3 Things Foursquare Should Learn from Trulia (TRLA) and Yelp To Get to $100M in Revenue

Today was an incredible day. I had the extraordinary pleasure of being on the New York Stock Exchange floor this morning for the IPO of Trulia (#TRLA).  It was the most exciting day of my career to date (that’s me below).  I was on the founding team at Trulia and was responsible for building the sales organization between 2005 and 2010. The Trulia sales team now accounts for half the Trulia’s 500+ brilliant employees and most of its revenue. I left in 2010 to start Crunched on a mission to help other companies build large sales organizations with technology.

Trulia NYSE IPO

So what does Foursquare have to do with Trulia and Yelp?  A great deal, actually. For starters, all three are essentially media companies. All three drive massive engagement from mobile devices, Foursquare exclusively. All three cater to consumers on one side and small to mid-sized businesses (SMBs) on the other. All three have “listings” search, discovery, check-in, and some type of rating and reviews at the very heart of their core service and value proposition. Foursquare and Yelp both help consumers discover, rate and review local businesses, like restaurants.  Trulia helps consumers find homes and make smarter home buying decisions in the process. It gets those home listings from real estate brokers and agents, which are basically small and mid-sized business. All three companies make money almost exclusively from advertising from two basic groups of advertisers: large brands and SMBs. All three companies sell a mix of brand advertising like banner ads, as well as integrations and sponsorships to large brands like American Express and the advertising agencies that represent them. They also sell advertising to small businesses in the form of banners, featured listings and local promotions.

That leads to the 3 things Foursquare should learn from Trulia and Yelp:

  1. Brand Advertising Doesn’t Scale Online – The best thing about brand advertising is that big brands have large advertising budgets that they spend every year without fail.  The three worst things about brand advertising:
    1. Lumpy & Unpredictable Most brands buy on a campaign and/or seasonal basis.  For example, Home Depot advertises mostly in the summer to promote barbecues and gardening tools and in the winter to sell snow blowers and shovels. American Express spends like crazy when it launches a new card, and then pulls back. This means you can run a multi-million dollar campaign for a brand one-quarter and then not hear from them again for six months to a year. You cannot build a scalable, repeatable business on that kind of revenue stream, especially if you want to be a public company. Only the top three or four largest media properties get guaranteed revenue a year in advance for their ad inventory, known as “up-fronts.” More on that in #3 directly below.
    2. Category Exclusivity – For most vertical web properties, the number of national brand categories that make sense for your site are limited. In other words, it only make sense for certain types of companies to advertise around real estate or restaurants.  Foursquare has a huge deal with American Express right now, which seems like a great partnership for both sides. I’m sure AMEX is writing Foursquare nice big checks to get access to consumers using their credit cards to buy from local businesses all day, as those SMBs pay AMEX 3-5% of each transaction.  What’s wrong with that deal? Well, most likely American Express has exclusivity and Foursquare cannot sell to Visa or MasterCard while the relationship is ongoing.  Oh, well. There goes an entire category of advertisers that make sense for Foursquare wrapped up in a single partnership.  Not only does that limit your revenue opportunities, but also when you have category exclusivity, the loss of that one brand advertiser is a big hit to your top and bottom line unless you can replace it immediately.  Remember what Mom told you, don’t put all your eggs in one basket.
    3. Massive Scale Required – Advertising for national brands is still all about reach and frequency. As popular as the Internet is today, the vast majority of advertising dollars still go to TV. Why? Because that is still the easiest, most efficient place to reach hundreds of millions of consumers. Brands advertise the same way online. Brands spend something like 80% of their online budget with a handful of sites that have the biggest audience, which is almost always Google, Facebook, Yahoo and Microsoft (Bing).  The remaining 20% of the budget gets allocated to thousands and thousands of sites and mobile applications.  Ouch!  Since supply outstrips demand, it is a big race to the bottom in terms of the price advertisers will pay and websites can charge.  A very significant percent of online brand ads are sold for low single digits ($1-$5) per thousand views or impressions, known as a cost-per-thousand or CPM. Thus, you need a massive number of users and traffic to make money at that game.  Google, Facebook, Microsoft and even Twitter have the kind of scale to make this work, but most other media properties don’t.  Sure, Foursquare has 20 million registered users, but only a fraction of them are active.

2.    Small Business Advertising Scales - Selling to small businesses has at least three major advantages over large brands:

  1. Recurring – Yelp sells local businesses 3, 6, and 12 month advertising plan commitments at a cost of $300 to $1000 per month, according to pricing on its website.  Trulia sells featured listings and local ads to real estate professionals for similar monthly amounts, according to pricing on its website.  Everyone wins.  Local businesses get a constant flow of new leads and customers and Trulia and Yelp get predictable monthly revenue that is very, very sticky. It is a symbiotic relationship.
  2. Diversified – Yelp reported 19,000 local businesses buying advertising last September in its S-1 filing.  Similarly, Trulia reported 21,544 real estate professionals buying advertising in its recent S-1 filing.  Diversification of customers is a very, very good thing.  You will never notice when Yelp or Trulia lose a paying customers, because they have tens of thousands more and add hundreds of new ones each day.
  3. Premium – Small businesses usually advertise on a hyper local level, and in advertising the more targeted your ads the more effective and the more expensive. The brand advertising inventory of most websites goes for low single digit CPMs, as mentioned above. However, the highly geographically targeted ads bought by small businesses often drive transactions and go for premium effective CPMs in the hundreds of dollars.

3.    Selling to SMBs Requires A Massive Sales Organization – The challenge and opportunity to selling advertising to small and mid-sized business at $300-$1000 month is that you need thousands of them paying to scale.  That means you need hundreds if not thousands of salespeople calling on them. If you search Yelp on LinkedIn, you will find 600+ salespeople working at Yelp, which generated $33M in revenue in the most recent quarter, for a $130M annual run rate.  If you search Trulia on LinkedIn, you will find ~250 salespeople working at Trulia, which generated $29M in the first half of 2012, for a $60M annual run rate.  Do you see the correlation here? Its a numbers game.  The contingent of these sales teams selling to SMBs is probably making 50-80 calls per day, connecting to 6-10 SMBs per day to close a hand full of subscriptions each per day.  This is a high volume, transactional business and it requires lots of humans making lots of calls, doing lots of presentations and demos and charging lots of credit cards.

If you search Foursquare on LinkedIn, you find only 2 or 3 of its 80 employees are salespeople. The rest are product and engineering.  I’m pretty confident those few salespeople are calling on large brands like American Express, which means Foursquare is putting very little to no effort into monetizing the only scalable customer base that will get it to $100M and beyond.  It is easy to get sucked into the allure of large checks written by sexy brands instead of paying attention to thousands of little checks from the SMBs that will ultimately represent the majority of revenue needed survive and thrive.

The longer Foursquare waits to build this sales organization the harder it is going to get.  I love product and engineering centric cultures in the beginning of an Internet company’s life while you are trying to nail the end-user experience, but the longer you wait to bring in the sales team the harder it will be to integrate them into the culture.  Adding salespeople to a large, engineering centric company culture is like trying to put a baboon’s heart into Christian Slater (he dies). I could write an entire series of posts on the challenges associated with bringing sales, product and engineering together harmoniously under one roof, so I will not go into that here.  More importantly, the longer Foursquare waits to build its inside sales organization the longer it is going to take to build a scalable, repeatable revenue source that will take it from a cool app to a viable, sustainable company.  The longer it takes, the higher the risk that someone else beats them to it or passes them by.

Maybe there’s really only one thing that Foursquare should learn from Trulia and Yelp; that it needs to build a massive sales organization as soon as possible and focus the majority of its resources on small to mid-sized business to get to $100M in revenue and beyond.  Go Foursquare, check-in to that!

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When Life Gives You Lemons

(via oliveargyle)

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Meetings Suck. But You Don’t Have to Suck At Them. Introducing DontSuckAtMeetings.com

Meetings suck.  But you don’t have to suck at them, that’s our stance.

Recently, SalesCrunch released a cool infographic entitled Don’t Suck At Meetings that caught the attention of a whole lot of people.  Twitter was ablaze for the better part of a week after it was released on March 26th and several media outlets and bloggers craftedstories around the eye-opening figures we shared.

The infographic was based on more than 10,000 meetings hosted on SalesCrunch’s next-generation online meeting platform over a period of 18 months ending February 2012.  It was just a taste of the kind of customer-specific meeting data that SalesCrunch can capture and share with its business and enterprise customers.  Others may call it best practices.  We call it meeting intelligence.  If you still haven’t taken SalesCrunch’s online meeting platform for a test drive, we invite you to sign up for free before your next online presentation.  In the meantime, let’s have a little fun…

Introducing DontSuckAtMeetings

Our mission at SalesCrunch is to help our customers not suck at meetings.  To that end, we make a wealth of practical and customer-specific meeting intelligence available to our users.  At the same time, we want to have fun, and it wouldn’t be very nice to keep the fun to ourselves and not invite our customers along for the ride.

DontSuckAtMeetings has been created in the same vein as FMyLife, a popular community of users who share anecdotes about the unfortunate experiences that occur in life.  Similarly, DontSuckAtMeetings is for all the poor souls who have ever been subjected to excruciatingly boring, inefficient or downright humiliating meetings.  Considering that’s most of us, we think this could be a fun place to share our worst practices of meetings.  So, check out the site, tell your friends, colleagues and boss (if you want things to get better!) and be sure to followDontSuckAtMeetings on Facebook and @dontsuckat on Twitter to get a laugh everytime you login to those communities.  (Our Facebook and Twitter feeds are automatically populated with the best posts.)

Enjoy!

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Rant: Most Employees are Disconnected from Sales and Customers

It’s alarming how disconnected the rest of the organization is from the sales team in most companies, despite the fact that salespeople are the frontline to the customer.   It is typical to see product, engineering and even marketing totally separated from the “noisy” salespeople.  Sales is on a separate floor, in a different building or otherwise closed off in rooms in the back of the office. Ask most any company how often product, marketing, engineering, or senior management (besides the VP, Sales) attends or listens in on sales meetings to hear customer feedback firsthand and the silence will be deafening.  Product and marketing will spend thousands or tens of thousands of dollars doing focus groups with users a few times a year, but when salespeople try to share real-time customer feedback, complaints, suggestions, etc about the product directly from the customer, everyone else in the organization dismisses them as having less than honorable motivation of – gasp! – commissions!  Newsflash people: at the end of the day money is the ultimate expectation and motivation for every company.  Don’t get me wrong; I am all about making meaning, but you don’t report meaning to the board, to investors or to Wall Street, you report sales!

How disconnected is your organization from reality?

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Top 10 Tech Sites I Read Every Day

  1. TechCrunch – still the heavy weight champion when it comes to covering early stage Internet startups with an attitude. Still the best way to keep a pulse on what’s trending and what’s getting funded.
  2. Venture Beat – A slightly more grow up version of TechCrunch with a focus on venture backed companies and a lot less attitude.
  3. AllThingsD – True to its name, All Things Digital is the Wall Street Journal’s technology rag that covers a wide spectrum of technology news from early stage startups to the big guys like Microsoft.
  4. HackerNews – Y Combinator’s hard core startup up technology version of Digg, where articles from across the web are submitted and voted up.
  5. Pando Daily – Started by former TechCrunch writer Sarah Lacy, Pando Daily aims to be the new TechCrunch, attitude and all.  Investors include Marc Andreessen, Peter Thiel, Tony Hsieh, Zach Nelson, Andrew Anker, Chris Dixon, Saul Klein, Josh Kopelman, Jeff Jordan and Matt Cohler, all investing as individuals. Also investing are a handful of seed funds including the CrunchFund (aka Michael Arrington), Greylock Discovery Fund, Accel’s Seed Fund, Menlo Ventures Talent Fund, Lerer Ventures, SV Angels (aka Ron Conway) and Ooga Labs.
  6. Mashable – all things social and technology news.
  7. Wired – an oldie, but a goodie, Wired still has some solid old school commentary on technology trends.
  8. FastCompany – This Web 1.0 darling has reinvented itself in the last few years. It is high on technology design and lifestyles. I particularly enjoy the co.design section.
  9. AVC – Fred Wilson of Union Square Ventures, investors in Twitter, Foursquare, Etsy, and Zinga,has written over 5,000 posts over the last 10 years on his observations as a technology investor.
  10. BothSidesofTheTable - blog of two time entrepreneur and GRP Partners venture partner Mark Suster. Mark has some pretty strong opinions and likes to write long form, but his posts are always as insightful as they are throughout.

Bonus:

Bits - The Business of Technology by the New York Times.

Now you see what I see!

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How Much Equity to Give Employees

I am surrounded by hundreds of amazing technology startup companies of all sizes and stages, including all the fellow portfolio companies of our equally amazing investors.  I am surprised how many recreate the wheel when it comes to employee equity. It seems there are almost as many ways of doling it out as there are companies. If there is one popular “method”, it’s go with the gut.

We use Fred Wilson’s employee equity model as a benchmark for all positions. It comes very close to what we were doing before and its a nice, objective third party source you can point candidates to for validation. We don’t exactly have a statistically relevant sample set, but we have never had anyone object after pointing to that as our methodology.  We have added on top of it when someone is exceptional in someway, which only makes them happer when they do the math and our offer comes out ahead of the model.

We vary the amount a little based on a candidate’s level of experience, expertise and/or appetite for risk.  So, if a candidate wants more upside we are more than happy to offer more equity in exchange for less monetary compensation. It helps us conserve precious capital while providing employee more skin in the game and, therefore, more incentive to work smarter to help us achieve our full potential.  If a candidate is more risk adverse, we are willing to offer a little more salary and a little less equity, to a point. It’s a pretty straight forward quid pro quo scenario and helps everyone find their optimal situation.

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The Spaghetti Strategy

In a startups, you are constantly trying new things across every aspect of your business, from product to marketing.   You throw a lot of proverbial spaghetti against the wall to see what sticks.  Far more stuff lands flat on the floor than sticks to the wall.   This type of “failure” is not only expected, but encouraged.  In fact, if you are not failing a lot, you are not doing enough.  The keys are to only try things rooted in your core mission and to fail fast.  It’s easy to feel like you are desperately trying everything and anything to find something that works and it’s easy to wander off in a different direction.  But if everything you try is deeply rooted in your core values and/or mission, you never wonder astray.

Google is a great example.  Its core mission is in life is to “organize the World’s information.”  If you think about all the services that Google provides from search to Gmail, Google Docs, Google Checkout, etc they all tie back nicely to organizing the World’s information. Google has tried and failed at many other services along the way, but never lost sight of the mission.  Our mission at SalesCrunch is to apply science to the art of selling.  We are bound to make a little bit of a mess along the way, but this mission gives us the confidence and conviction to fail on the way to success.  What’s your mission?

Point of no return: 15 more posts to go in my 30 posts in 30 days challenge.

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How LinkedIn Makes Online Meetings More Efficient

(This post originally appeared on the LinkedIn Blog, March 19, 2012.)

This belongs to a series of posts on how websites like SalesCrunch are integrating LinkedIn functionality to add value to their users. Here’s Sean Black, SalesCrunch CEO on the integration of LinkedIn’s APIs. – Ed

As the world’s largest professional network with more than 150 million members, LinkedIn represents an incredible opportunity for services like SalesCrunch, a next-generation online meeting platform that enables professionals to monitor engagement during meetings, collaborate with others across an organization, and measure the efficiency of meetings like never before.

We are cognizant that professionals deal with an increasing number of virtual calls these days — whether via online meetings or email — so we built a single, elegant platform that tracks, measures and analyzes every aspect of both the meeting itself and the follow-up process. This not only enables our customers to identify the specific approach and tactics of their most successful salespeople, but they can also replicate them across the organization.

Starting today, you can identify key decision-makers and connect with other LinkedIn members directly on a SalesCrunch online meeting.

Simply put, integrating with LinkedIn makes meetings more social, enabling participants to quickly put a face to a name and make a personal connection. Once authenticated, SalesCrunch displays relevant information from LinkedIn including common connections you have, professional history, college or university attended, and other LinkedIn members “you may know” at another participant’s organization.

Presenters and participants can now establish new LinkedIn connections with their associates, prospects, suppliers, and business partners with the click of a button during a meeting.

When a meeting concludes, all authenticated users are given the option to once again invite other participants to connect on LinkedIn. This makes it especially easy for salespeople to stay close with their customers and prospects, and clients to stay connected to their associates, suppliers and business partners long after the meeting ends.

With many organizations continuing to slash travel budgets, online meetings are an attractive solution for salespeople hosting frequent meetings. We are seeing the trend of companies doing business virtually and with our new LinkedIn integration, we’re excited about helping people make personal connections in ways never before possible.

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The Opposite of Network Effects And Viral Loops

A few days ago, I wrote about network effects and viral loops.  Yesterday, I read about new private social network Pair on TechCrunch.  I work a lot and travel a fair bit, so I actually think the idea of a two-person private network to stay connected to your significant other is a great idea. I even downloaded the iPhone app and invited my wife to join. She was touched.

But the more I thought about Pair the more I realized it is a great opposite example of network effects and viral loops. Let’s start with network effects.  In most social networks, the value of the service increases as more people join.  As more of your friends joined Facebook, for example, you could keep up and in touch with increasingly more of them in one place, so stickiness increased. The opposite is true with Pair. Inviting a third person kills the intimacy factor.  Now what about viral loops?  As far as I can tell, Pair only has one.  Every time your significant other posts a picture, video or cute message it’s going to bring you back. But the problem is that as soon as you experience fatigue with the service there is no other hook.  I am an extremist on Facebook. I use it heavily for weeks or months and then not at all for a while.  Something one of my ~300 friends posts is always the catalyst that brings me back for a period of heavy usage.  But Pair doesn’t have this luxury.  Sure, it has some old-school off line word-of-mouth potential where you hear about other friends using it, but that is not a mechanized viral loop that will scale.  Path is another private social network that suffers some of these symptoms, but at least Path is for your whole family and closest friends, so there are network effects, even if they are within a smaller pool of people, and there are more than two people to count on to bring you back.  So what does all this mean? Well, unless Pair figures out a way to add network effects and viral loops without breaking the intimacy factor it was founded on, is not going to have the kind of insane growth trajectory that Facebook and Twitter enjoyed to make them huge over night.  More likely, it will grow very linearly using old-school marketing techniques like PR and advertising.  What’s wrong with that you ask? Well,  the most likely business model for Pair is advertising.  I can tell you from experience that buying advertising to bring to people to you service so you can sell more advertising to monetize them is called arbitrage and it is extremely hard and the margins are very slim. To make real money at the advertising game you need reach and frequency, which means you need scale.  Let’s see how fast Pair can scale without network effects or more than one viral loop. 

17 more posts to go in my 30 posts in 30 days challenge.

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Mission Critical Apps Are F’ing Hard

When considering what kind of company to start or app to build, think twice before building something that is mission critical to your customers. Building software is hard and nothing works perfectly all of the time. In fact, as soon you get your app to work perfectly you will add new features and functionality, which inevitably causes regression.  Regression is software speak for you will likely break something that previous worked just fine.  It’s frustrating if Evernote doesn’t work when you want to take a note in a meeting, but its catastrophic if Dropbox loses your presentation 15 minutes before meeting with your single largest client.

I mentioned in this previous post that we never intended to get into the online meeting space at SalesCrunch. We did it because we could not think of a better way to literally get into customer facing conversations and measure what works. In fact, it’s not about the meetings themselves, but the wealth of knowledge shared in meetings that has never before been captured or analyzed that we care about. Unfortunately, we needed to build a better, smarter, mission critical meeting application that our customers use with their customers in order to give them valuable intelligence in return.   The good news is that every day we build a pretty defensible wall behind us to keep the competition out. The challenge is that we have very little room for mistakes.  If we had it to do over again, we might think twice before building something with so little forgiveness.

18 more posts to go in my 30 posts in 30 days challenge.

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