Founders at Work.pdf

Stephen Kaufer 367
Livingston: Did you use the same strategy with other companies: “Try us out
for a month, and, if you feel like we’ve driven some true leads, you’ll continue
with us”?
Kaufer: Yes. Once other companies saw Expedia advertising, they sometimes
didn’t need a free test, but we might say, “Look, our leads are normally a dollar
a click, because they convert so well. But we’ll let you get started at a quarter.
And we’ll send you 5,000 leads, and you can test with no risk. But you know,
we’re looking for an insertion order to show that you’re committed to the test.”
Invariably it would take three months to get a test going. You have to find
the right person; you have to introduce yourself; you have to decide whether it’s
an ad agency or direct with the client and lots of other annoying aspects. But for
the most part, once the client was getting the leads, the leads would convert
well enough such that they would be up and stay up for years and years. So
there wasn’t a whole lot of maintenance involved. Our technology would automatically
find the right links to advertise.
Livingston: It sounds like finally figuring out how you were going to make
money was a major turning point for you.
Kaufer: Right. We went from no revenue to break-even in the course of about
4 months. That part was a testament to finding a model that worked. To break
even, I had to do $75,000 in revenue for the month, something like that. We
had never let our burn rate grow. We didn’t do any advertising at that time. But
even since, we’re rarely going to do promotions that we can’t tie back to actual
revenue-generating activities on the site.
Livingston: Why were you so careful about spending money? Had you had a
bad experience before?
Kaufer: By 2000, we’d certainly seen the dot-coms that would move into the
$50-a-square-foot offices, hire loads of people to get it all done quick—to get
big fast, etc. Several of them had already flamed out. That was really never in
my blood, if you will. The other company I had started right out of college was
self-funded, and then a tiny bit of angel investing, and then half a million dollars,
and then a couple of million dollars, where the last round was purely
growth capital. We had always run that profitably and had grown slowly because
of it.
I guess I had toyed with the idea of doing the same here—taking my savings,
building the product, not looking for any venture money—but that would
have taken a long time. I had a family to support, that sort of stuff. So we certainly
decided early on to go raise some money, and within the first year we had
raised $3 million or so—but a comparatively small amount of money.
There wasn’t anything obvious that we should spend money on, other than
hiring a lot of people, and I’m just a fundamental believer in small teams do
better than big teams. We were building a product, and if there were 5 people
and they were all within shouting distance of each other, they were going to
build a better product than if we had had 15 people. Really, even if I had the
dollars, I didn’t want to spend the money there. And then, did we need more