Tell us a bit about yourself: where were you born, where did you get your education and build your career after you left Ukraine?
So, to start from the beginning: my name is Mikhail Sapov. I was born in Mykolaiv in 1983 and lived there with my parents until 1994. When I was 10, we moved to America. My dad always talked about being an entrepreneur, he was, so to speak, a capitalist in a communist country. He was persecuted for that almost his entire life. That’s why he always strove to leave the USSR and move abroad.
I remember when I was five years old, I was playing ball and accidentally kicked it into the neighbors’ garden, flattening their flowers. My grandma got really upset and exclaimed: “You little capitalist!” It was like a swear word. I asked my dad what it meant. And he answered that capitalism isn’t a bad thing, it’s when you’ve created something valuable and somebody else has as well, you trade these things between yourselves and both benefit from it.
I said: “But that sounds great!”, and he answered: “True, but it’s not allowed in this country.”
Despite that, on the first day when the newly independent Ukraine opened up registration for businesses, he stood in a long queue to submit the documents. He created a company named Allan Grant. That’s where my name came from. I was very proud of my dad and also wanted to become an entrepreneur. And when we moved to the States, we both changed our names to Allan Grant. It was a vision, a symbol of us wanting to do business.
How did you become an entrepreneur? Tell us about your first venture.
Dad tried to establish a company in the U.S. but wasn’t successful. So, he took up a job as an engineer. But I always remembered my plan. When I was studying in college, I decided to give it a shot. I had no idea what to do exactly, but thought that I should seize the moment now, when I’m still a student and there’s less risk involved.
My first business didn’t take off, but the second one became my first company, Webmasters International. It was a fully-fledged outsourcing firm, specializing in web-development, even though the market for this in Ukraine wasn’t yet fully formed.
When I graduated from college, we already had 50 employees: 40 in Mykolaiv city, 10 in Atlanta where I lived and studied.
Why did you close down Webmasters International?
Everything looked great for a while and I started thinking that business was an easy path. I couldn’t understand why everybody wasn’t opening companies left and right. I had a very high opinion of myself. And that’s when life gave me a sharp blow to the head, so to speak.
We had a really large client, half of our office was working on orders solely for that company. And the client used to pay us with a delay. Since we had an outsourcing company and people needed their salaries, I found a third party that paid us for our work immediately and the large client would owe that third party. Simultaneously, I gave my personal guaranty that if the client would fail to repay the debt, I would be personally liable.
Gradually, our client started paying later and later. At first, he delayed payments for a month, then – two, three. And one day, he simply didn’t send any money at all. I maxed out all my credit cards to pay our staff and still had to lay off half the office.
When our company collapsed, I was left with half a million dollars’ worth of debt that I had to pay off for the next 6 years.
It was at this point that I understood that my only choice was to continue as an entrepreneur. There was no way I was going to get out of debt working a regular job.
Is this when you launched your new project, 3L Systems? What was it all about and why didn’t it take off as planned?
At the time, I was taking part in a business competition. My professor gave me a personal recommendation. Things at Webmasters International were still going well at the time. I made it to the grand finals a month before my company started encountering financial difficulties. When the finals were in full swing, matters were already much worse. I had to fire 25 people directly from my hotel room right before my speech at the competition. I went straight to the jury, told them the entire story and that I didn’t deserve to be there.
It was at this competition that I met two other entrepreneurs that would eventually establish 3L Systems with me. It was a joke abbreviation that translated to “Three Losers start a company”. The joke was that none of us won that competition. The project itself was centered around automation software for hotels. We decided that we wouldn’t charge a direct fee for the software but would instead take a percentage of all transactions.
We worked on the project for three years, but never managed to complete it. The software itself turned out to be a lot more complicated than we had initially foreseen.
This was back in 2009. I had stopped coding by that time, even though it was a passion of mine since I was 7 years old. I had gotten used to having a large team of developers and only dealing with sales and client negotiations. During the third year of the project, when all I had to do was wait for the software to be finalized, I decided to return to coding and learn via Ruby on Rails.
I started launching various projects. Wrote a program for A/B testing and decided to tell everyone about it. To save myself the hassle of direct mailing, I created Mailytics, a “smart” mailing service that automatically forms a list of addressees based on your email conversations. I compiled the first version of this project in December and wanted to launch it so that people could send out traditional Christmas greetings to friends and family. But I didn’t want to launch the project without a logo.
There’s this service called 99designs where you can order a logo by just saying: “I’ll pay $200 to the best designer that can do this.” So, I started sending out emails en masse to all the designers on the website. It contained a proposal to take part in the process of designing my logo. I ended up being banned for spam.
At this exact moment, another company announced the release of a product similar to mine. They had taken it to Y combinator and found some serious investors. I decided not to launch my project so that people wouldn’t think I had copied my competitors’ idea. Instead, I started looking for co-founders to launch another product and introduce it at Y combinator.
How was Talkable born?
I found two co-founders at the Founder Dating event. We rented a house for 3 months, moved in together and started thinking of what we could create. Talkable was the result of this 3-month effort.
At that time, Dropbox was the one of the few companies that had a referral program: if you invite a friend, you both get 250 MB of cloud storage. My two co-founders and I planned on creating a product with a similar referral model, aimed at e-commerce companies. We built the initial version and sold it on the first day to an online store. In the span of one week, we had numerous eager clients. By the time we came to Y combinator, the business was moving at full speed, we were making sales to many different businesses.
In 2010, we received $1,3 million in investments and then – $2 million more last year. The total amount in Talkable’s account has reached $3,5 million.
Your main development team currently operates from Ukraine. Why did you choose this country?
We had no specific plans regarding the location of the development team. Our goal was to find the best people possible for the job. That’s exactly what happened. Initially, we thought about opening up our office in San Francisco.
We had a bad PR incident in 2012, when we first announced the launch of our product. We wanted to conduct an A/B test of our homepage and temporarily copied the design of the HighRise page, which was founded by the creator of Ruby on Rails, David Heinemeier Hansson. He immediately announced that we stole his design. Many people wrote about this. So, when we attempted to hire the best developers through Ruby on Rails, a large part of those that successfully passed the job interview later said they don’t want to work for us due to our supposed bad reputation.
I started a search among opensource-developers and found a man named Bogdan Gusev, who would go on to become my partner for Talkable here in Ukraine. At the time of our acquaintance, he was in the top-20 most active developers on Ruby on Rails and was the top-ranking coder in the Russian-speaking community. Bogdan is a Ukrainian and lives in Kyiv. We started talking and half a year later we decided to work together. The idea was that Bogdan would build a team here in Ukraine and the entire development process would be in the country as well. The thought of hiring people in San Francisco went by the wayside.
Bogdan Gusev and Allan Grant
If we had established our main office in San Francisco and located part of our development in Ukraine, the Ukrainian team would feel that they were just doing the routine work. They wouldn’t be in tune with the company vision.
The vision for our product springs directly from the Kyiv office.
We managed to build Talkable thanks to an extremely strong team. Creating it was a challenge in and of itself. Thankfully, we had some decent experience in hiring. We have five main criteria for choosing our team members: the level of motivation to improve (and the level of ambition), the quality of the work, whether the person fits in well with our corporate culture, what the references are like, and last but not least – how the candidate conducts him or herself during the interview.
This strict selection process is not a whim on our part. We have no desire to recruit a huge number of people and then have to cut costs. On the contrary, we’re ready to financially support both the people and the environment in which they work. We value relatively small independent teams, we’re willing to pay highly competitive salaries to really excellent professionals. I’ve never favored the approach of gathering a rag-tag team and eventually lowering the salaries.
Can you talk a bit about the business model of Talkable? What do you sell and how?
We help online stores find customers. Conventionally, this is done through advertising. But if you invest into ads, the money goes to the publishers that produce them. We, on the other hand, allow businesses to take the same funds and distribute them to their clients instead. If I have a loyal customer that introduces his or her friends to my store, I’d rather pay them the ad funds. This way, the customers can spend this money in my shop, instead of me sending it all to Facebook and Google. That’s the central concept of Talkable. It doesn’t necessarily work for everyone. Our model isn’t that effective with companies that have a bad reputation with their customers. We help good, client-friendly businesses grow faster and many e-commerce companies that are successful today have reached their position with our help.
Our business model is based on a SaaS approach. We sell monthly subscriptions for our software. Initially, we had a free monthly plan, as well as a $50 and a $150 one. But considering this is a referral program, if you don’t have any clients yet, you can’t really use it. So, this structure was mostly beneficial for large businesses.
Gradually, we shifted to an “enterprise” model. Now we sell licenses that cost several thousand dollars per month. Our list of clients includes Tom’s Shoes, American Eagle, Saks Fifth Avenue and numerous other large brands, as well as innovative, invention-based companies.
How well is Talkable doing at the moment? Can you share the numbers? If memory serves, the business has been turning a profit since 2013?
Correct, we achieved profitability in 2013. In fact, our profits are much higher than the volume of investments. Usually, the financial situation in startup companies is the exact inverse.
We can’t disclose our exact figures, but I can show you our profit growth curve from February 2012 to the same month of the current year.
It’s quite rare to see a profit growth curve that goes up so smoothly without any drops.
Businesses in Silicon Valley are usually not profitable. People take their money and burn it, eventually they often never see a dime of returns. In contrast, we want to build something that will last for a long time. That’s why we had a goal of reaching the profitability mark as soon as possible and not losing money along the way.
We believe that a business should earn money. Here in Ukraine, people understand this, unlike in Silicon Valley, where prioritizing earnings is seen as something strange.
We decided that we were going to make our company financially successful, that’s why we took in a very small amount of venture funds. In reality, Talkable regularly receives investment offers, but we don’t really need them since the company is demonstrating very healthy growth as-is.
Today, we’re still investing into our company. We conducted another investment round last year, where we received $2 million. Part of this money will be spent on business development, we’ve already hired more great people, we’ve expanded. At the moment, we have 49 employees in the Kyiv office and 17 – in our San Francisco location.
What’s the novelty of Talkable? What did the company bring to the referral-marketing field?
We arrived at the concept of Talkable in 2010: at the time, there were no platforms that facilitated the creation of referral programs. We basically developed the methodology for this approach, nobody had done it before us. Interestingly, I observed later how Amazon created something similar. One simple mechanism wasn’t enough though: invite a friend – receive a bonus… that gets old after a while. So, we started experimenting. We launched a timer: the referral program worked only for a week, for example, encouraging users to actively invite their friends. Then, we tried referrals based on various days. There are a lot of different solutions by now.
Simultaneously, we always prioritized developing safety mechanisms, since fraud is par for the course in referral programs. Unscrupulous users often try to game the system to receive the bonus they shouldn’t normally have. We’ve learned to identify such customers, but more importantly – we know how to convert potential fraudsters into paying clients.
Additionally, we have a solid understanding that technology is constantly evolving and the platform of tomorrow isn’t the same as the platform of today. One solution that we have for this is creating dynamic templates for our clients that can be adjusted in the future. They can be turned into something more than just a referral program: a discount system, an affiliation program, an award-based model, etc. There are numerous possibilities.
Raised funding
We’re also in the process of creating an agency within the company for the development of referral-marketing. The goal is to help our clients create and launch referral programs directly from our Kyiv office. We currently have approximately 20 people working on this project at the moment, but we’re planning to reformat the structure. We’re also looking to hire a top-manager for the agency.
Tell us about the creation of Hired. You established it in 2012, when Talkable was already operational, correct?
Yes. Hired was also the result of our bad PR story, when we were dealing with recruiting difficulties.
I met one of my Hired cofounders at a conference in 2010. He turned out to be the founder of 99designs, the website that (if you recall) I spammed in my designer search. He said: “Hey, I remember you. Sorry for that ban. It’s my business, I hope you understand. But your idea was a good one, we copied what you did and now it rakes in about a million dollars a year for us.” (He was referring to the system I created where designers could vote for the best project). We soon became good friends.
In 2012, he visited San Francisco to give a speech at a conference about launching Marketplace-companies. Doug Feirstein was among the speakers. He’s a legend in Silicon Valley, the founder of the multibillion company, LiveOps. Now he’s our third partner in Hired. When we got together in a bar after the conference and started talking, we quickly discovered that we all shared the same problem in business management: finding good people and building a strong team. For example, the main reason Webmasters International even existed in the first place, was because we had the most talented people from all over Ukraine. Some people even moved from Kyiv (the capital) to Mykolaiv (a relatively small city), which is quite uncommon.
So, there were the three of us, brainstorming in a bar and I mentioned that I often write to Google, Facebook and other high-level company employees, and they simply ignore my letters. The reason being that they receive about 5 job offers per day. So, we thought of a solution.
If coders are in such demand, what if we create an auction for developers where great startup companies with venture funds can make offers, outbidding the competition? And if I’m a developer that works for one of the top-5 companies in the world (we decided these would include Google, Facebook, Twitter, Microsoft and Zynga) but I’m interested in new opportunities, I can enter a closed marketplace where I’ll be visible to lucrative startups.
During the next stage, if a company wants to talk to the candidate, they have to first send an offer with the salary they’re willing to pay. This happens before any sort of job interview. When the offer is extended, other companies can also see it. If they’re hunting the same candidate, they can outbid the offer. This way, businesses are literally competing with each other to get a good employee into an interview.
When we created this concept, I said that I could code the platform over one weekend. It was a relatively simple technological project. My goal at the time was to hire developers for Talkable. But the system worked so well from the very first days that we launched it as a separate company.
How did you identify the candidates and the job openings?
Initially, we wrote to people via LinkedIn, explaining that we understand how many offers they receive. We outlined how we want to help them better gauge their own value on the market.
For example, imagine I’m a Facebook employee and don’t really want to leave, but I’m curious as to what I could look forward to if I went job-hunting. I don’t want to spend lots of time going on interviews. Instead, I can just go to this platform (pre-2013, it was named DeveloperAuction) and find out what the market is willing to pay me.
We gathered 88 developers in a month. So, I offered our Talkable investors from Y combinator and 500 Startups to try our auction system. Doug talked to some venture capital guys that he knew, they wrote to their companies and in a week, we had 120 businesses in the system. The website itself wasn’t finished then, we decided not to finalize it until we get enough users.
When everything was set to go, I went on a 36-hour coding marathon, created the first version of the website, launched it and left for Burning Man. When I came back in a week (the page was supported by Bogdan in the interim), I found out that the offers made by companies through our services amounted to $30 million!
We were astounded, to say the least. It was obvious we had created something that had huge demand.
Can you tell us about the Hired business model? How much do you earn per job offer?
When a company hires someone, they pay us 15% of his/her annual salary right after the deal is done. The model is similar to the one used by recruitment agencies, but they demand about 25-30%. We decided from the start that we would take half of that amount. It was still a considerable sum.
Every successful hiring process gives us approximately $20 000 that we can invest into business development.
We now also have a subscription-based model. It made sense because many companies use our service non-stop. They pay us tens of thousands of dollars per month and directly receive a certain number of hires that they can perform through our platform.
Every candidate gets about 10 to 15 offers per week, from which they can choose 3-5 that move on to negotiations. This stage can last several weeks before the parties reach an agreement.
The average annual developer salary in Silicon Valley is anywhere from $120 000 to $180 000, but we’ve had offers for half a million extended to some really high-level professionals. For example, CTOs from successful tech companies get some seriously crazy offers.
How many offers does Hired finalize on average nowadays?
We can’t really reveal those numbers. I can say that more than several thousand different companies have found at least one employee through our platform. Some businesses (like Amazon) hire huge amounts of people.
Hired is currently expanding into various cities. We started in San Francisco, then we added New York and Los Angeles. Today, Hired operates in 15 different locations. These are the key hubs of America, as well as other countries: Toronto, London, Paris and others.
Hired chooses the top 3% of the best candidates. How does the evaluation work?
When we just started, we had to manually review every resume. Location was the first criterion (for example, exclusively San Francisco). The next two criteria were quality and willingness to switch jobs. The education and previous places of work mattered, but we also tried to subtly find out whether the candidate was interested in offers. We asked how long the employee had been working at his/her current company (no sense in trying to recruit if it was just a few months), whether any discussions with external HRs had already taken place and so on.
Nowadays, we use machine learning technologies for part of this selection process. We knew from day one we had to implement this tech eventually. Today several developer teams inside the company work on improving our algorithms.
Are there any Hired offices in Ukraine?
No, Hired doesn’t have any locations in Ukraine and there’s no such expansion plan at the moment. I hope this will happen someday, but not quite yet.
You’ve raised $100 million in investments. How fast has Hired grown?
Starting from that first afternoon in the bar, when we were still working on the company concept, we had a question: how do we define success? The answer came quickly: we wanted the business to be valued at $100 million. We needed to earn at least $10 million per year to achieve that. The standard marketplace valuation uses a x10 multiplier. And since we earn about $20 000 per hire, we needed to finalize 500 hiring deals in a year. It’s not that much, if you think about it: in San Francisco alone, more than 500 people change jobs in this field annually. I think Kyiv has similar numbers.
We calculated the formula: how many candidates we needed to invite, how many offers we needed to receive, how many companies needed to join the platform. The resulting estimate was two years of operational activity. We guessed correctly.
In two years, we finalized 550 hiring deals. The company was already valued at $200 million at that point. We’ve raised $102,7 million in investments for Hired. Our list of investors includes Sierra Ventures, Crosslink Capital, Silicon Valley Bank, Lumia Capital.
Hired is currently the fastest growing recruitment company on the market. We’re also one of the fastest growing marketplaces overall. Talkable is developing even faster but Hired is already a sizeable business as well. It has offices in San Francisco, New York, Los Angeles, Boston, Seattle, Austin, San Diego, Dallas, along with Toronto, London and Paris. The staff has reached over 200 in size.
We can’t disclose Hired’s current valuation and profitability, unfortunately.
What is your current role in these companies? Do you have a controlling interest in Talkable and Hired?
Only in Talkable. I’m the only director there. Hired has numerous investors and the board of directors has 7 members, none of whom have a controlling interest.
I used to be the CEO of Talkable and the CTO in Hired. I managed the entire product team up until December 2016. After that, we hired a team of managers. This allowed all three founders to move away from routine management. I travelled for the entire last year, visited more than 30 countries. I decided that I needed to take a break, devote some attention to doing the things that I never had time for: write music, read classical literature, do yoga, etc.
I got tired of it all pretty fast though… and started going to IT conferences, various industry-focused meet-ups. I had a moment of clarity when I was at the IT-Arena in Lviv… I knew I had to return to the business world. I also found two top-executives for Talkable at this conference. We had searched for them for more than a year before that.
I’ve been a lot more active in the everyday management of Talkable this year. My official role is Executive Chairman. I create the strategy and business development plan alongside the company’s CEO. I also manage the product team in Ukraine.
Do you visit Ukraine often? Any plans to expand the team here?
Last year I spent 60 days in Ukraine and 80 days in San Francisco. I plan to stay here even longer this year.
We had 30 people working in Kyiv in the previous year and now we have 49. We moved to a larger office and even that space is already running out. The expansion plan is pretty aggressive.
What’s your opinion of the Ukrainian IT market? How has it changed since the days of your first business here?
As someone who has been working here since 2004, I can say with absolute certainty that it has changed drastically. When we came to this market with Wеbmasters International, we were hiring developers from Mykolaiv and paying them double their previous salary. We were paying people $400 dollars a month versus the $200 they received at their last job. When Wеbmasters International was closing, we were already paying salaries around $1500. Our employees were able to purchase cars and apartments, they had really stabilized financially.
At the time, we were already seeing an accelerated growth of outsourcing companies. Today, there are many such large and successful businesses in Ukraine. They’ve hired and trained numerous great developers. This allows serious product-based companies like Talkable to work here as well. The market is growing. The venture capital ecosystem is being born in Ukraine, we’re seeing some great early investors, but the exit ecosystem isn’t in place yet. If we want to replicate the Silicon Valley model here, the companies that gather capital need to be able to exit. As soon as there are more exits, there will be more capital going into startups.
I think that we’ve made huge strides in the last 10-15 years. I see a bright future ahead.
Tell us about Burning Man. What does the festival mean to you and what impressions are you left with?
Burning Man has influenced me considerably. I first went there in 2007, when I just arrived in San Francisco. I’ve been there 11 times since then.
It includes hedonism, sure, but it also provides a lot of creativity. I view Burning Man as something of a microcosm. A week at this festival is like a miniature life. When you arrive, there’s nothing there. People build everything from scratch. No money, no resources, just empty land. Same as in the wider world. As soon as you realize this, you understand that anything is possible.
Time passes slowly at Burning Man. I couldn’t believe that I was there for only two days at first… so much had happened. The statue of the Man is burned on Saturday. That’s the peak of the festival: everyone is celebrating, yelling, dancing. Sunday is a day of quiet contemplation. That’s when people start leaving for home.
The entire experience reminds you that life is very short. We can achieve anything, but there’s not much time to do it.
Burning Man has 10 principles that mirror our life. “Radical self-reliance” – depend only on yourself. “Radical inclusion” – attract anyone and everyone. “Leave no trace” – don’t leave any marks behind you. I won’t name them all, but I really love the last one: “immediacy”.
Do it all right now, because the moment might pass. Imagine that someone offers you the trip of a lifetime, but you can only go right away. Just take off and leave. If you don’t make a decision in the moment, the opportunity will cease to exist.
So, yes, Burning Man is a huge inspiration. I used to think it would get old after a while. It hasn’t. I still can’t think of a better way to spend my time.
Your LinkedIn profile says that you have a dream of becoming a space entrepreneur. What does that mean?
When I was just a kid, I (along with everyone else in the Soviet Union) dreamed of being an astronaut. I don’t aspire to that anymore, but I still want to go to space.
When I was in college, I realized that it’s a dream that can be achieved. I remember hearing people talk about remembering the Kennedy assassination. It made me think of how fast the world is changing. That’s when I understood that I have a chance of going to space. One of my mentors in Georgia Tech was an investor in a company that sold sub-orbital flight tickets. Early-bird flight passes (for trips that would happen far in the future) cost $100 000. I didn’t have that money back then, but I also knew that I would earn more in the coming years and that the tickets would eventually become cheaper. I hope I’ll live to see the launch of a “tourist flight” into space.
Then I started thinking about how I could get involved in this area. I had an idea dating back to my school years of crashing asteroids into each other and gathering resources from the resulting debris. There’s a lot of valuable stuff in space. So, in the future, when there’s a market centered around these resources, my concept can see the light of day.
You live in California, but you often visit Ukraine. What does this country mean to you? Is it your native land, a base of operations or something else entirely?
It’s my native land first and foremost. I changed my name when I was 10, but deep down I’m still Misha. I speak Russian because that’s what my parents taught me as a child, but I’m in the process of learning Ukrainian now. I’m incredibly proud of my country and love it very much.
I first came back here when I was 18. My thoughts were: why would I go there, I’m an American, we worked so hard to leave! But as soon as I set foot on this soil, I immediately felt how close I was spiritually to everything here. The people, the atmosphere.
I’m always surprised when I talk to people in Ukraine and they tell me that life is better in the U.S. There are many facets of life that are better here, in my opinion: the food is better, the quality of life is better in many areas.
Maybe the main factor behind this reasoning is that it’s much harder to earn money here or to acquire certain skills. But there are numerous opportunities and you can live a great life in this country.
So, Ukraine is a place where I want to spend more and more time. I consider myself a Ukrainian. And it’s also an excellent place to develop a business.
