In this second part of our three-part series on ideas for creating successful media companies, serial media entrepreneurs and CommonAngels members Tom Burgess former CEO of ThirdScreenMedia (recently sold to AOL), and Jay Habegger, founder and CEO of OwnerIQ, Inc, and I share our advice and experience about building credibility and value in new media businesses.
James: You’ve both sold ventures to very big players in this industry. What have you learned about building credibility with audiences, advertisers, and their investors that you can pass on to other entrepreneurs?
Tom: One of the very first steps if you are an entrepreneur with a great media idea is to surround yourself with “influencers.” This includes management, board members, advisors, investors, partners, and customers. Next, understand how to leverage them.
Small up-starts have difficulty breaking down the doors of large players in established markets. A sales strategy that is well-organized includes empowering your influencers to sell on your behalf. Your story is far more credible when told by a third party or trusted sources within an industry. As a small company, do not rely on direct sales to enter an established market with a new offering.
People with significant connections and experience in your target market will open doors and provide guidance that can only come from those who have “been there and done that.” Spend an inordinate amount of time going after good management, board members, advisors, and investors; this costs money and equity and is worth every dime.
Something that has worked for me over and over again is to focus on well-respected customers in the marketplace. Don’t fall for the theory that you should try your products on small customers before you launch with a large player. Go directly after the big fish, and you will be well rewarded for the effort. In most cases it takes just as much time and effort to secure a small customer as it does a large one.
Jay: Many entrepreneurs are so enamored with ideas and possibilities that they don’t do the validation and diligence that would be required to invest their own time much less someone else’s money.
Entrepreneurs should do a basic level of research to understand what it’s going to cost to carry out their ideas and to understand what’s important to the market. If you can’t articulate that, how can you possibly implement your idea or build a site? The web has actually lowered barriers to get this kind of research. Conducting anecdotal interviews is straightforward, and doing broad-brush surveys isn’t that hard with the tools available.
One simple way to validate your data on the market is to buy key words against the target audience, place key word ads that direct people to a landing page, and count how many go there. You can also speak with merchandising managers and VPs of marketing to see if what you are proposing would be of interest to them. Investigate the other publications in your market. Those magazines have information on demographics. It’s out there for the taking. Look at their rate cards and media kits. What do these tell you about the demographic?
At one point with our business, we were considering alternatives. One of the co-founders suggested that we put together a survey, compile our own email list of people we knew, and ask their opinions.
Like us, any entrepreneur can reach 100 or 150 close friends or associates with an online survey who, because they are friends and acquaintances, will yield a high response rate of maybe 50 or more answered surveys. This gives you 50 market data points. This is something you can do with turn-key web survey systems that wouldn’t have been possible even 10 years ago. Any entrepreneur can gather information about audience; it’s not that hard.
Tom: You also have to figure out your barriers of entry. A lot of software investors are used to looking at patents. They offer solid product validation and are worth the effort, but they aren’t very strong barriers to competition. In fact, a patent is only as good the money you have to defend it, which means it can be worthless.
When your business is media, focus on innovative solutions that remain “sticky” throughout their lifespan. Once customers start using your solution, you want them to find it very hard to replace it with a competitive offering. Sometimes this means becoming technically integrated with your customers’ processes so that it becomes too costly or time consuming to untangle your technology from theirs. Alternatively you might provide your customers with proprietary information that, when combined with their business, becomes more valuable over time causing them to hesitate when confronted with the option of losing progress or momentum by changing to another solution.
Your customers may be the best source of information on competition. There will always be other (potentially better) solutions to compete with your product. Create barriers to churn so that the calls you get from customers are requests for enhanced solutions and not requests to terminate the relationship.
Jay: Investors want to see audience validation. They hear over and over that awareness of the site is going to spread by word of mouth: “its going to be viral.” The problem is that it may work that way, or it may not. Everybody knows the viral success stories, but the non-viral failures are much more numerous. The entrepreneur has to validate that viral traffic by supplying some evidence that viral nature of his or her business can work out. It is highly situational, and the burden falls on the entrepreneur to demonstrate why in his or her case the assumption is reasonable.
As for what is it going to cost to get a user, there are no standard rules of thumb. The burden is on the entrepreneur to explain what he or she is going to do and the cost. If you come up with a model proposing a user acquisition cost of a $1 and the industry cost is $10 that could be your secret sauce.
Tom: Another thing. Forget about being “stealth.” With groundbreaking technology it may be beneficial to run silent during your development process, but media is different. Creating buzz is everything. I believe in talking about it and in telling anyone and everyone about my business. In my opinion, to run it in stealth is crazy. Tell everyone what you are doing. You will always hold back the details of your “secret sauce,” but tell everyone you are in a space and that you are a player, especially if you are breaking into a market.
With Third Screen, we were the first to do something, and we were very, very vocal about it. This was extremely important for Third Screen not only to get customers but it helped with valuation. Media is very much a buzz-driven industry, and public relations is a big piece of that.
James: CommonAngels sees wonderfully creative ideas from media entrepreneurs, but the challenge can be that they become so infatuated with their content that they don’t pay enough attention to the revenue model. I’m not talking only about first time entrepreneurs either; this happens with experienced people, too.
Tom: Making money from content starts with simple but often time consuming research to find out what models have been successful for other similar companies. Sometimes it is obvious what model will work for your business and sometimes not. You may need to take pieces from multiple models to build particularly unique model that works for your business. In any case it is critical to combine your eyeball/customer acquisition strategy with your monetization solution.
If you have a high acquisition cost, your monetization model might be very different than if your audience is easily acquired. For example, if your audience is a particularly difficult group to reach (for you and others) then you will likely have a small audience with high value. This translates into high value inventory that can be sold in a pre-paid cost per thousand (CPM) ad sales model.
On the other hand, if your audience is easily reached then your model may be based on high volume and low cost or a performance-based revenue model. Some companies inject targeting capabilities that increase the value or provide more efficient ad delivery to increase the advertisers ROI which translates into repeat buys.
Finally, subscription models can play a significant role in the revenue model for media companies. It’s important to note that 50 percent of all media revenue, including TV, radio, print, and online, comes from advertising and the other 50 percent from subscription.
Jay: The paths to monetization have been rather consistent. Subscription-based web services for access to content should be treated with a healthy degree of skepticism; there just haven’t been that many success stories based on this model; only rare things have supported a monthly price.
Virtually every significant Internet fortune has come from advertising. When people have neat idea and a neat service, advertising budgets are the place to look for significant dollars. However, just because it is tempting doesn’t mean that it happens easily.
James: It seems clear that pay for placement drives people away. Search works because it’s so relevant to what people are looking for. That’s the quid pro quo that makes media business models click.
Tom: The entrepreneur must know their market, the industry stats, how other companies in the space are valued, and the business models of these other companies. The next most important thing is to be able to articulate that to potential customers and investors very clearly in as few minutes and slides as possible. Never underestimate the value of a strong elevator pitch that includes a succinct positioning statement.
James: When you can simplify someone’s life—whether through awareness, information, education, or advertising, you make the audience happier and the brand happier, it’s a win-win-win.
In our next issue – Part 3: Starting up a Media Company: Growth and Acquisition
Ed de Castro brings a rich background in software, semiconductors, and most recently life sciences. Ed has been a director of the Avax Technologies since October 1993. Since 1990, he has been consulting for companies and participating as a member of certain Boards of Directors. Ed was one of five co-founders of Data General Corporation in 1968 for which, from 1968 to 1989, he served as its President and Chief Executive Officer, and from 1989 to 1990, he served as its Chairman of the board of directors.
Dan Kaplan brings extensive knowledge of on-line and off-line publishing as well as current experience in energy efficiency. He currently is CEO of PowerHouse, which has developed a technology enabling homeowners to monitor and manage the energy consumption (electricity and heat) in their homes. Previously, he started more than a dozen publications including alternative newspapers, regional business publications, and regional and national magazines. He was a co-founder and director of LowerMyBills.com, which was sold in 2005 for $300 million to Experian.
Martin Flusberg adds to our expertise in technology solutions for energy. In his 25+ years in the technology
Ajay Sadhwani brings both software and healthcare expertise, most recently as a co-founder and CEO of ARS Clinical (a clinical research organization). Ajay served as President of ARS Clinical since co-founding it in 1998. ARS Clinical was acquired by Premier Research in July, 2007. He has over 14 years of experience in the Pharmaceutical/Biotech industries implementing clinical trial data management systems and their related processes. His career has taken him from Damon Laboratories and GE Medical Systems to Serono Laboratories. Ajay received his B.S. degree in Bioengineering from Syracuse University and his M.S. in Biomedical Engineering from Boston University.
