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Jul 26, 2023

How Nextiva's founder and CEO Tomas Gorny made his first million

Welcome to “How I Made My First Million,” Fortune’s newest series in which we interview today’s most powerful people about how they amassed their wealth. You’ll hear from founders, entrepreneurs,

Welcome to “How I Made My First Million,” Fortune’s newest series in which we interview today’s most powerful people about how they amassed their wealth. You’ll hear from founders, entrepreneurs, investors, and creatives across the globe on how they joined the seven-figure-club, what they’d do differently, and their best piece of advice for building wealth.

Tomas Gorny is difficult to categorize. He’s a Polish immigrant who moved to the U.S. with absolutely nothing (not even the ability to speak English), a tech founder, a serial entrepreneur, a former paperboy, and a father of five. He also has millions—but he won’t tell you how much.

But perhaps Gorny, who just turned 48, is best defined by his ability to rise from the ashes. His first major success came just before the turn of the millennium, when, after dropping out of college, he moved to Los Angeles to work on a website hosting business, which sold in 1998 for several million dollars, making him a millionaire. Gorny, then 23, should have been set for life. But his next endeavor—a business selling Internet ads—crashed spectacularly, along with the rest of his early investments. He found himself back at square one, unable to pay his mortgage.

But Gorny’s insistence on making it in the U.S.—he considered his flight here to be a one-way ticket—meant he was undaunted by starting over. He founded web-hosting platform IPOWER in October 2001, which a few years later would be acquired for reportedly almost $1 billion. He’s since co-founded three more companies in the web hosting space, including his current business Nextiva, a cloud-based business communications software firm.

Gorny is unorthodox; he doesn’t work on the Sabbath, he refuses to shell out for overpriced coffee, and by his own admission, is “not very hireable” because he doesn’t take well to following rules. But he’s doing something right; Nextiva received $200 million in funding from Goldman Sachs in 2021, giving it a $2.7 billion valuation.

It’s anyone’s guess where Gorny will find inspiration next, but he revealed to Fortune what keeps him grounded and determined to keep searching.

Where did you grow up?

Communist Poland. My parents were essentially factory workers. My exposure to business and entrepreneurship was non-existent. I was born in 1975, and [for] the first 14 years of my life, I lived there. I already knew, by around the age of seven, that I wanted to come to America. As a teenager, my exposure to the U.S. was really through textbooks and American movies like Wall Street and 90210.

I was, at this time, living in Germany, and already started a couple of businesses while going to college. And I happened to know somebody who moved to the U.S. and returned for a visit. He was very impressed with everything I was doing, and he offered me to join his business.

So I dropped out of school two months before graduating, and in March of 1996, I moved to Los Angeles to help him to start a web site hosting business for sweat equity. For about three years, I was living off $3 a day. Finally, in 1998 the business ended up selling, and that’s how I made my very first million—and significantly more.

What would you say your life was like during childhood, financially?

Very constrained. We didn’t have a car. Our primary form of transportation was a bus. We didn’t have a telephone, we had black and white TV, where there were a couple of channels to stream. Life was very simple. I never felt poor, I always felt that I was well-taken care of. And my parents always encouraged me to do more.

What got your interest in business and finance when you were younger?

I was always hustling around, always the organizer, the leader of different initiatives. I always stepped in when there was nobody willing to lead. Later in my life, I developed a taste for solving big problems in the market.

When we moved to Germany, I grew up during the era of the PC revolution. And the very first PCs had the DOS manuals, where you had to really write those long string command lines on your computer to get anything done. And then Windows 1.0 came around, Windows 2.0, Windows 3.0. At that point, you were able to do everything you had to do with typing those long string command lines, just with a click of a button.

That was a pivotal moment in my life. I said, I don’t know what I’m going to do in my life. But I want to be a part of making tech easier for other people. Because I saw how Windows opened the market to everybody and made it accessible. I wanted to be part of the tech revolution.

What was your first job? How much money did you make doing it? What did it teach you about money?

A paperboy in Germany. It made relatively very little. I was literally waking up at three or four in the morning, doing the paperboy job, going to school, and in the afternoon, I was running my business. Although I thought I was doing a good job, I ended up getting fired. I think part of the reason why I’m entrepreneurial is because I’m not very hireable. I have a mind on my own. And if anybody knows how Germany functions, it’s a very process-oriented country. You have to follow the rules. I am not a rule follower.

I found that I will be ultimately better on my own because I set boundaries, I changed the status quo. I don’t accept that what exists today is the limit. We can create new things, and we can make them better.

What was the job that you were running?

I started a couple of companies. One has failed. [I was] just selling CDs, and it wasn’t going well. And my dad felt bad for me and ended up buying a bunch of CDs for me—he became my very first customer.

Later, I really took advantage of the PC revolution. And there were some big companies in Germany building businesses, but I thought, we can do it better by delivering personalized service, right to people’s homes. We started building that business [called Trendsetter], and I didn’t have any capital. So I literally needed to sell one computer at a time. Eventually, as the capital grew, I started expanding that, and it became not a large business, but it was still substantial for an 18-year-old boy.

Talk me through that moment when you got the offer to come to the United States. How did you manifest that? What were your steps to get there?

When I was building my business for the person who moved to America, I was actually doing a mandatory internship for him while I was going to school.

As he was coming back to visit his family in Germany, he saw what I was doing with the businesses, and he was very impressed. He was just about to start a website hosting company. It was 1996, one of the very first website hosting companies in the world. We didn’t know what the internet would do at that point. He says, join me. There are no guarantees, I cannot afford to pay you, but I will give you sweat equity.

I dropped everything, ended up in the U.S. doing various jobs. While I was looking at the business in the morning, at night I was parking cars, cleaning carpets at restaurants and apartment buildings, doing various waiter jobs at events. I was doing whatever it took to survive on three bucks a day, but I never pitied myself. I was living in the country and the city I loved.

What languages did you speak prior to coming to the United States?

Polish and German. I didn’t speak English. Essentially, I ended up learning by answering emails and by interacting with people in the business.

Within six months, I was able to communicate fairly well. And then over many, many years, my skills have improved. Twenty-plus years later, I still have a pretty significant accent.

Did you ever have a thought like, maybe I should move back to Germany?

No, and I went through some very tough times. But Germany wasn’t the right environment. For me, it’s a beautiful country and treats people well, but it’s a very conservative country and lived by a lot of rules. I’m more of a free spirit. For me, America was the land of opportunity.

You mentioned you had to live off $3 a day, essentially. Did you ever have to take out credit cards, like charge cards, or get into debt?

Back then, when you came to America, you had to build your own credit. I ran out of money very, very quickly by putting a down payment on an apartment. My deposit was larger than the credit that they would give me. So I didn’t have any credit. At the beginning, I didn’t have a social security number. I applied for one, and I needed to hire a lawyer, so I could stay legally in the country. So all of that, you know, will put a big strain on my financial position.

Even with living on $3 a day, it wasn’t a big deal. A friend of mine and I would always on Sundays made the trip to Sizzler—all you can eat. It was essentially a $7 meal. We put a bunch of our money together, and one of us was always going to the buffet. That was my treat for the week.

How were you able to accumulate wealth at that time?

I wasn’t. The goal was really to focus on the business. We knew that more and more people would have websites, but having a website was still expensive. We were one of the very first website hosting companies out there. And very, very quickly, the majority owner started getting pretty good offers for the business.

I was a little bit reluctant, although I was the minority owner, and I probably had more interest in selling the business because I wasn’t in control. I was advising him against this. I said, ‘Look, this market is going to expand. Eventually everybody will have a website.’ And he decided to sell in 1998 and, two-and-a-half years later, he honored the arrangement that we had, and I ended up becoming a multi-millionaire literally overnight.

What were the first offers?

They were in the range of $2 to $6 million, and it was a cash and stock deal. But the reason it dropped out so beautifully is because the company who acquired us ended up going public. And we took two-thirds in cash and one-third in stock. The stock alone ended up being in the tens of millions of dollars.

You’re how old when you got the million dollars?

I had just turned 23.

That’s a lot of money for 23-year-olds. What was your thought process? Did you think about getting a financial advisor?

Not quite, for good or bad. I bought a modest house, where I put down a down payment of less than $100,000. I bought my very first car—a Mercedes—for $40,000. If you know LA, you know you cannot rely on public transportation. The rest I invested, along with people I trusted. Unfortunately, that was part of my mistake.

Along the way, Softbank also came around and invested in one of our businesses. And I invested along with Softbank to start the business. This was all in 1998 to 1999. Two years later, you know, the bubble bursts. Some of the people that I trusted, I made a mistake on, and all of that money was essentially gone. By the middle of 2001, I didn’t know how to pay my next mortgage.

What was that moment like?

I wasn’t down on myself, I still saw the market as a huge opportunity. As I mentioned, I was advising the prior owner of the website hosting company not to sell. And I looked at the website hosting landscape, and I said to myself, there’s still a huge opportunity. Nobody has done what I envisioned doing: making website hosting easier for the non-technical users, taking the middleman out, making it significantly more affordable.

Around that time, right after September 11, was probably one of the worst times to start the business. I decided to start a business. At one point, the stock that I had, which was worth probably between $8 to $10 million crashed and was worth $6,000.

I ended up liquidating that stock and buying a couple of servers for the web hosting company. At that point, I had good credit. And then I started the website hosting company [iPower] on an American Express out of my basement. Later, I rented a very small closet in somebody else’s office and converted it to a little office. Then I put a couple of people in.

We became the fastest growing website hosting company in the United States. Within a couple of years, we were the fastest growing website hosting company in the world. The business was, within a year, worth more than $10 million.

In 2007, we merged with another business that was a little bit smaller than we were. Together, we continued to build the business. In 2011, we sold that business for nearly a billion dollars, then we took it public.Today, it is the second largest website hosting company after GoDaddy.

When you started iPower, how long did it take for you to pass the $100 million-dollar plateau?

It took us around six years to get to $150 million.

When you got a paycheck or something at that time, and it was for an exorbitant amount of money, did you ever have the thought of, this is an insane amount of money, or it was just kind of, No, I’m just focusing on it?

When we started, I set three rules for myself: Working with great people, creating a product that provides amazing value to customers, and making sure that we can stay independent and in charge of our own destiny.

And I had some personal rules—if I can just get to making $5,000 a month and pay for that mortgage, I can live like that forever, literally. I was still in the very early days, where we were signing just three customers a day because we were still developing our tech.

I came from this up and down, where I wasn’t trying to make it back. I was just trying to focus on the new opportunity. When we launched the new software, we literally overnight went from three customers a day, 200 customers a day, 2,000 a month. Within a couple of months, we were acquiring 10,000 customers. We got, by the first end of the first year to 60,000.

Did you ever purchase anything outside of the house or car that was really expensive? Or were you just focusing on putting it towards the business and letting it succeed?

Always focusing on the business. I define myself more by the impact I can make in the marketplace versus my net worth. And generally, I don’t have that many interests outside of the business. I’m a pretty boring guy. We accomplished one piece in the market, and I was looking for the next opportunity.

What is the most expensive thing you’ve ever purchased?

It probably would be that house. Over the years, I purchased some larger homes because my family grew. I have five children, but the house definitely was my largest purchase.

I’ve also heard you observe the Sabbath.

Yeah, I do.

Why is that important to you?

When I grew up, I wasn’t observant at all. Eventually I became more religious. That was sometimes triggered by not-so-positive events. When my first business went down, I decided to keep kosher. Later, I decided to be a little bit more observant. Eventually, because of various circumstances in our life and family, I decided it would be good to keep Shabbat. For the last 10 years, that’s what I’ve been doing.

The people around me are very much aware of the circumstances, they know how to reach me, ultimately, if there will be a huge crisis. And, thankfully, I haven’t been required to jump in on Shabbat yet.

You’ve said you work 20 to 22 hours a day, except for Shabbat. That’s a lot of hours.

It’s not a proud statement. I just have insomnia, so I don’t sleep that much. But having said that, look, it’s not a healthy thing. I know that.

How did you develop Nextiva? How did that come into development from iPower?

I was looking at market opportunities. There was very little innovation in communication done for over 50 years. And we knew that we can make a significant impact in communication given that the world of conversation was developing very quickly.

Because of the digitization of communication channels, I anticipated there will be more ways for people to have conversations. Especially because generational preferences will change over time.

So we made it our mission to be the company that brings all conversations together in one place, and allows every business, especially the non-technical businesses, to really be able to level the playing field between some of those really large technical businesses, so people can compete against the big giants.

What would you say your total net worth is today?

I don’t know. I generally don’t pay attention to this. I also don’t want to talk about it because I don’t talk about it to my children. But it’s substantial.

Fair enough. What would be the number one piece of advice you’d give us all looking to accumulate wealth?

I have three pieces of advice. When an entrepreneur starts a business, he or she not only should be looking for the gap in the market, but for the market in the gap. Even if you have a good idea, and there is a lack of a product in the market, you really have to assess whether people will be willing to pay for it. And that truly increases your chances of success.

Secondly, after you establish this, create a product, especially in the early stage, that delivers more value that people are paying for. Because it establishes word of mouth, it allows you to get referrals. And if you’re in a subscription business like us, you will be able to keep your customer significantly longer.

The third is to focus more on building a business, versus focusing on the financial outcome of the business. Some entrepreneurs make that mistake and forget to build a business. But when you focus on building the business, the financial outcome will be maybe significantly better.

I have the rule of no exit strategy. And I have sold businesses, bought businesses, taken businesses public; that doesn’t mean that I never will do this. But it puts me in the frame of mind that I am focusing on creating the best business possible.

What is the biggest takeaway someone who wants to build wealth can glean from your personal journey?

Probably not so much focusing on wealth accumulation, more focusing on which role and how they can be productive members of society and how they contribute to it.

When you wake up every morning, and you get on the field, there will be people that rely on you. So when you get off that field at night, you’ve got to ask yourself the question: Was the team better with me or without me? If the answer is positive, you have done your part.

Growing up, you’re in Poland and didn’t have a whole ton of money. Now, obviously, your wealth is extensive. How do you teach the value of money to your kids?

The main thing is frugality. And my wife is actually significantly better at that than I am. They hear that from us all the time. We don’t live a lavish life. We don’t travel lavishly. My airline of preference is Southwest. I travel often from Dallas to Scottsdale. You can not only just communicate it to them, but they see how we’ll live. Even the homes that we live in. Yes, they are very privileged by association. But you know, part of the reason why we’re also not disclosing our net worth: It should be irrelevant.

What are some things you refuse to spend money on?

Anything I feel is overpriced. Even coffee prices in LA have been astronomical, I just cannot get myself around that.

What’s your alternative to buying coffee?

I still do it off and on, but I make my coffee in the office. But there are times that you just go into restaurants and you know you’re being gouged. The world has changed quite a bit over the last couple of years with inflation. I think in some areas, it became very unreasonable. To me, it’s just a matter of principle.