Their Users:

• Visitors (59 million/month)
  • Anyone who visits, even if they don’t register.  
  • Referred through affiliates, search, word of mouth
  • They believe they have large numbers because of their focus on continually enhancing the user experience and expanding the breadth of services.
• Members (4 million new registered users/month!)
  • Those that have registered for free and given an email address
• Subscribers (1 million paid subscribers/month)
  • 77.2% of revenue from subscriptions
  • $19.06 revenue per subscriber
  • 18% churn (# that cancel each month)
• Paid Users 
  • Users that pay for products/services on a usage basis.
  • 19.6% of revenue

Their Foundations

• Content and services people want (sex sells): Face it, it’s true – there’s money in adult content. They also have “General Audience” sites (i.e. BigChurch.com, SeniorFriendFinder.com), and while they account for a small fraction of the traffic, these “General Audience/Non-Adult” sites account for 8% of the paid subscribers at $16.28/subscriber.  
  
  
• Reliable revenue through paid subscribers: It’s nice when you’re users pay you for a service and you’re not reliant on advertising in come. Will we see more premium membership social networking sites in the future? What kinds of things would you be willing to pay for on a social networking website?
• Strong affiliate network: You’re in a strong position when you can enable other businesses to exist.  Google Adsense is a great example of this.  Their success is your success. 
• Scalable Website Platform and Model: Apparently they can launch their “friend finder” network in any niche as demonstrated by the church and seniors segment.  Even if each new niche doesn’t become a large percentage of total revenue, as long as each segment is profitable then can continue to roll out new niches and incrementally grow the business.  In essence, creating a long tail 1 site at a time. 

The Name of the Game: Conversions

The key for them to make money is to continually increase their conversion rates of free members to paid subscribers.  Pretty much every business comes down to conversions – you just need to figure out what the right metrics are and maniacally improve them. 

Some Interesting Risks They Note

• Decreased content contribution from users: This is a risk for many of the consumer-focused social networking sites today that rely on the uncompensated contributions of users.  Since the value of the sites comes this free content any decrease would be an obvious blow.  If financial compensation is needed to continue the contributions that’ll have a negative impact on the bottom line.
• Inability to diversify and innovate products & services: There’s always new competitors adding the latest bells and whistles and if your site doesn’t keep up then users may leave.  That doesn’t mean you have to implement everything under the sun, but you need to at least make sure the majority of users have their needs met – and those needs do change and grow.

Notable Social Networking Features

• Loyalty Program: Give points to users for participating on the site and allow users to redeem them for things like upgraded memberships or more prominence in searches.  This sounds like a great way to incentivize users to contribute content.
• Cupid Reports: Automatic notifications of potential matches when the member joins the site. This sounds like a great way to push interaction amongst members. 

Interesting Metrics

• # of customer service requests
• # of user actions (images/videos uploaded, messages sent, etc)
• referring link/domain, traffic source
• e-mail domain

That’s all for now.  It’s always neat to peek under the hood of another business to see what they’re focused on and what they’re worried about.  I found the couple of risks I noted to be particularly interesting.  

Any thoughts? What risks are you worried about?  Are you tracking the right metrics?

Justin

These tips are from a recent NWEN breakfast talk by Ben Elowitz. Ben’s currently the founder & CEO of Wetpaint, a wiki company based here in Seattle, and was responsible for much of the success of Blue Nile and Fatbrain (I used to love that site). If you can’t learn something from what he’s got to share, you’re probably in the wrong business.

Here’s the list, adapted from memory:

• What gets you hot and bothered? Consumer or enterprise? Products or services? Profit-driven or world-changing? Everyone’s got their own preferences – just know what gets you going before jumping into a new idea, or you may run out of passion before you get to the finish line.
• Find a good sherpa. You wouldn’t climb Everest without finding the best sherpa possible, why start a business without doing the same? Pick someone who’s got a ton of experience, loves mentoring new entrepreneurs, and has the connections to help you move your business forward. This person doesn’t have to actually be an entrepreneur.
• Think leverage. Selling and shipping heavy books (Fatbrain) for tens of dollars per order was tough, and took lots of people. Selling and shipping tiny diamonds (Blue Nile) for thousands per order, with a smaller team? Brilliant. Think about how to build your business to apply maximum leverage with your limited resources (money, people, time). This is something Justin and I think about all the time with Menuism.
• Relationships and references matter. There are countless options for service providers for your business. When picking someone you may have to lean on, remember your relationships, and get lots of references. You don’t want your support network to fail you at the worst possible time.
• Bigger isn’t better. Big teams are great for powering through the initial “build it fast” phase, but then what are they gonna do (besides burn through your cash)? Stay lean and mean, and hire only when it’s painful not to.
• Be deliberate. Like it or not, your company will take on your personality, so think carefully about what image you want to project. Cost-conscious? Workaholic? Alcoholic? Your pick – just be ready for the consequences.
• Nothing’s bold when everything’s bold. You’re not trying to be everything to everyone, so figure out your differentiator. It doesn’t have to be some crazy new technology – just pick the one thing that you’re gonna do better than anyone else in your market.

Thoughts? Got your own list of tips/advice? Let us know in the comments.

-john

But as the founders of any website, even these guys, will tell you, money doesn’t come rolling in once a site’s launched. So we’re live, and the balance on the bank account isn’t moving much, so what’s next? We’re now starting the real “business” phase of our operation, where the focus is on branding, marketing, advertising and sales, all for driving more users and restaurant relationships. We’ve been going through lots of marketing books and talking to like-minded entrepreneurs recently and we’ll share some details in a future post.

Kicking off a new project phase requires a lot of discussion, so I flew into Chicago late Wednesday night for our seventh(!) working session. The main goal for this session is to create a coherent and consistent marketing, advertising and sales strategy that we can run with for the foreseeable future. And as if the weather gods were also heralding our change in focus, my arrival was greeted with a massive cold front, freezing wind and snow showers. What’s life without the little challenges?

-John

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• Alpha: Very very small group of people.  Focus: Basic concept and initial usability feedback.
• Closed Beta:  Friends and family.  Focus: Usability and design.
• Beta with Invitations: Extended friends and family.  Focus:  Design, fit and finish, performance.

Taking it slow helped us both manage the feedback changes and mentally prepare for increased feedback criticality (when you pour your heart and life into something for 8 months you become a little protective of it…)  After quite a bit of great and useful feedback from our early users, we felt pretty good about talking to someone with absolutely no stake or relationship with us.

Lo and behold our friend CW was able to hook us up with a great opportunity to participate in a Sequoia Coaching Session through Wilson Sonsini Goodrich & Rosati.  We had the opportunity to meet with a Sequoia partner for 30 minutes to discuss the business and get advice.  30 minutes doesn’t sound like a lot, but we were pretty nervous seeing as this was our first meeting with someone with any standing in the industry.  On the positive side, since we aren’t shopping for funding we kept telling ourselves to just keep that mentality: "nothing to lose, right?".  The coaching session happened on a Friday in Palo Alto, CA so we arrived Thursday afternoon to prep. 

Here are the things we prepped:

• 1-page Company Info Sheet (location: Sunnyvale Kinkos at midnight)

• Answers to Potential Questions (location: Cupertino library in afternoon)

• Basic Summary (location: In-n-out parking lot in Sunnyvale at Friday 1am)

  • What’s our company’s goal in the marketplace?
  • Who are our customers?
  • What are their problems and how do we solve them?

Surprisingly, during the meeting both us didn’t seem as nervous as we though we would be.  Good sign, I think.  Maybe it’s because we had prepped almost every question possible…

Overall, the session went very well (in our opinion).  He seemed positive on the idea and the 30 minutes flew by.  We were able to give our spiel, answer and ask quite a few questions, and hear some good advice from the partner. 

A sampling of the high level points:

• Get as close to the customer’s revenue as possible
• Focus on ease of use.  He used YouTube as example.  Their ease of upload and browsing helped accelerate adoption.
• Focus initial growth on a niche.  Niches are easier to nurture and control.

Sure, it was a lot of work for 30 minutes, but it was totally worth it.  Not only did it force us to make sure we had all these answers solid enough to give to someone else, but we also got some valuable outside feedback and more confidence to keep moving forward.

On that note, our goal is to open up the site within the next few days.   Stay tuned! 

- Justin

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The recording lasts an hour and can be a bit dry at times, but there’s a lot of good nuggets of wisdom, like where your company should be before being appealing to investors (when you have decent customer traction). Even though we’re not looking for investors right now the clip is still useful to help learn about the rules (and rulemakers) of the startup game. Check it out if you’ve got the time.

-JL

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• Judging – The criteria is 50% originality, 25% business implementation, 25% business results. So, yes, you need to be a fully operating company (see next bullet).
• Eligibility – Your business must be licensed in one of the 50 states; average revunue must be at least $250,000 and not more than $10,000,000.
• Contest Period – The contest opened on May 1st and goes until Sept 15, 2006. Winners will be awarded on Nov 9.
• How to Enter – Write a 500 word essay and submit it using the online contest form.
• Other Fine Print – By submitting your application, you grant UPS permission to use the company name, trademark and comments for advertising and publicity (of course, this should be in your favor, but who knows).

Doesn’t look like we’ll be entering. We’re not quite at the $250k revenue mark Maybe next year…Good luck to all the contestants!

-JC

1. Release Early
2. Keep Pumping Out Features
3. Make Users Happy
4. Fear the Right Things
5. Commitment is a Self-Fulfilling Prophecy
6. There’s Always Room
7. Don’t Get Your Hopes Up

Of course, just reading the list doesn’t provide enough context for any real benefit; you should read the full essay. Paul lays out convincing arguments and compelling examples for each lesson, and his track record with startups proves he knows what he’s talking about. With respect to our startup, I was heartened to see that the article validates a number of beliefs we already have towards our project, and serves as a great heads-up for other points to keep in mind.

-JL

Core to any business plan:

• Executive summary
• Mission statement
• Market and position: What is the market you are going after and what is your unique selling proposition (competitive advantage)?
• Business model: How exactly do you plan on making money?
• Marketing: How will you reach your customers?
• Financial projections: Revenue and expense per customer? When is breakeven?

If you’re writing it for investors (existing or potential), you’ll be taking a more management perspective. It will include more information about the management team (who are they and why they are qualified to execute on this plan), and the company valuation and investment needs. The business plan will also have to be more polished and well-written. This form of the business plan needs to sell your audience on you (the management team) and your value proposition.

If you’re writing it for yourself for validation and planning purposes, you’ll be taking a more tactical perspective. There will need to be more focus on the details and thought about how you are going to execute. The business plan itself might be in the form of bulleted items instead of beautifully flowing text, but that doesn’t mean you shouldn’t spend any less time doing the deep thought. This form of the business plan is to validate with yourself that this is a viable business worth your time and also helps you plan the activities to reach your goals. I would say this form is a stepping stone to the investor version. If you can’t prove it to yourself, you won’t prove it to anyone else (even with slick writing).

Whichever plan you’re writing, make sure your intentions are true and you are critically analyzing the business. If you’re just going through the motions of filling in the blanks, you won’t do nearly as thorough a job as you should be doing and you’ll be shooting yourself in the foot…and, unless it’s the left foot, that’s not the way to start off.