Lee Egstrom of Passinglane has been helping small businesses grow for 20 years. He chats with Clate and Scott about why he only takes clients who have been in business for five years; how he uses modeling to achieve his goals; and the entrepreneurs he looks to for inspiration.
Do you have a question that you want us or an expert to answer? If you have questions about your small business, submit them at smallbusinesssuccess.com/questions.
Lee Egstrom: If want to achieve something as a business owner or in your personal life, whatever it may be, find someone that has already achieved that goal.
Clate Mask: That's Lee Egstrom from Passinglane talking about how he used modeling to learn more about being a great business owner. To hear [00:00:30] the full story listen to this episode of The Small Business Success Podcast.
Scott Martineau: Welcome to this episode of The Small Business Success Podcast, I'm Scott Martineau.
Clate Mask: I'm Clate Mask, we're co-founders of Infusionsoft and today we've got Lee Egstrom with us. Lee, how are you doing?
Lee Egstrom: Phenomenal. How is your day going?
Clate Mask: Good. We're doing great.
Scott Martineau: It's wee bit hot in Arizona this time of year.
Clate Mask: That is true. Tell us, tell the listeners [00:01:00] just a little bit about yourself and about your company, Passinglane.
Lee Egstrom: We were founded in the mid '90s, we've been doing web development as well as the marketing initiatives that drive traffic to those sites.
Clate Mask: Awesome, okay. Kind of a digital marketing firm, sounds like you've been going for about 20 years, how many employees do you have, Lee?
Lee Egstrom: Right now we're sitting right at 10 team members.
Clate Mask: [00:01:30] Great. Very good, let's do this, we would love to hear, for a company that's been in business 20 years, you've got some things figured out, you've also gone through tough times and good times, what don't you tell us just real briefly, what it is that you love about the business 20 years in?
Lee Egstrom: That's a great question. 20 years in, [00:02:00] I would have to say that the number one thing that excites me and gets me out of bed in the morning is helping small and medium size businesses get clear about their goals and their initiatives, helping them to reach potential clients with theirs products and services and helping them to really look at the fundamentals of their business [00:02:30] and helping them to, then, grow their business.
A lot of times, in the early days, not just the early days, but today as well, I sit down with small to medium size businesses and you start to ask questions about customer acquisition values, lifetime, value of a customer, it's interesting to me that a lot of business owners don't necessarily have this numbers off the top of their heads, it's really exciting to work through that [00:03:00] with business owners, entrepreneurs, then ultimately, create the marketing initiatives that are in line with the values and variables that are put in place. Then, obviously, seeing entrepreneurs succeed, seeing new ideas succeed, which, as we all know, isn't always the case. That's really what excites me, it's just learning, learning about [00:03:30] new businesses, new industries, with tech, as you guys know, things are always changing.
I've probably got a lot of entrepreneurs a little bit of a ADD, I'm constantly like "What's new? What's exciting? Tech?" Really a great outlet, because things are always changing, there's new shining objects to look at, it just keeps it fresh.
Clate Mask: Yeah. Totally. What I hear [00:04:00] you saying is you love helping small businesses succeed, which is near and dear to mine and Scott's heart. You love the learning, you love helping them put in place the marketing initiatives that'll help them grow. Very cool, we love hearing that.
Scott Martineau: How did you get in the business? How did you get into this business specifically? What was the background?
Lee Egstrom: That's a really interesting story. I was an MC in a drama-based group, we performed [00:04:30] at raves throughout California and really, Arizona, Texas and a few other places. In the mid '90s we had people that would come up to me after shows and they would say like "Hey, man, I really love the set, where can I get your music from on the internet?" Music on the internet was just really starting to take hold, we were on a subsidiary of Gotham Records and they were very anti- [00:05:00] internet media distribution at that point.
I found a friend who had a computer science degree and he was in tech, working for NASA at the time, I got with him, I said "I need to start putting some music online." It didn't happen quite as quickly as I would've liked, after a few weeks I was talking to the individual, I would call, [00:05:30] I would say "Hey, how's that website coming along?" He would constantly say like "Next week. It's going great, next week." And he kept next weeking me, he's next weeking me.
About the second time he did that I thought "If this friend of mine isn't intelligent enough to keep his word, web development must be fairly simple." I got a couple of books, I ramped up and within about 2 days I had a website up and set up a media server, started [00:06:00] streaming music. I would put up files about once a week, of course now, that's called podcasting. It was really fun, I started getting emails from all over the world, getting positive feedback, it was really exciting.
From there, I started promoting in the LA area, the conversations would usually go something like "Hey, check out my weekly internet radio show." [00:06:30] People would go "Wow, you have a radio show?" I'd go "yeah, you can hear our music as well as some of the hot new albums from around the world, you should really check it out." They're like "Wow, do you have a website?" I'd go "Well, I developed it and you can check you the music." They'd go "Wow, how do you develop a website?" It became very clear, very quickly that people are more intrigued by the fact that I had put up this website than any of the content that was on the website.
I ran into an old [00:07:00] friend, I'd interned at a television station, he had written a book and he said "Wow, could you help me promote this book that I've written online?" He was my first customer. After that I started talking to other individuals, business owners, et cetera and that's "Hey, I heard that you're a guy that can put a business online." From there it really just grew in an organic fashion. That [00:07:30] was kind of the early stages.
Clate Mask: That's fantastic.
Scott Martineau: It's a perfectly natural path, you go from a rave MC, meet up with a NASA engineer and you start a digital marketing firm.
Lee Egstrom: Right? It's simple.
Clate Mask: I love hearing the learning in the process, just figuring out. I love the identification of the opportunity that was, maybe, different than why you created the website in the first place, but seeing that there was a need, then just getting after it. Now, you've got a business that [00:08:00] afford you a lot of opportunities. With 10 employees you've got a real company that you're now leading and it's one thing to be a one or two person team, it's another thing to have a bunch of employees. That's really great, congratulations.
Lee Egstrom: Thank you, definitely. It's a responsibility that I don't take lightly as you guys know. We have team members with families and [00:08:30] extended families, there can be challenges, writing out the .com bubble burst, writing out this recession that we went through and some of those things and continuing to grow, keep everything afloat, can be stressful at times for a small business owner.
Clate Mask: No doubt about that.
Lee Egstrom: We've done the trial by fire, we're still here. That's [00:09:00] the wonderful part, really, could not do it without the team.
Scott Martineau: Let's dig into the fire a little bit more, tell us, if you think back over the 20 years, what's the hardest point in the business that you had to fight through?
Lee Egstrom: I would look at external forces, then internal forces. External [00:09:30] it was definitely the .com bubble burst, there was a lot of uncertainty, it was still early days for the web, for those younger listeners or maybe people that weren't involved in tech, we were really talking about right around 2000. You had all these inflated values, [inaudible 00:09:51] companies that, in my opinion, had no real strategy on how to acquire customers to make them profitable.
Clate Mask: No real business, [00:10:00] you might say. I was in one of those .com's, I know very well what you're talking about. The currency was eyeballs back then, not dollars, there was this belief that somehow you were going to, as the phrase went in tech, monetize the eyeballs, that never really happened for most companies and some companies, tragically, went public, wasted a lot of investor dollars because they really didn't have any real business [00:10:30] model other than perhaps some banner advertisements on their website, but that proved to not be very lucrative for most of those companies. I hear you about the no real strategy, no real business model, we watched it, I was right in the middle of it and it was a pretty crazy time.
Lee Egstrom: Yeah. We were, at the time, Passinglane was in, what we used to call, a Silicon Alley, which is now known as Silicon Beach down in the Santa [00:11:00] Barbara, West Los Angeles area. We met with a lot of companies on the development side that had funding and they had an idea, but they had no real strategy or no real business model. I can remember seating in a number of meetings where we say "What does the business model look like?" They go "Well, we've got a sit round, then we're going to go to a secondary round of funding." "Okay, but that's not a business model."
Clate Mask: How do you make money?
Lee Egstrom: Yes. "You're going to just burn [inaudible 00:11:29], [00:11:30] then go for more funding? That's the business model?" That shake out. I can't the credit, I had a mentor and the original founder of Passinglane, Steven [inaudible 00:11:46], was and still is a great leader and an entrepreneur. He had a rule that all clients needed to be in business for at least five years and they had to had a [00:12:00] brick and mortar company or else we did not onboard them as clients.
Clate Mask: You had to make that kind of clear distinction in your target customer because there were so many that you could end up spending a bunch of time and effort with who couldn't pay you and you would take you down as a business if you didn't have credit worthy clients.
Lee Egstrom: Right, ultimately, as you guys know, unfortunately, the fail rate of new business [00:12:30] is extraordinary, I think last time I checked it was somewhere north of 70% in the first year and north of 90% at the five year mark. Really, if you have 70% of your clients going out of business in the first 12 months that you've onboarded them, your attrition rate then is massive, you're constantly then having to acquire new clients, which takes resources, time, energy [00:13:00] away from the core business model.
Scott Martineau: But that takes discipline, if you're having a hard time finding those brick and mortars in the sea of all of the .com companies, right? You've got to be patient.
Lee Egstrom: Some of the smaller fires, I just keep it real. There have been days where I've met with clients going back 10 years ago, you sit down with a client and you go "man, we're not really a good fit." Your gut tells you that [00:13:30] they're not really a good fit, but payroll is creeping up on you, the lease on the big office building is creeping up on you and you'd go-
Clate Mask: Got to keep the lights on.
Lee Egstrom: Yeah, "let's try this, let's roll the dice." Ultimately, my advice there, for other entrepreneurs out there listening would be, go with your gut, just go. Because the small number of times that I'd broke the five year rule, it really bit me in [00:14:00] the [inaudible 00:14:03].
Clate Mask: I appreciate you sharing that, because for our listeners, I mean, business and small business owners, you're always hustling and doing what you need to do to keep the lights on, we tend to think "Any customer is a good customer." That's such so not true, it prevents us from growing. If we focus on the customers that really fit what it is we offer, that's how the business begins to really grow. For listeners, key point number one here on this [00:14:30] story is make sure that you have a disciplined way of selecting the customers that fit, then, within that, one of the things you're hearing is "Make sure that those customers can pay you" or, maybe stated in other way "don't get too drawn out in the amount of work that you're doing."
I see this with a lot of service based for small business, they do the work, they spend a lot of time and effort on a client or providing a service, it goes far beyond what the customer is able [00:15:00] or willing to pay for. The service business takes it in the shorts and ends up really hurting his or her business. Two key things there, hopefully you capture those.
Scott Martineau: What was the internal challenge?
Lee Egstrom: The internal challenge really comes from something that I thought that was unique to myself, but ultimately, as I've read more books and done more research and [00:15:30] continue to learn, it's the idea that I was a craftsman, I really enjoyed programming, developing games, we've done over 30 online games for Disney, we've done a number of projects for Motorola, we jus had so much fun, sleepless nights and still do, the development side of it, I really enjoy the creative side, I really enjoy. I ended up with [00:16:00] clients before I had business acumen.
I had a business before I knew about business. I would say that was a major internal challenge that through just hard work and sweat, also having a couple of great mentors along the way, I was able to navigate that challenge. I recognize that in so many of our clients where you meet [00:16:30] with, maybe it's a baker, we have a client that won Cupcake Wars, for instance, she love to bake, she opened a little cupcake shop and her cupcakes are wonderful. In the early days I remember having conversations whether about a food and label cost versus profitability and I recognize that now or at maybe a plumbing company, you meet with them and you realize that "Wow, this guy really knows everything there is to know about plumbing." [00:17:00] Whatever the trade may be.
My point is that you have so many people that understand their trade, but they don't understand the fundamentals of business.
Clate Mask: Thanks for taking this into that, because this is super common, a person skill or passion gets them into business ownership and all of a sudden they're finding themselves getting clients, getting customers, the business is starting to have some success, this is past where you're fighting for that first client or two, but you starting [00:17:30] to have some success now. Yet, there's this haunting thing in the back of the business owner mind that you don't what the crap you're doing, right? It's real for people.
Take us, maybe, a step deeper into this, you mentioned mentors, you mentioned hustling to learn and figure the stuff out, how did you do it? What do you say to the listeners who are having that same feeling of "Man, I didn't get an MBA, I didn't expect to find myself running a business, but I really want the [00:18:00] allures, the benefits, all of the things that come with business success." How do you get through that gap of general business acumen?
Lee Egstrom: That's a great question. For me, I used a technique that I've, now, realized I didn't invent, called modeling. I'd, legitimate, like a lot of us that are fumbling our way through it, we stumbled upon by luck or blessings, whatever attribute you want to put to it, [00:18:30] some of these little nuggets, for me, modeling was one. The idea that, if you want to achieve something as a business owner or in your personal life, whatever it may be, find someone that has already achieved that goal. If it's someone that you can have a conversation with, I have been lucky enough to have some great conversations with guys like Tony Robbins, Darren Hardy, Tim Ferriss, I just seek these guys out, [00:19:00] Gary Vaynerchuk in the early days had a lot of great conversations with.
On the local level, talking to some of the local successful businessmen, just asking them real questions and saying "What was the first five years of your business like? What were some of the challenges?" Like we're doing now, right? This is so valuable for your listeners. The idea that there are other people that have already accomplished what you are setting out to accomplish. [00:19:30] Maybe not the exact goal, maybe you have a new twist or you have a new product that you're bringing to market. There are other people that have brought products to market, it's like ... I can remember being, I think I was around the age of five, I saw Mr. Rogers on TV and he said "Just remember, everyone is unique, there's nobody else out there like you." It was really like "Wow" what I heard [00:20:00] was "You're unique, just like everybody else."
Although, your product may be something revolutionary, there are people that have brought products to market and my biggest piece of advice would be seek those people out, ask them question. I've learned as much, if not more, from mentors and people that I've met and I've been able to [00:20:30] be friends with over the last couple of decades of my life, that have steered me along the way, I've learned just as much from dead entrepreneurs. Whether it's Walt Disney and really looking at his trials by fire and looking at how he accomplished such great heights and feats.
Looking at Henry Ford or Ray Kroc, his new film came out, a biopic came out around the McDonald's story. [00:21:00] I do internet marketing and media development, right? What can I learn from Ray Kroc? The guy sold hamburgers. It turns out you can learn a hell of a lot from Ray Kroc and guys like Henry Ford. I learned standardization, I learned how to put our products through a process developing checklist so that we could get consistent results across all of the projects that go through. The underlying thing there, [00:21:30] guys, is really from my standpoint, is for the listeners out there find somebody that's achieved what you want to achieve and follow their steps, because if you follow a sequence, think of it as a recipe, I don't know how to bake a pineapple upside down cake, but I could find a recipe, I could find the ingredients, if I follow the steps in the proper sequence and the proper amounts of the ingredients are added, I could [00:22:00] probably make a half-way decent pineapple upside down cake.
Scott Martineau: That's great advice, I love the way that you're, not just looking at ... There's not going to probably be a perfect model for all things you need in the business, but I love that you're pulling standardization from Henry Ford or other aspects from other historical business figures. [inaudible 00:22:21] that's awesome, that's fantastic, great advice.
Clate Mask: The other thing I hear is, it's surprising to me how many business owners don't have a clear goal. If [00:22:30] you don't know what your goal is, what the next step is you're trying to achieve, then it's difficult to find the model or the mentor that'll help you achieve it. Just as business owners frequently discover themselves in a business they didn't intend to be in, a lot of times they'll just go through the motions and not be intentional about what they're trying to achieve with their goals. I appreciate you sharing that and I just appreciate the personal development ... Where personal development intersects with business, [00:23:00] it's a ton of fun, modeling is a great way to great through the challenges and help you achieve your goals. Thank you for sharing that, Lee, great stuff.
Scott Martineau: Fantastic, Lee, thanks again, we appreciate your time, your investment today, I'm sure our listeners appreciate your advice and experience. Thanks to all the listeners for being on, we're going call this [inaudible 00:23:20], for this episode of The Small Business Success Podcast.
Clate Mask: Stay tuned for next week's episode of the Small Business Success Podcast where we'll do a hot seat with Lee. Don't forget to [00:23:30] rate us, write a review and subscribe to the podcast on iTunes.