Bill: February 2008 Archives

For me, the hardest part of writing blog posts is being concise.  I'd love to write on and on, but that would be unblog-like

Cold calling is probably one of the most difficult and nerve wracking things to do, but it is probably one of the greatest skills an entrepreneur could have.  There are so many things to learn, connections to be made, and information to be gained when cold calling.

Cold calling takes so many forms.  You can cold call your competitors posing as a potential customer, gaining heaps of valuable information.  You can cold call an industry expert or knowledgeable individual for advice.  You can cold call a potential customer hoping to get a meeting.

Here's a fun story: The summer after my freshman year of college I had an internship with Northwestern Mutual Financial Network--Northwestern Mutual Life Insurance being their biggest business.  I was trained and titled as a "Financial Representative" and expected to meet with and sell to prospective clients.  The only problem was getting in front of them. 

The most intuitive solution is to start calling within your circle of people you know.  After you've exhausted this list (read: refuse to call friends and family to sling life insurance), you have to move on to the next best thing: a phone book. 

Armed with a script and telephone I boldly called my voicemail until I worked up the courage to call someone real.  I was sweating, literally.  My heart was pounding, I stumbled across my words, and skipped over parts of the script.  I'm sure I sounded like a complete idiot.

But I learned some valuable lessons: phone skills, asking for a meeting, asking for advice, asking for something the other person is reluctant to give, getting past gate keepers, and being calm, cool, and collected.

The most important lesson I learned: getting past "no", gracefully hanging up, and dialing again...all without sweating.

Cold calling for life insurance makes every other kind of cold call seem trivial.  Cold call competitor's businesses for information.  Cold call alumni for advice.  Cold call your voicemail for practice.  Just cold call.

You will mess up.  You will look like an idiot.  You will get 'no'.  You might get yelled at.  You might feel bad for a while.  You wont die.  You will learn.  You will be thankful.

A few of the 'big boys' on the web but especially in print media--Tribune, Gannett, Hearst, and the New York Times--are forming an online sales network to attract premium advertisers for their content.  Tech crunch covers the news here.

The network is called quandrantONE and is intended to compete with major context advertising from Yahoo and Google.  This specialization will hopefully attract higher quality and better targeted ads to serve these companies' networks.

This really doesn't mean a whole lot for affiliate marketers as they won't be able to use the network, but it does show a growing number of niche and specialized ad networks.  With more and more of these networks emerging there are better opportunities for advertisers to better target their markets.  But, there also comes an increasing disconnect between ad networks.

If you think of highly "target-able", premium ad space as a commodity, and take into account the growing number of "markets" that you can buy these commodities from, then it may not be too crazy to think of a "market of markets" emerging.  This market of markets could be thought of as a commodities exchange, much like what we think of the Chicago Board of Trade or the Chicago Mercantile Exchange.

Perhaps not too far from now we will see these ad spaces (markets) be unified by a single market--the Internet Advertising exchange.

Is success inevitable?

Is entrepreneurship simply a game of playing the odds and eventually succeeding? Or, is entrepreneurship learning from failure in order succeed?

Some would say it is both, but these questions are really irrelevant in the light of failure.

Acceptance of the possibility of failure is a must, as is acceptance of failure itself. 

Acceptance of the prospect of success is a must, as is acceptance of success itself.

Whether you believe success in entrepreneurship is luck or education, or both, you must accept failure to succeed.  If you believe it is luck, then you accept failure and roll the dice again.  If you believe it is education, then you learn from your failures and try again.

Whether you believe success will come by luck or learning, you will always face failure.  Not accepting failure, either way, is what causes your suffering.

Blindly rolling the dice until success is failing blindly.  Those who fail to see success, fail to succeed.

In the Beginning

IVxChange was the name of our (myself, Russ, and Drew) first real business venture.  Essentially, IVX (as we called it, for short) was a miniature Craigslist for the local college community of UCSB and the infamous Isla Vista (hence IV).  We enabled users to list things to buy or sell on a market place, look for local events, housing, jobs, class notes, alcohol prices of the local retailers, and finding deals and promotions from the nearby businesses.

I wish I could show you IVxChange.com, but Russell lost it when we were moving hosting providers.  It pains me...

Anyway, we wanted to create a central location for students, businesses, and other community members connected.  We provided the environment that equipped these people to do this.  We thought this was such a GREAT idea. 

Young Lessons in Business

We were ecstatic and enthusiastic about developing and promoting it.  I remember telling my friends and family I had to go back to school two weeks before Winter Break ended because I had some "serious work" to do.  While Russell worked on developing the platform of the site, Drew and I pounded the pavement and pitched businesses, landlords, and rental management companies on signing up and getting involved.  We told them to get on it before we start sending loads of student traffic.

The reception was actually pretty good!  We had plenty of local housing listings for the next year on a cool map utility that Russ integrated with Google maps.  One landlord even called my cell phone one evening and had me walk him through signing up for an account and posting his listings because he was computer illiterate.

We struck deals with local businesses: in exchange for allowing them to advertise for free on our site we could put a sign or flyer in their place of business.  We also traded out advertising for services.  The owner of a silk screening business offered to make us shirts and signs at cost.

Once we had businesses and landlords on the site it was time to drive student traffic to the site.  The signs in the local businesses brought some traffic.  Facebook advertisements targeted to students in the UCSB network brought many more.  We had people listing things from old class notes, to textbooks, to old furniture in the marketplace. 

Next we started talking to the media.  I sent out emails to the campus newspaper, the Daily Nexus, and local publications like the Santa Barbara Independent and Santa Barbara News Press.  We had interviews with all three.  We were discussed in the Independent and on the front page of the Daily Nexus.  The reporter from the News Press wrote an article but never published it even though he said he was.  What an asshole.  That was another lesson, don't trust reporters.

Competition

Things were going well when...out of nowhere two competitors arose.  The first, Mablio.com, was another student group.  I must hand it to them, their website was well-crafted and they got their message out by flyering the school heavily.  They even offered prizes and drawings to their users for items like iPods. 

The second competitor is one that is still around and really picking up momentum, Uloop.com.  Uloop was a group of guys a few years older than us, well out of college, that shared the same idea as the rest of us.  They seemed to be well-funded and opened their doors with a beautifully crafted Web 2.0-esque website.  They hired students at $10/hr to flyer, hold signs, and otherwise evangelize.  I must commend Uloop, they were out there all day, everyday.  They quarter page ads in the campus newspaper, had 10 foot signs, and plastered campus and Isla Vista with signs.

On top of that, Facebook came out with their "Marketplace" which practically crippled all of us.  Although, I think Uloop is stilling doing well and going strong.

Heart Breaker

After a few months of hard work, we threw in the towel.  We learned many of our first business lessons competing with these guys.  Our time and effort was better spent elsewhere.  Plus, we had other exciting projects brewing.   More on those in later posts.

I don't mean this in any negative way.  On the contrary, I think quitting is often the best move to make sometimes.

Let me backup and clarify.  I don't want to convey the message that you (or I) should quit when the going gets tough.  In fact, my wrestling coach always used to repeat to me: "when the going gets tough, the tough get tougher". 

I strongly believe in staying the course and fighting the good the fight...when it makes sense.

If there is one thing I have learned from all of my "failed ventures" and past experiences on the Internet it's this: learn when to quit.

Sticking it out just because you won't let yourself give up may well show mental toughness, but it may also show stupidity.  Pride is irrelevant, especially in business.

Here are a few examples from my short life's experiences, some more mundane than others:

IVxChange

Our very first site/venture was IVxChange.com--a college community website for UC Santa Barbara and the Isla Vista community.  We worked our asses off getting it off the ground: Russ coded and built the site while Drew and I pounded the pavement soliciting businesses, landlords, and students to get involved on the site.  Two competitors launched at the same time for the same school and geography!  One was another student group and one was Uloop.com.  After months of hard work, the competition was too stiff--we were out-manned and out-"dollared".  We quit.

 
Friend Buddy Pals

Another venture was FriendBuddyPals.com, an online fansite, community, blog, and financial resource site all packed in one and built around Jim Cramer's show "Mad Money w/ Jim Cramer".  Again Russell built and coded; Drew and I wrote content, recaps, analyses, etc; and we all promoted the hell out of it to drive traffic to the site.  After hours of endless work there was little to show.  There was no way anything would materialize without a major time commitment each day.  It simply was not worth our time.  We quit.

PPC Arbitrage

Russ and I were running a PPC arbitrage campaign a while back on the insurance industry.  There was potential to make a ton of money and we were on track to make it but it took up entirely way too much time.  It was a clear trade off of time for money.  This was no good in my opinion.  We quit.

A Book

I like to read 3-4 books at a time and switch back and forth among them otherwise I get bored.  I used to force myself to read through all of a book even if it was terrible. Now, I know to put a book down if there is nothing I can get out of it.  No more needless "pride".  I quit.

 
A final word

I heard someone quote another person the other night.  The quote was: "Fail quickly".  It's better to figure out that you screwed up quickly so that you can cut your losses, mend your wounds, keep your friends, and get out.

I never thought I'd put my microeconomics to good use, but here it goes.

The setup:

PPC-"e-Retail" arbitrage is using PPC search, such as Google AdWords, to drive traffic to an e-Retailer, such as Amazon, for a particular product and earn revenue from an affiliate commission.  Essentially, this is very basic affiliate marketing.

Here it is again, by steps:

1. Pick a product you want to promote.  Something between $100-$200 will work well.  I'll use the example of the Rock Band video game for Playstation 3 ($169.99).
2. Establish an affiliate relationship with an e-Retailer like Amazon.  Commissions typically range between 4%-8% depending on volume.  I'll use 6% as the market average.
3. Go to your PPC Search provider of choice, create an ad, and select specific keywords to bid on.  I'll use Google AdWords as an example.

Although this is one of the most basic forms of affiliate marketing, this is not an affiliate marketing "how-to" so I won't go into too much strategy or depth. 

The ad will want to look like something like this:

$170 Rock Band for PS3
Rock Band Special Edition for PS3
Free Shipping from Amazon.

The ad will direct the visitor to the product page at Amazon.

In order to have our ad displayed, we have to bid on keywords--competing against others who want to display ads for the same keywords.  So, you will want to bid on keywords like this: "buy rock band ps3, buy rock band bundle ps3, buy rock band se ps3".  Very targeted, very specific keywords increase the likelihood of the visitor converting (buying the product).

Now run the ad.  The key here is not volume, but highly targeted, motivated buyers.  Typically a 5% conversion rate on Amazon is rather good.  That means for every 20 people you send to Amazon from your ad, one of them will purchase the product. 

Assuming these numbers will stay true and relatively constant, we can calculate the most we can pay-per-click (per visitor) in order to break-even:

• We know that our commission will be 6% of $169.99, which is about $10.20.
• We also know that typically 5% of the traffic we send to Amazon (if we are good) converts, meaning they purchase the product.
• So in order to break even, we can bid roughly 5% of our commission, $10.20, per click.  Remember, we are competing for our ads to be displayed.  So we can bid a max of $.51 to break even.

Now, if we want to make a profit we have to do one of three things:

1. Improve our conversion rate
2. Increase our commission
3. Hope the visitor buys an additional product which is pure profit if we are bidding for break even..  This is not uncommon.

Now for the interesting, academic part:

When searching for specific products using very targeted keywords, you will notice that the ads displayed are almost always pointing to retailers.  There are generally two types of people bidding on these keywords displaying these ads: (1) The Retailers, (2) Affiliate Marketers.  The retailers generally have higher profit margins and can make higher bids, so they are generally in the high ad positions displayed.

Because the Internet is so efficient--many profit-seeking firms, many price-taking consumers, and near perfect information--competition over prices is increasing and consumers are more easily able to compare prices across retailers.  Professor John Morgan at the Haas School of Business gathers and analyzes plenty of data on Internet Competitiveness among retailers along with his colleagues.  You will find his Internet Competitiveness Index an interesting insight and academic perspective on this topic.  He can also provide you with data that I cannot. 

Also, because of this competition, the ranges of prices among retailers are narrower.  Borrowing Professor Morgan's definition from his Price Range Index: "The Price Range summarizes the percentage difference between the highest and lowest prices for each product in our database. When the price range is zero, prices charged do not vary across sellers."

Similarly, the Price Gap Index tracks the percentage difference in prices between the two lowest prices.

To sum all of this data up: Internet retail is becoming more competitive.  More firms are entering the marketing and competing over price, narrowing the price range and price gap.

So then, the effects of this competition on affiliate marketers in the situation described above are as follows:

• Most affiliates are competing at roughly the same commission rate for the same product price (because retailers are competing with each other and the price range and price gap are small).  Thus, the range of commissions among affiliates is rather narrow and close to the average.
• The affiliates are essentially only competing against each other (as well as retailers posting ads) on bids for PPC search.
  

Thus, when there are competitive bidding markets for keywords Marginal Revenue (the commission rate multiplied by the product price multiplied by the conversion rate) equals Marginal Cost (the bid amount, or what you are paying per click).  In competitive markets, like the ones described, average profit for the affiliates will be zero.  This is the same as the break even analysis done earlier.

So to sum this up: You need to have a distinct advantage over your competitors in order to profit.  This can mean having a higher commission rate, having better converting ads, or finding ways to have the visitor buy more products. 

One solution to all of this is to find a market that is not as competitive!