2014-01-21



How often have you met someone and thought, “This would be a great person to add to my network, I really should keep in touch with them”?

Likely too often for you to actually keep in touch all of those contacts on any meaningful basis, right? Well, Zvi Band noticed that he wasn’t the only person with this problem. It wasn’t as though there weren’t a ton of tools to make those connections – from email to LinkedIn to phone calls or cards. What was missing was something to help maintain a number of relationships over a variety of channels. Zvi founded Contactually on the premise that there would be a ton of value in a product that made it easy to do this follow up.

To grow the customer base, he focused on integrations & partnerships, and he shares those details in our interview. He also shares a lot more of what helped grow Contactually to seven figures in just one year.

Listen now and you’ll hear Zvi and I talk about:

(03:20) Introductions

(10:50) Overview of results

(12:20) How they got their first 100 paying costumers

(18:20) Overview of how they handled integration and partnerships

(23:20) How they financed the very early stage

(26:20) How they dealt with the challenge of focus

(28:20) Overview of how they raised their first round of financing

(22:20) How they got into 500 startups

(34:20) What they did after getting the first round of money

(36:00) How convertible debt works

(40:20) Revenue generation after the 1st round of financing

(41:20) Overview of KPIs they watched in 2012

(43:20) How they paid attention to churn to reduce it

(47:20) Overview of best practices

(49:20) Do investors repeatedly invest?

(55:20) How and why the hockey stick happened

(If you’d like to hear from more successful software business owners, check out all the great Bright Ideas interviews and podcasts on this topic.)

Resources Mentioned

500 startups

Intercom.io

More About This Episode

The Bright Ideas podcast is the podcast for business owners and marketers who want to discover how to use online marketing and sales automation tactics to massively grow their business.

It’s designed to help marketing agencies and small business owners discover which online marketing strategies are working most effectively today – all from the mouths of expert entrepreneurs who are already making it big.

Listen Now

Transcript

Trent: Hey, there, Bright Idea hunters, welcome to the Bright Ideas

podcast. I’m your host

Trent Dyrsmid and this is the podcast for entrepreneurs who want to

discover how to use content marketing and marketing automation to

massively boost their business.And the way that we do that is, we bring expert entrepreneurs onto the

show to share with us the exact strategies that they have used to

achieve their success, so no gurus, no theorists.The only people who are on here are people who are actually in the

trenches, just like you, rolling up their sleeves and getting it done,

and this episode is no different.On the show with me today is a fellow by the name of Zvi Band, and he

is the cofounder of a startup software company that is called

“Contactually,” and Contactually, I have discovered as a result of

this interview, is just the coolest thing ever.It allows you to, basically, build and strengthen the relationships

that you have with your existing centers of influence, regardless of

the ways that you’ve been communicating with them, whether it’s been

Facebook or twitter or texting or email or so forth.I really, strongly encourage you to go and sign up for a free account

at Contactually, because I didn’t actually fully get it. I didn’t

understand the value of it, until such time as I did this interview,

and, by the time you listen to the first four or five minutes of the

interview, you will definitely understand that, as well.Now, the results that these guys have achieved have been nothing short

of amazing. At the beginning of 2013, they had just about $5000 a

month in recurring revenue, and, now, at the middle of October 2013,

they are at just shy of a $1 million run rate.So, that is pretty phenomenal growth, and in this interview, Zvi is

going to share with us how they came up with the idea, how they tested

the idea, how they raised their early rounds of financing, how they

further tested the idea, how they communicated with users.There is so much valuable information in this interview that you may

want to even listen to it twice.We’re going to introduce Zvi it just a quick second but before we do

that, I do want to give a shout out to the Bright Ideas Mastermind

Group. If you are a marketing consultant, solopreneur or freelancer

and you want to spend time with other people who are trying to build a

marketing consulting business and trying to use online marketing and

marketing automation to make that business grow faster, then you

really want to go and check out the Bright Ideas Mastermind Group, and

you can do that by going to BrightIdeas.CO/mastermind.There, you will find some information as well as a form to fill out

where you can apply, and you’ll book a call with Yours Truly, and

we’ll talk to see if the Mastermind is a fit for you or if you are a

fit for the Mastermind.So, with that said, please join me in welcoming Zvi to the show.Hey, Zvi, welcome to the show.Zvi: Thanks so much for having me, Trent.Trent: No problem. It’s a pleasure to have you on. So, we’re going to

talk a whole lot about

how you have built your software-as-a-service company Contactually.

Did I pronounce it correctly?Zvi: You got it.Trent: All right. And we got a lot of really good stuff I want to get

into. We’re going to talk

about what you’ve achieved. We’re going to talk about how you got your

first 100 customers.We’re going to talk about how you did your fundraising and what you’re

doing in terms of smart marketing, but, before we get into any of

that, because I’m sure that the vast majority of my audience does not

know who you are and doesn’t know what your company does.Please take a moment and set the stage for our discussion by

introducing yourself and giving your little, introduction to the

company, so that we have context.

Zvi: Absolutely. My name is Zvi Band. I’m the cofounder and CEO of

Contactually. We’re

in early-stage startup, building a relationship marketing platform.

What we do is we know how important your relationships are to you.

We analyze all of your relationships by pulling in all of your

contacts into one place, help you identify the relationships that are

most important for your business and then help you stay in touch,

proactively, every single day, in order to grow your business.

Trent: All right. So, conceptually, that make sense to me, but dumb it

down as much as you

can. So, let’s just use me as a guinea pig or your target customer, if

I’m not your target customer.

We’ve got contacts in Gmail and they’re on Facebook and I’ve got

people on twitter and LinkedIn and they’re all over the place. Is your

software solution helping me to make sense of that sphere of people?

I’m not sure that I get it yet.

Zvi: Absolutely. That’s a big part of what we do. As we rely more and more

on email,

Facebook, twitter, SMS in order to engage with the people who are

important for business, you know, they’re all over the place.

I’ve got some contacts in my Google Contacts. I have some people that

I talk to only on Facebook. Then there’s that guy I’ve been SMSing

with. Then there’s the people I’m emailing across the four different

email accounts I have, in keeping that organized is a very hard thing.

One of the first things that Contactually does is it pulls it all into

one place. We will [D-Dupe] it. For example, Trent, you and I have

spoken across two of my email addresses that it found those two and

put them in one place.

We’re also connected on LinkedIn. It found your LinkedIn contact and

your twitter profile, pulled it all into one place. I have a really

consistent idea of who Trent is and all the different ways I’ve spoken

to you.

Trent: Interesting.

Zvi: Then, what we do is we will then help you organize it. So, we can

say, “All right. Trent

is someone who’s important to me,” and then Contactually will then

make sure that because you’re an important person that I actually stay

in touch with you and build a better relationship with you.

Trent: And how does it do that?

Zvi: Absolutely. This is kind of one of the key things that are users

realized, that there’s

so many people who are important to us, but we end up spending most of

our day kind of putting out fires, responding to whatever’s urgent or

responding to who’s talking to us, instead.

What you can do is you can identify, saying, “All right. Trent is one

of my important contacts and all of my important contacts, you know,

make sure I keep in touch with them every 30 days.”

Then, by looking at all of your different online communications, we

can see that, “Hey, it’s actually been 31 days since I spoke to this

person.” Then contractual will see that “Hey, this is a person that

you’re starting to fall out of touch with,” and then we’ll send me a

reminder saying, “Hey, get back in touch with this person.”

For example, one of our top use cases is for a real estate agent. You

know, real estate agent lives or dies by their address book, and if

they don’t stay top of mind, most likely, one of their potential

customers will just work with someone else.

Trent: Absolutely.

Zvi: So, by setting a reminder every day saying, “Hey, here are five

potential leads that you

spoke to last month but haven’t spoken to recently,” they’re able to

better stay in touch and then grow their business.

Trent: And through the interface, am I presented… because I have not

seen it, I don’t have an

account yet. I’d love to mess around with it. So, maybe you could set

me up afterwards.

But is the interface such that I’m going to see you, and it’s going to

show me, in the last 30 days, the ways that we’ve communicated,

whether it was either twitter or Facebook or email or texting or

whatever?

Is it going to be all in that one place and is there going to be like

a kind of a summary or a audit trail of the things that we talked

about? Or, what am I going to see when I’m reminded that it’s time to

call you again or connect with you again?

Zvi: Absolutely. You’ll get a set of reminders from us, via email, in the

morning, and you

can, of course, choose to just drop someone an email and

Contactually’s architecture will pick that up and see, “OK. That you

and I reengage, we’re all set.”

But what you can do is you can click over to contactually.com. We’ll

show you everything in one place. Not only will it show every

Facebook, LinkedIn, twitter, email, SMS conversation between the two

of us, you know, spanning our entire history; I can also record notes

and it will show the notes to me.

Whenever you make a new contact in Contactually, it’ll find all of

their online profiles, like even their Pinterest profile, and pull

that all into one place. I’m basically given this command center where

I can see everything I know about you and everything Contactually is

able to find out about you, pull it all into one place, and then use

that as a way to quickly build a better relationship.

For example, I can send an email to someone and I can see that, “Hey,

they actually were talking about something recently online.” I can use

that as a way to reengage with them, much more quickly.

Trent: Yes. That make sense too. So, for a lot of people, their

contacts might live in Outlook

or, in my case, a lot of my contacts, in addition to being in Gmail,

are also in Infusionsoft. Does your app have any ability to make it so

that I don’t have to have more than one repository of all of my

contacts, so to speak?

Zvi: Absolutely. So, we have a number of different methods. One is you can

easily import a

spreadsheet of contacts. Most people, when they come on board to

Contactually, they’ll [give us], saying, “Hey, I’ve got five Excel

spreadsheets of contacts I haven’t spoken to recently.” They can

easily drop those into Contactually and we’ll automate that.

We also have a lot of integrations with other providers. So, we work

with MailChimp, Salesforce, Highrise, Google contacts, as well as a

whole host of other things. We’re working on an integration with

Infusionsoft and a few other services, but, right now, we also have an

API. So, we have a lot of people building integrations into our

platform, too.

Trent: OK. Any idea when the Infusionsoft one will be ready?

Zvi: I’m hoping, by the end of the year. So, I’ll definitely keep you

posted on that.

Trent: Yes. Please do, because I would be happy to use it and blog

about it for you.

All right. So, now that we kind of have an idea of what it is that you

build, this episode is really going to be about the whole process that

you’ve gone through to achieve this traction that you have done with

Contactually.

In terms of starting with the beginning, or rather the end, in mind,

how many customers or how much revenue are you guys doing right at

this point in time?

Zvi: Sure. So, right now, we have around 35,000 customers on the platform.

Probably

around 6000 of them are paying at the moment. Revenue, I can’t

disclose our exact revenue number, but we are getting very close to

hitting $1 million a year in revenue.

Trent: Terrific. OK.

Zvi: Yes. It’s been a busy year. We were nowhere near that in January.

Trent: Where were you in January?

Zvi: Oh, in January, I think, we’d be lucky if we were pulling in like

$5000 a month, or so.

We had really just spent 2012 proving that we weren’t crazy and that

people would pay for it.

Trent: Yes.

Zvi: And I think it hitting that $5,000 a month is a good sign that, “OK.

You’re not totally

insane,” and have spent 2013 doing nothing but growing it.

Trent: Yes. No kidding. All right. Let’s talk about how you got to the

first 100 customers,

because I think a lot of people are very interested in building

software as a service. There’s lots of competition.

There’s lots of challenges, and actually, the guy behind… Paul

Graham, from Y Combinator wrote a very famous article Do Things that

Don’t Scale. Did some of his advice fit into how you got the first

100, and, if not, how did you do it?

Zvi: Oh. Absolutely. I’d say, even at our stage, we still, constantly, do

things that don’t scale,

and only when they’re a success do we even think about how we optimize

this so we can kind of build a repeatable model out of it.

Going back to kind of how we got our first hundred customers, well,

kind of say “our first hundred paying customers,” getting the first

hundred people to just try out the product was just pretty easy.

Just tell family and friends, you know, post on a few blogs, talk

about it online, etc., but in order for us to get our first 100 paying

customers, we kind of started phasing in our paid model, and we

decided very early on… and this is a little different than what a

lot of, I’d say, Silicon Valley’s mindset is about.

We started out very early deciding that we wanted to be a service that

people paid for, and we ensured that not only were we building

features that people would be willing to pay for, but we were going

after markets of people that would pay for this, and that’s a very

important mindset that you have to have, early on.

Otherwise, you worry about attracting the wrong audience of people who

may like your product, may use your product, may give you lots of

input, but, at the end of the day, they would never pay for anything

like this, because it’s not valuable.

Trent: So, what you’re saying is, you went after markets where people

were expecting to pay

for this type of service?

Zvi: Absolutely. And, I mean, the easy way to figure out who’s going to

pay for a service

like this is who would stand to benefit from their business by using

something like this? For example, a common model that we kept

encountering is there are lots of people who are very, very obsessed

with their network, and it’s very important for them, and they really

like having a strong address book.

But, if you ask them to pay $20 or $40 a month, they’ll say, “No thank

you. I’ll just kind of stick with what I have.”

If you go to, say, a small business owner or a real estate agent or a

financial advisor and say, “Hey, this is a system that will, no

question, help you increase your business, help you get at least one

new client a month. If you get one new client a month, isn’t it worth

another 40 bucks a month? No question.”

Trent: Yes.

Zvi: What we started doing early on is, before we even knew what we were

fully

building out, before the platform could even take credit cards, we

already had a pricing page built in, and we would ask users, as are

signing up, which plan they wanted. That at least helped us qualify

users. W

e could start seeing who would be willing to pay for it, where they

were coming from, what price points they’re going after.

By then, we had learned enough about what features were important to

them and what price points that, when we rolled out our actual ability

to accept credit cards, we knew who we’re going after and we knew who

would be paying for this.

Trent: That was a very smart strategy. I hope people really appreciate

what you just said.

When it was free, I could sign up. Part of that sign a process told me

to pick one of the pricing options, but then I didn’t actually have to

pay for it. Did I get that right?

Zvi: You got it, and, I mean, the whole point of this is you want to be,

especially in the early

stage, learning as much as possible and you want to learn at all

costs, and you should not be trying to go for scale. You should still

be trying to go for quality.

Yes, I mean, of course, we’re not going to spend our time building out

a credit card processing system for something that’s going to change

every day, but you really want to ensure that your learning who’s

going to pay for it, what amount they’re willing to pay and then what

they’re willing to pay for.

Trent: So, when these early users clicked on, you know, “I want this

plan, that plan or the

other plan,” and they were taken… what did you show them next, “Hey,

we’re not ready to accept credit cards yet. Thanks for the feedback”?

Zvi: Honestly, no. We usually barely even mentioned that. People wouldn’t

even notice.

They would select a pricing plan as they moved forward or they would

get turned away and then we’d know, “OK. That’s a good learning

point,” but they would just continue with the sign up process.

Yes, they would just never… you know, they’d never hear more about

how they had to pay, up until we were finally ready to start accepting

credit cards. Then, we would go back and message them saying, “Hey,

we’re finally ready to have you upgrade.”

Trent: Yes. They kind of thought maybe they pulled a fast one and

you’d forgotten to

charge them perhaps.

Zvi: Yes. Exactly. And that’s fine for us. We had accomplished our goal of

learning what

people are willing to pay for.

Trent: OK. So, I guess I want to make sure that we really answered the

question of how do

you attract your first 100 paying customers. You told friends and

family. You got exposure on blogs. You participated in the discussion

in online communities, where you thought your target market hung out.

You got some traction. You put up a pricing page that you embedded in

the sign up process, so that these free users, you were able to

collect data on what they were interested in and what they were

willing to pay for.

Then, armed with the data, you decided, “OK. Now is the time to put

credit card functionality in,” and then you went back to those people

who had gone through that process and said, “Pay us.” Did I get that

right?

Zvi: You got it, and we were not… you know, we didn’t go with the model

of, from day one,

spending hundreds or thousands of dollars on Google AdWords or setting

up SEO pages.

We really just relied on talking to a lot of people, and a lot of

those people ended up being influentials who would help us and spread

out the word.

One thing we also did, just given that we didn’t have a lot of money

and really wanted to focus on getting off the ground, is we also

integrated with a lot of other platforms, and I would highly recommend

that people really consider integrations and partnerships when they’re

getting their early-stage product off of the ground.

I think, from very early on, we were integrating with Facebook, we

were integrating with Salesforce, we were integrating with Google

contacts and Highrise, etc., and, yes, it was hard to build, but, at

the same time, that also provided a link to a product that people were

already using, which made a conversation easier.

Trent: In your case… and, again, I want to make sure that I and the

audience really

understand what you mean by “integrations.” Let’s just use Facebook as

an example. Can you walk us through, specifically, what you mean by

you integrated with Facebook?

Zvi: Yes. Absolutely. So, when people can connect their Contactually

accounts with

Facebook, and what that will do is that will pull in all of your

Facebook friends into Contactually and then create contacts out of

them. It will pull in all of your message history in Facebook and

store those in people’s contact profiles.

Then, when you want to engage with someone, you can choose to send

them a message on Facebook, instead of an email message.

By having that integration, people would say, “Oh. Cool. I do use

Facebook, and this would be a valuable thing for something I already

have. Let me go ahead and sign up for Contactually and connect my

Facebook account.”

Trent: So, key take away there is to build something that increases

the value of something that

I’m already using.

Zvi: Exactly.

Trent: All right. Now you said “partnerships.” Can you talk a little

bit about specifically what

you mean by that?

Zvi: Yes. Absolutely. So, there’s an “integration,” which is just the

technical term. A

partnership can take many forms. So, for example, we have a

partnership with MailChimp, where, if you go to MailChimp’s website,

you’ll actually see in their app marketplace, they’re driving traffic

to Contactually.

So, it’s somewhat of integration, and some of them partnerships. So,

that’s another way.

We also did a bit of partnership with other similar tools. So, for

example, one thing we realized early on is that people who were using

Contactually would also be using a service like SAINTbox. So, for a

while, we were co-promoting each other.

People who were using SAINTbox would get a coupon code and a promotion

for Contactually and vice versa. So, those are the partnerships that

you can build, as well.

There are many different types of partnerships. We also have a

reseller program and affiliate programs as well. Those don’t

necessarily drive as much traffic. You really want to figure out how

you can get a lot of people at once, and integrating with these bigger

tools is definitely an awesome way.

Trent: Just because you integrated with Facebook and twitter and the

various social platforms,

doesn’t necessarily mean that the people who use those platforms are

going to even know that you exist. You still have to get on their

consciousness, somehow.

Zvi: Exactly. Many of the bigger ones have avenues for that. For example,

we have a

highly rated integration with Google apps. So, Google apps has the

Google apps marketplace.

People are going, looking all the time for add-ons they can get to

their Google apps organization, and, hey, Contactual’s there and we’ve

got something like 70-some positive reviews.

That’s a great way of driving traffic and actually getting eyeballs.

Chrome Web Store. We are featured on the Chrome Web Store. That drives

traffic to us every day, as well. MailChimp does also.

Then sometimes it may take a little bit of business development and

proving to them, “Hey, here is why we are beneficial to your user

base,” as we do with a lot of our partnerships, for them to actually

start actively promoting it, but a lot of times these bigger platforms

have avenues of adding onto their system.

Trent: Yes. That makes a lot of sense, because there are people, the

early adopters, are people

who are hanging out in the Chrome Store, looking for cool new stuff to

add into their Chrome, and then, of course, these early adopters are

probably a bit vocal, and, if they like it or don’t like it, they’re

going to be the ones leading you that feedback, which helps to get

more traction and more people and the cycle continues. Is that right?

Zvi: Exactly.

Trent: Interesting. So, in the very early phase, you were spending

most of your time, money

and energy to build these integrations and funding that out of your

own savings, friends, family, that kind of thing?

Zvi: Yes. We probably spent the first four months bootstrapping it out of

my previous

business. We were running a pretty successful freelancing business.

Then, around, actually, two years ago last week, we decided this was

serious enough that we really wanted some capital in order to fully

fund this out and start building a team, and that’s when we took on

our first round of funding.

Trent: OK. Which will get to in a second. Some people, self included,

are probably curious.

How much did it cost to get through that first four months, in terms

of not knowing your time, but if you weren’t writing code yourselves

and you had to hire developers, how much did you have to spend?

Zvi: I’d probably say, given the program that we had back at the time, I

probably say around

$10,000.

Trent: OK. It’s not a huge amount of money, that’s not a nothing

amount of money, but it

is, for someone with enough desire, $10,000 is probably an affordable

amount. You can find friends, family, aunts, uncles, that kind of

thing, who can all chip in, maybe, $500 bucks, and you can get $10,000

if you were motivated enough.

Zvi: Exactly. Now, granted, we were a development shop. So, we did have

resources, in-

house, to be able to execute it. Had we not, we may have gone about it

a different way. We may have spent a lot more time doing customer

development and building a landing page and proving that this was big

enough, before we ended up building out the platform.

Trent: Now, if you had gone the landing page route, do you think you

could have conveyed

the value proposition of what it is that you wanted to build, on just

a landing page? It seems to me like it might be a bit tough.

Zvi: It is a little bit challenging. I think there are definitely better

ways we could have gone

forward with it. We probably would have spent a lot of time thinking

about the sign-up process.

Mainly asking the right questions that qualified users as they’re

going through our sign-up process, to determine, “Hey,” and once they

get to the end, they absolutely need something like this and they’re

thirsty for something like this. We probably could have done that, but

you’re right.

One of the bigger issues we faced early on is we have a idea that’s

big enough and challenging enough that some people may not fully wrap

their heads around it until they actually have it in their hands and

they start to see the value in it that way.

Trent: And that was me, because, when I was doing my research for this

interview, of course,

I went to your homepage and I read all the stuff, but, at the end of

it, I was still like, “I don’t get it. What is this thing for? I don’t

need another contact manager. I’ve already got Infusionsoft. I don’t

need this thing.”

Zvi: Exactly. That’s obviously something… Even though we’ve got the

amount of customers

and revenue that we have, it shows that there is still a lot we have

to do to improve. So, we’ve got a video and a better marketing site

coming out with it.

Trent: Cool.

Zvi: I would also highly stress that video is often a really great way to

convey an idea.

Trent: And that would have done it for me, because I am the type of

person, and, of course,

everyone’s different, but I fit into the category of people like, “You

know, I don’t want to read a bunch of stuff, what if you could make me

two or three-minute-long video and I could just watch it and the light

bulb would go on,” that would be incredibly valuable for me.

Then I would have been able to go, “Oh. That’s why I would use this

thing. Oh. Yes. Now I want to sign up for it.”

All right. So, you got to a point where you had your first 100

customers, or so.

Zvi: Yes.

Trent: You use your freelancing business to fund it and then you

decided, “OK. We’re

getting enough traction, here, that we’re probably onto something and

we should probably try to make it grow faster.” Was that the thinking

that happened at that point in time?

Zvi: Yes. We wanted to grow faster, and, at the same time, one of the

biggest things that we

learned, and it’s a lesson I keep on learning, is the value of focus.

We were being distracted all the time.

By having a successful business in my freelancing business, it was

incredibly challenging to dedicate time to invest in something that

could yield absolutely nothing.

Trent: Yes.

Zvi: So, we knew that, OK, in order to take this seriously, we really

needed a “burn the

boats” type of situation. I knew I needed to shut down my current

business and really focus, full-time, on Contactually, and getting

funding was the vehicle that really allowed us to do that.

Trent: OK. So, you shut down the business? You didn’t sell it? Because

you wanted to keep

all the same people or why did you not just sell the business off?

Zvi: A lot of the employees and resources were coming with me…

Trent: Got it.

Zvi: … to Contactually, and, at the same time, I didn’t necessarily just

fully say… I sold the

business off, in a way. Being 100% client services, I was able to pass

off a lot of our clients onto other people who I knew and trusted,

and, for most of those, you can get affiliate revenue and things like

that.

Trent: Yes. OK.

Zvi: Yes. I essentially sold it off.

Trent: OK. So, let’s dive into this first round of financing, because,

again, I think a lot of

people would be very interested in what you had built at that point in

time and how you went about getting the money. So, let’s, first of

all, make sure that we understand, when you decided to get financing,

how much traction did you have? How much revenue and paying customers

did you have at that point?

Zvi: Now, this is back in late 2011. This was that kind of, I would say,

the height of the

incubator bubble when there were a lot of… it was getting to the

height and there were a lot of incubators around.

It was relatively easy to get into it. Since then, maybe, it’s got a

little bit harder, but, back then, we had around 150 customers. We

didn’t have any revenue at that point, but, like I was saying earlier,

we were putting people through the pricing page.

We knew that people were willing to pay for this and we could convince

an investor and say, “Hey, we’re really onto something. Here are the

competitors in the marketplace, here are the similar big companies in

the marketplace, so we know that there really is a market.

“Here’s the size of the market, and, by the way, we have a working

prototype and people have ‘XYZ’ to say about it,” and that was enough

that we were able to approach and incubator called 500 Startups, show

them everything, laid on the table, and we had an offer in our hand a

few hours later.

Trent: In a few hours. Wow. And are you able to disclose any of the

details of that offer, like

in terms of…

Zvi: Yes.

Trent: … valuation and amount raised?

Zvi: Yes. Absolutely. So, 500 Startups, at least back then, their standard

model was to give

you $50,000. They would invest in your company in and around $1

million post-money evaluation.

They would essentially take 5% of the company, very early on. Then,

you’d be part of their incubator bath for four months and then help

you grow the company from then on.

Trent: And aside from the $50,000, what kind of value do they bring to

the table?

Zvi: During the initial incubator, they brought on an incredible amount of

value by

having lots of mentors and advisers put in front of us. The having a

lot of resources available for us, like discounts for different

things, we could go talk to someone at Facebook or Google if we really

needed help with something.

Then, the most important thing that they really provided was this

pressure-cooker-like atmosphere, and, let me tell you, when you’re

told that you have four months before you’re going to be put in front

of the top investors in the world.

You really have to get your stuff together and you really have to

shine, otherwise you’re going to fail, you work… you put in so much

more work than you ever have in your life. It’s that kind of time

crunch that really allowed us to really concentrate and focus.

Since then, 500 Startups being one of the larger accelerators in the

world, we have thousands and thousands of other start up founders and

advisors and mentors available to us, at any point in time.

We’re still engaged in the 500 Startups community, to this point, and

we’re always able to ask any questions, get any resources we need,

etc.

I would think about, when you’re looking at different accelerators,

incubators, don’t just think about the value add for those few months,

but talk to people who have been in it for a few years and see the

value that you’re still able to provide.

Trent: Yes. I’ll bet it’s significant. By the way, I’d love to

interview some more of the folks

from the 500 Startups incubation. So, if there someone you could

introduce me to, to facilitate that, Zvi, that would be great.

Zvi: Absolutely.

Trent: OK. So, for people who haven’t raised money before, can you

give us some insight

into the process? I mean, it sounds like you guys went in…

So, let’s talk about how you got in. Did you get introduced or did you

just send a cold email in and say, “Here’s what we got” and you got a

meeting, and then a few hours later they agreed?

Zvi: One of the things that Contactually is really powerful about is

building a very strong

network, and it happened to be that I had, before building

Contactually, I had done a lot of networking and built up a really

strong address book here in the local tech community.

It happened to be that through my contacts, I knew one of the partners

of 500 Startups, and so I was able to get an introduction there.

I would say you should never try cold applying to any of these things.

You always want to find a way in and find a warm introduction.

Investors really will never respond to you, otherwise. So, absolutely,

I strongly recommend that you really start building your network now.

You’ll find that, yes, while a particular investor may be a very hard

person to approach, the entrepreneurs that they’ve funded and worked

with in the past, the entrepreneurs just like you and they been

through it and they know how painful it is to reach these people and

they’re able to help you if you can convince them to believe in you.

Trent: OK. So, you got the meeting, you went in, you did your

presentation, and, literally, a

few hours later, they had made you an offer?

Zvi: Absolutely. I think we were at the time where we had proved, just

enough, that we were

really onto something and I had built up enough of a reputation with

this particular investor that they knew that I was able to execute and

I was able to build a team around it and that I was really onto

something.

Trent: Interesting. All right. So, what happened after that first

$50,000? How long did the

money last and what were you able to accomplish?

Zvi: Absolutely. So, we initially focused on raising more money. So, by

that time, I had two

additional cofounders working with me. So, they were focused on

continuing to expand the product and really form that up into

something that people would use and pay for. While, my third cofounder

really focused on starting to figure out our sales and marketing

process.

I was then tasked with raising funding, and, for about four months

straight, initially, I did nothing but meet with investors, get

introductions, learn more about the fundraising process and ended up

raising, within the first three months of the program, an additional

$150,000.

Trent: At a higher valuation than the original round?

Zvi: Yes. It was slightly higher. It was convertible debt. So, with

convertible debt, the

valuation is always a little bit flexible. Instead of [a valuation]

you have a, which loosely translates to your valuation, but that

allowed… that’s kind of the common investment vehicle that allows

founders to raise a lot of money very quickly.

Trent: So, it’s pretty popular to use?

Zvi: Yes. Absolutely. If you look at a lot of the documentation out there,

convertible debt is

kind of the fastest standard way.

Trent: OK. So, for the folks here who are listening, who are

unfamiliar with what convertible debt is, do you want to just give us the

very quick overview of how it works?

Zvi: Yes. Absolutely. Convertible debt is basically saying… a set of

just saying, “Hey, I’m

going to buy a piece of your company at “X” percentage,” you know,

“I’m going to buy “X” percentage of the company at “X” valuation,

right now,” it’s instead saying, “Hey, I’m just going to give you

money now. It’s going to be debt.

It could be something that you have to pay me back at some point,”

but, instead of paying you back in just straight money, instead, it

can be converted to equity at a later point in time.

Trent: At the option of of the person who invested?

Zvi: It’s at the option of the person who invested, yes, but, primarily,

it’s almost never…

people almost never pull the money out. It’s, instead, converted when

there is an equity round of financing.

So, it’s usually written that the first time the founders raise an

equity round, or 18 months, whichever happen sooner, then they are

entitled to buy X amount of dollars worth of equity at that current

evaluation.

Trent: OK. So, let me just dial through this again. So, let’s say that

we, at this point, did a

$1.2 million valuation. I give you $100,000 in convertible debt. Six

months later, you raise more money at a $2 million valuation. I can

get the advantage of converting my debt into equity, back at the $1.2

million valuation? Is that correct?

Zvi: Exactly.

Trent: So, there’s some real incentive for me, for taking that extra

risk, for being the earlier

investor. Now, you, as the founder, were you personally on the hook

for this debt? Let’s say this stuff didn’t turn out very well, they

didn’t convert it, somebody owes them this money. Are they prepared to

take a pill or are you personally liable?

Zvi: No. No. No. There’s no personal liability here. So, I think we have

to be clear about

that. If we didn’t raise around the funding, it would have forcibly

converted over to equity at that valuation, later on.

Of course, we ended up raising funding before that time had passed,

but, no, we would not have been in trouble. I mean, it’s really used

as a vehicle that allows founders and investors to start to work

together, very early on, without the hassle and legal expense of a

full-equity [round].

Trent: Yes, because you could end up spending just a ton of money on

the lawyers.

Zvi: Yes, and when we raised our equity round, it definitely cost us at

least three times as

much to do an equity round as it did convertible debt.

Trent: Let’s say we we’re in that scenario. So, when you did your

convertible round, what did

you have to spend on legal fees?

Zvi: I’m having a hard time figuring out the exact amount, but I’d

probably say, and you

should probably account for maybe spending around, depending on your

lawyer, around $5,000 in legal fees, in order to get the convertible

debt up and running and fully execute around.

Whereas, doing an equity round, if you use the standard off-the-shelf,

series C [docs] maybe it could be around $10,000. Otherwise, it could

end up being quite a bit more.

Trent: Yes. OK. And you’re able to pay the $5,000 out of the money

that’s raised from the

round of convertible debt?

Zvi: Exactly. Yes. I mean, you can work… you can find lawyers that may

give you great

deals. Our lawyer is well known and respected in the area, for working

for startups, and he was able to give it at a discount.

Some lawyers may withhold their legal fees until you raise your first

equity round or until you raise a certain amount, etc. You can often

find lawyers that will negotiate with you for that, because they know

they’re not going to make much money off you early on.

They’d much rather keep you on the hook and make sure you become a big

company before they start charging you.

Trent: Absolutely. What is the name of the lawyer that you work with?

Zvi: We worked with Steve Kaplan [SP]. He’s the lawyer at Pillsbury, Shaw,

Pittman.

Trent: OK. Pillsbury, Shaw, Pittman. Okey-doke. Basically, the first

round was what

enabled you to focus your time on raising money for the second round,

while you… You said you had two cofounders?

Zvi: Yes.

Trent: And one of them is working on sales and marketing and one of

them is working on

product development? Is that correct?

Zvi: Yes.

Trent: All right. So, what happened next in the story?

Zvi: What happened next? The incubator finished up and we were really…

you know, we

moved back to DC, after being in California for four months, and we

really started to grow in the company.

At that time, we had started receiving a little more tech press.

People saw that we were fully out in the market and that we really had

a strong offering. We really started building out the product, just in

terms of turning on page features and actually expecting people to

pay.

We started figuring out the scale of marketing channels that we can

continually go after and started building a sales process and the team

behind that, as well, and we ended up spending most of 2012 focused on

nothing but that.

We hired our first developer and our first internal marketing person

and just kept iterating, more and more, on the product, until we had

reached what we saw was some level of product market fit, meaning that

we were able to continually get people in the door who loved the

product, started using it and would keep using it.

Trent: What were some of the key metrics or KPIs that you were focused

on during that 12

months leading up to the beginning of this year?

Zvi: Absolutely. We looked at just the number of users that we had in the

door. We

looked at the number of paying customers. We look at the number of

website visitors, and then we looked at the number of users who would

keep coming back to our site, every month after month.

We were pretty basic in the metrics we were checking back then. Now,

were a little bit more formal with it.

Trent: OK, and that repeat-users is a pretty important one, obviously,

because if people are

trying your stuff but they’re not using it again, you have kind of a

big problem.

Zvi: Absolutely, and one thing that… I mean, there are two things I

would really strongly

recommend for people, as they’re getting started. One is set up a very

strict process of every week collecting all of your metrics in a

document or in some particular place, and, then, at the same time, pay

very, very close attention, especially if you’re building like a B2B

or a SaaS business, at your churn.

What most people don’t realize is while you may be very happy with

people coming in the door and new sales and new customers, etc., if

you have a leaky bucket with people also leaving in droves, then can

kill you, from an investment standpoint and from a revenue standpoint,

if you’re losing 10% or 20% of your business, every month, just

because they stopped using it.

Trent: Yes. No kidding. Did you ever have a problem with churn?

Zvi: Oh, absolutely. I think that’s definitely something we have spent

even a lot of this

year I’m getting under control. We were sometimes losing upwards of 5%

of our user base a month, and a rule of thumb that investors look for,

they really look for something in the neighborhood of 2% to 3%.

It takes a lot of work, and that’s kind of where the real magic lies,

because you can have a great marketing site or great initial program

to get people on board, but, especially for building a product like

ours where you really need and expect them to come back, month-over-

month, and keep using it and keep getting value out of it.

You have to have a lot of things working correctly, and tracking churn

very early on. Ideally, if, from day one, you’re able to keep churn

under control, you’re going to have a really great business.

Trent: When you identified that churn was a problem, what were the

actions that you took to

try to reduce it?

Zvi: Absolutely. First off, is just learning. You really have to learn

exactly why people

are quitting. I mean, it’s probably one of the more enjoyable parts of

my job, but I still, to this day, call most people who cancel or

downgrade their accounts and ask them why.

Ask them why they signed up initially, what they liked about

Contactually, what they didn’t like about Contactually, what was the

straw that broke the camels back for them that finally caused them to

quit and then what we could have done better?

We do, definitely, a lot of learning, and, ideally, you start to see

patterns emerge. So, we started seeing that, OK, a lot of people just

said that they didn’t fully understand how to use the product. OK. We

have better training programs and we had a much easier to use user

experience.

They didn’t get the support that they needed. OK. We really needed to

invest more time in our support.

Again, it’s a common theme that we keep focusing on, is we learn as

much is possible, and the more you learn, the more things just become

obvious as to what you need to do.

Trent: Did you ask for people’s phone numbers during the sign-up

process?

Zvi: Yes. And that’s also a really great thing to do. Surprisingly, when

we first added a

phone number, we thought, “Oh my God. No one is going to enter this at

all,” but I would say the majority of our people, as their signing up,

have absolutely no problem entering their phone number.

Then, we’ll call them, as their signing up, ask them questions. Then,

as a cancel, we can ask some things, etc. So, whenever we need

anything, we can usually feel pretty safe that were able to reach

them.

Trent: Yes, I’ll tell you, those one-on-one conversations, there’s

gold in them there hills, isn’t

there?

Zvi: Absolutely. Just from an initial customer development standpoint,

it’s important. One

model that works really well for us, that we learned about from

Campaign Monitor is have a model of the inside salespeople who we have

on staff.

They’re not there to sell, but they’re really there to help activate

and to really help coach the customer to become a better user and the

better professional, and if you can help someone get the most out of

the platform that you’re building, it’s no question that, of course,

they’re going to upgrade.

Trent: Yes. No kidding. OK. You mentioned Campaign Monitor, so,

another SaaS

company that you modeled. What were some of the other SaaS companies

that were influential in your thinking about how to create your

product, and when I say product, I mean how it’s sold, how people sign

up, just the whole thing?

Zvi: Yes. Absolutely. It’s hard to identify any particular ones. I mean,

there’s so many best

practices that we took and learned from so many other platforms. Yes.

Our customer guru model was from companies like HubSpot. We definitely

have a higher quality of support, modeling after companies, you know,

spearheaded, like Zappos, where they focus on having really, really

great customer service.

One thing that we definitely strongly believe in, from a marketing

standpoint, and this we adopted early on, is we modeled our marketing

program after HubSpot, where we don’t spend as much time pushing our

product and telling people, “Hey, you should use Contactually.”

Instead, we really focused on evangelizing the importance of

relationships and how key relationships are to our lives and how to

better engage with people, better grow your network, etc., and, hey,

Contactually happens to be a tool that allows them to do that.

We are also users of Hubspot too, which is obviously similar to

Infusionsoft. So, we started implementing their software very early on

and following that inbound marketing mantra.

Trent: Now, I’m on your site. I don’t see a link to a blog.

Zvi: It should be in the footer. If not, I think they’re called “actions”

at the bottom of the

page, for sure. We try to convert most people in order to just sign up

for Contactually, but if you just go to, you’ll see that there are a

few big call to actions at the bottom of the page or midway

down the page.

Trent: OK. Why did you decide to go that approach, versus… And let

me go back to the

homepage here. Your call… What’s the primary call to action that

you’re trying to get… “Sign up and take a free trial,” I’m assuming

is it.

Zvi: Exactly. Yes.

Trent: OK. “For individuals, for teams.”

Zvi: Then, if you scroll down a little bit, down our site, you’ll see that

there are actually…

there’s a rotating carousel offering a few e-books that you can

download, and those, of course, go directly to Hubspot. We’re able to

capture you.

Trent: OK. That make sense. All right. So, where we in the story? So,

by the time that you

were… So, you had… You’d raised this, I think you said $150,000

round, or so, which was the second round, and then it sounds like, if

I’ve got all this correct in my head, it was about a year.

You sort of did that at the beginning of 2012 and then you kind of

existed on that money for 2012? Am I about right?

Zvi: Yes. So, what we ended up doing was, we raise that money kind of late

[in] 2011.

Then, in 2012, the first few months, we raised another $200,000, and

that was kind of more of like a bridge round.

That allowed us to say, “OK. We’re starting to get some traction.

Let’s get some additional money in the door and then really allow us

to accelerate more.”

I would say we never really focused on identifying particular rounds

of funding that we wanted to go after. Instead, we treated fund-

raising as an ongoing process, and we still do to this day.

We raised another $200,000 in kind of mid-2012, and that gave us more

than enough cash in the bank to go until early this year, when we

raised just north of $1 million.

Trent: OK. Is it always different investors, with each round, or do

some investors come back

for more?

Zvi: Some investors come back for more, and that’s a very important thing

that we do. We

still stay engaged with all of our previous investors. We have a

monthly newsletter. We are always on hand to answer questions and take

calls and really kind of ask them for advice and value.

That’s really important, because, especially as you start to bring on

big investors, they’ll often times look back at previous investors

and, if they don’t see them continually investing money, they often

ask “Why? Do we not believe in them anymore?” etc.

We were happy that, over the three rounds of funding, or so, that

we’ve done, we’ve had some investors who have invested every single

time.

Trent: OK. How much revenue traction did you get during 2012, because

you mentioned, I

think, at the very beginning… I don’t know if we were on air or off

when you answered this, but I think you said you were at $5,000 a

month at the beginning of 2013 and now you’re, it sounds like, closing

in around 80, or something like that. So, did revenue not grow much

during 2012?

Zvi: Yes. Revenue did not grow that much during 2012. We only turned on

our ability to

process credit cards, even, I think, in July, and then we kind of

spent the rest of 2012 just iterating on figuring out what our ideal

sales model is, what people are willing to pay for it, etc. In 2012,

we were still in a learning phase.

Trent: How did you facilitate that? So, we knew what the KPIs are,

users, customers,

traffic and repeat users, but I’m guessing there must’ve been a lot of

actual dialogue going on with your existing customers, to say, “Hey,

is this good? Is this bad? What needs he better?” Is that what you

mean by “iterating”?

Zvi: Absolutely. Yes. That was definitely incredibly important for us. So,

from very early

on, we had set up this practice of engaging with our users, sending

out surveys all the time, having an open email line, having a web chat

tool, so we have Olark on our site, so people to chat directly to us.

Then, we used a service called Intercom. That’s just Intercom.io, and

that allowed us to, very easily, identify, “Hey, who are the active

users? Who’s online right now? Who can we message and ask questions?”

etc.

We started building a dialogue and building a relationship with users,

many of whom we still have on board today, in terms of our active

users. We just kept learning as much as we could from them.

I mean, even just two hours ago, there’s a particular new feature that

I’m working on that I wanted to know more about. I built a survey and

messaged 200 or so of our users and ask them, “Hey, could you fill out

the survey and help us learn a little bit more?”

Trent: Very cool, and I’m guessing that the early adopter-type

customers are very, very willing

to participate and give feedback, because they like the product and

they want it to be better.

Zvi: Exactly, and early adopters will come and go. I mean, we definitely

have a lot of early

adopters who are using this because they thought it was a cool tool,

but now that we’re a premium product, it’s not as interesting for

them, and, that, we totally understand, but, over time, we start to

see…

You know, we can just look at the number of people who… Using

Intercom is incredibly powerful because we can just look at the number

of people who have signed in over the past seven days and just order

them by how many times they’ve signed in over the past year, and it’s

very clear, you know, we still see the same group of people who are

continuing to use this and hammer away.

We do things to incentivize them. One thing we do for a lot of are

very active users is we have what we call an “alpha testers group.” We

will release features before they’re ready for the public and allow

them to bang away on it.

That gives them some sense of exclusivity, but also gives us the

ability to have a lot more testers using it than just our team.

Trent: Yes, which is hugely valuable.

Zvi: Yes.

Trent: Then, 2013 rolls around, you guys raise $1 million bucks and

revenue growth

explodes.

Zvi: Yes.

Trent: Let’s talk about that. Why did you want the million dollars,

because I’m assuming

you are still probably burning cash, at that point, and maybe need to

keep reserves up? If that’s right, what you use the million dollars

for and what is it that caused the growth rate to hockey stick?

Zvi: Yes. Absolutely. I think, overall, the trend is we really focused

2012 on proving that we

had a business, and then 2013 focused on growing it. So, we kind of

expanded on all fronts. We obviously raised a much larger round of

funding.

We were five people at the beginning of 2013. Now, we’re just passing

16. So, we use a lot of our funding in order to grow our team, and, by

growing our team, that allowed us to have a lot more resources. So,

our marketing team went from one intern part-time to, now we have

three people fully focused on it. Our sales team used to be just our

cofounder.

Now we have three dedicated inside salespeople, one enterprise account

manager and things like that, and just having a bigger team and having

more resources, that has allowed us to just consistently grow the

business and, of course, having a very, very strong product behind it,

now.

It’s not just a little prototype that people play with. It’s something

that they use and rely on, every single day.

Trent: Yes. So, you’ve got three people in marketing and three people

in sales. So, the

marketing, are you guys… you’re following the Hubspot model. You’re

producing content like mad and making sure that it’s promoted like

mad, to draw as much traffic to the site?

Zvi: Absolutely. Yes. Then, of course, as people are coming on board or as

people may be to

set a conference or just kind of end up in our top of funnel, that we

educate them and deliver enough value to them and keep talking about

what Contactually is and how they can grow their business, etc., using

our platform. Then, those people come on board and then we do a lot to

educate them, as well.

Trent: So, at what point do the salespeople get involved. I think you

said it’s one someone

creates an account and they fill in that phone number. Shortly after

that is the salesman making an outbound call to say, “Hey, welcome

aboard. Let’s make sure you’re fully activated and training you and so

forth”?

Zvi: Yes. I mean, we keep iterating with the model, but the general

approach is, yes, as

people come on board, as we see that, hey, “This person is an active

user and seems to fit the criteria for someone who we really think is

going to be successful with Contac

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