This is an interview you’re not going to want to miss, I promise.
Mike is a no BS guy, has all the attributes I look for in a founder and says things like, openly shares knowledge and opines without a filter including this one, “whoever invented uncapped convertible debt should be spanked!” Love it.
Mike Yavonditte is the founder of the “super hot” Hashable, a startup out of NYC that has been described as a “Mint.com for Social Capital” Mike sold his previous company, Quigo , to Aol for $340 Million. He is also an active angel investor in companies like Klout and Meetup. Now, he ‘outsources’ his investments through John Frankel of Frankel Asset Management.
The excellent summary below is provided by John Excley. If you get a moment, as a favor to John for having produced such wonderful notes I’d be grateful if you would check out his most excellent startup blog The X Factor. Thank you, John. I appreciate the write-up and your continued support of this blog.
I. Part 1/3 of Interview: The Beginnings of Mike’s Entrepreneurial Journey [Minutes: start – 13]
Why AltaVista Failed To Become as Successful as Google
Mike believes the reason AltaVista didn’t become Google (despite their market leadership position) was because they didn’t focus on search. Instead, they tried to use their search position to offer a portal like Excite and Yahoo! were doing. At the time, everyone seemed to be enamored with the idea that your company had to be ‘all things to all people’.
Furthermore, AltaVista paid lip service to the importance of search, lost focus, and was suffocated by an “angry mob” of search purists in the company who essentially did everything they could to prevent AltaVista from monetizing search. Of course, monetization of search became one of the best business models in the history of business.
II. Part 2/3 of Interview: Mike Joins Quigo as CEO, Sells it to Aol for $340 Million [Minutes: 13 – 30]
After AltaVista, Mike spent a year doing business development for USA Networks (now IAC – Interactive Corp). The founders of Quigo (an enterprise search company based in Israel that was competing directly with AdSense) tracked Mike down while doing a CEO search. After initially declining the offer, Mike met with Quigo’s Co-Founder Yaron Galai in person a couple months later and became intrigued with the company’s potential to harness the business of commercial search.
He decided to join.
Mike believed that search was an essential part of the Internet experience, and he guessed that it would evolve towards commercial search. Because he was particularly attracted to the idea of positioning Quigo in the business of helping retailers with search, Quigo started building sophisticated technology for applied semantics stuff with web pages.
Quigo Lands Overture as Client, Rejects Their Acquisition Offer
Around 2003, Quigo was doing tens of millions of dollars in revenue with two main products: a ready-to-use, search engine marketing solution for advertisers called FeedPoint and a contextual advertising platform for publishers called AdSonar. Overture became intrigued by Quigo’s AdSonar technology and wanted help targeting ads for their content business. So, Mike and his team started working feverishly to twist and turn their technology so it would work for Overture.
When Overture made a “half-hearted” attempt to acquire Quigo for $10 Million, Mike said ‘no thanks’. But, Quigo succeeded in licensing AdSonar to Overture. AdSonar’s advertising platform applied proprietary semantic algorithms to automatically serve the most relevant ads to each particular content page. So, what Quigo would do is analyze a web page for Overture and tell them what they thought it was about. They helped Overture become smarter about what type of ads to serve.
However, Mike didn’t want Quigo to be in this kind of business for long. He wanted Quigo to be in the business of letting advertisers buy directly into the system. So, they built an auction system, a self-service platform, and an ad-server from scratch. They were supplying Overture, but simultaneously building technology to compete with everyone in that space. Mike believed that any valuable page was going to be monetizable on a cost-per-click basis in relation to every page on the Internet.
How Quigo Went Head-to-Head With Google
Google had built two ad systems at the time – AdWords and AdSense (the latter of which was much more complex). Quigo was competing heavily and heatedly with Google.
To differentiate themselves in the marketplace, Quigo made the pivotal move of going to publishers and saying explicitly “you’re working with Adsense. We can do better. We will white label the system, and not only that, we’ll allow you to set your own pricing.” For example, one time Mike went to David Liu, CEO of The Knot, and said ‘I know your wedding pages are very valuable. I think I can do a lot better than Google can do. Instead of someone paying Google 30 cents a click and then ending up there randomly, what if I let advertisers bid to be on your page…your wedding ring page?’
So, he built an auction. With AdSense, you’re bidding on specific words and Google decides where you end up. Quigo set up a system on specific web pages. The challenge was to fill the page with ads.
Mike Sells Quigo to Aol
Ultimately, Mike Sold Quigo to Aol for $340 Million. His time at Quigo was a very difficult 5.5 years that left him thoroughly exhausted. In fact, he almost didn’t get Quigo past the finish line. Mike passed up an offer from Ross Levinsohn of Fox Interactive Media (around $175 Million).
After rejecting the offer, Mike had a team of his best people waiting to ‘kill’ him for turning down an acquisition that would have changed their lives forever financially. Luckily, he had a world class team of more than two dozen committed people (including Mike Fisher from PayPal/eBay) who stuck it out with him.
Lesson Learned From Rejecting Acquisition Offers
Rejecting a bona fide acquisition offer was an incredible learning experience. Mike learned that it can be a bad thing as the ripple effects in your team can be significantly negative on morale. How?
- You can be perceived as a bad leader who is overplaying his/her hand.
- You might be viewed as not being sensitive to how your team feels.
At the time, people were questioning his judgment to the point that a very senior person came to him in private and told him he needed to listen to them. Mike responded that it’s wrong to give in to the “angry mob” if you are confident in your decision. Your job is to be a leader and tell them they’re wrong. He met with subsets of the company and voiced his confidence in them. He actually believed in them more than they believed in themselves.
III. Part 3/3 of interview: Mike Pivots from Tracked.com & Launches Hashable [Minutes 30 – end
After rejuvenating from the exhausting sale of Quigo, Mike started a ‘boring site’ called Tracked.com that he thought would be a better version of Yahoo! Finance. But just a couple weeks into it, he realized he was already on the wrong end of history. The Union Square Ventures partners started whispering in his ear that “it’s all about social now”. Unfortunately, not too long after, Mike realized that he had the wrong team to build something social. Then he simply realized it was unlikely for a business information site like Tracked to become social.
So over the next few weeks, his team stopped talking about what could be done to make Tracked more social. Instead, they began thinking of ideas for a new site entirely. They thought about the gestures that business people and white collared professionals were conducting day after day that were not making it to the Internet.
They recognized that the acts of people meeting with and introducing other people were not making it in a structured way to the Internet. When you have breakfast/lunch/coffee/drinks with friends, that data would be valuable to users if a service would gather it and make it shareable. So, they decided it might be cool to build an application that was fun to use, social, and drives people to create that information and send it to Hashable. While the interface looks a lot like Foursquare, instead of saying “I’m at Starbucks”, you would say “I’m having coffee with Mark”. Hashable is saving very important information for its users and creating a multipurpose address book of the people its users interact with.
How Hashable Got Buzz
Before they even launched, Mike and his team started bringing in hundreds of influencers from NYC’s technology ecosystem to their office to give them a private demo. Mike told the potential evangelists that Hashable would love their support, and he asked them to tell Hashable what they didn’t like about the tool. People were very receptive to helping Hashable, and they were excited when Mike showed them how Hashable is creating a completely new dataset that doesn’t exist today. The data isn’t on LinkedIn or Foursquare, and although some of the personal interaction data was showing up in tweets it would go away within minutes.
How Hashable Has Evolved Since Beta Launching
Initially, people started using Hashable to just broadcast the interactions they were having with other people. Now, the vast majority of users say that they want Hashable to become their personal relationship management system. But, they also want it to remain fun and engaging and access it from mobile devices. Hashable first became available from Twitter, as people could add a hashtag to a tweet and make it a Hashable event or transaction.
It took 3-4 months into the development of the product for Hashable to realize that it is a mobile first, web second service. The company is trying to capture real life activities and log those into Hashable. Some users want to be able to suspend an action; i.e., ‘I met Mark here’ and ‘I want to be able to follow up with him in 2 weeks’. This feature is in development right now. Hashable is also working on adding more valuable, unique data to the user’s relationship graph by plotting new relationships on a timeline and stamping them with date, location, and a privacy layers.
Your “Inner Circle”: Hashable’s Connection Strength
Hashable wants to be able to let their users explicitly (and privately) define ‘who’s in my circle of 50 closest friends?’ They’re heading down the path to make a more functional subset of your business/social graph and filter it based on a ‘connection strength’ ranking.
How is that unique? They’re evaluating the bi-directional nature of a relationship. For example, if you were to send someone 10 emails per day and that person never responds, Hashable would know the connection isn’t as strong as the numbers may indicate. While it will never be perfect, it’s a proxy and they’re trying to make it fun.
The Monetization of Hashable
To the question of how Hashable plans to monetize, Mike answered honestly that “we’re not sure”. Hashable is creating unique data sets. The relationships that users have with people, the strength of those relationships – Hashable may be able to monetize access to that information. Users gain points every time they use Hashable. A certain number of points could be required for certain access, so Hashable might offer an option to pay for points or charge for access if you don’t have points.
Final Lesson: How Do You Know When It’s Right To Sell?
It’s an art. When Mike sold Quigo, he was looking for a number of things:
- Quigo’s position in the marketplace
- Evaluating the M&A landscape: other companies being purchased and what big companies were making acquisition decisions
- Judged his instincts, and felt it was Quigo’s time
They sold in December 2007, but he started selling Quigo in 2004. At the time, Quigo was already starting to do well. It was gaining traction in the marketplace. When that happens, the big companies start calling. Mike was talking to Aol about Quigo, what it could do to help them, and how he saw it as being a natural fit for Ad.com. He started the relationship with his future acquirer much in advance of any acquisition talks.
At the end, don’t miss these great short discussions….
- The secret to the software sales process
- I go on record saying that LinkedIn is ripe for disruption; and while Hashable might not be competing with them directly, the “personal relationship management” market is ripe for disruption.
- Advice on startups raising capital: if you raise your first round at a super high valuation and don’t grow into your valuation, it makes it very hard to live for the long game. So, don’t raise at lowest possible price, but raise at the upper range of ‘rational’ – think to yourself ‘how am I gonna finance the next 5 years?’, ‘how am I gonna show progression so that I don’t lose momentum?’. With an early, high valuation, eventually you will have to raise extra money because you will need time to grow into your valuation.
- As an angel investor, Mike stays away from uncapped convertible notes – says whoever invented them “should be spanked” and that he prefers to buy stock.
- Hashable is sending 10 super users as evangelists to SXSW all-expenses paid. Contest details here:
(Cross-posted @ Both Sides of the Table)