How to raise money without the vulture capitalists

Melbourne Herald Sun, Friday March 9, 2012

Lightning struck when Scott Wilson saw the new-generation Apple iPod Nano music player. One of its functions is a clock face. Only four centimetres square, it would make a beautiful multi-function watch.

A designer with a small studio in Chicago, it didn't take Scott long to sketch a stunning strap to hold the watch. But how to fund such a new invention, without giving most of it away to the vulture capitalists who feed on bright ideas?

He posted it on the Kickstarter web site. It's a new marketing innovation called "crowdsourcing". Here's how it works.

Scott made his sketches into a persuasive home-shot video that explained the idea and asked for funds. This was loaded on the site, with a money target: $15,000. He also blogged a designer friend.

The friend passed the news to more friends. At eight one morning the offer went on line. Pledge $25 and you will receive a Tik Tok Watch kit, if and when it is produced. A $50 pledge gives you the classier aluminium Luna Tik kit. If the project fails to reach the target, nobody pays anything.

Well by 5:30 that evening, his wife texted that $6,000 had come in. By the time he got to bed it had reached $80,000. To date it has exceeded $942,000. And not a banker in sight.

The power of Kickstarter has now extended to Australia. Two young Melbourne designers, Rob Ward and Chris Peters, conceived a simple idea last July: an iPhone case with a built-in bottle opener, the "Opena".

They set a $15,000 target. Within days they had raised $28,000. Because Chris is an industrial designer, and Rob a toolmaker, they were able to get the product made quickly - in China of course - and into their own online store.

A few months later, another idea. The Quadlock, a kit that mounts your iPhone onto a wall, bike, desk - anywhere. (Kickstarter people are very Apple, you'll notice.)

They made a prototype and video and launched it on Kickstarter last December. By January 15 they had raised $41,000. They have now signed a contract with a US distributor.

Crowdsourcing is part of the new marketing wave made possible by the internet. It lives in the realm of blogs and facebook, email and twitter, google and eBay. To those in that world, this is the new reality - boundless creativity with no restrictions.

There are a number of crowdsourcers - IndieGoGo, ChipIn, and Australia's own Pozible. Much of their work is not technical but with creative concepts. Looking for funds to make an indie movie; mount an art exhibition; publish a CD. Singing duo The Voltaire Twins raised $6000 to go play in Canada and the US.

Half the projects don't reach their target. So there's no charge to promoter or pledger. Successful projects pay a five percent fee.

The online store developer Shopify ran a best-sales competition last year. 3000 of their clients sold more than $12 million worth of product. The winners in one category were - Rob and Chris. Another was Brad Jorgensen of My Footy Boots, also Australian.

In fact Oz, with eight percent of the 3060 participants, delivered 38 per cent of the contest winners. The Yanks are looking at us with new respect.

What the winners have in common is a fierce use of social media. They blogged and twittered and facebooked till they dropped, but got the message out.

For Rob and Chris the breakthrough came early - when Ashton Kutcher tweeted about Opena to his 7 million followers.

ray@ebeatty.com

Blog: themarketeer-raybeatty.blogspot.com

Bad rep? Call Web Dusters!

Melbourne Herald Sun, Friday October 7,2011

What do you do when you’re browsing through Google, checking yourself out as you like to do every now and then, and you discover that someone has written something about you, or your company, that is untrue. Or even worse, that is true but you didn’t want anyone to know?

What do you do? You call Web Dusters!

Well that’s my name for them. They call themselves “Reputation Defenders” or “Online Reputation Managers”. These are companies you hire, either per task or on retainer, who look out for nasties in the woodpile.

It can be a pretty big woodpile, too. It’s not unusual for a medium-sized company to come up with a few million references when they’re searched for on Google or Bing.

The Web Dusters vacuum their way through this and winkle out unappealing references.

Of course this is a labour of Sisyphus - the bloke who spends eternity pushing a boulder uphill every day, only for it to roll down every night. It’s a job without end.

The dusting reaches far and wide. Wikipedia is a huge reference where a person or company can be misunderstood. It’s nice to be in an encyclopaedia, but not if the reference points out wrongful or unflattering events.

Even worse, Wikileaks waits for any secret tit-bit to slip into its grasp. And we all know what a hard time that has given the world’s governments.

Two years ago a YouTube video showed two Domino’s Pizza employees doing gross things to their pizzas in the back room. It was a sensation viewed around the globe and the couple was actually prosecuted. But not before it had done millions of dollars’ worth of damage to the company’s sales.

Reputation Manager Australia is a local company that offers its watchdog services. They give the example of a web search on a businessman who quickly became their client.

The search of his name had brought up, in the first three responses, a reference to an ASIC investigation report. It was harsh and recounted the agency’s prosecution of him, leading to his being banned for a time.

Owner David Cannell boasts that he was able to push the client’s reference down the queue to oblivion.

Another rich vein of business is our sporting world. Working with sports clubs, he has ways to keep their champions’ antics out of the public eye.

Of course there is also a do-it-yourself element in the black-blogging trade. Company staff are encouraged to write glowing reviews about their restaurant or hotel - incognito of course. And then they go on their opponents’ sites and complain about bad food and poor service.

These too can be dusted out.

But you have to be careful not to get caught. Recently the PR goliath Burson-Marsteller was sprung when they were asked by client Facebook to do a little internet spying on their rival Google. Unfortunately whoever was given the task asked the wrong person. He turned out to be a whistle-blower who blasted the story across the web.

Mind you, considering that the US online advertising market is now worth $28 billion, you can understand a little frisky competition.

There is now official interest in all this skullduggery. In the US, the Federal Trade Commission prosecuted a PR company, Reverb Communications. They had a side business writing glowing reviews on video games, and charging the developer for the service.

The FTC slapped the company on the hand and warned everybody else not to post fraudulent reviews, either for themselves or for their opponents. No doubt the industry looked up from their monitors, nodded acknowledgement, and went back to writing reviews.

Call out the Web Dusters!

ray@ebeatty.com

How the Internet made them rich

Melbourne Herald Sun 14th November, 2009

There’s a formula to making millions in a hurry. It’s simple and quick, and there are many thousands doing it right now all around the world but particularly in the US.

We saw it this week with the headline: “Google buys AdMob for $800 million". Obviously you’ve heard of Google but probably not AdMob. So what do they do that makes them worth nearly a billion bucks?

In mythology get-rich-quick stories were like Jack climbing the beanstalk, geese laying golden eggs or Cinderella sparking the lust of a young prince. These days they tend to start at Stanford or Harvard or Oxford.

In this case it was the University of Pennsylvania where, less than four years ago, a young MBA student called Omar Hamoui had a bright idea.

Mobile phone applications were beginning to take off as the technology became increasingly sophisticated. So sites would emerge where you could go to select ring tones, get the weather, book movie tickets and the like.

These sites would make extra revenue through banner ads on the screen, like happens on the Internet. But the business was very haphazard and disorganised, there was no way to be able to measure the effects of your ads or create big enough targets to attract major brands.

Having started and run several companies on this mobile market, Hamoui understood the problems - and worked out how to fix them. In January 2006 he started AdMob as a media coordinator that brought together the providers, the advertisers, their agencies, and the audience.

So take the example of Land Rover. They could target a high-income male audience that browsed sites featuring sports utility vehicles. The viewer could then click through to pictures of the car range where the company would offer them test drives and put them in contact with the nearest dealers.

By bringing together thousands of such sites AdMob could assemble and manage a well-documented advertising package that would speak to corporations and advertising agencies in terms they could relate to.

Within a year they attracted the attention of one of Silicon Valley’s biggest venture capitalists, Accel. A list of Accel’s success stories says it all: Facebook, BitTorrent, Uunet, and many more. They find a good, successful idea, pour money and management into it, and make it huge.

The venture capitalists themselves are often funded by citizen investors. Mums and dads and retirees who don’t trust their whole nest-egg to the superannuation funds. Any week of the year you can find conferences and introductory nights by the likes of Australian Venture Capital Association, Business Angels, Venture Capital Marketplace and many more.

They have their get-rich-quick rulebook too. Make sure the business is successful and profitable, take a big slice of the equity (at which point the developer will usually go into a decision crisis - does he really want to invite this cuckoo into his nest?) and quickly fatten it for market, ideally within three years.

The good ones do it well. Accel invested $17 million and helped AdMob grow into the world’s biggest mobile advertising platform in two years, turning over more than $100 million a year. And so attractive that Google was willing to pay a fortune to take it into its fold, rather than have to compete with it. So far it looks like the company will be left intact with the same management in charge. So expect to see a few more Ferraris on the roads of northern California.

Another Accel money spinner, Playfish, sold this week for $303 million to Electronic Arts. This was from an investment of $1 million - in 2008. Who said that magic beans and golden eggs are fairy tales? Aladdin’s cave could be no further away than your mobile phone.

ray@ebeatty.com