This interview is with Yu-Kai Chou, founder of RewardMe, a merchant loyalty startup that has raised over $1 million. (Download the audio recording of this interview.)
- UCLA undergrad
- Founded Future Delivery
- Founded RewardMe
Q. Tell us about your background.
A. I’m 26. I graduated from UCLA in 2007, where I studied international economics. In college, I co-founded an organization called Bruin Consulting, which trained undergraduates to go into management consulting. But I went down the path of entrepreneurship ultimately. I first started by selling stuff on eBay. Then I transitioned to my first real startup that had some kind of scale, which was called Future Delivery, where the concept was to use gamification to help companies recruit and hire undergrads more efficiently. It didn’t pan out because of the economic recession the following year. I then worked on another startup called Viralogy, which pivoted into RewardMe. Since then, we’ve raised over $1 million and have closed some pretty big customers.
Q. Tell us how you made each of those career moves and how did you think about them along the way?
A. In high school, I spent a lot of time playing computer games. But toward the end of high school, I decided that playing games was a waste of time, and I stopped. However, I thought of my career development as a a real-life game of sorts, where I get experience, choose the right skill sets, find the right allies, and pick my “quests.” That’s when I started to take my life really seriously and evaluating whether everything I did would benefit me longer-term.
So in college, I was actually already an entrepreneur by my first year of college. I started a small business buying and selling used TI-83 calculators. I’d buy them for $40 at 2 a.m. when no one was bidding, and sell them midday for $60 when there were a lot more bidders. That was fun and I started expanding my inventory to new merchandise, drop-shipping items, and it gave me a taste of running my own business. I enjoyed it because I felt I was learning more about business than in school; my major in economics didn’t really teach a lot of concrete skills on how to run a business.
In my sophomore year of college, I joined a business fraternity, thinking it was a very entrepreneurial organization. After I joined, though, I realized it was actually very focused on getting people into investment banking, management consulting, and the Big Four accounting firms. So I was pulled into that world and even became one of the leaders of the organization where I was training people to get those jobs. So I became very familiar with those fields. Consulting seemed really interesting because it would apply a lot of business principles and skill sets at large company scale.
In my junior year, one of my current co-founders came up with the idea of bring this kind of training to everyone at UCLA. Back then, top investment banking firms would recruit at UCLA, but none of the big management consulting firms would. UCLA doesn’t have an undergraduate business major, so many students aren’t prepared for consulting case interviews, so it’s just not worthwhile for firms to come on campus.
So we started an organization called Bruin Consulting; we hosted UCLA’s first case competition, and we trained people to interview for consulting firms. After that, firms like McKinsey, BCG, and Bain came on campus to recruit a lot more. So I was on this track where consulting firms really liked me and wanted me to join them after graduation. And that’s what my parents also wanted as well, because it’s a very stable career path, you get paid pretty handsomely, they pay to send you to business school, you come out with an MBA, and then you can go do a lot of things afterward.
I also had the pressure to do that because of my international status. I was on a student visa, and I needed a large company to sponsor me. So that was a very powerful force that almost pushed me into consulting.
During that time, though, I had been nurturing and conceptualizing an idea that combined both gamification techniques echoing my high school gaming days, along with my college interests in career development and helping students find great jobs. I wanted to combine those two passions together to create a real-world “game” where the longer you spend “playing,” the more productive you are, and the more it helps you in real life.
That’s when I created Future Delivery, which was a site where you could network, make connections, interview, and find jobs all with a real identity avatar. I recruited a team to work with me on it — one of my co-founders was a senior engineer at Toshiba, another was my friend who co-founded Bruin Consulting with me, who left his post-college consulting firm job to join me.
I was in my last year of college and recruiting season was coming. I thought about interviewing for consulting firms, but ultimately decided that, because my co-founders had quit their jobs to join me on Future Delivery, it would be pretty irresponsible for me to go get a corporate job myself. So I decided not to interview at all.
I graduated and my legal status gave me a one-year grace period to build out the startup. We built the site, which we called FD Career, and it was designed to turn your career development into an RPG game. It got some momentum; Mashable rated us one of the top ten social networks for Gen-Ys, we struck a partnership with the Walt Disney Company, and our revenue model was to help companies recruit talent more efficiently through challenges and “games” that could help identify the best talent to hire.
Unfortunately, the economy crashed soon after, and every company was looking to lay off people, so our tool to help them hire more efficiently wasn’t very useful anymore. And because our momentum suffered as a result, it also led to team morale issues. So we shut the startup down.
We still wanted to work on startups together, and so we started a new company called Viralogy, which did something very similar to what Klout is doing today. We became very popular with bloggers who would constantly check their social media rank using our service. But we couldn’t figure out a good way to monetize without fatally affecting the product or our users, and we were running really short on money. That’s when we pivoted into the first version of what RewardMe would eventually become.
RewardMe has since pivoted a couple times in the direct commerce space. Currently, we build a mobile-phone based merchant loyalty solution that is designed to consolidate and replace all your traditional loyalty punch cards that stuff your wallet.
Q. Tell us about building RewardMe from its early days to now raising over $1 million. And what do you do day-to-day?
A. We started out by getting early adoption from small mom-and-pop stores as well as tech-savvy entrepreneurs. But we found that users are pretty stingy about spending in stores and our product wasn’t creating enough unique value for them to increase their spend significantly. So we had to choose between simply pounding the pavement and trying to brute-force our way into a whole lot of smaller stores and scale out that way, which is what most of our competitors are doing, even though it isn’t particularly valuable to users, or pivot by targeting chain stores and bigger franchises specifically, which is what we’ve done.
So we built our current iPad-based product and we sell that to bigger franchises now. Selling to franchises has a much longer sales cycle, and they care a lot more about sophisticated issues like data analytics and data-driven ROI. But we’re now at the point where chain stores are starting to recognize us and we’re closing more deals, even if slowly, with some of the biggest retail customers out there, and hopefully that will help us build more momentum to be the leader in the merchant loyalty space.
In terms of my role, it has mostly been fundraising. That’s the work I get the most credit for. More broadly, my role is about creating and articulating the company’s vision, recruiting people, keeping everyone motivated and happy, and making sure there is money in the bank. My hardest job is managing a team of people who are all super smart and having them work together. Because when you have a lot of egos together, they have never disagreed with someone in their lives and ended up being wrong. So managing that is my hardest job — but I don’t get a whole lot of credit for that! All my credit is in fundraising. So I can do all the truly hard stuff, but if I’m not raising money, people will wonder what I’m doing and whether I’m actually being productive.
Q. What’s the secret to managing people with big egos — and fundraising?
A. I take more of a coaching approach. I’m never the one making the decision, but rather gathering everyone’s thoughts and ideas on what they want and making that happen. So instead of saying, “You guys are going to help me create my dream and fulfill my vision,” I actually position myself as a helper and supporter and say, “I want to make your dream and vision a reality, and if you want to do that, you have to be able to work with your teammates.” So I take more of that position. I think putting your ego at a very low level helps a lot. Sometimes people may push you around a little because of that, but as long as you stand up for yourself when you need to, you actually get a lot of respect and really get them to move together. And they often disagree, but you have to remind them they have the same goal — everyone wants the company to be successful. It’s just the way they want it to happen may be very different, and you really just need to have them figure out what’s the best way.
For fundraising, investors are always balancing their greed and their fear. I’ve seen a lot of entrepreneurs go through this. In the beginning when they pitch investors, greed occupies the investor — if it’s a good idea, they think they can make a billion dollars. But as you keep talking, when you get closer to the investor actually writing a check, fear occupies them, because they think they could lose all their money. And that can make them drag on and on and never really commit. So investors never have an incentive to be the “first mover.” Because the first guy who invests in a round gets the exact same deal as the last guy who invests in a round, even though the last guy’s risk is a lot lower because he gets to see more of what you’ve done, he knows who else has already put in money, and you’re already going to be well-funded once he commits. So it generally doesn’t make sense to be the first guy.
The only time people want to rush in and write a check is when you position their fear and their greed together — their greed to make a billion dollars and their fear of losing the deal. That is why a lot of entrepreneurs have the experience of taking a year to get a commitment from their first investor, but once you have that first investor, then suddenly you’re over-subscribed and you find yourself turning down money as investors are thinking, “Oh wow, this guy is closing his round; if I don’t write a check now, I’m going to lose the opportunity forever.” And when you can position those two things together, that’s when you raise money.
Q. What do you find most exciting about what you’re doing now?
A. The most exciting thing is making an impact. As an entrepreneur, you see a problem and you envision a solution. Sometimes it doesn’t work, but when it does work, and you see people using it and you see it solving problems, that gets you really excited. You see more and more stores using it, and you meet people who say, “Oh yeah, I’ve used your product before!” or “Yes, I’ve seen your product in the store!” That makes you feel like you’re making a difference in the world, your life has more meaning in it, and you’re putting a dent in the universe. That’s what is exciting about entrepreneurship.
Q. What advice do you have for others who are interested in entrepreneurship?
A. I would say start now. There are a lot of people who have good ideas but they never do anything about them, and then five years later, someone starts on the same idea, and they think, “Oh, that person stole my idea.”
But if you have an idea and you don’t do it, you’re called a “dreamer.” You only become an entrepreneur when you work on that dream. When someone “steals your idea,” the reality is that was just your dream; it’s someone else’s reality.
So start today; start light. People always say they don’t know how to start. You should just go and find out how. Do research, meet with other entrepreneurs, talk about it with friends. Starting is probably the easiest thing in doing a startup — because you just start working on it.
But you don’t have to commit on Day 1. You can start light. You can tinker with your website, talk to a lot of people to see if someone might want to join you, work on it part-time, and try to get validation. Once you know you’re working on something the market wants, and it’s actually a good solution, then you can commit fully to it. But I would say start doing something about it as soon as you can.