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How Grasshopper Scrapped Their Way To $30M+ In Annual Revenue

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Grasshopper Co-Founder David Hauser shares the lessons he’s learned building (and selling) an ultra-successful business.

David Hauser just did something that so many entrepreneurs dream of.

After 12 years of building his company, Grasshopper, from the ground up, David and his co-founder sold the business to Citrix for an undisclosed, but undoubtedly huge amount of money.

But that’s not what’s most interesting about David.

He’s about as scrappy and resourceful as entrepreneurs get, and he has been ever since he was a kid.

What David and his team did to get Grasshopper off of the ground, despite not having nearly enough money, is something that any hopeful founder can learn from.

And the story of what they did to grow from a fledgling startup to a powerhouse with more than 150,000 customers is just as fascinating and valuable.

We talked to David about the lessons he’s learned along the way about growth, marketing, hiring, naming and more.

I hope you get as much value out of his insights as we have.

Grasshopper’s Journey: An Interview With David Hauser

A Childhood Lesson in Business

Like many entrepreneurs, David got bitten by the business bug early on. He tried his hand at a number of ventures as a teenager, and his parents were supportive of his efforts.

But when he wanted a Dell computer for his web design business, his dad taught him a valuable lesson.

I remember going on the Dell website, and the base price was thousands of dollars. And every little option added what seemed like millions of dollars at the time.


Though he could’ve afforded to, my dad wouldn’t buy me the computer. Instead, he said ‘look, you don’t just get things given to you in life. You have to work for them, and if you don’t have the money at the time, there are other ways to get what you need.’

So he told me he would loan me the money for the computer, and that it would be my responsibility to pay it back.

That was a really valuable lesson for me early on, one that gave me the entrepreneurial spirit I have now.

If I’d have said, ‘Dad, I want a computer,’ he might’ve gotten me one. But I said that I wanted it for a business, and he used that to teach me that business is about more than just having a computer to play with. I hope I can teach my kids the same thing someday.

Applying his Father’s Lesson to Grasshopper

The lesson his dad taught him would come in handy after college when David and his co-founder, Siamak Taghaddos, started Grasshopper (which at the time, was called GotVMail; more on that later).

We started Grasshopper with no money except what we and our families could put together, but we knew we’d have millions of dollars in expenses.

This was before AWS, there was no such thing as Twilio or infrastructure for phone systems.

We had to physically build servers and put them in a data center. All together it should’ve cost us a million dollars, but we got it for around $150,000. We had to figure out how to get creative with suppliers.

We learned to sell our story, and that helped us get crazy terms with our suppliers, many of whom essentially loaned us money in the form of equipment or whatever else we needed.

Trying to do this in 2003, right after a huge crash in the internet industry, wasn’t easy. But David and Siamak didn’t have another option, so they were strategic about who they approached.

We weren’t saying, hey Dell, help us out. We were talking to smaller companies where we might be talking to a VP, or even a founder. We were telling a story about how we were going to grow and have hundreds of thousands of customers, and instead of buying one server next year, we were going to buy 20.

We said, look, we’re young, we’re doing something new and different and we were very honest about not having the money to do it. But we convinced them that we would be loyal to them and that we would grow. We showed them our business plan, we showed them all of that “regular stuff” but ultimately we sold them on the vision that we were going to do something different.

That hustler mentality wasn’t reserved for Grasshopper’s lean start. In fact, it never went away.

Later on, when the team decided to buy radio ads (a move that turned out to be a huge win for them), they weren’t shy about asking for concessions.

We were one of the first companies to advertise on Sirius when Howard Stern switched over from Terrestrial to Satellite Radio, and being an early advertiser, we were treated very well. We definitely ask for more than a typical buyer would ask for; we ask for more comp slots, we ask for more free slots, we ask for things. Most of the time, these things are available. People just don’t ask for them.

Not being afraid to ask is a rare skill, but an important one for entrepreneurs; one that David has honed over the years. Still, he says, it’s not about taking advantage of the other party. It’s about making a deal that makes both sides happy.

I’m pretty willing to ask for anything, because the worst they can do is say no, and even then, at least they’ll come back with their absolute best offer.

We don’t ask for the world for free, but if I say “I have $50 to spend and I really need this type of coverage,” they’re either going to say yes or no.

It’s important, though, to build good relationships and treat our vendors well.

Getting the Story Right

David and Siamak started GotVMail to solve a very real problem that they had themselves: there was no easy way to set up and manage a business phone system.

The problem wasn’t unique; they knew that thousands of other companies shared their pain.

Still, when GotVMail first launched, it took the team some time – years, even – to figure out where they fit in.

When we started, we focused on a very small segment of people that understood this industry. The term they used to describe what they were looking for was ‘Virtual PBX’, so we honed in on that. But most people aren’t actively looking for that, nor do they even know it exists, so over the years, we expanded from that to ‘virtual phone system’ to ‘virtual phone number’ to ‘phone numbers’.

But it wasn’t just their keywords that evolved over time; over the years, the company finally began to find its core purpose.

As young founders, we didn’t really understand what the core purpose of the business was, and that takes some time to figure out. Sometimes we look at these amazing companies that have great brands and great core purposes, and we think that they came up with this magically when they started.

But that’s just not true.

Look at Southwest Airlines. Southwest is one of the examples people always point to as a great brand, but they changed a lot in just the first few years. It took time for customers to explaine the company’s core purpose to them.

It took time for us, too.

We found it when we saw the word ‘entrepreneur’ resonating with people. One of the guys that was doing A/B testing for us said, ‘hey let’s put yours and Siamak’s photos on the homepage and tell the ‘entrepreneur’ story.

We’re entrepreneurs, we’re serving entrepreneurs, let’s share that story.

All of a sudden, conversions increased. Neither of us wanted our picture on the homepage, but we gained so much from it when we saw that it was the entrepreneur angle that finally resonated with people.

While the founders have always focused on empowering entrepreneurs, that was the first time that they began to outwardly define their core purpose that way.

But, importantly, they don’t just say they empower entrepreneurs.

They do it.

From giving away 10,000 copies of Mark Cuban’s book for free to their customers, to sponsoring BarCamp get-togethers, the company has made it a priority to be a good citizen of the business community.

And it’s helped them grow.

From 0 to 150,000 Customers

The company’s first paying customers came from their hyper-focus on narrow key terms, boosted by paid advertising on AdWords (only a few years after the ad service’s launch).

From there, the network effect helped dramatically.

Once we had a few customers, we were getting about 30% of our new customers through word of mouth. The customers that we had gotten through advertising were telling their friends.

This didn’t just help the company get new customers who were looking for a phone solution. It also helped them create demand, by educating the market that this type of product even existed.

At the time, most people were not actively looking for what we offered. We had to operate very much like a consumer marketing company, generating primary demand through paid advertising.

From the very beginning, the team focused on customer support to grow their business.

We’ve always believed in having 24/7 in-house support from day 1. People would call up and ask questions, at the time it was mostly to validate that we were even a real company.

There were a lot of internet companies that were doing shady things at the time, so I think a lot of people just wanted the assurance that we were really there.

These days, their word-of-mouth user acquisition still accounts for nearly 30% of new customers, but the team has continued to scale their paid acquisition efforts as well.

It’s a method that might be unpopular among the “growth hacking” crowd, but it undeniably works.

We’ve always been big believers in paid advertising, and quite honestly I get tired of the marketing “experts” that talk about how all we need is to go viral.

That’s great, and we spend a lot of time and money on our blog and our social media presence, and those things are important, but there are so many companies missing out on huge opportunities because they won’t advertise.

I’m sorry, but it just works. There’s no question. We all buy stuff because we see ads, and that’s not changing.

The channels might be changing. When we buy ads on Terrestrial radio, we might also be buying ads on streaming services because that’s where people are listening, but we’re not shifting everything to streaming just because that’s the new thing. Terrestrial radio still works.

Not Wasting Time Going After TechCrunch

Instead of focusing on the sexiest channels, Grasshopper has grown by focusing on the most effective ones, and that reality isn’t lost on David. He thinks far too many startups are going for press in TechCrunch.

I think those big blogs are a waste of time.

They might get you a little SEO bump because they have some weight to their links, but that’s the only value I see in them for growth.

It’s cool to be on the top of Hacker News. You get a lot of traffic, but unless you’re marketing to that very specific demographic, it’s not very good traffic.

What’s funny is that TechCrunch hates writing about Grasshopper. We’re not raising money and we don’t really fit their narrative, so they don’t write about us.

We have a very small competitor, and TechCrunch wrote about how they hit a “big” monthly revenue milestone. We were making their MRR every few hours.

I think marketing is about focusing on where your target market actually is, and not the stuff that makes you feel good.

It’s not just press coverage that startups waste time on, either, according to David.

For a long time, Siamak and I both wanted to be on the Inc. 30 under 30. And we did, along with a bunch of other things, none of which actually did anything in terms of sales.

It did provide validation, because we could put the logo on the homepage, but it’s not the benefit that we thought it would be. Before, we were thinking ‘oh my god, once we get there there are just going to be thousands of sales, it’s just going to get easy. That’s not really how it works.

Reinventing GotVMail

In 2009, the name of the company changed from GotVMail to Grasshopper.

It was a tough decision, but ultimately an obvious one for David and the team.

There was a lot of discussion, and I remember sitting in a room with my business partner and other people in the business, thinking ‘I don’t think we can change this, we’ve spent so much money on GotVMail and people “know” it’.

But finally, we came to the conclusion that while we spent a couple million bucks over the past few years, our expectation is to spend many millions more in the following ones, so does it really matter?

GotVMail, as a name, sucked for the radio, because you have to spell it out. We ended up having to spend half of a 30 second spot just spelling the name.

That proved to be a valuable lesson that helped in picking their new name.

We wanted a name that could be used as a verb. Like to Google something.

And we sat down for so long and came up with so many dumb, convoluted names. And we stepped back and though, ‘you know, maybe this isn’t the right approach.’

What we knew was actually important was that it should be easy to spell, that there’s no possibility that when you say it, that somebody with a basic grasp of English couldn’t spell it.

If I say it’s Grasshopper.com, there’s no way that you can misspell it, except miss a letter because you’re typing too fast. We started to focus on names like that, and we came to Grasshopper, and we all liked that it was a positive term that nobody else had really branded.

There was no real online presence for any other company with the name, and I was happy to compete with the Wikipedia page for the actual bug (which we now outrank), because we’re not competing with anyone that’s actually trying to do business as Grasshopper.

Their next order of business was to buy the Grasshopper.com domain. While David doesn’t remember exactly how much they spent on it, it was “a good amount of money, but less than $50,000.”

How Grasshopper Hires Entrepreneurial Employees

One of Grasshopper’s core values – ones that every employee must exude – is “Always Entrepreneurial.”

What does that mean to David?

It means finding creative solutions. It means being intelligent with what you buy and the money you spend. It means taking risks that have been calibrated.

I don’t believe that core values can be trained, which is why we need to find someone’s real values before they’re hired.

We’ve had prospects that were super high performers, and you’d put them in the top quadrant in terms of performance, but the bottom quadrant in terms of aligning with our core values, and as an entrepreneur who wants to grow a business, these are hard people to make decisions about.

But ultimately, we’ve always learned that this causes bigger problems in the organization and and far outweighs their performance.

The process that David and the team used to outline their core values was one that any startup can emulate.

Look at the very best people you’ve hired, and describe the actions that they take.

Not you, but someone you’ve hired. Describe their specific behavior.

What are the things they do that make them the best?

It’s easy to just point to Gary and say, ‘he’s the best’, but actually think through the reasons why he’s the best fit for your company. What comes from that are your core values.

Why Work/Life Balance Is Bullshit

In the 12 years David worked on Grasshopper, he didn’t take a single vacation.

Not as he defines it, anyway.

But he’s still been able to travel and spend time with his family.

I’ve gone lots of places and done lots of things.

Now, did I pick up my computer every now and then when I was there? Absolutely. Because then I’m more productive when I get home and don’t have 1,000 emails to deal with.

I can go away in the middle of the week, and some people might call that a vacation, but I don’t because I worked and did what I needed to do, even if I was having fun too.

I don’t think it’s about work/life balance. I think it’s more about integration. Integrating your work and your life into one thing that makes you happy.

To stay productive, David has two pieces of advice:

First, exercise.

Not just a little bit every now and then, but extreme dedication.

I did Ironman, I did a few marathons, now I practice yoga 7 days a week. Because it’s very regimented, it gives me a very specific break so the rest of the day, I can be productive.

Second?

Wake up an hour earlier. There are entrepreneurs that say they don’t have time, but they get in and start working at 9 am. Why didn’t you get up at 5?

To me, that’s the biggest change anyone can make. It’s like getting free hours.

If you get up at 5 and you’re done with your workout and breakfast by the time you get to the office at 7, you just bought yourself two free hours that no one else has.

Get up earlier. It’s magical.

The End of An Era

A couple of months ago, Grasshopper announced that the company would be acquired by Citrix.

The relationship had been slowly building over time.

The relationship with Citrix has been built over time:

It’s been quite a while since they first approached us and said, ‘hey, we like what you guys are doing and the business you’re in.’

As we went down that path more and more, we began to see how well the values matched up.

Citrix wasn’t the first company that came to us and said they wanted to buy us or partner with us. We’ve entertained some of those conversations, and outright said no a lot of times, but over more than a year talking to Citrix, we found more and more synergies in the teams and how they do things.

It was also very important to us to see a company that keeps the brand and service alive. There are some companies out there that just buy technology or customers, and for us that would have been a bad fit.

While there’s always a fear that the acquiring company could “mess things up”, David says he’s not too worried.

Citrix is a very experienced acquirer. They’ve done over 50 acquisitions as a company, so they know how to not mess stuff up. They have an internal rule that literally says “don’t mess things up.”

It’s the first rule, to make sure things work for the first year before you even start to mess with the business.

The terms of the deal weren’t disclosed, but you can do the math: Grasshopper had $30M+ in revenue last year, with more than 150,000 customers. And this year, they’re already on track to do well over that. Any way you add it up, there’s no question it was a massive payday for David and Samiak.

Still, David says, “it’s bittersweet.”

We spent 12 years building this. Our identity as entrepreneurs is wrapped up in Grasshopper; people only know me and my partner as the guys from Grasshopper.

So to me, it’s a lot like sending a kid to college.

You see them going on to bigger and better things, and the company will grow much better than we could have grown it ourselves, but oh man… it’s still leaving my house.

As for what’s next for David, he’s not quite sure yet. We’ll be watching, and you can do the same by keeping in touch with him on Twitter, or via his new AngelList syndicate.

David’s Required Reading

While admittedly “not a big blog reader,” David keeps a long list of books that have made an impact on him, and that he readily recommends to other entrepreneurs:

Your Turn: Ask David Anything

David has (very) generously agreed to answer your questions in the comments of this interview. We’re going to be watching closely and trying to learn as much as we can ourselves, so don’t be shy.

Post your questions for David in the comments below.

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From “aha” to “oh shit”, we’re sharing everything on our journey to $10M in annual revenue. We’re learning a lot and so will you.

2016 Annual Revenue
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About the Author

Alex Turnbull is the CEO & Founder of Groove (simple helpdesk software for small businesses) who loves to build startups and surf.

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