How Rand Fishkin Built an 8-Figure SaaS Business – with Rand Fishkin [037]

Host: Omer Khan

Guest: Rand Fishkin

Rand: Hi, I'm Rand Fishkin, founder of Moz and you're listening to the ConversionAid podcast.

Welcome to the ConversionAid podcast, where we help software entrepreneurs to take their business to the next level. Each week we interview proven industry experts, who share their strategies and insights to help you create software that sells! Here's your host, Omer Khan.

Omer: Hey everyone, welcome to the ConversionAid podcast. I am your host Omer Khan, and this is the podcast for software entrepreneurs and companies who want to grow their business to the next level and create software that sells! Today's interview is with Rand Fishkin. Rand is the co-founder of Moz, a Seattle-based SaaS company that sells inbound marketing & marketing analytics software. The company was founded in 2004 as a consulting firm and shifted to software development in 2008. The Moz website has an online community of more than 1 million digital marketers, and today the company has raised just under $20M in funding. Rand, welcome to the show.

Rand: Thanks for having me Omer.

Omer: I'm delighted to finally be talking to the wizard of Moz, so…[Laughter]. Okay, now, before we talk about Moz, can you tell the audience a little bit about yourself? Who is Rand when he is not working?

Rand: When I am not working? Let's see. I try to be a good husband to my wife, Geraldine or I would say that's the primary activity that I have, outside of my work; is spending time with Geraldine. We travel a lot together. She runs a travel website called ‘Everywhereist” and let's see, other things…I am a little bit of a fan of NFL – Football, somewhat ashamedly. I think there is a lot of terrible things at the NFL, but I still really enjoy the games. I used to be a big outdoors man, I think, before Moz got, you know, kind of hot and heavy and so may be one day I'll return to that as well!

Omer: Great. I love Geraldine's blog, by the way. When I was doing research for this interview, I came across the blog, and it made me laugh! [Laughter]

Rand: Geraldine has something very very special and unique, you know. So we're going to talk about inbound marketing and SEO and social media and all these channels to acquire traffic, and Geraldine is one of the least active promoters, marketers for her blog, and you know, actually still gets, you know, a 100,000 plus visitors a month there.

Omer: Wow!

Rand: A huge part of that is just she has created a very addictive form of content for a certain audience, right? People go, they read and then they just come back again and again and again, and it's pretty remarkable and it's somewhat frustrating for me to sometimes, you know, tell her like, “Hey, you got to do SEO, so you'll get more traffic.” She is like, “I'm getting more traffic.” [Laughter]

Omer: [Laughter] Alright. Now, before we kick things off, we'd like to get, you know, hear a success quote from our guest to better understand what drives and motivates them. What is one of your favorite quotes?

Rand: So there is a writer, among other things – Abraham Heschel and he said, this is one of my favorite things and something I certainly believe. “When I was young, I admired clever people. Now that I am old, I admire kind people.” And I think, implicit in that statement, is that with wisdom comes admiration, not for intelligence or accomplishments, but for kindness and generosity and I think those things are inherently more worthy of our praise and our attention and, unfortunately, don't always receive it.

Omer: Great quote. Okay, let's start by giving our listeners, for those people who don't know, a better understanding of Moz, can you tell us a little bit about who your target customers are and what are the top pain-points that you're trying to solve for them?

Rand: Sure. So our customers are primarily professional marketers. They come in one of the three varieties – an in-house marketer working on a team at a startup or a company of really almost any size, all the way from, you know, 4 person, tiny new company to, you know, I think we've something in the range of 30% or 40% of the Fortune-1000 have a Moz account, right, so somebody on their internal marketing teams has an account. Then the second group would be agencies, you know – agencies that help people…usually that help people do SEO professionally. Sometimes those agencies also help with things like pay-per-click and social media marketing and content marketing and those kinds of things, but definitely SEO. And then the third group would be independent consultants and independent entrepreneurs or solo entrepreneurs, who focus a lot on SEO. So we sort of have those three groups – independent, agency and in-house.

Omer: Okay. Now, I mentioned earlier that Moz originally started out as a consulting business, which you were running with your mother. Can you tell me a little bit about where the idea for the software business came from?

Rand: [Laughter] It wasn't particularly intentional, you know. What I want to be able to tell you Omer, is that, you know, we'd gotten a room and we thought, “Hey, how are we going to take this business to the next level?” and realized that subscription software was going to be the future and that we could have a very low cost and customer acquisition and a fast pay back period and you know, high CLTV to a CAC ratio and know it'll make us a very attractive company for investment and for, you know, may be an eventual IPO or sale or those kinds of things. That is..none of that is true! None of that is true! I think the idea was basically this. So at the time, there were, I think, just three of us in 2006; may be four by the end of the year, four or five and it was basically my mom, myself, and Matt Inman, who is our first developer. Matt – you may know him today. He runs a comic website called “The Oatmeal” that's relatively popular. And so, you know, at the time, Matt was kind of building SEO tools and making websites for clients and that kind of thing at the company, which was called ‘SEO Moz' at the time and Matt had created some tools internally for mostly me to use, and some of our early consultants, when we were doing consulting work for our clients, right? So we had tools that would automate some of the SEO investigation and analysis process and we thought to ourselves, “Hey, you know, we should…we say we really believe in transparency and making things available to others. We should make all of our tools available to other people. Let's…you know, let's put them online in a more…set up like a little PayPal thing, so you can PayPal us the money and get access to our tools.” That is literally as far as we planned, in terms of, you know, the intelligent idea for what we were going to do. So a little bit amateur…

Omer: So did you…I mean, a lot of people will be thinking about, “Okay, we're going to get software out there, you know. It works for us, may be, internally, but to kind of build a commercial product, we have to think about a whole bunch of other things and how is it going to scale and…?”

Rand: [Laughter] Yeah. I promise you we did not think about any of those things, which is why the tools, for the first, you know, couple of years, we'd break every week or two and could only support like a few 100 people using them. Yeah, it was very very hacky, very amateur. You know, as Matt himself said, he left the company in 2007, just before we took our first investment around. He said, ‘You know, I don't really want to be a developer. I don't like programming; I am not a software engineer.” I don't even think we called our product ‘software'. We were like, “Oh! No, we made some little hacky tools that you can subscribe to.” And we also wrote some guides and you know, you get the guides and the content, if you subscribed, yeah. So it really was driven by the fact that even those tiny efforts, those, you know, very amateur efforts at the beginning of our run in software had such success, right? They resonated so much with our audience and I think part of that is because we had already built an audience that was like us, right? They needed the same things that we did, at the time, because we were doing consulting, which is basically the same, whether you're doing it externally or in-house, and so, you know, the product served the market and the market was already in front of us, and the market knew us and liked us and trusted us and had been reading our stuff for years, so I think that really helped to accelerate the growth.

And then, once we had that growth, of course, that's…I think it was that summer of 2007, we attracted some attention from two local investors. One was Michelle Goldberg from Ignition Partners and the other was Kelly Smith from Curious Office, and in November of that year, they both invested some money. So Michelle put in a million and Kelly put in a 100,000 and we raised 1.1 million, so don't believe what Tech-Crunch or Wikipedia's say, about $1.25M. I don't know where that number came from, but once it's out there, you can't take it back! [Laughter] And then, you know, I had this crazy idea that I really wanted to build the backend of Google, specifically the link graph, right? I wanted to be able to crawl the whole web, index all the links and then do the processing on them, run our own version of page rank, run our own version of trust rank, because I was pretty sure Google had something like that going, and then be able to show all that data to web marketers, right, to make Google's processes transparent, right? And I think my passion overwhelmed the good sense, which was, you can't rebuild the backend of Google on a million dollars!

Omer: [Laughter]

Rand: However, I found two guys, actually through Geraldine. Geraldine was friends with this guy, Ben Hendrickson  from…years back, they were in debate together in high school, and he and another guy that Geraldine was friends with, Nick Garner, joined Moz and they basically built what originally was called ‘Linkscape' and today it's called ‘Mozscape' and it really was that, you know, was…I think the initial version was only like 20 or so billion pages as an example today, our next index coming out next week, I think is like 280 or almost 300 billion! But yeah, this is a start and you really could…you could, you know, plugin the URL and see all the pages on the web and link to it, and look at how important they were, and that was kind of game-changing. So when that launched and the fact that it launched successfully…it launched on a bad day. I had launched the data, Bear Stearns collapsed in 2008…

Omer: Wow!

Rand: [Laughter] So most of the press that we thought that we were going to get went in a different direction, but it still worked out, so by ….I think the end of December 2008, we were back to profitability.

Omer: So I want to talk a little bit back about when you launched the product or you made these tools available. So you've said that you had already built a following and presumably that was mainly through the blog.

Rand: Yeah.

Omer: How long had that blog…how long had you been building that blog before you launched the software product?

Rand: Let's see. I guess it would have been just about 3 years, so…

Omer: What type of content were you creating? What did you write about?

Rand: Well, yeah, don't read stuff from the first 6 months in the blog, because you'll be pretty embarassed! [Laughter] It's pretty silly, but no, I think it was one of those things where I forced myself to five nights a week, sometimes six or seven nights a week, write for 3…well, I think it was for 5 years that I did it, basically just myself, right? So every night I get home from home, Geraldine and I would have dinner and then like 10pm, I'll be in front of my computer and by 2 am, there will be a blog post up for the next day. And that was, you know, my goal there was to create interest, to share what I was learning in sort of my journey to get to know the process of SEO and then as I started to know SEO, I found…I think a frustration point and a point of passion that I still carry with me today, which is that the search engines today is, you know, mostly Google, but Bing as well, have a lot of information, I think. They know what they are doing and they know why they are doing it, but they don't share that information. So there's a lot of secrecy in terms of “This is how search engines operate.” And I am actually a believer that they will be better off, the search engines will be better off and that the market will be far better off and SEO will have a better name, if they were transparent about it. And so, you know, supposedly one of Google's core values is transparency and they believe in organizing the world's information and making it accessible to everyone, So “You know what? If they're not going to do it, I'm going to do it!” I felt very strongly, still feel really strongly about making Google's processes transparent to everyone, so that it's not a mystery, it's not a secret. SEO isn't some blackmagic. It's just “Look, this is how this system functions. This is what this system cares about, and here's ways that you can improve.”

Omer: Do you think that that would also kind of make it easier for people to game the system, if they had that level of transparency?

Rand: Yes and no, and I actually think…so this is like one of those things that people I was talking about in the security world, right? That security through obscurity almost never works properly, because some people, a small niche, usually the most manipulative folks, will figure out how to game that system and everyone else will not, and so, you know, it basically becomes a bias and a win for your spammers, your manipulators, and I think that was true of Google as well! And I would actually say I believe that one of the reasons Google has become much less spam-filled, one of the reasons that they have become better at fighting spam, one of the reasons that there is much less spam, especially in the SEO world, I would say, you know, when I started in the industry, a good 20% or 30% of folks playing in SEO were spammers, were manipulating and violating guidelines and that kind of stuff, and now, I would say that number is under 5%, probably under 2%. So you know, I wouldn't credit Moz with all of that, but I would say that as an industry, we've made SEO much much transparent and I think that has actually made gaming the engines much harder. It's made good SEO work much better; it's made the practice much more reliable; it means that people can actually invest in it in the long term.

Omer: So looking back at those early days of launching the…what became the software business, what do you think was one of the biggest mistakes that you've made?

Rand: [Laughter] I mean, everything except having a blog…[Laughter] There is no mistake we didn't make! So let's see – we had really terrible billing systems, we had no metrics on customer lifetime value or churn, we had no idea of how long or short people's tenure was on average with Moz. We didn't understand cost of customer acquisition, we did not know…we didn't know anything about our customers other than what we thought we knew from interacting with them, kind of, on the blog and at conferences and that kind of stuff. So we had no personas or you know, customer modelling or anything like that; basically the least professional operation you can imagine! It's like Larry, Moe and Curly running a software startup business!

Omer: [Laughter] So at what point did you feel that you had enough traction there and when did you really decide that, “No, we are going to refocus on the software business now”?

Rand: I think it was when we raised investment, right? So when Michelle and Kelly invested, they had a…I think they did a number of good things and one, sort of, well…one sort of whatever thing, which was they made me the CEO, right, so they said, “Basically, we are interested in investing in Moz. We think the software company has legs, but we want Rand to be the CEO.” And so as CEO, I think the one thing that I was atleast mostly smart enough to know was that I didn't know anything and so I leaned heavily on them and I listened to them at board meetings. I mostly listen to and I can be hard-headed at times too, and I tried to learn a lot about the business that we were in, not just, you know, SEO and marketing, but venture capital backed businesses and those kinds of things. I got connected with a lot of other venture-backed CEOs and tried to learn from them and we just got more professional, but I think that was the spark, right? Michelle, in particular, nudged us at a lot of board meetings around, “Hey, these are the metrics that I expect to see reported. This is what I want to see on the board decks,” and so Bird, who is now our CEO, she was our Chief Operating Officer, I think, starting in 2008. We had hired her at the end of 2007, but you know, we promoted her to that role, and you know, she started digging in and acquiring those metrics, getting those formalized systems set up, moving off PayPal and onto something a little better, yeah.

Omer: So let's talk about some of the challenges that you've faced as the company has grown. Now, Moz has been very transparent about financial performance and I really like that, and from what I understand, the company has been almost doubling revenue every year since you launched the software business.

Rand: Yeah, until recently, that is…the first…6 years, we doubled revenue basically every year. 2009 – we did a little bit more than doubled, but in …let's see, from 2013 to 2014, it grew more like 50% and then this last year's growth was only about 6%. So we had a really rocky last like eighteen months.

Omer: So in 2013, you reported record revenue over, I think, $29M, but you also posted a $5.7M loss. Can you tell me more about what was going on there?

Rand: Yeah. Well, that's…the $5.7M loss is, I think that's very intentional, right? If you are going to go…in 2012, we raised an $18 M around and so the idea is, you know, you are supposed to spend that money. If you are going to be profitable, why delude yourself by going…like going out and getting venture? And so for us, that was an intentional loss. I think, you know, we lost probably something similar…I have the board financials, I can look it up, but something similar in 2014, and I expect we are going to lose $2M or $3M more in 2015. Our revenue is kind of slowly ramping up and so we are kind of making up for the hiring and the hardware investments and all that kind of stuff we made over the last couple of years, which were pretty different, right? So like, the last 18 months, the business has become much more capital-efficient, but it has grown in a much slower rate, and I think, you know, part of that slow down is some of those investments. We moved off of a lot of our older systems, built our own data centers, but didn't launch a whole lot of great new software, as a result of kind of that infrastructure focus.

Omer: So in one of your blog posts, and I have got to say, you know, reading…you know, the stuff that you write and the incredible transparency and openness you have, is pretty remarkable and one particular post I remember reading and you talked about how tough, I think, 2013 had been and that you had felt depressed and that that was a big reason why you stepped down as CEO. Why did you feel that you had to step down?

Rand: I think I was kind of dragging the company down with me, right, so when you're a startup, especially when you are going through tough, challenging times, right, and it's not just, “Hey, we are doubling year over year, and we are not even working that hard,” which, Moz has had a couple of years like that! Those were nice years. I would say that when you are having those struggles, you need someone who is an optimist, someone who can see the light at the end of the tunnel, who can describe that to the rest of the company and who manages the team and the attitude and the direction from that perspective, and I was not that person. So I think that's a big part of…atleast I had the clarity to be able to see that I wasn't that person, you know. I had, for whatever reasons I had thoughts in my head like, “Well, may be those things are over; may be it didn't work out, because instead of growing a 100%, we only grew 50%.” Those kind of reasons, you know.[Laughter] I had a…I think one of the weirdest things about my depression and may be a good illustrating example was how odd it could make my behavior. So let's say Omer that you and I met, you know, in person, somewhere, at a conference and we start chatting and you're like, “Rand, you know, I really love the Moz' software; what you guys are doing is super-cool!” I would spend 5 minutes trying to convince you that what we had built sucked!

Omer: [Laughter]

Rand: And it was terrible! And like why all these other competitors of ours had better products and like, you know, niche x and y and z – that is something that I would do, which is…that is not necessarily ideal behavior for a CEO. It's certainly not going to encourage your engineers to want to work for that person, so…

Omer: But I think, in many ways, that's the kind of person you are, right? I mean, from what I have seen, you are always…on a personal level, always trying to sort of examine yourself and find those shortcomings and talk openly about them, and you know, I think a lot of people love to share information when things are going well, but you don't hear a lot when things aren't, and you are very transparent…and where does that transparency come from? Why? Why do that?

Rand: So when I was a kid growing up, my…I mean, I don't think my parents were terrible about this, but you know…and probably lots of other people can relate, so I think this is kind of a little bit of a universal thing that, you know, how, you know, your mom would say, “Hey, don't tell your dad that we did x and y and z,” or “Don't tell your dad about x, y and z,” and your dad would say, “hey, don't tell your mom about a, b and c,” and keeping those lies straight on my head was really nerve-wracking for me as a kid. I just…I kind of hated it. That…it stuck with me and then I think I had another like kind of big series of events from 2001 to about 2006, where the consulting company that, you know, my mom and I were running, which started out as like a old school, you know, offline marketing consulting, kind of transitioned into SEO Moz, that business went deeply into debt. I think we owed like a $150,000 to credit card companies and all those kind of stuff, but then we stopped being able to make the minimum payments, because we just weren't making any money, and so, that quickly sky-rocketed to like $500,000 and so we had this half-a-million dollars in debt and the smart thing to do then would be to declare bankruptcy, because basically all the equipment Moz and credit cards and everything were in my name, so that my dad wouldn't find out that we had this debt. And the problem was, you know, we were like, “Well, but if we declare bankruptcy, we will go through the bankruptcy proceedings, then my dad could find out, and may be that will hurt my parent's marriage,” and so, it was very very stressful. So like keep this big, financial secret, you know, from my dad and it just sucked! I hated…I really really hated this secrecy of any kind. I felt like it just gave me this weakness that people…to get discovered and to …I don't know, not blackmail, but like have undue power and influence and so, I figured if everything is transparent, if I share all the worst stuff, there is nothing for anybody else to find out, right? Its kind of like a…it's a protective shell, it's a way to insulate myself from bad things. There's nothing to find out and so, there is no worst that it can get than whatever is happening now.

Omer: That's a really interesting perspective and I think most people, you know, tend to do the opposite, right, in terms of, the less and…especially in a public platform, to share so much, kind of almost…and you know, show your weaknesses and shortcomings I think is a really…is a natural thing to do. And I think, you know, even when I look at myself and I think about launching this podcast, which, you know, a year ago, I couldn't imagine doing something like this, and even when I started, it was terrifying, because what if people criticized me? What if people would say, “You suck!” right? And I think, you know…and that was a huge fear for me, and I think I love when I see, you know, what you are doing, because it inspires me to be, you know, a little bit open. “You know what? Put more of yourself out there and screw it!” [Laughter] “What is the worst that can happen?”

Rand: Exactly. I think there is a power in being your own worst critic because there is no critic out there that can give you a hard time after that.

Omer: Alright. That wraps up Part-1 of the interview with Rand Fishkin of Moz. You can get to the show notes for this episode by going to ConversionAid.com/37, where you'll find all the links and resources that we discussed today. In Episode-38, we'll pick up on Part-2 of this interview. It's definitely worth checking out, as Rand talks about inbound marketing, some of the common mistakes that startups make and what he would do differently, if he was starting a company from scratch in 2015. If you want to get in touch with me, you can find me on Twitter: @omerkhan or email me at: [omer AT conversionaid.com] And if you enjoyed this episode, then I would really appreciate you taking a couple of minutes to submit a review on iTunes and subscribing to the show, if you haven't already done so. Just go to ConversionAid.com/iTunes. Thanks for listening. Until next time, take care.

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