The Story of TOMODO: Part Two
This is the second post in the series. To read the first post - click here.
(for audio version click here)
Times of Change
Since day one, TOMODO was built as platform with an API to allow products to be built on top of it. The first product was, well, TOMODO. But at its core, the platform allowed the dynamic modification of websites over an alternative URL. We had lots of ideas over time that we thought could be built on top of the platform. We started to experiment and validate them in order to decide what we should build next.
widgiFIRE
widgiFIRE was a very slim product implemented on top of TOMODO. We actually never considered it as anything substantial. It is just something we built along the way to test the platform’s API. The surprising fact was that it was actually a pretty good product.
widgiFIRE allowed companies that sell HTML embedded widgets to show an interactive demo of their widget on top of the prospect’s website. In order to use widgiFIRE, you would enter the prospect’s website and your widget’s Javascript code, and got a new URL with a live version of the prospect’s website with your widget embedded in it. It was that simple.
We put a link to it on our main site at some stage and people just started using it. We had about 100 companies using it on a weekly basis. Retention was near perfect. However, no matter how much I played with the numbers for a company based on widgiFIRE, the target market and willingness to pay never justified a VC backed company. As my friend Nir from Accel Partners once told me: “not every good product is a good company”. At a certain stage I thought it might be a good idea to spin it out of the company using some structure or another but I haven’t found the right person to lead such a move.
convertiFIRE
We wanted to build a B2B product on top of our platform. We had a number of ideas and we started validating them. We conducted market research for each but the best possible indication was when we started selling our non-existing products. This is where convertiFIRE really shined. It was an easy sell both in terms of time and success rate.
convertiFIRE was a product for affiliate marketers. It allowed affiliates to change advertisers’ landing pages and match them with the context of the ads the affiliates were running. For example, if the affiliate is running an ad about a football match happening tonight for a gaming site. It can take the gaming site’s generic landing page and with only a few clicks remove all other sports gaming possibilities from the site. This would make this landing page much more targeted, and highly targeted landing pages result in better conversion rates, which in turn mean higher revenues for the affiliates. In addition, it also allowed the affiliates to add their own tracking pixels on the advertisers’ conversion funnel with no integration and helped solving the lack of trust which often exists between affiliates and advertisers.
Building this product was no easy task. We already had the platform for modifying 3rd party landing pages but we needed to build an easy to use drag and drop interface for modifying existing web pages without any coding skills. At first it might sound as easy as a site builder, however it’s much more complicated since it had to work on any website, built in any way. We did not have the comfort of the sandbox which website builders can build for themselves. Luckily for us, we had just the right team for the task and we were able to make the product look really neat in as little as two months.
Our first target audience were affiliate companies with 50 people or more and surprisingly there are lots of them. Later, we even approached the advertisers themselves who wanted their marketing department to create targeted conversion funnels without involving their company’s R&D. We granted initial access to our system to the early adopting companies we engaged with at the validation stage, later expanding to new customers. The pricing was CPC based, and each pricing plan came with a minimum quota. convertiFIRE was sold top down through executives inside the companies. They were almost always really excited about it after they understood the potential lift in revenues. We then hired an account manager and a salesperson for our team (see post about “What I’ve learned from sitting next to a pro salesman”).
For the first few campaigns each advertiser ran through us, our team created the optimized conversion funnels for them in order to demonstrate how much uplift in conversion our product can create. Later, the affiliates themselves needed to use our tool and make the changes to the conversion funnels themselves.
With every sale, our confidence in the product grew, as our customers kept telling us how brilliant our product was.
M&A Came Knocking
Some M&A offers are bullshit offers (see “Bullshit Offers” as best described by Justin Kan) and we got some of those. But on August 2014 we got a real M&A offer from one of Silicon Valley’s most valuable private companies.
It started as an intro request from one of our shareholders. The acquirer wanted to open a new R&D center in Tel Aviv and establish their presence in Israel. They looked for an acquisition targets with a strong engineering team and founders with a solid network. Although it may sound like acqui-hire, they had a goal in mind for our proxy-engine inside their platform. Over the next two months we met their executives and professional teams over and over again. We thoroughly and deeply discussed our technology, our team and the founders’ background. During this time we, the founders revealed nothing to the rest of the team. We had a very open culture and it was very hard for me to keep it just to myself.However, I knew how demoralizing this processes could be if the deal will not go through. The acquirer wanted to interview our team but we insisted it will only be after the agreement is finalized.
During the due diligence phase, we needed to make our proxy engine support manipulation in a certain way that was important for the acquirer. Timing was crucial. It was Friday night and I needed the rest of the team to show up on Saturday to the office and make this work. I felt my leadership was on test and it’s the kind of thing I didn’t want to force people into. After giving it some thought, I sent an email on Friday night to the rest of the company that I’ll be tomorrow at the office and it’s important for us to make this work. I added that I would really appreciate whomever can join and help. The next morning everyone showed up to the office. We worked like crazy and like a great team, everything was deployed by the end of the day.
The acquirer offer was decent, however we had one big issue. They wanted to make the deal completely in stocks. Since they never acquired a company in Israel, they had no idea that’s impossible. In Israel you need to pay taxes when you receive a compensation of any form, stocks or cash. Since the acquirer was a private company there was no easy way to sell these stocks in order to pay the tax. It meant every shareholder would need to pay money out of pocket, which of course doesn’t make sense. For some angels that’s even impossible from a liquidity perspective. We needed around 30% of the deal to be in cash. They had some willingness to pay in cash but we never got to the point needed to cover the tax. We worked with our lawyers and accountants to see if it’s possible to defer the tax payment to a later point in time, for example when shareholders will sell these stocks. While there was some room for manipulation, the gap was still too wide. After almost three months, we decided to kill the deal. It was going nowhere and had severe effect on the company.
It was time to put aside all these virtual millions and move on. It was easier than I expected. I actually felt relieved. Maybe because there were so many thing waiting to happen which the M&A process delayed.
Something Is Not Working Right
The company was doing great, or at least it appeared that way. We were making tens of thousands of dollars each month and we were on boarding new customers.
The funnel went like this: we sold convertiFIRE to top level executives in a company and they connected us to a team inside their company that would start using convertiFIRE. We asked the campaign managers in these firms to send us the campaigns they’re currently running and we optimized these campaigns for them using convertiFIRE. We optimized the campaigns for them in order to show how much they could gain before letting them do this by themselves. We almost always got good results. Sometimes a 10% lift in conversion and sometimes as high as 35%. We then passed the baton to them but it almost always went south. They would just stop using convertiFIRE, which was very strange since we just proved them they could make more money out of every campaign. While trying to understand why, we did the following: we asked these companies to send us another batch of campaigns to optimize for them. We got some really disturbing answers, usually something like “We’ll do that next week/month”. It was too much of a hassle for them to change their processes and workflows. They had a way for creating, deploying and managing campaigns. It was just too hard to make them change it. Even when the campaign managers were compensated according to their results and got better compensation when using convertiFIRE, it was still too hard to make them use it. They didn’t initially run it across all of their campaigns, so it did not affect their compensation bottom line strongly enough. People just rather do their job the way they know. We couldn’t find a way to make them use converiFIRE in their daily routine. After almost a year, we had a good view of our churn rate and the results of our efforts to improve it. It took some time for this cohort analysis since none of our customers stayed less than 3 months.
On February 2015 I was on a snowboarding vacation and got a call from my co-founder Oren. “Listen, the numbers don’t lie, we need to make some critical decisions”. He was right. We just couldn’t find a way to make this work. To make our decision even harder, we had already signed a term-sheet with a New York based VC. In theory, we could have taken the investment, pretend we are working on convertiFIRE for three months and then pivot. But it is something you just don’t do. I recently watched the third season of Silicon Valley, where Richard needed to make a shockingly similar decision. I was very amused. We decided there is no reason to continue working on convertiFIRE and we had a plan on how to pivot. We presented it to the above VC and they decided not to proceed with the investment. That was understandable.
Extending the Runway
We had a plan for another product we wanted to build on top of our platform. It was very different from what we did so far but the underlying tech was there. Unfortunately, we only had about 3 months left of runway with the current burn rate. We needed about 2 months to build the initial version of the product. It was very clear it will not make any revenues on its first year and we will need to gain a substantial user base for our next round of funding.
It was time to let people go which was very, very painful. We had put a tremendous effort to build the best team we could. It’s not only about bringing the best people, it is also about making them feel at home, making sure they build themselves professionally and the culture we cultivated. We decided to let go of our entire engineering team. The only reason was that both me and my co-founder are pretty good coders. We could pull it off until we’ll be able to re-build the team. We let go of our sales guy. We just didn’t need sales for the new product. We decided to keep our Head of Product, Yuval, since we felt that under no circumstances we could make up for his skills. In addition, he also posses the founder personality, he does what needs to be done regardless of the job description. We also decided to keep our newly hired marketing expert, Natalie. She was really an all around player, from SEO to video production to account management. She can really master anything you throw at her and that was priceless for our new team of four.
We needed to let people go. It was not their fault, they had done a superb job. We decided to make it in the best possible way we could. I asked everyone I had to fire to prepare a list of the top 3 places they wanted to work for and promised to get them there. For the engineering team it was an easy task. Some also just decided they could use the break and went traveling. I told them that by the time they’ll get back they’ll have a re-hire offer waiting for them. For our sales guy it was less trivial since there is naturally less demand. I suggested my good friends at Playbuzz and it turned out to be a great success. He is still there and really flourishing.
It was time to rebuild our company again from the ground up and with fewer resources.
This is the second post in the series. To read the third post - click here.
