Envato Nett interview

Nett Interviews Envato people: Collis Ta’eed, Cyan Ta’eed, Vahid Ta’eed, Ryan Allen, Jun Rung.

It’s one of the biggest tech biz clichés: incubating in a garage or spare room with little more than schematics, a couple of computers and your best mates for company. Microsoft did it in 1975, Apple in 1976 and Google more recently in 1996.

In 2006, five young Aussies launched an online educational powerhouse now known as Envato External link in a converted garage/living room beneath an old shoe factory. Celebrating its fourth birthday this month, Envato now quietly claims multimillion-dollar revenues, 20 million-plus monthly web page views, 45 full-time staff, hundreds of contractors and around half a million website members. This is the first time all the founders have spoken to the media.

“We don’t do much offline marketing,” Collis Ta’eed, Envato’s 30-year-old CEO, admits. “This is the first real press coverage in our home country, which I think speaks volumes about our skill in offline PR.” Mind you, when your business is focused on building online communities to help creative people all over the world ‘earn and learn’, perhaps it’s better to be championed by the likes of Digg, TechCrunch and The Blog Herald rather than the mainstream press.

Ten years ago the strategy might have been to get as much press as possible early on to attract lots of venture capital, though we know what happened to most of the dot-com start-ups who did that!

As Envato demonstrates, ‘pure play’ online businesses – those exclusively operating online – mostly rely on targeted search, cross linking, web forums and yes, blogs, to build traffic and convert that into revenue. Online is faster than mainstream media at connecting you with the people most likely to buy what you’re offering. The trick is to have something your target audiences actually want to pay for.

A new market for digital content

“There’s a lot of material out there for start-ups that says you should just build something amazing and you’ll figure out a way to make money later,” Collis muses. “In some ways that’s true. I like the idea of different strategies to monetise the product but you do have to think about how you’ll ask for money.”

Cyan Ta’eed, cofounder and Collis’ wife, says the ‘ship then test’ concept is one way to work out revenue models when you’re starting out. There’s a temptation to hold onto an idea for as long as possible until you’ve executed it perfectly, though as Cyan explains, you can’t wait until you have every possible bell and whistle because “you don’t really know what the market wants until you’re in it”.

The first revenue concept was a simple royalty payment per download, based on Collis’ experience selling Flash files in a subsection of the massive istockphoto.com marketplace. “On the sales page of iStock it was all about selling photos but I was like, ‘I’m selling Flash!’ That was problematic. I knew that if I could make money on a not-focused-on-Flash system, then we should be able to do it in a much better way.”

Cyan adds that it was this early hint at the potential to sell code in a digital marketplace, and perhaps take a commission, that inspired the business: “I would have been terrified if we’d just set out to build something simply because it was awesome. We didn’t have the skills to build the site and its backend ourselves, so we hired a developer, Ryan. We were very young and didn’t have much money in the bank, so if we didn’t have a way of knowing there was some kind of return on investment, things would have been scary!”

Something on the side

Early in 2006, Collis and Cyan began investing their spare time and money creating an online marketplace that would be totally devoted to Adobe Flash, selling animations, code and know-how to the burgeoning digital creative scene. Ryan Allen, who was 23 at the time, was hired on an eight-week contract to develop the software for what would become the legendary Flash Den (more on that later). It was bootstrapping at its best – and gnarliest.

The site build was delayed by a combination of needing to do freelance work to earn money and tinkering at night, which Cyan suggests might have been avoided if they hadn’t tried to be such perfectionists: “If you can take a shortcut for building your online product, then take it and get your site out there; you can iterate afterwards.” Instead of eight weeks, the launch didn’t happen for nine months.

“At the time, the site had dragged on, and we weren’t sure if we were going to ever launch it,” Collis reminisces. “In hindsight, we were pretty close but there were still so many features left to build and we had no money. We hit the bottom when a client asked us to pay for a print job and we ended up borrowing money from my parents. That was bad.” After deciding that some features of the site could wait, the fledgling company went live with Flash Den in August 2006.

Not a lot happened at first.

Collis drafted in his brother, Vahid, and best mate, Jun Rung, to help build interest at the grassroot level on popular Flash forums and blogs. The first time someone turned up to the Flash Den forum for a conversation, he was met by a lively group of people who’d seemingly been enjoying chatting about a wide range of topics. In truth, the team behind the site had been engaging in conversations with various alter egos of themselves – a tactic they soon discarded when an actual audience developed. “I remember the first guy to our site was under the pseudonym ‘Butters’, after the South Park character,” Collis laughs. “There was a time when he was having a conversation with six people, who were all founders. The conversations were legit, it was just what it took to get the site moving.”

“I don’t think we were misleading poor Butters,” Cyan interjects. “He just got a great deal of attention – and every question was answered immediately!”

‘Butters’ was soon adding to the grassroots promotion on other sites, which, along with some short and sweet profiles on popular blogs, helped plant the seeds of the company’s first online community.

Hundreds of people began turning up each week, which was promising, but thousands would have been better. Sometime in November 2006, three months after launching, and still freelancing to generate an income, the team made a bold decision: “We had a really good product, we just needed people to try it out,” Collis explains. “A lot of start-up entrepreneurs would feel this way. In the real world, you’d walk around in the street with free samples. We gave away $10,000 worth of credits to use on the site, and jumpstarted the Flash Den economy.”

Flash Den was soon on the map for anyone looking to buy and sell Flash-related content and soon after, earnings from sales commissions hit $1,000 a week.

“It was amazing, we were out of the hundreds and into the thousands!” Collis grins. “It was enough to pay someone to work on the site, kind of. The whole day I was walking around going: ‘One. Thousand. Dollars!’ We realised we could actually pay ourselves.”

Collis felt that at this point it “wasn’t gravely irresponsible” to convince his brother Vahid to abandon his physics career and work for a start-up in a garage. With weekly revenues climbing towards the tens of thousands and a rapidly expanding membership demanding their attention, Jun, Collis and Cyan pulled away from their freelancing gigs to push harder with Flash Den.

“It was very liberating,” Cyan sighs. “We had lovely clients as designers but to know that you were the master or mistress of your destiny was very nice. We knew it had even more potential and it was making money for other people too. The people who became members really liked it and wanted it to succeed. We’ve got authors from all over the place and they’re coming back to us and saying, ‘Oh, I suddenly realised I was earning three times my annual salary, so I’ve quit my job and I’m just functioning on making files.’”

Another Eden

It wasn’t a great leap into new markets. The company had a scalable, replicable business model that was just as relevant for, say, selling Photoshop tutorials and source files, or audio workshops and samples. The next step was to connect all the branches under a single brand, so why not call it ‘Eden’?

“We branded ourselves quite successfully with Eden, and people began to know it well,” Cyan states matter-of-factly. “This was a problem, because it turned out regular words are pretty impossible to trademark.”

In Australia alone, at least ten companies were prepared to contest the application – a bad sign for a company that planned to trademark worldwide.

A quick spot of online research lead to the unique-business-domain-name marketplace Brand Bucket, and for almost $1,500 Eden was rebranded as the meaningless but memorable Envato. Cyan explains that although it was hard to dump a brand they had invested a lot into, Envato is much easier to find in search engines, and it also presented a great excuse to do some publicity. Announcing the new name to members of the Eden site network led to positive stories about Envato on other influential websites and attracted a raft of new members. Curious that. But there was a similar issue lurking in the Flash Den name.

“The internet is a marathon, rather than a sprint. The longer you’re in it, the more likely you’ll continue to build traffic”

According to Collis, a lawyer had pointed out early on that their first choice – Flash Fox – was not a good idea because the media company owned by Rupert Murdoch is very defensive of the Fox trademark.

“I thought, ‘Good point, though we’ve already designed a logo, so we’ll call it Flash Den instead.’” Foxes live in dens, of course. “Nobody thought, ‘Hey, wait a second, we’re selling Adobe Flash and Flash is a major trademark; maybe it’s not such a good idea to have that in our domain name!’”

Late in 2009, something Collis refers to as a ‘Highly Intimidating Letter’ arrived on Adobe letterhead shortly after Envato tried to secure the Flash Den trademark in Australia. “We’re not in the business of fighting trademark infringement cases. We’re in the business of making really awesome websites. So we picked a name that wouldn’t infringe anybody’s trademark. It was pretty painful but it wasn’t the end of the world. We relaunched it as Active Den.”
More bang for your buck

Once again, all kinds of online pundits joined the fray on blogs and Twitter, taking sideswipes at Adobe while happily pushing Active Den higher up search and into the creative scene’s consciousness. Surprisingly, one simple TechCrunch story in the first week triggered a record sales week.

Envato’s various revenue models now include subscriptions for tutorials (aka Tuts – tutsplus.com) and e-books; iTunes-style pay-per-download via its marketplaces (such as Flash files on activeden.net and webpage themes on themeforest.net); and onsite advertising. The latter, while a staple of high-traffic websites, only delivers a modest income compared to the subscriptions and royalties for digital products.

In one of its rare press releases for 2009, Envato announced that a member of the Active Den marketplace known as ‘DigitalScience’ had averaged US$15,000 monthly sales of Flash files, to break the US$250,000 mark. When we squeeze the Envato team for more juice on the company’s earnings we’re met with shy, polite smiles. We already know that some people are making good money through the network, though the founders are reluctant to talk specific numbers. They do say that “some individual sites make six figures on their own each month” – which would equate to seven figures annually. Whatever the number, given that content creators are paid royalties of 40-70%, a lot of Envato’s revenue goes out to the thousands of people selling digital products.

The biggest revenue spike came in August 2009 for the company’s third birthday, when hundreds of dollars’ worth of premium content was sold in special bundles for twenty dollars. So, how much was sold?

At first we misheard the figure, thinking Collis had said ‘a hundred thousand’, which we took to mean ‘100,000 times $20’ – or two million dollars in birthday revenue.

“No, we had $100,000 in revenue in three days!” he laughs. “100,000 people in three days would be even better. I’ll call you from my gold-plated phone when that happens! It’s crazy. I’ll often think, ‘Wow we’ve come a long way from that $1,000 a week.’”

Harnessing creative energy

Cyan knew early in her career that she wanted to freelance. Her father is a photographer who has shot for the likes of TIME in the US and was celebrated by Andy Warhol. “I grew up in a household of creatives, so I wasn’t suited to having a boss.” Now, as Envato’s HR manager, Cyan is the boss of a growing horde of creative people. She says one challenge is finding bright people and letting them get on with it: “You can’t get too caught up in the hows – you need to focus on the results. Everything goes through email as staff can be in Melbourne, Hong Kong or Nebraska. When you’re dealing with all those time zones, phone calls or just walking across the office are impossible.”

Collis adds that while he knows a lot about Photoshop and has written many tutorials, it would be “pure folly” for him to try to steer the content direction of other Envato sites: “Mostly, I’m checking the sites and going, ‘Wow, you can do that with motion graphics?’ We let site editors decide what content and conversations are best for their audiences and industries.”

Many of the big tutorials are created by industry pros, so it’s no surprise this content is a major draw. The CG Tuts editor, for example, was a games designer and the Photoshop Tuts editor ran a web agency before switching to writing tutorials and earning royalties.

Collis claims some of the popular tutorials have been viewed well over a million times: “It definitely means that however long it took to produce that tutorial was time well-spent helping a lot of people.”

Redefining success

Like many small businesses, Envato’s early growth was fuelled by the founders’ expert creation of saleable products and services: “Our entire focus was on the product – we weren’t too worried about the structures of business,” Collis admits. Now there are offices in Melbourne and Sydney to run, plus an army of content developers to manage. “We realised last year a lot of people’s livelihoods were involved, so we had to think about HR and doing all those things that level up a company into the next phase.”

In early 2010 Envato hired an internal accountant and added an early supporter to the board of directors: Mr Ta’eed Senior (Collis and Vahid’s dad). He’s an experienced businessperson and mentors the founders in areas where they need to be more careful, like choosing the right law and accounting firms, and keeping a close eye on their operations infrastructure.

Cyan notes that for her, “success is about doing something you enjoy, that is of genuine value to people and that you can make money out of – it’s the trifecta”.

Collis agrees. “Success is the freedom to work on things I love, as much as I want. Some people love rock-climbing. I just love working. The only thing I can imagine myself doing is switching to building something else. I’d need to figure out how to get great people to run the existing project so I can run new ones. There’s definitely no golf on the horizon.”