Today, I’m thrilled to have Nathan Latka on the show. Nathan is the founder of Heyo.com which is a company that does social giveaways for Facebook and other social media platforms.
Now what’s amazing about Nathan is that he started this 8 figure company at age 24 and then recently sold it to his main competitor for a nice sum.
What’s also cool is that Nathan started his businesses knowing absolutely nothing at age 21 and actually made 70K worth of revenue before he ever started building his product.
His story is truly inspirational. Enjoy the episode!
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What You’ll Learn
- How Nathan came up with the idea of starting Heyo
- How Nathan pre-sold his first customers with nothing
- How he found his partners
- Nathan’s primary marketing channels
- How Nathan grew Heyo exponentially
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Welcome to The My Wife Quite Her Job podcast. We will teach you how to create a business that suits your lifestyle, so you can spend more time with your family and focus on doing the things that you love. Here’s your host, SteveChou.
Steve: Welcome to the My Wife Quit Her Job podcast. Today, I’m thrilled to have Nathan Latka on the show. Nathan is the founder of heyo.com which is a company that does social giveaways for Facebook, and other social media platforms. What’s amazing about Nathan is that he started this eight figure company at age 24, and then recently sold it to his main competitor for a very nice sum.
Now what’s also cool is that Nathan started his business knowing absolutely nothing at age 21, and actually made $70,000 worth of sales before he even started building his product. Now his story is truly inspirational and with that welcome to the show Nathan, how are you doing today man?
Nathan: Steve, thank you for having me man. I’m excited to be here.
Steve: Dude you know what, when I was in college I wasn’t doing any of this stuff. I’m just curious, how did you come up with the idea of starting Heyo. What’s the backstory here?
Nathan: Well, there’s not, I’m not going to try and make this sound sexy or anything other than what it actually was which was insecurity. I mean I was an architecture as a freshman at Virginia Tech. This is 09, and I overheard fifth years complaining, whining, pitching, and mourning that they couldn’t get a job, because no one was hiring architects after financial crush. I said, “No way I’m going to put myself through 5 years of college and do not have a guaranteed job at the end.”
I got super insecure and Steve that night I’ll never forget it. I went back to my dorm room, 12 foot, by 10 foot white cinder block stacked on top of each other. I was wearing my ex-girlfriend’s red Christmas boxer she had bought me, and I just started cold calling people who had Facebook fan pages with the word executive in them. And I would convince them on the call that they needed an executive Facebook fan page which coincidently I had.
Steve: How did you think about that? I mean, it seems kind of random.
Nathan: I mean, part of it was, right. I just wanted a way to make money. I mean, I went back to my dorm room and said, “I don’t have to rely on college or a job, how do I make money.” I’m like, “Well I’m using Facebook already as a college student. Let me search how businesses are using it.”
I learned that businesses use these things called fan pages, and I said if I can call up some people who have big egos because they have executive on their fan page title, convince them and like take a shot at their ego and make them feel vulnerable, and then be able to feel that vulnerability with my product, boom baby, I got a business.
Steve: How did you decide on your first customer list? Did you cold call these people?
Nathan: Yeah, they were. I was just cold calling people. I literally even do it today. I just went to Facebook, in the search bar I typed executive and a bunch of fan pages will come up with kind of like [inaudible 00:03:21] or something there for executive, or other people that call themselves an executive. Then I would look in their about section on Facebook page and get their phone number and call them and go from there.
Steve: Interesting, so you mentioned barefoot executive. Was that your first victim, I mean customer?
Nathan: Yeah, she was my first customer. By the way, like the least egotistical person you’ll ever meet. Amazing, amazing lady, but yeah she was the first $700 sale.
Steve: Okay, so how did you come up with that number? Just all seems kind of random to me. So you just cold call her and said you wanted to create a Facebook page for her for $700, and she said yes?
Nathan: No, it way more psychological warfare than that. It was, “Hey Carrie. My name is Nathan Latka. I’m just calling because I see you call yourself the Barefoot executive, but I noticed you don’t have an executive fan page tab. Are you an executive?” And she’s going to do one of two things when I say that. She’s going to say screw you and hung up, or she’s going to go what’s an executive fan page tab?
Thankfully she did the latter and gave me an opportunity to explain what it was, which was a landing page kind of tab on Facebook, where she could capture emails and run contests and things. Eventually she agreed to purchase and I said great, here’s my PayPal button. You can deposit $700 and then I need 6 months to deliver you the quality of product that I want to deliver to you, and if I can’t, I will refund you. The rule is when I did because if I didn’t make enough sales, I would refund everybody because it wasn’t worth my time to learn how to code.
Steve: Sorry, so your initial thing was just a PayPal button. It wasn’t on a website or wasn’t on a Facebook page with the PayPal button.
Nathan: I setup my own Facebook page for free. I couldn’t afford to go daddy domain. So I just did my own Facebook page with a PayPal button built in.
Steve: Okay then you’d used this same strategy. Is that how you made that $70,000?
Nathan: Yeah, exactly. So I sold over the next 6 months from my dorm room. I sold hundreds of those at 700 bucks a pop and then started watching YouTube videos on how to code something called FBML Facebook markup language. And that’s how I started building pages.
Steve: So your delivery time was 6 months and that was acceptable for everybody?
Nathan: You are thinking about it the wrong way. They are thinking about, “Wow if it’s going to take him six months to deliver the quality that he wants, it’s going to be an amazing quality, right?” It’s all how you word it. It’s positioning.
Steve: Okay. It’s a Facebook page though right?
Nathan: Yeah, yeah.
Nathan: I mean look you work with an agent and if you hire an agency, they are like, do like, social making and [inaudible 00:05:33] crazy stuff now or designs or logos, I mean some of those take many, many weeks. I mean it wasn’t crazy. You just have to understand, it’s all comes down to the positioning.
Yeah, sure anyone listening who was skeptical was going to go, “Why the hell do people give him 6 months?” It’s because you didn’t get my kung fu judo skills on [inaudible 00:05:49] where I say like, I have to– I am coding this in FBML. I want to make sure the graphics are exactly right. I want to make sure the hexadecimal codes match your website colors perfectly. I want to make sure we get your MailChimp form embedded perfectly. I want to make sure this works on mobile as well.
So I’m going to need 6 months to make sure I deliver you the quality of product that you would expect from yourself, all right. And if I don’t, and if I can’t deliver you that kind of quality, I will refund you after 6 months. And it was a no brainer.
Steve: Okay, so you are not a technical guy from what it sounds like.
Nathan: That’s correct. I was architecture.
Steve: Okay, so you get a hundred people to sign up, and you’ve got to deliver that within 6 months. So you are busy learning how to do this on YouTube. Did you start doing them by hand or what was the next step?
Nathan: Yeah, that’s right. I did them all by hand. So just on my own– like I would use templates and edit the templates for each customer, but I did them all by hand. Eventually what I learned was I brought on 2 technical cofounders, and realized I didn’t want to spend my time building every page.
That’s like what an agency would do. To really build a big business, I needed a software platform where they could pay me monthly just go build their own pages using drag and drop technology. So I gave up 40% of the business to two technical cofounders. We grew it…
Steve: How did you find your partners?
Nathan: I created the entrepreneur club at Virginia Tech specifically to undercover, recruit 2 technical people. And then on the second or third meeting that year, I just said, “Hey guys I’ve got 70 grand in presales. Here’s my PayPal account with a screen shot. I need two or one technical cofounder. I’m willing to give up 40% to one set.” These two guys raised their hands. They both wanted to do and I said fine. Both of you can join. I barely knew the guys. I said but you have to [inaudible 00:07:25] 40% and that was that.
Steve: Okay, so you didn’t vet them or anything? These are just random college students?
Nathan: Yeah, that is one of my biggest mistakes. I knew these guys for about 2 minutes before we were signing founder agreements.
Steve: Oh my goodness. Okay so this was the precursor to Heyo, or was this Heyo?
Nathan: This was the build, yeah– we launched it as Lujure and then we renamed it as Heyo. But yeah, this was the same business.
Steve: Okay, so let’s talk about that a little bit. How did that work out and why was it your biggest mistake?
Nathan: Well, because I’m an action kind of guy. I like moving fast, but that was just a big mistake because like one of those guys ended up having a kid at year end, another one just didn’t align. So neither of them are with me anymore.
Ultimately, when I sold the business, there was a large chunk of equity that was on you know, I like to call it unallocated basically equity which is equity that is out of a business that’s not active. That’s never a good place to be. Thankfully we were able to buy some of the equity back, but you want to always keep equity active in your business.
Steve: So these guys actually invested a good portion of their stock?
Nathan: Yeah, I didn’t know what investing was. So everyone was vested from the outside which was like not good.
Steve: Oh okay, so they had 40% right off the butt.
Nathan: Yeah, you have to remember Steve, I’m like– like this is pre-puberty Nathan. I was like, I know nothing about business.
Steve: How old are you now Nathan, I’m just curious.
Steve: Okay, so this is six years or five years ago.
Nathan: This all when I started when I was 19. That was when the presales came in, and when I started to get the thing going.
Steve: Okay so you have these customers, you do everything by hand, and then you start with this technical cofounders. What was your role at that point? Was it to get more business or?
Nathan: Yeah, yeah everything except coding. Sparking out new products docs to pass to them, you know, YO framing, new customers, webinar, support, all that stuff.
Steve: Let’s talk about some of these primary marketing channels. So early on when you had nothing, how did you get your first customers?
Nathan: Well me cold calling. So everyone who purchased the $700 one I did up-sale them a $30 a month plan to say, “Hey if you want to make edits on this instead of paying me 700 bucks every time, just pay us 30 bucks a month and you can edit whenever you want.” That’s why…
Steve: Okay, Nathan you are a really amazing sales guy, can you pretend I’m like one of your target customers. What would you say to me?
Nathan: Hey Steve. So you call yourself executive Steve on your Facebook page, but look I’ve done some research on this and I don’t– It doesn’t look like you have an executive Facebook fan page tab. Why don’t you have that upgrade yet?
Steve: Okay and I’ll ask, what is an executive Facebook fan page tab?
Nathan: See all executives on their Facebook page, they use it usually to capture emails to build their list so that they can sell more of their coaching or whatever they sell, but you are not doing any of that. Is there a reason why you are not doing that?
Steve: Because I didn’t know this existed.
Nathan: Yeah, here’s 3 examples from people that I just did this for. Here’s, Carrie Wilkerson. Do you want me to give you her phone number, so you can call her and ask what it’s like. Now, remember Steve, this is real Nathan speaking. I didn’t have any of these built yet, but what I would do is I would still use people that I’ve already purchased as referral.
Steve: Interesting. And did anyone ever contact these people?
Nathan: I always give out numbers, but I never heard of anyone actually following up and then and calling. They could have but they didn’t.
Steve: Interesting. So you delivered ultimately to this Carrie Wilkerson?
Nathan: Yeah I did.
Steve: And she was happy with everything and did she start endorsing you?
Nathan: Yeah, she was great. She would talk about us on stage when she spoke. It would drive tons of new customers.
Steve: In order to do that, you must have had a tremendous impact on her. What did– did you just deliver the page, or did you deliver anything else? How did that happen?
Nathan: I don’t have a good answer there. I mean I went above and beyond. For sure I want to blew her away, but ultimately it just comes down to kind of doing what you are saying you are going to do on time. I mean that was the key. I mean we over the span, once we got the software, the service business launch which is the monthly recurring model of this which we call the Lujure in the early days.
We grew it from nothing to about 35 grand in monthly recurring revenue in about 6 months. It went fast. When we sold it four years later which was February 2016 of this year, we sold it and had 10,000 monthly paying customers. They were paying between 30 and 300 bucks a month and raised 2.5 million bucks of venture capital, 20 team members. I mean it scaled fast.
Steve: So was that initial, was it $35,000 a month. Was that just through cold calling?
Nathan: No, a lot of that was– so once we got like an initial 10 or 12 or 15 people actually using the software, we also had a free plan. When people used the free plan, every fan page tab they published, they’d power by Heyo on it. A lot of our new customers would come in because they saw powered Heyo on another tab. It was product marketing.
Steve: Interesting. Can you comment a little bit about just offering a free option, and how much that cost and what are some of the pros and cons?
Nathan: In software that’s a marginal expense. You are looking– in a software world, after you build the initial prototype, unless you are really making changes or updates daily, you are going to be looking at gross margins in the 80 and 90% range, and that margins if you are controlling your marketing costs and your salary and rent and all that, your net margins could easily be passing 50, 60%. So it’s highly, highly profitable. So yeah, free users to us on average costs one or two cents per month.
Steve: Okay. Because what I found after talking to some other software guys is that when you go with that free model sometimes that takes up all of your resources in terms of just support, not necessarily just several resources.
Nathan: That’s the stupidest thing I’ve ever– that’s where most software founders eat their feet. It’s very difficult– especially if you are going out a no touch sales process on a mass market product, you know say more than a hundred or 200 customers, you can’t have support on a free plan. That’s the dumbest thing, because how it happens is the people that take most of your support time will be the free users, and a person paying you $300 a month you will never hear from.
Steve: Exactly. But in that respect, how many of your free users ended up becoming paying customers?
Nathan: We convert on average anywhere between like 11 and 13% of free users in a paid customer after the first 2 or 3 months.
Steve: Okay, and the reason you kept the free plan was because it was free marketing because of that Heyo link?
Nathan: That’s exactly right. It was our cheapest marketing avenue.
Steve: Interesting. So people would see these promotions, and I’m not that familiar with your product actually, so you do a giveaway and in the sign up form I guess, there’s a little powered by Heyo link?
Nathan: Yeah, it’s right on the Facebook tab. By the way, the folks that acquired the company they are keeping it live. It’s a key piece of their business. So it’s still live and Heyo.com so people can see it. But yeah, that’s exactly right to say, just like when you send an email from your phone and it says sent by phone? Same concept.
Steve: Okay and did you keep track of what the click throughs were like for those?
Nathan: Yeah this was– I mean– we started this, years ago. If I was going to say direct numbers for you now, I won’t be able to do it. But generally again generally about 30 to 40% of our new customers every month came from that powered by Heyo on free accounts.
Steve: That’s crazy. In terms of just people– did the people mostly start with the free account and then transition, or did a lot of people just start up by paying?
Nathan: That’s a tough question. I don’t really answer that.
Steve: Let me ask it in a different way then, what incentivized someone to actually come to you? How did you convince people to actually sign up and pay the money?
Nathan: They wanted to remove powered by Heyo.
Steve: That was the only reason?
Nathan: That wasn’t the only reason. It’s was a key reason. There were some other things like we unlock some additional options like you could do more. There were analytics if you paid, things like that.
Steve: I see, I see, so typical freemium stuff. So you get most of the features of the product and if you are more advanced user you want analytics, you pay the extra money and then you put your own branding on there.
Nathan: That’s right. I mean when you study some of the most powerful– on my podcast, when I have software and service entrepreneurs come on, I’ve had many that I’ve gotten over a billion, with a B, billion dollar valuations. The difference between people that have million dollar valuations or million dollars of revenue which is a billion dollars in revenue is they have, I don’t really know what to call it other than like product axis. Picture like– Steve you know what a Cartesian plane is? Like an X and Y axis?
Nathan: You can then add in like a Z axis. Software folks that are listening who are broke, typically they only allow people to upgrade to get like more features or something like that. Where people make a lot of money is they have one axis that people upgrade on based off they unlock more features, they have another axis where maybe you unlock more seats for your company.
They have another axis where it’s like you– some other usage base metric, more storage space, or something. The more kind of pricing or usage based upgrade metrics you have, the stronger and usually more compelling it is for you to drive kind of up sale work revenue, and that’s rebuild really big businesses. We were trying to do that at Heyo. We had multiple pricing axes like this.
Steve: It was usage based increase in pricing, is what you are saying?
Nathan: It wasn’t just that. Again, we had multiple. One was you either you unlock more features, one was instead of just one fan page tab, they could launch 5 fan page tabs, and another pricing axis was instead of just using us on one Facebook page, you could use us on 10 Facebook pages, another one was if you want to invite your team members, you can have up to 10 seats. Again, that way, every time you get on a sales call you just figure out which pricing axis most directly aligns with the person you are talking to, and then sell them on that upgrade.
Steve: Interesting. I also noticed when I was on the page this morning that the way you were priced, it seems to be targeting like the individual consumer as opposed to businesses. It’s very low priced. Can you talk a little bit about your strategy for going after those people as opposed to some of the bigger customers who are going to be less maintenance?
Nathan: So I’m not involved anymore. I’ve been out of the business for about 6 months now, so I don’t know what they are doing with the pricing. What I can tell you is the main reason they acquired us was because– Votigo is the acquiring company. Their product is an enterprise focused product. That goes between 5 grand and 50 grand. They wanted something more downstream, because the downstream clients would eventually upgrade into higher priced plans. Their model is get as many people paying as little as possible as fast as possible, because it’s a great distribution channel to up-sale.
Steve: In terms of when you were starting, you mentioned that your freemium customers would have been, if you offered support, one of the most painy ass customers that you would have had. Just curious, why you stuck with going after those lower end customers as well?
Nathan: Because we didn’t have to support. We didn’t offer support.
Steve: At all for any of the plans?
Nathan: No, we didn’t offer them for free people.
Steve: Oh yeah, that’s what I meant though. Even the lower, like your lowest paid plans were in the order of like 20, 30 bucks, right?
Nathan: Well, sometimes we weren’t offering support on those either. That’s another pricing axis that you can say okay, one is a chat support. One is a phone and chat, one is phone, chat and email.
Steve: Okay. How lean was your company in the very beginning just curious? Like did you have a dedicated support person, developers?
Nathan: We would have between one and two dedicated support people depending on the time of the business, and our dev team would be between three and six depending on the day.
Steve: These are fulltime people or were they contractors?
Nathan: No, no, these were full time.
Nathan: Yeah, full time.
Steve: And by the time you reached that $35,000 per month run rate, was your staff just like a handful of people still?
Nathan: Yeah. We were like five or six people. It was three founders, a support person, and one other kind ad man I think.
Steve: You mentioned, so you got a lot of business through that link through freemium. Did you also do anything else? Were you running ads, were you doing social media marketing, SEO, content marketing?
Nathan: Yeah, Steve, we tested all the paid stuff. I got to tell you is the quickest way to waste the most money possible. When I look at everything I’ve done in life business wise, I am the most dangerous when I have brainwashed myself to thinking that I’m broke, and I have no money because you get really creative. We tried paid stuff, it just did not work well, content marketing worked really great. We did a lot of webinars that drove a lot of new business. Those were our big channels.
Steve: Can we talk about some of your webinars since I’ve had a lot of luck with that with my business. How did you structure webinars? How did you get people on, and what was the content like?
Nathan: I’m just curious, how are you using those in your business?
Steve: Yes, so I sell a course on ecommerce, and so usually what I do is I get on and I teach a very detailed lesson on how to get started, and then at the end I mention that I run this class and if you want to join this there’s a limited time discount.
Nathan: Got it, got it. Yeah, we basically did the same thing. We would get the title would be, “10 Ways to Capture 6,000 emails From Your Facebook page.” We would feature 10 of our clients that are using us. At the end we would sell the annual $300, or the monthly $30 plan.
Steve: Interesting. So how did you get these people on? Were these just people from your email list, were you running ads to get people on or?
Nathan: It was almost all email list from our free user base. All the webinars are targeted at free users who had yet to upgrade to paid.
Steve: I see. What was the reason to getting the sign up right now?
Nathan: For the webinar or for a paid plan?
Steve: For a paid plan during the webinar.
Nathan: You’d always bonus, we’d had bonuses. I see a lot of people make this mistake. They discount to try and get people to take action. I think it’s one of the least intelligent things you can do because it devalues your brand. What we would do is we would add bonuses. So, “Hey guys, we love people that take action.” I’m in webinar pitch mode. We love people that take action. If you decide to purchase our $30 month plan right now, what we would do is we will send you a research report, take it from a 100 campaigns last month.
We’ll show you the three calls to action to use on your fan page that get the highest opt in rates. And we will show you how you should use the– what your image should be like in the upper right of your campaign to make sure you increase the conversion rate from fans to new email leads. If you sign up now, you’ll get those bonuses. Okay, there’s two left. Johnny thanks for signing up. There’s one left. Oh Karen got the last one. All right guys, thanks so much. Bye, bye.”
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Steve: Interesting. It sounds like content that you should already have on your site to encourage people to– that content helps them improve their campaigns, right?
Nathan: Yeah we do, yeah. Some of the content was on a blog, some of it wasn’t. But you have to create some incentive to get people to take action now, otherwise people are going to [inaudible 00:22:37] their hands the whole day.
Steve: Interesting. And what was your conversion rate like, I’m just curious?
Nathan: We would convert– of everyone who registered, we would get anywhere between– we actually pretty high tenants rates. We would get between 40 and 45% action.
Steve: Wow, that’s really high.
Nathan: It’s because we had an on boarding sequence for webinars. When you signed up, you’d get like a worksheet with fill in the blanks, so that would drive curiosity and encourage you to show up. Other people that showed up about 95% would stay to minute 47 which was when we gave the pitch. And usually between 7 and 17-ish percent would purchase a pay plan.
Steve: That is really high actually.
Nathan: Yeah, it was great. We were doing about two webinars kind of a week for many, many years.
Steve: Wow. And how many people would show up at these webinars?
Nathan: Anywhere between a 100 and 400.
Steve: Okay so that was– so that’s not a whole lot of people to drive a lot of business early on. What were some of your other marketing channels?
Nathan: What do you mean?
Steve: Meaning like you are getting like 17 per webinar. So that’s like 34–
Nathan: Yeah, new customers.
Steve: That obviously wasn’t like the main driver of customers, right?
Nathan: No, it was the main driver.
Steve: Oh it was the main driver.
Nathan: Early on, webinars was– the webinars plus the product marketing, powered by Heyo. Those were our two main drivers of new customers.
Steve: That’s amazing. And you had no luck with PPC at all, huh?
Nathan: No I just think it’s so– it’s just not intelligent. I mean look, maybe I’m just stupid, I don’t understand PPC. Look, if I can make money without spending money, I’d rather do that.
Steve: Absolutely. But if you are making money with your ads, it’s just another avenue to get more people to your site, right?
Nathan: Yeah, but the thing with ads, like, I just lie to you in my opinion. What happens is we have our ad guy. He goes, “Nathan we found a channel. It’s great. I can get one new customer for you, I can get one click for a $1.75. It takes a hundred clicks to get a new 3 on my paying customer and it’s great.” I’m like, “Okay great. Spend 5 grand next month on that.” Well the promise, like the number has changed. The keyword diminishes in our turn.
That part of gold is only 2 inches deep, so once you go through out inches then we have to find another channel. It’s actually a lot of work. What happens is like PPC plays emotional games with you. You find economics that work and you stick in the next sell sheet and project it over the next 7 years and you think wow, we are going to be a billion dollar company, because we found this channel. Nobody talks about, how to measure diminishing returns on PPC. And that’s really the key to understanding in my opinion PPC and paid ads.
Steve: Interesting. In my experience, the search ads have been pretty steady, meaning it is pretty predictable, but is the Facebook ads where you have to constantly be putting our new creatives, finding new audiences and that sort of thing. Did you find the same– did you have the same experience across all the different ad platforms?
Nathan: No, I don’t have a lot of experience on Google. A lot of our kind of pay per click stuff are cost per click that was on Facebook.
Steve: Okay. That makes sense. Facebook is a ton of maintenance in that respect.
Steve: Okay, so what about SEO and your content marketing? I would imagine most of your content was teaching people how to use your platform and how to get leads, right?
Nathan: Yeah, I was just pulling data from our back end and making it and publishing it infographics and things like that.
Steve: Okay, and so how did you scale then? Like how did you go from the 34 or whatever people that you would get per webinar. Was it just a gradual uptake, or was there a point in your business where it just hockey-sticked?
Nathan: No I mean look if it was 4-5 years of work to build it to where we got it. It’s a slow gradual add five, six grand in monthly recurring revenue per month. It was a gradual turn, so you got a net five grand-ish per month. Then you keep doing that for five years, and before you know it, you got a big company.
Steve: Okay. I’m just curious though. Why did you decide to take on funding? What did you do with the money and why did you need it?
Nathan: It was just– it was not a good decision, ego, to be honest with you. I mean when we first raised– when we hit about 33 grand in monthly recurring revenue, when I was sending– I would send email updates out to kind of just business people I respected about how the business was doing, and we started getting replies of people going, “Hey can we invest?” And I said, “What do you mean invest, I don’t even know what means.” And they would– I would say, “Can you teach me?”
They’d invest time to tell me what it was. I’m like, “Sure why not. It would be great to have more of that person’s mind thinking about Heyo,” because I assumed if they put money, they’d think about us more. We never actually kind of needed the money, but I used financing as a way to get more mind share of the investors which would help us grow. But we were never in a point where we needed capital.
Steve: Just curious though, did they help a lot in terms of introducing you to other contacts, what was their value add?
Nathan: Oh totally, I mean, I will not bring on an angel investor. I look at them almost like an employee. I have a full list of like tasks I’d want them to do if we accepted their money. They had like many of them helped with all those things. It was very helpful to think about it that way.
Steve: Interesting. Was most of your funding angels, or did you get VC funding?
Nathan: We got 550 grand from angels in pack in March 2011 I believe was the year. But those were like very smart, David Cohen invested, the founder of Techstars. Pat Condon the founder of RackSpace, Dave McClure 500 Startups. We had, many people would say the A list. I mean we had the A list angels in the business, and we were in like the mountains of southwest Virginia, not the valley, not New York.
It was– many people say it was very impressive. We raised 550 there on a convertible no with a 5 million dollar cap, and 8% interest rate and 25% discount. I can explain it if you want in a second. Then we raised, many years after that, 2 million dollars on 8.5 million dollar putting money evaluation which was, that was a typical VC kind of a deal.
Steve: Yeah, actually, can you explain the first deal with the angels? I’ve always been curious. What is the difference between taking money from an angel versus a VC, and what was your decision making process there?
Nathan: Let me not talk about the person you take it from, let me talk about the form of how you take it from different.
Nathan: The first deal that we did was called a convertible node. Convertible node is almost you can think of it like paying debt, but it’s very unlikely that it will ever get called. They put in 500 grand. Let’s just say 500 to make the number even. They put in 500 grand so that 500 grand will accumulate interest at 8%. And whenever we did do a price round meaning when someone else would come in and say Nathan your business is worth 8 million dollars, those angels that put in 500 grand would convert into equity.
They don’t have any equity when they put in the 550 or the 500, right? They convert into equity which is why it’s called a convertible node when we raised that first price round. A price round means there’s a evaluation on the business. They’d convert in at a discount. We were rewarding them for backing us early. They were our first backers. Then they got a 25% discount. That’s what a convertible node is, is that helpful?
Steve: Yes. It is very helpful, cool. You mentioned that taking money was a big mistake. Why do you say that?
Nathan: We just– less soon the angel side, more on the VC side. We just didn’t need the money. I would read TechCrunch and see all my friends raising capital. I’m competitive and I’m like, “Screw it. I can raise capital too.” Boom, boom, I took like two days. I mean it was super quick. It was nice for people to do that. But man oh man, we just got lazy. Once we raised capital, we just go lazy.
Steve: So you didn’t need the money and you didn’t have it allocated, but you have to spend it, right once you get it.
Nathan: Exactly. Every board meeting was this clash because investors want us to spend money faster, so we like have no money which means you have to– which means by the way you have to go cash flow negative. Because if you raise 2 million bucks and you have to spend it, and that 2 million is not coming from revenue, it’s going to put you in the red. I mean that makes sense to anybody. It puts you in the red which I hated.
I hated that because at some point, you are either going to have to cut back expenses to go back in the green or the black, or you keep spending and you have to go raise more money which means you have to go give up more equity to a VC which I don’t like that road either. It wasn’t good. It wasn’t good. I don’t think I’ll raise again unless it is very, very, very strategic money in the new business that I’m launching.
Steve: How did you spend that money?
Nathan: Well a lot of it we run ads which is like PPC.
Nathan: Yeah just horrible spend people, we had amazing, amazing people but we hired too fast. What else? We moved to a new bigger office. We went from paying a grand per month in rent to six grand per month in rent which was not a smart decision. Just things like that. We just got less creative because we had more money.
Steve: How did it work when your original two founding engineers left, because there was a lot of technical data at that point, right, when your founders leave? Did you just hire– did you rewrite the whole code base?
Nathan: No, no, I mean they had a team they were managing. So just the top person they were managing became the CTO.
Steve: I see. I see.
Nathan: So it was a team of five or six developers at that point.
Steve: Can we talk a little bit about churn. What tactics do you use to kind of encourage people to stay?
Nathan: Well, so, [inaudible 00:31:29] invented a very cool term called PQL, Product Qualified Lead. What that means is, don’t look so much at revenue coming in per month or MLR or free to paid plan, but rather look at usage metrics. So you kind of know in the back of your mind when you sell someone Steve a course on ecommerce, but they don’t watch the first video or if they never log in, you know that person is way more likely to email you ask for a refund.
It’s much better to look at the actions that you want your audience to be taking that you know will help them not churn, and focus on getting those actions done, and then just trust that channel will take care of itself. Does that make sense?
Steve: Yeah. So you probably walk them through the set up process which is probably one of your big huddles, right?
Nathan: Exactly, like we knew we had to first get the first email that went out, had to get them to log in. Then we had to get them to connect their Facebook fan page. Then we had to get them to launch their first campaign, capture their first email address through the campaign. Then once we got them to do these core metrics, it was then get them to a paid plan. Then once they were happy in a paid plan, it was getting them to invite their friends so we get more customers. There’s a whole life cycle that we built out.
Steve: So this is all done through email, or did you do some personal calling as well?
Nathan: No, most people done via kind of a no touch, so emails and kind of in product updates and tutorials.
Steve: Then those people who weren’t responding, I guess, even though they– do most of the people who were responding, were they free plans or were there any people who paid who actually didn’t use the product at all?
Nathan: Oh gosh, I mean have you ever ordered a coffee and then you throw it away when you eyes still have [fog 00:33:05] because it’s cold, same concept. We had people that paid that would never log in. It’s like, what the hell are you doing? Why did you buy the product? It happens all the time.
A lot of people lie to themselves. They’ll just go, “Oh look our MRL is great.” But that could be a very weak base of monthly recurring revenue if your usage metrics aren’t really high. That’s why private stocks like Twitter and Facebook, that’s why investors care so much about monthly active users and less about revenue.
Steve: Interesting, so if the people aren’t using the product, chances are they are not checking their emails either. I’m just curious, what did you do with that data? Once you figured out the people who weren’t using, what did you do with those people?
Nathan: We just would keep trying to reach out to them I mean via email. There wasn’t– we wouldn’t work really hard for people when we realized they weren’t even going to engage with the product.
Steve: In terms of your best customers, did you do anything special with those people?
Nathan: We’d feature them in blog posts, we would feature them on webinars, we’d invite them to guest post, things like that, let them know of upcoming features. We kind of had them in part of the inner circle.
Steve: Okay, and then in terms of your target customers, it seems like all of your stuff was organic.
Nathan: Well a lot of it was. I mean the majority of it was. It was product marketing, created by Heyo and webinars. The free plan stuff is huge. I mean you capture a lot of emails with the free plan.
Steve: How did you get people to evangelize your service? You mentioned Carrie Wilkerson, was she one of the evangelist that helped you grow your business? Or did you have other methods of– I’m just curious how you grew to such a large company, and whether it was just an organic path, or were there certain tactics that you used to accelerate the process.
Nathan: It’s a combination of both. I mean, first asking the question when someone pays for your product, what are you expecting to get just in an email. That’s just a question and they reply to you and they say, well, I hope that you can launch a Facebook page. You are like, great. We are getting the right customers. If someone writes back and says, I was hoping you are going to help me launch a hot air balloon. Like where the hell did that lead come from. What did they read that made them pay for us and think we were going to help them launch a hot air balloon? That’s not what we do.
That’s a key thing. It’s first understand what they think they are getting, and then check in, in a weeks later and say did you get what you expected? A lot of people use MPS score for that. It’s just, again making sure you are getting people in your funnel that match what your product delivers, making you sure they get that and the rest will take care of itself in terms of people talking about it.
Steve: The reason why I’m really interested in what you are doing here is I plan on starting a SaaS company too since I just recently gave notice at my job.
Nathan: Nice Steve. That is a big deal man, congrats.
Steve: What I want–
Nathan: Wait hold on Steve. What did you give up? I want to know like how much you gave up. What was your salary you quit on?
Steve: I’m not going to reveal that.
Nathan: Come on Steve.
Steve: I can’t do it. I can’t do it.
Nathan: More or less than six figures?
Steve: More than six figures. I mean I was an engineering director.
Nathan: Oh gosh, you were making like yeah. Were you in the valley?
Steve: Yeah I’m in the valley.
Nathan: Oh gosh. You are like, you don’t have to [inaudible 00:36:07] but you are like two or three hundred easy. Was it a software startup or a company that’s established?
Steve: I was director of microprocessor design. So I designed microprocessors.
Nathan: Oh gosh yeah. I love that Steve. People have to understand that because there are so many people listening. I know at least on my show, I don’t know if it’s the case on your show, but people– the reason people never go and start their own thing is because they don’t hear stories of other people giving up big things. People might be listening going, but I have two kids and I have a hundred thousand dollar job. Why would I ever give that up to start my own thing? When people hear your own story, it gets them more excited, and the hey they can do it.
Steve: Well let me tell you this Nathan, I’m a real conservative guy, and I actually didn’t give up a whole lot. My salary is like a very small portion of my overall revenue. In that respect, I’m pretty conservative. I wasn’t giving up that much. I mean it sounds like a large sum to maybe some of the people who are listening, but in terms of just overall house hold income, it wasn’t that big of a deal, and which is why it allowed me to pull the trigger.
Nathan: Yeah, if everything fails in the startup you are telling me you probably have like 12 or 24 months of runaway easy of personal expenses covered.
Steve: I’m even more conservative than that. I’ve got like a decade probably.
Nathan: That’s great. How old are you?
Steve: I am 40.
Nathan: Okay, got it. So you’ve been saving for a while.
Nathan: Yeah, that’s great.
Steve: But unfortunately I didn’t start this until much later. If I started at 19, I’d be like all powerful right now.
Nathan: Yeah, I’m in that mode right now. When I sold Heyo, by the way I recorded the whole negotiation. The buyer’s on the phone with me, I put it on the podcast. There’s a point where I’m like, “I want this many millions,” and he’s like screw you basically, and hangs up right. God knows if it’s going to go through or not. But I record all that, and put it on the show and I mean people can listen if they want at nathanlatka.com/sold to hear that. But Steve what I will tell you is like the second I sold that business, I had offers all over the place, like great offers to go take jobs that I would say would be easy salary wise for someone who is 26 in the top 1%.
But dude it took so much to say no because those would have been so comfortable and I would have done that for like a decade, and sure I would have saved a lot of money blah, blah, blah. There’s something special about turning down something safe, and being kind of in the wild and then just trusting yourself they are going to be able to feel that empty space you created with something amazing.
Steve: Let me ask you this. What is your end game? What are you doing right now?
Nathan: Oh gosh, I saw a bunch of things. I plan to launch a best-selling book next year, I’m going to sell a million copies in the first two years. That will put it like one of the best all time. That’s the next thing I’m focused on. On 2036 I will be eligible age-wise to run for president, so I plan to run for president and win. I want to launch a ticket company public by the time I turn 34. That’s another goal, probably after the presidency or maybe before I don’t know, probably after.
I plan to launch the world’s largest hedge fund, and that’s because I see so much waste in a lot of these public companies that I’m studying. I just have a lot of companies that can talk a lot of these [inaudible 00:38:58] and just spit off cash flow. I have all kinds of little goals like that. People are listening going, “No Nathan is such a capitalist.” And yeah, you’re damn right, I’m a capitalist. I love that.
Steve: That is amazing. What’s your book going to be about?
Nathan: When is it going to be out?
Steve: No, what is it going to be about? Oh, you’ve already written it?
Nathan: What is it going to be about? Yeah, it’s a– the working title, okay the working title is New Rich. The reason I chose that title is because we are talking pretty costive about how I kind of break down my dollar of income. It’s basically how I think a lot. If you look at someone’s personal balance sheet right now, like they have car on it, the house on it, foreign insurance, dah, dah, dah. Like we are moving into a world where rich people are actually, they are buying experiences and they are owning less physical assets, because there’s these companies that hold these physical assets on their balance sheet.
For example Uber will own the car in 10 years and you will just use the car. That saves you an expense. Someone else, [inaudible 00:40:04] will own your house and you will just use the house. So there’s this concept of like new rich that I’m kind of thinking about, which I think is critical for people who are my age that comes to kind of compounding money saving money, keeping expenses low, and investing in unbelievable experiences for yourself that keep people happy, healthy and growing. So it’s going to be something along those lines.
Steve: That sounds great. Can we talk a little bit about your conference too, because we chatted about this before, and the way you are running it is pretty unique. Feel free to talk about it.
Nathan: Yeah, what do you think is unique about it?
Steve: I think you are pitting against– you are pitting different speakers together to actually show exactly their process, and you are putting them into a competition live. Did I interpret that correctly?
Nathan: That’s accurate. Yeah, so I go to a lot of these conferences and it’s like two days. It’s like everyone is out to drink at night, and then you just have to like “Get through the speakers.” You know the speakers are usually like you are watching them going, “I’m way smarter than these people. Why are they on stage?” It’s because these speakers are friends of the conference organizer or something like that. Usually they are this like boring and not fun. So what I’m doing, like I don’t care about my speakers to be quite honest with you. I care about the audience getting something that they’ve never gotten before.
So part of– some of my sessions I’m going to be interviewing like one is called– let me see. One is called king of content. I’m going to have people like Neil Patel and Joe Pulizzi [inaudible 00:41:25] on stage launching a blog post live. There will be kind of 2 screens on stage, you’ll get to see their desktops as they launch a piece of content, and whoever gets the most unique views to their piece of content over that 60 minutes segment, I will write you know a $10,000, $20,000 $30,000 check to their charity or something. But the point is each segment is a competition where the experts are performing instead of talking. The audience gets to watch and learn from the performance.
Steve: That’s sounds amazing.
Steve: For all of you guys out there.
Nathan: I tell you about the monkey Steve?
Steve: You did earlier, but feel free to talk about the monkeys.
Nathan: Was that– we didn’t record that.
Steve: We didn’t record that I know.
Nathan: I have these two capuchin monkeys. You want to talk about writing cold emails that get a reply, these two capuchin monkeys can sit at a computer, they can write email, and they can actually close deals better than most of you guys, the sales people. I mean it’s unbelievable how these monkeys work. You look at these monkeys and you go, “Oh brown fur, nice eyes, you know, bone structure looks normal.” But they are just not normal monkeys.
They are going to help me kick off the show, and yeah love that your people if they want to join me, they can check out more of the sessions which I think they’ll get a kick out at nathanlatka.com/austinlive. We’ll wrap it all up Steve with– we have a very cool Grammy award winner performer at the end of the show. Two of them will pit against each other. It’s going to be like American idol except two Grammy artists going each other.
Steve: Dude that’s awesome. Hey Nathan, where can people find you if they want to contact you?
Nathan: The best place to do it, I give out my personal phone number on my podcast which is called The Top Entrepreneurs. You can search that in iTunes or Stitcher now. It’s an orange logo with my kind of face black and white. You can find me there. They can also find me on Twitter at @nathanlatka. Or feel free to just shoot me a text directly. My number is 703-431-2709.
Steve: Amazing, you just gave out your phone number just like that.
Nathan: You know the sad thing is no one is going to text me.
Steve: No one is going to text you?
Nathan: That’s my challenge to the audience.
Steve: I texted you the other day, didn’t I?
Nathan: You did. I always give it out and only very few, it’s crazy– people mourn and groan, I can’t reach the person I want to reach. Well they probably gave their phone number somewhere. You just have to search hard enough, so there’s mine.
Steve: Sounds good Nathan. Thanks for coming on the show man.
Nathan: Thanks Steve.
Steve: All right take care. Hope you enjoyed that episode. As you can probably tell from the interview, Nathan is a go-getter. It just goes to show that it doesn’t matter how old you are, it’s just a matter of going out and doing something.
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Outro: Thanks for listening to the My Wife Quit Her Job Podcast where we are giving the courage people need to start their own online business. For more information visit Steve’s blog at www.mywifequitherjob.com.