Founders Talk – Episode #76
From disrupting the cloud to IPO
with Mitch Wainer, Co-Founder of DigitalOcean
This week Adam is joined by Mitch Wainer, previously CMO at DigitalOcean and a member of the founding team. They talk about his journey as an entrepreneur and marketer, the early days at DigitalOcean, and everything that went into disrupting the cloud with blazing fast SSDs. Back in March (2021), DigitalOcean started trading on the New York Stock Exchange (NYSE) — this obviously earned Mitch and many others a very large payday. They also talk about the work Mitch is doing now with Welcome and Sponsored.
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Notes & Links
- This Week in Startups #425: From caller to cofounder: how Mitch Wainer raised $37.2m from Andreessen Horowitz
- DigitalOcean OR do.co/changelog if you want to use a link DigitalOcean no longer pays us to promote
- DigitalOcean becomes a public company
- DigitalOcean IPO
- Welcome Homes (or, just Welcome)
Click here to listen along while you enjoy the transcript. 🎧
Mitch, I’m glad to have you here. I’ve been a fan of your work before I actually knew you, and more so having known you… Welcome to Founders Talk, thanks for sharing your story… Or I guess thank you for coming on here and sharing what you’ve been up to, your journey and what you’ve been doing. Welcome.
Thanks for having me.
I think anybody listening to this podcast, if they know who DigitalOcean is… what rock, you know? What rock? But you know, you are an early founder of DigitalOcean; that whole entire journey - you were there for every bit of it. Thank you for linking out to that interview with Jason Calacanis, I really enjoyed going back and kind of digging into what he uncovered there… But the one thing I think was interesting was how you found that position. You were combing through the want ads or Craigslist… Can you maybe take us back to those early days at DigitalOcean, and maybe early days of becoming a marketer, or feeling strong with internet marketing and product-market fit? Take us back to those days.
So I’m 36 years old, and when I was in high school and when I was even in college, fortunately there were no classes on internet marketing. If you grew up with AOL, getting those CDs in the mail in the mid-to-late ‘90s, with the dial-up internet sound, which we all remember, basically it was the Wild Wild West. The internet was so new. Internet commerce, and sites like eBay… Basically, just learning the ropes of how to write HTML, and I taught myself Photoshop and how to design images graphically using Photoshop, building websites on my own from the ground-up, so learning some basic frontend code… And just teaching myself everything. Again, there wasn’t courses in school to take. Everything from a marketing perspective was fairly high-level and generic, basically pulling from traditional marketing principles… Which are valuable; it’s not like they’re not valuable. The 4 P’s of marketing: Positioning, Price, Place, Promotion. Those things will always stick out from my marketing courses, and they are definitely helpful as building blocks… But at the end of the day, when I was in college or when I was in high school, I was just always a tinkerer, a builder, just building online businesses, building websites, consulting, building websites for other companies, clients… And basically just doing that from age 13 till when I graduated school at age 21-22.
[04:25] After college, I dove into an integrated marketing firm, a digital marketing firm where I learned branding, digital marketing, PR, brand… So the full stack of marketing I was exposed to after I graduated. So I came to the table with a ton of knowledge from age 13 to 22. Basically, almost ten years of experience, teaching myself how to code, how to build websites, how to run ads online, how to sell on eBay, to then learning everything about the world of marketing, working at an ad agency with clients that were Fortune 100 clients, so TD Ameritrade, McKesson, big names. So I was teaching them how to leverage social media to drive more business, I was teaching them how to leverage SEO to drive more organic traffic to their website… And I was doing this at age 22 to age 25, and basically just kind of hit a wall where I was like “I’ve not equity in this agency.” I joined the company in 2008, right before the market crashed, and we basically laid off 90% of the staff at the agency, because marketing budgets are the first budgets to get slashed when the economy tanks… So I was one of the last people standing at this business, just kind of getting by, making a decent salary, like 90k a year. I didn’t have any equity, I wasn’t learning, I was still teaching myself everything… And I just basically hit a wall.
I remember when this happened, I just started to reach out for basically advice and help… And I cold-emailed Jason Calacanis, who runs This Week in Startups, another great podcast show… And I asked him, “Hey, I have all this talent, I’m lost. Can you give me some career advice here? Where should I go from here?” And I came in on an Ask Jason segment. During this time I also started to apply for many other open positions on CareerBuilder at the time, on Indeed… I don’t know if Indeed was up, but all the different job sites.
I think Monster Jobs – wasn’t there something called Monster Jobs?
Monster, and all the job sites that existed at the time. And then I also applied to the Techstars program as a hack star, which is basically applying to the tech accelerator program as an individual, not a company, to get in as a graphic designer, or a frontend developer, a backend developer, backend engineer… So you can enter this program as an associate, what they call associates and hackstars, and then your name is on the list of hackstars that all the founders get when they first enter the program to basically pick and choose, like “Hey, I am looking for a frontend designer, developer, a backend engineer… Let’s see if this person would wanna work on our team during the program”, and maybe by the end of it I become a co-founder, or I get a point or two… That was also one of the opportunities that I applied for.
So in this whole application process I stumbled across a Craigslist ad for a marketing director position working at a hosting company based in Soho. So that intrigued me. The company was called Reality Check Network at the time, and it was ran by Ben and Moisey Uretsky, the two brothers that co-founded DigitalOcean… So I thought to myself, “Hey, Reality Check Network - no one really knows that name, right? They’re looking for a marketing director… This seems to be a relatively straightforward opportunity. Clearly, a rebrand is in order here.”
[08:09] So we changed the company name to ServerStack. They were working at the time on a side project called DigitalOcean, which they introduced to me during the interview process, like “Hey, this is what we’re working on in addition”, just to kind of like take a sneak peek under the hood. And they also mentioned that they applied to Techstars.
So just the dynamic of the conversation, and just the vibe, and also Ben called me right after the interview… I remember leaving, walking out of the building, and he offered me the job on the spot, basically he was like selling me. He’s like “Hey, we’re really excited about you. We wanna give you the job.”
And I had to turn around a decision fairly quickly after that. I was interviewing with Sock-Doc for another marketing role… Needless to say, I obviously took the job. We got into Techstars into the Boulder program, in which I joined the team and I flew out and we slept in a three-bedroom house in Boulder, Colorado, and I slept on the couch the whole time… And it just so happens, my name was on the list of the hackstars to choose from for the Boulder program…
So all the stars aligned.
All the stars aligned.
Going back to the interview - I kind of jumped/skipped ahead here, but going back to the interview with Jason Calacanis, he had an Ask Jason segment on his podcast, so he said yes and agreed to me coming on the show to ask the question for career advice, and I basically told him “Listen, I hit a wall. I’m stuck. I need some advice. What should I do?” He said “Listen, all signs point to the fact that you’re done. You have no equity, you’re not learning, you’re not growing…” And it’s like being the best player at the YMCA, versus the worst player on the Knicks. You wanna get your butt kicked a little bit, and you wanna run with a pack of wolves and ninjas and samurais to try to achieve something great.
And he said “You should join a Techstars or a YC, and there’s obviously other tech accelerator programs where you can get a point or two in a company, and you’re gonna learn a whole lot more.”
So as soon as that interview ended, that was really the starting point for me to start to make a drastic change in my career… And it led me on the path to DigitalOcean.
Yeah. And what a ride though… The total funding of DigitalOcean, I think, if my notes are correct - around 493 million total in funding. 100 million dollars annual revenue, at some point - I can’t recall exactly when in the lifecycle, but this is a big deal.
Yeah. Just to fact-check those numbers - so it’s north of 350 million ARR today, and it’s raised… I don’t know the exact number of equity, but I know a portion of that total number is a credit facility for the cap ex part of the business to lease the servers and then equipment in the data centers.
Interesting. Yeah, I remember you talking about that with Jason. I was curious about that, and we’ll go into that in detail, I’m sure… But when we get there, let’s earmark the capital-intensive requirements for this business, leveraging massive lines of credit… Were you in those details? Was this part of the story of the company and you were in those details too?
I was in those details because I was the one responsible for putting together the pitch decks for the investors/banks, when we tried to leverage our assets and our cash and our equity with these banks to secure large credit lines. So I was involved in all these financing conversations, and I knew the ins and outs and the KPIs of the business pretty intimately as a result.
When you first got hired, you said it was called Reality Check…
And then rebranded to Server Stack, is that right?
Server Stack. Yup.
Server Stack. What was the timeframe – and you mentioned the DigitalOcean, whatever this was at that time was a side project… Did you go to work for Server Stack and was doing Server Stack stuff, and then eventually moved into this side thing? How fast did they transition to the side project, from you getting the job and taking a role?
[12:22] I would say I was splitting time between both companies, both entities, but it really shifted when I dug into the market research… And this is a really funny story. Basically, I had a conversation with Ben and we were just kind of ideating on ways to find out how next generation businesses and startups are running their applications online. Are they leveraging virtual machines and virtual servers, or are they entirely on a manage dedicated machine?
So what I did is I basically bought a bunch of pizzas and I knocked on the doors of every single startup in Soho, the “Silicon alley of New York City”, and I asked the person at the front desk “Hey, can I spend 5-10 minutes with your head of engineering, CTO, VP of engineering, just to ask them a few questions about how their infrastructure is currently set up? In exchange, here’s a box of free pizza for your office and your team.”
So I would say I had probably around a 50%-60% success rate, getting just a quick conversation on the table with these VPs and the CTOs… Which was great. It was immediate validation that everyone was moving to the cloud. So I spoke to about 30 companies, so a lot of pizza… And every single company either had their entire production application and even staging environment all in the cloud, or they had a hybrid model of cloud and dedicated… But no one was purely dedicated, and Server Stack was a managed hosting company predominantly focused on managed, dedicated hosting. So I came back with all this insight and information. It wasn’t like an enormous dataset. There was only 30 conversations being had, but nonetheless, it was validating… So that was a point in time where I think the decision quickly shifted on where we actually focus our time and effort, like “How do we prioritize the business?”
There was obviously employees working at Server Stack and there was employees working at DigitalOcean, but I think slowly over time we started to shift the focus and shift the priorities of the business to focus on DigitalOcean… And we took a few swings and we placed a few bets along the way and we were slowly growing DigitalOcean, but it really wasn’t until we dropped the pricing of the lowest-tier server to $5 and doubled the RAM and doubled the hard drive space with SSD drives in the server, and we became pretty much the first cloud to offer SSD virtual machines online.
Yeah. I remember those days, because I remember – I was working with Etel Sverdlov around that timeframe. It was around 2014… I don’t even know what the inception dates are; you can refresh my memory. But I wanna say like even 2013, but I could be wrong on timeframes. But it was early DigitalOcean days, SSDs, blazing fast… I remember even saying that in some of our ad spots, “Blazing fast SSDs, five dollar machines etc.” It’s almost like the way that the Raspberry Pi is leveling out, like Makerspace, or Homelabs, and stuff like that… It’s this enablement when you put something so powerful at such a low cost space into the hands of so many, what can happen.
[16:06] I think it’s interesting how you said this market research led to that… Do you think that if you hadn’t done all that hustling, all that door-knocking, all that pizza delivering, and I suppose customer engagement – they weren’t customers, but they would be. I bet you all those teams now have since bought or bought into DigitalOcean, so maybe future customers… But what do you think would have happened if you didn’t do that research? Do you think the shift would have done what you’ve done, or maybe it would have just been eventually, or was that a pivotal moment for the shift?
I think we would have done it eventually. I think what all this work, market research or the path that we took just got us to answers a lot faster, and it reduced the time to market, which is really important. There is a timing consideration here with finding product-market fit for any company and any business. We were one of the first, if not the first cloud hosting business offering SSD machines at $5/month. SSD cloud service at $5/month. And Moisey, our co-founder, and Jeff, our other co-founder, they were really pushing this idea because they felt like if this wasn’t gonna work, nothing was gonna work. And it was really our last big swing at the plate. And if we didn’t knock it out of the park, we could have shut the business down.
And Ben came to us - he was the CEO - and said “Listen, if we don’t double acquisition, because we’re cutting our margins in half by offering double the RAM and SSDs - if we don’t double acquisition, we could go out of business here.” Needless to say, we didn’t double acquisition, we 100x-ed acquisition overnight. I was able to get a TechCrunch article written about this new product and the SSD droplet… And we went viral on Hacker News soon after, and we just saw the numbers climb into a whole new stratosphere, from 10-20 signups a day to then 100, 200, 400 new customers a day overnight.
At that point we quickly realized “Okay, well now we have to keep up with demand, we have to raise capital, we have to go out to the investor community and raise more capital to meet the demands of our customer to keep up with this insane growth”, which was a whole separate challenge.
I guess we’re at that point where you can talk about the capital-intensiveness of this business… Because servers aren’t a hundred bucks, they’re several thousand… Engineers to engineer them, manage them etc. are 150k+ per year as an individual, for a salary, for example. Plus the overhead of having employees. This is a very capital-intensive – and I’m probably skipping a bunch of other hard costs in there, so please fill us in… But this is a capital-intensive business, massive amounts of credit lines to be done… How do you manage that? How do you 1) product-market fit it, like you had done, 100x-ed your acquisition, and then you’ve gotta go out and get more dollars to increase your credit lines, or to do all these things that make this business work; it needs a lot of money. You need to have your operating budget or your operating bank account’s gotta have millions of dollars in it, I’m sure, at any given moment, just to manage monthly spend.
Yeah. To quote Reid Hoffman, the founder of LinkedIn, who runs a podcast called Masters of Scale - he said “If your company and your startup doesn’t feel like you’re falling off a cliff and you’re trying to build a plane at the same time, with rocket packs attached to your back… You’re doing it wrong. And that was the feeling we felt when we could not keep up with demand.
[19:53] To put that into perspective and what this feels like - so when I was on This Week In Startups I talked about unit economics of what it costs to keep up with the demand by describing what each rack of servers costs. So each rack of servers, which is roughly between 30 and 40 servers, costs $250,000. This was back in the day at the time when I interviewed with Jason, so this was a few years ago, several years ago now.
So $250,000 for a rack of servers. We stood up a rack once a week during that time. When I left DigitalOcean, we were doing a rack a day growth. So 250k coming out of your bank account every day to keep up with demand.
So four days is a million dollars.
That’s just the hardware cost. That’s not leasing the space, it didn’t pay for the employees and the head count to physically insert and rack those servers and those machines… Because not only did we have to keep up with demand of existing customers, we had to keep up with demand of prepping for future customers. You’re not racking for the customers of now, you’re racking for the customers of the future, of the upcoming months and weeks. So Karl Alomar, who ran our infrastructure and operations at the business and partnered with Lev Uretsky, one of Ben and Moisey’s brothers, they basically mapped all this out in a massive spreadsheet to keep up with all the different unit economics and dynamics of each data center… Because not only are you doing this at one data center, you’re doing this across multiple data centers in the country, plus you’re doing this with international data centers across the globe. So it was just a massive challenge. And we had to raise the capital to keep up with the growth and demand… So the reason why we went down the venture path is because we needed cash on the balance sheet to leverage these large credit lines and large credit facilities to pay for the server leases.
Yeah. I think it gives a reason for complete respect for building that kind of business. Amazon - and you could talk to your competition over the years, or having to compete with Amazon in terms of spend, in terms of, as you mentioned this one last swing, because you’ve gotta double your acquisition, and in this case you said you 100x-ed it… But just this idea that – it’s not easy to build that kind of business, logistically, technically, financially, in all ways… Going back to Reid Hoffman, what he had said, like you’re falling off the cliff, with jet packs on, trying to build a plane. That’s very difficult. But it gives a new respect as an end user just to think “Oh man, this server’s not acting right”, or the SLA, for example, the uptime necessary, or just “Oh, I want it for less.” Five bucks is probably as inexpensive as you can make that kind of server today. You call it a droplet, for example.
But just a sheer amount of respect required to what you all have done with DigitalOcean… That’s just awesome. I love DigitalOcean. I think it’s a super-awesome company, and in many ways you changed what the cloud is. You brought competition to a doorstep that did not have competition. You can speak to that if you want to, but I remember in Jason’s interview you had said how investors were even scared to invest because they didn’t wanna compete with Amazon.
No. And we heard a lot of no’s because of that… And we really stuck to our guns and our beliefs of just trying to keep the cloud simple, and we just felt that even just talking to developers, software engineers about their experience on AWS, and what the support was like for an individual developer with a small account. There was no support. There was no support from AWS. Or the support was poor. And the reality was they just invested their time and effort catering to the enterprise market, as makes sense, because that’s where the majority of their revenue comes from. But as a result, they’ve neglected the developer community…
[24:14] And from a product suite perspective, DigitalOcean would have a very hard time keeping up and competing with AWS to launch every single product underneath the sun that AWS has. From a usability perspective it becomes so complex and you have all these different buttons to push, and features to leverage launching your cloud, when a lot of it is just completely unnecessary.
So as an individual developer, building a startup or a small business of their own - they just need to get their apps up and running as quickly as possible, at an affordable price point. And they need to know that if something happens, there’s gonna be a support person on the other end that’s gonna answer my questions and help me with my challenges. And I need to know that I can continue to grow my business on this cloud.
So if you check those boxes for people, DigitalOcean becomes a no-brainer. Why go to AWS with all this complexity and confusing pricing? There’s businesses built to calculate your AWS bill, and to optimize your AWS bill.
Yeah, calculators for it.
I mean, can you believe that?
It’s impossible even today, not even since DigitalOcean has been in place and compete and leveled that idea… But even today, it’s (I would say) almost impossible to get an accurate account of what your cost calculator might be for your infra-spend. There’s a terminology, cost intelligence; cloud cost intelligence.
Whole entire cottage industries of businesses just helping you manage your AWS spend.
I mean, you’re hiring people internally to manage your AWS spend when you get large enough at the enterprise level. It’s just – I mean, you ask yourself, is this necessary? Or can we keep pricing predictable? Can we make it straightforward? DigitalOcean always had flat pricing across all data center regions, never changed the pricing to keep it straightforward and predictable and affordable.
Can we make it attractive and cost-efficient and cost-effective for you? So that was a winning formula for us, and by focusing on catering to the under-served market, the developer population, developer community, that was the winning formula that continues to work for DigitalOcean and will continue to work for the years ahead. I truly believe we’re in the early innings of internet revolution, if you even wanna call it that at this point… But the developer population is still tiny in comparison to the overall global population. There’s 30 million developers at best in the world, and comparing to how many billions of people there are on the planet, it’s tiny.
Coding is becoming a second language. A lot of people are learning how to result. As a result, the applications that these developers build need to live somewhere.
One more thing I wanna ask you about is the accessibility, not just in price, but in (I would say) awareness. I learned how to build my first Ubuntu-based Linux server because of a DigitalOcean guide. I felt empowered to be able to do so. I followed this guide, I had a Linux server running, and eventually - this isn’t the case anymore, but eventually I launched what was then potentially thechangelog.com, but maybe changelog.com on a WordPress instance in an Ubuntu server, a droplet that I had built myself.
So just to be candid here, I’m not a sysadmin. I’m capable, but I was always more on the business-facing, frontend-facing, brand-facing, user experience-facing, growth, development spaces, the look of things… Less on the technical backend, sysadmin side. In many ways, these guides were capturing too, because if you googled “Ubuntu 18.04”, whatever it might be, you would potentially land on a DigitalOcean guide that would tell you how to build a DigitalOcean droplet and launch it. And you made not just the technology accessible, but the understanding of how to wield this technology accessible to people who could easily learn, but just never had access to it. What was that in your marketing guidebook? How did the guides and the docs play into that for you?
Well, the guides and the tutorials were extremely important for us in terms of first and foremost helping the developer community… And as a result, we were able to generate 3-5 million unique visitors a month to the website… Which - again, when you go back to that developer population number that I threw out, 30 million, 3-5 million a month, you’re hitting a lot of people. You’re quickly saturating the market.
You mentioned Etel’s name earlier when you were speaking with her - she ran the community tutorials, which in many ways was our best channel. Now, I believe the best form of marketing is to give first, and to not try to hard-sell people on buying your service or buying your product. It requires a certain level of thoughtfulness, and a kind of give-first approach. And that is actually the best form of content marketing, if you even wanna call it content marketing… But just helping people.
So the tutorials that were written, to your point earlier of like “Hey, I’m not a sysadmin”, I was able to kind of pick this up pretty easily… Etel had this saying – we had a standard for writing tutorials. The goal and the objective was to write it as simple as possible, so that a drunk four-year-old can understand it…
Okay… [laughs] Super-easy, basically.
The visual you get from that phrase isn’t the best visual obviously, and apologies to the parents out there for that… But it kind of just pounded in the back of our heads and the team’s heads, like “Hey, we’ve gotta keep these tutorials very simple, easily digestible.” In fact, Etel, when she started, learned how to navigate the terminal and the Linux systems from a very basic level, and she taught herself. And if she could understand it in terms of writing the tutorial, then who else can understand it, right?
[32:02] So that was always the goal and objective, and it worked. We were able to scale it. We invested heavily in building the team out to scale that content. So we had an internal team of writers, we had an editorial team of content producers that vetted external writers from the community, because we paid external writers to write for us, community contributors…
And we also scaled that channel out, and that became 40% of our overall content, that lived on the website. So we had a team to support the effort and we scaled it over time. So that was a key channel for us, and it continues to be a key channel. But going back to my point - as a marketer, as a CMO, you wanna give first. And when you create new initiatives, new programs, the best form of creating brand awareness is to give back.
I like that. “Give first” is definitively something I need to be better about. We don’t give first. I think we do give first, I suppose. We put all these podcasts out there. But if our primary way we generate revenue, for example, is through sponsorships or partnerships with, for example, DigitalOcean, over the years, we don’t give first… And I suppose we kind of do give first; we put out these podcasts. But we don’t give first in the “Hey, here’s a sponsorship for free” kind of thing, give first…
Mitch, one thing I think is interesting about your story is that you’re not done. We’re talking a lot about DigitalOcean because that’s a triumph in your career; this is a major thing for you. DigitalOcean obviously has since IPO-ed, is doing very well… You’re exited from the company, but I wanted to share a lot of that journey because 1) it’s super-cool, and 2) it sort of sets you up for where you’re trying to go now, which - now you’re in Welcome Homes, building homes, which you can tell me more about, and Sponsored, which is helping folks like me and other tech podcasters out there get awesome branded partnerships, get awesome sponsorships in place.
That’s where we should go next - when did you begin to think about (I suppose) these next ventures you’re involved in with DigitalOcean? Take us from DigitalOcean days to now.
Yeah, so when you achieve your goals in life, building a billion-dollar business as an example, building a company that goes public from the ground-up, and you start checking those boxes, and you quickly realize there’s no more boxes to check, it becomes very depressing… And you take a step back and you’re like – you have to kind of think back to your roots and your core of what makes you you. And for me - again, going back to my story from the beginning at age 13, it’s like I’ve always loved building. I just always loved taking an idea, turning it into a reality, taking a concept and bringing it to life. For me, I can never see myself stop doing that. I just wanna continue on that path. And that’s what gets me up in the morning.
I also have a beautiful wife and two kids, they get me up in the morning too at 6:30 AM, 6 AM, that’s a separate story. From a career perspective, I just love building exciting brands, exciting companies from the ground-up, that are game-changing companies. And I’ll talk a little bit about Welcome Homes and Sponsored… Welcome Homes - we’re placing a massive bet, we believe that people in the future are gonna buy homes online, sight unseen. And the younger generation especially - they don’t like calling people on the phone, they don’t like meeting people in-person. They’re much more into texting and social media, and buying things online. Even consumers today are getting more comfortable with higher-end purchases online. That is the trend that is happening today.
[36:08] So looking at the real estate industry and looking at how homes are being purchased and how new homes are being built, it’s a very complex process, and you’re dealing with a lot of different parties… And building a new home is overwhelming for people and many shy away from it. In fact, in the market that we’re in in Westchester, all of homes sold - there’s only 2% that are new homes sold in Westchester on a yearly basis. So 98% of the homes sold in Westchester are existing homes.
It’s a very small market that I think is gonna grow over time as technology and automation and as innovation comes into play to make this entire process easier and more straightforward for buyers, where it’s price competitive, you’re gonna be able to customize your home like you customize a car online, where you get to see a price update instantaneously with the different finishes or materials that you pick in your kitchen, or for your flooring etc. And we know that there’s buyers that want this type of product out there. Once we get the ball rolling and once we start to build 10, 100, 1,000 homes, this is gonna quickly snowball over time. Then the plan is to expand nationally as a next step.
The company has raised some seed capital, we’re hiring a lot of people; if you’re interested in this opportunity, go to our Careers page and apply. We’d love to speak to you. This industry is ripe for disruption. The way mortgages are processed, the way people deal with GCs, with interior designers, with home insurance - the whole industry is so fragmented, and there just has to be a better way. So looking at what we did with DigitalOcean at scale, and simplifying a very complex industry, cloud infrastructure, we’re trying to apply some of the same principles here to the residential real estate industry.
I’ve gotta say, buying a home – I’ve built a house recently; I would say recently because it was 2017. It’s the house I’m actually talking to you in now; this is my home studio, as you probably know or guessed already… But listeners, you can’t see me. But we’ve built this home in 2017, and I wanna say that building this home was the most stressful thing I’ve ever done in my entire life. And I think I still have shockwaves of…
PTSD from it?
Yeah. It was a very difficult – I was actually just texting with somebody… “texting” gosh, I’m old. I was tweeting with somebody on Twitter back and forth about that process, and they were saying how they moved x many years ago, and I’m like “Preach.” I’m still feeling the effects of even moving. Not so much just even buying and building, but it’s a very difficult process… So you’d mentioned in terms of Westchester new homes versus existing homes - so are you focused on building new homes, or revamping existing homes? What’s the market for you?
It’s only new homes right now. And not to say that we’re not gonna look to renovate or remodel or tear down existing homes in the future - we’re not throwing that off the table - but for the foreseeable future it’s new homes… And we’re only looking at vacant lots, so vacant parcels of land that exist on the MLS, that are available to purchase.
So just kind of sharing some of the model with the audience here - basically, you come to us, we have an inventory list of lots that we’ve vetted with our team, we’ve invested real dollars into making sure there’s – there’s a high degree of confidence that we can build a Welcome Home on this lot, and we give you an all-in price, which includes what it costs to purchase the land, and then prep the land to make sure that we can build a driveway, flatten it, make sure we have all the piping and the water and the sewage is all attached… So we give you a prepped cost price. In addition, we give you the cost to build and customize the home.
[40:08] So those three different prices - the cost to purchase the land, the cost to prep the land, and the cost to build the home based upon the customization options you choose through our online studio, we give a guaranteed all-in price that we don’t exceed. So anything above that price, we pay for it.
We haven’t yet released the branded term for this or the branded program for this, but we’re calling it the Welcome Promise, and it just gives people peace of mind. You don’t have to worry about going over budget.
And this is less – there’s a terminology called tract homes, which essentially is “This is a predefined architecural diagram”, maybe you can attach an extra room or whatever… There’s a degree of customizability to it, which is the home I’ve bought. I would consider it a tract home, but with customization. I know people who actually have my same plan, neighbors of ours, and their house doesn’t look the same exactly. There’s some nuanced differences, but being able to kind of deliver that… Are you in the custom – would you consider it custom, or kind of tract? Which would you kind of–
We’re definitely custom. So we don’t do prefab or modular. We do only limit you to the shell and the template of the home. Now, if you wanna upgrade and add certain elements of the home, like a basement, or if you wanna add a wall - those things can be negotiated and discussed in the process… Or if you wanna upgrade certain things other than that. But in terms of how the home is externally built, from like a shell perspective - that has to remain, because what that enables us to do is… Obviously, we could scale the business a lot faster if we have a templated model. That feeds into our online studio that people can use to customize the interior. We don’t have to change anything there… And we can value-optimize the home. So we can look to optimize different materials and different ways to build each area of the home to give you the best all-in price. Because we’re a value-driven business. We wanna compete with other homes on the market in terms of price, so that buying a Welcome Home becomes a no-brainer for people.
Yeah. And you’re doing this with DigitalOcean buddies, basically. Ben and Moisey Uretsky, as you mentioned before, they’re a part of this. I know that even in their history too they’re part of Techstars, and you’ve got a lot of similar histories… A recent conversation I had with Spencer Kimball, CEO of Cockroach Labs - one of the advices he had given essentially to old Spencer, or would-be future entrepreneurs is “Do it with co-founders you’ve been in the trenches with.”
That’s great advice.
And you’ve been in the trenches obviously with Ben and Moisey and others as well, but you’re willing to get in this probably because of the similar same scars and bloody knuckles you’ve shared over the years in terms of fighting the same fight. Do you agree with that advice?
I definitely agree with that advice. When I met the team – so Ben, Moisey and Alec Hartman, who is CEO of Welcome was also one of the DigitalOcean co-founders… And I met these guys when I was 26. Now I’m 36, so 10 years fast-forward… You quickly learn your strengths and weaknesses. You become more self-aware as you get older.
I’m good with certain things when it comes to marketing, and I’m bad with certain things when it comes to marketing. I’m just like basically average. And I’m aware of those strengths and weaknesses. You quickly understand your superpowers and your gaps. But it becomes even more powerful when your co-founders understand your gaps and your superpowers… Because you can complement each other more efficiently, you’re able to then quickly get to a decision point, or make it a hiring decision to fill a gap in the business.
[44:28] And you could have more honest and transparent conversations because there’s more trust. We’ve worked together for so long there’s nothing to hide at this point. No one’s trying to pretend to be something that we’re not… And I think once you can get on the same page with everyone in terms of like “Hey, this is what I’m good at, this is what I’m not good at. This is what I’m really passionate about, and what I love doing, and I wanna dig in deep here” - once you start to have those honest conversations, you’re able to make so much more progress and you’re able to work so much faster together on things…
So we’re at an enormous advantage here because we’ve worked together for so long and we know each other’s strengths and weaknesses inside and out at this point. We’re honest with each other to say like “Listen, we suck in this area. There’s nothing we can do about it. We’ve just gotta hire. We’ve gotta fill this position, or build this team.” And we just get it done; we just figure it out. It enables us to have more honest conversations, to have more fun too when we’re building these companies… Because work is hard, and you wanna build a company with people that you wanna work with ultimately at the end of the day. That’s what we’ve found out building DigitalOcean - when you create a great culture, you wanna hire people that you wanna work with, that you enjoy working with, that you learn from, too. These people that you bring into the business, you’re learning new things from these people, and that’s a great interview tip when meeting new candidates, is asking yourself the question, “Did I learn something new in this interview?”
Can we go back to those boxes you mentioned that you checked off, and the exit from DigitalOcean, and maybe how you were – you’d mentioned depression, or it was depressing; not that you were depressed, but you said the word “depressing”. Can we go back to those boxes and - you know, when you exited from DigitalOcean, I don’t know need to know how much money you made, but were you substantially well off that you could just take time off and self-fund the next things? How did you exit from that situation? Did you exit off really well? You’d mentioned the boxes, checking them all off at such a young age, that kind of being depressing. Can you kind of go back to that and explain more detail in there?
Yeah, so financially I checked that box as well. I’m fortunate enough to say I don’t have to work again if I choose not to. I could definitely take an extended period of time off and travel with my family once Covid clears… I think there’s a lot of unhappy people that make it financially and just are not doing anything with their lives.
So once I got to a certain point from a financial perspective in my life, I started to think about “Okay, what’s next? What can I do?” Let’s say Welcome Homes becomes the next billion-dollar startup. I’m accumulating all this wealth… What am I gonna be doing with all this wealth and with this financial capability? So Sponsored came to mind, this podcast marketplace, to give back to low-income families that can’t afford access to the internet, and can’t afford computers.
Going back to my story, when I was 13 my dad had a desktop, an IBM, and I always had access to computers and/or the internet, and that’s how I taught myself and built my career. “Why shouldn’t anyone else have that same opportunity?” is the question. Everyone should have that same opportunity. So Sponsored was a self-funded side/passion project of mine to give back to these low-income families, so that everyone can have the same opportunity and we can level the playing field.
So in this next chapter or this next phase of my life I’m starting to think of ways to not only build amazing companies, but what are some ways to give back to the community and to help others and to inspire others, and so I spend a lot of my time too with startup founders, and I spend a lot of time mentoring through the Techstars program as well… So I jump on founders talks with the other DigitalOcean founders for a Techstars fireside chat opportunity. I’m also joining David Cohen, we’re hosting a fireside chat from my university, North-East University; they’re opening up a tech accelerator in the New England area, in partnership with Techstars, so I’m doing a chat with them.
So I’m also contributing my time to help mentor and educate other aspiring entrepreneurs out there. Just figuring out ways to give back and to help others. I think it’s probably one of the most fulfilling feelings… But I also am a capitalist, I also wanna continue to build amazing businesses, and generate profits, and I definitely enjoy building exciting brands, and I’m gonna continue to do that as well.
It’s ultimately just being self-aware, and knowing that life is so short, and we only have so many years on this planet… We’ve gotta be swinging the bat, in my opinion. We can’t get too complacent and just kind of check the box every day and wake up and just do the same stuff every day. You’ve gotta try to get better, try to make the world a better place, make yourself better every single day; just try to get 1% better every single day, and try to accomplish things and finish things that you start, too. I think that’s another important takeaway too for people out there that are asking themselves “Why am I not further along than I wanna be?”
Those are some of the things that I’ve been doing. Again, I still have - knock on wood - a lot more years to go in my life, so…
[52:16] Yeah, I’m young. There’s gonna be new realities I face as I get older, but this is where I’m at mentally in my headspace today.
When we talked a few months back in just a separate side conversation you’d mentioned that you wanted to create a business with purpose. And to go back with what you’re doing with Sponsored, part of the platform fee or whatever the fee is essentially to enable the transaction between the marketer and the podcaster, that percentage - and 5% of that goes to a non-profit. What’s your connection to that non-profit? Can you explain that nuance there a bit more?
So a third of the placement fee goes to the non-profit. We basically donate a third… Typically the podcast host - we land somewhere around 10%-15%. We’re still very early with this startup, so we’re still trying to figure out the right pricing model and balance there… But call it like a 50/50 split or even a third goes to the non-profit. Sorry, I missed the question; what was the original question?
The details of the non-profit. What’s your connection to the non-profit, why specifically that mission, the amount of placement fee… I know it’s probably flexible and you’re still sort of finding a fit, but the website says 15%, 5% going to this non-profit.
That’s good feedback. I’ve gotta change some of that copy then to make it clear on the placement fee. But the non-profit, human-I-T, I met with the founder, Germaine, He and I met with his team to talk about a partnership, and I told him about this new startup that I’m self-funding to make it easier for brands and for podcasts to connect and to automate a lot of the tedious work to manage and to track and optimize your podcast sponsorship efforts, which at DigitalOcean was a very viable channel for us in terms of generating real business.
We actually found a lot of success in sponsoring developer-focused podcasts, and it was a great way to just build awareness and also help a lot of podcasts out with some real ad revenue.
I know early days for us for DigitalOcean, the relationship - I mean, it didn’t make or break our business, but it was definitely… We saw DigitalOcean as a strong partner, and we definitely enjoyed the revenue we got from that engagement, for sure. That’s for sure. I would call us an indie media company. We’ve been in business since 2009, we’ve never taken venture capital, have no plans to. I can’t foresee that day where it might come, but we’ve always been sort of funded by our customers, and our customers generally were through branded partnerships or sponsorships. We’ve never had our listeners pay. However, we do have a thing called Changelog++. It’s an ad-free version of our show, and that’s at your discretion as a listener, if you wanna do that to directly support us.
That sort of evens the tide, so to speak, between our reliance upon sponsors and how that can make or break… I know in 2020 we saw a dip in terms of listenership and in terms of sponsorship. It wasn’t enough, thankfully, because we’ve been smart in business, and having no debt, and being smart around certain things, so that it didn’t break us, but it was certainly a hit, and it was a little scary for a little bit there, but we weathered that storm no problem. And just to key in quickly there, DigitalOcean was a big player for us over the years.
And Changelog was a great audience for us. It kind of hit the mark for us, and the developer community that tuned into Changelog was our audience. It was a great partnership, and I remember engaging with Changelog and keeping that engagement for a long time when I was CMO there. So it was a great podcast for us, and it performed very well, so thank you for all those episodes, sponsorships, and keeping us on the show. That was great.
[56:15] I remember saying “Blazing fast SSDs” about a thousand and one times, for sure…
So kudos to you - or whomever - on that copy. Very well done.
But “Blazing fast SSDs” was the brand early on, and a sustained brand for DigitalOcean, because you brought SSDs to market, kind of going back to our earlier part of the conversation… But yeah, I remember saying “Blazing fast SSDs. Five-dollar droplets…”
[laughs] You should have made a song out of that.
We should have, yeah. We didn’t have that relationship quite so ingrained with Breakmaster then, but yeah, we could have done and we should have done that, for sure. But Sponsored though - what is it that drew you to this space? I know you kind of lean on the angle of the non-profit and the 30% given from the placement fee, but why solve the problem of helping marketers engage with, in your words, “highly-engaged technical audiences”? That’s super-niche.
Super-niche. Great that it’s self-funded, but it’s super-niche when compared to, say, Welcome Homes, which is I guess kind of niche-y, but everybody needs – at some point you’ll buy a home. DigitalOcean - at some point you will run or use an app or service on a cloud server, but not everybody needs to buy a podcast ad. Why that for you?
Well, I did some homework and research, too. I didn’t entirely launch the business blindly. I saw that the podcast market was growing from five million in ads spent to a billion in ads spent within a year. So within 12 months the industry is doubling. At that pace, obviously, there’s gonna be billions of dollars being invested into the podcast space. So just looking ahead and thinking – obviously, podcasts worked for DigitalOcean, and also my next startup that I joined, Clubhouse, the project management app, not the social media app, we also invested in podcasts as well, and that did generate good returns for us there.
It was a viable channel for all these companies, and it just was a pain to manage and to deal with the back-and-forth with each podcast owner, or ad partner, to place these sponsorships and to track them… Because to do it right, you need a dedicated landing page, you need to offer up some type of incentives. I’m sure we had a Changelog incentive at DigitalOcean to get some credit…
Do.co/changelog. I think it might still exist.
There you go.
We’d send everybody to that landing page, do.co/changelog. They’re not paying us for that ad, by the way… That’s just facts. That’s history.
Exactly. So you need the landing page, you need an incentive to do this right. And there’s also an educational process to running a podcast sponsorship the right way, and then you could run it the wrong way by not offering an incentive, by sending them to your homepage, by being very generic with the copy, and not exciting, not saying the word “blazing”… So there is an education piece that I think is important as part of this onboarding.
And then the goal with Sponsored is to make it entirely self-serve in the future. It’s a marketplace, we have to build both sides of the marketplace… So you need advertisers and brands that are willing to spend dollars on the sponsorship, and you need them to have accounts and profiles set up on the site, and then their payment method integrated… And then you need podcast owners and hosts who have their own account to accept the payments and to also accept these sponsorship payment requests.
[59:59] Over time, if you build up both sides of the marketplace, this should be a self-sustained ecosystem that basically grows organically over time. And it becomes semi-programmatic in a way, but you still are able to secure, authentic host reads from podcasts…
It’s crucial. Trust is important, especially when you have an engaged audience. If someone is going to make a purchasing decision, word of mouth and referrals is always the best channel. They’re gonna trust their friend or their family member, or even just a podcast host, a person that they trust, to make recommendations. So if the podcast host is putting their reputation on the line with this product or service, then it should be worthwhile to try, right? Especially if there’s an incentive tied to it, and if it’s a product or a service that I was looking for in the first place, then it becomes a no-brainer… Versus uploading an ad, the new Spotify podcast channel where it’s prerecorded and there’s no tie-in to the show, there’s no connection - people are just gonna skip that. It’s gonna be like seeing a billboard on the side of the road and just driving past it.
So just from my experience of like how to run a podcast sponsorship the proper way, knowing it’s a great channel, knowing that the industry is gonna continue to increase in size over time, this product and this platform makes sense. It’s still fairly early, it is niche, to your point, but over time this industry will continue to expand, and there just needs to be an easy, straightforward way to do this properly and at scale.
If I’m a CMO at a tech company targeting developers even, or software engineers with my product and I wanna invest in podcasts, I have to hire someone, I have to pay them 55k, 60k a year let’s say, to own this channel… Because you have to track all of this in a spreadsheet - you probably do this, right? You have maybe a spreadsheet potentially of all your sponsorships, and you have the price, and you have the time and the dates when it’s going live, and the script… It just becomes a mess, and it just becomes really hard to scale and optimize over time. Plus, you need, again, landing pages for each sponsorship… So it needs to be organized better, it needs to be more systematic, it needs to be automated, and it needs to become more self-serve, so that you can scale it.
Yeah. There’s a lot that resonates with me and there’s a lot that doesn’t. I think we’ve been doing it a while, that we’ve done a lot of that, but I can agree that it would be very difficult to scale it to – we have six active shows, for example. If we had 60 active shows… You know, if I’m a CMO, I might actually target in the dev space 6, 10… budgest restrictive at least, because you might not be able to afford ten shows consistently over time, which is generally how podcast sponsorships work - it’s best when you can sort of touch that audience on a consistent basis, and earn that trust, and as you said, educate them through the process… All these different things that sort of come into play with certain brands. That is a real challenge I think we personally face, and that I’m sure that others that are like us face as well.
What’s the state of the business? Where would you say it’s at currently in terms of fit on the CMO and marketer side, fit on the podcaster side, what’s the current state of the company?
So the current state of company is that – in terms of who we’re building it for and how we’re positioning the product and how we’re iterating, there are still a lot of things up in the air and a lot of question marks. It’s very, very early. One thing I am committed to and I do know is that we’re gonna be hiring a full-time CEO to run it, someone that has a marketing background and can manage a P&L, so that will help accelerate a lot of the product development work and a lot of the account management work.
[01:04:04.06] So we do have a small account management team that works directly with both the podcasters and the advertisers. So there is a human touch element to it at the moment… And this is really just to get people up to speed on how it works, how the platform works, and also how to properly set up a sponsorship, going back to the points I made earlier.
So to answer your question, Adam, we’re still trying to figure a lot of this stuff out, and obviously 100% of my time is really dedicated on Welcome Homes. One thing I learned in my career, Adam, is that if you wanna do something right and you wanna build something, you have to invest in it. And you have to invest in it in the right way. And to do that, it usually takes someone to own it fully, from end to end. So bringing on a CEO, bringing on someone that’s gonna own Sponsored to take it to the next level is going to be an exciting challenge for me in my career, as a next step, where I get to help guide and mentor from a different position than before, where I was more of a hands-on operator; I’ll be more seen as an advisor/investor per se to help grow this business, and again, to help give back to the community with access to technology.
So for me it’s still very early. We’re just getting some sponsorships off the ground with some startups and some brands through my personal network, and I believe we had one sponsorship already through Changelog…
For JS Party.
Yeah. So just starting to get the ball moving, learn, iterate and improve the product over time, and the platform, so that it becomes a more enjoyable experience for both the podcasters and the advertisers. If it’s a niche market, do I want a billion-dollar exit from this company? No. This company could just be profitable and be bootstrapping and I would be perfectly happy. I would love that. That would be amazing.
So for me, the goal for this company first and foremost is just build a profitable company that is offering a great product and delivering a great service, and the rest will take care of itself. I’m not worried about it, in terms of trying to achieve this billion-dollar market cap or valuation box to check. It has nothing to do with that at this point in my life. Clearly, we’ve done that already with DigitalOcean, with Sponsored… It’s about giving back and it’s about building a great company. Obviously, bootstrapping as much as I can, self-funding as much as I can to take it to the next level is the near-term objective.
[01:06:53.21] Cool. And that’s sponsored.us. It’s a cool domain name by the way too, sponsored.us. I imagine you have to live in the U.S. to get that domain? Is that a U.S. thing? What is that TLD?
I don’t know. It’s a domain extension from GoDaddy, and I think Zoom has a .us extension, so that’s where I got the idea from.
Yeah, that’s right, .us as well. That’s true. Interesting.
I was like, “If Zoom can have a .us, why not Sponsored?”
They’re doing pretty well…
Yeah. I love Zoom. We’re on Zoom right now.
Mitch, thanks for sharing your story with us. I’m sure we could have gone in a thousand and one different directions… We didn’t even cover everything I really wanted to cover with you, so maybe we can have you back sometime soon…
Count me in.
Yeah. I appreciate the work you’ve done at DigitalOcean. I wanted to share a lot of that story arc; I know we camped out there quite a bit, and glossed over probably what you really intend to do with Welcome, even if it’s niche and early days… But I think there’s a lot to happen in the home space, a lot of areas where we are synergistic in terms of our ideas, similar and same… Because I think there’s a better way, let’s just say, to build a home.
There’s definitely a better way.
There’s definitely a better way.
We’re gonna solve it, so we’re excited.
Anything in closing, anything I didn’t ask you that you wanna make sure we talk about before we tail off?
Being an entrepreneur is very hard, and it takes a lot of perseverance, and just my advice to all the entrepreneurs out there is just don’t give up. Keep pushing through.
That’s right. That’s good advice. Thank you, Mitch.
Thanks for having me, Adam. This was great. I enjoyed the conversation. Hopefully, I was able to add some value back to the Founders Talk community, and someone out there took away something that could help guide their career or guide their marketing decisions, or strategy, and… I just hopefully helped someone. That was the goal.
Yeah. I know you did. I know you did, Mitch. Thank you.
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