I wrote my second TechCrunch article on how I started Five9 with six credit cards.
Spoiler Alert: We ended up getting acquired by Zoom for $14,700,000,000. Then we didn’t.
I wrote my second TechCrunch article on how I started Five9 with six credit cards.
Spoiler Alert: We ended up getting acquired by Zoom for $14,700,000,000. Then we didn’t.
In 2009, I started a digital health company. One of the first people I hired was a sales rep who I’ll nickname “Bruiser.”
Our company’s big idea was to get doctors to message with patients by rewarding them not with money (those attempts by earlier startups had mostly failed) but with verified reviews instead.
Whenever we encountered problems Bruiser would declare, “I’m an immigrant from the toughest part of the world — this is nothing.” His confidence gave the rest of us confidence.
But the more successful our SaaS company became, the more difficult he became. At each growth milestone, he wanted to renegotiate his position with clauses like “anti-dilution guarantees.”
Meanwhile, the business was gaining traction and soon hit $1 million in annual recurring revenues. Before we could celebrate, Bruiser called. He wanted to renegotiate.
I let him go on the spot. “Let’s chat on Monday and figure out your exit package,” I said.
He agreed saying, “I love you but you’re too difficult to work with.”
I remember thinking, “Well that was cordial! I thought he was going to break something.”
On Monday I got a letter from his attorney demanding $750,000.
We didn’t have the money, or an attorney. The closest thing I had was a friend who had just started his own law practice. It was so new I had designed their logo a few months back.
On Monday I gathered my team with my friend the attorney and explained the situation. “I’m worried,” I admitted. “But he’s muscling us and I don’t want to settle. What do you guys think?”
“No. I can’t settle,” said my Operations Manager without hesitation. The others nodded. We were officially embroiled in my first lawsuit.
We responded letting Bruiser’s lawyer know we were fighting.
And then something unexpected happened. Bruiser’s attorney dropped out of the case. But why?
Using the power of positive thinking, I told my team that Bruiser was likely getting a cheaper lawyer.
A week later we got a letter from Cotchett Pitr McCarthy. They were Bruiser’s new attorneys. Known as “Cotchett,” they had successfully sued companies like Eastman Kodak and Citigroup. Their founder Joe Cotchett was described by a popular legal website as “The Bully of Bullies” with the subtitle “Why does Joe win so often?”
So much for positive thinking.
Cotchett introduced us to their firm by sending in a wheelbarrow of documents four feet tall containing every email, contract or anything thing else that could produced from a commercial laser printer.
“Total intimidation tactic, so Cotchett,” marveled my attorney. I was less thrilled.
We had an open floor plan and we stared speechless with looks on our faces like the primates in the movie 2001, where the obelisk suddenly appears and confuses the monkeys.
I broke the silence by getting up slowly from my fake Herman Miller chair and announcing, “We’re going to win. I promise you.”
I’m not sure anyone believed me, but I packed my laptop and went home early. I didn’t want anyone to see me looking stressed. Later that night I brought half of that pile home (my attorney graciously took the other half).
It was time to ping my network. My friend Jay was the former in-house counsel for Twitter. A Harvard educated attorney Jay knew technology and the law, he was brilliant.
“John,” he said, “if you were in a knife fight, with Cotchett Bruiser just brought a gun. You sure you don’t want to settle?”
But I had told my team too much about standing our ground to settle now. If I settled I would lose all credibility.
We continued on as if I was running two operations – my company and this lawsuit. Evenings after work I sifted through documents until I passed out drinking a glass or two of scotch. Maybe three.
Also, I picked up smoking.
My life kept going on like this until my phone rang at 3:00am one morning.
“Get up!” My attorney was shouting like he just discovered who killed JFK. “What year did you incorporate?”
“2009, I think,” I was still groggy. “What time is it again?”
“And when did you buy the .com domain name for your company?” he asked. “Look at the sales contract that Bruiser signed with a customer. What year did you buy the .com name?!”
To me, it looked like a regular sales contract.
“You incorporated in 2009 but bought the domain name in 2010,” said my attorney. “So why does this sales contract from 2009 say the agreement is with the .com name you bought in 2010?”
“Because he forged these sales contracts,” I said, flabbergasted.
There were other sales contracts with the same error. But why would he do this?
“Because Bruiser plans to show that he was instrumental in the success of the company, so he faked these documents,” my attorney said.
I immediately called my Operations Manager. “Get up!” I shouted.
About a week later we demanded an early deposition of Bruiser from Cotchett. One of the lead attorneys at Cotchett asked if we really wanted to do this, saying it was unusual to call such an early deposition. But we called their hand and at the deposition, we presented Bruiser and his attorney with the evidence.
Another week passed and we got a call from Cotchett. They wanted to settle.
“It’s a fraction of the original demand amount,” my attorney marveled.
We kept pushing back and running up their expenses until Cotchett caved. I don’t know a law firm’s internal cost structure, but Cotchett ended up getting so little from us (I’ve spent more on domestic vacations) I bet they lost six figures betting on Bruiser.
All successful businesses that are growing will have unethical parasites and contingency attorneys trying to suck off you. Just remember –
Embrace the battle with parasites and your team will end up better, stronger and smarter for it. If you don’t, expect more parasites as you grow.
95% of the World’s developers don’t have the skills or experience to work for a Series A (or later) company.
Most ideas (even the good ones) don’t make for sustainable businesses.
Like “Dave’s” (not his real name) who sat across from me at a cafe in Kyiv, nearly falling out of his chair with excitement. He was a very fit, middle-aged London banker who had an idea for an iOS app and had hired an outsourcing firm in Ukraine.
$150,000 into his yet-to-be-launched app, he kept saying “I’m certain.”
It doesn’t occur to many first-time product founders that success in this game is all about the team you have. Your ideas are for sh*t.
But here’s the dirty truth outsourcers don’t want the public to know:
Outsourcing is a grueling business that relies on tier B talent managing tier C talent, with 10% to 25% margins, and that doesn’t account for the constant churn as developers leave you for better-paying positions.
Almost every outsourcer I know is working on their own product, hoping one day to leave outsourcing. That’s why 99%+ of apps developed by outsourcers fail.
If outsourcers could build successful products, they wouldn’t be outsourcers.
Dave became upset when, instead of joining in his excitement, I told him “Dave, you’re a great guy but if I could short startups, you’d be first.”
I really got to work on my tact.
However, a few months later Dave sent me a Facebook message with the all too common, “John, I should’ve listened to you… hey can you meet up for coffee?”
What About Marketplaces That Attract Top Talent?
Marketplaces that allow anyone (like Dave) to become a customer do not attract top coders.
Why would top developers be looking to work for someone’s side-hustle idea when elite coders can make 3.5x more (with benefits) working for a VC-funded startup or an Amazon (which hires coders globally and lets most devs work from home)?
Nothing about the claims of online marketplaces (“Hire ex-Googlers to work!”) make logical sense.
Consistent Mini-Pivots Means Killing The Puppy. Often.
Too often founders or PMs hold onto an idea because they’re squeezing it slowly to death like a newly adopted puppy instead of quickly finding a new puppy that actually has product market fit.
Call it luck or psychotic determination, but both of my startups have had profitable exits and nearly all of my clients who I’ve been a growth advisor to have had: an IPO, a Series A investment, or been acquired.
When I think of why “luck” has been on my side, my belief is that it has to do with one core habit I’ve developed with my colleagues over two decades of building, advising and investing in new software projects that I call the CMP model:
Every successful project is a product of Consistent Mini-Pivots based on a relentless collection of data.
Too often I hear younger founders say something like, “We failed because of _______ but we learned a lot!”
I don’t believe failure is anything to celebrate. And most of the time I’ve seen that it could’ve been avoided with CMP.
At my first startup Five9 we were the David versus multiple Goliaths, so we had to come up with a 10x better product with a 3x better marketing strategy using the CMP model with our engineers and marketer.
Based on CMP grew from $0 to $10 Million in annual recurring revenues within 24 months. $20 Million in just 35 months. Quite frankly it felt easy, it was fun (while our competitors used words like “grinding,” to describe their lives).
It just happens that CMP is the exact opposite of how outsourcers operate profitably – they have to give you the cheapest developers for the highest price taking the most amount of shortcuts.
At DoctorBase (our second startup) we beat our direct competitor nearly 3:1 in sales even though they had raised 30x more than us. 30. X.
A very, very famous angel investor passed on investing in DoctorBase because he said “HealthXX has raised so much money we feel they will run away with the market.”
I printed his email and taped it to my laptop.
I removed it when we got acquired. The CEO of HealthXX and much of the founding management team quit.
They were in love with their idea, heck they had raised so much money from so many well-known VCs that they may have even been in love with themselves.
We were in love with the act of searching for product market fit.
CMP. It’s powerful.
baby company is somewhat bittersweet. The money and sense of accomplishment with your team is undeniable, but at the same time it’s odd to go from CEO to employee. Half of my former employees kept asking me, “You ok, JK?” and the other half would give me an occasional look like, “Don’t you dare tell me what to do – you ain’t the boss!”
I came into the office on a Thursday evening – first clue we were acquired – no one was in the office at 6:30pm. I gathered all of my belongings in a CostCo box, turned the lights out and left DoctorBase for the last time.
1. Said goodbye to competitor. Most of my career I’ve heard VCs say, “We like you, but ABC Co. has raised so much money…”
So one of the first things I did was gathered my core team and danced in front of the
grave office of my closest competitor who had raised 30x more money (yeah, 30x)! At the time of our exit we had about 2.8x their ARR (Annual Recurring Revenues) with far less churn (percentage of cancelling customers).
It’s why as a hobby micro-angel investor, I never underestimate a roomful of creative people who are die hard about winning. Having connections is great, but scrappy often wins the day in the long run.
2. Visit Africa. The first trip I made was to go to Morocco to ride camels and haggle for things I didn’t want.
The pictures look great but believe me, the desert is cold, boring and filled with cats. Yes, cats.
Which in a way made sense to me because the Sahara looked like a large litter box. However, the people of Morocco were quite lovely and I highly recommend going shopping through the maze like streets of Marrakech – a bucketlist worthy experience.
I returned home to San Francisco after ten days in Africa and ate a super burrito every day for a week. God is great, truly.
3. Buy a bunch of stuff you’ve always wanted (obviously). In my case, motorcycles. I always wanted a different bike for each day of the week and a victorian garage in San Francisco big enough to house them all. Dream = fulfilled.
And if you really like a particular model, why not buy two?
4. Buy your (ex)employees things that make them happy. Because let’s face it, without them I’d be a monkey with a powerpoint presentation. No offense to monkeys as I love animals.
5. Throw fun parties. And this being San Francisco, most of my guests will be smarter than me and way more accomplished. Note the tall handsome dude in my kitchen is Coach Mike Brown (former head coach of the Cleveland Cavaliers, my Los Angeles Lakers and now with the Warriors).
Some of my guests (after I explicitly asked them not to) asked him questions like, “Who was worse to coach – Lebron or Kobe? Tell the truth Coach!”
In Silicon Valley for some reason we lack social graces. #Aspergers
Or have dinner with celebrities. Not because they like you but because you paid for a fundraiser dinner benefitting a charity you actually know very little about.
“Yo Yao!” I said, but I don’t think he got my sense of humor. Man I love basketball.
And have a real convo with your childhood idol. When I was a kid I loved Janes Addiction. Being able to talk about the music industry with lead singer Perry Farrell was a dream come true.
6. Retire your parents. It’s an Asian thing I guess.
Send family members on vaca. Also, Asian thing.
My baby cousin and her husband are both so smart and good looking and young they make me want to puke.
7. Speak at your university and drink beer with students like you’re still an undergrad. And actually puke.
Or people from far off countries will ask you to come speak about startup life, which was also great for me considering I would never had gone to Norway otherwise.
And for some reason after you have an IPO or exit, people who own boats invite you onto them. I never knew some many people owned boats. And you know what? Everyone is in a great mood on a boat. You never hear of a fistfight breaking out on a boat. Am I right?
8. Do “VIP” stuff like become a judge for a foreign country’s Miss Universe pageant.
I’m married to a wonderful lady now so I have to disclaim: I had a terrible time at this event. Awful.
Or get invited to the White House and chill with politicians.
Charlie Rangel may have left his office with some controversy (after decades of public service) but he’s still one of the best sales professionals to ever pitch. I wish I could’ve gone drinking beers with him afterwards.
Traveling the world for a year makes you very bereft of potential
girlfriends dates (ok, so I didn’t have a lot of dates before then either) so my friend Kyra packed her dress, hopped on a flight to D.C. and came to my rescue as my +1 for the White House gala. Thanks pal – I’m lucky to have friends like you.
9. Become an angel investor and support other amazing founders by hustling hard for them. Cliche but true, in this town you must add value to get into good deals when you’re writing checks as small as mine.
10. Start to miss your desk at work. When you had a job. And purpose.
Also, even your friends at Facebook seem to be working on interesting projects, and so inevitably you get back to f**king work like a real grown up.
Still, my year off the grid was memorable and I’m glad I had it. Whenever people say crap like, “I wish I could have a year like that, JK,” I always tell them, “if you really want it, then –
So now I’m back with another startup mission – to reinvent software outsourcing at JetBridge. If you need the absolute best software developers for your company, come check us out. As you can see from our reviews, our devs often outperform our client’s in-house teams!
In 2009 my buddy Mischa and I wanted to make a ding in the healthcare universe. We were both pretty fed up with the status quo for consumer health, and felt like we could build a communications app that made it much easier for doctors and their patients to communicate digitally.
We learned some really harsh lessons about the American healthcare system. Namely, some of the powers-at-be who want to maintain the status quo can make Russian mobsters look like pussies.
DoctorBase was also a lesson in competing with better-funded competitors as a bootstrapped startup by sticking to your passion for building the best damn product with superior marketing tactics – and ignoring the VC hype machine.
Our closest competitor HealthXXXX had raised 30x more money than we did, but at the time of our acquisition we were a totally employee-controlled company and was doing over triple their revenues with nominal churn.
VCs had passed on us because, well HealthXXXX had raised much more money and (according to their formulas of prediction) that meant they were going to win.
A very, very famous VC told us that “HealthXXXX is going to run away with the market.” I printed out his email and taped it to my desk so I could stare at it every Saturday when I showed up to the office.
We eventually raised $1 Million via Angelist only after we were profitable (as a cash cushion) and at a healthy valuation that kept us founders in total control of the company.
When other digital health founders ask me how we did it, the short answer is that we approached our startup differently than our competitors – we treated software development and product marketing as the same discipline.
Many folks assume my first startup Five9 was more important to me because it became a much, much larger company, but in truth my time at DoctorBase were the best five years of my life (even better than college!). I think it was because we all felt like we were on a mission, and the team was small enough to feel like family.
At the time we sold the company we had about 18,000 doctors communicating electronically with nearly 9 million American patients. We were small, but we were a badass gang. I mean, not as bad as Russian mobsters, but still.
My core team and I set up a [software development + product marketing] agency in Kiev, Ukraine. If you have a digital health project in mind, drop us a line. Or you can email me at firstname.lastname@example.org