In a new episode of the DealMakers podcast, Rand Fishkin shares the ups and downs of building a hyper growth startup. Rand also shares the process of raising capital and the journey of the business he created where he raised $30 Million from top tier investors which led him to become one of the biggest authorities in the SEO world.
In this episode you will learn:
- The journey of raising financing
- The ups and downs of building a hyper growth company
- How to deal with depression
- When to raise and when not to raise capital
- Finding yourself when things get tough
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.
The Ultimate Guide To Pitch Decks
Remember to unlock for free the pitch deck template that is being used by founders around the world to raise millions below.
About Rand Fishkin:
Rand Fishkin is the founder of SparkToro and was previously cofounder of Moz and Inbound.org. He’s dedicated his professional life to helping people do better marketing through the Whiteboard Friday video series, his blog, and his book, Lost and Founder: A Painfully Honest Field Guide to the Startup World.
When Rand’s not working, he’s most likely to be in the company of his partner in marriage and (mostly petty) crime, author Geraldine DeRuiter. If you feed him great pasta or great whisky, he’ll give you the cheat code to rank #1 on Google. Feel free to republish the photos below with credit back to this page.
Connect with Rand Fishkin:
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FULL TRANSCRIPTION OF THE INTERVIEW:
Intro music playing….
Female: Welcome back to the DealMakers Podcast Show with serial entrepreneur, Alejandro Cremades, bestselling aunnnnnnnthor of The Art of Startup Fundraising and cofounder at Panthera Advisors. In this podcast, we ask our guest about their successful acquisitions and financing rounds.
Alejandro: Alrightee. Well, hello, everyone, and welcome to the DealMakers Show. So today we have a really exciting guest, a guest that is probably one of the godfathers behind everything that is SEO related. I was actually very excited to have him on the conversation and yes, Rand Fishkin, welcome on board to the DealMakers Show.
Rand Fishkin: Thank you for having me, Alejandro.
Alejandro: You know it’s really awesome. I have a tremendous amount of respect for everything that you’ve done and most importantly, Rand, you’ve been always so open and so authentic, you know, on your blogpost and all of that. So very much appreciated that as I was growing myself and maturing as an entrepreneur. So how did you get really started with the entrepreneurial bug, Rand?
Rand Fishkin: Well, I think I sort of fell in to it by accident, to be honest. I dropped out of college way back in 2001 and started working with my mom, Julianne, who I know you’ve met. And she was running you know a marketing consultancy, helping small businesses with logos and letterheads and business cards and Yellow Page ads, all those kinds of things. And when I joined, a lot of her clients started needing websites and so I was doing a website design and building. And we struggled for a long time. We were in debt and losing money on the business and getting ourselves problematic clients who you know weren’t those paying or weren’t paying on time. We ended up needing to do some of our own subcontracting work so you know we had hired subcontractors to do things like SEO and we couldn’t afford to pay them and so I started learning SEO and doing it myself and as I got frustrated with that practice, I started a blog called SEO Moz and that eventually took off. So it was not an intentional entrepreneurial process. It was more of a, “Well, let’s try this. Well, let’s see if this can keep us afloat. Well, let’s see if I can learn this new skill. Let’s see if I can you know make this blog in to something.” Really, that was the process. Very accidental. And when it turned out that the blog attracted customers and then you know when the software we built started to become popular, then some investors reached out and said, “Hey, Rand, do you want to you know take this to a bigger scale and try to be a venture backed business.” And I was excited about that prospect and said yes, and that’s when, yeah, they basically asset. I become CEO and so then I went from kind of founder and web designer and blogger to also CEO and ran that company for seven years.
Alejandro: Got it.
Rand Fishkin: Not quite an entrepreneurial bug. Sort of a…
Alejandro: Kind of like a profit…
Rand Fishkin: Yeah, like a more of a convoluted story.
Alejandro: And what was the experience of working with your mother?
Rand Fishkin: It was good at times and challenging at times. I think you know that’s what I’ve heard from a lot of people who have worked with family.
Alejandro: Got it. Yeah, you know, funny, my last company which thank god, we were able to do an exit because that’s typically, there’s not really a high chances when you go on the hyper growth path. But I was very lucky. I mean I built my last business with my wife and that’s obviously a recipe that I don’t recommend doing at home, but for us, thank god, it worked out. So let me ask you, Rand, what was the business model with Moz?
Rand Fishkin: It’s funny you mentioned that, Alejandro. So actually I have talked to a ton of people who have done businesses with families and people who have done it with their partners are the ones who seemed to have the most success. It really tends to be like brothers and sisters and parents and children that have the hardest times.
Alejandro: Got it.
Rand Fishkin: Anyway…
Alejandro: I mean in my case, Rand, it was really amazing because we knew that no matter what, we had our best interests and we had each other’s back.
Rand Fishkin: Yeah.
Alejandro: And that was very special because the thing is that when you are especially doing the early days, everyday is really tough. I mean is it’s like 90% it’s full of fire. I mean every single day is full of fires when you are on a hyper growth you know kind of like level but yeah, it’s really good to have people like that behind the trenches with you.
Rand Fishkin: Yeah. I think that’s absolutely one of the best parts.
Alejandro: Yeah. So in your case, Rand, what was the business model with Moz? Because you were pointing to this, I mean it started as a blog and then all of a sudden became a business. So how did you manage to understand what was the best way to monetize?
Rand Fishkin: Again, at the time this was something very accidental that I didn’t understand and I think certainly now I’m a much more sophisticated entrepreneur and you know someone who has a lot more knowledge around this stuff, but the reality was that we were a consulting business and when the blog started to gain popularity, many people are reaching out to us specifically for SEO consulting which I was then doing in addition to sort of writing a blog and doing a web design for some of our historic clients.
Rand Fishkin: And then we had this software that we had built basically for our own internal use, you know, little tools for us to do, repetitive frustrating SEO tasks, you know, like grab page rank for a bunch of pages or go check rankings on a regular basis or crawl a website and check for errors or problems or you know missing tags or whatever it was. And these I think may be seven or eight little tools like this and I wanted to make them public. You know, as you mentioned at the start of the show, I like to be very transparent about everything. So I told Matt, our programmer, I said, “Hey, man, can we open these up. I want more people to be able to access them. I want everybody to be able to see this and I think it will attract more clients for us when they see the cool tools that we have and how we built them.” And Matt said, “No, we can’t open them up because our service won’t be able to handle it. It will be too expensive. It’s too much bandwidth.” And so I said, “Okay. Well, how about we put up a Paypal pay wall like you have to Paypal us $30. And if you do, then you get access to the tools.” And Matt said, “Fine. I’ll do it.” I think he did it over the holidays of 2006. He didn’t have a lot of work going on.
Rand Fishkin: And come early 2007, we launched the suite of tools and six months later, we have more or as much revenue from the subscription, you know, from these people paying us $30 a month, hundreds of them, as we do from all of our clients combined. And I think that’s when we went, “Oh, I think there’s a business in software subscriptions.”
Alejandro: That’s amazing. And how many users did you have at the time of visiting the blog or you said, “You know, maybe we should take a look at monetizing this”?
Rand Fishkin: Oh, monetizing the blog. You know, we tried a few times to monetize the blog from maybe ’05, you know, ’06, ’07 with ads. We put up like a few ads for you know various SEO services or whatever it was, and I think that never worked out well. It just wasn’t, it wasn’t enough money and the traffic to the site was okay at the time. I think it was a couple of thousand visits a day in ’05 and then in the scaling up to probably four or five thousand by ’07 which really helped of course once we launched the software tools. But yeah, monetizing the blog, the monetization was prior to the software subscription was just consulting leads.
Alejandro: Got it. You know, regardless, I’m glad that you guys found a business model because I have been a happy customer for years.
Rand Fishkin: Oh, that’s wonderful.
Alejandro: So that was pretty cool. So you mentioned earlier, Rand, that at one point you guys started receiving investors knocking on the door so I believe this is public but how much capital has the company raised so far?
Rand Fishkin: 1.1 million in 2007. I raised our big round in 2012, that was 18 million. And then after I stepped down as CEO, Sarah who was my chief operating officer that I promoted to the role, she in 2016 raised another 10. So total 29.1.
Alejandro: Got it. So I guess in the process, how did you see the fundraising process change as you were like maturing from like the 1 million to the 14 million? How did you see that changing?
Rand Fishkin: Yeah. So certainly, the 1 million came to us. You know, it was really, Michelle Goldberg and Kelly Smith from Curious Office, they reached out to us and said, “Hey, we think this is exciting and we think this can really be something. Do you want to take some money and try and grow this?” And I was a little nervous and caught off guard. I didn’t really understand the investment world at all. I actually I connected them up, right. I said, you know, rather than sort of playing one off the other and try to get a better deal, I said like, “Hey, Kelly, you should meet Michelle. Both of you are interested in funding this business. Maybe you guys can come to an agreement.” And that’s exactly what they did. They sort of came to me with a—well came to my mom and I with a really great offer. I thought it was very generous. I’ve written about it. So we had a $6 million pre-money evaluation which meant 7.1 [cause 10:23] which meant Ignition and Curious Office combined owned 14% of the company which was just awesome, right, for us, and that left us in a lot of control. When we raised the $18 million round in 2012, I had basically been pitching investors actively for four years, four, five years. So just going down, making tons of trips to Silicon Valley especially heavily in 2009 and then again in 2011 and in a meeting with investors in New York, in Boston, and trying the classic like, “Let me sell you my business,” and that did not work well. I never got a single offer from those kinds of folks. I think the only reason that we were able to raise that $18 million round is because—So Brad Feld at Foundry Group in Boulder, Colorado, actually his wife, Amy, had been reading my wife’s, Geraldine, blog and Geraldine had written about you know some of our trips to Silicon Valley and San Francisco and how I was meeting with investors. Amy passed that blogpost on to Brad and passed on another blogpost that I had written about the failed fundraising attempt. Brad read it. He loved it and he wrote a blogpost himself about it and said publicly in his blogpost, he said, “Hey, Rand, if there’s anything I can do to help, feel free to reach out.”
Alejandro: I love it.
Rand Fishkin: And so yeah, I got to meet Brad essentially through Geraldine, my wife.
Rand Fishkin: So yeah, and then we formed a relationship and I called him up in 2012 and said like, “Hey, I’m looking to try and raise money for this. And do you know anyone who would be a good match?” And he said, “I know a few companies but let me pitch you on why you should let Foundry invest.”
Alejandro: Right. Right. That’s amazing.
Rand Fishkin: And that worked out great.
Alejandro: And I guess during these experiences, was there, like how did you find the alignment with the valuation of the business? I mean was there any exercises or any market research or they just came with a term sheet or how was that?
Rand Fishkin: I mean it was somewhat easier because we were already making revenue. I think that it can be very tough to value a business that doesn’t have a revenue yet which is of course what I just did with Sparktoro but we can talk about that in a sec. Essentially, they looked at revenue multipliers based on—or growth rate and trajectory and said like, “Okay, here’s you know, lick your finger, put it in the air. Here’s a rough range and what’s comfortable for both parties.” And that worked out.
Alejandro: Got it. And I guess looking back, Rand, on those failed attempts really that you did going to San Francisco, because you know, every founder, at one point they’ll say, “I got to travel to San Francisco and see this, right.” I guess looking back, Rand, is there anything that you think you should have done differently and perhaps would have increased your chances?
Rand Fishkin: Oh my gosh, I mean I love Brad and Foundry and I think they’re some of the best venture investors in the world but I think I absolutely would have not—I would never have tried to raise money again after 2007 and I wouldn’t have raised our 2012 round.
Alejandro: Got it.
Rand Fishkin: Yeah, so I would do things very, very differently. I mean I think the whole book I wrote, Lost and Founder, is basically here’s all these things that I should have done differently.
Alejandro: Yup and we’ll get in to that in a bit. So I guess the next one here is you know when you received those checks and obviously especially during the early days, how aligned were you for example on valuation with let’s say your mother and the other folks that were part of that you know initial founding team? Was there like a minimum check that you guys were shooting for or…?
Rand Fishkin: No, I don’t think so really. I mean we basically looked at the deal that Ignition offered and said, “Honestly, this sounds great. Let’s do it.” The hardest conversation that we had was they wanted me to be CEO and well, I had been sort of running the SEO side of the business. Julianne had always been president in title and always managed sort of the finances and you know been the head of the company. So that was the tough, I think that was toughest part of the conversation.
Alejandro: Got it.
Rand Fishkin: With Foundry, they made us what I thought was a good offer. I countered and they came back and said yes to the counter and so yeah, that worked out well too.
Alejandro: Got it. I mean obviously when you bring in investors, the corporate structure changes quite a bit.
Rand Fishkin: Yeah.
Alejandro: At most, you’ve been the chairperson, so really building and leading you know boards is something that you have been quite experienced over these years. But I guess in terms of learning, what would you say have been your biggest learnings in building and leading boards?
Rand Fishkin: Gosh, I’m not a massive fan of the board structure, board of director structure.
Rand Fishkin: I think that to be quite honest I think that it is often better and healthier to have—so the German model actually is really, really smart, where essentially you have a board of directors and most boards have at least one to three people who are working on the business, so not on—they represent the employees and the team and they work at the company and they’re on the board of directors. I think that’s a really smart thing that almost no American company does and I think that’s to our detriment. I think you know one of the reasons why the American work experience is often so exploitative. I also am not sure that it’s the best thing in the world for a business to always be dominated in terms of control by its outside institutional investors. I mean I understand that from their perspective, right, they’re the money so they get to dictate the terms but I don’t think that that leads to the best outcomes or the healthiest priorities for the business itself in the macro.
Alejandro: Got it. Got it. And I guess say to close the loop here, Rand, and obviously you are a huge expert when it comes to SEO and in terms of trends for those that are listening to use because obviously there’s probably going to be a lot of founders that are really trying to figure out the organic growth of the business and definitely…
Rand Fishkin: Sure.
Alejandro: …. is a big one. So where do you see really the trends and things moving you know towards the future let’s say like next 5 to 10 years from an SEO perspective?
Rand Fishkin: Yeah, I mean I think Google has made it very clear that they are trying to do more and more on and in the search results themselves and sending less and less traffic through you know to other people’s websites. So I think a lot of the SEO over the next 5 to 10 years is going to be about controlling what people see in and on Google search results and sort of claiming opportunities for rich results of all kinds you know everything from what’s now called the featured snippets to the knowledge graph, you know, the advertisements, all these types of the image results, video results, etc. I think a lot of SEO is going to be concerned with that and there’s going to be—there will continue to be tremendous opportunity and I think plenty of focus in SEO on you know ranking highly and getting that number one organic position and you know trying to earn traffic through that but I think that that will be joined by this ON-SERP SEO process over the next few years.
Alejandro: Got it. Got it. I mean you worked for a quite a bit with Moz. That was 17 years.
Rand Fishkin: Yeah, that’s right.
Alejandro: Seventeen years of your life and professional career. I mean that’s really not the typical norm, you know. Now you see startup founders like being at it for you know three to five years, not even. I mean it’s really unbelievable. So I guess out of all these years, because 17 years could be like 100 years of corporate America and I know that we’re going to get in to the book in a little bit but what has been that lesson for you like that one lesson that you know for sure you’re going to keep very close [19:37] as you’re building Sparktoro which is your next business?
Rand Fishkin: I mean there’s so, so many. I think probably maybe the biggest one is that I’m going to—if ther’e sa traditional existing structure or a you know best practice or common path that sort of follows around how they do something, I’m always going to question that. I think that in a lot of ways you know Moz was an experience for me where I went through this very traditional kind of structure, right. So you know build a software business. Once it starts taking off, raise from venture capital. Try and grow it at extremely fast paced which is what we did for seven years at 100% year of year growth. Raise more money. Basically put yourself on a path where you need to have a massive exit in order to fulfil your investors’ demands and then I stepped down as CEO when I got depression in 2014.
Rand Fishkin: And yeah, I’m not sure that that was also the right move. Although yeah…
Alejandro: Got it.
Rand Fishkin: In a lot ways, I think I’ll just be questioning orthodoxy all across the board.
Alejandro: Got it. And you know it’s really interesting that you mentioned the depression subject. That was actually speaking about it with a founder today and you know at one point or another, you know, it really becomes very cloudy for founders. I mean it’s a really tough and challenging journey. So is there any recommendation that you will give to anyone that is right now at a probably dark and challenging period in their journey?
Rand Fishkin: Oh gosh, I mean so one of the things that’s very curious about depression is that you can be in a very dark part of your journey and not have you know mental or emotional issues around that and you can be in very good parts of your journey and it can strike you very badly so you know I mean I think depression will blow out of proportion anything that is actually going on. For example, you know, when I was going through this, Moz had slowed its growth rate from 100% year to year to like 55% which is still phenomenal, right. And we have tons of money left on the bank. We weren’t worried about layoffs at all. But I was panicked, right. I thought everything was falling apart, collapsing. I thought it was the end of the world for the business. Yeah, just dumb, right, you know. It will blow it out of proportion for you. So I think if you’re going through it, I mean a few things that I will definitely first off absolutely go and see a therapist. That is just hugely important. You should definitely probably talk to someone who prescribed medicine and kind of have those conversations as well. I would urge you to you know read up on some of the research around depression. It is not consistently escapable, meaning there’s no one path that works for everyone so it’s not that, “Oh well, if I listen to Rand and follow his advice, you know, I can get out of this.” That’s not the case. However, there are lots of habits and things that things that you can do that are correlated with people getting out of that mental state. One of those—a big one is getting lots of sleep. So literally eight and a half hours a night. You know getting yourself a Fitbit or something that tracks sleep and then you know if you have to dose yourself with Zquil 10 times in a row, do it, right. Get your eight and half hours if you possibly can and I would certainly try and you know recommend regular exercise regimen as well that is positively correlated with getting out of depression. And many folks feel like they cannot do these things, right. They cannot make time for themselves. They can’t prioritize their, whatever, their sleep, their physical health, their exercise, their eating habits, their you know romantic lives, their friendships, because the business is all consuming.
Rand Fishkin: And I think it’s hard to process but that is wrong. That is dead wrong. Your business isn’t, a, not more important than you are; b, your business will long term be worse off with you in this state. We cannot, we cannot make good logical decisions. We can’t process information well. We can’t work at our peak when we’re under, when we’re in these sorts of conditions. And you know all human beings sort of function much more poorly after hour you know 35, 40 that they work in a week. And so even though you think that putting in a 60, 70, 80 hour work week is you making sacrifices for your business, that are required, you know, you just have to do it and push through. In fact, you’re just harming yourself, your decision making ability, your business in the long run and I would really back off of that. Look, all of us have to put in an 80-hour work week once in a while. Part of life, that’s okay, but if you’re doing it consistently, you’re doing something very, very wrong. It should not be a badge of honor or pride. Yeah, you need to trim back. Find better ways to handle whatever obligations you have in the business.
Alejandro: Yeah. Yeah. No, absolutely. And Rand, thank you for opening up and really sharing because this is something that people don’t really talk about and you know it’s something at one point or another you know it just gets cloudy in the journey. So thank you for that. So Rand, I guess switching gears here a little bit. Can you tell us a little bit more about Sparktoro, your next venture?
Rand Fishkin: Yeah, sure, absolutely. So Sparktoro like Moz is going to be a marketing software company. We’re basically trying to build a search engine for audience intelligence. So if you want to know a lot more about chefs in Los Angeles or you want to know about architects in Canada or you want to know about table top role playing game players in the UK and you’re trying to target these audiences with your new product or your new marketing campaign, there are a lot of things that you need to know, right. Where do these people pay attention to? Where do these people go and pay attention? What are the publications and people that they pay attention to? What sorts of affinities do they have? What are other crossovers do they have? How can I market and reach them and that is exactly what our tool is designed to do. So you could say, “Oh okay, we’re launching a new piece of restaurant equipment. We want to target chefs in Los Angeles first. We’re going to try and maybe do an event. Let’s figure out which events chefs in LA go to so that we can most wisely spend our marketing dollars on that.” And I can type in chefs Los Angeles, get a list back. You know, click on the events tab. See all the ones that are most popular. Choose one from there. As opposed to blindly trying to guess, “Well, I think you know I heard from my friend that he goes to this so maybe that’s the one for us.” I think that kind of marketing is very challenging right now and you know we struggled a bunch with this at Moz. I struggled a lot with this actually when I was launching the book and trying to figure out good amplification targets, right, and where my audience was and who do they pay attention to. Where should I go market the book? Where should I tell Penguin Random House to go spend their marketing dollars, right?
Alejandro: And by the way, I got to say I got to tell you when I published my book a couple of years ago, it’s really like a huge amount of weight, it’s really on the author to really get it out…
Rand Fishkin: Yeah, that’s right. Yeah and getting that list together, right. Alejandro, I’m sure you had this challenge where they said, “Okay, well, send us a list of people that you want to send a copy to in a purple note.”
Alejandro: Yes. Yes.
Rand Fishkin: And who should be on that list? Right. There’s people on your network obviously but if you could type in you know here’s the audience for my book. Oh and here’s a person or here’s a publication that 30% of the audience I care about reads. Awesome! That’s who we should be pitching, right. But how do you know that? You can’t know that unless you survey them or like steal their all their phones and look at their bookmarks and their Twitter accounts and their Facebook pages, right?
Alejandro: Yeah. That makes total sense. And I was actually very impressed, Rand. I took a look at the amount that you guys have raised, I believe it’s about a little bit over a million. Is that right?
Rand Fishkin: Yeah, we raised 1.3 million in a very unusual round but we…
Alejandro: That’s what I wanted to ask you. I mean I saw like 34 like high profile people participating. So did this really come about? I mean did you go for dinners and lunches with everyone or did you like create a party for everyone to join? Or how did this happen, Rand?
Rand Fishkin: I mean in a lot of ways I have to your point earlier 17 years of connections and you know network and people who know me and like and trust me and think that I have a good shot in this field.
Rand Fishkin: And yeah, I did not a lot of pitching. I don’t think I did any pitching in person, maybe with two or three exceptions. Almost all of it was via email and phone. So basically you know reaching out to folks and saying like, “Hey, I’m doing this and you know you’ve offered in the past to be helpful.” I think I’ll show you one of the emails. It’s in the blogpost about it, right. I would send an email to the folks and say like, “Hey, I’m building this company and this is very embarrassing and weird and hard for me because I hate asking people for money. But I think you would be hugely helpful and I’d be kicking myself if you know six months from now you said, ‘Hey, why didn’t you invite me to invest?’ So here’s my pitch, right. One, two, three. One was basically I’m building this company with this unusual structure. Two, here’s what we’re trying to do. And three, here’s the sort of prospectus.”
Alejandro: Got it.
Rand Fishkin: That was it.
Alejandro: Got it. Really cool. I mean you went from you were mentioning earlier like three or four years of failed attempts to now you know being able to raise money with all these contacts. So obviously I guess as a second time entrepreneur, you found it a bit easier than being first timer? Is that right?
Rand Fishkin: Absolutely true. And also I think two things really helped here. One was while we had a very unusual structure, it was extremely investor friendly. So if you look at the way that the Sparktoro documents are structured, it’s essentially people—you get paid back in two ways, right. One is you get percentage of the profits every year, the percentage that you own. Two is if and when the company ever sells, you know, you make money that way too. But before Casey and I can raise our salaries, before we get to take any of the profits in the business, we basically we have to pay back our investors their initial sum. I think the likelihood of that happening people looked at that and said, “Hey, that’s really good. I mean I may not make 10 times my investment on this thing for sure, I might, I mean I very well might, but gosh, this structure is really you know really tempting. And this is a company that the founders are going to be frugal and conservative. They’re not looking for hyper growth or rather they’re looking for hyper growth but only if they can do it profitably.”
Rand Fishkin: They’re not going to burn tens and hundreds of millions of dollars to get the gross rates up by you know 10% or 20% points whereas actually that’s something that Moz really needs to do. For Moz had a way to get its growth rate up 10%-20% points, I think it would easily go out and raise $20 million more to do that.
Alejandro: Of course. And you know that’s an interesting approach. I mean that one of the I would say things that I recommend founders is that whenever they approach the process of fundraising that they do it not from negotiation perspective because in a negotiation there’s always one party that loses and another one that wins; more from a partnership perspective where both parties…
Rand Fishkin: Sure. Yeah.
Rand Fishkin: That’s a great philosophy.
Alejandro: Glad that you mentioned that, Rand. So now let’s talk about your book. So Lost and Founder, so what kind of information would the founders that are listening today find in this book?
Rand Fishkin: Actually there’s a lot of stories from many of the parts that you and I skipped today but a lot of stories and experiences and lessons and then research and examples from other companies around these hard parts of building and growing a business. I tried to sort of tackle the ones that we don’t talk about, right. How much money the founders actually make compared to other businesses? What about employees, how well does that go? What are the hardest parts about managing a business and managing a bunch of people as you grow and scale rapidly? And someone goes from you know two years ago there was 20 of us and now there’s a hundred of us. What’s going on? What is that like for manager? I go through the tough parts of depression. There’s a chapter about that. There’s a chapter about layoffs which Moz did in 2016 I think. And the really tough parts about fundraising and about investment structures, some of the challenges of switching for services to a consulting services model to a product subscription model which I know a lot of people in the entrepreneurial world think hard about. I think it’s actually kind of a false choice these days.
Alejandro: Got it. Got it.
Rand Fishkin: Like they’ll push you to choose one or the other but yeah.
Alejandro: And just thinking deeper on this, Rand, I mean talking about the transaction a little bit, your cover in the book you know the topic about founders selling earlier in the game, so what are your general thoughts around this?
Rand Fishkin: I think that if you have an opportunity early in your business to sell for a transformational amount of money, basically an amount of money that will transform the future of your life and your family’s life and the people around you and you know whatever you can—you can pay off your mother-in-law’s house, you can make sure that your cousins can go to college, whatever the thing is, you should probably do that. Those offers don’t come around very often and the bigger you get, the harder it is to maintain growth rate and growth rate is the thing that the market values right now more than basically anything else. I point out in the book that basically in 2012 when Moz was doing 5.7 million in revenue and we got an offer to sell, you know, I would have made somewhere between $9 million and 30 million from that depending on how much of it had been stock from the company that eventually end up going public. But today, Moz is doing 10 times that amount of revenue literally like Moz will close the year out at 57 million or something like that. And if it were to sell today, I’m not sure I would do as well.
Alejandro: Yeah. Yeah.
Rand Fishkin: So 10 times as much money, right, and seven years later and probably make less.
Alejandro: Yeah. I mean that happens when you’re you know starting to get funding and you know you put the preferred shares and people…
Rand Fishkin: And it’s not just true for you, that is true for employees as well.
Alejandro: Of course.
Rand Fishkin: You are not just sort of thinking about yourself here, right. This is not purely selfish if you look at the amount of stock the employees hold in the early days tends to be big number like, oh here’s my chief operating officer and they only have 1.5% or 2% of the business or here’s my CTO at 3% or here’s an engineer who is at 1% of the business versus you know fast forward 10 years later, here’s one of our senior engineers, they own .025%.
Alejandro: Yeah. Yeah. Absolutely. So to close the loop here on funding, Rand, if you could go to the past and give yourself advice, your younger self before getting funded, what would that be?
Rand Fishkin: I mean we talked about this a little earlier. I would still raise the 2007 round. I think that was transformational for the business. I think having the formality of you know the venture experience was actually really helpful and you know Michelle Goldberg from Ignition has hugely upgraded my knowledge around everything to do with business. I would not have raised the 2012 round even though I really wish I could still get Brad Feld on the board but mostly that is because I don’t think that money helped Moz. I don’t think it was put to good use. I think we were healthier as a bootstrap, well, mostly bootstrap, profitable, reinvesting growth that way type of business. I think that we really took our eye off the ball with all that money that came in. And so that would have been my advice to myself.
Alejandro: Got it. Got it. Okay, well, Rand, this has been amazing. So I guess for the people that are listening, what is the best way to reach out and say hi?
Rand Fishkin: So I’m most active on Twitter where I’m #randfish but you can also email me [email protected]
Alejandro: Amazing. Well, Rand, thank you so much for being part of the show today. It has been a pleasure.
Rand Fishkin: My pleasure, Alejandro. Thank you for having me.
Female: You’ve reached the end of another episode of the DealMakers Podcast. For free resources and materials, head over to alejandrocremades.com. Thank you for listening and see you at the next episode.