David Hauser is a serial entrepreneur. He is best known for being the co-founder and CEO of Grasshopper, a virtual telephone service that was acquired by Citrix for $176 million that he bootstrapped without outside investors. The first company he co-founded at 17 was Return Path which raised $120 million and was acquired by Validity for an undisclosed amount. David has also co-founded a number of other startups including Chargify, Spreadable, PopSurvey, or Deck Foundry.
In this episode you will learn:
- The credit card that got them through the finish line
- What to use your small business credit card points for
- Why they fired almost 50% of their staff in a single day
- Defining going above and beyond in customer service
- The one thing that got them a nine-figure acquisition offer from Citrix
- The two things to do when you sell your business
- The 100% remote startup David sold just a year after Grasshopper
- The nut butter driving his newest startup, SuperFat
- Where to get Daves new book – Unstoppable
For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million (see it here).
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About David Hauser:
In 1999, Hauser first co-founded an e-mail performance management company, Return Path to improve the content, reach and delivery of permission-based e-mail programs.
During his time at Babson College, he met Siamak Taghaddos and they planned to start a virtual telephone service.
In February 2003, they launched GotVMail Communications, which gave customers a toll-free or local number to use for incoming calls. They later rebranded GotVMail to Grasshopper to empower entrepreneurs to succeed.
In 2015, Grasshopper was acquired by the Citrix Systems of California for $165 million in cash and $8.6 million in stock. He also authored the chapter Student Entrepreneur Giving Back about his experience in launching GotVMail.
Most recently he launched SuperFat, where they empower change with fat via nut butter.
He is the author of the book Unstoppable. The book provides a framework for finding your own way to optimal health. The books goal is to help people in being healthier, sleep better, fuel what the body needs, and find the optimal intersection of performance and joy in life.
David received a Bachelor of Science degree in Business Administration from Babson College in 2004.
Connect with David Hauser:
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FULL TRANSCRIPTION OF THE INTERVIEW:
Alejandro: Alrighty. Hello everyone and welcome to the DealMakers show. Today, we’re going to be speaking with a guest that has scaled companies from nothing to something meaningful; also, some exits, money raised, books, I mean everything. You name it. So, without further ado, David Hauser, welcome to the DealMakers show today.
David Hauser: Thanks for having me.
Alejandro: Let’s do a little bit walk through memory lane. First and foremost, before you go into your studies or into what you studied at Babson and that experience, where were you born and raised?
David Hauser: I was born in New York, the Manhattan, The Village, Chelsea area. I went to school on 13th Street, and I went to high school in Brooklyn.
Alejandro: Wow. You’re one of a kind because I’m here in New York for the past 12 years, and it’s hard to come across a New Yorker. It’s unbelievable.
David Hauser: Yeah. It’s changed a little bit. A lot of people end up leaving, but I still have family and a lot of friends there.
Alejandro: Got it. This is like a really big United Nations. It’s amazing. Cool. So, you went to Babson, and Babson is pretty much an entrepreneurial-driven university. How was it like for you there?
David Hauser: It was awesome. It was literally the only school I wanted to go to. I knew I was going to be an entrepreneur. It’s all I did. I thought about it before high school, and obviously, during high school. Obviously, I applied to other schools, but Babson was by far my first choice and really the only one I wanted to go to. For whatever reason, they accepted me. It was a great experience.
Alejandro: Why did you always know that you were going to be an entrepreneur. What was that moment in your life that you got that feeling?
David Hauser: As far back as I can remember, it was just always like that. My father and grandfather were both entrepreneurs. My mom, although not an entrepreneur ended up running a school, so I think it was a very similar type of path. She didn’t own the school. She just ran it. Most importantly, when I was young, I had a severe learning disability; struggled reading, writing. Spent a lot of time in tutoring and learning how to learn. But what came from that was a real love for building things, and the easiest way to accomplish building things was also selling them. I can remember back before high school having a Mac in the school had File Maker Pro on it. Building the cards, you could go from next to next. Little databases and stuff. I did stuff like that. Also, just selling jewelry. Whatever it was I could do, I tried to do because other things came far more difficult for me.
Alejandro: Really interesting. There are so many founders that have these types of challenges when it comes to reading or to writing. Without going too far, I had that same issue where the professors called my mom one day, and they said that I had the same capabilities as a chimpanzee when it came to writing and reading. So, there you go. David, let me ask you this because you never took a corporate job. Is that right?
David Hauser: That’s right. Yeah. I did side stuff here and there. I tried to work in some startups like helping out even in internships, but I never had a typical corporate job.
Alejandro: And in fact, before you went to Babson, you actually went at it with Return Path. What was that experience for you?
David Hauser: Yeah. A good friend of mine, I literally called up James. I remember this day quite clearly when I was in high school, probably sophomore year. So, I was pretty young. I was starting to do stuff online on the internet. I found a website that he was running, and I liked what they were doing. I called them up and said, “Can I come in and work for you guys?” He said, “Sure. Come into the office.” I went to the office. He was like, “Oh, my gosh. I didn’t realize you were so young.” I guess I had a deep enough voice on the phone that he thought I was older. That was the start of that journey. Spent some time there. Saw a lot of the things that were happening at 55 Broad Street in New York, which was like the internet hub at the time. This was before 2000. Then got involved with him doing Return Path. We built the original prototype, raised some money, brought in a management team, and then I went to college.
Alejandro: What was essentially the business model of Return Path?
David Hauser: The initial business model was quite simple, which was people change their email address for a few core reasons. They change their job. They leave school, or at the time they change ISPs. So, now, it doesn’t really exist as much because someone has a Gmail account. But before, you got your email account from your internet provider. It was a little different. When an email address changed and a company, the only way of them getting in contact, you would lose email addresses quite valuable if we could correct that and give them the new email address. We developed a number of ways to do that. I think it’s quite an interesting model. Return Path has done tremendously more than that now on all sorts of other things on email management space. But that was the original concept.
Alejandro: And here we are talking about a company that has raised over 120 million and was acquired by Validity. Why did you decide to leave this rocket ship and go back to study?
David Hauser: It was a really hard decision, actually. I have to credit my mom here. She said, “David, you are going to college.” And was quite adamant about it. She gave some valid arguments like “What happens if there’s an internet crash?” She was adherent about that. “What happens if this doesn’t work out, and then you don’t have an education.” I went to Babson because of that. It was clearly the right choice. I could have probably lasted for a few years, but I would not have matured enough, and I wouldn’t have had that base of knowledge. Babson, although specialized in entrepreneurship, also taught a lot of the base stuff like how to read and develop a PnL. How to do people management and operations. All the things that become quite important as you scale a company.
Alejandro: it’s interesting because I come across a lot of people that have come from Babson and I would say the experience or the way that they look at things. They’re kind of ready to get out there and build something. There are a lot of universities that tell that they’re very entrepreneurial, but it seems that Babson is the real deal. What sets them apart?
David Hauser: I think Babson focuses a lot on actual experience. While they teach the stuff in the classroom, they also push very heavily on experience. First year at Babson, there’s a course. I’m pretty sure it’s still called the same thing, FME where you are running a business for the full year. It’s a team that stays together for the full year. You develop a business plan. You actually sell product. You have to do the PnLs. You have to do everything across the board. That experience, I think, starts to build the foundation of actually doing things rather than just talking about things.
Alejandro: Very interesting. Then once you graduated, you did a bunch of projects before you actually landed, and you went at it full-time with Grasshopper which is one of the big full cycle stories that you’ve done. Before diving into that one, why don’t you walk us through all these projects that you did like WebAds, PackageFox, or PopSurvey? What were those, and what were the takeaways, and outcomes of them?
David Hauser: WebAbs was quite simple. We were doing banner rotation like display ads and allowing other people to put this on their website. This was the early, early days. It was quite simple, and we built up a reasonably-sized good business. For someone in high school generating a few thousand bucks a month at least in profit, and we didn’t have to do very much. But more importantly, it really taught me a lot about how the internet worked. How you could develop businesses online. From there, did a bunch of other things including web design and some stuff like that before starting to dig deep into marketing and starting to understand how can I market something that is online. This is before AdWords. This is very early. That base really allowed me to learn a tremendous amount, and then discover things like, “When I’m doing these businesses, I need a phone number that is professional, and it’s not my cellphone or my house phone.” That’s where the genesis for Grasshopper came from, like just from a genuine need of needing this for myself.
Alejandro: Got it. So, let’s talk about Grasshopper. You did all these different projects. You did, as well, Return Path. I guess all of them gave you the ability as to what this journey of being an entrepreneur looked like. Once you get that block, it’s very hard to really do something else. What was that day when you said, “I’m going to go at this. I’m going to make it happen.” What was the incubation until you went to that point?
David Hauser: I was at Babson College at this point. A friend of mine said, “You should meet Siamak who is now my business partner in everything that we do. You guys are thinking about the same stuff. You don’t know each other, but you should know each other. We met, and we’re like, “Wow. We are thinking about the same stuff. Let’s do this together.” The concept was simple. We didn’t have any complex agreements. We did everything “wrong.” But we did build a business plan, and then we just went out and started selling. We built the absolute minimum we had to, and then just started selling the product to real customers to generate revenue and real feedback. To the extreme, we’re like we had no way of getting into the back-end of the system to see customers. Someone called up on the customer service line, and I’m typing Select * from customer in the SQL database really to the extreme because we focused 100% on anything that we needed to sell to a customer. We just built the business slowly, but surely, and started to see great initial traction meaning for every customer we added they were referring another customer. At that time, 50% of our customers were coming from word-of-mouth. At scale, that scale back more to 30%, but it was always a very consistent pattern that we were delivering a service that people cared about and needed. We were willing to pay for and tell people about, and that made us understand that this was something that was interesting.
Alejandro: What were you selling when you didn’t have anything?
David Hauser: We were selling literally just a phone number with voice mail in essence. There was some easy routing like Press 1 for this, 2 for this, but nothing complex. We were charging for the ability to log in online to listen to your voicemails. We’re talking a long time ago. 2003. This was very acceptable but also allowed us to sell to people that we didn’t have to build this for. So, it gave some flexibility in those early days.
Alejandro: A lot of people are like, “Let’s build this amazing thing. Things are going to happen, and people are going to come to use it.” You guys actually got it right which is “Let’s just sell it first, and then let’s actually build it.” How would you say that process of selling and listening to your customers helped, and really shaping up what ended up being the business model of the business?
David Hauser: I think there were two learnings. 1) We did every job ourselves from day one. We didn’t hire customer service until we did customer service. We didn’t hire programmers or designers until we did the programming and the designs. Every single job as we scaled, we did first which meant it put us very close to customers. 2) Filtering everything by what people were willing to pay for and then generalizing that feedback. An individual customer might pay for something, but I want to know what a group of people will pay for. Not what people want or say they want, but what they’ll pay for. That’s the right filter, and I think that helped us throughout the life of the business even when we were scaling it. But when I look at the early days and say like, “What did we get right, and what did we get wrong?” Clearly selling first, but I think that continued through the life of the business where the software got much better. We had better people. We had better designers, better programmers, all this stuff. However, the software was never the forefront or the first thing to be thought of. We added text messaging three years after our competitors because customers did not want to pay for that feature. They might say they want it, but it was not a feature that either made them buy or pay for, so it wasn’t a priority. I always think of it like this: the software was good enough, but it was never amazing because it didn’t need to be amazing.
Alejandro: When you actually brought that into the mix, were you surveying your customers and you know that the time was right to put it out at that point, but how did you come to the conclusion that it was that timing?
David Hauser: We did the analysis on the customers through surveys and other tools to find what would that line of business be if we added it at a monthly cost? When it started to get to half a million, million-dollar-a-year line of business, now it’s something you pay attention to. We’re doing 25 million dollars, adding a million dollars is meaningful. I think that’s how you filter those things. Or, if you look at what we get someone to buy. Is it a feature that is a yes/no to the buying decision early on in the process? I think text messaging became more so that as we got closer to adding it, the same way that we started with toll-free phone numbers like 800, 888. Over the years, we started adding local phone numbers as that became more and more important for our customers.
Alejandro: Right. I remember. I was one of your customers.
David Hauser: Oh, awesome!
Alejandro: There you go. So, let me ask you this. What made this co-founder relationship so magical? What were the strengths that you had; perhaps the weaknesses, and what were the strengths and weaknesses of Siamak that really combined the two of you and made something so great?
David Hauser: This is a great question. I’ve thought about it a lot, and I’m sure if you ask me five or ten years ago, the answer would be different. We’ve now done multiple things together and had great success. I don’t think either one of us would work on something without the other. I try to frame it like this. What did Siamak teach me that I would not have been able to learn on my own? Because I think that answers the question of what’s complementary and where are the gaps.
David Hauser: What Siamak has taught me is that design, brand, and experience matter a lot. My natural reaction is “Let’s just look at the numbers. None of this other stuff matters.” He has shown me over the years that those things do matter and do have a real value at the time of sale of a business or we’re valuing business. That has been very valuable for me. So, I think his strengths are definitely there where I would tend to backburner that or not do it.
Alejandro: Because you had an engineering background as well. Was he more like the business-type approach and you were at the beginning, more like the engineering approach, or how did you guys balance that?
David Hauser: I think we balanced the business stuff pretty evenly because we both went to Babson. I definitely built the original software, and he did the original design and marketing. Over the years, that shifted a little bit because more of the marketing actually became metrics-driven than not, but the piece that got pulled in there was at least 10% of spend was always spent on brand and experiments. That, to me, was very valuable. I would not have probably done that on my own; but today, I see the value of that, and I would never do it without that.
Alejandro: So, as you’re thinking about metrics and being able to value or to measure the health and the success of the business, how were you thinking about KPIs then and perhaps what made you think the way you think about KPIs today?
David Hauser: We were a very metrics-driven organization, highly reliant on A/B testing and really looking at real data to make decisions even on the marketing side. One of the biggest learnings I found from a metrics perspective was understanding the difference between leading indicators and lagging indicators. A lagging indicator is something like revenue. While important and something to pay attention to, you can’t really take action on it. It is a result that happens because of a set of things. “Okay. This month was a million dollars of revenue. That’s great. What could I have done differently?” doesn’t answer that question where maybe a number of new customers in a 15-day window, that’s a much more leading indicator? Why do I not have enough here, and that leads to revenue. I think that shift was very important, so we moved all of our metrics to things like that. Then on a longer-term perspective looked at revenue and typical metrics on a yearly basis compared with what are the actionable metrics we work on today.
Alejandro: Then one of the things that comes to mind is you guys actually built this over the course of 12 years. I always say to founders that you need to build things like starting from the store, and then eventually that grows into becoming the mall, but not the other way around because then you don’t have the building blocks of the structure. For you guys, when you’re thinking from the business model perspective, what was that business model in 2003 versus 2015?
David Hauser: The business model was exactly the same. It was charge people a monthly fee for the set of features they need. Have some add-on features. The add-on features themselves changed over time, and then charge people for the minutes used just like a cell phone. The business model stayed the same, and I think the power of that was from day one, we made sure those metrics were profitable. We never expected to sell the business; however, the funny thing is, building a highly-profitable, scalable business that can support itself with a management team and full staff is a highly-attractive acquisition target. It’s like we’re in these days when people are like, “That’s not the way we think.” But it makes a lot of sense. In essence, we’re saying “A well-run business is something that people want to buy. Of course.
Alejandro: 100%. And you know, people get really lost now in raising money. Look. Raising money is a stepping stone. It’s not a milestone. I think that the milestone needs to be, “Are you profitable? Are you making money? Is this a business that makes sense?” I think that people are really getting lost nowadays with all this raising money bit.
David Hauser: I think it’s hard because we see these companies going public that are losing a billion dollars a year or more. It is hard to understand that those are the true exceptions to the rule. People strive towards that, and it’s not a good thing to strive towards. There are very few if any companies that makes sense for. I think in the long run if we look back over history, very few of those companies continue to exist. I think Facebook is one of the ones that was a little bit different. They were starting to make money, but they also had a clear path. I compare that to Uber where there’s not a clear path like, “Oh, right now, we’re giving all rides away for free, so we’re going to start charging for rides. Right now, they’re subsidizing rides to get people to use the platform, and I would quite easily say if they stopped subsidizing rides, people don’t use the platform. It’s not exactly the same. I think it’s just a wrong thing to be looking at, and that’s what gets celebrated. Billion-dollars-this on the stock market.
Alejandro: 100%. The question here is how did you guys capitalize the business then?
David Hauser: We were 100% bootstrapped from day one until we sold. We capitalized the business internally based on cash flows, credit cards, American Express gave us a lot of very attractive terms over the years, probably when they shouldn’t have. It’s all personally guaranteed, but still, they extended quite a lot of credit. Towards the later years, we did utilize some debt financing mechanisms that were well modeled out, and the key to me there was we only looked at debt for pure marketing growth channels meaning like in the last year before we sold, we had to put 12 million dollars into radio advertising. I knew what the returns were. I knew what the metrics were, but I wasn’t using debt financing to hire a staff on some bet on a new thing that people might pay for. I was using debt in the later years for “Put a dollar into the machine and get two dollars out on the other end.” Which is a very safe bet.
Alejandro: Let’s talk about the credit card because you were talking about American Express and the attractive terms. It’s actually quite scary because once you fall, you can’t stop with a credit card. How was that experience for you guys?
David Hauser: It gave us a few advantages. One was just time. If a vendor billed us and gave us net 30 terms, and then we negotiated with them to then pay on a credit card, we were, in essence, getting net 60 to net 90 depending on the timing of the credit card bills which meant at that point, we had a positive cash cycle because we were collecting money from our customers at a much faster rate than that. That allowed us to extend our runway. Now, it’s quite scary when there’s credit card bills that are a million dollars that are personally guaranteed, and you don’t have enough cash to meet payroll, or something else is happening internally. So, it’s hard to manage sometimes, but I think the advantages are there. Then, obviously, the extra bonus with American Express and a lot of cards now are the points. That allowed us to use that for travel and other things that we might have paid for, so we used the points as intelligently as we could.
Alejandro: Bootstrapping is without a doubt, a little bit scary because you can’t go as fast, and then also, you’ve got to be very careful with how you’re managing cash flow, and things like that. I guess one of the things that comes to mind now is you and I, David, know that basically, the journey of being a founder and building a business from the ground up is a tough journey. You have real highs, and you have real lows. Thinking about the lows, and especially with a bootstrapped operation like this one, what was one dark moment that you remember where there was a really good breakthrough coming out of it?
David Hauser: I think there are probably two, but the biggest one that I’d say had the best long-term impact once we got over it was, we were in an executive planning meeting. We got a business coach. We decided that the company was at a big enough stage 15 million dollars, 40 people or so. We didn’t realize at the time, but that was too many people for what we actually needed. We had no core values that had been written down and spoken; no core purpose. We developed those and quickly realized that half the staff did not meet our core values. That’s a tremendously scary moment. Like, “We’ve hired the wrong people, and that’s why we have that feeling when we walk into the office like, “That person just doesn’t fit. I don’t like being around them. Those kinds of “feelings” that we get. It was this crystallization moment when we could see what that meant when we had these values like, “This person does not meet this, this, this, and this.” And those are our values. We talked about it that evening, and the next day, we fired 15 people. Now, it was probably both the worst and the best decision. The worst decision doing all 15 people in one day right after this planning meeting created this culture of like, “Oh, my gosh. They’re going into a planning meeting. The whole staff’s going to get fired tomorrow.” There were some clear negatives from our implementation of this, but it was the right thing for the business. It transformed our culture. It took us from being highly unproductive to highly productive. The right people and the right seats for the right reasons. That took about a 12-month period, but ultimately what we gained from it, obviously having the core values and core purpose clearly defined and integrated into everything we do from hiring to firing to rewards and recognition both public and private. A very productive organization that was doing $500,000 revenue per employee when the metric of good SaaS businesses was like $150,000 to $200,000.
Alejandro: What were some of those values, David?
David Hauser: The values at Grasshopper spelled out Gary. Go above and beyond. Always entrepreneurial. Radically passionate in your team. Each of those values had a small sentence underneath it that gave a little bit deeper explanation. Then most importantly there were stories surrounding all of those values, so we created a culture and a lure of stories within the company so someone could say, “I caught David going above and beyond when he picked up the call at 3:00 in the morning and spent three hours on the phone with a customer, and it wasn’t even our fault.” Those types of stories. Then we also defined our core purpose of empowering entrepreneurs to succeed which was the why. “Why are we here every day? Why do we do this? Yes, it’s great to make money, and yes, it’s interesting to build a business, but why are we serving these customers?” So, we identified with entrepreneurs and making it very clear what we were doing, which was giving them the tools to be successful.
Alejandro: I love that. I think it’s all about the why. I find that many founders, unfortunately, get lost with the how. That’s where trouble can come to light. One thing that happened definitely at one point is Citrix knocked on your door, and you guys ended up doing an acquisition there. Tell us about that process. How did it happen?
David Hauser: It was a year, year-and-a-half process. It was quite an interesting one because like I said we had no interest in selling at all. We didn’t even have an “exit” plan or exit strategy. We were just building a business that we loved being at, and we loved the customers we worked with and doing something we thought was valuable. So, Citrix came to us. They had asked, “Tell us what you guys are doing, and maybe there’s some cross-sell and upsell opportunities. Let’s talk about those.” It quickly turned into “Could we have a conversation about acquisition?” Our answer was just quite clearly no on a number of occasions throughout that process. One of the answers was, “Look. We know very clearly what we’re going to do over the next six months, and we’ve had 15 or 20 quarters of hitting or meeting our goals. So, we believe very firmly over these next six months this is what we’re going to do. So, there’s not a lot of sense in having the conversation right now.” They said, “Okay.” They came back after that period, and they said, “How’s it going?” We said, “Look. We’ve beat all the stuff we thought we were going to do.” They’re like, “Wow. We’ve done 50 acquisitions. We talked to a lot of companies, and no one has ever actually met their goals they told us they were going to do when we came back to them.” We’re like, “Look. That’s just the culture that we created.” From there, talks kind of continued, and it became very clear that it was a good fit. Citrix would keep the brand of Grasshopper. We had a lot of conversations about how the team would be treated, and what it would look like, and how it would be run. Then, obviously, from a value standpoint as an entrepreneur, I think they were paying an above-market premium for what they wanted which makes it something an entrepreneur has to consider.
Alejandro: Of course. I guess when you were saying that the process was a little bit longer, not like a few months or so. I guess when it started, was it because of a partnership that you guys were developing, or did they reach out, called, emailed, to learn more about your business, or how did it happen?
David Hauser: Yeah, the original outreach came via a person I knew that his company had been acquired by Citrix. So, he was helping them out in this process. It was someone I knew had reached out and said, “You should have a conversation with these folks at Citrix. That was the initial contact. Then it just progressed over time.
Alejandro: Then were you shifting from one department to maybe Corp Dev, or what happened there?
David Hauser: Yeah, it was Corp Dev the whole time.
Alejandro: Got it. So, let’s talk about the last day. That day, you’re sitting down. You have the agreement right in front of you. You’re ready to pull out the pen and sign that. So, what happened, and what was going through your mind immediately before that actually happened?
David Hauser: This was a difficult day, and difficult because it’s tremendously emotional when your identity is tied up in being the Grasshopper guy for 12 years. That’s how my family knows me, contacts, friends, like everyone. We were not staying around. It was a very fast change. On one hand, there’s some crazy logistical questions like, “Where do you deposit such money? What do you do?” There’s some logistical stuff that happens. But the much more emotional part is “I’m no longer that person.” So, I lost my identity overnight which was a very challenging thing. But, luckily, I had spoken to a number of people who had gone through similar transitions, and they gave me a lot of advice in what to do and what to think about.
Alejandro: I’m so glad that you touched on this because in many instanceslook. I’ve been through it as well. You tend to identify yourself as the entrepreneur, as the company, and you think that you are the company.
David Hauser: Yes.
Alejandro: What process did you go through in order to be able to detach yourself and your identity from the company?
David Hauser: The first logistical thing was like literally changing my email address and domain name on all my accounts. That took many days of effort. But pulling myself away from that and having to find what my identity would be. Am I an investor? Am I an entrepreneur? Am I both? Asking those questions. The piece of advice I heard again and again from people was first, don’t rush into anything. Your natural reaction as an entrepreneur is to just go do another thing. If it’s, start another business. If it’s, buy something. Whatever it is, don’t do any of that. Just slow down even if it feels uncomfortable. Then, two, start to really think about and test to find what is most impactful to you. Everyone can talk about what you “should” do, but find what is actually interesting and makes you happy. In that process, I spent a year, year and a half testing out different things to see what it was I wanted to do.
Alejandro: What were the terms of the acquisition, David?
David Hauser: The acquisition was all up front, the small escrow over time, but my business partner and I left immediately. The executive team stayed and had incentive to stay for two years to run the business, but very attractive terms that worked well for everyone.
Alejandro: Got it, and I believe it was reported as 176 million. Not bad without raising any money, David. Is there anything that you were hoping to buy one day that you were finally able to buy after the transaction?
David Hauser: I wish I had a fun story like that. To be quite honest, both my business partner and I lived in nice houses that we liked. They weren’t cheap houses; they also weren’t tremendously expensive houses. So, I live in the same type of a house. I happened to have moved. I own the same car since 2011. I bought a new car for the family, but other than that, everything stayed roughly the same. Maybe I’d better come up with a better story.
Alejandro: Really cool. Let’s talk about Chargify. Chargify was the spin out of this. Tell us the story behind it.
David Hauser: Inside of Grasshopper, there were two challenges. One as two entrepreneurs over the years we started to get bored, and we were like, “Let’s start building new things. What can we do?” Then we started creating this kind of false story inside of Grasshopper. It’s a very natural one that happens I think in a lot of companies as they scale. Every time you hit these revenue plateaus. Like 5 million dollar, 10 million dollars, 20 million dollars, and then maybe 30, 40 before you get to that 50 mark which is “Maybe we’ve saturated the market. Maybe we can’t grow as fast as we were growing. Maybe this is now a shrinking market.” So, every year we told ourselves this story, so we became distracted and started building what we called Grasshopper Labs within Grasshopper. That was to build these other companies. The idea was like, “Well, we’re smart entrepreneurs. Right? We’ve done one thing that’s relatively successful. We can just repeat it.” Which is just crazy. There’s a lot that has to do with timing and team and all sorts of other factors. A) It’s not repeatable. B) The things we were building were solving problems for our type of company which meant high growth over 10 million dollars. There are very few of those customers in the world. So, we were very good at doing primary demand generation for very small customers, one to ten employee customers, that there were hundreds of thousands of new ones a month. Then we shifted into this new market of like again, solving our own problems which is the right way to build something, but we had no idea how to market it. We didn’t have the right sales teams. We didn’t do anything right. However, Chargify did come out of that, and I think it was successful because we had built our internal billing system three different times ourselves, so had learned a lot about what it means to build a flexible billing system for recurring payments with varying degrees of complexity and variables. We built that for other people, sold it as a software as a service. The market identified with it, and the business has been pretty successful.
Alejandro: What ended up being the outcome of Chargify?
David Hauser: Chargify, we built as a 100% remote team. Great team. Did it over a number of years. About a year after Grasshopper was sold, we sold Chargify in a separate transaction to Scaleworks, a fund that I invested in who buys software as a service businesses like that. They’ve done a great job of scaling it further from where we were. They put in place the sales team that we weren’t experts in doing and stuff like that. Now, they’ve increased growth pretty substantially now.
Alejandro: That’s amazing. So, now, SuperFat. What’s going on with SuperFat?
David Hauser: SuperFat is a new business I’ve gotten involved with. This is a consumer packaged good. It’s an on-the-go nut-butter-based product. Little kind of squeeze pack. High fat, low carb. Primarily macadamia nuts. One of the best profile’s kind of fats for nuts. This really came out of I’ve been eating this way for a long time. I just love these products. I’ve invested in a few of them. This team is a great team, so we got heavily involved. Now, one of our previous employees at Grasshopper, Mike, is now running this business and is a co-founder. So, it is quite exciting, and a totally new industry and something to learn.
Alejandro: You know what? One thing that I thought was really cool, something that you have coming up is your book, Unstoppable. I think that up until now, we’ve all been as founders like all about the Ramen when you start, and doing weeks and weeksI remember when I started the last company, I was not coming out of the house for two weeks in a row. It was insane. I did not see the light of the day. So, as founders at the beginning, we don’t really take care of ourselves, and I know that this book is about hacking your health. What are those steps that you talk about in this book about transforming your life? For the people that listening, this book is coming out in September 2019. Tell us about this.
David Hauser: Unstoppable is really the culmination of one, taking a simple, continuous improvement framework. The same thing you would do in marketing, testing. Identifying what the issues are, creating hypothesis, testing it, measuring it, and then putting that back into the loop again and again. But most importantly what happened was I was doing this in my business every day. I was optimizing everything for profit, for revenue, for customers. Optimizing everything. Running it all by numbers and data and real tests. Then in my life and health, just ignoring it all. So, finally making the mindset transition to say, “What I’m doing in my business is tremendously valuable in my life, and I just have to start applying it. So, one, it’s a simple framework. Two, it’s setting that mindset and understanding that optimization in life, body, and mind is very positive and can create great changes in your business as well. Then walking through some of the conventional wisdom myths that we’ve been told like eat a low-fat diet. Like sugar is just a calorie. Counting calories into the calorie-balance myth. Red meat and cancer, it’s just crazy stuff. The myth about cholesterol, and setting the stage to say, “Maybe what we’ve been told as conventional health wisdom might be wrong.” This was really based in the fact that spending many years, ten-plus years being frustrated with the results of listening to conventional wisdom, I said, “You know what? Maybe either conventional wisdom is wrong, and we can discuss the science behind it and whatever and have an argument about it. Maybe it’s wrong. Or, more importantly, maybe it’s wrong for me.” So, if I’ve been frustrated with my weight and my health for 10 or 15 years, and I’ve extremely followed like to the absolute maximum extreme like running a marathon and doing half Ironman’s to burn more calories, and it’s not working, then if I open my mind up and say, “Maybe something else works for me.”
Alejandro: So, when you’re thinking about a body and a mind that is fully optimized like you were talking about, was there during your journey as a founder, looking back, there was a moment that was like the before. Like, let’s just think about plastic surgery. There’s the before and the after. What was the before David and the after David with a mind and a body that is fully optimized?
David Hauser: I don’t think we’re ever fully optimized, but I think we get to that kind of point where we’re like, now it’s all micro-optimization compared to big things. I think the most notable is I lost 40 pounds, so that’s clearly a visible, noticeable difference. Changed my sleep from going to bed quite late at night to now going to bed at 9:30 or so. Waking up very early without an alarm clock. Those are very noticeable changes that you see. Now, for me personally, the things that were these magical moments almost were like not feeling hungry anymore. I spent my whole life feeling hungry and thinking about food and being told that we should snack all the time, and creating this vicious cycle in my body, and now, not feeling hungry. That was that change of a magical moment internally. Or, another one: taking off my shirt in Yoga. I went from doing triathlons and marathons and being overweight while doing it even though burning a tremendous amount of calories to practicing Yoga six days a week. But it took me a year to feel comfortable enough, even though I had lost all the weight to take my shirt off in the class and practice without my shirt on, even though other people were doing that in the room. But it’s quite a challenge after dealing with that frustration and shame over that period of time.
Alejandro: I hear you. It’s interesting like really being conscious about how you’re taking care of yourself now. Unfortunately, many founders, they’re just like what people are coining as the Hustle Born. They’re thinking of more work, more work, more work. The problem is that if you don’t really take a step back and take care of yourself, you’re going to get burned, and then it’s going to be all for nothing. We only have one body, and we need to take care of it.
David Hauser: Yeah. I wish I’d listened to myself back then because I’m quite sure I would have been far more productive if I wasn’t working 100-hour weeks, and killing myself staying up all night, and doing those things. But it felt like one, I had to, and I think that’s a myth. That’s not true. And two, it felt like part of the culture. If you weren’t doing it, you weren’t good enough. Where today, I think very differently about that, that I want to have the most productive hours during my workday. That might extend into the evening. However, if I have the most productive hours, I need less hours.
Alejandro: Makes sense. David, let me ask you this because you’ve been through the blog quite a few times. I always ask this question to guests. If you had the opportunity to speak to your younger self, and you were able to give yourself one piece of business advice, what would that be and why?
David Hauser: If I was speaking to my younger self, outside of the health thing that I just spoke about like taking care of my own self rather than just prioritizing employee health, which I think is an interesting dichotomy where we know that healthy employees are more productive employeestaking care of myself. I’d say the one piece of advice, and the one thing that has created the most success in my life is just charging people for the things I produce. Like it is the most simple, basic, kind of core principle, but asking people to pay for something creates so many positive effects. It makes me care about it more. It makes them care about it more. It creates real feedback loops. Everything that comes from it is what I believe makes a great business.
Alejandro: Very interesting. One thing that I want to ask you is what does an effective feedback loop look like?
David Hauser: I think an effective feedback loop is one where the customer cares deeply about what you’re doing, and it clearly affects them or their business to fix a problem, change something, or whatever it is. Because the worst is the free customer, who gives lots of feedback. “I want this. It should do that.” And because it’s free, it has no effect on their business. They are not bought into it at all, so it’s the worst feedback to listen to compared to that paying customer. I want to know the answer to the question, “If I create this feature, will you pay me more or will you stay longer?”
Alejandro: Absolutely. Makes total sense. So, David, for the folks that are listening, what is the best way for them to reach out and say hi?
David Hauser: Unstoppablebook.com – There’s a signup there for mailing list, for early access to the books, and discounts, and some exclusive content that’s not available in the print version for September. Or davidhauser.com – I have a weekly email that goes out. Some quick bullet points about the things I’m thinking about, reading, or using. People always ask me, “What are the cool products?” I try to keep them relatively inexpensive. I’ve tested all sorts of things, but some of the most impactful things like the squatty potty in my bathroom is like $20. So, I try to share some of those things on a weekly basis.
Alejandro: Amazing. Well, David, thank you so much for being on the show today.
David Hauser: Thanks for having me.