Entrepreneurs are Everywhere Show No. 38: Ryan Smith and Lane Merrifield

If you don’t value your product neither will your customers. No one used it when we gave it away for free. Freemium was a going out of business strategy.

When a reporter asked, “Your kids must think you’re the coolest dad in the world,” I couldn’t answer the question, because I realized that I hadn’t seen my kids in three weeks.

I learned that making a complicated thing look easy is extremely hard.

People appreciate things more when they pay for them. And no amount of business success is enough if you don’t have time with your family.

Values – who and what founders and customers hold dear – were the focus on today’s Entrepreneurs are Everywhere radio show.

The show follows the journeys of founders who share what it takes to build a startup – from restaurants to rocket scientists, to online gifts to online groceries and more. The program examines the DNA of entrepreneurs: what makes them tick, how they came up with their ideas; and explores the habits that make them successful, and the highs and lows that pushed them forward.

Ryan Smith

Ryan Smith

Joining me in the Stanford University studio were

Lane Merrifield

Lane Merrifield

Listen to my full interviews with Ryan and Lane by downloading them from SoundCloud here and here.

(And download any of the past shows here.)

Clips from their interviews are below.

Ryan Smith co-founded Qualtrics in 2002 with his father in the family basement. Their goal was to make sophisticated research simple. As CEO, Ryan has grown Qualtrics to one of the fastest-growing technology companies in the world.

In the early days of building Qualtrics, Ryan tried giving the product away to entice customers to use it. Their reactions surprised him:

There’s something about people appreciating something they have to pay for.

Our pricing model was something like $5,000 a school. For the big schools we tried to give it away, but in every school we gave it away to, no one ever used it.

I remember that at Wharton I gave it to them free, went back a year later and there were only, like, five people using it. We had to charge them to get them to use it. Now there’s thousands of users across campus. 

If you can’t hear the clip, click here

Lane Merrifield is a co-founder and CEO of FreshGrade, a learning collaboration and portfolio tool focused on enhancing teachers’ lives and making students’ learning visible. Lane’s first startup was Club Penguin, the largest online virtual world for kids, which was acquired by The Walt Disney Company in 2007 for $350M.  Lane served as Executive Vice President at Disney for five years before returning to his entrepreneurial roots to become an angel investor and launch FreshGrade. 

Lane also founded Wheelhouse, a Canadian organization that supports other entrepreneurs through mentorship, access to early stage capital, and connections to global business networks and executive expertise. 

Lane explained that and his co-founders, Lance Priebe and Dave Krysko, built Club Penguin to give their kids a safe place to play online. It quickly became a hit, but that success had a dark side, Lane says:

It totally consumed my life.

I was sitting in a press interview in Australia talking about Club Penguin, and the reporter asked, “Your kids must think you’re the coolest dad in the world.” I gave her some pat answer –“Well, they like to play it once in a while, but to them I’m just dad” — but I almost couldn’t answer the question, because I realized in that moment that I hadn’t seen my kids in about three weeks.

Ironically, this thing that I built for them now had me traveling around the world and being a pretty crappy dad.

If you can’t hear the clip, click here

Finding early customers for Qualtrics was difficult, Ryan says. It was a challenge to convince companies to think past the traditional method of hiring consultants or researchers to test user experience:

At first I tried to call business and enterprises. But in the corporate world in 2002, no one was ready for it.

I specifically remember calling one airline, and they said, “Hey look, if our customers aren’t happy, they’ll just call us.” Now today that mindset seems silly.

In the meantime, we had this case study that said academics were really ready for us. So we started in the academic market — because they would actually buy. I remember selling Angela Lee at the Kellogg School of Business, and Angela referred it to someone at Wharton, who referred it to someone at Columbia and Duke, and the rest is history. 

Ironically, though, academics are horrible customers. They have a laundry list of features they want that are more than you can listen to in an hour. They’re hard to service and support because they want to talk to someone as smart as them, which is almost impossible, and they have no money. No MBA business model would ever come out with, “Hey we’re going to go target the academics.”

If you can’t hear the clip, click here

Still, academics made up Qualtrics’ core market for five years. Over time, students at those institutions took the product with them into their corporate jobs, growing Qualtrics’ customer base.

While it looked to the world like Ryan and his team planned to grow that way, nothing could be further from the truth.

Everyone comes up now — the VCs, the market – and they say, “Hey wow, that was a beautiful business model. You guys were geniuses.”

I kind of start laughing because no one ever thought we were geniuses; it was desperation. Typically that’s when innovation comes out. You innovate when you’re desperate.

If you can’t hear the clip, click here

One important lesson Ryan learned was how difficult it is to make a complicated thing seem seamless:

Everything my dad wanted to build was way too complex for anyone to understand. So we had this built-in test where we’d see if I could figure it out, because if I could figure it out, then others could. 

I learned that making a complicated thing look easy is extremely hard.

If you can’t hear the clip, click here

Club Penguin launched with modest expectations. Lane and his team built a virtual world to give their kids a safe place to socialize online, thinking others might like it, too. They were in for a big surprise:

Our hope was just to be able to find enough people out there that we could keep it sustainable. We bootstrapped it. We took out lines of credit on our homes; we maxed out credit cards. There were no investors.

We hired a few people part-time, we contracted a lot of work, we’d pay as often as we could, and we started a subscription business, which back in the day was insanity. It was freemium, but the term freemium didn’t exist yet. It was try and then buy.

Through some of these mini-games that my co-founder, Lance, had created, we had a small audience initially. But when we rolled out the virtual world, it grew from a few thousand kids to 30,000 or 40,000 within about a month.

If you can’t hear the clip, click here

Built before Facebook existed, the company was at the cutting edge for scale, which attracted potential investors, but also presented some interesting challenges:

We had some great VCs come out of the woodwork, and we said, “Listen, have you dealt with infrastructure problems like this before? We have hundreds of thousands of concurrent users logging into servers that are meant to be having long, 2-, 3-, 4-minute sessions, and we’re having millisecond sessions, and our servers can’t handle that?”  

We brought in experts from IBM, we worked with the biggest service providers in the world, and some of the largest data centers. They all had no idea what to do with us, because they were used to a database and the web, and the web sessions last for minutes at a time. At this point in time, we had hundreds of thousands of users. We were basically hacking these servers to do what we needed them to do.

If you can’t hear the clip, click here

Like most founders, Lane and Ryan are glad to pay their success forward.

Today, in addition to running FreshGrade, Lane mentors other founders. He tells them this:

Know why you’re doing what you’re doing. Don’t focus on the what, don’t tell me about the market opportunity, don’t tell me, “I’m Uber for this” or “I’m Slack for that.”

I don’t care about that. Tell me why are you building what you’re building.

If you can’t hear the clip, click here

He said that because the Club Penguin team was clear about their “why,” they embraced being acquired by Disney in 2007:

Our goals weren’t about an exit. I didn’t even know what the term “exit” meant. For us, it was about taking Club Penguin to the next level.  

By the time we were acquired we had millions of users, we had a massive demand for consumer products, massive demand internationally. We needed to translate the game into other languages. We didn’t have any of the infrastructure to do that.

Disney gave us more resources to make our vision happen.

If you can’t hear the clip, click here

Ryan counsels other founders to never give up. Qualtrics has 8500 customers today, but back in his father’s basement in 2002, things weren’t so rosy. This memory helped him keep things in perspective along the way:

I remember thinking, “We’re in the basement, no one knows about us. We need to go to a trade show and get some exposure.” I called this trade show company that was putting on this great marketing event in New York City.

I borrowed my brother’s trade show booth and flew to New York. We took the train from the airport, because we couldn’t afford a taxi, and I sat on the train with this trade show booth in a bag between my legs. I remember specifically hauling that thing up the stairway and coming out of the subway station pretty close to Wall Street.

Fast-forward ten years. We were hosting a Qualtrics Live event for our customers in New York City in a hotel in the same neighborhood where the trade show had been. We now had 250 New York customers there; the room was full. Coming out of the hotel walking around the street, I was looking for somewhere to eat, and I passed that subway station. I could almost picture myself as a young kid hauling that trade show booth up the stairs.

It was kind of surreal, a message like, “Don’t give up. Trust your ideas.”

I can’t tell you how many times I’ve had to rely on that memory and the lessons I learned from hauling that trade show booth up the stairs.

If you can’t hear the clip, click here

Listen to my full interviews with Ryan and Lane by downloading them from SoundCloud here and here. (And download any of the past shows here.)

Next on Entrepreneurs are Everywhere: Jeremy Johnson, founder of Andela; and Michael Eidsaune, co-founder of Carely.

Tune in Thursday at 1 pm PT, 4 pm ET on Sirius XM Channel 111.

Want to be a guest on the show? Entrepreneurship stretches from Main Street to Silicon Valley, from startups to big companies. Send an email to terri@kandsranch.com describing your entrepreneurial journey.

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