0:40 Welcome to this live TWiST from RocketSpace! On today’s show we have Phil Libin, CEO of RocketSpace, stick with us!
2:00 How is it as an entrepreneur knowing everyone in this room is using your product?
2:15 How many users do you have now?
3:30 How many employees do you have now?
4:00 How long ago were you a 10 employee business?
4:30 Was there a time that you thought about pulling the plug on Evernote?
5:30 Did the iPad have a huge effect on your business?
7:30 Why have you guys decided to be on every platform possible?
8:15 So you took the opposite path as Zuckerberg?
10:00 Who do you feel is your competition?
12:15 When should you use Evernote? When should you use Google Docs?
14:00 Do you think the next generation of the workforce has more fluidity in using multiple tools?
15:00 What do you say to people who say, “We have to be in the email business!”
16:45 What is an example of the technology getting a product completely wrong in terms of working with your brain?
18:30 How critical was the Skitch acquisition to you guys?
20:45 Do you think it is your job to give people what they need and ignore what they say they want?
21:55 By information rich, do you mean that people are at times overly intense?
24:20 Do you think the apology letter Apple released after Apple Maps was appropriate?
25:50 Thanks to NewRelic for sponsoring the program. Go to newrelic.com/thisweekin for a free TWiST T Shirt
26:25 Thanks to SnapTerms, visit snapterms.com and enter the code TWiST for a free NDA with every order
27:40 Do people expect just as much from as a freemium service as a paid one? Is it justified?
29:10 What percentage of people pay for Evernote with cash?
30:45 How is Evernote Business doing?
31:35 How do you charge for that?
32:15 What does the Business version offer that the regular version doesn’t?
38:30 How hard has it been to scale Evernote? How is it different? What have you learned?
40:20 What do you think about Windows 8?
44:45 What do you think Window’s should have called the Surface?
46:20 Do you ever see Evernote creating its own hardware?
48:45 How does Moleskin Notebook work?
51:00 What was the biggest mistake you made in your first business plan?
55:40 What do you think Google Glass will do for Evernote moving forward?
57:50 What could Evernote do with Google Glass?
59:45 What parts of the brain has Evernote failed to take full advantage of up to this point?
64:40 Is there a danger that Evernote is actually dumbing us down by not taking full advantage of our brain?
69:40 Can you talk a little bit about Evernote’s user testing?
72:15 Can you explain how/why you almost shut Evernote down?
73:30 Why do you think you sucked at pitching back in the day?
76:30 Do you think there is a benefit in a tool that helps you forget things?
77:40 When did you know that Evernote was more of a niche tool?
82:45 How much does audio and voice play into Evernote today?
85:50 How much of your $250M in funding did you actually need?
90:00 Thanks to Rocketspace, NewRelic and SnapTerms for helping ud put on this live episode
==============

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Today’s episode of ThisWeekIn Startups, is brought to you by, NewRelic. Use promo code: TWIST and get a free month of NewRelic Pro. To redeem: visit NewRelic.com/ThisWeekIn, and see why thousands of developers, world wide, don’t deploy, without it.

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Jason: Hey, everybody. Hey, everybody. It’s Jason Calacanis. This is ThisWeekIn Startups. It’s episode #320. I am here with about 150 of my closest friends live at RocketSpace.

[CHEERS/APPLAUSE from audience]

Jason: My guest will be none other than Phil Libin, the CEO of the awesome Evernote. Which I use multiple times a day. Stick with us.

TWiST title sequence.

Jason: Yes, yes. Hello everybody. Once again it is Jason Calacanis. The host of ThisWeekIn Startups. We’ve been doing this show for 4 years. What is this show about? If you can’t tell from the name, well you’re an idiot. It’s ThisWeekIn Startups. It’s about startups. It’s about entrepreneurship. It’s about putting a dent in the universe. It’s about trying to create something that hasn’t existed before. It’s about being a samurai not a rice picker. With me today is the amazing Phil Libin. An amazing entrepreneur. Of course everybody uses Evernote. How many of the people in the audience here at RocketSpace use Evernote? Oh my God. Everybody just raised their hands. That’s got to be a great feeling as an entrepreneur.

Phil: It’s pretty good. Thank you. I actually prefer, when I go to some other countries and I ask that question and maybe only 10% of the audience raises their hands. It let’s me think there’s still room to grow.

Jason: Yeah.

Phil: If every place was like San Francisco I would be kind of worried.

Jason: How many people are using it now? We see when we go to conferences everybody would have Technorati up. It would be searching for stuff. Then it was like they’d have their MySpace page up. Now I just see Evernote everywhere. Even on flights when I’m walking back and forth from the bathroom.

Phil: We have about 47-48M users. I actually remember the very first time I saw it live, in the wild.

Jason: In the wild. Yeah.

Phil: When I first saw Evernote in the wild it was probably about 2009 or something. I was in a Starbucks in Manhattan. I was waiting in line. The guy in front of me… there was a guy wearing a very expensive-looking suit, looked like a lawyer or something… he had his iPhone out and he had a Bluetooth headset and he was yelling at somebody. He was just swearing, yelling at someone on his headset while like poking at Evernote on his phone.

Jason: Right.

Phil: He had something in Evernote, demonstrating that he was right. He’s cursing somebody out as loudly as he can poking at Evernote. I was standing right behind him. I was like, “Yeah. I’m not going to say anything.”

Jason: Yeah.

Phil: I’m not going to get involved.

Jason: Oh my God. One of my users. Users can be scary sometimes. You don’t necessarily want to meet them.

Phil: Yeah. I’d like avert my eyes. Yeah.

Jason: So this company has really exploded in the last year. When you were last on the program, I can’t remember exactly when it was. It was just over a year ago. I think you had just hit maybe 100 people. How many people work there now?

Phil: I think we’re at 285 now. Just creeping up on 300.

Jason: Wow. Two thirds of those are in the last year?

Phil: Yeah, almost. We almost tripled in size since a year ago. I think we only had 100 people a year ago today. Now we’re up to 280, 285.

Jason: How long ago was it, when it was 10 people?

Phil: Well I guess 2008 when we launched. We were at about 20 already. We pretty much stayed the same size for a couple of years. We were roughly at that 20 or 30 size for 2 or 3 years. Then it really took off in 2010 and afterwards.

Jason: When you’re in that 2 or 3 years… I guess I would call that the slow burn. Like figuring it out. Like incubation period…

Phil: Uh huh.

Jason: Was there a time you thought when the hell is it going to break out? Is it ever going to break out? Do I need to pull the plug on this? Twitter had the same thing. It didn’t come out of the gate very strong. It came out very slow in fact. Then it had a couple of events. Even YouTube came out. It was only until Lazy Sunday came out and that everybody was looking for it. That was actually the story. Lazy Sunday broke it out. That was their Lazy Sunday moment. SXSW was the moment for Twitter. What was the Evernote moment?

Phil: Actually we have had pretty consistent growth since we launched in June of 2008. It’s just that… as we were looking at the stats we are always saying that we are growing by roughly two and a half to roughly 3X per year, in everything year over year. Like when you’re doubling you have to… if you’re starting from very, very low numbers the first 5 or 10 doubles still don’t make it look meaningful. In absolute numbers it didn’t look like Evernote was gaining millions of users until maybe a year and a half ago. But in terms of the percentage growth it’s been kind of remarkably consistent. We just focused on the core metrics. It never looked bad. It always looked pretty decent.

Jason: Did the iPad have any impact on the growth and the people’s understanding of the product? I know for me it did.

Phil: Yeah, definitely. We were super siked about the iPad. We were hoping that Apple would come out with a tablet. You know when all the rumors started circulating around. We were all gathered around the PCs when they were making the announcement. As soon as they announced that they had an iPad, I got a call from a reporter. I forget where it was. Maybe it was TUAW or something. It was one of the Apple publications. They said, “We’re looking for quotes from developers about whether they’re planning to support the iPad.” I gave him my quote. Then the story ran a couple of days later. They had a bunch of CEOs and all the quotes were very nuance. It was a paragraph or two about, “Yeah. We’re very optimistic. We gotta look at this. It’s unproven.” My quote was, “We’re going to support the hell out of it.”

Jason: You just knew.

Phil: That’s all I said. Yeah. We’re definitely going to do it. That day Apple put out the physical dimensions of what it was going to be. So we cut out pieces of cardboard into iPad shapes. We carried around cardboard. We did all of the work on cardboard to just get ready for it. This was months before there was a simulator or anything. Yeah definitely it had a big impact. So did iPhone. So did Android. So did the Mac App Store. We’ve kind of killed ourselves to be on all of the important devices on the day that they launched. So we could piggybank off of all the massive publicity from the manufacturers and the carriers and the app stores. That’s worked out well.

Jason: I noticed that you guys are on BlackBerry. You are or were…

Phil: We are. Yeah.

Jason: The amount of platforms that you’re on is pretty staggering. A lot of people say, “Gosh. There’s too many platforms to build for. You gotta focus on one and get it right.” Of course Instagram did that. It took them forever to launch the Android version.

Phil: Yep.

Jason: You’ve taken the opposite approach. You’re saying, “We’re going to be everywhere. We’re going to be excellent. We’re going to be made for that dimension as opposed to doing less. Who’s right, who’s wrong?

Phil: We have I think a lack of focus, a laziness about how we think about things. We go with that. We own that.

Jason: So you have ADD? You like doing a lot of different projects. So you just try to make that a strength instead of a weakness?

Phil: It works for us. We said, “We want to be everywhere.” We want Evernote to be your external brain. Eventually, hopefully it will be implanted in your brain. Until that magical day we want it to be on every device you touch. So any viable platform we’ll develop for. It’s fun. We get really great developers that way. We do everything native. That was actually the big decision. Right from the beginning we said, “No common denominator crap.” No HTML5. Just all native on every platform.

Jason: So you took the opposite approach of Zuckerberg. Cause he said he was going to go HML5. Famously the Facebook app was not great.

Phil: Yeah and that explains why he’s had no success.

Jason: Right. In mobile it’s been challenging.

Phil: We went native right from the beginning because we just wanted to do awesome stuff. It’s more expensive in that we have to have lots more developers developing stuff. We have independent teams building all the different versions. They compete with each other to see who can make the best version. They steal each others idea and they leap frog each other. We don’t have consistency as a goal. There is no goal to make different versions of Evernote consistent with each other. Cause I think what happens if you make consistency a goal, you wind up achieving it though mediocracy. Like you achieve consistency by having everything equally crappy.

Jason: Got it. So does that mean that if Blackberry, since it has a keyboard the short-cuts happen to be really good.

Phil: Yeah.

Jason: Go with it.

Phil: Yeah. Exactly. We try to make every version of Evernote the best possible thing it can be on that platform. Not at all think about making them the same. We kind of want consistency to emerge through excellence. We figure, once we have achieved near perfection in the apps… which we totally haven’t yet. We’re getting slightly better… it’ll feel consistent. Your brain will interpret excellence as this is natural. It should work like this. It sort of feels right. We made those investments early on. It’s worked for us. But again other people have gone totally different directions and that works for them too. So I don’t know that there’s a magic answer.

Jason: Who is… I was talking with somebody. They said they started with Evernote then they sort of dropped off of it. Then came back to it. People seem to be confused with who your competition is. Is the competition DropBox? Is it Google Docs? Is it MicroSoft Word? Was it Delicious? Who exactly are you competing with? Please don’t give the corny answer, “We don’t have competition.”

Phil: The main competition to Evernote, the main alternative to using Evernote is leading a miserable and disorganized life. It’ doing nothing.

Jason: He kind of answered it that… That was a clever way of answering we don’t have competition. I like it.

Phil: No. We have a ton of competition but the vast majority of our users aren’t coming from any competitive products. That’s true any time you have completely growing industries. Do a lot of the people who used to use OneNote now using Evernote? Yeah, probably. But as a percentage of our users, how many of them are coming from OneNote as opposed to nothing? At most it’s probably less than 1%.

Jason: But if people do adopt Evernote they’re usage of MicroSoft Word is going to plummet. The usage of Google Docs is going to go down significantly.

Phil: Maybe. For MicroSoft Word the usage is going to go down just because I think there’s less and less reason to use MicroSoft Word now. I think the whole idea of Office… I think MicroSoft had the monopoly on the concept of productivity. Office was the definition of productivity for a long time. But that idea, in order to be productive what you need is a word processor, a spreadsheet, and a database and Power Point. That’s just kind of a weird concept. That concept was created before smart phones and tablets and App Stores. This was a 25 year-old idea. Of those basic of MicroSoft Office, which ones a still deeply relevant? Well I couldn’t live without Excel. I’m not sure that everyone should say that. Certainly a lot of people use Excel or should use Excel. I don’t use Word very much at all. I don’t really need it for much. I don’t even know what a database is anymore. Except Access. I use that. I don’t think that it’s Evernote that is causing a decline in the usage of Office. I think it’s just that idea hasn’t kept up. In terms of Google Docs, I use Google Docs quite a lot. We use Google Docs a lot at Evernote. We use DropBox a lot at Evernote. A lot of people at Google and DropBox use Evernote. I don’t think there’s competition there.

Jason: When should somebody fire up a document in Evernote and do a collaboration vs. a Google Doc? If you’re internally using Google Docs, what do people do internally? Do you have some people prefer to send you an Evernote document and some people send a Google Doc? Then other people put the Excel in the DropBox? That’s OK?

Phil: I think everyone is figuring out what are the optimal ways to use this. For me personally the way I use it, I think Google Docs is great for real-time collaboration. Which is something I do very rarely but when I do them Google Docs is great. We basically use them like if we’re in a meeting and we want to have a Google Doc open and multiple people are literally in the meeting typing stuff in. I don’t like that use case most of the time. I think it’s not super natural. I don’t think the brain is evolved into naturally thinking about real-time things are happening. Most people don’t interact in real time. They take turns. The kindergarten concept is that we take turns not everyone go at once. When we need to send around files, where the structure of the files and the file system matters. When I need to go ‘file’ open menu on some app, then DropBox is great for that. Evernote isn’t. So when we’re sending mock-ups of new versions of our website, where we actually need the whole site with HTML structure, we’re using DropBox for that. Evernote is really more about capturing ideas and information. Searching it and relating it to each other. So we’re using everything. We’re using all those things at once. Where the boundaries are that’s fluid. That’s going to change. Of course there’s going to be some overlap. If you focus on the overlap I think you’ve kind of missed the larger point. Which is let’s just make something great together.

Jason: Is it that this next generation of the workforce maybe has a little bit more fluidity in using multiple tools perhaps? Whereas when you went to work in the 80s or the 90s, it was like here’s your desk and here’s your office. Or here’s your Word Perfect and here’s your Lotus 1 2 3. We use the Lotus ! 2 3 suite at this company. You know, pick your company based on which word processor they used. Now it’s like we’ll use whatever tool fits for the situation.

Phil: The first job I had I think we used Wang for word processors.

Jason: Wow.

Phil: It was kind of cool.

Jason: That was like 80?

Phil: It was in the 80s sometime. Yeah. I was a punk ass kid who ‘knew’ about computers. I saw the word processor for the first time I was like, “What the hell is that?” Like, “That’s a Wang.” I was like, “Hhh.” (Beavis and ButtHead laugh).

[Audience laughs}

Jason: So let me ask you this. Being a fan of the product and I live in my email, when people say in your senior leadership meetings, or in your all hands meeting, "We have to be in the email business." What do you say?

Phil: Uhhh...

Jason: You notice how when I asked the question I just assumed that the... that's a high-level... you know. It comes up right?

Phil: "We have to be in the email business."

Jason: Email is where the documents are. There's this sort of central hub. I just know at some point Evernote will have email.

Phil: Email is pretty broken. I am really a victim of email.

Jason: Ohh.

Phil: I don't deal with it particularly well. I think I literally have 90,000 unread messages. At least the little icon... I'm trying to see how high it will go. I think the little mail icon on my dock says 89,000 on it now.

Jason: So crushing.

Phil: Yeah. I don't think there's any reason to replace email. You set out like we're going to kill email. Email's been abused. A lot of people are using email for things that they really shouldn't be. We're definitely interested in having Evernote, Skitch in particular, take some of the burden off of email. By giving you ways to communicate that are much more consistent with how your brain has evolved over hundreds of millions of years. The main thing is so much technology, especially computer technology in the past 20 years, is not created with any attention paid to how your brain already works. It was based on "What could the computers do?" The workflows were based much more on the technical limits of the networking and the computers. Now that technology's advanced so much we can finally design software and ask the question of "How does your brain want to do it? How are you already evolved to do this?"

Jason: What's an example of the computer industry getting it incredibly wrong and your brain working a different way, in your mind?

Phil: Email is a good example of that. Email of course just copied memos. Memos were another bad example of that. People don't... When did people start communicating by sending passive-aggressive written messages to each other? That's in the past 50 years.

Jason: Right.

Phil: That was not a main... For hundreds of thousands of years humans communicated by pointing and hitting each other. Right?

Jason: Right. Not dissimilar to the memo. In ways.

Phil: We kind of want to go back to that with Skitch. We kind of see Skitch as in some ways more atavistic, more primitive than email. Because you're like "I like that. Phil likes that."

Jason: Right. So I'm on a webpage and I highlight, "This is cool." I put an arrow on it and say, "Cool."

Phil: Or I'm reading a contract and I want to say, "Yes, yes, no. What the hell is this?"

Jason: Yeah.

Phil: And I want to do that like, uh, uh, uh. Fling.

Jason: Caveman no like.

Phil: Yeah. Exactly.

Jason: Non-compete no good.

Phil: Yeah. Exactly.

Jason: Liquidation preference DIE.

Phil: Yeah. Totally.

Jason: Phil no like.

Phil: It's hard to do that. It takes a certain amount of computational ability and UX design in order to make something that feels as natural as the caveman with a sharp stick.

Jason: Right.

Phil: But we're getting there.

Jason: That is a fascinating... How many people here were using Skitch before Evernote bought it? How many people were Skitch users? Nice and high. Oh, that's interesting. How many people were Skitch users post Evernote buying them? How many people discovered Skitch before they bought it? That's interesting. Almost an equal number. Maybe half. How critical was the Skitch acquisition for you guys? Is that the only acquisition that you've done? I can't think of another one.

Phil: No. I think we've done 5 acquisitions. They're small. We bought...

Jason: That was like a 2-person team, a 3-person team?

Phil: Skitch was a 2-person team out of Australia. We just loved Skitch. We all use Skitch at Evernote. I think Skitch was the first... the first ever we video made. If you go to our blog and you go way back to one of the very first blog posts. It's a video about how much we love Skitch and how to use it with Evernote. It's hilariously bad. The production value, everything. We just loved this idea that it was an efficient way to communicate. So we bought it. We spent about a year working on it and making it... introducing it on every platform. It was just on Mac when we bought it. We put it out on iPhone and iPad and Android and Windows now and spent about a year on it. To really get it to feel like a new generation of communication. In some ways that's gone great. In terms of all the numbers they'e like way up. I think when we bought Skitch it was 100,000 people using it. Now it's 10-12M people using it.

Jason: Wow.

Phil: All of the metrics are fantastic. But when we did the big Skitch 2.0 release a couple of months ago there was this massive blowback from people.

Jason: The first thing I said to you when I saw you was, "What the "F" did you do to Skitch?" Because it's a totally different UI. I liked the old one. I've been using it for 5 years.

Phil: I think we really underestimated kind of how deeply ingrained some of the things have gotten to people. So we wound up... First we said, "Everyone hates change. People get over it." Then we started paying attention. We said, "No. Actually some of these people are right." We need to go back and redo some things we had gotten rid of. We made the fairly difficult decision to pause new development of Skitch so that we could catch up and get it back to where it was before.

Jason: We hear a lot of times from the pundits or from people who are successful. "People don't know what they like. Tell them what they like. Give them what they want. Ignore their feedback." You know. There is a certain line of thinking that true innovation comes from ignoring the user and giving them something more delightful than they can conceive themselves.

Phil: Yeah. Totally.

Jason: Which is right? Is that you guys didn't perform as best you could? Was it because they loved it so much? Is that advice wrong? How do you reconcile it?

Phil: No. I think user feedback is really good at some things and really bad at other things.

Jason: What's it good at?

Phil: Well what it's bad at is telling you what you should be building. New stuff.

Jason: Ahh.

Phil: What it's good at is telling you what you fucked up.

Jason: Right.

Phil: The internet is the greatest device ever invented to concentrate hatred and vitriol it's most...

Jason: It's called Reddit. Portions of Reddit.

Phil: Yeah. User feedback is super valuable when you're looking at the criticism. You've got to take it seriously. It's very important. It's very information rich.

Jason: Is information rich another way of saying overly intense?

Phil: Oh. It's very unpleasant. We get death threats. Like we change fonts we get death threats. I've literally had comments...

Jason: You chose Verdana and not us. Stick with Helvetica. You literally got a death threat over a font?

Phil: We have gotten death threats over... There are comments on our early YouTube videos that I'm the narrator of...

Jason: Yeah.

Phil: ... and people don't like my voice.

[Laughing]

Phil: There are comments that say, “Whoever does the voice-over for this video should be found and beaten to death.”

Jason: [Laughing] Wow.

Phil: Wow. Like I respectfully disagree.

[Audience Laughs]

Jason: Right.

Phil: But they’re right. Not that I ought to be beaten to death.

Jason: But that your voice is not made for radio.

Phil: There should be no reason that I am the person… My voice isn’t the right voice for that voice-over.

Jason: Right. So if you can get over the tone and the packaging there’s something to be gleaned from it.

Phil: There’s tons of super useful information and you have to train yourself to interpret it correctly but it’s there.

Jason: When you see Apple’s reaction to Maps let’s say. The product wasn’t perfect. I don’t think it was as bad as people made it out to be cause I never had a problem using it.

Phil: Yeah. It’s fine.

Jason: It seemed like it was fine. You could find ah-ha moments like, “That’s screwed up.” I never found them. The average user is not going to find them. I don’t think.

Phil: I was in our office in RedWood City. I was trying to get up to K&L Wines. Which is a big, famous wine store in RedWood City, a few blocks away. I wasn’t sure where it was. I typed in K&L Wines into Apple Maps. The map pops up right away. I’m looking at it kind of going, “Oh. Wait. Is this Woodside? What city is… Oh. It’s Kuala Lumpur.” Oh. Yes of course. When I said K&L Wines, I meant a random wine store in Kuala Lumpur.

Jason: Right. Just be careful not to hit the ‘walking’ button.

Phil: Yeah. Buy tickets now.

Jason: Walk. 8,752 hours.

Phil: Yeah. But that was kind of funny. I laughed at that. It’s not like, “Now what do I do? My life is over.”

Jason: “Now I’ll never buy another Apple product again.”

Phil: Yeah, right. I’m swore off booze.

Jason: Their reaction to it though, obviously somebody got fired. It’s in part because of that according to the reports. The apology letter. Do you think that was appropriate? Is that how you would have handled it? How did you handle it with the stakeholders who, obviously, busted their ass to put that new version out? That some vocal minority hated.

Phil: You know. You have to strike a balance. We looked at it. We looked at every comment. We said, “OK. What’s right? What’s wrong? Which of these things have merit?” We realized that a lot of these comments have merit. Then we decided what to do. Our decision was that 99% of what people were complaining about, we should address one way or the other. We wound up addressing it. We talked to the team of people who made it. We explained what we were doing. I think, at the end, it turned out really well.

Jason: Well more people know what Skitch is. That’s for sure. You know that’s it’s valuable to people. So that gives you an indication of what to focus on. Right?

Phil: Exactly. There is training that you have to do. Like when you come to work at Evernote, the magic about is that after you’ve come to work at Evernote after a few months and not have your direct work be used by millions of people. So that’s great. That’s probably the best way to motivate a high-quality person is to have their work matter so much and so quickly. But that comes with some training. Part of that training now is, people are gong to hate it. You have to interpret that correctly.

Jason: Right. LIke in other words, don’t read the YouTube comments. Read them in context.

Phil: Well not for your first two years, at least. Don’t let your mom read them.

Jason: Let me stop for a minute and thank our sponsors. Thank you to New Relic, which helps you do real-time, user experience code-level app performance, server resources. All that great stuff. Customers include SkullCandy, Spotify, Nike, Zillow and Vonage. If you want to get a ThisWeekIn Startups t-shirt go to newrelic.com/thisweekin. Thanks again to New Relic for sponsoring the program. I know my audience really appreciates it.

[Audience Cheers and Applauds]

Jason: That’s great. While we’re at it, I’ll thank SnapTerms. The other awesome sponsor. If your website doesn’t have a proper Terms of Service or privacy policy, you’re risking costly litigation. You ever have anyone sue you over your terms of service?

Phil: No. But we’ve actually invested quite a lot in having an english, readable, sensible Terms of Service. Which is strikingly difficult to do.

Jason: Right. SnapTerms is simple, affordable, fast. And uses funny plain english… I didn’t even set him up for that one, but that’s what they do. You can go to ThisWeekIn.com/legal to see our funny SnapTerms’ Terms of Service. $149 you’ll get a free NDA with every order. Go ahead and check out SnapTerms.com. Yadda, yadda, yadda, yadda. I know my audience truly loves and thanks everybody at SnapTerms.

[Audience Cheers and Applauds]

Jason: Unbelievable.

Phil: Yeah. We spent more than $149 on our…

Jason: More than $149,000? $149?

Phil: Probably more than that.

Jason: Really?

Phil: Yeah. It’s a lot.

Jason: It’s a lot.

Phil: It’s particularly important to us because we’re asking people to trust us with their life’s memories.

Jason: Yeah. Let’s talk about that. The majority of the users of a freemium service are obviously free. But their expectation now when they get a free product is no different than the paid ones. Is that correct?

Phil: Yeah. That’s correct. I think that’s justified.

Jason: Is it?

Phil: I think so. So what if you’ve paid a few hundred bucks or you haven’t. You’ve made the investment of your time. You’ve made the investment of your energy. Of your attention span. That’s important. For most of the types of people who use Evernote, their time and attention is worth more than what we would charge them. So yeah, I think…

Jason: That’s a high-level way to think of it. Cause most people say, “You got it for free. You get what you pay for.”

Phil: Yeah. I don’t think that’s right.

Jason: Why is it not right? On a sort of running company kind of way.

Phil: At Evernote, the free is the main product. The free version of Evernote is not… the goal of it is not to get you to pay. It’s not a teaser. It’s not a come on. The goal of it is to make you use it and fall in love and make you use it everyday for the rest of your life and never feel like you have to pay for anything. Invest emotionally into it. Invest your time into it. Get your friends using it. The more you use it. The more you come back. The more likely you are to pay for something. I think companies that see the free version as a gimmick, as a way to get people to pay, are… for certain types of business… I think they’re making a mistake. For us, the customer commitment is their time and their attention. Eventually their money. I think if we took the attitude, “You didn’t pay anything, so what do you expect?”

Jason: What percentage of people do pay for Evernote with cash, approximately? Low single digits? Double digits?

Phil: That changes with our conversion rate. First of all, Let me answer the question first. So it doesn’t sound like I’m evading it. Then I’ll tell you why it’s not a useful question.

Jason: OK.

Phil: The conversion rate varies with the time that you use the service. In the first month of using Evernote, only about one third of 1% of users pay for it.

Jason: OK.

Phil: But that goes up linearly with time spent with the service. After a year 5% or 6% of people are paying. After two years elevenish percent. Our older users, the ones who have been with us for about 4 or 5 years, 25% or 26% of them are paying now.

Jason: Right.

Phil: It actually gets up pretty high.

Jason: Absurd conversion numbers.

Phil: Well reasonable.

Jason: 26% is absurd, to convert a product.

Phil: Yeah. It gets up pretty high. So the overall percentage, if you take any given period of time, what’s the overall percentage of people that are paying? That’s influenced much more by the average age of your users. By how quickly you’re adding new users.

Jason: So you have to break them into those cohorts.

Phil: Right. You gotta look at the cohorts or else… It’s like you’re going to a winery that’s got 100 years of entheogens. You sort of taking a little bit from each barrel, mashing them together, then tasting it. Kind of like saying, “On average this tastes 5%.”

Jason: It gets incredibly valuable and therefore people convert, later on.

Phil: Yeah. The longer you use Evernote, the more valuable it seems to you. The more valuable it seems to you, the more likely you are to pay for it.

Jason: How is the sort of enterprise version going? How are enterprise looking at it? Is it still like this… somebody brought it to work, like Yammer? Or has this sort of tipped-toed over to, this is more like MicroSoft Office and the IT department is managing it?

Phil: We don’t target enterprises. We do have a version called Evernote Business. Which we launched just a few weeks ago, in December. That’s really targeting companies that look like us. Small and medium companies or small and medium teams within companies, that are knowledge workers, that have a particular way that they relate to their employees. We basically build it for us to have a good experience using Evernote, to run Evernote. Companies that want the same thing can use it. It’s going great. I think it’s only been for sale 3 weeks and we have more than 1,500 companies using it and paying for it already.

Jason: How much does it cost? How do you charge for that?

Phil: It’s ten bucks, per month, per user. Per seat.

Jason: Right.

Phil: The vast majority of Evernote’s existing users, use Evernote at work.

Jason: Right.

Phil: Of our core product. We just did a survey recently, I think it was 66%. So it’s two thirds of Evernote users, use Evernote at work. For work stuff. But also for personal stuff.

Jason: Ah.

Phil: So the users who are already taking it into the company. The goal of Evernote business was to make it be a nicer experience at work.

Jason: What is the feature that the business one has that the general version doesn’t? That the normal version doesn’t.

Phil: Well it’s not different software. You’re using the same clients. It’s a different service level. It sort of a business class service level.

Jason: Someone will pick up the phone? I can call somebody?

Phil: Yeah. You can talk to a real person if you use it. You also get better sharing, collaboration and knowledge about what you’re co-workers know. The idea is… If you’re using Evernote by yourself, you’re playing the single player version of Evernote. It’s great. All you have to do is capture everything. We make it very easy for you to capture everything and then search for stuff. You kind of know what you know. You know what’s in your own Evernote account because you put it there.

Jason: Right.

Phil: You’re like rarely surprised by something that’s in there. Sometimes you don’t remember it, you might need help finding it but you kind of know what’s in there. But as soon as you start working with a group of people, how do you know what your team knows? How do you have that situational awareness? That’s what Evernote business gives you. If multiple people are using Evernote, every time you’re doing anything, you see related notes from your team members about whatever it is that you’re doing.

Jason: So if I was to do a search for New Relic or whatever, I can see that somebody took a meeting with them. Or somebody has a document from them that they shared, or somebody took a Skitch of the website.

Phil: Sure. Yeah. That’s pretty cool but that’s actually the most obvious thing. It would even work if you and I… If I was taking notes right now, If I had my Mac open right here and I was typing, Sitting on stage with Jason at TWIST Live. I was just taking a note.

Jason: Right.

Phil: It would see if any of my co-workers had any information about you. Like up would pop, “Ronda’s got notes about Jason.”

Jason: Right.

Phil: I don’t have to even go search for it. I don’t have to go in the mode of now is the time on sprockets where, I’m querying to see if any of my co-workers know something about Jason.

Jason: Right. It just automatically…

Phil: I just say that I’m doing something with Jason and it says, “Oh. By the way, there’s some relevant information here. This is the person that knows about it.” So I can just go and ask her.

Jason: That means you have to toggle on or off if each one of those pieces are public or private? How do you manage that? You also said if two thirds is at work and one third is at home. Then you’re starting to get into jasoncalacanis@gmail or jason@inside.com. Who owns which account?

Phil: Yeah.

Jason: Who owns which data?

Phil: So that’s really super important. The philosophy is, it’s kind of kindergarten understanding of fairness. You own everything. Everything you put in Evernote is yours. We never look at it. We don’t data mine it. We don’t sell it to anyone. We don’t do…

Jason: Retargeting of ads because of it.

Phil: Nothing. We don’t do ads. We don’t do anything. Your data… Our business model does not depend on us doing anything clever with your data. Nor anything clever with you. There is no… Fundamentally it’s about alignment. We try to crush any conflict of interest of what we want, what our investors want, what our partners want and what our users want. So everyone just wants the same thing. If you’re using Evernote and you sign up for an Evernote Business account, you still have all of your personal stuff and your personal stuff is still personal. Your company can’t see it. Your boss can’t see it. Your company has no visibility. You still have your personal notebooks. If you leave the business you still have all the personal stuff. You take it with you. But if you’re in Evernote business you also have business notebooks. Everything you put in business notebooks are available for this kind of serendipitous discovery, sharing and management. Companies can say, stuff in business notebooks can get assigned to other people, as employees move around. So there’s like this continuity of data and discovery of data. You do it at the notebook level. It’s totally up to you, the user, what you put into a personal notebook and what you put into a business notebook and who you want to share it with.

Jason: Interesting. That solves the problem.

Phil: We think so. It’s a different approach to it. But in this case, I think Evernote business is… It’s kind of an interesting position for us. This is the first time we’re almost making a political statement. EverNote Business makes a statement about how we think companies ought to relate to their employees. Because if companies don’t relate to their employees in this way then it’s not going to be a good experience. Like Evernote business is not for them. We think…

Jason: Cause, authenticating twice is lame?

Phil: Authenticating twice is lame but, moreover, if companies fundamentally set up all their processes to distrust their employees, if the internal processes are about restricting what you can do and say no, it’s philosophically not the right product.

Jason: Right.

Phil: If the general philosophy is, “I trust my employees. 99.9% of the time that trust is warranted.” The very rare instance where someone is a bad actor, I’ll deal with that separately. I’m not going to make everybody else’s legitimate use case worse cause I’m trying to restrict something, then Evernote Business is meant to be beautiful in that environment. I think if we were launching this 20 years ago, 80% of the companies would never buy it. Because 80% of the companies would be like, “Fundamentally we don’t trust our employees.”

Jason: Yeah.

Phil: 10 years ago would have been 50%. Now I think, again amongst small and medium businesses, I think 80% are saying, “Yeah. Fine. This is exactly right.”

Jason: When employees are doing the jobs of 2 or 3 people typically.

Phil: And everyone’s a knowledge worker. If your company’s full of knowledge workers… This is not altruism.

Jason: Right.

Phil: I don’t treat my employees like adults out of altruism. I do it because I can’t beat good quality software out of unhappy people. It doesn’t work like that.

Jason: Right.

Phil: If I could, who knows. But I can’t.

Jason: The whole herding of cats thing.

Phil: People have to be in a good quality of mind to produce high-quality output. They have to be happy. They have to be reasonably well-rested. A liberal definition of reasonably. They have to feel good about themselves and their work. If they don’t, they’re not going to produce anything and I’m going to go out of business. I think more and more companies are understanding that. Every industry is becoming a knowledge worker industry. We’ve got customers that work in mines. Coal mines. They’re knowledge workers. They’re people with iPads and they go down to the mine. They take pictures and take notes. There’s no Wi-fi down there. As soon as they come up, it syncs everything. Mining is a knowledge industry now. Everything’s a knowledge industry. More and more businesses are understanding that. I think as they do, they’ll become more receptive to the Evernote way of doing things.

Jason: How is running a business today, in this market, for what has become a high-growth startup. We hear about it’s incredibly hard to get employees. The scarcity, you know. Three people leaving companies, leaving big companies or medium size companies to start the next YC company or the next Tech Stars company, whatever. How has it been, scaling the business? What have you learned? Is this the first time you’ve scaled a business like this?

Phil: Evernote’s the biggest thing I’ve been involved in. Yeah. My previous two companies got up to… my first one got up to 12 people before we sold it. The second one got up to 40.

Jason: Yeah. 10X of what you’ve done.

Phil: Yeah.

Jason: How is it different? What have you learned?

Phil: It’s a lot better. It’s a lot more more fun. It’s a lot more stressful. If I ever write a book about my experience with Evernote, I already got the title picked out. The title’s going to be, ‘Good Problem To Have.’ The whole point is, when you’re sitting around at the beginning when you got a startup, you’re going, “Oh, man. What’s going to happen when we run out of room at this data center?” You go, “Oh, man. That would be a good problem to have.”

Jason: Right.

Phil: You go, “What’s going to happen when you need to release software, simultaneously in 13 different languages?” “That would be a good problem to have.”

Jason: Yeah.

Phil: Then it turns out, when you have those problems, you’re like, “Wow. These problems suck.”

Jason: Yeah.

[Audience Laughs]

Phil: Good problems to have are just as bad as bad problems. They’re kind of worse because you have so much to lose now. There even more stressful. Take even more work.

Jason: More money, more problems. More customers, more problems. More users, more problems.

Phil: Evernote, right now, is like solidly in the Good Problems To Have’ category. It’s like everyday, it’s something. Our hair’s on fire trying to do something. I described it to somebody. They were like, “Oh, that’s a good problem to have.”

Jason: Yeah.

Phil: I want to strangle people.

Jason: Window 8′s coming out. Great. Good problem to have. What do you think about Windows 8, I wonder? You’re on the platform? You’re on the Surface?

Phil: Yeah. Definitely.

Jason: Do they pay you to be on the service?

Phil: No.

Jason: They didn’t under write it?

Phil: No. Well…

Jason: You could have asked them to, right?

Phil: Yes. Yes. We certainly could have been paid for it. We had offers. We never took that seriously. We never let those discussions go anywhere cause we’re fundamentally not interested in being a body shop. If you have to pay us to build software for your device then if anything convinces us not to build software for your device, it’s the fact that you think you have to pay us to do it.

Jason: So you think it’s a good idea to do it? You think it’s going to have some level of success?

Phil: Yeah. I decided to do it. Windows Phone as well. Windows Phone and Windows 8. I was impressed with the products. I thought the products were non-trivially good.

Jason: Me too. What did you like about it?

Phil: A. I like that it was different. There were different ideas in there. It was not a clone of anything. I think the user experience is pretty nice. It’s kind of flatter and more two-dimensional. Which I’m saying that in a good way. It’s approachable. I kind of like the vibe of it.

Jason: The Metro? You mean the tiles, the swiping?

Phil: I like the tiles. I like what they’re doing with multiple applications at the same time.

Jason: I was just about to bring that up. What is that called where you have a one thirds, two thirds?

Phil: You know the big problem I have with MicroSoft is that I don’t know what anything is called anymore.

Jason: Is anybody here, from MicroSoft? Hey, MicroSoft people. What the hell should we call…?

Phil: What the hell is wrong with the names?

Jason: This is the problem. The company’s too goddamned old now. It’s MicroSoft: company name, Windows: product, Surface: which is like hardware.

Phil: Which something else used to be called that.

Jason: It was like the hardware. Yeah.

Phil: It was like a table.

Jason: R/T or N/T. Run Time or their professional version. Which should be two versions. You’ve got 1, 2, 3, fork to two. Then there’s the display on it, the display, which is Metro. So it’s MicroSoft, Windows 8, Surface R/T or N/T with the Metro interface.

Phil: Now, like on the phone, there’s Windows Phone 7, Windows Phone 8, now there’s like Windows Phone 7.8.

Jason: They gotta just say… I think what they should do is just call it Surface. Then people would know, there’s the Windows logo. It’s Surface.

Phil: But Surface used to be the name of something else. Why would they reuse a name? Anyway. The naming is terrible.

Jason: You’re right cause surface was the desktop table. The point is… What do you call it when you have one window open and then two and they flip? You have two windows open at the same time. Different group of people. These guys work there and they don’t know. Classic. The truth is it’s a great product. X-Box is a great product there.

Phil: I gave Steve Ballmer a suggestion for what to call the Surface. I don’t know Mr. Ballmer, but I ran into him in Seoul, of all places.

Jason: You’re in Korea.

Phil: I’m in Korea.

Jason: You’re at a noodle shop. You’re having some Jajangmyeon.

Phil: Yeah. Basically. I was speaking at a conference and I looked at the agenda and saw that Steve Balmer is on after me. I sent him a note. I just guessed at his email address. I just guessed. He wrote back.

Jason: Steve.ballmer@microsoft. sballmer@microsoft.

Phil: He writes back, pretty much right away. Saying, “Come on over.” Nicest guy. He invited me to come over and have lunch, up in Seattle. So I did that. I flew out to meet with him. I had the best two hour conversation. Just about… I was asking him CEO questions. We didn’t really talk shop. I was asking him basic… “How do you scale a company?” “How do you scale a business?” “It’s kind of a stupid question but what does a public company CFO do? I want to know.” The best answers ever. Like amazing. Really, really smart, really talented guy. He can turn the crazy on and off.

Jason: It is true. I’ve been in a room with him when he has.

Phil: He’s totally normal. Totally sensible.

Jason: Then all of a sudden he’s like, “And it’s like you know. It’s because…” He just stands up out of his chair. Did he do that at your meeting?

Phil: He’s explaining something to me and he goes, “Sometimes you have to do this in a crazy way. Like this.” All of a sudden…

Jason: The crazy comes out.

Phil: … the crazy comes out. Then it’s over. He’s back to being the normal person. You’re like Whoa.

Jason: Awesome.

Phil: But I gave him a suggestion. That was my one contribution. I said, “I know you guys are coming out with this thing. I know Surface you think is a good name. Windows related. It’s like the window’s surface. I got a better idea. I think you should call it Windows Pane.

Jason: I see what you did there.

Phil: He didn’t like it.

Jason: I was going to tell him… You should have told him that the cover is called the Sill.

Phil: There you go.

Jason: You got the Windows Pane Sill R/T.

Phil: That’s right. I honestly think that their confusion in naming is there biggest problem.

Jason: It is a big problem. They gotta just…

Phil: Fix it.

Jason: Yeah. Just drop names. When in doubt cut the two most worst names out of the three names product.

Phil: I got a slogan for Windows 8. It should be ’8 is Great.’

Jason: Just be Gr8. Replace the ‘e’ with an 8.

Phil: Windows Gr8.

Jason: Awesome. Windows Gr8. Coming… See that was like a brainstorming

Phil: And scene.

Jason: And cut. Thank you. Now questions from our audience. You’re going to get to ask questions. You know what? I am so proud of my audience. They’re so fucking smart. They’re going to ask… you’re going to see. They’re going to ask great questions. MicroSoft said early on, “We’re just going to be the operating system.” Then apps obviously became critical. They put the two together. Obviously Steve Jobs had he belief that you have to have the whole ecosystem, and have done tremendous with that. Most successful company in the history of companies. Obviously the largest hedge fund in the world, just based on their cash, $120B. Largest market cap company. Yadda, yadda, yadda. Does that mean the future of Evernote is at some point to have it’s own hardware? Have you ever had that conversation, “Five years from now we should have our own hardware that’s made… Should we have peripherals? Something that automatically takes pictures? Google Glasses type thing. What happens in the hardware business discussion?

Phil: You know we actually… the original idea for Evernote was hardware.

Jason: Really?

Phil: It started with hardware. The idea was hardware. We were going to make this egg. I thought it was very important that it be an egg. I just like eggs. I think their shape is kind of cool. It was going to be an egg. I think I mentioned that before. If we were going to be talking, what I would do is take this egg out of my pocket and I would put it down here. It would just sit there. I would maybe glow blue or something. It would record everything. It would record audio and video. Everything we were saying. It wouldn’t be covert. You would see that I had a glowing blue egg.

Jason: I would probably put down my egg too. Blue. Orange.

Phil: We would record everything. If you would have happened to say something interesting. I could just tap it after you said something. You be like, “Oh yeah. Let me connect you to my friend or something.” I’m like, afterwards and that’s it. It basically just captured everything. Then it gave me really nice software for reliving all of that time. It was like this universal memory capture…

Jason: Lifecasting egg.

Phil: Thing. Yeah. That was the original idea. The very first business plan that I pretended to write, was all about that.

Jason: Do you still have that?

Phil: No because I never actually wrote it.

Jason: Well you didn’t have Evernote.

Phil: Yeah. I do have the very first plan I actually did write. There’s a funny mistake in it. Anyway. Then we decided, it’s kind of ridiculous to actually build this egg ourselves. Maybe phones will get smarter. Maybe your phone will can do all this stuff so we don’t need to build it. The original idea was hardware. We may come back to it. I think it would be a huge mistake to go back to it just because Apple had done it. Like that’s just not a good way to think about it. Any time you’re like, “Well. The most successful company in the world did this, therefore, we should to.” That just doesn’t follow. But it would be nice to do something. Now we’re doing it through partnerships. We do have very nice partnerships that are going in that direction.

Jason: Oh, really. So we might see hardware to capture Evernote… to capture your life into Evernote. Are any of those out?

Phil: Yeah. We have a great partnership with LiveScribe Pen.

Jason: Sure.

Phil: Moleskin Notebook.

Jason: Right.

Phil: Samsung.

Jason: How does the Moleskin one work? I mean you basically write… I know how the LiveScribe works. You write and then you sync your pen and it puts it in as images. Anybody here ever use the LiveScribe? Do you still use it? Oh. You’re still using it. Yeah. I bought them for like everybody in the company. Nobody uses them.

Phil: The Moleskin one is… that thing is selling out like crazy.

Jason: How does the Moleskin work? You scan it in? You take pictures of it?

Phil: No, no. It’s just a notebook. It’s a beautiful notebook. You write in it with a pen. Then you take a picture with our iPhone app, when it’s done. The app knows how to deal with a picture from Moleskin. It recognizes the page. It fixes it. It puts it into Evernote. There’s also these stickers that you can stick onto the page. Those get interpreted as tags or notebooks. So you basically take notes then take a picture. Then you get the note. It’s fully geo-tagged, it’s time-stamped, you can search any of it.

Jason: Wow.

Phil: Really it’s about having a beautiful notebook. Because some people really prefer that. They prefer to take notes on paper. It’s actually kind of interesting. If I’m taking notes in a meeting and I’ve got my laptop open, I’m taking notes in Evernote, some people perceive that as being rude.

Jason: It is interesting, when Roelof from Sequoia, was in a board meeting he said, “I’m taking notes in Evernote, I’m not doing email.” Cause I had a no device rule in meetings. Which I’ve since changed.

Phil: Our R&D department solved that problem by coming out with stickers that say, “I’m not being rude. I’m taking notes in Evernote.” Roelof’s got one on the back of his laptop.

Jason: That was in the 5.0 version?

Phil: Exactly. But it’s still sometimes perceived as rude. If I’m in a meeting and I’m taking notes in a Moleskin notebook, it actually goes the other way. Now it’s not rude.

Jason: Now you’re considerate.

Phil: They’re like, “This guy is writing down what I’m saying.”

Jason: And it’s leather. It’s not a yellow legal pad.

Phil: Really I’m just drawing MineCraft Maps on the thing. It makes it feel like I’m much more interested.

Jason: That’s why the back of the laptop should be transparent and project what people are doing. That’s my feeling on it.

Phil: That’s a good idea.

Jason: Then you can actually reverse it and you can see what I’m typing.

Phil: That’s a good idea.

Jason: That’s very interesting. When is this meeting going to be over?

Phil: We’re doing much more of that.

Jason: What was the thing in the business plan that was a huge mistake?

Phil: Oh. I wrote a business plan and I said, this was probably 2008, I wrote, “Currently there are three viable platforms for smart phones.”

Jason: Oh boy.

Phil: “There’s BlackBerry, there is Symbian, and there’s Palm. It is very unlikely that over the next five years that all three of these will remain viable so we think that smart phone’s overall will shrink to 2 out of 3 of these platforms.

Jason: Genius.

Phil: Yeah.

Jason: Proving once again that no one knows anything and everything can change.

Phil: Yeah. I got it slightly wrong on that.

Jason: Is this the company that you’re going to die running? Like… What I mean by that is… not that it’s going to kill you. I don’t mean that it is going to kill you. Although at times…

Phil: Because of my speaking voice.

Jason: Yeah. You’re not going to get whacked. What I mean by that poorly formed question is, can you perceive yourself running any other company? I know you’ve had a lot of offers to buy the company. I’m not going to respond to them. [coughs]Apple, specifically. But if a company like Apple did want to buy, I don’t perceive that you’re going to ever sell this company. Am I perceiving correctly?

Phil: We don’t want to sell the company. We want to make a 100 year startup. That’s always been the goal. That’s been the goal from the beginning. Evernote’s my third startup. We sold the first two. The products we built in the first two weren’t for us. We built e-commerce software for the first one. We built security software for banks and governments in the second one. It was fine but we always felt like we were building products and companies for somebody else. So we said, “The third time around, let’s only build products that we want to use. Let’s build a company that we want to keep.” So no. We don’t want to sell it.

Jason: How come you didn’t get that moment in the first two, do you think, looking back on it?

Phil: Just not that bright.

Jason: Just learning the game?

Phil: Yeah. I just wasn’t that smart. I kind of wish I knew…

Jason: Like at 25.

Phil: Yeah.

Jason: Like Zuckerberg did. “I’m going to run this company forever.”

Phil: If I had a time machine and I could go back and I could give a device to a younger, skinnier me at my first company…

Jason: No carbs.

Phil: … I would say… The first thing I would say is, “Dude it’s OK. Cause in 15 years you’re going to have a time machine.”

[Audience laughs]

Jason: So you can totally fuck around.

Phil: Second of all…

Jason: The sixties were awesome, by the way. You may want to stop there for a little bit.

Phil: Second of all just build something for yourself.

Jason: Right.

Phil: It’s a lot better way to spend your life. Back then I think it would have been bad business advice. Now I think it’s exactly the right business advice.

Jason: What’s changed?

Phil: The world is a meritocracy. The technology world is a meritocracy. We never used to be. At my first company you kept hearing, “Always remember Phil, the best product doesn’t always win.” At my second company, “Always remember, The best product doesn’t always win.” People who said that to you were basically saying that, “Yeah. You can have a good product but that’s only one of many things. You can succeed with a crappy product.

Jason: Yes. Sales. Distribution. Thuggery.

Phil: Right. Exactly. Now in technology, it doesn’t matter. You have a great product, you get the other stuff almost for free. You get massive leverage in your marketing, in your channel, in your distribution. You don’t have to worry about that stuff if you have a great product. You still have to be smart about it. In my previous two companies they were software companies. We were probably doing 60% of our overall energy doing other than creating the product. Now we’re spending 90% on the product and everything else comes almost free. By far the most important thing right now is to have a great product. How are you going to make a great product? Well if you’re not even making it for yourself, how are you going to know when it’s great? I think that your best shot of you’re succeeding today, and this was not the case ten years ago, like I would have given you this advice 10 years ago and I would have been wrong.

Jason: Right. Ten years ago it was find the market that’s growing.

Phil: Product/market fit. Blah, blah, blah.

Jason: Now it’s founder/market fit. Founder/product fit.

Phil: Yeah. Make something great.

Jason: Founder/product fit. Alright. We’re going to go to questions from my very highly intelligent audience. You guys know the rules. Don’t ask a question like this, “Hi. My name is Steve. My law firm Steve and Steve, is really awesome at doing non-compete agreements. How do you think you should focus on non-compete agreements, as a CEO?” In other words, your question should be a good question, not marketing for yourself. If you want to say what your favorite guest has been, you can do that. If you do say Sacca, say “Sacca, but my second is this person.” OK. Go ahead. We have one back here. Kirin is going to run around with the microphone. Really great question from my audience. Go ahead.

Guest: Hi. Great conversation, so far. Phil what do you think Google Glass is going to do for your product road map, going forward?

Phil: I am guardedly optimistic about Google Glass. Guardedly for NDA reasons. Optimistic because it’s fucking awesome. It’s going to be great. The experience once… Let me put it this way. I am going to make a prediction right now. Two years from now, if you’ll have me back on this stage…

Jason: Yeah. We’ll do it exactly two years from today.

Phil: Two years from now…

Jason: Sure.

Phil: … I will not be sitting out here looking out at you with fucking glasses that don’t project anything into my eyeballs. It’ll be barbaric, two years from now, to do it. It’ll be like, where is everything.

Jason: What percentage of the audience will have them on, two years from now? That’ll be the bet.

Phil: Of this audience?

Jason: Of this audience, yeah. What percentage of this audience will have them two years from now?

Phil: 20.

Jason: 20%?

Phil: Of this audience, yeah.

Jason: OK.

Phil: But 5 years from now, it will be 90%.

Jason: Alright. So somebody get that on tape. Let’s get a long bet. Somebody put this in their calendar. We’ll bet a sushi lunch? I’ll take the under. I’ll take the over, I think. We’ll discuss the terms later.

Phil: I don’t know if Google is going to get it right, because the glasses aren’t out yet. At some point it’s a fashion thing. I don’t know if Google is the right company to do that. Maybe they are, maybe they aren’t. Maybe the real thing that’s going to succeed will be the Apple version.

Jason: Right.

Phil: The iEye, I think it’s going to be.

Jason: The iEye?

{Audience laughs]

Phil: Someone’s going to get it right. Once you’ve had this type of product on, and you take it off, the world seems duller. Less rich. I think it will be completely addictive and I think people will adopt it as fast as cell phones. I really believe that.

Jason: When you had the brainstorm or the ideation session, what came up? You said, “Oh. This is the number one thing we should do.” Obviously snapping pictures and documenting the world is obvious. That’s a given. What after that?

Phil: I don’t know that Evernote… We do hope to be on Google Glass but, we don’t know exactly what it’s going to look like.

Jason: Yeah but what input would you do? Let’s assume you have glasses and camera on your… that has 24 hour battery life. What is the use case?

Phil: There’s infinite use cases.

Jason: The best one.

Phil: The ones we can name now aren’t going to be the killer ones, by definition. The ones that I would use immediately, once this is possible, would be integration with Evernote Hello. I’m terrible with names and faces. This is causing me huge amounts of stress in my life.

Jason: I’m Jason, by the way.

Phil: See, I didn’t use your name the whole time.

Jason: I know.

Phil: I kind of forgot.

Jason: I understand, Steve.

Phil: That’s going to go away. My problem with names and faces is going to go away completely, in the next couple of years. That is so amazingly exciting to me.

Jason: And, it’s going to be like, here are the last photos of your kids, my kids, underneath your little profile. So I can say, “Oh. How is Susan doing? I see she’s a horseback rider.”

Phil: The whole Terminator…

Jason: Kind of creepy.

Phil: The whole Terminator use case where he’s like seeing things.

Jason: Are you Sarah Connor?

Phil: Yeah. That’ll happen. That’ll be good. This is basically the fact that the internet gave us access to the sum total of all human knowledge. Right?

Jason: Um Hmm.

Phil: The iPhone gave us the sum total of all human knowledge, in your pocket. The glasses are going to give you the sum total of all human knowledge, in your head, all the time. That’s like a natural progression. What are we going to use that for? Well we’re going to use it for amazing, world changing things. Like at some point, I’m going to be able to buy a virtual Halloween costume, so that when you look at me with your glasses, I’m going to be wearing a Dark Vader outfit.

Jason: And I’ll be wearing Boba Fett. No. I’ll be the Terminator. “I need your boots, your motorcycle, and your jacket.”

Phil: “Your clothes, give them to me.”

Jason: I like that film. Next question from the audience. The german.

Guest: Right here.

Jason: Oh. Sorry. Go ahead.

Guest: Your logo implies memory. You’ve talked about the brain. I know that you have visions about that. So what parts of the brain aren’t you doing well yet. How will that evolve?

Phil: Evernote is making a transition from being… our goal, from the beginning, we always talked about being an external brain. Cognitive prothesis. The first part of that we decided to tackle was memory. In fact, just capture and recall. The next generations of our product are meant to move beyond just memory into helping you be smarter. Helping you make better decisions. It’s associating things. It’s presenting options. It’s serendipitous discovery of information. A lot of that has started trickling into our newest releases. So if you look at some of the new stuff in the past couple of months, you’re seeing hints of that. We’re going to go much more into actual intelligence. The goal at Evernote is to make you smarter. In a way that an airplane makes you run faster. Evernote will help you think better. I don’t think we’re doing any of that well now. I don’t think we’re doing memory particularly well. We’re just doing it a lot better than nothing.

Jason: I just had the greatest idea. You put the glasses on with Evernote and you start saying something. “You know, it’s like that saying that Mark Twain said.” Then it just starts telling you. Or if you’re stumbling for a word. You’re like, “What’s that word?” There’s a thesaurus. We’re all going to be using big words in the future.

Phil: Yeah.

Jason: It’s going to be awesome. It’s going to be extraordinary. Scrabble’s going to be really interesting.

Phil: The games obviously are going to change completely.

Jason: Like we’re going to break into a light saber battle right now.

Phil: I mean, I’m super siked for it. Again, the things that we’re coming up with, are almost certainly not going to be what’s big but something is going to be. I really think it’ll be life changing.

Jason: Oh. Between questions… good question, by the way. Both of those questions, very good. The accelerator/incubator, I know you hired Rafe Needleman to come work for you. The great journalist and friend of mine. A really great get from CNET. He’s running something called Trunk Labs or something?

Phil: Yeah.

Jason: What is that? Is it Y Combinator?

Phil: No. We hired Rafe. Which I was super happy about. Because, I think, Rafe was the first tech journalist that I talked to, really in the early days. He was going to write like a review or something. I remember I was scheduled to talk to him. I was completely terrified. Cause, I didn’t… man, this is Rafe Needleman.

Jason: Rafe’s Radar.

Phil: Yeah. For things he likes, he’s fairly kind. But I’ve seen him rip things to shreds.

Jason: He can make or break a product. Yeah.

Phil: So I was terrified when I talked to him. I have no memory of it. I just blanked out afterwards. Then, about a year ago, when we were looking at what can we do for our developer community? We thought, we have this great API. We have this great developer community. More than 20,000 third-party developers. I think we’re in a pretty lucky position. Because we have no conflict of interest with our developers because of how our business model works. This is kind of unique. A lot of other companies, great companies who have great API programs. But they have indirect business models, so there’s a fundamental conflict of interest between them and great third-party apps. If somebody writes a really great third-party Twitter app, Twitter doesn’t necessarily want… in some ways they do, in some ways they don’t. The same thing for Facebook right. You don’t want something that’s going to distract eyeballs and decrease ad revenue and that kind of stuff. For us, it’s the opposite. Since we monetize only directly. When we looked at how much money we make per user, we actually saw that, by far, our most profitable users were the ones spending the most time in our third-party apps. Because it just correlated to engagement. So if someone writes an Evernote integrated product that is so great, that you spend all of your time in it, and you’ve even decreased your usage of the Evernote clients, we’ll actually make more money, chances are, from that user. We’re in this position where, unlike some of these other companies, we don’t have this fundamental conflict. So what else can we do. Not only do we not have a conflict with developers, how else can we help them? What can we do to make their stuff great? Because we want them to build great experiences. I thought back to my first meeting with Rafe. I thought, “Wouldn’t it be awesome if we had someone that could actually explain to early developers and their interpretation of the product. Like here’s how you talk to journalists. Here’s how you take your product from kind of a good idea to really making it polished. Here are things to think about.

Jason: Coaching.

Phil: Yeah, coaching. I thought, “I would have loved that. That would have been very useful.” We tried to think of who would do that. I thought how about Rafe.

Jason: So did you have companies in there now? You’re looking for companies?

Phil: We’re looking for companies now. We’re going to be announcing the structured program for it, over the next month or two.

Jason: Good. I’ll do it at Launch.

Phil: Yeah.

Jason: Save it for March 4th.

Phil: OK.

Jason: We got a big stage. 2,000 people. Next question.

Guest: Hi. It’s sort of related to the brain question. It sounds like we’re trying to replace some of the things we do in the brain by things that make it easier for you to remember things. There’s actually a study that came out recently that talked about… for myself I have a great recall of memory type things and as I get older, it’s starting to get a little more difficult. So I go to wiki or I go to Google and I find something really quickly, when I can’t remember it. So, in that sense it’s helpful but isn’t there a danger that we’re actually dumbing it down? Are we losing the function that we used to have? What’s the risk of that?

Phil: There was a study in the New York Times las week that said, “Fat people are healthier than skinny people.” So, I was happy to hear that.

Jason: There wasn’t. That was a joke.

Phil: No. I’m serious.

Jason: Oh, no. Jesus. That’s all I need to hear. I’m going to gain back to 20.

Phil: It basically said that overweight people had lower mortality rates than people who’s BMI was in the ‘normal’ range. People that were in the slightly obese category, had the same mortality rates as people who are in the… your optimal thing was just overweight. I know. It’s like awesome.

Jason: Let’s get pizza after this.

Phil: Yeah.

Jason: Next question.

Phil: No. But that’s actually really a question. I think… I call bullshit on that. I think technology makes you a better human. I think what distinguishes the human brain from other animals, I think, is the fact that the human brain physically alters in response to technology use and in response to tool use. In fact that’s what tools are. Think of it this way. You don’t remember this. It probably happened when you were too young, but at some point in your life, you became aware of the existence of hammers. Right? At some point you didn’t understand hammer. Then it’s like you Grok’d hammer. As soon as you Grok’d hammer, your brain rewired itself. Now when you look out on the world, you see it through the eyes of knowing that a hammer exists. The same thing happened with wheel. At some point, for hundreds of thousands of years, there was no concept of wheel. Then there was a concept of wheel and our brains changed. Cause now, you look at the world and you say. “I can do these things that I couldn’t do before.” It’s hammers and it’s wheels and it’s levers and it’s fire. At some point, first there was no fire, then there was fire. And it’s written language. It’s not just those things. It’s also Google and Wikipedia. Those you probably do remember. Like at some point in your life there was no Wikipedia. Then at some point there was. Your brain is different. Now you know there is a thing called Wikipedia. You know that anything you ever want to look up you can just go and you can read about it. You can get an accurate definition. Unless Steven Colbert messed with it recently. Your brain is different because of it. You’re a better person because of it. You’re smarter because of it. The same thing happened to me with GPS. I’m not only bad with names and faces, I’m terrible at directions. I have no idea where I am, at any time. This was a major source of stress. It went away completely about ten years ago, when GPS became ubiquitous.

Jason: That’s interesting. There’s a whole generation of people who will never know the concept of being lost.

Phil: Yeah. Exactly.

Jason: It’ll be like a foreign concept. “What you didn’t get to your destination?”

Phil: Right.

Jason: “You were late? You didn’t put in Google and see how many minutes, with traffic, it was going to take?”

Phil: I think that makes us smarter. Every stage of these technological developments… somebody was publishing a study saying it’s bad for you. There were people sitting around who…

Jason: Luddites?

Phil: Yeah. I’m sure there was somebody sitting in a cave, a hundred thousand years ago saying, “Kids today. Their brain is totally rotting, because when we were growing up, we had to repeat verbally the oral history of our tribe. We memorized things that went on, for hours. We had to word for word read it back.

Jason: These books are fucking things up.

Phil: Now, they’re writing things down?

Jason: And, they’re reading them.

Phil: Yeah. They’re brains are rotting. This technology, this writing is totally going to be the end of civilization. In some sense they were right. Right?

Jason: Well it was the end of campfires.

Phil: In a different and much more correct sense, they were totally wrong.

Jason: Exactly.

Phil: I think it’s the same thing with Evernote.

Jason: Also. It can make you smarter too. I don’t know about other people but I keep my GPS on, even if I know where I’m going. I learn the name of streets. I learn different routes. I feel like people generally… there’s all these great side effects that are unintended.

Phil: GPS is definitely improved my sense of direction without GPS. The way that it did it, I turned my GPS in my car, the way I’m going being up to north is up.

Jason: Right.

Phil: Now, wherever I go I have this ambient… I see the map with north oriented correctly.

Jason: The line’s above us.

Phil: Right.

Jason: Los Angeles is below us.

Phil: I didn’t know that before. But now I do.

Jason: Next question.

Guest: Hey, guys. Oliver Start from PearlTree. You were talking earlier about the discoveries of what you’ve done wrong from users, I really was hoping you would talk a little bit about Evernote’s user testing.

Jason: Yeah. What’s your process? Good question.

Phil: Yeah. That’s a great question. One thing is, I was a complete idiot about user testing, for many years. In fact, I remember the day that I figured this out. I went to my VP of Engineering, I’m like, “Hey. Here’s something I just realized.” Then I explained this thing I’m about to explain. He’s like, “Yeah.” I said, “Did you know this?” “Yeah.” “Why wasn’t I informed?” What I realized is user testing and beta testing are two totally different things. I used to always think it was the same thing. It’s not. Beta testing, which we always did is great. Beta testing is a way for your power users, who are really involved in your product, to tell you what they want as power users. In particular if you do something that breaks what power users want. It’ll tell you that. What it’s terrible at is doing anything that is not for power users. It’s never give you new user experience stuff. It’ll never tell you how to make things easier. In fact, it kinda tells you the opposite. User testing… you can’t do user testing with your own users. Because by definition that’s not going to give you the right information. We wind up using Usertest.com. We wind up using a few other things. We recruit people. We do both. We have a very carefully run Beta track. The purpose of that is to get feedback about what we broke for power users. Then we have user testing. Which is through Usertest.com and a few other tools. The goal there is to say, what are we doing wrong for new people. Neither of them are good at telling you what you should build, but both are good at telling you what you shouldn’t build. So we show different variations to people and we see what people hate the most and we interpret that the right way. Up until about two years ago, we were conflating those two things. I remember it one day, “That was kind of stupid. Those are two totally different things.” I don’t know if anyone else here was conflating those two things before but, you shouldn’t be. If you separate them then you’re actually getting rid of the noise from both and the signals from both come in very clearly.

Jason: Solid answer. Let’s get another question from the audience.

Guest: Phil. Alex Marino from Tennis Round. I read somewhere, that in the early days of Evernote, at one point you were almost about to close the company. You sent one email to all of your users and this is how you found your first investor. So, it just made me wonder, were you to busy to look for funding or you just didn’t care about it or was that on purpose.

Phil: No. I think I told this story the last time I was on the show.

Jason: Yeah. Tell it again.

Phil: We were saved by a… We had the world’s worst VC pitch. In 2008, when everything was going wrong…

Jason: Financial crisis.

Phil: Yeah. Financial crisis.

Jason: End of the world.

Phil: My VC pitch was, “Hi. I’m Phil Libin. You’ve never heard of me. We’re going to make this thing called Evernote. It’s going to be software that lets you write stuff down. Remember things. We’re going to give it away for free. Please give me $10M.”

Jason: Great.

Phil: It wasn’t a good pitch. Usually, I got thrown out. Sometimes, I didn’t get thrown out immediately, but out of politeness they would ask me more questions. So sometimes they would say, “So who’s your competition?” I had the world’s worst answer for that. I would say, “Well, every PC or computer or calculator or device that’s ever been released in the past 50 years already has a free note-taking app on it.”

Jason: That’s our competition.

Phil: That’s our competition.

Jason: Oxygen.

Phil: They would throw me out. So we couldn’t raise money because I sucked at raising money. All of our money came from us.

Jason: Why do you think that you sucked at raising money? Looking back on it now. Was it you? Was it the pitch? Was it the performance?

Phil: It was a little of everything but I was talking to VCs before I had any traction. I think you have basically have two types of pitches. You’re either a super start team with an amazingly original idea… either you have an amazingly original idea, in which case you can raise money just on that. Which is extremely rare. I mean extremely, extremely rare. Rare, like it’s never happened.

Jason: It happens. It’s 2%.

Phil: Yeah. Or, you have a super star team. “I was a co-founder of this and that.” Then you can raise money on that.

Jason: Sure.

Phil: Or it’s traction. “Here, I am showing you the traction.” We were none of those things so we had no business trying to raise money from VCs. Our initial money came from us, from angels, from family and from users. We had several of our early investments came from people who loved Evernote cause we’d released a product already, to who happened to be investors. It wasn’t until we had about a year and a half of data and we could start showing the cohort models, that we were able to get VC funding. By then, everything was great. Things really picked up. We had multiple term sheets. I think we raised over a quarter billion dollars from VCs at this point.

Jason: You’ve raised $250M now. Wow.

Phil: Yeah.

Jason: How do you reconcile that from being on the brink of extinction? That you were able to raise a quarter of a billion dollars. Does that just make you feel awesome?

Phil: Yeah. It’s better than…

Jason: Not being able to?

Phil: Yeah. Than going out of business.

Jason: I mean it’s pretty amazing.

Phil: In 2008, basically we finally had got this big deal. It was this european investor. They were going to give us several million dollars. We worked on the due diligence for a few months. On the day it was supposed to close was the day that Lehman Brothers collapsed.

Jason: Yeah. Good times.

Phil: The market tanked 800%. On the closing day, the investors were like we just wiped out. We just lost most of our value. They backed out. We had three weeks of cash left. I was going to close the company down. I felt like an adult for the first time. I was sitting there at 3AM with only a couple weeks left of cash. I said, “Tomorrow morning I am shutting down the company.” Because you have to. You can’t run out of cash. You have to pay your last bills and stuff.

Jason: The dream’s over.

Phil: We already had like 20 people at that point. I said, “I’m going in. I’m laying everyone off.” I felt like an adult. I remember thinking, “Ah. So this is what it’s like. It sucks.” I’m going to try to minimize the times that I’m an adult for the rest of my life. Then I got an email at 3AM that night. From a random guy from Sweden, who offered to give us half a million dollars, because he loved Evernote. That’s what saved us. I think I…

Jason: Yeah.

Phil: No. That wasn’t choice. That was just us being bad at fundraising.

Jason: Yeah. Next question. What time is it Kirin? Perfect. Ten more minutes of questions and we’re done.

Guest: Evernote is currently too old to help you remember things. Do you think there’s a benefit in a tool to help you forget things?

Phil: One of my minor goals in life is, every since I saw ‘Lost in Translation’ the movie, I’ve wanted to do whiskey ads in Japan.

[Audience Laughs]

Phil: I’m totally serious about this. I think it’s going to happen. I don’t have any firm plans yet, but we are pretty big in Japan. I’m learning a lot about whiskey.

Jason: I think you just said you’re big in Japan.

Phil: I did.

Jason: Well done. Well done.

Phil: I’ve already got the slogan. It’s going to be me with a big billboard, it’ll say, “Evernote helps you remember. Suntory help you forget.”

[Audience Laughs and Applauds]

Jason: Awesome.

Phil: Or Nikka or any of the distilleries really.

Jason: I was almost going to say bad question, but quixotic question and the answer made it turn out OK. Well done. We’ll take a quixotic question, 1 out of every 5. Go ahead.

Guest: Evernote is valued over $1B now. At what point did you realize that this wasn’t a product for a niche following, a cool, handy tool? But something that could be a really monumental company.

Phil: I knew that right away. That was really a question of when do investors realize that.

Jason: That’s interesting. What was the difference? What was the time difference and the number of user difference between…? Who was the first one to realize it was $1B opportunity, outside of yourself?

Phil: OK. I think this is kind of important. When people talk about company valuations, the natural thing to do is compare private company valuations with public company valuations. Those two things mean really different things. I wrote a column about this. When we were valued at $1B, I looked at the New York Times. The New York Times Co. was valued at like $900M. We were like worth more than the New York Times. I thought that is profoundly wrong. It’s weird. Are we worth more than the New York Times? I couldn’t get my head around saying, “Yes. We’re worth more than the New York Times.” Really when I thought about it, those two mean totally different things. For many reasons: common vs. non-preferred stock, preferences. All that stuff. Although, at this point in our life we have very little of that. Really the difference is, a well-traded public company is worth whatever it’s worth because it’s an average price of a large number of buyers and large number of sellers. Representing the current economic state of the business, with expected levels of growth. In a private company there’s not a large number of buyers and sellers. In the private round there’s usually only one lead buyer. So the price isn’t an average. The price is what’s the highest that you can get somebody to pay. So if you want to increase your valuation… we could have had valuations far more than a billion dollars. If we wanted to get the highest valuation we could, we would have to find the craziest person who would give us the highest valuation.

Jason: Yeah. Most optimistic.

Phil: Sure.

Jason: And crazy helps a little.

Phil: The problem with that strategy is, if you wind up taking money from a crazy person, you wind up with a crazy person as your boss. Then an angry crazy person at some point.

Jason: Right.

Phil: We tried to have a valuation that was reasonable. I think we could have been a $1B company significantly sooner. Not with the investors that we wanted. We wanted the best possible long time investors. The other difference in valuation is, Evernote is not worth $1B today. Because if you look at our current finances you’re like, “Yeah, this company is worth $1B.” It’s worth $1B because there is a non-trivial chance it’ll be worth $10B or $50B or $100B in a few years. How big a chance? Well if there’s even a 1% chance that it’ll be worth $100B, then you can see it being worth $1B now. A public company like the New York Times, if it starts doing really well, you’re going to have plenty of time to buy and sell that stock. On the way up or on the way down. With a private company you’re not going to be able to. I think the comparisons are flawed. I think people do get carried away with what it means to have a multi-billion dollar private valuation. I don’t think it means that we built something that is equal to some of these big companies. I think what it means is that we’ve built something that very smart investors think has a non-trivial chance of being worth a lot more than these companies, in a few years.

Jason: It’s just like when you’re gambling, if your calling the bet, if there’s a lot of money in the pot and it’s a small bet, it’s worth it.

Phil: Right. Exactly.

Jason: You have to remember those people are also making 25 bets. They only need one of the bets to go 100X to make it very much worth it.

Phil: Exactly. The things that made Evernote be able to raise money at good valuations is our cohort analysis. Basically showing that it was very long-term users, that people kept coming back, and that the longer they used Evernote, the more likely they were to pay for something.

Jason: I’m sure the margins are tremendous as well.

Phil: Depending on who you count it. If you count all of the… the development expenses are really high. If you’re just counting server infrastructure and things like that, yeah the margins are huge.

Jason: Absurd. But if you put in a modest amount of maintenance and improvement on the software, it does look impressive, right?

Phil: Margins are good. Growth is good. It’s a positive feedback cycle, where the longer you use it, the more value you’ll get. Which isn’t true of most businesses. That together makes it a bet worth taking. So the bet is, is it going to be worth $10B? How likely do you think it is? Do you think it’s 10% likely to be worth $10B? I do. Then it’s worth $1B now.

Jason: Right. Then there’s all those other possibilities, in between and above.

Phil: Yeah. Exactly. Then what’s the downside? Especially… now we just did a round that had a component of primary and secondary. The secondary was common stock and preferred stock. A lot of this is less true at our stage. Earlier on, when your talking about early valuations, it’s almost always preferred stock. There’s very little downside to preferred stock to investors.

Jason: They get their money out first.

Phil: They get their money out first. So it’s a bet that’s not nearly as crazy as it seems.

Jason: Let’s take another two questions. We’ve got about 18 questions to go, so sorry about that.

Guest: To dovetail off of your caveman storytelling, I’m just curious how much audio and voice plays into Evernote today?

Phil: Not very much today. Although we are doing more with audio notes and with transcription notes. Audio notes and searching through audio notes. I do think that’s a big possibility. i don’t know how the world’s going to go on that. Personally, I don’t like to talk to my phone to make . I don’t find that a natural thing. I don’t use Siri very much. I don’t like talking to a machine. I find something about that kind of weird. The reason I find that weird isn’t because… I don’t think it’s for personal or emotional reasons. I find it inefficient. It’s easier for me to input more information by touching, by swiping, by thinking. So I don’t know personally whether talking to a computer is actually going to be a primary use case, but we are hedging our bet. We are working on it. There’s definitely a percentage of people who want to talk. Just like there’s a percentage of people that like to write. Likes to do handwriting. I never think that’s going to be the majority use case again. I don’t think the majority of the people will ever again be taking notes by writing. Some percentage of the users will and they’ll think it’s a beautiful experience. We should give them a beautiful experience for that.

Jason: I have used the audio. You can imbed an audio clip.

Phil: Yep. Mm Hmm.

Jason: And photos. I was liveblogging at a YouTube event by doing that and taking little sound bits until the PR person said, “What are you doing? You have 150,000 followers on Twitter and this is a confidential event.”

Phil: One of our users had a great use case. We was using Evernote early on. When his daughter was born, he recorded the sound of her first crying in Evernote. Now he’s got this audio note. That’s the first noise his daughter ever made. Like what’s that worth? A lot.

Jason: Priceless.

Phil: Priceless isn’t good enough. We need to put a dollar amount on it. It’s worth something.

Jason: That’s interesting. What would you pay to have audio of your first complete sentence?

Phil: Oh,man. What would I pay to have Evernote notes from high school.

Jason: When you were not totally, completely wealthy but, when you were a regular guy.

Phil: What would I pay for Evernote from high school. If I could magically could have had Evernote in high school…

Jason: And you can have all your notes and drawings?

Phil: Yeah. Like whatever the hell I was into.

Jason: Drawing Dungeons and Dragons on your notebook.

Phil: A lot of Dungeons and Dragons. A lot.

Jason: That’s like probably worth $1,000.

Phil: I would pay a lot for it.

Jason: $10,000 probably.

Phil: Me personally…

Jason: $5,000?

Phil: No, but I would easily pay $1,000.

Jason: $1,000 a no brainer. To have all of your notebooks from high school to look at?

Phil: I would pay a lot more but I just don’t want to admit it.

Jason: Right. Final question from my highly intelligent audience. These are some great questions. Thank you.

Guest: My name is Terrell. How much of the $250M did you use? Can you comment on capital efficiency. Did you really need that amount of money? Or was it just cause it was there?

Jason: Yeah. Was it gratuitous?

Phil: Ha. Gratuitous.

Jason: There was some that was secondary so long-term employees or other people could sell some shares.

Phil: Yeah. Plus, you know I had to buy the barometric oxygen tent for my bedroom. That stuff is expensive.

Jason: Now you’re getting crazy. You’re turning into like, Gilbert Arenas from the Wizards. Did you know that he made his whole house the elevation of Salt Lake City? Or something.

Phil: Wow.

Jason: His entire house. He spent like $1M making his house at that elevation. So you walk around his house at whatever 20,000FT.

Phil: That sounds plausible.

Jason: Yeah.

Phil: We may need to raise more money.

Jason: Exactly. Tomorrow on TechCrunch, Evernote raises $100M. Entire office sealed in barometric chamber.

Phil: Actually we’ve spent very little of that. A lot of it we have still sitting in the bank. Most of the rest of it was for secondary. We never got it. It went to investors and employees and, kind of, earlier shareholders. So no. We don’t need anything like that amount of money. But it’s nice to have it. It’s part of the 100 year company. The idea is we want to build financial infrastructure in the same way we build data service infrastructure. The same way you think about protecting your data. Part of that. We want to have the buffer to know that we can focus, heads down on building a great product forever. Without having to worry about external market conditions. That security is worth it. It’s worth a little bit of delusion to have that security. Absolutely, we could have spent less. Most of what we’ve raised in primary, we haven’t spent.

Jason: Alright. You have agreed to have lunch. An hour-long lunch?

Phil: Sure.

Jason: An hour-long sushi lunch with Phil. At the office shooting the shit. That’s just incredibly baller. I think this is becoming a tradition now. That means next month, make sure Dave McClure is willing to do that. Which ticket did you mark? You said the ticket that had the earmark on it? This one right here, with the earmark on it? I just put that earmark on there. I’m not going to pick that one anyway. Here. You pick the ticket. This is the person you’re going to have lunch with.

Phil: Alright.

Jason: No, no. The other one.

Phil: I’m going with this one.

Jason: OK. Good call.

Phil: I do have a tip for people. Should I read the number?

Jason: Yeah. But read it out slow and loud. When you get to the last three… Do the first three right quick.

Phil: 085.

Jason: Raise your hand if you have 085. Give the the next one.

Phil: 6.

Jason: Raise your hand if you have 6. Good. This is exciting. You gotta peel it slowly. Peel it slowly. OK, go ahead.

Phil: 1.

Jason: Raise your hand if your still in it. OK. It’s between you guys. And?

Phil: Phil: 8 is great.

Jason: Yeah! Booyakasha. Very good.

[Applause]

Jason: You pre-screened this guy. He’s not a crazy stalker maniac, right? What’s his name? Give me the card. Give him a microphone. Who are you? Introduce yourself.

Winner: My name is Red Strami. I’ve got a company called EdiStorm. We do online using sticky notes.

Phil: Awesome.

Jason: Wow. Very nice. You were hoping to win this, weren’t you?

Winner: I’ve actually got my LiveScribe pen and we integrate through Evernote. It’s kind of cool.

Jason: And you gave Kirin 500 bucks?

Winner: No.

Jason: Good job. Good job Kirin. Enterprising. Entrepreneuring. Your suggestion is? I hope that you made 500 bucks off of that.

Phil: Very much looking forward to sushi lunch. It’s really good.

Winner: Fantastic. I’m looking forward to it. Thank you.

Jason: You’re not crazy or anything like that?

Winner: No. I’m from Canada. I’m good.

Jason: Canadian is good. That’s good.

Phil: It’s funny because it’s true.

Jason: Exactly.

Phil: I have a tip. I spent a lot of time in my youth studying magic. Next time your in a situation where you’ve got to drop your business card in a thing to win something. There is something you can do to increase your chances by roughly 100X.

Jason: What is that?

Phil: It’s cheating.

Jason: Whatever. It’s a lot of things that’s cheating.

Phil: What you do is you take your business card and you bend it in half, make a nice crease. Then when you throw it into the pile, it will bow a little bit. It will be like… it’s surface area for someone reaching in grabbing will be many, many, many, many hundreds of times greater than one that’s laying flat.

Jason: You can edit that out of the tape that we publish. So only 150 people will have that tip. Thank you. This is incredible. When you have such a great guest the. Let me hear it for Phil Libin, a great guest.

Phil: Thank you.

Jason: Alright. Very nice. I’m going to thank all three of our sponsors. Then you can one time for them. thank you, of course to RocketSpace, for providing the space. Thank you to New Relic, for providing great analytics, code-level app performance, server resources. All that great kind of stuff. Go to NewRelic.com/thisweekin to get a free ThisWeekIn Startups t-shirt. No credit required for the trial. Thank you, of course to our friends at SnapTerms. Do not spend $150,000 on your websites Terms of Service like Phil. Get it for $149 for your startup. Thank you so much to @snapterms. Let me hear it for the sponsors. Great. Next month is Dave McClure of 500 Startups, on February 8th. March 4th, 5th, and 6th is the Launch Festival. Three days, 50 companies launching. On March 2nd, 3rd, 4th is the Hack-A-Thon. For the first time, 48 hours. There’s two prizes already. There may be more. Two $25,000 investments. One from me, one from Dharmesh. Who is a great angel investor. Founder of HubSpot. There’s a $50,000 cash pool. You can take it as cash for $10,000 or take the investment. You don’t have to pay tax. There going to be 50 teams competing. Or 100 teams of 4 it’s going to be now. Because so many people have applied. That’s going to be real amazing and unique. If you know of a team of 3 or 4 hackers, even as a company, it might be worth going. The 5 best projects out of the 75 or 100 that we have, will get on the main stage and also have a guaranteed spot in the Launch Festival competition in 2014. For that project or any other project. So the team will automatically make their way into the next year’s event. That’s kind of cool. You’re going to judge the conference, yeah?

Phil: I would love to. I would love to get in on some of that investment action too.

Jason: OOOhh. Yom, yum. OK. You want to match mine?

Phil: We’ll see. Let’s talk about it.

Jason: We’ll talk about it offline. Thank you everybody. We’ll see you next time on ThisWeekIn Startups.