When companies get purchased for hundreds of millions and even billions of dollars, it gets us fired up and hungry. Lucky, we operate in an industry where we can actually do something about it. Despite the increased competition, saturation, and sophistication of the major players, you can still make money, relatively quickly and without much initial capital. There have always been low barriers to entry for certain types of online advertising. And, if anything, the commoditization of many online services has made that barrier even lower over time. For example, today, much of what you had to pay for in the past now comes free. From web creation to tracking, instead of shelling out thousands of dollars or making due with marginally useful free versions, today’s options are more than the average person will need. If you wanted, you could get up and running, ready to promote without having spent a penny. And, if you happened to be really clever, you could make a profit before ever having spent a penny. By the time you’ve run through your $50 in free advertising credit, you’ve already made $100.
Perhaps the biggest difference between now and a year or two before comes in the form of competition. Getting started quicker and easier is a double-edged sword, because it means anyone can get started quicker and easier. Now, if there is one thing that writing about venture money causes us to do, it’s think about the long-term. You can get started in almost no-time, and perhaps break even just as quickly, but if you want your project to scale and stand the test of time, we’ve learned that you better have one or more of the following:
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Passion – Some people call it a laser focus, but we’ll call it passion. Perhaps not entirely true, but when people think of an entrepreneur that didn’t get it right on the first go round, they pick Edison. No one remembers his failures, only the major success that changed our world. The lucky few will start quickly, with little money, and then make it right away. While possible, that simply doesn’t represent reality. You will fail, and you will most likely fail many times before you get it right. If you lose sight of what you want to do, then you will certainly fail. You will try one thing, then change your mind and try something else. As you do that more and more, you won’t gain the benefits of testing. Instead, you’ll have one data point about each thing rather many data points about one thing. Passion helps keep you focused, which is why we start with that. Focus on an area you know and like, not just one you think can make you money, if you want to make the long haul.
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First Mover – Whether with lead buyers or dealing with distribution sources like Google, history plays a role. You often do a lot more work with less obvious returns, but seemingly more often than not, those who took the effort to reach the buyers first or to learn the system early saw it pay off in the end. The downside, and what we will see common to this and the remaining items on the list, has to do with adding value without necessarily knowing the magnitude of the returns. You can enter mortgage today or you can enter another vertical that has good liquidity but also good exposure, but without one of the following, you should wind up with low margins and an uncertain future.
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Barrier to Entry Technology Platform – When thinking about some of the more well-positioned companies, many not only have the desire to continue on their mission for many years; they also seem to have something more tangible. Namely, they have invested in a technology platform. I think of a company like Lead Point, or Efficient Frontier that controls more than $300 million in search spend. It doesn’t take a long period of time to build a search engine marketing system or a backend that can sell leads. But, it does take a long time if you want to build not just a working version but a market leading one. And, it takes more than time, but belief, if you plan on building those and any number of other technologies before the market says you must have them. The companies that will stick might not have built them to start, but over time they have worked on keeping others behind them through technology.
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Sales Aggregation – Look no further than LowerMyBills to understand sales aggregation. The company did have great media buying, and it did know how to design clickable ads, but they would not have succeeded on the level they did without their sales strength. Leadpoint has worked to have both a strong lead buyer backend and leading technology for handling leads. You need both to enter a saturated vertical late, but you absolutely need the sales in order to succeed. Take the undeveloped vertical of washing machine repair. Be the one that gets the buyers together and you assure yourself a longterm play. It requires time and money where you will not see a return, but doing so could mean that you end up controlling the market and that all lead sellers go to you. Leadpoint has made sure that anyone can enter mortgage, but get the buyers first and you can decide whether you want anyone else to enter.
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Honed Operational Processes – When I think of process, I think of Nextag. Here is a company that grew year over year, achieved a billion dollar valuation but doesn’t seem to have one happy ex-employee. It feels like no company in the direct response space has churned through so many employees and yet managed to grow. They have achieved the capitalist ideal – a growth engine that doesn’t rely on any person for its success. Who knows if reality truly follows, but I think we can safely say that very few companies have had as high a churn rate as Nextag. While they did have focus, the first mover advantage to some degree, and decent technology, we tend to think they succeeded because of their processes. They knew what each function needed to do, how to measure success for that function, what skills a person had to have for that role, and how to have that role survive the person who occupied it. Their success reminds us of a story we heard from ex-Advertising.com employees. For a while the company tried to do many things, but it found success when it figured out just what it did the best and organized the entire company around achieving that. It doesn’t involve technology or being first, but accomplishing this takes more than you might think.
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