Jonathan Siegel, Chairman of Xenon Ventures
What a Successful Serial Entrepreneur Can Teach Us About Failure with Jonathan Siegel
After founding four internet startups and achieving multiple eight-figure exits, Jonathan Siegel might seem like one of those perpetual success stories, the kind of superhero founder who excels at everything he attempts. Did we mention he’s also a certified commercial jet pilot, a licensed real estate broker, and the father of eight kids?
And yet, Siegel’s new book The San Francisco Fallacy is about failure.
“Failure is a natural consequence of having a startup,” Siegel says. “I’ve been through it, it feels horrible, at times it’s miserable, and if you are in a startup or considering one, reading the book will hopefully make you feel like you’re at least not alone.”
Of course, his book is about a lot more than just his failings. At 40, Siegel is reflecting on a lifetime of entrepreneurial hits and misses, and decades of experience that have established him as a tech industry stalwart. He’s also got a few things to say about his industry, picking apart some of the biggest misconceptions in today’s startup culture.
But let’s start at the beginning. At 12, Siegel got his first computer, and, like any curious preteen would do (OK, maybe not any), he took it apart. When he put it back together and found that it still worked, that simple delight sparked a career that took him from selling computers, to building software, to acquiring and growing early-stage companies.
“It really doesn’t feel like a job as much as it just feels like I’m getting paid to do something that I would do for fun,” says Siegel, who now serves as founder and chairman of Xenon Ventures, a private equity firm for early-stage SaaS businesses.
How did it all come about? By a series of “not-well-planned-out things,” he says.
“Some people in their life, I think they create a master plan and then they follow that master plan, step by step,” he says. “I definitely didn’t do that.”
Fresh out of college, Siegel founded a consultancy, ELC Technologies. At its peak it grew to 75 people, and when he realized many of his top developers had free time without work to bill, he decided to leverage that talent to create products in their spare time.
“We just built stuff and built stuff and built stuff,” he says, calling that period one of his most productive as a founder.
In 2002, Siegel essentially cashed out that consultancy, bought a home and a plane in Santa Barbara, and settled into retirement. He was in his early 20s. But a wedding and three children later, Siegel realized, “Whatever math I had done when I thought I was retired did not work once I had a family and a few kids.” He sold the plane, and eventually, the home. Feeling confident with the success he’d had at his consultancy before, he decided to go back to building products—except, this time, for himself.
“Being a consultant … I did all the heavy lifting only to deliver this amazing product to my customer who then was going to go make so much money from it,” Siegel says. The turning point was when he realized he could build products and bring them to market himself.
His first notable release was RightCart, software Siegel believed “would put to bed ever needing to build another ecommerce site.” RightCart, as its name implies, was a shopping cart located on the right side of a webpage. It was purchased by Buy.com within the first year of its existence.
How to Know if You Should Sell Your Company
Jonathan Siegel sells businesses at a rate other people sell cars. The guy knows his stuff when it comes to exiting.
But people often ask him if he ever feels like he left money on the table in that first exit. “I’ve never had that feeling,” he says. “I never feel like I could’ve done more.” Rather, Siegel sees how things could have fallen apart had he tried to hold onto the company—he tends to “see things that look like dead ends.”
So how can an entrepreneur know when it’s the right time to sell? It depends on your goals. For Siegel, selling that first company had nothing to do with the amount of money he could earn from it. The whole point was to achieve an exit. That was a significant milestone for him, because it proved that he could build companies people wanted to buy.
And he continued to do just that. While they say necessity is the mother of invention, for Siegel, it seems frustration is. Just as he created RightCart when he realized he never wanted to build another ecommerce site again, he created RightSignature when he was vexed by the complicated process of signing a document while he was overseas.
On a trip to Munich with his wife, Siegel received a notice from a company that required his signature that day to close a fundraising round in California. After the attorneys refused his request to do it via e-signature, and after his office was unable to fax the document to him internationally, Siegel had an idea: What if he scribbled his signature onto his computer’s trackpad, copied it onto the PDF, emailed it to his office in Santa Barbara, and had them fax it over to the attorneys?
It worked. The signature was accepted, the financing went through, and the idea for RightSignature was born.
“What a silly thing to have to go through to get a document signed,” Siegel recalls. “I said, ‘I never want to be in that position again.’” He took what he’d learned in Munich back to his office in the States, where he and his team made a small project and started using the e-signature service within the consulting business, to send proposals and get customer approvals.
Then an amazing thing happened: Their customers started to sign up for the service, and it snowballed into a real business from there. RightSignature was later acquired by Citrix.
By the time Siegel was working on his next business, RightScale, which provided tools for cloud computing platforms, he found himself flying through some turbulence.
Once again, he had investors “banging down the door” wanting to throw money at his new company, but he still had his growing consultancy and the drawn-out acquisition of RightCart to deal with. Being pulled in so many directions meant he didn’t have much bandwidth.
Then one day, his RightScale cofounder and the CEO he’d hired sat him down and said he couldn’t have half the company if he wasn’t going to be present in the business. Siegel was crushed.
“I didn’t act as maturely as I would have liked at the time. I was offended and I was hurt because I felt, you know, my own team and company were leaving me.”
Reflecting on it now, with years of experience under his belt, Siegel views it with a different perspective. “Now that I look back at it, it was completely reasonable. If I were on the other side, I would do the same thing.”
These days, Siegel cautions all entrepreneurs to watch out for these five words: “Let’s just split this equally.”
“If those words come out of your mouth, you are creating a problem for the business later on in the future, because there’s no way that is going to be the right, equitable split.”
When starting a company, Siegel recommends closely evaluating the roles each team member will play. Which ones are generic and easy to replace? And which ones are so crucial that the company wouldn’t survive without them? Equity should be divided based on that, not blindly split down the middle.
“If we start a business together, and you can leave but I can’t, then I definitely need much more of that upside than you do,” Siegel says. “Because if I leave, the business dies, but if you leave, then you’re kind of on my coattails. There needs to be a different set of equity and ownership based on whether or not those parties are needed into the future.”
Choosing the Right CEO
In his experience starting and scaling companies, Siegel has seemed comfortable bringing on a CEO. What’s his secret sauce for finding the right CEO? Siegel looks for two things: Someone who is tangible and concrete (versus someone who’s a dreamer), and someone he can get into a conflict with early on, yet come out of it with a good interpersonal relationship.
“Bashing heads is great,” Siegel says. “It’s how you work with one another in that process. … If it can be rational and passionate, but ultimately based on sort of logic and truth … that is a mixture for great outcomes.”
A ‘Rude Awakening’ to a New Startup World
In the early 2000s, Siegel seemed unstoppable. He had founded three companies: RightCart, which had a successful exit, RightScale, which went on to raise $75 million within a couple years, and RightSignature, which became “profitable very quickly.” Things were looking up for the young serial entrepreneur.
“All of those companies made me start to think I was like God’s gift to entrepreneuring,” Siegel says.
But then 2008 rolled around—and nothing worked. Siegel calls this his “rude awakening,” when he was forced to take a hard look at his situation. While he had more resources, more experience, and a larger network than ever, his formerly predictable hit rate of around one out of every 10 products he built turning into a successful company was no longer reliable. “Everything I touched just sort of withered on the vine.”
What had changed?
He then looked around at the environment. Incubators such as Y Combinator, 500 Startups, and Techstars were roaring to life. He calculated that around 10 companies were graduating from incubators every single day. The failures he was experiencing, Siegel deduced, were not a result of his failure to innovate, but rather, a sign of the times. The startup landscape was now more competitive than he’d ever seen. “That really put a close to phase one of my professional career.”
Siegel says today’s entrepreneurs face a level of competition unparalleled in the previous decades.
“I pulled the lottery ticket,” he says. “I happened to be at the right place at the right time, and the quality of products that I was bringing out back then, they’d be laughable now even if I used modern toolsets. We really didn’t have to be that sophisticated or deliver that much value to ignite a real business opportunity. And today, it’s almost the opposite, it feels. You have to do everything right just to find that niche that’s going to give you enough love to grow a little bit bigger and survive.”
How Siegel’s Failures Help Him Guide Other Entrepreneurs
During that period of struggling to find the same entrepreneurial success he had experienced previously, Siegel began angel investing as a way to apply his expertise. From that, he stumbled into what he does today: purchasing and operating small, early-stage companies. Xenon’s portfolio includes Earth Class Mail, StatusHub, and I Done This.
“The majority of incubated and venture-funded startups fail—that’s a truth,” Siegel says. “So I’m often now a home for those businesses that are failing the investor expectations but are not failed businesses independently.”
In recent years, countless startups have flocked to Silicon Valley, lured by the promise of an environment where they can finally find success. However, in his nearly two decades of starting, acquiring, and growing businesses, Siegel saw a common thread: Location had no bearing on whether a business became a success. His businesses have been built out of Santa Barbara, Las Vegas, and even Ireland. That realization is where the title of his new book, The San Francisco Fallacy, comes from.
Siegel wrote the book in the hopes his failures can help others see the “rakes in the grass ahead” and learn from his mistakes.
“Failure is actually the majority outcome,” he says. “You shouldn’t be surprised. No one else is surprised, and hopefully you can get some comfort from that, if not avoid some of the other rakes that are out there in the midst.”
Trust him—he should know.
Five Winning Elements Jonathan Siegel Looks for in a Company He Would Buy
So would your business make the cut for potential acquisition by Xenon? Here are the five key things Siegel looks for before purchasing a company:
1. It’s a Software as a Service (SaaS) business.
Siegel only considers SaaS businesses, and says there actually aren’t many technology companies that fall into that category.
2. It has recurring revenue from small businesses.
Siegel doesn’t like to see one-off transaction charges or ad-based businesses; rather, he looks for billing accounts that are paid every month. Next, he wants that revenue to come from small businesses because he knows how they think. “I don’t understand consumers,” Siegel says. “You could have offered me to buy Snapchat 100 times all along the journey, and every time … I would never do it. I don’t understand it.”
3. It has 80 percent achievable gross margins.
The beauty of technology is we’re able to do things cheaper than ever and optimize processes more than ever before. Siegel gives the example of an e-signature business, where even a big customer using it a thousand times per month won’t take up much bandwidth or server time, meaning the costs of running the service are quite low. “So when I look at businesses, I’m looking for 80 percent achievable margins,” Siegel says. “You don’t have to be there today, but there has to be a path to get there.” He’s referring to gross margins, so this would be your total revenue minus costs.
4. It does not have retreating revenue.
When looking to buy a company, Siegel doesn’t want to see a downward trajectory. To make the cut, the business must meet or exceed the revenue it made at the same time last year. “There’s so many reasons why a business starts to lose money, lose customers,” Siegel says, “and none of them are good, and they’re really hard to recover from.”
5. There is latent capacity in the business.
In his final requirement for companies he’s considering acquiring, Siegel looks for any latent opportunities to improve the business. An example of this would be a company that has a huge email list but has never emailed everybody, or a company that has never advertised their products. On the flip side, if Siegel finds a company that has tried “every trick in the book,” that worries him because there’s no way for him to improve that business.
- How to turn entrepreneurship from a career to a creative outlet
- Understanding the difference between a startup that’s successful on paper, and one that works in real life
- How to handle disputes between co-founders
- Why it’s so important to understand your motivation as an entrepreneur
- The lifecycle of building companies that you intend to sell
Full Transcript of the Podcast with Jonathan Siegel
Nathan: Hello and welcome to another episode of the Foundr podcast. My name is Nathan Chan and I’m your host coming to you live from hometown, homegrown Melbourne, Australia. I hope you’re all having a wonderful day wherever you are around the world. I just want to say thank you so much for sharing your earbuds with me. And if you are new to the show, we interview extremely successful founders from all across the globe that are number one or number two in the industry or they’ve built something extremely disruptive and they’re proven. They have disrupted industries, they have changed the world today as we know it.
Let’s talk about today’s guest. His name’s Jonathan Siegel and he’s got a really, really interesting story to share. He’s created a couple of companies RightScale, RightSignature, RightCart and he’s essentially what I would consider a really, really good product guy, so he’s had a lot of success as an entrepreneur and he’s been really good at identifying trends at a very, very good time, building an online business, generally software. And each one of these companies has an interesting story, tale and progression to share. He really knows his weaknesses and he knows his strengths, and you’ll learn about how important self-awareness is, which is something we’ve never really touched on that much when we’re speaking to guests. And you’ll also understand, you know, what it means to actually bring a CEO in your business, that’s something else we haven’t really talked about as well. So a really smart guy, a ton you can learn. He runs a venture…he’s an angel investor, I think he has a fund as well. So super smart guy all around, I think you guys are gonna really enjoy this episode.
All right, that’s it from me. If you are enjoying these episodes, also, please do take the time to leave us a review wherever you’re listening, Spotify, iTunes, Stitcher, SoundCloud. It helps us more than you can imagine. And I know you must have a friend that’s a founder, please do let them know about this podcast, I hope it’ll add value to their lives as well if you can let them know. All right, that’s it from me, now let’s jump into the show.
Yeah, look, the first question I ask everyone that comes on, Jonathan, is, “How did you get your job?”
Jonathan Siegel: How did I get my job, that’s a great question. So my start was when I was 12. I got my first computer, took it apart and, when I put it back together, it still worked. And at my age that was like… When was it, 1989? So being able to put together computers gave me my first job.
Nathan: ’89, geez, that was close to when I was born. So tell me, what happened next? Like can you tell us about how did you find yourself doing the work you’re doing today?
Jonathan: Yeah, so honestly, it feels like the same thing and I’d say I’ve been playing on computers since I was 12. It really doesn’t feel like a job as much as it just feels like I’m getting paid to do something that I would do for fun.
Nathan: Awesome. So can you tell us about the companies that you’ve founded and started? Like tell us about your first company.
Jonathan: Yeah, so I had a wide range of things that I’ve done. All the way from that very first time I put together a computer, I ended up selling computers at a very young age, and then I found I could develop software on computers and people would pay me to do that, and I was delighted. And that meant that, in my free time, I could create technical products because I love to create them. And most of them, I mean these were things I did for myself, not to make money, and so, they often…they really failed because…or they didn’t fail. I mean bring them to life was sort of my goal, not making money from them. And over time, I started building products for other people and had a consultancy. So I guess my first real company that I founded of substance was a consultancy when we built products for other people, and I ended up getting really good at the executing of bringing technical stuff to life.
You know, when I look at how I’ve ended up doing the things I’ve done, some people in their life I think they create like a master plan and then they follow that master plan step by step. And I definitely didn’t do that. I feel like looking at how things have happened for me, it’s really a series of just accidents and really not well planned out things that I just sort of followed opportunity from one step to the next. So while I was doing my consultancy, I realized, you know, you have down time. When you run a consultancy, you might…and we grew to 75 people at our peak and we were in Ruby on Rails at the right time. And if you have extra people that you can’t build for, you say that they’re on the bench. So if you have three or four really high quality developers that you work with and they’re not doing anything, you kind of start brainstorming, “Well, geez, you know, wouldn’t it be cool if we could solve one of these problems for us, or one of these problems that we’ve seen from our customers?” And so, I think the period, for me, that it was most productive as sort of a founder was when I had my consultancy and had all this idle team. And at that point, we just built stuff and built stuff and built stuff.
Nathan: So it sounds like a notable software product came out of the consultancy, is that what happened?
Jonathan: There were a few. So the first one was something called RightCart and that was built because we really didn’t want to build e-commerce sites anymore, this was back in 2005. And if you knew how to program in 2005, someone would say, “I’ve got a great idea, I’m gonna take my uncle’s auto parts store and I’m gonna put it online. So I need someone to build an e-commerce store.” And someone would say, “I’m gonna make a custom, you know, flower arrangements and I want to put it online.” And so, everyone was asking you to build these e-commerce sites and they were really boring as a creator to build the e-commerce sites, it was just very tactical and technical and not a lot of fun.
So we built a product which we thought would put to bed ever needing to build another e-commerce site and that was called RightCart, and it was a shopping cart that was on the right-hand side of your webpage. And it could go from website to website, it was copy-and-paste and you could build your own cart yourself. And that came out of consultancy and that ended up getting purchased by buy.com within the first year of its existence. And that’s sort of set…it wasn’t like retiring sort of acquisition but it was amazing still. But that sent me down the path of realizing that I could sell companies.
Nathan: Interesting. So question, “What made you want to sell it?” Because I talked to you offline before we hit record, you wrote a really interesting article on startups.co around holding on and knowing when to sell and when not to sell. Had it worked? Do you feel that you caved too early? Do you feel that you should’ve waited out? Like can you talk me through that piece of the puzzle around how you made that decision for RightCart?
Jonathan: Yes. So I mean this depends on the person, right? For me, I had a really good sense of what my talents and strengths and ambitions were, and what sort of…even outcomes would be meaningful for me. And for me, on that first company, the amount of money was not important to me, it was that I had achieved an exit, that I could create something that someone wanted to sell. And I think about now, many people I meet often say, “Yeah, I left money on the table,” or, “Do you feel like you left money on the table?” I’ve never had that feeling, I never feel like I could’ve done more. I see it the opposite way, I see if I held it out of my strength, how could’ve it fallen apart underneath me.
And I think all of us entrepreneurs, we have this really interesting challenge, which is we’re going along this road and we don’t have infinite visibility into the future. We can really only see ahead of us the distance that each of us feel comfortable seeing. And for me, I tend to see things that look like dead ends. And maybe it’s, you know, my ability to scale a team beyond 50 people scares me, I don’t like it, I don’t have the strength to do it. Or maybe raising capital isn’t something that I want to do because I don’t want to be beholden to a bunch of other shareholders. And so, as I look at my opportunities, I naturally see dead ends, from my perspective. But I know that other people in the same shoes just see it as a cul-de-sac, right? You just you go around it, it’s not a big deal at all to them.
So I decided to sell because, at that time, really my options felt binary, I didn’t have enough money to continue the product independently, the product wasn’t making enough money independently. So it really would’ve been a raise money and go shoot for the moon, or it would’ve been a find an early exit, which is what I ended up doing. At that time, because of this product’s use case, it would be used by like bands on their MySpace pages to sell t-shirts and things like band paraphernalia. And so, we were wrapped up in this sort of like blogs being the center of content, I don’t know if you remember this, but like blogs were supposed to rule the world, and the thing there, like, GeoCities was gonna rule the world. We were in that awkward time where no one really was, there really weren’t a massive amount of high quality content on blogs, it really was that yucky period where nothing really was coming together.
And so in order for us to become a…you know, one path would be saying, “Hey, we’re gonna monetize MySpace,” and there would’ve been plenty of interest to get funding versus, “Hey, we have the opportunity to have a buyer,” and get an early exit, get a under our belt. And that felt like the right choice for us at the time.
Nathan: That makes sense. So one thing that I find interesting I have to ask you about is, is it sounds like the amount of money you make doesn’t really faze you.
Jonathan: Well, you know, if you do something because it’s a creative outlet, the amount of money is not the goal. And I actually I don’t believe that every entrepreneur is running around thinking about how much money they’re gonna have in their accounts. I think every entrepreneur runs around thinking, “Hey, I want to bring this thing to life. I want to see, I want to create something bigger than myself. I want to see the thing that I create influence other people and the way they work and the way they live.” And the monetary aspect is really only there, I think, because the investment community, and because often, when we do entrepreneur, we create a ton of economic value and other people see that and they want us to…we sort of capture that value. But the actual entrepreneur, I know for me, that I do things all day long that are not going to return me return, but I have to do it because it’s inside me, I want to see things come to life, it’s a creative outlet. I think that’s very much the case for entrepreneurs.
Nathan: Yeah, I know, I agree. And I think that’s a little…like that’s actually, funnily enough, that’s one thing, one of my mentors taught me is he is like, you know, “Once you get your company to a certain point in terms of revenue,” he said, “that’s the secret that no founder ever shares is people actually don’t really care about the money anymore, they just really care about the culture and what it’s like to work in that environment.” Because once you get to a certain point, you know, you’re going to be okay, right? Like you’re always gonna keep generating revenue and you can get to a certain point, right?
Jonathan: Yeah. And I also think that when we all come to the entrepreneur journey from a different starting point. Some people come from wealthy families, some people come from food stamps. And when you get to the point where you have a business and that business is under your control and it’s growing, all of us are going to have a different point where we say, “You know what, this is enough for me. I don’t have ambitions to have yachts or finance a new private college or any of those things,” maybe it’s just pay off my student loan or pay down my credit cards, or just take a year off because of the gift that I’ve gotten because of what I’ve been able to do.
Nathan: Yeah, I agree. So, tell me what happened next. What was the next company you created?
Jonathan: Well, so I went to the space where I created a bunch of…and I don’t even say that they are companies. I mean I created a bunch of products, these things really were like minimum viable products, they could accept a new customer to come on board if the customer sort of found the product on their own. But it really wasn’t a whole business. But because of the time that I was entrepreneuring, 2005, 2006, 2007, there just weren’t any competitors, like it was really hard to bring things to market. Amazon which has brought the cost to entrepreneur way down, they didn’t really exist the way they do today then, and there weren’t a lot of people getting funding at the early stages and coming to market. So I made a bunch of products and almost without trying those products on…you know, 1 out of 10, let’s say, would turn into companies and those companies went on to one exit, that was the RightCart. Another one called RightScale was a cloud platform very early on. They raised $75 million in just a couple of years.
Then there was another company called RightSignature which is an e-signature business that didn’t raise money but they’ve become profitable very quickly. And all of those companies made me start to think I was like God’s gift to entrepreneurs, that anything, any product that I…or not any product because a lot of my products failed, but that I had this predictable hit rate that if I started enough products, I would end up with a company and that company would be very rewarding for me, it would become very successful. And then, I sort of had this rude awakening which is that 2008, 2009, 2010 came and nothing worked then. And I’ve had like more resources, more experience, more network than ever before and yet everything I touched just sort of withered on the vine.
And I was sort of scratching my head trying to figure out, “Hey, what’s changed in the environment? Is it me?” And what I ended up doing is I counted the number of companies that were coming out of incubators because the
Y Combinator is sort of like the tier 1 incubator and they have 100 companies that graduate from Y Combinator every year. Then 500 startups and, about a year or so ago, I heard they’ve done 1,400 startups that they’ve financed. There’s Techstars, there’s AngelPad, there’s every major city around the globe has a regional incubator. And my calculation said there were 10 companies graduating from incubators every day.
And so what had really changed was maybe not my ability to entrepreneur or to execute, but that I now had competition on innovation and that there was so much innovation that just building something or building 10 things was no longer differentiating, it no longer meant that my products were likely to become companies. And I think that really put a close to the like phase 1 of my professional career.
Nathan: Interesting. So you believed that it was just the landscape, that it’s a much more competitive environment now compared to 10, 15 years ago?
Jonathan: Oh, I think I pulled the lottery ticket. I happened to be at the right place at the right time and the quality of products that I was bringing out back then, they’d be laughable now. I mean even if I used modern tool sets, just we really didn’t have to be that sophisticated or deliver that much value to ignite a real business opportunity. And today, it’s almost the opposite, it feels, you have to do everything right just to find that niche that’s going to give you enough love to grow a little bit bigger and survive.
Nathan: That’s interesting. So talk to me about was it RightScale was the one where you had some, I guess, co-found relationship issues or challenges?
Jonathan: Yeah, I certainly did. So RightScale… This is an interesting one. So, you know, I had been building things that I enjoyed to build and I really didn’t think about them as sort of like investments.
Nathan: Through the consultancy? Sorry to interrupt but you still, like you, during this period, you’ve always had that consultancy? Or…
Jonathan: Yes, so what it felt like at the day was I had a consultancy right after college. And then, in 2002, I just basically cashed the consultancy out, right? There was some cash in the accounts, I thought I could retire. I was, you know, early 20s. I got a home in a plane in Santa Barbara and then I got married, had my first kid, had my second kid and my third kid, and I realized whatever math I had done when I thought I was retired did not work once I had a family and a few kids. Sold the plane, sat down my wife and said, “You know, I gotta go get a job. I just planned terribly, I’m really sorry.” And I tried to work for someone and it really didn’t work out well. And then, I said, “Well, what are my choices? So, you know, I did this consultancy thing before. Maybe I should build products for myself.” Because I had thought being a consultant and building stuff, that I did all the heavy lifting, only to deliver this amazing product to my customer who then was gonna go make so much money from it. And so I can do that for myself.
So we sold our home at the time which was…when you have a family or if you have one, you see that’s a big commitment. We said like no looking back, burn the bridges, I’m going to invest my own money now and build these products which I know I can de-risk and bring in the market because I’ve done this before for other people. And it turns out, the building of the product wasn’t hard, that was actually really easy. The hard part was what do you do after you build the product? And that was sort of a loop I kept falling into. And even when we created the thing called the RightCart and got it into an acquisition, what happened was I was sort of pressed between, you know, a rock and a hard place. On one hand, I had a young startup that looked like it had potential to be a good return for me. But on the other hand, my savings were dwindling and I didn’t have the money from the startup yet.
So in order to subsidize my dwindling savings, we agreed to start doing some consulting while RightCart was still being in acquisition, it was a long, drawn-out acquisition. And ironically, one of the people that I had spoken with to get a sort of another offer for the business was Amazon. Because I thought Amazon was e-commerce, RightCart was e-commerce. And Amazon said, “Actually, you know, we’re gonna be more of a cloud company moving forward.” They didn’t use the word cloud, they said, “A technology company.” And I ended up getting access to their cloud platform just at the perfect time. And by doing that, I had the resources of my consultancy, which was coming together, I had the knowledge of the beginnings of a cloud offer. And, as we started to try and use the cloud, we realized that there were tools that were missing and we started building tools and those tools ultimately became this company called RightScale.
There was another professor in Santa Barbara, someone who had been a chief architect that go to my PC, had seen businesses at scale, he realized the potential of cloud right away, that was Thorsten von Eicken. And he and I became partners. My consultancy and Thorsten partnered to create RightScale. And then what happened was that RightScale actually took off. It’s sort of like a good bad…a good bad problem. And then, when the company…and what taking off means is that it very quickly got investors that were banging down the door to want to throw millions of dollars into the company. And I was still trying to run my consultancy that was coming together and sell this other business called RightCart and, you know, sorta like spinning plates, I had very little time for the RightScale business. And ultimately, the founders, my co-founder and the CEO I hired, sat me down and said, “Hey, you can’t have half the company and not be present in the business.”
And to me, I guess, you know, I was really naive and I felt like really wronged and sort of, you know, just that…even my team was sort of like kicking me out, it was a weird, weird mental feeling. Now with plenty of perspective, I know that things like this happen all the time. But at the time, I had none, I had none. I’ve never gone through this stuff before. And ultimately, that led to my departure formally and as a participant in the company. But there was a brief period of time where a tremendous amount of my worth on paper was in this company, which I had kind of been ousted, where I had the sense of being ousted from. And that was really…that was a very interesting place to be.
And I imagine, there’s a number of people that are either working for startups that then get investment and, based on the investment round, you look at your shares and you say, “Oh my god, I’m a millionaire.” On paper. But it doesn’t matter on your day-to-day life, you still just have to make do with whatever means you have at the time because that paper is not worth anything to anybody until a sort of exit event actually happens.
Nathan: That company went on to be quite successful, right? RightScale, yeah?
Jonathan: They went on to raise $75 million. And here’s where like success becomes nebulous, right? Like on one hand, very impactful company at times in the evolution of cloud, which is stellar, really, really incredible thought leadership came from the company, hundreds of employees at the business, and raised a lot of money. So now, I’m no longer related to the company, I believe they’re doing well but I have no insight. But it’s a good question still where success is because that success depends on who you are. For me, success ended up being sort of formalizing my exit and I took a sort of a discounted sale of stock back to the company. But that was sort of a huge exit for me at the time, I think facilitated a lot of other things for me into the future. If I hadn’t done that, if I had stayed at RightScale, I may have today many, you know, multiples of everything I’ve earned since then on paper. But I still might not have anything in the bank. So it just depends on, you know, what that path is. And I think the path that I chose ended up being right for me.
Nathan: With this stuff that happened with the co-founder relationship stuff, what do you wish you knew or what might’ve you done differently? How would have you approached it? Do you think it is right if, you know, you’re running multiple companies, you come up with the idea, you self-fund it and then you bring in like a CEO or a co-founder, do you think it is right to have that for the other team members to have the expectation that you’re living and breathing it? Yeah, I’d love to hear your thoughts.
Jonathan: You know, I think I was so naive of all things having to do with business that I can understand why…and I didn’t act as maturely as I would’ve liked at the time, I was offended and I was hurt because I felt, you know, my own team and company were leaving me. And now that I look back at it, it was completely reasonable. If I were on the other side of it, I would do the same thing. I just had no advisers at that time and I wasn’t in the Bay, so there was a lot less access to people who had gone through this to give me advice. And I think that now in my life, I’m very happy claiming my fair share, whether that’s 2% or 80% of the things that I’m involved with, because I know, at the outset, how to express the value that I’m going to bring to the company.
But I think back then, the value that I brought to that business really was probably maximized in the first six months when I did have been but then I was being present. And the minute I was no longer there, I think my contributions should have been reduced because… And look, it’s been 11 years now and my teammates are still there. Like they really were committed for the journey. And it’s something I talk about, I say, “Often, when we create companies, we create them in a democratic fashion. So we split the shares equally among the parties. We might do it because we have someone who’s really doing, you know, let’s say, just a replaceable generic role, I don’t know what that is, but whatever that is on your team, a replaceable generic role. And then, you have someone who has got this incredibly specific, really critical to the team, to the business role. And if you split the equity, the ownership equally, the rewards equally, that might feel really good at the beginning because we wanna create teams. But when you’re three years in, or five years in, and the person who sort of realizes that they’re a special, they’re a critical component of the business, they can’t leave, and it begins to be unfair and people start to realize it at some point in the journey. And it’s only natural that there’s a reconciliation if you don’t start the company correctly.
And looking back in hindsight, the company wasn’t started correctly and it was the absolute right thing to do to change that ownership. But it just really didn’t feel good to me. Maybe that’s a message that, you know, when you do get…end up…and we all do, when you create companies and if you don’t…if you’re sitting down to someone and you say, “Hey, let’s just split this,” or you have four people, “Let’s just split this equally.” If those words come out of your mouth, you are creating a problem for the business later on into the future because there’s no way that that is going to be the right, equitable split. One thing I say is if we start a business together and you can leave but I can’t, then I definitely need much more of that upside than you do because if I leave, the business dies but if you leave, then you’re kind of like on my coattails, right? So there needs to be a different set of equity and ownership, based on whether or not those parties are needed into the future. And I really wasn’t needed, by the performance of the business I was not needed.
Nathan: Yeah. No, that makes sense. So how’d you start RightSignature and how come always the “Right” at the start? Because people would think that that is all connected.
Jonathan: So the RightCart…
Nathan: Like the brands are all connected, in that sense.
Jonathan: I know, I know. So the RightCart was, it was a shopping cart on the right-hand side of the screen. I didn’t name it, the designer did, the right side of the screen shopping cart. And then, RightScale comes along and I was adamant, we called it AWS console because it was based on Amazon Web Services. And then, we got a nice one from Amazon, saying, “You guys got to change the name.” And so, I wanted to call it ScaleCentric. And my partner in the business at the time said, “How about RightScale?” And I said, “No, we can’t, that’s so cheesy. RightCart, RightScale. It’s just…it’s cheesy.” But they did it and they won the boat. And then, they raised all this money and I said, “Well, okay. You know what, that might be a good idea. Maybe this ‘Right’ thing is a good idea.”
And at that time, I had bought like 700 domains that began with “Right.” And that has been a pool of company names that I’ve gone back to again and again. With RightSignature, my wife and I were in Munich and it was a Friday night and we were staying at a really nice hotel and I got this notice from RightScale who I was…they weren’t particularly cozy with me by that point in time, so I didn’t really have a lot of warning and I got these documents and they basically said, “Your signature is required to close a $13 million fundraising.” And I needed to get that signature back that day. But it was Friday and in…you know, I had gotten it that afternoon in Pacific time and Pacific Coast time is, let’s say, 3:00 in the afternoon, that would’ve been…what’s it like? Eight hours, like 11:00 at night in Munich. And so, I saw there’s a PDF attached and I had asked if I could send an e-signature. They said no, they actually said no, they couldn’t send an e-signature because I knew that it existed. And at the time, the e-signature looked like an e-signature. It’s sort of like if you used one of the big services, I think there are two of them, they would put like a box around your signature and a border on the document and say like, “This has been like e-signaturized,” and it was like written all over the documents, which was pretty clear that it was using the e-signature. So they said, “Oh, I can’t use those services.”
So I tried to go down to the business center but it was closed and I tried to have my office fax it to me but like international faxes, for some reason, are a pain in the butt, they didn’t go through. And I tried to look up a Kinko’s in Munich but this is, you know, 9 years ago and I could get a beer at probably 10,000 places but getting a print-out, I just couldn’t find anywhere.
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