Jeffrey S. Klein

A Business Perspective

USC Boot CampMay 20, 2010

Follow The Money

Content is King, right

Wrong

CASH IS KING

Agenda

Basics of the Business Strategy Budgeting Revenue

Selling advertising Other ways to generate dollars Events

Expenses Sustainability Profit, or, can I quit my day job Raising money and exiting the business

Basics

The old deal: For consumers, you bring us information for free or

low-cost and we’ll look at your advertising For advertisers, you bring us audience and we’ll pay

you for reaching them The new deal (still unclear but…)

You bring information relevant to me when and where I need or want it

You bring us eyeballs and we’ll pay you if we get something from them

Unclear if the economics will work, so new funding approaches will be necessary

Strategy

Define your market Define your target audience Competitive Landscape Pricing approaches Set goals and milestones To partner or not Exit Strategy

Budgets

Why are they important? Sets a goal and a pathway Allows you to track performance Helps eliminate surprises You can only manage it if you measure it

Budgets are for you, not your CPA Budgeting/Forecasting will help you

understand your business NUMBERS tell a story. Don’t miss it

Revenue

Where does the money come from Advertisers or Readers

User Pay Content must be unique And have financial value See the world of B2B niche Online Training

Advertising Impressions, clicks, sponsorships Leads Webinars, virtual trade shows Directories

Events (user pay and sponsor pay) Affiliate programs (e.g., Amazon books) Text Links

Sample Revenue Forecast

Source: http://newsinnovation.com/models/

Large Blog P & LMedium Blog

P & L

Revenues              

Year 1 Year 2 Year 3   Year 1 Year 2 Year 3

Advertising Revenues  

Banner Advertising  $        129,730   $       273,230   $          338,466     $           74,844   $       184,410   $        250,716 

Contextual Advertising  $             3,538   $            7,452   $               9,231     $             2,041   $            5,029   $             6,838 Ecommerce/Affiliate Rev

 $             6,825   $          22,995   $            39,570     $             3,938   $         13,266   $           22,829 Events

 $             2,400   $            7,200   $               8,400     $             1,800   $            4,800   $             7,200 

 

Revenue before Operating Expenses  $        142,493   $       310,877   $          395,667  #  $           82,623   $       207,506   $        287,582 

 

Metrics Drive Projections Year 1 Year 2 Year 3

Overall Metrowide MarketTotal # of Adults 18+ (Metrowide)              5,000,000       5,000,000                5,000,000 % of these who are online users 80% 80% 80%

Total # of Adults 18+/Online (Metrowide)              4,000,000       4,000,000                4,000,000 

Submarkets Coverage Area - Large Blog (Population = 60K)% of Total Living in Large (Population = 60K) 54% 54% 54%Total # of People living in Large Submarkets              2,700,000       2,700,000                2,700,000 # of areas with Given Population                            45                     45                              45 

Unique Visitors & Page Views% of these who are Large Blog users 35% 49% 60%Beginning UV                             -   Ending UV                 945,000       1,323,000                1,620,000 UV/Blog                    21,000             29,400                      36,000 Page Views/User/Mo. 12 12 12

Total Monthly PVs -Hyperlocal Blog (All Blogs in each mkt. size)            11,340,000     15,876,000              19,440,000 Total Monthly PVs/Blog                 252,000           317,520                    388,800 

# of Ad Positions/Page Avails Per Page Av. STR # of Sold Units/PgLarge Hyperlocal/Vertical Blog 12 55%                               7 

Contextual Ads (Google, e.g.)# of Ads per Page 3 3 3CPC  $                    0.20   $            0.20   $                     0.20 CTR 0.36% 0.36% 0.36%

Average Effective CPM  $                  12.00   $          12.00   $                   12.00 

EcommerceMonthly $ per Converted User  $                  10.00   $          15.00   $                   20.00  User Conversion rate  0.50% 0.50% 0.50%

Events  # of Events/Year                             12                     24                              24  # of Tickets Sold/Event                             20                     30                              35  Price per Ticket   $                  10.00   $          10.00   $                   10.00 

Total Annual Event Revenue Per Blog  $            2,400.00   $    7,200.00   $             8,400.00 

Additional AssumptionsCapex per Employee  $                  1,000   $          1,000   $                   1,000 Rent

Square footage/person                         100                   100                            100 Cost/Sq. Ft.  $                          8   $                  8   $                           8 

Advertisers are your FRIENDS

In-house or Out-house sales structure Sales compensation

“Commission only” does not usually work well Heavily incent success

Self Serve options Marketing support and materials Data, Measurability, Performance Ad networks (e.g., Google Adsense) You can’t make a sale unless you ask for it

Advertising Sales TIPS

Training and Education are key For your sales people and your customers Be your customer’s marketing partner and consultant

An “internet marketing seminar” Teach the value and effectiveness of advertising

Small/Medium business folk often don’t have time for you Expect churn

Of customers and sales people Customers and sales people are high maintenance

Out of pocket cost is more important to most than CPM Advertisers want you to do the work for them Telephone sales can work effectively Simple is best but complicated packages can drive $$$

Ad Pricing & Strategy

Pricing is important CPM—cost per one thousand impressions CPC—cost per click CPA—cost per acquisition (lead or activity)

Sell real estate and exclusivity Create “markets” (e.g., tires in Sports) Everything is negotiable You are not selling a product or a service

You are selling a relationship with an audience You can be their digital marketing consultant

But are you willing to “share” in your “partner’s” success?

Budgeting Expenses

Staffing Technology Equipment and Facilities Outsourcing Cost of sales Marketing Office Expenses (utilities, supplies, etc.) Accounting/Tax preparation Legal Reserves

Sample Expense Forecast

Source: http://newsinnovation.com/models/

Expenses   Year 1 Year 2 Year 3   Year 1 Year 2 Year 3

SG & A  Salaries (Including Owner/Operator)  $           96,860   $       184,382   $          219,104     $           42,920   $         91,800   $        114,314 Marketing & Promotion  $             7,500   $            5,000   $               5,000     $             2,000   $            2,500   $             3,000 Events  $             1,200   $            3,600   $               4,200  #  $                900   $            2,400   $             3,600 Technology Costs  $           10,000   $            5,000   $               5,000     $             4,000   $            1,500   $             1,500 Legal Fees  $             3,000   $            1,000   $               1,000     $             1,000   $            1,000   $             1,000 Accounting Costs  $             5,000   $            5,000   $               5,000     $             3,000   $            3,000   $             3,000 Rent & Utilities  $             1,600   $            2,800   $               3,200     $                    -     $            1,500   $             1,688 Travel/Misc  $             2,500   $            5,000   $               7,500     $             1,000   $            2,500   $             2,500 

Total Expenses $ 127,660 $ 211,782 $ 250,004   $ 54,820 $ 106,200 $ 130,602 Expense/Revenue Margin 90% 68% 63% 66% 51% 45%

 Operating Income $ 14,833 $ 99,095 $ 145,663   $ 27,803 $ 101,306 $ 156,981 Operating Income Margin 10.4% 31.9% 36.8%   33.7% 48.8% 54.6%

 Earnings Before Taxes  $           14,833   $          99,095   $          145,663  #  $           27,803   $       101,306   $        156,981 

 Income Taxes @40%  $             5,933   $          39,638   $            58,265     $           11,121   $         40,522   $           62,792 

 Earnings (Accrue to Owner/Operator)  $             8,900   $          59,457   $            87,398     $           16,682   $         60,784   $           94,188 

Net Margin 6% 19% 22%   20% 29% 33% 

Attracting and Retaining Consumers

Link Economy : “Do what you do best and link to the rest”—Jeff Jarvis

Search Engine Optimization Search Engine Marketing Social Media Word of Mouth Email Newsletters drive traffic Registration Measure, Measure, Measure

Engagement, where do consumers come from/go to

Any pay for content possibilities? Archives? Data

Event Business

Builds your community Promotes/reinforces your brand Can generate significant revenues/profits Exploits your “convening” role Users can pay, Sponsors can pay, or both

Ask yourself: what are the niche topics where information is valuable or certification is needed (e.g., real estate)

Tracking Performance

What are the key drivers of your success? Develop a performance dashboard

Key metrics measured/reported regularly Spot trends Test hypotheses Dispel anecdotal evidence Helps assess priorities/investments, for example

What is “lifetime” value of a customer? Does traffic translate into revenues? Return on sales efforts—relationship between cost of

sales and sales performance?

Legal Structure

Proprietorship Personal Liability

General Partnership C-Corp

Corporate Veil limits personal liability Double tax issues

S-Corp Flow-through of tax losses and gains (taxed like a proprietorship

or partnership) Regulations/requirements

LLC Limited liability of corporate structure and tax advantages of S

Corp Costs of upkeep

Funding your Enterprise

Sweat Equity Leverage (e.g., a second mortgage) Friends and Family “Angels” Venture Firms (requires an exit strategy

with a high rate of projected return) Investors will want to see your business

plan

Exit Strategy

Pay the bills and retire Build a multi-generation family business Partner with other like businesses Sell to a strategic buyer Sell to a financial buyer IPO Go to the beach!