There are many ways to dissect Lane Merrifield’s success. What we know for sure from speaking with the entrepreneur, investor, and dragon, is that the foundations of what he’s achieved are built on humble beginnings: a family of entrepreneurs, positive role models, and morals: he’s someone who wants and does the right thing.
Merrifield, co-founder of FreshGrade, started mowing lawns in his Orange County neighborhood at 11-years-old and built a business with 15 clients and a monthly income of $250. At 28-years-old, he sold his first business, Club Penguin, to Disney for $700 million USD. FreshGrade, a learning portfolio platform, is his latest entrepreneurial venture.
Merrifield, who lives in British Columbia, appears to have remained grounded and true to himself and his values through early success: from hiring for values, to saying no to business commitments after 3 p.m. so he can get to school to pick up his daughter. He’s in the business for kids, not for himself. Here’s why empathy is top of mind, why he doesn’t invest in “opportunity”, and the question he asks to make all his business decisions:
YouInc: When you were 11-years-old you started mowing lawns. Why?
Lane Merrifield: [Laughs]. I grew up in a lower-middle class family. We were never without, but we certainly weren’t comfortable. I had an allowance and I wanted it to increase, and if it was going to happen I had to work at it. I had an older brother with a great work ethic. He had a big paper route, and he ended up saving money and buying all of this cool stuff. I thought, “I need to figure that out, too.” I was too young to get a normal job.
At the time for a paper route you had to be 14-years-old, so I thought, “What do I do now? I mow our family lawns as a chore. Maybe I could start a business out of that." I went and talked to a few neighbours and I said, “Hey, for five bucks, I’ll mow your front lawn and for another five bucks I’ll mow your back lawn.” This was in Orange County, California, where it’s traditional suburban cookie-cutter homes. The lots were different, but not by much.
It would take me about a half hour to mow a lawn; I started making $10 an hour, when the minimum wage was about $4.50 an hour. I went door-to-door and sold the service, and I ended up picking up about 15 clients in two or three blocks around my house. Originally, I’d only gone to places where I could push the lawnmower from door to door.
Then, I had been working on rebuilding this go-kart that I bought at a yard sale. I went to a neighbour that I knew was a welder and I said, “If I mow your lawn for free for a month, would you help me with this design? He took a look and said, “Yeah, I’ll build this for ya.” He ended up building a trailer, so I could load my lawn-mowing equipment and drive my go-kart from yard to yard. It allowed me to pick up more customers. At its peak, I was mowing lawns two days a week, every Tuesday or Thursday night after school, and I was making about $250 bucks a month or something—for an eleven-year-old that was a good deal.
YI: You were entrepreneurial from early on.
LM: Yeah. It’s funny because people are like, “When did you first become an entrepreneur?” I don’t even know, because it was like, “here’s a fun idea, let’s go do this.” It’s funny, because at the same time I was probably getting a D in math. But I could grab a calculator and put together what makes sense as a [student with a D], like a basic financial statement, at 11-years-old [laughs].
YI: Did anyone influence you after your lawn-mowing experience to start a business?
LM: My whole family has always been entrepreneurial. My dad grew up on a family farm. He and his brothers started a milk delivery business, because they had a small dairy operation. Rather than resell to distributors, they decided to distribute themselves. So you hear all of these stories of entrepreneurialism that worked and some that didn't and you realize, “hey, it all works out in the end as long as you manage your risks.” That’s the kind of conversation we’d have at the dinner table and not in a forced way. It’d be like, “Dad, tell us a story.” He’d say, “I’ll tell you about Merri Dairy, our small dairy operation that we started when me and my brother were 12-years-old.”
It was our common conversation. We’d talk a lot about the difference between assets and liabilities. It was stuff that was rare back then [but] normal for our family conversations; it’s no surprise that all of my siblings are entrepreneurial.
YI: What were you doing leading up to Club Penguin?
LM: I was designing websites, and I had a background in marketing and graphic design. The web was blowing up and everyone needed a website. I did some work for a friend of my sister, who owned a web design and video editing company. On the side, I was doing a bit of motion graphic design, logos, and small websites for companies that weren’t big enough to go for the web design company I worked for.
Every day there was a new catastrophe that could bring down the business at any minute.
It was there that I met Lance, the website developer, who was creating these mini games on flash. We started talking. He made this chat thing and different games; they had all sorts of different characters. In the conversation, I was like, "What if we put this together in one experience? Is that possible?” He was like, “Yeah, technically that’s possible.” Then we started developing a narrative and Club Penguin was born out of those conversations. It was only a year from when we started talking about the idea to when we launched Club Penguin.
YI: What did you struggle with the most at that time as a new entrepreneur?
LM: Personally, it was always a struggle to hire fast enough. We were growing so quickly. We had servers crashing. We had payment systems that were failing. Every day there was a new catastrophe that could bring down the business at any minute. A lot of that stuff fell on my plate, because I wanted Lance to focus on building great content and building up a virtual world. By this point we had a small team.
For me, it was also hiring for jobs that didn’t exist: hiring a community manager for a virtual world, but not even knowing what a virtual world was. The term had barely been coined at that point. We were inventing job descriptions. We were inventing job titles. We were hiring as fast as we could. We went from four employees to 180 employees in under 18 months. I was hiring every single day.
There were times when we’d say no to amazing candidates and end up hiring someone who on paper was a worse candidate...but they understood the ethos of what it was we were trying to accomplish.
We certainly made missteps and hired a few wrong people, but overall I learned how to read people. We were values-based hiring. We’d ask a lot of questions like, "Why do you care about kids? Why does it matter to keep them safe?” It was almost more of a philosophical conversation than a traditional job interview. It wasn’t just, “can you do this task?" We were figuring out, “are you going to fit into our beliefs and our philosophy?”
I think that solved a lot of problems for us. When I talk to people, who hire based on skills, they hire based on hard evidence and ignored the soft sciences: they'd ignore the psychology, vision, and philosophy and it ended up causing a lot of trouble. There were times when we’d say no to amazing candidates and end up hiring someone who on paper was a worse candidate or had less experience, but they understood the ethos of what it was we were trying to accomplish. As a result we were able to row in the same direction and it saved us a lot of grief.
YI: What’s an example? If you’re hiring for values, how does that actually affect your business?
LM: For instance, there were times we were hiring in game design. We’d interview from big game companies like Electronic Arts. Oftentimes we’d talk to game designers who had big experience, but if you sat down and asked them, “Why do you want to be here?” They’d say, “You guys are killing it in the industry, you’ve got some of the fastest growing games out there, and I’ve been successful everywhere I go, so of course you’re going to want to hire me.”
You start thinking, “Well, what do you think about building games for kids?” Then they'll be like, “Well, kids can be really cool. They like the same things we do.” Then all of a sudden, you have a dozen candidates like that. Then you’d have someone who comes in and says, “I think designing games for kids is different because kids have different play patterns. 90 per cent of video games are competitive play. For kids, they don’t even want competitive play until they’re in their early teens. In fact, cooperative play, paraplay, and partnership play are powerful for them.” Suddenly there’s someone who gets it. You’re not the best video game designer, but you care about kids, you want the best for them, and you want to serve them. You’re not trying to serve your own career.
YI: Why has education been important for you from the start?
LM: Because it’s been broken for a long time. I’m a product of it. If you were to go back and ask my teachers from elementary school through to high school and even a few university professors, they’d likely say, “Lane is probably working a mediocre job, doing video work for mediocre pay.” I was the average student, who didn’t always pay attention and struggled to stay focused. Oftentimes, I didn’t turn in work when I was supposed to and didn't memorize what I was supposed to. So as a result I performed poorly on tests.
I would have assumed based on my experience in school that I was slightly below average. That didn’t turn out to be the case.
What the system poured into me for almost 12 years wasn’t true; I realized when I graduated university. I had a friend, who was working on her PhD in psychology and she has credentials to give IQ tests. She wanted to do an IQ test for fun. I won’t tell you the results, but they came back more favourably than I would have expected. I recognize it’s one measurement, but it was important for me, because it was shocking. I would have assumed based on my experience in school that I was slightly below average. That didn’t turn out to be the case.
For me, in that moment, I wondered, “How did the system lose me so poorly?” Because clearly I didn’t fit into the system. As a result of my bad grades, I was stressed out a lot as a kid, I would beat myself up. I had poor self-esteem, which would then lead to being bullied and then lead to a bit of depression. It was a negative experience for me. Largely because how I perceived myself was so broken, because what the school system measures is how well you fit into the system. We have one system for everyone, so you either fit or you’re on the edges.
Then, when I had kids and saw them in school, I realized the system hadn’t changed for the last 200 years. The first report card was issued 200 years ago at Harvard as a way for schools to be able to put parents at ease that their tuition money was going to a good cause. If you go back and look at early report cards, they look almost identical to today’s report cards. When you’re trying to teach at a report card score, you only pick up a narrow style of learning. So, bottom line, that’s what FreshGrade is about: we capture everything, including all the incredible things a student can do.
YI: How has FreshGrade helped progress education?
LM: One of my favourites: when I hear from some of our earliest districts, those who had been working with us and using our tools the longest, they’d been making report cards and parent/teacher conferences optional, because parents are in the loop every day. Parents were communicating with the teacher frequently throughout the app, so they weren’t showing up for parent/teacher conferences. Parents felt they already knew how their [children] were doing. They were engaging with the teacher throughout the year rather than waiting until the end of the term. One school in particular got rid of report cards and the old formalities became irrelevant.
We had a district that confessed to us that they budget almost $20M a year on what they call report card flu. It’s a budget for substitute teachers that have to be brought in around report card season, because teachers call in sick so that they can go home and work on report cards.
YI: It sounds like FreshGrade is helping make the educational process more efficient.
LM: Every study out there will tell you that one of the leading indicators of educational success with children is parental engagement. It’s one of the reasons why a lot of new budgets are requiring new forms of parent engagement. Historically, parent engagement was measured by whether parents showed up for a teacher conference, so you’d have three data points a year. Well, we look at our app and see that parents are logging in on average every other school day and engaging with their children and the children’s teacher. That’s really powerful. Teachers love it. Because they don’t have to assemble three months of work in order to engage with a parent; they’re doing it ad hoc in real time and having more meaningful conversations as a result. Students are also performing better.
Every good entrepreneur has to be a good salesperson.
YI: You seem to be very driven by effective communication. Where did this come from?
LM: I learned communication skills from my dad. He was a pastor of a church when I was a kid. Every Sunday, I’d watch him stand in front of 200 to 300 people and speak for 15 to 20 minutes. I saw him prepare his sermons. I’d hear him critique them afterwards and grow and learn and evolve; he was a great storyteller. It was one of the things that us kids valued learning from him.
If you put that in a business context, he was selling. I’m not saying he was trying to sell from a financial perspective. He was trying to encourage religion and relationships with all of us. For me, the thought of going door-to-door and soliciting people to have me mow their lawns wasn't a scary thing; it’s what I saw modeled in church by my dad.
That’s where I learned communication. He was a gregarious, charismatic, and outgoing person. He really cared about people. He cared about having a great life and a great experience.
Every good entrepreneur has to be a good salesperson. If they're not, then I always recommend to find a co-founder or someone who can sell. If you can’t sell yourself, then you can’t sell your business idea or sell your idea to an investor.
When I’m in the Den and I’m listening to someone pitch a product, if it seems like they don’t care, or they're disinterested, or they haven’t done their homework, or they aren’t good at pitching, to me it’s a knock against them. If you can’t pitch it to me, how are you going to pitch it to customers? If you can’t pitch to customers, how are you going to sell anything? If you can't sell anything, why are we even here? It’s fundamental.
If you don’t believe in what you’re selling or care who you’re selling to...you’re going to end up failing.
YI: What makes a good salesperson?
LM: You have to believe in the product or service and you have to care who you’re selling to. The two go hand-in-hand. Bad sales people are marked by one of two things: either they don’t believe in the product or they don’t know how to communicate. Let’s assume someone’s a good communicator, and they don’t believe in the product and they’re trying to sell it—people will see through that. Or they don’t care genuinely about the people they’re trying to sell to. That’s when the people they’re selling to will start to have a bad experience. That behavior will slowly hurt their personal brand and will bring them down as a salesperson.
To me, those are the two things: Do you believe in what you’re selling? Do you care enough about who you’re selling to? If you don’t believe in what you’re selling or care who you’re selling to, or the type of customer is not someone you genuinely want to engage with, then don’t try to be in sales or sell that product. You’re going to end up failing.
YI: Do you think entrepreneurs step out of the building enough to test where to take a product or service next?
LM: Well, you can always do more testing. A lot of it comes down to empathy. Sometimes you hear the word empathy and you think sympathy. I’m talking about being able to put yourself in the position of your customer and understanding their needs, how to serve them, and how to best provide a good service, business, or sale. It’s important.
I don’t care how good the opportunity is—I’m never going to invest in an opportunity. If someone comes into the Den and says, “Boy, do I have a great business and the reason I’ve got a great business is because it’s going to make me lots of money.” If that’s the direction that the pitch goes, I’m tuned out. I don’t believe in opportunistic entrepreneurs. I don’t believe they end up being successful. I think they end up being high-risk entrepreneurs, and I’m not willing to put my money into something like that.
I like entrepreneurs who care enough about who they're selling to and have enough empathy to know their customers well, understand their needs, and solve those pain points.
There’s always people who come in the Den, half pitch an idea and then when they see us going south, they say, “Well, that’s not the only idea I have.” All of a sudden I’m going, “Wait a minute, you didn’t even believe in this idea long enough to pitch it for more than 15 minutes, and you’re already on to a new idea?” Why would I give you my money to pour into one idea, when you so easily can go into 10 other ones? I think conviction, having a why, caring about who is going to buy your product and having empathy for them is important.
I not only tap into my experiences as a parent, but my experiences as a student and a child.
YI: What are the key criteria or questions you ask when assessing a business idea in the Den?
LM: A lot of it comes down to one question: why are you doing this? Why did you get excited about this in the first place? How did you come up with the idea? Why are you pursuing it so passionately?
If the only 'why' is to make money, the moment that pain and difficulty and strife hits, it’s easy for a person to walk away. When they walk away, they’re also walking away with my money. I want someone who is going to be passionate and willing to be up at 2 a.m. or 3 a.m. For [Club Penguin], we’d be awake for 24 hours, once dealing with a server outage that was impacting our customers in Australia. We did it because we care about kids and we didn’t want them to have a bad experience.
For me, I not only tap into my experiences as a parent, but my experiences as a student and a child. I think about how parent/teacher conferences were stressful for my mom, because she’d come home from some of them beat up. [A] parent whose child was struggling got upset, then he told my mom, “You don’t care about my kid. You’re not teaching them properly.” My mom was an award-winning teacher, but she’d still have to deal with parents who’d want to blame her for their child's struggles. When I look at what we can do with FreshGrade, that disappears. The data is there in real time for everyone. You won’t spring it on parents that their child is struggling, they’ve been looking at the data for a long time. That’s just an example of why that level of empathy is important. You have to be able to tap into that. If you can’t, I’m not going to invest.
If it doesn’t matter to an eight-year-old, it doesn’t matter.
YI: You’ve also talked a lot about the danger of identifying your worth with your work. How did you figure that out for yourself?
LM: Any good entrepreneur has to be able to compartmentalize. There are so many difficult things that come up. If you just hold it and chew on it and spin off every single challenge that’s facing you as an entrepreneur it’s going to be overwhelming.
The best thing for me as an entrepreneur is that I have a short-term memory. When someone messes something up, when something falls apart, when something doesn’t go the way I hoped it would, I can only dwell on it for so long. Then it’s like my brain has to move on to something else. Likewise, if you’re pouring your personal value as a human being, or your value to your kids or your family on whether your business is successful, that's a treacherous thing.
As an entrepreneur you have to already have enough self-esteem and self-worth that you can handle the bumps and the bruises and the pitfalls that come along with any entrepreneurial journey.
I always caution people, “You can be on the cover of Businessweek one day, but you’ll be taken off the next because someone else will be on that cover.” I’ve seen people get addicted to their own personal image at the core of their company. It can be a bit of a high. To avoid that with Club Penguin, we used to have a phrase, "If it doesn’t matter to an eight-year-old, it doesn’t matter.” We would make almost all of our business decisions that way.
I’d be invited to attend keynote conferences, and I’d turn them down. I was offered four times. I only accepted after I joined Disney, and we had a big enough team that I could take the time off to do it personally. Up until that point, being offered this big speaking gig would have fed my ego and it would have been fun to get some photos and press coverage from it. But, does an eight-year-old, who’s trying to upgrade their account, care? No. It doesn’t help him. For any business owner, substitute an eight-year-old for whoever your customer is. If it doesn’t matter to your customer, then it doesn’t matter. If it’s about building your personal brand, or to inflate your ego, or about serving you instead of serving them, it’s going to be detrimental to your business.
Tags: business advice, business success, dragons den, education, entrepreneur, entrepreneurs, inspiration, leadership, motivation, club penguin, entrepreneurialism, fresh grade, freshgrade, lane merrifield