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Most Creative People

How A $58 Million App-Making Startup Bootstrapped Its Way To Success

Appster's founders were two precocious Australian teens full of hubris—but their company has flourished thanks to a strong partnership.

How A $58 Million App-Making Startup Bootstrapped Its Way To Success

Josiah Humphrey wasn’t like the other kids in his New Zealand hometown. When he was five, his teacher asked the students what they wanted to be when they grew up. Everyone gave the usual answers: a policeman, an astronaut, a fireman... When the teacher got to Humphrey, he said, "A businessman." By the time he was 11, well before he was old enough to be either kind, he was reading "Rich Dad, Poor Dad."

By his 12th birthday, he could speak fluently about assets and liabilities, cash flow, and return on investment. And by 13, he was starting to make a considerable amount of money online, by generating client leads for other people’s businesses. (He says Netflix, in those days, paid $25 per person you could round up for a 30-day trial). "I’m gonna be a millionaire by the time I’m 21," he’d tell people at church.

Needless to say, he didn’t have many friends his age whom he could seriously discuss his passion. So he went where all misfits go: Online. He found his way to a website called the Warrior Forum, where entrepreneurs congregated to talk shop about online marketing. Most were in their 20s. One day, during a webinar with other members of the site, Humphrey boasted that he was only 13.

Then, to Humphrey’s surprise, the host of the webinar responded: "So am I."


Mark McDonald and Josiah Humphrey

Mark McDonald was a through-the-looking-glass version of Josiah Humphrey.

McDonald lived on that neighboring island, Australia, in a town called Geelong, west of Melbourne. He’d had had his first exhilarating brush with entrepreneurialism when he was 11, assembling and selling a magazine of student writing. He then built a website to impress his friends, and in the process learned about search engine optimization. "Oh, you can make money doing this," McDonald recalls thinking. By 13, he developed his own SEO business, posting on San Francisco’s Craigslist that he could help businesses raise their rankings on Google.

Humphrey jokes, today, that they met online, "but not on eHarmony." Even so, it was something of a platonic love-at-first-chat story. "Mark and I, we related at a deep level, even at a young age. It was kind of like an ‘us-against-the-world' thing." McDonald felt the same way. They shared the same belief system, and faced the same challenges. They both knew what it was like to have to lower their 15-year-old voices on Skype calls to clients in the States. (Humphrey even downloaded in a plug-in that digitally deepened his voice.)

And they were both, by their mid-teenage years, earning six figures.

In a fortuitous coincidence, Humphrey’s parents moved the family to the Melbourne area around 2005. But the distance remained significant: Humphrey now lived about an hour east of Melbourne, in Frankston; McDonald lived about an hour and a half west of it. For a while, the two continued an entirely digital friendship, checking in every few weeks.

Then, when they were 15, they did what might be the teen-entrepreneur equivalent of eloping. They booked a room at a Sydney backpackers hostel online, and separately flew there for an "Unleash the Power Within" conference led by the American motivational speaker Tony Robbins. They hadn’t told their parents where they were going; McDonald only told a sister. Though McDonald and Humphrey were meeting for the first time in real life, they were already good friends. Through the weekend, they went to seminars on leadership and empowerment morning, noon, and night. They talked and talked. "We talked about what we wanted to do with our lives, and the kind of businesses we wanted to build," recalls McDonald. "We were both convinced we had so much ahead of us."

They returned to the hostel one exhilarated evening to find they’d been locked out of their room. The manager explained that he’d gotten a panicked call from their parents. He wouldn’t let them back into their room until they called them to explain where they were.

"I guess that was our teenage rebellion," says McDonald now. "Some kids go steal cars. We went to a Tony Robbins seminar."


School wasn’t Humphrey’s thing. He proposed that he drop out just a year or two into high school, and when his parents saw how well he was doing financially, they let him. After all, how many teenagers have an accountant?

But then Humphrey hit a bit of a slump. For a while, he mostly played video games in his room. His income dried up. "He had a few years of dark times," is how McDonald reads it. McDonald, for his part, was a good student. He graduated high school in 2010, and was set to matriculate at Melbourne's Monash University in January 2011.

Around this time, Humphrey and McDonald met up at a McDonald’s in Melbourne, for burgers and business talk. Each had come with a list of business ideas, or business-related ideas. One of the looniest stood out: to lease an office in Rialto Towers. A Melbourne landmark, it's one of the tallest buildings in the Southern Hemisphere.

Plenty of startup founders have taken an influx of venture capital and blown it on a fancy office. But Humphrey and McDonald didn't have any venture capital, and they took the opposite view: if they were on the hook for a huge amount of rent, they’d simply have to build a successful business (whatever it might be; they’d yet to work out that minor detail). Otherwise, they’d be ruined. They kept calling it a "burn the ships" moment.

In December 2010, they walked into the Rialto Towers wearing suits (McDonald's was rented, and "super baggy"). A rental agent showed them various office spaces on various floors. "She was probably a little taken aback," recalls Humphrey. "I think she was shocked, but keen for a sale as well," recalls McDonald. Several spaces were available, including a less-than-glamorous, inward-facing space. Even it, though, cost nearly $2,000 per month to rent, ludicrous compared to rates on office space available nearby. The young men signed the contract, then went downstairs to the wine bar on the ground floor to celebrate.

In January, they moved into their office. Their business was ill-defined; Humphrey recalls it as "marketing consultancy stuff." Still, they worked from the crack of dawn until the wee hours, McDonald juggling class work all the while. "We had this mentality that there was no going back, that we were going to go to jail if we failed, that we’d be bankrupt and it’d be on the front page of the newspapers," recalls McDonald with a laugh, acknowledging the fallout of missed rent payments wouldn’t actually have been that bad. Still, the Jedi mind trick they played on themselves seemed to work: The team indeed managed to meet their overhead in the first few months. So they upgraded to a bigger office in the same building, now with a sweeping view of Melbourne. It cost as much as $6,000 in a month when utilities ran high. "We believed that the bigger the office, the more money you’d make," laughs McDonald, saying he wouldn’t advise any aspiring entrepreneurs try and do the same. "It wasn’t the smartest thing."

One day, in Humphrey’s telling, the pair said, "Why don’t we start building mobile apps?" They didn’t know how to build mobile apps, but that didn’t faze them. They put up a website, "hired an actor to come in and talk about our quote-unquote ‘development process,’" and spend some money on a Google search ad. It appeared that there was a lot of demand, in fact, for app building. They dubbed their enterprise "Appster," which sure sounded like a company that might make apps. They signed a "bunch of clients," says Humphrey.

Appster

Then they realized: "Wow, we’d better hire out a team."

So they did. They hired one developer, then another. They hired a lecturer in computer science from Melbourne University to work part time. "I thought, if I can hire someone from a university, then why do I need to learn from someone at a university," recalls McDonald. He dropped out of Monash.

And then, for the next several years, Humphrey and McDonald put in 100-hour weeks.


Looking back, McDonald and Humphrey don’t necessarily attribute their success to the gambit of getting a bigger office with a view, or of reading one particular book or going to on particular seminar. It certainly wasn’t bringing on early investment, since they didn’t do that. Nor was it even having pre-existing expertise in what ended up being their line of work, the making of apps.

"What we did," says McDonald, "is that Josiah and I found a partnership that worked really well for us. We had similar levels of intellect, ambition, drive, and work ethic." They had a friendship, and a partnership, that just worked.

Appster now has a staff of 350, with offices in San Francisco and a development center in India; with over $20 million in revenue, it’s been "profitable from day one," assures McDonald. Each of the founders owns half the company (though those stakes will be diluted as employee stock vests). Last year, they debuted in an Australian business publication of the country’s wealthiest young people, based on Appster's valuation.

"It’s funny," says McDonald, who just turned 24. Speaking on a call from India, where he’s about to meet with Appster developers, you can almost hear him blush. "It doesn’t feel like we're worth $58 million."

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