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Hey there freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. And you know I say freedom fighters because every time I do interviews with entrepreneurs and ask them was it worth it? What did you get out of it, out of building your successful business? The big thing that they say is freedom. The freedom to do whatever they want so, we’re freedom fighters. Freedom for ourselves, freedom for our audience to be able to do whatever, our customers to be able to do whatever we want.

All right. In this interview, to help us get there, I want to answer this question: How does a start-up with no funding hunt for customers? And if you’re trying to get new customers or if you’re trying to win back some of the customers that you’ve lost in the past, I want this interview to be the one that’s aimed exactly at you. To help us do it, we’ve got Max Teitelbaum. He is the founder of WhatRunsWhere, which helps companies spy on their competitor’s ads so they can buy display media more intelligently and profitably for their campaigns.

You’ve seen him here before. He had one of the most controversial but also one of the most watched interviews here on Mixergy where we’ve talked about how as an affiliate you generate a lot of revenue. And then he said well he built up a business called WhatRunsWhere to give other people the kind of power that he had to buy advertising. Max, welcome back.

Max: Thank you. I want to make one quick thing: co-founder. My partner is much better looking and much smarter than I am so.

Andrew: Co-founder of WhatRunsWhere.

Max: Exactly.

Andrew: Alright and the face of WhatRunsWhere as far as Mixergy’s concerned apparently.

Max: Yeah exactly.

Andrew: You know what? Let’s give people a taste of what’s to come by talking about when it comes to customers we all talk about how to get new customers. But you on Skype sent me a message yesterday about how you guys bring back customers. Can you tell people how you do it?

Max: Absolutely. I mean with WhatRunsWhere, we’re halfway through our first year we released a trial which was great because it lets people try out the service for seven days for a dollar. At the same time you have a lot of people that comment and cancel and you have people that may not have the exact thing that they were looking for in the system at that time.

So what we actually do is we do something called “win back” where we put together initiatives which if you want me to talk about now I can talk now or later, we put together initiatives where we actually follow-up with those customers and find ways to retain them and bring them back into the service so that they become great customers for us that bring profitable business but we also provide them with great service to them as well.

Andrew: So customer tries you out 30 days, maybe even longer, and they actually pay you for a long time subscription, they cancel. Most people would say I’ve got to learn from that but I need to go hunt down new customers. You say I want these guys back. Why do you spend time? And we’ll talk about the specific tactics you use to win back those customers. Why do you spend time winning them back instead of saying, hey the world has got tons of other potential customers. I’ll go fish in that bigger pool instead of looking at the few people who didn’t like me.

Max: A couple of reasons. The first is those people already know about our product. They already have an intimate understanding about what we do and what we’ve done. They’ve had a chance to play around with the product. I don’t need to reeducated that customer about us. I need to convince them that we’re exactly what they’re looking for or what we’ve changed to help that they’ve asked for them to come back. It’s extraordinarily important to us to recover those customers because they’re pretty much free leads. They’re sitting there. You don’t need to go to business about them, you don’t need to go find new leads, you have a full stream of leads that somebody can work on and recover them. We’re actually pretty successful at doing that. Why spend time hunting you down saying, ‘Andrew, you’ve never heard of White Runs Wear [??] come use us.’ We’d have to send you over a press kit, or we’d have to send you over a demo and we’d have to go through a sales process, which might take a little while. Versus, we call someone up and we say, ‘Hey, we know you’ve used it. Here’s what we’ve improved on, we’d love for you to come back and give us a try,’ and give them a bit of an incentive to do that.

Andrew: I see, and that answers the next question that I was going to ask you which is, these customers have clearly canceled because they’re not in love with the product. Some of them don’t even like it or are upset. Why would they come back? You’re saying they would come back is because you say we’ve improved it since you were last here and we’re going to give yo an incentive to come back.

Max: Yeah, I don’t think upset is the right word, Steve.

Andrew: OK.

Max: We’ve found a couple of key reasons why customers leave us. The first one is a functionality reason. There’s something that they’re looking for that we don’t have or they can’t do something that they wish they could do. The next one is cost, and then the last one is that they signed up for a trial year. They didn’t know what they were getting into and they just churned through because we’re not the right fit for them. Those customers are hard to win back but those customers you can send over and educate because they’ve already tried it. They’re more receptive to hearing from you. If you can call somebody up and they recognize your company versus saying, ‘I’m from this company, come try us out,’ you have a much higher chance of winning them back. On the features side what we really do is we listen to our customers. What I do, that shocks a lot of people, is as our C.O.O. [??] I do all our support e-mail. I dedicate an hour or two a day to sitting down and doing our support e-mail from our customers who send feedback. As soon as you cancel we ask why you cancel and I get that feedback. It is extraordinarily important. Some people might say that it’s a waste of time, I could spend that doing other things in the business that might be more valuable. I sort of disagree because it gives me a really good bird’s eye view of what people are looking for and where we’re really falling short. Then we can categorize those customers and put them into lists and say, ‘This person wants this feature, this person wants a new user interface, this person wants this functionality that we don’t have.’ Then we go out and build that for them because we have that base of ex-customers that want this. Then we can go contact them again and say, ‘We’ve built exactly what you want, please come and try us out again.’

Andrew: I see. I want to come back and ask more questions about the customer service and how answering questions like that leads to more sales. Most of us think of that as an expense and it’s a needed expense but it’s still an expense. You’re saying, ‘No, Andrew. There’s a lot of revenue to be had from doing customer service.’ Let’s stick to now with the way you win people back. One of my queries, if I were going to do this tomorrow, what would I want to know? I would want to know what is the method that you use. Do you call people up and say, ‘Hey, I want to win you back.;’ do you send them a letter, an e-mail?

Max: Well we’ve done a couple of different things. When we first started, and it was just my partner and myself, we had this brilliant idea that we’d call everybody that canceled and try and win them back. That actually ate a fair amount of my day and just couldn’t be done. When you’re trying to bring in sales, and when there are two people managing a business, and you’re working like no other. You’re working eighteen, twenty hours that day just to get everything done, you don’t have time to call back customers. That didn’t do so well because honestly some work fell to the wayside.

Andrew: There was one other issue with that. You and I met for drinks here in DC one time and I said, ‘Max, I’ve got customers who are leaving me and I want to call them up and find out what I did left.’ And you said, ‘Andrew, watch out. They’re different time zones. You call somebody up in your afternoon and you could be waking them up in the middle of the night. Pay attention to that.’ What other issues came up?

Max: That’s true, actually. We called somebody two days ago with a US number and then forwarded to China. They guy picked up in China and was not very happy, it was four in the morning.

Andrew: What other issues, if we were to call up, before you move on to how it evolved for you, I’m curious about what other issues came up as you were calling up your potential customers.

Max: Some of them were bothered when you call, so it’s a sales call. You’re calling to sell somebody. So, at the beginning we were saying, “Call and sign back up right now. And so, where we sort of changed and what we’ve sort of done is we’d call and say, “We really want your feedback. We’re really interested in what you say” which is 100% true. And then, we say, “Let us tell you about a couple of new things that we’ve done.

Andrew: And you say you want them to call you?

Max: No. We call them and we say, “Tell us your feedback”. That’s the first thing we ask.

Andrew: Give us your feedback first and then let me tell you about what we’ve done since then that might impact the things that you told us.

Max: Exactly. Yeah. Here’s some updates we’ve had. Here’s what we’ve been working on. Here’s a couple of things that we’re working on in the future. We just want to keep you in the loop, and we have a special offer. We’ll work on a way for you to get back into the system and try what we’ve done at a reduced rate to get you to try it.

Andrew: OK. So, the reduced rate, listen to their feedback, tell them about the new features.

Max: Everybody wants a deal.

Andrew: Everyone wants a deal is right. Let me see; what else do I want to know about? You said that it sucked up a lot of your time. That’s true. How do you deal with that?

Max: So, that was sort of our next iteration. What we did then is as (?) is a software company. So, our first couple key hires were developers. It was just me on the sales side and the business development side because we were building a product, and as a development company you need more developers and sales people. What we did is we started taking these cancels and putting them into a follow-up sequence where you would cancel and then two days later you would get an email from us saying, “You canceled. How can we get you back? What can we really do?”

We’d send them an email immediately that said, “Why did you cancel? But then we’d say… We tried that. It didn’t really work because people were in different stages. What we did instead is when we had a new feature, we add everybody that had canceled to a special list and we sent them new features. So, current users could see new features when they logged in. They would pop up and we’d let them know we added something, but canceled users had no way. So, we were sort of keeping them in the loop and keeping them there with new features and then sometimes sending them deals.

So, when we had a deal on AppSumo with our good friend, Noah Kagan, we would send that deal out to those users as, “Here’s your chance to try us again” and that would get us back a lot of value because those users, again, it comes back to the cost thing. If you have a user that isn’t using just simply because they can’t afford you at this point and we say we have a deal where you get 50% off for the next like, three days, four days. We can give you 50% off through this deal with AppSumo, some of them flocked to that and that retains value on that side for us and allows us to hit that lower price point without lowing our price because we feel like we have a solid service, and we feel like we were actually under charging before, but we do realize that we have users that need to be down there.

Andrew: Right.

Max: It also allows you to interact with the users in a different way where you’re proactively reaching out to them with an email that then, regardless of times, (?) anything you can see.

Andrew: Let me see if I understand this. You no longer make phone calls, or you still make phone calls?

Max: No. That was our second iteration.

Andrew: Oh, OK. So, first iteration was Max makes a phone call and his co-founder makes a phone call. The second iteration was you’re going to put them on a list. If they cancel, they’re going on a special mailing list. We’re going to have a drip campaign which means that on a certain schedule they’re going to get certain emails. And if anything new happens, like we have an offer, a deal…

Max: We got rid of the “drip” because that was just bothering people, we found.

Andrew: So, no drip.

Max: No. It’s just…

Andrew: As we have new features or new updates, we email them.

Max: Here’s an update. Here’s a big blast out to you with this new update, or here’s a sporadic plan blast of a discount that we have done in coordination with a partner.

Andrew: OK. And then, you, of course, let them opt out if they ever want to stop.

Max: Yeah, of course. We have to be (?) complaint.

Andrew: Right. OK. So, that’s iteration number two. How effective was that?

Max: It was awesome. It was great. So . . . go, MailChimp.

Andrew: So, you’re saying MailChimp gave it to you for free.

Max: Well, yeah. MailChimp is free for your first . . . I don’t know what it is…a couple thousand subscribers.

Andrew: Right.

Max: As you know, in the service business where you’re doing something, where you’re always saying to people, “Sign back up”, it’s a bit different. You don’t need a list of about 400-500,000 people.

Andrew: Right. Let me anticipate, too, one of the concerns that people are going to have about this interview is that it seems like we’re talking on top of each other. Specifically, like I’m talking on top of you as you’re talking. The reason I’m doing it and there’s only one reason that it’s in the audience’s best interest and I believe, also, in both of ours, we have a list here of different specific tactics that you and I said we were going to talk to the audience about. It’s such a long list that we either have to keep this moving along, or we’re going to have to sit here for the next 24 hours.

So, audience, be aware that I’m stepping and pushing because we have an agreed list that we want to talk about, and we have to get to through. So that was iteration number 2. What is iteration number 3 on your approach to talking to customers.

Max: So I’ll start blazing through. So iteration number 3 was now that we have a sales team and we have other people in the office here that focus on sales is that we can now do both. So we send out an e-mail and we immediately start calling those customers and say hey I want to reach out and connect with you, hear your feedback and here’s sort of what we’ve done. We’ve sent an e-mail but if you didn’t see it and I’d love to get you back on board. Here’s my personal contact, how can I help you do that? And that’s been hugely successful. We’re looking to, our goal is, and we’re going to hit it. We’re looking at between a 15 and 25% link back rate. Probably closer to the 20 – 25% mark. At that point if you can retain, especially through a trial, one out of every 5 or one out of every 4 users, you can bring them back to try the service again, you’re doing something right. Obviously you need a great product. You need a great product and I’m extraordinarily humble about our product as you can tell. But more importantly you’re creating value over something that a lot of people only take it as a write off. Oh, we had 5 users journey through today. And then what we say, oh we had 5 users journey through today, why don’t, if we can get one of those users back on board that creates an extra couple of hundred dollars a month in value for it.

Andrew: Okay, alright. This has worked so well for you that you’ve hired sales people to call up customers who’ve canceled and do everything that you’ve told us that you did before, that you did before.

Max: That’s part of our sales teams duty. So there…

Andrew: So it’s not exclusively that, they do other things.

Max: No, it’s a full thing. We do outbound, we do inbound. But I would say there’s certain points where if we have a major release, where, for example we had a major release. We released a brand new user interface. They spent the entire week doing nothing but calling all customers and updating them because this was a big sticking point with the customers that we list.

Andrew: All right. Before I get to the next tactic I have a big question. But first I should say to the audience, whatrunswhere, what it does. It’s kind of a, it’s cool and at the same time it feels like unbelieved, it feels a little bit like spying, but that’s what’s cool about it. If you have a competitor who’s buying a lot of interesting ads and you say, hey you know what this guys doing all the marketing experiments. I shouldn’t go and experiment on my own. What I’ll do is I will go to whatrunswhere.com. I will type in my competitor’s name, I’ll see where my competitor’s buying ads, what kind of ads my competitor is buying and I’ll learn from his successes and mistakes and that’s how I’ll buy it. It’s kind of like the way that Burger King in the early days did well. They would say, back when they were really hustling. They would say, we don’t have the real estate department of McDonalds. We’ll see where McDonalds buys. They’re going to do all the research on what cities have enough money and enough interest in buying these kinds of burgers, and we’ll just piggyback off of them. Wherever they buy we’ll go buy our own location too. We’ll set up our own location. You’re helping marketers do that online. See where their competitors are advertising.
Max: We help them take what other people spent money, split testing, we help them you know get a better idea of the competitive landscape. And then limit risk and increase return in interest. Return on interest, return on investment. As with each business obviously there are certain people that don’t fit into our demographic. The best example I can give is we had a small prep school sign up for a trial. And this is a prep school in a town of like 5,000 people. They obviously don’t buy display ads online. Like it just doesn’t happen. And my next challenge is how do we get a customer like that to stick with.

Andrew: What’s the value? Before I go to the, one last question then I promise I’ve got to get to the next item on the list. What’s the value of a customer to you, to give us an understanding of why it’s worth making these kinds of phone calls.

Max: Well, okay so it’s a bit different then if we had a business where we charge somebody $10 bucks a month. We charge a customer $229 a month. So it’s not exactly a small sale. We realize that you know, we think we’re undercharging for what we offer, and a lot of people agree. We have users that come to us and say, you know, why aren’t you charging $5,000 a month for this because you know they do extraordinarily well with it. And you know it makes them money so they don’t want other people getting their hands on it. But we do understand that’s a fair amount. But at the same time that price point allows us to devote people to it and that saving money.

Andrew: Okay, so that worked for you? Let’s see what else worked for you.

Max: I would just use e-mail, I wouldn’t.

Andrew: If you were smaller you would do the same thing but focus exclusively on e-mail which is cheaper and more scalable. Alright let’s go on.

Max: Pay somebody a salary to go sit there and call people.

Andrew: Alright, let’s go onto the next idea on my list. We talked about winbacks. Another thing that’s worked for you is webinars.

Max: Yes.

Andrew: How do you get people in the webinar? What are the webinars about, and how do you close those sales?

Max: I’ll throw out a term which I love to use and which was told to me by a friend of mine which is thought leadership. And the way I define thought leadership is providing great content, sort of like what you do with Mixergy, and then people come to you and they look at you as a resource, as a place, you know. So when we launched we had no marketing, we had no mainstream press, we didn’t have the kind of money that we wanted to spend on that kind of thing. So what we did was we went and partnered up with places where our key demographic would be. We partnered up with Ford, we partnered up with websites and offered them something valuable, our time. So we said we’ll sit with you for two or three hours and we’ll teach your members about how to buy media, about how to use the system, about how to make more money by media with tips and tricks. And we’ll, and we’re not, the key was we’re not going to shove this down your throat. We’re not going to say, go buy whatrunswhere now, go buy whatrunswhere right now. We’re just going to say, here’s what we do, here’s a lot of great information then you should check us out. And then when people tried it and it worked for them and they started making money or they started you know being able to do something at work where they got very happy because they used their (?) spend increased their efficiency, something like that. They came back and they remembered you told them that. And that was hugely successful for us at the very beginning because we didn’t have to spend money acquiring customers that way.

Andrew: What’s in it for the forum owners, for inviting you on to teach their audience?

Max: We paid a referral back to those owners so they did get paid when the people, if somebody from their forum came through and signed up, we did pay them. We continue to pay a bunch of them. And the other big thing is it creates value. It’s something unique to their forum. It’s not something that’s replicated. It’s not something that you can go and look up online quickly and see. And that’s really what’s valuable to them. And they usually remember this is where I got this content. So by doing this, one of our most successful things we did, which wasn’t quite what (?), the same thing, we wrote a guide on how to start media buying. We put that up on a couple of blogs, we distributed that around. And people really, really loved that. It’s how to start media buying with you know $500. And people you know were like, oh this is extraordinarly helpful. I should check out what (?) were made and try them out.

Andrew: Right. Tell me more about that. We’ll come back to webinars in a moment. But posting articles about media buys has done really well for you.

Max: Yeah.

Andrew: How long does it take you to create one of these guides that you posted?

Max: Well we only created a couple. After you create a couple (?) marketing, you’re free material. And how you get it out there and how you get it to different places, where you can put it in the right places for people to read it. It’s like having a whole different product, but one that you don’t get paid for in any shape, way or form.

Andrew: So you’re selling the product that then sells the real product.

Max: You’re not selling, you’re giving away a product.

Andrew: You’re promoting the product, but then. Let’s come back to it. If it doesn’t have an easy answer and a quick one then I want to spend a little more….

Max: Well, no it’s….

Andrew: No, no, I want to spend a little more time on webinars and give the article marketing as much attention as it deserves. So stick with webinars. You told me about the content of it. You told me where you got the audience for it. Tell me about how you close people. Nathan Latka of Lajour showed me how he’s got this like really slick sales pitch at the end of his webinars. What’s yours? I learn a lot from watching people close.

Max: That was the point, that was the whole thing in what (?). Do you have a sales pitch? We said, you know, we have this product, you know, you should really check it out and (?) if you used it. But we’re really here to help you.

Andrew: It was no, hey guys thank you for watching this and if you really want a super, if you want a, not super power, but if you want to speed up everything that we just told you about go to whatrunswhere.com and I’ll tell you what. If you go to whatrunswhere.com/thisforumname I will give you a 50% discount because you’re signing up right now, but you’ve got to do it in the next 2 hours. None of that stuff?

Max: No, that feels very pushy and guruish. What we did though, and you know the forum owner did that for us. In the webinar we’re sort of laid back, we don’t care either way. But you have a forum owner going, you know, that’s really great you should go sign up here, we have this link. You know (?) posting in the forums, and they push it out there for us. For us it was like, you should sign up if you want.

Andrew: Sign up if you want, don’t sign up if you don’t want. And the forum owner has an incentive because he’s earning money by selling it, so, but he doesn’t seem to have an incentive because people think that he’s just a moderator. And so he’s, I love this guy Max, whatrunswhere is a great program, you guys should all go sign up, I’m signed up. You know, they do the whole thing.

Max: So, what you missed, so as you mentioned we had coffee in DC, so we were at a conference together in DC. And I don’t know, you were there for some reason, but I had to give, we were slotted into a six minute product pitch on the last day where we were supposed to pitch WhatRunsWhere and we were in the middle of about 8 or 9 different pitches. I got up on stage and instead of pitching the product I said, “Here’s [??], here’s what we do. Screw that that’s boring. Let’s talk about media buying.” I talked for six minutes about how to correctly buy media. We had the most people coming out of that show coming to our table outside and coming to talk to us about our product after that.

Because instead of doing the same monotonous pitch, what you have to understand is that webinars, there’s a blueprint almost about how people pitch products through webinars, there’s courses about it and all that kind of stuff. By breaking that mold and giving them something unconventional they will remember you better and they gotta come and check you out.

Andrew: But?

Max: But that show did not, there was a big ‘But’ there, that show did not do extremely well for us revenue wise and that was a mistake that we made.

Andrew: And what was that mistake?

Max: It was around audience forums. It was a lot of people that had barely heard of media buying.

Andrew: I see. These aren’t people who are doing media buying on a regular basis. They are doing what I heard a lot at that conference which is JV partnerships. Right?

Max: Exactly.

Andrew: Joint venture partnerships which essentially is like an affiliate program. Alright so I get it. It wasn’t necessarily the right audience. It was a great conference. I didn’t go to the actual conference because I’d been obsessed with getting more people here at Mixergy to help me not have to spend every waking minute on the site or else I’m going to burn out. So that week I think I was hiring someone new or I was training them but I’m obsessed with getting this stuff done so that I can focus on other things.

What I did though is I did go to the drinks at Yanik Silver’s underground. I did go to the costume party which was there. I went to the first dinner and I got to have a lot of interesting conversations with some past Mixergy guests and you and I got to step outside of the conference, have some coffee and talk. I said we had drinks, but you’re right. I had the drink; you just had a diet soda or a coffee?

Max: Yeah, something like that.

Andrew: So, webinars you don’t close it, you let the person whose partnering up with you close it, but that’s an effective place for you. You started talking a little bit about writing articles and guides to media buying and that’s been effective for you. So you write this guide. How do you get people to promote it for you so that it leads eventually to sales?

Max: There we had a good friend that had a dormant blog that still got a lot of traffic but he didn’t do anything with. So we said we’ll give you some fresh content for it. I sat down and spent a ton of time writing out this five and half, six page in-depth guide about how to start media buying. We gave to him and he posted it there. And then we went to those same forums where we turned up these webinars and said, “Here’s some free content. Put it on your forums. You’re not going to get anything back for it but your members are going to go “wow, you can get this on your forum” “. So we go it out there, and people started reposting and reblogging and it sort of got around then.

Even today we still get a ton of traffic from that because it’s real content. It’s not saying, there’s a small call to action at the end, but the whole way through it’s not saying “WhatRunsWhere, WhatRunsWhere. Buy now, buy now, buy now. Special deal. You know. Where can you buy it? Go buy now.” It’s more saying, here’s some great content. I think that’s the whole thing behind thought leadership. It’s about saying instead of trying to shove something down your throat, “How do I establish myself as an expert in the industry? How do I establish myself as an Andrew Warner so that when I want to know about startups I go to Mixergy and I can learn things about how to start up my business properly?” How do we position ourselves in that same way throughout the industry?

Andrew: So I’m Googling for this thing. I want to understand how you got it. I see a guest post on a site called “Blue Hat SEO”. That’s you?

Max: That’s the one. And it went through a whole bunch of private forums and then it got reposted.

Andrew: So Blue Hat SEO is your friends’ site that was just sitting there.

Max: Yeah.

Andrew: And you said, “I can’t blog on a brand new blog because it’ll look lame for me to come up with just one blog.”

Max: Blue Hat SEO is one of my business partner’s friends. He had a ton of traffic going there still and he hadn’t posted something for us in a long time. So we contacted him and said, “Can we write this article for you?” Because if we post it on our new site there’s no-one going to it. Here he already has a base of people that are semi-related that are interested in it. And that article on Blue Hat SEO has a fair number of comments on it. I’m not sure how many of them are spam but it has-?

Andrew: 152 comments on it and here’s the thing, it’s exactly as you’re saying.

Max: No, it has 640. No that’s the other one.

Andrew: This blog post went up June 2011, since then there has been no blog post and before then the last blog post was July 2010, so it was sitting there dormant for about a year? You pop in, you get some of the traffic that it was still getting and you get the ability to use it to promote that article on other sites.

Max: Absolutely and there are 947 comments on it.

Andrew: Oh, is that right? I guess I misread that.

Max: So almost 1,000 comments on that article.

Andrew: Oh, I see what I did, I scrolled down to far and then I looked at the comments on the next article on that page.

Max: Because people started tweeting it out, people started posting it, and saying, you know, here’s a great article, we push it out there a bit. You know put it on StubmleUpon, Digg, put it out there put it onto [??] And say here’s something that’s really [??] Here’s something cool that can help. We don’t want anything back, We’re just trying to help and people responded to that.

Andrew: OK. So, you posted it up on here. You said Hacker News, Y Combinator, so what you probably did is and you don’t have to tell me if you don’t feel comfortable. But, what you probably did is you said to five of your friends who are already on Hacker News, hey I’m putting this up at 10 a.m. tomorrow. Let’s all vote it.

Max: Oh, Absolutely. OK. We do for social media. It’s all about, you know.

Andrew: Who you know and who’s willing to upload for you or tweet for you.

Max: Exactly.

Andrew: So when I go onto StumbleUpon, you say other people, upload this on StumbleUpon, when it goes on Facebook you say can you share this, can you share this, can you like this. So it gets started and it starts getting spread out. For one thing that we’ve also done in the past, is blogs with Facebook comments enabled. We’ve made it so we’re the top liked comment on that specific post with very key so we’re the first one that shows up when someone goes and looks at a comment.

Max: I see. And you get a handful of people who will all upload it.

Andrew: Yeah, exactly.

Max: I mean, not upload it, but like your comments so that it shows up at the top.

Andrew: Yeah.

Max: One other thing about this.

Andrew: A lot of people don’t say do you mind, it would help us a lot.

Max: How do you get a forum, I guess on a forum you can put a copy of this whole article or you can excerpt it and put it on a forum. But, it’s pretty much going to sit there. It’s not going to get more than 100 or 1,000 even hits. Right? What do you do to spread it beyond?

Andrew: Well we put it up there and then, we get people ways to share it so we would go to key people that we know have large audiences and we say do you mind tweeting this? or something to that. And now on the forum once it’s posted, once it’s up there, you find other key people in the forum who post and you say I posted this, do you mind, you know, how would I get other people involved. One of the key things that we’ve found is really useful and I forget who told me this exactly. But it’s been extraordinarily useful in terms of anything. When you want something from somebody, and you know there why would they help you? One of the key things to do is ask for advice. Because usually if you have something great and you ask for advice, their going to do it for you as well. They aren’t going to let you fail. They’ll help you. So you would go, you know, I want to put this article somewhere, you know, can you give me some advice on how to best do that? And they would say, Oh, this is a super great article and they would post that for a while.

Andrew: I see. By the way, the link on this blog post on blue hat SCO is broken. It goes to what runs where dot com slash signup slash index two dot p h p question mark.

Max: That blog post is very old and we don’t have that up there anymore.

Andrew: OK.

Max: Because we now have it, that was before we launched our trial, we now have a trial for 7 days for [??]

Andrew: Oh right, so you don’t need to give people 45 dollars off the first month and now they get the first month or so free.

Max: The first things we did, you know, from a marketing perspective where what runs where. As we’ve done it, almost a year old now.

Andrew: All right. Let me ask you, about the next item on the list: Trade shows. You said that you wanted to talk about some of the mistakes that you’ve made at trade shows so that other people don’t suffer the way that you did. What’s the biggest mistake you made at trade shows?

Max: The biggest mistake we made, I would say the biggest mistake we made, we haven’t made a lot of mistakes because my partner and I have both been to a ton of trade shows, we’ve been going for a long time. But we figured the first trade show we went to as a company, we figured. Let’s go by these, you know, tablets, to be able to demo what runs where on the tablets. and then we’ll sign people up on that spot. We’ll get them to put in their information and then we’ll be done. I signed up one person the entire trade show with those tablets. It wasn’t because people were interested in, people wanted to sign up, but they got to the page wi fi wasn’t good in spots so they couldn’t load it, or they got to the page and they went to type and when you go to type in a full field with credit card information, your name, your address, your username, your information or to retype something. It ends up being it’s something that would take like two minutes on the computer, it ends up taking 15 minutes on a tablet. People don’t want to do that. They’re in the middle of a trade show, they’re trying to network, they’re trying to see other people. So, I had a tablet sitting somewhere at home that I haven’t used since that show just because It was such a big bust. So what we started to do at shows afterward is actually carry around a laptop. I carry a laptop on me which I can then quickly open and get them to sign up on the laptop if I really need to, or we put them in as an aggressive follow-up sequence coming out of the trade show.

Andrew: So you pull out your laptop and you get them to pay up right there, pull out their credit cards and the whole thing?

Max: It depends on the show. It depends on how good the Wi-Fi is and it depends on how busy we are, but we do have a laptop on us at all times.

Andrew: All right. Before we go to one more mistake, how about the best, most effective thing that you did at trade shows to get customers?

Max: The first thing that we did at trade shows the best was (?). We made t-shirts. We got these white shirts that said ‘I know where your odds are running’ and put our logo across the back. I’m a big guy. I’m 6’4″, so people could see that. I’m like a walking billboard. I’m very visible. The other thing that we did is at the most recent tradeshow we actually got a booth.

Andrew: Got a what? A booth. OK.

Max: We got a booth at Innovation Alley. That was amazing for us because I had never fully realized – I ‘d been going to trade shows since I was 15 – I’d never fully realized the type of people you meet having a booth versus the type of people you meet walking around the floor. When you’re walking around the floor, you’re only meeting people you know or your friends. You can’t talk with people. In the same way, when you have a booth, you have somebody come up and go, ‘Hey, I’m from Microsoft’, ‘I’m with Google. I’d love to work with you. How can we figure out how to do this?’ That may not turn into anything, but the level of contacts and the type of contacts we get are at a whole different tier than we would get otherwise.

Andrew: Wow. So the number one hustler, the guy who likes to walk around a conference with a tablet instead of paying for the biggest booth at the conference, he wants to walk and talk to as many people as possible and sign them up, you went the other way. You bought a booth.

Max: Yes. We bought a small booth. We didn’t buy a big booth. We bought a small booth. It wasn’t super expensive but people came and checked it out. For our first three or four trade shows as a company, we walked around. We just hustled. We walked around, and it was really interesting to see the change from no one knowing who we were to people coming up and saying: ‘Hey, I use your product, I love it’; ‘You’re from (?), great.’ At a certain point, you feel like you’re seeing the same people again and again and again at shows. You may meet some new people, but it’s very different than being able to have a place where people can bring friends to show you to them. There are people who go to conferences and as an attendee, I realized, I would go to the conference and I would go to every booth there. So there are other people who I would never get to meet — they’re just outside my social network at conferences – who would make it a ROI positive conference for us.

Andrew: All right. How about one last mistake at trade shows?

Max: Last mistake at trade shows. Again, we talked briefly about the UGA thing. As an audience, you have to understand that people say a lot of stuff at trade shows. So coming back to that conference in DC, I had given that speech and we got a rave response. People came and said, ‘We’re going to buy it, we’re going to buy it, we’re going to buy it. Here’s a card, here’s a card, here’s a card.’ And then you go back and you sort of get caught up in the moment when you’re at trade shows. You hear it and you may just want to stop talking to that person and you say, ‘Yeah, I loved you, let’s talk after.’ A lot of those people don’t hand out, they don’t want to pick up their phones, they’re not actually interested. It’s not the right time. There are certain things that people say. I found there are a lot of trade shows. If I wanted to be on the road everyday at a trade show, I could be. There are so many of them. So picking the right ones to go to for your business that hit the key audience that you want to reach is important. We took a bit of a step outside of our comfort zone with this other show. We weren’t sure if the audience was going to work out, but it wasn’t super expensive so we took a bit of a risk. It just didn’t work out for us in any way, shape or form.

Andrew: OK. Let’s see. What else do we go to? What about all these conferences you go to? You went to Ad-Tech, right?

Max: Yes.

Andrew: How effective is that when you’re just an attendee, before we go to one of the other items on the list?

Max: Oh, it’s great. Ad-Tech is free to walk the exhibit hall, so you’re paying for flights and a hotel.

Andrew: Did you get any customers out of it? You’re not flying for no reason.

Max: Absolutely. That’s what we did before we exhibited at this Ad-Tech. We used to just go and walk around. Besides that one in DC, we’ve never had a negative RoI trade show. Without funding – we’re an ROI-focused company – if we don’t make our money back, it doesn’t really make sense for us. We’re not a company that can go spend a ton of money on branding, so we’d go and we’d walk around and we’d go and meet people and we’d go stalk people and…

Andrew: What size revenue do you guys have now?

Max: I can’t tell you. I can’t tell you that.

Andrew: You can’t tell me that?

Max: No. That’s confidential.

Andrew: Are you guys profitable now?

Max: Yes.

Andrew: Are you taking a salary?

Max: Yes, of course.

Andrew: OK. Did you, in fact, before make $20,000 a day as an affiliate?

Max: Yes.

Andrew: That number was right, what you told us before in the last interview.

Max: Yeah.

Andrew: Are you in fact doing some affiliate stuff on the side?

Max: No. And that’s a big thing versus you know a lot of people. We don’t allow any of our staff to do anything like that, or do anything (?) and we don’t and never will as a company.

Andrew: Why not?

Max: And people will come to us and says that’s stupid, why? You could be making this kind of money again. It’s just not worth it. If you as a customer, if you think I’m looking at your data and taking what you’re doing and running it myself it takes away an incentive for me to help you. If I’m making ten grand a day and you ask me about a similar campaign why would I tell you the answer by getting into my (?). This way I can tell you straight honest truth of what I think and not have to worry about that in any shape, way or form. As a company I can tell you we are profitable. We’ve been profitable since we launched. Everybody in the company takes a full salary. And we’re presently growing and we’re always hiring.

Andrew: Are you? We’ll get back to these specific tactics but I’ve got to find out a little more about your story. Because you were doing $20,000 a day. And I know it was fluctuating. We got deep into your past revenue. But you were doing it by signing up for affiliate programs, taking the ads from those affiliate programs, buying ads and running them. Doing ad placements for them.

Max: Yeah, arbitraging them.

Andrew: Yeah, arbitraging, right? Are there people now who are your customers, don’t tell me the names I know you’re not going to and that’s fine. Are there people now who are your customers who are essentially doing the same things through whatrunswhere? Arbitraging (sp) ads?

Max: Oh, absolutely. Since we came from that space our first base of customers all did that, that’s all they did.

Andrew: They all did that? These are people who found the latest acai berry thing and they ran ads for it online.

Max: If you’re arbitraging traffic and you can have a system that you can then go and say, I’m spending a thousand bucks a day, I’m making 1,200 a day, I can find something that helps me write better ad or find better placement, all of a sudden I’m making 14, 1500 a day from that same campaign. It’s a really, really simple value proposition. I spent $200 and I made an extra $200 a day. All of a sudden I’m making 30 times my investment a month. That’s a great IRI investment. Over time that’s one of our key segments. But we branched out to a ton of other segments (?) general brands. We work with some huge companies who I can’t disclose.

Andrew: Would you be willing to introduce. I know you told me before the interview and it sucks that I can’t say the names of these companies. Frankly between you and me I think you should just call them up and say, well it’s too late now, but I should have pushed you before the interview to call them up and say, I’m about to do this interview on Mixergy. I just need to use you as a case study, is it okay? I think these customers….no, you’re smiling because of the kind of business you…

Max: They’d be fine with it but at the time, you know, we are as a company we’re extraordinarily laid back which might be (?) and I’m like, we might talk in six months and I might say you know I made this mistake. We don’t send, we don’t promote other people’s products. We don’t send our users e-mail really about other products.

Andrew: But you have customers logos on your website.

Max: Yeah we do.

Andrew: I just wanted the bigger names that you signed up recently. But it doesn’t matter. We’re sticking with this hustler story. We’re going to find out how you hustle for customers. Because this is I think in the audience’s best interest because hopefully they could pull out at least one idea from how you hustled to get customers when you had no money. And you still are very scrappy. And they could use it in their own businesses.

So we talked about webinars, we talked about media, media buying articles and guides that you put together. How about, let’s go back to support. You’ve got your clients by answering support e-mails. How did you do that?

Max: Want to take a step back really quickly before.

Andrew: Go for it, okay.

Max: Because we’re talking about before, there’s a big difference between, you know, as a company, as a new company and you see a lot of people do it. It doesn’t matter what you’ve done in a past company. In a new company especially if you purposely don’t take funding, is very profit focused. So as a company when you have no revenue coming in you have to work that much harder to go and you sit there with your customers and you know what you need. And I still say this to our customers, I’m still (?) with you. I give out my personal phone number. I say call me anytime. The only time I won’t pick up is if I’m in the washroom of if I’m dead in a ditch. And maybe if I’m sleeping. I may be a bit grumpy. But I’m happy to pick up and talk to you. That really helps. That ties into the support thing because as I said, I do all the support and that’s really valuable. And that also helps us to retain customers on that support side. Because they feel like somebody actually cares. They go, wow, one of the co-founders and the COO and even though you know they’re bigger and well recognized. How many at this point are still willing to sit down and help me with my issues, help me with my support?

Andrew: Give an example of a customer who e-mailed you support, maybe was a little bit angry and you could have lost him if someone else handled him, and you won him over.

Max: Yeah, absolutely. When we first started I think we had about 30 customers at this time. And so when you lose a customer that’s like 3% of your user base right there. That’s, you know, it hurts. You feel it deep inside of you, you’re like oh my god. So we had one of our biggest customers at that point e-mail us and say I’m leaving. And there was an issue, I think it was the operating system they were using. And I e-mailed them back, I said let me look into it and fix it. And because I responded properly and we had it fixed within about 20 minutes, they signed back up and they’ve been a customer for the past year with us. Which you know, with that 20 minutes of working and just by being on top of support and really taking care of it and interacting with the customers, we retained an extra $2,000 of value from that customer.

Andrew: Alright, support. Last item on my list. Actually before we get to the last, I’ll save this for the final question. The final question I think is a good one. Let me write a note here to find out, how much money, I think you might tell us this one. I’ll come back to that. I’ve got a note here to ask you about pipe drive. I don’t get it. As we were talking I kept calling it hyper drive and hype drive. I kept getting the whole thing wrong because I don’t see how signing up for something could either do great for your sales or it could reduce your sales. So what is pipe drive and what did it do to you?

Max: Pipe drive is the most important thing for inbound sales that we’ve done.

Andrew: Oh really? Okay.

Max: Absolutely.

Andrew: What is it?

Max: It is a startup that is a CRM sales model. So a customer relationship management tool for your sales model. What it allows you to do is drag and drop people through your sales process and keep track. Schedule calls, put contact information in there, and it’s the most important thing we’ve done, let me put asterisks there, once we got a sales team in place. So once I had other sales people that I had to manage and work with, because now it takes an extra three or four minutes for a customer to update and do but once you’ve started that customer. Let’s say now you get sick and you’re in the hospital for a month, I can seamlessly pick that up what you’re doing with all of your notes and what you’ve done and your scheduled call look backs. See a history of what you’ve done, all the notes, where they are, and pick it up and continue that sales process. It’s easier then sort of keeping it on note pad and saying where are those notes, I’m going to use it. It keeps it in an easily accessible way. Where I can also drag and drop sales statistics. I can see how many did we sell this week, how many did we sell this month, and what’s the big difference?

Andrew: Is this run by a friend of yours?

Max: No.

Andrew: You don’t know them.

Max: I saw them, actually I saw them on Apps sumo, that’s how I found them. We had a deal on App sumo that we signed up for and I’m a brand advocate now just because we use them and we love them.

Andrew: I think I see how it works. So I get an, if I’m new I find a prospect, I enter them in the system. If I talk to the prospect and he’s moving down the channel I add more data to him. And it looks like what I do is I drag him from the prospect column of this pipeline to the whatever your next column is.

Max: You can name it whatever you want. But you literally just drag and drop customers over.

Andrew: So everyone knows where these customers are in the pipeline.

Max: Exactly where they are and what we need to do. We can schedule follow ups, we can schedule calls and get reminders about them. And then also you know where everybody else is with their prospect. So we can say, we can identify okay, here’s what we’ve done this week. We had a ton of new prospects come in, but we didn’t close many of them. Or here we had a ton of prospects, this week we had a ton of prospects that we already showed (?) and we closed them. So what can we improve? Why did it take, why did we close that many customers this week versus last week? What sort of change did we put out and how can we replicate that?

Andrew: Alright, pipedrive.com. Neither one of apparently has any connection to them. And if anyone’s curious, there’s no affiliate program on my part. I’m not making any money off of doing this interview with Max.

Max: I just, when I say a company like mailjam or pipedrive or you know somebody like that that we use, it’s because they’re a good, like I’ll never use an affiliates because they’re a great company. And we use them and we use them successfully. When we say something like, and we want people to use them because.

Andrew: And you know what though? I do see some people especially in the online marketing crowd who do podcasts and do blogs and do all kinds of stuff where, they tell you about stuff and they get excited about it and you know that they’re making money some money on them. And that’s why they’re hyping you up. And I feel like I love watching infomercials but only if they’re carefully, you know if they’re labeled. I’m not sitting here and being another sucker in your audience so you can get me all excited about some product that you’re going to make some money off of if. I just want to know what really works for you.

Max: Exactly.

Andrew: It’s not, I don’t have anything against people making money off of it, but I just don’t want this background affiliate stuff. Speaking of customer service that is my assistedly page. It’s somewhere in the background. I must have been answering assistedly e-mails. I keep calling it, there it is. Inactive warning. I wish I could just turn that sound off. Keep me active in the system. I’m always on customer support, just like Max. But you’re on it much more than I am. I have other people to help me.

Max: Yeah, one other thing that we do which I didn’t mention at all, you know, it’s been really successful for us, is we use proactive chat on our website. All of us are, all of us, the whole sales office is hooked into chat. So if you come to our website you’re on the website for more than, I think it’s 30 seconds now, we’ll pop up a window says, it will either be myself or it will be one of our other guys saying, hey this is so and so from whatrunswhere, do you have any questions how can I help you? And I’ll just interact with the customer before they, answer questions they may have, you know get them to that point of you should use us. And here’s why you should use us.

Andrew: Were you able to close sales that way?

Max: Yeah.

Andrew: You can.

Max: Oh, absolutely.

Andrew: I can too, you know what? But I had to take it down because it took up too much of my time.

Max: That’s why. As one person I ended up turning it off. Now that we have multiple people in our sales team and we have, I have my director in business development. I have account executives as well that can go in and out put that. It’s not just me. And I still, I enjoy talking to our customers. I’m a giant nerd. I get really excited about a couple of things. Star Wars, media buying and yeah, no that’s pretty much it. I get (?) period, ad tech period, I love. I hear about a new startup or I hear about some new technology and I get really excited. A big grin comes on my face and I jump in and I want to find out about that.

Andrew: Alright. Let me do a quick plug. Here you see how I say it’s a plug. And the plug for Mixergy premium. If you enjoyed this interview and you want a little bit more with Max, we did a course together where he basically said, even if you don’t ever want to sign up for whatrunswhere, this is how to spy on what your competitors are doing with their ad buys. And he showed specifically how to find out where your customers are, who else has your customers, where they’re buying advertising to reach their customers, what kind of ads they’re doing. And he also showed how to have somebody create ads that use the best part of your competitors ads. I mean, if they, and this won’t make sense unless you watch the actual course. If they have eyes in their ads you can start to see a pattern that eyes staring at the users from the banner ads worked for these guys. If it works for them you take that and you send that out to a designer and you have them create a similar ad. If they place ads, and you’ll see exactly where your competitors place ads, if they’re buying ads on these sites you can either do the same things. Buy on the exact same sites or buy on similar sites, and Max shows you how to do it. It’s a primer to buying ads and it’s part of Mixergypremium.com. If you’re already a member it’s there. I’m not selling you on anything. If you’re not a member sign up and get that course. And right now it looks like 61 other courses too. Sorry Max you were going to say something.

Max: I’m going to be a bit. I don’t want to sound like lame or something. I love Mixergy premium. We use that and we use a couple of other courses in Mixergy premium in our training packages for our new employees.

Andrew: Thank you.

Max: So we’ve actually added into our training of how you know, you comes to whatruns where, here’s how you get started. Here’s how you learn about the industry if you know nothing about it. And there’s a lot of Mixergy content in there.

Andrew: There you go. Great testimonial. Mixergypremium.com. If you haven’t signed up I hope you go to MIxergypremium.com and sign up. Alright. You did an interview here, you did that course. Was it profitable for you? Did you get customers from it? And you can be honest with me if you didn’t.

Max: Profitable for us?

Andrew: I guess there’s no cost, so.

Max: Profitable is a bad term.

Andrew: Right, did you get customers from it?

Max: What’s interesting. So the interview is very, very controversial. And you know, I have never heard anything bad about it in real life. Maybe it’s because I’m a big guy and they don’t walk up to me and say it’s a bad so and so. But we have a lot of people coming up to me in conferences saying, hey I saw you on Mixergy. I got e-mails, I’ve had people add me to IM’s. I’ve had people come and say I’d like to come and fund your company, invest in your company because you were on Mixergy. So there’s a definite power to the people that do in the audience, you guys who are watching this. And then, for me I get a big ego in my head. My head gets a bit big. I got to a hotel and I say, can I get three beds. One for me, one for somebody else, one for my ego. Because it’s a real bad space. In reality it’s been extraordinarily helpful the business in terms of brand and name recognition. It’s been extraordinarily to me in terms of, you know, again that’s all we were (?)coming out and saying I know something about something. And share that.

Andrew: Did you get customers from it?

Max: Yes.

Andrew: Okay. You know what, I was going to ask you how, but I don’t want to say it. Other guests have actually e-mailed me with specific numbers. How they have it, I don’t know.

Max: The only way I’d be able to do that is to give you an affiliate. How can they say they know the exact amount?

Andrew: I’ll tell you why. What they’ve done is, they’ve done either a different kind of offer, or all they’ve tracked is the people who came specifically from the site, or people who mention Mixergy when they sign up. The thing is, though, I was going to do a blog post about it and say, “Guys, here’s how great it is to do interviews.” Thinking it would get me more guests, and then I realized, if I do that, I’m going to get the wrong kind of guests. I want the guests who don’t need the extra sales. Who are doing well. If I get the people who are desperate, I need customers. I’m going to get [??], I’m going to get people who don’t have real companies there. I’d much rather do it the way we’ve been doing now, where we look for the guests. Basically, getting them through there friends or doing research online.

Max: Absolutely, one example, there are a lot of people that watch the interviews and do things. I can give you an example, I said something about Sitescale.com [sp] in my last interview. Mentioned it briefly, and someone watched that interview, and went and applied for a job at Sitescale. That, to me, is sort of mind blowing.

Andrew: Did they get the job?

Max: Not sure exactly, what ended up happening there. I just wanted to say that story as an example.

Andrew: Sitescout, introduce me to them for an interview. I’d like to have those guys on. Actually, is there anything else that we missed in this interview?

Max: No.

Andrew: Good, because it sounded like we were about to go into a private conversation. I do want to have a private conversation with you after this interview is over. So, after we end it, I will send it to Joe. Then I want to talk to you about interviewing some of your friends and about some follow up to our last interview. Whatrunswhere.com, that’s the website that we have been talking about. I keep saying to people, “Connect with the guests.” And the reason is, I saw this guy at one conference, we were talking, he was a fan of Mixergy. He saw someone who was a guest on Mixergy. He said, “Andrew, I know that guy from the interviews.” And I said, “Why don’t you go over there and say hello?” He said, “I don’t know I just don’t feel right.” Don’t feel right? Look at all the people who are going up to Max and how happy he is to have conversations with them. If you see them at a conference, go up the them and say that Andrew said hello. If you don’t see them, great, send them an e-mail, tweet. Find a way to connect with them. It’s going to lead to good things. I do all the vetting here to get the best guests on. You might as well piggy back off of that and connect with them. I’ve had people in the audience say that they use Mixergy interviews to see who they should be doing business with, and then follow up. Don’t just sit back, engage in these interviews.

Max: My personal e-mail is Max@whatroomswhere.com. Our Twitter is @whatroomswhere, either, or. Send me an e-mail. I will try and get back to you as soon as possible. Sometimes, we are extraordinarily busy, and if so, I try and get back to everybody.

Andrew: Here’s what I suggest that they do. Usually, I say Max, that they. . .

Max: Especially Subway sandwiches.

Andrew: Oh, you take them out for Subway, you’re saying?

Max: No, no, I’ll talk to them about Subway.

Andrew: Alright, if you don’t know what to e-mail Max about, here is my suggestion. I’ve got an e-mail here that I didn’t get the chance to talk about. This is the e-mail that he sends people who cancel, complete with the phone number, e-mail address and you see the process that he takes. E-mail him, ask him for a copy of that, don’t ask on a chat board. Ask him for the e-mail, so you get to see how he wins back customers. Thank you all for watching. Max, thanks for doing this interview. See you in the comments guys.

Andrew: Three messages before we get started. If you’re a tech entrepreneur, don’t you have unique legal needs that the average lawyer can’t help you with? That’s why you need Scott Edward Walker of Walker Corporate Law. If you read his articles on entropy, you know that he can help you with issues like raising money, or issuing stock options, or even deciding whether to form a corporation. Scott Edward Walker is the entrepreneur’s lawyer. See him at walkercorporatelaw.com.

And do you remember when I interviewed Sarah Sutton Fell about how thousands of people pay for her job site? Look at the biggest point that she made. She said that she has a phone number on every page of her site because, and here’s the stat, 95% of the people who call end up buying. Most people, though, don’t call her. But seeing a real number increases their confidence in her and they buy. So try this. Go to grasshopper.com and get a phone number that will make your phone number sound professional. Add it to your site and see what happens. Grasshopper.com.

And remember Patrick Buckley who I interviewed? He came up with an idea for an iPad case. He built a store to sell it, and in a few months, he generated about a million dollars in sales. While the platform he used is Shopify. If you have an idea to sell anything, set up your store on shopify.com because Shopify stores are designed to increase sales. Plus, Shopify makes it easy to set up a beautiful store and manage it. Shopify.com.

Here’s the program.

Hey there freedom fighters. My name is Andrew Warner, I am the founder of Mixergy.com, home of the ambitious upstart and the place where proven founders come to tell you their stories so you can learn from them. Get out there, build your own success story, get your own freedom and then come back here and hopefully do an interview where you teach others what you learned along the way. And in this interview I want to answer this question. How does a founder, who tries everything end up finding his hit business? In this interview, you’re going to hear about the laundry list of companies that Eddy Lu co-founded with his partner. I want to focus on, though, two of those businesses. A franchise called Beard Papa, which he still owns today and runs passively, apparently at only three hours a month. And I want to focus on Grubwithus, which has one of the most impressive collection of investors. Grubwithus is a social network that brings people together over tasting menus at top restaurants. Eddy, good to see you.

Eddy: Good to see you, Andrew. And thanks a lot. And I’m sure people don’t know this, but you were one of our first mentors and advisors for Grubwithus, way back when you were still in Santa Monica.

Andrew: When I was still in Santa Monica, I loved getting together with you and Daishin over lunch and talking through this idea and it evolved since then. And later in the interview I want to hear about the evolution. How you found your groove with Grubwithus.

Eddy: Sounds good.

Andrew: But I mentioned a laundry list.

Eddy: Yes.

Andrew: Can you give people that list of companies that you started before Grubwithus?

Eddy: Yeah, sure. So just way back when, Daishin and I were roommates in Santa Monica. I was working at Lehman Brothers when the company still existed. Daishin was at Edmunds.com. We just hated our corporate lives. Every night we talked about wanting to do something for ourselves, wanting to just build a business. We didn’t know what that was, but we just wanted to do it. So both of us, we just decided to quit our jobs, cold turkey, on the same day, just hand in our resignations, and just figure it out. What that entailed, we didn’t know. And our parents were super annoyed at us for just quitting our high-paying jobs like that. But we just said, “you know what, let’s do it.” So Daishin and I quit and we literally started every company under the sun. I mean, some people say that but we lived it.

Andrew: For example?

Eddy: We started off with a gold apparel line. I mean, I enrolled in sewing classes at Santa Monica College and if you know me, that’s just not something that I should be doing. We tried that, it didn’t work. We opened up a tea business online. We created iPhone apps, iPhone games, really bad ones, just because it was that market of pumping out games. We day-traded. We did import, export. When we were on a trip of Asia, we had a friend that was selling undergarments, so we said, why don’t we try selling female undergarments in night markets in Asia, just to see that experience was. So we tried literally tens of businesses. And nothing really stuck, we weren’t really passionate about anything. This one time in San Francisco, we chanced upon this product called Beard Papa’s, it’s a cream-puff franchise.

Andrew: Well, before you get to Beard Papa’s, you said lady’s undergarments in night markets in Asia?

Eddy: Yeah.

Andrew: We’re talking about panties you’re selling in a market, standing in a stall.

Eddy: Yeah.

Andrew: Now, what was the vision there? You’re a guy who worked at Lehman Brothers. You’re a guy with big ambitions for himself. You want to leave your mark on the world. You weren’t going to be satisfied with the biggest stall in the night market selling the most underwear. What was the vision behind that?

Eddy: Well, so that was during our import-export phase. We were trying to sample a lot of items and clothes and what not. And we just wanted to test the market. Just test a bunch of stuff and we just wanted to get there, to see how people reacted to us. And I think we just wanted to push ourselves. We’re not natural sellers, and this is the product that is just way out there. And we wanted to see, with our abilities, how we could impact people to purchase things from us.

Andrew: You wanted to test your guts and test your sales skills by selling women’s underwear?

Eddy: Yeah. Basically, at this point, we had no shame. We were willing to try anything and this was one thing in the long list of things that made us who we are now.

Andrew: Credit card websites, that means a site where essentially you were running affiliate programs for credit cards…

Eddy: Exactly. Exactly.

Andrew: OK. Tea company, what was that?

Eddy: We had a good mentor as well who had a really successful tea business, just selling B to B, and we just valued him as a friend and mentor and we wanted to see if we could just explore that option. Again, we like to deep-dive into anything we do, so we flew up to San Francisco for five days to become tea masters, and we learned everything there is about tea, and we just started building this retail consumer website just around selling tea.

Andrew: You know what, I know that when I try selling people things, you’re putting yourself on the line. And as that line in the movie, Barbarians at the Gate goes, “People buy you and they buy what you’re selling.” And it means that you feel great when someone buys from you. That they love you, that they really, really love you. When they don’t, you feel hurt. I know even when my revenues at Bradford and Reed were down, I felt a sense of lower self-esteem. When Mixergy wasn’t doing very well, especially with revenue, I felt a lower sense of self. And here you were, going through a list of businesses that didn’t work. And you had to keep up your confidence. Was it an issue for you at all to keep up your confidence?

Eddy: I think it was more of an issue of survival, and just wanting to prove that we can make it work. We made the gamble to quit our corporate jobs.

Andrew: But you weren’t making it work. So weren’t you feeling like, boy, we are real losers. We should’ve stuck with the jobs. We’re not like these people who, I mean, you’ve got some top investors, we’re not like Alexis Johannan [SP] who happens to be an investor of yours, but made Reddit huge. Did you feel to yourself, we’re not like, I’m looking at who else is in here. Your email probably wasn’t on your radar back then who invested in Grubwithus. But you’re not like these guys who you’re reading about. Instead, you walked into their world, and you’re getting slapped down. Now, really, dig deep and see if you could remember how you felt back then. Were there any of these feelings that I’m bringing up? This inferiority?

Eddy: All day long.

Andrew: So give me an example of how you felt about it.

Eddy: Yeah, there were days, just super dark days that I wouldn’t be able to sleep because we were just not making any money, in fact, losing money, because we’re trying out all these businesses and thinking back to where we were back then, and just a shift of lifestyle between me and my friends was kind of the worst thing. My friends are still in these high paying jobs, and they’re going to Vegas, they’re having fun, and I’m saying, I can’t go, they want to hang out for dinner, and I can’t do that. And it’s just super heart wrenching. But I think the people that me and Daishin are, we’re just fighters. That just motivates us even more, to say, let’s do this. And that just made us not sleep until 4-5:00 A.M. every night just trying to crank out things and working on things, and really trying to push hard to be scrappy and prove ourselves.

Andrew: I had a similar, well, I had this experience. Tell me if you had anything like this. I remember going to my former boss’s house when I was soon out of college and starting my first business. And I walked around this beautiful garden, and people were really nice and supportive of me because they wanted to encourage me. I was a former employee of their friend. And I remember one guy that came up to me and said, ‘If you need anything come to me and I’ll help you.’, and I was in such a sense of nothingness that I wanted to respond back and say, ‘And of course if you anything I’m there for you.’ I couldn’t even say that because there was nothing I could do, I felt so like inadequate in this room full of people who were on top of the world and these were [??] people who were doing extremely well for themselves.

And I did feel that shame and at the same time I went back to my desk that night, after that party, and said, ‘I want to do something big.’, I was inspired by how much they had, I was inspired by how big they were going to be in the next few years based on the trajectory of their current lives, you feel that way too it sounds like?

Eddy: Yes, definitely and I mean one … since we’re talking about lows … one huge low was after a few years of trying to do our own things, it was one of my best friends weddings and I didn’t even have any money to buy his present so what I had to do is scrape up credit card rewards from like three different credit cards, and by the way these are all maxed out, that’s why I had rewards, I had to scrape up and just purchase separate gift cards for him from these different credit card rewards and it was just super duper embarrassing that I had to piece mail my best friend’s wedding gift and so with that I also felt like, ‘You know what, this is ridiculous, we have to really build something sustainable on something that we can be proud of.’

Andrew: All right, in our pre-interview you told me about the bickering that you and Daishin got into when you were running your franchises, Beard Papa, and I want to get to that. Thanks for being open about that but let’s find out about how you met this guy, who in your lows, you were able to turn to and be fired up together and who later on, even through the bickering, you were able to stick together, how did you meet this guy?

Eddy: I met Daishin about 10 years ago when we were both at Berkeley. He was one of my friend’s roommates and we actually didn’t hang out to much in Berkeley, we’d hang out and play basketball. I knew he was a competitive guy so that was a good quality that he had but it wasn’t really until I moved back down to L.A., from San Francisco, did we start … I needed a roommate because I was moving down and he needed a roommate so we just decided to live together and literally from that point, the very first day we lived together was when we said, ‘Hey let’s do something together.’, and so yes …

Andrew: I see, two people who are both determined to do something, who are both ambition, finally meet each other and you say, ‘I’m not alone in the world and this guy is not just feeling the same thing I am but he’s in the same place where I am. We’re both struggling to do something.’

Eddy: Yes.

Andrew: OK. All right, so you told me about all those ideas that didn’t pan out and then there was one that did. You’re in Northern California and you saw what?

Eddy: Yes and so I saw this huge line for something and I was with my girlfriend and I was just like, ‘What is this thing?’, and she said, ‘Oh it’s this cream puff store called Beard Papa’s.’ And the line was so long that I didn’t even try the product that day because I just didn’t want to wait but it seemed like, when just looking through the window it seemed like something that was just super simple. It was just these cream puffs that you just filled and you sold and everyone was happy, right, the consumer’s seemed like they really liked the product and the company seemed like it was doing well.

So I got back to L.A.

Andrew: By the way, what is, I had to ask my wife this when I first heard of cream puffs, what is a cream puff?

Eddy: It’s basically, it’s like a French kind of crispy flaky outer shell and with kind of this custard cream that’s filled inside of it.

Andrew: OK.

Eddy: So think of, yeah, kind of a baked donut but there’s also custard cream inside.

Andrew: OK. So you’re walking into, you’re walking past this restaurant, you see a long line, first of all which is an indication of something that’s exciting?

Eddy: Yes.

Andrew: And then you see, you look inside and say, ‘Just cream puffs, those aren’t that hard to do.’, I mean, calling someone a cream puff means that there’s nothing much to them for a reason because cream puffs are so simple. Let me just stop here for a moment and talk just about your personality and how you are different in my mind and in everyone’s mind, different from the average person.

Most people would see that long line and go, one of two things, ‘[??] another fad that we’re all going to get carried away with, another long line for me to wait in.’, you had a different approach, you said, ‘Look at that opportunity there, there’s something to it, I wonder how much money they’re making, I wonder what they’re going to do with this business? I wonder what the business is behind it. Is it just one person or is it a franchise, is it one location?’ The whole thing, that’s what goes on in your head all the time?

Eddy: Yeah. The girlfriend would argue that that’s a bad trait that I have because . . .

Andrew: Why? Give me and example of what you do with your girlfriend, a typical interaction that involves [??] like this.

Eddy: Instead of just enjoying the experience, I wonder how this operates or how this works, or how this gear functions or what not and she’s like, ‘Why don’t we just enjoy the moment and have fun instead of constantly work thinking about these little business operational things?’

Andrew: OK. You’re just constantly at maybe a restaurant going, ‘This guy is making a killing.’ or going in jewelry store saying, ‘Look at the markup on this jewelry.’ That’s the way your mind works?

Eddy: Especially at a restaurant, since we’re doing bread with us now. After we have a meal it’s ‘Hey, can I talk to the manager?’ I don’t think it’s the best experience for her.

Andrew: By the way, if you guys are in the audience, we’re going to do a Grub for us here. I happen to be in D.C. We’re going to get a bunch of people together. We’re going to use Grubwithus to organize it and we’ll just have a meal, a small meal. Not a packed house with dozens of people, but just a few people having conversation around a table. I love that idea. It will be up on the website and hopefully you’ll grab it in time. Once it’s over, I’ll pull it off the website. If it goes especially well maybe we’ll repeat it, but I want to keep it small. If you’re not in that first group, sorry, but there’s a reason for it. I want to be able to have a real conversation everyone who comes to the dinner. I’m also going to ask you, ‘Why $21 per plate? How you can do that?’ Let me write that down. Grubwithus.com if you want to see what I’m talking about.

All right. You see this thing, interesting idea, what do you do with it?

Eddy: Immediately, when I went home, I talked to Daishin. I was like, ‘Do you know this product? What it’s about?’ He actually had heard about it. It was something that he liked as well and he was like, ‘OK. Why don’t we check it out? We literally went to each store and sat outside the whole day. We didn’t have anything else to do. We sat outside and just counted customers and counted product. We saw how much volume these stores were doing and said, ‘This is a viable business. There’s a lot of customers coming in and they buy multiple, multiple cream puffs per purchase.’ We looked up the different franchise rights and things like that and we looked up the franchiser. It was this conservative Japanese company that actually runs this thing. We contacted them and they didn’t contact us back. Being us, we started to be more aggressive and what not. There whole thing was, being a conservative Japanese company, they’re not willing to take risks. We were unproven, super young, and we didn’t have franchise or food service backgrounds. They finally wrote back saying, ‘Honestly, we’re looking for people that are more experienced and that have proven themselves.’ Being us, we created a PowerPoint Deck and we gathered up a couple of investors and said, ‘Look, the reason we want to do this, is because we’re young. We have different ideas. We want to make this thing a huge success, you really need to pick us as franchisee’s.’ They met us a few times and they were, I think either shocked or wowed or what not by us, but they said, ‘OK. Let’s try it out, let’s do this.’ They really made it known that we were the youngest people they have ever dealt with. Beard Papa’s is big, they have like 300 stores in Japan. It was a risk they were taking, but they were willing to take on us because they believed in us.

Andrew: How old were you guys at time?

Eddy: I would say 26, somewhere around there.

Andrew: OK. Why didn’t you guys say, ‘You know what, this is doing really well, why don’t we create our own brand name? Your Papa’s is no McDonald’s as far as name recognition. People don’t even know what a Beard Papa is,’ maybe, ‘we’re going to call ours “Cream Puff.”‘ Why didn’t you copy it?

Eddy: Well, one, we have no idea how to make these things. We never intended this to be our sole business. Like you said, we wanted it to be more passive where, since it was so simple, we could count on other people to run this while we’re still building our other sites. This was just more of a income generator while we’re going on to our next thing.

Andrew: Did I get that right, you’re spending about three hours an month running it right now?

Eddy: Fortunately we have really good managers now that are in place that just run the store. And yeah, like I was telling you earlier, I’m, those three hours, even though it’s just three hours it’s still a head ache, you know, to us because when they call that means there’s a problem. Let’s say the fridge is broken or the AC’s broken or what not and those are the kind of things that we have to deal with during our three hours.

Andrew: Right. So they get you on board. In fact, before I even get to what happened at the launch, we’ve got to ask about the investors. How much money did it take and where did you get the money?

Eddy: It took about, it takes about $200,000 a store.

Andrew: $200,000 to launch a cream puff store?

Eddy: Yeah.

Andrew: OK.

Eddy: You know, I mean, there are franchise fees, there’s you know, yeah, it varies. Our first store was done super cheap. If you can get a space that was already a restaurant establishment you can save a lot of money, you don’t need to fix too many things up. So, our first one was probably about $100,000, but on average I would say $200,000. But yeah, we, that first store was just friends and family. I mean we had a bunch saved up from our corporate gigs so we took that and put it in.

Andrew: So is this before you had to scrap together a bunch of reward cards to pay for a friends wedding gift?

Eddy: Yeah, so.

Andrew: So after this you got to a point that was so low that you couldn’t afford wedding gifts. OK.

Eddy: You know what, it’s because we put all our money into these and since these are capital intensive to start up, you know, we didn’t really think longer term, we just said, OK, let’s put out money into this and work on the next thing. That’s kind of what happened, so.

Andrew: Was one or the other of you putting in more money?

Eddy: No, we all put in about equal amount.

Andrew: OK. Alright, so you get the store up and running, now it’s time for you to start selling, what was that like?

Eddy: It was really fun, I mean, being like web people we, and this is back in the day, we would spam like Zynga and like Myspace and sites like that where that’s where all the people were and you know, we would just every day, OK, so, we would write a blog post every day about how we created the store and it was just like the fun things and the pressing things, you know, just a blog post on Zynga of these different blogger or whatnot. And it really captured an audience and people were like, oh, I can’t wait till you open and whatnot.

Andrew: So people from Zynga read your story about putting up a store, read your story about putting up a sign that day and they said, I want to come in and check out this store.

Eddy: Exactly.

Andrew: There were enough people in LA who were reading your Zynga blog post, who were walking into your store?

Eddy: And I mean this was back in the day when Facebook just came out and you could poke anyone you wanted, so we literally went on to our local universities and high schools and we poked so many people. Every time we got banned from Facebook from poking too many people, we just created a new account, put up our name, Beard Papas or whatnot, and just kept poking people.

Andrew: First name Beard, last name Papa?

Eddy: Yeah, and things like that, you know, and just created spam email addresses and just did this continuously until enough people knew about us that you know, yeah, and the day we launched it was great. You know, there was lines out the door and all that good stuff because we made all the hype. So.

Andrew: I love hearing this stuff. It’s like, people are going to hear that you spammed this and they’re going to forget that in past interviews guys like Matt Molinwick asked him how he got his first users and he goes, I spammed people’s comments on their blogs. I go, what do you mean? And he goes, well back then it was OK to go to people’s websites and tell them about your new software and they’d come over. Alright, so you get all these people in the store. It’s a hit, right from the start, there’s no down time, there’s no waiting for people to come in. It just boom, takes off.

Eddy: Yep.

Andrew: Where does the argument come in between you and Daishin? Who gets the biggest cut of the profits?

Eddy: No, so I think.

Andrew: Who gets to hit on the staff?

Eddy: The, I mean, you know, when you work with a co-founder so closely every day, you know there’s going to be frustrations. Even like the pettiest little things. I mean, I remember one argument, it was about pay and how we were going to structure paying our managers and employees and we were literally in a crowded, crowded restaurant and just things escalated and we were yelling at the top of our lungs at each other in this crowded restaurant, we didn’t even care that everyone at the restaurant was looking at us. I
mean the waiters were looking at us…

Andrew: What were the two sides? You believed what, he believed, what else

Eddy: I think it was just the difference on the percentage that we would give our manager or what not.

Andrew: Was one of you the kind of person who said, “No, I don’t want to give them anything” and the other said, “you got to be generous with them, we’re doing well.”

Eddy: I think I’m more on the cheap side and Daishin’s [??] more on the giving side, so I think that’s how the line [??] went. I didn’t want to give them nothing, but we were just trying to figure that out. And, at this restaurant we were just bickering and bickering, and I think the whole restaurant stopped to watch what was going on. And we were with a third friend and he was just trying to pull us off. I don’t even know if we paid, but we kept on yelling at each other
and we just walked off to where we just left the restaurant and continued fighting outside.

Actually, that wasn’t even the worst one, the worst fight was … I think it was just aggression and frustration. We were playing basketball together and we started playing more and more aggressive, we were guarding each other, which is something we never do anymore because of this experience, but we were guarding each other, and then we just played so aggressive that we started pushing each other that we started actually fighting on the basketball court. Our friends were there and they were super scared we just started fighting like hitting each other and pushing each other and I think it was just a buildup of all this frustration that we felt to each other. But the crazy thing was that we were building [??] at this time. We fought and we were so mad at each other, but we drove to the basketball courts together so we had to drive home together. And, it was so awkward to be in the car after this crazy fight where we were just punching each other or what not. Our friend was so scared he was following us home. But we literally got in the car, and we were so mad, but then we said “you know what, we’re in this together, we have to make this work , we have to build our site” so literally that day like an hour after we had the biggest fight of our lives, we drove to Starbucks and started coding again.

Andrew: Why didn’t you guys get angry at any of our dinners or lunches? It would’ve been great, I would’ve had a great story. Well let me ask you this, how do you bring it back together after you argue in a restaurant, after you’ve made your point of view so clear in front of a friend that you cant really take it back and not lose face. Because, you know the guy knows where you stood … how do you bring it back?

Eddy: I mean I think that’s the testament to a good friendship and relationship right? You know what’s important at the end of the day, it’s what your building in your relationship, and I think we always made sure … the biggest problem was that co-founder issues and breaking teams apart, because co-founders couldn’t agree right? I mean after all these fights that’s why we realized we can be a really strong team together. Because after every fight and every issue, we knew at the end of the day that we were both aligned in a single mission and single goal, and that’s what we were going to do and just forget about any fights we had, let’s just build something really cool, and I think that’s how we knew we would be able to build businesses together.

Andrew: You know my brother and I, we wouldn’t get into big arguments, but if we ever did get into big arguments building our first company Bradford and Reed, we could bring it back together by just remembering how important it was to build it. Now, the importance of building a greeting card company, which is what we had, is not to us the most passionate activity to ever be in. We didn’t wake up and say we have to see an online greeting card in the world or else the world will be friendless and loveless without us. It was more of … I know for myself, so I’ll speak for myself, an internal need to be somebody in this world. An internal need to have something tangible, something financial, to have something that also stood for my abilities in this world. And that was so important to me and not having it made me feel such a sense of inferiority, I mean I couldn’t even have somebody say to me at a dinner or at any kind of event “if you need anything let me know,” without it triggering in my head, you loser, you have nothing even to give back to them. And you know all these things were constantly playing in my head … where does yours come from, if you could be as vulnerable as I allowed myself to be there, what would you say?

Eddy: I think that you exactly hit it on the head, where it’s that feeling where you need to be someone, and that’s why we were so unhappy at our corporate jobs where you’re just a cog in the wheel. You’re listening to what other people want to do, and it’s just not fulfilling. And I just really wanted to make an impact and I think, based on what you said, I think you said it better than I could’ve ever said it.

Andrew: Thank you.

Eddy: I think we shared the exact same emotions.

Andrew: And I do think great things can come from that, or you could end up trying to shoot a president from that. It could go either way.

Eddy: Yeah.

Andrew: Thankfully, for the most part, we end up trying to do something good in this world, and I think we’re fortunate to live both in a country and our part of the world, this entrepreneurial world which gives us a path to channel this passion, which gives us something meaningful to do with this and then gives us rewards along the way, or some re-assurance that we’re on the right path.

Eddy: Sure.

Andrew: And then you came up with this idea for Grubwithus. And the original idea came from where?

Eddy: The original idea, just going back when we were talking was, home-based meals where people would go to people’s homes to have a nice meal, instead of right now, where it’s, you go to restaurants and you meet people at different restaurants.

Andrew: How much of airbnb was an influence on you? You know, airbnb, the website that allows anyone to rent out space in their home. Instead of going to hotels, you go to airbnb and find space in someone else’s home. I’m defining what airbnb is. Next, I’ll explain what Google does.

Eddy: Airbnb definitely did factor into what we were doing. The main thing was that, it’s kind of ironic, we thought that restaurants were too expensive, and this was back when we were super poor, obviously. And we said, “wouldn’t it be great if we just had people cook for us.” I mean, people cook at home all the time. It’s so hard just cooking for two people at home, why not just open up your home and have other cool people come over so they can eat with you? And I think airbnb definitely inspired that because we looked around, and they paved the way for, yeah, it’s OK to have people in your home that you don’t necessarily know. So we said, “you know what, since airbnb has that model, maybe we have a viable model where we can put up tacos night for five dollars. Anyone who wants to come over, come over.” And so that was our original vision. The problem with that was that, even though it’s great, it’s so taxing on the cook and the host, because one, you have to buy all the ingredients, you have to prepare everything for a couple hours beforehand, and then you have to host people and clean up afterwards. We just realized that from the host’s end, it was just so much work for very little gain. As opposed to airbnb were, you just say, I have this floor that I’m not using, and just stay over. It’s just so little friction. So we built this initial site, but we realized was that, we did a few meals, and that social experience of bringing people in real life over something like food because one, you need to eat everyday, right? And two, food makes people happy. And just that social aspect of bringing people together over food just made people so happy and just built really awesome friendships that we just couldn’t ignore.

Andrew: So the friendships and the connections that happened over a meal were more important to the business model and the business idea than the savings over a few bucks on a meal by doing it in someone else’s house. I see. Before I even dig in, I want to understand the evolution of it. Because often when we as entrepreneurs see that an idea doesn’t work, we keep at it. And we just say, “no, if only I could explain it to you a little bit differently, you would realize.” And instead, you pivoted, which is a harder thing to do. But before we even get into that, let me just stick with Beard Papa’s.

Eddy: Sure.

Andrew: Beard Papa’s Cream Puffs, the official full name of the restaurant. You’re doing pretty well with it. You got a line outside the door for the first one. You eventually end up opening up a second in southern California, and then a third in Chicago. Why didn’t you decide to keep at it?

Eddy: So a franchise is still strictly regulated by the franchisor. You have to use their marketing material, their templates, their menus and all that stuff and you know what we probably broke every franchise, legal regulation . . .

Andrew: For example?

Eddy: Being us we wanted to make things better actually I would, we would create our own menus for our stores. Daishin does all the graphic design stuff so he would create awesome posters and just like point of sale little images and what not and we would, we created a website for our own little stores and whatnot and the franchise got so mad and they sent us take this down or else were going to revoke your charter and you need to get these things approved. Funny thing is they actually approve and now use some of the images that we created.

Andrew; That Daishin created are now part of their, now their telling somebody else that there in trouble for not using something the Daishin created.

Eddy: But it was, again, franchise rules and, you know, basically every few months we would get slapped on the wrist about something because we were trying to push the envelope and just really build up something huge.

Andrew: Push the envelope towards what end? It’s to bring in more customers, to bring in more sales?

Eddy: Yeah.

Andrew: What was one of your ideas that man, if they would have only listened, or maybe they did listen, would’ve increased sales tremendously?

Eddy: I mean since they were a more conservative company, I mean, there marketing materials were just not up to par with what you would see at, let’s say a Jamba Juice or a Baskin Robbins or what not and we just wanted to really showcase the product, have huge pictures of the product and just have edgy little messages and the like.

Andrew: Like what?

Eddy: I don’t, I honestly don’t….

Andrew: And where would you have shown these messages that were so edgy?

Eddy: Oh, just our windows displays and things like that. So let’s say a huge picture of an éclair with the custard oozing out and it’s like, eat me or whatever edgy message.

Andrew: I see.

Eddy: They were just really resistant to those things and at the end of the day we realized that being a franchise, you still have a boss, you still have to report back to them and the main office and whatnot and you are again, even though it’s your own business, you still a cog in the wheel in that you have to follow their rules and regulations and we just, that wasn’t our personality and it wasn’t something that we were excited about doing continuously and we just wanted to build something on our own.

Andrew: Could you teach me one or two things that you learned from having built up a couple of, three actually, Beer Poppa locations, what did you learn that maybe is useful to me or to the audience of people who are listening to you right now or entrepreneurs who are building things, who are looking for a few ideas that they could integrate into their life’s and businesses?

Eddy: For a brick and mortar store perspective location honestly matters so much even if your five steps away from the main of retail traffic or whatnot, it’ll impact your bottom line tremendously and I think that we didn’t think about that as much as we should have. And two, hiring a lawyer is actually matters. What was crazy is that we did everything ourselves for our first couple stores. We were I mean this is slightly illegal but we were our own general contractors in that we literally didn’t hire a general contractor. We just had a buddy that was the figurehead but dealt with everything because we wanted to save a bunch of money and to that extent we also were our own lawyers which doesn’t work out to well in this world because lawyers, you pay them because they see these contracts time and time again and they know the pitfalls that …

Andrew: What’s a pitfall that a lawyer could have helped you anticipate?

Eddy: These contracts obviously are super bad for standard lese contract are super bad for the person renting, leasing a space right? After we signed our first least contract and we started working with lawyers afterwards, he had read the first leas contract and just said these terms are just so horrendous for you guys if you guys ever can’t pay or whatnot. It’s just the end of you guys. We just didn’t understand those things and just now going forward I realize the benefit even though we pay them $100′s of dollars and hour, it actually makes sense to have a lawyer go through important documents.

Andrew: You know what I think John C. Devorack [SP] keeps talking about the idea of a dummy contract that most people who, the old guard, when they have a contract to give somebody who’s new in the industry; they give them the dummy contract. Now let’s see…

Eddy: Yep.

Andrew: if he’s going to take all this BS that we’re going to shovel at him, if he does, then great we got him.

Eddy: Yeah.

Andrew: If not then we know just how smart they are by how much they push back. What are some of the things in a dummy contract that they put in to test it, to test intelligence? To test naivety, I should say?

Eddy: Yeah, I mean, this was a long time ago, but basically you’d have to guarantee everything, right, so if you don’t pay, you and everyone else you know is a guarantor on the contract and, I’d have to go back and look but just different covenants that I don’t, just bind you. Yeah, I honestly…

Andrew: OK.

Eddy: have to check back, but…

Andrew: Alright, I remember renting a floor space in New York and one of the things that the land lord asked for was shares of my company. I said shares of my company? Nobody else in this office, in this building, is giving you shares in their company, ‘But Andrew, you’re running an internet company, we hear about all of these internet companies giving out shares and options.’ I thought, I’ve got to make sure you understand I’ve got a real company here, I’m not handing out shares and options to everybody.

Eddy: Yeah.

Andrew: So they do push. What kind of revenue did you generate with one of these stores?

Eddy: Anywhere upwards of 500k to 800k.

Andrew: OK. And profits?

Eddy: Profits, maybe around 10% of that.

Andrew: OK. And that’s enough for you guys to live on and it’s enough for you guys to start thinking of what’s next also.

Eddy: Yeah. But like I said, it’s not a super profitable thing, and there’s a couple mouths to feed so it wasn’t super great, and we were rolling back, we were putting all of our profits back into more stores. So it’s not, we actually didn’t take much from the stores because we said, you know what, we’re going to build up another one so why don’t we save the profit for the next one.

Andrew: Alright, so you bring in, let’s say, from the first store $500,000, you keep only $50,000. The two of you have to share and live off the $50,000, and if possible you have to kick some of that back into another store, and maybe find a way to buy wedding presents for your friends.

Eddy: Yeah.

Andrew: I see, OK.

Eddy: Yeah.

Andrew: How deep in debt did you get, how much credit card debt did you have?

Eddy: We would probably, something like 50k each, probably.

Andrew: Do you still have that debt?

Eddy: Very little of it.

Andrew: OK.

Eddy: So…

Andrew: OK.

Eddy: Very little.

Andrew: You know, I lived at…I keep bringing it back to me but, I’m trying to relate this and make you understand that, I’m asking you for stuff that I would myself be willing to reveal. I got to $70,000, I think, in personal debt in Bradford and Reed days, and I didn’t intentionally pay it off, even when we could, because I wanted to have that bit of pressure on me. I didn’t want to have all these wins without feeling like, I’m taking a little salary, they can’t really pay this debt because I’m still in that startup mode, I’m still in the boot strap mode, and I’m not going to take life easy. I’m going to remember that every month some amount has to go back to the credit cards.

Eddy: Exactly.

Andrew: Alright, so you told me where you got this idea, you told me what the original vision was…

Eddy: Mm-hmm.

Andrew: and, did you build out the site with this vision and try to get people to use the vision of home cooked, to cook meals at home and so on?

Eddy: Yeah, so we built up the site completely on, that’s when we did a few meals, and that’s when we realized the experience was awesome, just the logistics of hosting was bad, and we actually canned the idea for a while. We, this was right before we moved to Chicago, we stopped working on this and we just started working on other web opps, because we said, you know what, it’s just too labor intensive for the host, and we didn’t think about restaurants at all at this point, we were just, it’s not going to work, so we’re going to just move on to the next idea. We shelved [??] for about six months, but the problem is, we moved to Chicago and that’s when it really hit that we had, we didn’t know anyone, we didn’t have any friends in the city, and we just kept going back. I would go to a bar or a coffee shop and it’s just so hard to meet people because people go to bars to either hang out with their friends or pick up other people, or what not, and it just, it wasn’t in line with our interest of just wanting to meet friends in the city, right, and we kept going back. [??] was so great for actually meeting real friends because you sit there for a couple hours and you connect with people instead of like at a bar where I can say hi to someone and they can run away from me. So, throughout these six months we kept on going back, and we were just, no but the business model doesn’t work, and then [??] had, I don’t know why. All of a sudden it was just an epiphany: “Why don’t we just do these at restaurants? They know how to cook way better than we can. Why don’t we just host these at a bunch of cool restaurants in the city?” We were, “Oh yeah, why didn’t we think of that a long time ago?” So that’s when we dropped whatever else we were doing and just started to rebuild the site based on restaurants.

Andrew: Did you try to get people to do it in their homes? I have to say, I feel like I let you down. You and I were going to do this, but it was just as I was getting married and moving to Argentina and it was a hard deadline. For some reason we couldn’t make it work and I feel like I should have just pushed harder to make it work at our house. Even at the same time, I know where my head was then. I was leaving the country and so on. Did you try to get people’s homes, and if so, what was the reaction you had?

Eddy: A couple people did it and that’s when we had those experiences. The general consensus was that people were excited but then it was, “Oh, I talked to my husband about this and he was really uncomfortable about people coming over to our house…”

Andrew: I see.

Eddy: …”Even though I think the concept is awesome and I’d love to do this and meet people.” There was just so many of those things that I think we will do some of that stuff in the future, but it just didn’t seem super duper scalable because it was so much work for our hosts. When we did these meals with a couple of these hosts we asked for feedback and that was their biggest thing. They’d spend hours and hours because they want to make a good impression cooking for this. Then they’d have to clean up and all that stuff. We just realized that it probably wasn’t the best model.

Andrew: OK. There’s a local place, or some other web site that has that idea. Olivia and I at some point will go to a house event here and check out what it’s like and get a sense of whether and why it’s working for them. For all I know, they probably have five hosts in each city and that’s it. Maybe that’s enough. I don’t know; I’ll find out. At that point, when you and I talked what kind of feedback, in retrospect, could I have given you that would have been more useful? What could I have done? You were very flattering to say that I helped out and I hope that I was able to help out even a little bit. You know me. I’m always looking for more. I’m always thinking, “What could I have done even better? What could I do to rock it next time?” In our conversations, in retrospect, what would have been even more useful?

Eddy: I think always trying out the product is number one. I think if we just set up those dinners at your place and whatnot, we could just go through the actual experience. We could see what the friction points were and what we could reduce. I think that would have been probably the best thing – just going through the product.

Andrew: Just doing it at somebody’s house?

Eddy: Exactly.

Andrew: I remember that being part of our conversation. The software was really well developed, but it there was also a lot there, right?

Eddy: Yes. You were great in terms of helping us initially; helping us get our thoughts wrapped around this stuff. It was good.

Andrew: So then you decided on this new approach. You’re in Chicago and it’s time to launch and find restaurants. You yourselves were going to book these restaurants, right? OK. This is always something that I’ve always liked about you guys, whether it’s in the stories that come out or in our personal conversations. You guys are willing to put yourselves out there. You’re willing to stand out in a market and sell ladies underwear. You’re willing to reach out to me at a conference. You’re willing to go into restaurants and say, “we need this place,” instead of shying away from it. So you walk into a restaurant. What’s the first restaurant and what’s the first reaction you get when you say, “Hey, I want to host an event here?”

Eddy: First and foremost I guess, restaurants love money. It wasn’t a hard sell for these restaurants. Our first restaurant was this place called Talia Spice [SP]. It was a Thai restaurant and we were eating there. Again, we asked to talk to the manager and said, “Hey, we have this concept that we want to bring recurring groups of people into your restaurant.” Let’s say on a weekly or monthly basis. They said, “Sure, why not?” It was at that point we just started working on a deal with them and things like that. I think what also helped was that Groupon is based in Chicago. Their biggest hesitation was, “You’re not like Groupon, right? You’re not going to take 75% of my profits?” We said, “No, no, no. We want this to be a sustainable business for both of us. People are going to use our site because of social utility instead of financial utilities so they’re OK paying more, just give us, you know, like, 30% off or whatnot and so restaurants are really happy with that. We’re bringing them customers, they don’t have to discount too much and …

Andrew: So the idea is, you give them the money to reserve the spots and then the customer, the diner gives you the money?

Eddy: Well yes, so the diner first gives us the money, so you know we say, let’s say, yes $21 menu, everyone prepays online and then the day of or a couple days after each meal we send money to the restaurant and the reason why we do that is because we’ve operated restaurants and whatnot, we know that if we ask the restaurant to kick us back money, we’d never see the money, we would be a collections agency all day long and we’d be like, ‘Hey we gave you 30 people last week, where’s our money?’ So we knew we had to be the middle man to collect the money from the restaurant.

Andrew: OK. Why don’t you give it to them before?

Eddy: Well so we, some restaurants we give them, like, the day of the meal but there’s no real reason to give it to them before, I guess, because they get paid when services rendered.

Andrew: OK. All right, so you got the location now, you got the business model, you keep a percentage of the money that people pay, I don’t know whether you do yet or not but that’s the model, what do people too, where do you get diners? You guys can’t even find friends when move into Chicago …

Eddy: Yes.

Andrew: … now you’ve got to find customers who become friends?

Eddy: So this again is just, we were just willing to do anything and everything, right. In Chicago there’s … everyone takes the train in the morning to go to work … there’s this free newspaper called the RedEye that everyone reads. It just has gossip, news, sports, whatever and they drop off these free newspaper at every subway or every train station at like 5:00 in the morning and so we didn’t obviously have money to advertise on the RedEye, I think you know where I’m going with this but so we printed out 10,000 flyers, 10,000 (___) flyers and we woke up at 5:00 in the morning, got on our bikes, (___) actually didn’t have a bike he ran, but I got on my bike and we went to many, many subway stops.

We took out the RedEyes from the stand and we individually stuffed our flyers into every single newspaper and put it back so that when the people got up to go to work, we would take a RedEye and our flyer would fall out from the newspaper and we literally got, yes we literally got a huge push because of that.

And what was even better was that restaurants saw the flyer, you know, people that worked at restaurants and they started calling us saying, ‘Hey I saw this thing in the RedEye, I’d love to do this at my restaurant.’, and the other side note is that restaurants were, like, ‘and also how much did it cost to partner with the Red Eye to do this because I’d love to advertise with an insert in the Red Eye too?

Andrew: Oh no.

Eddy: And (___) and I always joke that that could’ve, if (___) didn’t worked, that could’ve been our side business just charging restaurants so that we would just wake up at 5:00 in the morning to stuff their flyer into the newspaper for them.

Andrew: Did you get into any trouble for doing that?

Eddy: Not yet.

Andrew: Wow.

Eddy: That’s really how we started.

Andrew: OK. And then at some point you went to Y Combinator?

Eddy: Yes.

Andrew: Why did you decide to go to them for funding?

Eddy: This was right when we launched in Chicago with this stuff and again we went for dinners and we realized that it’s just something that people really need and love. People had such a great experience at these dinners that, I mean it was just the two of us, we were coding, marketing, selling, just together and before Y Combinator we would try to pitch VCs and whatnot and they don’t give you the time of day, like, we’ll pitch VCs and they’ll be like, ‘Oh yes why don’t you come by next week?’, and we’ll go there and, you know, a couple of interns will show up to talk to us instead of a partner, an associate or whatnot and it’s like it was so hard really gaining creditability.

And we knew we could build a good company by ourselves but we wanted to be a great company and a huge company and it would just help us, propel us so much faster if we went through a program like Y Combinator so that we had creditability and you definitely get creditability. Now we just ask the YC partners can we get an intro to this famous guy or that famous investor and it’s like, sure, and the intro gets sent out instead of a free YC where you’re slaving away talking to these interns at these VC firms. So that’s why we did it.

Andrew: Do you remember you interview at Y Combinator?

Eddy: Yup.

Andrew: Why did you nail it? What were the questions that got you in?

Eddy: I think our concept just resonated with a bunch of the partners. Even, Jessica Livingston and some of the corners they said I would never ever in my life, when I was single it was a bidding site but I would use scrub with us to meet new people and maybe find a date because it’s not award. I just go and half fun at a dinner at a restaurant and through serendipity maybe I’ll get a job offer and maybe I’ll find someone and so, everyone is like yeah it’s just such a cool concept to meet people that, you know, we just kind of feed off that and I think they really like how scrappy we were. Just stories of us stuffing newspapers and us just doing these little things they knew that we couldn’t, cause one portion is just to build the site but we could actually hustle and market and things like that and yeah, I mean, after the interview, everyone says the Y Combinator interview is super scary and your rattled and what not, we had a blast at our interview and afterwards, guys were fist bumping each other because we were like we got in. There’s no way we couldn’t get it because we were just like, you know, there was just so much energy in the room and we were just, everyone was just super into the product. So, we had a great experience for our interview.

Andrew: Alright, you spent a few months, its three months right, at Y Combinator? What changed in those three months about the vision for the product or about the approach to getting new customers?

Eddy: I mean, what’s great about Y Combinator is that they really help you focus on what’s important. [?] And I, we had these crazy idea for our website. It was funny, I remember the day, cause when you launch at Y Combinator it’s when you to your [?] posts right? That’s kind of when you bring yourself out into the world and say hey I’m a Y Combinator startup this is what I do and so, a couple days before we had this crazy idea, since it’s like all about the people on the site we would have this shopping cart mentality where we would put people into the shopping cart. The people you wanted to eat with next, and when they go to a meal it’s like checking out you shopping cart so you can, it’s just like this complicated system about going to a dinner just this cumulated way of checking, adding people to your shopping cart and so, we wanted to launch with this and we had a meeting with [?] and we said Ok this is our new concept, this is what we’re going to launch with and he literally tore us a new one. It was just like you guys are making this thing way to complicated. If you want to do some of this cool stuff after people have gone to Meals and are users, fine but just for these initial users just make it simple? Just tell them it’s a great simple casual, social dining experience. Why are you making all of these different layers and layers of friction on top of your product and he was literally yelling at us and he was just like I’m not letting you launch with this product, just make it simple and so he was like come back to me with your done and literally [?] and I we were so amped up that, there were no 24 hour joints but there was on 24 hours Safeway, this grocery store and we literally went to the Safeway and just coded the whole night just to fix all the problems that he was yelling at us about and we didn’t sleep that night and we scheduled another meeting with him the next day cause we really wanted to launch. And when he saw that we were on the meeting list he’s like, you guys again? I thought I told you to fix all you stuff. And were like, no, no, no but we fixed everything and we showed him a completely revamped website that we worked on the whole night and we was like wow you guys really hustled and got this done and so, he’s like OK let’s do it and we launched the next day.

Andrew: Was he right?

Eddy: Generally he’s right, yeah.

Andrew: About cutting down the shopping cart?

Eddy: Yeah, I think he’s seen so many websites, apps and we just had these grand visions, if there’s too many friction points to book a meal, people are going to drop off and with his help we were able to scale down the site so that it was a two-click reservation process. You just knew you were going here for a social experience instead of all this other, unnecessary stuffs.

Andrew: OK. What was that door there? The person in the office next to me just slammed the door. Actually, it’s not slamming the door. It’s just the way the door happens to shut very loudly it sounds like slamming. Why do you do it, then? Why do we, as entrepreneurs overcomplicate our problems? If you could think back on this one thing, how do you get to that place? Because if you can dissect how you got there, I can understand next time I’m there, why I’m doing what I’m doing.

Eddy: I think it’s because it’s always the push for, OK. How do we get more users on our site? How do we retain them? How do we, you know. Like, oh yeah, our growth is stalling. I think if we added this feature, or if we did this, it would be so awesome. And I think we wrap ourselves around that so much that we forget that probably simplicity is the best way to get more people in the door, providing a clear value proposition, instead of “let’s add this feature and this layer to the product, and this and that.” We think that this will help, and I think that was our problem. Just too many ideas on how to better the product that weren’t really bettering the product.

Andrew: I see. I have a friend who is a caterer. And he works with great chefs, he works great, I don’t know beyond a chef who else he works with. But he throws these huge parties. Party Charlie [SP], I interviewed him a lot back on Mixergy. And once I sat down in the kitchen after the party that he was running was a hit. It was actually for some TV show on Showtime where the pornstar was going to find love, and not be in a porn relationship, it was all kinds of stuff. But he threw this party off and he goes, look. He sat down with someone who said to him, “you were right to tell me not to do this.” And he goes, “I know. Every time I put one of these together with you guys, it’s brilliant. Everyone has their dream for what it could be. And it’s all great, but if you have your dream, and he has his dream, and she has her dream, and I have my dream, it’s going to be a nightmare.” And it sounds like you’re saying the same thing here. You have this dream for how to make it go viral. You have this dream for how to get repeat business. You have this dream for how to up the revenue, maybe per user. And if you put all these dreams together, you have a nightmare. Am I understanding it right? Is it just too many things all at once?

Eddy: Yeah. And just like building things on top of our existing platform that we think will help, but he put on his new user hat, and he was just pretending like he was a new user going onto our site, and I think all these extra layers would benefit an existing user, but if you’re a new user and you see the site, and it’s like, wait, but I see food, but I see a shopping cart, and I see people, he was just saying that it was just so confusing to a new user that was looking at the site. And I don’t know if I could say this, but he basically said, he was super amped up, and yelling at us too, but he said, “once they become your users and they log in, you can tell them to eat shit for all I care. But on your home page, when you’re trying to acquire users, make it super simple.” He literally told that to us because he was so mad at us that we were trying to complicate the initial strings and the initial value propositions.

Andrew: You can absolutely say that and actually, anyone now who goes to Grubwithus.com will see how seriously you took his message. There is nothing to complicate what you need them to do. If they absolutely want more information, it’s there for them from what I remember on the bottom of the screen. But there’s nothing to confuse people. They know exactly the path to go on. I understand now the product. I understand how you got your initial users. I understand how you got the restaurants. What I’m curious about now is the natural next step. You want to go bigger than the people who you can reach by sticking your flyers in somebody else’s publication. How do you go bigger?

Eddy: I think we’re still working towards that right now. It’s all about, 1.) making sure that the meal experience went awesome. Because the minute you have a bad meal experience, that’s when you lose that user.

Andrew: What makes a bad meal experience?

Eddy: Let’s say the restaurant didn’t really know what to do, or the restaurant was super slow, or just a few logistical things that we have to do a better job at educating restaurants on how to utilize our platform and how to really create a rate meal experience for them. And so I think that’s number one because we’ve seen once people have a great meal experience, they’ll tweet about the experience, they’ll write blog posts, they’ll Facebook. There was, at actually our very first [??] dinner there was this very influential blogger that went to the meal and, you know, she wrote a beautiful blog post about the meal and to this day we still get a bunch of traffic from that blog post and she’s even written an ebook that we were in and that people create meals like saying, hey, I saw [??] so I’m trying it out and things like that. Just you know, creating that wonderful real life experience for people will just help spread the word virally.

Andrew: But that’s not, that’s not, what did they used to call it? The Mario Andretti tactic, that’s not the thing that’s really, that hasn’t shot you up. I follow you guys very closely, I didn’t happen to read her blog post. What are you doing that’s, or what did you do to get users in multiple cities to come in and sign up and go to a meal in a way that they aren’t used to doing?

Eddy: I mean, I think just we’ve, I mean we’ve been written about a decent amount, it’s like I think that definitely helps. But yeah, we honestly haven’t spent much on online marketing. We’re going to ramp that up soon but it’s really just, yeah, people writing about us and just selling the value proposition to other people.

Andrew: Here’s what I saw that did work. Right after you guys finished Y Combinator, or maybe even while you were still doing Y Combinator, several people who were associated Y Combinator started doing lunches and dinners. In fact, Jessica Livingston did one for Women Founders. I’m now looking at your Crunch based profile and we see Alexis O’Hanion did one, Grub With Me. I saw on your website that he even did another one, sometime like Raise Money for Awesome Awesomeness. Something like that. So he had a lot of fun with it. That helped.

Eddy: For sure.

Andrew: What else, tell me about that, the impact of that.

Eddy: And people like you hosting meals, thank you for that. That will definitely help. It definitely helps because they have such big audiences. You know, I mean, everyone wants to eat with Harge from Y Combinator and Jessica and people like that and so when they Tweet and message and things like that, you know, hundreds of people come to the site to check it out and then even if they don’t get to eat with one of them they’ll be like, oh, this is a cool site so let me check it out and let me see what’s going on. So I think, you know, we always try to partner with cool things and we always try to have themes every month, you know, like this month it was like a Farm to Table theme so that, you know, we try to get different audiences, right? Not just in tech but like different genres, you know we had a veggie week were we had prominent vegetarians on our site and things like that.

Andrew: I see. So you recruit people who are prominent vegetarians and then the way you recruited Alexis O’Hanion whose a prominent start up entrepreneur and investor and you know that they’re going to have their own followings and people are going to want to go and have dinners with them. But it’s not just with them, if you get a prominent vegetarian who participates, does she or he also help spread it beyond their dinner?

Eddy: Yeah, I mean, they definitely, I mean, we try to encourage people to do recurring meals and just like, you know, and even brands. There’s a couple brands that do recurring meals where it’s just like this is a great way to expand your audience in real life. Really get to know your people.

Andrew: I saw that you guys on the site are recruiting brands. So what’s a brand for example. Brands and affiliates. I don’t even know where it is I’ve got so many tabs open. I’m spying on you and then I ended up getting really caught up in this weird Beard Papas, so I’ve got a whole bunch of Beard Papas tabs open.

Eddy: OK.

Andrew: By the way, the reason that I ask that is because I try not to do interviews with start ups. I want to know about stores that have beginnings, middles and ends and it seems like you’ve got an ending for Beard Papas but also the Y Combinator people who are in your class who knew of you kept telling me that this is these guys have some franchise, you’ve got to find out about this, there a bunch of people who went through Y Combinator and have backgrounds like that that others in the program didn’t get to ask you about but they’re curious as hell about. Anyway, going back to the partners, what are some of the partnerships?

Eddy: Yeah, I mean, we’re, I mean I think we are partnering with companies like Wired and Gobot and CitySearch and you know, different brands like Turner Sports and MBA on TNT and things like that where it just like, they, and a couple retail brands where basically their whole thing is kind of, yeah, you can build a community online but once you bring your fans offline and have them engage with one another to build up the brand and get excited over talking about the brand, they kind of become customers for life because they had such a good, memorable experience talking about your product in real life with other people that are passionate about the product. That’s kind of like the sell that these brands really want, just intimate gatherings about their product everywhere in the country. You know?

Andrew: You know what? I’ve got to tell you. If I had a little more time internally to do this, I would love to do a Mixergy dinner across the, I was going to say the country, but around the world, anywhere where there’s a past guest who is up for doing it.

Eddy: Yeah.

Andrew: But I need somebody to recruit the past guests, then we’d have to promote it. To get someone to get five people, ten people to come out to dinner with the past guests is fairly easy.

Eddy: Yeah, it is.

Andrew: Then, to know that they’re going to have a meaningful conversation, or if it’s with one past guess to be able to ask them questions about their business, to be able to just get to know them, to be able to just have a dinner and talk about the food in front of you is easy.

Eddy: Yeah.

Andrew: I just the time for it, but I’d love it.

Eddy: You know what? We’ll help you with that. I’ll email you about it.

Andrew: Let’s not make a promise that we haven’t delivered yet or haven’t put together yet for the audience, but if you and maybe someone in the audience wants to help you guys out, just recruit the guests for me.

Eddy: Yeah.

Andrew: I’ll promote it, but I want to be able to get people together and talk to them.

Eddy: Got it. We’ll help you out.

Andrew: You will? All right. Good. I’m up for that. Affiliate program, has that been effective for you?

Eddy: You know what? We just launched it recently. I think we’re talking about migrating back onto Commission Junction or ShareASell or one of those platforms to really get the word out. A couple people are using the program, but I think we don’t promote it all right now. So, really putting our affiliate program on a site like Commission Junction, they’ll help us promote it.

Andrew: It’s one thing that you guys are trying out, it hasn’t been a huge hit yet, but OK. The chicken? What about the chicken that pops down when I go to grubwithus.com?

Eddy: We literally pushed that thing yesterday. So, you’re probably the first person to ask me about the chicken. A couple of our employees upstairs are laughing.

Andrew: Are they listening in on this? Cool.

Eddy: They hear you talk about the chicken. Anyway, what we’ve realized is that people had a great experience at their meal, but we still don’t do a good job engaging people post-meal and just really building that community and connecting people online afterwards. Just reinforcing that friendship and just getting them to go to more meals together and what not.

The first fun way we want to do it, instead of rating the people you eat with and what not, was just have this fun virtual gift that you would give away to the people that you had a fun time with at a meal. Let’s say you ate with five people, you’ll have 10 chickens in your bank after a meal, and you can just assign chickens to different people.

Maybe you’ll give three chickens to Mary, two to Bob, or whatever, and then they’ll get an email saying, ‘Hey, Andrew. Andrew gave you three chickens and this is what he thought about you.’ You know? So, just a fun way to engage people post-meal to know that they made an impact on you and this is your thank you. You’re giving them this virtual good. It’s fun.

Andrew: I see. I know that I sometimes eat at restaurants with communal tables, and it’s kind of fun to talk to be people for a few… I love talking to strangers, so it’s fun for me, but it’s hard to follow up with them afterwards because what do you even say to them? It’s kind of dorky to say, ‘Hey, let’s get together again.’ It feels a little needy. You’re giving me a way to just say, ‘Hey, had a good time with you.’ Maybe they tap me back, kind of like the old poke on Facebook.

Eddy: Yeah.

Andrew: Then, maybe we go have another meal together and [grow up with us] or go out for drinks somewhere.

Eddy: Yeah. Totally.

Andrew: OK. All right. I think I’ve got everything here in my notes. Yeah. Got into the fights, got into the in real life social network, why it started. Let me see? Is there anything that I missed? Anything that the audience of entrepreneurs would need to hear?

Eddy: I think we got it.

Andrew: When you charge the meal that you put together for me, by the way.

Eddy: Yeah.

Andrew: $21 is what you are charging people. I’m not promoting it. I’m sure by the time we get to this point it’ll be sold out.

Eddy: Yeah.

Andrew: Better be. Better be.

Eddy: [Pretty good.]

Andrew: How much of a margin could there be for you? $21 for a dinner?

Eddy: Our margins are generally 20 or 30%.

Andrew: OK. All right. 20 or 30%. I’ve dug into every number that I could. I’ve dug into every number that I could. I’ve gotten the whole story. I’ve gotten the bickering. I appreciate you being open about all that. The only thing I didn’t get to, which I will do very quickly now, is the plug for Mixergy Premium.

I’ll say this instead of promoting a specific course. I’m going to say thank you to everyone who’s a Mixergy Premium member. The reason that I have researchers here doing this, the reason that there are editors who are putting this up, the reason that this project Mixergy exists is because you guys are signing up to Mixergy Premium.

You’re getting courses for yourself through well-known entrepreneurs. You’re getting a bunch of other stuff, but what you’re giving in addition to the money is, you’re giving us a whole team here of people who are making this all happen. I notice it and I hope you guys do, that the research is getting more in-depth, that the quality of the interviews is getting stronger and stronger.

I know that in the coming months, it’s going to get even better and better and better. If you went to mixergypremium.com and signed up, and got all kinds of stuff for yourself, I want to say that you gave us as a team a whole bunch of stuff. Thank you for doing that.

All right. The website of course is grubwithus.com. Even if you have no interest in dinners, even if your schedule is too packed, and I can’t imagine that it would be, I still recommend you go check it out just to see the registration flow. You’re going to see a lesson not just learned, but applied. You heard about it here in the interview. You should go and check it out in real life. All right, Eddy. Thank you for doing this interview.

Eddy: Thanks Andrew.

Andrew: All right, thank you all for watching. Bye.

Eddy: Great. Yeah.

Andrew: Three messages before we get started. If you’re a tech entrepreneur, don’t you have unique legal needs that the average lawyer can’t help you with? That’s why you need Scott Edward Walker of Walker Corporate Law. If you read his articles on VentureBeat, you know that he can help you with issues like raising money, or issuing stock options or even deciding whether to form a corporation. Scott Edward Walker is the entrepreneurs lawyer. See him at WalkerCorporateLaw.com.

And do you remember when I interviewed Sara Sutton Fell about how thousands of people pay for her jobsite? Look at the biggest point that she made. She said that she has a phone number on every page of her site because, and here’s a stat, 95% of the people who called end up buying. Most people though don’t call her but seeing a real number increases their confidence in her and they buy. So try this, go to GrassHopper.com and get a phone number that will make your company sound professional. Add it to your site and see what happens. GrassHopper.com

And remember Patrick Buckley, who I interviewed? He came up with an idea for an iPad case. He built the store to sell it and in a few months he generated about a $1 million in sales. Well, the platform he used is Shopify. If you have an idea to sell anything, set up your store in Shopify.com because Shopify stores are designed to increase sales. Plus, Shopify makes it easy to set up a beautiful store and manage it. Shopify.com

Here’s the program.

Hi, everyone. My name is Andrew Warner. As you know, I am the founder of Mixergy.com, home of the ambitious upstart. Over 700 proven Entrepreneurs have been a part of this project where they come here to tell you their stories, teach you how they built their companies and help you learn from them so that you can go out and build your own successful business and that is the goal, the mission, the heart of everything that we do here at Mixergy.com. And I’m lucky to have had such great entrepreneurs be a part of it.

And today you’re going to find out how the man who helped Priceline become one of the legendaries internet companies, how he went on to help America become more entreprenurial.

In the mid-90s, Scott Case, who you see up on your screen was the founding CTO of Priceline, the name of your own price company that reached a billion dollars in annual sales in less than 24 months and one of the few companies from back then that’s still around and still a power house.

Currently, he is the CEO of Start Up America, which provides resources and connections to young companies and supports regional startup ecosystems.

Scott, welcome and thanks for doing this.

Scott: Thanks for having me. Glad to be here.

Andrew: I know my audience, they expect me to come here and do interviews that will give them some specific well defined benefits and I know the first they’re wondering is I even do this interview which is what’s in it for me?

So why don’t we start off with that. What’s in it for the entrepreneur who’s hungry, who’s listening to you. What’s in it if they’re part of Start Up America?

Scott: If you’re starting a company right now, you are no doubt, heads down, making your business happen, you may be doing product development, may be you’re really on your way, you’re doing customer development focusing on how to get your business off the ground and grow it and that can be both a lonely opportunity and a challenge but it also can be one that’s incredibly rewarding as you go through and build your company.

So Start Up America is all about helping companies like yours grow your business and we focus on that in three key categories. The first is access to other start ups like you. Going through this challenges, they’re building their business too. Doing that on a national basis by joining Start Up America, you get access to thousands of start ups all across the country regional basis, 19 different start up regions all across the country. Everything from Start Up Colorado and Start Up Florida and Start Up Tennessee, Start Up Iowa, Start Up Vermont and dozens of others and you can connect locally to serial entrepreneurs and experts.

And then finally getting you access to local and national experts. We do a daily learning series, all of which can be found on our website at s.co, s as in start up dot co.

And the final piece that we connect with is once we brought that whole community together, we allow start ups access, all kinds of opportunities to help you reduce your cost and grow your business through a series of deals we’ve done with over a hundred partners. Anything from $1,000 dollars in Google ad words, when you spend a $1,000 dollars to premium membership on LinkedIn are for free for 2 or 3 months to offers to accelerate your miles on American Airlines to get access to marketing programs for American to discounts on hardware and services from Dell, to Microsoft’s entire stack for three years for free to be able to build your products and services on, to our most recent sponsorship with the New York Stock Exchange, where we’re actually helping your startup get access to literally hundreds of listed companies where now you can create strategic partnerships with some of the largest companies in the world to help you advance and grow your sales. So it’s really about community and finding other startups that are like you in that same stage and then helping you find very specific ways to help you grow your business.

Andrew: So community, experts, and the last part, if I could sum it up, maybe I can call it [gills].

Scott: Yep, [gills] and resources to help you cut costs and grow your business.

Andrew: Is this government funded by the way?

Scott: No, we’re not funded at all by the U.S. government. We have a great partnership with the White House and several government agencies, but our founding sponsors were the Case Foundation run by Steve Case, no relationship to me, and the Kauffman Foundation for entrepreneurship based in Kansas City, and they became really the anchor. And then we have a half a dozen corporate sponsors to help us pay the bills and run around the country helping to step up America’s startup economy to the next level.

Andrew: And Steve Case is the chairman of Startup America?

Scott: Correct, and co-founder of AOL.

Andrew: All right. And it’s a non-profit, Startup America?

Scott: Yeah, we’re actually a non-profit project at the Kauffman Foundation, and we’re on a three-year project to help elevate the startup economy and the startup ecosystem all across the country.

Andrew: OK. All right. And if people want to be a part of it, they can go to s.co, and there’s a big button–you guys know how to create those buttons–really big, very clear button that tells them where to get started, and I hope the people do from the audience. I’m going to come back to this in a moment, but first let’s get to know you as an entrepreneur, as a person who founded one of the leading companies of our time, Priceline. You were at Walker Digital before Priceline.com ever launched, right? You were thinking up ideas to do what?

Scott: So the whole premise at Walker Digital and ultimately at Priceline was to look at the emergence of all kinds of new technologies, everything from the network we look at now, it’s the Internet, and all the things that stack on top of it, but also to understand how new businesses would get created leveraging those new assets. And [??] how the combination, largely through a lens of what we viewed as marketing systems, could take advantage of all kinds of new technologies. And one of the core concepts we came up with was the basis for Priceline, which was the idea that in a world where consumers could be empowered to specify certain types of conditions under which they would be willing to become customers. And so the whole notion behind Priceline’s name-your-own-price engine is the idea that customers were out there willing to pay a certain amount of money, but they’d be willing to trade off certain choices in order for them to be able to get a yes from a seller. From the seller’s perspective, the whole notion was how do we allow for those customers to express their demand and then give the sellers the opportunity to say yes to a consumer’s demand under certain conditions? And that intellectual property was the basis for building Priceline as the business that it is today. And when we chose travel, we focused on travel because it had a very, very high volume, highly priced, sensitive marketplace that was also a commodity. An airplane that takes off with empty seats or a hotel that goes overnight with an empty room doesn’t express or generate any revenue.

Andrew: Yeah. [I read it . . . I can't bring it up right now because we're having a bad Internet connection. At the beginning of this interview I turned off my browser and lost it, but in preparation for this interview, I read a . . . you know what? Actually can we lower the volume on your side? I think it's picking up my audio a little bit on your mike. Testing one, two, three. Yeah, that seems to be better.] So I read this press release from back in the ’90s where Walker Digital basically said you and a couple of other people spent two years working on this problem and solving it, and as a result you ended up filing a patent application on this. What I’m wondering is–two years is a long time–what is the problem you initially set out to fix and how does that solution evolve over two years?

Scott: So the whole group at Walker Digital and subsequently Priceline are largely made up of entrepreneurs and startup types. And so our strategy . . .

Andrew: I’m sorry, let me stop right there. What do you mean by entrepreneur types? I’ve seen a lot of people say that they’re entrepreneurs within Priceline or founders within Priceline. What does it mean? It doesn’t seem like you put up the money to fund it. Did you own a piece of the business? How did it all work there?

Scott: So I was part of the founding team, and yes, there was equity for all the members of the founding team. There was actually options, other types of programs for employees that came on later like any other startup. I had started my own company in college. I had actually started another company founded with a college professor. I’ve only started companies my whole life. Most of the early people at [??], including Jay himself, have a lifelong startup and an entrepreneur himself. We had spent our time thinking about, ‘What are the types of new companies that were going to exist in this new environment, particularly when you have the [??] network. We were really looking for opportunities to create companies that either would exist in the future and it might take five years before they were readily a viable business, at that time, ’cause technology had to mature or marketplace had to mature. In the case of Priceline, what became really attractive to us was that we had identified a challenge within these perishable commodities that could be built today, and today being 1997. That’s where we focused our energy.

Andrew: It was a bunch of entrepreneurs who are all within this family and was the idea that, ‘We’re going to create these businesses and each one of you will go off and essentially launch and run them?’

Scott: We weren’t exactly that formal about it, as you might imagine. Jay, who at some point, you should spend time with.

Andrew: I should. The guys is freaking brilliant and as I did research on you, I kept seeing all the creative work that you guys did together and then, obviously, before and since, he also had a tremendous career. What I’m trying to get at here, and I don’t think I’m doing a good job of working out the questions for you, Scott. What I’m trying to get at is, how does he assemble this team of smart entrepreneurs? How does he then find these creative ideas with you and work? More greedily, what can my audience do, based on what you guys have learned? ‘Cause if you can create all these great ideas, I want them to come up with, each of them, at least one. Frankly, I’d like to come up with one of these brilliant ideas myself. Walk me through this. Teach me.

Scott: Here’s the formula. Jay is a brilliant guy and this may or may not work for everybody. It’s fundamental and it’s very straightforward and simple. What Jay did was, willing to invest his own capital and his own time and energy to bring a team together to do what I’m about to describe to you, which was to identify markets that were ripe for disruption, much in the same way that lots of other startups would do this. Clearly articulate the problems and what the commercial opportunity to solve those problems was. What’s a business that can be built around solving a problem? Not just, ‘Hey. This is an interesting innovation.’ But to actually take it to the next step and say, ‘What’s the economic model that sits behind it? How big a business could this possibly be? What are the trends that it’s going to ride?’ We spent a lot of time brainstorming around marketplaces and business opportunities. Not all of them were the creation of markets like Priceline was where you had buyers and sellers, although we spent a lot of time thinking about those things. From your audience’s perspective, the key takeaways for me working [??] visual in those early days and at Priceline was, you can spend a lot of time and energy on any size business. The trick is, is the opportunity big enough for you worth spending your time attacking? Attack big ideas, big opportunities, big spaces and go after them aggressively.

Andrew: How do you know what those problems are? Obviously one problem that people are always gonna have is they want a lower price and one thing that they buy on a consistent basis is travel.

Scott: That’s actually very interesting. That’s not the problem we were solving.

Andrew: It’s not?

Scott: The trick, for you as you’re thinking about trying to find your own big problem, is to really understand who your customer is. In the case of Priceline, the customers actually, and the problem we were actually solving was the fact that there was unsold inventory that sat inside airlines, hotels, car rental companies, in fact, lots of other markets that we attempted to do. Where the novelty of it was to say, ‘OK. You’ve got an unsold inventory.’ There’s a bunch of reasons why that inventory goes unsold, not the least of which is that customers who might be willing to pay a lower price for that seat, have no ability to communicate that to you as an airline or as a hotel company. The core insight here is, ‘Whose problem are you solving?’ When you architect these kind of businesses, you need to understand whose problem your solving. Depending on what the topics of your interests are, which is the other pieces. You ought to be working on problems that are interesting to you. In the case of some of the folks at Walker. We are interested in all kinds of problems, because that’s the kind of people that we are. But, most entrepreneurs, particularly first timers, who might be going after your first business, identifying spaces or markets that are both familiar with and have interest to you are really important.

Then spend as much time defining the problem early on, that you’re solving. What’s the problem? Who are the customers for that. One of the challenges I have, talking to a lot of start-ups around the country is that they don’t really understand who their customer is. In this case, like many other businesses, really understanding the customer relationship and who they are is critical to the long term success of the business. What makes Priceline a successful business today is it solves a clear problem for airlines, hotels and car rental companies.

Andrew: OK.

Scott: Because that’s really, ultimately who foots the bill. Even though consumers are basically paying you, at the end of the day if you don’t have inventory from the sellers you don’t have a business.

Andrew: I see. So they were the guys who had the problem. Who had familiarity internally with the airline industry and the rental car business and the hotel industry to know, hey, you know this is a problem of perishable inventory that these guys face everyday. If we can solve it life will be golden for them. And they’ll take our calls and they’ll buy into our innovative solutions. Who had that?

Scott: I wish it was that easy. The reality is any kind of market place and any kind of industry, you’ve got to have domain experts. So, the first thing we did is, we studied it as outsiders. And understood it as best we could. Then we brought in domain experts, which is really what most start-ups need to do. So, bringing people who are deeply familiar, embedded in those businesses and part of the founding team was part of that. Understand how to engage them in a meaningful way and helping you understand that domain area. Because if you’re going to be disrupted, part of the challenge is being outside of understanding and identifying those problems and then it isn’t easy. You know, the biggest challenges that start ups have that’s really, really important. You’ve got to be building a network of people around you that, both understand that marketplace, but are also familiar with what you’re building. One of the things that Jay did really well. He pulled through his experiences as an entrepreneur prior to getting Priceline off the ground. But then certainly, throughout his career, as I do mine, is building up a set of relationships that you can, that are so powerfans of whatever project you are working on. And keeping them updated along the way. So that when you have an opportunity to say that we need to maybe pick up the phone and get access to a creative meeting, those are well informed people along the journey. Not people that you found in today’s market, we didn’t have this then. You found on LinkedIn that are one degree separated from you. And hey would you introduce me to the executive vice-president of blah blah blah company.

Andrew: This is really useful information to know. That if I could imagine if someone in my audience says, I want to tackle the supermarket’s problem. I’m not really in the supermarket’s world because I’m in technology, I’m going to go and listen to what Scott Case has just told me. Build relationships there and they will tell me their problems and they’ll be available to me and understanding of my business when I have a problem that I need to talk to them about. Immediately the issue their going to have is the same one that I brought up to you at the beginning of this interview. What’s in it for me? The people who they go to when they, and in the grocery business they’re going to say what’s in it for me to listen to and talk to this nuance entrepreneur, who I don’t know, who doesn’t know what he has yet. How do we give them enough incentive that they’re going to buy in to us, the way the people bought into you?

Scott: I think it’s, the key thing is actually the other way around. And so, what you need to be delivering immediately when you are creating any kind of effective relationship with anyone, is what can you bring to the table? Ideally, to them immediately that can be of benefit or service to that other person. So, it’s not going in and looking for how can you help me build my business. It’s really turning it around and saying, I want to know more about the grocery industry. I want to know more about this particular sector. And most people, who are domain experts, in a sector, they love their sector. And the best one. They want to talk to you about it. So, if you come into it, truly, honestly, authentically curious about that marketplace, about why they do the things they do. About some of their pain points. About what the challenges are they face. Then when you come to them with potential solutions that you want to validate, they’re interested in understanding you. And frankly, if their not interested in talking to you about their business, they’re probably the wrong people, keep looking. Because most people who are in domains, or have domain expertise, they are themselves interested in talking about the challenges they face. They’re also, they’re interested in their business. Otherwise they shouldn’t be in it anymore. And so, your job, as an entrepreneur, is to build up a broad network of people who are authentic and credible and you have to be that way too. And you have to find ways that you can help them. Maybe one of their challenges if they don’t have the relationships that you might bring to the table, maybe they don’t understand technology and you can educate them about it. But any time you’re creating an authentic, deep relationship there always ought to be a win win in both parties and important for the entrepreneurs, you got to be the one’s giving first.

And the last piece I’ll say. Really, really important. Don’t under estimate the power of the fact that in the United State just about everybody’s separates by only two people and you can see it first hand on LinkedIn. Everyone that asks you, hey, what do you do for a living, or, what do you do with your time or who do you work for? They are all potential people that could be valuable in your community and be valuable to your network down the line. So, just because they’re not in the industry that you’re in now or the focus you’re in now, you’re job as an entrepreneur is to built authentic, meaningful relationships with as many people as you can because you will be surprised at how you can draw on those relationships down the line.

Andrew: I’ve seen that too. You go to a party and you hear someone tell you a story about what they do, it doesn’t necessarily tie into your industry or your life or your dreams, kind of interesting, you build a relationship with them and boom, a month later they discover that you have a problem that their cousin or their brother or their wife or husband can solve perfectly because they happen to be there and your friend and they help out. It’s amazing how that happens.

Scott: And the universe will pay you back but you’ve got to pay into it. For those of you who are in the audience who might remember bulletin board services, way back in the day, part of the rules for participating in those communities was you had, in order to download you had to upload. And what I say as an entrepreneur, you got to be in the uploading business. What can you deliver, relationships, opportunities, ideas, knowledge, community, to help other people and you’ll get paid back by multiples of ten.

Andrew: I love that memory. I do remember those bulletin board, you’d connect to them, you’d upload maybe a megabyte of a program and then you’d get to download two megabytes. So they were generous with you but then you had to put in some work first. Hey, before I ask you the next question and the next follow-up question and just keep pushing and pushing and pushing, let me ask you this, what’s it for? I’m listening to myself ask you all these questions and every question I answer, I ask you, gives me even more homework for my business, you know, now I have to go build connections here and do this there and go do that and I keep thinking of all these entrepreneurs I’ve talked to here, over 700. I’m so proud of that number. You’ve talked to even more entrepreneurs. Some of the best in the world and one thing you might have noticed is when you tell them what you are doing next or what are you doing now. It’s never, hey, you know what, I work really hard, I work my face off, I built this company, I talked to every customer and even strangers and their cousins and I did it and so now I’m going to relax. It’s always, I did it and now I’m struggling with this other issue. So, before we tell people what else to do, let’s tell them what it’s for. What’s the benefit of having done this all if we do it all right and one of the winners in this game, what’s in it for us then, what happens?

Scott: Well there’s a few different concentric circles, right, of why entrepreneurs do what they do. Most of the most successful founders that I know are in it because they like to solve these big problems and they gain personal satisfaction and joy from attacking interesting problems. And that to me is the majority of the truly successful founders in the world. They get intrinsic value out of attacking interesting things and delivering product to market or service to market that addresses those kind of needs. There is a small group of people out there that do it for wealth creation as a pure objective. I’m less interested in talking about that as a, because I just don’t see it as being a successful driver. So, first thing is you have to be satisfied intrinsically. The next piece is you should be able to drive wealth from it because if you’re truly going to be successful in building a growing concern, you’re going to need to have a wealth creation engine, both for yourself personally, for your team and for ideally your investors if your on a track where you’re taking in outside capital. So, you need to create some level of wealth. When you create wealth for yourself, for your employees, for your investors, you create wealth for the society that’s around you and that can be massive wealth or that can be highly localized or highly limited wealth. At the end of the day, the start-up economy in America is completely, it completely drives the overall economy. All the net new jobs created in America in the last 30 years were created by companies less than 5 years old. So part of what you’re doing by being a successful entrepreneur is you’re actually contributing to the overall well being of our society. And if you like living in America and you like the freedoms and the opportunities that we enjoy, than you actually have a higher order of purpose than even your own intrinsic value in that you’re success and the collective success of start-ups all around the country is that our country is stronger and we’re more capable of serving the rest of humanity in a better way and whether that’s for our children or our nieces and nephews or for our grandparents, the start up economy is what drives the national economy. So, I think it has to start with you personally, but know that you’re playing in a bigger game in both the wealth creation engine, but also in the strength of our economy. It’s what drives it forward, is the development and creation of new enterprises. And the ones we focus on at Startup America are those high growth enterprises.

Andrew: Just listening to you talk there, I get excited. That’s a size that I want to play in. That’s the kind of impact that I want to have on the world around me. And it’s true that I do see entrepreneurs do that. The one thing that I wish that would happen is that they’d get more credit for it because, frankly, Steve Case of Startup America and AOL gets that kind of credit. People know that he had dramatic impact on the world. Many people who I’ve interviewed, many who are friends of yours and mine have been online just because of AOL and because of the work that he did. Many people have been impacted by the work that you did, and they know you to a lesser degree, frankly, than they know him. But I wish that they would know you to a bigger degree, and I wish that we would idolize entrepreneurs in general the way that we . . .

Scott: I totally agree with you, so a big part of what Startup America is . . .

Andrew: Yeah, tell me how you do that.

Scott: More broadly. So we talked about the fact that we’re doing some things that very, very specifically benefit startups that are building their companies right now. If you’re a growth-oriented startup, join Startup America and get access to a whole set of tools, resources, relationships that can help you grow your business . . .

Andrew: Everybody. Is there a gatekeeper that says to a new entrepreneur, “Hey, you know what, you’re not big enough, you’re not connected enough, you’re not this?” No, it’s just wide open.

Scott: You’ve got to be two people committed to starting and growing a company, and you’ve got to be growth-oriented . . .

Andrew: You can’t be [??] no single founder?

Scott: Research shows that if you’re by yourself, you’ve got to bring somebody else in because a lot of companies that try to go it alone eventually have got to bring somebody along with them. So if there’s a limit on it, we say it doesn’t have to be an employee. It can be an advisor to you. It’s just that somebody else is engaged with you in the act of development and growth of your business. So that’s kind of . . .

Andrew: OK. Fair enough. And what’s the other one?

Scott: . . . base level criteria. But to get to your point, what we need to do in order to step up America’s startup game is a focus of Startup America. One of our legs is celebrating and evangelizing the importance of startups, and we do that through a series of different things. But we are focused on partnering with some of the largest corporations. We spend a lot of time with the media. We spent a lot of time with thought leaders across lots of different channels to explain that startups are different. They’re a different category of company. They’re run by founders focused on growth. They’re not small businesses that somehow magically get big. Most startups that I know and founders that I know of, they think of themselves as big companies even if they’re only three people. They’re solving big problems and they’re focused on growth. They’re also not large companies yet, so they’re not up in the Fortune 1000 or the Fortune 5000. They’re starting out and they’re growing their businesses, but they have a common set of traits [??] startup culture, their founders, they’re growth oriented. So one of things that we’re doing is celebrating those folks. Every day we celebrate a startup of the day. We communicate it throughout multiple channels, and on a weekly basis we reach over 3 million eyeballs, if you will, and that’s growth. We’re also working with our startup regions, where we’re highlighting and celebrating startups through events and activities where we’re highlighting some of the best startups. One of the things I’m encouraging a lot of governors and mayors to do is to allow startups to literally pitch on a regular basis to their press corps, to their economic councils. In fact, in Owen, Illinois Brad Keywell [SP] has got this going, where they’re pitching on a monthly basis and getting the exposure to the startups that are growing their business right now in those states because from an economic standpoint, home growing startups is critical to the success of any state’s economy. It’s not enough to try to move big companies into your jurisdiction. It’s important for you to grow the successful startup economies right where you are. So tomorrow I’m going out to Indianapolis. The mayor there really gets it. He understands that for Indianapolis to be a successful city he’s got to have a strong startup economy there. And tomorrow I’ll start up Indiana launches, where we’ll focus on the entire state. It’ll be the twentieth startup state. So the plight here to celebrate entrepreneurship has to happen on a national level. We’ve got to tell stories about successful startups. We need startups to tell stories about themselves. One of the reasons joining Startup America is so important is we can help highlight you and what you’re doing and bring you to other startups, but also to other partners. So you have an obligation as a startup to tell your own story. And then if you’ve got people here who are listening who know serial founders, one of the things that we need to do more of is to bring the serial founders that are all over this country up to the forefront into leadership positions as champions to the startup communities that they’re already engaged in and elevate their stature up to the next level. And you’re absolutely right, the entrepreneurs that are watching you, the people who came before them and the people that come after them are the heroes of our economy and we need to do a lot more to celebrate them. That’s a big part of what Startup America is focused on and we’re stepping up our game in that area, as well.

Andrew: When Zach, the Founder of Code Academy, had Bloomberg sign up to take courses on his website and was invited here to Washington, D.C. for a meeting, I saw him after, I think it was the day that Bloomberg joined and I think it was right after he had some White House meeting, the guy was standing like he was 30 feet tall. We were sitting down over a beer to talk about his business and beyond the confidence that came from that, there’s no doubt that he got a bigger audience because the mayor of New York was a part of his program and because it raised his profile, more people had joined in and helped him grow and get credibility. That stuff is huge. Let me ask you this other question. I feel like we got a little bit of rapport now so I can ask you this question and see what you’re saying. I see you’re adjusting, you’re flexing, which is good for this question. It occurred to me, the press release that I read from back in, I don’t know what day it was. Wish I didn’t lose this. There’s this patent number 5, 794,207 for the world’s first buyer driven e-Commerce system, that’s probably one of the patents now that Jay Walker’s using to sue other people. Right? He’s now using his patents, one of the issues that entrepreneurs have is that, I’ll talk in more specifics about my experience. I built this company, Brad [??]. We did online greeting cards. Some nudnik comes over, a company called Tumbleweed, calls me up and says, ‘We’re going to sue you because we have the patent on online greeting cards.’ Now I’ve got to go and hire lawyers. I have to deal with this guy who’s trying to make some money off of me. It’s a problem that entrepreneurs have. What do you think of the patent system and how it affects us entrepreneurs?

Scott: I can’t speak to any specific examples, ’cause I’m not a first [SP], nor in the weeds on it. I’m a big believer in well executed intellectual property. I think it’s one of the fundamentals of success of the American system and essentially one of the few things that’s [??] written into the Constitution is the idea that people should be able to protect their ideas. I think the challenge is executing against that and as a named inventor on a lot of patents, one of the things a lot of people don’t know is that you have an obligation when you file a patent to identify anything that could be considered to be what’s technically called prior art. You have to do a thorough job. You don’t have to turn over every rock in the universe, but you need to do your homework to understand, ‘Has somebody already done this before, and if so, how are you being innovative around it?’ As it relates to the last 20 years of patent law, it’s been evolving and patent offices attempting to keep up with the changing dynamics and I’m sure that there are patents out there that are arguably super tight and strong, Amazon has one in their one click ordering system. It’s held up and been licensed. I think that the most successful patent holders, both have a background in building businesses around them, but also recognize that licensing is the right strategy and creating good, strong licensable relationships. There are others out there that have a different point of view, but mine is that intellectual property is really important.

Andrew: Ideas and software aren’t different from patenting hardware, for example?

Scott: They are different and you should invite a patent attorney on to talk to you about the differences there because I’m not gonna attempt to do that. But what I can say is that from a startup’s perspective, as you ‘re look at intellectual property, there’s a lot of open systems out there and as you look at developing your business, one of the things you have as a startup, is an obligation to go out and understand who came before you, what’s out there and it’s worth doing a patent search to understand who are the companies out there that hold patents that are related to your marketplace, so you’re aware of what the basic intellectual property is.

Andrew: If it’s important, would you ask every entrepreneur who went through Startup America to do a patent search? Would you help them do it, if this is an important thing? Or is it something that can wait ’til later?

Scott: It depends on the kind of business that you’re in and where you are. My experience with building companies is it’s all about execution, execution, execution and that, whether you think you have something patentable, really understanding how to execute it, understanding your market is way more important. Some firms it is, I do think that it’s worth, if you believe that what you’re doing is patentable, it’s always worth doing an exploration around . . . [sneezes].

Andrew: I’ve done that on camera too.

Scott: Apparently, I’m allergic to the topic. I do think each individual founder has to make those calls. The reality is that the vast majority of businesses that are being developed are going to be drawing on all kinds of sources, and most of things are leveraging lots of different technology to build their businesses. You need to prudent about the software status.

Andrew: You said everyone does potentially violating some patent. We all know about now, the Twitter holds that patent about pull down to refresh. See it on Google’s G-mail web app. I see it on other apps. It’s become just the way to refresh online, but we could get sued by Twitter or the next owners of Twitter. Aren’t we all potentially violating something?

Scott: Well, I think the question for our patent system is, and that being still worked through, is how do you meet novelty and non-obviousness, which is the core principle behind what it is that you can get an issue of patent for. I have no idea what Twitter is patent for. I don’t know what the claims are. I don’t whether those claims would [??] up. You could keep asking me questions about IPI, ‘m just not an expert at answering them. I do believe that we need to evolve our system, and we need to understand where there are opportunities.

Andrew: OK. One further question. Evolve to what? What would you like to see happen?

Scott: Well you need to understand how new technology and how we continue to protect the rights of people who are truly innovative and creating new opportunities so that they can be rewarded for those innovations. While at the same time, recognizing that there’s all kinds of innovation that’s derivative of these things and how do we reconcile that. I don’t have the answer for it, but it’s part of what the process is. I just don’t think you throw entire classes of intellectual property one way or another, or grandfather them all in. There needs to be a balance.
We’ve gone through this before in history. The notion of having windshield wipers on a car. Right? I mean, at some level somebody had to come up with the core concepts behind that. Do you believe that they should have been rewarded for that behavior or not? Every industry goes through this. You probably, you may or may not know this, but there were over 100 car companies in the late 1800s and the early 1900s. There are only a few now. They all had innovations that they had to build. They all had things and they had access to the patent system which allowed some of them to create high leverage opportunities. Every industry goes through this. The maturation of the technology industry, and the information technology industry, will also mature in the patent system or mature alongside it. It’s going to be messy ugly, and it can be messy ugly along the way.

Andrew: Alright. Startup America has been around for a little over a year now. What’s your proudest accomplishment so far?

Scott: I think what we’re most excited about are a few things. One is, is that startups have been both joining and connecting with each other all across the country. We’re seeing fantastic young high growth companies in just about every sector and every state in the union. That’s been very rewarding, because there’s been no in great demand, but there’s been a great opportunity for us to find specific ways to help them. The fact that there are regions around the country with entrepreneurial leaders in them, in places like Tennessee, like Florida, like Iowa, like Colorado, where there’s real leadership saying we want these cities and these states to become great places for startup to grow and scale their businesses. It’s been incredibly rewarding because that’s the nature of the long-term success of what is going to build our countries status up and take it to the next level. It’s leaders across the country that are deciding to invest in their communities.
Then, I’ve been incredibly grateful for the number of partners who have recognized the importance of these young high growth companies and have stepped up. We have over $1.5 billion in in-kind resources that have been committed from dozens and dozens of companies. They’ve all stepped up and said, we know startups are important, we want to have relationships with them, we’re going to do our part to help. So kind of across the board we’re seeing some really robust and enthusiasm for this. Then you’re starting to see the thought leaders in our society understand the power of it. It’s great to see legislation like the jobs that get passed, we’re seeing state governors and mayors get engaged where I’m growing our own in our state. We’re seeing the next way that people need to get involved. We’ve always known as of you that there are great startups all across the country. It’s great to them being [??] out, becoming visible and helping each other.

Andrew: What is the benefit of that? I see more and more entrepreneurs say that entrepreneurship is a lonely experience, that we need to find other entrepreneurs to talk to, to learn from, to help out. I thought entrepreneurship was supposed to be a heads down business, talk to your customers, talk to your employees, but you don’t need to talk to other entrepreneurs. What’s the benefit of it? What have you seen? Do you have an example, maybe, that we learn from?

Scott: Yeah. Look, it is a challenge because you reach a point where you need not only do your product development, your customer development, but successful entrepreneurs also do network development. A strong part of your network is other entrepreneurs, ideally, that are slightly ahead of you in the building and development of their business, they may be behind you or in parallel with your peer group.

The reason that’s so important is that you often face challenges that you can’t talk to anybody else about and you need people who understand where you are in the development of your business; but it may not be germane to the specifics. It’s not like you are going to face some technical challenge you need help with. It’s usually some kind of an operating challenge. You are having a challenge with your co-founder.

Andrew: Like what? Give an example of one, of an issue that one of the startups that have been a part of Startup America has had and how having a peer to talk to has helped out.

Scott: So, there’s a startup that’s been really trying to figure out how to . . . actually, it’s a story I heard recently. So, they had a co-founder. They were building their business and growing their business. They had originally split the business 50/50. But one of the co-founders was there full time and the other co-founder had a day job. The co-founder that had the day job couldn’t contribute nearly as much to it and was unwilling yet to take the risk of resolving it.

Now, how do you resolve that? This has happened to lots of co-founders throughout the country. If you are actively engaged with someone else who has resolved that and done it recently and it’s in their recent history, that’s a great opportunity to have a dialogue.

In the case of this co-founder, they were in discussions with other people and other startups. I don’t know how they resolved it at this point, but that’s a common ailment. If you don’t have the ability to talk to someone else, who are you going to talk to? You can’t talk to your existing co-founder. Probably, can’t talk to your board because there is some risk or even some of your advisors. You certainly can’t talk to your employees. But you are feeling this sort of challenge or anxiety.

Let’s say I have a key employee that’s a pain in the ass, how do you resolve that, right? Let’s say you have a board member or an investor who’s really giving you a tough time and you’re not sure whether they’re adding a lot of value to the experience or are they just busting your chops. You kind of can’t talk to certain people about that, but you can talk to other founders that are founding their companies. So, that’s an example of sort of resolving those things.

Let’s say you are trying to grow your customer base and maybe if you sell into large companies, you are selling an enterprise, you land in one or two companies, but you’re having a really tough time getting the next ones. How did other startups resolve that? Maybe they are in your domain, but maybe not. They just have experience having built a sales team and driving them, maybe that’s not your area of expertise. Maybe you’re a technical expert, but you’re not a sales expert.

All of those are people that are your contemporaries and your peers can help you build that out and I will tell you that the experience that those other entrepreneurs bring can’t be bought. You can’t hire a consultant to know what those people know because they’ve lived it already. So, that’s the real value is having people that have lived these experiences or are living them right now in your network.

It’s also true that you want domain experts. You want people who have expertise who work in large companies. You want a broad diverse network around you so that you can deliver value to the network, but you can also get value from it.

Andrew: You know what, actually, I have seen that happen. I saw it in California in LA where John Bishky [SP] used to put together this group called Billionaire Boys and Girls Club.

He’d get entrepreneurs together, and I remember one of them had an issue with his business, he introduced him to first round. First round ended up investing. He did a poker game. At that poker game John Bishky had a question about Ruby on Rails and whether it was stable.

This was back when Twitter seemed to be going up and down and people were wondering if the software they were built on was what was causing the problem. He talked to a developer who said, hey, here’s our understanding. We’ve been building apps on this for months and this what we’ve learned and I could see how those kinds of conversations are hugely helpful.

What about accessing experts, what’s in it for the experts?

You said that one of the three things that Startup America gives is peers . . . well, actually, one of the three things is access to experts. What do the experts get? And the reason I ask is because I’d like to go to experts and get them to help me with my business, but I always feel like, well, what’s in it for them. They are already so far ahead, they’ve got nothing that I can give them.

Scott: Well, you almost always have something that you can give and everybody has a demand. It might be just your opinion, might just be feedback on their own businesses and how they contribute. What we see with the experts that participate in our learning series is it’s a low lift, high value experience to engage with startups all across the country that are usually doing something that is a natural interest to the expert themselves. So they can contribute in a meaningful way and invest their time and energy into startups all across the country. The most value that the experts get out of it is being able to share their experiences in a way that’s helping someone else but there’s also a real opportunity to potentially build their business. If you’re a VC [SP], you’re always looking for [??], so by you participating in our Ask [??], you might be exposed to companies that you wouldn’t otherwise be exposed to on a Friday. We have a guy who does pitch coaching. Every Wednesday he’s hearing pitches from startups all across the country. It helps him be better at what he does. By hearing a wide range of different pitches, he can give all kinds of different feedback so when he gives his feedback to his paid clients, he’s got a wide range of companies that he’s advising already. It can be to help you build your business, but if you’re an expert that’s part of our learning series, we ask you to come to it with a way of contributing to our overall mission and our success, which is to help step up America’s Startup game. By the way, there are secondary and tertiary benefits to your experience, but you should be experiencing it for the experience of engaging with some of the most optimistic, opportunistic people on the planet, which are America’s founders of startups.

Andrew: Let’s go back to Priceline again, for a moment. We talked about the importance of getting together with domain experts. We talked about how to think about the problem. What else did you do there that you’d advise other entrepreneurs to do? What else did you get from that experience that we can grub?

Scott: A lot of the things that we, and a few others, in the early internet days were pioneering had become germane and core and almost obvious to startups today, but they may [??] repeating. One is, move really fast and live in a world of permanent beta. Be constantly recognizing you got to be deploying your product, your service to the marketplace and getting your customer feedback on it and making adjustments on the fly. That said, one of the things that we did at Priceline really well, that I think more startups need to do, is to step back and really understand the business and the business model and the architecture of your business. Who are all of your core constituencies? Who are your customers? Who are the people that need to be part of your ecosystem to be a successful business, but may or may not be a customer yet? One of the things that Jay did very, very well was to understand the full architecture of the business. Not just the product but how that product will solve problems, but integrate it into a larger ecosystem of constituents. A lot of entrepreneurs, similar to the network problem, they don’t do the network development well, they don’t understand the ecosystem that are around their product really deeply and it’s important to take some time every so often, either key milestones that you’ve met or just on the natural time limit, every once a week, could be once a month, but to take some white space and say, ‘Where are we in the business? Are we still on our mission? What is our model and our architecture for our business?’ That’s an important part that a lot of startups today I see missing it. I think the idea of saying, ‘We’ll figure out the business model later,’ is a cop out. It’s a thought exercise. You don’t have to build anything, you got to sit down and really understand. You might have three choices and see which one is going to evolve. That’s fair, but you really need to understand who are your core customers and what’s the core economic driver for your business. My advice to entrepreneurs on that is, if you can build your business with a singular revenue stream, do it. ‘Cause anytime you need more than one, you should rethink that whole thing. Try to find a way that you’re going to have a strong successful business with a singular revenue stream. As soon as you need multiple of them, that means, by definition, you’re going to build lots of different relationships, lots of different resources, lots of different engines. If you can build a business, there is no much stronger business. That doesn’t mean you can’t add ancillary revenue later. Really have a strong revenue stream up front.

Andrew: A lot of entrepreneurs think the other way around, which is, ‘If I had multiple revenue streams, then all together I’ll have more revenue. If one happens to go down, then I’ll have another ready to go.’ You’re saying, ‘Focus on one,’ because then you can have conversations with one set of customers. You can solve one set of customers problems.

Scott: And grow to scale. If you can’t scale that up, I suspect there’s something wrong with your business. If you look at the largest businesses in the world, very few of them require multiple revenue streams for them to be successful. They tend to have one core revenue stream that’s been successful for them and they built [?] business or [?] revenue around them but, I mean, Google’s the poster child for this. Facebook’s a poster child for this and those cases are third part ad supported businesses for the most part. It’s true in every business. The telephone company, their a subscription business, sell services on top of what their…at the end of the day if you don’t have a handset from your mobile provider, you don’t have a handset and a service plan, you don’t have a business. All that stuff charging you extra for text messaging and data plans, all those things, it comes out of one core very simple premise pay for access to the networks.

Andrew: The one part of that that you said, I’ve got build fast and be permanent data, I’ve got core continuants understand who they are. A third was figure out the business model even if you don’t go after it just have it as mental exercise and you should be thinking of what that is. Number four out of the entire list that you gave was a single source of revenue and five scales make sure that it scales. The one that I didn’t understand was the core constituents. We should be asking ourselves who our core constituent, can you give me an example to help understand what we’re not seeing as entrepreneurs when we’re making this mistake of missing the core constituents and how we can do it right, do you have an example of that?

Scott: Sure, I’m going to turn it around on you. Give me the pitch for the business your building right now.

Andrew: I run a website where entrepreneurs tech other entrepreneurs to build their businesses.

Scott: OK, so one of your core constituents is the entrepreneurs. So you have the people that you’re interviewing and then you have the audience of people right?

Andrew: Right.

Scott: Who pays for your existence?

Andrew: Well I have two sources of revenue and I’m hearing you say and I’m thinking maybe I don’t need it. It’s sponsorship, which people saw at the beginning of this interview and it’s more, much more then that it’s premium members, people who pay to have access to courses where entrepreneurs turn on their computers and they teach how they get traffic or how they generate sales, how they increase conversations etcetera. But’s its members.

Scott: You’ve identified four constituents [?] you’re managing. You’ve got the entrepreneurs, your guests, you’ve got entrepreneurs that are watching and learning from you, you have premium member entrepreneurs or premium membership and you have your sponsors.

Andrew: OK.

Scott: Do you have any employees?

Andrew: Yeah, there’s a team of people who put this all together.

Scott: Ok so that’s a constituent and do you have any investors?

Andrew: No.

Scott: OK. So, do you have any industrial prospects, do you have an ambition someday to have industrial prospects?

Andrew: No, I don’t think so.

Scott: So you’re going to boot strap the business right? So, you might have, do have advisor for the business?

Andrew: You know what? No I don’t but I should. Well yeah I do actually, Bob Highler, huge advisor, yes.

Scott: Formal or informal advisors, do you have strategic partnerships?

Andrew: No, we need that don’t we?

Scott: So my point is that you have a set of constituents that you’ve been able to identify quickly but there are all these other people out there that could be there. It could be strategic partners of yours, they could be peers of yours, and it could be media partners for you. You have constituents of people you want talking about what you’re doing. How are you relating to those people? What is your relationship with all those folks? So, it’s identifying who are the constituents these can be around and depending on the business it might be a short list, it might be a really long list.

If you working in the health space, you’ve got all kinds of people. You got insurance companies, you have the service delivery, the actual health care providers, you have the patients themselves, and you have the patient’s families. I’ll take an education play. If you in the education business chances are you going to have to deal with the parents as well as the student and you have to deal with who the educator is and who’s managing the educator.

If you’re selling to an enterprise customer, right? You not only have a decision maker who’s going to be your buyer but you also help them sell other decision makers inside the company , alright? So it’s not just the one person your interacting with, it’s all the people around them that you have to be as your constituency. In order for entrepreneurs to learn about your website you need to have other entrepreneurs hear about it and so how are they, how are the people that might be referring entrepreneurs to you, who are those people? So, it might be employees of startups that might refer other people here. So as you deconstruct all the people that you touch, those are your constituents and break them up and prioritize them. I’ve got my primary, my secondary, my [?] and start defining it that way.

Andrew: I see and just have a clear understanding of all those people who I might have overlooked when I though hey my audience is really my one constituents, some of them pay, some of them don’t and the other one is the sponsors and that’s who I live for. You’re helping me identify more of them and that’s what you want all of us to do.

Scott: Yeah. Identify who those are and then build relationships around them so that you can really understand those constituents.

Andrew: All right. One other thing that I do is I like to talk about big setback just to see what we can learn from them. When I Googled your name and I restricted the search to the year 2000, one thing that came up was the story about Priceline Auto Service. I was wondering, why didn’t that work out? Now that you’ve had some years to think about that, what do you think some of those setbacks of Priceline, where you tried to extend beyond hotels and travel. What do you think? What did you learn from that?

Scott: I think there’s a few things. There’s what quarter of the business and there’s what’s the environment we were in. So, if you do a lot of Google searches around the year 2000 in general, the context in which Priceline was operating is really important. You had the internet bubble, you had a lot of economic changes. If you go all the way through to 2001, where you end up into 9/11, you have a whole set of economic realities that were going on and right sizing of a bunch of different things. If you look at what Priceline did at that time, it was really smart to reduce down to the core business. We had done some line extensions and retrenching and focusing on a few core business models was really critical. As you can see from the success of Priceline today, the execution of the team there, Jeff Boyd in particular as the CEO, has been phenomenal. They have done a fantastic job really maximizing the value of the sector that they’re in. For us, for me in the name of a price for a new car, we were attempting to apply the name of Priceline to a low frequency, high value product line. Where as travel was a kind of medium frequency, limited value. Hotel room, $150, $200, a airline ticket might be 300 or 400 dollars. You’re buying a car, it’s tens of thousands of dollars, it’s a high touch sort of experience. You might do it only once every three or five years. I think some of the things that worked well with Priceline and name your own price for a car, was that we were able to bring an offline marketplace, in the case of new car dealers, now they are all digital, at the time they weren’t, online. And, create a new dynamic for customers. What challenged the Priceline model was that the cost of creating a marketplace were just too high to deal with a customer base that was going to be very low frequency, even though it was a high value purchase. Believe it or not, the margins on cars are actually incredibly thin. So, you have to sell a lot of cars and there is only 16 million cars sold in America. You have to touch a significant percentage of them and gather a very relatively small amount of money from each one in order to have high value business. It didn’t make sense to continue to operate that. When we looked at it coming in to Priceline, we were looking to identify an experiment were a new model, new models were bringing in new marketplaces, what could work and what didn’t. We looked at launching a new car business as an opportunity for us to explore those other spaces.

Andrew: I see, so what you learned was that there wasn’t enough of a margin for you guys to prosper in. There wasn’t enough frequency for you to show results for the end user, for the customer. What else could you have done beforehand or how else would the analysis beforehand have helped you identify this if it was done differently? Or could it have?

Scott: Some things are experiential, you can analyze things to death, sometimes you just got to get in the market. The lift for us to get into that business was relatively small. We had a small team of people that built it very quickly. I don’t remember the investment dollars, but I’m sure it wasn’t significant, so for us to be able to get into that space, to invest the dollars and the personnel against it, it was worth building it to see where the opportunity lied. We focused on getting the first set of actors to transact with each other. That was the first test we could get those players to play and would they be willing to pay to participate. We actually prototyped a lot of stuff by hand. I read the original test and again, this is dating the platform, but email addresses at car dealerships didn’t exist, but they had fax machines. I literally faxed, by hand, offers for cars to dealers to see how they would respond to it. We built it a lot of it and that’s how a lot of entrepreneurs ought to be prototyping stuff. I was at a start-up weekend a couple of weekends ago and game development was one of the tracts. You can do paper prototyping, I watched my 10 year old as an avid gamer sit for over an hour and give feedback to somebody on a cardboard mock up of an iPad with a sliding piece of paper they are swinging through the jungle on. He was engaged. He suspended his disbelief and he participated in that case as a potential customer for this video game. So, don’t under estimate the power of prototyping and trying things. We did enough of that and then decided to go build something. When we built it, we learned a lot about the market place and what was going to go to scale. There is probably still an opportunity out there for somebody now, since a lot of these things are automated, to create a very low fixed cost, high value product around the notion of creating a market place of buyers and sellers. I know there are start ups out there right now building business around those very models. The market wasn’t there for us at the time.

Andrew: Here’s a quote from the time. This was a pilot talking about Priceline Auto Service. “As we rolled out the pilot, we recognized that this business required significantly more touch with the customer than selling airline tickets,” said Priceline executive Scott Case. For example, Priceline’s policy is to maintain the anonymity of potential buyers which meant that it, not dealers, had to go back to consumers with offers and counter offers and I can see how a pilot will give you that kind of information before you roll it out nationwide. I don’t even think this was in New York, where I was watching you guys like a hawk. I was amazed how Priceline just kept growing and showing up in places, like my grocery store, at the time.

Scott: I haven’t looked at that press release, probably, since it was written around business, but that was the basis for what we needed to do.

Andrew: I always look to see if there is anything bad in this guy’s history that I need to watch out for, before I do the interview. You are basically a guy who walks on water in a lot of people eyes. CEO of Malaria No More from 2006 – 2011, Chairman of Network for Good, 2005 – Present, which is a national non-profit which has distributed more than $475m to 60,000 non-profits.

Scott: We are up over $600m now. I don’t know when that bio is from?

Andrew: That’s our research, which is out of date, I guess. Let me ask you this. I want to do a better job here at (?) with the interviews that I do, the kinds of conversations that I have with the information that I pull out from guests for my audience. What’s one piece of advice that you can give me that will make interviews in general more useful for an audience of ambitious entrepreneurs that want to leave a legal mark on this world?

Scott: I think teasing out from the entrepreneurs you interview understanding how to talk to them and get them to talk about areas where they have failed. Where they have fallen down and giving examples of those. For example, I’ll give you one from my experience. On one of the first start ups I was engaged with, we had the field of dreams problem. We believed that we built the world’s greatest problem people would break down our door to get access to it. Turns out that’s not true. If your really going to understand this, understand your customer. Understand how to market to them. Understand how to build community around your products is critical to the long term success of your business.

Plenty of engineer entrepreneurs don’t think that way. If I build this wonderful widget it will take off like a rocket. That’s number one in times of failure. The other is analyze times of success. If you study the history of Pinterist. If you talk to Ben about his experience building Pinterest, he will tell you he didn’t have any users. Can anybody use the thing? It wasn’t until a bunch of craft type people in Iowa started using the thing he understood the dynamics of building something that was going to cater to that audience.

It’s these kinds of stories we need to tell and you can help us tell that give entrepreneurs the ability to say, I am struggling with these same kinds of things now but maybe there is a light at the end of the tunnel and I’m not alone. These businesses don’t just emerge out of nowhere. We spent months understanding how Priceline was going to go out the door and we still made mistakes. We had a $25.00 fee to make a 2nd offer after your 1st offer for the same trip. It plagued us for months. We got rid of it immediately. We put another mechanism to stop people from re-offering over and over again, but that was a mistake. We were solving one problem and the way that we solved it wasn’t going to work for our customers. We had to back track and re-think about the consumer side of the equation. So, talking more about getting more startups and successful founders to talk about areas where they had real challenges can help us all learn more.

Andrew: Scott, what was the business that you spent so much time building before you launched? I’m going to use that as an example in pre-interviews with people who aren’t ready to talk about their failures. I can say, ‘Well, look. Here’s what Scott Case taught me,’ and immediately they’re going to see the benefit of that.

Scott: So, I started a couple of different companies while I was in college. In one I was part of the founding team of a company called Precision Training Software. It was actually started by a college professor of mine and me. I was a green engineer. I wrote a flight simulator, we built a simulation of an artificial intelligence engine for a certified flight instructor. We built this unbelievably amazing product over a three-year span. It was top. In fact, it’s still for sale today. You can buy this product today. We launched the first version of it in 1992. So, that gives you a sense — 20 years. Really, impressive technology. But, we couldn’t get the phone to ring. We spent the next two years as a group understanding how to create demand for this product that was oriented toward general aviation pilots. It was hard. I didn’t know the first thing about it. I read every book I could find on sale. We sold hand-to-hand at conferences. I read every book I could on telemarketing. I read every book on direct mail we could find. We basically had to learn everything from the ground up on how to do what we needed to do to sell direct. It was a shrink-wrapped software product at the time. So, we misunderstood the need for us to create demand around the product. And I know exactly what I would do now, doing it again. I wouldn’t do what we did.

Andrew: What would you do now?

Scott: I would have started marketing and sort of selling the product into our constituency and our community much earlier in the process. I would have created demand for the product even before we had the product to market. That would have done a couple of things. First, it would have helped us make better choices on trying to get the product to market faster. We also would have architected it so that we were in product development mode where we were doing releases over time and had a roadmap. We didn’t have any of that. We didn’t have a product roadmap. We had a perfect product that was going to be delivered as version 1.0. I wouldn’t do that again. I would deliver a .1 version of the product, tell everybody about it, have a limited number of customers beat the crap out of it and then figure out what the .2 version needed to be based on that feedback with a roadmap down the line that sort of readjusted the roadmap based on customer feedback.

Andrew: You know what? That’s a great story! Because, that addresses a problem that so many of us entrepreneurs have. We keep making that mistake. It’s good to hear you talk about it and the pain of having two years to sell the product that, if you would have started selling it before it was ready, before it was fully launched, you would have sold much faster and built much more response.

Scott: We could have given the product away. It might have just been creating a community around the product well beforehand.

Andrew: I see.

Scott: Anyway, I don’t know if you’ve got anything else, but I’ve got to go to my next gig.

Andrew: Absolutely. No, that’s everything that I’ve got. The website is s.co. I know many people will join. I really appreciate you doing this. I’ve kept you on for a long time because I’ve been looking forward to this conversation and to learning from you and I appreciate all the time you spent with me.

Scott: No problem. So, before we go, do you chop this up? What’s the final product here?

Andrew: We go with it, including this part, until you tell me to stop recording. We keep the whole thing in there and we let people watch, sneezes and all.

Scott: All right, well, break. I’ll see you later. Thanks so much.

Andrew: All right. Thank you very much.

Andrew: Three messages before we get started. If your a tech entrepreneur, don’t you have unique legal needs that the average lawyer can’t help you with? That’s why you need Scott Edward Walker of Walker Corporate Law. If you read his articles on Venture Beat, you know that he can help you with issues like raising money or issuing stock options or even deciding whether to form a corporation. Scott Edward Walker is the entrepreneur’s lawyer. See him at WalkerCorporateLaw.com.

And do you remember when I interviewed Sarah Sutton Fell about how thousands people pay for her job site. Look at the biggest point that she made. She said that she has a phone number on every page of her site because, and here’s stat, 95% of the people who call end up buying. Most people though don’t call her but seeing a real number increases their confidence in her and they buy. So try this, go to Grasshopper.com and get a phone number that will make your company sound professional, add it to your site and see what happens. Grasshopper.com.

And remember Patrick Buckley who I interviewed? He came up with an idea for an iPad case, he built a store to sell it and in a few months he generated about a million dollars in sales. Well, the platform he used is Shopify. If you have an idea to sell anything set up your store on Shopify.com because Shopify stores are designed to increase sales. Plus, Shopify makes it easy to set up a beautiful store and manage it. Shopify.com.

Here’s your program.

Hey there Freedom Fighters, my name is Andrew Warner, I’m the founder of Mixergy.com, home of the ambitious upstart. Over 700 proven entrepreneurs have come here to tell you their stories, teach you what they learned along the way and give you as much of their personal experience as they can so that you can go out there and based on that build you’re own success story and hopefully find a way to share it with others and teach them the way today’s guest is going to do here with you. And in this interview I’m going to answer the question, how do you build a profitable start up for $100. Chris Guillebeau spent even less than that to build his business which includes UnconventionalGuides.com, a site that helps people do more about what their excited about. Like travel the world for instance. And he’s got a popular blog that I’ve loved and admired for years before I even got to know him, The Art of Nonconformity. And he’s got a new book out called the $100 Startup. You can find out about it at 100startup.com. 100startup.com. Chris, welcome back.

Chris: Thanks for having me back, man.

Andrew: So Chris, there’s a misconception, especially I believe in my audience and maybe I’m perpetuating that by doing interviews with people who raise $5 million to launch their business, but there’s a misperception about how much it takes to start a business. Can you talk a little bit about that before we talk about the solution and the approach that you have.

Chris: Yeah, I think there’s two things, I think one the misconception and also there’s kind of like there’s two different worlds, I think. So there is this world of, you know, big startups. There is this world of funding, venture capital, and Angel Investing and InstaGram being sold for a billion dollars and that’s fine but while that’s happening, simultaneously there’s all kind of just ordinary people from all over the world, not just in certain parts of California or New York or where ever, the story of ordinary people just starting their business and doing their thing often without much education, often without much of a business plan and usually without, as you say, much money or investing at all. And so most of those people what they do, they follow what I call this microbusiness model. They pick something that they’re excited about or passionate about and then they find a way to connect that with the needs of the marketplace, they make something that’s valuable and then they start. So it happens very quickly. It usually starts in 30 days or less. So, I just don’t have any experience in that whole, you know, Tech side big startup side and that’s fine. But what I’ve done for my whole life and what a lot of my readers have done and a lot of stories in the book have done, they’ve just focused on that microbusiness model of starting with what you have.

Andrew: We’ve got an example of someone who did this in an inspiring way but before I even ask you about him, let me ask you this, shouldn’t we, if there is a million dollars in funding out there in Angel Funding and then a 5 million dollar A round and a $20 bajillion, shouldn’t we then if that’s the big time, shouldn’t we be aiming for the big time and think that hey, everything else is too small, you live once, go big or go home?

Chris: It’s a fascinating question. I would say I just don’t know anything about that. Is there a million dollars that we can all get like tomorrow? I’m not sure. You know, I don’t think so. I would say it’s probably, you know, a lot easier, not just easier but maybe even more rewarding, right, to do it on your own and we’re learning to bootstrap and to connect with customers and build something that’s valuable, rather than going through all these hoops and rounds and maybe even years preparing for something to launch.

As I said, it’s just a different route, so if people are focused on that that’s great, but I would say if somebody is out there and they’re working a regular job and they’re just thinking what can I do to create more income for myself or how can I create some independence and freedom for myself, then why go through that whole other route?

Andrew: I can tell you that back in the Bradford and Reed days my brother and I went after funding because we kept hearing that there’s so much funding out, so we said Bradford and Reed with be a huge hit. Some one should give us money. We created a business plan. We had tons of conversations. We did everything we could. We couldn’t raise a dollar. What we found was that it was just kind of an excuse to procrastinate.

Chris: Right.

Andrew: We kept waiting for someone to give us money, like a permission slip, before we got started. I remember the conversation that I finally had with him when I said let’s just stop it. Let’s accept it. We’re never going to take it. Cut that option off completely and see where we can go on our own, and that was a huge turning point for us because after that we started taking responsibility.

After that we started thinking where’s the clever place where we can get new users to be interested in us? How do we make money in a clever way? Who’s making money instead of who has money to invest. Do you have an example, I’m sorry?

Chris: Sorry, I was just going to say you actually started focusing on what your business was actually going to do. You started focusing on the value that you would provide to your customers and all of the questions about operating the business instead of this whole side discussion about who is going to favor us. Which Gods of investing are going to bestow their rounds of finance on us?

Andrew: You know what? I just wanted somebody to believe in me, to say I believe in you so much. I have experience. I have money here and I believe in you so much I’m going to put money into your bank account and help you and be there for you and I realized I was looking for a daddy. I had a daddy who was good, but I was looking for a daddy to come in and make it all OK because entrepreneurship is so tough.

But you have a different approach, one that doesn’t require that kind of coddling, one that doesn’t require the waiting for somebody else to give you a permission slip and one that allows you to base the business that you get into more on passion. We talked about an example from your book, The $100 Startup. Can you tell the audience one of the two examples that we talked about before we started?

Chris: Sure. I think we mentioned the story of Brett Kelly and Brett was this guy who is a self-described geek, lived in southern California. He had a day job that kind of sucked, but he did it and on the side he’s always learning about different things and he was a big fan of Evernote, the free software and he noticed that there was no English language manual available for Evernote.

It’s great, it’s free software, it’s fairly intuitive, but if you want to actually learn a bunch of tricks there wasn’t any manual for that. He spent a couple months just really digging deep and creating screen shots and outlining all these tips and surveying people, just doing all this research in his spare time and he created this product called Evernote Essentials.

I think he sold it for $20 or $25 and his long-term goal, he’d never made a product before, he didn’t have a huge list, he didn’t have massive Twitter following or anything, his long-term goal was, I would love to make $10,000 with this product one day. Long story short, he did that on his lunch period a couple of days and then the product kept selling and kept selling, now he sells about a $300 worth of copies every day and it’s almost entirely profit since he made the product and he delivers everything himself.

This is essentially a $160 thousand a year E-book that he made. One, he had this big financial success, but then also he talks about the kind of stress that he and his family were under before he had this project. He and his wife were both working a lot. She was working a second job, so he would come home and they’d kind of hand off the high five for the kids, but then after he launched this product she was able to quit her job and stay at home.

So he’s talking about one, I’ve got all this income, but then also I have all this freedom and independence that this project has created. So I like that story because it’s a perfect example of The $100 Startup model. Now only did he not want investing, he didn’t need it, it was completely irrelevant. He just made the product himself and put it out there with no risk and did very well.

Andrew: So, from what I remember he had $15 thousand worth of credit card debt, which is painful and I don’t want to brush over the number that you said afterward, $160 thousand in revenue is what it generated and it’s continuing to grow and to grow and to grow.

Chris: From one E-book.

Andrew: From one E-book and he was hired by Evernote. I think on his blog now it says that he’s, I forget what it is, but he’s got some title at Evernote. He’s one of the bigger names at Evernote today at the company.

Chris: Right, which is a fun little side story. He basically makes a full-time income from sale of his guide, but then he also works for them and he works from home, so he basically has two things going on.

Andrew: And this is the model. Find a passion, even if it’s just one piece of software that you’re really crazy for, find a simple way to get started with it and then get to 160,000 in revenue. So that brings up something else that we talked about. Can you talk a little bit about that? That big gaping hole in the middle of this story that the audience needs to know about, what are we missing here?

Chris: I think what we’re missing is the next steps, right? Because there’s a lot of resources out there that are very inspirational and they’re like, Andrew, you should go for it, you should start your business. And your like, great, OK, I’m ready, what do I do? You know. So, I think there’s a big market of dissatisfied people who are fairly motivated and fairly driven but they need to know what the next steps are, right? And so part of what I’m hoping to do with the book is to provide 300 pages of next steps and data and checklists and models and successes and failures and all of that. So, you used the word passion before, I think it’s always important to talk about the distinction between passion and usefulness because not every that we’re passionate about is something that’s useful. But if you can combine your passion, like Brett’s passion for Evernote, with something that other people are also interested in. Like other people have this need, people are downloading Evernote probably by the tens of thousands or more everyday and they want to learn how to use it. So he took what he was really skilled out and excited about and then created something valuable. That’s what made the while thing a success.

Andrew: All right. I want to ask what that first step is. You get this vision, you love, I don’t know, Microsoft Word, or you love Google Docs as much as Brett loved Evernote and you say, OK, what do I do now to go from where Brett was to where Brett is today? And that’s what the audience wants to know, the nest step, I want them to trust this first before we give them the next step. I know that the first thing that they’re going to say is how does Chris know. Where does this come from? I’m sure you know Brett’s story and, but where does this come, this, what you’re about to talk to us about?

Chris: OK. Well, you know, the second part of the question, where does it come from, I’ve always been self-employed myself, I’ve been an entrepreneur since I was 20, I never really built a huge business or anything, I just kind of found a way to hustle and support myself, mostly and originally out of the motivation that I wasn’t a good employee, didn’t want to work for anyone else and so I just learned different things, you know. Earlier I learned EBay, back in the day I learned Google Ad Words and Ad Sense back in the day. After a while I started trying to build my own thing and build my own platform when I became a writer and started making my own products. But I’ve learned through experience, you know success and failure just like everyone else. Now the next thing your asking about is the next step, how to go and how to create the offer, I think, right?

Andrew: Wait. Is that the next step? Is it to create the offer once you have the idea?

Chris: Well, I think you know when we say we have a business idea often, you can quote me as we just have a general idea, it’s not really a business idea so to use the Google Docs example, like I’ve got this business idea, I want to make Google Docs easier for people or something. So, that’s fine but what are you going to make? Are you going to make a product, you know, like Evernote essentials? Are you going to make a service? Is it a consulting service, you know? Is it a workshop service? Are you providing a webinar? What are you actually doing?

Andrew: Good point. Right. There are so many more things that I thought. I was just thinking ebook because mine was on this latest example you gave me but right, there’s courses, there’s consulting services, there’s video guides. OK.

Chris: There’s different things, you know, Skype lessons. I mean there’s many, many different things, right, so the sooner you can kind of go from idea to specific offer I think the better.

Andrew: And you keep saying offer, not idea for a specific product and that’s intentional. Why are you saying the sooner you can get to offer and not the sooner you can create your product?

Chris: Because the offer is more than just a product. You know, you can have a product but you know, how is that product presented. You know, who are you marketing that product too. Who are you offering it to and what is the message behind that product? What is the message behind that product? What is the sales price for that product and how do people pay for it? Do they get anything else that’s part of it? Is there any back end? These are all the issues related to offer so I always focus on offers first and then product second.

Andrew: OK. Do you have an example of how you did it? Something that you launched but before you launched it you created the offer for it?

Chris: Yeah, well the other day we were talking about frequent flyer masters so I think we might have covered that already. Let’s talk about the Empire Building Kit just briefly.

Andrew: OK.

Chris: Which is what I, it was just kind of a precursor to the $100 start up. I’ve always been interested in this whole concept of follow your passion, as we talked about because it’s one of this things where you can’t follow any passion and be successful but on the other hand a lot of successful people have followed their passion so it’s interesting in the distinction there and you know, what did the people who got it right do that the people who got it wrong didn’t. And so, you know, I basically wanted to create a comprehensive online resource that interviewed a bunch of people and kind of dissected their secrets. And so I started thinking about the product but then I started thinking, like how am I actually going to offer this and what’s the killer kind of approach here and I kept thinking well, I’ve got video, that’s interesting, OK. I’ve got some transcripts, whatever blah blah but this is kind of like normal and then finally I had the idea that let’s break it down and give people like one step a day for an entire year. So, and that became, and I forget what I call it, but that was the main pitch for the course is build a business in one year by doing one thing every day. Once I had that idea I built everything backward around that.

Andrew: I see, OK. By the way, that was such a cool idea. I remember when I first interviewed you and you told me about that I just kept thinking about all the different email messages you must have had in Awebber. I think you told me it was the longest drip campaign in Awebber and it was killer to because whenever people signed up they could take the first day of your session, it would be their first day and they would get the first message and the first task. OK, so the first thing you said was I don’t want to just do videos. Andrew’s doing videos and it’s not enough to do just video’s. I can break it down to some kind of eBook. That’s also not enough. Instead, you came up with this strip key. This, what I’m calling the drip campaign but essentially one less in a day via email and that’s what you’re selling. So now you have the offer, what do you do next?

Chris: Well then I’m actually going to create the product. I’m going to define the deliverables, the offer kind of defines the deliverables itself and so then I’m like OK I have a list of these interviews I want to have and I’m going to have these many lessons about these many topics and then I’m going to go into a cave for a month or so and actually create the product. But the point is, before I actually create the product I want to make sure that I have a good use for it. I want to make sure that I’m actually building it towards something because I think a lot of people spend a long, long time building a product and then they launch it and it’s a flop or disappointing and they can avoid a lot of that I think by focusing on offers first.

Andrew: Would you make the offered to your audience first before you went in to build it?

Chris: I mean there’s different approaches to it. I wouldn’t do that myself but I’m just not very good at segmentation. I’m just wanted to launch the thing once. I think if you have the ability to that, there are different people who do different kind of testing and in house launches and then public launches and affiliate launches. I’m kind of a one man show. I don’t really have a team and I try to keep things simple.

Andrew: What about this idea that you could have built software and say hey, you know what, I’m going to show these guys how to build a business. Their probably going to want to know how to build a web business not like a dry cleaners down the street and so I should create software for them. I need a co-founder who will help me build new software that will make a beautiful site for anyone who wants it, give them their own URL and so on. That’s a path that you didn’t even think about. Why not? How do you cut off that path?

Chris: Well, you always have more ideas then you have time to pursue. That’s a good idea. I could have done that. I guess I just tend to focus on what I can do. If I’ve got an idea and I think its good then I’ll pursue it. So, it’s not so much a question of cutting. I’m more into like, adding on things and then cutting them off and I know there’s like a lot of dialog and conversation we can have about that but I tend to do things I’m motivated to do. I was motivated to travel the country and talk to unconventional entrepreneurs and write this book. So I spent the past year and a half doing that. For Empire Building Kit I was motivated to create that so that’s what I did.

Andrew: And, OK, can I tell you that’s what I was fishing for earlier with my question about how do you know this? You and I met in person at your book signing where I got to meet so many interesting people. It was such a good audience that came out to Barnes and noble, you’re doing a cross-country trip. I think you were visiting every city and I though well, who’d going to come. How’s he going to get the right kind of people? It was so cool; I’ve actually stayed in touch with people who I met through the event. One of them, I was new to D.C, gave me a D.C map to keep on my iPhone so if that I ever got stuck, it was a D.C metro map which I thought, interesting, the interesting nice thing to give me but how useful is it? I use it all the time. So it was a really good audience and that’s where you got a lot of the stories that are in the book. You talk to your audience and said what are you doing, where are you having trouble? And that’s what helped you come up with the stories that are in this book.

Chris: Yeah, and that’s how I do a lot of things. I mean I find the audience, the community, very inspirational and when I started traveling and doing these meet-ups it changed my whole life basically. So, I would recommend that to anybody whatever your business is or your blog or whatever it is you’re trying to build. The more you can really understand the needs of those people then the better and you can’t always do it by just asking them. You have to do it by spending time with them.

Andrew: Give me an example of that. Of a conversation that you spent with someone in person that made you say, oh there’s something I missed.

Chris: I think a lot of this whole project that I’m coming out of just comes from meeting these people, hearing stories that really surprise me from small little businesses. Like we had talked in the course about this guy who makes $100,000 a year helping people book their frequent flyer miles, he was in their community. And, when I met that guy, I just couldn’t imagine that he could make this six figure income doing something that you could do for free.

Andrew: Tell people about that, actually I don’t remember … we did a course together where you were teaching the idea from ‘ The Hundred Dollar Start Up’ on Mixer G [??]; mixergpremium.com, for anyone who’s not a member, and if you are a member, mixergpremium.com to is where you can see it. But, I don’t remember that story, someone from the entrepreneur who helped people book frequent flyer trips?

Chris: Yeah, maybe I left it out. This guy named Gary Luck, who’s actually in Arlington, Virginia. He has a day job as a C.F.O and he likes his job ok, but he’s always had this hobby of traveling the world in first and business class using his frequent flyer miles. And, he’s into this whole travel hacking sub culture, that I also write about from time to time. And he just noticed that people kept asking him for advice, like all of his colleagues, you know he would be like, ‘ I’m flying off to Japan first class’ and they started asking him, could you help me book my ticket, I got my honeymoon coming up, you know different things like that. And, he was always helping his friends for free, but he decided I’ll just make this little website. I think its called bookyouraward.com or something. And offer my services. If someone has miles but doesn’t really know how to use them, especially executives with a lot of American Express membership awards points. Then for $250, I’ll put together their whole itinerary, I’ll call the airline for them and sort it out, I’ll make sure to get them everything they want. And, he had no idea that people were going to pay for it, because it’s a free thing, you can do it yourself, right? But, there’s a convenience factor, there’s a knowledge factor, education, all of that. And, long story short, he has at least one booking every day, he’s making more than a hundred thousand dollars a year on the side, helping people do that. And, so, I love stories like that, I think those things are really fun and I found out about those stories by listening and asking appropriate questions wherever I went.

Andrew: OK, so I have this vision, I come up with the offer, in your case you went in, you cocooned for about a month you said, before you launched it. You gave stories in a book of people who said, ‘I’m going to sell it before I even create it, I just want to see if people want to buy it from me.’ Different approaches but both of you are keeping it really simple and launching very quickly. What about the sell? A lot of us are nervous about the sell. In fact, before we even get to how to sell, there’s a nervousness about offering it to the world and having the world potentially reject it, and offering it to the world in a way that isn’t as perfect as you imagined it was going to be, and you want to go in and spend another month perfecting it, or getting closer, so what do we do about that barrier? Especially for artists like many people in your community are.

Chris: At a certain point it is just a mental barrier, it’s something we have to recognize that maybe we’re afraid of failure, but perhaps we’re also afraid of success. And perhaps we’re also afraid of like, is something going to change if I put this out, and of course it’s going to change. So, I think that part of the whole motto of encouraging people to start quickly is to just kind of help them get over that and realize that it’s not going to be perfect, but that’s why you put things out. And big companies do that too, that’s why they put things out in beta, that’s why it’s a long process. So, I’m always about encouraging people to get something going, we did talk about the story of the guy who sold his first art print for fifty dollars. And he talked about how encouraging and empowering that felt and he had never sold anything online before, and he said, ‘this means a lot more to me then fifty dollars.’ Just the idea that a stranger came to my website, clicked the little button, and gave me money. And, if you’ve never experienced that, the first time you do, it’s great, it’s addicting, you want to do it more. You’re like, oh wow, this is fantastic. Even if you don’t have a story like Brett’s, making a hundred and sixty thousand dollars a year. But, even a couple of hundred dollars a month, if you’ve never had any kind of self employed income, it’s a powerful thing and it helps you think a lot more about the possibility.
Andrew: You know it just occurred to me while you were talking, do you know that um, what’s that campaign … the nano,[??] we’re in November …

Chris: Oh yeah, they’re writing a novel about fifty days or something like that …

Andrew: Yeah, write a novel in November, national … November … anyway it occurred to me, there it is, nanowrimo,[??] national write a novel month, national novel writing month, nanowrimo,[??] I don’t know why I’m having so much trouble with it, but it occurred to me that if we did something like that for entrepreneurs, have a month where, come up with an idea in the beginning, launch it at the end of the month, it doesn’t even have to perfect but get pass the hesitation of launching it, that, that might help people get pass that barrier of aiming for perfection, instead of aiming for just get it out there.

Chris: Yeah, no, I like it and there’s also a accountability effect. Which is one of the reasons why I can’t stand this thing either, but that national writing month is so popular because they have little bars and stuff you can put on your website. And everyday you’re like,’ I did this many words,’ and the whole goal, I think is fifty thousand words or something like that. So, it’s like this massive accountability, other people are doing it too. There’s forums, if you write consecutively I think you get a little batch so maybe it doesn’t have to be that complicated.

Andrew: At first it wasn’t that complicated, they just had this idea but the idea that, coming back to the $100 start-up, the main message is launch it and charge also. That’s another big thing that you talk about. Why charge?

Chris: Why not launch for free?

Andrew: Why not launch for free? Build a big audience and then, the look that you gave me when I said that.

Chris: Well, because it depends on what we’re talking about. Are we talking about a business? If we’re talking about a business the goal is to make money. I mean there are other goals as well but it’s not a non-profit, you know. We’re not starting a church or a synagogue; we want to actually have revenue. So, to mean that’s an integral part of it. You can have hobbies that don’t make money but if it’s a business then buy definition it has to make money so why not start with that.

Andrew: Do you have an example of someone who figured out what to charge because that’s the problem.

Chris: Yeah, I’m trying to think because I’m fairly, I’m not so good with testing and things like that.

Andrew: How do you come up with your prices? By the way, the last time you were on you told me I don’t charge that much, I only charge $50 which I thought that’s a decent price or something like that and I started paying attention to pricing since then because back when we first talked I wasn’t really selling much. You really are selling for very little. I see people sell course and guides for $400, $500 and I know because they tell me in private how much revenue they get from it.

Chris: Of course, yeah, I just try to aim for a middle range. I would also say [?] cheap either. Like I don’t have any $5 or $10 product, you know. So, I guess I’m trying to go for a middle ground. Trying to think of a good example, we’re going to have to come back with somebody else who’s kind of gone through that process.

Andrew: OK, so find something and charge for what you’re creating.

Chris: Yeah, of course.

Andrew: Alright, then over deliver and you talk in the book about mile 18 of a marathon they give you an orange slice and how nice a touch that is. That’s what we’re looking for. That little thing that doesn’t cost much but shows that we appreciate. How do we do that? Do you have an example? I’ve got an example of someone who does that brilliantly in a small way. Do you have one?

Chris: Sure. I mean, something that I try to do is I try to use auto-responders fairly well with existing customers and clients and I have a message a couple days after the purchase goes out and it’s like oh my god Andrew you’re amazing, you’re a rock star. We were just sitting around our office today and we say your order come through and we were like holy shit, Andrew Warner purchased something from us. So it’s obviously an auto-responder message but it’s meant to be very tongue in cheek but then at the bottom it’s like we decided to give you something else for free. Like you purchased this version but we’re going to upgrade you to this version, you know. So, I do that kind of stuff a lot. When I advertise different tiers, no one ever gets under delivered but people sometimes if they purchase a lower thing they will get the stuff that’s in the higher thing as well and then their excited about and sometimes they write and their like I think a mistake happened because I got this extra thing and I’m like it’s OK, it’s fine.

Andrew: Oh wow. That’s a great idea.

Chris: Just like a small thing, a very small thing but it’s like you do these things accumulatively and I mean, Guy Kawasaki, Seth Godin, they talk about delight and just whenever we purchase something, all of us, purchase anything is kind of an emotional process and there’s stress and we’re like am I doing the right thing? I might regret this. So, anything you can do to kind of reassure that immediately and make people feel like yeah, this was a good use of my limited resources and I think that helps.

Andrew: So when you create your product do you think about what’s that slice of delight that I can give my customers?

Chris: Yeah. I don’t know if I call it a slice of delight but I think I’m thinking like, what else can we do? And you can go in that direction for a variety of ways. You can also think what else we can do to add revenue. What are the upsell opportunities, what are the cross sell, is there something we can do 30 days later, is there something else we can offer this group of customers 30 days later that might be a good fit or be a good compliment to what they purchased? But at the same time you’re thinking what else can I give them that will please them and encourage them to feel good about their purchase.

Andrew: Alright, so, come up with a product. We came up with the offer for the product. We launched it and we charge for it and we gave somebody a little something extra to excite them about it and they still don’t buy. At that point what do we do?

Chris: Well then we stop trying to persuade them because are you in the persuasion business or are you a door to door vacuum cleaner salesman or are you realized that the world’s a big place and there’s all kind of people out there and maybe we just, I don’t know how to put it, maybe we need to focus more on recruitment instead of evangelism.

Andrew: OK. So instead of saying hey I’ve got this audience and no one’s buying, maybe what we should be thinking is, this is a small audience don’t keep pushing this one product on them, think about who else is out there. So how do we bring people in? You always did this really well but I feel like your talented and you’ve got this gift that I’m not going to be able to duplicate by reading your book. So, and the talent, of course, is writing, is design. You’ve got this way of communicating even what you call, what was the kit, why can’t I think of it right now, Empire Building Kit. You don’t just say I’m going to show you how to build your business, you call the Empire Building Kit every word about it is brilliant.

Chris: First of all, I’ve had some dumb ass names to. My first product was called Discount Airfare Guide or something, so boarding, and then as for the talent thing, these things happen with practice and persistence and the videos, I’m sure the first videos you did were awesome but I’m guessing the ones you do now are probably better then the ones you did in the beginning, right?

Andrew: They weren’t that awesome.

Chris: But I would say that. I guess everybody starts with knowing people, right? So, like, Disorient Brett, he didn’t know a lot of people but he went to all the people he knew, he knew me, he sent it to me. I looked at his eBook and I was like, damn, this actually pretty comprehensive, I see a lot of eBooks and he’s really put a lot of work into this. Sure, I’ll Tweet this out, sure I’ll, do this. And one of the things we talked about before a long time ago was the strategy of starting with a small army and your small army maybe like five or ten people in the beginning. Your buddy from college, your grandma who reads your blog, whatever but everyone can help and everyone can participate so if you give people something to believe in and you maintain that mentality to where when you have 100 people it’s just like there was five and then 1,000, whatever it is. I don’t know, I mean, I don’t think it’s so much about talent or being an amazing network or anything like that. It’s about making something that’s worth talking about.

Andrew: I want to spend a little bit of time on this recruiting issue because it is a problem. I lot of people can create a product. Maybe they can silent get over the insecurity and launch it. Maybe they can get over their issues with money and charge for it but then finding people is tough. You said give them something to believe in. If you sell a book on Evernote or you selling guides to getting frequent flier miles, there isn’t a natural connection between a mission and those products and you both did it. How can we find our mission, the mission behind the product?

Chris: So, in those two examples I would say the focus is not so much the mission but the benefit and both of those products have a very core benefit. You buy the frequent flier thing; you’re going to travel for free, right? You buy the Evernote think your life is going to become easier, you’re going to get more things done, you’re going to be more productive, and you’re going to use that. So, I don’t necessarily think in that case that there’s a core mission beyond that but making people’s lives better is a pretty good mission, right? Improving people’s lives and giving something that’s beneficial to them or taking away something that’s painful to them, another example, I think that’s a pretty good mission, right?

Andrew: But how do you do it and then how do you communicate it to the world. So, trying to think of some example, well, the one example I was going to come up with was shoes because it’s random and then I realized, well, Tony Shay who was on here, did it for shoes. He didn’t make it about shoes, he made it about customer service and shoes happened to be what he’s giving you great customer service for. So, it doesn’t have to connect. You just find that mission and then you communicate it to the world.

Chris: All right, essentially, and I think we mentioned this, it’s all about happiness and helping people to live better and to feel better about themselves and to have more time and more money or less stress, less hassle. That’s ultimately what most successful business do, right? There like, big businesses or micro-businesses, it’s all about improving the state of the world, hopefully.

Andrew: Alex Champagne, who went over your book with me, and this guy actually put together phenomenal book, he’s got a story here that I don’t remember from the book. Nev Lapwood snowboarded addiction, he said we should talk about that as an example of tweaking your way to the bank.

Chris: Yeah, Nev has a great story and that was from British Columbia, Canada. He was a snowboarding instructor and he did OK but the problem with snowboarding instructing is it’s a seasonal business, to limited clients because there’s other qualified people out there. So, he was doing OK but just getting by and then he and a couple of friends had an idea to make snowboarding instructional DVDs basically. So were going to make this whole course and then I’m not confined to the slopes, NBC a few months a year or whatever. This can go out all over the world. And so, he put it out but he had a couple of problems. In the beginning he ordered some stickers from China and they were defective or something. Something didn’t go wrong with the marketing. Problem with the bank. These are just things that just happen. And he kept fixing each thing along the way. Long story short, the product was a big hit. I think it does $300,000 a year or something now. Which again is not huge for some of the startups you talk to, but this is just him, just one guy. One ski bum, self-described, in Canada, who’s making multiple six figures selling these snowboarding instructional DVDs. Now they’re in multiple languages. That’s one of the tweaks. You know, lots of requests from people for different languages. So it’s slowly expanding. And the way he chooses which languages to expand to is based on demand. Basically, they notice when people ask for certain things, and then that’s when they respond to it.

Andrew: How does he get the demand from them? How does he keep track of what people are asking for? And I want to come back to this – what people ask for and what they demand – issue, in a moment.

Chris: Hmm. With him, I’m not sure. I think he has a form or something. I think he’s got some YouTube videos. I mean the English language one is quite popular so people have seen that. And then they say, “Oh, it would be great if we had Italian, or something like that”. I think it’s . . . I don’t think it’s super scientific. I think it is a lot of what I do. I think it’s just paying attention and listening. I don’t know if it’s highly Excel spreadsheet and a lot of data. I think it’s just kind of responding. He also wants to make sure he has time to do what he loves to do, travel the world and keep snowboarding himself. You know?

Andrew: You know you said, “$300,000″. It’s a lot of money to make a year, especially . . .

Chris: It’s a lot of money! It’s a Hell of a lot of money!

Andrew: But you also . . . I forget what you said, but it had something to do with . . . You might have interviewed people that make more. There is this issue that I sometimes have, where I think about, “Oh, Mixergy is doing really well. I’m so excited about how many new members we have! And the people I get to talk to are people who I’d love to just have conversations with for five minutes at a cocktail party. And I get to spend an hour and I get all this excitement”. And then I think, “You know what? The guy I interviewed yesterday is doing that every minute. And he is so much bigger.” You know you start comparing yourself. As exciting as things are, you start comparing yourself to others. Do you ever do that? You don’t seem to.

Chris: I do. No, I do. It’s a bad thing to do. It’s poisonous basically. Nothing good can come from that type of comparison, I think. Maybe the only good thing that can come is some motivation. Right? Maybe some personal motivation. Like, “OK, I want to step it up”. But there’s always going to be somebody with more readers, subscribers, viewers, money, whatever. So when you start focusing on more, that’s a problem.

Andrew: I forget who it was. I’ve got to look this up. Who I interviewed . . . in my research, I found an old New York Times article about him saying, “I only have $10 to $20 million dollars, but my friends have so much more”.

Chris: Right. Exactly. It’s scale. It’s the same thing. It’s scales. The same . . .

Andrew: There was real depression that he was going through when he was comparing himself to them.

Chris: Yeah. I mean it’s probably like there’s somebody running 50 miles a day. You’re running 50 miles a day. But there’s probably somebody doing a lot more.

Andrew: You know what? I do sometimes get that way. I feel like I just did 26 miles on my own. Tomorrow, I’m going to do another 26. That’s a bigger fantasy .. . I never even thought I would even do a marathon, and here I’m doing marathons, on my own, back to back. And then I think about the people whose books I read who go longer. No one is going to remember this. It isn’t even book worthy. What am I getting so excited about?

Chris: That’s a good …

Andrew: The way I get past this, by the way, in both running and in business, is to say –
OK. You heard the guy’s story about how he ran and how he trained. You heard the guy’s story about how he built his company. Are you willing to do that? I go, no! That’s not my passion. I don’t want to do it. Well, can you do it? Well maybe, but do you want to spend six days a week running from beginning to end?

Chris: Yeah.

Andrew: No, that’s not my passion.

Chris: Right.

Andrew: Are you excited about what you’re doing? Yeah, but it could it be a little bit different. Then do a little bit different. Do the part that’s exciting. But forget what you don’t want to do just because you’re comparing yourself.

Chris: So, yeah, it becomes a quality of life issue at a certain point. Right?

Andrew: And, yeah, like, what am I passionate about? Am I really passionate about, let’s say, Instagram. Let’s suppose you were to say to me, “Andrew, if you sat today, and worked for the next – it wouldn’t maybe take you two years, it would take you ten years – you could duplicate Instagram.” I’d go, “I don’t really care about people’s photos. I have no interest in it. I don’t care to solve the problem.

Chris: You don’t want to see what they had for lunch? And like, put a nice filter on their avocado?

Andrew; Yeah, like . . .

Chris: [inaudible]

Andrew: But what I would really want to know is who the people are behind it. Well, anyway . . .

You launch your product and people start giving you feedback. You launched one of your products. I forget which one it was. It was in the book, and I can even remember the part of the book that it was in. But I don’t remember which one.

You had a great launch, and someone said to you, “Chris, call me up and I’ll tell you why I’m not buying from you”. What was your response to that?

Chris: Yeah. I actually don’t even remember which product it was either. But I just remember the launch day. Hundreds of orders are coming in, and I’m drinking far too much coffee, and lots of stuff is happening with the Shopping Cart, and I always try to send personal thank yous to people. So I think it was that day or another day, I think it was that one, that I had sent so many like quick thank yous, like, hey Andrew, thanks for buying, take care Chris, that Google actually shut down my email account for about two hours. They thought I was a spammer or something.

Andrew: Because you were thanking so many customers one at a time, they shut you down. OK.

Chris: Yeah. So I got a Googler on Twitter who kind of looked at the account and opened it up. They said, next time maybe not so many thank yous. But anyway, all this is happening and this one guy is really pissed off, he sends me this little message like, I’d like a refund. And I was like, oh, I’m sorry, of course, but what’s wrong, you know. And he wrote back kind of a sarcastic note and he just said, give me a call and I’ll tell you, you know, how you lost my business or I’ll tell you what’s wrong with your offer, something like that. And I was thinking like, dude, I just don’t have time, like I’m dealing with all these happy customers and people are all like excited and Tweeting about it and stuff. So I just wrote back and I said, I’m sorry that I’ve offended you somehow, here’s your money back, but I can’t call you right now. So I thought about it later and I was like, you know, I’m sure there’s something I could’ve learned from him but at the same time, you know, the customer is not always right. Because I had lots of other customers that were happy and those were the ones that I had to focus on. And so it was just a matter of like, what are we trying to do here? If one person is unhappy then we’ll try to remedy that problem but we’re not going to spend a whole lot of time focusing on it. For better or worse.

Andrew: For better, well, it would be nice if you could talk to every single person and hear all their problems but it’s not efficient to get on the phone with every single one of them and hear them go through why you lost their business.

Chris: Right. And maybe I’m just going to hear that it wasn’t a good fit for him and that’s probably what I would say at the end of the conversation, you know. Thanks for sharing, I agree, this wasn’t a good product for you therefore you have you’re money back. What have I learned from this, you know?

Andrew: How do you go from a guy with less than $100 to having so many customers that Google shuts you down when you thank them individually. Give me a few more steps because there were earlier products that didn’t do so well, what was the first product that you launched?

Chris: The first product that I launched in this incarnation was that discount aircard guy that I mentioned. And it sold about 30 copies and I was thrilled because I did no marketing for it whatsoever, I just put it out and when it made like a thousand dollars from these 30 copies or whatever it was, I was like, there’s some potential here and I had no plans whatsoever to really like monetize my business. I just wanted to be a writer, I did want to write a book, traditionally published book, but I had no plans of like creating this whole thing. So when that happened I saw there was potential and I said, OK, I can do something. A couple other practical things that helped to scale from what it was to what it is know. I learned to offer things at different price points, it made a big difference.

Andrew: You mean same product, different price points.

Chris: Yeah. Well, like creaters, you can have a basic version and an advance version. Just that one step alone make a big difference, you know, in a typical small business revenue. Then I learned, I finally learned to follow your lead and create a continuity program. So where I had a membership site and people are paying every month and it makes it much easier to sleep at night because I know, maybe I’m not launching anything for a while, maybe I’m taking like 6 months off to write a book or whatever, but I still have this income coming in. That helped quite a bit. Getting a little bit more sophisticated with upsale and cross sales, just adding one upsale. Like after people purchased, you know post purchase upsale, you know, you probably know the statistics part much better than me but the most, the time that people are most inclined to purchase from you is right after they have made a purchase from you. So if right after on that thank you page it’s like, hey thanks, you’re awesome, by the way, you know, we’ve got this special deal and no big deal if you don’t want it but it’s 40% off today and nobody else sees this, only our customers see this. You know, just doing stuff like that really added a lot. So it’s very small things but over time they make a big difference.

Andrew: What software do you use to sell? What allows you to do upsell?

Chris: I have a couple of other things, I’m using one shopping cart for it which is very basic off the shelf thing and some people hate it but it has, you know, I think a couple hundred thousand customers. I also have a custom solution that I built with my developer, Nicky Hajal, and he’s amazing, genius guy so he put this thing together for me. But we’re still using some off the self things too.

Andrew: OK. And that’s what allows you the opportunity to offer someone the opportunity to buy one other thing after they buy the first thing.

Chris: Yeah, I think one shopping cart calls it upsell express, which you may have to pay a little bit extra for each month but it’s totally worth it because basically one conversion is going to pay for that monthly thing.

Andrew: Continuity. What software do you use for that?

Chris: That is custom. We’re using Recurly. Recurly.com and it’s integrated with Stripe.com.

Andrew: Oh cool. That’s a really good set-up.

Chris: Yeah, I like it. I had, I was not happy. Well I say me, basically Nicky and two other people who were working on it were not happy with the existing off the shelf solutions for it. We had seen a couple of other things and just didn’t work for us so we made our own for that.

Andrew: We use Wish List Member for that and Premium Web Cart is our shopping cart. By the way, I should know all this because I’ve got to tell you, when we wanted to sell something on Mixergy, we bought your products and we screen shot every step of the your, somewhere in my drop box file is the thing.

Chris: Here’s the thing, you were wrong with it.

Andrew: What?

Chris: You probably saw some errors or something, now I feel bad.

Andrew: I don’t think we saw any errors but we did see things that we wanted to do differently. But it helps us to go through and see how other people sell and what other people do. We bought something from Derrick Halpern recently, Bob Hyler my mentor did, and when he bought it just instinctively we just copy every step of the way, we take screen shots so we know, what is he doing? Different price points, why is that important? I’ve heard Derrick Sivers talk about that.

Chris: Yeah. Curious to see what Derrick says about it but I would say different price points or different options serve different needs and there’s, you know, some people always want a little bit more and if you’re creating a product or a service of some amount of sophistication and there’s probably some things you can put in a basic version, or some things you can put in an advanced version that not everyone needs. So, I would separate those things and have a core version then say if you also want this then here it is here. You know, one practical tip, people often wonder what goes in the advanced version and of course it depends on the niche or the model or the version, whatever, but some of the behind the scenes stuff, people are often interested in the behind the scenes of your own business and some things that you have done to increase profitability and specific numbers and things like that. So if you’re willing to share some of that I would do that but I would put it in a higher tier.

Andrew: I see. Derrick said that, he’s the guy that sold CD baby, and he said, I want to spend more money with you. There’s some people who are crazy like me, he didn’t say crazy, but there’s some people like me, give us the chance to spend more. And sure enough, there are people who just prefer to spend more because they want to take care of the company that they’re buying from. I remember there was a time in my dad’s life where everything he wanted he wanted to buy the best. So it didn’t even matter if it was the exact same product but with the label that said this is the best, he wanted to buy that best. And so, Derrick Sivers says…

Chris: And so you’re giving people what they want, essentially, right? People want to have the option, they want to have the choice and they want to do that and they’re going to feel better by doing that and it’s a strange thing but it’s true.

Andrew: You say, yeah I think it was, you say marketing is like sex, only losers pay for it.

Chris: Right. And I didn’t originate that quote myself, unfortunately, I think that came from Fast Company a couple months ago or a couple years ago.

Andrew: So, you tried buying ads, right?

Chris: Mm-hmm.

Andrew: And what happened?

Chris: You know, I tried buying some ads for a couple of my products and it wasn’t awful. It wasn’t like a terrible flop or anything. I just found that I had superior results doing what I call hustling, you know, I had superior results just doing my thing and connecting with people and writing guest posts and sending mailings to my existing customers and just kind of doing the things that I like to do with the small army strategy. So I guess the whole principle there is it’s not like we’re throwing out advertising completely, it’s just to say that there really is another way, there’s an alternative model. So, to go back to where we started in the very beginning of the interview, you know, if people are like, I don’t know how to get people to my business, you know, I need to buy ads. Well, you could also, you know, chose the hustling model.

Andrew: You also say, don’t fear failure, what’s the worst thing that could happen? You have a story in the book about John.

Chris: Yeah, John Unger has some, actually had some pretty bad things happen, and I don’t want to get this story wrong but he was an artist and his while studio collapsed in on him one day while he was on the roof shoveling snow and then he was also held up at gunpoint by some crazy taxi driver, you know late at night. Lost his girlfriend, lost his apartment, he lost his job in the recession. It just kind of goes on and on. He lost part of his thumb in an accident. So like everybody has a failure to success story but I’d never heard one quite as dramatic as his. But, you know, in the midst of this he went through this soul searching period and he was living in Michigan and there weren’t a lot of jobs to be found and his friends were kind of like, you should pack it in and you should do something to try to get back in the job market somehow. But he chose to kind of stick it out as an artist and now he’s a very successful artists. He makes these fire bowls. I don’t know if you’ve ever seen a fire bowl but kind of like a big thing that hotels and banks have them, some people have them in their backyards, and now he’s doing a lot better. But he stuck it out through that ultimate failure story.

Andrew: What else did I want to ask you? I also want to ask you about from the book. Monitoring you’re business, there’s so many stats. I’ll cover just a little bit more but let me say this to the audience, that one of the things that I love about this book and Chris, you’re previous book, I remember specifically where I was standing when I read your previous book. I remember standing in the subway, reading on my iPhone because I hate reading paper books, I even came to your book signing and I said I will not buy a paper book but here’s a digital version that I bought myself, I didn’t even wait for the publisher to send it to me. But I remember just standing there and just getting lost in your story on the metro. So let me just say this to the audience, a $100 startup is full of these stories that I haven’t even touched on is specific tactics, actionable, and then a story that you’re going to remember. I remember the stories. You can hear Chris tell you these stories just a little bit and you can visualize them and you’ll remember them. Challenge yourself tomorrow and you’ll see that you remember them. Chris, you’re a fantastic story tell, the ideas you have are practical. I can’t recommend this book and you’re writing style enough. Especially, I got to tell you blog posts are fine for me, I like the longer stuff. I like the long, the manifestos, which I remember while I was waiting for my marriage license, had a long wait for the whole day, I was reading one of your manifestos on a PDF, again on my phone. Not like a human being printing it out.

Chris: That’s amazing, thank you for saying that.

Andrew: And I’ll say this too. Usually if I promote things I think people are going to think there’s something in it for Andrew, he promotes this thing and that’s why he’s doing it. I don’t get a share of it. Or I’m worried that they’re going to think, I’m going to get ripped off if I spend a lot of money on this new business idea. It’s not, it’s a book. It’s a book full of these great stories, you can dip in and out of it if you like or you can get lost in it. I’m sure that you will get lost in the book. And even if you’re already running a business, to hear how other people handle the challenged of their life will help you see how you can handle a challenge that you’re working on today or one that’s coming in the future. I will not take this kind of a break in the middle of an interview, especially like 57 minutes into our conversation where I don’t need to butter up Chris to say this, I should have said this at the beginning. I wouldn’t say it unless I meant it. If you have a problem with the book and you’re not happy with it, come to me, I will give you a refund. You wouldn’t even have to take it back to the bookstore, even if you’ve written all over it. I won’t even ask you to send the book back, I will give you a refund personally.

Chris: Thank you, Andrew. If anybody asks for a refund I’ll just send them to you.

Andrew: You say that, even if it’s your friend who buys, I’m not going bankrupt over this. I won’t go bankrupt over this.

Chris: Thank you.

Andrew: Is there some disclaimer I need to offer? Let’s just handle this humanly guys but trust me, we’ve known each other for a while. I wouldn’t recommend this book and I wouldn’t recommend Chris’ writings in general if I didn’t believe in it this much. Should we talk a little but about monitoring your business? I feel like maybe that’s not a high enough point to lead people. Alright, let’s talk about that and then we’ll find a high point. Monitoring your business, one of the problems that I have is everyone keeps telling me about different statistics I should be looking at, different software I could include, it’s just a lot. And I even had Noah Kagan here who now runs AppSumo, at his previous company he said one of the mistakes he made was, at Gambit, was just monitoring too much. What do we monitor and, you know, cause was you monitor gets gross. What do we focus on?

Chris: There’s a lot of different ways to look at that or answer that question. My answer is pick two things, pick two matrix that you’re going to monitor and you’re going to monitor those matrix on a daily basis. You’re always going to be aware of them but there’s just two things, right? So it’s not like there’s all this data or like all this Google analytics, whatever. In my case, I’m concerned with the number of new subscribers to my blog and I’m concerned with the revenue that’s coming through the shopping cart. And those are the two things that I’m aware of pretty much every day and if it starts to kind of go down then I’m like whats, is this normal or should I be doing more, you know, doing something differently. If it’s going up then I’m like what am I doing to cause that. But those are the only two things that I’m monitoring on a consistent basis. Maybe like once a month I might dive a little bit deeper and look at some things, right? Once a month I’ll look at some broader things but, you know, I think it’s really a distraction to look at those things. And also it’s kind of like focusing on the particular stock market price of any company. If you’re doing that, you’re not really focusing on running the company and making the right decisions for the long term, so I focus much more on creating, you know?

Andrew: What about email list? You capture or you ask for an email address, I think every time I visit, when I scroll to a certain part of the page. Oh wait, that’s my Desk.com, I hate that sounds that it does that. I was answering customer support emails on my Desk.com account, used to be Acecily for people who remember, and I guess if you leave it for a while it makes that noise to say, hey, are you still here? Anyway, what about email addresses? That’s a big number for you, isn’t it?

Chris: It is a big number. Are you asking what the number is?

Andrew: I mean, is it something that you keep an eye on because I feel like the number of email addresses would be even more valuable then the number of hits to the site on a daily basis.

Chris: Yeah. That’s what I mean when I say email subscribers.

Andrew: Oh, you said email subscribers. I thought you said hit, OK.

Chris: Not traffic. No, no. I don’t care about traffic basically. I’m just saying it’s not relevant you know? It’s, obviously, if a certain post goes viral and gets lots of people that’s great but I’m by far much more interested in email subscribers. Because that’s the community, that’s people that are raising their hands and are like, I didn’t just stumble on this blog post. I’m actually here and I’m opting in. I want to be a part of that and, obviously, some of them will opt out over time. No I’m totally focused on subscribers.

Andrew: Do you feel comfortable saying how many you have now?

Chris: Yeah. I think right now it’s right at 50,000 with the email and then there’s another group that reads on RSS, I don’t really focus on that as much, and then different groups through Facebook I think is maybe 30,000 or something at the moment, Twitter is more then that. The problem with social networks is people like your page your they follow you on Twitter but then they stop using Twitter. So like over time you build this really big network and you’re like who’s really there. You never really sure you know? Chris Brogan has a lot of good resources about that. So that’s why for me the number one thing I’m looking at is email, is daily opt-in email.

Andrew: And people want to see that. I mean the site is chrisguilo.com but should we just say theartofnoncomformity.com and that will redirect them?

Chris: Yeah that works as well since nobody can ever spell my name.

Andrew: But do read a blog post and just interact with the blog post on the site for a little bit an I think you’re going to see how he’s collecting email address and that’s an interesting thing to see. Alright, final story, do you want to talk about the guy from India who you were telling me before the interview started?

Chris: Yeah. So, we put out this call to hear stories from all over the place and we had some criteria. We said you have to make at least $50,000 a year with your business, you have to be willing to share financial information, detailed stuff about how much money you make, how much it costs to start-up and all that, you have to operate the business with fewer then five employees, in fact most people, people like me are just doing their own thing, you have to have no special skills, have no special skills required to operate the business so, you can learn to operate something but other things, probably not. So anyway, all these different characteristics and we heard from 1,500 people all over the world who filled out a form and gave us this data and then we selected stories from there. So, some of them stood out in different way and that guy from India, his first name is Prina, his story was he helps people make spreadsheets, OK? So at first I heard this and I’m like OK, whatever and then I read a little bit more and I saw his annual income column and it was something like $136,000 a year and I was like, wow, that’s pretty good income in most parts of the United States. In India, I’ve traveled enough to know, that’s a huge income, that’s fascinating, how does he do that? So I looked into it more and I Goggled him and I saw that he was very popular and somebody even posted a blog comment saying that he was their BFF, their best friend forever for Excel and I was like how do you get people to show passion, that’s like the most boarding thing, right? And then I realized, we talked about happiness earlier, the goal is to make people’s lives better, and what he’s doing basically is he’s creating these detailed spreadsheets with macros and stuff for corporate users, people who actually interact with spreadsheets a couple hours a day. He’s making them look good in front of their colleges. He’s saving them time, he basically like, and his whole philosophy is making your customer the hero. So he’s doing that through Excel sheets, which again sounds so boring yet it’s a very helpful thing. And so he’s making six figures in India helping people improve their life at work.

Andrew: You know what, when you say that way it does make sense. Absolutely, how many times do you hand over a spreadsheet to someone? People pay others to make their PowerPoint look nice, spreadsheet same thing. The book’s full of great ideas like that, great business like that and more importantly key tactics that you can use around those ideas. We talked about monitor your business, determine, there’s also outsourcing, anti-outsourcing, tweaking your idea, being profit oriented, being a hustler, launching, over delivering, how to write the right guarantee, and great examples of that, rough awesome format to describe your product. Alright, now I’m actually just pushing, I don’t want to push on the audience. I want the audience to just know that I like this book and if their into any of the stories that they heard today that they should go to 100startup.com and of course thank you for doing the course for the premiums members about how to launch their own start up. All right thank you all for watching and let me know what you think of the book. Bye.

Andrew: Three messages before we get started. If you’re a tech entrepreneur, don’t you have unique legal needs that the average lawyer can’t help you with? That’s why you need Scott Edward Walker of Walker Corporate Law. If you’ve read his articles on VentureBeat, you know he can help you with issues like raising money, or issuing stock options or even deciding whether to form a corporation. Scott Edward Walker is the entrepreneur’s lawyer. See him at Walkercorporatelaw.com.

And, do you remember when I interviewed Sarah Sutton Fell about how thousands of people pay for her job site? Look at the biggest that point she made. She said that she has a phone number on every page of her site. Because, and here’s a stat, 95% of the people who call, end up buying. Most people though don’t call her, but seeing a real number increases their confidence in her and they buy. So try this. Go to grasshopper.com and get a phone number that will make your company sound professional. Add it to your site and see what happens. Grasshopper.com.

And remember Patrick Buckley who I interviewed? He came up with a idea for an Ipad case. He built a store to sell it. In a few months he generated about a million dollars in sales. Well the platform he used is Shopify. If you have an idea to sell anything, set up your store on Shopify.com because Shopify stores are designed to increase sales. Plus, Shopify makes it easy to set up a beautiful store and manage it. Shopify.com.

Here’s the program.

Hey everyone, my name is Andrew Warner, I’m the founder of Mixergy.com, home of the ambitious upstart. And, have you ever been shocked by how much internal resistance you have when you try to improve your life? Like, maybe you want to exercise more, or make more calls to clients, or just avoid junk food. And instead of supporting you, your mind and your habits stop you from making these improvements that you know are good for your life.

Well you’re about to find out how to take control of your habits and have them lead you to the life that you want. Charles Duhigg is the author of this book, “The Power of Habit.” Mmm, I love this book. I love a lot of books, but this book I loved so much more than I can even tell you in this interview. It’s terrific! The Power of Habit is a book that will change your life and your start-up’s chances to achieve your vision.

And, my outline for this interview is to break it up into to two parts. The first part, guys, I hope to blow your mind by showing you how habits are controlling you today. And, give you an understanding of how you can control your own habits. And in the second part, I want you to see how to use what you’ve learned to have real impact on your life. And we we’ll illustrate that by talking about Charles’ old habit of eating cookies and you’ll see how he stopped it and how you can control your habits in a similar way.

Charles that was a long intro, but thank you for doing this interview and thanks for explaining this all to us.

Charles: Thank you for having me. I really appreciate it.

Andrew: Alright, let’s show people what habits can do, good and bad. Starting with the story that you open up your book with about Lisa Allen. Can you tell us what us what were the challenges that she was facing? And then we’ll talk in a moment about what happened after.

Charles: So, Lisa Allen was someone who participated in one of the largest studies that is ongoing right now, trying to understand the neurological roots of habit formation. It is sponsored by a group of researchers who have received funding from the National Institutes of Health.

In Lisa’s case, she was kind of this interesting example. When she came into the project, she told the researchers her story which was that she was smoking and drinking since she was a teenager. She was obese. She was completely physically inactive. She had trouble holding down a job. And, one day her husband came home, while she was in thirties, and told her that he was divorcing her. He had fallen in love with another woman. This set off a chain of events that essentially, completely transformed Lisa’s life. But what was really interesting, is that her life completely changed because her habits shifted, almost without her really understanding what was going on.

Andrew: And when it changed, what was she like afterwards?

Charles: She’s an amazing woman! She’s run a number of marathons. She’s started her own company. If you would meet her, her legs are amazing. She looks like the specimen of health. She gave up drinking. She gave up smoking. She gave up overeating. She is also one of these people that when you meet her she is almost effervescent in her energy. She’ll tell you that her life transformed in this three year period because basically all the patterns of how she lived completely changed.

Andrew: And, we’ll talk about what happened in her mind and I’ve got some visualization, some images that I think will help people understand but I’m wondering if being in such a bad situation where she was smoking, she was drinking, and then her husband broke up with her. Does having that low help you change things? Does it make it easier to change?

Charles: Yes. One of the things that we know is that, yes, very often– within psychology there’s a group of people who are known as quantum changers, which basically comes to this question, why do some people transform, overhaul their lives entirely in a very short period of time? That’s what the NIH researchers were studying. What’s interesting is we’re attracted to the narratives of people who hit rock bottom, right? Everything is terrible and then all of a sudden it all becomes good, but what the researchers have discovered is that although those narratives have a greater social purchase, it’s actually not an accurate representation of how all people change. It turns out that people change whether they hit rock bottom or not at about the same rate and about the preponderance.

You don’t have to have everything be terrible to remake your life. It’s just that people who, everything is terrible and then they remake their lives, those stories are so much more dramatic. Most people, when they actually achieve change– and people change their habits all the time, we know now, oftentimes without really understanding what’s going on. Most of the people who actually change, they’re changing small portions of their lives. They’re happy with 90% of their lives and they’re just changing 10% of it, but it’s the stories of people who change 90% that we’re attracted to.

Andrew; That’s a good thing. That means that I don’t have to wait till I’m completely down and out before I can see some impact and the same thing goes for our great audience here. Let me put up a visual here. This is some of the technology that we use in the courses; I want to try and bring it into the interview. We’re taking a step back from humans and let’s look at a rat. Can you explain to us what’s going on in this image? For anyone who’s listening to this and not watching it, there’s a mouse, there’s a barrier, a ‘click’ and then chocolate at the end of this little tiny maze. Beyond what I’ve just described here that’s on the screen Charles, what are we understanding from this?

Charles: This gets to our understanding of the neurology-habit formation. This was an experiment that was done about 15 years ago at M.I.T. A woman named Ann Graybiel’s laboratory and the reason why Graybiel is a seminal figure within habit studies. What she did is she perfected a technology where they could put hundreds of little electrodes inside a mouse’s brain to observe its neurological activity as it’s behaving. They did this operation on dozens of mice and then they would put each mouse in this T-shaped maze and the same thing would happen every single time. There would be a ‘click’, the partition would move so the mouse could run up and down the maze, and there was chocolate at the end of the maze. Each mouse would do the same thing – it was actually a rat- when they got into the maze for the first time. They would basically wander up and down the central aisle, almost lazily. They would scratch on the walls and sniff in the air. It would seem as if they weren’t looking that hard for the chocolate but from the sensors that were inside the animal’s brain, what Graybiel saw was that even though it seemed like the animal’s were acting without purpose, weren’t working very hard, their brains were working furiously hard the entire time. They were thinking as fast as they could. Whenever they scratched on the wall, the scratching centers would light up and the sniffing centers would light up. This was really interesting because what it told us is that when we’re faced with a new stimuli, our brains work incredibly hard to try and process what is going on.

Andrew: Okay.

Charles: Over time they drop they drop the same rats in the same maze over and over and over again. As the rats learn about the maze, they can run faster and faster and faster to the chocolate. After a while they stop sniffing, they stop scratching – they just go directly for the chocolate. What’s interesting is that inside the animal’s brain mental activity decreased significantly. It was almost as if as this pattern became a habit, to run to the chocolate, it was as if the rat’s brain stopped working, as if it went to sleep, for instance.

Andrew: I think I’ve got the visual of before and after. Let me see if I can bring it up here. This is what was going on before. We can see, let’s shrink it down so people can really see it. We can see a lot of activity in the beginning, just as that ‘click’ is going off and they can start taking that maze, and a lot of activity at the end where they get the chocolate – I guess that’s the excitement. Throughout we see constant activity even though we don’t notice it and we think, hey, it’s a T-shaped maze rat, you should be able to get to the end; they have this whole thing going on. Now, in time you’re saying this is what it becomes instead. A lot less activity and- guys we’re going to bring this back to you and away from mice and rats in a moment. But we have to understand what’s going on in our minds by seeing this experiment. This is what happened after the rat got used to the T shaped maze.

Charles: That’s exactly right. And there’s something important to recognize in this graph that you’re looking at right now. Which is that, the middle the activity decreases, but there’s still a spike of activity at the beginning of the behavior when it hears the click, and then at the end when it finds the chocolate. This is the neurological pattern, structure of a habit. 40 to 45% of your day we know from a study that was done at Duke University are habits. And every single time you’re in the grip of a habit this is what’s happening in your brain. There’s this spike of activity in the beginning, a que that essentially triggers an automatic behavior, that tells your brain, okay now it’s time to let the automatic urge take over. And then your brain kind of goes to sleep as you act out the behavior. And then at the end when you find the reward, then your brain suddenly shakes itself awake and sort of pays attention to what just happened.

Andrew: Here’s the part that was especially enlightening to me. I’m going to bring it up and take my face off the screen here for a moment. Right here at the beginning the rat is feeling almost as excited as he would feel when he got the chocolate. And so what I took away from that was when I have a good habit which is, for example, lacing up my sneakers in the morning and then going for a run and then getting that runners high maybe 40 minutes, an hour after I’ve started the run. If it’s a habit, as soon as I put my sneakers on and I lace up I feel excited about it, almost the same excitement that I have at the high. And the same thing happens, apparently, with my bad habits. Where if I take a step away from this desk because of e-mails stressing me out, I don’t know how to say no to somebody, as soon as I take a step away from this desk before I even make it into our kitchenette here in the office and grab a potato chip from the vending machine, that stepping away gives me the same enthusiasm, the same excitement as putting that first chip in my mouth. Am I understanding you right?

Charles: That’s exactly right. And this is why habits seem to have such power. It’s because the cue over time, so every habit has these three parts, what we refer to as the habit. A cue, a routine and a reward.

Andrew: Here, let me bring that up. And I promise the whole thing will not be visuals. But I do happen to have some to make sure the beginning part of this conversation people follow. A cue, a routine, a reward. The cue, pushing away from my desk. The routine, walking over to the kitchenette. The reward, putting that first beautiful chip in my mouth and enjoying it. That’s the habit loop.

Charles: That’s exactly right. And what’s happening neurologically is that. You’re exactly right, that over time that cue will not only trigger the behavior, it will trigger the expectation of the reward. You will actually begin experiencing the reward as soon as you see the cue. And this is good and bad. Because in some respects it means that it’s easier to go running, right? Because you start experiencing that pleasure that you feel from the endorphins, and the endocanoboits, and neurotransmitters that exercise produces for you, the runners high. But on the other hand it also means that as soon as you think about that potato chip, as soon as you’re exposed to the cue, you begin craving those potato chips. And if you don’t actually get the reward, if you don’t satisfy that craving, then what actually happens in your brain is a neurological pattern that looks like depression. You experience a mini depression. If you begin expecting and experiencing a reward, and then the reward doesn’t materialize to satisfy the craving.

Andrew: Okay. So this is what’s going on in our heads every day, good and bad. This is what we’re fighting against. This stuff that’s going on, even on the outside that doesn’t look like anything’s happening. Like when we watch a mouse go through a t-shaped maze, nothing seems to be going on. Of course he’s walking, but there’s a whole lot going on in his head. Same thing’s happening with us. Let’s now break it down, step by step, and make sure that we understand it. Here’s one of the things that you saw we need to know, looking at my notes. Connect the habit to a cue. Right. The habit that we want, connect to a cue. And you gave an example in your book of Claude Hopkins who did something with a brand called Pepsodent. Can you tell people, what did he do with it?

Charles: So, Claude Hopkins a hundred years ago was the most famous adman in the United States. People don’t really know who he is today. But he was the guy who took all these brands, Schlitz Beer, Pork and Beans, he made them into household names. So a friend of his came to him and said, hey I found this new toothpaste that I think can be a big hit named Pepsodent. The problem was that at that time nobody brushed their teeth in America. It was something that only sort of the upper class did and they maybe did it once a week. So Hopkins knew that if he was going to sell toothpaste he had to get people brushing every single day. And the first step was he looked for an obvious cue. So he read all these medical textbooks. And he found one that talked about the film on people’s teeth. And he realized that for eons people have had film on their teeth and it’s never bothered them, but it’s something that comes about every single day after you fall asleep, if you’ve had a long day at work. If you tell people to run their tongue across their teeth, they’ll feel that film. As soon as I say it, you do it. It’s almost automatic.

Andrew: I did it throughout the book, too, when you said it.

Charles: That film will come back every single day. What Hopkins thought was, here is a daily cue; if I can convince people that that film is a bad thing, then every single day they’re going to have an urge to brush their teeth because they’ll be reminded by the cue.

Andrew: If we want to take control of our lives and not just allow marketers to take control of our lives, we have to think about that. We can’t just say I’m going to run more often in my life, I’m going to eat fewer cookies. We have to think of the cue that’s getting us to eat cookies or the cue that we’re going to connect and we’ll talk in a moment about how to do this, the cue that we’re going to connect to running more often, it’s not just going to happen because we want it to, because we’re dreaming it will because we read a book that told us it should.

Charles: That’s exactly right. Take running as a great example. A big experiment that was done in Germany about trying to instill exercise habits showed that people who develop these exercise habits are people who choose a cue, so they always put their running clothes next to their bed or they always go running at the same time every day, or they put on their running shoes before they have breakfast. You want to give your mind a whole bunch of different things that it can make into a cue. It’ll only latch on to one of them, but in general, all cues fall into one of five categories. It’s usually a time of day, a particular place, a certain emotion, the presence of certain people, or a preceding behavior that’s become ritualized. If you want to create a habit, try and do all five of those and your brain will latch on to one of them and will make it a cue.

Andrew: I underestimated it when someone told it to me. I wasn’t running enough and a friend of mine said, you know what you need to do is you need to put your running clothes by your bed and that way the first thing you do is put them on. It sounded gimmicky to me. I did it because I respect him and he’s a guy who’s gone far but I thought this is just a self-help thing that you say to feel good. No, now I understand what part of it and why it’s effective. That’s what I need to do with everything.

Charles: It’s amazing how easy it becomes to go running when you establish this consistent cue.

Andrew: And how bad other cues are connected. How powerful it is that the first thing I do when I sit down and turn on my computer is go to email. The last thing I do before going to sleep might be I’m going to watch a movie to relax myself. It’s these cues, going to sleep means watching TV, or whatever it is. There’s something else though that he did, you said. You said the cue is what he recognized. Let’s go back to this image guys. The cue, which is on the far left, he recognized. The routine, he knew what he wanted people to get, but the reward is also what we need to pay attention to. We need to give ourselves the reward, right?

Charles: That’s exactly right. If you don’t have a reward, a habit will never form. A reward is why your neurology takes a certain pattern and makes it automatic. What’s actually happening is that cognition is moving from the prefrontal cortex, the area right behind our forehead, into our basal ganglia, which is about at the center of our skull- that’s where habits live. When the basal ganglia take over it feels like things happen automatically, but the basal ganglia only learn to develop a pattern if there’s a reward at the end.

Andrew: Does it have to be at the end of the pattern? We’ll talk about what his was for Pepsodent but I was wondering could the reward be that in twenty years from now, your teeth would still be there? Could it be five years from now you won’t have rot when you go the doctor and you won’t have a cavity, or does it need to be right-now a reward?

Charles: It basically needs to be a right-now. When you’re talking about your neurology, your neurology thinks in terms of milliseconds or at the most a couple of minutes. The answer to your question is a little bit complicated because sometimes when people say, oh, my teeth are still going to be in my mouth 20 years from now, they can feel a sense of pride from that, so that’s an immediate reward. But in general, the faster the reward is delivered after the behavior the more strongly your brain will encode the relationship between that particular behavior and a given reward and that’s what really makes the habit form.

Andrew: I didn’t realize how much of a Skype person you were but I should have. When I called you and Skype went to your phone. Can you go to “do not disturb”? Are you on a Mac?

Charles: Sure. Absolutely. I don’t even know how to do that.

Andrew: I’ll show you. I teach people how to do this everyday. If you go to the top of your screen near the clock, but over to the left, you’ll see a green bubble. Select that and then go to the red bubble, which is “do not disturb”.

Charles: Green, at the top of my screen…

Andrew: Near the clock there’s a green looking bubble on most people’s computers.

Charles: No.

Andrew: Or cloudy looking thing? I guess not.

Charles: No. Is there a menu that I can do it?

Andrew: Let me see.

Charles: Hopefully you can cut this out.

Andrew: No. We keep it all in. Let the audience see exactly what goes into putting this together. Actually, I don’t know what it is, but we can live with the sound then. It’s fine. It’s not worth spending too much time on.

Charles: Change status, do not disturb.

Andrew: Oh good.

Charles: Here we go. Thank you. I don’t know who that was.

Andrew: For me, the benefit of running, the reward isn’t years from now I’ll be healthier, it may not even be 45 minutes from now you’re going to get a runner’s high. What it could be is as soon as I walk out the door, I listen to a podcast or something that’s interesting and that’s the reward that I’m connecting.

Charles: That’s exactly right. I think there’s probably a couple of rewards that are happening. There’s a reward that comes as soon as you walk out. There’s a habit that actually isn’t the running habit, it’s the leaving for running habit and you’re getting a reward by listening to a podcast. Then there’s the habit of actually running itself. Motivating you to actually start putting one foot in front of the other. Probably the reward you’re getting from that is this runner’s high. It’s an enormously powerful reward, we know. Usually when we look at habits in people’s lives, they become a series of habits. That doesn’t mean you have to diagnose every single habit to change it. Usually there’s one habit, keystone habit, that unlocks all the other behaviors, but it is interesting to think about rewards, that there’s usually a number of rewards, something like running everyday, that gets you through the different stages of that run.

Andrew: You mentioned the phrase “the keystone habit,” we’re going to explain that to the audience and how, if they can find that one keystone habit, so much else will change for them and that’s what happened to the woman whose story we told you at the top of the interview, Lisa Allen [SP]. For now, just to understand it step by step, the reward for Pepsodent was, it wasn’t teeth being clean years from now, what was it? What did he pick on?

Charles: This is what’s really interesting. Claude Hopkins made the same assumption you did. The reward is going to be a beautiful smile, but the problem is that’s a terrible reward because it takes months of brushing your teeth to make your teeth whiter. It turns out, and Hopkins didn’t even really realize this at the time, the guy had invented Pepsodent had added these chemicals to it to try and give it a minty flavor. It worked. It tasted like mint, but in addition, those same chemicals were irritants and when they got on people’s gums and tongue, they would make them tingle. Here’s what’s interesting. Within weeks of people starting to use Pepsodent, they came to equate that tingling with cleanliness. That was the reward. So when they would lay down to go to bed or they’d walk out the door in the morning, if they didn’t feel that tingling, they felt like their mouths were unclean. It’s the same thing that happens to us right now. The way that you know that you forgot to brush your teeth, is that you’re used to that tingling, that minty fresh feeling, that is not mint, it’s chemicals that have been added to produce that. In fact, that sense of tingling does nothing to clean your teeth, but it’s there because you need an immediate reward to create a habit and toothpaste manufacturers know this. That’s why they add it.

Andrew: That’s another thing that once you read the book, “The Power of Habit,” you guys are going to start to notice these little things like how your toothpaste feels in your mouth, the bubbles in it, the way that it tingles against your gums and tongue. Connect the habit to a cue, give a reward, now we want to change a habit, maybe sitting down at my computer is getting me to get into email instead of doing something that I’d like to do. Let’s say the first thing I want to do is blog or journal, or whatever it is. To change a habit, you suggest that we connect a routine to an existing cue and you tell a story, you’re such a good story teller. The way you unravel these stories is fantastic because you peak our curiosity and you make us want to know what’s going to happen. From the first sentence that you use to tell the story, and people can pick this up as we talk. They don’t even have to get “The Power of Habit” to believe that you’re a great story teller. You talk about to change of habit, connect a routine to an existing cue and you say Alcoholics Anonymous did that. How did they do it?

Charles: There’s this thing known as the Golden Rule of Habit Change, which is exactly what you just said. It’s very, very hard to essentially completely transform a habit and change the cue and the routine and the reward. It’s almost too much change for someone to accomplish at once. The most effective way to change a habit, is to keep an old cue, deliver an old reward and just change the routine, just change the behavior. AA is a great example of this. Alcoholics Anonymous is interesting because it’s one of the least scientific programs on earth. It was designed by people in the 1930s who didn’t have any background in psychology or medicine. The reason why, for instance, there’s 12 steps in a 12 step program is because the guy who wrote the 12 steps was sitting in bed and he wrote them in about 45 minutes and there was a Bible next to the bed. There’s 12 steps because there’s 12 apostles in the Bible. This is why AA works, and it’s worked for millions of people, is because it adheres to this Golden Rule of Habit Change. It says, ‘A lot of people who drink, drink because of dysfunctional habits.’ They come home from work and they’ve had a terrible day. There’s your cue. They decide, ‘I’m going to go to the bar, I’m going to have a drink, I’m going to see a couple of friends, I’m going to get my problems off my chest.’ There’s the routine. The reward is the sense of relief from tension, which is actually one of the most powerful rewards in psychology. What AA says is, ‘We’re going to change your habit. We’re going to keep the same cue and deliver the same reward and just change the routine.’ If you come home from work and you’ve had a terrible day at work, instead of going to a bar, go to a meeting. If you’ve ever been to an AA meeting, what they do is they design the meetings to be these intensely, emotional experience. Someone stands up in front of the room, they tell their life story, all these awful things that have happened to them. Then everyone in the audience is invited to stand up and tell their terrible life story. There’s an emotional catharsis that’s a relief from tension that occurs by going to the meeting and the reward is exactly the same. You basically walk away from the meeting feeling like you got this thing off your chest. The cue’s the same, the reward’s the same, all that’s changed is that instead of going to a bar, you go to a meeting. For millions of people, that’s been able to change their drinking habits so that they’re now sober.

Andrew: Or I get frustrated in the middle of the day because my technology goes out or maybe I’m not prepared for an interview and I don’t do my research, at the end of the interview I might feel really frustrated and then go across the street to the bar and get a beer. That might be what my cue is, that frustration and then I get drunk and that would be the reward. What you’re saying also is, that they also have a, what is it called where they have a mentor, someone who they could talk to?

Charles: Right.

Andrew: That also replaces it. The phone call to the person who’s your sponsor, they call up the sponsor and they get the same reward. Actually I have an image for that. This is the before and after. This is what we’re going for, for ourselves. We look at the routine that we currently have, what’s the cue? We keep the cue. What’s the routine? That’s what we’re going to change and the reward needs to stay the same. For them it was cue/frustration, drink/reward, get your mind off of it. We keep the cue, change it to having a conversation with our sponsor or in a meeting and the reward is that happiness that we have afterwards.

Charles: I think for people in your audience, particularly when you’re an entrepreneur, your day is filled with frustration. There are so many negative emotional cues that come from starting a business. Basically entrepreneurship is [??] is frustration after frustration followed eventually by riches. But it’s really hard to build the [??] around those frustrations. It’s really easy to get into a habit of going and having a beer or blowing up at your employees or feeling really badly about yourself, like you’re never going to be successful. Once you recognize those cues, you can start to change the routines and the key is to give yourself some reward to encode that behavior. Because if you’re blowing up at an employee, if you’re going having a beer, if you’re beating up on yourself, there is a reward inherent in that. Beating up on yourself has this reward of essentially making you feel like you’re going to work harder. It’s this huge motivational reward, but it’s not healthy. You can get that same motivational reward by doing something positive instead of something negative. Once you understand how to diagnose the habits, you can change the behaviors, change the routines by identifying and playing with the cues and rewards.

Andrew: I’m so glad that you brought it back to the people in the audience. You’re right. One of the cues that we could have is that we get turned down by someone. It could be a client who we called, it could be someone online who cancels their membership and then we go into our routine which is, ‘Life stinks. I shouldn’t be doing any of this. I’m not right for an entrepreneur. The world is out to get me. They only want to support these handful of entrepreneurs who get big bencher [SP], funding.’ Then you go through that routine, you get the reward of disconnecting from the problem, feeling like it’s not you. You saying it could be the opposite, we can take that same cue and have a different routine. Maybe the routine is, ‘When this frustration happens, I’m going to code. I’m going to spend an hour of coding, or I’m going to spend an hour emailing people or I’m going to spend an hour writing some blog post that I’ve been meaning to.’ Whatever that is, that could be the new routine and the reward is still the feeling of stress relief because now you’ve let it go.

Charles: Exactly. Not only that but you’ve let it go in a more positive way. That’s an even more powerful reward. It’s the same basic reward, but you’re delivering it even more powerfully to yourself because instead of just saying, ‘Screw the world,’ you’re saying, ‘I’m changing. I’m closer to victory.

Andrew: Then there’s a problem. And you use the story of a football coach to explain it, but I want to save that for people who are actually going to get the book to read. Let’s keep with Bib’s story of Alcoholics Anonymous to explain it. The problem is this, that some people everything works out for them through Alcoholics Anonymous. They go through the same thing that we showed, the same cue routine rewards system that we talked about, and life is good. For others something happens, they fall off the wagon. And you looked at both of them and you said, what happens to these people who stick with it, even in the toughest times, and how are they different from the people who eventually fall off the wagon? Do you know what I’m talking about?

Charles: Yeah, absolutely. So this is a really interesting question which is, what we know from scientific research is that a whole bunch of people managed to change their habits. And then exactly what you pointed out, some people will revert, they’ll relapse, and other people won’t. And it seems like when relapses occur they particularly occur at stressful moments. So alcoholics is a great example, right? Someone will give up drinking and their mom will get cancer, or they’ll be going through a divorce, or they’ll get fired from their job. And all of a sudden they fall off the wagon and they revert to their old habits. And so researchers wanted to understand, why do some people manage to make it through those thought moments with their new habits intact, and other people fall apart. This is what they found out, is that there seem to be two factors that make it more likely for change to become permanent. The first of which is changing within a group. That there’s something about a social dynamic where when you’re surrounded by other people who are also trying to change, there’s a positive reinforcement there. So even though intellectually you might know that you can give up drinking, emotionally you might have a moment where you basically don’t believe it. And at those moments you need to be surrounded by other people who tell you, look you can do this.

Andrew: And if I can look at it and see, they did do it and if they can do it then, ahhh, then I accept it. It is possible.

Charles: That’s exactly right, that’s right. Because part of it is positive reinforcement, right? I like these people, I think I’m like these people. If they can do it I can do it. Part of it is also basically peer pressure which is, that I look across the room and I say, you know Joe? Joe has been sober for 12 years and Joe’s kind of a moron. I actually think I’m smarter than Joe. And if Joe can do it I definitely can do it. But the other thing that happens is that there seems to be something important about learning how to believe. And this is what we’ve learned is that belief is kind of like a muscle. You can exercise it and it can get stronger. So one of the thing’s that AA does is it tells you that you should believe in a higher power. Now this is kind of controversial. They don’t have to find what a higher power is right? For some people it’s God, for some people it’s, whatever they . . .

Andrew: I heard them say it could be anything from God to a stone, it doesn’t matter.

Charles: But they insist you believe in something bigger then yourself. And researchers wanted to know why, why was this belief so important? What they figured out is that when people go to AA and they practice believing in something they strengthen their belief muscle until eventually they’re able to believe in themselves. So even when they hit that crisis moment. Even when it seems like the world is awful, they’ve worked up the ability to believe that their change is permanent. And that seems to make it permanent.

Andrew: And in those moments where it feels like they can’t do it, they believe that there’s something bigger. Or they see that Joe is a schmuck and he did it, and that’s what helps them.

Charles: Exactly. And so the real takeaway here is if you want to change, if you want to be an entrepreneur, if you want to do anything that’s hard, find a group of other people who are going through the same thing. And genuinely share with them and practice believing in each other. You will build up that muscle and you will benefit from it, but you have to practice it and you have to find other people to practice with.

Andrew: All right, three other big things that I want to cover here and I know we only have about ten minutes. One of them is going to be keystone habits because we promised that to the audience, and that’s huge. Second is going to be why writing down the moments that matter is critical. And I think that’s going to help us with Mixergy make all the things that people are learning in the interviews and the courses we do much more impactful. And we’ll talk about that and how people can integrate into their businesses and lives the way that we plan to here at Mixergy. And the final thing is that cookie. That’s one of the first things I saw you. I saw you tell the story about the cookie on Amazon and I got it, I got with this idea was.

So let’s start with keystone habits. We talked about it earlier. What is a keystone habit and do you have an example of it in action?

Charles: Yeah, a keystone habit is, what researchers have found is that some habits seem to matter more than others. That for some reason when some habits change it sets off a chain reaction that makes other habits more malleable. So for a lot of individuals exercise is a keystone habit. When people start habitually exercising they begin eating better. Their dieting habits change. And that makes sense right? Because you feel healthy. But what’s interesting is that when people start exercising habitually they also start using their credit cards less. They tend to do their dishes earlier in the day. They procrastinate less at work. All these other habits start changing when you begin exercising, and the reason why, researchers say, is because exercise is a keystone habit that unlocks other patterns. Great example is that within companies, we know that there’s a lot of keystone habits that influence the culture of an organization. Take a company that’s built around innovation, for instance, Apple that I write about. Apple has a number of habits around innovation. They build a culture around innovation. They reward innovation, they brainstorm in a very specific way. When you’re developing a new product, they go through all of these habits of how you talk about it and how you share information. That’s because innovation, and habits are an innovation for Apple, is a keystone habit that influences everything else in the company. So they pay a lot of attention to that.

Andrew: How do we find what our keystone habits are going to be?

Charles: It’s different from company to company and person to person. In general, the way that I identify the keystone habit is to try to figure out what pattern you think most influences either the culture of your life or the culture of your organization. That’s why exercise is such a big deal is because so many people take self worth from exercising every single day, or in a company that we write about named Alcoa, which was the largest aluminum company in the world and was run by Paul O’Neill, ended up becoming Treasury Secretary. At Alcoa, the keystone habit was worker safety because manufacturing aluminum is really dangerous and Paul O’Neill needed to communicate to the company that he cares about, and values every single worker. If you’re trying to figure out the keystone habit in your life or your organization, sit down and say, ‘What pattern, if I changed it, would change my culture?’ That’s going to tell you what your keystone habit is.

Andrew: Here’s the next one that I wanted to talk to you about, the idea of writing the moments that matter. You talk about a Scottish experiment with rehab patients. I want to learn from that. What can you tell us about that and that’s the part that I’m hoping to bring here to Mixergy somehow. I haven’t figured out yet how.

Charles: This is a really fascinating experiment. This involved two Scottish hospitals and they were looking at patients who had gotten hip or knee replacement. The thing about hip or knee replacement, particularly if you’re elderly, it’s so painful to recover from. What you need to do is start walking immediately, but it’s excruciating to walk. They took two groups of people and with half of them they said, ‘Write down those moments when you think the pain is going to be most acute and come up with a plan of what you’re going to do.’ Essentially, try to write out a habit. The cue’s going to be this moment, this inflection point of intense pain, write out the automatic routine you want.

Andrew: And nothing else? Just say, ‘When this pain happens, I’m going to get up and go to the mirror,’ whatever it is.

Charles: Exactly. For instance, one of the guys wrote down, “I know it’s going to be painful when I go up to go to the bathroom, so my routine is that as soon as I stand up, I’m going to force myself to take three steps. No matter how painful it is.” The other people, that other group, they didn’t ask them to write out this plan, but they taught them how to do rehab. The exact same lessons, otherwise. The group that had written out the inflection points and had written a plan for those inflection points, recovered twice as fast. They were walking twice as fast as the people who didn’t write anything out. They were putting on their own clothes and driving cars, going up stairs twice as fast. Within rehabilitation, that’s an incredible statistic. That almost never happens. The only difference was that they had tried to anticipate these inflection points of pain and had, ahead of time, written out a plan for dealing with them. An automatic behavior to unfold.

Andrew: In my personal life, if I’m having trouble getting out of bed I might want to write a plan for what happens when I’m exhausted and hit the snooze button. Or in a business, you talk about Starbucks, they have their employees make a plan for what they’re going to do when a customer yells or gets angry, or when a crisis happens. What are you going to do? Take a pencil and paper and write it down and that’s all they’re telling us to do, and it has that kind of impact.

Charles: It’s almost magical. The reason why, this is true for entrepreneurs too, because if you think about all the setbacks you’re going to have in starting a company, people tend to shy away from those negative thoughts. They don’t want to anticipate setbacks, they don’t want to anticipate problems. What happens is we don’t plan for them, we don’t have any automatic response and when they occur, not only do we have to think about what to do but we’re overwhelmed by this awful thing that just happened, this painful feeling or the disappointment of not closing a sale. If you anticipate those inflection points ahead of time and write out a response, you are much more likely to make that response into a habit so that you can pre-program how you deal with disappointment in a much more positive way.

Andrew: When a potential customer yells at me and says I would never buy from you,’ I will call one other person right away, without even getting up to go get water or coffee.’

Charles: Exactly. The reward there is that you’re going to feel great. Normally you’d feel terrible because this customer turned you down but if you know that automatically you’re going to go sell more, you have that sense of fulfillment and accomplishment and pride that’s deserved.

Andrew: All right. Finally, I know we only have about 3 minutes and I have so many notes on this so I’m going to let you just tell it your way.

You showed how we can take this whole understanding that we just covered in the beginning of this interview and in throughout your book ‘The Power of Habit’, you talked about how we can actively use it and how you did it with this habit of eating cookies.
Charles: So, I had this terrible habit when I started writing the book that every afternoon. I’m a reporter at The New York Times. We have a cafeteria on the 14th floor. Every afternoon I would get up and I would go eat a cookie. And I was putting on weight and it was frustrating.

I put a note on my computer monitor that said ‘No more cookies’ and every day I managed to ignore that and go eat a cookie in the cafeteria so when I was talking to a psychologist I was like ask them, how do I change this habit? and what they said is you need to diagnose the cue and diagnose the reward.

So I started with the cue. I mentioned the 5 categories that [??] before and everyday, when I felt that cookie urge, I would write down what time it was and where I was sitting and where I was. Who was nearby. What emotion I felt. What I was doing. And I found after about 3 or 4 days that the thing that was consistent from day to day was the cookie urge always struck between about 3:15 and 3:45. My cue was the time of day.

Then I had to figure out the reward. And I thought the reward was a cookie, right? Because cookies are yummy. But when I talked to psychologists, they said No, that doesn’t. The thing is that rewards are really complicated. A cookie is actually like a bundle of ten different rewards in one little package.

So you have to figure out, is the reward that you’re hungry and the cookie satisfies hunger, in which case, you should eat an apple. So one day I went up and instead of getting a cookie, I got an apple. Or is it that you enjoy the burst of energy that the sugar gives you, so the next day I went up and got a cup of coffee instead of a coookie. Or is it that you just want that taste sensation, so one day I went up and took a whole bunch of Splenda and put it on my tongue to see if that satisfied the taste need.

Andrew: And by the way, with that point done, is something that you mentioned in the book, don’t freak out, don’t try to solve it at this point. What you’re doing is just walking in like a researcher, trying to figure out what exactly is it that’s pulling you to this. You’re just trying to learn and that’s why you do things like put Splenda on your tongue.

Sorry, I shouldn’t interrupt.

Charles: That’s exactly right. You need to take all of the pressure off yourself and just say I’m collecting data. My job is a data writer.

So this is what I figured out. It’s that everyday, when I went to the cafeteria to get a cookie, that’s when I saw my colleagues from work and I could gossip with them and it was my one break of the day to talk to other people.

It was the socialization that I was craving. The cookie was a convenient excuse to go see other people. And so I re-programmed the habit. I knew what the cue was, I knew what the reward was so now everyday at about 3: 30, I stand up, I look around the newsroom for someone to go talk to, I walk over to their desk, I talk to them for 10 or 15 minutes, we gossip about other people and then I walk back to my own desk and the urge for cookie is totally gone. And I’ve lost like 12 pounds.

The point is that the cue stayed the same and the reward stayed the same and once I understood what they were, I could come up with a new routine, a new behavior and change the habit.

Andrew: All right. The book is ‘The Power of Habit’ and guys, let me just take a moment here and just say this is essentially what you saw on this interview is what we stand for here at Mixergy. I could have done like a blow it away, 30 second video that would have maybe excite people and gone viral. That’s not what it’s about.

It’s about showing you that ideas are like super-powers. That if you have an understanding of yourself, it is like having a superpower over yourself or over your organization and that’s the goal here at Mixergy. To give you these ideas and give you these superpowers so that you can go out there and have some real impact and do some real good in the world.

Today’s burst of superpowers came from Charles and I urge you to get ‘The Power of Habit’. You’re not even selling this book anymore. I asked you to come here as a favor to me because I know you promoted this a long time ago. I’m promoting it like nuts, you’re done promoting it. I just wanted you to come here and teach it to the audience. So I’m so grateful to you for saying yes.

Charles: I appreciate you for having me on. This is great.

Andrew: I thank you and thank you all for watching and being a part of Mixergy. Bye, guys.