Savvy marketers know the value of a brand. It’s the reason a bottle of Tide costs twice as much as generic detergent that works just as well. Companies receive a brand premium, not because they have shown that their product is better, rather it’s based on the belief and or perception that it’s better. But online advertising is different. Because you can clearly and quickly measure returns (unlike in the detergent example), Pay Per Click (PPC) advertising should be a completely performance-based product. Nevertheless, Google clearly commands a brand premium for its PPC services—and customers are paying up, even when they can see no clear return on their advertising investment. This does not make good business sense.

What company would keep paying a PR firm or marketing consultant each month without seeing clear results? Savvy business owners should give their paid click business to any channel that produces a positive return on investment consistent with targeted margins. The “glam” factor that makes advertising worth more when it is associated with, for example, the Super Bowl, simply does not apply to pay per click advertising, companies buy search traffic because they have something that they want to sell to you today.
Consider the case of an affiliate website I work with which receives a lot of traffic around a key product, which we will call “widgets.” The site organically ranks in the top five on Google for a variety of terms related to widgets. When users come to the site, they read about the widgets and get links to buy widgets from retailers. It’s extremely targeted. You would think widget retailers would want to enter into PPC relationships with such a website, but they’re more likely to insist on a performance-based or affiliate relationship and even balk at paying a cost per click that is 50% less than Google. Companies continue to overlook the advantages of these smaller websites on a pay per click basis even while forking over money to Google, simply because they see their competitors there. This is the kind of herd mentality that will never produce a competitive advantage in the marketplace.

So why does Google get a free ride? I recently had a prospective client whose choices shed some light on the subject. The client was paying tens of thousands of dollars a month to test a PPC campaign with Google as part of a new online marketing program. We suggested that they also consider an affiliate marketing program, which would have an upfront cost of about a quarter of their monthly PPC spend. But they were resistant to the upfront cost. What they didn’t realize was that they were measuring the cost of the affiliate program against the cost of managing the PPC program—they weren’t even taking into account the huge costs associated with the Google program itself. What was fascinating was that the fiscal oversight was so much more lax on money going to Google than on money going to consultants—even though the money spent directly on PPC was not producing any tangible results and was about five to ten times higher. The fact that Google PPC was a service and not a person or a firm to be held accountable was clearly affecting the budgeting. From my perspective, money is money, and it should go to the channel that can show the best return on investment, whether that be a person, a firm, a service or a product.

I am convinced that that if Google PPC were an individual or a consulting firm rather than a service, it would get fired much more often. The brand name is getting Google off the hook for all the wrong reasons.

What You Can Do
The bottom line is that companies need to get over the thrill of traffic volume, which PPC can provide, and start to measure real performance—in conversion to sales. It’s nice to be able to turn on the floodgates, but if your web visitors aren’t buying, it’s a temporary high. Before committing your online advertising dollars, do a careful analysis. You may find that better ROI can be achieved through channels with less competition, ones less susceptible to price manipulation and that have higher barriers to entry. Options include improving your organic search ranking, building an affiliate program (for retailers) and finding lesser-known sites that rank highly for content related to your key search terms. (You can do this though online tools such as SEM Rush, www.semrush.com.)

You should know exactly what a click is worth based on the channel it comes from, so you can adjust your allocation and spending accordingly. Only then will you be able to take advantage of opportunities based on actual performance, rather than perceived value. Once you’re done, I suspect you might find it’s time to re-evaluate your business relationship with Google.

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Last Sunday my wife and I wasted an hour driving to a rug store that turned out to be closed even though the store’s website indicated it would be open. When we called on Monday, the man at the store apologized and explained that the business is in a fight with its web designer, who is refusing to make any changes to the current site, including the hours. This is about the tenth hosting horror story I have heard recently, including the one from my auto mechanic, whose designer stole his website and sold it to a firm with the same name in another state. After spending five years building up his site, he is back to square one.

If you are an entrepreneur or a small business owner who works with outside web development and design firms, please DO NOT let them purchase or host your website. Every business should own its own domain name in an account that is controlled by the owner. The owner can purchase a third-party hosting plan with direction from the web designer and then give that designer access. However, when you let you a web designer purchase or host your domain, you are violating the old “possession is 9/10ths of the law” principle, and you may be putting your business in jeopardy.

Although these are two of the more egregious examples of what I call “hosting hostages,” others are much more common. Often a provider will hold a client effectively hostage by demanding ridiculous prices for simple upgrades and improvements. The providers know that their control over the client’s website prohibits the client from asking another service provider to get involved, and companies are often scared to ask for competing quotes from a new company if it means having to go through the existing vendor. Vendors can also make it very hard to switch over, especially if the goal is to terminate the relationship. I have seen companies stick with an unsatisfactory vendor for years because of this dynamic, often at a huge expense.

What You Can Do
For the aforementioned reasons, web hosting is a clever tactic for design and development firms; however it’s a liability for a business owner. Don’t wait until you have a problem on your hands to fix this. Go to your service provider while you still have a good relationship and tell them that one or more of the following (investors, auditors, insurance company, legal counsel) has suggested/required that you demonstrate ownership over your domain name and hosting account. The provider can tell you exactly what plans/service to buy and will have all the same access to make updates, but you should retain control of the master password. This is generally not as hard to do as they are likely to claim, and a third-party firm should have more reliable hosting, especially if your vendor has your website on its own in-house machines. If your vendor tries to drag their feet, hold back on accounts payable until they get it done for you. You don’t want to wait to deal with the issue until you have an acrimonious situation on your hands. When that time comes, it’s your customers who may suffer.

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Entrepreneurs often have well-laid plans for global domination. They have charts, projections and sales plans showing who they are going to sell products and services to and how much they are going to gross once their company has become a household name. What they typically don’t have is a tactical plan to get to the first sale and then the second. Either they have failed to nail down a compelling value proposition or they just feel more comfortable debating among themselves whether the dog will like the dog food, rather than going out and feeding it to the dog. To me, that’s completely backwards.

If you are starting a business, knowing how to get your first customer is really more important than knowing how to get the 1,000th—even in the “big picture” world of the business plan. Start in your own backyard, by creating a product or service that solves a need for someone locally. One you have that first customer onboard, use that reference to get another. Build a local presence, then a regional presence, then a statewide presence. Learn what customers like and don’t like, refine the model and then develop plans to take it national. If you do this, your business and financial model will be based on real data and feedback rather than intelligent guesswork and potentially inaccurate spreadsheet assumptions. The reality is that if you can’t win the game when you have the home field (or backyard) advantage, you are much less likely to succeed on the road.

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A few years ago, just after the Sprint/Nextel merger, I dropped into my local Sprint store because my cell phone contract was about to expire. The companies had already merged brands, but the products in the store were positioned as if they were still two competing companies. The cell plans on offer were confusing and overlapping, so I walked out of the store and recommitted to my carrier that same day, despite being ready for a change.

In a similar vein, twice this year, I have had to go to FedEx Kinko’s for client work. I hadn’t set foot in one of these store in years and had not been a heavy Kinkos user since my college days, when I remember the service being very good and the prices being reasonable. I initially thought I had a hearing problem when the less-than-enthusiastic customer rep told me my total for a few enlargements and two color copies. I can understand a color copy costing more than $1 per page 10 years ago when no one had color printers, but I honestly could have bought a printer for what it cost to do a few pages. Unfortunately, I ended up in FedEx Kinkos again for another client project in San Francisco. We needed to pick up some foam board and tape for a trade show and the price of their products was completely absurd, with markups of 100%-300% over typical retail. Both times, Kinko’s had the chance to become my new go-to service shop, but instead became my option of last resort.

What do these stories both have in common? The mergers are both disasters. I have written about Spring/Nextel in my piece on execution (http://www.acceleration-partners.com/blog/execution-as-a-last-resort) , but a recent story in Business Week also highlights the failure of the FedEx Kinkos merger (http://www.businessweek.com/magazine/content/08_52/b4114078612060.htm?campaign_id=rss_daily).

When the problems of a merger are so bad they affect the consumer experience, it’s hard to image that merger is a success—no matter how rosy the management projections are about cost savings. Such talk may win over investors, but I am a firm believer that most mergers don’t make sense, and my guess is that about 90% are failures in one way or another. But if that’s the case, why are there by so many mergers? The answer is it’s a rigged system that puts a lot of economic value around the transition, with few if any incentives tied to the eventual success of the combined businesses. Founders, private equity firms and venture capitalists need an exit to make any return on their investment; and lawyers, accountant’s advisors, investment banks, etc. are paid on the deal closing. I recently read that advisor JC Flowers was paid $20 million to issue a fairness opinion on the Bank of America-Merrill Lynch merger, which was done in a weekend. (http://money.cnn.com/2009/01/15/news/bofa.unfair.fortune/?postversion=2009011515) . I am pretty sure the only party that did well in that deal is JC Flowers.

I will admit that I prefer the water cooler approach to noticing trends and changes in the marketplace rather than sifting through often biased research reports. These observations are what got me writing about real estate bubbles in 2002 (http://www.acceleration-partners.com/blog/its-a-lending-bubble-stupid/ ) and Web 2.0 bubbles in 2007 (http://www.acceleration-partners.com/blog/bubble-20/). My current observations have lead me to believe we are entering a sustained period of change where compensation is going to be tied a lot more closely to creating real, sustainable long-term value and this will have a big impact on M&A. The problem we have had in the past 10 years or so is that incentives have only gone in one direction, encouraging short-term gains for short-term payouts, at the expense of long-term results. In the case of M&A, this leaves acquiring company’s shareholders holding the bag. This behavior was born from three successive bubbles: the .com/ipo craze, the housing/mortgage craze and the hedge fund Bernie Madoff era, the latter of which made some companies millions just for placing money with Madoff. The easy money is just too hard to resist. But with the easy money gone and the M&A market at a standstill, I would suggest a novel approach of asking “how is this merger good for the customer” as a litmus test for new deals. If it’s not good for the customer, all the projected cost savings in the world won’t make it a success in the long term.

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About five years ago, I was involved in a new consumer services business that was the talk of the town. Friends and colleagues, seeing the flood of customers and press, often commented that “you guys must be making money hand over fist.” Truth was, we weren’t. Providing our services was expensive, and we were struggling to deliver a sustainable profit. What was good for the customer wasn’t always good for the business or our investors. Anyone who copied our model at the time would have made the same mistakes, and many did.

In a similar vein, two years ago I began working with a client who was self-funding his business and was concerned about a well-financed competitor. This competitor was spending a lot of money on features and development without really showing traction with the core demographic. My advice to my client was to ignore this big spender, keep his head down and focus on attracting and keeping profitable customers. Sure enough, about four months and $5M in venture capital later, the competitor went under. Not only is my client still in business, he is a market leader and has used significantly less capital.

No start-up can afford to follow the business model of a competitor unless they are certain that model is working. And when I say “working,” I mean profitable. Many companies are overfunded by investors who can go for broke because they have a portfolio strategy; others are backed by friends and family who have little relevant investment experience. Such circumstances often explain how businesses keep going long past the point where a traditional lender such as a bank would have pulled the plug. I’ve also found that when managers aren’t spending their own money, they tend to favor the customer even at the expense of profit.

Bottom line? It’s a critical and often fatal mistake to try to judge whether a company is making money by looking at the “front end” of the business, such as the growth of users or perceived popularity. What drives profitability for almost all business is actually how well they manage the “back of the house,” the unsexy operations. This is where good management, strong systems and a focus on cash flow rule. This is also why gross margins are the biggest false indicator in business. As an example, imagine you run a class and make $100. If the teacher costs $25, your accountant will tell you that your gross margin is $75 or 75%. But what about the cost of the classroom, the cost of marketing, and the expense of training teachers? These kind of expenses can quickly turn a 75% gross margin business into a money loser.

Investors and consumers continually fall into the trap of assuming that a popular business is a profitable one. The reality is the majority of very sustainably profitable business are decidedly unsexy. There are exceptions though such as ING Direct, which offers a very popular and simple high-interest online savings account. ING is able to pay this attractive rate because the bank has no branches and uses a fully automated online system. The company then uses these savings deposits to make low-cost mortgage and home equity loans to very high quality borrowers with a similar streamlined and efficient online process. Customers love ING Direct and the parent company loves the business unit because it has found a way to deliver a service customers value in a way that also is very profitable. This combination is a sustainable competitive advantage, something every business would like to have.

The key message here is, if you are trying to judge a competitor or find a model for your own business, make sure that you know for a fact that it is profitable—especially if you are funding your business with your own money. What you see on the surface may not be what you get when it comes to profitability.

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If you have ever talked with Acceleration Partners about your new online business idea, you are sure to have heard us say “get to revenue fast.” This was tough advice to give when the market seemed to reward top-line user growth over revenue and profitability, but now things are changing in a hurry.
It’s one thing not to be profitable; it’s an entirely different ballgame not to have revenue. Before the Internet, it never really happened because the cost of starting a business was higher. Can you imagine a retail store that was more concerned about how much foot traffic it had than it was about what was sold? Or a newspaper that ran without any advertisements or subscription fees in order to be popular with readers? Revenue matters not just because you need cash to pay for the business, it matters because generating revenue demonstrates that the service you are providing is valuable enough that customers are willing to pay for it.

There are three major problems with not focusing on revenue generation from the get-go. The first is that you can’t tell if you have anything of value if users or advertisers won’t pay for it; there are lots of things that people like when they’re free. The second is that you can’t learn what works and what doesn’t work from a business model standpoint unless you can generate data; most businesses learn through trial and error, and paying customers will tell you what they think. The third problem—one that most people don’t consider—is user entitlement. Basically, customers who have received your service or product for free come to feel entitled to it; they revolt at the introduction of fees or advertising. We saw this first-hand when a major online social media client was forced by investors to make a big change to their business model. Their core user base revolted, and the site never recovered; the company shut down months later.

Every business needs to figure out early on what customers value and will pay for. The IPO boom of the late ’90s and the acquisition craze of the past few years resulted in many companies being purchased under the greater fool theory of “if they have a lot of users, they must be worth something to someone.” Most of these IPO and acquisitions have been disastrous for the acquirer, and the market for these exit strategies is now nonexistent. Also, some of the most “popular” websites in the world still have not figured out how to be profitable or generate meaningful revenue, even with tens or hundreds of millions of users. As the economy slows and losses pile up, investors are beginning to question the enormous costs of providing the infrastructure for these services.

As a basic premise, we maintain that a business with 1 million users that can’t figure out how to make money is actually worse off than a business with 100 users with the same problem. For a site like Facebook, its inability to generate meaningful revenue or profitability with so many users demonstrates the popularity/profitability paradox. Building a sustainable business is often in direct contention with gaining the most users; business is not a popularity contest. If you want your business to be around in a few years, you need to stop trying to get everyone to love you and build something that is valuable enough that someone will pay for it.

As we enter what looks to be a very difficult few years in the economy, with much of the “easy money” no longer available, the only sustainable strategy for many businesses is going to be to generate revenue and cash flow. It might not sound sexy, but cash is king once again.

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A lot of people ask the same questions when they are trying to learn about affiliate marketing, so I have tried to compile all of the answers here in one place.

Q. What Is An Affiliate Program?

A. An affiliate program is a system where your website posts a link to another website, and if a visitor to your website clicks on that link and then buys something you receive a commission. It is a great way to share in the revenue generated when you drive traffic to someone else’s site and works best when you have content that is relevant to the product being sold. For example, let’s say you have a site all about dogs, and you are an affiliate of Petco. Bob the dog owner comes to your site to do some research on a rare breed, and sees the link to Petco. Realizing that he could sure use some more dog food, he clicks on the link, goes to Petco.com, and buys $100 worth of dog food. Since you are the affiliate that sent Bob to Petco, you receive a commission of $10.

Q. What Kinds of Companies Offer Affiliate Programs?

A. There are literally thousands of companies with affiliate programs, ranging from big ones like Amazon.com and Best Buy to smaller niche retailers.

Q. How is my affiliate account managed?

A. The vast majority of affiliate programs are managed by a third party “network” such as ShareASale, Linkshare, Google Affiliate Network (formerly Performics) or Commission Junction. These networks will get you registered as an affiliate and then let you apply to individual programs. On the network site, you will have access to tools to add banners and links to your site with your tracking id. The network will also offer real time reporting and handle payments and tax forms. That way, if you earn commissions from 15 different vendors in a month, you won’t get 15 small checks. Instead, the network will consolidate all of your commissions into one payment. This system makes it much easier to track your income and adds an added layer of protection because you are paid out of an escrow account at the time of a sale so that the merchant cannot run out of money before you are paid.

Q. Are there any start-up fees or other costs associated with joining an affiliate program?

A. No. It is free to sign up, and free to add banners and links of your affiliates to your site. Web merchants are looking to gain traffic and sales– they are more than willing to not charge you anything AND pay a commission for your help.

Q. Do I need any special qualifications to be an affiliate?

A. Not as a rule. However, individual merchants do have the power to approve or turn down your affiliation application, and some are looking for specific qualities in their affiliates. Often, merchants will not approve sites that are sexually explicit, violent, violate international property laws, advocate discrimination, promote radical religious or political views, or advocate or promote any illegal activities. If you do not do any of things and are turned down, you may want to check with the merchant you are applying to to see what they are looking for.

Q. Do I have to have a currently operating site to become an affiliate?

A. No. You can usually register a site that is not live as an affiliate, as long as you own the domain name. Just make sure that you use an email address associated with the website-in-development, otherwise it will be very difficult for you to get past the affiliate fraud screening process.

Q. How much are commissions?

A. Commissions range largely based on the margins for that industry. 10% is probably the average, however, this can vary. Big ticket items like TVs may carry lower commissions, while high volume affiliates (those who refer a lot of customers and generate a lot of revenue) can get 15% or even 20% commissions. Check with your affiliate program to find out the specific commission available as well as their performance tiers.

Q. How often will I get paid?

A. Most networks will aggregate your commissions and then send you a check or make a direct deposit somewhere in the middle of the month for the previous month’s sales. If you enroll in direct deposit, you will generally receive your money a few days earlier than you would get a check in the mail.

Q. What is a cookie?

A. A cookie is a small piece of data that is transferred to a computer in order to mark it for a later transaction. Affiliate programs are based on cookies. The way they work is that when a user comes to your site and clicks on the link of a site you are affiliated with, a cookie is placed on that user’s computer. Then, even if they leave the site and come back a week later to make a purchase, you will get credit for the purchase and receive a commission. A merchant can make the duration of a cookie as long or as short as they want, depending on their needs and strategy. Some are a year long, other only a few days. Generally, smaller and more specialized vendors will have longer cookies, while big consumer companies like Wal-mart or Best Buy will have very short ones.

Q. What is a product feed?

A. A product feed is a system by which you are able to easily able to choose, manage and modify the products you offer on your site on behalf of a merchant you are affiliated with. Product feeds are only important for online stores and other sales sites– if your site just has a banner linking to a merchant, you do not have to worry about it.

Q. What is an RSS feed?

A. An RSS feed is a system that allows your site to be easily and automatically updated based on the banners, links and products you display.

Q. What does EPC mean?

A. EPC is an acronym for “earnings per hundred clicks.” Think of it as a way to measure one program against another. If a program has a $20 EPC, that means that for every 100 people you sent to their site, you should net $20 in commissions on average. This number takes into account the programs conversion rate, commission level, etc. Generally, a $20-$30 EPC is considered strong.

Q. How much do I need to know about computers to become an affiliate?

A. You or someone you work with should be familiar with HTML, so that you can copy and paste banners and links from merchants onto your site. If you are uncomfortable with technology, this is not an industry for you.

Q. Do I have to live in the US to be an affiliate?

A. No. The great thing about the internet is that it makes geography irrelevant

Q. If I have multiple websites, do I need to create multiple affiliate accounts?

A. Most affiliate programs and affiliate managers allow you to register multiple websites under one central account, allowing all your commissions to be aggregated. However, you should check with your individual affiliate programs and affiliate manager.

Q. What is a sub-affiliate?

A. A sub-affiliate is a website that you have recruited to become an affiliate of a merchant. Many affiliate programs offer rewards for bringing in sub-affiliates–either payments or increased commissions.

Q. Do I have to have a website to be an affiliate?

A. No. If you do not have a website, you can create special text links and either use those directly yourself to place orders on behalf of clients or you can e-mail the link to friends, family or customers.

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If you run a small services business, you spend a lot of time thinking about where your next customer will come from. Given the time you invest in building a sales pipeline, you might be surprised to learn that almost everything you have been told about the sales process is wrong. Traditional sales thinking puts all the emphasis on stuffing the funnel with prospects. If you cast your net wide and slowly percolate your prospects, you’ll ultimately distill fully fledged customers—or so the thinking goes. This could not be further from the truth.

Fortunately, there is a better way. Working with our friends at Fresh Tilled Soil, we have discovered a strategy that will work for almost any service business. The catch is that it requires patience and flexibility. This is not a quick fix. It’s based on the understanding that saying no to the wrong clients can do as much for your business as getting the right clients. We call this strategy “The Sales Lens” and, executed correctly, it is more powerful than any other strategy we have discovered from driving and sustaining profitable business.

Defining the Lens
The Sales Lens, as the name implies, is a way to focus all your sales and marketing efforts. The most successful organizations are not those chasing multiple customer audiences. They focus on only one audience, the one that delivers the most profit with the least aggravation. They whittle down the distractions so that the definition of the customer can be drawn through the eye of a needle. Creating your Sales Lens starts with analyzing who your ideal clients already are. If you are a new company and don’t have any existing clients, then create a profile of the ideal client and be prepared to modify it once you have real data. As an example, ask yourself:

• Is our ideal customer new to the market or an established business? Which do you prefer?
• Who will be making the decisions? Do you want to deal directly with the founder or CEO? Or, would you rather work with big brands and deal with line managers and mid-level decision makers?
• How much experience does this client have in your field? Are you more comfortable with novices or a client who’s an old hat at the game?
• What communication style do you prefer? Are you a quiet introvert who likes mild-mannered clients, or do you prefer fast-talking extroverts? Is email or phone better for you?

Go back and look at your best engagements and figure out what the successful projects/clients had in common. Also analyze what happened with the projects that did not work out well. Use this data to further focus your Sales Lens. Also, make sure you are aware of what economic drivers keep you profitable. You should communicate your payment terms clearly and seek clients who respect and agree to these terms without haggling.

Putting the Sales Lens To Use
An example of the lens that we use to determine whether to take on a client or project is divided into three parts: client qualities, sales process, and other considerations.

Desirable Client/Project Qualities
• Client has worked with another service firm successfully or values an outsourced relationship
• Client knows what they don’t know
• Client agrees with our methodologies/philosophies (in areas where you have strong opinions, get those out early in the relationship as a litmus test)
• Communication style mimics our own (i.e. online and fast)
• Our deliverables are not tied to people that we can’t control

In addition, if a major operational effort is going to be required from our company, the project needs to have a high mandate from client management, and the implementation team needs to understand what we are doing and be able to keep up.

Ideal Sales Process
• Client values our time and demonstrates this in the proposal process
• The sale proceeds quickly (an endless back and forth is a big red flag)
• Client signs contract on time and makes timely deposit (we have found this to be a high predictor of future payment issues)
• The project meets our financial criteria

Other Considerations
• A repeat client is worth much more than a new one
• A referral from a trusted person usually makes for a better client.

Your Sales Lens will have to be adjusted over time to remain effective. After a disaster, figure out what went wrong and adjust the lens. Take a project that worked out flawlessly and add those qualities as well. Keep in mind that the outliers—the best and worst potential clients—are usually easy to identify. What will really make a difference is if you can learn to discern the pros and cons of companies that are on the fringe. Although your gut will often tell you that something is not going to work out, unless you get comfortable with the borders of your lens, the inclination is often to move forward. Our biggest regrets have coming from engagements where we overlooked or ignored the warning signs or decided that we could live with one or two qualities that were outside our lens because we didn’t want to turn down work. Most of those engagements were regrettable and unprofitable.

Saying no to prospective clients and projects outside your lens is what will make your business more successful. In the pharmaceutical business, the most profitable companies aren’t those with the publicized blockbusters, they are the ones with the best yield, spending the fewest resources on the drugs prospects that never make it to market. Said more simply, they are quick to kill what’s likely to be a loser. Difficult clients and bad projects offset more profitable jobs and waste energy. Using the Sales Lens will ensure you spend more time doing what you do best.

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Which is better, the business plan or the executive summary? Academic institutions and the marketplace appear to be moving in opposite directions on this question. While many business students are required to develop 30- to 50-page business plans, we’ve found that these lengthy documents are used less and less in the real world, with the exception of more mature businesses in private equity or M&A transactions. For most early-stage businesses, 95 percent of a business plan is projection and conjecture, more akin to a work of fiction than an outlining of facts. And, deluged with plans, most investors have very limited time to spend reading. Most will look at a few pages and make a decision in a matter of minutes. If they cannot quickly figure out what the business does, how it is different from everyone else’s and why they should be interested, your plan is dead in the water.

A business plan/summary cannot be too short, it can only be too long. When plans are too long, they simply aren’t read. But, if you are able to pique investors’ interest with even a one-page summary, they are going to reach out to you for answers to their questions. And remember, this conversation is the primary objective of your written materials. No investor is going to write a check on the strength of the business plan alone. Other elements of a traditional business plan—such as financial projections, market research, detailed competitive analysis, and intellectual property and technical or product schemas—can be delivered after the audience’s attention is captured. (It’s also much easier to keep these detailed pieces up to date when they are separate from the fundraising piece.)

Our recommendation is that you focus on creating a three to four-page, detailed, executive summary that can be made into a PDF. The first paragraph should succinctly deliver your value proposition and explain why this is an attractive opportunity for an investor. In the next three to four paragraphs, provide the logic behind this assertion with key high-level data as supporting evidence. This summary should be your primary document when approaching prospective investors. If someone wants to learn more, ask for a call or a meeting, but don’t send additional information to someone who won’t take the time for either of these activities. If you do get a meeting or a phone call, we recommended that our clients have ready a 10- to 15-page PowerPoint presentation as well as backup documents, including sales projections, a financial model, any technical or intellectual-property documentation and any detailed market research available.

Developing an executive summary can be hard work. One of the processes that we undertake in developing a summary is to break the content up into distinct sections. This process of separating out and addressing key investor issues individually is often eye-opening, and entrepreneurs often find they need to rethink some of their assumptions. Certainly, it’s easier to obfuscate gaps with density in a long business plan. But that’s one reason why the summary is better. It brings to mind a quote we are fond of: “If I had more time, I would have written a shorter letter.”

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In my career, I have probably read over 2000 business plans from entrepreneurs seeking their first round of investment capital. I tend to cringe (as do all venture investors) a little bit when folks ask me for an NDA simply to hear their idea. As a general rule, I believe the entrepreneurs who are taking this approach have been given bad advice and often tend to be putting too much focus on the idea itself. They are often hunkered down holding onto the belief that their idea is proprietary, when in reality, what will make them successful is their ability to execute on that idea. This has more to do with the team, key business relationships, intellectual property, etc. An NDA is really more appropriate if you are trying to protect specific information such as a trade secret, real financials (i.e. historical), etc. or to protect your core information as part of a formal relationship with a service provider. However, if you ask for an NDA just for someone to hear your pitch, you may create a negative first impression. Very few repeat or serial entrepreneurs will ever ask for an NDA as a prerequisite to hearing their idea, mostly because they know that their competitive advantage lies in their unique ability to execute.

The advice I always give to entrepreneurs is to tell everyone what they are doing, because it can lead to important discoveries, new resources and/or learning about a well financed competitor who has a significant head start. I can promise that it’s better to know this information before making the decision to quit your day job. If you are starting a new business, resign yourself to the fact that someone has the same idea and instead focus your energy and resources on winning the execution game. As a prominent venture capitalist once said at a conference I attended “We don’t consider ideas proprietary, we consider execution proprietary.” Make sure that you focus your business on the “how we do” as much as the “what we do”.

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Affiliate marketing is one of the fastest growing segments of online commerce. Many people often ask me, what is affiliate marketing exactly? The easiest answer I can give is that it is the process by which online businesses give other websites access to tools and marketing collateral to sell products from their website on the company’s behalf. Just to get the terms right, an “affiliate” (i.e. Mike’s Tech Reviews) is a website that sells on behalf of a business, known as a “merchant” (i.e. Best Buy). These affiliates receive a performance (usually 5-10 percent) commission on each sale sent from their affiliate website to the merchant. These days it’s hard to find a major online store that does not have an affiliate program and now smaller companies are getting into the mix. Merchants love affiliate marketing because it creates an online sales force motivated by performance based commissions, effectively extending a merchant’s reach to a whole new client base. Websites with a lot of traffic or a targeted user base see affiliate marketing as a great way to convert visitors into revenue without having to carry products or fulfill orders.

Sounds easy, right? Well, it’s not! This is not a “get rich quick” scheme as many are led to believe. There are many nuances throughout the industry (such as rampant fraud) that you should understand before you take the plunge. To help get your business started, I have created my Do’s and Don’ts list for retailers/merchants who are considering an affiliate marketing program.

Affiliate Do’s

Do Join an Affiliate Network
For most top affiliates, it’s just too difficult to manage thousands of one-to-one relationships. The affiliates also worry about getting paid fairly and on time. Joining an affiliate network will give you credibility with top affiliates because the network acts as the escrow agent, providing consolidated reporting and payments to affiliates for multiple programs. They also take care of tax forms and complacence testing to ensure orders are being properly credited. The networks charge a set-up fee and then take a percentage of the commissions that merchants pay to the affiliates, typically 20-30%. You can certainly set up a direct program, but once you have even a handful of affiliates, administering these tasks yourself is just not worth the time or effort. The most popular affiliate networks are Shareasale.com, LinkShare, Commission Junction and Google Affiliate Network.

Do Assign a Dedicated Manager to the Affiliate Channel
Helping others effectively promote your business requires focus, attention and a deep understanding of the nuances of affiliate marketing. This marketing channel is very different from marketing directly to end consumers. It’s a great opportunity to reach new customers, but there are many pitfalls that can threaten a merchant’s selling potential. A dedicated affiliate marketing manager will serve a merchant’s business much the same way a franchiser helps franchisees to perform better. Most small companies find that it’s better to outsource their program to a firm that manages multiple programs simultaneously. It’s not a full-time job, but this ensures a dedicated focus and responsive service for your affiliates. More on this later.

Do Attend an Affiliate Summit
It’s a great way to meet a lot of interesting affiliates and merchants. Simply stated: this is where deals get done. Networking and personal relationships are important to success in affiliate marketing. Check out AffiliateSummit.com for more information on attending.

Do Reward Your Affiliates With a Tiered Commission Structure
The top performing affiliates will want a better commission level and the smart merchants will be set up to reward them with higher commission rates.

Do Be Patient
It can take up to six months to develop meaningful traction through your affiliate program, so don’t be discouraged if results don’t come right away. A lot of the legwork is upfront. However, the rewards come over a multi-year period. Over the long term, merchants should expect affiliate marketing to account for about 5-10 percent of overall sales volume. Keep that in mind if you are a merchant that is just starting to generate revenue, it could make the payback period even longer. However, once you have productive affiliates, they tend to remain that way for years.

Affiliate Don’ts

Don’t Automatically Assume Big Affiliate Networks Are Better
Affiliate network sites such as LinkShare, Commission Junction and Google Affiliate Network are really suited to larger established merchants (Home Depot, Best Buy, et al). A smaller company (less than $10 million in sales) often becomes very frustrated by their upfront charges, minimum fees and lack of customer support to affiliates. Smaller networks such as Shareasale.com (my favorite), AvantLink and KowaBunga! are great alternatives when starting a new program on a limited budget.

Don’t Get Screwed by Coupon Sites
As mentioned above, there is rampant fraud in affiliate marketing. While some affiliate coupon sites can help create new buyers for merchants, many just take advantage of their natural search engine positions to attract buyers who are already committed customers – even at the point of a sale. They may also bid against you in paid search ads (using clever tricks to make these ads go undetected) and drive up your own marketing costs.

Don’t Assume All Sales Are Good Sales
At Acceleration Partners, we have learned through experience how to identify fraudulent behavior and we carefully monitor our client’s programs to catch bad behavior early on in the relationship with the affiliate. A good “terms and conditions” policy is a critical first step in combating fraud. It also helps to know which affiliate sites are reputable and which ones you should avoid. Outsourced firms who have this knowledge base can save merchants time and aggravation down the road.

Don’t Focus on Quantity of Affiliates
This market exemplifies the 80/20 rule. Most merchant sales will only come from a handful of good affiliates. Don’t get excited about hundreds of websites joining your program, because over half will never send you any leads. Many of the less sophisticated affiliates will actually just waste time and resources. Focus on the big fish. An affiliate who doesn’t start producing traffic within the first few months will likely never become productive. Time should be focused around making good affiliates better and this will drive a large portion of the merchant’s growth. Also, proactive outreach to a targeted affiliate audience is important, because some of the best potential affiliates may never find you.

Don’t Make Unnecessary Mistakes
Consult with someone who has experience setting-up an affiliate program before you launch. There are many repeatable best practices and avoidable pitfalls. Experience with the mechanics of the marketplace can matter more than experience in your specific industry.

If you have any questions or would like to learn more about our affiliate marketing or performance marketing services, please visit our website or contact us

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One of the great things about starting a business today is the number of smaller consulting firms that can help you. These outsourced partners can serve as an integral resource for your team at an early stage but there is a catch.

You can’t do it all so that’s why you hire the experts. This is what we do at Acceleration Partners and along with other service providers who excel in the marketing, legal and financial aspects of helping to start a business, we are able to help fill the “seats on the bus” for the founder or founding team. This gives an early stage company the level of expertise it needs without the need for long term commitments or having to make permanent hires at an early stage without a real sense for what resources and skills will be needed in the long term. It’s the equivalent of renting an apartment in a new town if you aren’t sure which neighborhood you want to live in.

Consultants or interim resources are a great “extension’ to you team, but you should not look to others to provide the inspiration or overall direction for your company. Someone on your team needs to wake up each and everyday wondering what it is going to take to make the business a success and have that be their sole objective. Using Jim Collins’ bus analogy again, it’s fine to ask for directions or move the seats around and it’s even okay to ask others to hold onto the steering wheel for a few seconds. However, it’s never a good idea to ask a consultant or outsourced partner to drive the bus. The only exception is if you are planning on grooming them to take over as the permanent driver sometime soon.

The bottom line is that you simply can’t outsource the passion for your idea and every successful new business needs someone who is passionate and driven by what the company does. Consultants tend to be functional experts, while founders tend to be subject matter experts. Consultants can help you ground, improve, guide and direct your business, but they often don’t have the same passion for your industry or have the purpose driven ambition that caused you to start your business in the first place

So my advice is to fill the bus with good people, but always keep your own two hands on the wheel. Once you hit the highway and you have momentum, you can always look to getting a more qualified manager to take your place, but make sure they are as invested as you are in the outcome of the business.

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So I am reading the lead Wall Street Journal article this morning about the failed performance of the Sprint/Nextel merger. The author goes into all the ways that Sprint has botched the integration, from diluting the Nextel brand to failing to integrate the two networks. He also talks about how the company has had massive turnover and has lost customers at a time when other carriers are growing. However, none of this information prepared me for the quote I was about to read from the Sprint CEO which follows.

“Mr. Foresee concedes that Sprint has stumbled in the short term,” though he says it’s well positioned long-term growth. “We’ve got one more box left to check and that’s to execute,” he said in a recent interview.

While many people might simply glaze over this quote, the last piece stopped me dead in my tracks. Is this guy really suggesting that when all else fails, then it’s time to turn to execution? The absurdity of this statement is almost difficult to comprehend and is very typical of big business. General George Patton once said “A good plan violently executed now is better than a perfect plan next week.” Similarly, General H. Norman Schwarzkopf stated, “The truth of the matter is that you always know the right thing to do. The hard part is doing it.”

Let’s bring this concept back to small businesses for a second. In my career, I have probably read over 2000 business plans from entrepreneurs seeking their first round of investment capital. I tend to cringe (as do all venture investors) a little bit when folks ask me for an NDA simply to hear their idea. As a general rule, I believe the entrepreneurs who are taking this approach have been given bad advice and often tend to be putting too much focus on the idea itself. They are often hunkered down holding onto the belief that their idea is proprietary, when in reality, what will make them successful is their ability to execute on that idea. This has more to do with the team, key business relationships, intellectual property, etc. An NDA is really more appropriate if you are trying to protect specific information such as a trade secret, real financials (i.e. historical), etc. or to protect your core information as part of a formal relationship with a service provider. However, if you ask for an NDA just for someone to hear your pitch, you may creative a negative first impression. Very few repeat or serial entrepreneurs will ever ask for an NDA as a prerequisite to hearing their idea, mostly because they know that their competitive advantage lies in their execution capabilities.

The advice I always give to entrepreneurs is to tell everyone what they are doing, because it can lead to important discoveries, new resources and/or learning about a well financed competitor who has a significant head start. I can promise that it’s better to know this information before making the decision to quit your day job. If you are starting a new business, resign yourself to the fact that someone has the same idea and instead focus your time on how you can win the execution game. As a prominent venture capitalist once said at a conference I attended “We don’t consider ideas proprietary, we consider execution proprietary.” While it may be too late for Sprint and its misguided CEO, make sure that you focus your business on the “how we do” as much as the “what we do”.

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We swore we’d learn from the meltdown of 2000, but we haven’t. In many ways it’s almost worse this time, because we know how the story ends. Here are my Top 5 reasons for believing we’re in a Web 2.0 bubble.

5. Too Much Money
While it is a bit harder to get financial backing these days, the companies that do get funded often get over funded. Venture firms today have a lot of money to put to work and they are handing out cash even to companies that shouldn’t need much capital or that lack an established business model. Web 2.0 companies should have relatively few major capital expenses. In fact, the most popular Web 2.0 sites raised their money after their user bases outgrew their capacity and infrastructure. When companies get over funded, they are forced to get big fast—often at the expense of profitability. If you raise $10M, you need to become at least a $30-$50M company for the common shareholder’s equity (i.e. founders and management) to be meaningful. When growing your top line becomes your primary objective, often at the expense of a viable business model, you are starting to gamble with your business.

4. One-way Exit
The IPO market is virtually dead. Companies are being built to sell at auction courtesy of Google, Yahoo and Microsoft. However, if these acquisitions don’t pan out and the open checkbooks start to close, a business model with a lot of users and no way to make money will suddenly seem a lot less attractive.

3. Web 2.0 for X
It’s hard to meet someone these days who’s not starting a Web 2.0 company for toddlers, grannies, people who love red shoes, etc. Haven’t we seen this one before as well—the Portal for X fever of the late 1990s? After most Web 2.0 presentations that I have seen, someone has to ask the question “So what’s your revenue/business model?” The answer, if any, always seems to be targeted advertising. But how many individualized communities can we each join before our economy goes into the toilet? If all these companies get the users they claim, no one in this country will be working. Our appetite for communities has limits; the hours in a day

2. We Can’t Charge for Our Product
Okay, this is really an extension of Number 3, but I am not a fan of companies that plan to support their product or service offering with advertising. Why not charge for it? If you have something of value, people will pay for it. If you can’t charge for it, people just don’t value it that much. Advertising is a great revenue mechanism for content, but if the only people who will pay for your company’s products are advertisers, you have a problem. Among other things, the consumers of ad-supported products can expect pretty poor customer support. After all, they aren’t the real customers, the advertisers are (see Web 1.0 & NetZero).

1. Portals for Web 2.0
If there is one telltale sign of a Web 2.0 bubble, it’s that websites are popping up to track or index Web 2.0 companies. (I have learned of about six in the last few months). A portal war for Web 2.0 is almost too good to be true—it combines two bubbles into one. In every unrecognized bubble, there is always a sign that tells me we are at or near the top. For Web 1.0, it was the E*Trade Super Bowl commercial that made fun of having just wasted $2M on the dancing monkey ad. For real estate, it came two years ago when I saw home-loan carts next to jewelry carts in a mall in San Francisco. Mark my words, Web 2.0 portals are the beginning of the downturn.

In Conclusion
To be fair, there are many things that I love about Web 2.0, and I do work with many of these companies in my consulting business. However, what I really love about Web 2.0 is that companies can bootstrap and develop profitable niches at the expense of larger, more established players. These companies are successful because they are able to find an unmet need and reach customers in a cost-effective manner using the web; they don’t necessarily have the best features. Features and user interface design are important, but they do not make a business successful. Compare any two companies. If one has millions of users and a clunky UI (see Myspace) and the other has a very fancy AJAX interface, but hardly any users, I would always bet on the former. It’s a lot easier to hire designers than it is to find millions of users.

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I have been following the residential housing market closely for many now years and have tried over and over to make the case to friends, colleagues and family members that reduced lending standards were the primary driver behind skyrocketing real estate prices over the past five years; not the economy, not interest rates and certainly not immigrants, which is a favorite fallback rationale for the mortgage industry and the real estate trade groups. As I now watch the sub-prime lending market disintegrate in front of my eyes, I am reminded by a letter I wrote in 2002 in response to a Boston Globe article on the residential real estate market, which addresses this point head on:

Professor Segel,

Something has to give. If the banks get gun-shy or Freddie Mac and Fannie Mae come under a lot of public pressure, we could quickly find that their aren’t enough chairs to go around when the music stops. I just read an article in which the author overlaid the last stock market crash against the last real estate crash. The real estate crash did not come until a few years later, after many people had blindly invested in real estate as a knee jerk reaction to having been burned in the stock market. If you listen around the water cooler these days, it is the same phenomenon, even in the face of the worst job market in 10 years. People don’t believe that real estate can go down, which is why it probably will. Rates won’t stay at 40 year lows forever and as they move up to fight off deflation and strengthen the dollar, I think some people are in for a world of hurt. And it affects us all, because in 20-30 years, the government will be picking up the tab with Medicare and Social Security because many individuals will not be able to save for their retirement due to most of their income going towards their home.

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