The F Word with Zac Carman, ConsumerAffairs

[TRANSCRIPTION]

Zac: We don't value hard work, we value astonishing outcomes.

Lauren: This week on The F Word.

Zac: I have 100% traffic coming from one place, and I have 100% of revenue coming from one place, so really this is the worst thing ever.

Lauren: Zac Carman, the CEO of Tulsa based company, ConsumerAffairs.

Zac: If you're in the grind just be reminded of the prize.

Lauren: Welcome to the first episode of The F Word. We are so excited to finally share this project with you all. It's been a long work in progress. I'm your host Lauren King, I'm the communications coordinator for 36 Degrees North in entrepreneurial hub in downtown Tulsa. If you haven't already, I highly recommend listening to the intro to this podcast series by our executive director, Dustin Curzon. He explains our goal behind the series, why we pick the name that we did, and gives a great preview of the entire season, so make sure to check that out.

Lauren: But this week we're here with Zac Carman. He's the CEO of ConsumerAffairs, a company that has two parts. A, they help consumers learn more about products before making big purchases, and B, they help companies understand their customers better. Right now, there are over 5,000 brands on the Consumer Affairs platform. Under Zack's leadership, they've grown tremendously over the past six years. But Zack's road hasn't been easy, it's had twists and turns, including failed startups, and a complete overhaul of the Consumer Affairs revenue model. Zack, we're excited to hear the nitty gritty of all that, thanks for being here today.

Zac: Excited is an overstatement. But I'm happy to be here.

Lauren: Great. Hey, let's start with life before ConsumerAffairs. Before all this success, you actually had a few startups that ended up failing. Tell us a little bit about those companies, and more specifically what you learned in that process.

Zac: Yeah, well it's a long road. It's a long road. Even ConsumerAffairs has been a long road. I think we joke about it's seven year overnight success, and I think that most companies are that way. But before Consumer Affairs, I worked at a private equity firm, so my job there was to sell money to entrepreneurs, that's what most private equity and venture capital actually is. Then while I was there, I tried to start a couple companies, and one was pretty successful, ultimately taught a lot ... Taught me a lot about partnerships and that was a mobile content business, so we deliver content to people's cell phones on a subscription basis, and then I also co-founded a chain of fitness clubs while I was there. That's was it, so I owned a third of a chain of fitness clubs in Northern California, and we opened that one ... We opened our flagship club in December of 2008 in Sacramento, which was like if there had been a nuclear bomb center of the 2009 financial crisis and subprime crisis it would've been Sacramento. That was a really interesting learning experience.

Lauren: I bet.

Zac: Then before that I worked ... Before private equity, I tried to start a company while ... Moonlighting while I was at Atachi, and that was a company in the ... Like Netflix with a set top box. It's like Netflix, but you needed a Ti vo to make it work because once upon a time, the internet speed was so slow that you needed to download it over a long period of time.

Lauren: Crazy to think about a world without Netflix.

Zac: Yeah, crazy to think. Once upon a time, there was no Netflixing and chill.

Lauren: You were trying to create the Netflix.

Zac: Netflix did not exist. It wasn't common vernacular, but yeah, we started that business right at the same time Youtube was started. Our thought was, 'well we know how to build set top boxes, we know how to build user interfaces,' and we had some interesting technology around content distribution, and our goal was to go into the foreign language programing space because there wasn't a lot of offering. At that time, there were actually in large cities, there were ... There are these ... Like in Chinatown, there was a Chinese focused video rental shop. You could go in and pay them like Netflix, pay 'em a subscription, $50 a month and come in and take out 10 videos at a time.

Lauren: So your goal is for people to do that from home.

Zac: That's what I wanted to do, yeah.

Lauren: Yeah.

Zac: Totally failed. The worst idea ever.

Lauren: Okay, why'd it fail?

Zac: No, it was a good idea actually. I think it failed because it was ... I think we were talking to it ... Before we started it, I was mentioning it was big mistake that people make is not burning the ships, and when you are ... Context switching is real, right? When you're doing one thing all the time, you can't really do something else. Or if you can, you're not me. Maybe there are people that can do that, but definitely not me. I think when you are trying to do one thing, you should just do that, and do it well. This is a problem that a lot of entrepreneurs have, is lack of focus. It's exacerbated when you're trying to make a living, and then also try and start a company at night, just doesn't work. It can work, but just not as well as it could.

Zac: So I didn't have that focus, I'm glad I didn't do that because it was also, we weren't the right people to be running that business. We weren't ... It's difficult, we weren't able to raise money. It took a lot of capital, and we weren't able to raise money because ... Something I still have difficulty with is distilling the story into a tight vision statement, that's really hard. I think successful entrepreneurs are able to take a step back and do that, and I just hadn't learned that. I was like, this was 15-20 years ago.

Lauren: Learned a lot between then and now?

Zac: 15 years ago, 15. Yeah, I think I learned a few things between then and now.

Lauren: So this Netflix idea fails, you go on to your job in private equity, pretty cush job. Why did you wanna leave that?

Zac: Wasn't that cush. Private equity is, yeah, super cush. Private equity is a grind. It's really feast or famine to the extreme for sure. You do a deal and the number of transactions you do is very few, so I think that was a component of it. I think also I was ... I had ... The reason I took the job at Mainsail Partners, which was a total lark kind of thing, because it was a startup of its own. So these two young guys had left a large private equity firm called Summit Partners and started Mainsail, and I was one of the first ... I was the first person to join when they got an office.

Zac: But we ... I think the reason I wanted to go in back into investing or into investing really was to learn what are the attributes of a good business, what are the attributes of a good entrepreneur, and what was so fascinating about the Mainsail opportunity 'cause it actually took a really big pay cut to go work at that private equity firm because I was already ... I'm an engineer, I was on a rotational program at IBM, worked in consulting, I worked in sales, and I was a really good sales guy. No, I was an okay sales guy, but I was-

Lauren: Honesty.

Zac: Yeah, or vanity. Let's be clear.

Zac: No, but I was making a lot of money in sales, and it was not a hard job, so I played a lot of golf, went to the gym all the time, not ... Clearly don't do that now, but ... So it took a big pay cut to actually do it, but what was so fascinating about it was the job was cold calling. The first 18 months I was there, I made 8,500 cold calls and talked to 2,500 entrepreneurs.

Lauren: Oh my goodness.

Zac: And flew to 400 companies, so over a four or five year period, I was able to fly out and meet 1,000 entrepreneurs, and see 1,000 companies, and actually go and see those operations. Not like due diligence them, and ultimately that was what came out of it, was that when you're cold calling a company and you get that entrepreneur on the phone and learn about that business from the entrepreneur for 20 or 30 minutes or an hour or whatever, like a sheet of paper in a ream. If you due diligence a company and invest in a company, maybe it's another 10 or 15 sheets that you learn, maybe 30. Then if you do board work, or do a project, maybe there's a 10 or 15 sheet that you're gonna learn.

Zac: I ran Corp Dev for one of our companies. You learn more, but you don't really learn the whole ream, and that's what I was craving. Was there were types of industries and types of business that were just really awesome, and I hadn't been able to invest in one, so that's why I left. I raised a search fund, what's called a search fund to buy Consumer Affairs, so it was more of a startup. You get a little bit of capital and then you conduct a professional search to find an asset that you would buy and then run, and that's how I came across Consumer Affairs, was through that effort, cold call.

Lauren: So you found Consumer Affairs through this cold call, it was in Malibu at the time, and you decided to move it from California to Tulsa. I know you're a Tulsa native, but why come back? What made you wanna build your business here?

Zac: Well Tulsa's a great place to build a business. But I think, there was a company that I cold called in Oklahoma City called Pay Com, and there was this guy who built that business, Chad Richardson, who you should definitely have on this show if you could get him, he's amazing. That company's quite large now, publicly traded billions of dollars in enterprise value, and when I called it ... When I cold called it the first time, I think they were about 8 million in revenue. What was fascinating about that business is it's a software as a service business, and Chad had been able to bootstrap a software as a service business, raise no capital, and grow just like a weed, and in fact, do it really profitably.

Lauren: And you think that's 'cause he was in Oklahoma?

Zac: 'Cause he was in Oklahoma.

Lauren: Okay.

Zac: Yeah it was because he's in Oklahoma. It has to do with the sales efficiency lever that you can pull in lower cost operating environments. This is why you see the most successful ... I think the two most successful publicly trade software as a service business right now. I don't know, I shouldn't say that, but two really successful publicly traded software as a service businesses, one's in De Moines, and one's in Oklahoma City. It's ... Tulsa has a recipe above and beyond being fifth generation Tulsa. Tulsa has a recipe to build really big businesses here in a cost efficient way.

Lauren: What's that recipe?

Zac: It's just we've got good people that wanna work hard, and the cost of living combined with that just translates to capital efficiency.

Lauren: Okay, so you came in, started growing Consumer Affairs and pretty quickly you completely flipped the revenue model on its head, you switched from just standard advertising on your website to a subscription based service, that's a huge risk.

Zac: Yeah, why did I-

Lauren: Yeah, why did you do it?

Zac: Why did I change the business model?

Lauren: Yeah.

Zac: It's not that I was super smart or anything, it actually had nothing to do with that. I bought Consumer Affairs and the business was just this really terrific asset, under managed asset, and we were able to grow the revenue pretty quickly, and this is an example. It was actually me ... I probably should not have bought the asset, it was a failure of my due diligence, and true understanding of the asset.

Lauren: After all that training.

Zac: After all that training. What happened is we bought the business and we pretty quickly grew the revenue through some optimization. Thank God, we did because four or five months after I bought the business, we went down 55% on it Thursday, so the revenue on ... We come in at 10"00 AM, we're lookin' at it, we're like 'Gah, maybe somethings wrong. Is today a holiday? The traffics weird, what's goin' on?' Yeah, and Google had changed their traffic algorithm and that impacted the business really adversely as you can tell, and we need a right size cross structure immediately because we began hiring 'cause we're growing and we'd doubled the business in the first 90 days, which was great.

Zac: But then I realized, 'Wow, this business has major concentration risks that I didn't understand.' I didn't understand them because ... It's not like I didn't articulated in the due diligence, I just didn't really appreciate the severity when you have a concentration risk like that. By that I mean 99% of the traffic came from Google dot com. So when Google changed their algorithm, it just one to one, you lose revenue.

Zac: Then a couple weeks later, Google changed their publisher payout algorithm on the ads. So we were also running 100% of the ads through Google, so somebody comes from Google, lands on our site, sees an ad, clicks on it, we get paid. That impacted the business less severely, but I was like 'Wow, I have 100% traffic coming from one place, and I have 100% of revenue coming from one place, so really this was the worst thing ever. I need to figure out how to diversify that.'

Lauren: So they're really ... Are you saying there wasn't a lot fear going into how to change it or did you have any fear when you realized, 'Okay, something has to change and it has to be big.'

Zac: I was like 'Ah, it's not ... Look I can fix this. I'll fix this. That's what I'll do."'

Lauren: Is that your attitude usually?

Zac: Yes, you just cannot ... What are you gonna do? You can't change the unchangeable. Humans have a psychological trick to convince themselves ... This is not me either, it's a Ted Talk, but to convince themselves that unchangeable events are the best things that happened in their life. In this Ted Talk, the guy's like here's a guy who was wrongfully imprisoned and exonerated, talking about how going to prison was the best thing that ever happened to him because I was on the wrong path or something like this. So the best thing that ever happened to me was that the business went down 55%. It has to be 'cause I can't change it.

Lauren: So how did you know what move to make after that?

Zac: I didn't, at all, so I spent about three or four months researching different things. I was like 'Well, we got this asset, still gets a million ... 800,000 visitors a month, it's great. What could you do with 800,000 visitors a month? 10% of them are mobile. What's the traffic like?' I really just dug into the asset and the business, and tried to think about what are the different things you could do. There was a nugget of an idea when I bought the business that something really interesting was happening in the type of content that we had, and something really interesting was happening in ... The whole thesis of it was that marketing was transforming from an opaque to a transparent format, and that in the context of that transparency, the content that actually enables transactions, i.e., commerce, would be the most value content.

Zac: Here was this site that had reviews and complaints about products and services, really expensive life change oriented products and services. That content would be supremely valuable, maybe we could do something else with that content.

Zac: Then I took a class on product development 'cause I knew nothing about product development, and there was this woman who had put together a course for why out of Stanford, so I took that class and it was like this is how you do product development. The answer is you build something, anything, idly something that will take money, and then you go and meet them. So I built a minimally viable product, if you want to call it that, that basically just charged brands money and allow them to log into something, and I sold 37 of those in ... 37 brands in 45 days in a variety of different types of brands, so Proctor&Gamble, pet food division, roofer, big online travel company, lots of different types of businesses that have different customer acquisition models, national versus local, online-

Lauren: But they all have this common thread of wanting to understand their customers.

Zac: Well they're all selling something.

Lauren: Yeah.

Zac: They're all sellin' somethin' for sure, and yeah, they all have reviews on our site, and they were all willing to pay for something. Then you just fly around and you ask them what they want in an unobtrusive way, ideally not coloring it, and they say they wanted to engage with reviewers, they wanted to learn from reviewers. Basically almost every product or service is oriented around that within a business, and I just realized, 'Ah-ha! Reviews can impact a few line items in the PNL.' They can impact customer SAT, which is ultimately a measure of your brand, and businesses would pay for that.

Lauren: And you've proved that you could do that and here we are today.

Zac: Yeah, overnight success. It took me 18 months to launch the product, so I gloss in the more ... In the less intensive story, I gloss over all that bad that happened the first year and instead talk about, 'Oh yeah, buy the asset, really takes you a year, a year and a half, to get your legs underneath you, a lot harder to build a business than you think.' Hiring or recruiting ... 'Cause there were three people when we bought it, so there was no engineering team, there was no product team, there was no design, there was no admin function, there was nothing. It was a 70 year old man running the website in his basement, and in a nice house in Malibu. So you gotta build those things, it's a lot harder to do that.

Lauren: Let's talk about your people for a second. You have about 270 employees, 130 of those are here in Tulsa, Consumer Affairs is known for it's Google-esque company culture.

Zac: Yeah.

Lauren: You have a cool office with beer taps, and bacon Fridays, which always makes me hungry when I see that on your Instagram, what's your theory behind all that?

Zac: Well I think we talk a lot about it. I think that we don't value hard work, we value astonishing outcomes. Astonishing outcomes come from creative, intelligent, driven, smart people and like myself, and I just don't ...

Zac: I don't wanna work at IBM. I don't wanna work at ... Now IBM, I'm sure they're trying to change their culture and I shouldn't say that, IBM taught me a lot, all those things, but I just don't wanna work some place that sucks, and I want to have fun, and I'm relatively young, but it's not the years, it's the miles. I'm probably more like 60, 'cause I've driven the car hard, but if all you do is work, wouldn't you want it to be awesome? Wouldn't you want it ... Like work with your friends and have an environment where you can ... Now as you grow up, as the business gets larger and larger, as the hiring gets distributed, cultural fit, it becomes more and more difficult. But yeah, it was just about ... Yeah, I wanna play flip cup. Let's play flip cup. Let's build a table that ... For flip cup.

Lauren: So you think it's way more about the end result. It doesn't matter if you're trusting your buddy getting there.

Zac: No, I don't care if you work hard. We say work hard, play hard, of course, because it turns out the luckier ... The harder you work, the luckier you get, but what we really care about are astonishing outcomes, results. Those results can happen in a fun environment as well as a really boring environment. In fact, I think for creative people and problem solving and content, all of these ... Any creative task, it really, really sucks to be in a cubicle thing. It doesn't mean you can't hold ... You don't have to hold people accountable, this is the hard thing that we've learned over time is. You've gotta really be buttoned up on accountability if you're gonna reward and fire based on results.

Lauren: Do you have any specific stories around that?

Zac: Well it's like ... We start implementing these employee net promoter surveys, and our employee net promoter score is pretty good. If you go look at us on Glassdoor versus other people or something like that, I have the hate. There's hate reviews about me out there, you should go read 'em, they're awesome. I'm a big review person, I'm happy for people who write reviews about me. But our score is pretty good on Glassdoor a little better than Quiktrip or something like that, or like Facebook or ... Not as good as Facebook or Google, but we look at those factors and we just we start ... I read all of those comments every single month. There's an anonymous employee net promoter score that happens monthly, and then an in depth employee opinion survey quarterly. I just read the comments. We just started to notice people mentioning accountability, like 'Gah, people aren't really held accountable,' and I was like 'Wow, that really sucks, so you've gotta-'

Lauren: Find that sweet spot.

Zac: Yeah. Look, we all ... That's what I said at the stand up, I do ... Not a stand up, but a snapshot is what it's called, like a monthly, all hands where I talk-

Lauren: I thought you were gonna tell us you do standup comedy.

Zac: Oh no, we do stand ups and all hands that we do. It's team based now, but every Friday during bacon Friday, we all talk about different things. The teams get up and talk about what they're workin' on, celebrate wins-

Lauren: That's cool.

Zac: And things like that. Then once a month, I'll do a state of the union kind of thing. I was like 'Look, it's like in college, we all knew of the friend who just couldn't hack it, right? Awesome dude, in fact, we let him in our fraternity, or we let her in our sorority, and she just couldn't handle the freedom of being able to party all the time in college.' Everyone knows that person, you could ... You create systems of control around yourselves, and there are companies that do that with people, and have strict performance management. It's ... You've gotta put those things in place, unfortunately, or put parts of them in place, but as little as possible because great people really don't wanna be in that environment.

Lauren: You mentioned it a little earlier, and then you and I were talking about it a few days ago. I asked you what your haters say about you. What you told me is that they say, "Oh I love to hear myself talk. I'm the worst assistant."

Zac: God, I'm on a podcast.

Lauren: "I lack empathy. I'm hyperbolic." How does knowing all that, having that self awareness, affect how you work?

Zac: Well a vain, bombastic, hyperbolist with reality distortion doesn't allow it to affect them. Doesn't change a damn thing I do, that's the answer. No, I think, no, you try, you try. I don't know though, the pendulum swing, right? You're aimin' for this ... For that middle, but pendulum swing, and I was thinking about it. This year's been choppy, it's been a rocket ship the years before. I was like 'Gah, did I really just become a softie this year?' I used to really Bobby Knight it like crazy.

Zac: Originally, there was a big discord when I moved from San Francisco to here. When I moved in from San Francisco, 'cause in San Francisco I worked 80 to 90 hours a week, and then when I moved here I worked more because I was working for the first 18 months outta ... Or the first 15 months outta ... Where I was finding Consumer Affairs out of my bedroom. Wake up at 6:00, start working, be done working at 8:00-9:00, and just do that every day, and I'm by myself just crushing cold calls and researching things and doing things, and jamming a TU intern that was in my son ... Now my son's bedroom. But jut being like, 'Jeff, get on it, right?'

Zac: Then when I bought the company, I was like 'Oh stand ups at 7:00, everybody gotta be here at 7:00.' When people didn't get things wrong, I just couldn't believe that people didn't wanna work all the time.

Zac: Until it's taken me years to build that muscle of empathy and understand that people value things other than this. Yeah, I don't know, not well is the answer. I think I take that feedback and you try and build those muscles, but I haven't perfected it for sure. I haven't really solved those demons.

Lauren: It's a process.

Zac: Yeah, you work on it. I think that's all you can do. It's like anything, right? It's like 'Ah, I eat too much. What am I gonna do?' My fitness pal premium, now I'm invested, keep that diary going. Then just because you ... It's like I read somewhere if you buy parents ... Parenting books, you're in the upper docile of parents, regardless of whether or not you read the book. It's nothing to do with whether you actually read the book, just buying them you're in the upper docile because at least you're proactively thinking about the quality of parenting that you're doing. I think just if you're thinking about ... If you're trying to be self aware, that's ... At least you're trying to be self aware and you realize that you may have some badness in you, bad traits in you. That's good, I think you should do that. Well one should do that, not you.

Lauren: Well thank you.

Zac: I don't know you that well.

Lauren: Oh my goodness, yes, I think you're right. I think we can all use that.

Lauren: Our last question is one we ask every guest. How would you encourage an entrepreneur that's in the grind right now, and just trying to keep going?

Zac: I hope that if you're an entrepreneur, you have read a book like Grinding It Out, which they made a terrible movie of, but Grinding It Out, the book is great. The book's really good, actually. The movie not so much, although I like that guy, but it's ... I think it's you ... You should do that, and then you should ... I love movies, you should then watch Wolf of Wall Street, and you should watch ... Then you should listen to some great early 2000s rap music like early Jay-Z kind of rap music. I think that then you'll be like you know what, hell yeah I'm gonna go do this. Bling-bling.

Zac: Because it's like unless you ... It's just be reminded of if you're in the grind, just be reminded of the prize. Why are you doing this? You're not doing this really to make money, there lots of much easier to make money in other ways, on a risk adjusted basis for sure. So if it were a money thing, you'd be doing something else. The reason you're doing it is because you are so vain that you believe that you can do something, or you really like to build stuff. You wanna build something magnificently large, so just go do that. If it's too hard, then don't do it, that's fine too. There are a lot of people in the world who aren't entrepreneurs, but if you've chosen that, then just do it. Yes, stay focused, and just go do it. If you thought it was gonna be easy, please quit.

Lauren: Harsh. Thank you so much for your insight today, for your honesty, and sharing your story with us. I'm really grateful to you.

Zac: Thank you for doing this. This is great.

Lauren: Next week on The F Word.

Shannon: When someone made the suggestion that we should start looking into franchising, I didn't even know what franchising was. I left that meeting, drove straight to Barnes & Noble and bought the book, Franchising For Dummies.

Lauren: Shannon Wilburn talks about building her pop-up consignment shop just between friends. The company started in her living room and is now an international franchise. Make sure to tune in as she shares growing pains in best practices.