Building a Cool Technology Company from Chicago: Narrative Science CEO Stuart Frankel (Part 2)

Sramana Mitra: Where is the position? This is not in Cincinnati, right?

Stuart Frankel: It was in Chicago. I had met a woman who I’m married to now. She was originally from New York. She was living in Cincinnati as well. We were also figuring out, from a life standpoint, where we wanted to be. In addition to presenting this career opportunity, Chicago was also a great place to live for us. We moved to Chicago and got married. I started my job at rollingstones.com. It was a fairly typical Web 1.0 experience. It was obviously a very exciting opportunity. We had brand name. It was a relatively high profile company. I had a really interesting job that pushed me professionally. I was doing a lot of things that I had never done before.

The industry was at in its infancy stage where everything was new. Every day, something new would be invented, announced, or rolled out. It was an exciting, crazy time. We raised about $40 million primarily from Goldman Sachs and built a couple of hundred-person team. We opened up offices in New York, San Francisco, and Los Angeles. We were really fortunate from a timing standpoint. This was in the 1998 to 2008 timeframe. If you look at deals from that time, a lot of companies didn’t make it. There was a crash. We were really fortunate. We sold the business to a company called eMusic, which was a publicly traded company and was ultimately acquired by Warner Music. We actually had a really good result. We closed that transaction in April 2000. We were really fortunate that we sold the company at that point and wound up getting a reasonable return for our investors.

Sramana Mitra: That was what year?

Stuart Frankel: 2000.

Sramana Mitra: You managed to do it before the market crashed.

Stuart Frankel: We did. You could feel the cracks, though. For people who survived that time period, it’s like yesterday. I have trouble remembering things from six months ago now. If you asked me what I was doing in the April of 2000, I can pretty much tell you exactly.

Sramana Mitra: Me too actually. It was a very traumatic experience. What did you do after that?

Stuart Frankel: Working at a company like that during that time period was like working in full gears. Very typical of people who had never taken a brake before, I felt like I would need to take a year-long break to get my batteries recharged. I always joke that you’ve got that list of things that you just start to accumulate in the hope that eventually you’ll have a break where you can get this stuff accomplished. For some people, you travel around the world or learn to play the guitar. Mine was more mundane. I just wanted to clean out my closets and get my garage organized and do all those things that you never get to do.

It turns out that list takes about a week when you don’t have a job. I did everything that I wanted to do and really wanted to get back in the game. I started looking around for more early stage opportunities in the summer of 2000. There were still a lot of things going on. The crash was later on during the years. I had a lot of opportunity because I had just come off this reasonably successful experience. Now, I actually was an experienced CFO. I was able to go into companies with a straight face and talk to them. I also didn’t necessarily want to be a CFO. This was really a way for me to build and use that experience to get into a senior role in a company. I ended up taking a job as the COO and CFO which were a lot of big titles for a startup that had about 15 employees. It was called Performex and was based in Chicago. It was a marketing services firm that was, at that time, primarily focused on affiliate marketing. Are you familiar with affiliate marketing by any chance?

Sramana Mitra: Very familiar.

Stuart Frankel: It was an affiliate marketing company. It was the smallest player. It was very early. It was almost pre-revenue. We had just started to generate revenue when I joined. We ended up doing a round of funding around October 2000, and then the market crashed. I had lots of good fortune in my career. A lot of it was luck and timing obviously. If we had not done the round when we did, we wouldn’t have gotten it done. Once that door shuts, it slams shut for a few years.

What was interesting to me as I reflect back on the decision that I made to go with this company Performex was that all the other companies that I was talking to at that time, without exception, went out of business within a year or two of me speaking with them. Again, I was very fortunate to have gone to work at this company. It was a good group of people, albeit very small. It turned out though that building affiliate marketing business in a recession wasn’t a bad thing. Our customers were looking to minimize their investment while acquiring customers online. They were certainly willing to pay for customers, but they wanted to pay for performance. We were able to take dollars from the brand advertising on the web and shift those over to performance marketing. We were able to build a business.

It was incredibly difficult during that period. We weren’t profitable yet. We had some capital, but at that time it really felt like the window for raising money would never open again. If you talk to people who were running companies at that time, it truly felt like that. It felt like something had fundamentally changed. Even the Internet was going to either go away or be this nice little thing that allowed people to access information and buy some things online, but it wasn’t going to be this transformative technology that everybody had thought of just a couple of years earlier. We know now obviously that wasn’t the case but when you’re there, that’s what it felt like.

We were super lean and agonized over every dollar that we invested. As we thought about the future of online marketing in 2002 to 2003, we saw companies like Overture and Google who were starting to monetize their search result. We saw opportunities to expand our affiliate marketing business into a search engine marketing business. We actually built one of the first SEM businesses in the country. We’ve built one of the first paid search technology products in the country and very quickly, built our business into the largest search engine marketing company in the country. We hit the wave at the right time.

This segment is part 2 in the series : Building a Cool Technology Company from Chicago: Narrative Science CEO Stuart Frankel
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