Cogblog

Well, Stylehive figured out a way to get me to come back: Send me spam.

Here is an email I got from them this morning and almost spam filtered:

Subject: Help me pick a hot bikini!

From: “honeybee@stylehivemail.com” <honeybee@stylehivemail.com>

Hey, Brent!

http://www.stylehive.com/slideshow/Editors-Pick-Smokin-Swimwear-in-Hive-Central-535

I’m going to the beach next weekend with the new boy, and I need help deciding what bikini I should get to surprise him with. I thought you could help me decide. Hive the ones you think are the hottest! Thanks in advance, I will let you know how this little experiment turns out.

To see all your messages and respond here

If you want to follow me just click here.

Happy Hiving!

honeybee

I felt like this reeked of desperation so I went back to see what the hell was going on. So honeybee is a stylehive employee and she “used” the “send this member a message” button on thousands of members. How do I know she sent virtually everyone on Stylehive a message? Because she is getting dozens of new people “following” her this morning - more than 300 new friends this week.

Why does Stylehive need to send me sketchy email to check out their site? Probably traffic is flat. Let’s look:

Not exactly news, but traffic has flattened out. If they were getting $10 cpm’s per page, an outrageous amount for essentially demographic inventory, with 2 million page views/month they have a $20k/mo business. That does not get them there.

I do have to say that the site is headed in the right direction philosophically, it seems. Here is a product page that actually gives you data above the fold:

So that is the right kind of thing to help them improve frequency. A single 728 across the top and then the content you were looking for. Me, I would move the links to photo galleries at the top to a more compressed area, shrink the logo a bit, and jam the 728 into the very top. Page layout seems really clunky with the 728 where it is.  They picture the “hiver” more prominently than the clothes you came to look at.  Is that bizarre?

Unfortunately, the other direction they are heading to improve frequency is photo galleries, and there seems to be a big focus on driving traffic to the photo galleries on the site now.  No surprise, it is mildly nefarious: Slide shows (their term for photo galleries) are automatically advancing pages that load a 728 in the bottom and a skyscraper on the side. When a slideshow finishes it automatically advances to a new slideshow.  So they can generate a lot of high frequency traffic off a single inattentive visitor.  Of course, this is all worthless traffic. I see a bunch of adify tags, so they are likely seeing < $1 cpms.

I saw back in December that they made an acquisition and in the article, PaidContent references several competitors. I put together a quick Alexa chart showing their traffic ranks:

I remember when Stylehive and ThisNext were the Web 2.0 shopping sites.  It must be Web 2.1 because they are getting pwned by the new kids on the block.  Stylefeeder has moved super quick.  What are they doing?  Couple of simple thoughts, although you never know without testing:

• Picture first, then description and tags.  Stylehive does tags, then description, then picture, frequently pushing the picture below the fold.  People are shopping visually.
• Celebs: Stylefeeder gets recommendations from celebrities.  Stylehive from fashionistas.  Celebs probably have a broader appeal.
• No ads above the fold.  They have a 300×250 on the side and a 728 at the bottom, both below the fold, the result is a cleaner, less cluttered look.
• Recommendation that shows you other related things that people liked.  Easy to do, why haven’t they done it

Seems unlikely that Stylehive will have the runway to turn this around.  I suspect it is hard to raise more money with such anemic traffic growth in the past year.  Even if they doubled it again next year, they don’t have the revenue to build a real business.  Would Glam buy this business?  Hard to imagine given that they are getting all of Stylefeeders ad space without having to take the risk of traffic generation.

Valleywag reports that ValueClick is considering buying Revenue Science.  I have blogged extensively about the challenges in raising a lot of capital and exiting appropriately.  This would be a great example.  As Valleywag notes, Revenue Science has raised more than $70 million dollars.  If investors owned 90% of the company, the business would have to sell for $770 million dollars to achieve 10x returns.  If investors own less, the company would need to sell for far more in order to achieve those kind of returns.

What are the odds that the company sells for a price like that?  Well, today VLCK is trading for $940 million.  So even if they sold the business for $250m, they would be getting 20% of a publicly traded company.  That strikes me as unlikely.  A $250m exit, if the investors owned 100% of the business is less than 4x returns.  On an absolute basis, not too bad, but it strikes me as aggressive.  What if they exit for $100m?  They are getting 10% of a billion dollar publicly-traded business.  Pretty good exit!  Probably the investors take basically all of the money and feel like they barely got out.

Bad outcome for all concerned.

Contrast that with Tacoda, raising ~$30m and exiting for $270m.  Huge victory for all concerned by being more efficient with capital and selling out to someone much bigger than the $1b VLCK.

I talk to entrepreneurs all the time. Frequently, I look at their business plans and advise them on changes that could make them more fundable or likely to be successful. I wanted to document some of those ideas in a blog post that I could refer entrepreneurs to read. This could save everyone a lot of time!

This post is about building financial models for business plans:

I usually build the financial model after I have done the research to write a business plan and after writing a very rough first draft of a PowerPoint describing my business, but before I actually put very much work into the business plan. It drills down to monthly revenue and expenses and has some rollups to quarterly and annual figures. Without a financial model, I won’t have a sense of the kind of sales organization, pricing, or customer volume that I will need to have to be a successful business. I went to Wharton, so I like to look at the numbers.

My financial statements tend to have a similar structure with at least these tabs:

• Balance Sheet
• Cash Flow Statement
• Profit & Loss
• Profit & Loss Quarterly
• Profit & Loss Annually
• Revenue Model (If it is too complex to easily put in the P&L, which it usually is)
• Headcount - Line by line every employee type, quantity each month and how much they will make each month - this gets rolled up into some headcount and expense numbers used in other tabs
• Assets - If there are more than a couple of depreciable kinds of things, I will model that up because it doesn’t take me that long.  This is probably not necessary if you just make reasonable assumptions in the balance sheet and don’t have a business with a lot of capex.

Typically, the kinds of business I am interested in have very low capital expenditures – they are mostly about people and software – so my balance sheet and cash flow statements are pretty simple. Very little depreciation, simple AR and AP models, but the basics are there to understand how it has to grow to get profitable, financing requirements, and expenses. I suspect that if you had a business with an extremely complex capital structure, modeling the financials would be even more important.

I typically run my financial model out until I have at least a year or two of profits. Typically, I imagine that I am driving the financials towards some end-state model that represents how we would manage the business once it reached some more mature growth point. This is typically represented, in models I have built, by a revenue growth rate less than 60% year over year and margins around 20-30%. Usually the model goes out four or five years.  If your margins aren’t that high yet, then you probably haven’t reached a state as a business where you can command a strong valuation based on financials rather than perceived upside.  If you are still growing at greater than 60%  and your margins are that high, then you are throwing off so much cash, it always feels unrealistic to me.  When you don’t have to layout as much cash as growth slows, your margins probably vault to some number that seems big to me.

Study your financial model closely. I see the same mistakes time and time again:

• A large infusion of capital does not allow you to hire rapidly. You will not be able to hire people that quickly. Don’t assume you can.
• Look for big changes in expenses month over month and ask yourself, “Will I really be able to spend that much more money efficiently thirty days later?” The answer is rarely yes.
• Don’t assume you can raise capital quickly. Sometimes you can, but this is rare. Assume at least 9 months between financing rounds.
• Don’t assume salespeople will close deals for the first 90 days they are on board.
• Don’t assume you will be able to sell all of your web site impressions to advertisers. You need to keep a buffer just in case you have a slow day but you need to fill guarantees.
• Look at the quarter to quarter revenue growth: Is that realistic? Remember, your job may one day depend upon achieving that growth. Would you bet on it? It may behoove you to slow the hockey stick down a bit.
• Does it lack a hockey stick? Without an inflection point, it is not really an investable deal.
• What are your margins in the last year or two? If they are over 50%, then you are probably being too aggressive on revenue or too aggressive on expense management. Why? What good does it do to promise upfront that you will run the leanest, most capital efficient business in the world? Remember, these are commitments you are making to investors. Why not be a little more conservative on expense management (assume you spend more) and a little more conservative on revenue (assume you generate less)? You can still have a bang up business at 30% margins.
• Are you paying yourself enough? I don’t expect you to have a big salary the first year or two, but when your business gets big and has hundreds of employees, you should be able to go out to eat once or twice a year.
• Are you paying your CFO and head of sales enough? If you are building a big business, then these people have to be awesome. And if they are, they won’t be happy making peanuts as the business takes off.

It is always the same message: Your expenses are too conservative, your revenue is too aggressive and your growth and expenses are all too lumpy.

Interesting article at MindValley Labs on Positioning, “Social Polarity” and Vibrant Blog Communities, however it only went halfway. They tell you that to build a great community, you need to take a strong position against something, then market the blog to appropriate communities taking into account the positioning.

Theoretically great, but that is quite a mouthful. No hints on how to market the blog to these communities or draw in commenters.

Me, I have always taken a direct response-ish position relative to all of this: Comments are a function of blog traffic. You probably (don’t know, never been able to test) get more comments if you get more traffic. Perez Hilton gets more than Fred Wilson who gets more than me. Does Fred Wilson have a polarizing opinion? Not really.

In an effort to give more than opinion, we crunched a little, tiny, minute iota of data. I wanted to compare Scoble and Fred Wilson, unfortunately, avc.blogs.com doesn’t show up in comScore, Quantcast, or Google AdPlanner data, so I had to eyeball with Alexa.

So Scoble and Fred Wilson get basically the same amount of traffic according to Alexa:

Here is a bunch of other data I rapidly generated.

Not the world’s greatest data set, but at least enough for us to have something to talk about. So Perez Hilton posts a ton every day, gets a ton of visitors and gets a boatload of comments. TechCrunch posts less, gets slightly less traffic than Perez and gets significantly fewer comments per post, Scoble and Fred Wilson post a lot less, get a lot less traffic, and Scoble gets a lot fewer comments per post. But Fred WIlson gets nearly as many comments as TechCrunch!

You might also note that the smaller sites tend to get more comments per post. Maybe this indicates a more vocal, hard core audience, though my hypothesis would have been that audiences follow some bell curve-ish distribution of active vs not active readers.

A more interesting way to further this analysis would have been to break down the comments and determine how many large an audience is actually generating them, modeling the vocalness of the minority at different points.

Regardless, we can probably safely say that, given Fred and Scoble’s traffic similarities, it is not strictly traffic correlated. Furthermore, one could conclude that opinion (polarization) matters less than one might think because Scoble tends to be thought of as more polarizing than Fred Wilson.

As I say all the time, turns out there is not an obvious way to build a blog community.

Just saw Facebook talk at Graphing Social Patterns.  It was basically a 45-minute ad for Facebook ads!  Drill down on their hyper targeting mechanisms, performance, etc..  As the speaker said, Facebook is an advertising driven business, so they walked us through their focus.

I think Facebook completely missed the boat here.  First, this is a geek conference.  They should have given this presentation at Advertising 2.0.

Second, I think this is not actually the optimal strategy.  What are they doing to help people using the platform make money!  Developers, developers, developers.  To justify a $15b valuation, what they need is an ecosystem.  They need multiple billion dollar companies using their infrastructure and then a tithing system to take a slice of the revenue.  To really scale, rather than focusing on selling their ads, they should focus on enabling people to sell their ads.

I love Google’s announcement that people can sell their own Youtube inventory.  Obviously, they are headed in the completely opposite direction by engaging the masses to make Google money.  Conceptually, they have the right strategy.  Tactically, they could still blow this - the minimum deal size of $10k seems to fly in the face of the validation Google has gotten around building a long tail of advertisers and publishers.  The smartest thing about this deal is that the concern with selling Youtube inventory has always been dicey content.  If people sell it themselves, then they represent their own content and ensure quality.  That essentially gets Google out of the quality discussion by having the inventory manage its own quality.  A slick solution to the problem.

I was talking to some friends the other day and I said, “You know, nobody talks about quitting their job to build Facebook applications like they used to. The clamp-down on virality has taken the fun out of it.”

What I meant by that was that they key to the Facebook platforms attractiveness was that people leveraging Facebook’s installed base and the viral capabilities of the original Facebook application platform could rapidly build multi-million user bases for their application. You can’t get that just building an average web site. That offered a tremendous value to people that had “ideas”.

Now that Facebook has clamped down and MySpace took its lessons from Facebook and never allowed applications to get significant traction, the value in application development for these platforms has declined significantly.

Several things I saw recently made me think even more about this:

• I will be at Graphing Social Patterns East this week and I saw David Genzel’s bio where he describes himself thusly: “I make viral apps“. My understanding is that SocialMedia is kind of out of the application business. Regardless, I have to wonder what apps he has made viral lately without heavy marketing through the SocialMedia network. He got in at the right time and reaped the benefits. Now, no one would say he is not a smart guy, but I think his smart-ness in this particular instance was probably as much recognizing opportunity and seizing it as it was building a better widget (that’s a tongue in cheek comment if ever there was one).
• Slide recently announced that they will not be launching any new applications, just enhancing old applications. A cynic’s view would be that they have recognized that launching new applications is simply too hard with the new restrictions and there is no need when they could simply add the new applications functionality to existing applications instantly provides the same target distribution and potential page views. I anticipate that they will actually take their huge successes like Funwall and turn them into “platforms on top of platforms”. Funwall will become the new Microsoft Office suite of the Internet, with everything but the kitchen sink available right from your wall!

The platforms on top of platforms direction is not in Facebooks best interest - they are best served by atomization of applications allowing microfunctionality additions - and increasing disinterest among small developers will probably force Facebook to reconsider some of the decisions they have made to throttle application growth.

When I say it like that, doesn’t Mahalo sound doomed?

Offering an unconditional guarantee is a great mechanism for engaging clients. I first read about this strategy in a book by David Maister. Cogmap has never offered these in site licenses before and frankly, it is because I never thought of it.

Now that problem is fixed!

If you aren’t unconditionally guaranteeing your work, do you have so little faith in the quality of your work?

Read/Write Web had a great post the other day by Josh Catone where he discusses the uneven coverage of Internet start-ups. Josh essentially indicates that if you don’t know someone (join the 250!) then you basically don’t get a lot of press coverage. Josh observes that many start-ups get left out of publications because they don’t have the right investors or know the right people or generate the appropriate buzz out of the gate.

This is certainly something Cogmap has struggled with. When we launched free private maps, VentureBeat wrote an article. Other than that, despite personal emails to many prominent Web 2.0 news blogs, there was basically zero coverage. TechCrunch covered OrgPlus when they launched a similar service with a hefty per month price tag and never even mentioned other players in the market. Is that indicative of the better PR firm they hired?

I actually assume that it was more a product of completely random outcomes. They get a million press releases, they are in such a rush to get the news out due to pressure of the blogosphere, and they are under-resourced, so they don’t have time to be comprehensive, or make sure things are “fair”. As Josh indicates, he has to make a call every time he is asked to cover something and it turns into his whim. Essentially, if you catch him on a good day or a slow day or he likes you, the odds of coverage go up. How do you get on the list of similar services if he doesn’t know you? Luck. Well-known investors?

Everyone agrees investors play a key role in coverage. You can actually have media invest in you these days! Arrington invests. Calcanis has the ability to generate media coverage and invests. Even Fred Wilson has his own popular media vehicle and his association is an imprimatur of start-up savvy-ness. Ironically, after millions of blog posts discussing how cheap it is to build a start-up using today’s technology, the challenge of getting media coverage even if you build the better mousetrap continues to exist - although there is no doubt that the cost has come down in some ways, an email to TechCrunch can get you hundreds of thousands of visitors. Now the challenge is having a relationship that allows you entry. You no longer have to be a rich kid to be in the cool clique, but you still have to be cool!

As my friends would say, that basically dooms me.

Unfortunately, Josh does not offer a prescription for this challenge. Now that he has recognized this shortcoming in his coverage of start-ups, what will he do? What should he do? What should the industry do? Maybe the answer is to be Scoble: Cover everything all the time, writing millions of posts per day.

Would love to see how more people think about addressing this problem, particularly as bias in media outlets becomes a bigger problem (see Techcrunch).

Couple of thoughts I wanted to get out there:

1. Great quote: George Foreman, Muhammad Ali’s opponent in the famous “Rope a Dope” fight, once recalled that after he pounded Ali with body shots for the first several rounds Ali asked him, “Is that all you got?” Foreman remembered thinking to himself, “Yeah, that’s about it” right before Ali knocked him out.
2. Split testing on technology deployments and feature evolution is critical to the success of big web sites. Google’s stuff is discussed here: http://news.cnet.com/8301-10784_3-9954972-7.html?tag=nefd.lede
3. I always talk about wedding books like this: The reason you see such a profusion of celebrities writing books about organizing a wedding is that after you do your wedding, you think you have learned a bunch of stuff about how to do it that you weren’t told when you started, and thus the world needs to hear your message. Hence, celebrities write wedding books: They think they now know some big secrets because they figured out stuff people didn’t tell them and they have access to people that would publish their book. I recently realized the same is true of site SEO. I have spent a bunch of time on SEO, so I now think I am an SEO expert. As the four hour work week proves, it isn’t that hard to become an expert in anything. Or at least sound like one. Expert is such a relative thing.