CONTEMPLATING THE SHAMBLES of his broken business, Bryan Johnson knew he needed a break from entrepreneurship for a while. His angel-funded VOIP company had just evaporated following the collapse of the dot-com bubble and 9/11, burning through $500,000 in angel funds in the process.
Inquist, Bryan’s VOIP company (he had three other founders) that aimed to bring together the common features of both Vonage and Skype into a single platform, had made it all the way to delivering a version 1.0 of the product. As Inquist went to get an additional $2 million in angel funds to start marketing the product, 9/11 happened and the VC market froze.
Deep down, though, Bryan knew there were deeper, more relevant reasons for the venture’s failure. He and his brother had failed both as managers and as planners.
“Looking back we were really naïve… We didn’t have the proper expertise in house to do a lot of the things we needed. It was a matter of oversight and we should have been aware that we needed the right people in place. We thought we could pull in expertise over time as we needed it. That was a mistake.”
There would be no rest from entrepreneurship, though. Bryan would enter his next business venture only two months later. “I was more reluctant than my brother was to start another company. I really wanted to take some time to review everything.” Instead of trying to be on the cutting edge, he would instead revert back to one of the oldest businesses in existence: real estate development.
LIFE WAS SIMPLER back in his youth. Growing up in a large Mormon family in Springville, Utah, he had what is becoming a typical family structure these days. Bryan’s parents divorced when he was young and he lived with his mother. The middle child of three brothers and one sister, the family was managed by his step-father, who owned a trucking company, and his mother, a homemaker.
“It was a fantastic place to live. There is so much to do. Water ski, snow skiing, mountain biking, climbing, fishing… we are very close. We always hang out with each other. We never really had sibling problems growing up. We always wanted to be around each other.”
He would spend the first 27 years of his life trying to build a life for himself and his family in Utah. Those years would take him down so many different paths, from Utah to Ecuador, two different colleges, three different businesses, marriage, and children.
One particular life changing experience was the two years he spent on a mission for his church that took him to Ecuador.
“When males turn 19 in the Mormon church, they are asked to go on a mission. It was an incredibly rewarding, yet difficult experience. I didn’t know the language, I was sick with worms, slept with fleas. We did a lot of proselytizing and service, such as helping people build houses and things like that. “
Upon returning to America, he was overcome by how much he appreciated the privileged way of life he lead here in the US. Just the experience of walking into a grocery store brought a sense of wonderment.
“When I came back to America, I thought immediately, ‘this place is so immaculate, so clean.’ I was overwhelmed with gratitude for what we have here in America. I look at these studies where people in places like the Philippines are so much happier than we are here. That there are all these countries so much higher on global happiness rankings than we are. That two-year experience helped me mature so much. “
CELL PHONES were coming into popularity as a must-have item back in 1998. Buying his first one while attending college at Brigham Young University (BYU), he was immediately struck by his first business idea.
“When I was 21 I bought my first cell phone. The guy I bought it from, said ‘Hey why don’t you come sell phones for me?’ I thought, ‘Wait a minute, if I can sell phones for him, why can’t I just have people sell phones for me?’ It showed me that those who show the initiative will reap the benefits.”
A combination of perfect timing to enter the market and natural-born sales skills allowed Bryan to quickly start earning a steady living off of his cell phone sales. He tracked down the carriers that were paying the highest commissions and then found their distributors, who he bought the phones from directly.
“My first semester at BYU I started this company selling phones. I bought the phones from a distributor and had college students sell these phones for me. The students would all have a network of three or four friends they could sell to immediately. It got to the point, where I simply had to grab the phones and give them to the students. My commissions would be around $200 per phone.”
Tasting how gratifying it was to build something profitable and growing really whet his appetite to try something bigger. Getting together with his brother, they would approach local angel investors and launch Inquist. Looking back on its eventual failure, he has mixed feelings about whether or not it was for the best.
He laughs as he says, “Should have stuck to cell phones! I know a lot of other companies that started at that same time and built out a network of stores and have done really well. But, it didn’t interest me. I liked doing it because it was easy, but it didn’t satisfy me because we weren’t building anything.”
REAL ESTATE used to seem like such a safe harbor of investment and opportunity. Going into the early years of the boom, Bryan and his brother decided not only were they going to get into it, they were going to get into it BIG.
“My brother and I got into a deal with a real estate venture. We funded about $70 million in mixed-use real estate development. Fannie Mae was our institutional investor in the project. It took about two years to get all the approvals and do the environmental studies.”
When Bryan commits to an entrepreneurial idea, there is no such thing as “dabbling.” You could say there was no dabbling in living his life either. In 2003, while he was attending BYU and dealing with the construction project, he also got married and had his first kid. As if that wasn’t enough, add in the fact that he also had another job to pay the bills while he wasn’t at the construction project.
“During that time I ran out of money, so I had to go find a part-time job to pay my bills. I started selling credit card processing on the side. It was 100 percent commission and basically you would walk down the street business to business and sell it. There were 400 sales reps in the company. I became the company’s number one sales rep and broke all the company’s sales records. I started making about $15,000 a month doing this part time. It just naturally grew.”
From dealing cell phones to college students at $200 a pop to selling credit card processing to a tune of $15K a month in commissions, Bryan has an incredible ability to generate revenue when he is in complete control. It is the wrong circumstances and people that he attributes to the eventual failure of his real estate venture.
“When we built the units, they didn’t have enough storage. We were targeting empty nesters. They wanted to downsize, but they had a ton of stuff with them. Everyone loved the location and concept, but the storage wasn’t enough. “
“We ended up not hitting the sales numbers we were supposed to hit for phase one, so we couldn’t begin phase two which would have included expanding the storage space for the first one. Cracks started to emerge and it all started falling apart. We ended up being diluted in the deal to the point where it made no sense financially to continue, so my brother and I exited.”
There were $2 million in overruns and the project was headed nowhere fast. Bryan and his brother had just spent two years working on a project that netted nothing for them. After Inquist, this was now his second total failure in a row.
“That one was extremely difficult. We had a falling out with the developer. It was really difficult. We couldn’t sit down and reason through our problems. It was my first experience with business partners gone bad. I was just physically and mentally exhausted after that.”
Having to support his family during this whole ordeal, Bryan continued to sell credit card processing door to door. Not only was he good at selling it, but he really felt like he was delivering a service people appreciated. He decided to start doing it full time, but this time there would be one major difference. Bryan would be in complete control; no investors or outside influence.
“My first venture when I was 21 was just short sighted. We didn’t understand what we were getting into. With the second in real estate, we made some misguided assumptions about others. But when I got into the credit card processing, I finally felt that I had complete control over determining whether it succeeded or failed. It was the first time in my entrepreneurship career where my effort directly controlled the outcome. It felt really good.”
CHICAGO is home to some of the most exceptional entrepreneurs in the world. Hopefully, it gained one more when Bryan decided to finally leave Utah after a long look at several different business graduate programs. He chose University of Chicago’s Booth School, not because of its world renowned reputation, but because of one professor in particular.
“The real reason [I came to Chicago] is I read a book by Gary Becker called Economics of Life back in 2003. He just framed the world out in terms of economics and supply and demand. That you could explain life in terms of economics. He was the predecessor to the Freakonomics guys. When I found out he was a professor there, I decided I needed to move to Chicago and go to Booth.”
Continuing to work for the same credit card processing company (RBS Link) as he had in Utah, Bryan began to grow tired of the monotonous routine of selling processing to merchants. For those unfamiliar with the industry, it has a notorious reputation for being riddled with fly-by-night operations, outrageous fees, pushy salespeople, and suffocating contracts.
“While all of this was going on I was still doing door-to-door credit card processing. It was a really tough racket. It was a hostile environment where the owners were accustomed to these processors trying to rip them off.”
The wear and tear of the daily beat would be too much. He needed a break, even if it was temporary, but something where for the first time in a decade, everything didn’t rest completely on his shoulders.
“When I moved to Chicago I worked for RBS Link for a year and did the executive MBA program at Booth. I sold for that year and just said, ‘I am out, I’m done.’ So, I got a job at Sears.”
In a classic case of the “grass is always greener,” the peace of mind and calm daily routine he thought he wanted turned out to be something a little too different.
“I interviewed for a position in the strategy group at Sears where they were saying in essence, ‘We are this $55 billion startup. If you come up with an idea, we can do it. What can Sears become, what can we do next?’ I worked there for eight months. It was the most unsatisfying thing I have ever done in my life. No matter what I tried to do, I couldn’t make a difference. I had three different bosses in the first eight months. I decided I would rather be unemployed then work there anymore. So I left and started working on Braintree.”
WHEN INTUITION AND INNOVATION COME TOGETHER sometimes a masterpiece can be painted. When the timing is right, the people are right, the idea is right, and the execution is what it needs to be, you get the wonderful result known as “explosive growth.” Some companies handle this poorly and collapse, others, like Braintree, are cruising through it.
After experienced two successful “jobs,” one selling cell phones and the other selling credit card processing, Bryan knew he only wanted to work in high-margin, high-growth industries. Having also experienced two large failures, he had learned a vast array of painful lessons from mistakes he vowed he would never make again.
Starting out with Braintree, he had a very deliberate plan to get started and he wasted no time getting it off the ground.
“I figured I knew how to do credit card processing. To quit [Sears], I needed at least $2100 in monthly income. So, I figured if I could get that much income from something else, I could leave. I flew back to Utah for a couple days and talked to my 10 biggest customers there. I asked them, ‘If I started my own credit card processor, would you switch to me?’ I got six of my clients to agree to switch and that generated about $6200 a month. I couldn’t have been happier. I was now back in the saddle.”
Braintree’s focus on high-tech companies was not the original idea, but instead born out of necessity to deal with a large contract it had signed with a new client, OpenTable.
“When I started the company it was initially about selling merchant accounts. The industry was plagued by dishonest companies and that’s how we sold the idea of our services, that we were an honest company that you could trust.”
“I had sold a handful of tech companies their services. So I needed a developer to come in and start working on some technical solutions for these clients. One of our clients, OpenTable, needed some special work done and they asked, ‘Can you do this?’ In the entrepreneurial spirit we said, ‘Yes, of course we can!’ We had some capabilities internally that we thought we could pull it off, so we took it on.”
Realizing that OpenTable’s needs were very similar to the needs of other high-tech startups, Bryan jumped on the opportunity. There were no competitors delivering end-to-end solutions for high-tech companies that included merchant accounts, payment processing, PCI compliance, gateways, etc…
“At that point, we decided to open our own payment gateway as well. There was a clear problem with payment gateways: that they were all a decade old and there was a strong dissatisfaction with the options available. There was no Web 2.0 style gateway. So we decided to fill that gap.”
Boy have they filled that gap! Their client list reads like the front page of TechCrunch.
“They all just came in. We started getting really great customers: Github, 37Signals, JBL, Animoto, GetSatisfaction, EngineYard, and AdMob. We got a great reputation as a company that works hard and does it right. Our success has been entirely of word of mouth. Recently we just hired our first marketing person.”
Not bad for a 100 percent bootstrapped company.
ENJOYING THE SUCCESS is one of those things that can be really hard to do when you are in the middle of explosive growth. Every day is spent playing catch-up, and new problems seem to arise the moment one is solved. To minimize those issues and increase everyone’s quality of life, the focus at Braintree is only working with companies they actually enjoy having as customers.
“Bringing on a new customer is really expensive for us. So, we are highly selective with who we work with. If they are a smaller operation who doesn’t have development resources, we may not be the best fit for them. Our pricing is designed to deter those who are simply looking for the lowest price. We say no to big companies. They want everything in the world and they want to pay nothing for it. We fire customers as well. We aren’t willing to put up with lots of pain to keep a client.”
When I asked how the revenues were doing, I expected to hear something solid, of course, based on all these large customers. Bryan asked that it remain off the record, but let’s just say it’s jaw-dropping. Since launching they have tripled their growth rate each year, and there seems to be no ceiling even close yet.
However, Bryan points out over and over during our interview that it’s never been and will never be about money. “I’m driven by value creation. Not money. I like to do good in the world. I like to contribute. So here at Braintree we aren’t fixing the world or anything, but we are trying to fix a specific problem and loving what we do. “
They have already outgrown their second office in only two months and are looking to move into a new space. They aren’t simply looking for a larger office, though. The new space has to embrace and embody the company culture that they have worked so hard to create.
“We spend a lot of time and effort on culture here. We established our operating guidelines and principles about how we live as a company. It’s important to get those down on paper. It’s been very fulfilling to create a sustainable culture.
“We want to get a warehouse or something. I know it sounds ridiculous. But something where we can play hockey or basketball. We want a lot of space so we can have fun. “
As for what the future holds, Bryan is working on a fictional book about human nature. In particular, he has some very grand ambitions regarding the education around human nature. In the meantime, he is set on taking Braintree to the position it deserves in the processing industry.
“We want to become the number one most recommended payment provider for software developers and be the number one most recommended payment provider in the industry as determined by customers. Also, we want to be a magnet for talent where employees are surrounded by talented people and don’t have to worry about office politics.”