I interviewed Dave Stubenvoll late last November as a part of our Founder Story series. I first met him at the Streaming Media 2006 show and was immediately impressed by him. Sean invited him to be on a panel at Startup Epicenter on “Scaling Up Your Product Development” and Dave made some of points there that he expands on in this interview. What follows is an edited transcript with hyperlinks added to provide context and background for some of Dave’s remarks.
Q: You’ve been through 5 startups; can you compare and contrast your experiences between them?
Three of them were independent startups: GALT Technologies, Freeworks and WOWZA; two of them were intrapreneurship projects, that is new businesses within large companies. The two intrapreneurship projects were in different companies that looked at things very, very differently. The first one was when I was at Intuit leading the payroll business application set, and we knew we were absolutely starting a new line of business, no doubt about it. The second one was when I was at Adobe and it was a skunk works project: let’s see what we can do in this area.
As far as the startups, the first one, GALT Technologies, was a website for mutual fund information. We were venture-backed, but didn’t raise very much money at all. It took less than a million dollars in total. I was not actually a founder for this one. I was the third person in the firm and was lucky enough to get a very reasonable sized equity stake. I joined in 1993 and to tell you the truth, nobody really knew what the heck they were doing. This was during the early days of the web and we kind of just built something and stumbled into some good situations. We ended up selling the company to Intuit in 1995.
The first company that I founded was Freeworks, which did not work out so well. We raised significantly more money, but it was during the dotcom bubble, and the company ultimately folded when the bubble burst. We offered an ad-supported suite of free services targeted to individuals working in small businesses. We were trying to develop marketing collateral automation for small business employees.
And now, with WOWZA, the only commercially available alternative to Adobe’s Flash Media Server, we have not taken any venture money at all. We just did it ourselves and became profitable very, very quickly. In terms of comparing and contrasting the three experiences, I definitely kept the same sort of cost methodology and management philosophy
Q: Can you please elaborate on your cost methodology and management philosophy?
For example during Freeworks, we had a Business Week interview. The reporting crew came in, interviewed us, and wrote an article comparing us to a startup in San Francisco. Honestly the reporter came in and said, “Dave, I don’t want to offend you, but this place is a dump.” For our team, this was the nicest office any of us have ever had. It’s about understanding the value of the capital that you have or don’t have. And it’s about using your capital properly to get the best people and to invest in the right projects, for example a marketing vehicle or product feature set. With WOWZA we were able to read the market, react quickly, and reach profitability: as a result we did not need to raise money.
The management philosophy was really refined during Freeworks. It’s really about letting people make decisions. It’s not all about me, it’s not all about the other founders, it’s about everyone making the best decisions that they can to move it forward. Micro managing people becomes time consuming. You have to have faith and trust that you have surrounded yourself with the best people and just let them work.
Q: Your cost methodology and your management philosophy make a lot of sense. Besides raising money, what were some of the things you made sure to avoid in starting WOWZA?
One thing that we work darn hard to avoid is running out of runway, which is wrapped up in a number of other things. It’s about making sure that the company is going to be here for the long term and that we are not going to be dependent upon any specific event or any other single party.
Many people tell us constantly, “You know you are building this to sell.” Part of my response is, “if I was dependent upon the sale of this company to some single entity, I probably wouldn’t survive.” If their comments were true, I would be doing things to sell as opposed to doing things to make sure that the business is around next year and the year after, and the year after.”
At WOWZA, we’ve taken a much more pragmatic approach. It begins with, what do customers want? What do customers want today and what are they willing to pay for now? The number one job is making sure we have products people want to buy. Then layering on top of that, what do we think they are going to want to buy two years from now? How can we gauge where the market is going? The number two job is having a really good architecture for our products and aligning our product roadmap with our customers’ objectives. If we do this successfully, we can assume that the company is going to be around years from now.
For example, we are porting our Pro offering to the new Amazon virtualization servers, Amazon EC2. We are going to host our product there. As we are developing it for beta, which will be released shortly, we will run the standard evaluation questions. Can we do this? Should we do this? What are our options? Which one is more flexible? Which one is going to constrain what we can do in the future? Which one is going to let us do more in the future? Since it’s also about gauging the market, how good do we have to be to start the beta? It doesn’t have to be perfect for the beta, because we really don’t know what people want. But it does have to be good enough.
Q: It seems like you have had a clear sense of priorities with WOWZA?
With WOWZA our focus is on three key things: making sure that we will be around, making sure that we are meeting customer needs today, and staying flexible enough to meet customer needs for the future.
Q: I talk to many entrepreneurs who take a “if I build it they will come approach.” We met just over a year ago, before you had even launched. Can you talk about the amount of preparation, the strategies, and your implementation plan just to get ready for launch?
This time with WOWZA, launch was sort of a crazy thing for us. We basically started the company because we wanted to explore the possibilities for new applications that emerging media technologies enabled. Originally, we never actually expected to make money with what we built. Not really your typical way of starting a business.
My co-founder and I had prototyped a hybrid video blogging system. It was this unholy hybrid of WordPress, the Adobe Flash Communication Server, and then Flash Media Server. While messing around, we found out that Adobe Flash Communication Server, Flash Media Server was just not good enough. The product wasn’t stable enough, it was unreliable, it had lousy performance, it was ridiculously expensive, and it just was not good enough for us. So, we decided to write our own, and we put that into our product.
Prior to launch we did all the standard things like press releases, some advertising, having reference customers, having customers ready to buy on the launch date, and building up the market. However, we did not pour boatloads of money into the initial marketing. For two reasons: first we figured we would get it wrong at the start, and second we felt that this was a one off product. Our primary intention was to establish the company and build a reputation. We want to be the guys who know what they are doing, tell you the truth, and deliver a damn good product. The truth is with a one off product there are going to be problems, no doubt about it. We went ahead and launched in February 2007, got out there, got press in a couple of places, people came, and we made sales.
Our first sale started with a twenty minute phone conversation where I sold our first customer the ability to license our server for fifteen hundred dollars a month for a maximum of seventy-five connections. It was ridiculously expensive compared to where we are priced today. Our server was performing phenomenally well, and we exceeded our forty-five day sales goal, which was insane. So far it’s working out well, in October we revised our estimate for our 2007 revenue. That was six weeks or seven weeks ago, and then yesterday we reached that goal. It could be that I’m a really poor forecaster, but we are extraordinarily pleased.
We continue to evolve both our marketing and the product. Our focus is on three things; market development, product development, and organizational development. We are finding that if you take an evolutionary approach to organizing yourself to ensure survival, performing enough trials so that no one mistake can kill you, you get stronger.
Q: Can you elaborate on this evolutionary approach? What led you to start the company?
My founding partner, Charlie Good, and I enjoy working together. We were working with a venture capital firm, Kleiner Perkins, on some projects they were incubating and we decided to explore video blogging. We created the corporate shell so we wouldn’t put our personal assets at risk.
There is a great book, “The Origin and Evolution of New Business” by Amar Bhide. It’s a very dry academic tome that talks about how small businesses get to be big. He looked at the Inc 500 instead of the Fortune 500–which I think is a more accurate approach than looking at a big business–and wondered “how did it get that way?”
What Bhide found was that there are basically three sources of new businesses: large businesses creating new businesses, venture backed startups, and the crazy entrepreneur. What was surprising was that you get the greatest returns from the crazy entrepreneur hitting it big. Large businesses only invest in other businesses that are guaranteed to be large: think about Toyota investing billions to develop and introduce a new car. Venture capitalists invest millions in a startup but only if they believe their return is going to be large: they have to see a billion dollar market from the beginning. With so much money at stake they can’t take large risks.
When you look at the businesses created by entrepreneurs–which include Cisco, Intuit, and arguably Google–it wasn’t with the expectation of a large return but structured for survival. These entrepreneurs didn’t quit their day jobs. They took an evolutionary approach that spread a large risk over many small experiments. When Google started, Yahoo owned search. Who in their right mind would start a search company? I haven’t met the founders but they are certainly very smart and they created something that was interesting and ultimately compelling: when they made it available people were clamoring for it. They wouldn’t have received Venture Capital funding if that hadn’t happened, right? They were able to prove success on a shoestring just with their interest. Then they had to decide whether to build the company or finish their doctorates. That’s what success looks like: you can consider quitting your day job because your side project has taken off to the point where you can make that decision.
Q: So, do you compare what you are doing with WOWZA going up against Adobe’s Flash to what Google did to Yahoo?
Ha, that’s a good question. I’ll put it like this, if you asked Larry and Serge when they started writing the algorithm if they were going after Yahoo, they’d probably say no, we just think this is kind of interesting and I have no idea where it’s headed. We started out just to meet our own need. We created the server because we needed it to get our little video blogging application working.
Even today as WOWZA Media Systems, still a very small company, we are not trying to take on Adobe, just pursue opportunities as they present themselves. I don’t think it’s a valid to compare us to Google except that we started this venture doing things that we wanted to do, and found out that other people were interested in it. We were not and are not trying to take on Adobe. That said, we are able to fit into what many people want.
I believe this is a common thread for software startups. It’s pretty rare when someone sits back and says, “I’m going to create this new market.” OK, a few people say it, and it might make all the sense in the world, but most of the time it doesn’t actually happen. Look at Intuit’s QuickBooks business. It is a huge, phenomenal business. Do you know how it started? They had Quicken, a personal finance manager, and found out that many of their customers were actually using it for their own small businesses. So they designed a new product that’s focused on small business instead of just household checking. And the customers loved it. It’s about reacting flexibly when you get nudged by customers, keeping your eyes open to a new opportunity, and making sure that whatever you do is isn’t going to kill you.
I like this “Do Not Run Out of Runway” approach. However, I have also heard fail fast. How do you fail fast if you never run out of runway? How do you measure progress?
Our approach is fail fast and fix. It’s an evolutionary approach where you tolerate a lot of mistakes, but you make sure that none of them are fatal. The truth is, this methodology of infinite runway is really hard to do. Fundamentally it’s based upon not quitting your day job until you are certain you can cover your living expenses. It’s hard to do these things when you quit your day job. The team has to be able to invest time in the idea and not rely on outsiders to get it up and off the ground.
If you are a lone entrepreneur it’s better to team up: far, far, far better to team up than to do something alone. With two, you both can commit a certain amount of time to it, but keep your day job. Slowly this side project develops and you just keep plugging at it, plugging at it, plugging at it. Eventually, if you are reasonably smart, you’ll find something. Listen to the market, be aware of opportunities, and make sure nothing you do absolutely kills it. It’s hard to do. It takes a lot out of you, but it’s definitely possible.
Q: You mentioned how valuable it was to find partners and team up. How did you find your co-founders?
Well, the GALT guys found me. The two founders asked me to join, which was wonderful and worked out well. There were three of us there, and we sold the company to Intuit. Then Freeworks was founded by me and three other guys, two of whom were with me at GALT. The fourth person was part of the department that GALT merged with at Intuit. The four of us made a great team and had great chemistry. I still believe Freeworks had a chance, but bottom line is we ran out of runway. At GALT, I took a chance because I really didn’t know the founders well. I got lucky, but be careful because after six, eight, ten dinners with someone and you think you know them and you don’t; you just don’t.
By the time we started Freeworks, I knew these guys well. I knew them all for years, and that was a good thing. We were all very comfortable working together. People change over time and all that, but we had the type of relationship where we didn’t hold back, everyone was brutally honest with each other. We just got along well, we could yell and scream when we disagreed on something, and then go out to lunch and have a great time. We understood how each other worked; we understood that it was okay to be confrontational.
Now, with WOWZA, Charlie and I have known each other for several years. We met at Adobe and ended up working on a Marketing Collateral Automation project. He turned out to be a guy that I certainly trust. We are very similar in a lot of respects, but our skill sets are very different. So, we fit very well together as a team, and I think it’s vitally important that you don’t go through this alone. If you’ve got to start something, you need to get a buddy.
Q: WOWZA sounds like it’s starting to take off. What do you see as the significant challenges ahead?
Our product focus today is Flash centric; the WOWZA Pro is a Flash streaming server. When you mention Flash most people think of Adobe because they acquired Macromedia the inventor of Flash. We have a cordial relationship with Adobe, frankly because we are still way too small for them to worry about us. They need to pay attention to and react to Microsoft. But streaming media is becoming more and more important; it’s becoming a bigger industry, which raises the stakes. Adobe, Microsoft, and others continue to make significant investments in the space.
It’s hard to believe, but we were selected as the number three player in this space. The 2007 Streaming Media Magazine readers’ choice poll voted Adobe, Microsoft and WOWZA as the top three choices for streaming media servers. Behind us were Apple and Real, who are both much larger companies.
If you look at all four of the major players–Adobe, Microsoft, Apple, and Real–they all care more about other things than their streaming media server. They care about particular codes, particular clients, operating systems, and all of these other things. We are the only independent streaming media software company out there, and we think that that’s a significant opportunity as this market evolves. Our mantra as we enter 2008 is any code, any protocol, any device, any client. Going forward we plan to deliver the necessary components to wherever the customer needs to stream content, whether it’s the desktop, a mobile device, or the living room. We believe we are in a unique position to be able to provide that.
Q: It’s been quite a journey for you. What advice would you give to others, so that they can avoid any of the challenges you encountered in your experiences? Any words of wisdom, tips, gotchas?
I think the two biggest pieces of advice would be: (1) get a partner you can trust. (2) figure out how to get things rolling without quitting your day job. I know people don’t want to hear that second one, but it’s that infinite runway that is your absolute, absolute greatest strength. It allows you to fail fast and fix.