(Founder Stories) Mike McCue On Surviving A Downturn: The TellMe Years

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Mike McCue knows a thing or two about raising a lot of money to keep as a war chest for his startups. Recently he just raised $50 million for Flipboard, but at the end of the first dotcom boom he raised $250 million for his last startup, TellMe. Resuming his conversation from Part I of Founder Stories with Chris Dixon, in the video above McCue dives into additional detail about preforming triage on TellMe, his voice recognition company that narrowly survived the dotcom bust and was ultimately sold to Microsoft for $800 million

With TellMe, the company raised a big round in 2000, just before everything started to crash. McCue had to make some hard decsions to cut back spending and focus the company. At first he laid off 50 people, which was devastating, but it wasn’t enough. “I made the classic entrepreneurial mistake of not laying off enough people, so I had to do another one a quarter later,” he recalls.

His employees and management team started to question his judgement. The first-time CEO found himself in a situation where started to question his own abilities and even started to look for a replacement. But then he had “an epiphany at night.” He asked himself, “What is this new hotshot CEO going to do?” And it was obvious: bring costs down, focus the strategy, start winning customers. McCue had been “in denial about” all of these things, but once he accepted that they needed to be done, he did it himself. “We did it in two weeks, we had a strategy that even the receptionist could articulate,” he says.

It took another three years to become cashflow positive. TellMe focussed on enterprise customers, large telecom companies that needed to automate their call centers and 411 services with voice recognition technology. It took 2 to 3 years to win a customer, and then another year to get them live, but these big enterprise customers drove a huge amount of revenue. By the time Microsoft came calling in 2007, Tellme had a $110 million revenue run-rate.

But that is not why Microsoft bought TellMe. In the video below, McCue explains that it was the bigger vision of voice search that appealed to Microsoft. He always thought the enterprise business would be “eroded by the Web.” Even though the financial reality forced him to pursue the enterprise business first, he always thought bringing voice search to consumers would be bigger over time. “I kept the consumer stuff alive on life support,” he says. “It was a reason why customers worked with us because we had a vision of where everything was going to go.”

That vision is still playing out today with Apple’s acquisition of Siri, Google’s work on voice commands and search on mobile, as well as TellMe’s technology which became part of Windows Mobile (now Windows Phone). “When you are using a phone you are doing it in a distracted state of mind,” he says. Being able to speak commands and get back results, directions, or other information right on your screen is still justin its infancy. But McCue is onto other things with Flipboard, which he will talk about in the next episode.

Make sure to catch past episodes of Founder Stories with guests ranging Dennis Crowley and Mike Walwrath to David Karp and Lauren Leto here.