Jon was one of the Yottio’s co-founders, a mobile-first tool that enabled video participation on broadcast television. The startup went through all experiences, including making $200k in revenue, spending $150k for operations, a co-founder leaving the business and a $20m acquisition offer. However, Yottio eventually ran out of cash and shut down.
Hi Jon! What's your background, and what are you currently working on?
My name is Jon Lawrence, I’m 46 years old and live in the Seattle metro area. I like to say that I haven’t failed enough to quit, but haven’t succeeded enough to make it worth my while, but that’s only half true.
The part that is true, is that I haven’t failed enough to quit, and that’s saying something. The part that isn’t true is that it hasn’t been worth my while.
It is fair to say I’ve never managed to get to a cushy exit from a venture, despite having a $20m term sheet on the table once. But along the way I’ve managed to learn enough from my mistakes that I found my way to leading teams whose work is challenging, sometimes inspiring, always teaching me new things and making a good living while I’m at it. Even better, I continue to learn and grow in ways that should I decide to take another swing at entrepreneurship, I’ll be sure to make new and original mistakes next time!
I incorporated my first ‘business’ in 1995 while at college when I created a 501(c)(3) non-profit because some friends of mine and I felt like we could better serve ourselves and our interests in theater with some structure that would help us raise funds and pick productions that we wanted to make. No one really guided me through any of it, I’d just picked up a couple of books, and an “incorporate yourself” software kit that came on a set of 3.5” disks (!).
Little did I know it that would lead to incorporating almost a dozen entities involved in different types of businesses over the years to follow; including production companies for media development and production, event production, underground wine storage (yes, really), and technology.
My first tech startup was in 2010 when a couple of friends and I figured that Twitch.tv was on to something, and we knew video production pretty well, so we tried to pair that with the nascent eSports movement. I raised close to $200k from friends and family, spent about 8 months building a beta product, got a few folks into the beta, and then depressingly ran out of runway (it was rather expensive to run hosted video streaming in the cloud 10 years ago).
My second tech startup, a few years later in 2013, came on the heels of leading a fairly high-profile mobile game launch for an NBC show called “The Million Second Quiz.” As part of that project, I learned a lot of synchronous/real-time technologies that were really just emerging at a cost-benefit point that made them worth trying to use for media projects (open-source tech like Cassandra and RabbitMQ) and that lead me straight into Yottio.
Yottio was a mobile-first mass-participation moderated video participation platform for broadcast television.
What motivated you to start Yottio?
There’s a theory that there’s a correlation between toxoplasmosis and entrepreneurship - which makes me wonder if maybe I rolled around in some cat poop when I was a kid. Since my first entrepreneurial endeavors as a young person (lemonade stand, lawn mowing services); I’ve often made the risk-ignorant assumption that making a living I’m happy with depended upon learning things for myself and creating structure from nothing over and over and over again.
When it came to Yottio, I had a strong background in building interactive broadcast experiences, including working as head of production for a well-known production company where I was deeply involved in the game design and build for a couple of interactive game shows that we had sold to TBS and BET.
From an interactivity standpoint though, I thought the experiences we were building didn’t push the envelope far enough. However, what we could do with participants also had to accommodate the creative and legal processes that went with putting people on-air were things that weren’t easy to solve.
The traditional methods of casting contestants and participants for creative formats are designed to give the creative team the most freedom for good stories, and stories that are technically well-produced, using processes that provided acceptable risk-management for the broadcasters.
When it comes to including participants in a broadcast-media format, three key elements that must be present.
- Can producers find a participant that meets their creative requirements?
- Has the participant agreed to the legal release terms of appearing in the broadcast?
- Can the participant be seen and heard at high enough quality?
When my co-founder showed me the original idea behind the desktop-based platform that he’d built, he had a solution that handled the second requirement pretty well, but the first and third were severely limited by requiring potential participants to be at a desktop PC with a webcam; and having integration hardware that wasn’t up to modern broadcasting requirements.
It seemed clear that we could create entirely new ways of having conversations if we could build a platform that could let anyone, anywhere, anytime be a part of a broadcast reaching millions of viewers live in a way that still allowed the creative production teams to produce and moderate on the fly and manage risk acceptably in the process.
What really made our product different from regular group video calling platforms was that we had a very slick interface for aggregating tens of thousands of potential participants, screening them rapidly based on things like location, battery and mobile device signal strength, audio & video quality, and social reputation and reach.
The platform enabled content producers to drag and drop the participants they wanted into a given conversation while still being able to live moderate and control the conversations discreetly, and then output all of the individual video and audio streams in HD broadcast compatible formats in real-time.
The business model was a mix of professional services where we built and installed hardware packages in broadcast control rooms, licensed our software on those machines and paired the stack with companion mobile apps for iOS, Android and a web app.
I thought that if we got it right, our platform could democratize mass media conversations in a way that had not been done before and that it would inevitably be a good thing.
How did you build it?
The original technology that my co-founder brought to the table was a couple of client-server Java applications that worked only using a static webcam on a desktop computer and standard definition video. It’s original iteration severely limited creative options, and the core tech it was built on was based on video standards no longer in production use.
When we met, he was trying to figure out if there was a market for the original product but had been unable to make any inroads with broadcasters for a couple of years. He had built the core platform and used it in a few broadcast programs in Italy in the early 2000s; when the product was abandoned. I dug into the core of the platform to understand if it could be remade for a high-definition, mobile-first world; and if so, would that be something we could sell to the market?
Our delivery timeline for delivering the mobile product and high-definition video playout were dependent upon our customer having completed their control room build-out; and on their completion of their mobile app. This meant we could actually use our initial licensing fee from the customer to pay our developers (and ourselves).
With one Java developer, and one mobile developer; and about five months of work, we refactored the original product into more modern working beta that was good enough and was still ready before our customer was ready to go live with it.
Because our process included hardware integrations; we were literally re-writing the native video card drivers in C++ to get the speed and quality we needed to get low-latency video streams off cellular networks and into HD video mixing consoles within broadcast tolerances while dynamically creating the appropriate audio stream patches for participants and stage crews.
Since several of the hardware pieces would be installed in operating broadcast control booths, we also had to spec out and build a number of high-performance rack-mount PC’s to run the product. Building, installing and integrating the hardware was a task that I did myself for our customer, and included all the follow on support and personnel training on using the product in broadcast programs.
We later added an infrastructure engineer to properly secure out backend services and create some automation around provisioning resources using Ansible.
Building and supporting the platform was incredibly challenging, and most of the time I was the sole full-time employee. Our development team was primarily remote and worked as our funds allowed; which was rarely full-time after the initial MVP build.
After closing our initial customer, we went on the road to raise additional capital for continuing to build out the product.
Which were your marketing strategies to grow your business?
The sales process in particular for our product was lengthy and problematic. A major factor that made sales difficult was that production companies buy or lease technology based on having sold show creative formats that rely on a given technology; and the sales cycle time on show formats is much longer generally than the cash runway of your typical tech startup.
Our marketing/sales approach in this regard was to partner with known, successful producers who had existing network deals, and to create pilots and new show formats that could not be done without our technology; and help them shop them around the broadcast networks.
Because we had not yet raised the capital to move the product into a SaaS delivery model our options to get the product into a broader market was really limited to what we could do based on the professional broadcaster model where hardware was sold in as well.
We were at the right place at the right time, with the launch of a brand-new; technology-forward network with Revolt Network. Since they were in startup as well, they were building out a brand-new control room which was a perfect opportunity to integrate our product from the beginning.
We spent a significant part of the first six months post-MVP to get the entire platform working with our customers new control room environment; and supporting their app development agency as they attempted to get their app to work properly with our backend.
In early 2014, we launched on-air, with Revolt running segments called “Voices of Revolt” on their daily news program.
Towards the end of 2014 we also landed a competitive spot at a startup hub called “Sprockit” as part of the biggest broadcasters convention in the world, at NABshow in Las Vegas. At the convention, we generated a lot of interest, a lot of leads, and won a “Best of” award as part of our efforts there; and this was a core part of our go-to-market approach.
We came away with three to four very solid prospects, that we had a 60-70% chance of converting to paid customers within the next 6 months. That would have put us well over $1m/year in business and in a position with sustainable cash flow. At the same time, we also had regional companies in South America and EU wanting to commit to being value-added resellers and installers in their respective regions, which was pretty exciting.
At this point, we had managed to also create a decent ability to live demo the platform without setting up a full stage production, and made it possible to run the entire demo with only two people (one producer, one participant).
Which were the causes of Yottio failure?
Even though we managed to find good leads at NABshow that were qualified and interested in our product; each potential customer rightly wanted us to be able to come physically demo the platform at their broadcast control rooms.
We were already running on fumes as far as cash flow went, and the only way we could come up with $20-30k in cash for purchasing and setting up the hardware; and travel to do demonstrations was to raise outside capital, which we had been trying to do without much success. Since demo’s weren’t committed purchases, there wasn’t any contractual revenues we could secure debt against either.
This meant that being able to actually go try and close new customers was out of reach until we had a closed round of investment.
Additionally, our license agreements with our clients had an annual renewal fee, and quarterly license payments. When each quarterly bill came due, we invested an inordinate amount of time in chasing payments from our customer who paid months late on each invoice.
I also made a choice before joining as co-founder; that I wanted to grow and run the business from Seattle instead of Los Angeles; and that was part of my written agreement with my co-founder from the outset. So once we had our first customer on their feet, I set about getting moved to the Northwest and building a small team locally. It’s possible that staying in LA may have helped us turn a corner faster; and in retrospect it’s a decision I’m not sure I’d take again (though the move has been demonstrably better for my family).
Simultaneously, as a fully formed corporate entity; we were now on the hook for some of my co-founders debts that reared their head once we had some cash flow. In the end, the debt accounted for nearly 40% of the total revenue we had from our single customer. After finding out that we would have to pay at least some of it, I worked to set up payment plans with them so that we could keep operations going; and hopefully get over the hump.
At the same time, we were endlessly pitching at startup competitions (never in ones that we had to pay to be a part of) working to secure a seed round of investment. We placed second in a highly competitive Seattle Angels Fund competition and highly in a number of others; but never quite enough to close funding that would keep us alive.
Coming out of the NABshow convention, it looked like we had an anchor investor for our seed round which we decided to launch in connection with Flashfunders.
Flashfunders was an early crowdfunding platform designed to be compliant with the existing SEC Regulation D filing requirements, restricted only to accredited investors. Out of our $1.5m round, our anchor was committed to underwriting $400k, and we were ready to take our fundraising show out on the road.
One of the things that investors want to know about, is who’s on the founding team, and what’s their background? I was fortunate enough to have deep sector expertise and my co-founder had had a rather successful previous exit.
A week into publicly launching the round, it looked like we might actually pull it off; and that was when I got a LinkedIn notification telling me that my co-founder had a new job.
A few conversations later, he made it clear he wanted to do something he was more passionate about; and that was that. He was out, but retained most of his stock due (which was a solid majority of the company ownership at ~60%) to the way we’d structured vesting, intentionally. He decided that he’d put some of his personal capital in to try and keep things afloat, meaning just enough that I could keep working on it, keep doing some development and support; and that we could pay our taxes due in the next quarter.
The fundraising round almost immediately bogged down, where I struggled to find investors who were comfortable putting capital into a company where a majority shareholder had already decided they would not spend any more of their time.
So I tried to slog on independently with the fundraise, and this was the time we got an interesting acquisition offer from a tech holding company out of San Jose. Given where we were with cash flow, and that we had managed to get a core patent actually approved; we decided to take the meetings. We were flown out for some very nice lunches and bottles of wine. We invested the time in providing all the necessary due diligence documentation and within several more meetings and conversations; we were reviewing an offer letter for a $20m acquisition.
That was pretty damn exciting; until we got into the details. As I drilled down into the offer, it was about $5m in cash, and $15m in stock in their holding company; and when asked for an independent valuation of their stock, something started to smell really fishy.
After spending several more weeks attempting to get to an independent valuation of three-quarters of the acquisition offers value; it became clear we were not going to be able to get a clear valuation of the stock offer, and quickly became highly questionable if the potential acquirer even had $5m in cash to offer.
The sale imploded the week following these discoveries. After that, my co-founder also seemed to change his mind about backstopping the company any further. Around the same time, it was clear that our Flashfunders round was not going to reach the floor we’d set for the round, which meant that we would not receive any cash from the committed investors without closing the current round and renegotiating some other form of equity investment at a lower price point.
With our one paying customer, whose license ran another four months at this point, we had outstanding functional requirements we were committed to deliver. I took out loans against some of the remaining assets my family and I had, which was largely limited to about $10k against our vehicles. That was enough to pay our developers to get the functional requirements done and delivered, but at this point; I had no other way to pay my own bills.
My co-founder agreed that we could attempt to liquidate the IP, namely the core patent we’d been granted; and I set about attempting to find a buyer for that while picking up other side work to try and keep a roof over our head. The side jobs managed to get us about a bit further down the road; but with no buyers in the immediate future for the patent, the liabilities on the balance sheet and another round of upcoming taxes due; I decided I could not continue any further.
With a round of really difficult-to-make phone calls and video conferences, I reached out to all the holders of our debt, and our developers and other stakeholders and made the call that I would resign as CEO. Given that I was not the majority stakeholder, the fate of the business as an entity would pass back to my co-founder.
I spent a week or so compiling all the necessary documents and statements about what parts of business would need attention and in what order; and delivered all of it in a neat digital bundle, followed on with a few boxes of all the backup physical paperwork and remaining physical assets.
At the end of the day, our failure really came down to:
- Inability to land new customers fast enough: Our product had a real chicken-egg problem, attempting to crack the egg in a really risk-averse industry where creative innovation moves historically very slowly was a mix that might have been better to just avoid altogether as a bootstrapped startup.
- Physical move away from highest saturated market, made additional sales, and demo’s more difficult.
- Failure on my part to do greater due diligence on my co-founders prior commitments to others, specifically with regards to debts owed. Landing our first customer created early cashflow that overshadowed the misgivings I had about not knowing the full picture of liabilities associated with my cofounder and the efforts he’d undertaken trying to get the product off the ground in the US before he’d brought me in. It was only over the course of the first six months of operations that I really started to get a full picture, even after having fixed the lack of *any* properly papered intellectual property and development agreements, and all the normal paper that goes with a new C corp.
When I resigned, it was, for all intents and purposes, shutting down the company.
It meant letting the developers know what was going on, and offering to help them find other folks they could do work for to keep their lights on.
It meant calling creditors and telling them where the company was at, and what their options were for continuing pursuit of debt collection, and asking for their understanding and forgiveness where I could.
It meant calling those folks who had options stakes in our cap table for various contributions and giving them my frank assessment, and apologies.
It meant I now had an extra $10k+ of personal debt to find a way to pay off.
Which were your expenses? Did you achieve some revenue? In the end, how much money did you lose?
Because we mostly bootstrapped; our losses were contained to under about $150k in cash over the two years of operation. About $25k of that was convertible debt from friends and family, and the balance was cash from my co-founder and myself.
Our two year revenue was a bit over $200k, which wasn’t terrible for a single enterprise customer, but certainly not enough to sustain operations in a business that still required significant hardware investment.
If you had to start over, what would you do differently?
If I had to do Yottio over again, I would probably choose to work on it part-time for a year or two, and not sell an enterprise product at all to start. Instead, I’d see if we could build a much properly SaaS-ified product so that we could avoid the hardware requirements for customers to trial. I would have loved to have moved the control interfaces out of their Java applications/GUI’s and into browser-based control. In 2019 this seems like a no-brainer; in 2013; it was still pretty advanced to attempt to get multi-stream real-time video running reliably in-browser.
I wish that I had spent more time in due diligence overall; though I’m not sure it would have changed my own choices. My co-founder had a core tech that was really neat; and it was in my wheelhouse to make it work in a modern world.
Which are your favorite entrepreneurial resources?
Being a middle-aged guy who’s done a few things, my favorite entrepreneurial resources are actually friends and past colleagues from other endeavors. These are friends in various industries, not just tech, who’ve been down their own roads in the past, and are usually willing to generously share their thoughts on strategic and tactical problems I faced.
Initially when I got into tech entrepreneurship, I read most of the standard bullshit; TechCrunch, Vator, Gary Vaynerchuck (the early version;) and loads of stuff from VC’s, FeldThoughts, Mark Cuban, et al. There were some valuable things to learn from those, especially things around term sheets, cap tables and financial models for investment.
I enjoyed books like the Hard Thing about Hard Things by Ben Horowitz, Startup Communities by Brad Feld; the Long Tail by Chris Anderson and How to Get Rich by Felix Dennis (hint: it’s not what you think it is;)
I’m a voracious reader, and also invested time in reading through and learning startup legal formation, due diligence preparation and was even jokingly offered a summer internship at Wilson, Sonsini, Goodrich and Rosati by one of the partners there whom I’d managed to get to represent our company.
I constantly read about new technologies, primarily in cloud spaces these days since that’s where my current teams build products.
Where can we go to learn more?
In the wake of Yottio’s implosion and subsequent taking of a more “regular job,” I’ve also backed off a lot of my online presence; not necessarily out of embarrassment, but much more due to the fact that curating an online presence and engaging in multiple social media channels to prove thought-leadership takes more time than I want to give to it anymore.
For years I had my own site with loads of film, tv, and some tech related work on it; and when Quora launched, I invested a ton of time into production related thought leadership. My answers on that platform have been read by over half a million people; and still earn three-to-four hundred reads a week; almost ten years on (that’s kind of mind-blowing to me:).
Today, I’m active in my regular job, investing my non-work time in raising my ten-year old daughter and being a present husband to my awesome wife, who has hung tight through all of this. I contribute to some of the really neat work happening at the Chaoss Project and once in a while I side-eye some other crazy idea and I inadvertently wonder aloud “hey, maybe I should try that again…” before I come to my senses.
If folks would like to contact me, they can feel free to drop me a line at firstname.lastname@example.org; I’m generally open to conversations, though I’m not at all looking for another startup to join.