Transcript of Interview with Matt Barrie
Dan: Welcome to another episode of Shoulders of Titans, this is Dan Lok and I’m so excited. Today I have the privilege of bringing you an international entrepreneur, an innovative thinker, a true business visionary, CEO of the world’s largest freelancing and crowdsourcing marketplace, freelancer.com – Matt, I’m so excited – welcome to the show!
Matt: Thanks for having me, Dan.
Dan: Matt, I’m just curious maybe tell us a little bit about your background and how you got into what you do today.
Matt: OK. Well I don’t know how far back you want me to go but I run freelance.com – I’m the chief executive; we’re a large marketplace, you can kind of think of it as eBay for jobs – we connect about 17 million people all around the world who want to get jobs done. And these jobs can be really simple such as, design for me a logo or do a bit of programming for me right through to something more sophisticated like building websites. We have sections now on genetic engineering, biotechnology manufacturing, you name it. There’s about 900 or so different categories. But I’ve been running the business for about six years, we’re publically listed – I’m sure we’ll talk about that later in the show – but before I started freelancer, my history was I was a computer scientist and electrical engineer. I did my undergraduate in Australia, that’s where I’m from and am based in Sydney. I went to Stanford ‘97 [cuts off]
Matt: Simply because the relationship with investors became toxic so I kind of – I left the business and it was one of those dark times in the journey of an entrepreneur where you’re really down in the dumps. It was great technology, great people we had in the company, it’s just there’s always problems of how we executed I guess. And you know I was like looking for something to do and kind of sitting at home like gee I don’t really want to go and start another company – well, I want to start a company but don’t want to go through the process of having to raise venture capital again and deal with venture capitalists because the relationship I had was very toxic. And you know what can I do?
And so after taking some time off to go skiing and you know kind of get over the pain I thought I would work on a few little side projects for various people and one of the side projects was to build a website for someone and as part of that I needed to get some data entry done and the data entry was basically fill in a spreadsheet with a list of shops, the name of the shop, the address, the phone number, the email address, the URL and so on. And this is a really boring thing to do – you have to search Google and look for shops in this particular category and I thought, I don’t want to do this, maybe someone’s little brother or sister will do it. And it was pretty boring work but I was willing to pay $2 per row in the Excel spreadsheet and there’s about a thousand rows I thought I could start off with. So it was about $2000 and I thought someone’s little brother or sister would love to do this work; I know I would’ve when I was a young kid. And so I tried to find someone to do the job and I mean it’s not the sort of job you can go and put on a typical job board so I was just asking around through family and friends and I’d find people who were kind of interested and spend a few minutes working on it and they’d tell me it was really boring. And I’d say, I know it’s boring, that’s why I’m giving you $2000 to do the job!
Dan: You were outsourcing before outsourcing was popular.
Matt: Yeah, I didn’t want to do it! I had soccer practice, exams, I was like oh gee – I don’t know what happened with the work ethic of Gen Z or whatever the millennials are but it was very, very hard and eventually after 4 months I just got frustrated and I searched the internet and I thought you know I think I typed in something like ‘cheap data entry’ or something like that and I found a site called ‘getafreelancer’ and this was a very ugly looking site, it looked like Craigslist, it looked like it was all gray and pretty awful looking but there was all this activity on it and I kind of thought you know what’s going on here? It looks like some sort of marketplace where you can get people to do data entry amongst other things.
So I posted the job and I think at the time it cost me $5 to post the job. I walked away to get lunch and actually forgot about posting the job and I came back like 3 hours later and my email box had exploded. And I’m like, what’s going on with my email? And I looked at it and it 74 emails in my inbox from people saying they’d like to do the job and I was like, what? After spending so much time trying to find someone and all of a sudden having all these people – I thought this can’t be real. I was looking through the emails and there’s like, I’ll do it for $2000, $1000, $500, $400, $200, $100 and I thought to myself there’s no way that someone would do this for $100. I can’t even find one person to do it in Australia, let alone there’s 74 people now wanting to do it for as cheap as $100; this is ridiculous.
And I hired a team – I think it was in Vietnam – and you know they did it in 3 days. It was perfect. I didn’t have to pay until the job was done and it just blew my mind. I just thought to myself, this is just incredible. I mean, it’s you know there was a team of people that were willing to work for me for something I could just pay off with a credit card and I thought to myself, I could hire a whole army of people to do things for me and I could build all these businesses and I could just sit at home, come up with ideas and just keep my credit card on this website. I thought it was absolutely amazing and it solved a real problem for me which is basically you know here I was kind of wanting to do another business but I didn’t want to go out there and you know I was pretty broken at the time.
I’d had a big fight with a venture capitalist where I kind of said to them you know I thought what they’re doing was a bit dodgy so I kind of said if you do this, I’ll kind of walk away and consider this my $30 million MBA which is probably a bit obnoxious for me to say that but it also burned me in the VC community. But also I hired all the people I knew who were really, really good to come work for me so I felt really bad and I walked away from that – so I felt bad going up to people after walking out of that business saying, come and work with me, let’s go start a company because I just felt that I burned a lot of people in terms of personal relationships by leaving that business.
So it solved a lot of problems because I had this romantic notion at the time that I could kind of sit there and just hire an army of people and just sit at home and build a billion dollar business.
Dan: How many years ago was this Matt?
Matt: This was 2007.
Dan: So that entrepreneurial thing came and you were thinking maybe I can build this massive, virtual company without the traditional having a big office, having a big team. You can have it anywhere in the world.
Matt: That’s right – I had a brief romantic notion that maybe I could build a billion dollar business with no employees.
Dan: Well wouldn’t that be cool? OK got it, got it.
BUILDING AN ONLINE BUSINESS
Matt: Someone will do it one day but so I thought to myself this is amazing, what sort of business should I build? And I thought, hang out this site is incredible. The more I learned about it, I said this is like an eBay for jobs, like a marketplace for jobs and I thought you’ve got these global marketplaces for products, right? So you’ve got eBay, alibaba, Amazon that are very, very big business right? Hundreds of billions dollars market capital and I thought surely a global marketplace for services should be a big thing. If you’ve got global marketplaces for products surely there should be a global marketplace for services. And I thought to myself, you know it’s like an eBay for jobs – why hasn’t eBay done this for example and you know I thought, I’ve got to get into the space. This is phenomenal – this is just an incredible business and so I started my own website called biditout.com and I was hiring freelancers because I could program but I didn’t know design and a bunch of other things so I was kind of using the site for myself.
Dan: That’s so funny; you’re hiring people and getting freelancers to get a freelancer.com.
Matt: That’s right and after a couple of weeks I had a very basic site up and started to understand how the dynamics of the business model worked and I thought, OK – how much money do I actually need to get going with this business? And one thing I did which I always want to assess or evaluate ideas and this is a good thing that entrepreneurs should do themselves is just have a little back of the envelope calculation of what would it take you to raise $1 million in revenue, right? You know what’s the price point of the product or service you’re selling, how frequently does the customer buy it? Is it something they buy every month, is it something they buy once a year, is it something they buy once off forever and then that’s it? They’ll never buy a second unit?
So there’s basics of financial models and I look at that and then the next thing I do is well what would it take to make $1 million in profit, right? So what’s the cost structure look like and so on and that helps you kind of validate an idea very quickly. Because if it turns out you need 10,000 staff or something ridiculous, you pretty quickly say to yourself this is not going to work, right? So I did this basic financial model and built it out a little bit more and said, well how much money would I need to raise to kind of get going? And so on and then I needed several million dollars I thought to build the business like you do with a typical series A type of software business, back then in 2007. It’s changed a lot now where you can kind of get going with four guys in a room and $20,000 because they can eat noodles for four months and pop up the other side and you can get traction pretty quickly.
Dan: And if they need programmers they can still go to freelancer.com.
Matt: There you go. So and then I thought to myself, let’s do a competitive survey of the market and so I looked out there in the market and there were literally hundreds of tiny sites trying to do this. Most were just very, very small and not going to go anywhere. There were about a dozen that had a little bit of traction but hadn’t really set the world on fire, you know so I kind of looked at those and thought, gee no one is going to finance me to be number 13. So maybe I should try to buy rather than build. So I went out and contacted a bunch of the guys who didn’t have any institutional backing and a bunch of them came back and said yeah, we’re kind of interested in selling and after I kind of looked at a bunch of them the one which was the best was actually the site I found first which was GetAFreelancer.com and the reason why that was the best because it had the most traffic out of all of them. And the reason why it had the most traffic was because it absolutely dominated in search engine optimization.
So SEO, or the ability to rank well for keywords in Google effectively, it just dominated it. And in fact, ironically that’s the way I found the site in the first place – I think I typed in ‘cheap data entry’ or whatever it was and clicked on the first link in Google and there I was, right? So I said to the guy, how much do you want to sell for? And he said, well I’m actually in due diligence with 4 other companies and I said just send me the information that you’ve got. And you know then he said I want this much money and it was actually comparable to the amount of money I was going to raise. I thought to myself, why start from scratch when I can just buy a business that’s got half a million users and at the time was ranked about 5,000 in the world in elexor – something like that. I think it was about 26 million in all time volume had gone through it so yeah business was actually transacting through it. It was fairly small though, about $1 million a year in revenue and I said to the guy, listen I’ll give you the money you want within 45 days or I’ll help you sell it to the next day for twice the price which is kind of a win win situation and then I frantically went out there and got the money together.
It took a little bit longer than 45 days, I’ll tell you that much but eventually I got the funds and then got the site and I was away. The great thing about this business was, I mean the first $1 million in revenue you’ll ever make as an entrepreneur and in a business is the toughest and the great thing about this is it’s come from a shortcut, right? It was already doing a million in revenue so after a million in revenue it becomes more of an operations research or an optimization problem because you know, you can stop applying statistical methods to try and grow the business. If you’ve got no traffic and you start on day one with a website with no visitors, it’s pretty hard to do an AB test which is where you split the traffic up to two different – you split an audience in half; you send half the audience to one variation of the website and the other half to the other variation of the website to see is that an improvement or is that better or worse?
If you’ve got no traffic you can’t statistically get a relevant answer and it takes forever to kind of collect the data. But when you’ve got a million in revenue, you can start doing all these little things, like should I change this navigation, should I put this button over here, should I change the graphics on this website, should I change the page, should I make this form simpler and so on. And so I sat down in that point in time it was just myself at the back of my house and you know I bumped into an old friend of mine who said he’d help me for $20 an hour doing customer support and I sat there and just tested things. And one of the first things I tested was a new skin for the website – this is something you should never really do if you have any real traffic because you should test little tiny things but the site graphics were so bad I just thought I’d add some color to them and overhaul them. So I got a friend in New York to do a skin and I personally put the skin on the website and literally the minute I did that, the revenue doubled. And then it was pretty amazing and another thing I did-
Dan: That was a good day!
Matt: Well, it was a good day I mean I think the reason why that happened is because I set up a kind of analytics dashboard – that was really the first thing I did was you know if you don’t measure what you’re doing, you’ll never know whether something you’re doing is successful or not and I think a big mistake a lot of entrepreneurs do is they try a little bit of everything at the same time and you know something might work well and something’s not really working and something’s terrible but because they’re trying all this stuff and they’re not really measuring anything, they don’t know what’s good and what’s bad and they’ll go through their entire lifetime of their business, you know 5-10, sometimes 20 or 30 years just trying little bits of everything and not really knowing if any of it has any real effect.
So one of the first things I do which I think is instrumental to the business and I think was the very beginnings of the foundation of the data science team or the growth team that we have at freelancer – and freelancer is very much a data science company. I sit next to the SVP of Growth and really the data scientists make all the decisions to the business. I set up a basic analytics dashboard using some open source software which basically is an open source graphic package and just measured things that I thought were important. So some people have Google Analytics plugged in so that will tell you things like traffic, statistics and where the users are coming from, etc.
But I needed to know things like you know how many projects are being posted per hour on the site, how many people were signing up per hour on the site, you know how many of the people posting projects are posting a second project? What was the conversion rate of traffic to sign ups to persons to projects to people bidding on jobs to being completed to being paid. You know how many bids per hour were going through the site? Just basic stuff like that and over the years that’s been built up to be a very sophisticated analytics function now – we have four or five thousand graphs in real time in that dashboard and you know our whole business is run through this because I could measure that information. When I started doing things, I knew whether things were positive or negative, right? I mean you know I had a revenue graph, it was one of the earliest graphs I had – so when I changed the skin of the website, I could see the revenue would double because pretty quickly after the skin went up, I could see a big jump in the revenue because these things form curves, you know as the hours go along – you could see it was a pretty monumental change.
What I do is I can tell you with a high degree of certainty what the revenue will be next month because you know I’ve got this many teams working on this many projects; you know the first team is focusing on conversion optimization of a certain parameter in a main funnel of a product offering, this other team is looking to optimize some other parameter in an upgrade, etc. And if that all kind of plays off you know I expect an increase in revenue of say 8% next month or 6% or whatever it may be and you know so if you grind it out and really just rigorous have that focus just month on month on month of just grinding out gradual improvements to the site and doing it in a statistical way, eventually you’ll get there, right?
Dan: Matt, what you’re saying is actually very profound because a lot of tech companies – they’re thinking well, they’re burning through a ton of money every month and then or some day no worry we’ll build a customer base, we’ll build the users even though we’re losing money, maybe someday if they have an exit they’re going to public, or Google buys them. But you’re saying no, no, no – who knows what’s going to happen in a few years? You want to make sure you’re maximizing the profit with exactly what you’re doing now.
Matt: That’s exactly it. And I learned that from my company before this. So my company before this, Sensory, I did it the VC way which is I raised a ton of money, I raised $30 million; we didn’t worry about the short term, we focused on the long term and you know what I found was that a few things were happening. One is everything became a research project; so everything became oh let’s do this the perfect way rather than get like the minimum viable product out the door and kind of get out there and you know just try to get a customer to buy something at any rate. Instead it was like, no let’s build a perfect product and so we were going into you know 2.5 year development cycles in some circumstances, pop out the other side with a perfect product that didn’t have a lot of customer consultation and customers for one of the products frankly said actually we’d never buy it because there’s a fundamental flaw in the way you’ve thought about this. And that also ties in with the other problem. The other problem is that every time you came to work, there was a smell. And the smell was the smell of burning money.
Dan: Hundred dollar bills right there!
Matt: It’s a very uncomfortable feeling. I mean I’m sure there’s a lot of your listeners who run startups who are burning money at the moment, cash flow negative. It’s a really uncomfortable feeling coming to a business every morning and just going, how much money do I have left in the bank account? And you know how much time does that buy me in runway and when does my next round need to be raised and how long is it going to take me to raise that round so you know, if it’s going to take me 6-9 months to raise the money and I’ve got 12 months cash left, that means I’ve got to start planning my trip to Silicon Valley or wherever it may be I’m raising the money from in so many months time and it’s a massively distracting and massively stressful situation and frankly, I don’t think it’s the right way to build a company.
I think the right way to build a company is – and it doesn’t work for all individuals and some industries because some industries you have to have different considerations to account. You know I’m talking more in this case from a consumer internet sort of perspective – literally you turn the site on you can get customers from day one if you’ve got a business like that, you should be rigorously focusing on revenue, revenue, revenue, right? And just really focusing on how you can get more traffic to your site, more customers to buy things, better conversion rates, and so on. Because ultimately the best place to run money for your business is by selling something useful to customers, right?
And there’s different ways you can finance businesses with customers as well; you know my previous business, the first revenue I got was actually I went to a big anti-virus company and said listen, we’ve got this chip that we think can really solve all your problems with anti-virus; what’s your biggest problem? And they said high performance scanning of web traffic with anti-virus and I said, well what speed do you want to run at? And they told me a speed and I said well I’m sure we can get there and what I said is I don’t have the product actually here now, but what I could do is if we can by a certain date achieve that performance for you that at a certain price point you will agree to put that into a certain product range and if you can sign that contract now we’ll just do all the work for you for free. But the one more thing is if we actually do meet that performance criteria, you’ve got to pay for all the labor costs as well as services.
Dan: So basically you were pre-selling it?
Matt: Pre-selling, yeah so there’s different ways to finance from customers; you’ve really got to be customer focused. A lot of startups have this deep development cycle and pop up the other side without talking to very many customers at all and the customers tell you, no that’s wrong. The flipside is you don’t want to go out with a minimum non-viable product – too many startups also go out there and the product is just not ready and you know there’s a certain minimum set of features to actually make that product work and they go out way too early with a completely broken product that doesn’t really work for anyone and they burn all the goodwill and the product launch and media hit you get when the company is new and no one has heard about it before. So anyway it’s a bit of a balance I mean it’s just the whole focus we have, we have a laser focus on analytics, data science, the team now is very, very sophisticated – we have 470 staff in the company roughly. The data science guys run everything; there’s about 17 product groups.
Dan: Are they all in one place or a lot of them virtual?
Matt: Yeah so our staff – we have semi-staff employees, full time employees, we use hundreds of freelancers obviously as well. We have offices in Sydney, London, Vancouver, Manila, Buenos Aires and southern California. But yeah the data science guys are the type of guys you see in a group in a hedge fund now so they’re all metaphysics, we have quantum physicists, we’ve got all sorts of crazy people but much smarter than me. And they’ve really taken it to a whole new level.
Dan: Now Matt it’s so fascinating. So were you surprised by the growth of freelancer.com? Were you thinking when you first bought the company, getafreelancer.com, were you thinking well you know what, it’s going to grow that fast? Or were you surprised by the growth?
Matt: Look, you know it’s an interesting question because I remember exactly what was in my head very, very clearly. There’s a few things going on right at the time. So, the first thing at the time was I just walked out of a business that for me I called it a failure – I mean ultimately the business did sell to Intel but at the time it was doing a couple million in revenue, I think when I left it was about 2.5 million or so in revenue – it hadn’t really set the world on fire, right? And for me, I walked out and I thought this is just a disaster. And you know when you do that, you also become very nervous about your next venture, like you know the next one’s got to be successful and you’ve got your mother going, you can’t screw the next one up! Why don’t you get a real job? Go work for someone else. So you’re under a lot of pressure and so I was thinking about this quite a lot whether this was going to be an opportunity that would really make it or not.
And you know the thinking in my head at the time was, listen – it’s a global marketplace for services, I think this is a really big category just because I think this global marketplace for products which are worth hundreds of billions of dollars but at the very least, I found a whole bunch of problems in this site as it was currently running. It had a whole bunch of problems in the business model, it looked terrible, there was poor conversion, I could just look at the site and could say well I could fix this, I could fix this, I could fix this and I thought at the time look it’s definitely in a very big category but who knows? But I know I can do more than what it’s doing now; I can probably get it to maybe 5 or 10 times where it is now just based on things I could see. And in fact, so that was my thinking. And I thought well worst case I can fix it up and maybe sell it to someone in a few years and it’s probably 5x bigger or something.
In fact my thinking about how you assess opportunities – I’ve actually refined that over the years. I teach entrepreneurship at university as an adjunct associate professor and there’s actually a video on YouTube if your listeners are interested it’s called Opportunity – I provide a framework for thinking about how you assess opportunities because you know like the world around us, there’s always different businesses you can start right? And it’s like most entrepreneurs spend more time running that business than the average marriage. So you’ve got to be really careful that the opportunity you select is actually an opportunity that has a real chance of being a world class, huge success.
And so you know I talk through some of the things you need to look for – obviously very, very large markets, scalable businesses, you want to potentially look for what I call secrets where you think of things the rest of the world for whatever reasons, cultural or bias reasons think maybe are uncomfortable to talk about. What trends are hitting, etc and so on – so anyway what was going through my head was not that it could get even as big as it is today and I think it’s going to get a lot bigger from where it is from today. I can see that very, very clearly especially because I’ve got 470 people thinking about the business now with me – there’s so many different directions we can take it now and the market itself is massive; it’s the uber ization of the human labor market right?
Dan: Right and that’s more people, more entrepreneurs, they work from home, they have the virtual team, you’re making a win win and solving a lot of problems from both sides, right? Members providing service, they can make an income; entrepreneurs can build a business with minimum expense, overhead.
Matt: Well see yeah it’s actually bigger than that I think. So on one side you’ve got entrepreneurs, startups, small businesses, you name it and even corporates who want to solve problems and have that spark of an idea and want to build a business or change a business – what if I could get a product like this manufactured by someone in China? What if I could get a website built? Etc. And we take away the time, the cost and the hassle of getting that done, right? Because literally the cost on our site is about 1/10 of what you’d be expected to pay locally. And the reason for that is the other half of our marketplace is also amazing because they’re all entrepreneurs as well and mainly from emerging markets in the developing world. So all the service providers are mainly from places like India, Pakistan, Philippines, Indonesia and so forth and they’re starting their own companies being service providers and hiring people and doing all sorts of amazing work helping entrepreneurs who are mainly in the west who are kind of posting the jobs.
So on both sides of the marketplace you’ve got entrepreneurs doing things which is really, really magical and you know now we’ve got organizations like NASA. NASA is using our site to do things so believe it or not there is a robotic astronaut that’s on the international space station and it’s just been upgraded to have these legs that allow it to do an extra EDA space walk of the international space station and it needed a change in the image recognition system of the robot to be able to grasp and manipulate objects as it’s climbing around. Things like a flashlight and a hose and a bag and a scope and grab the handrail and so on and the models for training the image recognition were done on Freelancer, right? For NASA – and in fact NASA is now going to in 2016 design a robotic astronaut – a different one, completely using freelancers, right? So if NASA can use it to design a robotic astronaut, anyone can use it right? So I really think now the scope of it is not just for small businesses and for startups and so forth but really if NASA can use it to build an astronaut, really anyone can be using it. So it’s a huge scope – very, very early days still in the entire industry.
Like eBay in 1997, you know is kind of how I think about it. There are 4 billion people on the internet at this point in time you know we only have 17 million on our website and I think anyone that’s kind of working age would have a reason to use our site because either you need to get things done cheaply and everyone needs to get things done cheaply whether it’s for your business or build a website for your kid’s soccer team or whatever it may be or you want a better job and 5 billion people on the planet live on $10 a day or less so we help you go from $10 a day to $10 an hour or much, much more depending on how skilled you are and where you set your price at.
Dan: Matt, I’m curious – when you are growing the company in the initial first couple of years, you’re tweaking things, you were split testing, are there any strategies or marketing strategies you implemented that worked very well to drive more traffic to drive the growth?
STRATEGIES TO DRIVE TRAFFIC GROWTH
Matt: Yeah, plenty. Probably a lot I can’t talk about actually but plenty. In fact the primary growth for the company other than SEO and conversion optimization which really worked well for us all the way through are how we structure and think about customer acquisition is really important. So we use like the pirate model of thinking about this – so Dave McClure has published a really good presentation and video on this where you have a team that will focus on customer acquisition, customer activation, revenue, retention, referral and resurrection.
And the reason they call it the pirate model is because that spells “aarrrr” – so there’s a whole bunch of people that focus on customer acquisition and they’re looking at organic channels and free channels where it may be things like email marketing or SEO or things like that. And then we have paid channels so things like search engine marketing, display advertising and so forth. We’ve had really, really good success with organic. That’s been a really big powerhouse for us. Then we look at activation – so once the traffic hits your site, how do you activate it? And for us, activation for an employer might be posting a job because once they post the job, the job is live and people will then bid on the job and try to get the project and we don’t have to really do anything. On the freelancer side, maybe the activation skills is they select skills that they’re interested in and we’ll start sending them emails telling them about jobs that they might be interested in.
Then we have a whole team focusing on revenue optimization so thinking about smart ways to drive the business and this is not about increasing the cost of things, this is about most of the time removing the costs or tariffs so that the volume picks up because we really focus on volume over everything else looking at the Amazon model sort of the widest range at the lowest cost. And then referral – so these are things like affiliate programs and so forth; give a gift to your friend, give a discount to do something or other to kind of get that virality sort of going and then retention – so this is making sure people are engaged and keep coming back and stay longer on the site and so forth and then resurrection so the people that have turned for whatever reason off of your site, how do you bring them back? And you know just by breaking it down mathematically really – you break it down to like an engineering problem and mathematically you’re going to have a funnel and if you think about things like that, that’s been a tremendous way in which we’ve grown the business very inexpensively I mean you know we only spent like 2 or 3 years ago, our entire marketing expenditure was 3% which is unheard of.
And then we went 8% and last year I think we’re 12% and now we’re edging on 15% but it’s still pretty low, like very, very low. And this means that if you can grow your business so fast without spending money on marketing, I mean it’s a phenomenal thing because when you actually do start spending money on marketing like all businesses will at some point, you’ve just got that leg up over everyone else – it’s phenomenal.
Dan: And I also know that your profit margin is fantastic.
Matt: Yes, about 88%. Well the great thing about that is we have no inventory, right so it’s software and the marginal cost of software is zero because it doesn’t cost you – there’s only one copy of the software and it’s just running on a website somewhere and people just use the site, right? And as long as we make it easier and easier and easier for people to transact, you know the site will continue to grow and in fact this is a site that you know when everyone’s asleep it still grows, right? So, these are the sorts of businesses you want to build, right? Highly scalable in nature.
Dan: I’m curious, when did you actually buy the freelancer.com domain name? Did you buy it from somebody else or register on your own?
DOMAIN NAME PURCHASES
Matt: Yeah no I bought it. It was one of the most expensive purchases in the world that year. I mean it’s a funny story in itself, I won’t go into too much detail but basically we were ‘getafreelancer’ and we were going along and my major investor, the guy who gave me the money to buy the first website basically, we never raised any money to operationally run the business – the other thing we’ve been is we’ve been extremely capital efficient so when I talked about marketing expenditure being very, very low we pretty much bootstrapped the entire business to the IPO so prior to the IPO the total amount of money we raised was $2.5 million and we IPO’ed at a market capitalization of $200 million.
So all that growth in value happened on literally nothing. We spent money buying the first website and then the rest of the time we basically just bootstrapped and used cashflow to finance everything. But now what happened was – Simon, he had sold his business – he was an entrepreneur and made a lot of money selling PC tools to Semantic which was if you remember back in antivirus days when that was really big, there was a thing called anti spyware and he was the leader in anti spyware and so he sold that for a couple hundred million dollars to Semantic and then gave me the money to buy the business.
Anyway, one of the things he did was he went out and bought a whole bunch of premium virtual property – premium domain names – and he always said to me, why don’t you buy the freelance.com domain name? And you know you’ve got to understand, I had no money in the bank in this business. Like literally I bought a business that was making about $100,000 a month and he said go and buy this domain name – and this was back in 2009 or so but I went and contacted the guy who had it and he had it because there was a printed magazine called Computer Freelancer and it’d gone bust. And he was a british guy living in Canada and he had the name and I asked him what he wanted for it and I can’t remember the initial price, maybe in the millions – and I thought gee there’s no way I’m spending money like that on a domain name like this and I’ll always remember William Shakespeare saying ‘a rose called by any other name is still a rose.’ I thought ‘getafreelancer’ kind of explains what it is.
Dan: Yeah what’s the problem with that – it’s a good name, it’s working right?
Matt: Right – getafreelancer, what do you do? It’s pretty obvious right? And then I was thinking to myself if we come from freelancer that kind of sounds a bit abstract you know, Microsoft had a computer game called Freelancer and even today when I go to conferences and it says, Matt Barrie – Freelancer on my name tag – people say, oh are you a photographer or a journalist? No, I’m not. But anyway – Simon said to me, what happens if someone else gets the name? And I thought to myself gee that’s bad because we’ll be subordinated because we’ll be ‘getafreelancer’ and forever we’ll be stuck right? So I thought gee OK maybe I should try and buy this. So I said to the guy, OK I’ll give you $20,000.
Dan: So from a million to $20,000. Let’s start with that.
Matt: Well it’s a negotiating tactic – it’s called anchoring. You know you just throw it out there and he told me to get lost. He actually used pretty unkind words and I said, OK how about $22,000? And he said go away and it became a bit of a joke actually over the next 6-9 months – it was a fairly long amount of time you know every time I’d be down at the pub having a beer or something I’d send him an email, how about $26,000? It was like go away. And this went on and on and on just you know and eventually many months later, the guy says you’re actually the funniest guy I’ve been emailing – why don’t you give me a call and we have a chat?
And so I had a chat with him, he’s a great guy and I talked him through what I want to do with it and etc. and so on and you know while I was talking to him for several hours and the price got higher and higher and eventually he said, yes. And in fact he’d been saying no so often for so long, I actually raised the price again and he said no actually I’ve already accepted it. And I was like oh OK so I bought it and let me tell you it was a huge amount of money – it was one of the biggest transactions that year.
Dan: And did you get the money also from the initial investor?
Matt: No, cash flow at that point.
Dan: So you were taking a big risk then?
Matt: Oh I took a hit. It wiped out several months cash flow, right. And at that point you know we changed the name and the funny thing was at the time we were running a logo competition at that point for a new logo for the site – it’s a long story but the old logo basically looked like a man on a crucifix and we felt like a cease and desist order – not from the church but from someone else. And I wanted to change the logo anyway but so we ran this competition and I put up like $10,000 to crowd source the logo and of course I didn’t expect to get like 13,000 entries and then of course in the middle of this competition, I’m halfway through looking through these entries we get the new name and I thought oh gee I’ve got to change the logo competition and jack it up to $15,000.
So I had to redo the competition all over again and we got a wonderful logo from a guy called Edward Striener who was an Indonesian architect who was working as a cleaner because he couldn’t get a job as an architect and he was looking to pay for his wedding that was coming up and so it’s a beautiful story and we paid him $15,000 as the winner of the competition and the logo is fantastic because it symbolizes so many things about freelancer – it’s an origami hummingbird and it symbolizes you know freelancers go from employer to employer as hummingbirds go to flower to flower and with origami you take something plain and simple which is the piece of paper and with your hands you elaborately turn it into a beautiful thing.
And so that’s what freelancers do and so I thought this is such wonderful symbolism and so he won the whole thing and the amazing thing about the name and people who think about what they should call their business when starting a company – the really phenomenal thing about this name I didn’t realize until after we bought it; we bought it and you know in the olden days, someone would meet someone in the street and say, did you know I just found this website where people can hire freelancers online and it’s called, blah blah blah and you know it’s amazing and that person would go, what was the name of that company again? Olance? Edesk? Something like that? And it refers them to Google and we’d be on the front page of Google, right and the SEO took off and the recall took off – journalists would remember us. Like when journalists write about the space, they’d go oh what’s the name of that company? Freelance.com and there was oh the other competitors – you know, they’ll always remember us and we started subordinating some of the other brands because some of the other brands that were out there were kind of like hyphenated versions or you know fancy tech versions of freelancer, right?
E dash something or other or O dash something or other or whatever, right? So I started seeing their advertising change, right? So you’d see them saying so and so equals freelance as their ads and then you’d see a couple of them stopped using the word freelancer altogether and they’d say ‘hire virtual contractors’ or ‘virtual workers’ because every time they said ‘hire a freelancer on our website’ as a competitor, they were driving more traffic to us.
Dan: They must hate you. I could imagine.
Matt: Yeah. So and you know my mother thinks a contractor builds bridges, right? So you know one website changed its name which we bought – there was a website called Rent a Coder and they were trying to become more general and so they thought, let’s change our name to V-Worker – virtual worker which was a terrible thing for a great business because they blew the business up by trying to change the name.
Dan: Matt it’s almost like getafreelancer.com – but freelancer.com is the building of a company, it’s not just buying the name, it’s almost like giving yourself that vote of confidence. Yes, I’m spending a lot of money on the name but this is going to be huge.
Matt: That moment was – have you seen the movie The Social Network?
Matt: That was the moment when Justin Timberlake as Sean Parker said to Mark Zuckerberg, ‘by the way, The Facebook – drop the ‘The’’ – do you remember in the movie they said drop the ‘the’ from The Facebook? It went from thefacebook.com to facebook.com.
Dan: That’s right, that’s right.
Matt: So that was our moment.
Dan: Wow, that’s amazing, just phenomenal. What about the other company Escrow.com? Did you start that or was that just a natural, vertical integration?
Matt: We acquired that business 9 weeks ago. It’s a phenomenal business, it’s been running since 1999; it was started by Fidelity and think about like paypal but the difference between escrow.com and paypal is it’s all in escrow so it’s in trusts.
Dan: I’ve used freelancer.com and I’ve used escrow.com – totally, yeah.
Matt: Right so this is a business where if you’re selling anything of value, you wouldn’t use paypal because you get chargebacks and reversals and things like that. With escrow.com there are zero chargebacks because money gets wire transferred and it goes into a trust account – so it’s in early days, it’s only been 9 weeks we’ve had the business; it’s absolutely phenomenal in terms of potential, it’s done $2.7 billion in volume to date so it’s a big business. And it’s got a long history of running back to when it was started by Fidelity back in 1999 and it’s based in California and we’re going to take it to the next level so this is like our – eBay had paypal and this is like our paypal.
Dan: This is awesome. Alibaba and –
Matt: That’s exactly what it is.
HOW TO APPROACH INVESTORS
Dan: Now I know Matt we’re running out of time here – just a couple questions before we go that I’d love to get your perspective on working with investors. So with the initial investor that you brought on board, like for entrepreneurs, like what’s your perspective? How should entrepreneurs approach investors? How should they map out the deal? Are they giving away too much? Like what’s your perspective?
Matt: I’ve actually just given a whole talk on how not to get screwed by venture capitalists – I think it’s available online but the basic problem that most entrepreneurs have is they think that a venture capitalist is the solution to all of their problems. That’s absolutely wrong. The solution to all of your problems is you. You know most people say oh I can’t get going because I need to raise money before I start my business – that’s actually not the case. It’s 2016 – most of the things you need to build an internet business are basically free with open source software, operating systems, databases, networking infrastructure software, email, you name it – most of the stuff you need to build a business is actually free or cheap.
So things like Google ads to drive your business or sending a press release is cheap now or payment processing is cheap and so on. So and even if you don’t understand how any of that works you can now hire freelancers cheaply on freelance.com to kind of do that for you but the point is that the best thing for you is actually not to raise any money from investors at all if you can. Now I understand that not all people can do that and it depends what industry you’re in and it’s a lot of complexities around this but the best thing you can do is actually try and bootstrap the business if possible.
If you have to raise money make sure you try and raise the money from people who are as much as possible business builders themselves. So you know entrepreneurs who have sold their businesses are probably the best, especially if they’re in your industry. So if you know or even just the similar sort of business model in nature. So Simon who I raised the money from to start freelancer, he had just sold a consumer internet company, I was just building a consumer internet company – he had a lot of experience and understanding how to grow consumer internet, right? They’re the sorts of people you should go to. Don’t go to a junior banker at a VC firm whose had no operating experience otherwise you’re going to be in a world of pain.
That was my mistake in the business before is I raised money from I think 9 venture capitalists and it was just a complete nightmare because you know all businesses go up and down, you know one minute you’re on top of the world, you’ve got your first order, the next minute the site crashes and you’ve lost the first order or the customer is upset with you or something like that. Oh my God it’s a disaster – you know the week after you get a 2nd customer and you’re happy again, week 3 server crashes, week 4 this is great traffic came to your website, you know then the website crashed because you didn’t have enough server capacity. Like it just goes up and down and so people who are experienced entrepreneurs as investors are great because they won’t get too excited if things are great but likewise if things are down it’s just these things happen, right?
There’s a famous entrepreneur and friend of mine in Sydney called Mike Cannon-Brookes – he runs Atlassian. He has a saying that if you come into work in the morning and you can’t smell smoke, you’re not sniffing hard enough, right? Something’s burning somewhere all the time right and so having investors who understand that are the best you can have.
Dan: So people like Simon like he knows the industry, he likes you, he likes the idea – so not just a money partner but it’s actually a true partnership.
Matt: Well actually the funny thing is his first version of PC tools he actually used freelancers to build.
Dan: Oh that’s fantastic.
Matt: He paid $1000 – not on getafreelancer but he used a site and got a prototype up and running in the very, very early days so he got it so you know.
Dan: That’s fantastic. Now if you’ve enjoyed this interview and you’re in Vancouver I have great news because Matt is coming to Vancouver on Wednesday, the 3rd – we are hosting a special event and Matt will be our keynote speaker so I’m very excited so I would like to invite you if you are in Vancouver of course and on our page we will include a link as well. But you can go to www.benentrepreneursgroup.com, you can register for the event. So Matt we’re very excited – we’re looking forward to having you coming to Vancouver and share your wisdom; of course our audience can ask questions as well.
Before we go, Matt, any last word of advice for entrepreneurs, maybe the most or powerful lesson you’ve learned in your career?
Matt: Just do it. You know, running a business is one of the most fun experiences you’ll have in your entire life and for people who are young or fresh out of school or fresh out of university or what have you and think oh gee should I take the risk and so forth, I mean now is the best time in your career to take the risk because you’re probably broke, you don’t have a house, maybe you’re unmarried or don’t even have a boyfriend or a girlfriend, I mean what’s the worst thing that could happen? Two years in if it doesn’t work out, you’ll be exactly where you are now – broke. Right?
The downside risk is very low because you’re already there, right? So just give it a go and so on. It’s an amazing time now because you have this whole wealth of knowledge online now such as this podcast and so forth that you can kind of tap into which didn’t exist years ago. So you really can stand on the shoulders of titans because you know you can go out there and listen to them and read their blogs and read all the material that’s out there on Hacker News or whatever it might be.
Dan: Even on YouTube – there’s just no excuse. There’s really no excuse. And buy the best domain name that you can afford and cry only once.
Matt: And pay through Escrow.com.
Dan: Exactly! And then build a company using freelancer.com. We’re just shameless with our plugs. Matt, thank you so much for inspiring us today with your wisdom and your story. I look forward to meeting you in person and thank you. I appreciate it.