Commentary

Sticking To Your Guns

Eighteen months ago, I found myself sitting in Madison Square Park.  I'd just stepped out of an investor pitch.  It had gone well,  and the investor wanted to invest in my company.  The catch was that he wanted us to shift our approach fairly significantly --  changing everything from our content approach (moving from largely horizontal to vertical, focusing on the beauty, fashion and style category) to focusing on aggregation, to hiring a salesforce instead of letting YouTube handle sales. I had a lot to think about.

The investor wanted us to syndicate our content around the Web on pertinent websites.  Then on YouTube, he wanted us to become a multi-channel network, aggregating similar-themed, smaller channels in an effort to emulate the success of the then leading multi-channel network, Machinima, whose founder had invested in a new MCN targeting the young female demo.  We'd then use the proceeds to hire a sales force and monetize the content and audience accordingly.  In theory and on paper, this was the "winning" formula that many others had embraced.  To me, it just didn't jive.

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Having worked at an online men's lifestyle magazine from 2000-05, I knew the men's market and demo inside out, but had been handcuffed by a non-competition agreement, so I'd gone out of my way to avoid tackling this market head-on.

Did I want to all of a sudden drop the horizontal market and take on the young female market?  Not really.

Did I want to de-emphasize production of our content to focus on aggregation?  Nope.

And did syndication of the content we did produce on mid- to low-tier sites seem like a winning strategy?  I simply didn't think so.

But bear in mind, despite our operational success, at the time, the company was technically insolvent.  Granted, most of the debt was owed to me, via many loans I'd made to the company to stay afloat in leaner years.

Even though I'd never had any real runway, I just couldn't be sold on the VC's pitch.  My advisor knew it, I knew it, and my team knew it.  So I came back to the office, and decided to keep doing what we'd done, with minor adjustments instead of the massive pivot the VC was calling for.  In all fairness, these were minor changes we'd already embarked on a year previous to that meeting.  The metrics were not improving fast enough, but they were going in the right direction -- just not fast enough in the eyes of a VC.  I'll always pick good over big, smart over fast. But without results, it's easy to give in.

Eighteen months later, we did the opposite in many ways.  For one, we actually ran the other way and  embraced at least one vertical -- the men's demo – which turned out well for us.

We dropped the syndicated player strategy, unsure of the quality of traffic we'd be chasing. This year the portion of views that came from YouTube jumped from about 15% to over two-thirds.  While many may question that breakdown, our P&L supports the decision.

We also didn't pick one vertical, let alone fashion and beauty, which are quite vulnerable to UGC at the low end and celebrities at the top (a user-generated makeup tip is just as good as a professionally produced one; and if I am a brand, I want to sponsor something by a celebrity, not any random producer's).  In the end, we remained pretty horizontal, though we focused on formats that worked best.

In the 18 months since the VC’s offer to build a sales force. I realized that, too, might be overrated. In that time, my insanity (doing the same thing and expecting a different outcome) paid off: We're now debt-free, and while we can afford to do so, we're still not inclined to build a sales force.  When it's said and done, I am content (for now, anyway), to let YouTube handle sales even if they did recently sweeten the pot.  If you peel the layers of the onion back, you realize that the eCPM from YouTube's monetizable views are reasonable -- if, of course, you don't have VCs on your board pushing for more (which we don't), or another platform that yields more revenue or eCPM.

The lesson here, for me anyway, is that you can build a business online through the production of online video content, but the second you have investors on board, you will never be able to build a business that is big enough.  So as much as one gains "street credibility" by saying you have outside investors, it's actually the best way to misalign your objectives and please the wrong stakeholders. 

To paraphrase Herb Kelleher: Give audiences what they want, treat your employees well (which is something VC-backed companies simply can't do in the long-run), serve your clients and partners admirably, and in the end, everything will take care of itself.

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