Web Masters Episode #47: Eli Shapira

Before Google Analytics — before analytics was even a thing — there was Webtrends, the original pioneer in website activity tracking. Find out how it got started on this episode of Web Masters featuring Webtrends founder Eli Shapira.


WebTrends Analytics Now Measures Facebook - Everything PR

Eli Shapira:

If you think about it, at the time everybody was rushing to the internet, so it was very much like the gold rush. It was the very early days, companies were throwing a lot of money into getting themselves on the internet. They were not quite doing business on the internet, but they knew that they had to have internet presence. They were starting to market themselves, and what’s happening when you set up a web server and you spend a lot of money on marketing campaigns and people are coming in, you really have no idea what’s going on in your server.

Without having tools that tell you that X number of people came in and they came in from these countries and they looked at these products, and they were interested in these pages, and they ultimately purchase something or didn’t purchase something. Or that a marketing campaign that you just spent a million dollars on brought in only that many people, you wouldn’t have any of that information without those tools. So it became essential to really run some of those programs and learn about what’s happening on your web server.

Aaron Dinin:

Yes, knowing what’s happening on your web server is essential if you’re running a website, and in the mid to late 1990s, there was a huge rush of companies launching new websites. As you just heard, that rush was like a digital gold rush and as the old saying goes, when there’s a gold rush, you want to be the person selling shovels. That’s pretty much what our guest on this episode of Web Masters did, except he wasn’t selling shovels, since those aren’t very useful for people running websites. Instead he was selling website analytics software so all those new website operators could know what was happening on their web servers. His name is Eli Shapira and he founded Webtrends. Are you ready to hear the story? Let’s get dialed in.

[INTRO]

Aaron Dinin:

Hi there and welcome to Web Masters, the podcast that explores entrepreneurship by talking with some of the earliest and most impactful digital innovators. I’m your host, Aaron Dinin. I teach entrepreneurship at Duke University. Before that, I spent a career building internet startups, which means I spent a lot of time pouring over analytics, trying to figure out what was happening on my website and more importantly, how to make better things happen. I know I’m not the only one, lots of you listening have surely spent countless hours doing the same exact thing, which means I think you’re going to enjoy hearing the story of one of the analytics industry’s most successful early pioneers. It’s Eli Shapira, founding CEO of Webtrends. We’re going to get to his story in a minute, but first I’m going to tell you about this podcast sponsor.

Web Masters is being brought to you with the help and support of Latona’s. Latona’s is a boutique mergers and acquisitions broker, they help people buy and sell cashflow positive internet businesses and digital assets. Those are things like e-commerce stores, Amazon FBAs, eBay store, SaaS apps, content networks, domain portfolios, and just about every other type of online work from anywhere internet business. If you’re currently running one of those and thinking of selling it, contact the team at Latona’s. They’re some of the best in the business when it comes to helping people sell their digital assets. And if you’re hoping to buy a profitable internet business, start your search with Latona’s, their website is filled with exactly what you’re looking for. Search their listings, find the opportunity that’s right for you. That website is latonas.com, L-A-T-O-N-A-S.com.

I’m going to start this episode of Web Masters a little differently than usual, I’m going to jump straight to how our guest’s story ends. Here’s Eli looking back at his entrepreneurial journey.

Eli Shapira:

I have no regrets. Really, I couldn’t have done anything differently, that I would say it would’ve been better. Made a lot of different life choices before and after signing the company, and I have no regrets over them. I retired very early, but that allowed me to spend a lot of time with my family while my kids were growing up. Which is something I’m very grateful for because when you’re an entrepreneur and you’re working very, very hard, especially in such a competitive area, it’s difficult. It’s very difficult to balance life and business that is running at that pace.

I was able to do both and I was able to basically let one go and then focus on the other. I’m happy to say, I’m married and I’m still married to the same woman, and I have two wonderful kids that graduated college, and I was able to be there and see them grow. That was a big decision that I made in my life, and again, no regrets.

Aaron Dinin:

I’ve talked with a lot of entrepreneurs over the years, and I got to tell you, very few, myself included, seem as content as Eli did during our conversation. Seriously, entrepreneurs are often neurotic and/or obsessive, and/or compulsive in ways that push even the most successful ones to keep on working hard pretty much until they fall into the grave and are covered by a pile of should’ves and could’ves, and if onlys. So how the heck did Eli get to such a peaceful place? Let’s see if we can figure that out by returning to the beginning of his story

Eli Shapira:

Started with computers when I was 16 years old and like most kids, I actually started with video games. Had the video games that everybody heard about or just saw in movies, like the Ataris and Commodore 64 and all that. At some point I discovered that video games are much better on computers rather than on video game consoles, or at least that’s how it was back then, and I convinced my dad to buy me a computer. I swore to him that I will learn programming, but the real objective was to play better video games. At some point I did open a really nice book that came with that computer and start to learn BASIC, pretty simple programming language to study at the time and I got hooked immediately. It evolved from there to languages like Pascal and C. Personal computers came about right around when I was 16, 17 years old, so I went through that journey and started programming.

Aaron Dinin:

When did you first start building software for other people?

Eli Shapira:

At some point, my computer got infected with a virus, and that’s really where my real journey with computers started. I got so mad and there were no antivirus at the time so I decided I’m just going to write one. I wrote an antivirus and my dad at the time had a store, a computer store, very, very early computer stores where you go to buy your personal computers and you buy books. And customers started to come in and say that they’re infected with viruses, and they were looking for a solution, so we start to sell the program that I developed. It evolved from there very quickly, there were dozens and dozens of viruses, and we started to export the software all around the world.

Sometime in 1990, company called Central Point Software purchased my antivirus product. I moved from Israel where I was at the time, I was 25, I moved to Portland, Oregon, and I worked for them for about four or five years. Product was very successful and I was acquired by a company called Symantec, that I’m sure everybody knows as Norton Antivirus. After about four or five years of working for them, when they sold the company, I left and I started a new company with a good friend of mine that I met at Central Point.

Aaron Dinin:

What did that new company do?

Eli Shapira:

The product that we were focused on was an auditing product for security purposes, primarily for Novell network file servers. Local area networks was the big thing, what we know as internets today, if that’s what we want to call it, was all limited to file servers and maybe print servers. And the world was migrating then from mainframes and mini-computers to those computers. There was a great need for auditing products that log everything that’s happening on a server, which was difficult, and then report back to it. We created those products and we were very successful. Products were deployed at JPMorgan Chase Manhattan bank, Federal Reserve Bank, lot of government agencies, military, any customer that would need auditing on their servers.

Aaron Dinin:

It’s probably worth interrupting Eli’s story for a moment here to note the start of the pattern that would continue with Webtrends. It’s that pattern of selling shovels during a gold rush. Antivirus software wasn’t what people using personal computers for the first time were excited about, but if you were going to use a PC, you needed antivirus software, it was a proverbial shovel. Similarly, server logs auditing software wasn’t a sexy thing for big companies to be thinking about when building their internets, but they needed it, so Eli sold it. Let’s call that lesson number one from Eli’s strategy for being a successful entrepreneur. Don’t hunt for gold, sell shovels to all the other people hunting for gold. And as we already know, Eli applied that strategy when he encountered the next big gold rush of the digital age.

Eli Shapira:

In 1995, the internet started to happen. We were very excited about it, but we didn’t quite know what to do with it. At the time it was just browsers and very simple web servers, and you just have an HTML page on it. We start to think what can we do with our product that would be appealing to this market that was very, very young at the time? We decided to take our reporting tool and instead of having it report on security events and auditing events on a local server, we modified it so it starts to report on web servers and everything that’s happening on them. Which is of course an entirely different product, different customer, different type of events and data mining that you have to do on all of the data that’s being gathered.

Aaron Dinin:

Yeah, that’s a really different customer base to suddenly pivot to. How’d you do it?

Eli Shapira:

I remember that we modified the product in about two to three months. We released the beta in October or November, and we shipped the product in January, so that’s how fast the cycle was. Just as a result of the beta, I still have a photograph in my office, on the first day that we shipped the product, we had so many orders that the boxes were stacked all the way up to the ceiling. At that point, we knew that we had a winner and that’s how Webtrends started. The name of the product at the time was Webtrends and it became so successful that we changed the name of the company to Webtrends shortly after and we focused the majority of our efforts on data mining and business intelligence.

Aaron Dinin:

How were you able to predict that web analytics… And I know it wasn’t even called that at the time, so I guess I mean the thing that would become web analytics. How were you able to predict that the thing that would become web analytics was going to be such an important industry?

Eli Shapira:

Another great question. So we were comparing internet servers to retail stores because that’s all we had, right? If you needed to buy something, Amazon was just in diapers at the time, you will go to the store and you will go get it. If you’re a Walmart, it’s very easy to track how many people come in and what products you sold and what your inventory is. You wouldn’t have any of that information just looking at the web server that you just deployed. It was very obvious to anyone that was putting up a web server, whether it was just a page or trying to create an e-commerce site, that they have to have really good data to understand whether they’re successful or not. And that’s where our solutions came in.

Aaron Dinin:

Who are we talking about at this point? Who were you selling to? I mean, this was the early web so most companies didn’t even think they needed websites. So who in an organization even cared about what people were viewing on websites?

Eli Shapira:

Our very early customer was your IT admin, your administrator, same guy that sets up all the other servers in your server room. Those were very early days and there was really nobody else in the company that was qualified to do anything more than that. That changed very, very quickly and we found ourselves talking to two customers. One was the technical person that’s responsible for the internet and intranet infrastructure, so that was kind of like a subset of an admin that is now dedicated for the internet, rather than all the other IT infrastructure that your company may have. The second person was your chief marketing officer or your VP of marketing, because they’re the ones that have the budget to go and spend money on marketing the company on the web, and they’re the ones that have to prove whether they’re successful or not. And you can’t prove you’re successful or not without a product like ours.

So they’re the ones that needed to show the report to the executive team of, “Okay, we spent all this money, what do we have to show for it? Is it just a bunch of people that came over and looked at our pretty pages or did this actually translate to business?” Those were the two primary customers at the time. We also had a bunch of other data mining and intelligence products that were not classic web servers, for example, a similar product that would run on your firewall and would provide information that is all related to security events that are internet related, not local area file networks again. So we still have this two groups of customers, both the technical guys, the admins, and also the business guys on the marketing side.

Aaron Dinin:

How did you reach your first customers?

Eli Shapira:

We were a very small company, it was basically two of us. I think that we hired our first tech support person shortly after. It was word of mouth initially from the beta testing and of course we approached our install base on Novell network file servers because a lot of those guys were administrators working for their companies, setting up local area file networks, and they basically were tasked with setting up web servers for their company. So there was a little bit of an overlap during those time. You were basically talking to the IT guy that sets up the servers in their server room, so initially those were the customers that we picked up.

But what we’ve done is we’ve really used some guerrilla marketing. Very early on what we did is we gave a 50% discount to every customer that will put a button or a banner on their homepage that says powered by Webtrends. Netscape at the time did the same thing. Microsoft did the same thing, so it was a pretty common thing. And I think that we calculated in the first year, just because of those buttons, we got about $800,000 of free advertising at the time, which of course we had no way to come up with $800,000 on our own, just to spend on marketing. Some of the guerrilla marketing really worked for us and we priced the product very aggressively because it didn’t take a long time for us to have a lot of competitors. I think that there were about 80 competitors at the end of the first year of our product. And being very aggressive on pricing and just using some of those guerrilla marketing tactics worked very well for us.

Aaron Dinin:

80 new competitors in the first year, that’s crazy. How’d you come out on top?

Eli Shapira:

Competition for me is a very simple formula, you have to provide a better product at a better price. That’s really what it comes down to. Now executing on that is a lot harder than it sounds, but in terms of strategy, if you give the customers a better product at a better price, over time it’s always going to work, I don’t care who you’re competing against. It doesn’t matter if it’s a big company or a small company, you will be successful at that, but you do have to provide a better product and it has to be priced aggressive. You don’t have to be cheaper than the competition, but you do have to provide better value.

And we got criticized for that early on because we were extremely aggressive and we pissed off a lot of people because of that. There were companies that were trying to sell their solutions for $100,000 when we were selling some of our solutions for $2,000, sometimes even less than that. But the marketing strategy in the very early days of a company and especially in the very early days of a product or an industry, is really market penetration. We wanted to get the largest slice of the market as quickly as possible, get our name out there and also kill the competition.

When you’re pricing products to the point that your competitors are really behind you, either on technology or market penetration, and they also have to price their products very aggressively, then they’re going to have to either raise venture capital and burn through a lot of cash, or they’ll decide to basically just change and go in a different direction. Out of the 80 competitors that we had in year one, I think only two were successful at going public. They didn’t stay public for very long. Even though there was a rush at the beginning, it definitely tapered off very, very quickly when a lot of people figured out that they just couldn’t compete against us.

Aaron Dinin:

Okay, let’s call this Eli’s strategy number two for becoming a successful entrepreneur. Win the market early by being aggressive with both pricing and product quality. As he notes, it’s easy to explain that strategy and not nearly as easy to execute it successfully, but well, nobody ever said entrepreneurship was easy. Eli is simply explaining what you have to do. If you can pull it off, you’re going to grow fast, which is what happened for Webtrends.

Eli Shapira:

So growth happened very, very quickly. We were, I believe about 32 people at the end of year one, grew to about 100 people year two, and company eventually got to about 450 people. The revenues doubled and tripled every year.

Aaron Dinin:

Wow, that’s definitely impressive growth. Just to clarify, when we’re talking about Webtrends, this isn’t Google Analytics style visitor tracking data that tells you how many people came to the site, right? This is like enterprise grade data analysis for big old companies, is that a good way of describing it?

Eli Shapira:

In the very early days we realized that our customer was so broad that everybody had a need for the product. 50% of Fortune 500 companies were our customers, and some of them of course had bigger investments, some of them smaller investment, they all evolved at different pace during those days. Not all of them ran to be the next Amazon. Not all of them wanted to sell products, day one, on the website. For a lot of them it was just having a presence on the web. Then you also have people that just have just a page or two, but still want to know who’s coming in, so it’s going to be a very small customer, a small business, all the way up to a Fortune 500 company.

Aaron Dinin:

Were you selling a piece of software people installed on their servers or was it more of a SaaS web interface package?

Eli Shapira:

Well, both. We had both solutions. We had a software solution and we also had an online solution, very similar to what Google has. You would embed a script on every page that you wanted to track. All the data collection was done as a service, rather than you having to do it on your own, and then analyze log files. A lot of customers like that because it reduced the IT requirements or the expertise. You wouldn’t have to install any software or run the software on an ongoing basis, it was all done for you as a service online.

Aaron Dinin:

Can you help us understand Webtrends a little better since this wasn’t really consumer grade software, right? And most of us aren’t ever going to use it. Can you briefly explain the use case and why anyone would need something more than what they’re getting from a software like Google Analytics?

Eli Shapira:

Yeah, I think the commoditized market, as I call it, is kind of owned by Google Analytics, but I think that the data can be very unique for a different situation. You can go from measuring the traffic that you have on a blog that you have personally, to trying to understand… If you take a look at what Amazon has, obviously they have their own analytics, but that’s analytics probably at the highest level that really tells you everything that you need to know of the path from the second a customer lands on your homepage, to what path they take, purchasing a product.

That’s probably a much more specialized, more sophisticated analytics that takes a lot of information from different sources and brings them together, and probably provides business intelligence to so many different people and departments in the enterprise. They all have own needs and they all have their own pieces of information that they want, that help them do their job, so I think this is going way beyond what Google Analytics will do.

Aaron Dinin:

This is the less obvious, but equally important strategy number three for becoming a successful entrepreneur, that I’m again extrapolating from Eli’s story. Notice how Eli and Webtrends really focused on the top end of the market. That’s a lesson I wish I’d learned earlier in my entrepreneurial career than I did. I spent lots of time going after small businesses, SMBs, because they were the underserved, low hanging fruit. But there’s a reason they’re underserved, they’re not easy to monetize at scale because they’re so different and unique. So yes, you’ve got software like Google Analytics, which is on a gajillion websites worldwide, but the software is also free. Google doesn’t make money directly from it.

By the way, in case you missed it, we heard about all this back in Web Masters episode number 15, when we spoke with Scott Crosby, one of the co-founders of Urchin Software Corporation, the analytics company that was eventually acquired by Google and became Google Analytics. Scott’s story of building Urchin wasn’t nearly as smooth as Eli’s story, and a big part of that is because Urchin’s analytics software was trying to serve everyone. Webtrends, in contrast, was focused on a very specific type of customer that had a mission critical problem, and most importantly, the ability to pay good money for a solution. That’s a much better recipe for success.

Eli Shapira:

We were profitable from day one, which is a very, very unusual story for any high-tech startup. We started early and we never took any venture capital, we only had one outside investor, which was a very good friend who was the CEO of Central Point Software, the guy that basically brought me to the country and purchased my antivirus product at the time, and we remained good friends. We didn’t have any outside investment and we didn’t raise any cash, so at some point we knew that the growth that we’re experiencing is going to require capital and we had the option of either raising the capital privately from venture capital or going public.

The public market was very receptive at the time, especially to a young internet company that is profitable, which was unheard of. Usually they would all just be burning way more money than they’re bringing in, so we were very unique and certain type of investors on Wall Street found that very attractive, so we went public. We also did a secondary offering 90 days after, which was the fastest secondary offering ever on Wall Street at the time, and we raised all the capital that we needed. We never needed to actually touch that capital, but it was nice to have that dry powder in case we ever needed it. We remained profitable all the way until we sold the company.

Aaron Dinin:

Wow. I mean it’s incredible, I don’t know what else to say. That doesn’t happen often.

Eli Shapira:

It’s very unusual, very, very unusual story. Some of it I have to give credit to my father, who I worked for a few years before I moved here at the United States. He was a small business guy and he taught me the very basics of running a business. We ran the company that way in the very early days and that helped us stay away from, let’s go and raise tens of millions of dollars from venture capitalists. Looking back, it was the best decision we ever made. I know that today it’s very different, it’s almost impossible to do that these days. Venture capital has a very important function in starting a business and accelerating your business in its early days. Those were different days and that worked for us and it was definitely a unique story.

Aaron Dinin:

Strategy number four from Eli on how to be a successful entrepreneur, don’t take venture capital.

Eli Shapira:

When you raise venture capital, you get a lot of money, but you also get a lot of strings. Even though you usually don’t sell a big part of your company, you give a lot of control away and we didn’t do that, and that ultimately worked very well for us.

Aaron Dinin:

Did you ever consider taking VC money?

Eli Shapira:

We were exploring it. If you want a little drama story, there were a couple of venture capitalists that wanted to invest in us, and we’d gotten very far along with them on that process. We spent a lot of time and energy on that and they ultimately decided not to invest. That was probably a couple of years or about a year and a half before we went public. On the day we went public, we sent them a nice smiley card with a thank you note for not investing in us.

Aaron Dinin:

Wow, that’s like the most awesomely passive aggressive thing I think every entrepreneur would love to be able to do at some point in their career.

Eli Shapira:

Pretty much. We just couldn’t resist, couldn’t resist.

Aaron Dinin:

To be fair, it’s not always possible to avoid outside investment, sometimes it’s even necessary. So the key lesson in Eli’s story about venture capital isn’t really that you shouldn’t take it, it’s that you should try to put yourself in a position of having a choice about whether or not you need to take it. This is something entrepreneurs often confuse. They believe the way to build a company is to go raise lots of money for an awesome idea, and then start building the company, but that’s backwards. The way to build a venture backed startup is to start building a company, prove it’s going to be awesome, and then if you need it, go raise some money.

Eli Shapira:

A lot of people think, “Oh, I have an idea. I’m going to go raise money.” It’s like, well, how about you just start working on the idea? Maybe share it with some people, maybe have some customers first. You don’t have to be a $10 million company before you raise funds, I recognize that, but you also don’t need to be a $0 company with no customers and just an idea. There’ll be plenty of people that may give you the money because they like your idea and they like you, but I certainly wouldn’t go that route myself, but that’s me.

Aaron Dinin:

Of course, Eli isn’t just talking a good game here, this is exactly what he did with Webtrends. And it ultimately led to a successful exit when Webtrends merged with a Bay Area company called NetIQ, which netted a great outcome for him, and just as importantly, the entire Webtrends team.

Eli Shapira:

We were very generous with our employees and granted stock options to every employee in the company. It doesn’t matter whether you’re one of the people on the executive team, or if you’re the front desk person, or the guy that’s working in the mail room, every employee got stock options and ownership in the company. At the time that we sold the company, we had a hundred millionaires. I love telling that story because I think that corporate America overall needs to do more of that. We’re debating daily a lot of issues of inequality in this country and I think that’s one way to address it and share the wealth, and share the success of a company with the entire team that’s building the company.

And sure, it’s much more difficult to do it with a company that has tens of thousands or hundreds of thousands of employees, it’s a lot easier to do it with a company that has 500 employees, but I think it’s important and I think that it definitely contribute to our success. Every employee felt great about the company. There was just an incredible positive atmosphere and a lot of energy, and a lot of pride in what we were doing. That again, went all the way from the executive team to the people that are working in the mail room. And I’m very grateful that I was able to share the success with everybody that worked for us.

I’m not just saying that because it’s the right thing to say. Looking back at it, it’s just I had a wonderful team and I can say that I wouldn’t have been able to do it without them. Every member of the team brings a different set of expertise and experience to the table. There’s no way that we would’ve been able to do it if we didn’t have the team in place that we did at the time. There’s always a captain to the team, there’s always a CEO at the top and some people get more visibility than others, but behind the scene, everybody knows that every part of the team is extremely important. You can’t be successful without an amazing team in place.

You can’t be that successful. And especially in the high-tech that’s moving so quickly, there’s not a lot of rooms for error. You make one, there’s somebody right behind you that’s ready to take your place. Another successful company that’s running faster than you or executing better. You can’t do that without great people, so it’s an essential part of the process, to build a really, really strong team that works well together.

Aaron Dinin:

That is lesson number five on how to be a successful entrepreneur from Eli Shapira, you can’t do it on your own, you need a great team. And having a great team means creating a team where the employees are just as invested in the company, what it’s building and its ultimate success, as its founders. According to Eli, that’s what Webtrends built and it was a huge contributor to their ultimate success. Do you know what? The same thing is kind of true for a podcast and its audience. Yes, the production team is creating these episodes, but you, the listeners, are a critical part of our success too. So we hope we can count on you to help us keep growing by making sure you’re subscribed to Web Masters, sharing this episode with friends and leaving a great review on your podcasting app of choice. Go team Web Masters.

Speaking of which, a special thanks to our audio engineer, Ryan Higgs for his help editing this episode and a thanks to our sponsor Latona’s for all their support. Remember if you’re interested in buying or selling an internet business, start by checking out latonas.com. I also want to be sure I thank Eli Shapira for sharing his story and the story of Webtrends. These episodes wouldn’t be possible without entrepreneurs like Eli being so generous with their time. And as luck would have it, I’ve got yet another entrepreneur who sat down to talk with me for our next episode. You’re going to get to hear that soon, but not right now because well, it’s time for me to sign off.