for Dummies. With her consulting clients consisting of top corporate companies including IBM, Ford and Johnson & Johnson, she has been quoted in more than 100 national publications including the Wall Street Journal, Forbes, Fast Company, Newsweek, and BusinessWeek. Laura believes that everyone can benefit – dramatically – from Twitter because of its power to overcome isolation.

In this interview with us, Laura shares of her journey, start of oneforty, how she manages her personal & professional commitments and a lot more. Read it…

Interview Overview:

• Laura’s background and how she started Pistachio

• How Laura realized the potential of Twitter even before Guy Kawasak

• How the idea of oneforty was germinated.

• How Laura got oneforty developed in spite of being a non-techie

• Her experience being the sole founder of oneforty

• About the recent pivot of oneforty

• How Twitter (network) helped her in building oneforty.com

• The importance of online and offline networking

• The important things startups must do to build their networks.

• Her biggest lessons as a consultant & an entrepreneur.

• Laura’s take on most common mistakes startups make in social media.

• How Laura manages work and family

• Laura’s advice to (women) entrepreneurs

Hi Laura, let’s start with your background as in what did you do before Pistachio consulting and how/when did you start Pistachio?

Pistachio Consulting was established in 2002 as a communications and marketing firm that later specialized in making PowerPoint suck less. I re-launched it in September 2008 to focus on Twitter for Business. Before all that I worked for a boutique consultancy that helped Cable Television Channel startups, and before that I worked for one of their clients, a would be competitor to The Weather Channel.” So eclectic but a consistent theme of helping people get their story right.

You seem to have understood the potential of Twitter before a lot of others did. How and when did you actually realize the potential of Twitter?

March 2007 I blogged about how stupid it was. May 2007 I realized I could use it to surround myself with successful and interesting people, and therefore stay motivated as a homebound mom of two kids under two. By August 2007 it had begun to change my life, so I was blogging about it and starting to describe the need for services like Yammer and Chatter. I convinced Guy Kawasaki that Twitter was as a serious business tool, and things kind of took off from there.

How did the idea of oneforty.com struck? Why did you feel the need for a Twitter App store?

I couldn’t keep track of which apps to recommend to my Twitter for Business clients, or which “top 10 services” and “top 10 tools” to feature in my book Twitter for Dummies. There was all this great innovation, and no good ratings and reviews of all the stuff getting built – no way to compare what was best for which users.

Your are not a technical person and you got oneforty developed by Pivotal Labs, so considering that how difficult was it for you to get it developed. How was the experience working with Pivotal Labs?

Pivotal were amazing to work with — I really could not have made it this far without them. Their willingness to take a risk on me helped get me into TechStars, helped with the funding, and really taught me everything I knew about how software gets built. Not only was I not technical myself, I’d never been anywhere near a software development process. They were patient, generous and helped me interview all of my technical hire candidates while I was there. Also? I pretty much lived on their daily breakfasts and endless diet coke and snacks.

I did have to move to SF for 3 months to do it, which was a big deal because my kids were then 2 and 3 years old and could not come with me. It was tough but there was no way I could have got it done from far away. Pivotal has the process they have for a lot of good reasons. It was great to experience the SF/Valley startup environment firsthand. I raised my money out there and I got through a lot of really tough obstacles with the support of that community.

You are the sole founder of oneforty.com; was it difficult being a sole founder? What do you think would have been different had you had a co-founder with you?

Extremely hard. Talk about doubting yourself and feeling isolated… I was lucky to be so hellbent on seeing it through, because if I had been capable of quitting, there are many times that I would have. I think a co-founder helps with that – the chances of both of you wanting to quit at the same time are lower than if you’re on your own.

The truth is that while nobody was “in it” with me, hundreds if not thousands of people were supporting me in so many ways. My network was my co-founder. I still wish I’d met Mike Champion (our VP Engineering) early on and co-founded it together.

oneforty recently pivoted towards focusing more on Social Business then Twitter Apps. What influenced the change and how has the response been?

We followed our users who were overwhelmingly businesses and agencies looking for information about business tools. We saw it in how they used Toolkits – to explain business functions and workflows, and to compare business tools within categories. The response has been great – very rewarding to see things hit traction around a focused community and start to take off in ways you had not anticipated.

How did your Twitter network help you in the journey of starting up and growing oneforty.com?

100%. When I set out to do this I already had a huge network with a ton of connections on the ground in SF – and NYC and Boston – that directly led to introductions to the talent, investors and advice that I needed. Twitter cheered me up when things were tricky, gave me a reason to believe this was even possible, and of course brought in thousands of early users.

Startuppers ask me all the time where to find angels, cofounders, hires, and the answer is always to start with – and grow – your own network. Start with those who know you best, and ask them for advice and introductions. That will take you much further than even a “high powered” introduction from a stranger who cannot vouch for anything about you.

People lose sight of that when asking me for introductions to people who could help them. If I don’t know you at all, it really doesn’t matter to whom I introduce you, as I am not going to be able to do a very good job of it. Give me reason to believe in you first, then ask.

You’re equally active on both Twitter and offline events, so how important do you think it is to meet and interact with people in your network in person and how much has it helped you?

Extremely important. One of the reasons Twitter is so effective is because there is a strong tendency to create “real world” meetups with the people you connect to there. Also, people overlook the degree to which social is a good way to STAY in touch with people you have already met offline. That’s a really huge use case that makes a lot of sense when you stop to think about it – cultivating closer connections within the network you already have.

What are the most important things startups need to do to build their Twitter network? How should they get started?

Identify whom they wish to attract and then share a lot of great content that kind of person needs in their work and daily lives. Reach out to the kind of people you want to attract and help them with the stuff they’re working on. Thank your early fans and shine the light back on them.

Also, dive in at http://oneforty.com where there are tons of resources.

What has been your biggest lessons learnt so far as a consultant and an entrepreneur?

Just keep going. Don’t waste any time getting angry or being frustrated. Keep looking for solutions and never blame your obstacles.

What do you think is the most common mistake startups and individuals make in their social media campaigns and what would be your advice to them?

Selfishness. If you do just one thing – be useful. Asking first, talking only about yourself, being in it to game the system and inflate your vanity metrics are all humorously pointless. Not only are they boorish behavior, they won’t advance your business interests and they will waste your time.

All you need do to succeed on any social platform is Listen. Learn. Care. Serve. In that order.

Frankly, “campaigns” are a bad way to look at social. It’s a channel, so build your team’s literacy in how to use it and then cut them loose. Campaigns are finite, relationships go on.

For heaven’s sake don’t get obsessed with how many followers you have. It’s a meaningless measure.

You are a mom and you travel around the world to speak in & attend conferences and are busy with other business engagements. How do you manage time for your family?

It sucks. I am lucky to be divorced from an excellent dad – and his fiancee – who have the kids 50% of the time, freeing me to travel and work insane hours when I need to.

But when I’m “on duty” as a mom I try to put everything else on the back burner and focus on my daughters. Even on those days I do work a fair number of “late night shifts.” Lately I’ve realized that a nap at their bedtime – when I’m worn out too – does the trick, and then I’ll get up and work from 10-1 if I have to.

I also have to be pretty brutal about saying no to things that do not directly serve the startup or my family. This is hard because I owe the world a LOT of helping out and giving back, which I hope to be freer to do later on in my career.

You’re a great example to all the women entrepreneurs. What would be the advice you would like to give to other aspiring women entrepreneurs?

If you’re a ____________ entrepreneur, never ever kid yourself for a moment that what is stopping you is your ____________ness. Even in the rare situations where it is a real obstacle, your seeing it as such only slows you down. I will say though that it seems that women in particular need to give themselves more confidence and benefit of the doubt. Don’t assume others are doing it because they are any more competent, qualified or privileged than you are, because chances are they’re not. Find the work you absolutely must do and then be relentless in figuring out the puzzle to getting where you can do it.

So, unlike many other startups that provide intangible products, Fracture is a unique startup that provides a product that you can touch, feel, hold, scratch and even smell. That’s why its whole different ball game than the regular web based startups – that’s what excited us to learn more about them.

We are going to explore all the happenings at Fracture to learn more about their interesting business, challenges, and lessons learnt in this interview with Abhi Lokesh – the co-founder of Fracture. Our thanks to Matthew Bivens, the Marketing Director at Fracture for introducing us to their startup. Read On…

Interview Overview:

• Abhi’s background and entrepreneurial journey

• How Abhi and Alex met and how their skills complement each other

• How the idea behind Fracture evolve

• What Fracture exactly is and the technology behind it

• How did Fracture get the initial traction

• How they managed to build a user-friendly web based platform inspire of no technical background

• The assembly line of Fracture

• Is there any technical innovation behind Fracture or is it all about simplifying the process?

• The advantages of tangible products startups

• Abhi’s biggest challenges running a manufacturing startup

• His lessons learnt while working on Fracture

• Abhi’s advice to people starting tangible product startups

Hi Abhi, please tell us about your background and how you got into entrepreneurship?

I graduated from the University of Florida with a B.S. in Integrative Biology in May 2009. I was fortunate early on in my undergraduate career to become highly involved with UF’s Center for Entrepreneurship and Innovation. I was surrounded by entrepreneurs and students who were passionate about innovative technologies, concepts, and most importantly, executing on those ideas. I initially had an internship at a neuroscience startup at a local med-tech incubator, and I got an incredible, first-hand experience at what it took to run an early-stage startup.

How did you meet Alex? And how do both of your skills compliment each other as startup co-founders?

I met Alex through a mutual friend in a social entrepreneurship class. The three of us started a nonprofit venture as undergraduates that eventually laid the foundation for Fracture. It seems that our individual skill-sets end up complementing each other pretty well; Alex has an incredible technical vision that I try and flesh out by leveraging the network of contacts I built over the years and applying my business knowledge. What’s great is that we recognize that there is always a constant overlap of responsibilities and we’re always trying to learn from each other about the best way to do things. We put our egos aside and do what needs to be done for Fracture to succeed.

Fracture seems to be a very interesting concept; how did you come up with the idea of Fracture and how did you go about with it initially?

As I mentioned earlier, Alex and I were part of the founding team of a nonprofit venture in college. A large part of that nonprofit was an online art gallery that we created to help generate revenue for our non-profit work. During the 2 years that we ran the art gallery, we learned an incredible amount about the framing/photo industry, the inefficiencies in the framing process, and what people really cared about when it came to displaying their personal photos and artwork. We came to realize that there had to be a better way, a more intuitive way, to get pictures off hard drives and social networks and storage sites and actually onto your walls.

Alex had been experimenting with the concept of painting on glass, and we tried to apply that concept to actually printing on glass. Once we saw the initial prototypes, we immediately felt we had something on our hands, it was now a matter of building an experience and platform around a great product.

Can you explain our readers what exactly is Fracture and also the underlying technology involved in producing the printed glass wall decor?

Simply put, Fracture is the best way from your digital camera to your wall. We make it incredibly simple and practical to print, frame, and display any digital picture you want. Just go to www.fractureme.com and upload your favorite pics, edit them as you like, and have them printed and shipped right to you with everything you need to display them to the world. Although our flagship product is printed glass, we always emphasize that we’re NOT a glass printing company. It’s a great product that really embodies what we do, and it’s just the beginning. We are 21st century photo decor.

The underlying technology is really a combination of industrialized printing machinery and Alex’s vision regarding utility and workflow. He’s got an incredible ability to envision how particular equipment can be used to achieve a certain result our output, and then engineer it to become a reality.

How did you get the initial traction? How difficult was it to pitch it considering that Fracture isn’t like traditional web startups?

We gained our initial traction through what we called persistence marketing. We essentially reached out as many mom-bloggers, tech blogs, and influential early adopters as we could and tried to Fracture them. It’s still our biggest marketing initiative. That’s huge: getting a product in their hands. It’s incredibly difficult to pitch otherwise since it’s such a new/raw product. There isn’t really a great comparison company or product out there. In October 2010, we were lucky to land on TechCrunch by doing the same thing: sending them Fractures, and explaining our vision as best as we could. That’s when we started to gain some substantial traction.

It is quite the challenge to pitch Fracture ourselves. Instead, we’ve tried to catalyze as much organic and viral growth of the product as possible. We truly believe that the best salesmen are our customers. We’ve found out that once someone gets Fractured, they immediately become product evangelists, sharing the product with friends and family way more enthusiastically and genuinely than we could have if we were simply trying to sell it to someone.

From your profiles, we came to know that none of you is from a software background; yet you managed to develop a neat application with an amazing UI / UX for Fracture (Fractureme.com). Please elaborate on how exactly you guys got it done?

I think the most important thing was that we had a very clear, basic vision of how we wanted the UI/UX to be. We drew from our own experience as avid web geeks and e-consumers and simply tried to pick and choose what we appreciated, what could be improved upon, and what we definitely didn’t want to emulate from all over the web. Communication was key; over time, we were able to clearly communicate to the developers and designers that we worked with how we wanted to UI to act, and what we wanted the UX to convey to visitors.

Something else that definitely helped was our emphasis on building quick, iterative, yet functional prototypes. We wanted to see how our ideas actually worked with real consumers. It’s fine if there are flaws or defects, it’s about getting something real in the hands of consumers so they can help guide the product forward.

What are the different processes involved right from the point when you receive an order to delivering the product? And who takes care of what in each step of the process. Is there some kind of assembly line already?

The process starts by actually compiling the order through the web order administration system and organizing it in a manner that our production team can track. Once the image files are compiled and sorted by order, we then batch process them and arrange them to be exported to our printing software. The printing software then aligns itself with the printer, making sure we utilize the printing area as efficiently as possible before laying down batches of glass to actually print out the images. Throughout this whole process, glass is being cut, stocked, and prepped to print, and packing materials are also being prepped and stocked in advance.

We try and accurately predict what sizes and shapes of glass/packing material we need to have ready based on what’s being printed. We’re fortunate to have dedicated team members who now essentially manage tasks like printing, inventory tracking, packaging, etc. We do have an assembly line of sorts, but it’s incredibly dynamic.

As our sales volume continues to grow, bottlenecks constantly shift from one aspect of the order process to another, so we have to account for that in the assembly line by re-allocating the amount of time we spend prepping glass or packaging, etc.

Fracture has two things that work together, one being the website that helps anyone quickly design and order their pictures and the second is the actual manufacturing process. So, is there some technology you guys innovated on the manufacturing side. Or is it just about simplifying the whole process for the users?

I believe it’s a substantial amount of both. On the manufacturing side, we didn’t necessarily create or invent new equipment or technology. I think Alex has done a fantastic job at creating a work flow with equipment that really brings out the best of each piece’s abilities and optimizes the entire process. He simply envisioned a process for creating a never-before-seen product using standardized, industrial technology and set about making it happen.

On the UX side, simplicity was a huge benchmark. We just asked ourselves this one question: If we were ordering a framed picture online, how would we want it to work? It would have to be functional, intuitive, and straightforward. We are by far our harshest critics. If we can’t use it without a hitch, we certainly don’t expect our users to.

Tangible product based startups generally have some disadvantages compared to intangible digital product startups such as low profits margins and complicated processes at multiple stages; but what do you think are the advantages of the former over the latter?

I think one the biggest advantages is the simple fact that we make something tangible, something that you can touch, feel, and understand on a very visceral level. In today’s world, where seemingly everything is going towards the cloud or is somehow digitized or virtual, we can stand out as having the best of both worlds: a great e-commerce system and digital experience that ultimately creates a unique and practical photo product on your wall.

Regarding things like low profit margins and complicated processes, that’s the beauty of solid engineering and scaling. Alex has demonstrated that incredibly healthy profit margins and automated processes are completely feasible, if you attack the problem for as comprehensive and fundamental an angle as possible.

What are the biggest challenges you have come across so far running a manufacturing startup? How did you deal with them?

I think the biggest challenge is simply dealing with the large number of moving pieces involved. We have to worry about things like inventory, shipping, freight, overhead, cost of goods sold, a significant amount of labor, etc. that a lot of web startups don’t worry about. Rather than considering them as something to deal with, we’ve tried to embrace them and view them as challenges that we can optimize like anything else. At the end of the day, it’s all part of creating a concrete, tangible product, which is something that we wouldn’t trade for the world.

What were your biggest lessons learnt so far while working on Fracture?

Undoubtedly, the biggest lesson I’ve learned is that communication is everything. Communication between colleagues, between the company and the customer, between customers themselves, etc. Between colleagues, we try not to assume anything or take anything for granted. Being on the same page means asking questions, calling each other out, and not hesitating to push each other when necessary. Between customers, it means letting them be our best salesmen, we try and convey the message as clearly as possible so they buy into the concept and company, then go on and evangelize it amongst their friends. It’s what’s worked best so far.

What would be your advice to entrepreneurs looking to start manufacturing and/or tangible goods businesses?

My biggest piece of advice would be to always work towards creating something and getting something out in the real world. Call it experimental, call it an alpha prototype, but just get it out of your head and make it a reality. It’s incredible how much you learn from putting your product, regardless of the stage it’s in, in front of the consumer and letting the organic forces of the market mold your product.

At the same time, you have to be careful to stick to your vision and not sway too easily under external pressure. You created the product in a certain way for a reason; don’t just give up on it because people say so. Learn, adapt, iterate, and re-release it. It’s a fine line to balance on.

]]> http://www.foundora.com/2011/02/14/abhi-lokesh-co-founder-of-fracture-shares-his-startup-story/feed/ 1 http://www.foundora.com/2011/02/14/abhi-lokesh-co-founder-of-fracture-shares-his-startup-story/ http://feedproxy.google.com/~r/Foundora/~3/Wn3DrVKGtqs/ http://www.foundora.com/2010/12/14/tor-gr%c3%b8nsund-startup-methodologist-co-founder-of-easypeasy-shares-his-entrepreneurial-story/#comments Tue, 14 Dec 2010 11:55:25 +0000 Admin http://www.foundora.com/?p=1051 Tor Grønsund, entrepreneur, blogger, and lecturer, is the man of multiple ventures. Tor is the founder of Lingo Social, a software company based in Oslo, Norway. He is also advisor to EasyPeasy, an open source and web-based operating system for portable computers, and speaker at various Internet and startup events.

Through his entrepreneurial career Tor has co-founded Unplugd, a dorm-room startup turning private wifi routers into public hotspots, operated his own market research practice – both while still studying, worked with FAST Search and Transfer (now a Microsoft Subsidiary) and Schibsted ASA, followed by joining Ignitas, where he has been involved with various early-stage ventures.

Tor runs a blog, Startup Methodology – Methodologist, where he shares his insights, knowledge and experience with fellow entrepreneurs. On his blog, he writes on numerous interesting and worth-knowing-about startup methodologies such as Disruptive Innovation, Diffusion of Innovations, Agile Development, Business Model Canvas, Lean Startup, Customer Development and Rapid Prototyping.

In this interview, Tor spoke to us about his experience as an entrepreneur, in-depth about startup methodologies, lean startup & cust-dev and a lot more.

Interview Overview

• Tor’s entrepreneurial background and how he got into entrepreneurship.

• What is EasyPeasy? How did the concept of EasyPeasy evolve?

• An overview of his blog, Startup Methdologies & how he started it.

• Tor’s definition of Minimum Viable Products.

• What makes Tor so passionate about startup methodologies?

• What are agile development, customer development and business model canvas?

• His experience of teaching at the University of Oslo.

• Going forward, what methods and tools will you be working on?

• Advice to upcoming startups in general & with startup methodologies.

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I grew up in an entrepreneurial home. As a result I was exposed at an early age to the world of technology and ventures. I believe that this has influenced me in many ways. I developed an early passion for web- and search engine technologies, and went on to study Information Science and Informatics at the University of Bergen, where I received my bachelor degree.

The studies were all about developing software, and I found that I never got to put into use what we built. This made me want to learn about taking technology to market. Consequently, I went on to study Entrepreneurship and Informatics at the University of Oslo (where Prof. Dahl and Nygaard conceived Object Oriented programming – an inspiration to me).

While studying for my MSc at the University of Oslo, I co-founded Unplugd Networks together with my brother. This was a dorm-room startup turning private routers into public hotspots. We got this idea while I was working as summer installer at Nextnet, an early-stage Norwegian WiMax and wireless service provider. By talking to customers in field I found that some were not in line-of-sight and unable to receive wireless signals. Why can not the customers plug into their neighbor’s wireless connections, we asked.

Back at the dorm we started playing with router software and Radius servers. We came up with a pretty cool solution that enabled people to share their wireless connections. Unfortunately, it soon turned out that telcos were not happy about us re-selling their wireless signals. When all is said and done, I learned a lesson and two about what not to do in sales. That led to my own market research practice, and I got work with companies such as FAST (now a Microsoft subsidiary) and Schibsted, before by joining Ignitas, a Norwegian online media and seed investment company, as one of the first employees.

Great, can you tell us a bit about yourself too?

Currently I’m co-founder of Lingo, the company behind EasyPeasy and Lecturer of Entrepreneurship at the University of Oslo. I guess I live a peripatetic existence. I enjoy 500 Startups’ website saying “Our founders are rock stars, scientists, and artists all in one”. Well, who doesn’t want to be a rockstar; my interests and methods have a scientific orientation; and if not artistic, I love drawing models and solve problems at the back of the napkin.

I like the notion of a methodologist. Generally, a methodologist is one who studies methodology, which is a set of methods, techniques and tools that is applied within a disciple. I find this somewhat different from that of an analyst and strategist who often operates in a solution-oriented context. My view of a methodologist emphasizes teaching and learning a set of methods for addressing a problem. I believe that knowledge of methodologies will enable companies to become sustainable in solving their own problems and deal with opportunities in an ever-changing environment. By bridging proven innovation practices with hands-on experiences, I apply this idea to methodology of risk reduction in new-product introduction.

What is EasyPeasy? How did the concept of EasyPeasy evolve?

EasyPeasy is an Internet OS for netbooks. It is Linux-based, and is arguably the first web-centric operating system customized for netbooks. The project was started by my colleague Jon Ramvi. In Australia at the time when netbooks had hardly reached the marked, Jon figured that existing OS’ were too “heavy” to run on those small and nimble machines. He decided to build an OS that were lightweight and focused on people that wanted an open source platform alongside proprietary applications. Captured by the disruptive opportunities of cloud computing, open source, and low-cost devices, I soon came on board. Despite of fierce competition and the rise of tablets, EasyPeasy now has a six-digit number of downloads with users in over 166 countries, and still growing. Currently, we are testing some exciting minimum viable products.

You run a blog on startup methodologies? Can you tell us what exactly it is and how did it start?

My blog focuses on methods and tools for entrepreneurs. It aims to uncover a gap between technology and marketing, and puts it to practical use by giving entrepreneurs (and intrapreneurs) usable methods and tools that they can use to reduce risk in new-product introduction and build capitally efficient scalable businesses.

Well, it is actually a “minimum viable blog”. I had tried to start blog several times prior to this. Every time I had set up the LAMP stack, hacked a cool WordPress theme and fine-tuned its look-and-feel. I was completely focused on the technical stuff. Consequently, I never got to write any actual content. This happened over and over again.

As I got aware of this “failure pattern”, I figured it was time to go quick-and-dirty. Forget about that stunning domain name, forget about LAMP setup, forget about the cool theme – just write that post, I decided. My first post was about creativity vs. discipline in entrepreneurship, which eventually evolved into the idea of a Product-Market Fit diagram. I call to remember that Sean Murphy was the first to respond to my blog. Subsequently I had a chat with Sean, who inspired me to continue blogging (thanks Sean).

If you substitute the sound of “Blog” with “Product” in the story above, the process has in fact much in common with startup methodologies – about getting out a Minimal Viable Product, iteratively testing it for feedback with customers, and based on that, maneuver it in the “right” direction. I am in the middle of the process od developing my blog by this notion. Actually, one of the posts are about spin off a service, which I’m currently testing for users’ feedback.

You are talking about Minimum Viable Products, how would you define it?

I am a proponent and big fan of MVP. Although I believe that others can answer this better than I will, I find it useful to think about MVP as the creation of rapid prototypes for testing business model assumptions, and using customer feedback to test and develop them faster than via traditional practices. It’s like rapid prototyping on marketing steroids. An important assumption with MVP though, is that “speed wins”. That does not necessarily account for all technological and economical conditions.

As mentioned, a blog or even a blog post could be a MVP. Another MVP that I recently did with an online video service was based on a simple landing page hosted with WordPress, and running an online survey using WuFoo. We tested various value propositions, used AB/testing with users acquired from Google Adwords alongside meeting with potential users face to face. We learned a lot from this exercise. As we did here, you may find it sorry if the data speaks against you. But think about it, you just saved yourself from spending precious time and money.

What makes you so passionate about startup methodologies?

My passion for startup methodology goes back to when I migrated from studying software engineering to that of technology management. I remember the day when I was sitting in front of code at the university and came to think “such a waste – we develop all this cool stuff, but never get to do anything about it”.

At the time I had begun to see anti-patterns among software and marketing methods, and came to think of better integrating the two. While agile methodologies are inevitable for successfully building software products, why isn’t there an integrated method for launching and taking that product to market, I asked.

I presented the idea to both faculty and entrepreneurs, but most feedback was about entrepreneurship being more about gut feeling than about systematic methods. Yet, I continued digging into Scrum and Software Patterns at the one hand, and Disruptive Innovation, Diffusion of Innovations, Lead User, etc. at the other.

Following, when I did my thesis drawing on business models and value configurations in two-sided networks, I became inspired by Alex Osterwalder’s work on e-Business Model Ontology. Still unaware of methodologies of early-stage entrepreneurship, I discovered Customer Development by Steve Blank, who I found to be a true master of building on the cleverest theories and applying it to startups in a practical manner. This led me to Eric Ries’ Lean Startup and the real deal of integrating agile product development with commercialization.

In short I found that the Business Model Canvas could make use of a methodology, as well as the Customer Development and Lean Startup methodologies could make use of a common business model structure. This lead into a threefold startup methodology inspired by agile development, customer development and the business model canvas, also called the Lean Startup and Business Model Canvas mashup.

Can you elaborate more about this mashup of agile development, customer development and the business model canvas?

It is a threefold startup methodology that uses rapid prototypes and customers’ feedback for iteratively proving business model hypothesis.

I once learned from my father, a mentor and serial entrepreneur, that business models at startup is about acid-testing (as he choose to call it) your core business assumptions. Influenced by the Business Model Canvas at the one hand, and Customer Development and Lean Startup at the other, I took this one step further by applying its’ iterative methods and testing schemes to each business model component.

In this process I discovered that Customer Development principles complied with the front-end business model canvas components, and that agile development complied with the back-end components. I found that the Product-Market Fit, another key tenet with the Lean Startup, could correspond to Minimum Viable Product with the Value Proposition component as a result of customer development and agile development acting iteratively.

You are teaching entrepreneurship at the University of Oslo; how has the experience been?

Yes, I teach and develop an interdisciplinary course at the Centre of Entrepreneurship that is practically as well as theoretically focused.

I hope to contribute in bridging education and entrepreneurship, as well as uncovering a gap between technology and marketing. I believe that at start-up where resources are scarce, founders would benefit from having both skill sets, or at least understand the two. One too many times I have heard the B-scholar saying that he have a great idea and now only needs someone to go develop it for him, and similarly the engineer saying that he have a killer product that will go off selling itself. I hope to fix that.

Various times I’ve also been told that entrepreneurship cannot be learned. I believe that this has to do with the infamous and interesting nurture vs. nature discussion. No less than that many of the greatest artists of history went to art academy, and the greatest leaders of time went to B-School, I believe that future entrepreneurs will attend E-School. Nevertheless, I believe that startup methodologies can enable entrepreneurs to mitigate risk in new-product introduction in similar ways to system developers are using methods to efficiently build software.

By leveraging customer development principles the course invites students to get out of the building and test their opportunities with real people. We also teach a concept called FRUST (for frustration), which really put the focus on discovering the problem or pain of the customer. I used to joke about one student asking a potential user if she wanted to marry him. Nonetheless, we discover many interesting ideas and facts.

This spring the course will use the threefold methodology of agile development, customer development and the business model canvas. We will leverage rapid prototyping alongside customer discovery and use the Business Model Canvas to connect it all together. I look forward to teach the Customer Development book by Brant Cooper and Patrick Vlaskovits, who you interviewed here. This book provides a fine balance between theory and practical exercises for the students. Let’s say I also look forward to see many exciting business models and minimum viable products.

Going forward, what methods and tools will you be working on?

I’ll be devoting my attention to testing a couple of minimum viable products with Lingo Social, and launching our next project. Its going to be a good opportunity to learn and try theory with practice.

I expect to be developing the Agile Development, Customer Development and Business Model Canvas mashup into a more complete framework, as well as continuing the Product-Market Fit diagram. I also recently discovered the extreme Innovation and prototyping concepts of Google, which I am eager to study in more detail. And, off course I have some new ideas and observations in my notes that I will be posting on my blog soon. Stay tuned

Last, what advice do you have for upcoming startups in general and with respect to startup methodologies?

Well, I can only advise what I believe in. First of all, I want to emphasize that startup methodologies are not maps. Rather, they tell us how to read a map.

I believe in building that prototype, getting users’ feedback, and use the learning for testing core business model assumptions bottom-up. Rinse and repeat.

I try not to pay too much attention to competitors – they steal motivation, not ideas. I’m saving that for the customers. They are the ones who put money in our pocket.

Today, The Entrepreneur’s Guide to Customer Development is one of the best learning resources and must read book for tech co-founders. That’s not all! Patrick also co-organizes LA Lean Startup Circle and is again busy with his new startup.

Again, Patrick, who also blogs here, was introduced to us by Dan Martell, Co-founder of Flowtown, and he agreed to speak to us about customer development and other aspects of startups on Foundora. And, in this audio transcribed interview, Patrick speaks about his first venture he used to test Cust-Dev, customer development methodology, lean startup methodology, pricing, and a lot more.

Interview Overview:

• Patrick shares his entrepreneurial journey and how he got onto Cust-Dev.

• Patrick’s first experience/experiment with Cust-Dev.

• Is “fake it until you make it” unethical? Patrick’s take on his own experience.

• The motivation behind writing the cheat sheet to Four Steps to the Epiphany.

• In simplest terms, what exactly is Customer Development?

• What exactly is the Lean Startup Methodology and how Cust-Dev is integrated in it.

• How do you get customers to speak about their problem in Cust-Dev.

• How can a startup set the pricing based on Cust-Dev methodology.

• When should you start charging your customers.

• Patrick Vlaskovits’ current startup.

• Advice to those who want to do Cust-Dev for their startups.

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Hi Patrick, let’s start with your entrepreneurial journey and how you came across the concept of Customer Development?

Sure, the most relevant place to start is – two startups ago, a friend of mine and I tried to do a sort of Evite meets Social Networking thing. It was quite funny because we didn’t know what we were doing. Looking back, we did absolutely everything wrong. It was a total disaster, total mess and a tremendous waste of money and time. In fact, in retrospect, it is quite embarrassing. Our friendship survived that but the startup itself was a complete disaster, however the experience was very educational.

After that, I wanted to do another startup and about the same time, I read Steven Blank’s book “The Four Steps to the Epiphany” and that really changed my perspective about how startups should be built.

When was this?

At the end of 2007 – early 2008, we started the first one and then the second one in 2008-2009. At this point, unfortunately I already had two startup failures to my name but both incredibly educational. And, it was the second one where we used the letters of intent and screen-shots to validate the idea. We got that idea directly after reading Steve’s book — we did this because we really wanted to test Customer Development to see if that would actually make sense for us.

Your first implementation of Cust-Dev was pretty interesting. Can you tell us more about it?

Our idea was for a web-based social networking tool for trade organizations and professional organizations that would complement existing offline networking — we wanted to validate to some level that we would get paid for this and it had some value. We didn’t just want to build it and give it away for free. We didn’t want to take the typical “Build it and They Will Come” approach…and hopefully pay for it. We mocked up some screenshots with a designer’s help. With Photoshop, we made it look like web app and then we got warm introductions and did some cold calling. We got in front of the people, tried to describe the problem we thought we were solving and why our solution would help.

What was really important to me is – instead of asking people what would they might pay or what they might like to pay or how much they think it might be worth, I thought putting people into a situation where there is a consequence to their decision is a much truer signal, a much more honest signal. So, we wrote up these very simple Letters of Intent that said “Ok, if you sign this letter of intent then you agree to use this. You got to pay this much. It’s going to do x, y and z.”

Our intention, in the meantime, was that we wouldn’t code anything; nothing would be coded until we had two or three signed Letters of Intent and then that happened. We did manage to sign some people, went back and coded it and had them use it. For the situation we were in, it was great in terms of validating the initial, raw idea and getting people to use it and getting them to have some skin in the game. Had we just built it and tried to get people to use it, to be fair, that may have worked as well but I don’t like that approach as much as I would like some sort of hard validation.

Foundora Quick Note: You can find a detailed case-study here on the Lean Startup Wiki.

Great, but there were some discussions about the method you chose and some arguments of it being unethical. What’s your take on it? ‘Is fake it until you make it’ the new way to go?

I think we definitely pushed the boundaries and this is going to be a very unsatisfactory answer and for people who don’t agree with me, it is unlikely to persuade them. But, you know, people do these things all the time. We didn’t invent this method, we were trying to minimize our risk. Even when you go to people and talk, you say, “I have an idea and I want you to use my product and I am going to come back to you after 6 months or 3 months” from now. People – your potential customers – often will also push ethical boundaries as well. They’re likely to say, ”Oh yes, we would love to use it.” but at the end of the day, no one uses it. But two wrongs don’t make a right – of course not.

However, we really wanted to minimize and mitigate risk as much as possible in this case. Our intention was to build the product and we did and we didn’t see any real downside risk to the customers. In fact, once we started talking about our product and the problem we were solving, we often opened the doors to this whole new world to them and they would immediately go Google our competition. At that time, there were quite a few players in that space. We actually introduced them to our competitors in a roundabout manner. So, we actually provided a lot of value.

I don’t think it was unethical; I consider myself a very ethical person and there wasn’t any harm to the customers. Entrepreneurs have been doing this for thousands of years – sort of faking it and making it. And, I am sure this is nothing new. I think the best entrepreneurs kind of intuitively understand the value in these approaches in the right time and in the right context.

So let’s move on. What actually motivated you to write the cheat sheet to “The Four Steps to the Epiphany”?

What motivated Brant and I to write it is that we love the book. If you talk to people who have read the book, you find for the most part, these people are very passionate about the book. I know I certainly am. I still have it on my desk. I leaf through it every few days and constantly use it as a reference. It is a fantastic book and I know Brant feels the same. Whoever reads the book, loves it. I have recommended the book to hundreds of people but I got very few people to actually read it. The book really makes you earn the knowledge and wisdom within it to understand it. That book is simply very dense with so much wisdom and insight about how to go about building a scalable startup into a big business.

Brant and I thought, if we could distill the basics of Customer Discovery down into a “cheat sheet” we could add a lot of value and really help mainstream Steve Blank’s ideas. We did this because they are big ideas, great ideas and they are powerful ideas. We also wanted to add the current thinking about related things like Eric Ries’ Lean Startup, Dave McClure metrics stuff, Sean Ellis thoughts around “40% rule,” things that were in the same space and clearly related and wanted to introduce people to this.

Clearly, what we wrote is not “The Four Steps to the Epiphany”. I want to emphasize: Our books is not supposed to be a replacement for it. We wanted to produce a very digestible, to-the-point introduction to Customer Development and wanted to focus on customer discovery because that is something I know well – this was the number one reason.

And two, Customer Discovery is the first step and most of the startups will never get past it. Just getting out of the building and questioning your assumption, if you can do that well — 90% is done of what you need to do. And that’s what really motivated us to spread the word about what Steve Blank has codified in “The Four Steps to the Epiphany” and make it little more digestible and allow more people to get access to it.

Foundora Quick Note: You can download the first 45 pages of The Four Steps to the Epiphany here.

How did Brant Cooper come along with you on this? Can you tell us about that?

Sure, Brant is a marketing consultant, and a Customer Development practitioner and coach down in San Diego. I live in Newport Beach so we are about an hour apart, we are both in Southern California but spend a lot of time in the Silicon Valley; Brant is a ridiculously intelligent guy. He has come across similar sort of methods; he had read some papers that were similar in approache to Customer Development; I think they were called sales and R & D. We actually met on the Lean Startup Circle Google group that’s run by Rich Collins. BTW that’s a great source for anyone interested in Cust-Dev / Lean Startups. He was applying these customer development methods in his consulting practice and he is also a fantastic writer, in fact much better writer than I am.

So, we are both passionate about this, we really loved Steve’s book and we were in the same area and we thought why don’t we collaborate on this book and get this book out. I think it was a great collaboration. It was a very complementary fit of skill sets and tactics.

Also, just to plug Brant, if anyone needs any Customer Development consulting, Brant is the person to go to. There are also other people one can go to, but I am bit biased towards my co-author. Anyway, that’s how we came about doing it; we reached out to some of the people in the Bay Area like Eric Ries, Steve Blank himself, Hiten Shah and others and they all encouraged us and then we went about writing it and finishing it.

That’s really great. So, let’s talk about the actual customer development. What exactly is customer development in the simplest way possible?

Okay, let me give you my take. I think Customer Development is about two meta-rules, two meta-principles – Firstly, you need to get out of the building as Steven Blank puts it and secondly, you need to question your assumptions. You know, we all hold assumptions about how if we write a business plan, about how we are going to acquire our customers, about what they’re going to find value in, what the value proposition is, what the price will be etc. This happens whether you do Customer Development or whether you don’t. We humans create these hidden assumptions. The point of Customer Development is to challenge what Eric Ries calls one’s “shadow beliefs.”

Let’s say, I am going to build a web app and I am going to acquire customers on the web using SEM and SEO. Great! Now, let’s actually test that set of assumptions because as it turns out that there are lot of people much smarter than I am who have wasted millions and millions of dollars and lots of time because they haven’t bothered to validate and test these sorts of assumptions and stubbornly clung to their so-called business “plan”.

At the end of the day the simplest form is to get out of the building and find the facts that exist about your customers, markets and products and secondly, question your assumptions. What Steve describes in “The Four Steps to the Epiphany,” is a method of doing that in four stages but when Brant and I sat to talk to Steve about this, Steve himself said, “if I can convince people just to get out of the building, they have done 90% of what needs to be done.” And, getting out of the building means getting out and talking to humans about the problem, the solution and the product. It’s not feature mongering, it’s not market research, — it’s trying to really find the pain points and depending on who you are, this can be pretty difficult or very easy. I am a very gregarious guy, I like talking and perhaps too much, so I find it fairly easy to get out of the building.

Some engineering types will do anything to not get out, to not get away from behind the computer. They will push surveys at people, but they won’t get out of the building. If you are not getting out of the building, in my opinion, you are not doing customer development. You got to go find real human beings and talk to them. It’s not about, “Hey, I am building a product, what features do I need.” It’s talking and understanding their pain points, their fears. In fact, I spoke to an entrepreneur the other day and he said he tries to zeroing on what they are fearful of and that was something very interesting and something I had not thought of either until recently.

Dan Martell, whom you interviewed, has a really great phrase. He says, “you need to get their reality,” you have to understand what their reality is, the reality at their workplace. That’s a very succinct way of putting it. You have to understand how they solve their problems, what motivates them, why they have these problems, and understand where they are coming from and Customer Development is one way to do that.

Now, is it applicable for all businesses? Certainly not. Now, there should a discussion about what sort of risks are you taking in your startup. Market risk or technology risk? I don’t think this is something that should be done for all businesses. For example, if you are starting a pizza chain here in the United States and you are going to franchise a pizza parlor, you don’t need to do Customer Development. There is already a play book written for you how to do a pizza parlor almost anywhere in the United States. There’s market risk but it also has been mitigated in terms of how you handle it. But, for technology, scalable startups, there is yes, technology risk, but market risk is greater most of the time.

Can you please brief us a little about the other three steps?

The three other points are Customer Validation, Customer Creation and Company Building. One of the most important points is that some people don’t really understand is the pivot that Eric Ries has talked about for long time and now is becoming very popular, is the link between Customer Validation and Customer Discovery. The first time I saw it, was on Eric Ries’ blog but now other people have sort of adopted it. If you do not understand the link, you are missing the point of Customer Validation. Let’s say, your business model is not quite there, you would have to pivot. Pivot is a great analogy for this because you are going to keep one foot rooted in what you know and change one segment or one bit of your business model. Unfortunately, some people don’t understand this.

We try to make it clear in graphics that we produce for the book that the pivot is an essential part of Customer Validation and if you don’t get it right you should probably go back to Customer Discovery. Now, I personally have never had the experience of Customer Creation, and Company Building. So, that’s why we lean very heavily on Customer Discovery. Also, first of all we don’t really address the other three in the book as they come after you get near the state of Product/Market fit, these are separate problems. What’s really important to note, in my opinion, is that in a sense, these are four buckets for four different types of problems. It’s important to be addressing the right problem at the right time. In other words, as some people say “nail it before you scale it”.

So, scaling is the third step i.e. Customer Creation. The whole point in Steve’s book is that – you don’t want to be prepared to scale if you haven’t sold anything. You are solving the wrong problem at the wrong time. This is something Eric Ries also has talked a lot about where you make sure you are solving the right problem at the right time and you have right action for the right time. That’s really how I am trying to distill these four steps in the simplest way possible and that’s the way I see it.

So it’s more like the science of building a successful startup?

It is clearly applying the scientific method to building a startup but it can’t be pure science, and pure ‘logic’. You are always going to have absolute need for founder vision. There is absolutely an art to being a successful entrepreneur, I, for one, am still trying to figure it out. Not everything can be distilled into a spreadsheet. For example, Steve Blank has a presentation where he talks about why accountants don’t run startups.

There’s absolutely some intangible quality about being a successful entrepreneur and customer development accounts for that and melds the art of being an entrepreneur with the science of being an entrepreneur. But, what I do want to communicate is that it’s not simply applying scientific methods to entrepreneurship because entrepreneurship has an artistic quality to it. You can see it in the best entrepreneurs but at same time you want to apply logic and reason and scientific method where appropriate. In my opinion, Steve has done an amazing job in describing a method to do that.

Great, let’s talk about lean startup and what lean startup means? What it involves and how customer development is integrated in lean startup methodology?

Lean startup methodology is something that Eric Ries created and he has many insights on it. But, what I take away from Eric about lean startup is the fundamental insight that “when the problem and solution are both unknown as tends to be the case with Internet startups, ‘you need to bring agile development into a successful feedback loop’ based on the OODA (Observe, Orient, Decide & Act) loop so you can learn as you build. A lot of the people, in my opinion, miss the fact that Eric is really talking about starup epistemology: what we “know” it and how we “know” information important to startups and in my opinion, he has made a fundamental insight by pointing out that when you have a startup you actually don’t know a lot.

You may think you know a lot but fundamentally the problem and solution are both unknown. So, this is one way to deal with the chaos and uncertainty of the knowledge at hand and perhaps maybe a very high-brow way to describe Lean Startups but I think the reason I mentioned is that a lot of people still don’t understand it. They are excited about Customer Development; they are excited about Agile Development; they say these two things sound good together. But there is a reason why Eric has melded those two into the Lean Startup methodology.

I am a big proponent of understanding why you are doing something. A lot of people want to do Customer Development or Lean Startup but before they do — they should try to understand why it’s a good method or why it’s not a good method. And, my answer, Eric deserves tremendous credit for identifying the fundamental link between Customer Development and Agile Development. Again, the problem and solution being unknown, we like to pretend we know it.

We talked about the customer development getting out of the building, talking to the customers, how shall one start and make the customer speak whatever they want about the product? How to get them involved in customer development? What is your experience in it?

That’s a great question. First, you need to find the early evangelists. You will find those people as Steve Blank describes them – they have problem and are looking for a solution. They probably have some sort of home grown solution, they also have the budget and they have the pain. If you can find those people, those people are very motivated to help you in building a better solution. If you find some people who may have the pain but don’t have the budget or are very satisfied with status quo, those people tend to be very difficult to engage in real customer development. So initially, find the early evangelists and early adopters and work with them to understand them and their pain. It’s not about asking what features they need, it’s about understanding their pain.

That’s a very crucial step and most people miss that about Customer Development and lot of people think “I just go talk to people I will go home and build that.” That will very, very quickly lead to chaos.

You won’t be reducing entropy but actually increasing entropy. It’s you who has to understand the pain and these early evangelists tend to be pretty good about describing their pain and potential solutions for the pain.

So, when you talk about their pain, it becomes pretty easy to make them talk about your product and solution?

Exactly. I have some ideas I am working on right now. So, what I look for whenever I do Customer Development is I look for what people are saying to you verbally and non-verbally. That is a data point but often people say something to you like “yeah, it’s a great idea” or “yes, I would like to do this” but they say in a very flat tone or without emotion. When people get excited, their eyes get bigger and their passion in their voice is seen. They start leaning forward and they start pounding the table and these non-verbal cues are very important. That’s why you have to get out of the building, by the way. That happens only when you can really hear their pain. For example, I was actually describing this to a friend of mine who is not into technology. He is a management consultant.

I was describing the difference between so-called vitamins and so-called pain killers when it comes to software solutions and we started talking about a problem he has at his job. It was funny because as soon as he started describing his problem, he started getting very emotional about how he needs to fix it. He doesn’t know how to fix but just knows he needs to fix fit. It’s about pain and perhaps even about fear. You know these, in my opinion, these non verbal cues mean a tremendous amount and if someone sounds interested but they are not shoving money at you to fix their problem it’s likely they are probably satisfied with the status quo and are not going to pay to solve the problem.

One startup idea that I have been working on was a scheduling software application for a specific market segment, that’s what I have ran into and I am almost ready to kill that idea because I found that there is not a lot of passion, there is not a lot of pain. I have not been able to uncover it. In fact, in my opinion, the beauty of Customer Development is to try to find the pain and if you can’t find the pain then move on to something else whether it’s a pivot or it’s a completely different idea. The idea is that you have saved your own time, your own blood, sweat, tears and you have not poured your life into something that is not going to generate return. Also, the thing a lot of people miss in Customer Development and Lean Startup is that – you need to iterate and pivot, and that’s something most people don’t understand or miss.

You also write about pricing on your blog; we want to know how a startup can figure out the right pricing for their software or service based on the customer development methodology?

I have a Masters in Economics and we definitely studied price theory in economics. Price, from an economic point of view, is just a mechanism to distribute products and services but in the real world, it is so much more than that. I have personal fascination for pricing. I don’t claim to be an expert in any shape or form on pricing. There are a lot of better trained and smarter people than I am. However, I do feel that Customer Development around pricing is crucial. There are other dimensions that need to be examined depending on if you are a freemium play or not; if you are a network effect business or if you are B2B or B2C. Those things all have a lot of bearing on your pricing model.

But, instead of me trying to give you a method about how to find pricing, ultimately, you want to test pricing. Now, Steven Blank describes on his blog how to do certain B2B or enterprise sales testing and he has got some very good methods for that (Can you point us to the posts). Sean Ellis has a great blogpost on pricing as well. The thing, I guess I want to highlight, is I want people to get away from being afraid about talking about pricing with their customers. More than a few so-called entrepreneurs are actually afraid to price their products which I find sort of insane. If you are delivering value, there’s no problem in reaping some of that value.

What we did with our Letters of Intent was – we literally went into one meeting and said its going to be X00 dollars per month and we got it signed and we went into the next meeting and said its going to be Y00 dollars per month. We did very crude type “split”-testing as far as what we could get and we also tried to figure who actually is the economic buyer, and who is the user, who has the pain, who is buying the product and all these are important in pricing decisions.

A friend of mine has a very successful SaaS startup. He initially actually took people’s credit card numbers but did not charge them. He wanted to test pricing before building billing backend to it. He described debates he had with his team about this, “Oh, we can’t test pricing until we can actually process payment.” He replied, “but we can test pricing conversion and we don’t have to charge anyone. And in the meantime, we would have validated learning about pricing.”

If you are in the customer discovery phase, should you be also charging your early evangelist; what is your take on it?

It depends on your product and customer. Every situation is little bit different. My preference is that people pay as soon as possible. So, if you have an MVP and customers derive value, they should be paying you for it. That’s for multiple reasons. You are creating value, you are learning about how to price your product, not only what to charge but how to charge, is it monthly or based on usage? My preference is that people be charged as soon as possible. However, there are good arguments made for not charging. For example, your early evangelists and holding off till you feel your MVP is in second or third generation of your MVP.

It depends on your customers, depends on what works for them and what doesn’t work for them. Every situation is different. I have a preference but there are certainly good arguments for holding up pricing till the last possible moment in some ways. Customer development is not deterministic or paint-by-numbers. We have our preferences, rules of thumb, but every situation is different at the end of the day.

Can you talk about the current startup you are working on?

It was an appointment schedule tool idea I had for a certain segment and to be honest it’s not really fair to call it a startup, it’s more of a project. At this point, I am about to put a bullet into it because I have not been able to uncover a real pain point.

Cindy Alvarez has great customer development blog she maintains while she works for KissMetrics and she and I talked yesterday. She made a point that if people are satisfied with status quo, that’s a very strong signal and that’s absolutely true. The project I was working on people are satisfied with status quo even though I as an outsider, see it very much inefficient and needing of technology. The actual people I wanted to sell to certainly don’t see it that way. For me, I need to find pain.

What advice would you like to give for startups trying to learn the lean startup methodology and customer development methodology?

My advice would be to just go do it. I think everyone should read Steve’s book “The Four Steps to the Epiphany.” I think we also did a pretty good job at Entrepreneur’s Guide to Customer Development. I recommend reading all the great blogs including Steve Blank’s blog, Eric Ries’ blog, Sean Ellis’ blog, Dave McClure doesn’t blog that often but where he does, he’s got great stuff. I am sure I am forgetting a number of other great blogs.

Firstly, read all these great blogs but at the end of the day you got to go do it. I am a person that really learns by doing. You just got to force yourself out of the building and go do it even if it’s a few customer interviews. You got to go do it to practice it, to learn it.

You can read all you want but at the end of the day as Steve says, “Get out of the building” if you want to garner a deep insights by talking to customers who are going to break some of your assumptions, my advice would be get out of the building and do it and that alone will get you very far.

Special thanks to our voluntary transcriber: Afshan Khan

David has had an inspirational journey with quite a few amazing recognitions such as Young People Who Rock by CNN, Among Top 5 Entrepreneurs Under 25 by BusinessWeek, and 40 Under 40 Business Leaders by Boston Business Journal and many more, under his belt. Working on his own company is not the only thing he does; his strong entrepreneurial spirit has allowed him to serve as a consultant for various companies as well as a mentor to emerging entrepreneurs. In other words he lives by his motto “Empowering Entrepreneurs to Succeed.”

Our thanks to Jonathan Kay, the ambassador of Buzz at Grasshopper Group, for arranging an interview of David with us on Foundora. In this interview, David speaks about his background and journey from GotVMail to Grasshopper Group, and speaks about the re-branding, his lessons learnt and much more. Read On…

Interview Overview:

• Background: David’s entrepreneurial journey till Grasshopper Group.

• Startup: The inception of Grasshopper, initial challenges he faced.

• On bootstrapping: how he managed to bootstrapped & how he stayed lean.

• Why he chose Oracle Database over Open Source MySQL.

• Re-branding from GotVMail to Grasshopper & things to consider while naming.

• How he built and maintains an amazing work culture.

• Grasshopers new approach to PR, the ambassador of Buzz.

• Chargify’s pricing change incident & the lessons learnt from it.

• An ideal way to move from Freemium to Premium business model.

• Advice to aspiring entrepreneurs.

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Hi David, Tell us something about your background and how you started as an entrepreneur and your journey till Grasshopper?

Lots of entrepreneurs say they were always going to be an entrepreneur and were selling lemonade on the side of the road when they were 2 years old and while I knew from an early age I wanted to be an entrepreneur I was not selling lemonade growing up in Manhattan. Very early on I was more interested in creating and ultimately selling things than I was playing video games. My parents were very supportive of all the different things I tried, from selling stickers to other kids to starting a web design business. To this day I remember a lesson my Dad taught me when I wanted to start a web design business and needed an very expensive Dell computer (when Dell was just starting), he said told me he loved the idea of starting my own business and he would loan me the money for the computer but I must pay him back. It was not a gift or something that was my right, but the first investment in my business and it was not free.

From there I started all types of businesses but most had some technology component which interested me the most so I stuck with that. Prior to graduating high school I was involved in starting a company, Return Path, which is still very successful today. At Babson College my business partner and I met and GotVMail, now Grasshopper was born.

So how did the concept of Grasshopper (formerly known as GotVMail) come across? What were the initial challenges and how did things get started from there?

The concept for Grasshopper came from our own need for a service to sound more professional, stay connected and present that image we wanted. After being involved in many startups and our own ventures we were looking for a service like this and could not find something truly design and made for entrepreneurs, so we created it. The market said we were right and we created an industry around virtual phone systems and have since served hundreds of thousands of entrepreneurs.

When we started there was not even a name for what we were doing, so there was market confusion and a lot of talk about VoIP. It took a lot to stay away from that, make a clear message and help the market understand exactly what it was that we do.

We have grown tremendously from our original concept and product to fully realize our core purpose of empowering entrepreneurs to succeed. At Grasshopper Group we have launched Chargify and Spreadable as part of the beginning of a suite of products and services for entrepreneurs.

You have never raised any funds till date yet you have been profitable since the beginning. How did you manage to bootstrap so successfully? What practices in terms of development, marketing and hiring helped you to stay lean on costs?

Starting with almost nothing and no backing was challenging for sure and made us very good at selling our story. From day one we had to sell our story to vendors and partners to get the payment terms needed to allow us to conserve cash. Another important thing about not having funding was we only purchased what was required, hired for exactly what was needed and could be paid for and always made decisions that helped us grow organically. We did every job before we hired for it, so we had a great idea of what was needed for that job. Unlike today we had a huge challenge in infrastructure costs, we have real data centers, servers, and telecom equipment that today could be outsourced during the startup phase.

When bootstrapping a company there are no best practices for development or marketing to keep it “lean”, you just have to. What is more difficult is continuing those same actions that made you successful when you have more money to play with and are profitable, that is when you can make big mistakes.

Startups often opt for free and open-source software to cut down costs. But, you mentioned in some previous interviews that you incurred costs on the Oracle database when you started. What was the database choice based upon and why didn’t you go with an open-source, free alternative MySQL back then?

Having used MySQL for many projects in the past the decision to purchase Oracle for the database was a large one and continues to be expensive today. Operating in a 24/7 telephone environment is very different than a web environment and that is the reason we went the direction we did. A one or two second delay in some web application is nothing, that same delay on the phone is very noticeable and most people would say very bad, so speed was one factor. When your phone does not work that is different than a 15 minute downtime for your photo sharing application and could mean losing a big client or not getting the call you need, so reliability and uptime was another factor.

Looking at the available options Oracle was the most mature and proven database for very fast and reliable applications. Take for example that until recently MySQL could not handle multiple nodes very well or replication to a read only slave. Oracle had been running RAC or Real Application Clusters with cluster of 10+ nodes for many years and MySQL had just started to test this functionality at an enterprise level.

The question I would ask is, if we were starting today would we make the same decision? Since I have not had to do all the research based on current market conditions I cannot say 100% and I would need to take the time to review newer entries after MySQL, my hunch would be yes, we would purchase Oracle again for the database side of the business. When you have to run large clusters of highly available databases with small data sets it is still the best option.

You have rebranded GotVMail to Grasshopper and that was an innovative & exciting operation, can you tell our readers more about it? What do you think entrepreneurs should consider while naming a brand or a product?

The GotVMail to Grasshopper rebranding or relaunch was a very exciting time as well as a lot of fun. For years we knew the name did not work, from spelling it on the phone to radio ads it was clear. What became even more clear is it would never be a true brand, just a product name. The goal of the rebrand had two core goals, first relate entrepreneurship to Grasshopper and second get some buzz around it. Interestingly the fact that our old brand was something else was a message only current customers saw and was not a focus.

After we decided we were changing the brand, picked Grasshopper and got the domain name grasshopper.com we decided we needed to do something a bit different. For us that meant a multi channel message that included physical mail, an item, social media and a video. What we came out with was sending 5000 bags of chocolate covered grasshoppers in FedEx envelopes to influencers all over the country with no information other than a URL to a video. This generated a huge amount of buzz and most importantly met our main goal of relating the word entrepreneur with the brand of Grasshopper. A month after this launch we published a case study that showed the actual cost of everything we did, the results, metrics, and anything else we thought would be helpful for other entrepreneurs to learn from.

My advice to other entrepreneurs when naming a product or brand is make it easy to spell, easy to remember and stop with the silly domain names. This will make it easier in the long run from radio ads or just telling someone your email address but the most important factor is when it is easy to say and type you will get more word of mouth referrals.

Grasshopper seems to have an amazing work culture. Tell us how you built it and more importantly, maintain it. Also, what do you think is necessary for startups to do in order to create a work culture that drives both productivity and innovation?

Culture really comes from the entrepreneur articulating and promoting their core purpose and core values and then hiring, training, and firing around them. The process can sound very daunting but the value that you see after it is done is beyond amazing. Core purpose answers the question of why your employees work for you (and it is not money), why your customers buy from you, and helps to answer the difficult questions. Core values are the how, how you treat employees, customers, vendors, how you do your job everyday and are much more powerful than policies or rules.

The key to making core values work is you must live them every day and use them in everything you do. These values cannot just be written on a card or website and forgotten, put them all over the office, use them in praise as well as coaching, and talk about them all the time.

You have a complete different approach to PR with a dedicated ambassador of buzz to nurture and build an army of brand loyalist as you say, please tell us more about it and what exactly do you mean by brand loyalist? What’s the day-to-day role of the ambassador of buzz?

From the day we started it we clear the power of PR and we wanted more of it, over the years we tried everything from in house traditional PR to the best agencies in the world and finally found what worked best. That was doing it ourselves in a very different way, where we turned it into a sales function compared with a writing and press release function. Gone are the days of press releases and trying to get the editors attention for carp they do not care about. We started calling, emailing and ultimately building relationships with reporters, bloggers, photographers and those that had a job to do with our core purpose of helping them do their job better. When we hired Jonathan, our Ambassador of Buzz, he had no PR experience at all and was just good at listening and sales, which was key to making this all work.

In the past year or more we have built up the position beyond just listening and pitching to really build brand loyalists across many channels. If it is helping a customer or just an entrepreneur we meet get the press that will help their business or going to a bar camp and participating. Our theory is very simple, be a human that cares about entrepreneurs and good things will happen.

There has been this recent controversy about Chargify’s pricing. What exactly happened? And, what were the lessons learnt?

The issue with Chargify was a very interesting one and something that helped us learn a ton about our customers, the community and what freemium really does to a company. After replying to hundreds of customers on every imaginable channel I wrote about the lessons learned on my blog. One thing we heard loud and clear was people cared about what we were doing and providing and us taking that away did not make them happy. Maybe it was our mistake for even offering a freemium option and I doubt we will ever do that again until a company is profitable, maybe it was how we communicated, but really our biggest failure was not understanding the community and making assumptions. When running a portfolio of companies you gain a tremendous amount of experience, knowledge and scale that you can apply across those companies but you need to be careful. Just because our Grasshopper voice product community responded a certain way to a price change does not mean the same will happen with Chargify.

There are many things we could have done better or differently but I have no idea how any of those would have turned out, so I cannot spend more than a few seconds thinking about that compared with moving on and making the business successful. The funny thing in it all was, TechCrunch covered us when they would not before, we were #1 on Hacker News for two days in a row, Inc Magazine wrote about us and we had a week of very high order numbers. Some people have said we did it all on purpose, I wish I was that smart and could do that, but it was not on purpose.

Now that you realize your mistake while changing the Chargify’s pricing model, what do you believe now would have been a better way to move from Freemium to Premium or to change pricing?

Never launch a freemium pricing model until a company is profitable and it can become a paid advertising channel, Mail Chimp wrote a great post about that. However if I had to do it again, it would be communicate early and often, get more buy-in ahead of time for key influencers by keeping them more involved and provide a longer and more clean transition period for current users to the new pricing.

What specific advice do you have for aspiring entrepreneurs?

I know it sounds silly but my advice is just go out there and do something. Build what you can, buy what you can, and just make it happen and worry about the rest later. You can spend years thinking about the market opportunity and business plans but today you might as well build a MVP and get some customers to tell you what they really want. The most important thing to remember is find what you are passionate about and do that, don’t build a business just cause there is an opportunity as someone with more passion will beat you.

]]> http://www.foundora.com/2010/11/01/david-hauser-co-founder-grasshopper-group-shares-his-startup-story/feed/ 7 http://www.foundora.com/2010/11/01/david-hauser-co-founder-grasshopper-group-shares-his-startup-story/ http://feedproxy.google.com/~r/Foundora/~3/1c9hxrPTn5Q/ http://www.foundora.com/2010/10/26/aibek-esengulov-co-founder-of-makeuseof-com-shares-his-startup-story/#comments Tue, 26 Oct 2010 13:58:23 +0000 Admin http://www.foundora.com/?p=929 Aibek Esengulov is the co-founder of MakeUseOf.com – one of the best sources we have on the web, for reliable information about useful tools, and applications. Today, with about 5.5 million unique visits per month, MakeUseOf.com is among the coolest technology blogs on the Internet. Aibek, who presently resides in United Kingdom, got his Bachelors in Computational Science from Germany and decided to launch his own company. However, his first project was a complete failure; but that did not stop him from pursuing his entrepreneurial dream and he started working on MakeUseOf.com. But just starting did not bring him success – he had to stick to his guns for nearly 2 long years before earning anything out of it.

MakeUseOf.com, since then, has been featured and recommended by a lot of mainstream websites and publications including Fast Company, Washington Post and PC Magazine – thanks to Aibek’s, his co-founder’s and his team’s consistent efforts.

In this transcribed version of the audio interview, Aibek shares his startup story, journey and speaks about his experience of launching, growing and leading a team of a bunch of technology geeks at MakeUseOf.com, with us. Read On…

Interview Overview:

• Aibek speaks about his entrepreneurship journey & his background.

• How the idea of MakeUseOf.com evolved.

• How Aibek got Kaly Mochoev on board as a co-founder.

• How MakeUseOf.com stood out of the crowd & its initial challenges.

• Traffic sources for MakeUseOf.com, in the initial days and now.

• How MakeUseOf.com built and is growing its community on Facebook & Twitter.

• A word about the internal work-flow & how they discover, publish content.

• Was MakeUseOf.com always bootsrapped?

• Revenue sources of MakeUseOf.com & the most profitable ones.

• The lessons learnt from MakeUseOf.com’s hacking incident.

• What is in store for MakeUseOf in the coming years.

• Biggest learning of Aibek Esengulov as an entrepreneur.

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Hi Aibek, let’s just get started with your background and entrepreneurial journey. Also, where are you basically from?

I am mostly in UK these days; in the last few years lived in Germany, Denmark and Netherlands as well. But I am originally from a small country in Soviet Union called Kyrgyzstan – a very tiny place near Kazakhstan.

I have a Bachelors in Computational Science, basically it’s a computer science plus math. I got my Bachelors from Jacobs University based in Bremen, Germany. Then I went for Masters in Entrepreneurship at Aalborg University in Denmark. So that’s basically my background. But to be honest, my education did not really motivate me to start my venture. I was very passionate about web and after sometime turned it into MakeUseOf.

My entrepreneurial journey started back in college. I was doing all kinds of things starting from selling stuff on eBay to developing websites with and aim to sell them after they gain some popularity. Made some money this way.

Sometime during my studies in Denmark, I decided to go to Bangalore and start my own startup. I went there, tried hiring a team and working with them for a few months. Within 3-4 weeks, I realized that it’s going to be way harder than I thought. So it never took off. That was my first serious venture which failed. I still had a few months to go in Bangalore so I started MakeUseOf.com. First, it was a hobby but in a year or so it turned into a full time job for me and then it turned into a business.

So what was that you were trying to do in Bangalore?

It was a web service specifically for webmasters. The idea behind the service was to provide website owners with an easy way to track statistics and performance of their website on search engines.

Can you tell us in more detail how did the idea come? How did it evolve from there?

All I knew was that sooner or later I would like to create some kind of popular web service. Around that time, I discovered TechCrunch; it was really small back then, may be with 5000-8000 subscribers. I followed TechCrunch to find out what kind of web based services are out there and are popular, which are make money and stuff like that. So, while I was reading that stuff, I realized that TechCrunch is writing for people who would like to launch a web service, and not for those who just want to know what kind of useful websites exist. So, I decided to fill that hole and started MakeUseOf.com blog. As you can see from the name MakeUseOf, the idea was to let people know about useful websites they can make use of on a regular basis.

So how did you find your co-founder, Kaly Mochoev and got together on MakeUseOf?

I know Kaly for many years; he is a good friend of mine. He was always interested in this kind of stuff. So at one point, I told him that I would like to start a website and I don’t want to do it on my own. I asked him if he would like to join me and he agreed. That’s how I got him on board. But I used to know him for a long time maybe for 15 years even before we started MakeUseOf together.

For the first two years there was no income. We would put work and get nothing in return, there would be no salary, nothing. We started making money and hiring people only after 1.5 – 2 years.

You might have come across websites who were doing similar work, writing reviews about apps and tools. So, what do you think made MakeUseOf stand out of the crowd? What were the initial challenges that you faced?

Indeed, I think until about a year after when I first launched MakeUseOf, there were not many similar sites yet. I wasn’t the first one for sure; maybe a year after MakeUseOf launched there were already many similar sites popping up. Our only advantage was the quality of content. We were obsessed to produce articles that would be popular on social media. We were really doing our best.

Let’s say there were people doing lists on different kinds of subjects, we would do a list as well but make sure that our lists is the best. If our article says 10 best apps for something, it would be for sure the best. We would put a lot of work and efforts to make sure it was a good article, so that was our only advantage. We were only 2 people and sometimes an article would take 3 days for me to do. I would research for the article for the first 2 days and on the third day I would write and publish it. So I used to put a lot of time into a single article. That’s how we stood out from the crowd.

Do you mean to say that quality matters more than frequency?

Well, of course quality matters a lot. But for any popular website the quantity is an important factor too. At the end of the day, the more articles you have, the more traffic you get from search engines. However, to stand out in the beginning, the quality is the only factor – I think.

Where did the initial traffic come from? And, what are the major sources of that MakeUseOf.com drives traffic from at present?

The rules that were working back then are not really applying today. Back then, it was relatively easier than now – I would say. For example Digg was just starting up and StumbleUpon.com wasn’t as popular yet. So, it was fairly easy to get to the front page of Digg or become popular topic on StumbleUpon. You just needed to study what kind of articles tend to get popular on those sites, write such article and find someone who will submit it there for you. You didn’t need to do anything else. Of course, it’s not a guarantee that your article would be popular. But one out of every ten good articles would make it and drive a lot of traffic to the website.

In regard to our current traffic, about 60% of the traffic comes from search engines – mainly Google. Google drives 90%, if not more of all search traffic. About 20-25% of the traffic is sent by referrals from popular sites like Facebook, Digg, StumbleUpon and Twitter. The rest comes from a bunch of smaller sites.

So you guys don’t do any active marketing as of now?

If by marketing you’re referring to buying the ad space somewhere then we don’t do any marketing. We are currently running some brand building campaigns to take MakeUseOf brand further, which is basically, distributing MakeUseOf guides on different networks. We have 30-40 PDF guides on different subjects. We contact a network that has a lot of publishers or subscribers and give away our guides to them for free to distribute to their publishers or subscribers. Most of the users eventually come through the links mentioned in these guides.

You have got pretty healthy community on both Facebook and Twitter. How do you manage to attract people? And, how do you keep your communities engaged?

We promote our Twitter profile via a link in our RSS feed. As for the Facebook, we mainly promote it in our newsletter which now has over 230,000 subscriber. We emailed the readers and asked “Hey guys, join us on Facebook. We need your support!”. That helped us to get started.

We use Twitter profile mainly for notifying followers about newly published items. Facebook, on the other hand, is where the action is. We announce different types of giveaways there. Talk to readers. Ask them for feedback. Give away coupon codes to some popular software. We talk to our users on Facebook. We do some stuff that we don’t on the website. Facebook is more important for us right now when compared to Twitter. It also drives considerably more traffic than Twitter.

Can you walk us through the process that you guys follow in order to discover and publish such quality content, and how is the work assigned among your team, in other words, can you talk about your internal work-flow?

Okay, just to give you a small overview; we have around 25 people in the team. Out of this 25 people, we have 6 or 7 editors. Each editor is responsible for one part of the website. For example, Mark O’Neill is our managing editor; he is responsible for everything that happens and is published on MakeUseOf.com. Then we have a directory; its slightly a different part of the website. We have an editor for that as well, Kaly, who is also the co-founder. He is responsible for everything published there. Then we have a Q&A section on the website; we have another editor there as well. For each section of the website we have one dedicated editor.

There are staff authors, people who are actually writing the content. On the main blog, we have about 10 staff authors. Authors basically research and whenever they find something interesting to write about, they write an article and submit it to publication. The article first goes to pending status until one of the editors goes to the article and checks it. If accepted it is scheduled for publication.

On the directory, we have another 5-6 authors working. On Q&A, anyone can submit a question and anyone can reply. Tina, who is the editor for the Q&A, moderates those questions and answers.

Is MakeUseOf bootstrapped from the beginning or did you ever go for any outside funding?

No, it was always self-funded. My basic philosophy was to start a business that would be always profitable. When we were not making any money, we were not hiring any people. As soon as we started making money, we started hiring people. Our very first employee was Mark O’Neill, who is our managing editor. Even when he just joined us, he was working for free. He basically told me, “Hey, I don’t mind not getting any salary right now, if you can give me assurance that we will be making money afterwards”. I said, “Yes, sure! Just hang in there for a month or two and we will start making money”. That’s how he joined us. That’s the whole philosophy of MakeUseOf. Although we are not well monetized website, we were always profitable. Every month we have a huge salary to pay and still remain profitable.

Can you talk about the revenue sources that you guys have? And, which is the most profitable revenue source at present?

Well, in the beginning of course, I started with Google AdSense. That was our main source of income between the second and third year. Because CPM networks are not willing to accept websites which have less than 1 million page views a month. So, before we reached to that level, our only option was Google AdSense. When the traffic grew we started using CPM networks as well. Right now we are also working with three CPM networks who sell banner ads for us. These are Technorati Publisher Network, Netshelter and Tribal Fusion.

Between Google AdSense and CPM, AsSense is not the most profitable one but its the most relevant one, I would say. Google still makes up for a large portion of our monthly revenue. But the most profitable ones are the premium ad campaigns that big websites usually get. When you have a large website, you are often able to score good deals from CPM networks. Usually, you have very good rates for those campaigns and they make a lot of money. So, when you have a big website, you get some premium campaigns on a regular basis. Those premium campaigns make most of the income but for standard campaigns, I would say, Google is one of our most reliable income sources.

Apart from advertisements, are there any other sources of income for MakeUseOf?

Well, potentially there are. As I have said previously, for example, we have a huge newsletter which currently counts over 230,000 subscribers. Unfortunately right now it’s not even covering the fees that it costs us to maintain it. We are exploring way to monetize it. With the right affiliate campaigns we can generate more revenue from our newsletter than any of the CPM or contextual networks make for us right now. It’s our plan to monetize it in the future, we are working on it.

MakeUseOf.com domain was hacked in 2008. What do you think were your lessons out of it?

I was away for 2-3 hours from my computer. When I came back I saw a domain transfer notification emails from GoDaddy. By that time the domain was already gone. The website was online but the domain was on another registrar under a different owner. Few moments later, the hacker changed the DNS records to something else and the website started directing users to something else. Shortly after I was contacted by a hacker who was asking for $2000 for the domain. I wasn’t going to pay him so my idea was to keep him busy talking to him while GoDaddy tries to retrieve the domain.

I contacted GoDaddy and asked them for assistance. They have a procedure for it. I did everything they requested. It stayed so for about 24 hours before we could get our domain back. Looking at the situation right now, I would say, we were a bit lucky back then because a lot of people covered the story for us and that helped us get our domain back fast. We wouldn’t have got our domain back so fast if the story didn’t get popular and people on Twitter, Facebook, Digg or StumbleUpon weren’t talking about it.

This event really affected and changed a lot of things in how I do my work. First of all, I would recommend everyone who has a domain and serious about doing something with it, is to register it with a private registration. Every company offers that kind of services. If regular registration costs around $9 a year, the private would cost around $30 – $40 a year but it make the domain much more secure. Pay that amount and stay safe. Be careful. Change passwords regularly. Use different, longer passwords. Keep a separate email address just for the sensitive accounts and don’t use them anywhere else.

I found out that hacker first got to my Gmail account. From there it was fairly easy to retrieve login credentials for GoDaddy, Paypal etc. After that, I changed a few things. I changed the email, how the domain was registered, protected the registration. So, right now it’s more secure but of course it’s always important to be on alert.

What is in store for MakeUseOf in the coming years? The traffic is almost 5.5 million unique visits per month. So, what next?

The next, basically, is to grow. Our plan right now is to become number one destination for anyone who wants to find out about interesting software or websites. Anyone who just wants to know more about cool things on the Internet, interesting websites, useful software, can get it all on MakeUseOf.

If someone needs help with a computer issue they can ask it on MakeUseOf Answers.

So, the goal is to grow and become a mainstream website for everything cool on the web. That’s where we are heading right now.

What s the biggest learning you have acquired while running MakeUseOf, as an entrepreneur?

As an entrepreneur, I think the single most important lesson or the quality I would suggest to someone is persistence. For the first two years, I would work every day on MakeUseOf without seeing anything back in return. It was really easy back then to give up and start something else. I think persistence helped me here. I had a goal to make a popular website and stayed on it. I stayed on the track and didn’t try to do something else. Usually when people don’t get any return in a few months, they tend to give up. I think it would help anyone because I wasn’t particularly gifted about something. I’m just a regular guy. Persistence helped me. It was the most important quality that took me to where I am right now.

Are you still pursuing your dream of building a web based service?

Actually, not right now. My dream is MakeUseOf , MakeUseOf is everything I wanted. It’s useful to people and unique in its own way. My goal is to make it better.

P.S: Special Thanks to Our Voluntary Transcriber – Afshan Khan.

Dan Martell, who began his journey back in 2001 when he was just 22, is today one of the most recognized entrepreneurs in the Silicon Valley. His first startup, Spheric Technologies – that had more than 20 Fortune 500 companies as clients, grew well over 150% for 3-4 consecutive years. Dan sold it and moved to silicon valley with an intention to be among the best people in the industry.

He soon started advising startups and his advice have lead to the success of hundreds of companies. The award-winning entrepreneur, Dan is also an angel investor. However, Dan’s present focus is Flowtown - a social media discovery engine, which he co-founded with another amazing entrepreneur, Ethan Bloch. Flowtown, today, serves over 20,000 small businesses and is growing faster than ever.

After a series of email exchange, we could finally arrange an audio interview appointment with Dan and now we have got the entire audio transcription for you. In this interview, Dan speaks on various subjects including Kiva – a non-profit organization, Flowtown, and most importantly, how lean startup/customer development methodologies turned around Flowtown from a failure to a success. Read it on.

Interview Overview:

• Dan Martell’s background and how his entrepreneurial journey started.

• A word about his first startup, Spheric technologies.

• Do non-US Internet startups with US customers need to move to the US in order to scale?

• The Flowtown Story – germination of the idea, and how Ethan brought Dan into the vision.

• How they used cust-dev/lean startup methods to turn Flowtown from an initial failure to a success.

• The most common mistakes startups are making according to Dan.

• What Dan considers/looks-for in a startup before investing in them.

• A word about the non-profit organization – Kiva and Dan’s association with it.

• How Dan manages his time in spite of being involved in so many things.

• What is Dan’s biggest / most important learning as an entrepreneur.

• Dan Martell’s ‘life-changing’ advice for future/present entrepreneurs.

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Hi Dan, let’s start with your background and how your entrepreneurial journey started?

The long story short is, in 2000 I  got exposed to the startup world as part of a startup; I was an engineer there and my background is development. Everything kind of blew up in 2001 and at that point I decided to move to the US. I am originally from Canada; from a small town with 100,000 people in the Eastern Canada called Moncton. And, after 2001 I decided to move to west for the opportunity. I started moving to the west on September 09, 2001, and as I was half way across, September 11 happened – all of a sudden, all the opportunities I thought was waiting for me weren’t there.  I was 22 at that time. Honestly, for about four months. I ended up couch surfing at my friend’s place. I had no money, no job, had no idea about what I was going to do. One day, I got a call from a company who wanted to hire me to do enterprise consulting but they required me to have my own company cause they didn’t want to hire a full time employee. And, honestly, that was the best thing that ever happened to me.

The fast forward from that is – I did that for two years as an independent consultant. And, then in 2004, I started Spheric Technologies and hired 3 employees with the savings I had made with the past 2 years and we went after Fortune 500 companies. Four years after starting the company, we grew 150 some % year over year with 30 employees, 23 of the top Fortune 500 companies in the world as customers. And I decided – I wanted to work on some other stuff, and I sold the company to the management team. I went through the process; had multiple offers and decided that the team I built beneath me was probably the best people to sell to – and did that in May of 2008. I bootstrapped that company and learnt all about the business side of things and I had a good outcome. In September, 2008, I decided to move to San Francisco; my motivation for move was – I had done pretty well in home province of New Brunswick. I had a lot of creative ideas and some big ideas with this hold up in an environment of the best of the best, so moved to Silicon Valley thinking about how well would I do against the best people in this industry.

Can you tell us a bit about Spheric Technologies?

Yea, what I see in the industry especially in the enterprise – most consumer products end up becoming enterprise products. So, if you look at Internet, email, Instant messaging and live chat. They all started in the consumer world and made their way up to the enterprise. And, I had started to see this about social. Except in the enterprise they had at that time were portals, which was kind of the evolution of the Intranet. So, it went from Intranets to portals and I just thought Friendster and those types of solution would eventually make it there. We started the company doing portal stuff and in 2005, we started positioning our company as socializing the enterprise.

And, the unique thing we did was – instead of building the product from the ground-up, I found the top 3 portal vendors and we build the products and solutions on top of their technology that made their products inherently more social. We build a concept like a news feed at Proctor & Gamble back in 2007-2008.

So this all happened in the US?

98% of our business was in the US and 100% of our employees are from Canada. And, we had an office in Bangor Main. What’s funny about that office is – the only purpose of that office was to sponsor our own visas. That’s how crazy it was! If somebody would have told me before I did that how hard that was, I probably wouldn’t have done it, but the fact that I had started it – I did it. And, that was probably the most strategic thing we did for our company

Can non-US Internet startups, with majority of their customer base from the US, scale up being outside of the US or do they eventually have to move in?

Yeah, That’s a great question! The reality of it is, is that – as much as technology allows us, as this conversation happen, you really can get away from being in person. You know, I have had similar conversations from Canadian startups that want to raise capital from the US. You need to be here – that doesn’t mean that you must have an office here; it does not mean you have to live here. It just means, you need to be here frequent enough for people to feel that you are a part of the ecosystem. So, that would be my only thing. When I had Spheric, I spent 280 days a year, in a plane. I flew all over North America to talk with clients.

An Interesting Post by Dan on Moving to the Valley.

Let’s talk a about Flowtown. How did that happen; how did the idea come across?

Yeah, that’s actually an interesting story as well. So, I moved here in September 2008. The only thing I knew was that I wanted to learn from some of the best people in the world how to build products that people rewarded you with the time they spent on it not based on the quality of the  relationship. So, it’s always quality of the product not quality of the relationship. Because enterprise is all about quality of the relationship. For Consumer Internet and SaaS based products; its all about – how well does this product perform. I got lucky enough to meet people like Drew Houston at Dropbox, Matt Brezina at Xobni and John at Slideshare. These are some amazing people that had gone before me and I focused and took some time for me to learn.

What happened that was good for me, but bad for everyone else was – the economy crashed in October 2008, a month after I showed up and a lot of the investors who I became friends with decided that their portfolio companies need to get really serious about metrics and user acquisition. Fortunately, those were the two things I was very passionate and had a good fundamental understanding about. So, I started working and I did these two week projects with different startups, helped them with strategies, helped with marketing, helped them understand how marketing affects the product and the user acquisition, and how people felt about your product. And, the thing about marketing for startups is that there are 3 free channels – PR, SEO and Social. When I say free, I mean these channels don’t require any cost other than your time

And, on the social side, I found some patterns. I started to see some science behind this art where you see people have this great social presence. So, if you look at them, you could figure out the pattern and learn how they were doing it and what they all shared in common. That’s when I met Ethan Bloch, my co-founder. I was doing strategies then and he was going through another situation. He’s an awesome entrepreneur! He was working for a startup that downsized and he had some time on his hands. I told him about all these companies and how to do all those stuff I am asking them to do. He started helping me with that, and after 5 weeks he suggested that there is a product we could built for everybody out there in the world and I want to do that. But I was not sure if I wanted to do it; he asked me to be an investor, and said yes!

Six weeks after I invested in; he kept bugging me to become a co-founder because he knew I had strong knowledge. I said, I will be a co-founder but I don’t want to be be full-time and I don’t want any responsibility. That lasted for about 3 months with half-time, and after that Ethan was like – dude  just become a co-founder and work on it. One thing I gotta give Ethan credit for is – he definitely understood how to slowly bring me into the vision. When we launched, initially, we were a landing page tool – not many people know this, which was launched on Feb/March 2009 and it was a totally failed. We had just 1 customer paying us $10 a month – which definitely was not a big business. We took those lessons, killed the product and launched a new version which was essentially the beginnings to what you see today – a tool for social discovery. And, within the first day we had one monthly subscriber. We have been growing 30 some % since then and today, we have 20,000 businesses registered on Flowtown and we raised a seed fund after we got profits in Jan/Feb 2010.

You are an active proponent of the Lean Startup methodology and Customer Development, Can you explain us how you have used those methods and principles for Flowtown?

Okay, here is the interesting part, Steve Blank, who is the author of The Four Steps to The Epiphany and pretty much the grandfather of the customer development process, had a talk at the Berkley to his business class. That’s when we realized that we thought we were doing customer development but we were not. Yes we believed in it. Yes, we thought we where doing it but many other people fall into the trap that is – they don’t do it; they are doing parts of it and they think that they are doing it, and that’s a big mistake.

So as an example, we knew we were into small business owners so when Ethan started Flowtown, I said lets go to market as service company. For 3 months, close 15 customers paying us to serve their marketing needs and by doing that we will learn from our customers what they are willing to pay for and look for opportunities to build a product to solve their needs.

And we did this; we built 6 prototypes over that 3 month period. Everything from simple reporting interfaces that sat on top of Google Analytics, Social Media tools to help you manage Twitter and Facebook , Social Discovery Engine that you give an email address and it will find you all the social profile data – we call that the head-wig,  a Landing Page JavaScript application that was super simple and we built all these tools and when we launched we then learnt that small businesses have no interest in customizing landing pages. They are not creative, they don’t know what to write and they didn’t do it. And we thought we are doing customer development but the problem was we never put one of those prototypes in front of the customer; we would show them the results of those prototypes but we never said – hey go use this, go sign up for this and  try it on your own without us doing it for you.  And that was like a HUGE mistake, which we laugh about today. And then we essentially sat down regrouped, read the book, re-thought about our assumptions and hypothesis and then second time around we built 6 high fidelity mock-ups. Then Ethan went out and did customer development and essentially pre-sold 20 accounts for flowtown before we even  built anything.

It wasn’t until we did that, that we then invested 4 weeks of development to build the first smokescreen and that smokescreen was a website that said give us some email address, hit next they did that, we showed them the aggregate view of all those emails and social network and then prompted them to pay 5 cents times the amount of contacts they uploaded to get the detailed report per contact. every thing from name, age, sex, location, occupation and all the social data we had and we sent out to a 100 people. And, from those 100 we got a 20% conversion to pay. But the reality of it is – we didn’t build anything past those 2 screens. Again we were validating if there was a real need for this, even after we pre-sold it, we built some part of it. It was only at that point that we said, alright lets build the rest of this and that was really kind of  how we did it. Now from that we implemented I would say 70 or 80% of both cust-dev processes and the lean startup on the technical side. So we pretty much do it all.

You have been actively helping and advising startups, what do you think is the most common mistakes that startups make today?

I have been advising startups like 100s of startups. I invested in 9 companies as an angel investor. The common mistake; I would say is – not getting close enough to the customers and who they think their customer is. And not realizing how value flows between the users and their application, what problem are they solving, and the core. I would say, that’s it.

And, they spend too much time building stuff before they ever get feedback or they ever call a customer. As much you say, get out of the building and call people. I challenge a startup that says, they are a Lean startup to tell me who is the last customer or person you called and did  a customer and problem interview with. They don’t do it; they sit behind their computers and look at the codes and metrics. They sit their and survey people; they prompt people on their website for feedback. But, they don’t call; they don’t  get on the phone; they don’t do it. And, that’s the biggest mistake. There is so much value and so much learning that can be had by making a 10 minute phone call, but  just don’t understand why people are not willing to make that and risk the potential of their whole business side.

Okay, You have been an angel investor to quite a few startups; tell us a bit about them and what do you generally consider or look-for in a startup to invest in.

Yes, the last 4 investments I made – one is called Lymbix, oneforty.com, Plancast.com and Foodspotting.com and in all those case because I’m usually the first money in – very early. for some of them I was the first check ever written to them and for one of them I was part of their initial round.

I guess its the people; I just look at the person and say do I feel that this person is absolutely passionate for the problem they are solving. I am always curious about the why; why you? Why do you care about solving this  problem, whats your story, and if I feel that their story aligns with the product and their vision, their passion and technically they have the skills and the ability to do what they want to do, then I usually take the risk. But if somebody comes to me and they are tying to solve a problem that I don’t personally feel that they care about and they are just doing it because there is an opportunity, I don’t get involved.

You have been investing in the non-profit organisation Kiva. Can you tell us a bit more about it?

Yeah! Kiva is an awesome company as a non profit. Essentially what they do is, they allow anybody to lend money to entrepreneurs all across the world  predominantly in developing countries and the way I get involved with them is – honestly, 4-5 years ago I was doing pretty good in my company and I just wanted to start some non-profit component of Spheric and Mark Benny offered a great book called Compassionate Capitalism and he talked about the 1% solution. So the idea is – every year they give 1% of the profits, 1% of their employees time, 1% of their resources, and predominately their technology to non-profits and that’s something they have done from day one. And I think that’s such a great idea!

So, for me when I got introduced to Kiva I was looking for a non-profit that I felt embodied my beliefs in my company and I was all about  entrepreneurs and our company was inherently global. We had customers in the US but we also worked with their  teams around the world and I just believed in what they were doing and that’s how I initial got involved in Kiva and I think by today I probably lent out over $15-20k to entrepreneurs all around the world and whats interesting is they only let me give $25 at a time. So think about it – how many people I have invested $25 at a time. It took many many years to do that so its been pretty awesome. When I moved to San Fransisco, just by chance I found that their offices is 5 blocks away from where I live and I go there every once in a while and joined their advisory board for social media. And they are a great organization.

You seem to be involved in too many things, yet you still take time for running and other sporting activities; how do you manage your time and do all these stuff?

So, the reality of it is – probably the most valuable thing I have is my network. I don’t like to use the word network but just my relationships. And, when I get involved in things as an advisor, as an investor, I do it with my best efforts. But this year, just because we are growing really fast at Flowtown I have really gone back and uncommitted myself to a lot of things. My priorities now are really Flowtown Family, and then portfolio investments and everything else like these interviews & what not are pretty much done just where they fit. I love absolutely what I do; I don’t own a TV, I don’t do anything else but what I am passionate about. So, there are no 2 or 3 hours in a day that I do nothing. I spend each and every hour giving advice, learning something or even grabbing 10-12 entrepreneurs together having a dinner talking and sharing ideas.

You have been an entrepreneur for quite a long now; what is your biggest or the most important learning so far?

The biggest learning is – “how important having A+ people is;” like world class. I think a lot of people get into this situation where they need to start their company and they have a friend that writes codes and they are like – okay, you can be my co-founder but that person may not be amazing. Or you have a role that needs to get done and just hire the first person or you hire your cousin. Over the years, I realized, you can hire people that are A+, they will replace 10 people and they will make you successful. You will have more time to do what you’re uniquely qualified to do that adds so much value.

As an example, we just hired a graphic designer at Flowtown after 10 months of looking. I looked and talked to around 50 people personally and our recruiter spoke to 100s because I was just not willing to hire someone who was not world-class and did not understand what we were trying to do. That’s the biggest lesson – that goes for engineers, customer coaches and anybody. I don’t think I had that quality filter when I first started this. You have to put-off a lot of fire; you have to deal with situations with customers that just would not arise if you just hired really great people.

What would be your advice for aspiring entrepreneurs?

Here is the best advice; best advice – hands down! If you do this, your life will change. “Don’t take advice from people that have not achieved the level of success that you aspire to.” Simple! And, I am talking about your parents, your best friends, your managers at work. If you’re going to do a startup, go find someone who is doing it to the level of success you want. And, if you do that, your life would change! If they have not achieved it – I don’t care if they are authors; there are so many people who go around and write blogs, books and speak, but haven’t made a frickin’ nickel. You put those people aside. You go find the dudes that are killing it, that are making real money and that are growing businesses like crazy, exponential growth and ask them for an advice.

Today, after Erin Bury – the Community Manager of Sprouter, introduced us to her, Sarah gave us her interview and provided her insights to Foundora about her entrepreneurial journey, lessons and of course Sprouter.

Interview Overview:

• How Sarah started as an entrepreneur and her journey so far.

• Her motivation behind launching a networking site for entrepreneurs

• Why shall entrepreneurs be always actively networking.

• How to get over the hesitation and network with strangers.

• How Sarah started Sprouter all alone & not having a co-founder.

• How Sarah is spreading the word about Sprouter.

• A word about Sprout Up and the format of the event.

• How Sarah’s plans to engage users on the site.

• Startup ecosystem in Toronto.

• Difficulties she faced as a woman entrepreneur.

• Sarah’s most important learning so far with Sprouter.

• Sarah’s advice to the upcoming entrepreneurs with no connections.

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Hello Sarah, please tell us how you got started as an entrepreneur and walk us through your journey until now, right from your first venture Upinion to Sprouter.

I was incredibly fortunate to have had the opportunity to gain experience in a start-up while still a student. Learning first-hand under an exceptionally charismatic and visionary entrepreneur was a great initiation. Being submersed in an environment that fostered ongoing innovation and had a palpable sense of urgency was a game changer. Without a doubt, it was that experience that gave me the desire and confidence to pursue my own idea.

In the early 2000′s I saw an opportunity to capture the tween market online and I eagerly launched an opinion-sharing website called Upinion. I tried to reach out to established business owners for advice and to help in growing the business. It was a frustrating exercise. It was nearly impossible to find support cold-calling successful companies. I thought that there must be other people somewhere facing the similar obstacles as myself and that we might all be able to help each other. I saw an opportunity.

What motivated you to launch Sprouter, a networking site for entrepreneurs?

Sprouter was born to overcome the traditional isolation of entrepreneurs and create an instant, plug-in network of support. I envisioned a platform where startup founders could self identify and easily solicit support from their peers and other thought leaders. Knowing the hardship of early stage companies, I wanted to provide a community where people could get feedback and make valuable connections with others who could appreciate their plight.

Sprouter helps entrepreneurs connect with people, answers and capital to grow their own business. Members are a part of a supportive, collaborative network and can ask questions to recognized experts in a variety of fields. On top of the community, we also provide visibility to new innovation through our publication Sprouter Weekly and facilitate introductions to potential investors for qualified startups.

Why do you think entrepreneurs should be actively networking?

Right from the idea stage, startup founders need to get out and engage the market. You need to network to actively solicit feedback and iterate your vision. You need to network to find customers, partners and opportunities. Isolation kills startups.

People are often uncomfortable talking to and asking help from strangers; what shall they do to get over it and become a pro networker?

My advice on networking is to always learn about the person you’re meeting and think about how you might be able to provide value to them. Ask people how you can help them. Helping others usually results in them asking how they can help you. This is a great cycle to get into with as many people as possible!

You started Sprouter all alone, how did you manage it? And, was it difficult not having a co-founder?

I’m going to admit something here: I cannot imagine having a co-founder. There is one word that I don’t do well with, a word that is probably pretty essential when having a co-founder, and that word is compromise.

I hate compromising. I recognize that this may be a major character flaw, but it’s the truth. I really just don’t compromise. I will add though that I haven’t been alone in Sprouter. We have an incredible, albeit small, team of amazing individuals who work tirelessly to bring the vision into fruition. Any founder would be wise to surround himself with brilliant, resourceful people. We have an incredible, close-knit team at Sprouter – each individual offering a unique and essential skill set. Having a such a great group work together has been a big contributor to our success.

Can you give us some insight on how you’re spreading the word about Sprouter?

Sprouter has grown exclusively by word of mouth. From user referrals to social media to traditional media. We’ve been incredibly fortunate to have had such great visibility and to have such an incredible community acting as evangelists on our behalf.

Tell us some thing about Sprout Up; what is the format and the activities that happen in it?

Sprout Up is an incredible phenomenon of entrepreneurs coming together offline to support one another. I think it’s another incredible testament to the power of community. We use Sprout Up to showcase new startups and connect founders with people who they can learn from. The format of the evening, no matter what city it’s being held in around the world, always kicks off with drinks and networking. Every registered attendee, when they walk in the door, receives a name badge that has recommended connections on it. Before each event our team goes through the attendee list and determines who should meet whom. We find that recommending connections to people makes it easier to network – we give people an excuse to talk to one another.

Networking is a huge portion of the evening, but we also spotlight three local startups – giving them each a few minutes on stage to demo their product and talk about the stage they are at. We also bring in a speaker – usually a veteran entrepreneur who can share personal lessons and insights they learned in growing their own company to massive success. We’ve had some incredible people participate from Gary Vaynerchuk to Ryan Holmes (Founder of HootSuite). It has been wonderful to see so many entrepreneurs willing to volunteer their time to help give advice to new up and coming startups.

One of the common issues in any upcoming networking site is – users signing up but not being very active. How do you plan to keep users engaged on the site?

Engagement is all about perceived value. We need to ensure that our users are getting real value out of participating in the network. That’s our entire focus as a company.

Toronto seems to be becoming a hot place for startups; tell us some thing about the startup ecosystem over there?

There’s an exciting amount of innovation happening right now in Toronto. We’ve got a great pool of talent, an ever-increasing amount of capital and a real sense of momentum.

It’s a great time to start a company in Toronto. The entire city seems to have embraced a new culture of innovation; risk taking is trendy and a there’s noticeable interest in technology startups.

We have great new companies getting visibility on a global scale and have had some big exits recently (Toronto startup BumpTop sold to Google and other another local startup, Viigo, just sold to Research in Motion – manufacturers of the Blackberry) – all of these factors are contributing to rampant growth.

What difficulties did you face as a woman entrepreneur? And, how did you deal with them?

To be honest, I’ve probably encountered more challenges being “young” than being a woman. But with that being said – everyone encounters bigotry once and awhile and I’m no different. I tend to be a bit cavalier with it – if I’m ever confronted with blatant ignorance, I’m likely to make a joke of it and call the person out in it in a subtle, non-confrontational manner.

What has been your biggest learning so far with Sprouter?

The old adage on startups is true: it’s always going to take twice as long and cost twice as much as you think it is.

Last but not the least; what advice would like to you give to newcomer entrepreneurs who do not have any connections? Also, what other general advice you have for aspiring entrepreneurs?

Get on Sprouter and start connecting with other entrepreneurs! We built Sprouter so startup founders could easily self-identify and build relationships with like-minded people. Surrounding yourself with people who share the same ambition and passion gives you a wealth of support to draw on. Networking with other founders gives you a chance to bounce ideas off each other and benefit from each other’s networks and experience.

For anyone who has a great idea and is wrestling with whether or not to pursue it: start talking to potential clients. If your market tells you it’s a great idea – get out there and do it.

Unlike many entrepreneurs/developers, Adam shares his knowledge and expertise with others on his blog. With over 10 years of experience, Adam Kalsey talked about his background, failures, learning from his startups, and a lot more on Foundora. Don’t miss reading it.

• Entrepreneurial journey of Adam Kalsey.

• The best and worst aspects of being an entrepreneur in Adam’s opinion.

• A word about IMified and Pheedo.

• How Adam decided that it was the right time to sell-off IMified.

• About the SacStarts Startup community & how to make the most of local startup communities.

• How startups with developer facing product should reach out to developers.

• The best software development methodology for startups according to Adam.

• Adam’s take on startup methodologies like Lean Startup.

• The biggest learning of Adam Kalsey and where most of his failures came from.

• Adam’s advice/suggestion to upcoming entrepreneurs.

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Can you give a brief overview about your entrepreneurial journey so far?

I’ve started 5 companies, including two acquisitions. One is still a private company, but I’m no longer involved in the management of the company. The other two didn’t work out as well and are no longer around.

I’m currently working for Voxeo, the acquierer of IMified, my last company. Im working on a startup product within the company that uses some of the technology they acquired from IMified. I also run an organization for local tech entrepreneurs and advise a number of local companies and entrepreneurs.

You have been an entrepreneur for a good part of your life; what do you believe are the best, worst aspects of being an entrepreneur?

There’s a lot of risk and uncertainty involved. When things don’t work out well, the financial and emotional impact can be hard. You’re in charge of your own destiny. There’s no one else to fall back on — everything that happens — good or bad — rests on you. When you’re an employee, there’s always someone else to lean on or kick the hard decisions up to. In the early days of a startup you’re often making decisions several times a week that could make or break your company.

Please help us understand about some of your major products such as IMified and Pheedo?

Pheedo is an RSS advertising and management platform. It’s designed to help publishers improve their usage of RSS and to help them monetize the content in those feeds. The product includes everything from analytics to show them what’s popular to optimization to make feeds work better across different feed readers.

IMified is a platform for building Instant Messaging and SMS applications. If you can build a web site, you can build an IM bot. No need to understand various network protocols or figure out how to scale your application.

IMified was acquired by Voxeo last year, can you tell us how the  acquisition happened? How did you decide that it was the right time to sell off?

We met Voxeo’s CEO at BarCamp Orlando and found that a lot of our philosophies about how to do business were similar. Treat your customers well. Create things that are easy to use and easy to understand. Make complicated concepts easy for developers to understand and use.

Voxeo had some great ideas for how to bring IMified to their existing customers and products. They saw IMified as “IVR for Text.” They have a huge customer base including half of the Fortune 500. We saw this as a good opportunity to get our products into companies that we were unable to otherwise reach.

You have started SacStart for the Sacramento Start-up community. Tell us something about the activities in the group? What do you think are the benefits of joining local start-up communities? How can entrepreneurs make the most of it?

SacStarts is a very informal community. We have open casual coworking at a local coffee place each week and meet for dinner once a month or so. In startup hubs like the Silicon Valley and San Francisco, you’re surrounded by other entrepreneurs. You run into fellow founders at coffee places and lunch. There’s a constant stream of events going on where you see other startups and entrepreneurs.

Talking to fellow entrepreneurs is beneficial. The problems you experience, the questions you have, the successes you see… no one else in the world understands them. Sitting down with others that are facing the same things as you are can help you immensely. They’re your sounding board, your support group.

IMified is a developer facing product; Voxeo also has a developer facing product line, what do you think is the best way to reach out to developers for a developer facing product?

There’s two keys… One is to make sure that creating a whole product that’s easy to understand. From the marketing materials to the documentation, to the product itself, everything needs to be easy to pick up. Developers are going to lean toward building things themselves, so make sure your products make it so easy that there’s no
reason to even consider an alternative. Staff your support desk with real developers, people who can actually write the code that your customers are trying to write.

The second key is all around evangelism. Developers respect people who are technically competent. Go out there and talk to developers about everything. Don’t sit and pitch your product, but actually teach. Show them things they haven’t seen before. This applies to both live events like conferences and meetups and to the written word, both your own blog and guest articles in magazines and other blogs.

We like to hire developers who are able to go out and talk to other developers. And everyone from our CEO to the entire team behind Tropo (Voxeo’s cloud product that I work with) are technical. We’re geeks, so we can understand what geeks want.

You have been managing multiple products and was also the CTO of Pheedo; what do you think is the best software development methodology for a start-ups?

Any agile methodology is good, whatever system works for you. I’m a fan of Scrum. Short development cycles, iterative releases, constant re-evaluation of not just your product but of your your own processes. These all help you adjust to changing market conditions, shifting priorities, and learn from your mistakes and successes.

It is critical that a startup be able to pivot quickly and not get stuck going down a path that doesn’t work. Agile methodologies work well with that.

What is your take on the start-up methodologies like lean start-up?

Creating a business is a lot like the scientific method. You have a hypothesis: if I do X then customers will do Y. Build just enough to prove or disprove that hypothesis and then move to the next one.

You also have a limited amount of time and money. Spending a lot of time proving out a single business theory means you’ll have less time and money to try other theories if your first one doesn’t work out.

Startups that build a single monolithic product and don’t ship until it’s “just right” run the risk that the product they create isn’t something customers want. The various lean startup methodologies all attempt to help you keep from blowing your whole budget before you know what customers are willing to buy.

In all your projects, you must have had many ups and downs; What was your biggest learning experience?

My failures have all come from trying to go it alone. Making it as a single founder is infinitely more difficult than having co-founders. Co-founders cover each other’s weaknesses, they give you a sounding board, they keep you sane.

What would be your advice to upcoming and aspiring entrepreneurs?

Stop waiting. So many people I talk to have an idea and a desire to start something, but they’re waiting for the perfect time. There’s always going to be some reason and excuse why you shouldn’t be starting now. If there’s something standing in your way, just take care of it. All the problems that seemed like big deals before you got started end up looking pretty silly in retrospect.

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