Interview with Mitch Wainer – From niche websites to building DigitalOcean and beyond
We have all witnessed the impact of the passion economy. Combined with the aftermath of the pandemic, more professionals are looking for ways to work from home and possibly cash in on their passion.
I like the sound of that, so back in 2017, I started buying and selling revenue-generating websites in micro niches I am passionate about. No stranger to doing interviews, I’ve also interviewed other website investors, Internet entrepreneurs who buy and sell websites for a living.
The last time I interviewed Mitch Wainer, the co-founder of DigitalOcean, he mentioned selling one website for $50,000 before joining Ben and Moisey Uretsky and co-founding DigitalOcean. It sounds like a humble beginning for him since his success with DigitalOcean, now a publicly-traded company. Maybe we can start our story there? I wondered how his business carrer of working on niche websites turned into DigitalOcean.
How did you get involved in these small niche websites? And how did you find that initial success?
Mitch Wainer: I started when I was 13 years old at the time of dial-up internet when you would use your phone line to connect to the Internet. It was the wild west back in the day. The Internet, and especially eCommerce, was still very new.
One of my first successes was a wholesale business where I bought wireless headphones in bulk and sold them on eBay. I remember employing some of my friends in high school. They would drive over and help me pack and ship all the eBay and website orders.
On top of that, I bought and built many other online businesses and apps. I just had an entrepreneurial spirit.
When I was five years old, my grandmother used to find four-leaf clovers from her sister’s farm and laminate them. She would then give them to me, and I would sell them in school for $5 each. I was always looking to make money, build, and find something to sell.
I would always consider myself a builder from day one.
Through my high school years, I taught myself everything I needed to know to build an online business. Once I reached college, I made as much as $40,000 a month selling things online, learning a lot about digital marketing and advertising. I remember having conversations with my parents and getting questions from my mom. Why don’t you go to class? I would explain that they don’t teach you anything about digital marketing, which is the future. I’m learning much more by doing and making $40,000 a month at age 19. I managed to convince them to accept that I was figuring things out on my own and being successful.
Goran Duskic: You had eCommerce projects with headphones, learning to code, SEO, and other marketing activities. What happened to these small projects? Did you sell them? Did they go bust?
Mitch Wainer: Several busted, I failed and had to shut down many companies. I’ve built a ton of apps that made zero revenue. Some apps did okay and made as much as $3,000 monthly recurring revenue. We sold those. I lost a handful and sold a handful.
Goran Duskic: The ones you sold, how did you sell them? There wasn’t like a marketplace back then?
Mitch Wainer: I did sell it on a marketplace. I sold it on Flippa. Now there are other marketplaces since the industry has grown a lot. But in terms of my sale back then, I didn’t sell any of my apps for a crazy number. Probably around $50 to $100,000 each. It was great money for us at the time. We built it from scratch and got a nice return.
I’m saying we because I was also employing my college roommates. They helped me organize some spreadsheets and fulfill some orders. One of my close friends said I saved his college career and kept him in school by paying for his rent. Little things like that make it all worth it.
After that, I did some internships while in college at Northeastern University. I quickly learned I didn’t want to work for a big company. You feel very much like a cog in the wheel, and I didn’t feel very creative.
And I was always a very creative, artistic person in general. I just loved imagining ideas, coming up with new ideas, and bringing them to life. That whole journey from start to finish feels super, super empowering, and exciting for me.
Working at a big company restrains that creative process and putting things into action, and quickly see the results. I wanted to work at a smaller company, so when I left school, I joined an ad agency that was a boutique firm with around 30 to 40 people.
They were based in San Francisco and had big clients like McKesson and TD Ameritrade, so I quickly learned about all the different best marketing practices beyond just online marketing. Positioning, branding, communications, PR, building out campaigns and integrating marketing campaigns, which touch online and offline. We were able to measure and track those campaigns through the funnel. I then learned a lot about all these different marketing areas.
I was doing that for around five years, but I didn’t have any equity in the company and felt pretty lost. Here I was at 25 years old, and I was looking back on my life, and I said to myself, I know how to code. I know how to design. I know how to write excellent copy. Ultimately, what’s important, I know how to tell a story. I had all these skills in my tool belt but wasn’t reaching my full potential and felt stuck.
Looking to find some answers, I emailed this famous angel Investor on the West Coast, Jason Calacanis, and asked him if he had any advice. He asked me to jump on his podcast This Week in Startups to join his Ask Jason segment.
I was on with Dan Martell and Jason Calacanis when I quickly told my story of where I was in my life. Here’s what they told me.
If you’re not learning, you’re not growing, and you don’t have any equity. All signs point to the fact that you’re done.
Then they hit me with the following;
It’s better to be the worst player on the Knicks than the best player at the YMCA.
I totally got that concept that you want to learn how to win with a team that’s going to challenge you and make you better, even at times get your butt kicked. And you want to be with a group that will help advance your career and business skills.
He also recommended joining a startup that YCombinator or Techstars back. Immediately after that conversation, I applied to Techstars as a hack star (individual contributor). If you join as a designer or software engineer, they can throw you into their program. They approved my application, and I was on the list for the hack STAR program for Boulder.
Just so happened, I was interviewing at the same time for a marketing director position at a web hosting company called Reality Check Network. And this company was run by two brothers, Ben and Moisey Uretsky. During the interview, they showed me DigitalOcean as a prototype. They were working on that as a side project, and they believed it had some legs. I saw a ton of potential and said to Ben, who was the CEO, that I’m very much interested and excited about the DigitalOcean opportunity and would love to get involved. And so, when I started working at Reality Check Network, we immediately began to work on DigitalOcean.
And it just so happened that Moisey and Ben got into Techstars Boulder program with DigitalOcean. And on the list of hack stars to pick from, I was on the list. It was a crazy alignment of stars. Fast forward to 2022, DigitalOcean is one of, if not the most valuable Techstars company of all time, which is crazy.
So, needless to say, Jason Calacanis invited me to come back on the show This Week in Startups as a featured guest. This invitation was a few years later when we raised our Series A, which was also around the first time WhoAPI interviewed me. Being back on This Week in Startups made the story come to a full circle.
It sounds incredible when people talk about speaking things into existence. And I’m a big believer in that. Your energy and your mentality are everything. And if you say something and believe it’s going to happen, it will happen. It does require a lot of sacrifices and a lot of hard work and execution. It doesn’t come easy, but if you put in the work, things will happen.
Today most of the co-founding team from DigitalOcean, are working on Welcome Homes. We’re trying to tackle this big mission with a big problem that exists in the world, with housing. We believe it’s an exciting concept with unlimited potential. Similar to DigitalOcean, but even more significant with changing the way how people build and buy homes online.
Goran Duskic: The old gang is back together? It’s not that often that co-founders have a full circle with one company, and then all of them get back together to start another company. How did that happen?
Mitch Wainer: Well, to begin with, we have had a big co-founding team at both DigitalOcean and Welcome Homes, which is not usual either. DigitalOcean was five people to start with, and Welcome Holmes was six people. Incredibly, we have a pretty sizable team in place. We told ourselves that it would be a ton of work if we did this again, and we needed a great team. Building a company from the ground up is an intense, intense, intense mental marathon.
You heard the adage that it’s a marathon, not a sprint. It’s just grinding and reps and sets every day. And it’s just doing hard work every single day to get the results that you’re setting, to get to product-market fit, and to build a brand that excites customers. It takes a lot.
Hiring and building a great team you’re proud of is difficult. So it’s just a lot of mental gymnastics and endurance. Coincidentally, that’s why a lot of founders meditate and exercise. It’s stressful, and it’s not for everyone. Your health can very quickly take a bad turn if you don’t monitor yourself properly. And I think a lot of founders can lose sight of that. I had some health scares building DigitalOcean a couple of times. So it hits everyone differently. But you got to be mentally prepared for it.
Goran Duskic: I touched on this same topic with Brad Feld recently. I don’t want to repeat myself to the readers, but it’s worth mentioning that I was fundraising for my startup while I was lying in bed. You have to set priorities and pick your battles. For example, I became a productivity enthusiast and became obsessed with where I could maximize my returns and where I could find any levers and productivity hacks. Getting to inbox zero was a big one for me. It’s like you said, everybody is, dealing with it differently.
Once you build a company that goes public, I can assume you are set financially. After all, isn’t money the biggest motivator for most people? When that’s off the table, how do you find motivation? How do you find inspiration and the reasons to get up and get to work to start a new company?
Mitch Wainer: Earlier in the conversation, I talked a lot about my entrepreneurial DNA, and starting at a very young age, I always considered myself a builder, and I still do. So if I’m not building, I’m not happy.
I think many people lack a little self-awareness or need to dig deeper to understand what drives them, and what motivates them as an individual.
I have always loved building, and I like getting my hands dirty, rolling my sleeves, getting stuff done, moving the business forward, and creating and building. Learning by doing. If I’m not doing that, I’m not going to be a great dad; I’m not going to be a great husband, and I may even get a little depressed. Building businesses is my passion. I am not saying I don’t take any vacations and that I don’t find time to spend with my family.
I would say that family is my number one priority, followed by health in second place. And then the business is just a cherry on top, sitting in third place.
And now, having the financial freedom to focus on building and coming up with ideas and bringing them to life does reduce stress. It helps not to have that financial burden of having to punch a clock every day to put food on the table.
But, Goran, I’m 37 years old, so if I was to retire today, that’s a lot of years where I’m just doing nothing.
Goran Duskic: Yeah, that doesn’t make sense.
Mitch Wainer: I can’t do that, I would drive my wife crazy, and I would go crazy. I wouldn’t be happy at the end of the day. That’s why I think it’s important that you really understand who you are, and what drives you and, what you’re excited about.
Goran Duskic: Yes, you did mention you see yourself as a builder. Is that the connection between DigitalOcean and Welcome Homes? Where do they both have a common theme of building something first in a digital way with DigitalOcean, and now in a more physical way with Welcome Homes?
Playbooks don’t match up when you’re building two different companies. You have to go into it with a fresh mind and a fresh perspective and be okay with learning, asking questions, digging in deep, and trying to figure out what works for that industry.
Real estate is a major industry with a lot of legacy businesses and systems and processes in place that slow it down. We’re sometimes trying to reinvent those processes using technology but also accepting that we can’t be attached or plugged into some of the legacy businesses in place. One example would be brokerage firms. For Welcome Homes, it is a complimentary top-of-funnel strategy. That’s 80% of the top funnel. No matter how you split your hairs, that’s necessary to succeed in this space.
So we partnered with Compass on a national level with other brokerage firms, hopefully, teed up soon. We’re creating some exciting momentum at the business, but there’s no playbook, and we can’t use what worked at DigitalOcean, and the cloud infrastructure space.
They both have an online and physical aspect. Online, the software for a DigitalOcean and servers, being the physical, and then online for Welcome Homes has been the customization aspect and picking your land. There’s also the physical aspect of building the house.
We’re just solving a major problem that exists in the real estate industry, where there’s a lack of inventory. After the financial crisis in 2008, new home development plummeted from around 26 million new homes built every ten years to 5 million homes built in the ten years after the financial crisis 2008.
There was a significant decline; instead of accelerating new home development, it declined drastically. As a result, home prices surged because there was a lack of inventory. Add a pandemic with the interest rates being super low; it was a perfect storm for the whole housing market to explode. Who knows what will happen over the next 12 months with interest rates continuing to rise and mortgage rates continuing to rise? I think some home prices may soften, but I don’t think they will soften a lot.
I still think the prices will be high because of the lack of inventory. And people are just tired of looking for homes and being outbid.
Families are unable to find a home that they love. At Welcome Homes, we give them the option and flexibility to pick where they want to live and build a home they can customize online and make their own.
You move in, day one, and it’s yours. No one had lived there before. There’s a refreshing feel that the existing home doesn’t provide. When you get into an existing home, you have to do all this work in the house and renovate some of the bathrooms, and then you’re living in dust and construction. It’s not fun.
We’re providing this new product to the real estate industry that we think has great potential. And because we’re leveraging technology to scale and we don’t own any of the property. So we don’t own the land, which is a different business model than the largest home builders in the country like Lennar and D.R. Horton have. They own the land that they build on. And so, they have enormous amounts of debt on their balance sheet. And that’s why their multiples are so low at the business, in the public markets.
In contrast, Welcome Homes doesn’t own any land. We can use our land technology to know where we can build with a high degree of competence. And we can provide our customers with all these different property options and give them a guaranteed all-in price,, assessing the land preparation cost. It gives people more flexibility in terms of where they can live, and they have a clearer idea of their budget. We have financial partners we worked with to qualify them for a construction loan that transfers and transitions into a more permanent mortgage.
Welcome Homes takes them through the whole process from A to Z.
We’re their one point of contact. We handle everything from financing to developing and building the house. And we provide a high level of customer service on top, which is incredibly low in the industry.
The CSAT, and customer satisfaction score on consumer affairs for some of the largest home builders is 1.2 / 5. Coming from DigitalOcean, where hosting support to our customers was impeccable. It didn’t matter if you spent $5 a month on a single droplet (now $4 a month). Or you could spend 1000s and 1000s of dollars a month. With DigitalOcean, you were still getting a great, high level of service and support for the business, and your questions were answered.
And that was a differentiator from AWS, where they didn’t prioritize their smaller accounts. And the individual and small businesses were being left in the dust to the enterprise businesses at AWS.
Goran Duskic: Do you think that support was the biggest differentiator with DigitalOcean when you’re acquiring clients for a web hosting business? I remember there was a significant shift when the TechCrunch article came out back in January 2013. You announced that you’re offering $5 instances with SSD disks. Do you think the technology leap was a significant change that got you new clients, or do you think that was due to great support, which obviously in the web hosting industry is a big deal?
Mitch Wainer: The answer is simple. It was a product with the launch of the $5 SSD droplet. That was the first of its kind in the cloud hosting space. There was no SSD offering at that price point that existed. We were asking ourselves, if our laptops are running faster on SSD drives at the time, why don’t we put these in servers and see how they perform? It just so happens that the performance benchmarks just blew traditional SATA drives out of the water.
Launching that product got us a TechCrunch article, and we reached number one on Hacker News. We saw the signup numbers go from 10 per day to 100. And then from 100 to 400. And then from 400 to 700. It was an immediate impact! The best way to describe product-market fit is when you can’t keep up with demand.
If you want to visualize product-market fit, it’s like Lucille Ball and the cookies on the conveyor belt. All the cookies that are coming out, and Lucy starts eating them because she can’t keep up with them. When you cannot keep up with demand, that’s what it feels like to reach a product-market fit.
Operationally there’s just so much incoming. It’s like drinking from a firehose. In DigitalOcean, we were in the office late at night adding hard drives into server blades by hand! We needed more space, and we couldn’t keep up! We ended up raising capital so that we could keep up.
Fast forward to Welcome Homes; we’re now taking that same mentality and approach where the customer satisfaction bar is so low in the homebuilding space that if we provide a five out of five customer service level, this product will sell itself because building a home is stressful enough.
If we can reduce that stress and make it easy and seamless for people, it will spread by word of mouth very quickly. We’re going to build a great brand.
That’s how you build a great brand. When people talk about you and say how amazing the product is, how amazing the service is, that’s a great brand. It’s why Apple and Tesla are great companies, because people talk about them, and because they love the company. They love the service. They love the product. It’s as simple as that. And that’s how you find product-market fit. You build a great product, and you provide a great service.
Goran Duskic: That’s amazing. Let’s end on a high note. I enjoyed working on this interview and learned a lot. Hopefully, the readers will as well. Thank you for your time!
Mitch Wainer: Absolutely, thank you for having me.
Founder and CEO of WhoAPI Inc. Goran Duskic is an internet entrepreneur since 2006. He co-founded and sold several online ventures, including a web hosting company.