In Redwood City (CA), we meet Founder & Executive Chairman of Reputation.com, Michael Fertik. Michael talks about his story how he came up with the idea and founded Reputation.com, how the current business model works, as well as he provides some advice for young entrepreneurs.

INTRODUCTION

Martin: Today we are in Redwood City in the Reputation.com office. Hi, Michael. Who are you and what do you do?

Michael: I am the CEO and Founder of Reputation.com. Until about two months ago when I became Executive Chairman of the company. I started Reputation.com in 2006. It has been almost 10 years. Reputation.com is the first and by far the largest company in the world that protects privacy on the internet and the reputation on the internet. Our customers include millions of subscribers globally for that individual consumer product as well as thousands of companies that protect the reputation with our technology, usually by focusing on collecting reviews from their customers.

Martin: How did you come up with that idea and what did you do before?

Michael: I was living in Louisville Kentucky for a year because I was working for a judge. I went to Law school. In the United States, if you’re originally good law student you have a chance to become what’s called a clerk. Clerk sounds administrative but in the field of law in America, it’s a fancy job to be a clerk to a federal judge. The judge for whom I worked was the chief judge of the Sixth Circuit Court of Appeals in United States, Tennessee, Kentucky, Ohio and Michigan. This is one of the few Silicon Valley companies you will meet that was founded in Kentucky. It was during the clerkship in Louisville Kentucky where they ran a Kentucky Derby, for example, and drink bourbon and mint juleps (it is a very charming city) – I realized that MySpace, which was big at the time and Facebook and so forth and other trends on the internet were exposing our personal details and that something about that was potentially a problem that the machine was co-opting us that we were being opted into the machine simply by using the internet. The bargain was a blind bargain that users and consumers did not know what they were signing up for when they turned on their computer. It made me annoyed. I remember feeling pissed off about that and the feeling stayed with me.

Probably like with a lot of entrepreneurs – you come up with an idea probably every five hours. Most of them are not worth even repeating to your best friend. Then every month or two you talk about something with a friend and every few months you research one and then every few years you come up with something that you just know is good. This one I felt was good. There was something else about it because it’s privacy and speech online and data online. I had to understanding although it was chaotic at the time, it was not very well formed. I had an understanding that there is something about technology and there is something about law – both things were required to do something about this and to tackle this problem. I had a background in both. We had to figure out that we had to do something about it. It turned into Reputation.com. Who knew?

Martin: Did you start this company while you had been a clerk?

Michael: Yes.

Martin: At what point did you say okay, I would now focus 100% of my time on Reputation.com?

Michael: Federal clerkship is one year. It is a one-year deal. I knew that there was a time when the one-year deal will finish. So I started the company in April of 2006 and my clerkship ended in roughly September of 2006. We did not launch the website until after my clerkship ended because I did not want to embarrass my judge. I was doing basic preparatory work with my colleagues at the time to prepare for the launch of the website. I remember we launched in October 2006. My mom was my first customer.

There is an interesting story for your audience. I think that when you are speaking to a group of entrepreneurs and people who want to be entrepreneurs the kind of story we are about to tell you sometimes is exciting. To be clear, I was working on this company, which at the time was called Reputation Defender. We later changed it to Reputation.com. In this course of the summer while I was clerking, with the idea of launching a website after I finished clerking and seeing what would happen. But I never expected this to become a company that I would go do. In fact, I did not move to California to build this company after I clerked. I moved to California for a girl, which is always the story but also I had a job in California that I signed for to work effectively at a hedge fund. It is not exactly a hedge fund. The easiest way is to say, “It is an investment company that was a hedge fund.” I was fired after five days working there. I showed up to work with this person and there were five or six people on this fund. And the agreement here we had and the understanding here was that I was going to be his junior partner. He was an intense micro manager. I found out that he was checking my work by logging into my documents every night to see how much work I have done. The next morning he would say you did not work enough on this or that. I said to him, it does not matter what his name is, “Hey, so and so. I am supposed to be your junior partner. This is not really feeling like a trusted partnership. You are managing me very closely.” He fired me and he ended up going out of business a couple of years later.

It was only because I was fired from a job in a week I decided to run Reputation.com full time. You never know where the blessings are going to come from.

Martin: The product was ready and you only needed to acquire some more customers, or did you still have to work on shaping your product once you left the hedge fund?

Michael: I think that product is never ready. I understand that sounds obvious and maybe flip. But some companies are better at building and then shipping, some companies either are better at that or need to build and ship, build and ship. I would say the first product that we built was our consumer product took I would say five years to mature; maybe four years to mature and in many ways it is still maturing.

There are barely two kinds of venture-backed companies. There is faster, better, cheaper and there is brave new world. Faster, better, cheaper means that there is a market that you know about. There are people who have built companies that are satisfying a market demand that is known and understood. Those companies that are faster, better, cheaper companies are doing exactly what it sounds like. They are going to do a better search engine, a better social media thing, a better logistics thing, a better e-commerce thing. They are going to make it cheaper or make it faster.

In that case, you have to sharpen your product before you launch because you are competing on the edge of the envelope based on what you know the customer already wants. In those cases, it is better to make your product as clean and polished as possible before you ship it. Without doing that, you might increase your chance of failure.

In the case of a brave new world company there is no share of wallet, that you are attacking, it is a new wallet. There is no line item in the expense budget for the person or the enterprise that says: “I need digital privacy.” That did not exist ten years ago. There is no line item, which says, “I need online reputation protection and enhancement.” That did not exist ten years ago.

In that case, you might have to build and ship, build and ship because you do not really yet know what the product market fit is. You do not really yet know if people are going to buy. The product that ended up building our business quickly over a period of the first three or four years was a product that I did not invent. It was a product that our customers told us they want it. It was a derivative of the products, which I invented. We launched that product in response to demand. We built that plane in flight.

BUSINESS MODEL OF REPUTATION.COM

Martin: Let’s talk about the business model. You said before that you have two types of product targeting two customer segments, which is one the consumer or individual and the other one business. Can you elaborate on the type of Reputation problems in both customers’ segments can occur?

Michael: Sure. I would say it is unusual for a startup to have consumer and enterprise products and offerings. I am not sure if I could design a problem or design a company. I am not sure how I would do it. We started as a consumer business and it turned out there was a very big enterprise demand. We built two businesses at the same time. Doing that has tremendous advantages, which are the consumers are buying it very quickly and enterprises slow and then enterprises are buying faster and consumers slower. This is profitable and this is consuming cash, huge advantages damages. We have certainly advantages in Reputation.com because a lot of the underlying technologies learnings, intellectual property we built for this has application here and vice versa. Not all of it but a lot of it.

On the other hand, there are disadvantages to doing it this way. They include disadvantages, which are obvious; the marketing budget for enterprise is different for the marketing message in budget for consumer. In addition, it is different for the kind of people you hire. When we were strictly Consumer Company we look like a fraternity house or in some ways of fraternity / sorority house where kids are showing up in t-shirts and flip-flops. Just like in the movies about Internet companies. When you do enterprise, all of a sudden, people are show up in colored shirts; there are people with haircuts that look more like yours than mine and people that wear sport jackets. It is a very different culture inside a company. You can have two different cultures inside the business. These things are not necessarily easy. They can be very powerful if you can get them well. But I think it is an extra hurdle of difficulty to do both at the same time. They have to go where the business needs to go. That is clear as an entrepreneur.

As to the problems that they face – they face the same kinds of problems – different problems of scale. A person intends to get attacked and criticized sometimes fairly, sometimes unfairly and usually it is unfair. It is unfair because it is not true or it is unfair because it is true but definitely not the whole story. If you went on a date and the only thing that the internet thinks about you is that you are terrible at dates because the one person you want to date with was negative and decided to attack you online. Well that is not the default dating history but that’s what the internet thinks. Internet is not intelligent by itself it is intelligent because of a lot of content over a long period by many voices. It is not intelligent about you and the instance of what happened last Thursday. That is a human’s challenge.

A company’s challenge is usually some version of that. They did a good job or a bad job at servicing a customer and providing a product to a customer. That customer is speaking loudly online in a way that is accurate or not but certainly not complete. These are two different kinds of problems but they are the same basic vector.

Now, companies in particular tend to get reviews and reviews have a very big impact on commerce today. People do not tend to get reviews. They tend to get far more reviews which are your comments.

Martin: How is your problem solving this kind of reputation risk that the consumer and the companies are facing? Can you walk me through really what you were doing and how is this helping solve the potentially inaccurate information that is published on the internet for an individual, for example?

Michael: Individual people care a lot about their search results. That makes sense because if one person says: “Hey, you are not a good husband.” That is what people say about you in that one result and it might be the only thing people say about you online or the only thing that is visible about you online. Or someone who has your same name that that person is a bad husband that might be confusing. We call that the double-name problem. It comes from the German (Doppelgänger).

What we had to do we had to find a way to publish content about you that is accurate and neutral, not glowing, laudatory. Just to make sure that it shows up above the other content online that is negative. It pushes the negative stuff down. It does not take it off the internet. That is important. The internet does not have a delete button. We just need to give you a more complete picture of yourself online that is more accurate.

The second thing is about companies. Companies are not reviewed enough. Except for restaurants, bars, and nightlife nobody goes on home and says I want to review my accountant or I want to review my florist. What you need to do is make it easy for them to collect real reviews. That’s all. You don’t incentivize reviews, you don’t pay for reviews, you don’t give discounts reviews, you don’t do favorites reviews – you just make it very easy for Mark and John and Sarah and Sally to give reviews and guess what? If you make it easy for them, they will. Then you get a more complete picture of what is out there about you and what people think. It is usually quite positive. Some are constructive. If your receptionist is a nasty person then that is going to have a very bad impact on the entire experience of your doctor’s office even if the medical care is good, the décor is good, the nurse is good, and the doctor is good. The receptionist can ruin everything. We should know that. We should tell the receptionist to shape up or leave. That is useful feedback. That is operating feedback.

At the same time if someone comes to your doctor’s office with a broken knee, God forbid, and is waiting for 45 minutes, you see him and you fix his knee and now he can walk again. He leaves, and he says well they kept me waiting for 45 minutes, two stars out of five. That is a somewhat obnoxious in my opinion. It is also not accurate. It is not a truly representative point of view about what happened, you could not walk and now you walk and you waited 45 minutes –wasn’t it worth it?

You at least watched two hours of stupid television last night. It is not like you’re wasting time. Fine. Maybe you should not have been keeping someone waiting for 45 minutes – that is true. But whether that should now make the doctor a two out of five stars doctor in the world of internet that does not make sense to me. What that doctor needs to have is a set of tools to make it easy to review her online so that her complete picture of feedback can come across.

Martin: The complete picture is that somebody interested in this doctor would go to Reputation.com and check out the doctor’s profile. You aggregate all the data for a doctor or is it that you are trying to change or have an impact on the Google search results what is showing up, what is showing down.

Michael: The doctor would buy our product and make it very easy for her patients to review her. Those reviews would show up on the doctor’s website and on another review websites that we plug into.

This all comes back to a set of concepts that I published in my new book, which is published in January 2015. It is called The Reputation Economy, which was number seven on the New York Times bestseller list.

Martin: Not too bad.

Michael: Not too bad. One of the main ideas of the book is that everyone is going to have a reputation score in the future. That comes from a combination of three technologies that are coming together that I think will be impactful for every one of the people who are going to build a business after watching your website, after looking and researching entrepreneurship on your website. The thing for them to keep in mind is that there are three technologies right now. We see the Internet that is changing the world. We say that a lot in Silicon Valley and it is often not true. I do not think any rebirth changes the world. I do not think the iPad changes the world. We say many silly things in Silicon Valley. We pivot in Silicon Value. We do not change our minds we pivot. It sounds more important.

Martin: So, it is more Silly-con Valley.

Michael: Like every place, we have our diseases. One of the diseases in Silicon Valley is that it has no sense of irony. It has no sense of humor about itself. It is a very sincere place. Everything is extremely earnest, which is annoying. Europeans are better about that question. Southern California is better about that, and New Yorkers are better about that. Silicon Valley has its own strengths and diseases, like any place.

In this case, I think unlike in the case of Angry Birds I do think that these technologies will change the world. And by the way, I did not invent any of them. I just believe that these things around us are going to change the world.

  • The first is infinitely powerful and free search. Google and its related progeny are making everything findable very quickly, first based on the text and then later on audio and visual search.
  • Second, is a technology of right now which is infinitely free storage. The Amazon, Cloud and so forth, those things are making storage basically free. Right now, at this moment in time for the first time in human history, not technology history but of human history, it is cheaper to store something forever than it is to delete it. Think about that. It is cheaper to store something forever than it is to delete it, to find and delete it. Therefore, we have a new default setting for humanity where we will keep everything like digital hoarders forever because it is cheaper and easier.
  • The third technology is emerging now. It is the technology from five to ten years, which you can bucket under the name Hadoop or MapReduce. These technologies or protocols allow people who are educated but not especially skilled in the art of data analysis to do data analysis.

You are a journalist and entrepreneur and you use Microsoft Excel. You are not an accountant or economist but you use Microsoft Excel.

Martin: Yes. I am a trained accountant and economist. I have some experience with Hadoop and MapReduce.

Michael: You are a trained economist?

Martin: Yes.

Michael: Okay. I did not realize that. Your brother is not a trained economist and he uses Microsoft Excel. The point is that Microsoft Excel, which probably every one of your viewers has used, has done for numbers what Hadoop and MapReduce will produce for analytics. I love the fact that you have already used Hadoop and MapReduce. Educated people who are not especially skilled in numbers unlike you are using Microsoft Excel. Educated people who are not special skilled in data analysis like you, are using Hadoop and MapReduce to do data analytics. In the next five to ten years, fifteen years everybody is going to be using Hadoop or MapReduce. Whether you call it, Hadoop or MapReduce is a different question.

These three technologies when taken together, everything will be stored, everything will be findable and everything will be analyzed, will result in everything being scored. Everything is getting scores. You as a person as a cook, as a babysitter, as a neurosurgeon, as a writer, as a reader will get scores and so will your business. This will result in what I call the reputation economy because everyone has a score. Everything will be understandable and assessed based on that score. Machines will increasingly make decisions about us without human intervention.

What does that mean? Five years ago, when employers look for candidates for jobs they posted an ad. Employee candidates sent the resumes in, they look through the resumes, and they decided which one they should interview. Today those resumes are submitted electronically and then keywords like Yale or Stanford or University of Michigan and computer science and economics are extracted digitally and you have a manual process to review those resumes.

Increasingly what is happening is those resumes are being scored by machines that connect the resume information to digital online information that compares how Jonathan is doing compared to his cohorts in college. How Sarah is being compared to the people with whom she graduated at Yahoo at a certain date. How quickly are they progressing through the career development, are they progressing on average, faster or slower? Increasingly, and this is maybe more dangerous or more exciting, machines are going to be assessing the cultural fit between the employee candidate and the employer. Is this person someone who likes to work hard and play like us, is this someone who is very serious like us, is this someone who’s very casual and social like us, is this someone who has a clear passion for activism like us, is this someone who is very professional like us? Does this person not only academically and credentially meet our success factors but does this person also cultural meet our success factors?

That is important because we already know, if I settle a question, computers are better at interviewing people than humans are. Computers are better at assessing whether someone will succeed in their job then human interviews are. They are more accurate. Not for every job; not for the most senior jobs, but they are better as predictors.

What is going to happen is in some small number of years the recruiting manager is not going to look at thousand resumes or even a hundred. She is going to look at four or three. Those three or four are going to be chosen by a computer. If you are not on that pile of three or four you might not exist.

Martin: You said about this reputation score. Would it be just that information that is out there you would just give it something like a trustworthy stamp or is it only a combination attached to individual? If you look at a specific history of some people, maybe at a restaurant with like 100 reviews – you can either give each of those reviews some kind of trustworthiness or you can just combine them, aggregate them somehow and then say for the restaurant is this the average rating with this kind of trustworthiness?

Michael: That is a very sophisticated question. Let’s use your example of restaurants because I think it’s a good way to unpack the fact patterns that will lead to a revelation of what the new technologies will do.

On one hand, let’s say you have a hundred reviews for your restaurant. You have some sense after a hundred reviews over a period anyway whether the restaurant is basically good or basically bad. Now most restaurants end up being about three and a half to four stars out of five. That is not very useful because if everything is kind of 3.75 then can you really tell. What happens is if you observe human beings who read restaurant reviews what they do, they usually go through some form of the following human algorithm right now.

The first thing they do is they look for geography and for cuisine or geography and quality. They do a quick scan of three and a half to four and change stars. Anything that is below that they take off the list. Easy. But, that includes a lot of stuff. Many restaurants are left in the list.

Now, they start to look at the reviews individually. If you unpack what they are actually doing – the psychologists, they are looking for reviews that could have been written by them. That is different for Jack as it is for Sarah. Jack might be someone who looks for atmosphere and emphasis on service and Sarah might be someone who is interested in the taste of the food. Someone who is a more careful writer or perhaps more sophisticated, more educated person might look for a high quality of writing. This is a subtle and maybe not even conscious step but it is a step that they take. They value reviews that are more careful that are less flamboyant that have fewer exclamation points that do not have many all caps. People who are maybe more passionate might look for the opposite.

What is happening is more or less a rapid automatic manual mental scoring of each review; whether it could have written by me – this is the something that speaks to me. What a supple good reputation scoring system will do will understand what YOU respond to in terms of feedback versus I respond to. We will do a dynamic scoring system based on what it knows about you versus me.

When you look at people who are buying cameras, they want a very good camera. Very experienced photo camera people will look for very specific user feedback. More beginners will look for broader themes but what’s interesting about this is of course negative reviews can dissuade about eighty percent of the time, they can dissuade the purchase. In some cases, negative reviews can reinforce the purchase. Why? If you have a negative review from someone who is obviously extremely knowledgeable about the camera, who has a very specific need of photographs taken in the forest at night looking for certain kind of bird the beginner will actually say: “Well, who cares about that review? That’s from some super camera nerd. I do not need that kind of detailed feedback. I actually feel good about this camera purchase because I do not need to do another $1,000 camera investment, 500 bucks is enough for me.”

Good sophisticated scoring system will have a personal Google rank for you in the same way that you are already doing when you look for restaurant reviews yourself.

ADVICE TO ENTREPRENEURS FROM MICHAEL FERTIK

Martin: Michael, over the last years, what have been your major learnings and what is your advice that you would like to share to first entrepreneurs?

Michael: One thing that I can say to entrepreneurs is when you are thinking of starting a company one talk I give is how to generate two lists that could be very helpful in determining which company to start.

  • The first list is what do you love?
  • The second is what you are good at?

These are secret lists. It is important that I describe and emphasize the secret list because nobody ever has to read them except you. That is important because you have to be very critically honest with yourself about what you love and what you are good at. Why? Some of the answers might be embarrassing. It is tempting when you are confronted with this kind of exercise to do what you think you should which is I love leadership and I love delivering passionately develop products through organic and artisanal methodology of construction to where the customers for the betterment of local population. That may be true; however, it is not the actual thing you love. You may love the environment but nobody wakes up saying I love to deliver artisanal products to people to my local population. They love things about it that results in that conclusion.

If you love basketball but you are not good at it – that is not a company for you to start. If you love basketball, you love talking, you love negotiating, you love keeping track of your teams, you love winning, you love socializing, you love talking on the phone. And you are good at critical thinking, following scores, staying up late and sleeping very little, then maybe there is a business to be built around online gaming involving basketball and your passion for basketball. I am making it up.

Why are these lists so important? These lists are important because whatever you are going to do as an entrepreneur especially if it is not a lifestyle business, especially if it is a venture-funded type of business, you are going to be doing it a lot. You are going to be doing it all the time to the exclusion of other things in your life. If you will love it, you have a higher chance of surviving the times when things are going poorly, you are feeling bad about yourself, and your business and your prospects and they always happen. On the margin, loving the thing you do allows you to get out of bed that morning or go to work and feel good and put on your game face.

If you are good at it, you have a higher chance of success. That sounds obvious but there is a lot of truth in the Venn diagram overlap of what you are good at and what you love. Somewhere in there, your company exists. It doesn’t mean it’s going to be a good company, it doesn’t mean it’s going to be a very profitable company, it doesn’t mean it is going to be the best of all possible companies but it’s probably going to be the company that you have the highest chance of succeeding in doing.

It is just too hard. This is the first world somewhat hard. Let’s acknowledge that. It is just too hard to start a company to add the extra risk of falling in love with it quickly because you do not really love in the first place.

Martin: Great! Michael, thank you so much for sharing your knowledge. It was a pleasure.

Michael: My pleasure.

Martin: Maybe if you just want to start a company, just go back to your home, take a sheet of paper and a pen and write your two secret lists of what do you love and what you are good at. Maybe out of that you can combine and create a great and awesome company.

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Reputation.com and Reputation Defender were really ahead of their time. Well done