An Award-Winning Entrepreneur, Dan Martell Shares His Journey, Cust-Dev Case Study of Flowtown, Learning & More.

Dan Martell, who began his journey back in 2001 when he was just 22, is today one of the most recognized entrepreneurs in the Silicon Valley. His first startup, Spheric Technologies – that had more than 20 Fortune 500 companies as clients, grew well over 150% for 3-4 consecutive years. Dan sold it and moved to silicon valley with an intention to be among the best people in the industry.

He soon started advising startups and his advice have lead to the success of hundreds of companies. The award-winning entrepreneur, Dan is also an angel investor. However, Dan’s present focus is Flowtown – a social media discovery engine, which he co-founded with another amazing entrepreneur, Ethan Bloch. Flowtown, today, serves over 20,000 small businesses and is growing faster than ever.

After a series of email exchange, we could finally arrange an audio interview appointment with Dan and now we have got the entire audio transcription for you. In this interview, Dan speaks on various subjects including Kiva – a non-profit organization, Flowtown, and most importantly, how lean startup/customer development methodologies turned around Flowtown from a failure to a success.

Interview Overview:

Hi Dan, let’s start with your background and how your entrepreneurial journey started?

The long story short is, in 2000 I  got exposed to the startup world as part of a startup; I was an engineer there and my background is development. Everything kind of blew up in 2001 and at that point I decided to move to the US. I am originally from Canada; from a small town with 100,000 people in the Eastern Canada called Moncton. And, after 2001 I decided to move to west for the opportunity. I started moving to the west on September 09, 2001, and as I was half way across, September 11 happened – all of a sudden, all the opportunities I thought was waiting for me weren’t there.  I was 22 at that time. Honestly, for about four months. I ended up couch surfing at my friend’s place. I had no money, no job, had no idea about what I was going to do. One day, I got a call from a company who wanted to hire me to do enterprise consulting but they required me to have my own company cause they didn’t want to hire a full time employee. And, honestly, that was the best thing that ever happened to me.

The fast forward from that is – I did that for two years as an independent consultant. And, then in 2004, I started Spheric Technologies and hired 3 employees with the savings I had made with the past 2 years and we went after Fortune 500 companies. Four years after starting the company, we grew 150 some % year over year with 30 employees, 23 of the top Fortune 500 companies in the world as customers. And I decided – I wanted to work on some other stuff, and I sold the company to the management team. I went through the process; had multiple offers and decided that the team I built beneath me was probably the best people to sell to – and did that in May of 2008. I bootstrapped that company and learnt all about the business side of things and I had a good outcome. In September, 2008, I decided to move to San Francisco; my motivation for move was – I had done pretty well in home province of New Brunswick. I had a lot of creative ideas and some big ideas with this hold up in an environment of the best of the best, so moved to Silicon Valley thinking about how well would I do against the best people in this industry.

Can you tell us a bit about Spheric Technologies?

Yea, what I see in the industry especially in the enterprise – most consumer products end up becoming enterprise products. So, if you look at Internet, email, Instant messaging and live chat. They all started in the consumer world and made their way up to the enterprise. And, I had started to see this about social. Except in the enterprise they had at that time were portals, which was kind of the evolution of the Intranet. So, it went from Intranets to portals and I just thought Friendster and those types of solution would eventually make it there. We started the company doing portal stuff and in 2005, we started positioning our company as socializing the enterprise.

And, the unique thing we did was – instead of building the product from the ground-up, I found the top 3 portal vendors and we build the products and solutions on top of their technology that made their products inherently more social. We build a concept like a news feed at Proctor & Gamble back in 2007-2008.

So this all happened in the US?

98% of our business was in the US and 100% of our employees are from Canada. And, we had an office in Bangor Main. What’s funny about that office is – the only purpose of that office was to sponsor our own visas. That’s how crazy it was! If somebody would have told me before I did that how hard that was, I probably wouldn’t have done it, but the fact that I had started it – I did it. And, that was probably the most strategic thing we did for our company

Can non-US Internet startups, with majority of their customer base from the US, scale up being outside of the US or do they eventually have to move in?

Yeah, That’s a great question! The reality of it is, is that – as much as technology allows us, as this conversation happen, you really can get away from being in person. You know, I have had similar conversations from Canadian startups that want to raise capital from the US. You need to be here – that doesn’t mean that you must have an office here; it does not mean you have to live here. It just means, you need to be here frequent enough for people to feel that you are a part of the ecosystem. So, that would be my only thing. When I had Spheric, I spent 280 days a year, in a plane. I flew all over North America to talk with clients.

An Interesting Post by Dan on Moving to the Valley.

Let’s talk a about Flowtown. How did that happen; how did the idea come across?

Yeah, that’s actually an interesting story as well. So, I moved here in September 2008. The only thing I knew was that I wanted to learn from some of the best people in the world how to build products that people rewarded you with the time they spent on it not based on the quality of the  relationship. So, it’s always quality of the product not quality of the relationship. Because enterprise is all about quality of the relationship. For Consumer Internet and SaaS based products; its all about – how well does this product perform. I got lucky enough to meet people like Drew Houston at Dropbox, Matt Brezina at Xobni and John at Slideshare. These are some amazing people that had gone before me and I focused and took some time for me to learn.

What happened that was good for me, but bad for everyone else was – the economy crashed in October 2008, a month after I showed up and a lot of the investors who I became friends with decided that their portfolio companies need to get really serious about metrics and user acquisition. Fortunately, those were the two things I was very passionate and had a good fundamental understanding about. So, I started working and I did these two week projects with different startups, helped them with strategies, helped with marketing, helped them understand how marketing affects the product and the user acquisition, and how people felt about your product. And, the thing about marketing for startups is that there are 3 free channels – PR, SEO and Social. When I say free, I mean these channels don’t require any cost other than your time

And, on the social side, I found some patterns. I started to see some science behind this art where you see people have this great social presence. So, if you look at them, you could figure out the pattern and learn how they were doing it and what they all shared in common. That’s when I met Ethan Bloch, my co-founder. I was doing strategies then and he was going through another situation. He’s an awesome entrepreneur! He was working for a startup that downsized and he had some time on his hands. I told him about all these companies and how to do all those stuff I am asking them to do. He started helping me with that, and after 5 weeks he suggested that there is a product we could built for everybody out there in the world and I want to do that. But I was not sure if I wanted to do it; he asked me to be an investor, and said yes!

Six weeks after I invested in; he kept bugging me to become a co-founder because he knew I had strong knowledge. I said, I will be a co-founder but I don’t want to be be full-time and I don’t want any responsibility. That lasted for about 3 months with half-time, and after that Ethan was like – dude  just become a co-founder and work on it. One thing I gotta give Ethan credit for is – he definitely understood how to slowly bring me into the vision. When we launched, initially, we were a landing page tool – not many people know this, which was launched on Feb/March 2009 and it was a totally failed. We had just 1 customer paying us $10 a month – which definitely was not a big business. We took those lessons, killed the product and launched a new version which was essentially the beginnings to what you see today – a tool for social discovery. And, within the first day we had one monthly subscriber. We have been growing 30 some % since then and today, we have 20,000 businesses registered on Flowtown and we raised a seed fund after we got profits in Jan/Feb 2010.

You are an active proponent of the Lean Startup methodology and Customer Development, Can you explain us how you have used those methods and principles for Flowtown?

Okay, here is the interesting part, Steve Blank, who is the author of The Four Steps to The Epiphany and pretty much the grandfather of the customer development process, had a talk at the Berkley to his business class. That’s when we realized that we thought we were doing customer development but we were not. Yes we believed in it. Yes, we thought we where doing it but many other people fall into the trap that is – they don’t do it; they are doing parts of it and they think that they are doing it, and that’s a big mistake.

So as an example, we knew we were into small business owners so when Ethan started Flowtown, I said lets go to market as service company. For 3 months, close 15 customers paying us to serve their marketing needs and by doing that we will learn from our customers what they are willing to pay for and look for opportunities to build a product to solve their needs.

And we did this; we built 6 prototypes over that 3 month period. Everything from simple reporting interfaces that sat on top of Google Analytics, Social Media tools to help you manage Twitter and Facebook , Social Discovery Engine that you give an email address and it will find you all the social profile data – we call that the head-wig,  a Landing Page JavaScript application that was super simple and we built all these tools and when we launched we then learnt that small businesses have no interest in customizing landing pages. They are not creative, they don’t know what to write and they didn’t do it. And we thought we are doing customer development but the problem was we never put one of those prototypes in front of the customer; we would show them the results of those prototypes but we never said – hey go use this, go sign up for this and  try it on your own without us doing it for you.  And that was like a HUGE mistake, which we laugh about today. And then we essentially sat down regrouped, read the book, re-thought about our assumptions and hypothesis and then second time around we built 6 high fidelity mock-ups. Then Ethan went out and did customer development and essentially pre-sold 20 accounts for flowtown before we even  built anything.

It wasn’t until we did that, that we then invested 4 weeks of development to build the first smokescreen and that smokescreen was a website that said give us some email address, hit next they did that, we showed them the aggregate view of all those emails and social network and then prompted them to pay 5 cents times the amount of contacts they uploaded to get the detailed report per contact. every thing from name, age, sex, location, occupation and all the social data we had and we sent out to a 100 people. And, from those 100 we got a 20% conversion to pay. But the reality of it is – we didn’t build anything past those 2 screens. Again we were validating if there was a real need for this, even after we pre-sold it, we built some part of it. It was only at that point that we said, alright lets build the rest of this and that was really kind of  how we did it. Now from that we implemented I would say 70 or 80% of both cust-dev processes and the lean startup on the technical side. So we pretty much do it all.

You have been actively helping and advising startups, what do you think is the most common mistakes that startups make today?

I have been advising startups like 100s of startups. I invested in 9 companies as an angel investor. The common mistake; I would say is – not getting close enough to the customers and who they think their customer is. And not realizing how value flows between the users and their application, what problem are they solving, and the core. I would say, that’s it.

And, they spend too much time building stuff before they ever get feedback or they ever call a customer. As much you say, get out of the building and call people. I challenge a startup that says, they are a Lean startup to tell me who is the last customer or person you called and did  a customer and problem interview with. They don’t do it; they sit behind their computers and look at the codes and metrics. They sit their and survey people; they prompt people on their website for feedback. But, they don’t call; they don’t  get on the phone; they don’t do it. And, that’s the biggest mistake. There is so much value and so much learning that can be had by making a 10 minute phone call, but  just don’t understand why people are not willing to make that and risk the potential of their whole business side.

Okay, You have been an angel investor to quite a few startups; tell us a bit about them and what do you generally consider or look-for in a startup to invest in.

Yes, the last 4 investments I made – one is called Lymbix, oneforty.com, Plancast.com and Foodspotting.com and in all those case because I’m usually the first money in – very early. for some of them I was the first check ever written to them and for one of them I was part of their initial round.

I guess its the people; I just look at the person and say do I feel that this person is absolutely passionate for the problem they are solving. I am always curious about the why; why you? Why do you care about solving this  problem, whats your story, and if I feel that their story aligns with the product and their vision, their passion and technically they have the skills and the ability to do what they want to do, then I usually take the risk. But if somebody comes to me and they are tying to solve a problem that I don’t personally feel that they care about and they are just doing it because there is an opportunity, I don’t get involved.

You have been investing in the non-profit organisation Kiva. Can you tell us a bit more about it?

Yeah! Kiva is an awesome company as a non profit. Essentially what they do is, they allow anybody to lend money to entrepreneurs all across the world  predominantly in developing countries and the way I get involved with them is – honestly, 4-5 years ago I was doing pretty good in my company and I just wanted to start some non-profit component of Spheric and Mark Benny offered a great book called Compassionate Capitalism and he talked about the 1% solution. So the idea is – every year they give 1% of the profits, 1% of their employees time, 1% of their resources, and predominately their technology to non-profits and that’s something they have done from day one. And I think that’s such a great idea!

So, for me when I got introduced to Kiva I was looking for a non-profit that I felt embodied my beliefs in my company and I was all about  entrepreneurs and our company was inherently global. We had customers in the US but we also worked with their  teams around the world and I just believed in what they were doing and that’s how I initial got involved in Kiva and I think by today I probably lent out over $15-20k to entrepreneurs all around the world and whats interesting is they only let me give $25 at a time. So think about it – how many people I have invested $25 at a time. It took many many years to do that so its been pretty awesome. When I moved to San Fransisco, just by chance I found that their offices is 5 blocks away from where I live and I go there every once in a while and joined their advisory board for social media. And they are a great organization.

You seem to be involved in too many things, yet you still take time for running and other sporting activities; how do you manage your time and do all these stuff?

So, the reality of it is – probably the most valuable thing I have is my network. I don’t like to use the word network but just my relationships. And, when I get involved in things as an advisor, as an investor, I do it with my best efforts. But this year, just because we are growing really fast at Flowtown I have really gone back and uncommitted myself to a lot of things. My priorities now are really Flowtown Family, and then portfolio investments and everything else like these interviews & what not are pretty much done just where they fit. I love absolutely what I do; I don’t own a TV, I don’t do anything else but what I am passionate about. So, there are no 2 or 3 hours in a day that I do nothing. I spend each and every hour giving advice, learning something or even grabbing 10-12 entrepreneurs together having a dinner talking and sharing ideas.

You have been an entrepreneur for quite a long now; what is your biggest or the most important learning so far?

The biggest learning is – “how important having A+ people is;” like world class. I think a lot of people get into this situation where they need to start their company and they have a friend that writes codes and they are like – okay, you can be my co-founder but that person may not be amazing. Or you have a role that needs to get done and just hire the first person or you hire your cousin. Over the years, I realized, you can hire people that are A+, they will replace 10 people and they will make you successful. You will have more time to do what you’re uniquely qualified to do that adds so much value.

As an example, we just hired a graphic designer at Flowtown after 10 months of looking. I looked and talked to around 50 people personally and our recruiter spoke to 100s because I was just not willing to hire someone who was not world-class and did not understand what we were trying to do. That’s the biggest lesson – that goes for engineers, customer coaches and anybody. I don’t think I had that quality filter when I first started this. You have to put-off a lot of fire; you have to deal with situations with customers that just would not arise if you just hired really great people.

What would be your advice for aspiring entrepreneurs?

Here is the best advice; best advice – hands down! If you do this, your life will change. “Don’t take advice from people that have not achieved the level of success that you aspire to.” Simple! And, I am talking about your parents, your best friends, your managers at work. If you’re going to do a startup, go find someone who is doing it to the level of success you want. And, if you do that, your life would change! If they have not achieved it – I don’t care if they are authors; there are so many people who go around and write blogs, books and speak, but haven’t made a frickin’ nickel. You put those people aside. You go find the dudes that are killing it, that are making real money and that are growing businesses like crazy, exponential growth and ask them for an advice.

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