XBIZ: What were some of the challenges you faced in the early days?
Clay: Our biggest hurdle in the beginning was that everyone wanted to use us, but no one could get merchant accounts. Even then, a lot of companies were having trouble managing their merchant accounts.
Joel: It's hard to see all that money coming in but have the discipline to throw away sales at the front door to help reduce chargebacks. Even with all the tools available, lots of companies didn't have the discipline to keep chargeback levels down. They were blowing up merchant accounts left and right.
Clay: It quickly became apparent that we needed to develop a solution that would allow us to get over the problem of planning and maintaining an adult merchant account. Coming out with a third-party model allowed people to set up really quickly with us.
Joel: We're big on core competencies. We wanted to solve headaches behind the scenes for webmasters so they could concentrate on marketing.
Clay: But it was a nightmare back in the day just to keep our servers up. I used to carry a pager and I was up every night, checking things, worrying that we were down.
Joel: The first four years, I worked seven days a week. All day.
XBIZ: Was there ever fear that you wouldn't make it?
Clay: We had doubts. The first five years we were in business, nothing was certain.
Joel: There was one incident where we had a rack array for our database with all kinds of backup tapes. An electrician came into our computer room and bumped the rack and failed four out of 10 drives, and it was unrecoverable.
I was up for three days straight on the computer room floor trying tape after tape. If we didn't get the database back, we were done. We had people driving down to Santa Monica, knocking on our door and asking what was going on. I started thinking about what I was going to do [if we couldn't fix the problem]. We finally found a tape that worked and got the database back up.
Clay: Now that I think back, it was scary how much could have gone wrong and how close we came to not making it. But we were so focused on plowing ahead that failure was not option.
XBIZ: What about the challenges — or the advantages — of going into business with a friend, with someone you'd known almost your whole life?
Clay: There are pluses and minuses. We have our moments, but the most important part of the relationship is that we both trust each other.
Joel: We have bonds that could never be broken; we've been through too much. That trust allowed me to focus entirely on infrastructure and trust Clay to do his job. We didn't have monitoring costs where we worried what the other person was doing. We're both able to go 1,000 miles per hour. I know he's doing his job; he knows I'm doing mine.
Clay: It allowed each of us a lot of freedom to concentrate on the things we do best.
XBIZ: What was your growth trajectory like — a slow, steady climb or rapid expansion?
Joel: When we first started, we had a server on a bread rack we got from a grocery store. We had one Windows PC running on this bread rack with a speaker hooked to it, and every time we got a sale, it made a... what was the noise?
Clay: "Cha-ching." A cash-register sound.
Joel: So Clay is over there, 20 feet away, handling client calls, and every time we'd hear that sound, we'd say, "Yee-haw." At first, it was only about eight times a day. And we thought we were in business. When an error came up, the computer made a sound from a Looney Tunes cartoon — a ricochet sound. We got used to a certain cadence in the early days. Then we started hearing the cash register sound more often. When we got up to 100 transactions day, we set out next goal at 500.
Clay: A thousand was a big goal.
Joel: But it wasn't a smooth curve. There were peaks where we'd grow, then have to hang on to volume and rethink our infrastructure.
Clay: Our first big client was Pure Hardcore. They sent us so many transactions that we had to unplug the speaker.
XBIZ: How did the affiliate structure change your business?
Clay: The first thing that drove our growth on a large scale was our reseller affiliate program. We started tracking codes of affiliates and writing checks to pay on the backend.
Joel: The way that started was that I had created space on a database to track resellers. We hadn't been using it, but Clay had the forethought to bridge the business and the technology. I had drawn out the first database schema on a chalkboard, and all of sudden the reseller fields started getting populated. I suddenly found out one day that we had a reseller program.
Clay: Nobody else had that. We launched it officially at a show in New Jersey in 1998, and I don't know how many contracts we signed, but that's when we were put on the map and our growth went through the roof.
Joel: But even then, we grew like a family. A lot of our employees came to us through friends. We all ate together, hung out together. We still do. Even though we have 200-plus employees now, I think there's still a small-company attitude. It helps us stay quick and agile.
XBIZ: Since you were moving into uncharted territory, I imagine you had to develop your own technologies?
Joel: It's all proprietary, yes. Every day, we have to look at reducing fraud and evolving our technologies. The business never sits still. We're making code changes every day.
The name of the game, then as now, is managing risk and managing infrastructure. Clay was a savant for managing risks and relaying a client's infrastructure needs. He'd say, "We need this feature; can you do it?" And I'd do it.
Clay: This was before eBay or Amazon.com, and there was no game plan for how to scale an Internet business.
XBIZ: What was it like in terms of trying to build a business with no real precedent or blueprint?
Joel: There was a lot of flying by the seat of our pants, making it up as we went along. Even though I was an engineer, I had to learn on the job how to scale an Internet business. If we clamped down on risks too hard, our business would go elsewhere. If we took on too many risks, we'd lose merchant accounts. Clay has always been the best at figuring out that dance.
Clay: It's a moving target.
Joel: We've been doing that for nine years now. There's a big myth on the web that we have a big scrub-o-meter and we just go over and turn the dial. You see it on the boards. People say, "Look, they turned up the scrub today." That's not true. Making changes in this business is like turning around a big ship. It's done with lots of forethought.
XBIZ: Do you sell any of your technology to other companies?
Clay: We'd never sell our technology to anyone else.
XBIZ: What do you see as the next big development or change in the industry?
Clay: One big change is that Visa has stepped up and recognized the industry for developing a set of rules for high-risk transactions. It's beneficial to them to be able to narrowly qualify people for these transactions, and I think they can be comfortable because they know we're watching the industry on their behalf. They know if there's an issue, we can rectify it. The future is more stable. We know we can maintain our numbers and continue to make the card associations happy.