Consider SPEC Engineering, a client of ours that builds specialty process engineering plants. In the past, the majority of its sales came through referrals and traditional sales efforts such as conferences and trade shows, which have a long lead cycle. Then the owner decided to let us help him apply search marketing principles from a new venture to his core business, changing the way the company generated leads at a time when many of its big competitors lacked even a fully functioning website.

Working with web designers Fresh Tilled Soil (FTS), the company first developed a very professional looking and detailed website. We then worked with management to design and execute a strategy in partnership with the SEO group at FTS to get information out in front of searches around key products, product categories, services and geography. These searches might not have the volume of more popular consumer terms, but in many ways they are more important for prospective buyers. Our thorough plan required organizing and publishing more than 200 specialized pages of content designed to attract and convert targeted customers over a 6-12 month period. But the work paid off.

Recently, SPEC closed a $15M deal (one of the largest in their history) that originated from an organic web search around a key term that we had been working to optimize. The client was searching for expertise in this area and was very impressed with the company’s overall web presentation, enough so that they reached out to start a discussion.

SEO worked for SPEC because the strategy was designed around the needs of the business—targeting industries with the fastest growth and the company’s strongest product lines—and by thinking about what a prospective customer might want. SPEC is not an Internet business, but the Internet now plays a huge part in how it markets and presents its business to prospective customers.

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15 Million Reasons Why B2B Search Pays Off

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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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Google Beer Goggles: Brand Premium in Pay-for-Performance Marketing?

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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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Don’t Fall Victim to Hosting Hostage

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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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When Starting a Business, Win the Backyard First

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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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Why Bad Mergers for Customers Inevitably Hurt Shareholders

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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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Don’t Copy a Flawed Business Model

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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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Get to Revenue – Fast

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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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Affiliate Marketing FAQ’s for Beginners

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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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Focus Your Business With The Sales Lens

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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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The Business Plan vs Executive Summary Debate

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