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Ep 7: The Hippie With A Billion Dollars

 
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Shaan Puri: All right, I’m recording this. I just finished my conversation with Michael Birch. For those of you who don’t know, Michael is a internet entrepreneur. He built a social network back in the day; he competed head to head against Facebook. And Although Facebook won the war, Michael didn’t end up too bad. That company, Bebo, if you’ve ever heard that before, sold for $850,000,000 to AOL. And when I met Michael, we got back together and we bought it back for $1,000,000 years later, and then we actually sold that again just now to Amazon.

Shaan Puri: So I’ve had an interesting history. I’ve worked with Michael for six years. He was my boss, then he gave me his job to run the company. He’s my investor, he’s my friend, he’s a mentor, I’ve learned a lot from him, from building companies to investing. He’s invested in 75+ companies, things like Pinterest, he was one of the first investors. Calm, the meditation app, he was an investor when nobody believed in Calm. And he’s done all kinds of crazy things; he’s built hotels, he’s bought a private island off of Richard Branson, he gives tons of money to different charities, like Charity: Water, that he supports.

Shaan Puri: He’s a very, very humble guy. You guys are going to hear that, and you’re going to hear the humble beginnings, when he quit his job as a programmer at an insurance company, and made the leap of faith to build his own company. He wanted to work for himself. He wasn’t planning to become a billionaire. Yeah, that was a great outcome. He really just wanted to work for himself, and not have a job. He wanted to work on things he was interested in.

Shaan Puri: We talk about the years of struggle, all the different ideas he had. It’s almost sort of in the weeds, but I think a lot of people have talked about his success with Bebo and the big sale, $850,000,000 bucks. Very few people have heard the backstory before that, about the different products that he tried to build, the failures, the learnings, all that good stuff before he had his big breakthrough.

Shaan Puri: You’ll also hear him talking about viral marketing, or viral products, and for those of you who don’t know, it’s a method of growth where instead of doing ads, or sales, or paid marketing, you are relying on your users to send the product to other users. So things grow through word of mouth, just from one user to the next. Michael was really a pioneer of this. Before people were even saying viral marketing, that’s what he was doing, because like you’ll hear him talk about, he didn’t have the money, and he didn’t have the sales skills. That wasn’t fun for him, so he really focused on building products that would grow just via, essentially, word of mouth, or users spreading it to other users, which is kind of crazy. So he’s a real legend in the growth world for that. So I think you guys will really like this conversation. I had a great time doing it. Enjoy.

Shaan Puri: The audience wants to know, who are we sitting down with today, so just tell them a little bit about you. You’re Michael, and?

Michael Birch: Sure. I’m Michael Birch. I’m a 49-year-old hippie. Originally from a little island called England. I’ve been living in San Francisco 17 years, been doing internet stuff since 1999. Just startups early on, and then went on to do a few, and obviously, kind of culminated in selling Bebo 11 years ago in 2008. And then since then, I’m doing a lot of investing. So, that’s a very brief potted history.

Shaan Puri: Yeah. Before I even met you, I moved to San Francisco for you, almost. I was living in Australia, I wanted to come to the startup Mecca. I was like, “Okay, if that’s where all the action is, I just got to go there. I don’t know much else besides that, but might as well go where the action is and then figure it out from there.”

Shaan Puri: I had never heard of you, I’d never heard of Bebo before, but I really liked the idea lab you’d created, and so I started doing some research. And there’s not many podcasts or interviews of you online. Do you like doing these, are you doing this as a favor to me? Because there’s not much out there, but your story’s really interesting, so what’s the catch?

Michael Birch: I don’t mind doing them, I just sort of question why I often would do them. I don’t do really any conferences now, so I don’t tend to do a lot of talks. I’m actually heads-down doing startup, we’ll talk a little bit about that later again, but-

Shaan Puri: Yeah. Well you’ve done some interesting things. I know you did a BBC documentary, what was it called, like How To Be a Billionaire or something, right?

Michael Birch: Yeah, they didn’t tell me what they were going to call that documentary until after. I actually can’t quite remember, it may have been called something like that. But he threw the word billionaire in it, and I’m like, “Oh, no, this is not what I wanted to do.” But I’d already filmed it at that point.

Shaan Puri: When I first looked you up I was like, “Wow, this guy sold a company for $850,000,000 bucks. Not bad. I want to do something like that. I should just go work for this guy. Maybe I can learn something from him.” So I think that there is something to that spark, or that initial motivation, even if you don’t have much else to go on besides that.

Michael Birch: I would agree with that.

Shaan Puri: Did you have anything like that, when you took the leap of faith? Because if we rewind the clock, your story starts where, I think 1999, you’re working as a programmer for insurance companies.

Michael Birch: Correct.

Shaan Puri: As boring as it gets.

Michael Birch: That’s pretty kind of a low point in life, I think. It’s hard to get much lower than that.

Shaan Puri: And how did you get there? How did you even get into that position?

Michael Birch: Originally, I did a degree in physics in Imperial College in London, which I found quite a few people in Silicon Valley seemed to do physics for some reason. But I had no interest in doing physics. It’s one of those subjects that, unless you’re the top 0.001%, it’s probably not that interesting. You’re doing boring experiments or something. And I definitely wasn’t in that top, even 1%.

Michael Birch: But I got a good degree, and then I left college. At the time, there was kind of a mini recession in the UK, so the job market was hard, and my brother was working as a programmer at an insurance company. And he said, “Why don’t you come do this? You’ll love it.” And I was like, “Paul, it’s fucking programming, at a fucking insurance company.” It doesn’t get more boring than that. It’s like one boring thing on top of another boring thing-

Shaan Puri: Times another boring thing. [crosstalk 00:06:19]

Michael Birch: Yeah, it’s like exponentially boring. He said, “No, no trust me, you’ll like it.” And I was like, “Well, it’s not like I have a lot of other offers, so I’ll go and do the interview.” They had a graduate intake scheme, where they employed 10 people at a time, and they trained you on the job. So I was like, okay. I actually wasn’t one of the top 10, but one of the people who didn’t accept the job, so I was number 11, I was like the backup guy, and I got the job.

Shaan Puri: Nice.

Michael Birch: Then I learned programming Cobalt, which is pretty old school, mainframe.

Shaan Puri: It’s the insurance company of programming languages.

Michael Birch: Yeah. And a little bit to my surprise, I actually really enjoyed it. I didn’t particularly enjoy insurance, I was fairly correct on that one, but the programming side, I got into it. I didn’t love Cobalt, but I did like a six-week training course, and then immediately picked up a book and learned another language, and started programming in that instead. And I joined a data warehousing team, so I was analyzing data, and I became friends with the chief actuary at the company, and then started doing all this stuff with him, and kind of enjoyed it, I actually got into it. Then found myself a programmer at an insurance company, somewhat enjoying work.

Shaan Puri: Right. That sounds all good. Why switch? Why leave?

Michael Birch: My father has always been an entrepreneur.

Shaan Puri: What did he do?

Michael Birch: He was a botanist, so he did a degree in botany. Worked for a company in the UK called PBI, sort of rose to number two in the company, but would never get the top job because the guy was not leaving, and was very good.

Shaan Puri: Still alive?

Michael Birch: He might still be alive, I don’t know. I think he wrote the world’s bestselling nonfiction paperback books, like gardening expert books. So he’s a hard guy to replace.

Shaan Puri: Wow.

Michael Birch: He did that for a number of years and then left, and started doing his own consultancy, but was always coming up with new ideas, and inventing ideas. He did one that was a new type of dental floss that was made out of a special type of rubber, so as you stretched the rubber it would get thinner and thinner and go through very tight teeth and things like that.

Michael Birch: So he took a few products to market. He never found that one big thing. He never found the retirement money. So he always continued working, doing the [inaudible 00:08:23] consulting and inventing. And he was working from home, and my bedroom was next to his office. There was an interconnecting door that didn’t open, but I could kind of hear everything. So I’d always listen to him on the phone coming up with the next idea, and speaking to someone. I actually found it quite intimidating, but at the same time I kind of loved it. I wanted to be able to do that.

Michael Birch: And so, I went through a fairly normal childhood, very middle class, suburban family, again a little bit dull. Defines my early life, although I had a great childhood. And went to university, and then got this job, and then I realized that it’s very hard to be entrepreneurial in insurance, for sure. Not that you can’t do it, but it’s not exactly the world of entrepreneurs, they’re a dime a dozen. Whereas computers were clearly evolving and becoming more and more relevant, and the internet was in its early days, but it wasn’t really around in any meaningful way when I started, but then as I went on, it was becoming a real thing. And I thought, “This is it, this is my chance to do what my dad did, and be an entrepreneur, and I don’t even have to phone anyone up. I can just learn a different language and start programming, and build a website.”

Shaan Puri: And so was there a specific day you remember? That you were like “Okay, this is my last day of doing this, I’m going to take the leap.”

Michael Birch: Yeah, pretty much. There was a guy, I was working… I left insurance for a little bit, worked for Mothercare, which is a retail chain in the UK doing data analysis, and there was a guy there building internet stuff, and he was starting to show me HTML. I was like, “Oh, this is cool.”

Shaan Puri: Yeah. The good stuff.

Michael Birch: Yeah. So I started reading some books, and doing a bit of development. Then my wife Xochi got pregnant with our first child, who was born, obviously, 9 months later, Isabella. And it was maternity leave time, and she was going to leave her job, and I was like, “That’s not fair. Why does she get to sit at home?” I pretty much handed in my notice the same time that she gave her day for maternity-[crosstalk 00:10:23]

Shaan Puri: So you went the opposite way as most people. Most people are like, “Oh, I’m having my first child, I need security. I need to be provide.” You’re like, “No, I want to be at home. I want to…”

Michael Birch: That wasn’t lost on me. Or her, in fact.

Shaan Puri: I’m sure she loved that.

Michael Birch: I mean we’re both from kind of these stable middle class families. And we knew that it may not go well, and we may run out of money, but we also knew we weren’t going to be homeless. And we knew worst case scenario, I mean we talked about it, worst case scenario, we go and live with one of our parents; apply for another job; we’ll get another job, we’re young; and we’ll start working again and go back to our kind of former life. But it sounds silly. We didn’t feel we had anything to lose by doing this.

Shaan Puri: So was it like a negotiation? Like give me X amount of time, I’m going to see if I can make something work.

Michael Birch: Yeah, I’d say three months.

Shaan Puri: Three months. That’s it?

Michael Birch: I recommend not saying that.

Shaan Puri: So you asked for three months. How long did it actually take?

Michael Birch: I took three years.

Shaan Puri: So were you just rolling being like, “I’m just three more months away.” Or what happened?

Michael Birch: Pretty much. It’s like waiting for a bus. You’re like, “You know, we’re three months in. It’s obviously going to happen soon.”

Michael Birch: And so the goal… When we left, it wasn’t even to make our first million. When I left to do, my entire 100% goal was to earn as much money doing my own thing, as I was earning working for someone else.

Shaan Puri: Gotcha. So that [crosstalk 00:11:44] was that number. What’s the target for you at the time?

Michael Birch: Well, we would freelance. We were both working. Between us, we were making about $300,000 a year-

Shaan Puri: That’s great.

Michael Birch: … Which was great back in ’99. I mean, it was really good money. So it wasn’t like super easy to get to that level. But we also felt that that must be achievable. So that was the goal. And then if I could get there, I felt I’d actually be happy just doing that the rest of my life.

Shaan Puri: Right.

Michael Birch: But then there would always be that opportunity that maybe you go to the next level beyond that.

Shaan Puri: Yeah. And so you were like, “Okay, if I can make as much money as I’m making at my job, but doing my own thing, I’ll be happy.” And did you have an ideal already? Or it was like, “First day at home. Okay. Time to think of ideas.”

Michael Birch: I had some ideas. So the first idea that we started on, and I did it with a friend of mine to begin with, the very first idea. And it was called Interview Test. There are actually some startups recently doing this.

Shaan Puri: Okay.

Michael Birch: And the idea was, if someone was applying for job, a technical job, programming job, you want to know how good they are technically.

Shaan Puri: Right.

Michael Birch: So you’d send them a link with a timer, and they would answer questions and do some exercises and you’d find out how good they were at certain programming languages.

Shaan Puri: I literally had someone pitch me this idea yesterday.

Michael Birch: Oh really?

Shaan Puri: He’s like, “You know, we need a screener. We need a practical test.”

Michael Birch: Yeah, well I can’t remember the name. There’s some startups now doing that, but this is 20 years ago, and I think probably a little too ahead of its time. And we pretty much developed it. Never went live with it. Came up with another idea, so we pivoted.

Shaan Puri: Okay. So you didn’t even ship it, you were like, you got excited by something else.

Michael Birch: Yeah, basically. And so the other idea… We knew that was a hard one to market, like it would be a slog. So the other idea was purely viral, and it was called Lemon Link, and it was a self-updating address book, so similar to kind of Plaxo type thing, but not software, purely web-based.

Michael Birch: So we developed that, did go live with it, and got, I think by the time we closed it down, a total of about 2000 registered members.

Shaan Puri: Okay.

Michael Birch: Not the most viral website ever.

Shaan Puri: At the time were you like, “Hey, 2000, not bad.” Or were you like, “This is [crosstalk 00:13:38]-“

Michael Birch: No, I… That’s pretty bad.

Shaan Puri: Okay.

Michael Birch: I mean it’s funny looking back in the late ’90s, early 2000s, like a million was the holy… The first million users, rather than the first million dollars, was kind of… If you could get to a million users, you were like… you’d made it in Internet land, yeah.

Shaan Puri: I mean, so that’s why I picked million for this podcast, because I remember when I was young, all my hypotheticals, like, “Would you cut off your arm for $1,000,000?”

Shaan Puri: Because I thought, “Well $1,000,000, that’s like infinite dollars. That’s all the dollars.”

Michael Birch: Right. When you’re a kid, it is.

Shaan Puri: When I was a kid, it was, right? And I think for many people still today, they’re like, “Shit, if I had $1,000,000, I wouldn’t have any problems,” type of thing. And so I think million is just this… like this sort of fantastical number that exists in people’s brain. Million users, million dollars. I know now it’s sort of creeping into, you know, tens of millions or a billion is the new… billions and millions type of thing.

Michael Birch: Yeah, you need to add a comma nowadays, you know.

Shaan Puri: But I’m still in the million land.

Shaan Puri: So you wanted Lemon Link to work, it’s not working.

Michael Birch: Right.

Shaan Puri: And you’re just at home. How are you feeling at this time? You’re in a bedroom, you’re working on this, you guys have Isabella, you have your first baby.

Michael Birch: Yeah.

Shaan Puri: What’s life like at this time during this period?

Michael Birch: It was a little bit stressful, because we didn’t have financial security. But at the same time I was enjoying it, I was enjoying the learning process and I felt I was creating things, it felt like a very creative process. And yeah, our daughter was born sort of during the period of the early startup days, and so we entered parenthood, and then came up with another pivot.

Shaan Puri: Okay.

Michael Birch: Well, new start startup really, not really a pivot. And that was called Babysitting Circle.

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Michael Birch: Basically parents babysit for other people’s children in a circle. And so you kind of exchange credits within the circle. Sometimes people use tokens. And so we kind of took that online, and created a digital thing where you could find a local babysitting circle, and hopefully join one and it didn’t really work.

Shaan Puri: And what was going wrong? Is this execution? Is this… In your opinion, all right, nobody knows. But is it you weren’t doing a good job? Or was it the market wasn’t there?

Michael Birch: Yeah, I mean that one… Again, now we’d moved away from the viral thing. We thought it would be somewhat viral, because parents all know other local parents, and they would tell them about it and ask them to join, right? But it wasn’t like, ever going to be exponentially viral.

Michael Birch: I don’t know. I mean, I think every startup, every new website we launched, I felt, “Oh I know so much now that I didn’t know before.” But you never know what you don’t know.

Shaan Puri: Right.

Michael Birch: And then the next one I’d be like, “Oh my God, the last one, I didn’t have a clue what I was doing. Now I think I’ve really worked it out.” And of course each time, I was wrong. Eventually it became true.

Michael Birch: But yeah, I just went from one to the next. And this all happened relatively quickly. It wasn’t like I was spending one to two years on each, you know; spending maybe six months, and then moving on to another complete.

Shaan Puri: And what were the big things? I mean, I don’t even know if you can remember now, but what were the big kind of like realizations? What were those big learnings? When you look back you’re like, “Oh shit, I didn’t know this, or I didn’t understand this before, but now I know.”

Michael Birch: Part of it is just becoming technically better. So I was becoming a lot faster, and able to build more stable websites. And this is back in the day when there wasn’t any kind of cloud hosting. So you know, you’re racking servers and doing the whole shebang on my own. So there’s definitely a technical learning. But I think the thing that I should have insisted on and not done anything other than, was focused on viral. Because the problem that we always hit upon was, I never tried to raise any real money from anyone, that would allow us to have a real marketing budget. And so I was coming up with these ideas, that then needed marketing; and marketing was not my forte. Like I’m not a sales marketing guy.

Michael Birch: And so it’s like creating products, but then unable to convince people to use them.

Shaan Puri: Right.

Michael Birch: And didn’t have the budget. Even if I knew how to spend that money really wisely, I just wasn’t going to be very good at that. So I do a little bit of Google ad words, and that was sophisticated for me.

Shaan Puri: Right.

Michael Birch: So had I focused on viral, I could have… You know, only becomes a technical challenge. Right? But then you’ve got to focus on products that are inherently viral. So I kind of eventually worked out.

Shaan Puri: You found your sweet spot, really.

Michael Birch: Yeah, we did one other website that was another pay to get customers. You write your will online. It was called Friendly Wills.

Shaan Puri: Okay.

Michael Birch: Great name. Yeah, the Unfriendly Wills website never got anywhere.

Shaan Puri: It sounds like you would be a good bar too, you know, this is Friendly Will’s. Will’s the bartender, he makes great drinks.

Michael Birch: Yeah. So that one didn’t work either. And then eventually we hit on an idea.

Shaan Puri: Did you lose confidence at all during this time? Because most people would, you know, I don’t know if you just don’t have that gene?

Michael Birch: No, I’m too arrogant to lose confidence. I mean a little despondent at times. You know, I think my friends were like, “Why don’t you go get a job?”

Shaan Puri: When friends start having like semi interventions.

Michael Birch: I mean, the reality was I was enjoying doing this so much more than I ever was. Like my last job was like just a hell of a miserable job, and I just hated it. And this was just, this was fun. I was sitting at home, I was very self-disciplined. I was working from a spare bedroom, but I would get up early in the morning and then take like a 20 minute lunch break and then work through to kind of early evening hours, and just loved every moment of it, doing it. It was like creating something, learning, building… That didn’t have the financial success. We mortgaged our flat twice, so it went up in value by about three. And so we took money out twice, basically lived off that.

Shaan Puri: Okay. All right. So look, you’re no stranger to risk. And so you… I like the way you’re thinking about that, because I’ve worked on projects in both fronts. I’ve worked on projects where I’m like, “This will be great, if it works.” And when it doesn’t work, which it’s most likely not going to work, then I’m bummed out. And I’m like, “Fuck, that was a waste,” you know?

Shaan Puri: But then, yeah, there’s learnings, but I wasn’t… If I wasn’t enjoying doing it, A, it’s hard to just wake up and do it every day; but B, then success is kind of dependent on it working out.

Michael Birch: Right.

Shaan Puri: And now I’ve basically made it a mandatory thing where I’m only going to do projects where I enjoy doing them. So at the very least, I have a good time.

Michael Birch: Yeah. And I would always prioritize enjoying work over any financial. I mean, obviously you do need to do something where you can afford to live.

Shaan Puri: Yes.

Michael Birch: I certainly spend a huge portion of my life working. So if I don’t enjoy doing the thing that I spend more time doing than anything else, what am I doing it for?

Shaan Puri: Some later happiness.

Michael Birch: Yeah. You’re always optimizing for the future, but never the present.

Shaan Puri: Right.

Michael Birch: So… And that’s become one thing that, it’s not always obvious because it’s so easy to be planning, like was it John Lennon made this quote famous, like “Life is what happens whilst you’re busy making other plans.” Right? And I just think it’s such a true quote, that it’s so easy to say, “Well once I’ve done this and then that and then that, then everything’s going to be great.”

Shaan Puri: Right.

Michael Birch: “And then I’ll be happy.” And of course-

Shaan Puri: A trap.

Michael Birch: Yeah, and the moment of arrival is very finite. The journey is really long. So don’t like optimize for that one moment, where you’re like, “Oh, I’m ecstatically happy because that worked.”

Shaan Puri: Yeah.

Michael Birch: Then like, well then what? What do you do next? There’s something after that.

Shaan Puri: You finally stumble into, that first thing that starts to work.

Michael Birch: Right.

Shaan Puri: Describe what that is, and how you even stumbled into it.

Michael Birch: So the website was called Birthday Alarm. When we did one of our early websites, Lemon Link, one of the options on that was you could enter a birthday, right? And no one ever said anything nice about Lemon Link of the 2000 members; no one ever said, “Oh thanks for creating this. It’s awesome.” The only thing people ever commented, and I think it was my cousin kind of commented, from New Zealand emailed me, and I think we used to send out a reminder to say it was someone’s birthday. So I think he might have got a reminder saying it’s my birthday.

Michael Birch: And he said, “Oh that was really cool because you know, I didn’t actually know your birthday.” And then he sort of sent me a nice email or an e-card, I can’t remember what.

Shaan Puri: Nice.

Michael Birch: And I thought, “Oh okay. That’s cool.” So it just kind of stuck in my head that that was cool. And then we thought, “Why don’t we try, just see, if we can…” Now we were thinking viral, viral, viral, like can we do a website? And all it does is just remind people of birthdays. Like that’s it. Super simple. Simpler than Lemon Link by far, in many ways.

Michael Birch: And we knew it, well, we thought it could be inherently viral, because the reality is, if you think about it, whose birthday do you really know by heart? You know your children’s’, your parents’, siblings’; you probably don’t know your cousins. You may know one or two best friends’, but that’s it.

Shaan Puri: Yeah.

Michael Birch: The vast majority of people you know in life, you don’t know their birthdays. This is obviously before Facebook.

Shaan Puri: Yes.

Michael Birch: And now you know far too many people’s birthdays, that you don’t care about. So you have to, in order to use it, you send an email and ask all your friends to enter their birthday, because you don’t know it.

Shaan Puri: A fair request. Not spamming your friends, just saying, “Hey, what’s your birthday? I want to keep track of it. I want to remember it.”

Michael Birch: And this was back in the day when there weren’t a lot of email requests from websites. Like viral things weren’t… There weren’t a lot of inherently viral websites, or people even really trying to do it for some reason. And so you’ve got this fair request saying, “Hey, I’d like to know your birthday and be reminded each year. Can you enter it here?”

Michael Birch: The response rate to that email was very good. And then the next question was, “Would you like to be reminded of your friend’s birthday, the one that just asked you?” So a lot of people would say yes.

Michael Birch: Well to be reminded, you need an account; so you create an account. Do you want to be reminded of lots of other friend’s birthdays?

Shaan Puri: You only got the one on the calendar, let’s get everybody else.

Michael Birch: Yeah. And so then you take them through the email flow; and at the time we did copy and paste a link. So we had kind of a little issue, all CC everywhere. But we had like a very short email, so it was more than a link, it was like a pre-canned email and text in a box.

Shaan Puri: Right. Don’t even need to think of what to say.

Michael Birch: Yeah, just a one line, “Hey, I’d like to be reminded of your birthday. Can you click on this link and enter it for me?”

Shaan Puri: Yeah.

Michael Birch: And so people would copy that into their address book and send it. And it didn’t work immediately day one. But we did some tweaks, and then it… I remember getting up one morning, and this was probably the most excited I’ve ever been, during the entire period, career. Yeah. More excited probably than any highlight of Bebo even. And Xochi I got up one morning, we’d done this little tweak.

Shaan Puri: Do you remember what the tweak was? Or…

Michael Birch: I think it was even around copy and paste, because I think originally we had people entering, like “Enter all your friends’ emails.”

Shaan Puri: Right? Tedious.

Michael Birch: Right. Yeah. And then we’re like, “Why don’t we just do a text here?” I think it was my brother’s idea actually. “Why don’t we just do this a text area box thing, and letting them copy and use their own email client, rather than us sending and getting blocked because our server’s not listed?”

Shaan Puri: Right.

Michael Birch: And so we got up the next morning, it was like, let’s see how it did. And we went in, and we had reports written so we could see how well things were doing. But because we had so few users, the one we bought we had, was a list of names of those who had joined, and the time stamp at which they joined. Right. Because you know, we’d get a few people a day.

Shaan Puri: Yeah.

Michael Birch: So you’re like, “Hey Margaret has joined. Great.”

Michael Birch: And so we’ve got up in the morning and then we click run on the report. It pulled up and I was like, “Oh Jesus, look at that.” And all these names were listed, but they were like, you know, within a minute there were a few each minute. And I was like, “Oh my God.” So then I had to write another report to actually count how many users there were.

Michael Birch: I think overnight we’d got a good few hundred users. And even then it was kind of ramping up. And so we sort of jumped up and down and did a little dance in the office-cum-bedroom, and kind of celebrated. I was like, “We’ve done it, we’ve done it! That’s it!” You know, 300 users, it’s not going to be great. But then we thought, you know, this is ramping up; we could get bigger and bigger.

Michael Birch: And so we carried on working on it and we got it to the point, through the copy and paste mechanism, where we were getting 10,000 users per day.

Shaan Puri: Wow.

Michael Birch: Which again, back in… this was now 2000, that was a lot of users.

Shaan Puri: And so you’re… this is like a sort of magic bean stock. It’s like you just wake up and you get users for free.

Michael Birch: Yeah.

Shaan Puri: Every day.

Michael Birch: Yeah. I know. It’s great, isn’t it?

Shaan Puri: And so at this time there’s no business model.

Michael Birch: No. Hadn’t thought about that.

Shaan Puri: But you’re like, “I’m over the moon anyways because people are actually using the thing I built.”

Michael Birch: Yeah. I was still living with this number of a million users in my head.

Shaan Puri: Yeah.

Michael Birch: So if you’re getting 10,000 a day, we need a hundred days, and we’re going to get to that million, right? So we just have to wait a few months and not screw it up.

Shaan Puri: Yeah.

Michael Birch: And we’ll get there.

Shaan Puri: And so what happens from there?

Michael Birch: Well we still weren’t making any money. We were in England at the time, and we moved to the US April 22nd of 2002, so we’d been doing Birthday Alarm for a while then, and we had accumulated a few million users; and we were just doing through, I think it was Tribal Fusion, ad network. We were just putting ads on the pages. But it’s not the sort of website where you come back to every day.

Shaan Puri: Yeah.

Michael Birch: So we were sending a significant number of reminders, and we’d started doing some greeting cards. We thought, “Well, what’s the one thing you’re going to do if you know it’s someone’s birthday? You want to wish them happy birthday, so send them a card.” So we thought, “We’ll combine, we’ll use the viral mechanics of birthday reminders to grow; and we’ll use the greeting cards to one day monetize.”

Shaan Puri: Right.

Michael Birch: In a more meaningful way than we could for ads. And so from the ads, at that point, we were doing $10,000 a month in revenue. And that was, you know, to pay for our living costs, the server costs, you know, all the business costs and everything. So we would living on sort of… in a very conservative manner. And we were just about breaking even on $10,000 a month. So we hadn’t reached a point where we were used to earn, but we’d reached a point of kind of financial independence, as it were.

Shaan Puri: Right.

Michael Birch: But not living as well as we used to.

Shaan Puri: It still felt like a win.

Michael Birch: It felt like a win, it felt like a meaningful milestone. Right. And so we moved to the US; I literally, we had two servers-

Shaan Puri: And you moved because, for work reasons or just life reasons? [crosstalk 00:27:50]

Michael Birch: Xochi’s from the East Bay, Francisco

Shaan Puri: [crosstalk 00:27:54] near family.

Michael Birch: Yeah. We always agreed we’d move between countries. We both wanted to experience living in each other’s country.

Shaan Puri: Yeah.

Michael Birch: And so the time had come, we were like, “Well, there’s no reason that we can’t move.” And I thought, “You know, Silicon Valley may be not the worst place to do a website.” So…

Shaan Puri: And were you talking to other entrepreneurs, internet people at this time? Were you learning from them? Were you…

Michael Birch: Nope.

Shaan Puri: Getting… Nobody knew about Birthday Alarm, nobody’s getting press? Nobody’s…

Michael Birch: I thought I’d proven nothing. I was not worthy of meeting other people that did internet stuff.

Shaan Puri: Okay.

Michael Birch: So it was literally myself. And Xochi was also a programmer, got a job at that same insurance company. So she was helping me on some of the programming, as well. So the both of us were doing programming in the early days, and she was doing it between children. We had another child born in the UK before we moved.

Michael Birch: But yeah, we just made the switch. So I packed one of our two servers in a suitcase, checked it in, flew it to San Francisco, went and racked it-

Shaan Puri: Who needs the cloud?

Michael Birch: Yeah, I know.

Shaan Puri: Just pack your server, check it in.

Michael Birch: We racked it in a [inaudible 00:28:52]. I think we were down… I synchronized the databases, I think we were down for like two minutes while somebody flipped over from the UK to the US hosting. Probably violated all sorts of data.

Shaan Puri: Right. Thousands of birthdays lost.

Michael Birch: Yeah. Anyway, we made that jump and now we were in Silicon Valley, still not meeting anyone who worked in the internet space.

Shaan Puri: And so where did things start to turn, where you go from sort of a $10,000 a month to, I believe you got to $10,000 a day. What was that jump? How did you sort of ramp it up? Because Birthday Alarm, the user base grew from, you know, zero to, I don’t know, where is it at now? It’s a 50 million, more?

Michael Birch: I mean now… I think… We still actually own Birthday Alarm. I think since its inception it’s probably registered about 200 million users.

Shaan Puri: Incredible.

Michael Birch: But over very long period now. 20 years, pretty much. Yeah. We’re coming up for our 20th birthday, so it’s a long time and obviously a lot of those are not active. We still hadn’t made the million, so we haven’t got to that part. We can end the podcast when we get there.

Michael Birch: We were doing it, we were still making $10,000 a month. We were living in Walnut Creek in the East Bay, rented an office, like a tiny office, where we could both just about fit two desks. We’re sharing it with two lawyers; well, a bigger office, with two lawyers and an accountant. One of the lawyers shouted on the phone a lot, which was always entertaining. He was a litigation lawyer. And so we were there, still not meeting anyone. And then a friend of mine emailed me a link, a guy called Morgan Saladin, still a good friend today, emailed me a link of Friendster, and said, “Check this out.” So I clicked on the link, I was like, “Oh my God, that’s amazing. This is really, really cool.” And I was just kind of immediately enthralled by it. So thought, “Okay.” So like two minutes later, I was copying the Birthday Alarm code base.

Shaan Puri: You’re like, “We’re doing this now.”

Michael Birch: Yeah. Changed name and started… You know, it was amazing. 90% of the code I used from Birthday Alarm, because we had all these like backend systems and so on, customer support and so on.

Michael Birch: So we started developing this new website. So I did that with my friend Morgan, who sent me the link, and my brother was also part of that. And he owned a domain name called Ringo, ringo.com, which he’d bought just because he could for $1,500, he saw it available; and he said, “Why don’t we use this name for it?” And so I think about two weeks later, we launched ringo.com as a direct competitor to Friendster. So it was an early, early social network, and kind of applied everything we’d learned on viral marketing to that point. And I think within, yeah, by the time we sold it, we had about 400,000 users, but we started selling it three months after-

Shaan Puri: Launching it.

Michael Birch: … The day that he sent me that link.

Shaan Puri: Okay. From the day you heard of Friendster-

Michael Birch: The day we heard of it, we were selling our business. And it was definitely a mistake to have sold it. We shouldn’t have sold yet. I was still only making $10,000 a month. This was now incurring or way bigger costs, because this thing was far more intense in computing power than the previous one, because people were spending all day on it.

Michael Birch: So we had 400,000 users, but a lot of them were active. And so I spent $6,000 on a new database server, which is like a lot of cash to save up. I racked it, and we outgrew it the next week. I was like, “Fuck, I can’t do this.” And of course I should have gone and raised money.

Shaan Puri: Right. But that wasn’t even a consideration for you at the time.

Michael Birch: I didn’t really think about it. Yeah. And didn’t even speak to a VC, didn’t pick up the phone.

Shaan Puri: Right.

Michael Birch: And then I went to my… we went, Xochi and I, went to our first ever internet networking event that we’d ever been to, and the founder of Friendster, Jonathan Abrams was there, on a panel talking about social networking, of course. And we were at this event, and we’re just listening. And then we spoke to a couple of people and we said, “Oh, we’re doing this thing Ringo;” and then two people that night said, “We want to buy Ringo.”

Shaan Puri: Okay.

Michael Birch: Yeah. So one was iVillage, and the other was that company Tickle?

Shaan Puri: Yeah.

Michael Birch: No, it wasn’t a formal offer, but it’s like, “We’d love to talk to you about this.” Yeah. So I had some follow up meetings with them, ended up meeting the founders at Tickle, and ended up selling it to them. And it took about three months to close the sale. So it took as long to close the sale as it did-

Shaan Puri: To start the company.

Michael Birch: … To build the entire business. Yeah, if you can call it a business. And we were making a tiny bit of money from advertising, but not… nothing big.

Shaan Puri: And how did you guys negotiate the price? Did you just have a number in mind? Or did they make an offer?

Michael Birch: They made an offer. Yeah, it was mostly stock with some cash. So we sold it for very little. Again, still haven’t got to the million dollar bit.

Shaan Puri: Right.

Michael Birch: We sold it for, I think in consideration at the time, I think it was around $700,000.

Shaan Puri: Okay.

Michael Birch: And at the time to give some perspective, so Friendster had just reached that holy grail of a million users, and we were at 400,000; so we were the second biggest social network in the world with 400,000 users.

Shaan Puri: Right.

Michael Birch: And Friendster had been valued at I think 50 million, and we sold it for like peanuts, really.

Shaan Puri: Right.

Michael Birch: Yeah. So I totally should have gone to raise money, and got some help on scaling it on some money. But we sold it; it ended up that Tickle then sold later. So it ended up being worth $2,000,000, because the Tickle stock was went up in value.

Shaan Puri: And this whole time Birthday Alarm is still kicking off money.

Michael Birch: Yeah. And so I went to work; as part of the condition of the sale, I had to work with them for a while. I can’t remember if it was three or six months I would work for Tickle, but I kept Birthday Alarm. They didn’t buy Birthday Alarm. And whilst I was at Tickle, suddenly I was now meeting other engineers, other people, other entrepreneurs, right. And they were doing something which no one else was doing, which was doing the address book importing scraping.

Michael Birch: And so there was no APIs for like Hotmail and Yahoo. Gmail was around then, but very small. So the two big ones were Hotmail and Yahoo.

Shaan Puri: Right. So instead of copy paste this, and send the email on your own, you say, “Connect to Hotmail.”

Michael Birch: Yeah.

Shaan Puri: And it says-

Michael Birch: Import your address book.

Shaan Puri: Here’s all your email contacts. Push send.

Michael Birch: Yeah. And so they were doing it, Tickle did a… they were called Emode and renamed as Tickle at the time that they bought us, but they were doing these online quizzes, and certainly had a famous one, which was like “What type of dog are you?” It went super viral. Tens of millions of users.

Shaan Puri: What type of dog are you?

Michael Birch: I can’t remember. I don’t believe in that crap.

Michael Birch: They were doing this thing and it wasn’t… the funny thing was it wasn’t really working for them. They put it live, and it didn’t really move the needle for them; and I didn’t really know why, but I thought it was very clever, and I hadn’t seen anyone else doing it. So I think they were the first people to do it. So I went home one weekend, because I still working for them, and I was like, “I’m going to put that live on Birthday Alarm.” So I worked the weekend, put it live Sunday night, and then looked at the data like 24 hours later, and we’d added 100,000 new members. So we were still adding 10,000 a day, and then 24 hours later we’d just added 100,000 members; and I was sort of ecstatic and thought, “This is amazing.” But then I also thought, “They’re obviously going to cut me off.” Because I don’t think they had anything in their terms of use against it, but all they had to do was block my IP address, because it was all coming from one server; and I’m not going to be able to do it. Or they’re going to send me a cease and desist. Right?

Michael Birch: And so I went live with Hotmail and Yahoo, and then it just carried on working. And so the next day we added 150,000. I think it peaked at just under 200,000, but it stayed there and stayed at 150,000 for an entire year. It didn’t drop.

Shaan Puri: Every day, you’re like, “Today’s the day. They’re going to cut this off.”

Michael Birch: Yeah, and I kept thinking… And then every now and then, it would actually stop working because they changed their code. So we’re not doing it through an API. So I’d have to log in, look at the HTML, work out how to delineate the different contacts, and then it’s like, “Oh, now fix it.” So I probably fixed it like a dozen times where it broke because they changed something, but every time my heart would sink and go, “Ah.”

Shaan Puri: It’s over.

Michael Birch: They’ve caught me. Oh no they haven’t, they just changed something.

Michael Birch: And so that was definitely like the turning point where we knew it would be successful. And then during that period where I was working at Tickle, I went live. We’d done greeting cards on the website, and I was like, “We need to start charging for greeting cards.” So we added as subscription was $13.95 for an annual subscription, all you can send greeting cards. And so we went live whilst, I think I was still working at Tickle; and then… everything is always a very round number in zeros for us for some reason. But the first day we made $10,000. So we went from $10,000 a month, to $10,000 a day. So financially, this was by far the biggest transformation in our lives.

Shaan Puri: Yeah.

Michael Birch: And so we never really did reach the point of what the money we used to make in jobs. We just went way over it in one day.

Shaan Puri: Yeah. That’s how things tend to go. Right? It’s like things go from sort of nothing, nothing, nothing, nothing; to you overshoot because you’ve been investing in something that had more potential.

Michael Birch: Yeah. And so with that first year we made just shy of $4,000,000, like the first 12 months of charging, and our expenses were the same. It was still myself and Xochi in this little office. Our [inaudible 00:37:39] costs were the same.

Shaan Puri: Right.

Michael Birch: So we were still living pretty much on $10,000 a month, but we were making $10,000 a day; and that’s when we moved to San Francisco. We thought, “We can actually now afford San Francisco.” So we moved into the city.

Michael Birch: Yeah, I mean… We just carried on building Birthday Alarm for a while, and then wanted to go back to social networking. So we had a noncompete when we sold the original social network. So we waited for that to expire. And in fact, before it even had expired, we did another website, which was going back to our first viral idea of Lemon Link and doing that again. And we called it Bebo, and it was a self-updating address book. And I was like, “I’m going to see if everything I’ve learned since we the very first idea-“

Shaan Puri: Can I do the same idea?

Michael Birch: Yeah.

Shaan Puri: But now better.

Michael Birch: But do it properly. And so we applied all of the viral techniques. Again, it was like, you know, Birthday Alarm, Save As, Bebo-

Shaan Puri: Rename. Yeah.

Michael Birch: Rename. All the viral mechanics, the scraping, all of that code was all still valid. Super simple thing of just, instead of entering your birthday, enter your contact details.

Shaan Puri: I love how you had two constraints. One was you basically, between you and Xochi, you were the only programming talent you had. So you kind of just chose ideas that were somewhat similar. It’s like, okay, if I can reuse 80% of what I already built, great. Then I don’t have to have weeks and weeks of engineering just to get something live.

Michael Birch: Right.

Shaan Puri: And then two was, well I don’t have money, nor do I really have a sort of sales and marketing background. That’s not what I enjoy. So I’m going to make products that are designed to be viral, where using the product invites more people to the product. And those two constraints I feel like made your career. Whether you consciously chose them or not, those two things… Because if you had had a whole bunch of more resources, maybe you would’ve chose other projects that weren’t quite as high potential. And so I think that it’s amazing how, within those two constraints, you found projects like Birthday Alarm, Ringo, Bebo, that all were able to hit.

Michael Birch: Right. Yeah.

Shaan Puri: It’s kind of incredible.

Michael Birch: The viral thing was, we didn’t hit on it in the very beginning, but it became apparent when we tried and failed at marketing.

Shaan Puri: Right.

Michael Birch: And that’s… that certainly struck true for a long time, that we just focused on viral stuff.

Michael Birch: So then the Bebo story started, this was now January, 2005; we took only a couple of days to develop it, because it was pretty much the same website, and we went live, and we had a million users after nine days of going live.

Shaan Puri: Okay.

Michael Birch: It was the most viral website we’d ever done by far, that the viral coefficient, the k-factor, whatever you want to call it was 3.5.

Shaan Puri: For reference, if it’s over 1 you’ve like…

Michael Birch: 1 is viral.

Shaan Puri: 1 is viral, 1 is you’re going to win.

Michael Birch: Yeah.

Shaan Puri: 3.5 is like you’re taking steroids.

Michael Birch: So every person who joined would get three and a half other people to join on average. And so I think on the ninth day we added 350,000 new members on one day. And bizarrely, 100,000 of those 350,000 were from Singapore. So I had to look it up on a map. I looked up the population, I was like, “Jesus, we just, in one day, got a meaningful percentage of the entire population of one country to join.”

Shaan Puri: Right.

Michael Birch: Yeah. Which was just bizarre. But at the same time, it was the most viral website we’d ever done by far. It was also the least sticky. So I think two people came back, one of them was me, and then-

Shaan Puri: One other guy in Singapore?

Michael Birch: And then Margaret again, she was back. Yeah. So, yeah, I just didn’t… I kind of validated the original viral concept. But as I say, even when I started doing this, I remember speaking to Xochi about it and saying, “You know no one’s going to use it. Like it’s kind of an interesting academic exercise, but like self updating address books don’t work.”

Shaan Puri: Yeah.

Michael Birch: I think they could work if Apple did it and built it into the iPhone or if Google did it, but they don’t work as like a standalone thing; because you ended up getting 10% of your friends entering their address book at their contact details. But then they don’t continue using it, because who uses an address with any 10% of your contacts in it?

Shaan Puri: Right.

Michael Birch: And because they’re not using it, they don’t update it. So we ended up sort of calling it the non-self updating self updating address book.

Shaan Puri: So you realized that’s not going to work. But you’re like, “Let’s go back to that social networking thing. That sounds way more fun.”

Michael Birch: Yeah. I mean it was kind of filling in a gap, waiting for the noncompete to expire.

Shaan Puri: Okay.

Michael Birch: So then we started adding photos to it, because we thought, “Oh, you’re not going to visit and look up someone’s address every day. But if people started sharing photos,” like Flickr was a big hit around that time, before that, so we thought, “Why don’t we use the virality of the contacts, but make it also a photo sharing website?” Which then people may do frequently. And then obviously photo sharing becomes a big part of social networking. And so then that started working a little more, started getting some repeat use, some decent photos; and then we just… I spent actually six months, it was the longest I’ve ever spent developing like a product, we spent six months actually developing the social network.

Michael Birch: We launched with a very simple social network, spent six months actually making it a social working site, as opposed to social not-working. Yeah, it took six months for us to go from no engagement to really high engagement.

Shaan Puri: And so paint a picture in people’s minds. So Bebo at this time, is it like what we see kind of roughly with Facebook today? Or MySpace for those who remember that? Or was there some core difference?

Michael Birch: If you think of early Friendster and even early Facebook, it was kind of about profiles, and it was about posting on other people’s pages, but you would post in like different widgets or different boxes. So there’d be like a comment section, or you could… we had quizzes that you could take. So you’d sort of engage on someone’s page. There wasn’t the concept of a newsfeed. So Facebook at the time didn’t have the newsfeed concept, early Bebo days.

Michael Birch: What we did do was, basically we did a news feed, but as an email, so we’d send a daily email, we called it the Ch-ch-changes email; because you know, who doesn’t like Sting? And so we’d send a daily email, with all that. So that was a way of kind of pulling people back, so they could see everything that had happened. But I don’t know why we didn’t make that like dynamic. I think we just thought that would be really hard to do, because it was hard work creating this email in batch, and working out all the differences; but we should’ve sat down and worked out how to do the actual newsfeed idea.

Shaan Puri: Yeah.

Michael Birch: But yeah, it wasn’t dissimilar.

Shaan Puri: And what was the… you know you’ve been asked this a million times, but why did Facebook win? Because you had a great sale, but Bebo the product didn’t necessarily sort of become the de facto social networking site.

Michael Birch: I think there’s a few reasons. We started a year… So when we did our original social network Ringo, we were probably six months before Facebook went live. So we were definitely very early. When we launched Bebo, we were a year after Facebook. So we were always in catch up mode. They had considerably more funding. We raised, we did one round and raised $15,000,000. They had considerably more funding. They were probably 10 times the engineers. We were always in catch up. It’s not like we had the lead and then they overtook us.

Michael Birch: But I do think they made some decisions that we didn’t make early on, which kind of paid dividends. They insisted on real identities, and we didn’t; we were more sort of, we were trying to be the kind of self expression of MySpace, but with the kind of product quality of Facebook, and engineering of Facebook; that’s where we were trying to kind of position it. And we thought that the middle ground would be the winning ground.

Shaan Puri: Right.

Michael Birch: But it… Everyone started entering silly names, and then they’d enter names which had like hearts in it, and then it was just all symbols for their name. And so you try to find a friend, and A, you couldn’t remember what ridiculous combination of characters each friend had chosen to use for themselves, and then you couldn’t search, because I can’t type heart in the search box. Not very easily anyway.

Michael Birch: And so I think that that was one thing. We took off with a teenage demographic early on. I designed it for me, and then realized I actually have the mentality of a teenager, because that’s who it’s resonating with. And I think it was hard, then, for the older demographic, because it got branded as a teenage website. So it was hugely popular with teenagers, like every single teenager, almost bar none in the UK and Ireland, in New Zealand, were using it. So I kind of called it playground viral, because 50% of our new users were actually just typing bebo.com in the URL and signing up.

Shaan Puri: Right. They heard about it on the playground.

Michael Birch: They heard about it. It was through word of mouth marketing. And so it was very popular, but then we just, we hit this ceiling and then we grew in those other countries. 20% of our page views were US-based; 60% with UK based; and I think about 20%, well 15% we in Ireland.

Michael Birch: We had these great markets that were English language and therefore easier to monetize and we didn’t have to do in the multilingual thing; we did later on, but we didn’t need to in the early days. But we just couldn’t… In the end, Facebook, they kind of didn’t care about other markets, to begin with, they were very US-centric, so they kind of left a little window open. So we launched and cared about Bebo in the UK. I think they were just starting to do UK schools and colleges. And so we just took off there, without the sort of threat and competitiveness of Facebook. But then eventually they started gaining traction.

Shaan Puri: Right.

Michael Birch: And we could tell, because people are talking about Facebook on Bebo. We could search and see, you know, people were like posting on their profile, “Don’t use it anymore. On Facebook. Here’s the link.”

Shaan Puri: Right.

Michael Birch: And I’m like, “Oh shit.”

Shaan Puri: And so you… How did you come to the sort of realization, or it’s time to sell? Because I don’t think from the outside people could see necessarily that it was… Was it clear for everybody? Or was it more because you were in the middle of it, you sort of knew before other people that it’s time to sell?

Michael Birch: Well we… I mean we had, obviously we knew our own data, so we’d been growing, for the first three years, we’d just been growing every month, exponentially. Like every month was a new record in every measure. And it was very exciting to be doing that. So we’d celebrate and have a champagne toast whenever we hit a certain milestone. But then we found we were doing it like every one or two days.

Michael Birch: And then it tailed off. It started… Didn’t always grow at that rate. And then for the six months prior to closing the sale, we didn’t grow. We didn’t shrink, but we didn’t grow.

Shaan Puri: Right.

Michael Birch: And you know, you could tell publicly on something like Alexa, that we were kind of flat, and whereas prior we’d been hockey sticking. And I was trying to get it viral; I hadn’t really spent any time on growth, for a very long time because I didn’t need to, because it just kept growing. But then always starting, and how do we get it growing again? And it was evident that as much as we could get someone to come in through the front door, someone else was leaving out the back door, to go typically to Facebook.

Michael Birch: And so it was just evident that this is really hard to do this. Certainly hard to do it alone. And so we ended up, Joanna Shields, who was the company president at the time, I think did a presentation. She was invited to present to the Time Warner board about social networking. And so she kind of shared her vision of the social networking landscape and what was happening at Bebo, and then they were interested. So it kind of stemmed from that. Then we pointed Allen and Co the bank. We ran a process, so we spoke to other people, other companies to see, try and get the highest bidder. But it ended up going back to AOL.

Shaan Puri: There’s been a sort of question mark of okay, it sold for this much. Is that just a matter of market timing? Like you know, can’t buy Facebook. MySpace already got bought. Bebo’s sort of a… you know, you’re sort of the last girl on the dance floor. If somebody wants to have a social network, you know, you’re going to have to pay a premium? Or what really caused… How did it get to that number? How did it get to $850,000,000?

Michael Birch: I mean, it’s a good question. There’s no real formula for valuing… I think we were doing, last year we did $20,000,000 in revenue, I believe. So as a model of revenue, it wasn’t going to work. It was all about the potential of what it could be.

Michael Birch: I mean, you’re right in your analysis that, we were kind of the only you could buy in many ways. Like we were basically, we were the third place. We were in the medals, but only just. There were other ones, like Tagged and High Five that were not dissimilar, and may have even had more page views, but they were far more dominant in markets, non-English language, harder to monetize markets.

Shaan Puri: Right.

Michael Birch: So Facebook at the time had raised… they’d done around with Microsoft. Everyone felt it was overvalued, but they valued at $15,000,000,000. So you know.

Shaan Puri: They set the benchmark.

Michael Birch: Yeah. And we were shooting for a billion. That was kind of the holy grail, because, you know, I like my zeroes on the end.

Shaan Puri: Yeah.

Michael Birch: Yeah. It’s got to be a round number. And we didn’t quite get there, but that was the kind of the negotiation, and it’s like, look, it’s a really good discount versus Facebook.

Shaan Puri: Right.

Michael Birch: And I think the hope at AOL, their AIM was, AOL Instant Messenger, was still a big deal. Like they had, I think, 100,000,000 users on it at the time. Like it was one of the big IMs. So the vision that they had was merge AIM and Bebo and then-

Shaan Puri: One plus one equals three.

Michael Birch: Yeah. That was the hope.

Shaan Puri: Yeah.

Michael Birch: But of course, people already had their social network, so they didn’t want this other thing forced on. So the reality wasn’t entirely flawed as an idea, but the reality was it didn’t really-

Shaan Puri: Turn out that way.

Michael Birch: Yeah.

Shaan Puri: I see. What’s it like waking up that day when it finally closes and you hit refresh on your bank account and you know, you see, you know, $700,000,000 there. What was that like? Was it… What was the emotion like? And you surprised me with your answer.

Michael Birch: I can’t remember what I said to you about that, mate.

Shaan Puri: Well just like, even now, like just thinking back, what was that like?

Michael Birch: It wasn’t even a single moment of like, hallelujah, we’ve done it. There was kind of this relief that we’d got through what is quite a stressful process of a sales cycle, which goes on for I think around six months, in our case. We’re also unemployed the day of closing. We were the only, Xochi and I were the only two people not offered a job by AOL.

Shaan Puri: Right.

Michael Birch: And so we were like, “Okay, what do we do?” Because we’d been enjoying work, maybe not the sales cycle so much, but generally we really enjoyed the [inaudible 00:50:52] journey. The day it closed, I think we went to get some money out, and saw the bank balance, and it was like-

Shaan Puri: Yeah. That was cool.

Michael Birch: That was kind of funny, yeah.

Shaan Puri: I just had a James Hong from Hot or Not on and he said that he used to go to the ATM and just print the receipt. Don’t take any money out, just be like, show my balance, and just be like, “Yeah, I got $1,000,000 bucks in there.” He’s like, “I used to just love that moment.”

Michael Birch: We should have printed it and kept it; we didn’t. And we obviously transferred out the-

Shaan Puri: Single bank account?

Michael Birch: [inaudible 00:51:17] account quite quickly. But I think we got a little bit of money out, and then went to watch a film, Forgetting Sarah Marshall.

Shaan Puri: Ah, good movie.

Michael Birch: Good movie. We got the matinee ticket, which is a little cheaper than the evening ticket, so we saved.

Shaan Puri: Always good to save money.

Michael Birch: Always. Always thinking about that. And it was the most fun thing for us to do, because we hadn’t been to watch the film without our kids for a very, very long time, like probably some years.

Shaan Puri: Right.

Michael Birch: And so we could go and watch a rated R movie, just the two of us, without the kids. And it was really enjoyable. We enjoy doing that.

Shaan Puri: Okay, so that was the first thing you did, all right.

Michael Birch: Yeah.

Shaan Puri: Great. And you used to work really freaking hard. This is what [inaudible 00:51:57] tells me, she’s like… Because I’ve only known you sort of after that Bebo journey. And so I always thought, “Man, Michael is really laid back guy.”

Michael Birch: He don’t do any work.

Shaan Puri: Yeah, he doesn’t do a lot of work. He likes to do a lot of things, well rounded life. You like to travel, you spend time with your family, you spend time with friends. And she was like, “No, no, no. That’s not what Michael was like back in the Bebo days. Like Michael used to like not go home. Michael was like, you know, obsessed.” Is that fair? Is that a good characterization?

Michael Birch: Yeah, I certainly worked. I’ve actually started doing that again recently, which is kind of funny; first time since selling Bebo.

Michael Birch: But yeah, I would work. I think the other people have worked longer hours. I’d probably do 70 to 80 hours a week, but I’d also never really stop thinking about it. Like I’ll go out in the evening, I have dinner with someone, I’d be talking about it. I’d socialize pretty much only with company people. And so you’re always talking about it. You’re always thinking, you’re always brainstorming.

Michael Birch: I carried on coding to the very end, I think. I was still spending 50% of my time writing code, all the way through to the end. I remember proudly checking in code on my last day. I was like, “I’m going to do another check in.”

Shaan Puri: Right.

Michael Birch: Probably broke the entire thing. And I enjoyed that, that coding part. My favorite part of it was being in the engineering team. And so we had an open plan office and I sat basically in the middle of all the engineers and it was engineering product, that was kind of my passion in building the business.

Shaan Puri: Right. You know when this podcast comes out, there’s going to be people out there who listen and they say, “Man, Michael seems like a great guy. I loved your story.” And they’re going to want to reach out to you, and all that stuff. And I always give guests an option, A, you can shout out a Twitter or some way that people can reach you if you want to be reached. So that’s one option for you. And then the second thing is, I ask what type of people do you want reaching out? Because obviously, it’s no fun when everybody just goes and asks you for something, “Hey, invest in my company,” or that sort of thing. But some people who are full time investors love that. They’re like, “Hey, send me all your projects. I want deal flow.”

Shaan Puri: Is there a type of person that you like being reached out to by, that you actually enjoy when they reach out to you, and you’re saying-

Michael Birch: Yeah, really talented engineers who want to come on work with me.

Shaan Puri: Okay. And why-

Michael Birch: Pretty much the only person right now.

Shaan Puri: And why would a really talented engineer want to come work with you? They have many options on the table. What’s the pitch for them?

Michael Birch: Well, we’re working on sort of getting the band back together, employing some of the former best Bebo engineers and close friends that I’ve worked with technically in the past. So we’re doing hospitality software. We opened a private members club in San Francisco called The Battery five years ago. This is kind of the biggest project I’ve undertaken since selling Bebo, that was time consuming. And we realized that hospitality software sucks, so started writing our own software.

Michael Birch: So I started doing that six years ago, and I wrote the code myself to begin with, prior to opening and a little bit after; and then got a co-founder and sort of trundled along for a few years. And then this year decided that we’re really going to go for it, and build this out and sell it to other private clubs and hotels. And so it’s just trying to build a super engineering, product-centric business that’s doing a very, very ambitious project, because we’re writing all of the software, like not just things like point of sales and dining reservations, but membership and events and finance systems. And it’s a little bit ridiculous, the scope of what we’ve taken on. But the problem with hospitality software is most businesses use like five, six, seven pieces of software, and they try to integrate them and they don’t really work.

Shaan Puri: Right. So the only solution is one system.

Michael Birch: I think it’s the only way to do amazing things. Because once you own the entire coast stack, the entire code base, you can implement features, which are then cross systems. And so you get these kinds of magic moments as we call them internally, where there’s kind of the a-ha moment of like, how the hell did that happen?

Shaan Puri: What’s an example of one of those?

Michael Birch: So the point of sales system will be integrated with the membership database, and knows when people have checked in at the front door. We’re developing an app for members, which is very community-centric, but then it allows, once we’ve installed the app, to know through beacons around the club where they are. So we know where members are, not in a kind of stalky way. But if they walk up to the bar, we know who just walked up to the bar. And there can be iPads behind the bar saying who’s at the bar. The POS knows who’s near the bars, so when you go to open a tab, so now you don’t have to ask who they are, their membership number…

Shaan Puri: Right. You greet them by name.

Michael Birch: You greet them by name, you know what they normally drink.

Shaan Puri: They don’t have to take out the credit card and forget the credit card at the bar. It’s all just paid, you just walk away.

Michael Birch: 70% of the time they drink Guinness. So he’s like, “Would you like a Guinness, Michael?”

Michael Birch: And then at the end they walk away, and then they kind of Uber-style payments when they leave the club. We know when they’ve left the club then, then they get an email saying, “Here’s an email receipt of the money you spent,” and we’ve charged their card.

Michael Birch: So it’s just kind of like the seamless, beautiful moments that you can have as they kind of progress through the club.

Shaan Puri: Love it. And so how does one of those engineers reach out to you? What’s the best way?

Michael Birch: Probably Facebook.

Shaan Puri: Facebook?

Michael Birch: Yeah.

Shaan Puri: Okay. Michael Birch.

Michael Birch: Yeah.

Shaan Puri: I love it. Anything else you want to leave us with? Any other words of wisdom? Any other things you want to say on the podcast before we sign off here?

Michael Birch: Optimize for fulfillment.

Shaan Puri: Well like when you say optimize for fulfillment, to me that means you know, maybe by default people are optimizing for something else. So like what do you think people are optimizing for if not fulfillment?

Michael Birch: I think often financial success.

Shaan Puri: And so like where is a situation where you are like, “I’m not optimizing for financial success here. I’m optimizing for fulfillment.”

Michael Birch: I think when I first started on the journey, it wasn’t… The goal was never about money. I left my job because I thought I would enjoy this. I didn’t like reporting to people, and I didn’t like to develop crappy systems that I didn’t care about and have no passion for. So I think that very first step was entirely doing that. And you know, to begin with, there was certainly was a sacrifice, because I went from making good money to making zero money. So you know, there was definitely a compromise in that.

Shaan Puri: Well you heard it here folks, quit your job.

Michael Birch: Yeah. Everyone should quit their jobs.

Shaan Puri: That’s what we will leave you with.

Michael Birch: Mainly our president.

Shaan Puri: Love it. All right Michael, thanks for coming in. Thanks for doing this. I know you don’t do a ton of these, so really appreciate it.

Michael Birch: Yeah. Thank you so much.

Shaan Puri: Cool.

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