Episode 2: Smart Bear Live!

SBLive – @ASmartBear – WP Engine

It’s “Loveline for startups,” if you like those kinds of phrases. Introduced a month ago as an event in Austin, this time we moved this live audio advice column to the web, taking phone calls from startups around the country.

My co-hosts were Bob Walsh and Patrick Foley, hosts of the well-known Startup Success Podcast. It was awesome having podcasting experts on board, especially Patrick who was on-site with me at Cospace in Austin, interrupting a vacation with his family to drag over $1000 worth of audio equipment to make sure we got a high-quality recording.

You can listen by subscribing to my podcast on iTunes, or it’s enclosed in this blog’s RSS feed, or you can just download the mp3.

Why listen? Especially if you don’t normally listen to podcasts? Because then you’d miss out on:

• Whether it makes sense to give away a product to consumers as a sales path to a paid professional/enterprise product.
• Why even if someone gave you money for your platform, you still might not have a business model.
• How changing your tagline completely transforms how someone perceives your company, and therefore whether they might be interested in your product.
• What a hardware company needs to do in the next three months in order to raise a Series A.
• Three specific things a small company should do to make a newsletter effective (or possibly not waste time with one at all).

Here are the companies who called in:

• Matt Spradley (@mattspradley) from Vignature
• Sean Tierney (@scrollinondubs) from Scratch Audio
• Seth Samuels (@theConverati) from Converati
• Carrie Requist (@uGrokIt) from uGrokIt
• Vadim Kleyzit (@kleyzit) from StresStimulus
• Sergey (@usabiliTEST) from usabiliTEST

Plus, if you have feedback and advice for the companies on the call, or feedback for me about the show itself, please leave a note in the comments!

Transcript

Transcription services provided by:

Patrick: Welcome everyone to Smart Bear Live. We have Jason Cohen on the phone.

Jason: Yeah. In fact, in person, right next to Patrick. Welcome to the second edition of Smart Bear Live. The first one we did live in front of 70 people. This time we’re doing a call-in show, which is kind of how I want it to be anyway, reach more people. Thanks for dialing in.

The co-hosts today are Patrick Foley and Bob Walsh who run the start up success podcast and Bob blogs over at 47 Hats. A lot of you know him from there, what’s the name of your blog, Patrick?

Patrick: Patrickfoley.com.

Jason: See, that’s easy. Patrick’s got all of those crazy, ganglia, audio equipment here, which is awesome, I feel kind of pampered and spoiled, it’s pretty neat. He’s also going to be manning the chat client there on the dial-in and organizing who asks the questions, which I have not seen yet neither has Bob, for the most part. I think we should just dive in. You can visit at our various sites if you don’t know who anybody is and we should just get started. This is by the way, like love line for start ups if you haven’t seen us before.

Patrick: Nice. All right. We’re going to start today with Matt Bradley an East Texas, boy, how ya doing today Matt?

Matt: All right, how about y’all?

Patrick: Cool.

Jason: So, Matt, what’s the name of your company, just the name of the company?

Matt: Vignature.

Jason: Vignature. Yes, well if I had to guess what that was, Vignature, it sounds like a signature, so maybe it’s an identifying thing of some kind. Vig, vig, video, video signature?

Matt: Exactly.

Jason: You weren’t supposed to tell me, good we can stop. It’s video signature, what does that mean? Tell me what that means?

Matt: OK. What we provide is basically an image based electronic signature so you have irrefutable proof of the signer.

Jason: OK.

Matt: When you sign a document you can either sign it with your mobile phone using your webcam or using your webcam it takes an image of you as a signer as you click to sign.

Jason: That’s really nice, in fact it’s better than a signature sometimes if you have their face. That sounds great. So what’s your question today?

Matt: We have a consumer product and a business focus product. They both use the photographic, use the camera technology to take a photo of the signer in real time. The consumer product is a subset as far as the infrastructure it utilizes of the business product, but we view it as a, and we also don’t plan on making much revenue . . .

Jason: Let me interrupt you for a second, what’s the question first?

Matt: OK. The question is should we even consider marketing and selling the consumer product when we primarily want to get revenue from the business product?

Jason: Why would you? If you want to get revenue from the business side, why would you not just focus on getting revenue?

Matt: Because the consumer product is a subset technically of our business product so it doesn’t require anymore effort on the technology side, but it obviously requires a different marketing approach than the business side.

Jason: Wait a minute. Usually you spend marketing dollars so you can make money. On the business side, obviously you can do that. Let’s assume that technical challenges for the consumer side is zero, like you said it’s a subset. But building the company manning the technical side is usually not even the problem anyway even if you haven’t built this yet, right?

Matt: Yeah.

Jason: So, you’re going to spend marketing dollars to get to people who are not going to give you money. Tell me why that’s a good idea?

Matt: Because we actually also view it as a marketing expense because the consumer traffic will drive interest in our business product.

Jason: You have a consumer product today or you don’t?

Matt: Yes, we do and people actually love it. You can download it on the iPhone or Android app and we’ve already seen interest in a specific business verticals for consumers who have used the app to sign documents and send them back to businesses.

Jason: So how many of those people who are using the consumer version today, how many to date, have actually moved up and bought the product, because they moved then to the professional edition?

Matt: Zero because we haven’t currently started selling the business product yet.

Jason: So how do you know that you can make money on the business product?

Matt: Because we’ve talked to businesses they’re willing to use it. We already have businesses using it we can’t, from our MVP strategy, we don’t even have a way to charge for the product yet.

Jason: OK. My feeling is that if it’s that valuable, then someone should pay for this. This is a really obvious app to pay for. So how does it work. They’re going to pay $5.00 in the app store? They have to have an account with you? What’s your concept of how they’re going to give you money?

Matt: On the consumer side it’s free and the application on the phone is always free but on the business side through our back-end as far as the features we’re adding the portal to support storing the documents and accessing the documents in the future, that’s what we’re charging for, it’s a monthly subscription fee.

Jason: OK. So the consumer’s don’t need to keep track of their signed documents, so they don’t want to use it or what?

Matt: They’re not right now, exactly. If they did, they would have to upgrade to the premium model.

Jason: This doesn’t really sound like consumer and business to me, actually. It just sort of sounds like, there’s a lot of people who need to sign documents, probably everybody.

Matt: Yes.

Jason: Most people who would even think that they need to take a picture and get some kind of proof of it, that’s not a normal consumer. Normally you just sign it and there’s already apps, by the way, where you can just digitally sign it or drag your finger around the screen, that all exists. And actually a lot of those are free or it’s a one time app purchase. I’m not saying you can’t compete against them, I’ve seen that already, so what. So you have this more interesting back end way to make money, but the average person definitely does not need this, right? I mean most people do not think about this.

Matt: That’s one of the reasons why I’m calling. Originally we basically developed the technology because of the fact that it’s an irrefutable signature and there’s potential and there’s a lot of interest in government sectors, financial sectors, insurance sector, but it turns out that the mobile application was so easy to use, it’s actually easier than the scripted signature methods on the capacitive touch screen, because all you do is tap and it takes your picture.

Jason: Right.

Matt: Because of that and because it was so easy, and the uptake was so easy, we just said ‘Why not?’, because once again it’s a subset and then when a business gets a document signed by one of these individuals, they’re curious and they go visit our website.

Jason: Yeah, are their lawyers OK with that, when a document comes back with a face and no signature?

Matt: We haven’t had a single signature questioned yet.

Jason: And how many signatures have gone through?

Matt: Several thousand.

Jason: Oh, that’s great

Patrick: So you’re saying there’s a viral nature, too.

Matt: Yeah, that’s kind of the whole idea, well from the consumer perspective we can see people assuring and then it drives interest on the business side and once again, the way we found out there was interest, one particular market that we’ve seen interest is reverse mortgages, because people are concerned with fraud and those signatures. We would have never found that out without the consumer product.

Jason: Well here’s what it sounds like to me. I think using the words ‘consumer’ and ‘business’ may be artificially segmenting this stuff out. It certainly threw me for a loop because it seems to me like the average Joe just doesn’t care. So maybe it’s not a good idea to draw the line between consumer and business and say that that’s some kind of important thing, maybe instead the way to think about this is, there’s this free app you can use it by itself and it’s viral because obviously there’s always two people involved in a transaction, maybe more than two. That’s great, you have this thing that doesn’t cost you much to support. Even people who sign stuff all the time are not gonna be throwing gigabytes of stuff through your system everyday, so it’s gonna scale very easily with a lot of free users.

Then you have this back end, as you said, you don’t have to say business, right, and why should you. What if it’s an angel investor who just wants to keep all this stuff online. Is he a business? Why even bother trying to say that he is or isn’t part of some segment. So just say there’s this great free app that just does it, and then if you want a system of record and it’s secure and you want to be able to look through it, then there’s other things, like some of these things might expire after a year, maybe it could give you an email telling you, ‘Here are the things that are expiring in the next quarter.’ That would be kind of usual to have. Not an MVP, right, but you can see how that more sophisticated back-end could start adding value over time to people who care about all those documents.

I wouldn’t make that separation, instead I would just say ‘It’s this amazing free app for signing anything that happens to be faster and more secure than a signature, how cool is that? It’s free, so there’s no reason not to use it, and by the way if your getting these there’s this back end.’ And by the way, you should also be pushing this back end. If I use this app, I should have to put in my e-mail address, and then you can do things like e- mail me a PDF that’s like a receipt almost that this happened.

Matt: We are currently doing that.

Jason: Right, so now you have this big email list that’s oped in, obviously. Which means you can use it to say, ‘Hey, you have all these documents’, you know how many documents they signed so you can say, ‘Look, we know you have 13 PDFs kinda floating around you email, for only, I don’t know what it’s gonna cost, but at your size for only $20 a month, we’ll manage that for you and we can tell you when anniversaries of those signatures are coming up, that sort of thing.’ So, I can tell you, a really obvious use for this would be NDAs. The thing about NDAs is they all expire.

Matt: Actually, we have a lot of NDAs that go through. We have the documents, not only do we encrypt the documents but we have the names of the documents that go through our system.

Jason: Yeah, an NDA expires and usually it’s on a year style boundary, so best if you knew when that was, but what would be perfectly fine is if you told me, ‘Hey, an anniversary of a signature of this document is coming up.’ Because things that expire generally do so in units of years, and so that’s actually really nice to know when I can kind of shred this thing and it’s no longer there. That would be a service, and this is an excuse now, to e-mail everybody and tell them about this, ‘And by the way, if you paid money we would be doing this all the time.’ and so forth and so rather than saying, ‘consumer with fewer features in business’, I would say it completely differently and just say there’s a free component which is usable by itself and there’s a for money component that adds value, and not use those words.

Matt: OK. Because you know that’s really how we differentiate it. We actually call it the recipient product on our end, but we are searching for a better language as far as how to describe our product. If you don’t mind me extending a little bit into the question, like I told you we’ve had a lot of interest in the enterprise market. But those are long drawn out processes. A lot of potential in particular with a large consumer product company. Should we continue to focus on this consumer side or the free component when we have these big enterprise deals we are trying to negotiate?

Jason: Well, any of these deals are going to take forever to close.

Matt: Yes, exactly.

Jason: And then there is going to be some development. And that is going to drag out for some reason. And then they are going to want to pilot it. And all that stuff is fine, because probably just one of those could make the whole company I am guessing. So that’s fine. It also cannot be your primary strategy. It’s just going to take too long and it’s not in your control and so forth. And so I would pursue those and think of them as second priority.

The first priority is you have to get control over your own business. I mean that’s already difficult because you can’t control what other people do. But to the extent that you can control the growth and usage of your product. Of course that’s what you have to do is get your arms around that. So one of the things I would challenge you with is, what is like the most important driver for this business. Is it the number of transactions? Is it the number of people who are using this app? Is it just the number of people who have it installed? Is it the number of e-mails that you have because of the app? I think you could make a pretty good case for any of those actually, like all those are rational. I would sit down and ask like, what of that is really going to drive to revenue.

So in other words, having fewer people who use it more than once a month probably drives to revenue more than just having tons of people that barely use it. Because if you barely use it it’s cool, and there is some value and I agree with you with that, and that’s neat. But that’s not the best driver. But you may argue and say, ‘no, no, no, the more e-mails we have, we can just continue telling about cool stuff, we’ll learn more and we’ll come out with the new product and we can e-mail it. No, the e-mails are key’, you might argue, and that’s a fine argument, too. But I would have that debate internally, decide, and then let that drive what you do as far as this product is concerned. What you call it, how you promote it and so forth. And even which features you decide to put in the free side or not. Because obviously you want to select the features that will grow that one number that’s important to you.

Matt: That makes a lot of sense. I actually feel pretty good about it. We’re pretty on track with the stuff you said, but then you definitely helped.

Patrick: Good, well thanks for calling in Matt. I appreciate your time.

Matt: Well, thank you guys.

Patrick: And, certainly know that I am cheering for you. Take care.

Matt: Alright.

Patrick: Alright, next up. Actually, before I introduce you, there is a little format that Jason does. I’m going to warn people. Jason does not know anything about the companies. I offered to brief him on some of these companies, he said, ‘No, no, no, it’s more fun if I don’t know.’ So, Jason is going to ask for your company name and he’s going to try to figure out what you do from the company name. So play along with that if you don’t mind. So next up we have Sean Tierney from Scratch Audio. Sean, are you there?

Sean: Yeah, what’s up guys?

Patrick: Awesome, how are you doing, Sean?

Patrick: Good.

Jason: That is a cool name, Scratch Audio.

Sean: Thanks. What do you think we do?

Jason: Yeah. I don’t know. When I think of Scratchy Audio I think of LPs. They can have scratchy, on the other hand you kind of what them to. And it’s like some ineffable thing that’s missing now, I guess maybe it’s effable, it’s the scratchy part. So I think Scratch Audio is trying to make the sort of cold, digital sounding audio sound more warm and feel more like an LP?

Sean: Interesting guess, not anywhere near it. I guess the etymology of the name is more, think of it like a post it note and basically the ability to take an audio segment and share it and collaborate on it and post it. Kinda like the way Google docs lets you do with documents, only an audio track.

Jason: Cool. OK. And what’s your question today?

Sean: I don’t actually have a specific question as much as, Patrick invited me on and he’s seen what we do, he’s played with the demo, and he just thought you know sharing what we do and maybe getting a sanity check on the approach that we’ve taken would be interesting.

Jason: The approach to the business model or the product or what?

Sean: Yeah, so, it’s . . .

Jason: Which one?

Sean: The business model. We’ve basically made the technology, we did the mistake that they tell you never to do which is to make a cool technology without thinking about the business problem you are solving. So we are kind of retrofitting the business model on top of it now that we have this killer technology.

Jason: So what is the current theory of the business model?

Sean: So it’s two front. We have the technology, we’re actually post- revenue now. We got our first revenue last week via a licensing deal on a company out of LA that already has an existing business and they saw our technology is being able to increase sign-ups, reduce overhead, all that.

Jason: Is licensing what you expect your business model to be?

Sean: I see that being part of it, yes. I see there being, basically like a platform play with the technology, but then also we have an idea around, basically becoming a customer of our own platform, and we’ve built this thing called Mix Fork which is like the first application built on the platform.

Jason: Who said they were going to buy a Mix Fork?

Sean: Well, Mix Fork is like a, it’s a service targeted towards bands, basically lets people…

Jason: OK. So which bands said that they were going to buy Mix Fork?

Sean: Which bands said they were going to buy it. I mean we’re working with one band right now, nobody said they are going to buy it. We’re about a month…

Jason: So, in other words, you’re making the same mistake again, right?

Sean: Sure.

Jason: Right? You built a platform, oh yeah, I forgot, I should find out who wants the platform. Well, we’re not sure but maybe someone does so we’ll go poke around and then you decided, OK. I’m going to build an app on the platform. But, nobody wants the app either, yet, right? Or at least you’re not asking people if they do.

Sean: No, we are.

Jason: You are? But no one said they wanted to pay for it?

Sean: No, no, no. We’re very early in the process of testing all this stuff, so I would say we haven’t confirmed or refuted whether people want this yet. The thinking is that bands, it’s very difficult to monetize music right now, just selling music and rising above the noise, is just hard. The thinking is that we can enable bands to expose the raw audio stems, let their fans personalize it and make their own mix, and they’re going to be much more inclined to buy that personalized mix.

Jason: Why do you think that that’s true? What evidence do you have that bands want to do that and fans want to do that?

Sean: I mean, it’s speculative. We talk to bands, they all seem to say, ‘Yes, it sounds like a great idea. Let’s do it.’ But obviously no one’s paid us yet. At the same time, we’re a month into it, so it’s too early to say.

Jason: Why are you a month into it, though? Why build it at all until you have at least a dozen people who are going to pay for it? Why write any code when no one’s committed to buy it yet?

Sean: There’s no code involved in Mix Fork. It’s literally using the exact same scratch audio technology and it’s just a way of packaging it and presenting it to people, so we haven’t invested a ton of time in that. I hope you don’t take that away from this.

My question to you is, given the limited scope of what you know about what we do right now, and that we do have a customer who’s buying the platform, we have this theory about, very similar to the last guy with the signature technology, that this consumer side of it, having bands actually pushing it out there and getting their fans to use it could broaden the usage of it, and then that just gets a lot of eyeballs and opens up doors for the platform side. Does that seem like a viable strategy to you, or what would you do if you were in our boat?

Jason: You can count on one finger, or one hand, maybe one finger even the companies who actually make a profit on API’s or platforms. It’s hard. Nobody wakes up in the morning going, ‘Man, I wish I had a platform. Man, I wish there was another API.’ It’s really hard to push it. People buy apps, not API’s, and you got no evidence that anybody wants to. It sounds good, of course if sounds good to me, too, but until people are opening up their wallets, it doesn’t count. Do you guys need to make money or is this a fun project?

Sean: No, no, no. It’s clearly, this is a business. We do have a customer, we have Songs Ink in LA bought our technology to increase the sign-ups and engagement and whatnot with their users where we delivered it yesterday. We do have a customer for that. It’s clearly not going to be a huge market, and so in absence of having a very clearly defined market, the thinking is that we can use this technique of working with bands to just get out there, get usage of it and worse case, have a bunch of people using the system.

Patrick: Jason, I remember on the last show, you were talking to a guy about the idea of building an asset that there are times that you can reasonably say, ‘Clearly I have an asset here, I haven’t yet figured out how to monetize it, but the asset itself seems worthwhile.’ How do you evaluate whether or not what you have built, so in this case, what Sean’s talking about, Sean, can you describe what the asset is that you have and that clearly has value even if you haven’t yet figured that out?

Sean: The asset is, we essentially ported garage band to the web. We made a browser based multi-track recorder that has the desktop comparable experience. That’s the asset. It’s a Silverlight, it’s a whole stack. We negotiated our cost down to zero, we’re running it on the Azure platform. It’s Silverlight based. It works pretty well. Everyone that uses it likes it, it’s just it’s not clear yet how we’re going to be able to charge for it.

Jason: So, let me put it a different way. Right now, nobody’s using Mix Fork because that formulation of this thing, that packaging, doesn’t exist yet. Fine. Let’s suppose 1,000 people are using it. Is that better? Are you making money? Is there some value to having 1,000 people use it instead of ten? What is the increased value of having 1,000 people using it instead of ten?

Sean: Sure, at that point we’re either charging the bands to do it or another strategy. We had this whole charity strategy we outlined. Maybe we create it as a fund raising tool for charities, pair them up with the bands and take a cut of the revenue from that. There’s one hundred ways it could play out and we just don’t know at this point.

Jason: Yes, it’s very hard to point to any companies making money doing something like that, and that’s the problem. Charities, number one, don’t have any money and bands don’t have any money. Very few bands make money. There’s a company I advise who does sell things to bands and it’s almost impossible to sell to them even though they have incredible competitive advantages.

One guy is in a well-known band and has amazing connections. They talk to Justin Bieber’s agent, Lady GaGa’s agent, people like that. That’s how into that market they are. It’s absolutely competitive advantage and it’s still almost impossible to get anybody to move at all, much less pay money for stuff. In their case, they’re actually generating new revenue from the band so it’s easier to take a cut because they’re not charging the band. They’re generating new revenue and then, obviously, it’s easier to take a nice big piece because it’s, essentially, free money for the band. So, if you can find some way to do that, it sounds good.

But, I guess, naively, it just seems like if the point is the fans can remix, well, they do that anyway. It’s easy to find remixes of songs. I get it that there’s the stems, I get all that. You say there’s a hundred ways to monetize it, but I don’t see easy paths to monetize it. There’s many ways and none of them are proven and it’s very hard to point to examples of companies that have proven any of those paths, especially with bands. There’s no prior art to point to and say, “See, a lot of people are making money doing this.” They’re not. You don’t have any evidence of your own in the business plan of people making money.

What I would do is this: let’s say there are one hundred ways to make money. I don’t believe that, but let’s suppose there are. Pick one or two that are the best ones, the easiest ones, and try to see if you can do that. See if you can get bands to pay for this before it exists. I know that sounds really weird, but, actually . . .

Sean: No, no. We’re on board with the whole lien. We’ve actually tested some subscription plans where we don’t even have the plans in place, but we’ve done multivariate and serve different plans and see who clicks through.

Jason: That’s not what I’m talking about. I mean, someone wrote you a check even though it doesn’t exist yet.

Sean: Is that ethical, do you think?

Jason: Yes. Sure. Of course. Well, A, If they literally write you a check, don’t cash it. B, you can give them a refund if you want to. In fact, you could even decide later you’re going to do a beta program, you’re going to do it for free,then thank them for coming on board. You can refund that because it’s really a test to make sure they are actually engaged and not just telling you, ‘Yeah, I guess it’s cool’, which is what they’re doing. If I’m a band, why would I say no? I’m going to let my fans do stuff that’s cool. Why would I say no? Of course I’m going to say OK. It doesn’t mean anything. It doesn’t prove anything. You haven’t learned anything about whether this is actually valuable to them or if they’re just saying ‘yes’ because, why wouldn’t they.

As soon as you say, ‘Write me a check for fifty dollars, that’s it, just fifty bucks,’ that’s when you start finding out if they’re willing to pay even fifty dollars for it. That’s what I would say to do. Decide on a couple ideas for what the business model could be and then go actually get some money. I mean, little money, not a lot. Not a big licensing deal, just a little something so they’re putting their money where their mouth is.

Sean: Sure.

Jason: You say there’s one hundred ways and it’s easy. I’m telling you, there are not one hundred ways, it’s not easy and almost no one is able to do it. So, if you have no evidence of, at least, a particular way that some people are picking up on, then it’s really hard to believe.

Sean: Cool. All right. Thanks for your advice.

Jason: Good luck.

Bob: Sean, are you still here? I just want to ask you one quick question. What if the band’s customers asked them for this service? Would they then listen?

Sean: Yes, like asking your doctor for advice when you’re in pain.

Bob: I think you need something, along the consumer side, that makes it really easy. When they pick a piece of music, they push a button and off goes an e-mail to that band saying, ‘I’m one of your biggest fans, but I can’t do X.’

Sean: Yeah. That’s a really interesting idea.

Bob: You need some demand somewhere. I can see the benefit, but you need some demand somewhere. Just wanted to throw that in.

Sean: Yeah. That’s a really good suggestion.

Jason: You know, Sean, let me also throw in something positive, since I just realized everything I did was taking a big dump on everything you said. Let me make this positive by throwing in another brainstorm. I really like what Bob said, in fact that’s what made me think of this. How can you make the band more money? If you could figure that out, you’re in. Because of course, every band wants to make more money. Every band wants to make more money. Kiss is really good at it all the way down to guys that are not very good at it, right?

For example, one way a band makes money is that people subscribe to be in their fan club. That’s like annual or monthly money. That’s the best kind of money that you can possibly have. Plus it’s elite that you can do special things for them. Everything about a fan club is this really powerful mailing list and they’re paying for it and you know who you’re best fans are and you can do stuff for them. It’s the best thing.

Patrick: They’re the ones who’d want to have a remake contest.

Jason: Aha, see this is what I’m getting to. What if the deal is who wants to remix the stuff using the, as you say the stems, or whatever the right word is? It’s only available to people who are in the membership club and the results are only available to people who are in the membership club. Other people can buy the thing as a CD or you get it for free when you’re inside the membership club or whatever, I’m just brainstorming I don’t even know.

What can you do to drive people to, for example, become a part of the fan club? That’s super-duper valuable. This is just an excuse to do something really awesome and that’s why they’re going to join then killer, right? That’s a great thing.

Man 1: OK. Cool. All right. Keep working on it Sean, thanks. Bob, thanks for unmuting there, or I guess being unmuted. One little point I want to make there on something Jason was saying, there’s kind of the view of customer development with the idea of having a button, seeing if someone clicks on it without, and then when they click on it says, this isn’t implemented yet. That is one way. There is nothing wrong with that, but as Jason was saying, an arguably simpler form of customer development is just finding some customers, just find people who are willing to pay you money. You have to decide which ones appropriate for your situation.

Jason: Just be clear, when I tell you, when I say things like, get people to give you money before you have a product that’s easy for me to say, right, because I’m not sitting there doing it? Except that’s exactly what I did at Word Press Engine. More than one of the companies at Capital Factory did that too and was getting, they had, one of them had over two dozen companies literally give them money before they had a product. It’s not in the abstract. You can do that when the product is really compelling and it really demonstrates that it’s compelling. OK. Let’s move on.

Man 1: All right. The next person we’re going to go to here is the young guy named, Seth Samuels.

Seth: Hey, How’s it going?

Man 1: Good. How are you doing?

Seth: Doing Great.

Man 1: Why don’t you tell Jason what the name of your business is and see if Jason can figure out what it does just from the name.

Seth: Sounds good. Thanks Jason for taking some time. The business is called Converati.

Jason: Converati?

Man 1: Converati.

Jason: Converati?

Seth: C-O-N-V-E-R-A-T-I.

Jason: The Illuminati of, the conversational Illuminati. So that’s people who sit around in smoking jackets and suck on cigars. Here’s what we think about people who smoke cigars and actually my wife smokes cigars so you know, but I know she smokes cigars and she drinks whiskey and she has this really hard pallet, it’s really awesome. You go to a bar and she get’s like a Guinness and a whiskey and I get like a Margarita. Then again, she’s a chef and awesome.

Anyway the thing about people who smoke cigars is they take a drag on it right, and the next thing is they turn their hand around and look at it. You got to look at the end, I don’t know why you got to take a drag and turn it around and look at that mother, right there. I don’t know what they’re looking for. Maybe if it’s still lit, I don’t know what’s going on but that’s part of the deal you’ve got to look at the thing.

So anyway, the Converati sound like people who are expert conversationalists who sit around in smoking jackets and look at the butt of their cigars and swirl their brandy in the glass and have amazing conversations with French intellectuals. What is it really?

Seth: Well, I didn’t have the French component normally added but otherwise I’d say that’s pretty spot on.

Jason: You know why? Did you know the French, intellectuals were philosophers in France. They’re like rock stars, best selling novelists . . .

Seth: Is that right?

Jason: Oh, absolutely. There’s a woman there, what’s her name, Elizabeth, someone probably knows and will put it up on the chat, but I forgot who it is, she just came out with another book, she’s literally like one of the rock stars of the country and she’s literally a philosopher. So anyway go ahead, I’m sorry, I’m monopolizing all of your time. So, tell me again exactly what it is that you’re doing in a sentence or two, and then what your question is.

Seth: Absolutely. Basically, it’s a great vehicle to connect people who have mutual interests, and that’s what we’re trying to do. My question is: I’m curious to hear what your perspective is on using mobile as an alternate approach to a broad problem that people have identified through customer discovery, what not. Specifically the broad problem is like I mentioned, trying to connect people who have shared interests but don’t yet know each other. They’re not friends on Facebook, but want to connect their conversation.

Just to give you some context, we started out focusing on the web as the context that people could come together around, like a web page. We found that comment lists and forums, as well as e- mail threads, were not great for trying to have a back and forth discussion. To try and solve that, we built a browser extension, to have those user conversations take place right on the webpage. But there were some concerns about install friction and scalability. Obviously it’s tough to scale a business based on a browser extension alone.

So we looked to mobile, since it’s more widely accepted that people will install stuff on a phone, but the premise felt different. The reason I’m calling in is that I”m curious about your perspective on how we can tell whether going after mobile is a complete pivot away from the initial problem, or an alternate approach, given that using a phone is is very different from using a computer, at least to look at web content and talk about it with people, and have a back and forth discussion about it.

Jason: What I heard you say, maybe I got this wrong, is that you started on the web, and it didn’t really work, even though the web should be the most frictionless and obvious place to do this. Then you did a browser extension, but obviously it’s too hard to scale installs, and it gets complicated. It almost sounded like you moved to mobile because it was easier to get something installed, which is definitely not a good reason to switch a platform and go mobile. Besides, the web is the easiest thing, where there’s nothing installed an everyone has it, including on phones. I don’t see why going mobile automatically is better.

I have two questions for you, one is about mobile. Why did you select other than the install thing? What is it about being mobile that’s actually important to your goal? The second thing is, you said your goal is to connect people with mutual interests. That’s what all of social media in the web is for. There are 1,000 sites that say, ‘Put in your twitter handle, I’ll tell you people you should follow and get to know,’ and ‘If you’re going to this conference, here’s how to get to know other people who have your interests,’ and, ‘You should read blogs,’ and all sorts of things, Facebook, and liking, and everything there is about connecting people with mutual interests.

That can’t be the goal, that’s what the whole internet is doing. Surely you have some more specific thing you’re trying to do here, like actually make them meet, actually make them talk, force them to meet each other almost like a dating game but it’s not romantic, or something. You’ve got to help me out here and give me a goal that isn’t just the goal of everything.

Seth: Sure. A specific example is, I went to a…

Jason: Give me your goal that isn’t just connecting people with interests, because that’s not enough.

Seth: The reason why we chose Converati as a name is that we felt that people who have shared interests, not just that they like something, but that they want to talk about it, whether it’s great food or a political issue, that conversation was the medium to do it. It just didn’t feel like there was an environment where you could have a group discussion with people, it was more like comments, one to many messages, Twitter, et cetera. You’re bringing up a good point, because connecting is very broad in and of itself.

So the goal isn’t just to make connections for people, but to help people have an environment where they can actually have a discussion with folks they don’t necessarily know, are friends with, colleagues, or what have you.

Jason: So it’s a forum.

Seth: Sure.

Jason: That’s what forums are. And there are already forums on every topic known to man. So what’s the difference between you and a forum?

Seth: The setup of Converati is not just to have a public space. We call them campfires, or huddles. They’re to allow people to form specific discussion groups, or forums, as we’re calling them within that larger group. In a traditional forum, anyone can jump in, and you have a big problem with trolls. Otherwise forums would be great, but trolls are the primary problem, and they skew a lot of quality. We want people to have an environment where they are able to form smaller group discussion settings within the larger group, but still find people to include.

Otherwise, e-mail would do that, but e-mail is only available to whoever it’s addressed to, and click ‘reply all’ upon responding to the group. Something where folks can have that quality discussion, yet allow it to be open to others to join in. In our case, we’re using a request-based system to do that. So if you’re not in a discussion, then you would request to do so. Instead, the premise is forming new small discussion huddles within a larger, crowded room, if you will.

Jason: And is this discussion based on lots of topics, or just one topic?

Seth: Given that we built the extension, we, in turn, didn’t focus on a specific topic. That’s one thought, just to be more focused. For example, politics is a great place where we could have focus, just because there’s a lot of back and forth debate. We weren’t necessarily sure how to focus in just on that, so right now it’s on any topic.

Jason: So is this sort of like Quora, but for different topics, because Quora seems like a thing where there’s a discussion group, there’s a little mini-topic, and they control the quality. There aren’t a lot of trolls on Quora. It’s pretty nice. Or Stack Exchange isn’t really a discussion. That’s like another step away from what you’re talking about. So that doesn’t seem right. But maybe Quora is a little bit, although I guess it’s still not a discussion. It’s still a one to many in an order, but it’s still not really a discussion like you’re talking about. Is that right?

Jason: I would agree. I would agree that Quora is interesting because it has that quality, but it’s still one-to-many.

Seth: So first of all, don’t say this is connecting people with interests, because I think what you’re saying is really valuable. Not just allowing, but encouraging conversations at the scale and quality control in which you can actually have a discussion on something, where you get to find people, in the sense that it’s a larger forum, but then when you actually sit down and talk to people, it’s more like sitting down in a room and just talking to a number of people. It might be two, maybe ten, probably not much more than that, and to be able to form and re-form these groups like you might at a party.

Maybe a good analogy would be, what’s the best cocktail party you’ve ever been to? You mill around the room, everyone in the room is awesome, and you form and re-form these groups that are small enough that you can actually have a real conversation. And the people in those conversations are intelligent enough and sensible enough and are not trolls so that you actually have something intelligent and something interesting happens there, and then you dissolve and re-form into other things.

That analogy, and doing that on the web, and getting rid of the troll problem, etc., that sounds really valuable, but I wouldn’t describe that as connecting people with mutual interests, right? That’s so broad. Is that right? Is that more what you’re talking about?

Seth: Yes, so essentially it’s digesting a large room to form that conversation group, I suppose.

Jason: OK, so let’s get back to the mobile question. You said we made a mobile app. So why would you make a mobile app? This doesn’t sound like mobile app at all. When I want to communicate to people a lot, I want to be able type, probably on a keyboard. I don’t know why I’d do this on the go, per se. I don’t get it. Why mobile?

Seth: We were, someone said, why don’t you look into mobile? I think you answered that partly, which is you don’t do it just to have an easier install, but that was one of the reasons, honestly . . .

Jason: No, no, because everyone with a mobile app has a web browser, and you already have this on the web, and the web is the easiest no-install thing. And it works on mobile and desktop. You already have the obvious platform for this, right?

Not that you couldn’t make an amazing rich mobile app to complement it, I get that, but that’s not where you are right now. You don’t have, like, an amazing thriving thing where everyone understands it and it’s super-popular and now you’re just going to enhance it with an amazing native mobile app. That’s not what’s happening, right? So I don’t know why you’re bothering.

I would make it mobile-friendly. I would make it so if I go there on an iPhone, it’s very usable, of course, right? Because you don’t want to cut out mobile, but I don’t understand how this is a mobile play, per se. It sounds like that’s not your fundamental issue. Your issue is going to be to get a critical mass on some general topic like politics so you can form and re- form these groups and have enough people there where that’s a good thing, right? Is that not the problem?

Seth: So would you have a focused website, just like Quora’s approach, where they have the questions and all that exists within Quora’s walled garden? The reason I’m asking that is because we felt like the things that people would want to talk about existed outside of converati.com. They existed on the web page they’re reading when they get up in the morning, anyway. So that’s why we said, oh, let’s just build an extension so they can have the discussion right there. But there’s a lot of stuff that doesn’t work well with the extension.

Jason: Well, if we got your new analogy of the amazing cocktail party, then no, it doesn’t make sense for it to be around a blog post. A blog post may kick it off, but it doesn’t make sense that I would go to a blog post, then what? Because there’s some real timeness here. Not super real time, not like Twitter . . .

Seth: Quasi-real time.

Jason: Quasi, like there’s some decay, like if people haven’t talked for three months, because it’s high value. I don’t want to end up, as a user of this, I don’t want to end up with a thousand conversations which all sort of. . . every once in a while someone posts something, even if it’s good, because that’s not, I think, the value that you’re bringing. Would you agree with that?

Seth: Yeah, I would.

Jason: So even more so then, it doesn’t make sense to be on some blog post someone might read two years later. Right, I think you need to control that experience a little more.

Seth: Actually I think there is something interesting in that, however, where people find things at different points in time. If you start a conversation, you start it up with three people.

Jason: That I like. Using a thing that I just read to strike a conversation sounds brilliant. Right? Piece of news, an insightful blog post, an inspired blog post, something you disagree with. Using that as a tickler as the sand in the oyster, right, that’s going to make the pearl. That makes a ton of sense. I’m not sure it makes sense to have the conversation there.

Seth: Interesting. See that’s what I’m interested in. Like, OK, so then what happens when you read it? People do have the conversation there in the form of a comment list, but no one reads them because they are full of junk. So how do you cross the chasm, if you will, to go from reading to where the conversation is and will people get lost along the way?

Bob: Seth, I think you’re missing two points. First off, normal people who are doing their average sort of thing, don’t talk to strangers. There’s no real incentive. When an event happens, be it Columbine, University of Virginia, Mumbai, earthquake when you didn’t expect one, whatever. That’s when they want to talk to strangers.

So what if you had on the mobile side a way that you could put in things you’re interested in and if something, let’s say close to you geographically or close to you emotionally, happens, you could just push a button on this app and get connected to a trusted list of people who also want to talk. The point here is you gotta get rid of the trolls, but you gotta have some sort of emotional energy going on to get people kicked into talking to strangers.

Seth: You bring up an interesting point. Jason, I wanted to share this as well. One of the other reasons for mobile is, Bob you’re exactly right. It’s events that often bring people together. So one of the assets that we saw in mobile is that it can utilize geo- location, but that’s very different than web location, which is some webpage. So I would agree that geo-location is interesting because if you’re at a conference, let’s say. You go, you’re excited to hear what’s going on, but you don’t know all the people around you.

I was just at DreamCourse in San Francisco yesterday and that’s exactly what happened. I’m sure there’s a lot of people that would love to have that discussion. The most we do right now is we use a twitter hash tag, but again, these are one to many replies. They are very asynchronous. So that would be a strong point on the mobile side, but again a little different than what Jason was talking about, but I’m glad you brought that up, Bob, because that is the primary reason why, other than the easy install, that we’ve really looked to mobile as an interesting path to take.

Jason: I get the whole geo thing, except if you don’t have a specific use case for it in mind, then you’re just saying something that a lot of people are saying today, right? If, yes you have geo, but you don’t know what you’re going to do with it, are you actually going to connect people in real-time? Are you going to say ,’This guy’s in the same coffee shop as you, you should go talk to him,’ because if so that actually sounds like it could be awesome. But if it’s sort of just like, ‘Hey there’s geo, maybe someday we could something.’ Why are you bothering? You have a very difficult path. You have a networking problem. If you get to critical mass, good for you, but getting there is super hard and we’ve seen tons of these stack overflow knock-off kinds of companies. Dozens and dozens try and fail because they couldn’t get critical mass, not because their software was bad or they didn’t have good ideas, but it’s really hard to get critical mass.

So to me, if I’m thinking, ‘How do you focus your energy on something useful to you?’ That is your primary problem. That’s the thing to get over. Making the experience so amazing that it’s amazingly sticky is the thing you want to do. Secondly, make it viral after that. Once I’m stuck to it then it’s easy for me to drag in people that I feel should be part of the system. For example, stack overflow was sticky because of the rating thing. I guess Quora maybe is the same and also because it was an invite only thing to begin with. So it was a walled community. I was in there in that beta program, so I can tell you, super high quality, you wanted to be part of this, you wanted your rep to be high in this community because it was a group of people you respected and so forth. Like it had all these makings of exactly one of these rooms you’re talking about except maybe a little bigger. The kinds of things you’re talking about, high quality.

Then of course they had to open up the gates and see how to manage that, you’ll have to do the same thing. Quora again the same thing. That’s already really difficult to pull off and get critical mass for. Maybe like gmail and these things, actually Stack Overflow was like this a well, where you have invites. As long as you have a small group of trusted people who are zealous about the platform, because it is good, and then you give them this limited number of invites and as those people come in so long as their reputation stays high the original person gets more invites, because they’re inviting the people you want.

In other words you can easily build in the thing that allows you to grow and keep the quality high, for at least a little while and get to that critical mass where you’re rocking and rolling and then you can start experimenting with wider things. So that’s just a whole long way to say that I think that kind of stuff is your main problem that’s going to be why you are successful or not.

Unless you can, again you have this amazing theory of geo that’s like all different, then more power to you. But if not, you’ve gotta attack the main thing.

Seth: Just on that point, are you convinced, at least from your perspective, that that sticky component is easier to create in the web setting, the Quora like setting, as opposed to the mobile geo setting? Just from the little that we’ve spoken about each.

Jason: Well you haven’t yet told me why being mobile or being geo would be better or more sticky? So that means I don’t see it. Maybe there is reason. The other thing is I think being sticky is key. You want people who show up and do a conversation and come back and do more conversations. It’s so compelling that they would rather come back here and have the conversation than wherever else they might have that conversation or maybe not have it, right?

Patrick: I want to get Jason’s perspective on one thing Seth. Full disclosure I know Seth, he’s a friend of mine. Went through West Michigan’s Incubator Program, I think it’s related to what we’re trying to do here. What intrigued me about Converati from the beginning is I worked for a company that I love, Microsoft. And it is impossible for me to engage people online in meaningful conversations. I mean it’s comically impossible. Go to ZDNet and look at the quality of conversation. And if Seth can solve that problem. I have to think that’s valuable to companies like Microsoft.

So with that in mind, the problem of bringing civilized discourse to people who aren’t going to come to a Microsoft property necessarily, but might be a company like Microsoft or another big company who has issues with communication on the web, how would you think about that problem and approaching a business model that way?

Jason: I think there’s at least two ways to do the business model here. There’s the obvious one which is advertising which I hate, but Quora and Stack Exchange are big enough to pull it off. I still hate it though. I don’t think it’s in general a great way. However, I do believe in the whole sponsorship thing. What would make sense, let’s say it was about start-ups, then it would make sense for example, for BizSpark to be the sole sponsor of the whole site. So there’s not ads everywhere and you’re not bothering everybody, but it just says, ‘Hey this is an awesome thing the reason it’s totally free is because Microsoft wants these conversations to happen because they’re awesome and because BizSpark really does want to promote start-ups.’ Which they do by the way. They do try to sponsor things like that because they do want start-ups to succeed and they do want you to buy into their program because it’s a great way to get a bunch of Microsoft stuff essentially for free. So that makes a lot of sense to me at least to bootstrap up the company, get enough revenue to run it. I think that kind of big sponsorship makes sense.

Of course if you let them pollute things with inside the content, that’s going to ruin the whole thing especially when you’re too small and a little bit of that will poison the well and you’re all finished. So I don’t like that.

Now that’s all one side of things. Another way is you could take the old, remember when AOL was the big spammy thing? It was the cheap way to get online. Maybe you don’t remember. And then there was Compuserve. It was AOL V. Compuserve. The deal was AOL was super cheap it kind of sucks and everybody is like a 13 year old or crazy pedophile and that’s the deal on AOL.

Then there was Compuserve. Compuserve was expensive. I forget now what it was, but I want to say it was . . .

Patrick: 12.99?

Jason: No more. It was like 30, 40, maybe more. It was a lot more. So AOL was givin’ you essentially all free hours. But Compuserve was super expensive but as a result you had really high quality people. You didn’t have all those spams and trolls and things. And companies wanted to be there and sell their wares. It’s pre- qualified as people spent money and even spend money online in a world before online. So here was a place where they were charging people for entrance and that was the thing that kept the quality high.

I think you can actually do that. I think if you said to people, ‘Look the internet is full of crap. We’re going to charge $20 a month to be in the walled garden. I know that sounds kind of weird, but everyone in here is gonna be pretty good.’ And it’s an interesting way to select people. Some people you would want in there won’t pay. I mean it’s all true, it’s a weird choice, but I just want to bring it up as a business model where you end up with real revenue, perhaps slower growth, but every single person who comes is automatically sticky, they’re spending money to be there. As long as you don’t screw this up they’re going to want to be in this kind of place, and you’re not dependent on sponsors, although I suppose you could take them. Although, at that point maybe you don’t want to, because I paid money, now I don’t want to see an ad, right? So I just want to throw that out there as a way to simultaneously develop revenue and keep the quality high.

That, by the way, is how a lot of very high-quality walled communities work today. For example, I mentioned earlier that my wife was a chef. Early in her career, she was a personal chef, meaning she comes to your house and cooks. There’s an association called the American Personal Chef Association. It costs a lot of money. It’s like $600 a year. That’s a lot of money to be part of some association. What do you get? You get a big binder of stuff that tells you how to be a personal chef. But here’s the thing, you get access to the forums. Forums is where you actually get to ask questions. ‘Oh, this happened,’ or, ‘I need a recipe for that,’ or ‘This person’s allergic to onions. What the hell do I do?’ These are all literal things. I didn’t make these up. They were super valuable, and high-quality because it was a paid walled garden.

Patrick: It’s the Angie’s List.

Jason: Yeah. Angie’s List. So there are examples modern. You don’t have to go back to the ’90s to find these examples, either. That’s an interesting path that sort of achieves all of your goals at the same time, maybe.

Seth: Yeah. There’s definitely some concerns around, just how it can grow. Obviously, you mentioned focus very early, and so I think charging for it wouldn’t be a bad strategy, either, in terms of obtaining focus on a really specific group, because if you say, or if one says, ‘I don’t want to charge because then no one will sign up’, well, I think there is an element of it where you don’t want everyone in the world signing up right away. You want to kind of control who gets in and things li