As any entrepreneur knows, a good idea is essential to business success. Without a solid sales-generating concept at its heart, a startup may as well shut down.
Peter Sisson’s “good idea” was to let smartphone users use a WiFi connection to create a second business or personal phone line incorporating an array of sophisticated call management features. Sisson’s company, San Francisco-based Toktumi, took the concept and created Line2, the first full-fledged dual-mode Wi-Fi calling app for Apple iPhones. Besides giving iPhone users more calling flexibility, Line2 also brought telephony capabilities to Apple’s iPad and iTouch products and to Android devices.
It didn’t take long for Line2 to begin collecting positive reviews from the tech media as well as from mass market giants like The New York Times, ABC News and USA Today. Today, Line2 has a four-plus star rating on iTunes from over 17,000 users.
I recently talked with Sisson about how it feels to lead a startup that attracts widespread acclaim, and how even a good idea usually isn’t enough to ensure continued success. Here’s what he had to say:
JE: How did you launch your company?
PS: Toktumi was incorporated the day that my “non-compete” with Microsoft ended. My last company (VoIP provider Teleo) was acquired by Microsoft, and I had to sign a one-year non-compete where I wasn’t allowed to do anything in VoIP or Internet. The alternative was to go to work for Microsoft, and I didn’t want to move to Seattle.
I incorporated Toktumi with investment capital from a friend and then spent the first couple of years spending very little money but really focusing on getting a product out there. The initial product we launched was a Mac and PC softphone targeted toward businesses. But that product didn’t go anywhere. When we talked to our customers about what they really wanted, they talked about mobile. That was in July 2008, which is when the App Store launched. That was the inspiration to move to mobile. The Line2 name, positioning and the actual product concept evolved in late 2008 and into 2009.
We knew we had hit upon something when The New York Times’ David Pogue wrote a rave review about it. Fifty-thousand people downloaded the app in 36 hours: it crashed our servers, we ran out of phone numbers, and we were the top most downloaded app in the App Store. That’s when we realized we had something. Then the investors gave me the money I needed to build a company around the idea. I think Silicon Valley calls that “the lean startup model.”
JE: So it’s all about having a good idea?
PS: Good investors understand that great companies aren’t created, they’re discovered. Look, Angry Birds was, I think, Rovio’s 40th game before they had a hit. Twitter was a side project of a completely unrelated business. There’s a lot of product discovery that happens through patient investors, iterating and asking your customers what they want.
JE: Did any advisors help Toktumi find its direction?
PS: There are a lot of people who know a lot more than I do about a lot of things. I started with an advisory board comprised of people I knew from prior companies or who were in the industry. Some of them had gone on to do great things and had learned a lot. I gave them 25,000 options on 25,000 shares of stock vesting over one year--that was their compensation. Then they would give as much time or as little time as they had or that I needed.
JE: How important is marketing to a startup?
PS: Marketing, or at least a cost-effective method of customer acquisition, is critical. Build a field and they will come? Well, no, they won’t just come, no matter how beautiful your field is. There have been wonderful products dreamed up in the minds of entrepreneurs that never got traction, either because the product didn’t have a viral nature to it or because the entrepreneur didn’t know how, or didn’t partner with the right people, to cost effectively get the word out.
There’s also a great deal of luck involved. In our case, we knew who David Pogue of The Times was and we were trying to get him to notice us. We got lucky because one of the problems Line2 solves is that if you don’t have cell reception in your home, it will switch over to WiFi. But the very same app, with the same phone number and same voice mail and everything, will also automatically work on the cellular network when you’re in your car. So it turns out that David Pogue doesn’t have cell reception at his home! It was like pulling a thorn out of the lion’s paw. We got lucky in that we solved a real need that he had. That was our breakthrough moment. We invested in marketing after the Pogue event in order to build from the momentum we got from that.
JE: What’s the most effective way of recruiting talent for a startup?
PS: You have to be able to sell a vision of future success to prospective employees. Typically, in the early days of a startup, you don’t have enough money to pay people even what they’re worth. The only way you’re going to get them is through equity and their belief that this could be a great company.
This is my fourth company and I’ve finally realized that, as CEO, HR is my job. I need to be constantly recruiting, constantly looking for good people and building a network so that I can pull good people into the company. Ultimately, a great product concept with a poor team isn’t going to go anywhere. But a great team with an initially bad product concept can often still go somewhere, because they’ll iterate until they get it right.
JE: Have you created any alliances or partnerships with other companies?
PS: We are in discussions with several household-name companies, but our strategy so far has been not to allow anyone to private label our products.
We had one company, which serves tens of millions of customers around the country, that wanted to private label our product. But we walked away from the deal, and that’s hard to do, but you have to think strategically. They would have had the financial relationship with the customers and we would have been nothing but a technology licensee. At that point, we become a cost and are no longer a part of the value chain. Big corporations try to minimize cost. Ultimately, their power would have been greater than ours and we would get squeezed out—replaced or renegotiated to the point where it wasn’t lucrative to continue.
JE: How did you get the confidence to lead a startup?
PS: I’m actually not a very confident person (laughs). I’m constantly wracked with self doubt. Maybe that’s part of it. Maybe it’s because I have something to prove that inspires me to work so hard.
I never wanted to work for a big company. I’m not good at politics and I never wanted to be in an environment that wasn’t a meritocracy. Right out of school I went into consulting, because in management consulting you are kind of your own show. For me, the greatest thing about being an entrepreneur is that, ultimately, it’s just between you and the customer. If you can please your customer, it doesn’t matter what anybody else says.
JE: What are the essential skills an entrepreneur needs?
PS: The number one skill is selling. You need to be able to sell to succeed in any business. And by selling, I don’t only mean product sales. It’s persuasion, being able to excite people; to paint the picture of a vision and lead people to it. I’m selling to prospective employees to try to get them to join the company, to existing employees to convince them that a bad day is only one day, to investors and potential investors that we’re a huge opportunity, to prospective partners—I’m selling all the time. I’m even selling to myself when I have doubts.
JE: Any final advice, Peter?
PS: Do your own due diligence on the idea. Really challenge the idea in every way you can. Then pick a few people who you really trust and respect to get their honest opinion. But this should come after you’ve done all the diligence: finding out if there’s a market, looking at the competitive landscape, talking to potential customers to see if they like it, determining whether others could easily replicate your idea so that when you get big they can take it away from you. After all this, ask a few really smart people for their opinions. Then ignore everybody else, because you will be told over and over and over again that it’s a bad idea. Then never give up.
JE: Thank you, Peter, for sharing your thoughts on the importance of starting with a good idea. It’s a concept that often seems to take a backseat to business and financial issues.
PS: I enjoyed it.