Bob Young, Co-Founder, Red Hat
The Open Source CEO
Bob Young’s journey from renting typewriters to co-founding an open-source software company to founding a self-publishing platform.
Entrepreneurship carries a lot of prestige these days. But back in the 1970s, when one freshly minted, Canadian college grad decided to start his own business, the only real perk was a business card that read, “Bob Young: President” that he could show to his mom.
This, Young explains, was the single greatest benefit of starting a business back then. It wasn’t about the money, the eager investors, or the thousands of devoted fans (he didn’t have any of those). He just hoped he could reassure his mom that she didn’t have to worry about him anymore.
“We now have the smartest kids in our high schools going to college to study entrepreneurship,” he says. “Whereas, back in my day, all the smart kids went and got ‘real jobs’ as lawyers or accountants or whatever and became CEOs of big corporations, and it was us dumb kids who started businesses because no one would employ us.”
For Young, that meant printing up a fancy business card and, with a little money from friends and family, buying a small, failing typewriter rental business for cheap.
From there, though, things got interesting. Young quickly pivoted from typewriters to computers, until a mid-career stumble led him to the world of open source software, a field in which he thrived. Young has since gone on to found Red Hat, a multinational company that offers non-proprietary software solutions to businesses. In 2018, IBM announced it would acquire Red Hat for around $34 billion.
Today, Young is at the helm of a few businesses, including self-publishing platform Lulu.com, continuing his passion for democratic, open distribution models that favor the little guy. But despite his 40 years in entrepreneurship, he still lists just a single skill under “Specialties” in his LinkedIn bio: typewriter sales.
“I’m a typewriter salesman, and that is the value I bring to the companies that I’m involved with,” Young says. “I’m a sales and marketing guy, and I have to hire smart accountants and smart engineers and smart product managers, because those are skills that I don’t have. My one contribution is in the sales and marketing side of the projects I’m involved in.”
When Success Turns Sour
Young realized almost immediately that his first business had to evolve, and fast. Shortly after he bought the typewriter rental business, he dug through old customer records to find those listed as inactive, and began calling them to try and entice them back into the fold.
One of the businesses that had often rented typewriters from the previous owner was a phone company called Bell Canada. After speaking with the office manager, a sweet woman who invited him to come visit even though, “when you come by all I’m going to do is show you why I don’t need your services anymore,” Young headed off to downtown Toronto to meet with her.
As she walked him through the open-plan office building, he saw several hundred employees, who only four years previously had used rented typewriters, at work in their cubicles. They were all staring into computer screens.
“We then, immediately of course, got into the computer equipment rental business,” Young says, laughing.
He managed Hamilton Rentals from 1979 until he sold it in 1984. He then founded Vernon Computer Source, another equipment rental business, that same year.
In 1992, Young was on cloud nine. He had just sold his second computer rental business to technology services company Greyvest Capital, Inc., mostly for shares in the company, and took a stable, comfortable job there.
Then came NAFTA (the North American Free Trade Agreement), which eliminated tariffs between the United States, Mexico, and Canada. That led to financial troubles for Greyvest, and suddenly Young’s life ceased to be as stable as he’d expected.
“In ’93, I found myself in Westport, CT, unemployed with a net worth of something less than it had been when I graduated college 15 years earlier, only now I had three children, a wife and a big mortgage.”
Just as Young had made his next big step forward in his career, it had all come crashing down around him. But looking back on this time in his life, Young is grateful for this heartbreaking failure, because he links it directly to the birth of Red Hat, Inc.
Trying on a New Hat
Shortly before its demise, Greyvest sent Young to New York to pursue the Unix workstation (a special computer designed specifically for scientific or technical endeavors) market, asking him to get to know the users in the big financial services companies and engineering companies in and around the city. Greyvest was in pursuit of new rental and leasing customers, and this was precisely what Young did best.
To accomplish this, he had been attending evening user group meetings and offering a helping hand. He had even started a modestly sized newsletter.
But when the bankruptcy of Greyvest forced him to walk away from the computer rental business for good, his goals shifted. What if, he wondered, he could transform his newsletter into something more?
As Young explains, the true value of an online newsletter doesn’t lie in the subscriptions. It’s all about the mailing list. Products of value to those particular customers can be marketed and sold using the list. And so, ACC Corp. was born, and through it, Young transformed his mailing list into a catalog filled with programs and software that catered to his audience: the ACC PC Unix and Linux Catalog.
Linux and Unix were two similar but competing operating systems initially released in the early 1970s. The major difference? Linux was free and open sourced. Unix was not.
Through the catalog, he had the greatest success in the sale of Linux-based products, so when he asked his customers to share what else he could add to his catalog, and they directed him to a tiny project filled with potential called Red Hat Linux, he was intrigued. Red Hat Linux promised to be a new and improved version of the Linux Young’s customers already knew and loved, so Young knew he needed to check it out.
Young called the creator, Mark Ewing, who was working out of his spare bedroom and his own bank account, and asked him to send over 300 copies of Red Hat Linux for him to sell through the catalog.
Young questioned Ewing’s hesitation to do business with him. Ewing explained that he had only planned to manufacture 300 copies of Red Hat Linux in total.
Young meshed his big dreaming style with Ewing’s engineering prowess, and the two co-founded the version of Red Hat, Inc. that still thrives today.
He had taken a circuitous route to the software industry, but he was grateful that he finally arrived when he did.
“Whether it was Steve Jobs or Bill Gates, they’re both contemporaries of mine and it’s been fun sort of growing up in the industry watching those guys be successful,” he says. “I was late to the party of success, but I was pleased with Red Hat’s success.”
Young served as the company’s CEO from its founding in 1993 until shortly after the company went public in 1999.
“Once we became a public company, and we had 400 employees, I realized I’d never worked for a company of 400 employees, much less managed one,” he says.
As he faced down the wild host of new rules, regulations, and responsibilities that came with being CEO of a public company, Young recognized that the best thing he could do to ensure the company’s success was to embrace his own weaknesses and step away.
“One of the tricks to being successful is to be self-aware,” Young says. “None of us—no human being—is anywhere close to being perfect. In fact, I’d argue that most of us are barely adequate, even among the most successful of us. But if you know what you’re good at, and you know what you’re not good at, then you can build organizations that protect themselves from your failings.”
Young also recognized an entrepreneurial wanderlust stirring in his heart.
“I’m an early stage startup guy,” he says. “I really, really like the big idea, and I really like selling the big idea, but once I convince people that the big idea is worth pursuing, I lose interest in it and I’m looking for the next big idea.”
He explains that this is an excellent quality when you’re just starting a business and hunting for your great, big idea, but that, once a company is off and running, it can become a serious problem.
“Repetition and precision are things I do not do,” he says with a chuckle. “I never have done. This is why I was such a terrible student as a kid. My mind just doesn’t work that way. My mind works always on the next idea.”
So, he decided to call Matthew Szulik, who would become the next leader of Red Hat, into his office for a chat.
“Probably the biggest single contribution I made to Red Hat’s success was getting out of Matthew’s way and letting him turn our fledgling Red Hat business into the billion-dollar enterprise it is today.”
Although the time had come to bid Red Hat farewell, Young is still incredibly proud of their ongoing success.
“It was this wonderful adventure that worked out astoundingly well,” he says. “We weren’t sure if we could build a business there, but we knew if we could it was going to be a huge business, because open source—sharing your software, sharing binaries with your customers—was simply a better way of building software than the previous proprietary model that all the other software companies were pursuing at the time.
“To have that vision come true has been a bit of an out of body experience, and it gives me great pleasure,” he says.
And just like that, the co-founder of Red Hat was off on a journey to find his next big idea and turn it into a reality.
Open Source Publishing
Today, at just shy of 60 years old, Young owns the Canadian football team the Hamilton Tiger-Cats and serves as CEO of craft marketplace Needlepoint.com and chairman of drone company PrecisionHawk. But the endeavor he says he is currently most passionate about was one he founded in 2002—Lulu.com.
Through this print-on-demand self-publishing and distribution platform, Young wanted to revolutionize the publishing industry. He wanted to serve authors who write on niche subjects and catered to niche audiences. In other words, the ones that would be turned away by the traditional publishing industry, no matter the value the book offered to the market it intended to serve.
“We serve the interests of the author,” he explains. “The publishing industry is set up to serve the interest of the readers, and the author is just a cog in their machine.”
Young has a special passion for creators would otherwise get chewed up by “the machine,” no matter their industry. This is partly why he recommends founders consider platforms like Shopify to sell their products rather than relying on the “FANGs” (Facebook, Amazon, Netflix and Google).
“The consolidation we are seeing on the internet is making early internet pioneers nervous,” Young says, “because the whole point of the Internet was to bring more democracy—to put more control in the hands of the consumer, of the user of the internet—and we are seeing it move away from there.”
When a business owner sets up an Amazon store or a Facebook page to sell from, those customers no longer belong to the business owner. They belong to Amazon or Facebook.
“You want your customers to have loyalty,” he says. “The problem with setting up your shop on Amazon is Amazon is competing with you for the brand and the attention of the customers you’re sending to Amazon, and that’s not in your interest of building a strong brand for your product and your service.”
Young explains that when an author sends their customers to Amazon to buy their book, Amazon immediately begins recommending other titles in that subject to the customer before they have even been able to purchase the title they originally intended to buy.
“Amazon has just absconded with your customer,” he says. “Amazon is happy to have you as a merchant, because they want you to bring all your customers to Amazon so they can sell them other things. Shopify is the exact opposite of that.”
Rather than sending new customers to Facebook.com/YourBusiness, he urges business owners to start sending customers to YourBusiness.com. He also encourages founders to “pay attention to the principles behind the internet, not just the buttons that Facebook and Google give you.”
“The internet itself is this great, open vista, and if you build your market using the foundational elements of the internet, no one can ever take that away from you.”
He’s hopeful that the rising generation of founders and business owners will be savvy enough to navigate these stormy seas.
“As this next generation of entrepreneurs get going, they’re going to understand…you’ve got to be really careful about surrendering your customer to your supplier,” he says. “You want to find suppliers who are going to partner with you to build your business, not using you to build their business.”
Whether in the computer rental space, the arena of open source coding or his current realm of self-publishing, Young has always lived by the principal of democratizing access to the tools that build success.
Through collaboration and inviting more voices to the table, advancements come more swiftly, and this is a principal that even Young, a self-proclaimed “dumb kid” who started out selling typewriters, can embrace.
Bob Young’s Tips on Cultivating Self-Awareness
Bob Young says that he owes much of his success to self-awareness. By leaning into what he is good at and hiring others to cover areas where he struggles, this self-proclaimed typewriter salesman has found remarkable success. Young insists that even those who struggle with self-awareness can develop it, and these are three of his tips for harnessing that growth:
1. Put the Pride Aside
“So many of us are prideful,” Young says. “We worry about being criticized.”
But as founders, and as humans, there is always room for growth. Rejecting that evolution in favor of belief in our own mythology only prevents us from reaching our greatest potential. Young says that, in order to achieve any increased level of self-awareness, pride first has to be eliminated from the equation.
2. Listen to Critiques More Than Compliments
Once pride is silenced, it’s time to let the criticisms reach our eyes and ears, even though it may sting a little.
“We worry that people think we’ve made a mistake or that we’ve done something dumb,” Young says. “If you can flip that around and look at your mistakes as your biggest single learning opportunity that day or that week or that year, now when people criticize you, they’re more valuable to you than the people who compliment you.”
Choosing to embrace our own failings today, no matter who brings them to our attention, is the only way to make sure those same failures don’t repeat tomorrow.
3. Be Honest With Yourself
Young is comfortable with sharing the skills he lacks, especially in the area of customer support. He explains that, although he loves his customers, he cannot find the patience to help a new customer struggle through a problem he’s solved for 600 customers who came before.
He says that it took many years, and many, many customers pointing out this flaw, for him to internalize the criticism, but once he did, and once he genuinely considered the critique, he recognized that he and his customers would be better served if left that work to someone else. He says his brain simply isn’t wired for customer service, so he relies on those around him who are.
To maximize self-awareness, Young says we should accept what we are great at, grow where we are able, and rely on the talents of others to support us where we perpetually fall short.
- How Bob got his start in entrepreneurship by selling typewriters
- How a visit to Bell Canada convinced Bob to make the transition from typewriter rentals to computer rentals
- How his net worth got wiped out and what he did next
- His transition from equipment leasing to software when he cofounded Red Hat
- Why he decided to step away and hire a CEO for Red Hat
- The project he cares most about now: print-on-demand self-publishing and distribution platform Lulu.com
- Why he’s paying a lot of attention to Shopify
- Why the next wave of entrepreneurs needs to be wary of relying on big tech companies
- How to cultivate more self-awareness as a founder
- His thoughts on Red Hat being acquired by IBM for $34 billion
Full Transcript of Podcast with Bob Young
Nathan: The first question that I ask everyone that comes on is, how did you get your job?
Bob: So now, that’s the challenge in my case, because the question is, which job?
Nathan: Well, I guess, how did you find yourself doing the work you’re doing today? You’re formerly, I think, you’re known for founding Red Hat, open source software company.
Bob: That’s right.
Nathan: Yeah, so how did all that come about? I know you started a couple companies before that as well. So yeah, take us back to the early days when you first started, Bob.
Bob: Okay. So, mine is the … almost the opposite of how people seem to start businesses today. And this is a major shift in our culture’s view of entrepreneurships and startups. Because we now have the smartest kids in our high schools going to college to study entrepreneurship. Whereas back in my day, all the smart kids went and got real jobs, as lawyers or accountants, or whatever. And became CEOs of big corporations. And it was us dumb kids who started businesses, because no one would employ us.
And the benefit to starting a business, back in the late ’70s, was because of course you start your business, you have no customers, you have no product. But you get to go to the little print shop. You print up some business cards, called Bob Young, President. And you don’t give that card to a customer, because you don’t have any. You give the card to your mother. Because now your mother can quit worrying about you.
Nathan: So, basically, no one wanted to hire you. So you decided to start … yeah, selling computers, right?
Bob: So, my original job was selling typewriters. So I was able to acquire, with a little bit of what’s referred to as “love money”, hitting up on friends and family, I was able to buy a small typewriter rental business. Because of course by the late ’70s, it was obvious to anyone that the typewriter rental business was a fading business. So I was able to buy one inexpensively, and to this very day, when people say, what do you do, other CEOs might describe themselves as accountants who become CEOs, or as archaeologists who become CEOs. In my case, I’m a typewriter salesman.
And that is the value I bring to the companies that I’m involved with. And I’m a sales and marketing guy. And I have to hire smart accountants, and smart engineers, and smart product managers, because those are skills that I don’t have. My one contribution is in the sales and marketing side of the projects I’m involved in.
Nathan: I see. So, how did things go with the typewriting. When I did some research, it was computer rental and leasing. How did things go with … yeah.
Bob: So, my insight. And we were aware that we were going to have to evolve the business pretty quickly. But it wasn’t until I was going through old customer records, because I was looking to try and get our typewriter rental business to work better than it was … the reason I was able to buy it is, obviously, it had been poorly managed.
So I went and called on some of the customers, who were in their customer list, but were not active customers. And I remember one of the visits was to Canada’s phone company, an outfit called Bell Canada. And the office manager took my call. She was very sweet. she said, “Well, you’re welcome to come and visit,” because that’s … you know, I had my sales hat on, so I was trying to talk her into letting me come and sell her on our wonderful typewriter rental services. And she says, “You’re welcome to come by, but when you come by, all I’m going to do is show you why I don’t need your services anymore.” So I say, “Okay. I’ll still take you up on it.”
And I went and visited her. And she walked me out into the open plan office in this big building, in downtown Toronto. And everyone was sitting at their cubes staring at computer screens. And there must have been several hundred people on the floor that we could see.
And she said, “Bob, four years ago, all of those people were working on typewriters. And they’re all now working on computer terminals. And now you understand why I’m not a customer of yours.” And if there was a good evidence of where I should take my business, we then immediately of course got into the computer equipment rental business. And we evolved the business quite quickly. And that was an outfit called Hamilton Rentals, from ’79 through to ’84.
I then did another … sold that company. Did another equipment rental business from ’85 to ’92. We thought we had sold that business successfully, but the business we sold it to then got into trouble. And so, in ’93, I found myself in Westport, Connecticut, unemployed, with a net worth of something less than it had been when I graduated college 15 years earlier. Only now I had three children, a wife, and a big mortgage.
Nathan: Oh, wow. How did that happen?
Bob: That sounds like a bit of a crisis. Except for the fact that it led directly to Red Hat. So I’m sort of grateful for the guys who mismanaged that company, because had they been even modestly successful, I would still be struggling in the computer rental and leasing business, instead of having gotten into a much better business, the software business.
Nathan: Yeah, I see. I’m curious, how did you … you just tipped in, basically everything you had to try turn it around.
Bob: So, no. The way the story played out … you’re going to have to buy me a couple of beers to get the long version of this one … but the short version was, we had built this company called Vernon Equipment Rentals, from nothing in ’83, to doing about $25 million. And we sold it to a financial services company. And what we were caught out by, the company we sold it to, an outfit called Grey Vest in Toronto, were highly leveraged, as you do in the equipment leasing business. You try and borrow as much money as you can in order to finance as much equipment as you can for your customers.
But Canada went into quite a severe recession, with NAFTA. You may have heard President Trump complaining about NAFTA. But in reality, NAFTA has been a very, very good thing for North America generally, and for the United States in particular. It was Canada that was really hammered by NAFTA. Because in Canada, prior to the Free Trade Agreement called NAFTA, a big part of the Canadian economy was small US divisions of bigger US factories. And so, you would have a factory in Chicago making 100,000, we’ll call them widgets. And they would have a Canadian factory making 10,000 widgets for the Canadian market.
The moment free trade came in, in about 1990 or ’91, you’ll have to look up the exact date. Suddenly, the US company could ship widgets from their much larger factory directly to their Canadian consumer. So of course they go, oh, okay, with big cost savings, we can close down our 10,000 widget factory in Canada. And that’s what they did. And in the course of a single year, Canada went into a very severe recession. The Canadian banks … that’s a very centralised business, there are only six major Canadian banks … they all realised Canada was going into a recession. So they all started calling their loans, to protect themselves. And one of the loans they ended up calling was on Grey Vest.
So I thought I had done well selling my business to Grey Vest, and being a big Grey Vest shareholder. Or owning a lot of Grey Vest shares. And I thought I was worth a reasonable amount of money, only to have Grey Vest go into bankruptcy, and wipe out most of my net worth.
Nathan: Ah, so it was a stock deal.
Nathan: I see. So then you had to find yourself going back, to try and turn the company around.
Bob: So, no. It was out of my hands. I was now just a paid employee when they got into trouble. So I was just unemployed. But while I was at Grey Vest, working on Vernon for them, they moved me to New York to expand our small New York office. We were primarily a Canadian company, I don’t know if you’ve picked that up from my accent. But they moved me down to New York. And so when I suddenly found myself unemployed, without any net worth left, I had been with Grey Vest trying to get us into the UNIX work station markets, on microsystems, Apollo Computer, IBM RS6000-type equipment. And in order to make friends with all the UNIX operating system users, who were all the big financial services companies in New York. The big engineering companies, like GE, around New York. I would go to the user group meetings in the evenings, and I would ask them, hey guys, what can I do to help?
And I was running a little newsletter. And this was all in the effort of trying to find rental and leasing customers for computer equipment. Of course, suddenly I find myself unemployed, and I go, well I should be able to turn this little newsletter into a business. And what you learn very quickly if you study the newsletter, or computer magazine business, is most of them make more money as catalogue companies. Because their real value is their mailing list, not their subscriptions.
And so, if you can use the mailing list to sell things to the customers, to the readers of your newsletter, it’s a channel to market that’s quite efficient. So I was launched the ACC PC UNIX and LINUX catalogue, because all of the user groups were talking about this free software, which has since become open source software. And the early versions of the LINUX operating system. This is ’93, ’94.
And had Grey Vest not gone bankrupt, I would have never made the career change from being in the equipment leasing business, to being in the software business, and co-founding Red Hat with Marc Ewing, and the rest was history.
Nathan: I see, so what happened next? So you started this computer magazine. And how did you come to co-founding Red Hat?
Bob: I was renting this magazine, and also the catalogue that went along with the magazine. I was selling things to the subscribers of my little magazine. And the thing they most … the hole in the market, the thing my customers couldn’t find anywhere else, i.e. where I had the least competition, was in LINUX CDs, things like Slackware, and Yggdrasil. This is the very early days of LINUX.
And, couple of my customers. I would ask my customers, what other products should I be adding to my little catalogue? And a couple of them … a couple of my better customers, who were clearly very smart engineering-type people … suggested I look at the Red Hat LINUX distribution. I said, “It’s pretty early stages. But this kid seems to be going in the right direction.”
And what they were referring to is Marc Ewing’s little project that he called Red Hat LINUX. So I call up Marc. And we have a very short conversation. And it went like this.
Which is, I was running this business, ACC Corp., doing this catalogue business. Marc was doing this LINUX project out of his spare bedroom, under his own name, out of his own bank account. And so I’m saying, “You know, Marc, I’ve got a couple of customers who are vouching for the fact that you’re writing a better version of LINUX than the ones currently available. I should be able to switch sell, whatever, 10% of my customers over to Red Hat. I’m selling about a thousand copies of LINUX a month, of Slackware and Yggdrasil. So send me three months’ supply. Send me 300 copies.”
Dead silence at the end of the phone. I finally get out of Marc that he was only thinking of manufacturing 300 copies. Well, I knew how little I was paying him for his … per copy, because he had quoted me a price. And if he was only thinking of manufacturing 300 copies, I knew this kid was starving to death.
So, it was sort of a match made in heaven. I needed a product that I could call my own, for my catalogue that I could then, instead of competing … you know, when LINUX eventually ended up in the retail stores, Comp USA or wherever, I needed a product that I could sell to Comp USA, as opposed to compete with Comp USA.
So Marc and I, we got together. We both understood that we had a terrific complement of skills. He was a first class engineer out of Carnegie Mellon, one of the top engineering schools in the States. And I was a sales and marketing guy, and he needed help selling the technology he was capable of producing. So, in the end, my little business, ACC Corp, bought Red Hat from Marc in exchange for shares. And Marc and I always had that debate. We always referred to each other as co-founders of Red Hat. When in reality, we can’t actually agree as to who founded Red Hat. Because I founded the company that is Red Hat today, and he started the project that became Red Hat LINUX.
So, did Marc found the company, or did I … so, because we couldn’t resolve the debate, we very good-naturedly agreed that no, we were really co-founders, and let’s refer to each other that way.
Nathan: Gotcha. So yeah, you were the hustler, Marc was the hacker. So you were Steve Jobs.
Nathan: And Marc was …
Bob: There you go. I don’t … the parallels end there between myself and Steve Jobs. He was a much smarter guy than I was. But, interesting enough, just in … those guys got into the right business earlier than I did. It wasn’t until I was most of 45 before I got into the software business. But, whether it was Steve Jobs or Bill Gates, they’re both contemporaries of mine, and it’s been fun, growing up in the industry, watching those guys be successful. And I was late to the party of success, but I was pleased with Red Hat’s success. But … interesting stories, as a result of staying in the technology industry for your whole career, you see a lot of change. And you collect of interesting stories.
Nathan: Yeah. So let’s talk about some of these stories. So what happened next? Because you’ve not gone on to do many other things. So yeah, you guys listed Red Hat. Yeah, let’s talk about that.
Bob: Yeah, so as Red Hat became successful … and I was the CEO through the founding, or co-founding, of Red Hat, through our IPO in 1999. But once we became a public company, and we had 400 employees, I realised, I’d never worked for a company of 400 employees, much less managed one. And now we’re a public company in the era of Sarbanes Oxley, and all the public company regulation. And we’d been fortunate to recruit Matthew Zulick, a very, very smart executive. So shortly after we went public, I called Matthew into my office and said, “Matthew, how about you become CEO, and I kick myself upstairs to a nice cushy chairman job. Because I’ve never really wanted to work in a company of 400 employees, much less manage one.”
Probably the biggest single contribution I made to the Red Hat success, was getting out of Matthew’s way, and letting him turn our fledgling Red Hat business into the billion dollar enterprise it is today.
Nathan: Yeah, that’s interesting, because often people talk about how important … certain VC funds, they only … like founder-led businesses, and they’d like them to stay founder-led. So, did you still stay as chairman for a very long time? Up until … yeah, even when IBM bought you guys, or … yeah.
Bob: So, no. One of the tricks to being successful is to be self-aware. So, none of us, no human being, is anywhere close to being perfect. And in fact, I would argue most of us are barely adequate, even among the most successful of us. But, if you know what you’re good at, and you know what you’re not good at, then you can build organisations that protect themselves from your failings.
And in my case, I’m an early stage startup guy. I really, really like the big idea. And I really like selling the big idea. But, once I convince people that the big idea’s worth pursuing, I lose interest in it, and I’m looking for the next big idea. Which is a really good skill if you’re starting a business, because you really want to start a business that solves a big problem, not one that solves a little problem. But it’s really a bad problem once the business starts to go, because you need to get the business doing what it does really, really well. It’s all about scaling the business. It’s all about taking that innovation around the world. And repetition, and precision, are things I do not do. I never have done … this is why I was such a terrible student as a kid. And my mind just doesn’t work that way. My mind works always on the next idea.
So, after Red Hat went public and I became chairman, I did that for a few years. And I just didn’t enjoy it. I didn’t want to be a director of a big public company. I wanted go get back and start the next big thing. So, the next big thing that I’ve been working on … I work in a variety of things … but the one I care most about is Lulu.com. Which is the self-publishing business.
And when Lulu started in about 2004, we were really the innovator in the space. We’re the ones who figured out that these digital printers could be … the big ones from HP and Xerox … were capable of being set up in such a way that while they cost a lot of money to instal these systems in the big print houses, with the print machine, the binding machine, the cover generating machine. And they could produce books at the rate of thousands of books per hour. It cost a million bucks to set up these things, but you no longer had to run print runs of 10,000 copies. In fact, you didn’t even have to run a print run of a thousand copies. You did have to print 10,000 copies a day to justify the investment in the printer. But they could literally be … it’s like the laser printer in your office, that can print a marketing brochure one minute, and print a letter to the editor the next minute.
These things didn’t have to print the same book. They could print 10,000 completely different books, one at a time. And that’ what Lulu was set up to take advantage of. And that’s what we’ve been serving, is we’ve been expanding the market for authors, by serving the long of authors. So these are all the authors who have valuable knowledge to convey, but relatively small markets that need the knowledge.
Because the publishing industry isn’t set up to serve any book that sells less than, pick a number, five or 10 thousand copies a year. So the publishers are constantly turning away books on narrow subjects, no matter how valuable that book might be to the thousand readers that need a copy of that book. The publishing industry just doesn’t set up to serve it. And that’s precisely the market that Lulu serves.
And what we do is we serve the interests of the author. The publishing industry is set up to serve the interests of the readers, and the author is just a cog in their machine. Our business is set up to serve the interests of the author, whether that author is an aspiring John Grisham, or J. K. , or whether that author is a business looking to print and distribute its instruction manuals, its financial advice, its yoga practises. And that’s what Lulu does very well. And it gives me great pleasure … I enjoy the Lulu business because, really, our business model is set up to look after the next generation of Bob Youngs, and is allowing them to become their own publisher, without having to set up a print factory, or write big contracts with printers.
And they can print and sell books literally around the world, because we have print partners in Australia, and in Europe, and in North America, who can print the book and deliver it locally, to wherever your customer happens to be.
Nathan: Yeah, print on demand, massive. And I’m seeing a very, very big trend in the self-publishing space as well. And I’m sure you’ve seen that prominence rise, especially … even the past few years, a lot of people don’t go the traditional book publishing route now. Even some of these big authors, they just do print on demand, because the deals that you do with these big publishing houses, you don’t really get much of a … I guess, a …for the time that you spent, or your IP, or your knowledge. You really … yeah. So, it’s massive.
Bob: If you’re John Grisham, and you have a deal with Random House, and they sell a million books for you at $20 a book, you only need to earn $10 a book, or sorry, $2 a book, as in 10% royalty on the sales, because $2 a book on a million books is $2 million a year, and John Grisham is laughing all the way to the bank. Because the publisher has to do all the work.
But if you’re only selling a thousand books a year, if you’re only earning 10%, that’s a couple of hundred dollars. What’s the value of doing it? Whereas on Lulu, you get to earn 80% of the profit on the book. So if the book costs us $5 to print for you, and you sell it for $20, you’re keeping whatever that works out to, about $13 per book. And now if you sell a thousand books, you’re pocketing $13,000. And that on the sale of simply a thousand copies of your book, and you don’t have to do any of the work. The book gets printed and delivered to your customer, by Lulu. The customer pays Lulu, and we just funnel the money back to your PayPal account, or cut you a check, as you prefer.
So, it is that idea of self-publishing. Now, one of the interesting wrinkles, the most current interesting wrinkle, and the most interesting innovation that Lulu’s come up with in recent years, which is really going to be interesting to you, is … as you know, the big worry about the internet is the consolidation around what are known as the . The Facebook, Amazons, Netflix, Googles. Because the big players on the internet are capturing all of the data. The more data you can capture, the more effective you can be both to the advertisers who want to reach your audiences, but also your understanding of audience behaviour, and you can build even better tools for those customers.
So, as you get bigger, life gets easier. It becomes easier to get even bigger. And the consolidation we are seeing on the internet is making early internet pioneers nervous, because the whole point of the internet was to bring more democracy to our … put more control in the hands of the consumer, of the user of the internet. And we’re seeing it move away from there.
And one of the companies I’m paying a lot of attention to … I have no relationship to them … other than they are doing the reverse of what the FANGs do. They’re taking advantage of, and building on, the heterogeneity of the internet. This broad outreach to other, and empowering of others, that the internet was supposed to be all about. An outfit called Shopify.
Nathan: Ahh, they’re Canadian.
Bob: They are Canadian. But that’s actually not how I connected with them. I connected with them just by watching what they were doing. And as a small merchant, and someone who’s interested in your market, like entrepreneurs, the problem with setting up your shop on Amazon’s Marketplace … you know, imagine now you’re Nathan’s Yoga, dot com. And, you publish your book on yoga instructions, because having taught yoga for years … making up a story here for you … you now have an insight in the yoga that no one else has, and you want to publish it to your audience. So you publish it on Amazon. And then you send your customers to Amazon to buy your book.
Before they can even check out with that book, Amazon says, well, if you’re interested in that yoga book, here’s 632 other yoga books you might want to take a look at. In other words, Amazon has just absconded with your customer. And Amazon is happy to have you as a merchant because they want you to bring all your customers to Amazon, so they can sell them other things.
And Shopify is the exact opposite of that. So the other phenomenon is Amazon, of course, has built this lobster trap, where … and it’s a very good lobster trap. It provides a huge amount of value to the people who use it. But it’s still a lobster trap. You go to Amazon, you can never get out of Amazon. You have to intentionally close that window, and open another window if you want to go to Facebook, or Netflix, or Nathan’s Yoga dot com.
Where Shopify, you are building all these tools that allow you to sell your yoga book on Facebook, or Instagram, or Pinterest, or wherever it is that you want to take your book to, to serve your market.
And so, when you set up your shop on Shopify, and you send your customers there, your customers are not being wooed by someone who’s trying to sell your customers all your competitors’ products. And so by partnering with Lulu, we can now help entrepreneurs who are setting up Shopify stores, to publish their own books and their friend’s books, through their store, using the Lula app on Shopify, where we print the books, we distribute the books, and we … and Shopify manages the collection of the cash, all seamlessly. And now you’re a publisher without having to open an account with FedEx, or worry about finding a printer in Australia, because we’ve looked after all of that infrastructure for you.
Nathan: Yeah, wow, that’s pretty incredible, because one thing I have definitely noticed as well when it comes to books, is if there’s a massive rise of the influencer, and people want to build personal brands. And I’m sure that you’ve seen this as well, Bob, like this is massive. And one way that people like to build influence strategically is to publish a book. So I’m noticing a lot of people doing self-publishing of books.
There’s also something else that I’m noticing. Maybe quite niche. I’m not sure if you’re aware of it, but there’s many people doing free plus shipping models from a marketing and sales perspective. Are you familiar with that model?
Nathan: Yes. So, that’s a really smart way, if you have a personal brand, you’re trying to grow your personal brand, or you have your own business as a form of customer acquisition, where you can get the unit economics dialled in, where you can probably acquire a customer at break even … in some cases profit … by giving your book away for free, but the person covers shipping and handling. And then throughout the sales process, having a few optional upgrades. That appears to be a very, very hot way for companies to acquire a lot of customers at scale, at either break even, little bit of profit, or sometimes even not making profit on the front, bit if they’ve got a good selling system on the back end, they can scale that business very fast.
Bob: And that’s exactly right. And this desire of these entrepreneurs to build a brand, and get customers addicted to their brand, because they are the ones providing value to the customer. And being able to use tools that position you, the person doing all the work, adding all the value, to be the brand in front of your customer. And not have one of the big players come in and scoop that brand from you. So again, if you’re building your Nathan’s Yoga business, you want your customers to have loyalty, and to enjoy the interaction with Nathan’s Yoga, not with Amazon. And not with Google. But with Nathan’s Yoga.
And the problem with setting up your shop on Amazon, is Amazon is competing with you for the brand, and the attention of the customers you are sending to Amazon. And that’s not in your interest to building a strong brand for your product and your service.
And the same problem with Google, where when you buy Google ads to attract customers, that customer is learning to find your product by searching yoga books on Google. And of course, he forgets three months later when he wants to interface with you. Who is that great company I dealt with? Oh, I’ll go to Google and type in “yoga book”, and they might or might not find Nathan’s Yoga.
Whereas, again, using things like our Lulu tools, and the APIs that enabled us to do the Shopify app, which you can use directly. You don’t have to go through Shopify to use our APIs. You can set up your own publisher, where it’s not even Lulu on the book. It is Nathan’s Publishing on the book. We are simply the back end to help you build your brand, and you’re not having to build Create Space, or Kindle Books. Kindle Direct, I think they’re calling it now. But anyways, it used to be Create Space at Amazon.
But it’s still … you see where the problem was, which was, you were building Amazon. You were surrendering your brand and your customers to one of these big players, whether it was Amazon in the delivery of the book, or whether it was Google in reaching your customers. And by working on Shopify, and working with tools like Shopify, and using the Lulu and other web service companies, where you’re using the tool … admittedly, you pay for the use of the tool … but you’re not competing with your vendor, with the tool provider’s brand. The tool provider is trying to help you build your brand. They’re not trying to steal your customers from you.
And I think this is going to be a big trend. And as I think, as entrepreneurs, as this next generation of entrepreneurs get going, they’re going to understand … this is already a topic that smart guys like you are talking about. Where you’ve got to be really careful about surrendering your customer to your supplier. You want to find suppliers who are going to partner with you to help you build your business, not using you to build their business.
Nathan: Yeah. I agree. In the early days of Foundr … because we started off as a magazine … I thought it was quite interesting when we jumped on the call, Bobby said that you guys … you know, a media company, you’re an education company. And the truth is, we started as a media and publishing company, but as times went on, and we built up this community, similar to your story with when you were publishing your computer magazine, we found out other ways we could serve our audience. And a big problem that we’re trying to tackle is the education part of entrepreneurship, and that side of things.
So, that’s why I said we’re both. But one thing that I found in the early days of starting Foundr, when we were publishing the magazine, originally just as digital on the app store, is it was incredible to be able to launch on a platform that has hundreds of millions, maybe even billions of buyers that are predisposed, and used to paying for content, because Apple has trained them to pay … for people to pay for content. So when we launch, we had two subscribers of the magazine, in the first day, right? But, what happened a year later when they made some changes to their search algorithm, when people were searching for certain key terms that we were ranking for, like entrepreneur, entrepreneurship, et cetera, et cetera, we lost a lot of our traction and downloads.
And that was when I learned a very valuable lesson that you never build your business on rented land. You cannot rely on … yeah, these big companies, or any company. Like let’s just say your business is a Shopify tool, or an app. Or, let’s just say your business has something to do with Instagram, and you have a software that talks to the Instagram API, and then Instagram or Facebook turn around and say, hey, we’re tightening this. And now your tool doesn’t work anymore. You can never rely on building a business on someone else’s rented land. That’s been a big lesson for me.
Bob: Yeah, yeah. Both you and I, I bet, could trade horror stories, not just of our own experience, but of people we know who’ve thought they had great businesses. And with an overnight switch in an algorithm, whether it was Google switch, or Amazon’s, or Facebook’s, their business suddenly just disappeared on them. And yeah, that is exactly the problem. And it’s why you need, and why your founders, your audience, needs to pay attention to the principles behind the internet, not just the buttons that Facebook and Google give you.
Because the internet itself is this great open vista. And if you build your market using the foundational elements of the internet, no one can ever take that away from you. That is the commons. And if you’ve done it properly, your customers know where to find you, and none of the big players, none of your competitors, they can only take your customers if they do a better job than you are doing, serving your customers with a better value.
And this is where, yeah, I can’t encourage your … your magazine, and your audience, to … enough, to pay attention to exactly that point, which is, get people to come to founder.com, don’t get them to go to founder/facebook.com. Because they’re not really your customers, they’re Facebook’s customers that Facebook allows you to serve for as long as they choose to allow you to serve them. Whereas if they’re coming directly to founder.com, there’s no one who can ever take that relationship away from you, between you and your customer.
Nathan: Yeah. I think that’s a really, really good lesson. So look, Bob, I’m super-mindful of your time. We’re almost up. We have to work towards wrapping up. Couple of questions, just to route out a few things. I had some notes of some things that you said, which I thought was quite interesting. One of the things that you said was, “Around the key to being successful is your level of self-awareness.” And really having, I guess, having people around you in your team, your leadership team, or whatnot, even the early days, bringing on co-founders that have complimentary skills to things that are your weaknesses, or things you’re not strong at.
So, my question to you is, what would you say to anyone listening around cultivating their self-awareness? Because that’s a difficult thing. Is is something that you either have or you don’t have? Or …
Bob: No. No, there’s a trick to it. So thank you for asking. Because I love this trick. Because it caters to my failings. And I developed this trick the hard way, which is, so many of us are prideful. We worry about being criticised. We worry that people think we’ve made a mistake, or that we’ve done something dumb. If you can flip that around, and look at your mistakes as your biggest single learning opportunity, that day or that week or that year, now when people criticise you, they’re more valuable to you than the people who compliment you.
And the way you become self-aware is by treating criticism as a learning opportunity, really leaning into it. Others will tell you what you are good at, and what you aren’t good at. So, my customers, by the way … and this is a funny story … but it relates to Lulu, and Kathy Hensgen, who’s our president, chief operating officer, and I. We get along really well, despite the fact we drive each other crazy. Because Kathy is brilliant at building replicable systems. So our customer service at Lulu is legendary. And is remarkably consistent. And yet, my personal reputation for customer service is, how shall I put it, a little spotty.
And it’s not because I don’t care about my customers. I love my customers, and I want every customer to be successful. It’s that I don’t have the patience to listen to the next new customer struggle through a problem that I’ve solved for 600 previous customers. I get impatient. And that’s a failing. That’s not a good thing. I have no justification for that. That is a bad thing.
I should treat each new customer problem as a selling opportunity. I know that’s true. I can’t make myself do it. And my customers have pointed out this failing to me for 40 years. And shockingly enough, I finally internalised it. I know what I do badly, and I do customer service badly, and it’s not because I don’t … because I want to do it badly, it’s because my mind is not organised in such a way that I can provide a reliable level of customer service.
Conversely, Kathy at Lulu is genius at this. She loves customer complaints, because it allows her to further improve the systems that Lulu uses to look after each and every customer complaint. And it … Kathy and my relationship is as good an example of what I have painfully learned over the course of my career, by listening carefully to my critics. More carefully to my critics than anyone who compliments me.
Nathan: Yeah, love it. So look, Bob, we have to work towards wrapping. Two more questions. One, you know obviously, yourself and Red Hat have been in the news, or there’s been a few stories. And a bit of press in the past few months. We’re recording this early 2019, but recently, Red Hat was acquired by IBM for $34 billion. That’s a lot of money. So, I have to ask you. I read somewhere that you sold your shares a long time ago. I just have to ask you … that’s correct, right?
Bob: Yes, that is correct.
Nathan: So I have to ask you, what are your thoughts, feelings, on I guess that acquisition? Do you wish you kept even a small piece of that company? Just because it was your baby at one point. And then the last question is, where’s the best place people can find out more about yourself, and your work?
Bob: So, the second part of that is the easiest one. Go to Lulu.com, and you can follow me, or follow links from Lulu back to Wikipedia, or wherever else you want to go. So Lulu.com, as I say, is the project that I’m most enthusiastic about at this time.
But the other one, about Red Hat, I tell you, 25 years ago, Red Hat was in my wife’s sewing closet. And when I partnered up with Marc Ewing, his and my joke when we would to … at LINUX conferences. And people said, what are you … are you trying to take over LINUX? Are you trying to be … I don’t know, the Microsoft of the LINUX world? And we’d go, no, no no. We’re just trying to pay taxes again. Meaning, we weren’t making any money at all. And if we were paying taxes, it would mean we were finally profitable, and that would be a good thing.
So, the fact that Red Hat has gone from there … it was this wonderful adventure that worked out just astoundingly well. But we knew … we weren’t sure if we could build a business there. But we knew if we could, that it was going to be a huge business, because open source, sharing your software, sharing binaries with your customers, was simply a better way of developing software than the previous proprietary model, that all the other software companies were pursuing at the time.
And to have that vision come true, has been a bit of an out of body experience. And it gives me great pleasure. And no, I don’t regret selling my Red Hat shares. I did very well off of it. I’m very —the whole project. And no, I have nothing but enthusiasm for the ongoing success of the open source community.
Nathan: Incredible. Well look, thank you so much for your time, Bob. It was an absolute pleasure speaking with you. I know a lot of people will get a lot of value out of this conversation.
And if people want to know more about you, and your latest company, the one that you’re really passionate about is Lulu.com … L-U-L-U.com, which is a print on demand self publishing company.
So yeah, thanks again for your time, mate. We will wrap there. And yeah, hope you have a fantastic time, and day, in New York.
Bob: Same to you, Nathan. A great pleasure to talk to you. And again, congratulations on Foundr.
Nathan: Thank you so much.
Key Resources From Our Interview With Bob Young
- Visit Lulu.com