Be an Ethical Entrepreneur, Marketer, and Business Builder

What are the chances of creating the next Facebook, Google, or Zappos?

Yesterday I was listening to an interview where Ron Morris, The American Entrepreneur interviewed Matt Mickiewicz the co-founder and CEO of 99Designs.com. Matt’s story is quite incredible. He’s currently 27 years old, lives in Vancouver where he grew up, and owns 3 businesses. The 2nd business, 99Designs.com does about $1 million in revenue per month already and was founded in February 2008. It also has 78,000 designers around the world who “compete” against one another through a process called Crowdsourcing. If you’ve never heard of it, here’s how it works:

  1. A business person logs onto the website and says he has a design project for a website, logo, brochures, graphics or just about anything else. He dictates how much he can afford and a deadline for submission.
  2. 78,000 designers and members of the site (only 60% are from the US) can now accept the project, create a design, and submit it.
  3. The business person will now have generally 99 options to choose from and 99Designs.com automatically facilitates the payment to the designer.

For the designer, he now has a potential customer. For the business person, he now has the best possible design at the best possible price and potentially a long-term relationship with a designer he knows does great work.

So how did a 27 year old from Vancouver come up with this? It started when he was 14 and decided to start learning about websites… He started designing websites for local businesses and eventually created a site that offered marketing services to all of the Dot Com companies popping up all over the place in the late 90’s. As Ron puts it, he was selling shovels to the gold diggers during a gold rush. He was still in High School at this time and was bringing in 6-figures… He did point out, however, that he was taking too much time to grow his business and so was never a real good student. Sounds like Thomas Stanley’s profile of a millionaire held true for Matt…

After the Dot Com bubble burst, Matt and his partner started writing articles about website design, html, php and other areas related to web design. Initially he gave everything away for free but one day decided to try to see if he printed and bound their advice if people would pay $35 for that service. He sold 20,000 copies of that first online book and has since sold hundreds of thousands of copies of their many books. That website is still online and profitable at Sitepoint.com.

99Designs.com was actually an accident. Matt and his co-founder of Sitepoint.com stole the idea from someone who came onto one of their forums and said, I need a logo and I’ll pay $100 to whoever designs the best one. Since Matt already had his tribe of followers, they created the website for 99Designs and it immediately took off. He tells the story in more detail in the interview so you listen to the entire interview if you want more details.

Today I finished reading Delivering Happiness: A Path to Profits, Passion, and Purpose, which is Tony Hsieh’s book about his life and how he grew LinkExchange to sell for $265 million in less than 3 years and then grew Zappos.com from zero to $1 billion in sales in 10 years. Moreover, after telling his story, he talks about his purpose in life now as CEO of Zappos.com to help other companies develop a culture of happiness like he has done with Zappos.com. For a current business owner, that final section of the book is the most interesting and valuable but is beyond the scope of this blog…

What was most interesting to me about Matt and Tony was that they were  entrepreneurs from the beginning… Tony says he was always fascinated with making money and discussed his first button-making business in middle school through his restaurant at Harvard and the businesses discussed above. One way or another, Tony was going to figure out a way to make a lot of money. And considering he’s worth a few hundred million today at the age of 36, I’d say he succeeded…. Along the way he discovered he didn’t really want or need all that money but you’ll have to read the book to fully appreciate his whole story…

Viral Loop talks about Hotmail, Facebook, Myspace, Twitter and a dozen other companies that grew to hundred million or billion dollar entities in a very short time… The stories are amazing and inspirational but can also be quite detrimental… How can such remarkable stories be detrimental? Well that depends on what you learn from them.

There are nearly 13 billion websites in the world and all of the ones I’ve mentioned are in the top 1000 (99Designs.com is still relatively small but is currently ranked 2561). That’s the top .0000077% of websites. That’s a whole lot of zeroes. I point this out because none of these current businesses (aside from maybe Hotmail) had any vision of how huge they would be or how much they could potentially be worth when they got started. Why not? Because no one knows exactly what the customer wants except the customer. No one can predict exactly what is going to make money online.

If you’re an entrepreneur and starting a business and trying to create something to compete with a major online retailer keep in mind that you have a .016% chance of getting struck by lightning at some point in your life. In other words, you’re 2078 times more likely to get struck by lightning than to create a top 1,000 website. Granted, creating a major online presence is more than just luck as is getting struck by lightning, but it’s still a tough business to plan.

So let me ask you, do you have the next multi-billion dollar internet idea? Even if you did, you probably wouldn’t know it. Moreover, sometimes internet billions take $10’s of millions of dollars in funding and 3-4 years of unprofitability as Zappos.com, Yahoo.com, and Amazon.com all required. Without a millionaire such as Tony Hseih to back your idea, now what are your chances at success?

The point is you can learn a TON from these and other stories of internet riches and you should always work on those crazy ideas just in case you do have the ability to become the next Mark Zuckerberg or Tom Anderson or Sergey Brin or Jeff Besos or Tony Hseih.

If going for an internet business, the chances of creating a business the size of Matt’s ($12 million dollars per year) is much better, however 99Designs.com is also a top ranked website at 2561. More importantly, it took him over 10 years to build a following so that when the idea for 99Designs.com came up, he instantly had customers and designers… That’s a long time to build a following without even knowing how you’re going to profit from them. So what can you do in the mean time to create an income and some time?

You know the answer already don’t you?

You start buying, building, and selling businesses. Every time you go through that cycle you’ll hopefully upgrade to a larger business with more cashflow. It doesn’t matter if the businesses are internet or brick-and-mortar based, either. As a matter of fact, even Tony Hseih got involved only after the original founder of Zappos proved that people were interested in buying shoes online. Buying an existing business takes out much of the guessing work that a start-up has such as:

  • Will anyone want this product?
  • How much will they be willing to pay for it?
  • At those prices can we make money?
  • Will our business model and structure prove profitable?
  • What’s the potential size of our market?
  • How easy will it be for competitors to copy me?
  • How much will staff, insurance, and overhead cost and will it all be scalable?

And on and on and on… You can’t answer a single one of those questions definitively about a start-up but with an existing business you can answer those and dozens more because someone else already has been answering those questions to stay in business. This can help you to determine more precisely what you’re getting in to and how much you can grow the business. More importantly, with creative financing, you won’t need to rely on Venture Capitalists.

The other major lesson that Tony’s book taught me was, whether you’re running a business that does $1 million or $1 billion in sales per year, the rules are the same. Tony outlines mistake after mistake that he and his leaders made at both LinkExchange and Zappos.com. As I was reading the book I was literally getting upset thinking, “No, that’s not how you run a business!” I’m not saying that because I’m better or smarter than Tony however, many, if not all, of those mistakes can be learned with a smaller business. How do I know this? Because I’ve made many of the same so when I was getting upset it was partially because I could feel his pain. 🙂

The final major lesson was that when you have a strong business model, if you can scale it and become a leader online to a worldwide market your growth is almost limitless. Figure out how to do that and I’ll be reading a book about you.

My final thoughts are simply:

  • If at first you don’t succeed, try another business
  • Learn how to build a business
  • Learn how to grow your business online
  • Keep working on those one in a billion side ideas just in case you really do have a good one

To your entrepreneurial success, Bryan

P.S. What Tony has done with his team culture, something I blogged about over 2 years ago before ever hearing of Zappos.com, is quite remarkable so you’ll be sure to learn a lot from Delivering Happiness.

The Tipping Point: How Little Things Can Make a Big Difference

You have to absolutely love books that get you thinking in new and creative ways and Malcom Gladwell’s book, The Tipping Point: How Little Things Can Make a Big Difference, will do just that… Particularly if you, in some capacity, work in marketing or perform marketing functions at your business (which should be everyone who owns a business).

His premise at it’s core is very simple – little details can have a huge impact on results. For instance, he talks about a study done on a college campus designed to encourage students to get vaccinated for tetanus. Various groups of students were given 2 different pamphlets explaining the consequences of not getting vaccinated. One pamphlet was designed to be “high fear” including graphic pictures and dramatic descriptions. The “low fear” version had the descriptions toned down and no photographs were used. The study seemingly was trying to determine the power of “fear in marketing” which can incite quite the debate in marketing circles. Afterward the students were given a survey and, predictably, the “high fear” group said they were more convinced of the dangers of tetanus and were more likely to get inoculated. However when they checked the records at the Health Center a month later, a mere 3% actually got the shot. If they understood the dangers, why weren’t they moved to action???

The researchers considered what Gladwell calls the “Stickiness Factor”, kept the copy the same with the addition of a map to the Health Center (which all the students most likely already knew the location of), along with the dates and times vaccinations were available. That minor change, to an already 7-page report, tipped the conversion rate up to 28%!

If your mind is anything like mine, the possibilities of implementing such minor changes into your marketing with the power for such drastic results makes you giddy. 😀

Gladwell’s entire book outlines examples and case studies that demonstrate the fundamental pieces of an idea that make it go “viral” in the sense that Adam Penenberg discusses in Viral Loop. The beauty of Gladwell’s research, though, is how he directly applies it and teaches you the exact pieces necessary to create your own “Tipping Point” idea. That level of detail, sophistication, and education is certainly something that is missing from Penenberg’s book as he required the reader to analyze the information to draw his own conclusions.

From Sesame Street to Blues Clues to W.L. Gore Inc to Columbia House records and even Paul Revere (yeah, the guy who we all know said “the British are coming” yet for reasons that are easily explained, we’ve never heard of his partner who rode off in the same direction at the same time with the same message but who failed to rally the troops), Gladwell does a terrific job of getting the creative juices flowing on how you can improve every aspect of your marketing.

For any idea that breaches the Tipping Point, Gladwell informs us that 3 people are necessary:

  1. Salesman – Just as the name implies, they persuade us to buy a certain product or take a certain course of action and the great ones do it in remarkably subtle, non-verbal, and positive ways.
  2. Mavens – Do seemingly ridiculous amounts of research on products and services along with EVERY competitive product or service so that you trust when they tell you to buy something they know what they’re talking about. The crazy part is they just do it to be helpful. It’s how they’re wired.
  3. Connectors – The quintessential socialites. They know everyone and therefore can connect a product or idea to vast amounts of people very quickly.

This is just brushing the surface. If you’re looking for some inspiration and great ideas to market your product, service, and business whether in your local neighborhood or worldwide, you’ll enjoy The Tipping Point: How Little Things Can Make a Big Difference.

When you consider that Gladwell’s examples and research covered everything from educating children to effective group sizes for optimal communication (150 people), the value of his material actually extends far beyond business marketing to education, healthcare, leadership, even politics. When you can appreciate and understand a few pieces in the way humans interact, it’s amazing how powerful a tool that can be for you to get almost any message across. And more importantly to get people to act on that message.

To your Tipping Point success, Bryan

The power of the Viral Loop and Viral Marketing

Adam Penenberg’s book, Viral Loop: From Facebook to Twitter, How Today’s Smartest Businesses Grow Themselves, is addictive. That’s quite ironic considering the content so maybe he even designed it that way. 🙂

In my last blog, I wrote about the amazing valuations that companies with little to no revenue and often huge losses can achieve. The mantra was more about getting big (meaning getting a lot of customers not necessarily profits) and getting bought up. It’s happened dozens of times with businesses ranging from Facebook (valued at $15 billion thanks to Microsoft) to Twitter (who still has no source of income) to Bebo.com (which sold for $850 million) to Myspace (which sold for $508 million) to…. Well you get the point. Companies got real big, real quick with no marketing. But how did they do it???

Well Penenberg focuses this growth on businesses achieving a Viral Coefficient above 1.0. That simply means that for every person who signs up for your website or service, they influence at least one other person to also become a customer of yours.

Let’s say for every person who signs up for your new social networking site, they invite (on average) 20 of their friends to also join. Out of those 20 people who are invited, if  one person signs up (i.e. 1 out of 20) the viral coefficient is 1 (20*.05) and so the product is considered to be viral and therefore will experience exponential growth. If instead, 2 out of those 20 signed up, the viral coefficient would 2 and the growth would be ridiculous.

viral coefficients
0.8 1 1.2
10 10 10
Number of Cycles 1 18 20 22
2 24 30 36
3 30 40 54
4 34 50 74
5 37 60 99
6 40 70 129
7 42 80 165
8 43 90 208
9 45 100 260
10 46 110 322
11 47 120 396
12 47 130 485
13 48 140 592
14 48 150 720
15 49 160 874
16 49 170 1059
17 49 180 1281
18 49 190 1547
19 49 200 1867
20 50 210 2250

Table illustrating the power of viral marketing for viral coefficients of .8, 1.0, and 1.2 when starting with 10 initial users.

If we consider that it takes 1 day for a current customer to bring you another customer, after 20 days, you’d have 50 customers with a coefficient of .8, 210 customers with a viral coefficient of 1.0, and an astounding 2250 customers with a viral coefficient of 1.2! Some people might suggest that 1 day is a very short time frame and for some businesses it is indeed short, however when Mark Zuckerberg launched TheFacebook.Com at Harvard University with no marketing just by telling friends, he had 1200 people sign up within 24 hours! Within 24 hours of HotorNot.com launching their website (again with no formal marketing) they had 100,000 visitors. Adam Penenberg’s book goes through the numbers of many more of the businesses that I’ve mentioned above so I’m hoping you can start to see the amazing growth potential of businesses that can become viral.

So what does it take to become a viral business?

Well Penenberg’s book addresses this a bit, however he never really provided a precise formula simply because the way Facebook or HotorNot grew was not the same as Hotmail, or even Tupperware. That being said, he pointed out, and I’ll expand on some items that were similar in his viral businesses.

  1. It has to be something people REALLY want. – How do you know people really want it? Because they’ll pass it along to their friends without being asked to do so. Another way things can automatically get passed along would be how Hotmail put a tag at the bottom of all of their emails that said “Sign up for your free Hotmail account.” Obviously they’ve changed it to rotate marketing about Windows 7 now.
  2. It has to be simple. – Becoming a customer or user has to be quick and easy. The more steps or pages or data to fill out and the fewer people will join. That was obviously the beauty of HotorNot and Twitter. Even Ebay and Paypal make pretty quick work of buying and selling online.
  3. There has to be an incentive for people to spread the word. – At first it sounds like this may counter my first point, however that’s not the case…  An incentive can simply be “if all of my friends are on it, this <product>” will be so much better for me. Think of MCI’s Friends and Family plan for instance. I just bought some pants from Bonobos.com and for everyone I refer they give me a $50 credit. Obviously I racked my brain to think of people who might enjoy some high-quality pants.
  4. It has to be easy to spread the word. – Businesses like RockYou and Slide popped up literally overnight because of the viral design of Myspace and Facebook. Myspace and Facebook themselves even make finding and inviting new friends easy by accessing your email addresses from Yahoo, Gmail, Aol, and Hotmail. The easier it is for people to tell their friends, the more people will tell their friends.
  5. You have to be the first one to achieve critical mass for your market. – There are dozens of examples of this from Hotmail to Ebay to Facebook however let’s just look at Paypal for now. Paypal was the first to market and adhered to all the steps above including allowing you to send money to people without a Paypal account (which was simply a way to get new people to sign up). With their viral hooks built-in, they became extremely popular on Ebay in short order. However, Ebay (along with several other companies) wanted their own payment processing company and they even partnered up with Citi Bank to make it happen. They made rule changes to their online listings so that their payment system would show prominently for every item and Paypal’s logo would be pushed to the bottom of the listing. But they did it all too late. They spent millions to make their payment processing company work. Ebay even considered (threatened) banning Paypal altogether. Eventually they decided to just buy Paypal which at the time was privately owned. Unfortunately they didn’t think it was worth the $1 billion dollar asking price and so they let Paypal go public and a few months later were forced to buy the public company for $1.5 billion. You think you had a bad year, at least you didn’t make a half billion dollar mistake (at least I hope you didn’t).

As you know, I own a small “brick-and-mortar” business. Less than 1% of our business currently originates on the internet and my business has a designated service territory so my market is limited. That certainly is a much different playing field than all of the businesses in Penenberg’s book and quite realistically only a tiny fraction of businesses in the world will ever fall into that realm. So for the rest of us in the real world, how can Viral Marketing make a difference to us? Well, understanding the power of a viral business where you develop systems and programs to encourage every single new customer to bring at least one other new customer with them is the key. In the small business world we call this developing referrals. It’s a powerful (and cheap) way to grow any business so I look forward to addressing some ways to do that in the future.

To your viral success, Bryan