Well, it really depends. There are many factors that go into it. You know, certainly if you can get a great valuation you can raise a bunch of money. That's, you know, it's a nice situation to be in. A lot of that has to do with timing and momentum, there are many, many factors, the economy etc. But that's just one strategy for raising money.
There are lots of other different approaches. And a lot of it though, I mean, a lot of people think, okay, we raised money. Cool, were successful. And you don't realize that actually, that's when the hard work really, really begins. And so, we raised that round and we didn't raise any more money ever again.
Oh really? So that was it?
That was is. That was it. And at that point we just needed to get to cash flow positive. And so, I had to very painfully cut out our whole consumer business. Laid off 45, 50 people in the process. That was the first time I'd ever laid off anybody. It was devastating to me. And these are people, as you know, how hard it is to recruitas an entrepreneur, and then you take all of that work for those amazing people and you just throw it away.
I understand.
It's devastating, and they're upset. So, and then of course I made the classic entrepreneurial mistake of not laying off enough people. Right? I did it.
You did, you did it twice.
So I had to do another one, literally just a quarter later. And, which I was in denial on for a couple of months. And so, and then meanwhile I'm thinking to myself, because I was the CEO, the founding CEO, and it's a very hard job, as you know, to be founding CEO in a high pressure situation like that.
And everybody else is like, "Well, what do you know? I mean, you haven't been CEO before so how do you know this is the right strategy, right?" So what ultimately, what happened was when I did that first layoff, I thought, "You know what, I need to hire another CEO." I'm learning on the job here and this is like, I cannot have this kind of situation where people's professional lives are kind of hanging in the balance based on decisions I'm making, and II 've never done this before.
I've never run anything at this scale. So, I actually ended up looking for another CEO. But, that was an amazing moment in time for me, because what I realized was, I had this epiphany one night when we were recruiting and interviewing different CEOs. And I thought to myself, what's this new hotshot CEO person that I'm gonna hire, gonna do?
You know, and all of these things that I had been in denial on, like there were some basic problems with my team and the way it was working that had gotten bad over the couple years. We were spending way too much money and did in fact need to do another layoff. Our strategy just wasn't even remotely focused enough, even though I thought it was, but it really wasn't.
So your B&B model wasn't...
Yeah, we had decided to go more toward a B&B model, but we ended up not doing it in a more, enough.
Yeah.
Just because anybody is willing to give you money. Like weservehomes.com wants to give you, you know, 300,000 dollars doesn't mean you should take them as a customer. You have to understand what your costs look like and what your ideal customer is and then onlyRuthlessly target that customer base and not others, right?
So I had this epiphany one night where I realized, like, wait a minute. You know, this is what the new CEO is going to do. They're going to do these 7 things. They're going to fire some people, they're going to do this layoff, they're going to refocus the strategy and do this and this. And I though to myself, well, why don't I just do that?
And so all the pressure around the investor stuff and the kind of, the sort of self conscious, sort of, you know, notion of, like, "I'm the leader. I'm supposed to have the answers here," and all of the board and the investors and the employees and the staff, you know, that all went away and I just thought about look, I'm ultimately not going to be the CEO, but here's what we need to get done in the meantime, and let's just go do it.
And so that when we hand the company over to another CEO, it's in good shape. So we did that. We did it actually in like two weeks. And it was transformational. We had a strategy that everybody, including the receptionist, could articulate. We, you know, dramatically brought our costs down. You know we went down to like, I think it was about 120 people fromtwo hundred plus.
And we actually started winning customers. And over a course of, I thought it would take 18 months, it actually took about more like 3 years, but we got to cash flow positive.
And so you ended up being, sort of powering like American Airlines
Yeah And other customer service lines?
Yes Like when you call up, was it Amtrack one, I know, I use Amtrack One.
No they're not. But we always wanted to get them.
"Hi, I'm Julie" or whatever.
We always liked Julie, we never got that one.
But that's the kind of stuff you ended up doing.
That was the kind of and the big ones were 411. We ended up getting, we do, I think Tell Me Now does about, 40-50 % of all 411 calls in the US. Those were very valuable calls, people used to pay a dollar, a dollar fifty, well they still do, to make a 411 call. And they cost a lot of money to service and so also, that's right, which was also key in the bad economy, right.
We were helping companies save 10's, you know, or 100's of millions of dollarsin their infrastructure. Because they had this very arcane.
Yeah.
Telecom infrastructure then they had this internet infrastructure and they were two separate things and we said, look get rid of the telecom stuff and just run it off your internet stuff. And we did it as a cloud based service too which was interesting an annuity based revenue stream we charged per minute.
It would take us two or three years to win a client. We called them clients because these were very long relationships, we only had 20 of them. But, it would take us three years to win one and then it took us another year to go live, but once we went live it would drive tremendous revenue.
Mike McCue knows a thing or two about raising a lot of money to keep as a war chest for his startups. Recently he just raised $50 million for Flipboard, but at the end of the first dotcom boom he raised $250 million for his last startup, TellMe. Resuming his conversation from Part I of Founder Stories with Chris Dixon, in the video above McCue dives into additional detail about preforming triage on TellMe, his voice recognition company that narrowly survived the dotcom bust and was ultimately sold to Microsoft for $800 million
With TellMe, the company raised a big round in 2000, just before everything started to crash. McCue had to make some hard decsions to cut back spending and focus the company. At first he laid off 50 people, which was devastating, but it wasn’t enough. “I made the classic entrepreneurial mistake of not laying off enough people, so I had to do another one a quarter later,” he recalls.
His employees and management team started to question his judgement. The first-time CEO found himself in a situation where started to question his own abilities and even started to look for a replacement. But then he had “an epiphany at night.” He asked himself, “What is this new hotshot CEO going to do?” And it was obvious: bring costs down, focus the strategy, start winning customers. McCue had been “in denial about” all of these things, but once he accepted that they needed to be done, he did it himself. “We did it in two weeks, we had a strategy that even the receptionist could articulate,” he says.
It took another three years to become cashflow positive. TellMe focussed on enterprise customers, large telecom companies that needed to automate their call centers and 411 services with voice recognition technology. It took 2 to 3 years to win a customer, and then another year to get them live, but these big enterprise customers drove a huge amount of revenue. By the time Microsoft came calling in 2007, Tellme had a $110 million revenue run-rate.
But that is not why Microsoft bought TellMe. In the video below, McCue explains that it was the bigger vision of voice search that appealed to Microsoft. He always thought the enterprise business would be “eroded by the Web.” Even though the financial reality forced him to pursue the enterprise business first, he always thought bringing voice search to consumers would be bigger over time. “I kept the consumer stuff alive on life support,” he says. “It was a reason why customers worked with us because we had a vision of where everything was going to go.”
That vision is still playing out today with Apple’s acquisition of Siri, Google’s work on voice commands and search on mobile, as well as TellMe’s technology which became part of Windows Mobile (now Windows Phone). “When you are using a phone you are doing it in a distracted state of mind,” he says. Being able to speak commands and get back results, directions, or other information right on your screen is still justin its infancy. But McCue is onto other things with Flipboard, which he will talk about in the next episode.
Make sure to catch past episodes of Founder Stories with guests ranging Dennis Crowley and Mike Walwrath to David Karp and Lauren Leto here.
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