about this episode
Filmed at WeWork in San Francisco @jason talks with @jacobquist of @zillabyte, winner of best enterprise 2.0 at the #LAUNCH2013 Festival.
Show our guests some love!
1:15 Hey everybody! Great guest today, Jake Quist of Zillabyte!
2:00 Thank you to GoToMeeting!
4:29 Contest, if you could do a meeting with anybody who would it be? Chance to win a free HD webcame, ends June 6th at midnight
6:01 Back to the program!
6:15 Jake Quist, winner of the LAUNCH Festival!
8:55 What does Zillabyte do?
9:20 How do you get data about potential customers?
10:21 So you’re scraping the web and trying to find patterns?
10:33 You are doing this with existing clients?
10:44 What was the original idea you started the company with?
12:30 Who have you had use this service so far?
13:00 What is your service worth to clients?
13:50 Any other clients your are working with?
14:14 Did the self service option work?
14:35 Better design equals more people using the self serve platform?
14:55 How did you find out about the LAUNCH Festival?
15:10 How did you make the decision to apply and what got you selected?
16:00 Thank you to My Turnstone! More than furniture, we’re an experience!
20:07 What was the response from the judges when you pitched on stage?
20:41 How many people have offered to fund you?
21:10 So persistency got you funded after being rejected once before by the same VC?
22:03 How quickly did you get funded after the event? How much to you attribute to the event?
23:11 What else did you learn at the event? What were the rehearsals like?
25:15 Any other advice for entrepreneurs presenting on stage?
26:06 A year from now after you spend a bunch of money, what two things will be true/make you successful?
29:20 How do you plan on charging for the product?
30:10 Where is the company based? Who is your partner?
30:28 How big is the company right now?
30:45 What kind of employees that you need to hire?
31:21 How do you compare YCombinator vs. LAUNCH Festival?
32:11 How would you compare the demo day with these two events?
32:52 Do you think we should ad market size to the pitches at LAUNCH?
33:11 How do you capitalize on the momentum right after you come off stage?
33:45 What was your swag that you gave out?
33:51 Did you meet anybody interesting at this team?
34:01 What do you think about dinner after?
34:30 Did you meet anybody at the Angel night?
34:55 When will you be able to use this product?
35:22 When will you be self serve and use the product?
37:12 What about tracking the management team page?
39:12 How do you feel about the customization option for clients?
Part 2 Ask Jason’s
42:09 How do you prove to investors the market size you’re going after? VC reluctant in the opportunity
47:25 Are paying customers really sexy for Silicon Valley?
49:17 So from the VC perspective you’re more more interested in someone who has a large base only a percentage of them paying the a small base with everyone paying?
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Today’s episode of ThisWeekIn Startups is brought to you by Turnstone. More than furniture we’re an experience. Go to myturnstone.com/twist to learn more and receive 10% off your first order.
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Jason: Today on the program, Zillabyte, the company that won Best Enterprise 2.0 at the Launch Festival 2013. They’re doing Pandora for sales leads. If that sounds fascinating it is. It’s going to change everything about the way people sell and about the way people prospects. It’s a company that a half dozen angel investor friends of mine have really gotten excited about. I can’t make any announcements but I think there’s going to be some exciting news from this company in the weeks and months ahead. Stick with us. It’s going to be an amazing program.
TWiST title sequence.
Jason: Hey, everybody. What a great episode we’re having here today on ThisWeekIn Startups. I want to thank my friends at GoTo Meeting. First of all for making a greet product that I use literally everyday. I do about 15-25 meetings a week, 3-5 a day, 20-30 minutes each, sometimes 45 minutes, with different entrepreneurs or partners or people who I might hire or people we’re collaborating with. I gotta tell you GoTo Meeting means I get to see all of them in my heads up display. Click “start” and the meeting starts on time. Everybody understands how to use it. We know how to share our screens. It just works. Meeting is Believing. I implore you, to please try GoTo Meeting. It’s a solution for meeting with clients and coworkers in different locations on the go. Easy, quick hosting of online meetings. You don’t need to really give a lot of complicated instructions. You just give the URL. Short URL and boom people are on the call. Launch or join these meetings from anywhere using your computer, smart phone or tablet. You can screen share amongst the attendees. I do this all the time. “Hey. Let me show you something on my screen. Let me give you control and you can show me something on yours.” You can even present with your iPad which is very cool. The beautiful HD Faces feature is the one I use here on ThisWeekIn Startups along with my Logitech 1080p cameras to get my guests over the phone beautiful audio fidelity. Better than any audio fidelity of any over the internet service that I have ever used. It’s perfect and flawless. Why? Because it’s a paid product, at a reasonable price, that is designed for professionals. GoTo Meeting is professional not amateur hour like some of these other services. Trust me, I’ve used those other services and God I’m pulling my hair out, what’s left of it, from people using these other services and meetings starting late. So go to gotomeeting.com to start your 30 day free trial. Click on the “Try It Free” button and use the promo code TWiST. That’s right. 30 day free trial. Just go to GoTo Meeting, click on the “Try It Free” button and use the promo code TWiST. As in ThisWeekIn Startups. GoTo Meeting, GoTo Meeting. Meeting is Believing. We’re giving away some of these great HD webcams. GoTo Meeting with HD Faces lets you meet face to face with any team member. No matter wherever you’re located. So we’re going to do a contest, GoTo Meeting. “If you could do a meeting with anybody anywhere, who would it be? Why?” So I want to meet with Elon Musk on the moon. Whatever. You know. Come up with something clever. You can tweet your answer to @#twistwebcam, that’s right, and #gotomeeting. Just do #twistwebcam and #gotomeeting. Chances to win 1 of 3 of these HD webcams. You know the HD webcams make it real buttery and awesome. That’s what I use. Not the standard webcam here. I have these gorgeous ones. You can’t see but I’m using it right now. Contest ends on June 6 at midnight. All three winners will be announced on the Tuesday, June 11 episode. So go ahead and tell us, “Who would you love to do an HD Faces meeting with? Why?” in a tweet. Just use the hash tag #twistwebcam and #gotomeeting. Thank you so much to my friends at GoTo Meeting. Again, it’s great that you sponsor the program. Listen. All of us love the fact that you respect and support startups and the entrepreneur/founder community. I think it’s just wonderful. But entrepreneurs need to take meetings. They need to be on time. They need to go like clockwork. They need to be professional. That’s the most important thing for people to remember here. Be a professional when you’re meeting with angel investors and potential hires. You want to just start the meeting off on the right foot. That starts with being on time and it working. It working cross platform. Anywhere anytime. This stuff just works. Thank you. I love you @gotomeeting for making a great product. Let’s get back to this great episode. Thanks again GoTo Meeting.
Jason: Hey, everybody. Hey, everybody. This is ThisWeekIn Startups. The program where we talk about startups, entrepreneurship, founding companies, building products and changing the world through those products. Today I have Jake Quist on the program. He is the CEO and co-founder of Zillabyte. Zillabyte, if you follow the Launch Festival, which is the festival… for those who are new to the program… that I have done for 6 years now. This year 6,000 people came to the event here in San Francisco over 3 days. Fifty companies launched on stage. 250 companies were in what we call the demo pit just showing their products. 6,000 people came. Of those 50 companies on stage about a dozen of them won awards. One of the awards is for best consumer product. The other is for best enterprise. There are new companies. There are companies that are doing new versions of their products. Zillabyte really captured people’s imagination. It won Best Enterprise 2.0. Which means an existing company with a new product. If you want more information on the Launch, by the way, go to Launch.co. You’ll see the festival and our news product and all that kind of great stuff. We do this program ThisWeekIn Startups twice a week. On Tuesdays, 1pm pacific… You can go to YouTube.com/thisweekin to see the show. Or you can go to ThisWeekIn.com or ThisWeekIn Startups.com. Either of those. You follow us on Twitter @TWIstartups. We do this show twice a week. On Fridays we do a news roundtable where we talk about the news with 2 or 3 people who are really brilliant. Then I show up. Thank you. On Tuesdays we talk with entrepreneurs and/or angel investors/venture capitalists. People who make startups or people who invest in them. People have done both in some cases which I’m one of those. I angel invest in companies and I start them. What do we try to do here? We try to learn. We try to share the best practices. We try to get better. Because begin an entrepreneur… it’s not a static thing. It’s very dynamic. The rules change constantly. What worked in the year 2000 is much different than what works in the year 2013. We’re all learning. I’ve done this show now for over 350 episodes. I can tell you that where we started 4 years ago is much different than where we are today. Anyway. If you want to get off the bench and you want to make a product this is the show for you. You should go back. You should just start watching and listening to shows. One show a day. Then in a year you will have caught up. Just think about that. That’s how many shows we’ve done. If you watch one show a day in one year you will have watched all the shows. You will have my respect. You will be brilliant and smart. You’ll be able to start your own internet company. So… Jake Quist can be followed @jacobquist on Twitter. He is the CEO and co-founder of Zillabyte. Welcome to the program Jake.
Jake: Thank you for having me. It’s a pleasure to be here.
Jason: So tell the audience what does Zillabyte do?
Jake: Zillabyte is a service that helps B2B companies find new customers. The way we do that is by first looking at who your customers are. B- Building an algorithmic model of what those customers look like. Then C- Using all the world’s information to actually go find those customers. We call it Pandora for leads.
Jason: OK. So I’m a business to business company. Let’s say I was a software company that sold software to restaurants.
Jason: So I’m like OpenTable. Or I’m… I got a new service for restaurants that is a time management software of something or billing software. So I have 100 customers already. I put those 100 customers into Zillabyte and then what happens?
Jake: OK. So let’s say that your 100 customers are early adopters. So let’s say that we actually look at the data and we find that your early customers tend to use OpenTable or some other early adopter service.
Jason: How do you know that? How do you have that data about my customer?
Jake: Because crawl that web and we can basically infer a lot of signals from their online presence.
Jason: OK. So you go to JoesPub.com and you find out there’s OpenTable on that server?
Jason: Or a link from there or a Yelp review.
Jason: Or maybe the Yelp score.
Jake: Yeah. Exactly. Anything that’s on the web is fair game for us. We try to build models based on all these signals.
Jason: So you’re scraping the web…
Jason: … for information on my clients. Then you try to find a pattern?
Jake: Yeah. Exactly. Exactly.
Jason: You’ve done this for existing clients?
Jake: Yeah. Yeah. Honestly we didn’t start the company with the idea but we stumbled across this idea and realized that people wanted to pay for this type of service. As you know, that’s a great signal for a startup to actually have.
Jason: So you started the company a couple years ago with a different idea?
Jake: Yeah. Exactly.
Jason: What was the other idea?
Jake: The original was to build an API on top of the world’s information. I used to work at Google. The idea was let”s bring the power of Google to everybody else. We got into Y Combinator with that idea. But at the end of the day people don’t tear their hair out saying, “I need to analyze the world’s information.” But we were fortunate enough to have some early adopters who wanted to use our service for basically what we’re doing now. So they’d come to us and say, “Hey Zillabyte. Help me find some customers using your copy of the web.”
Jason: Ahh. So you’ve basically organized a lot of information that are on people’s website. If I said to you, “Take the top 1,000 Alexa ranked domain names and tell me how many of them use Google Analytics,” you could tell me that?
Jake: Exactly. Exactly.
Jason: I might be able to infer something like that. LIke maybe they would be good for my analytics product which competes with Google Analytics.
Jake: Exactly. Exactly. So when we started this thing people would come to us and say, “Hey Zillabyte. Find everybody using Google Analytics,” or whatever.
Jason: Or Omniture.
Jake: Or Omniture or whatever. The people who were asking those questions were very tech savvy, early adopters. Obviously we want to appeal to a broader market. So we took a step back and said, “How can we make this more consumable to the average person?”
Jake: If you look at what actually happens… When somebody installs Google Analytics or installs Omniture that’s saying something about them. That’s saying they’re an early adopter or they care about analytics or whatnot. So that’s what our product really tries to do. It’s not really to give you a list of people using Google Analytics but give you a list of people who are early tech adopters or whatever the signals you’re looking for.
Jason: Who has this worked for? Can you share with us a client who’s used it and had a great result?
Jake: Yeah. Absolutely. So one of our customers is a company called Retargeter here in San Francisco. Retargeter does ad retargeting.
Jake: Basically we took some of the customers and we modeled who their ideal customer looks like and gave them a new list. This new list performed 35% better than their previous list.
Jake: So that was a great signal for us and it gave us a lot of confidence that we are on the right track.
Jason: When you have a list of 100 prospects that are 35% more effective, what is that worth to a company that sells a product that is worth tens of thousands a year?
Jake: You know, that’s the million dollar question. Honestly, that’s one of the things we’re trying to figure out because one customer is worth different price points to different people. So for example, Retargeter might be worth X number of dollars. To the guy down the street it might be worth 10 times as much. So the Holy Grail in what we’re trying to do is try to get to a pay for performance type of pricing. That’s really hard to pull off but that’s where we’re trying to go.
Jason: Ahh. So you say to Retargeter, “We’ll give you these 100 contacts but when we check them 6 months from now, they have the Retargeter tag on their page, we’d like to get a piece of that. Or if they become clients we just agree that you would give us $100 for each one.”
Jake: That would be the ideal scenario. Right.
Jason: You know they’re not going to cheat you out of that $100 cause they probably want to build a continuing relationship with you.
Jake: Right. Right.
Jason: So any other people used the product yet that you’ve seen great success with?
Jake: Yeah. So we piloted the product with about 3 very close customers. So obviously they are in the range of having varying degrees of success. We have about 50 more that we’ve kind of piloted on a self serve type basis. Then we have about 500 who are on the wait list trying to get in.
Jason: Did the self serve work? Were people able to navigate, like, querying and figuring out their own data or is that just too hard?
Jake: You know, it’s interesting you brought that up. So before we started preparing for Launch our UI, to be honest, kind of sucked.
Jason: It did.
Jake: As you know. Then going through the Launch preparation we were really focused on some eye candy and making it more of a better experience. Since then the results have been better. They’re still not perfect but…
Jason: So better design equals more people using the self serve platform?
Jake: Exactly. Exactly. Our whole thesis is we’re trying to get to this ah ha moment within the first 10 seconds. Once people get that ah ha moment then they have a better likelihood of actually exploring the rest of the product.
Jason: So how did you guys find out about the Launch Festival?
Jake: Everybody knows about Launch.
Jason: OK. But how did you decide then on… So you were aware of the event. I’m not sure exactly how you were aware but how could you not be if you’re in San Francisco? So how did you make the decision to apply? How did you get selected for the audience who doesn’t know that much about the Launch Festival?
Jake: You know we were pretty heads down in development. One of our advisors, Eric Reese, sent us an email saying, “Hey. You guys should really explore this. It might be good for you guys.” Obviously we take his advice very seriously. That’s when we started the process and looked into it more and realized this could actually be good for what we’re doing.
Jason: I remember that email from Eric. We looked at it. The product was impressive. We thought it solved a unique, real problem.
Jason: Hey, what a great episode we’re having here on ThisWeekIn Startups. One of the things about running a startup is culture. You have to have a great culture. You gotta have a great environment. It sets a tone. One of the tones you want to set is you really have a warm inviting architecture and design of your own space so that people can come to work and feel proud of where they work. Then it’s gorgeous and looks like a startup company. That’s why I use myturnstone. It’s a great product. It’s not like low end furniture from those people who pre-fab them and you put them together and they break within a couple of months. It’s not that garbage. But it’s also not the ultra high end, multi thousand dollar units that are going to bankrupt your company and get angel investors like me kind of upset that you’re blowing $10K per work station. This is right in between those two. You might be able to spend a couple hundred bucks, $800, $600 per work station and have a gorgeous, gorgeous result like these desks here. I use these MyTurnStone desks and I love them. I sit on this kind of desk everyday and have this kind of environment in my office. People love it. They’re are psyched to sit at their desks. They’re psyched to just sit at their desks. Psyched to do all that hard work that it takes to make a startup company work. Turnstone offers simple and smart furniture solutions for small businesses and startups. This is what they specialize in. You can follow them on Twitter @myturnstone. We use them here for Launch and Inside and even a bunch of other companies that are here in our incubator or co-working space. The examples are gorgeous. You can see them here. I love this feature. You can put these two desks together so you can be facing each other. I have that with my top Chief Marketing Officer, sales guys, business D guy, Shawn Gold. But you can also put a couch in there. So we have these couches all over the place that are sort of integrated. So if somebody wants to just lounge out or… We have these standup desks. Right now I am standing on a myturnstone desk. I don’t know if we have the B camera set up. There you go. You can see it. I love this over here. Which is… by the way this is a plug then this is like a trough here. Like a trough. You know like horses go to get water. No. This is where you put all your cables. So people upstairs… We have one of these upstairs in the loft. People just take their laptops, they walk up to it and they stand for hours and work. We have like little collaboration sessions where people go back and forth. Sometimes when I’m doing the show… I’m standing right now cause I want to get that extra exercise and get my legs moving not have my legs get sort of achy and tired from sitting at a chair all day. Beautiful furniture like couches and little like rap out sessions. Really startups are about collaboration. If you don’t have collaboration spaces then people are like, “Let’s talk about something,” and there’s nowhere for them to go. You want to have a place for them to go. Go tomyturnstone.com/twist. As in ThisWeekIn Startups. You will get 10% off your first order. This offer is only for you, our loyal TWiST listeners. I had to say like, “Hey guys. Give me a discount. Give me a discount.” They’re like, “Oh well it’s hard to discount. They’re very expensive.” We convinced them. Jason Demant convinced them. Good job Jason. He convinced them to give 10% off. Giving 10% off is not like they’re some silly software product. Like 10% off of a virtual product that costs $0.0 to give to you. This is expensive, hardwood, weighty, strong furniture. They’ll give you 10% off if you go to myturnstone.com/twist. I’ve seen people tweeting this stuff out. If you tweet it out and put your startup name and just put @jason, I’m going to go ahead and retweet it. You get a little plug for your company. Show me your MyTurnstone. It’s a great product. Alright. Let’s get back to the program. Thank you MyTurnstone.
Jason: Take us through what it was like after you was selected but before you launched.
Jake: Sure. So after we were selected we came in and we met with you and the team. We basically sat down and said, “What is our pitch going to look like?” Our product, at that point, was not very polished on the UI side. It didn’t look that nice.
Jason: You didn’t have a designer, clearly. You just had developers working and that showed.
Jake: Right. I think when we pitched you we just pitched you with wire frames.
Jason: I remember. Yeah.
Jake: You kind of gave us your blessing on the wire frames. We basically spent the next month making those wire frames a reality. So when we pitched at Launch we had the nice visualizations and all that stuff. Which I really think helped us stand out from the rest of the pack.
Jason: Yeah. Design, a critical piece of launching on stage.
Jason: So when you guys pitched on stage you got a really great response from the judges. What was the response like?
Jake: Let’s see. I think one of the judges said there were two companies he would right a check for today. We were one of those companies. That was great.
Jason: Who was that? David Sacks or Dave McClure. I can’t remember. I do remember somebody saying that.
Jake: We’re still trying to wrap up that conversation.
Jason: Oh. So you won’t say.
Jason: So you can go back… anybody’s who’s watching just type in Zillabyte launch and you can watch the Q&A.
Jason: So we’ll see. But you had people, on the spot, at the event offer to invest?
Jake: Absolutely. Absolutely.
Jason: Really? How many? How often?
Jake: People will come and say, “Hey we want to meet as soon as possible.” So we had one VC who we actually pitched about a year ago. They passed at that point. They saw us at Launch and they got excited. They blocked off… basically let us set the schedule. Blocked off whatever time was available. Convenient for us. We pitched them the next week and they committed, I think, 24 hours later.
Jake: So that was awesome.
Jason: Really persistence and resiliency winds up getting a yes from somebody who a year earlier gave a no.
Jake: Absolutely. Absolutely.
Jason: So what was your take on that as an entrepreneur?
Jake: Obviously persistence goes a long way. Even the VCs when they… What I’ve learned about VCs is that when they reject you the first time. They really do respect persistence. It shows that you will do whatever it takes to make a company successful. Persistence is one of those signals that entrepreneurs give off that really demonstrate that.
Jason: Interesting. So you guys are going to raise money, I’m assuming, now
Jake: Yes. We’ve already started that process. We’re about 70% or 80% of the way done. We actually have all of our round verbally committed.
Jason: Oh, that’s great.
Jake: But we don’t want to speak for until the money’s in the bank.
Jason: Of course not. Yeah. So how quickly did that happen after the event? How much of it do you directly attribute to the event?
Jake: I would say we closed about 50% of it in the first 2-3 weeks after the event.
Jake: Obviously the event itself just helped immensely. For two reasons. One is obviously the hype, the press, all that stuff.
Jake: Awareness. I mean that helps with social proof and whatever scenario. Two, what I didn’t really expect, which has helped quite a bit was actually your coaching and helping us refine our pitch on stage. Because we essentially gave the pitch we gave on stage and injected it into our fundraising pitch.
Jake: I could, obviously, go into more details.
Jason: Right. Five minutes is different than what you get to pitch at a VC.
Jake: Exactly. But it’s the same thing. We’re trying to get that emotional response from the investor quickly.
Jason: Ah. That was something we went over in the rehearsals is trying to make a connection. Your examples… I remember your examples, originally, was not good in the presentation. They were like… but the examples got better and better where you really started to feel like, “I could see myself using that product.”
Jake: Absolutely. Absolutely.
Jason: What else did you learn? You went to how many rehearsals? Talk a little bit, obviously, for the people who don’t see the rehearsals occurring. I’m going to show this video to people who are applying in the future. What were the rehearsals like? You said the value of the rehearsals, obviously, was it built a good foundation for the investor meetings. What were the rehearsals actually like? Take people to where they occurred, what happened in them, what you learned, what were the interesting moments?
Jake: Yeah. So one stands out in particular. One was at Sequoia, I believe.
Jason: Yeah. Sequoia’s been hoisting… just so people know… Sequoia Capital which is an investor in my company has been hosting rehearsals since year one.
Jake: So that experience we met in a rather large conference room with about 5 or 6 other companies, I believe, maybe a little more and basically gave practice pitches in front of everybody else. I remember being a little apprehensive initially because I’ve seen previous launch videos and sometimes participants get roasted onstage. Which was obviously a concern for anybody.
Jason: Yeah. You could get hard questions.
Jake: Absolutely. Absolutely.
Jason: It’s not like a Kumbaya moment all the time.
Jake: It’s not a Kumbaya. Anyway. The take away, what I learned from that experience was how you and not the other judges onstage tell the entrepreneurs what they need to hear and not necessarily what they want to hear. Right? For example you told us how to refine our pitch. It was a little painful at the moment but actually…
Jason: What was the painful part? What do you remember when I said it you said, “Oh God. Jason’s being a jerk?” or “Oh my God. That’s just tough to hear?”
Jake: It was the latter. As an entrepreneur you fall in love with your ideas. You fall in love with your verbiage even. It’s hard to hear that what you fall in love with is not going to work in practice.
Jason: Got it.
Jake: That’s one thing I learned as an entrepreneur you just have to be realistic about how you present yourself and how you actually go out into the world. So being flexible and not being married to your ideas is important.
Jason: Any other specific things you learned about presenting in those rehearsals, watching other people, best practices you could share with other entrepreneurs now?
Jake: Yes. Speak slowly. That’s the most important thing. When you’re on stage you have a tendency to speak very quickly and words get cluttered. It’s just very important to speak slowly, be confident and get your message across.
Jason: Right. If you go too fast and you’re trying to cram a bunch of stuff in you may… People may not actually grock the basic idea.
Jason: You guys were very clear. We’re Pandora for sales leads. We help people find sales leads based upon their existing clients. Here’s how we do it. You really nailed that very well. So a year from now let’s say you raised the money, which is obviously going to happen shortly. Full disclosure I’m planning on participating in it. I think I can say that. It’s my money. I can say that, right? The Launch Fund is getting it. So I’m a big fan obviously of what you’re doing. A year from now, after you spend a bunch of money, what two things will be true if you succeeded? What are the two most important things your team needs to get done 12 months from now and if you’d invested $1M let’s say.
Jake: The two things that will make us successful in a year, right?
Jason: Yeah. Accomplishments yeah.
Jake: The basic story that we need to tell them in a year from now is that we will plan to raise our series A. Start thinking about it anyway.
Jason: That’s why I’m asking.
Jake: The basic story when you pitch is if you inject more money into Zillabyte you will get a much better return. We have the math to back it up.
Jake: That’s what it comes down to. So as far as actually executing on that we have our first vertical that we’ve identified. It’s all about dominating that first vertical and just saying, “Our technology is proven. We can actually make these people extremely happy.” Part of that story is also saying once we’ve done that and that first vertical there’s enough similarity with the next vertical that we can then go after bigger and better markets.
Jason: So you are anticipating that if you can get one market to work well that’ll send a great signal to the VCs in this series A crunch time frame. Whether that exists or not is debatable. But if there is in fact a series A crunch it’s hard to get a series A. The bench mark has been raised. We all agree on that.
Jason: You need to come with tangible results. The way to get tangible results is to refine, maybe even narrow the focus to one type of client.
Jake: Right. Exactly, exactly. We are in a unique situation because our product is bound by technology so there’e only so much modeling we can do in the next 12 months. So our whole thesis is let’s show that the modeling can scale to every company in the world. If we could do that then we believe it’s a very solid case to go and raise more money for a series A.
Jason: How do people currently buy sales leads? Do they just hire people to do dialing for dollars prospecting? How do most people get their leads? What do people spend on generating leads?
Jake: It’s a $15B market.
Jake: That’s lead gen and lead scoring.
Jason: Lead scoring? What’s lead scoring?
Jake: Lead scoring is when somebody comes to your site, signs up for the form and you have marketing automation that scores that lead. Say A, B, C or D on how likely they are to convert.
Jason: Which ones are the Glen Gary leads so to speak?
Jake: Yeah. Exactly.
Jason: How do they do that? They look at the future revenue of that lead? They look at the lifespan of that lead and look back on it and say, “Oh. This person answered questions A, B and C this way. They wound up spending $1M a year from now so that’s an A lead?
Jake: The status quo on how it’s done now is humans go in and manually create rules. So if you visit my site and you visit the product page and then the about page a human is manually telling which rules and how to score you based off of that. We’re looking at that problem saying, “That’s actually soothing a machine should be doing. A machine can do it much better at scale.” So we’re trying to automate that process.
Jason: Got it. So $15B a year wow. How do you plan on charging for the product?
Jake: That’s getting back to the industry. The industry today is stodgy, it’s very human powered. So there are lots of these list vendors in the world who will send you and email and say, “For $1K I’ll give you this list of people who use Salesforce or whatnot.” So there’s no pay for performance it’s all about value capture for the list vendor rather than for the creation of the customer. That’s our whole play. We want to say, “Look. We care about making money for our customers and as much as possible we just want to take a cut of the revenue we add to the system.”
Jason: Interesting. The company is based here or…
Jake: We’re in San Francisco.
Jason: Ah. Got it. One of your co-founders is in Atlanta?
Jake: He’s in Georgia this week visiting family.
Jason: Georgia. Got it. Was he based there or here?
Jake: ;He’s here. He’s here. He just had a…
Jason: Alright. What’s his name again?
Jason: Roger. Right. Sorry. I’ve had a long day. This is like the fourth episode of ThisWeekIn Startups that I taped in one day.
Jake: I understand.
Jason: So Roger is your partner. He’s the one who gave the presentation.
Jason: So he’s handling sales and you’re the CEO. Is that the sort of… How big is the company now?
Jake: Just the two of us right now.
Jason: You’re doing the development yourself or you have a team or outsource team?
Jake: I’m the engineer/CEO/janitor.
Jason: Yeah. Now you’ve raised money and then you’re going to start hiring employees?
Jason: What kind of employees do you need to hire? What’s the core team going to look like?
Jake: So the first 3 engineers that we want to hire are the full stack engineers. They’re kind of the unicorns. They’re very hard to find. We’re looking for a very strong willed developer and very strong Dupe/Cascading backgrounds.
Jason: Got it. So if people are looking for those jobs they can go to Zillabyte.com.
Jason: I’m sure jobs@Zillabyte works.
Jason: Or your first name.
Jake: Yes. Anything@Zillabyte will go to me.
Jason: Generally firstname@comapanyname is how you reach the CEO. So looking at the Y Combinator experience and now the Launch experience how do you compare those two? How do they differ? What are the overlap?
Jake: That’s a great question. Obviously Y Combinator’s great because, again, it helps you get on that path of product market fit. So when we started Zillabyte, like I said, we had a different idea. We had an idea that frankly nobody cared about. Y Combinator really helped us refine it and talk to our customers and really see how can we build something that customers really care about. We exited Y Combinator. Honestly we’re still trying to figure things out. With Launch… Launch had definitely helped us in a similar regard about refining our pitch and making us more appealing to broader audiences. Again, I think you helped us quite a bit with our pitch and making it resonate with customers.
Jason: How about the demo day? How would you compare the demo day at Y Combinator v. Launch? It seems like they’re kind of similar but demo days are a lot smaller, just investors and Launch is bigger I guess but maybe not as dense with investors.
Jake: I guess the difference between Launch Conference and Y Combinator demo day is… Launch Conference seems to have the B2C focus on it.
Jake: We gotta make this exciting for the average consumer. It makes sense. The Y Combinator demo day is obviously more focused for investors and talking about the market opportunity and things of that nature. Whereas Launch is focused squarely on product.
Jason: Yeah. We try to keep it very focused on the product. Do you think that’s a mistake? Do you think we should add a little bit more market size to the pitches?
Jake: No. I think market size is pretty apparent. I think you can tell pretty quickly if it’s a big market or not. If you don’t know you probably shouldn’t be investing in the first place.
Jason: Right. You can always get that in the follow up. After you get off stage but before you win the award how do you capitalize on that moment in time? When you’re coming off stage and you have a certain number of hours.. I don’t know what day you… what day did you… 1, 2 ore 3?
Jake: We did it on two.
Jason: OK. So you have whatever 36 hours between the awards ceremony and… What do you do in that period?
Jake: That’s when we man the booth and we hand out as much swag as possible. We didn’t want to just hand out t-shirts cause everybody was handing out t-shirts. So we tried to come up with something a little unique and get people excited about what we were doing and try to build that relationship going forward.
Jason: What was that?
Jake: Totes, bags.
Jason: Good. A lot of meetings in between that time? Did you meet anybody interesting?
Jake: We did meet a few VCs. We tried to defer most meetings until after the conference.
Jason: Ah. Interesting. Then the winner’s dinner.
Jake: Yeah. That was pretty insane. That was pretty cool.
Jason: So talk about that. What was that experience like?
Jake: The restaurant was 5A5. Excellent steak.
Jason: Excellent steak, wagyu beef and everything here in San Francisco.
Jake: Yeah. I love steak. We sat down with some very big name VCs who actually ended up investing in our round.
Jason: That’s great.
Jake: Which is very cool. Just a great event. We met some great people. Hopefully building some relationships for the long haul.
Jason: Did you meet anybody at the angel dinner the night before we started? That Sunday night?
Jake: I actually wasn’t able to attend that.
Jason: Oh right. One person gets to go.
Jake: Roger was.
Jason: Roger went to that one. We can only fit one founder per company cause we try to have a one to one or better than one to one relationship, one to one count with the angel investors so they’re not mobbed. Well listen. Continued success with the project. When can people get in there and start playing with it do you anticipate? When do you think those 500 people waiting in line or the people listening right now will be able to use this?
Jake: So you can sign up today. Essentially what we do is we dog food our own product. So when you sign up we try to look at your company and we try to pick out, “Hey. Can we actually add value to this company right now?” If so then we’ll let you in sooner. If not we’ll wait until the technology matures.
Jason: So when do you think people will be able to get into the product in a large way? Or is it always going to be like contact us and we’ll have a discussion.
Jake: No, no. It will definitely be self served. We’re shooting for self serve in the next 3 months.
Jason: Oh really. So maybe in the fall.
Jason: Come September 2013 you’ll be able to play with the product, sign up and there’ll be some kind of pay per query model or something. You have to figure that out?
Jake: We’re figuring that out. Hopefully we’ll figure that out by that point.
Jason: Yeah. Cause it does seem to me that on a pricing basis if it’s free or too cheap then it’s less valuable because the leads will be more commoditized.
Jake: Right. Right.
Jason: So I almost feel like it’s a good thing to price out half the market so that the top half of the market that does get the leads they’re not competing with the bottom half of the market. Is that correct or am I wrong in that?
Jake: You’re correct. That’s, again, we feel like doing a freemium type model will do wonders for our distribution. Obviously the balance is that we may be leaving money on the table. Which we’re actually fine with. But as far as monetizing obviously the pay for performance is a great model. The back up option that we’re talking about now is monetizing the temporal dimension of what we’re doing. So when a company changes and installs OpenTable or does something to become your ideal customer that’s very important to you and we can, we hope we can monetize for you.
Jason: That’s something you’re really worth paying for. So if I’m building the new analytics product, if I just got an email that somebody changed their analytics provider or added an analytics provider or took one down that’s a really good sign for me.
Jason: Oh. You took down Omniture and you put up Google Analytics.
Jason: That means you’re sick of paying for Omniture. You went with the free version maybe I can upsell you on a better version.
Jake: Right. Or if you know Omniture has a 12 month contract or whatever it is and we can notify you two months before that contract expires that’s also another interesting signal.
Jason: Fascinating. Yeah. That’s another interesting signal. What about tracking like the management team page and stuff like that. I’ve seen services where, you know, competitively you could be like, “Send me redline changes to my competitors site.” Is that worth it or is that just good for business intelligence?
Jake: So that’s part of our secret sauce on the technology side is to just making it very easy to model all of those kinds of changes. So that’s the whole idea… that’s why we call it Zillabyte… is to pull in all of those signals into one unified model.
Jason: Got it. Interesting. OK. Listen. It’s going to be an amazing journey. I’m glad to be on it. It was so great to have you guys launch at the Launch Festival. We were really thrilled with having you there.
Jake: Thank you for having us. It was a great experience.
Jason: I think for all of us it was a great experience I have to say. You know watching you guys improve the product and just great reaction from people. What you have is a product that provides true value. So if you can execute well it’s almost like one of those things where it’s a sure bet if you execute well. I mean do you feel like there is any way… What keeps you up at night? Is there something you’re worried about? “If we don’t solve this one thing we’re “F’d”.
Jake: It definitely is an execution problem for us. An execution challenge I should say.
Jason: Sure. Yeah.
Jake: So what keeps us up at night is it’s a very hard technical challenge what we’re trying to do. So it’s just building the product in a scalable way that is our major hurdle. Assuming we can tackle that, which we think we can, like you said, I think it’s a sure bet.
Jason: See that’s one of those things about when you’re in a market where you’re helping people make money.
Jason: God. It’s easy to get them to pay. It’s not like you’re selling news. You’re selling a lead.
Jason: All you have to do is have one lead pay off. If you were charging $1K a year for the product and the lead generates more than $1K in business that is so easy to justify.
Jake: Yeah. One of our early customers had their leads converted to a, I think it was a $30K a year contract for them. Which was great.
Jake: We didn’t charge them for that cause we were piloting it.
Jason: But that means you can say to them, “Hey. I want $5K a month to do this custom work.”
Jason: So how do you think about that, custom work versus just letting people play with the platform on their own. It does seem like if start getting people those kind of software leads, my gosh, they’re going to want a lot of customization. That could be a high margin business. Or are afraid of having more service and customization revenue? How do you look at that?
Jake: So we actually answer this in two parts. One is we always want this freemium model where people can just start using the product without clicking to sign up or anything like that.
Jake: As people become more ingrained in the product and they become power users they will want some custom modeling. So in the future we will allow an API where they can actually model attributes themselves.
Jason: Oh. Wow.
Jake: That’s actually a technical hurdle. Instead we might farm out some professional service arm of the company that helps with that.
Jason: I love it. Another thing you say like, “Hey. I’m an optimization company. I want alerts any time a web site gets 25% slower.” Like if I’m a hoisting company, if I’m RackSpace and I just say, “I want to know anybody whose performance is less than 30%, which is 300ms slower than our average customer.”
Jason: Cause then we can go to them and say, “Our average customer is 300ms faster than you.”
Jason: “You really need to start thinking Amazon Web Services is not the place for you. We can optimize and get you 30% faster.”
Jake: That’s right in line with the types of signals we want to incorporate into Zillabyte.
Jason: Ah. Well that gives me a hint on the first category. It might be web hosting or hosting or even software. Listen. Continued success Jake. Everybody follow @zillabyte. Go to Zillabyte.com, put your email in. If you’re a full stack developer who really has a passion for this kind of thing and wants to be part of a sure bet that will get that founder level equity, really early stage… Not founder level but A round. Serious angel round equity.
Jake: It’ll be taken care of.
Jason: Yeah. This is the good time to get options in this company. So get in there. We’ll see you next time on ThisWeekIn Startups.
Kirin: Part 2 of today’s episode, Ask Jason. Hear Jason’s advice for entrepreneurs who are raising money.
Kirin: OK. Do you want to take one more question?
Jason: I will take one more question. I could do this all day.
Kirin: I know you could. We have a limited amount of time and your viewers have a limited amount of time.
Jason: No they don’t. The viewers have an unlimited amount of time to hear my advice Kirin. Let’s keep going.
Kirin: Alright. This is from Martin.
Jason: I don’t think my advice is necessarily but I do think I think things through.
Jason: I can give good answers to… Let me tell you something, in terms of this whole Q&A thing if I don’t know I’m going to say I don’t know.
Kirin: OK. So this is from Martin. He actually was going to be on the show today but he had to drop out at the last minute because he had a VC meeting.
Jason: Good for him. Smart move.
Kirin: It’s a good reason not to participate. He had actually emailed you his questions a couple of days ago.
Kirin: He’s got a company called UXPin. Bringing design to the masses. Making it easier for non-professionals to do design. He’s already raised $500K.
Jason: Oh, my God. I love this already. Go.
Kirin: He’s raised $500K of a $1.5M round. His first question is how to prove to investors the market size that he’s going after? He says, “We’re close to 500 paying customers. We didn’t even start our marketing.” They’re having a couple meetings with VCs. They’re reluctant to believe in the opportunity. So he’s wondering how he can prove this to them.
Jason: OK. The reason people are concerned about the market size is because the market size is concerning. How many UX developers are there? How many will there be? How much would those UX designers be willing to pay? So you have market size and then market growth and lifetime value of customers. I mean this is a formula. They have to figure out, at $12 a month, which is kind of a low fee but if there’s a million people it’s $12M a month. So if there’s a million customers… I get the sense there’s 10K customers for this product. Which is $120K a month. At $12 a month if you’re making if you’re making $120K and you’re making $1M a year that’s good for you. It sucks for investors. So there’s two ways to address this. One is to explain and research very deeply the size of the opportunity global. If they could translate this into 20 different markets efficiently and they have done it for 3 other markets or even one market… If they could show, “We translated this into France… This is like the Uber problem. Like Uber’s like, “How big can Uber be?” San Francisco’s going great but how many other cities are there? Then all of a sudden they do 10 cities, 20 cities and 40 cities and people are like, “Oh, yeah. They could clearly go to 300 cities. This company’s going to crush it.” So there’s two ways they can go about this. One is international opportunity. How big is that? Or is this Adobe? It’s not just Photoshop. It’s InDesign and Flash and all these other products. UX is where they start but they quickly move into a Photoshop competitor that somehow leverages this web based UX. Or there’s a higher end product that costs $1K a year and it’s even better or there’s upselling packages. You have to present a big vision but you have to execute small. What you have here is they’ve executed small. They need to present a bigger vision. So what you can do is lie. I don’t really mean…
Kirin: Fake it till you make it?
Jason: Fake it till you make it is what I’m kind of saying. So I don’t really mean lie. What I mean is fully explain how many different ways this can grow. So, it can grow because that $12 a month will eventually become $120 a month because UX designers on average get paid $80K a year. This will be… We can get 1% of their salary. $800 a year is reasonable because graphic designers and people who do Photoshop spend 1% of their yearly salary on the creative suite from Adobe, right? So you some parallel there. “We think 1% of salary equals what this product will eventually be. We just have to fill in the product. It’s going to be 15 quarters, 16 quarters to fill in the product. Every quarter we go.” So there’s that. Drawing a parallel. Then there’s international. OK. There’s more people in China and in India than there are here. They’re doing a lot of this UX work. We’re going to get China and India locked down. The spanish speaking market, the chinese speaking market, india and boy is this going to grow. Yeah. They’re going to pay $3 a month not $12 but we’re going to make up for it in volume. Then there’s five other products down the line that are adjacent. Which is what Adobe did. I don’t know exactly what Adobe started with but even MicroSoft was like, “OK. We have DOS. OK now we have Windows. OK we have MicroSoft Word. Oh we have Excel.” Then all of a sudden they got a full suite of Office. It looks like a pretty good offering. The same thing happened with Google. “We have Gmail.”
Kirin: So you should say that you’re an Adobe killer?
Jason: Well you can start there and say, “I think that we’re analogous to an Adobe or a MicroSoft. We’re going to start. We’re going to make a best product. We’re going to be the people who makes the tools that are next generation and that are pay as you go, monthly software as a service. We think we can… Here’s another one. Here’s a third tip, right? So there is increasing your revenue per customer, increasing the markets is number two, increasing the product offering is number three and numberer 4 is M&A. We believe that we can build such a great base of users that when we have 100K paying customers we can buy these other products. The way Evernote bought Skitch. We can make Skitch a product extension then we’re really going to jazz up the amount of people paying for the pro version. In their case they just did it to get more customers into Evernote. But they could have charged for a Skitch. I would have paid for it. I think that there is like 3 or 4 ways to skin a cat. The last one is M&A, right? “OK. We’re Maker Studios. We’re going to raise $40M and we’re going to start buying other people’s YouTube channels cause we’ve figures out YouTube better than anybody.” So there is that other possibility.
Kirin: OK. He actually had a follow up question that is really interesting.
Jason: Alright. Here we go.
Kirin: He said, “Are paying customers really sexy for Silicon Valley. We’re originally from Poland. We’re just relocating to the Valley. We’re close to break even but our plans are huge so we want to accelerate the growth. I thought having 500 paying customers growing 30% month to month would be super sexy in the Valley. But well let’s say so far it doesn’t look like that.”
Jason: OK. So he’s doing it wrong. You need to have a little bit more of a freemium model where you can have a large number of people using the product for free forever like Evernote and you have paid. What they’re doing is they’re doing the 30 day trial and so they’re probably pushing a little too hard. They’re doing trial not freemium. Freemium is it’s free for this 80%. This 20% extra is where you pay. So you can use it for free for life. You can use Evernote for free for life. You can use DropBox for free for life. Then at a certain point based on storage or based on features you’re going to have to move up. So what they’ve done is they’ve just done it wrong here. They’re doing try it for free for 30 days. It’s a trial. I don’t agree with the trial. You gotta find a big swathe of people. Get a million people using the free product and then slowly and slowly and slowly convert them as they love your product. Which is what Evernote does. We had Phil on the program multiple times talk about this process which is people from 3 years ago are still converting over. As time goes on the likelihood of you converting to a paid customer increases and increases and increases. That cohort analysis, people who joined in January of 2009, how many of those have converted so far vs. January of 2010, January 2011, January 2012, January 2013. When you start doing that cohort analysis all of a sudden it starts looking wonderful. Like, “If we keep you for 3 years you got a 50% chance of paying us.” That’s a kind of good stats that they’ll get if they had a free product. So it should be free for almost everything. If you want to store more than 25 documents you gotta pay. Then you’re going to get people who are like, “Oh. Small inconvenience. I’ll pay.”
Kirin: So the question is from a VC perspective. As a VC you’re more interested in somebody who has a large base, only a percentage of them paying instead of a small base and all of them paying?
Jason: Correct. I’m not a VC but I know how VCs think. VCs want it all. They want a large number of people using it and they want to see the revenue scale. So i just think what they’ve done is they’ve almost done it right. If they were just going to do a dude business and bootstrap this, sure, 30 day trial, convert to paid, no nonsense. But for VCs who are looking for a big opportunity they’re going to want to see a big footprint of possible paying customers down the road. You want to get that conversion funnel going. So in the short term forcing people to pay will get you that short term hit. People will have to pay. But I don’t think long term you’re going to get all this feedback on your product. That’s really what you’re going for. If only 5% of people pay for Evernote that means 95% of the feedback or even if double… If the people who are paid give double the feedback of unpaid people that still means that 90% of the feedback is coming from free people. So what you’re getting in this product, UXPin, a good looking product. It reminds me of Balsamic and others. They’re not getting as much feedback to make the product better. So that means they’re not going to be able to innovate as fast. That’s what the VCs know. So I think you gotta come in, you gotta be a little bit humble. If we had this conversation 5 or 6 years ago, yeah, people didn’t care about revenue at all. Even freemium whatever. They’d like, “Just get to scale then let’s flip it.” Since Yammer, since Box and DropBox and Zendesk, Evernote people are starting to realize that there is virtue in getting people to pay. Consumers love paying for great products. They love it. Instagram would have had a huge business if they made people pay. Even Facebook, if they had a pro version of Facebook that got you the stickers… If they did Facebook Pro, I’m guaranteeing they’d convert 2% or 3%. Which would be 20M or 30M paying customers. That would be incredible. I don’t know what the product would be but…
Kirin: Ad free?
Jason: Yeah. They can’t do that. If they actually made that new product which takes over your homepage… What’s it called?
Kirin: The chat heads?
Jason: The chat heads and everything and taking over your home screen. If they made that a 99¢ app I bet you more people would’ve tried it then if they made it free. Cause it would be like more intrigued. Like it’s worth paying for. You know it’s the Apple sort of theory. This is worth paying for. Getting back to David Heinemeier Hansson’s appearance on the program like be bold enough to make a product that has a profit margin where people are willing to pay for. Maybe Amazon doesn’t make the best tablets because they don’t have to, because they’re selling them at a discount. So it sort of takes the edge off of the team that’s making it. Cause Kindle Fire is not as good as the iPad mini. Great question. Two great questions from UXPin.com. Thank you UXPin.
Special thanks to the members of the TWiST Backchannel Program!