How to find an angel investor for small startups w/ Jason Calacanis
I’m excited to release this interview with Jason Calacanis during the launch of his new book, Angel: How to Invest in Technology Startups-Timeless Advice from an Angel Investor Who Turned $100,000 into $100,000,000.
I’ve been a super fan of Jason since coming across his show This week in Startups when he produced it on set with black curtain backdrops and large wooden dining room tables. A lot of people give GaryVee credit for the foresight of thinking like a media company — but Jason got to it first.
Behind the bravado is a kid from Brooklyn that worked his tail off to get to where he’s at, challenged with lessons of success & failure weaved into the fabric of his story. Today, Jason leads Inside.com with the same burning passion to take on the big platforms as he did with his first startup, Silicon Alley Reporter.
Sit back and enjoy this episode with Jason, as he walks us through the mind of an angel investor and how to start thinking scale in your small software business.
Listen the episode
Hey, everybody. Welcome back to the Matt Report season five. We’re winding down season five. In fact, folks who were listening, now you should have heard the last episode of season five. But I get a bonus episode with one of my favorite people on the internet, Jason Calacanis. Jason, welcome to the program.
Jason C.: Hey, thanks for having me.
Matt: Creator of Weblogs, Inc sold to AOL. Early investors in Uber, Thumbtack, created a company called Mahalo and fought Google at every turn and corner. Created another company that I originally found you through is This Week In, the sort of all the YouTube stuff and live video stuff you were doing. Now you’re running Inside.com, news and entertainment delivered via email. I am a huge fan of that as well. You run LAUNCH Incubator and events, and now you’ve written the book, the book of angels as it were. It’s angels-
Jason C.: Yes, of angels. I like that.
Matt: Angel: How to Invest in Technology Startups—Timeless Advice from an Angel Investor Who Turned 100 grand into 100 million buckaroos. Jason, welcome to the program again. Did I miss anything?
Jason C.: It’s-
Matt: I probably did.
Jason C.: Probably. Well yeah, it’s one of the great things about history is like people only remember the victories if you have them. Then they forget all the losses. But you brought up Mahalo, so that was great, my PTSD started triggering. Mahalo, we basically pivoted into Inside.com, so the story ended up well. But we’re working like dogs, get a return for those Mahalo investors. I never give up. It’s one of my either charming or stupid qualities depending on the situation that I never give up.
Matt: Obviously, want to talk about the book. For me, I’m not a super heavy book reader. I got it, I got an early copy. I did a little Jason Calacanis of my own, I just contacted your publishers. I sort of worked my way in through the backdoor and I said, “Hey, I’d love to talk to this guy.”
Jason C.: Hustle.
Matt: I definitely want to talk about the book, but real quick. This Week In network, I mean god, you had This Week In Web Design, of course This Week In Startups. You had I think This Week In Movies as well. Do you think that you were just so early, like the technology wasn’t there?
Jason C.: Yeah, for sure. What we did was we tried to do a network of shows seven years ago. It was a little experiment. Me and a couple of my friends put 100k in each. We got to the point where it was making some money and there were two breakout shows, Kevin Pollak’s Chat Show and This Week In Startups. All the other shows, we were trying to groom talent. We had people like Mark Suster doing This Week In Venture Capital. Then we had other people doing This Week In Movies. We did a Mad Men recap show long before things like Talking Dead. We kinda pioneered that space of doing a show right after.
We had a lot of, I would say, early signs of success. Maybe we should’ve stuck with it. But I came to this great realization, which was the more important, the more powerful, the more networks, the more credible the hosts, like Kevin Pollak, Mark Suster, myself, the greater the chance of success. If it was an emerging host, it probably had very little chance of success. We were able to get an unlimited supply of emerging talent to host a podcast. But none of them were breaking out.
It probably would’ve taken us three or four years of trying to get them to break out. We had somebody named Dave Pensado doing Pensado’s Place and he was awesome too. But all those people had in common that they didn’t really need us because it’s so easy to create a podcast that if you’re a rich powerful person, or not even rich. If you just have 500 to let’s say $2,000 to produce an episode, you can just do it yourself and not have a boss, not be part of a network.
We kept having people who would just call in rich, like Mark Suster’s like, “Yeah, I can’t do it for the next year. I gotta raise a fund. I got things to do.” I just had this realization that all the great podcasters would be independent and I was right. If you look, Leo Laporte stayed independent, Joe Rogan, Sam Harris, Adam Carolla. All these people have become independent, let’s call it $1 million to $10 million enterprises. I think probably Leo and Joe Rogan are above 5 million. They have this like, call it $2 to $5 million space like This Week In Startups, and maybe Sam Harris, and maybe Adam Carolla.
In other words, it’s enough money for those people to love doing it and not to need to have anybody as their boss. So all those people who are trying to making podcasting networks have had a hard go of it. Even Leo, who’s got a lot of great shows, but he’s had a hard time keeping talent on the network because they go have a life event. They get married. They go have kids and want to do something else. It’s just hard to be a manager of talent like that. I mean Sirius XM is doing a good job of it, but they have this like huge bankroll. So I think podcasting is this very unique space because you don’t need somebody. If you go down that list, all these like podcasting companies, they don’t really … Malcolm Gladwell doesn’t need the podcasting company in other words. He can just do it himself. If he does it with a podcasting company, it’s probably because they’re overpaying him.
Matt: These shows, these either networks or these individual shows that somebody’s running, they become massive platforms and catalysts to sell all their either goods and services or maybe even in your world, you get the advertising, you do a million bucks a year. You pay your staff, whatever. But it’s also it connects you with so many people at the same time. It makes you become the [crosstalk 00:05:39]-
Jason C.: My view on podcasting when I heard about it from Dave Winer and the pod father, Adam Curry when they were teaching me about it. I was like okay, I’m just gonna record two conversations from lunches I had in a week, and then all of a sudden it turned into we’re about to hit 800 episodes for This Week in Startups. It just turned out to be a networking thing for me. Then all of a sudden, it started making money and getting 150,000 downloads in episodes. So it’s a pretty big audience now and it’s a great way for me to find founders to invest in.
Matt: If people are listening to that and they’re like, “All right, that’s it. I’m gonna go start my podcast.” Folks, it’s still a slog. It’s still some hard work. It doesn’t come that easy. I know. I’m only at maybe 300 episodes and man, some days it can be super draining to keep this stuff going. Let’s just talk about the book. The structure of this book, for a dullard like myself who doesn’t like to read, it is … I mean you say in sort of the winding chapters that this is the playbook. This is your decade plus of experiences sort of all put into this one book. I love the framework was I mean was that your idea? Or when you get to a publisher, they say, “Look, that’s a complicated topic. We need to sort of piecemeal this for people reading it.” It’s not all this hoopla and sort of Zen like stuff. This is the real deal.
Jason C.: Yeah. The pitch was interesting. I’ve had a very famous book agent for a decade. His name is John Brockman. He does something called Edge.org and he’s got Daniel Dennett, Jared Diamond, Sam Harris, had Marvin Minsky, just all the greatest authors that are out there, and Brian Greene, and then me. I would always get these like Blogging for Dummies, Podcasting for Dummies. Search engines, SEO for Dummies. They just wanted me to be the dummy author and it was always like chintzy.
It was a couple of stories about my angel investing. People started to realize, “Oh, he’s hit a unicorn. Oh, he hit a second unicorn. Oh, he hit three unicorns.” When that started to get released, the value of the portfolio started to get released and Wall Street Journal did a story on it, people were pinging my agent saying, “Hey, is he gonna write a book?” I just thought to myself everybody I meet, like the stupider or more inexperienced they are, the greater the chance they’ve written a book. So like people who have no life experience and nothing to share, they write books in order to become subject matter efforts. I just thought isn’t that backwards? Like, shouldn’t the books go to the subject matter experts?
I just thought what am I a subject matter expert on? Like, I was a good entrepreneur. I’m not like an elite great entrepreneur, like folks I’ve invested in who have done much better than me. I was a good entrepreneur. But angel investing is something I have a lot of credibility on since I’ve done 150 investments now and now six of them have become unicorns. Another company today announced that they raised over a billion dollars making medal 3D printers called Desktop Metal, which I was an investor on the first round to fund it.
Jason C.: I was like this is something I could do. Then I looked at it and I said how do you frame that? I could make something for angels, but really the book is about how wealth is created in the 21st century as opposed to how wealth was created in the 20th century. That’s really what I’m going for and if you read the book, you realize it’s not just for angel investors. It’s for anybody who wants to know how many is gonna be made in the next century.
Money and wealth is not created by real estate and being rich dad, poor dad, secret millionaire on the block, art of the deal. You’re not gonna become rich through some deal making or real estate in all likelihood. That dream is over. That was a really good model when the white collar boom was happening. You could get a white collar job, marry somebody with a white collar job, bring peanut butter and jelly to lunch, and then just don’t go out to dinner, take staycations.
Matt: Right. Save, save, save.
Jason C.: Save, save, save. Pay down your house. But at that time, when our parents bought their houses, my parents bought their brownstone in Brooklyn for I think $45,000. My mom was making as a nurse 40,000 and my dad was probably making 30,000 as a bartender. Their house was one less than one times their yearly income.
Now if you live in New York, a brownstone’s a million dollars, and most people are making, let’s say they were, forget about blue collar, just white collar people. They’re probably making 100 to 150k each, so let’s just call it best case scenario, 300,000 a year. A brownstone in Brooklyn’s a million dollars or $2 million depending on where in Brooklyn, so it’s five times, seven times the household income. Forget about Manhattan or other places. In San Francisco, it’s an even further joke.
So the idea that you would have these two white collar people suffer and then hit this amazing real estate thing, then buy a second home, or leverage it into a second home, is kinda laughable. Also, people are graduating with what? At the same time, people’s debt is growing, so there’s educational debt. People coming out of school with 50, 150k each, so they have household debt of 150,000. Then what happens? Boom, you had the $150,000 in debt, you’re not paying for your mortgage until you’re 35.
In this book, I explain hey, if you can get on cap tables of high growth companies, specifically in Silicon Valley, because the hit rate there is so much better and the numbers are just, add a zero or two from any other market in terms of the scale of those companies, you could really hit a home run and move from poor to rich, from middle class to rich, from rich to ultra rich. That’s really what I was trying to do there.
My hope is that if 100,000 people buy the book, and 5 or 10% of them start angel investing, maybe 1,000 of them have this incredible, or 100 of them have this incredible result. If the other ones just are plus or minus 50% of their money, that’s a fine outcome too. Angel investing is something that’s becoming something that a lot more people can do.
Matt: Yeah and I want to talk about that, but I also looked at this book of course for the folks who are listening, the WordPress product companies, hosting companies, people who are doing upwards of maybe a million bucks a year selling WordPress plugins. This is a great book to reverse engineer these frameworks, right?
Jason C.: Of course.
Matt: How does Jason go to look for founders? Now these founders out there I mean pick up the book just because now you can reverse engineer that and it structures so damn well that you just zero in right on the part where Jason’s negotiating or setting up the interviews. I mean it’s an amazing tool.
Jason C.: Exactly correct. That is a very astute point. There’s actually a cheaper in there for founders where I just say like, “If you’re a founder and you bought this book to game the system, congratulations. You’re smart. You smart mother effers, like I salute you. Then here’s what you need to know about what angels are going through and how they make their decisions because they are human beings too who are trying to figure this out.” You’re not trying to game them. What you want is to really be in sync.
For the people making a million dollars a year, like basically either become angel investors or they could actually read the book and understand hey, this is what venture capitalists and angel investors are looking to do. How do you accelerate a million dollar, that wedge strategy of doing templates, and being a single person who makes a million dollars a year, and one person with a couple freelances makes a million? How do you add a zero to that revenue or two zeros? I think if you read the book, you’ll have an idea of how things like that can scale.
Matt: A little bit on that point, so a lot of folks who do do this, who are doing the WordPress thing, and they’re selling some digital products, a lot of them are developers. They started coding in the basement. They upgraded to coding in the garage. Now they’re in a coworking space, coding at the coworking space. They’re not sort of the marketing type or the entrepreneurial type in the sense of I want to scale this thing. But what can be said about at least talking to maybe an angel investor? I mean are there some benefits to taking … a lot of these folks are just sort of gun-shy for taking money. Are there some benefits to it that you could sort of peg off for people who might be afraid?
Jason C.: Yeah. If you have a cash producing business, let’s say it’s profitable in throwing off a $250,000 a year salary for you. That’s pretty amazing. Consider yourself lucky. You can work from home. You control your schedule. You start bringing investors in, they are gonna be looking, an angel investor is gonna be looking typically for a 5 to 10x return. Not this angel investor. I’m looking for people who can do a 100 for 500. But really, 50 to 100 is probably what professional angels are hoping that some of their companies do.
A regular angel might be looking for 5 or 10 times their money in seven years. Venture capitalists are trying to invest millions of dollars and maybe do 10x as well with an outside chance of 100 or 200x. So you know that about them and you are kinda lighting a fuse or hitting a starter pistol when you do take that money. So it’s a very astute observation.
Your life is gonna change. You’re gonna have to send updates to them. They’re gonna have questions. They’re gonna give you money, but they’re also, hopefully if they’re connected, gonna give you credibility, and resources, and help you strategize about how to add that zero to your revenue. So that everybody involved, all stakeholders, your customers, your partners, your employees, yourself as the founder and the investors, win.
That’s what the cap table is all about, the capitalization table. So you have to create a cap table, sell them some shares, give your employees some shares and say, “Hey, we’re all gonna go on this journey. The company has a million in revenue. We value out of 5 million. There’s 5 million shares in the company. They’re all worth a dollar. The investor just put in a half million dollars. They bought 10% of the company. They gave us 500,000. Let’s deploy that $500,000 intelligently. We’ll hire five sales people and give them $50,000 plus commission and hire two more developers. Now we got seven people cranking.”
What the people who are your grinders and your audience, the people who know how to grind out and make a real business that people find value from, they typically have the great product sense and the great customer sense. But they don’t have the scale sense, right? Or they don’t have it yet.
Jason C.: What they have to do is study what they’ve learned, study their customers and say, “Hey, maybe the top 5% of our customers or top 10% have a need that we’ve learned about, that we can double or triple down.” If they looked at it and said, “You know what? We have these three customers out of 1,000 who are financial companies, and they keep asking for this set of features. Let’s tell them that we’re building that product and let’s get them to pay $25,000 a month for that product.” That’s what kinda pulling the string as an entrepreneur and learning about a market, that’s what I respect about those grinders, the people who get to a million dollars in revenue.
I just did my first cannabis investment. I wasn’t expecting to do one until maybe California was legal and maybe two years from now when things were a little more sorted. But I found a company that’s making a million dollars from advertising, and doing cannabis tourism, and doing cannabis magazines, and cannabis festivals. I was like okay, that’s a good starting point. If they know how to make a million dollars from just traditional advertising, and events, and stuff like that, maybe they’ll figure out some bigger business, and they have a bigger business in mind. So I love those scrappy entrepreneurs.
Matt: Yeah. I see that come up a lot. Like, I see a lot of people who are scrappy, doing a million bucks a year, but then they see these ideas get funded for multi millions of dollars and they haven’t made a nickel yet. Meanwhile, these people are making hand over fist, hundreds of thousand dollars in cash every single month. I mean is that attractive when a company’s making money or does that signal like this is only as big as you’re gonna get?
Jason C.: Yeah.
Matt: Like, we should maybe not invest in that.
Jason C.: An amazing question. For some people, it is a signal, a negative signal. Like, these people think small. But for people who are in the know, like savvy people, they’re gonna look at it and go, “That person built what we call a dude business, or a dudette business, which is dude makes a million dollars a year. Dude makes half a million dollars a year.” Those people are so smart.
I have a friend, Phil Kaplan, who created a company called DistroKid, and previous he did Effed Company and a couple of other startups. He’s really brilliant and he makes these companies like just himself and a bunch of freelancers, and they get to millions of dollars in revenue. If you can be lean like that, you’re gonna learn stuff, and then there’s a time to figure out, “Okay, I built MailChimp, or SurveyMonkey, or examples of companies built off revenue that all of a sudden started to scale.” In SurveyMonkey’s case, they took investment and then I believe in MailChimp’s case, they had 400 million in revenue, and they had never taken anybody’s money. So both things can work.
If you want to work with a group of elite investors, when you come with that million dollars, and explain your vision, and say, “Listen, we made a million dollars. It was quite nice. We can grow this business 20% a year for the next 10 years and we’ll make $10 million.” That’s awesome. “We want to build a billion dollar company. Here’s the billion dollar opportunity and here’s why we need $1.5 million for 15% of the company. We’re gonna build it from here to hit these goals.” That seems pretty credible to me.
If it hasn’t grown for five years and it’s just slowly growing, and you say, “We’re gonna make this accelerate,” you have to have a good story. So is it, “Why hasn’t it grown faster?” It might be that you just never had outbound sales. You add an outbound sales team and everything changes. So they would want you to test that theory and probably give you 500k to test it.
Matt: Got it.
Jason C.: But most people don’t take enough risks. Out of that group of people who are making that million dollars a year, half million dollars a year, what they don’t realize is they’re so concerned to protect the nest egg, and their upper middle class lifestyle, or let’s say affluent life style. Maybe not rich, they could stop working, but they kinda have a nice place in life. They don’t want to risk it, which I understand. But what you have to realize is if you don’t risk it now, there’s no chance of outside success. If you go for an outside success and it fails, and you’ve built a million dollar business before, you’re gonna be able to build another million dollar one.
It’s kinda like there’s this kid who climbs Yosemite and other mountains without a rope, Alex Honnold, or whatever his name is. It’s just like you watch these videos and you’re like, “My god, please don’t do that.” I don’t recommend people climb mountains without ropes, but if you’re climbing the startup mountain and you fall, it gives you more credibility, and you just get to start over at the bottom of the mountain again. You don’t die. People have this idea that’s if you fail in your startup, you’re dead. No, you’re more credible, you’ve learned something, and you get to play. You put another quarter in the machine, you get to play the video game again.
Matt: Yeah, absolutely. I mean that’s obviously well said. I want to circle-
Jason C.: Take more risk is my advice.
Matt: Yeah and on that note, you mentioned something earlier about sort of they understand the scrappiness of creating the product, understanding the customer, and the love of building a business, right? That’s why they did it. But they don’t understand the scale factor. Is that what you would argue a good angel would come in and say, no pun intended I guess, but come in and say, “Hey look, we’re gonna bless you with a … maybe point you in the right direction for an advisor, or building an advisory council,” or something like that? Does a good angel do that for their entrepreneurs or do you try to stay hands off and not really push them in a particular direction?
Jason C.: It depends on what the founder wants. If the founder wants me involved, I get involved. If the founder doesn’t need my help, I get less involved. I like to get a monthly update from the founder because it creates discipline with them to write the update. It takes them an hour to write the update, share the key metrics of the business, talk about the challenges, talk about the wins, talk about the losses, and how we might be able to help.
If you have that discipline where you have your metrics dialed in and you write that update, and you send it to 10 investors, and say your management team, you can have like a really open dialogue. The companies that do that go a lot further because they maybe create a plan. If you have a plan to be successful and you execute the plan, you will be more successful. You might not succeed, but you will definitely be more successful.
People who decide, “I’m gonna create a two year plan to grow my business from 1 million in year one to 3 million. In a year or two, I’m gonna go from 3 million to 9.” If they don’t succeed at the plan and they hit 2 in 6, they will probably be further along than people without a plan. I’m a big fan of planning, and having people involved, and talking about the strategy, and paying attention to the data and the metrics. The great companies do that.
Matt: I think you mentioned on a recent episode of your show that the folks who are shy or shy-ish of saying, “No, I’m gonna not give you that weekly or monthly update,” as sort of an indication to you that they’re not taking their job seriously, or they might not be taking your relationship with handing them some cash seriously in that regard.
Jason C.: Yeah, for sure. We definitely like to find people who are just serious about the business and want to do the business right. I think if you’re gonna take angels, you need to look at, especially if you’re in that zone of 500,000 to a million, a simple email to 10 different angels saying, “I have a business called blank. We make money by doing blank for blank. Here’s a revenue chart, quarterly, monthly, week, whatever, and here’s a link to our product demo.” Like, literally that’s what? Less than five sentences. You all of a sudden get this massive … we click on the links, and we go check it out, and then we’re gonna take the meeting.
Most people write their life story and what they plan on doing, the talkers, the tourists. What I love about your audience is they’re not talkers and tourists. They’re people who have actually built real businesses and they just maybe haven’t built the business that is designed to be a billion dollar business. But if you can build a million dollar business, truth be told, you can build a $10 million business.
Now, if you have built the million dollar business, I don’t know that means you can build a $100 million one. But if you build a million, you can definitely get to 10. If you can get to 10, you’ve got a business that’s gonna be worth 5 to 20 times that number and you can build a team around you of investors who can tell you what people you need on your team to hit that next milestone. That’s the trick. You’re bringing these people in, they’re invested, and now you have five people working toward your success who have skills that you don’t have. Again, why fear the downside risk when there is none? It’s not life or death and people have a life or death approach where they just don’t take enough risk. I believe, in my heart, people don’t take enough risk.
Matt: It’s funny you say that because I’m a mentor in an accelerator program out here on the East Coast. A lot of these folks coming in, and it’s sort of like a sustainable accelerator, so businesses that are gonna help the local community, drive jobs, that kind of thing. Nothing like in the tech sector, although some come through with the tech sector. So many people starting companies now, they feel like it’s life or death, right? Some of them are trying to do it because they’re jaded from the Shark Tank shows that are out there. They think like, “All I have to do is get to this, and I’m gonna win a million bucks,” right? They think of it like a game show I guess and it’s sort of not the case. But also, look, you can get up the next day. You can start another business, get another job, or something like that, and take another swing at it I guess.
Jason C.: It’s correct. Shark Tank’s an amazing show for inspiring people to get involved. It has put in people’s mind that that money in some cases is like the reward, that’s the prize, when in fact that’s the starter pistol as we talked about earlier. That just means okay, now you’ve deployed it, and those people want you to return. It’s an investment, which means they want a return on capital. So yeah, I think it’s been great that so many people are inspired to start companies, but finishing is important.
Matt: As an investor, this is the inside baseball question for the direct folks in the audience, we’re all using WordPress. It’s all opensource. Does that scare you as an investor? Do you not touch opensource? Do you know investors that do and don’t that might be some guidance for folks listening?
Jason C.: It is amazing. Everybody wants to do opensource based startups. They [inaudible 00:25:55] WordPress.org and I’ve got the name of the other CMS, but the Boston company that now-
Matt: Oh, Acquia, Drupal.
Jason C.: Yeah, Drupal. Yeah, so these companies are real and they make a ton of money. I think Android has put to bed anybody’s fear that like you can’t do an open source thing and also control it, right? Google’s done a pretty good job of having their cake and eating it too, haven’t they? They have like Android, and they figured out, and there’s a-
Matt: Tesla’s doing opensource I think even with their chargers coming up, right? They want to opensource their charging station so other manufacturers can-
Jason C.: Build them.
Matt: Build them.
Jason C.: Yeah, I think they … What everybody realizes is at a certain point, you pick where you want to make your money and make your company defensible. So for Google, everything is opensource, except for their algorithm and their search engine. You can’t figure out, that’s a black box, right? But they’ll opensource everything else to kill their competitors.
Then Facebook is like, “We’ll make our hardware platform opensource and we’ll have everybody working on grinding the hardware quest down. But we’re sure we’re not gonna make our ad network, or a social graph, that’s not gonna be available. It would be lightly available in the API. If you get any kind of traction on the API that gets people to leave Facebook, we’re gonna turn you off.” The API for Facebook says, “The API is not designed to make people leave Facebook.” So if you use the API thinking you’re gonna bring people to your platform, the second you get traction, they just say, “You’re breaking the terms of service.”
Matt: Yep. So let’s pivot and talk about your current business, Inside.com. Is playing in somebody else’s sandbox, I mean as you learned with Mahalo, as sort of some of us listening now. We’ve learned that from WordPress.com versus WordPress.org, two different businesses, two different entities. Is your play in email sort of saying, “You know what? To heck with these platforms. I’m just gonna go direct.”
Jason C.: It’s exactly … you couldn’t be more right. After years of being frustrated by … Google was a big partner of ours. I was in their first quarterly report for Weblogs, Inc was the partner that they shared that was making money off of advertising. We were making over $2,000 a day. We were like the first million dollar independent company partner. So they used us as a case study, Weblogs, Inc and Gadget, and they used New York Times.
I had this great 10 year relationship. I knew the founders of the company. I knew everybody there. Then they just decided to like go ham on us, and all the other content sites, and destroy us. Then when I called them, like I couldn’t get my phone calls returned. I was like, “We’re partners.” Then Matt Cutts is like, “We don’t have partners and you don’t have a penalty against you.” I’m like, “90% of our traffic’s gone and here’s 1,000 emails with your team talking about how great our partnership is.”
They basically lied and you can see them getting dinged. They just got a $2.7 billion fine just on comparison shopping, so they’re gonna get dinged for local. They get dinged for all these other things as well. They really use their monopolistic position to hurt the companies in their ecosystem, which I understand. I wouldn’t have done it that way. They were loved originally by partners.
What they should’ve done is just given us a licensing fee for our content and said, “Hey, if we put your content on the one box or whatever, we’re just gonna give you 10 cents a CPM.” All of a sudden Yelp would’ve been getting a million dollar a month check and everybody would’ve been happy. Google would’ve been making 100 million off of that. There was a way for them to do it, and I think they probably regret it now, and they’re probably trying to fix it. Or they’re laughing all the way to the bank, it doesn’t matter.
Matt: I feel like they’re doing it again with YouTube content and sort of just-
Jason C.: Changing the rules.
Matt: Yeah, sucking the life out of ad revenue.
Jason C.: Yeah. No, all of a sudden they said, “If you have under 10,000 views, no ads.” If CNN talks about a terrorist attack, they can have advertising. If an independent person who helped build YouTube into what it is, like Philip DeFranco, mentions a terrorist attack, they won’t put ads on it. So Philip went crazy on them. He said, “Wait a second. I helped build this platform and now you’re changing it?” So Philip’s leaving the platform. I saw that coming. I left the platform.
Wmail is one of these great things. You can go direct and you can make money directly from consumers, so not even having to rely on advertising. Now we’re going and saying to our customers, “Hey, pay for the content. We’ll give you some extra content if you pay. If you want free, you get whatever it’s gonna be, 20% or 60% of the content for free. Some percentage, 50/50, we’re not sure yet, 60/40, will be for the paid people and for people who contributed.”
We did it with LAUNCH Ticker, our first email newsletter. Of the 27,000 people, we have over 1,000 paying, so about 4%. If I can replicate that with the 200,000 subscribers on Inside.com’s 26 newsletters, we’ll have a great business. We’ll have 8,000 paid subscribers. We’ll be making a million dollars a year. That pays for a lot of journalists and you have 20 journalists working from home for that. I’m really interested in owning a deep direct relationship. Now, if you think about it, Gmail is even trying to-
Matt: Oh yeah, that was gonna be my next question.
Jason C.: For that, with their tabs and putting you in their thing. But it’s so hard for them to do. We are even going to be going … We started experimenting with SMS and owning people’s relationship there. I think use any of these other platforms if it gets you customers, but own a direct deep relationship. I can’t tell you how many people I know who have apps and have no emails. It’s like get the email address of these people and email is the big growth hack for Twitter and for a lot of other sites where they email you, “Here’s what you missed.” That was the big hack for a lot of these companies. So if you’re not collecting emails everywhere, and providing massive value to those email subscribers, you’re doing it wrong.
Matt: Yeah and I mean as again folks who are listening now, WordPress itself, being an opensource platform, you can do whatever you want. I mean we have tons of folks in the audience who are building membership sites. People are coming to the site. They’re paying either $9 bucks a month, $200 bucks a year, transaction happens right on a WordPress site. They can control the content, put up a paywall, all that fun stuff. What’s the product evolution of Inside.com? Do you then spin back to where you were five, six years ago and start creating video content along with this stuff, audio content, along-
Jason C.: Yeah, anything’s possible. I think the goal is once you have 10,000, 20,000 emails, you start to have this virtuous cycle where the news is coming to you. You can bolt anything onto something with 20,000, 30,000 emails, and that’s gonna have some amount of success, so it’s a very astute observation. It’s very possible Inside AI could have a weekly podcast, and the email would drive the podcast. The email content would drive the topics of the podcast, so it’s possible we can layer on podcasting onto email. What I found was every business I looked at kept saying if email’s the growth thing, why don’t we make email look [inaudible 00:32:41], right?
Jason C.: If everybody’s looking and saying, “Hey, email is the thing to get growth,” what if the entire product is centered around email, and engagement, and opening it? So that’s really what I’m focused on. I set a goal in the beginning like, “Let’s get a certain number of opens.” We hit that. Then I said, “Let’s get to 50 newsletters. We’re halfway there.” Now I’m saying, “Let’s get to 1 or 2% of the people who are free, paying. That just started three or four weeks ago, but it’s promised thousands of dollars in monthly reoccurring revenue.”
It’s a very lightweight business, like many people who are part of your audience, I’m like literally aspiring to hitting that million dollars in revenue and having 20 full time 50k a year journalists working from home. A 50k salary for a journalist working from home, or 40k plus benefits, or something in that range, I mean you can get people with three, four or five years experience. We have this thing in New York and San Francisco where they think journalists need to make 70, 80, 90, $100,000. It turns out if you’re living in New Hampshire, or Arizona, or other places, to get a work from home job with benefits for 40 or 50k is a tremendous tremendous opportunity.
Matt: Yeah, absolutely.
Jason C.: Because you can’t get that salary. If you do get that salary, you probably have to drag your ass into an office.
Matt: Right, right. I do miss your Inside Drones YouTube series that you were doing at one point. I do miss that. That was good.
Jason C.: We’ll get back to it. What we found was we weren’t getting … it was cart before horse. When we started doing some of those tests, we weren’t getting the engagement that we wanted, and then they were trying to figure out how to regrow it. So it’s like oh, let’s work backwards, you know?
Matt: As we sort of wrap up here because I know you’re a little crunched on time. How do you live in that happy chaos? Let me just stage that. I was talking to a founder today and in my mentor session, it was like okay, you’re selling your product. You’re out there, you’re pushing it. But then there’s like this little cloud above you. That little 20% of ideas, and testings, and little things you want to try sort of just floats up there. You sort of pull things out every now and again, like your Inside Drones, maybe cart before horse. How do you manage that? Because I feel like you do a lot of that. You’re always testing things. You’re always trying new ideas. You don’t shy away from it.
Jason C.: No.
Matt: Is there a way for you to manage that?
Jason C.: Yeah, for sure. Here’s how I look at it. I look at startups themselves when I angel invest and I look at my own little tests as satellites, little missions. If you wanted to find life in the universe, I think the way to do it is to send out 100 probes to 100 different planets that could have life on them, and just see if you get a return signal, right?
Jason C.: That’s the way to look at these experiments. If you get to a planet that you think is in the Goldilocks zone and shouldn’t be inhabitable, and you get there and there’s nobody there, great. You can cross that one off the list. As you start crossing them off the list, you’re gonna start getting data. So oh, doing the podcast about drones didn’t work, but doing a newsletter did. Okay, what’s making the newsletter grow? Oh, doing interviews with people who are CEOs of drone companies means they retweet it, and people get value from it, and blah blah blah blah.
You start figuring out what works, which experiments are getting you closer to finding life and which ones are not. Sometimes you gotta cross things off the list to know they don’t work. That’s really what’s entrepreneurship is about, is you’re just trying to triangulate around a signal. Sometimes it’s a weak signal, but the signal starts getting stronger and stronger, and revenue and engagement are the signals. So open rates are the signal.
When we started Inside, we have a newsletter called Daily Brief, which is just about the news of the day. We realized hey 40, 50% of people were opening it in the mornings. Then people were telling us the next day that a lot of the news was stale. So I said okay, let’s run a test. Take the thousand people on the list and send like 1,000 of the 10,000 people or 20,000 people, whatever it is, a second edition at 3 o’clock in the afternoon with whatever else has happened, like an update. Just tell them it’s an update on what was happening in the morning news. Like, four people were like, “I didn’t ask for this.” We’re like, “We’ll unsubscribe you.” Three of them were like, “Don’t unsubscribe, I love it.” But they were kind of upset that they were …
I just told the whole list, “Listen, we’re moving to twice a day. If you don’t like it, unsubscribe.” Someone’s like, “I only want once a day.” I was like, “We don’t provide that.” They’re like, “Okay.” They’re like, “You can’t do that.” There’s always like a couple of people in every crowd where the people at a restaurant who are like, “You can’t charge for bread,” and the restaurant’s like, “We charge for bread.” “Okay, fine.” Or, “A hamburger should come with french fries. How do you charge for french fries?” Then you would say, “Well, not everybody wants french fries, so we charge an extra dollar for french fries. That’s just the way we choose to do it. If you don’t like it, go somewhere else.”
Sometimes people listen too much to their costumers, so you gotta understand the overall impact of the metrics. That just requires having not a discussion about emotions, or feelings, or predictions, or who’s in charge, but data and the crafting of experiments. The Lean Startup’s a great book by my friend Erick Ries that talks about this lean startup methodology, which everybody listening to this should be familiar with.
Matt: Yeah, definitely.
Jason C.: But what’s the least costly and quickest way to get the signal to understand if this is gonna work or not? That’s your goal. How can you cheaply figure it out? The way I cheaply figure it out was let’s just put a newsletter out there. Inside had a news app, hundreds of thousands of people downloaded the app. Less than 1% used it a day.
When we send emails, 30, 40, 50% of people open each one and we send two a day. So you put that together, we went 50x using an old technology, and now we don’t have seven developers working on an app, eight developers working on an app. The whole app team was maybe eight people, very highly paid people. We can redeploy those eight people’s salaries, and hire a dozen journalists, and get further. That’s no dig to the … It just turned out that news apps didn’t work. I mean I was an investor in Circa and a bunch of other news apps I loved, and used, and nobody made a news app that’s worked. It just doesn’t work. People forget they have it.
Matt: Yeah, I remember when you launched that, and I was like oh man, I don’t know if I’m gonna be using this app all the time and I installed it. But then when you pivoted to the straight up email, I was like yes, this is … Because this is all I, I swear to god, this is not just because you’re on my show and because I’m a super fan. But it’s like the only place I read news now. I don’t go into Facebook and even dare click on an article. One, because I don’t want to get retargeted. Two, I don’t want to see all the bullshit comments that people have to say about stuff. I just want to see the news headlines, get the synopsis, and then click on it if I so desire. I think Inside really hits the mark on that.
Jason C.: Thank you.
Matt: Oh man. One last followup on that. Ad free and just go membership monetization model moving forward or make sure-
Jason C.: Probably a combination. In the free ones, we’ll have free ones, and you can rock out with a free one, and there’s a little bit of advertising in it, and then we’ll have the space of users who pays. One of the things we’re experimenting with is just letting people turn off the ad. In Launch Ticker, we let the thousand people turn off the ads, and I think 10 of them or 20 of them took the time to do it. So you can turn the ads off technically by just clicking a button in your profile settings, and it turns out nobody does. People like to see the ads if they’re targeted, so I think you can have your cake and eat it too. I think you can have a paid Vanity Fair, though with ads. So it’s-
Matt: That’s a pretty cool idea because I guess if somebody clicked on that, you could. The paid for newsletter just simply doesn’t come with ads. If you don’t want to see ads in your email, just scrolling the headlines, just pay for it. I mean it’s super easy, makes sense.
Jason C.: I think like there’s this group of people, like when Hulu came out with … I had a Hulu subscription for $10 bucks. It had ads. It was making me crazy because Netflix doesn’t have ads and I’m paying $10 bucks for that. Then they made a $13 version that had no ads. I upgraded to that. I think there’s probably like 20% of people are sensitive enough that they would pay the extra $3, an extra $36 a year. Then most people would not.
In this day and age, I don’t know you have to choose. I think it would be brilliant for Netflix to have a version where today, this Saturday, Mercedes is making Netflix free, and you can watch Orange is the New Black and all the original shows are free this Saturday, brought to you by Mercedes. You have to watch a Mercedes ad at the beginning and take a survey at the end. Mercedes could just make a Saturday Mercedes day on Netflix. Netflix gets all the people to download and sample the shows. They give them $10 million or $5 million for doing it. Like, just do one day a month where Netflix is free. It’d be great onboarding.
Matt: Yeah, no absolutely. Jason, I can’t thank you enough for taking the time to do this. Look, I am finally-
Jason C.: Thanks for reading the book.
Matt: Yeah, no problem.
Jason C.: I appreciate it. I was like oh, you send a book to a lot of people, and they’re like, “Yeah,” you know. I’m like, “What did you like about the book?” You actually have like specific moments in the book. You actually read it, so I really appreciate that.
Matt: I actually thought you were gonna say, “How did this schmuck get the book?”
Jason C.: No, it’s-
Matt: Listen, I am only a 10 minute flight away from Nantucket, so whenever you want to have a beer the next time you’re in town, you let me know.
Jason C.: Oh my gosh, so you’re on the Cape somewhere or where?
Matt: Yeah, I’m at Dartmouth, Mass. So it’s just I hop anywhere to New Bedford, hop on the airline, it’s about 10, 15 minutes in air. It’s beautiful.
Jason C.: I love that place. I love that place, yeah. No, no. Be careful.
Matt: Where can folks find you on the web to say thanks?
Jason C.: Oh, well Twitter. My Twitter handle is Jason, J-A-S-O-N, same with my Instagram. If you went to check out Inside.com, take a look. Angel, the book, is in stores now. If you tweet me your receipt, I will give you a unicorn number and a name.
Matt: That is hilarious by the way.
Jason C.: It’s pretty hilarious. Yeah, like 300 people have done it, so we give them a unicorn name and a unicorn number, so you count up. We’re gonna do 1,000 unicorn names for the first thousand people who tweet their receipts. We’re 300 in, so that’s good.
Matt: Go grab the book, folks. Even if you’re not considering angel investment, it’s an amazing book to reverse engineer, to find those angel investors out there and get that money into your business. Try to scale. Stop being the development in the basement. Or be the developer in the basement if you want, but-
Jason C.: Yeah, just add a zero.
Matt: Just add a zero. Just add a zero.
Jason C.: That’s what I always tell my founders, like just add a zero. Then they add the zero, so I said, “Okay, let’s add one more and we’re done.”
Matt: Oh, that’s awesome stuff. It’s MattReport.com, MattReport.com/subscribe to join the mailing list. Thanks everybody.
Jason C.: Thanks Matt.