How often have you met someone and thought, “This would be a great person to add to my network, I really should keep in touch with them”?
Likely too often for you to actually keep in touch all of those contacts on any meaningful basis, right? Well, Zvi Band noticed that he wasn’t the only person with this problem. It wasn’t as though there weren’t a ton of tools to make those connections – from email to LinkedIn to phone calls or cards. What was missing was something to help maintain a number of relationships over a variety of channels. Zvi founded Contactually on the premise that there would be a ton of value in a product that made it easy to do this follow up.
To grow the customer base, he focused on integrations & partnerships, and he shares those details in our interview. He also shares a lot more of what helped grow Contactually to seven figures in just one year.
Listen now and you’ll hear Zvi and I talk about:
- (03:20) Introductions
- (10:50) Overview of results
- (12:20) How they got their first 100 paying costumers
- (18:20) Overview of how they handled integration and partnerships
- (23:20) How they financed the very early stage
- (26:20) How they dealt with the challenge of focus
- (28:20) Overview of how they raised their first round of financing
- (22:20) How they got into 500 startups
- (34:20) What they did after getting the first round of money
- (36:00) How convertible debt works
- (40:20) Revenue generation after the 1st round of financing
- (41:20) Overview of KPIs they watched in 2012
- (43:20) How they paid attention to churn to reduce it
- (47:20) Overview of best practices
- (49:20) Do investors repeatedly invest?
- (55:20) How and why the hockey stick happened
(If you’d like to hear from more successful software business owners, check out all the great Bright Ideas interviews and podcasts on this topic.)
More About This Episode
The Bright Ideas podcast is the podcast for business owners and marketers who want to discover how to use online marketing and sales automation tactics to massively grow their business.
It’s designed to help marketing agencies and small business owners discover which online marketing strategies are working most effectively today – all from the mouths of expert entrepreneurs who are already making it big.
Trent: Hey, there, Bright Idea hunters, welcome to the Bright Ideas
podcast. I’m your host
Trent Dyrsmid and this is the podcast for entrepreneurs who want to
discover how to use content marketing and marketing automation to
massively boost their business.And the way that we do that is, we bring expert entrepreneurs onto the
show to share with us the exact strategies that they have used to
achieve their success, so no gurus, no theorists.The only people who are on here are people who are actually in the
trenches, just like you, rolling up their sleeves and getting it done,
and this episode is no different.On the show with me today is a fellow by the name of Zvi Band, and he
is the cofounder of a startup software company that is called
“Contactually,” and Contactually, I have discovered as a result of
this interview, is just the coolest thing ever.It allows you to, basically, build and strengthen the relationships
that you have with your existing centers of influence, regardless of
the ways that you’ve been communicating with them, whether it’s been
Facebook or twitter or texting or email or so forth.I really, strongly encourage you to go and sign up for a free account
at Contactually, because I didn’t actually fully get it. I didn’t
understand the value of it, until such time as I did this interview,
and, by the time you listen to the first four or five minutes of the
interview, you will definitely understand that, as well.Now, the results that these guys have achieved have been nothing short
of amazing. At the beginning of 2013, they had just about $5000 a
month in recurring revenue, and, now, at the middle of October 2013,
they are at just shy of a $1 million run rate.So, that is pretty phenomenal growth, and in this interview, Zvi is
going to share with us how they came up with the idea, how they tested
the idea, how they raised their early rounds of financing, how they
further tested the idea, how they communicated with users.There is so much valuable information in this interview that you may
want to even listen to it twice.We’re going to introduce Zvi it just a quick second but before we do
that, I do want to give a shout out to the Bright Ideas Mastermind
Group. If you are a marketing consultant, solopreneur or freelancer
and you want to spend time with other people who are trying to build a
marketing consulting business and trying to use online marketing and
marketing automation to make that business grow faster, then you
really want to go and check out the Bright Ideas Mastermind Group, and
you can do that by going to BrightIdeas.CO/mastermind.There, you will find some information as well as a form to fill out
where you can apply, and you’ll book a call with Yours Truly, and
we’ll talk to see if the Mastermind is a fit for you or if you are a
fit for the Mastermind.So, with that said, please join me in welcoming Zvi to the show.Hey, Zvi, welcome to the show.Zvi: Thanks so much for having me, Trent.Trent: No problem. It’s a pleasure to have you on. So, we’re going to
talk a whole lot about
how you have built your software-as-a-service company Contactually.
Did I pronounce it correctly?Zvi: You got it.Trent: All right. And we got a lot of really good stuff I want to get
into. We’re going to talk
about what you’ve achieved. We’re going to talk about how you got your
first 100 customers.We’re going to talk about how you did your fundraising and what you’re
doing in terms of smart marketing, but, before we get into any of
that, because I’m sure that the vast majority of my audience does not
know who you are and doesn’t know what your company does.Please take a moment and set the stage for our discussion by
introducing yourself and giving your little, introduction to the
company, so that we have context.Zvi: Absolutely. My name is Zvi Band. I’m the cofounder and CEO of
in early-stage startup, building a relationship marketing platform.
What we do is we know how important your relationships are to you.We analyze all of your relationships by pulling in all of your
contacts into one place, help you identify the relationships that are
most important for your business and then help you stay in touch,
proactively, every single day, in order to grow your business.Trent: All right. So, conceptually, that make sense to me, but dumb it
down as much as you
can. So, let’s just use me as a guinea pig or your target customer, if
I’m not your target customer.We’ve got contacts in Gmail and they’re on Facebook and I’ve got
people on twitter and LinkedIn and they’re all over the place. Is your
software solution helping me to make sense of that sphere of people?
I’m not sure that I get it yet.
Zvi: Absolutely. That’s a big part of what we do. As we rely more and more
Facebook, twitter, SMS in order to engage with the people who are
important for business, you know, they’re all over the place.
I’ve got some contacts in my Google Contacts. I have some people that
I talk to only on Facebook. Then there’s that guy I’ve been SMSing
with. Then there’s the people I’m emailing across the four different
email accounts I have, in keeping that organized is a very hard thing.
One of the first things that Contactually does is it pulls it all into
one place. We will [D-Dupe] it. For example, Trent, you and I have
spoken across two of my email addresses that it found those two and
put them in one place.
We’re also connected on LinkedIn. It found your LinkedIn contact and
your twitter profile, pulled it all into one place. I have a really
consistent idea of who Trent is and all the different ways I’ve spoken
Zvi: Then, what we do is we will then help you organize it. So, we can
say, “All right. Trent
is someone who’s important to me,” and then Contactually will then
make sure that because you’re an important person that I actually stay
in touch with you and build a better relationship with you.
Trent: And how does it do that?
Zvi: Absolutely. This is kind of one of the key things that are users
realized, that there’s
so many people who are important to us, but we end up spending most of
our day kind of putting out fires, responding to whatever’s urgent or
responding to who’s talking to us, instead.
What you can do is you can identify, saying, “All right. Trent is one
of my important contacts and all of my important contacts, you know,
make sure I keep in touch with them every 30 days.”
Then, by looking at all of your different online communications, we
can see that, “Hey, it’s actually been 31 days since I spoke to this
person.” Then contractual will see that “Hey, this is a person that
you’re starting to fall out of touch with,” and then we’ll send me a
reminder saying, “Hey, get back in touch with this person.”
For example, one of our top use cases is for a real estate agent. You
know, real estate agent lives or dies by their address book, and if
they don’t stay top of mind, most likely, one of their potential
customers will just work with someone else.
Zvi: So, by setting a reminder every day saying, “Hey, here are five
potential leads that you
spoke to last month but haven’t spoken to recently,” they’re able to
better stay in touch and then grow their business.
Trent: And through the interface, am I presented… because I have not
seen it, I don’t have an
account yet. I’d love to mess around with it. So, maybe you could set
me up afterwards.
But is the interface such that I’m going to see you, and it’s going to
show me, in the last 30 days, the ways that we’ve communicated,
whether it was either twitter or Facebook or email or texting or
Is it going to be all in that one place and is there going to be like
a kind of a summary or a audit trail of the things that we talked
about? Or, what am I going to see when I’m reminded that it’s time to
call you again or connect with you again?
Zvi: Absolutely. You’ll get a set of reminders from us, via email, in the
morning, and you
can, of course, choose to just drop someone an email and
Contactually’s architecture will pick that up and see, “OK. That you
and I reengage, we’re all set.”
But what you can do is you can click over to contactually.com. We’ll
show you everything in one place. Not only will it show every
Facebook, LinkedIn, twitter, email, SMS conversation between the two
of us, you know, spanning our entire history; I can also record notes
and it will show the notes to me.
Whenever you make a new contact in Contactually, it’ll find all of
their online profiles, like even their Pinterest profile, and pull
that all into one place. I’m basically given this command center where
I can see everything I know about you and everything Contactually is
able to find out about you, pull it all into one place, and then use
that as a way to quickly build a better relationship.
For example, I can send an email to someone and I can see that, “Hey,
they actually were talking about something recently online.” I can use
that as a way to reengage with them, much more quickly.
Trent: Yes. That make sense too. So, for a lot of people, their
contacts might live in Outlook
or, in my case, a lot of my contacts, in addition to being in Gmail,
are also in Infusionsoft. Does your app have any ability to make it so
that I don’t have to have more than one repository of all of my
contacts, so to speak?
Zvi: Absolutely. So, we have a number of different methods. One is you can
easily import a
spreadsheet of contacts. Most people, when they come on board to
Contactually, they’ll [give us], saying, “Hey, I’ve got five Excel
spreadsheets of contacts I haven’t spoken to recently.” They can
easily drop those into Contactually and we’ll automate that.
We also have a lot of integrations with other providers. So, we work
with MailChimp, Salesforce, Highrise, Google contacts, as well as a
whole host of other things. We’re working on an integration with
Infusionsoft and a few other services, but, right now, we also have an
API. So, we have a lot of people building integrations into our
Trent: OK. Any idea when the Infusionsoft one will be ready?
Zvi: I’m hoping, by the end of the year. So, I’ll definitely keep you
posted on that.
Trent: Yes. Please do, because I would be happy to use it and blog
about it for you.
All right. So, now that we kind of have an idea of what it is that you
build, this episode is really going to be about the whole process that
you’ve gone through to achieve this traction that you have done with
In terms of starting with the beginning, or rather the end, in mind,
how many customers or how much revenue are you guys doing right at
this point in time?
Zvi: Sure. So, right now, we have around 35,000 customers on the platform.
around 6000 of them are paying at the moment. Revenue, I can’t
disclose our exact revenue number, but we are getting very close to
hitting $1 million a year in revenue.
Trent: Terrific. OK.
Zvi: Yes. It’s been a busy year. We were nowhere near that in January.
Trent: Where were you in January?
Zvi: Oh, in January, I think, we’d be lucky if we were pulling in like
$5000 a month, or so.
We had really just spent 2012 proving that we weren’t crazy and that
people would pay for it.
Zvi: And I think it hitting that $5,000 a month is a good sign that, “OK.
You’re not totally
insane,” and have spent 2013 doing nothing but growing it.
Trent: Yes. No kidding. All right. Let’s talk about how you got to the
first 100 customers,
because I think a lot of people are very interested in building
software as a service. There’s lots of competition.
There’s lots of challenges, and actually, the guy behind… Paul
Graham, from Y Combinator wrote a very famous article Do Things that
Don’t Scale. Did some of his advice fit into how you got the first
100, and, if not, how did you do it?
Zvi: Oh. Absolutely. I’d say, even at our stage, we still, constantly, do
things that don’t scale,
and only when they’re a success do we even think about how we optimize
this so we can kind of build a repeatable model out of it.
Going back to kind of how we got our first hundred customers, well,
kind of say “our first hundred paying customers,” getting the first
hundred people to just try out the product was just pretty easy.
Just tell family and friends, you know, post on a few blogs, talk
about it online, etc., but in order for us to get our first 100 paying
customers, we kind of started phasing in our paid model, and we
decided very early on… and this is a little different than what a
lot of, I’d say, Silicon Valley’s mindset is about.
We started out very early deciding that we wanted to be a service that
people paid for, and we ensured that not only were we building
features that people would be willing to pay for, but we were going
after markets of people that would pay for this, and that’s a very
important mindset that you have to have, early on.
Otherwise, you worry about attracting the wrong audience of people who
may like your product, may use your product, may give you lots of
input, but, at the end of the day, they would never pay for anything
like this, because it’s not valuable.
Trent: So, what you’re saying is, you went after markets where people
were expecting to pay
for this type of service?
Zvi: Absolutely. And, I mean, the easy way to figure out who’s going to
pay for a service
like this is who would stand to benefit from their business by using
something like this? For example, a common model that we kept
encountering is there are lots of people who are very, very obsessed
with their network, and it’s very important for them, and they really
like having a strong address book.
But, if you ask them to pay $20 or $40 a month, they’ll say, “No thank
you. I’ll just kind of stick with what I have.”
If you go to, say, a small business owner or a real estate agent or a
financial advisor and say, “Hey, this is a system that will, no
question, help you increase your business, help you get at least one
new client a month. If you get one new client a month, isn’t it worth
another 40 bucks a month? No question.”
Zvi: What we started doing early on is, before we even knew what we were
building out, before the platform could even take credit cards, we
already had a pricing page built in, and we would ask users, as are
signing up, which plan they wanted. That at least helped us qualify
e could start seeing who would be willing to pay for it, where they
were coming from, what price points they’re going after.
By then, we had learned enough about what features were important to
them and what price points that, when we rolled out our actual ability
to accept credit cards, we knew who we’re going after and we knew who
would be paying for this.
Trent: That was a very smart strategy. I hope people really appreciate
what you just said.
When it was free, I could sign up. Part of that sign a process told me
to pick one of the pricing options, but then I didn’t actually have to
pay for it. Did I get that right?
Zvi: You got it, and, I mean, the whole point of this is you want to be,
especially in the early
stage, learning as much as possible and you want to learn at all
costs, and you should not be trying to go for scale. You should still
be trying to go for quality.
Yes, I mean, of course, we’re not going to spend our time building out
a credit card processing system for something that’s going to change
every day, but you really want to ensure that your learning who’s
going to pay for it, what amount they’re willing to pay and then what
they’re willing to pay for.
Trent: So, when these early users clicked on, you know, “I want this
plan, that plan or the
other plan,” and they were taken… what did you show them next, “Hey,
we’re not ready to accept credit cards yet. Thanks for the feedback”?
Zvi: Honestly, no. We usually barely even mentioned that. People wouldn’t
They would select a pricing plan as they moved forward or they would
get turned away and then we’d know, “OK. That’s a good learning
point,” but they would just continue with the sign up process.
Yes, they would just never… you know, they’d never hear more about
how they had to pay, up until we were finally ready to start accepting
credit cards. Then, we would go back and message them saying, “Hey,
we’re finally ready to have you upgrade.”
Trent: Yes. They kind of thought maybe they pulled a fast one and
you’d forgotten to
charge them perhaps.
Zvi: Yes. Exactly. And that’s fine for us. We had accomplished our goal of
people are willing to pay for.
Trent: OK. So, I guess I want to make sure that we really answered the
question of how do
you attract your first 100 paying customers. You told friends and
family. You got exposure on blogs. You participated in the discussion
in online communities, where you thought your target market hung out.
You got some traction. You put up a pricing page that you embedded in
the sign up process, so that these free users, you were able to
collect data on what they were interested in and what they were
willing to pay for.
Then, armed with the data, you decided, “OK. Now is the time to put
credit card functionality in,” and then you went back to those people
who had gone through that process and said, “Pay us.” Did I get that
Zvi: You got it, and we were not… you know, we didn’t go with the model
of, from day one,
spending hundreds or thousands of dollars on Google AdWords or setting
up SEO pages.
We really just relied on talking to a lot of people, and a lot of
those people ended up being influentials who would help us and spread
out the word.
One thing we also did, just given that we didn’t have a lot of money
and really wanted to focus on getting off the ground, is we also
integrated with a lot of other platforms, and I would highly recommend
that people really consider integrations and partnerships when they’re
getting their early-stage product off of the ground.
I think, from very early on, we were integrating with Facebook, we
were integrating with Salesforce, we were integrating with Google
contacts and Highrise, etc., and, yes, it was hard to build, but, at
the same time, that also provided a link to a product that people were
already using, which made a conversation easier.
Trent: In your case… and, again, I want to make sure that I and the
understand what you mean by “integrations.” Let’s just use Facebook as
an example. Can you walk us through, specifically, what you mean by
you integrated with Facebook?
Zvi: Yes. Absolutely. So, when people can connect their Contactually
Facebook, and what that will do is that will pull in all of your
Facebook friends into Contactually and then create contacts out of
them. It will pull in all of your message history in Facebook and
store those in people’s contact profiles.
Then, when you want to engage with someone, you can choose to send
them a message on Facebook, instead of an email message.
By having that integration, people would say, “Oh. Cool. I do use
Facebook, and this would be a valuable thing for something I already
have. Let me go ahead and sign up for Contactually and connect my
Trent: So, key take away there is to build something that increases
the value of something that
I’m already using.
Trent: All right. Now you said “partnerships.” Can you talk a little
bit about specifically what
you mean by that?
Zvi: Yes. Absolutely. So, there’s an “integration,” which is just the
technical term. A
partnership can take many forms. So, for example, we have a
partnership with MailChimp, where, if you go to MailChimp’s website,
you’ll actually see in their app marketplace, they’re driving traffic
So, it’s somewhat of integration, and some of them partnerships. So,
that’s another way.
We also did a bit of partnership with other similar tools. So, for
example, one thing we realized early on is that people who were using
Contactually would also be using a service like SAINTbox. So, for a
while, we were co-promoting each other.
People who were using SAINTbox would get a coupon code and a promotion
for Contactually and vice versa. So, those are the partnerships that
you can build, as well.
There are many different types of partnerships. We also have a
reseller program and affiliate programs as well. Those don’t
necessarily drive as much traffic. You really want to figure out how
you can get a lot of people at once, and integrating with these bigger
tools is definitely an awesome way.
Trent: Just because you integrated with Facebook and twitter and the
various social platforms,
doesn’t necessarily mean that the people who use those platforms are
going to even know that you exist. You still have to get on their
Zvi: Exactly. Many of the bigger ones have avenues for that. For example,
we have a
highly rated integration with Google apps. So, Google apps has the
Google apps marketplace.
People are going, looking all the time for add-ons they can get to
their Google apps organization, and, hey, Contactual’s there and we’ve
got something like 70-some positive reviews.
That’s a great way of driving traffic and actually getting eyeballs.
Chrome Web Store. We are featured on the Chrome Web Store. That drives
traffic to us every day, as well. MailChimp does also.
Then sometimes it may take a little bit of business development and
proving to them, “Hey, here is why we are beneficial to your user
base,” as we do with a lot of our partnerships, for them to actually
start actively promoting it, but a lot of times these bigger platforms
have avenues of adding onto their system.
Trent: Yes. That makes a lot of sense, because there are people, the
early adopters, are people
who are hanging out in the Chrome Store, looking for cool new stuff to
add into their Chrome, and then, of course, these early adopters are
probably a bit vocal, and, if they like it or don’t like it, they’re
going to be the ones leading you that feedback, which helps to get
more traction and more people and the cycle continues. Is that right?
Trent: Interesting. So, in the very early phase, you were spending
most of your time, money
and energy to build these integrations and funding that out of your
own savings, friends, family, that kind of thing?
Zvi: Yes. We probably spent the first four months bootstrapping it out of
business. We were running a pretty successful freelancing business.
Then, around, actually, two years ago last week, we decided this was
serious enough that we really wanted some capital in order to fully
fund this out and start building a team, and that’s when we took on
our first round of funding.
Trent: OK. Which will get to in a second. Some people, self included,
are probably curious.
How much did it cost to get through that first four months, in terms
of not knowing your time, but if you weren’t writing code yourselves
and you had to hire developers, how much did you have to spend?
Zvi: I’d probably say, given the program that we had back at the time, I
probably say around
Trent: OK. It’s not a huge amount of money, that’s not a nothing
amount of money, but it
is, for someone with enough desire, $10,000 is probably an affordable
amount. You can find friends, family, aunts, uncles, that kind of
thing, who can all chip in, maybe, $500 bucks, and you can get $10,000
if you were motivated enough.
Zvi: Exactly. Now, granted, we were a development shop. So, we did have
house, to be able to execute it. Had we not, we may have gone about it
a different way. We may have spent a lot more time doing customer
development and building a landing page and proving that this was big
enough, before we ended up building out the platform.
Trent: Now, if you had gone the landing page route, do you think you
could have conveyed
the value proposition of what it is that you wanted to build, on just
a landing page? It seems to me like it might be a bit tough.
Zvi: It is a little bit challenging. I think there are definitely better
ways we could have gone
forward with it. We probably would have spent a lot of time thinking
about the sign-up process.
Mainly asking the right questions that qualified users as they’re
going through our sign-up process, to determine, “Hey,” and once they
get to the end, they absolutely need something like this and they’re
thirsty for something like this. We probably could have done that, but
One of the bigger issues we faced early on is we have a idea that’s
big enough and challenging enough that some people may not fully wrap
their heads around it until they actually have it in their hands and
they start to see the value in it that way.
Trent: And that was me, because, when I was doing my research for this
interview, of course,
I went to your homepage and I read all the stuff, but, at the end of
it, I was still like, “I don’t get it. What is this thing for? I don’t
need another contact manager. I’ve already got Infusionsoft. I don’t
need this thing.”
Zvi: Exactly. That’s obviously something… Even though we’ve got the
amount of customers
and revenue that we have, it shows that there is still a lot we have
to do to improve. So, we’ve got a video and a better marketing site
coming out with it.
Zvi: I would also highly stress that video is often a really great way to
convey an idea.
Trent: And that would have done it for me, because I am the type of
person, and, of course,
everyone’s different, but I fit into the category of people like, “You
know, I don’t want to read a bunch of stuff, what if you could make me
two or three-minute-long video and I could just watch it and the light
bulb would go on,” that would be incredibly valuable for me.
Then I would have been able to go, “Oh. That’s why I would use this
thing. Oh. Yes. Now I want to sign up for it.”
All right. So, you got to a point where you had your first 100
customers, or so.
Trent: You use your freelancing business to fund it and then you
decided, “OK. We’re
getting enough traction, here, that we’re probably onto something and
we should probably try to make it grow faster.” Was that the thinking
that happened at that point in time?
Zvi: Yes. We wanted to grow faster, and, at the same time, one of the
biggest things that we
learned, and it’s a lesson I keep on learning, is the value of focus.
We were being distracted all the time.
By having a successful business in my freelancing business, it was
incredibly challenging to dedicate time to invest in something that
could yield absolutely nothing.
Zvi: So, we knew that, OK, in order to take this seriously, we really
needed a “burn the
boats” type of situation. I knew I needed to shut down my current
business and really focus, full-time, on Contactually, and getting
funding was the vehicle that really allowed us to do that.
Trent: OK. So, you shut down the business? You didn’t sell it? Because
you wanted to keep
all the same people or why did you not just sell the business off?
Zvi: A lot of the employees and resources were coming with me…
Trent: Got it.
Zvi: … to Contactually, and, at the same time, I didn’t necessarily just
fully say… I sold the
business off, in a way. Being 100% client services, I was able to pass
off a lot of our clients onto other people who I knew and trusted,
and, for most of those, you can get affiliate revenue and things like
Trent: Yes. OK.
Zvi: Yes. I essentially sold it off.
Trent: OK. So, let’s dive into this first round of financing, because,
again, I think a lot of
people would be very interested in what you had built at that point in
time and how you went about getting the money. So, let’s, first of
all, make sure that we understand, when you decided to get financing,
how much traction did you have? How much revenue and paying customers
did you have at that point?
Zvi: Now, this is back in late 2011. This was that kind of, I would say,
the height of the
incubator bubble when there were a lot of… it was getting to the
height and there were a lot of incubators around.
It was relatively easy to get into it. Since then, maybe, it’s got a
little bit harder, but, back then, we had around 150 customers. We
didn’t have any revenue at that point, but, like I was saying earlier,
we were putting people through the pricing page.
We knew that people were willing to pay for this and we could convince
an investor and say, “Hey, we’re really onto something. Here are the
competitors in the marketplace, here are the similar big companies in
the marketplace, so we know that there really is a market.
“Here’s the size of the market, and, by the way, we have a working
prototype and people have ‘XYZ’ to say about it,” and that was enough
that we were able to approach and incubator called 500 Startups, show
them everything, laid on the table, and we had an offer in our hand a
few hours later.
Trent: In a few hours. Wow. And are you able to disclose any of the
details of that offer, like
in terms of…
Trent: … valuation and amount raised?
Zvi: Yes. Absolutely. So, 500 Startups, at least back then, their standard
model was to give
you $50,000. They would invest in your company in and around $1
million post-money evaluation.
They would essentially take 5% of the company, very early on. Then,
you’d be part of their incubator bath for four months and then help
you grow the company from then on.
Trent: And aside from the $50,000, what kind of value do they bring to
Zvi: During the initial incubator, they brought on an incredible amount of
having lots of mentors and advisers put in front of us. The having a
lot of resources available for us, like discounts for different
things, we could go talk to someone at Facebook or Google if we really
needed help with something.
Then, the most important thing that they really provided was this
pressure-cooker-like atmosphere, and, let me tell you, when you’re
told that you have four months before you’re going to be put in front
of the top investors in the world.
You really have to get your stuff together and you really have to
shine, otherwise you’re going to fail, you work… you put in so much
more work than you ever have in your life. It’s that kind of time
crunch that really allowed us to really concentrate and focus.
Since then, 500 Startups being one of the larger accelerators in the
world, we have thousands and thousands of other start up founders and
advisors and mentors available to us, at any point in time.
We’re still engaged in the 500 Startups community, to this point, and
we’re always able to ask any questions, get any resources we need,
I would think about, when you’re looking at different accelerators,
incubators, don’t just think about the value add for those few months,
but talk to people who have been in it for a few years and see the
value that you’re still able to provide.
Trent: Yes. I’ll bet it’s significant. By the way, I’d love to
interview some more of the folks
from the 500 Startups incubation. So, if there someone you could
introduce me to, to facilitate that, Zvi, that would be great.
Trent: OK. So, for people who haven’t raised money before, can you
give us some insight
into the process? I mean, it sounds like you guys went in…
So, let’s talk about how you got in. Did you get introduced or did you
just send a cold email in and say, “Here’s what we got” and you got a
meeting, and then a few hours later they agreed?
Zvi: One of the things that Contactually is really powerful about is
building a very strong
network, and it happened to be that I had, before building
Contactually, I had done a lot of networking and built up a really
strong address book here in the local tech community.
It happened to be that through my contacts, I knew one of the partners
of 500 Startups, and so I was able to get an introduction there.
I would say you should never try cold applying to any of these things.
You always want to find a way in and find a warm introduction.
Investors really will never respond to you, otherwise. So, absolutely,
I strongly recommend that you really start building your network now.
You’ll find that, yes, while a particular investor may be a very hard
person to approach, the entrepreneurs that they’ve funded and worked
with in the past, the entrepreneurs just like you and they been
through it and they know how painful it is to reach these people and
they’re able to help you if you can convince them to believe in you.
Trent: OK. So, you got the meeting, you went in, you did your
presentation, and, literally, a
few hours later, they had made you an offer?
Zvi: Absolutely. I think we were at the time where we had proved, just
enough, that we were
really onto something and I had built up enough of a reputation with
this particular investor that they knew that I was able to execute and
I was able to build a team around it and that I was really onto
Trent: Interesting. All right. So, what happened after that first
$50,000? How long did the
money last and what were you able to accomplish?
Zvi: Absolutely. So, we initially focused on raising more money. So, by
that time, I had two
additional cofounders working with me. So, they were focused on
continuing to expand the product and really form that up into
something that people would use and pay for. While, my third cofounder
really focused on starting to figure out our sales and marketing
I was then tasked with raising funding, and, for about four months
straight, initially, I did nothing but meet with investors, get
introductions, learn more about the fundraising process and ended up
raising, within the first three months of the program, an additional
Trent: At a higher valuation than the original round?
Zvi: Yes. It was slightly higher. It was convertible debt. So, with
convertible debt, the
valuation is always a little bit flexible. Instead of [a valuation]
you have a, which loosely translates to your valuation, but that
allowed… that’s kind of the common investment vehicle that allows
founders to raise a lot of money very quickly.
Trent: So, it’s pretty popular to use?
Zvi: Yes. Absolutely. If you look at a lot of the documentation out there,
convertible debt is
kind of the fastest standard way.
Trent: OK. So, for the folks here who are listening, who are
unfamiliar with what convertible debt is, do you want to just give us the
very quick overview of how it works?
Zvi: Yes. Absolutely. Convertible debt is basically saying… a set of
just saying, “Hey, I’m
going to buy a piece of your company at “X” percentage,” you know,
“I’m going to buy “X” percentage of the company at “X” valuation,
right now,” it’s instead saying, “Hey, I’m just going to give you
money now. It’s going to be debt.
It could be something that you have to pay me back at some point,”
but, instead of paying you back in just straight money, instead, it
can be converted to equity at a later point in time.
Trent: At the option of of the person who invested?
Zvi: It’s at the option of the person who invested, yes, but, primarily,
it’s almost never…
people almost never pull the money out. It’s, instead, converted when
there is an equity round of financing.
So, it’s usually written that the first time the founders raise an
equity round, or 18 months, whichever happen sooner, then they are
entitled to buy X amount of dollars worth of equity at that current
Trent: OK. So, let me just dial through this again. So, let’s say that
we, at this point, did a
$1.2 million valuation. I give you $100,000 in convertible debt. Six
months later, you raise more money at a $2 million valuation. I can
get the advantage of converting my debt into equity, back at the $1.2
million valuation? Is that correct?
Trent: So, there’s some real incentive for me, for taking that extra
risk, for being the earlier
investor. Now, you, as the founder, were you personally on the hook
for this debt? Let’s say this stuff didn’t turn out very well, they
didn’t convert it, somebody owes them this money. Are they prepared to
take a pill or are you personally liable?
Zvi: No. No. No. There’s no personal liability here. So, I think we have
to be clear about
that. If we didn’t raise around the funding, it would have forcibly
converted over to equity at that valuation, later on.
Of course, we ended up raising funding before that time had passed,
but, no, we would not have been in trouble. I mean, it’s really used
as a vehicle that allows founders and investors to start to work
together, very early on, without the hassle and legal expense of a
Trent: Yes, because you could end up spending just a ton of money on
Zvi: Yes, and when we raised our equity round, it definitely cost us at
least three times as
much to do an equity round as it did convertible debt.
Trent: Let’s say we we’re in that scenario. So, when you did your
convertible round, what did
you have to spend on legal fees?
Zvi: I’m having a hard time figuring out the exact amount, but I’d
probably say, and you
should probably account for maybe spending around, depending on your
lawyer, around $5,000 in legal fees, in order to get the convertible
debt up and running and fully execute around.
Whereas, doing an equity round, if you use the standard off-the-shelf,
series C [docs] maybe it could be around $10,000. Otherwise, it could
end up being quite a bit more.
Trent: Yes. OK. And you’re able to pay the $5,000 out of the money
that’s raised from the
round of convertible debt?
Zvi: Exactly. Yes. I mean, you can work… you can find lawyers that may
give you great
deals. Our lawyer is well known and respected in the area, for working
for startups, and he was able to give it at a discount.
Some lawyers may withhold their legal fees until you raise your first
equity round or until you raise a certain amount, etc. You can often
find lawyers that will negotiate with you for that, because they know
they’re not going to make much money off you early on.
They’d much rather keep you on the hook and make sure you become a big
company before they start charging you.
Trent: Absolutely. What is the name of the lawyer that you work with?
Zvi: We worked with Steve Kaplan [SP]. He’s the lawyer at Pillsbury, Shaw,
Trent: OK. Pillsbury, Shaw, Pittman. Okey-doke. Basically, the first
round was what
enabled you to focus your time on raising money for the second round,
while you… You said you had two cofounders?
Trent: And one of them is working on sales and marketing and one of
them is working on
product development? Is that correct?
Trent: All right. So, what happened next in the story?
Zvi: What happened next? The incubator finished up and we were really…
you know, we
moved back to DC, after being in California for four months, and we
really started to grow in the company.
At that time, we had started receiving a little more tech press.
People saw that we were fully out in the market and that we really had
a strong offering. We really started building out the product, just in
terms of turning on page features and actually expecting people to
We started figuring out the scale of marketing channels that we can
continually go after and started building a sales process and the team
behind that, as well, and we ended up spending most of 2012 focused on
nothing but that.
We hired our first developer and our first internal marketing person
and just kept iterating, more and more, on the product, until we had
reached what we saw was some level of product market fit, meaning that
we were able to continually get people in the door who loved the
product, started using it and would keep using it.
Trent: What were some of the key metrics or KPIs that you were focused
on during that 12
months leading up to the beginning of this year?
Zvi: Absolutely. We looked at just the number of users that we had in the
looked at the number of paying customers. We look at the number of
website visitors, and then we looked at the number of users who would
keep coming back to our site, every month after month.
We were pretty basic in the metrics we were checking back then. Now,
were a little bit more formal with it.
Trent: OK, and that repeat-users is a pretty important one, obviously,
because if people are
trying your stuff but they’re not using it again, you have kind of a
Zvi: Absolutely, and one thing that… I mean, there are two things I
would really strongly
recommend for people, as they’re getting started. One is set up a very
strict process of every week collecting all of your metrics in a
document or in some particular place, and, then, at the same time, pay
very, very close attention, especially if you’re building like a B2B
or a SaaS business, at your churn.
What most people don’t realize is while you may be very happy with
people coming in the door and new sales and new customers, etc., if
you have a leaky bucket with people also leaving in droves, then can
kill you, from an investment standpoint and from a revenue standpoint,
if you’re losing 10% or 20% of your business, every month, just
because they stopped using it.
Trent: Yes. No kidding. Did you ever have a problem with churn?
Zvi: Oh, absolutely. I think that’s definitely something we have spent
even a lot of this
year I’m getting under control. We were sometimes losing upwards of 5%
of our user base a month, and a rule of thumb that investors look for,
they really look for something in the neighborhood of 2% to 3%.
It takes a lot of work, and that’s kind of where the real magic lies,
because you can have a great marketing site or great initial program
to get people on board, but, especially for building a product like
ours where you really need and expect them to come back, month-over-
month, and keep using it and keep getting value out of it.
You have to have a lot of things working correctly, and tracking churn
very early on. Ideally, if, from day one, you’re able to keep churn
under control, you’re going to have a really great business.
Trent: When you identified that churn was a problem, what were the
actions that you took to
try to reduce it?
Zvi: Absolutely. First off, is just learning. You really have to learn
exactly why people
are quitting. I mean, it’s probably one of the more enjoyable parts of
my job, but I still, to this day, call most people who cancel or
downgrade their accounts and ask them why.
Ask them why they signed up initially, what they liked about
Contactually, what they didn’t like about Contactually, what was the
straw that broke the camels back for them that finally caused them to
quit and then what we could have done better?
We do, definitely, a lot of learning, and, ideally, you start to see
patterns emerge. So, we started seeing that, OK, a lot of people just
said that they didn’t fully understand how to use the product. OK. We
have better training programs and we had a much easier to use user
They didn’t get the support that they needed. OK. We really needed to
invest more time in our support.
Again, it’s a common theme that we keep focusing on, is we learn as
much is possible, and the more you learn, the more things just become
obvious as to what you need to do.
Trent: Did you ask for people’s phone numbers during the sign-up
Zvi: Yes. And that’s also a really great thing to do. Surprisingly, when
we first added a
phone number, we thought, “Oh my God. No one is going to enter this at
all,” but I would say the majority of our people, as their signing up,
have absolutely no problem entering their phone number.
Then, we’ll call them, as their signing up, ask them questions. Then,
as a cancel, we can ask some things, etc. So, whenever we need
anything, we can usually feel pretty safe that were able to reach
Trent: Yes, I’ll tell you, those one-on-one conversations, there’s
gold in them there hills, isn’t
Zvi: Absolutely. Just from an initial customer development standpoint,
it’s important. One
model that works really well for us, that we learned about from
Campaign Monitor is have a model of the inside salespeople who we have
They’re not there to sell, but they’re really there to help activate
and to really help coach the customer to become a better user and the
better professional, and if you can help someone get the most out of
the platform that you’re building, it’s no question that, of course,
they’re going to upgrade.
Trent: Yes. No kidding. OK. You mentioned Campaign Monitor, so,
company that you modeled. What were some of the other SaaS companies
that were influential in your thinking about how to create your
product, and when I say product, I mean how it’s sold, how people sign
up, just the whole thing?
Zvi: Yes. Absolutely. It’s hard to identify any particular ones. I mean,
there’s so many best
practices that we took and learned from so many other platforms. Yes.
Our customer guru model was from companies like HubSpot. We definitely
have a higher quality of support, modeling after companies, you know,
spearheaded, like Zappos, where they focus on having really, really
great customer service.
One thing that we definitely strongly believe in, from a marketing
standpoint, and this we adopted early on, is we modeled our marketing
program after HubSpot, where we don’t spend as much time pushing our
product and telling people, “Hey, you should use Contactually.”
Instead, we really focused on evangelizing the importance of
relationships and how key relationships are to our lives and how to
better engage with people, better grow your network, etc., and, hey,
Contactually happens to be a tool that allows them to do that.
We are also users of Hubspot too, which is obviously similar to
Infusionsoft. So, we started implementing their software very early on
and following that inbound marketing mantra.
Trent: Now, I’m on your site. I don’t see a link to a blog.
Zvi: It should be in the footer. If not, I think they’re called “actions”
at the bottom of the
page, for sure. We try to convert most people in order to just sign up
for Contactually, but if you just go to, you’ll see that there are a
few big call to actions at the bottom of the page or midway
down the page.
Trent: OK. Why did you decide to go that approach, versus… And let
me go back to the
homepage here. Your call… What’s the primary call to action that
you’re trying to get… “Sign up and take a free trial,” I’m assuming
Zvi: Exactly. Yes.
Trent: OK. “For individuals, for teams.”
Zvi: Then, if you scroll down a little bit, down our site, you’ll see that
there are actually…
there’s a rotating carousel offering a few e-books that you can
download, and those, of course, go directly to Hubspot. We’re able to
Trent: OK. That make sense. All right. So, where we in the story? So,
by the time that you
were… So, you had… You’d raised this, I think you said $150,000
round, or so, which was the second round, and then it sounds like, if
I’ve got all this correct in my head, it was about a year.
You sort of did that at the beginning of 2012 and then you kind of
existed on that money for 2012? Am I about right?
Zvi: Yes. So, what we ended up doing was, we raise that money kind of late
Then, in 2012, the first few months, we raised another $200,000, and
that was kind of more of like a bridge round.
That allowed us to say, “OK. We’re starting to get some traction.
Let’s get some additional money in the door and then really allow us
to accelerate more.”
I would say we never really focused on identifying particular rounds
of funding that we wanted to go after. Instead, we treated fund-
raising as an ongoing process, and we still do to this day.
We raised another $200,000 in kind of mid-2012, and that gave us more
than enough cash in the bank to go until early this year, when we
raised just north of $1 million.
Trent: OK. Is it always different investors, with each round, or do
some investors come back
Zvi: Some investors come back for more, and that’s a very important thing
that we do. We
still stay engaged with all of our previous investors. We have a
monthly newsletter. We are always on hand to answer questions and take
calls and really kind of ask them for advice and value.
That’s really important, because, especially as you start to bring on
big investors, they’ll often times look back at previous investors
and, if they don’t see them continually investing money, they often
ask “Why? Do we not believe in them anymore?” etc.
We were happy that, over the three rounds of funding, or so, that
we’ve done, we’ve had some investors who have invested every single
Trent: OK. How much revenue traction did you get during 2012, because
you mentioned, I
think, at the very beginning… I don’t know if we were on air or off
when you answered this, but I think you said you were at $5,000 a
month at the beginning of 2013 and now you’re, it sounds like, closing
in around 80, or something like that. So, did revenue not grow much
Zvi: Yes. Revenue did not grow that much during 2012. We only turned on
our ability to
process credit cards, even, I think, in July, and then we kind of
spent the rest of 2012 just iterating on figuring out what our ideal
sales model is, what people are willing to pay for it, etc. In 2012,
we were still in a learning phase.
Trent: How did you facilitate that? So, we knew what the KPIs are,
traffic and repeat users, but I’m guessing there must’ve been a lot of
actual dialogue going on with your existing customers, to say, “Hey,
is this good? Is this bad? What needs he better?” Is that what you
mean by “iterating”?
Zvi: Absolutely. Yes. That was definitely incredibly important for us. So,
from very early
on, we had set up this practice of engaging with our users, sending
out surveys all the time, having an open email line, having a web chat
tool, so we have Olark on our site, so people to chat directly to us.
Then, we used a service called Intercom. That’s just Intercom.io, and
that allowed us to, very easily, identify, “Hey, who are the active
users? Who’s online right now? Who can we message and ask questions?”
We started building a dialogue and building a relationship with users,
many of whom we still have on board today, in terms of our active
users. We just kept learning as much as we could from them.
I mean, even just two hours ago, there’s a particular new feature that
I’m working on that I wanted to know more about. I built a survey and
messaged 200 or so of our users and ask them, “Hey, could you fill out
the survey and help us learn a little bit more?”
Trent: Very cool, and I’m guessing that the early adopter-type
customers are very, very willing
to participate and give feedback, because they like the product and
they want it to be better.
Zvi: Exactly, and early adopters will come and go. I mean, we definitely
have a lot of early
adopters who are using this because they thought it was a cool tool,
but now that we’re a premium product, it’s not as interesting for
them, and, that, we totally understand, but, over time, we start to
You know, we can just look at the number of people who… Using
Intercom is incredibly powerful because we can just look at the number
of people who have signed in over the past seven days and just order
them by how many times they’ve signed in over the past year, and it’s
very clear, you know, we still see the same group of people who are
continuing to use this and hammer away.
We do things to incentivize them. One thing we do for a lot of are
very active users is we have what we call an “alpha testers group.” We
will release features before they’re ready for the public and allow
them to bang away on it.
That gives them some sense of exclusivity, but also gives us the
ability to have a lot more testers using it than just our team.
Trent: Yes, which is hugely valuable.
Trent: Then, 2013 rolls around, you guys raise $1 million bucks and
Trent: Let’s talk about that. Why did you want the million dollars,
because I’m assuming
you are still probably burning cash, at that point, and maybe need to
keep reserves up? If that’s right, what you use the million dollars
for and what is it that caused the growth rate to hockey stick?
Zvi: Yes. Absolutely. I think, overall, the trend is we really focused
2012 on proving that we
had a business, and then 2013 focused on growing it. So, we kind of
expanded on all fronts. We obviously raised a much larger round of
We were five people at the beginning of 2013. Now, we’re just passing
- So, we use a lot of our funding in order to grow our team, and, by
growing our team, that allowed us to have a lot more resources. So,
our marketing team went from one intern part-time to, now we have
three people fully focused on it. Our sales team used to be just our
Now we have three dedicated inside salespeople, one enterprise account
manager and things like that, and just having a bigger team and having
more resources, that has allowed us to just consistently grow the
business and, of course, having a very, very strong product behind it,
It’s not just a little prototype that people play with. It’s something
that they use and rely on, every single day.
Trent: Yes. So, you’ve got three people in marketing and three people
in sales. So, the
marketing, are you guys… you’re following the Hubspot model. You’re
producing content like mad and making sure that it’s promoted like
mad, to draw as much traffic to the site?
Zvi: Absolutely. Yes. Then, of course, as people are coming on board or as
people may be to
set a conference or just kind of end up in our top of funnel, that we
educate them and deliver enough value to them and keep talking about
what Contactually is and how they can grow their business, etc., using
our platform. Then, those people come on board and then we do a lot to
educate them, as well.
Trent: So, at what point do the salespeople get involved. I think you
said it’s one someone
creates an account and they fill in that phone number. Shortly after
that is the salesman making an outbound call to say, “Hey, welcome
aboard. Let’s make sure you’re fully activated and training you and so
Zvi: Yes. I mean, we keep iterating with the model, but the general
approach is, yes, as
people come on board, as we see that, hey, “This person is an active
user and seems to fit the criteria for someone who we really think is
going to be successful with Contactually,” we’ll sometimes reach out
with an email.
We’ll sometimes reach out with a phone call. Sometimes, they’ll reach
out to us and say, “Hey, could I have a coaching session to learn a
little bit more?” Then, we usually reach out. We’ll engage. We’ll have
a short 10 or 15 minute conversation. People are very friendly.
We usually have very little, just, you know, “No. Go away. Don’t
bother me,” kind of things, and then we focus on just providing a
little more value than they would otherwise. They know that we’re here
for help, and if they need assistance, they’ll reach back out to us.
Otherwise, they’re just better set up for success.
Trent: That is really, really cool. I’ve so enjoyed hearing the story,
and I’m sure there’s many,
many more chapters to unfold yet. So, before we wrap up, for folks
like me… For example, I’m actually involved in two startups, SaaS
companies that both serve the same market. They just solve different
problem, and that’s why two companies. What advice would you give…
One of them, we’re at 60 customers, 70 customers, and that when I just
became a partner by acquiring half of that company, and the other one,
we’re still in the development phase.
I use my audience here at Bright Ideas because the members of my
audience are the target customer. I’ve tried to do as many demos and
show the mockup and get feedback and so forth.
What am I not even thinking about doing with either one of those
companies? And obviously don’t know everything that’s on my mind. So,
it’s kind of a silly question, but I’m just looking for some advice
that I might not have thought of yet.
Zvi: Yes. Absolutely. So, I’ll give you kind of a couple… I’ll just give
you be one small
thing, one pretty beneficial thing and then just one high-level thing
that we do. So, one quick tip, when people first start to sign up for
your product or first start to get interested, collect their email
addresses, get their email address, and then you’re able to… you
know, then you have them in your system.
Then, most importantly, if they don’t finish signing up for your
product or they drop out at some point, send them an automated email
and ask them what happened, and you will gain so much information.
We just had a failed sign-up process where if someone doesn’t complete
their sign a process in 10 minutes, that we drop them an email and we
learn an incredible amount.
Two, at kind of a higher level, talk to everyone. We talk to our
competitors directly. We talk to users who hate us. We talk to users
who have tried other products. We talk to people who have signed up
We just kind of focus on talking to everyone. We utilize Core [SP] a
lot for customer development, and just never be afraid to reach out to
someone and ask for a little bit of their time.
Most likely, you’re talking to another entrepreneur who has been in
your place, and they’re always happy to help you out. Even our
competitors, we honestly don’t consider our competitors as much
anymore, because, it turns out they’re people who are just as
passionate as we are.
Then, at a much higher level, we really strongly push the need for
consistent execution. If you ever get an impasse or you ever spent too
much time debating things or in meetings, just execute and do
something and learn, and we really, truly believe and subscribe to the
mantra that “shipping solves all problems.” We always believe in
releasing features before they’re ready.
If we’re unsure path A or path B to go down, we’ll launch both and
learn which one’s better, etc., but it’s building up the constant
mantra that, even now, as a 16 person team, we still do things that
break and fail and not everyone agrees with, just because we have that
mindset of executing first and then learning from it.
Trent: That reminds me of a piece of advice that I was given years
ago, and I actually made a
YouTube video about it. The advice was called “the best way to succeed
in business is to be in business,” and I didn’t get it at the
beginning, and for folks who maybe just don’t understand it, give me a
moment to explain it.
Or, Zvi, actually, you just did a really good job of explaining it.
The best lessons come not from thinking about what you should or
shouldn’t do, but from doing and making mistakes and falling on your
face and collecting what I call “skidmarks,” because those experiences
give you opportunities to learn what is working and what isn’t
It is, in hindsight, some of the best advice that I was ever given,
and now you’ve given it to me twice. So, thank you for that.
Zvi: I could not agree with that more.
Trent: All right. So, we’re going to wrap up this episode, here. If
you want to learn more about
this, it’s Contactually.com. If you’re in your car, if you’ve been
listening to this, you’re going to be able to get to this episode at
I will have made links to everything that we’ve talked about. So, Zvi,
thank you so much for taking some time to be on the show.
Zvi: Thanks so much for your time, Trent. Have a great day.
Trent: You too. OK. So, to get to the show notes for today’s episode,
BrightIdeas.co/88, and if you really enjoyed this episode, I would
love it if you would take a moment to go to BrightIdeas.co/love, where
you’ll find a way that you can leave feedback for the show.
That’s so incredibly important, because, the more feedback ratings we
get in the iTunes Store, the more people that discover the podcast for
the very first time. Whenever that happens, the more entrepreneurs
that we can help to massively boost their business with all the Bright
Ideas that are shared by guests just like Zvi.
If you’re not yet a subscriber, and you’re listening to this in the
iTunes Store, please come to BrightIdeas.co and do become a
When you do, you’re going to get access to my four-part “Conversion
Tactics Video Training Series”, plus, I do a whole bunch of really
other special stuff for subscribers that just visitors to the site
never see or never get to participate in. There’s lots of benefits to
becoming a subscriber.
That’s it for this episode. I’m your host Trent Dyrsmid. Thank you so
much for tuning in and listening to the Bright Ideas podcast. We will
see you again, in another episode, soon. Take care.
About Zvi Band
Zvi Band is the Founder of Contactually, software that helps its users to identify and stay engaged with your most important contacts.
He’s also passionate about growing the DC startup community, and founded Proudly Made in DC and the DC Tech Meetup.