by Tim Jahn on January 11, 2011
Derek Johnson pulled into the parking lot of his fraternity meeting and found out he was the only one there. Later, he realized he had missed the email that said the meeting place had been moved.
That night, Derek wrote the business plan for SMS marketing company Tatango. A few days later, Derek dropped out of school and got to work on building his company. Today, Tatango is a multi-million dollar company. I interviewed Derek to learn how he got to where he is today.
Derek Johnson: So Tatango in its essence is a way for any group, organization or business to send out a text message to a lot of people at the same time. So it really varies whether who the customer and how they’re actually using it. We have churches, they send out messages about events, things that are going on within the church, maybe emergencies.
And then on the other spectrum, we have athletic teams. And then on the very, very end of the spectrum is businesses. And they’re using it from a mobile marketing perspective, so they’re sending text messages out to their customers saying, “Hey come in for 10% off a pizza.”
Tim Jahn: So and this idea didn’t come to you in a dream. As you said on your site, you were at a meeting for, or you were at a parking lot supposedly coming to a fraternity meeting and nobody else showed up and you realized later on that you missed the email that said, “Hey we’re meeting somewhere else.”
And then that was the spawn of the idea. My question was though, why did you act on the idea? Why not just continue on with your life and go to school the next day and keep going?
Derek Johnson: Yeah. The real honest answer is that I wanted to get the hell out of college. I loved the partying, I loved the social aspect. But going to class everyday was just boring. And I’m one of those — this is my second company so I’m one of those people that’s always looking for the next idea. And when it came up, I said, “Wow, this is something that I think that I’ll use it and then maybe some other fraternities in the Greek system would use it. And that’s enough for me to know that I need to jump in this.” So I think it was a couple days later I dropped out of school and started the company. So I’m one of those —
Tim Jahn: A couple of days later?
Derek Johnson: Yeah, yeah, yeah. I spent the entire night writing the business plan. I called one of my buddies who because my partner. I said, “Hey I got this crazy idea.” He loved the idea and yeah, it maybe three, five days later, I went to the dean, talked to him and I told him, “You know, I’m dropping out of school.”
Tim Jahn: But — okay so you said you thought this idea — this is interesting to me because you said that you thought this idea might be used by a few other fraternities, a few other fraternities, maybe a few other organizations.
Which to me sounds like you didn’t have a big, grand scheme of like I’m going to take over the world with this. But, it was important enough to you and viable enough that you would actually drop out of school days later. That seems like a contradiction.
Derek Johnson: Well, I think you have to look at it and I talk a lot of universities and high schools and I talk to their students about entrepreneurship. And one of the things that I think most people forget is when you do these kind of things or when you take on a new project or you want to drop out of school, you have to really analyze and say to yourself, “What’s the worse thing that could happen if this fails.”
And it’s amazing because at least when I was in school I didn’t have a house, I don’t think I had a car, I had no debt, I had parents that would allow me to sleep in their basement, to set up shop in their basement. So really if you look at the grand scheme of things, if it didn’t work which there was a good high percentage chance that it didn’t obviously because startups are very risky. If it didn’t work, what was the worst thing that could happen to me is I would just go back to school. The school is waiting. They said, “Hey you can come back whenever.”
I was in an entrepreneurship program so they’re kind of used to that where kids drop out and maybe come back if it doesn’t succeed. But really, we built up a multi-million dollar company just from the fact that I took that risk which really from hindsight wasn’t that big of a risk because I could of only just gone back the next semester. But you can never go back and start another comp — or start the same company, it just doesn’t work that way. School’s always there especially with tuition rates and everything, they want you to come back. So it’s always there for you.
Tim Jahn: And what better way to learn entrepreneurship than go start a company.
Derek Johnson: Oh yeah. You know hands on. I think there’s certain things you do learn in school, which are very valuable. I think the majority of things you learn though are how to interact with different people, different demographics of people. The town we’re from is the same people, it’s a very small town but they’re all the same type of people.
I got thrown into University of Washington, then I transferred to University of Houston. There’s such a diverse set of people there so I got to learn about them, I got to obviously build a product that would cater to a very diverse set of people, not just the people within our town.
Tim Jahn: And you mentioned before we started recording, you mentioned about the transition that you didn’t foresee coming. Tell me about that in terms of who’s using your product.
Derek Johnson: Yeah, so originally I think the website it was just built for fraternities and sororities. We said, “Hey we know fraternities and we know sororities, let’s build a website for them that allow them to text message all their members at the same time.” And then I would say the last year or so, we’ve not shifted focus but we’ve added focus I would say and we started focusing on the business side where for mold marketing and small businesses, medium size and large businesses where they can send out text messages to their customer.
I don’t think originally three years ago, most local businesses would be interested in sending a text message to their customers. I think the technology just wasn’t there, people didn’t feel comfortable giving their mobile phone number. But I think now with the rise of like whatever the TV show they can vote via SMS and them seeing on billboards and seeing on television commercials. I think a lot of local businesses are starting to say, “Okay, how can we embrace this?” So we’ve seen a huge kind of demand coming from businesses saying, “Hey, what you guys were doing with the fraternities, and sororities, and churches, and organizations, we want to do for our business but we want to bring actual traffic through the door.
And that was one of the interesting things that we learned is that where with the fraternity or sorority or church, when you send out a text message and then you get an extra maybe ten people coming to your sermon every night lets say, it’s kind of hard to put a value on that. So we are charging them lets say $49.00 is our average plan. They would look at it and go, “You know, is $49.00 worth it” because they couldn’t really gauge the money going out the door but there was no money coming in the door, it was just people were coming to the church that night.
Businesses on the other hand, it’s a straight return on investment. So they send out a message for $49.00 to lets say a couple hundred people. Well they’re going to get ten, 20 people through their door and those ten or 20 people are going to show the text message and get a discount in essence bringing in revenue to the business. So we found that much easier to sell to businesses and we found that they would have a longer lifetime value to us because it was very easy for them to put actual monetary value to our service.
Tim Jahn: Gotcha. That makes perfect sense. The businesses like you said complete connection on the full circle of investment there.
Derek Johnson: Correct. And what’s interesting and I tell this to all my friends that are thinking about doing a startup is businesses, $49.00 for a business is nothing. You look at our payroll and our expenses and all that stuff, $49.00 is a very, very small percentage of even our payroll at the company.
If you look at like an organization or a football team, $49.00 could be ten, 20% of their budget. So from a business or selling to businesses is easy compared to selling to a nonprofit or the local soccer team.
Tim Jahn: That brings up my next question actually. How did you — I guess you knew who your first customers were because initially you were focused on the fraternities and the sororities. But how did you actually go out and get your first customers?
Derek Johnson: Yeah, straight hustle. You know I don’t know if you watch Gary V but he’s always just go pound the pavement and go sell. And I think I learned that from my previous businesses. It was all in the landscaping, labor type jobs that I did. And all I would do is I would go around the neighborhood and I would go around our entire town and I would go from door to door dropping off business cards, shaking hands, talking to people.
And I remember the first three to six months at Tatango, which was originally called Network Text at first but we switched the name. The first three to six months it was me on my phone Skyping, emailing anybody that I could get a hold of. So what I would do is I would get fraternity lists, I’d know presidents from other universities and they would give me a list of all the other presidents and I would just go through the list and just start emailing them, Facebooking. I don’t think there was really twitter at that time or it wasn’t popular.
And I would just hit them up day after day and say, “Hey I’ve got an awesome product, do you want to try it out?” So it was really just eight am to midnight just calling, emailing, facebooking all day long.
Tim Jahn: And eventually it paid off.
Derek Johnson: Eventually it started picking up and then really I don’t — the best thing is when it’s word of mouth. So you have ten groups that really love it, they’re telling two people. Now it’s 12 groups that really love it, now you have three people telling people. So the word of mouth thing and virility just helps even more.
Tim Jahn: So you have this idea that night in the parking lot. A few days later, you decide, you know what, I’m going to take action, I’m getting out of school. At what point did you know this was going to work though? Because I’m sure that night you have some balance.
Derek Johnson: No. I think that’s one of the things with entrepreneurs which I think is most entrepreneurs downfalls is they think every entrepreneur, they think they have the next Google or Facebook. If there was any doubt in my mind I wouldn’t have dropped out of school. So I think the minute you emotionally or psychologically commit to an idea or to a business, you don’t ever stop thinking that this is the best thing since sliced bread.
Which can destroy a lot of entrepreneurs that have crappy ideas and they still think it’s the best idea in the world. And I’ve had a lot of crappy ideas and I thought it was the best thing in the world and it obviously didn’t work out some of them. But I think from day one as an entrepreneur you have to sell yourself and other people that this is the idea that’s going to be the million-dollar idea.
Tim Jahn: What was one of those crappy ideas that didn’t work out?
Derek Johnson: Gosh I have so many — I have a folder on my computer called “Crappy ideas”.
Tim Jahn: I hope you called it that afterward.
Derek Johnson: Yeah, yeah any idea that is crappy after the fact I put in there. One of the ideas that I had was a website that would connect travelers together as they were traveling. So let’s say I was in the Caribbean with my family for five days. I wanted to also see what other kids were in the Caribbean during that five day stretch. Spent a lot of time, money trying to develop that website just didn’t work; the logistics.
And I wasn’t that passionate about it so I just kind of let it go. I also spent maybe six months on a thing called the Window Pillow and the Window Pillow is a memory foam pillow, small kind of little pillow that has suction cups on the back-end that sticks to a car window so kids can sleep when they’re driving or when their parents are obviously driving. That — we were going up the ski mountain every week when I was a kid and you’d always kind of like pull on the seatbelt to kind of sleep on it or you’d put up like a pillow there. And I was like, this doesn’t make any sense. I must have spent a couple thousand dollars trying that idea, trying to get it launched.
And I got a great prototype, but then I found out it was just too expensive to create a product (inaudible) too creative (inaudible). Just job after job or idea after idea. There’s a ton of failures. But I think, I would say every ten failures, I have one success. So not the best odds and that’s why most people don’t want to do entrepreneurship. It’s really gambling.
Tim Jahn: I agree with you in the sense that we all think our ideas are the best thing since sliced bread as you so eloquently put it. But like you said ten failures for one success.
How do you know when it’s a failure though? If you think this is the next best idea — like your travel site idea for example. At what point — I know you said you lost passion in it. Was that the cause of you leaving it or at what point did you know, you know what, this is just not working?
Derek Johnson: I think it’s when you know deep down inside that this is not going to work. And that sounds really weird. But I think from an entrepreneur standpoint, you’re so hell-bent on saying, “This is going to work all the time” that the minute you say, “This might not work” is the time that you have to really look at things and go — if you’re preprogrammed to look at the bright side of everything that you do, and you’re looking and saying, “This doesn’t look so good” I think that’s the time that I knew.
And then the minute I know that, it’s like two or three days before I just give up the project. Because even right now Tatango’s been three years, I’m more optimistic right now than I was day one. So I think that’s the key is you just, you get more excited about a business. But if, lets say tomorrow I was like, you know, I don’t know if Tatango’s going to work, that would be a huge red flag for me that this ship is going down.
Tim Jahn: Gotcha. That makes sense. What’s one piece of advice you’d give to a fellow creative entrepreneur who might be in a parking lot with an idea, thinking about dropping out of school?
Derek Johnson: Yeah. I think though the key thing to realize that not everybody’s an entrepreneur. My buddy that I started the company with, we both, I had the idea and then he put in some money and his time and effort, and things like that, which we really needed. About six months into it though, I think he realized that he wasn’t born to be an entrepreneur. His skills were other places which he has an amazing job right now, he’s doing really well.
But I think you have to realize deep down inside that you are an entrepreneur or you aren’t an entrepreneur. And you can make a ton of money not being an entrepreneur too. Entrepreneurs sometimes are the poorest people I know. So I think that’s the key first is if you do have an amazing idea, figure out — if you have that deep passion and you’re listening to me and you’re listening to other people, and you’re going, “God, I wish I could be where he is. I don’t like school, I want to just hustle my ass off. I want to put in my own hours, I want to do my own thing.” If you’re thinking that, then go down entrepreneurship path. But if you’re looking at it going, “I don’t know if I could quit school for this idea” or if you’re looking at it going, “I’m not sure I can put in the kind of hours.”
If you’re doubting yourself, that’s when you go work for an entrepreneur or go work for somebody else. So you could focus is entrepreneurship in your blood? Which I went to entrepreneurship school and there was about 30 students in the program. And it was really interesting because I think you could tell throughout the two-year program that entrepreneurs I think are born, they’re not made. You can teach the skills of an entrepreneur to somebody, but the hustle, the drive, the deep seeded kind of craziness that entrepreneurs have, I don’t think you can teach to them and I don’t think they can learn.
You know, I was born this way and every since third grade I’ve been hustling, selling something. So I would say, first figure that out. And then the next one is just work. What was it, I think there’s a — Gary Claire he was a, or he used to be a famous golfer, he said, “You know there’s” — I’m going to mess it up. But he said, “There’s no luck, I just work really hard.”
And I think that’s the key is where I think Tatango would have failed multiple times if I would have worked 75% as much as I do right now. I give 125% every single day and know if would have given 75 or 80%, the company would have failed at certain points. It’s because the hours that I put in, because of the sweat equity that has paid off.
Tim Jahn: Would you say that was your number one factor for success in Tatango?
Derek Johnson: I think part of it’s luck. But luck is because I’m working, I’m going and getting introductions, I’m putting myself out there and things like that.
Tim Jahn: So in other words, there’s more opportunities for luck then.
Derek Johnson: Exactly. Obviously there’s market conditions. I think we’re, I think right now text messaging is just starting — obviously people text message but actually this is text messaging, I think right now the next three years you’re going to see a huge spike in usage. So I think also market. But I would say it’s hard work for myself and my employees. I think just putting your head in the computer, working ten, 12-hour days pays off in the long run.
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