Going from $1 Million in Debt at Age 21 to Two Very Successful SAAS Businesses with Fortune 500 Companies as Clients

Secret to Success – Neil Patel

Some entrepreneurs would go back to their day jobs after a business failure but what happens if your business fails and you accrue over $1 million in debt at the age of 21? Neil Patel went through that very situation and stayed true to his entrepreneurial roots and continued to move forward. With a background in SEO and marketing, Neil has launched two very fast growing startups: KissMetrics and Crazy Egg. He’s here today to tell his story on how he went from making six figures doing SEO consulting for Fortune 500 companies during highschool to building multi-million dollar startups.
Tell us how you got involved in online marketing…

I’ve been an entrepreneur for about 10 years and first got started by trying to create my own website but the website failed and didn’t get much traffic. I thought if I threw up a website, I was going to get a ton of visitors and make a ton of money, but it never happened.
I hired a few marketing firms but got ripped off instead. I had to learn internet marketing myself and eventually got pretty good at it and ranked my own site on search engines like Google. I thought I was going to make a ton of money because I had a ton of traffic. However, the truth is, if you don’t know how to monetize your site, it doesn’t matter how many visitors you have, you’re not going to make any money.
I couldn’t figure out how to monetize and failed miserably but the one thing I was good at was getting traffic to sites and eventually I met a few people who were interested. One day I was in a college class and a friend was like, “I know a company you should talk to.” As a result of my internet marketing skills, I drove over 51% of their leads from the web and the company did well over $50 million a year in revenue. At that point I knew this was powerful. The owner’s son owned an ad agency and introduced me to BlueCross, Country Wide, and a few other companies at that time. That’s how I got started with the whole internet space.

What was your first website you tried to create?

My first website was Advice Monkey in early 2000. It was the replica of Monster.com that failed miserably. It never got popular even though I was still getting good traffic. I was watching this 20/20 episode one night and they were talking about mesothelioma and how people were making a killing from it and what it is. I ended up finding out that people were making $50 a click through Google Adsense so I switched Advice Monkey into a mesothelioma site and started ranking it for mesothelioma keywords to try to make some money off of it. It wasn’t a smart business and eventually got penalized from Google because I was gaming the system.

Why would Google penalize you?

It was mostly because I was building unnatural links to the site and had a Page Rank of 8 on Google. I had webhosting companies linking to me with the keyword ‘mesothelioma’ as the anchor text. There were also free webhosting companies that people hosted sites on so I did deals with some of those free webhosting companies where they would stick a link everywhere on the site that said mesothelioma. So it added up really fast and gave me hundreds and thousands of links that said ‘mesothelioma’.

Did you continue to build more websites after that?

I became a consultant and I started making money from that instead. While I was doing that, I had this concept that I thought was a revolutionary idea called Rank My Site. What I wanted to do was create websites in very lucrative verticals (CD and DVD duplication for example) and rank them on Google. Once it got ranked and got a lot of traffic, I would rent it out to people who were buying a ton of pay per click traffic for those keywords. I was making good money from that. Some of these sites were up to $10,000 a month and worked out pretty well.

As a consultant, did you only provide strategy or did you actually do the grunt work?

I would actually do the work. I prefer working as a consultant because it paid a lot better plus I had better luck getting customers than I was building my own websites because I suck at the development part, design, conversions, etc, but I was really good at getting traffic.

Who was your first major client and how did you get them?

My first client ever was Elpac Electronics, the power supply manufacturing company. I worked for them for years, but then their son, was the guy who introduced me to BlueCross and Country Wide and other companies. I was taking nighttime college classes while I was in high school and gave a speech on how search engines work. One of the dudes in the class was a sales rep from that company where he then introduced me to the marketing department.

What kind of results did you produce for the company and yourself?

I was making about $3,500 a month and still thought I was raking in the dough until I realized I wasn’t making millions with $3,500 a month. It’s not their fault but I was happy with the money as a 16-year-old. I was getting paid a good amount of cash per hour at 10 hours a month and $3,500 a month. That’s $350 an hour.
I got them ranked #1 in Google for all power supply related terms like power supply, power supply manufacturer, medical power supplies, so forth and so on. They did big orders and provided power supplies for buildings, planes, and stuff like that.

With SEO always evolving, how do you build a sustainable business?

Use long term strategies. Don’t do anything that is short term; try to create products, get natural leads, etc. People will naturally start reading your stuff, link to you, so therefore you’ll get more rankings and do better on the social web. That’s the best strategy in my opinion. Just do long term stuff and that usually involves putting a good product or service and providing a really high quality content.

How did you avoid getting your own clients penalized?

I’ve had some that were penalized but only very few. Some lost rankings because with clients, you can’t really do anything shady and so we kept all our tactics clean, but some of the clients we worked for would hire us as well as three other SEO firms at the same time. Some of them would just build too many links or too rich anchor text which really screwed up everything but what could you do?

How long did you do consulting for and why did you get out of it?

I stopped around 2008 even though we were growing more than double or triple every single year. I had a business partner who was awesome and had a third business partner who doubled all the sales and new inquiries. But I just hated doing consulting. I really enjoy just building my own product and hate working on other people’s products.
A lot of these companies will take your money, like General Motors for example. I worked with them for six months and they couldn’t even implement simple meta tag changes. Six months and you’re telling me you can’t even implement meta tag changes? Consulting blows. The companies who pay you a lot of money sometimes don’t move fast; it’s not fun. Then there are a lot of silly meetings discussing the same thing over and over again. It’s good money; don’t get me wrong, but what I really love is just building my own products. I still do some consulting for people like Tim Sykes.

After consulting you built your first product called Crazy Egg, what is that?

Crazy Egg is a heat map technology that pretty much tells you what’s usable and what’s not usable on your website. It will actually show you how to maximize the usability of your website by improving your user experience, so you can improve your conversion rates to make more money. It is used by a lot of marketers, designers, and business owners. For comparison, Google Analytics can’t do heat maps and stuff like that. We can even do scroll maps so when someone scrolls, we can tell you how much of your page they are scrolling down by.

How long did Crazy Egg take to build and how much?

It probably took a year because we had three different developers that we went through before we found one that could actually complete it. We simply didn’t know how to hire. The way I learned how to hire good developers is to hire a shitload until I found the right one. I didn’t know how to hire developers and Crazy Egg was my first big software product and was a learning experience. I think we dumped in over $200,000 before we even launched it and $500,000 invested until we probably started breaking even.

What has the response been like since you launched?

Response was good and the business grew but we were losing a ton of money at first but it grew overtime. We had a ton of press and people were even leaving comments like “Google should buy this.” A ton of good stuff happened when we ended up creating it. You can conservatively say whatever we ended up with last year, we should double this year, and we continue to double.

The second startup you launched was KISSmetrics. Tell us about that…

KISSmetrics is a tool that helps track people on your website. In other words, Google Analytics shows you what happened on your site, KISSmetrics will tell you who did it and by tracking people, you can understand things like your customer, churn, marketing attribution, coupon conversation rates, what’s causing people to convert versus what’s causing them to cancel and how can you do more of the things that help you make more money.

Did you also try to raise any funding for KISSmetrics or did you self fund this project?

We’ve raised over $6 million so far. We were trying to go after the big market and slowly creep into that enterprise space with those metrics. We needed to raise money because KISSmetrics is a much bigger idea and required a ton of cash up front. We burned through millions of dollars before we actually even had a product that started bringing in revenue.

As an entrepreneur, do you also invest in other companies?

I don’t know how many but I invest in a handful every year. My success rate is about 20% but one of them probably will make me all the money I invested plus more. I usually invest in really random companies. For example one is called Walk Score. It picks your score when you’re moving into apartments or buying a home and will tell you how close everything is. That site is really popular. Another one is Julep and they just raised $10 million. They are reinventing the nail polish business. For $20 every month, they will mail new nail polish to your house every month.

What do you look for when deciding when to invest in a company?

I usually invest in software and service companies, ecommerce or subscription businesses, and other categories I don’t know too much about. I’m looking for companies with a lot of traction and revenue growth. With Julep, I invested after a few months of their launch, but within 30 days, she had 1,000 paying subscribers at $20 a month just from press. So I was like, “Oh, she’s off with $20,000 a month with recurring revenue within 30 days.” Within the next month, I think she more than doubled it and she keeps on growing at a rapid pace. I also helped them with marketing. I introduced some people that can help them even grow faster and they use KISSmetrics to help track their numbers and maximize their revenue and profit.

With your startups, how do you optimize for high conversion rates on your website?

Usually I pitch them on the product with videos or a lot of text where I try to explain the benefits, identify the problem they are having, give them our solution, tell them how easy it is and how affordable, how different from the competition and then make a pitch on the price and try to lock them in. What we end up doing is getting people on a free plan or free trial and then we send them email drips like, “Hey learn this day one, day three learn that, day five see a case study from someone else in your space,” so forth and so on. By day 30, let them know that they are going to get something for free and the next week, try to convert them to a paid subscriber.

With SEO, content is king and you seem to be one of the top bloggers. What advice can you give on that?

With content, we’re big believers that educating the market helps build brand awareness, gives you good karma points, and eventually, these people are going to come back and purchase from you. So that’s where we model with it and we just write loads of content. It takes a lot of time. I get my content ideas from just browsing the web and from people asking me questions, experiences, and problems that they may have. I write stuff based on what comes to my mind but I really don’t have topics prepared. It just comes because so many people email everyday with questions and I’ll think, “Oh that’s a cool question. I’m going to make a blog post out of that.”
I’m a big believer if people write really good content, people will end up coming. You could target SEO keywords and I know you probably should but I don’t have the time and I just write. I don’t even care about any of that. I’m just like, “If I write enough good content, people want to read it, they are going to keep coming back all the time.”

At only 27 years of age, you’re pretty successful but have you ever failed significantly?

When I was younger, I wasted $1 million on a hosting venture that failed and I had to pay back $1 million and even borrowed money. I had this concept where you take a lot of sites and put them on a big clustered environment. It was a similar concept before Media Temple came out with theirs. I also invested in bad people. Basically good idea, poor execution, and I just kept feeding them money, money, and money until I just lost it all after two years. It was devastating and I was like, “Should I even be an entrepreneur?” I didn’t know how to pay it all back and $1 million in debt when you’re 21 years old is a lot of cash but overall, things had worked out over the years. I did some rethinking at that point in my life.

You’re a big advocate of leverage social media. Any tips?

Go out there, participate in the community, add followers, tweet at them, the basic stuff. Let’s say it’s Twitter for example. Write good content, respond to other people who need help on Twitter, tweet that to people and try to create a conversation with them, direct message people and try to get them to promote some of your stuff and you can promote some of theirs in exchange. Also, add people to follow that you think are highly relevant and that would also benefit you because some of those will follow you back. I use social media to drive a majority of our traffic to our content so if you build up your social profile, it’s the easiest way to get your content to get viral.

We want to thank Neil Patel for sharing his story. You can view his startups and personal blogs at the following places:
Quicksprout – Neil’s Personal Blog
Crazy Egg – Heat Map Tracking Analytics
KissMetrics – Conversion Tracking Analytics