FOWA07b: Ted Rheingold

How to turn your app into a business
Just covering one thing about turning your app into a business. Ted did Catster and Dogster, where people can make profile pages for their dogs and cats, people trick them out, spend time socialising.

What does it take to be a business. When you start you need to think of things like logo, and company name and titles and business cards and incorporation and websites and APIs and launch parties, and all of these are important, but not covering any of that – that info’s out there. What makes the difference is generating revenue. What changes a project into a business is generating revenue, or at least having a really good idea of where that revenue is going to come from.

If you get VC funding, it can be easy not to think about this, and can run out of money half-way through. Think about how my business is going to be a business. Do not think that there is a “new economy” – there is new technology, but businesses are pretty much the same. Dogster and Catster make money through ads, sponsorship, and subscriptions. A lot like a magazine. Sell virtual gifts, but magazines do that too with branded items. Nice thing about virtual gifts is that there’s no inventory or suppliers. We are not creating a new economy.

When you start, and you have a popular service, If you’re selling subs or licences or virtual gifts or lead generation, whatever it is, learn your market. Don’t think you know how advertising go just because you’ve seen a magazine. Learn what prices people pay, do your research. Know your audience. Learn other audiences, learn other markets or other forms of advertising, because the first thing you try might not work. Don’t get emotionally attached to your business plan. If you really want it to work, then be ready to change with where the opportunity is based on what your customers’ interests are, the way the industry is moving, etc. If you don’t change, it will be changed for you.

If you are starting a business, get advisors, both in your industry and those who just understand business. One of his advisors is a dentist, one who had a failed business and gives a lot of good advice, and get real business advice from real people. Cuts through the clutter on the blogs etc.

Learn business finance. Need to understand your bank statement, know how much you really have to spend, how much you’ve spent, how much you’ve committed to spending this month. Learn how to forecast expenses, revenues, etc. Learn different ways of doing accounting, and learn how to use Excel spreadsheets and accounting software. Helps you not fail prematurely.

Don’t spend any money you don’t have to. If a pound falls into a toilet, dive after it. There are some things you have to spend money on, and there are others that you shouldn’t spend money on until you really have to. Don’t have the big launch party, or the flash brochures for clients, etc.

Sell, sell, sell. Creative people don’t like pitching or doing sales, but no one is going to sell your business for you. For a business to really work, you have to be selling 80% of the time. That’s scary – want to be doing other things, but the whole business changed when he brought in a business partner. If you don’t want to sell or pitch, find someone who does, someone who loves to do it. Hard, because if you commit to a business partner, it can’t be an employee, you need to team up with someone similar to you, has similar goal and life expectations. Unless you get bought, which doesn’t happen often, or if you fail which you don’t want, you’re going to be doing this for 2, 3, 5, 10 years. Very few overnight successes. Going to take a while, and if you’re biz partner isn’t there with you and ready to run the gamut with you, it won’t work.Businesses with two to three partners work better than people who go it alone.

Sees so many people starting a business where there isn’t a business there.

Q: If you have a niche social network, you can’t compete with Facebook etc., so is there no business room left in social networking?
Just passed 500k members, have 1.3 million visits per month. Hard to make money on AdSense or other network ads unless you’re serving 100 million of pages per day. but the money is still there because small, specialist audience is of interest to specialist advertisers, 100k people in one place is of enough interest that specialist advertisers will be interested.

Subscriptions work if you have a product that people want to subscribe to. Great if you can get it. Subs work in two ways: a utility, e.g. a tool that does something for you like give you stock information or upload photos; or if it’s like a country club or team with an emotional connection. That’s where Dogster/Catster sits – it’s about being on the team, putting your colours to a flag. LJ users subscribe to show their support to LJ. But I wouldn’t bank on subscriptions, I’d wait to see if it worked. If you get camaraderie, you can charge 5x what you should because you’re paying for the connection.

Q: Any key action to make Dogster or Catster profitable.
Business partner that did sales made enough money to leave his job and do sales full time. Being able to be responsive, and focused on sales. Took funding in the May to do this, and were profitable by the July.

Q: Were you cold-calling ads? How did you go about it?
It’s a lot of cold-calling. Couple of people on sales now, dedicated, and when a new magazine comes out, they will look and see if there is any new advertiser there they’ve not seen before, and then will contacting. So it’s not the company that sells the ads, it’s their agency. E.g., you wouldn’t call MS, you’d look for the advertising agency that deals with MS, and get in their good graces, and get them to understand that you might be small but you’re better. Then get into their cycles, which is a year in advance. So most of the first half of 2008 budgets are accounted for. So try to get in on special budgets or one-off budgets.

Sometimes agencies will come back to you for different products if you did well on one.

Q: Gave e.g. of functionality that you tried, when do you decide something isn’t going to work?
We always say ‘fuck up fast’. We turned off classifieds a few months ago because they just weren’t working, they were too bugging. They think about things like increasing subscription rates, and assess whether an increase is going to be worth it or not, as you may lose more people than you gain in a rate rise.

Q: At what point did you decide that Dogster/Catster could be a viable business?
I’d always thought it was going to be a business. I had mistakenly thought it was going to be a passive business where I’d get a lot of cheques each month and would do nothing else. Realised it was going to be a business when, by month 10k had joined, and that was as many as had thought could make a web page for their job. So thought of some goals, pretty low goals, to aim for to make it work as a project. When there was a chorus of “this is going to be huge”, really used the wisdom of own crowds, then sat on it for a while. Waited about three more months to make sure that people were committed, that it wasn’t a fad.

Q: Do you have a formula for when to start hiring employees?
Hiring is a real pain in the butt because if you’re slightly ethical, the last thing you want to do is hire them and then have to lay them off in three months, so you want to make sure your forecasts are steady. Were we profitable for last 4 months to validate this position. Then think about how much pain is it going to take away from someone who could be doing more better work. We usually wait until we’re in so much pain, and see the revenue’s there, but growing a company that doesn’t scale well. More employees means more managing people, disputes, technology, problem shooting, etc. So important to remember that employees take as well as give.

Q: Does 10k users in a few months – did you work on that really hard, or did it just happen? If you worked on it, how did you do it?
There was some luck and some timing, but put a lot of effort into who’s going to want to use this site and what are they going to want to see when they get there. Put a lot of tie in error message, which people weren’t thinking about in 2003. Spent a lot of time on the colour palate, there were rounded edges, it was moving to CSS and a refreshing experience compared to other sites. But there was a luck factor too, really hit a wave, 2003 digital camera was the main gift for Christmas, and before that it wouldn’t have happened. It is important to know when luck happens, and take advantage of it without relying on it happening again.

Comments are closed.