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Here’s the program
Andrew Warner: Hi, everyone. My name is Andrew Warner. I’m the founder of Mixergy.com home of the ambitious upstart. How do you build a consistently profitable Internet company that the Silicon Valley press is largely unaware of? Joining me is Alex Ford, founder of Praetorian Group, an online media company whose audience is people with public safety jobs. Its 25 sites include PoliceOne.com for police officers and FireRescueOne.com for the fire fighting community. Alex, welcome to Mixergy.
Alex Ford: Thank you for having me. I appreciate it.
Andrew: I’ve got to say, I appreciate your great connection and the fact that you’ve got such a great shot set up for us.
Alex: I appreciate it. No problem.
Andrew: It makes my operation here look so much more professional to have you on with that kind of set-up. So first question I’ve got for you is how much revenue are you guys doing?
Alex: Last year we did about $7 million in revenue. This year we’ll do eight.
Andrew: This year eight. 2010. Wow. When’d you guys launch the business?
Alex: We started the company back in ’99 and have been growing it since. We went through the dot com boom and the bust and have really created a middle size company that’s been growing nicely and is profitable.
Andrew: Okay. Can you give us a sense of what the sites are about? Maybe PoliceOne.com. Who typically comes to the site and what do they do in it?
Alex: PoliceOne.com is designed to be the one resource for law enforcement online. We liken our sites to really a combination of C-Net, CNN and Yahoo but for each of our communities. So in terms of law enforcement, you can go on there to access product information, you can check out the latest news, you can stay up to speed on current events, you can watch training videos, you can see what other departments are doing to protect their community, and on and on. So it’s really designed to be the place for law enforcement to stay up to date on what they need to know out there in the community.
Andrew: What I like to do before my interviews, not just do research on the company but to get into the community itself and get a sense for what it’s like. But I couldn’t do it with yours. There was a note on the site that said, “We’re going to check you out. If you want to be a member it’s free, but we’re going to check you out and make sure you really are a police officer before we allow you in this community of police officers.”
Alex: That’s right. That was a very important component we added in very early on. As a law enforcement officer, you’re very concerned about your safety, your privacy, and you’re not going to discuss important issues to your profession if you don’t who you’re talking to. On the Internet, you could be talking to anyone. We have a very nice process whereby we call every department for every officer who registers to the site and we get their badge number, we confirm their status, and then we give them a secure log in.
Andrew: Wow. And then once they’re in there, what kind of secret stuff are they talking about?
Alex: It’s really not the high classified type information you might suspect. What it really is is the day-to-day tactical items that that they need to share information about to do their jobs better, to stay safer. If you look at the day-to-day life of a law enforcement officer, there are a lot of risks out there. And it’s really one of the only professions where at any minute there could be a scenario where your life is in danger. So they have to be very, very conscious of the latest training tips, the latest products, and the latest threats to their safety. There are a number of situations where officers have been ambushed.
A good example would be, “How do you stay aware so that when you’re in any situation you can be prepared for a potential attack? Whether you’re pulling someone over in a vehicle, whether you’re eating dinner with your family, basically any type of situation. So there are a number of tips, for instance, we would have on the site about how to do that. How to keep your mind set the right way, as well as there are a number of tips and suggestions on how to best pull over a subject in their vehicle. How to park your car so you’re less at risk of getting hit by a car that’s passing. Another example would be how do you tackle a running subject? If you’re a criminal, as a law enforcement officer, you don’t want them to know how a law enforcement officer’s going to tackle you. So it’s really that tactical day to day stuff that all the million of the police officers out there in the United States are dealing with and they want to share information about.
Andrew: One more question about today, and then I want to go back and find out how you built this great company. I went on to the product section to see what it’s like to buy one of the products on the site, and I think I was redirected another site or maybe asked to fill out a form to get information. Why is that? Why can’t I just go in and buy the way I would on Amazon?
Alex: We’ve decided as our business model we’re not going to be an eCommerce company. We see ourselves more as an online media company. We work with advertisers and companies in the market to help them share information about their products rather than sell their products directly. A lot of the products within the law enforcement market require bids or specifications, so there may not be . . . a department’s not going to buy 500 bullet proof vests on an Amazon type site. There’s a distribution network, there’s a supply chain in place. So we really configured our sites to work well with that existing supply chain, and we’ve lined up approximately 400 sponsors across our verticals who are all trying to reach the public safety market. There are some surprising companies that you may not necessarily think of, but do find in the law enforcement and public safety important. Companies like Cisco, Panasonic, Microsoft, Verizon, Sprint/Nextel. Those are all the sets of companies that we work with, and they’re looking to really reach the state and local segment of public safety.
Andrew: Okay. So going back to just before you launched the business, where did the idea come from?
Alex: Right out of college I started in management consulting. I joined a company called CDI which had been started by a couple of Bain partners. It was shortly thereafter acquired by Mercer Management Consulting. At that point in time, we were doing a lot of research into how do you build an effective online business model to either create a new revenue stream or to capture market share or market value as a bigger company. I think everyone during that time was excited about starting companies.
I certainly was as someone in my early 20s who was interested in business and new ideas. Right at that time, I was living on Newbury Street in Boston, and a buddy of mine, who I went to high school with, had a web design firm that was right above my laundromat. He’s a great sales guy, really a natural salesperson, and he kept coming down to try to get me to do free consulting for his business. And finally, he’s very persuasive. I went up and looked at some of the projects that he was working on. One of those was a website for law enforcement officers. And really at that point in time it was a link farm, so a directory of law enforcement related links, but it was getting what seemed like a ton of traffic. So we stepped back and said, “Wow, this looks like an intriguing area.” Growing up, both he and I were interested in police and fire and I think as kids had wanted to be police officers or fire fighters, so we found the content intriguing and then looked at the market.
We started to do some research. There are four million first responders out there. There are 6,000 companies serving that segment. $135 billion is spent domestically on public safety alone. It’s a big market. Then going back to my consulting experience, we had looked at what identifiers of a market are compelling for an online business model. You’re looking for markets that are fragmented, that are inefficient, that are information intensive, that have complex products, that are community oriented. The public safety market fits all of those trends perfectly. So we stepped back, and we put together a business plan and started researching the market.
Andrew: I see. But aren’t there bigger markets? Aren’t there markets that are easier to connect, that are fragmented but maybe a little easier to access? Why pick this one? Was it just because you happened to have a website that was doing well?
Alex: I think we stepped back and looked at the opportunity and what the underlying value proposition was for our business. And when we looked and researched the law enforcement segment and spoke with law enforcement officers, it was very, very clear that an online resource could have such a significant impact on their day to day. The same in the fire market, the same in the EMS market. These are guys who are going out, they’re risking their lives, they’re protecting the community that they serve. There was a big opportunity for us to make a significant impact on those communities and their day to day. So I think all along we’ve balanced the need to be in a market that’s significant with a huge opportunity with just the opportunity of building a great company that has a very valuable mission that does something that’s constructive out there in the world. I think we’ve done a good job of balancing that.
Andrew: And what king of partnership did you work out in the beginning?
Alex: My co-founder and I basically came up with a business plan. We started looking around, talking to people. We were put in touch with a couple of potential investors in San Francisco. So flew out from Boston. I had never been to California before. I think we were wearing shorts, which was a mistake anytime you’re coming to San Francisco. Met with a small group of investors in Burlingame which is just south of San Francisco. Basically, a gentleman had put together an angel group and raised $1,000,000 from his friends in the neighborhood. I think 20 people had put 50k each in, and they were looking for a single company to invest in. So we went to this guy’s home, and this was mid-’99, and I think that experience was a good indicator that the bubble was going to burst when you have a neighborhood putting together a little fund to invest in a company. They were very excited in what we had pitched, and we thought that was a great opportunity.
The next meeting we had was with a private investor, a guy named Mike Herning, who ended up being our angel investor. We sat down with him. I took out my computer and started to go through the PowerPoint and he said, “Wait a second. This is great, but step back and tell me about yourselves. Tell me about your business idea.” And we spoke with him for two hours. He got up and he said, “I love this. I want to start this company with you guys.” He’s now in his early 60s and has a great background of business experience. We looked at him and said, “Wow, this is the type of guy that we need, as being 24 and trying to start a company, to help lead us through that process.” So called him up a week later, we finalized it. He said, “I want you out here in a week. I’ll give you a car, apartment, and an office and let’s see where it goes.” We effectively started the company on a handshake which you don’t hear a lot of nowadays with term sheets and stacks and stacks of legal documents. He got 50%, we split the rest. But the expectation was that the VCs who would come in once we went through our first round would really structure the company. We didn’t worry too much about the details.
Andrew: What size investment did you guys get?
Alex: He probably put in a little less than a million. We then raised $2.5 million in early 2000.
Andrew: And you and your co-founder, do you own equal shares of the business?
Alex: We do.
Andrew: So now you’ve got funding, you’re living in a brand new city. What’s next? What do you do?
Alex: We had a dual focus, and during that period one focus had to be raising money. So we spent a lot of time going down to Silicon Valley, educating potential investors about the public safety space. A number of them had similar questions to you. “Well, the public safety space seems pretty niche and targeted.” “Why should we invest here,” was a key question. So on one end we were building that story, and on the other side what we were really doing was really building the foundation of our company. We launched PoliceOne.com in August of ’99. It started to build some momentum, so we were building that story. We initially had a business model that was very net market or e-marketplace driven, meaning we were going to connect buyers and sellers within our community, take a percentage of the transaction fee, and follow that direction. I think through the dot com period and up to the crash, we certainly had to make some changes at that point. But that was really the fundraising process.
Andrew: You said that you guys were building up some momentum with PoliceOne.com. How were you getting people over to the site?
Alex: We did a couple of different things. One is we basically went to every major trade show. We also launched a nationwide HUMV tour where we purchased a HUMV. It was the old H2 HUMV, which was the old school version, really big, guzzled a lot of gas. Hired a couple ex-cops who drove around the country, and they visited 125 police departments over a six-month period. We signed up 25,000 police officers and created a huge buzz around the market.
Now if you remember back in ’99, every niche community seemed to have its site, and we were the site, we were the Yahoo for police officers. They really connected, and we were able to provide some really intriguing information on the Web for them, but I think there was a moment where we realized exactly the type of challenge we were up against when we started getting phone calls for our customer service person and they were, “Hey, the HUMV just came by. Really excited about PoliceOne. How do I get on the site?” It’s like, “Well, open your browser, type in PoliceOne.” And they’d say, “Wait a second. The computer’s still in the box.” So it was really a how do we lead the way and bring law enforcement online and educating them to what value the Internet can serve? And I think at this point, the majority of the market’s online and I feel like we’ve help facilitate that.
Andrew: An earlier user who might have seen one of your cops come into a station in the HUMV and fired up his browser, what would he have seen? What did you guys have up on the Web at that time?
Alex: At that point, we really focused on news. In the law enforcement profession, staying up to date on news is really important because there are trends that your department needs to stay up to speed on. So the market was previously served, and still is, by print publications and trade shows. But the reality is if you’re relying on a print publication to stay up to speed on the latest trends, you’re going to be three to four months behind because it takes someone a while to write an article, to publish it, for you to get that magazine. In our instance, we’ll have information up the next day.
Fast forward two years, 9-11 happens, we really covered that 9-11 aggressively. We had expert analysis. We had what do you do if you’re a police officer in St. Louis or Duluth or Modesto? How should you be thinking about this threat? America’s under attack, what do we do? If you remember correctly, there was a period where it seemed like every week there was a terrorist warning or alert coming out. Law enforcement was relying on the mass media to get that information in a lot of cases because the communication channels were not that well established for getting that type of information out. We came in and we created an environment where they could stay up to speed immediately, and it was something that had never really existed.
Andrew: In the early days, how did you gather news? Did you have reporters? Were you just summing up the news that you read in print publications?
Alex: We have a multi-pronged approach. One is we have a number of news feeds coming in, so we worked with both AP and Lexus-Nexus for a long time. We also have writers on staff and did that in the early days. We started with one editor. We also have a group of columnists who are experts that write for us who are industry experts. Right now they number 100 across our sites. I think we started out with five or six, and they would write an article or two a month and they would also give us commentary on the general news. One of the things that we worry about a lot is we’re posting news and basic information that’s out there, maybe in USA Today or the L.A. Times, but the reality is that news or content was not written for law enforcement. It was written for the general public. So we really try to pick stories and pieces of content that have educational value. So I want every reader to say, all right, I learned X, Y and Z from it. And oftentimes, we’ll take expert opinion or commentary from our base of columnists, add it to those articles and really law enforcement-ize it.
Andrew: I’ve been listening to an audio book about Henry Luce and the way that he founded Time magazine. Essentially that’s the way they operated in the early days. They didn’t have reporters. They took the news that they thought would be appropriate for their audience, and they found a way it to their audience and put it in a unique way. That was their innovation. Then later on they hired reporters, and then after that they started coming after bloggers for just copying their content. But essentially it seems like what you had in the first couple of years was a blog before the blog was called a blog.
Alex: It really was. And I think back in ’99, 2000, 2001, the concept of the portal was pretty powerful. I remember there was a point where VerticalNet and iVillage went public, and there was a lot of buzz around creating a resource. But effectively, a portal was not that dissimilar from a blog, but with a lot of content on it. I remember there were terms like “vortal”‘ which was a vertical portal and there were a lot of iterations. But effectively, yes.
Andrew: Was there any search going on? Were you guys featuring links to other sites, or was it just content?
Alex: We did have a directory of links, so that was something we built out, but content was really the primary focus. We started with a newsletter that went out daily, and it started out with 5,000 subscribers. Now it’s up to nearly 200,000.
Andrew: Wow. All right. And you said that you were signing up police officers on that trip across country that your HUMV did. Signing them up for what? Were they just getting e-mail from you? Was there a membership portion of the site?
Alex: You had referenced the secure area of the site earlier in the conversation. So effectively we were signing them up both for that secure area as well as our e-mail newsletters as well as our forums.
Andrew: So that already existed right from the start?
Alex: That did.
Andrew: The other thing you said was that you had an idea that you were going to be eCommerce and that didn’t so much work out. Can you tell me what you tried doing in eCommerce and how you realized it wasn’t the right direction?
Alex: I think there was a formula back in ’99, 2000, where you could build a business that connects the buyers and sellers within your market. You might use a Commerce One or an Ariba. And effectively, if you bring in the purchasers and the decision influencers, which is what we were doing with our site with the content and community we were creating, you’d have a commerce opportunity. And I think what we vastly underestimated, we had probably built up our technology infrastructure by about when the crash happened. So in 2000, we had estimated the lack of sophistication within the supply chain, within public safety purchasing. The fax machine was the primary vehicle. So we were looking at a scenario where we were trying to automate public safety purchasing or government purchasing, and the market was probably 10 or 20 years away from that or even being close. So I think we learned that (a) it’s a lot more difficult than you would ever imagine, sitting down writing business plans, and (b) the technical side of it was challenging as well. So there was really a combination of both of those aspects. Then all of a sudden, the dot com implosion happened and that really wiped the table clean. We had to say, “What do we do now?”
Andrew: So until the dot com crash happened, you guys were just going to keep going in that direction, keep experimenting with eCommerce options, and then you couldn’t do it anymore. The world changed and you had to adjust? You were forced to.
Alex: I think we may have realized that at some point we were a little bit too far ahead of our time for the business idea to pan out. But again, there’s always a “what if” scenario. What if the Internet implosion hadn’t happened? There are a lot of companies out there who would have hoped that hadn’t occurred. I think what we ended up doing was stepping back and saying, “Okay, the vision of combining content, community, and commerce is a very difficult and challenging one.” And I think at that point, sitting in our offices in San Francisco, we had a much different view of how people were using the Internet than the rest of the country. The San Francisco media world at the time really overestimated the amount of penetration and what people were doing online across the country, particularly us looking at law enforcement. There was a low likelihood that a department was going to start transacting purchases online. So that where we ended up and we stepped back and then started testing our business models.
Andrew: Was there a moment for you when you realized the bubble burst? Was it when you were trying to get funding and suddenly you heard a no? Or was it when your investors were asking for something that they hadn’t asked for before or a customer who stopped paying? Was there a single incident that let you realize this is it?
Alex: In early 2000, we had raised $2.5 million, and the model was really go out, hire people, spend it, build your business. So mid-year 2000, we had done that. We had spent our $2.5 million and bought technology. We had ramped up our team, we had about 40 people. I think the recognition, being in the midst of San Francisco, you hear all of these stories all of a sudden of companies going out of business, not getting funding from their investors. But it really hit me when we had a board meeting and our investors basically said, “Despite the fact that we had committed another $2 million in investment, there’s no way we’re going to put it in.” At that point in time investors were not necessarily going to invest in a police website when they were losing their shirts in other investments. So that was really when it hit. It was really reinforced when, over the next month, we had to do two series of layoffs going from 40 people down to 3.
Andrew: From 40 people down to 3 people?
Alex: That’s right.
Andrew: Wow. Why did you stick with it at that point? Why not say, “We’re going to go from 40 people to zero. I’ll go start something new. I’ll go get a job for now. Maybe I’ll start something else after this whole mess clears.”?
Alex: And that’s a good question because at that point my co-founder had an opportunity at McAfee. He joined that company. He’s now a vice president over there and doing very, very well. I stepped back and said, “What does this opportunity look like? What have we built up?” And at that point, we had built a great brand in the law enforcement market. We had created a high degree of engagement, and we had a sense that there was something there. It was a gut feel. Mike Herning, who I mentioned who was our angel investor, was still on board. He was excited about it. We stepped back and said, “Let’s try something. Let’s put a little bit of money in. Let’s recapitalize the company.” I think we put 600k in and said, “Let’s take two years or a year and see if anything comes out of it.” I think it was as much a gut feel, a leap of faith, a not-wanting-to-give-up feeling that really drove us to do it. It was a tough decision. I had a lot of friends who were going back to business school, going back to consulting. I really wanted to see this play out.
Andrew: You put another $600,000 into the business? How’d you get that?
Alex: That was a combination of money from myself, our angel investor, and then one of our VC’s put a little bit of money in. It was almost . . . the opportunity had challenged us and as a group we just sat down and said, “Let’s try it and see what happens.”
Andrew: Were you essentially starting from scratch at that point?
Alex: We had a portal and a brand, but we had no revenue. We had pretty much no business model, so effectively we were starting from scratch. I think we took the perspective of, “Okay, if you had this brand and portal what could you do with it?”
Andrew: And what about members? How many members did you have, do you remember?
Alex: Approximately 60,000.
Andrew: So that’s definitely not nothing.
Alex: In a market of a million police officers, that’s a meaningful penetration rate.
Andrew: What happens to the ownership stake in the business that you have?
Alex: We went through a process where we basically recapitalized the company. We offered each of our original investors the opportunity to come back in and if they re-opt and put some money in as part of that $600,000, then they would maintain their share. Only one of our institutional investors decided to do that. I put some money in and ended up with what I felt like was a pretty fair arrangement. And then we also reserved some for an employee pool and went through that process.
Andrew: I see. Okay. All right. You said that you still saw a vision for the business. Based on the assets that you had, what was that vision? What was this new vision that you found for the company?
Alex: I think it was more a continuation of where I had started. The original premise was that there was nothing online for public safety, and there was such an opportunity to really connect these fragmented groups and really help them share information that will keep them safer, help them do their jobs better. I think we just had to find the right equation of how do you make money doing that and how do you connect great content with a viable revenue stream, how do you monetize traffic, and really set about looking at ways to do that. We tested our traditional eCommerce models trying to sell a product. We tested out a subscription based service post 9-11 where an officer or department could subscribe to text based and email based alerts.
We tested a law enforcement recruiting application whereby we used an Internet based website, an online solution, to really automate how law enforcement recruits and puts people through the hiring process. A process that is very long and convoluted. I use the example of San Francisco. If you want to become a San Francisco police officer, for a long time you had to fax in your application, you had a nine month period where you may not even end up getting through the process, and they were losing their top candidates at that time because no one was going to wait nine months to find out if they were going to get a job. So that was a problem that we were trying to resolve. Then we also created what is our business model now, which is based around product categories whereby we broke our site up into really two areas. One is the traditional editorial with news, articles, video. And the other part of it is really a scenic type concept where if you’re a police department looking to purchase tasers and you’re looking for information, you’ll go into those product sections. We’ll work with the vendors to help them get their message and educate the community about the products. So it was really playing around with all of those and seeing what stuck.
Andrew: How did the subscription to alerts go?
Alex: We signed up 8,000 officers. They were paying 20 bucks a year and had some traction, but we realized that it was not a long-term solution. There wasn’t necessarily a long-term business model there.
Andrew: All right. And the recruiting app. How did that do?
Alex: We had some great traction with San Francisco PD and Oakland PD. For San Francisco, we had identified $500,000 in annual cost savings just by putting this system in place. They needed to upgrade their online capability. They needed to upgrade their computers. They needed data connections for their background investigators. They were considering those investments when 9-11 happened. So 9-11 happened all of a sudden, and law enforcement in the Bay Area was more worried about the Bay Bridge and the Golden Gate Bridge and protecting landmarks than they were automating their recruiting process. So that pretty much took that option off the table.
Andrew: So the C-Net type model where you charge companies to get exposure to your customers, that’s the model that worked?
Andrew: How do you keep the reviews and the information honest and unbiased when you’re collecting money from the people who are trying to sell the products you’re reviewing?
Alex: That’s a really good question, and it’s something that we struggle with and think about a lot, because traditionally you want to keep editorial and advertising very separate. I think one of the unique things about our industry and our model is that there is a content interest in product information. So for instance, if a new body armor product comes out that is lighter or more effective than the one you’re currently wearing as an officer, you want to be aware of that. So it has an impact on your safety. It has an impact on your day to day. So we really positioned our product categories as repositories of information. We included news, we included articles from our experts, we included product reviews, but we also included white papers and press releases and videos and product demos from our vendors. And we basically said that this is going to be a spot where you can find out all kinds of information about that product category. In fact, using the body armor example in 2004, there were a number of bullet proof vest penetrations where a couple of officers were killed because their bullet proof vests didn’t work. And all of a sudden we became the unbiased place where we’re going to let the manufacturers tell their story, we’re going to let the departments tell their story, and we’re going to aggregate information. We really see ourselves as an information aggregator, and because it’s under the heading of “product” that’s what they expect. They’re not looking for editorial when they get in that section.
Andrew: PoliceOne was the first site. What was the next site?
Warner; And how long after you launched did you launch that?
Alex: We launched that in 2005.
Andrew: Really? So it was about six years afterwards?
Alex: And really we weren’t ready to move into other verticals until we had solidified our business model. So in 2001, we were testing opportunities through 2003. In 2003, we were in a mode where, “Okay, we came up with this product category concept. Is it going to work?” I had to put my sales hat on. I had to go out there and beat the pavement and bring on advertisers and brought in enough to validate that there was an opportunity. Then we hired a salesperson and basically used revenue to build the business. Every new client allowed us to do something more. So in 2004 we broke even. In 2005, we were starting to generate a profit at which point we said, “Yeah, we feel like this opportunity and business model has been validated. Let’s try it in fire.” And so entered the fire market and really went through the same process.
Andrew: How did you get the early fire fighters to join the community?
Alex: We had initially launched with a partnership with one of the print publications in the market, so they had a nice reach and base of exposure to the fire fighting community. But we also went through a similar process. We didn’t do a HUMV tour, but we did go to all of the trade shows. We did a lot of search engine advertising. We did some print advertising. We basically reached out to the market and started to build that community.
Andrew: What kind of partnership did you have with the print magazine?
Alex: It was an interesting partnership whereby the company had a magazine in EMS and one in fire and was looking to launch one in police. So we basically said, “We’ll help you launch a police publication if you help us launch a fire website.” It was a good win-win, and it really accelerated our entry into that market and it also accelerated their entry into the law enforcement market. They still have a successful publication that they run on the police side.
Andrew: Print publication?
Alex: Print publication, yes.
Andrew: What about first customers. How’d you get the first big customer at PoliceOne?
Alex: We had always had a base of advertisers. They were there mainly buying banner ads. But I really look at our first set of big customers as the ones who came on board with our product category model, because they really had to understand the importance of getting in front of the community and educating those officers who are researching product. So the way I got those first set of customers was really almost a Tommy Boy type story if you’ve seen that movie. I jumped in my car and I visited nine companies in California. I drove down the coast. I went to L.A. and San Diego and drove back up. Of those nine, six came on board, but it was really me getting in front of these companies who had never, ever advertised online. They weren’t exactly familiar with how to leverage the Internet to meet their marketing objectives and really selling them this was something great to try, that they should allocate some marketing budget. Basically they were buying me and my ability to execute. It was a major challenge to go out and do that especially being someone who, at that time, had zero sales experience.
Andrew: So how’d you do it? How did you persuade them?
Alex: I think if you believe in your product, I think anyone can be a salesperson. I think if you’re trustworthy, you’re open, you’re energetic and excited . . . I find my sales style is selling our story. It’s selling our mission. It’s selling our vision and giving them my commitment that things are going to work well. When you have the luxury of being a small company where it’s my name on the door, I can make things happen one way or the other. If it doesn’t work out, we’ve given companies their money back. But that happens very, very rarely, and we have a very loyal group of advertisers with us now.
Andrew: What were you offering them to prove that you were effective? Were you offering them clicks or just impressions or sales? How would they know what would be a win?
Alex: With online advertising, despite the fact that the general consensus is that it’s very, very trackable and easy to monitor, it’s very difficult to track someone who’s going from Google say, looking for body armor, to PoliceOne, our body armor category, through to a vendor site and filling out a contact form or calling them up. Where do they saw they us? So we took the early approach of having very detailed reports where we’re showing them impressions, we’re telling them how many clicks we’ve sent. But still to this day, we’re relying on them on their end to make sure that their sites are ready to receive that traffic and that they’re able to allocate some level of sales and business to what we do. A lot of the companies we work with realize that it’s very important for them to get out in front of the product purchasing cycle, access to researchers who are looking for product solutions in the categories they sell. They recognize the value of that audience and that experience. But a lot of the smaller companies we work with, they want to make sure that if they’re spending $600 a month that they’re getting some return on that. So I think that’s something that probably is going to be a challenge for all online publishers for a long time and advertisers, because it’s difficult to really make that connection effectively.
Andrew: Do you remember when you made your first million in sales a year?
Alex: I do. That was probably back in early 2005.
Andrew: Okay. Really? So 2004, you break even. 2005 you do a million in sales. What was that like for a company that almost died?
Alex: Well, I’ve looked at each of the milestones as a point of where you kind of step back and take a little bit of a deep breath. But my personality is more to look forward and not spend too much time saying oh, look at where we’ve come from because we’re trying to get our next two million. We’re looking for our next 100,000 registered members. We’re looking to launch our next product. So I’ve always found it challenging to make sure that I need to step back and celebrate those successes, make sure as a team we’re celebrating those successes ,and not just say okay well we’ve met this metric, let’s move to the next one. So I think that would be my mindset at that point.
Andrew: Do you remember the time when you looked down at your financials and realized oh, we did it? Was there a date? Was there an accountant who pulled you over and said, hey, check this out, look at where we are this year?
Alex: I think at that point we had a part-time bookkeeper, and I was helping out with QuickBooks. So I was very aware of where we were, but I think it was when we were pulling our 2005 numbers, we stepped back and looked at it and said we have a healthy profit margin here, we’re finally stable, we’re finally going to make it. Remember we had been working at this since 2001 in a very uncertain environment, and it was just a feeling of comfort and stability that I hadn’t felt in a long time. And there were periods in 2001/2002 where I was fixing servers, I was fixing our websites, I was selling, I was doing accounting. Where you basically as an entrepreneur you need to do what needs to get done. And finally we were at a point where we started to fill some of those roles and had a company that was stable.
Andrew: Those nights in 2001/2002, even 2003 when the business wasn’t doing well, when you guys were losing money and you were maybe freaking out, how did you reassure yourself? How did you say no, go back into work the next day?
Alex: You know, I think that’s where you’re really tested as an entrepreneur. It was easy effectively during the ’99/2000 period where it was fun and exciting. There were networking parties every night. It was relatively straightforward to raise funding. But in the same area where sometimes you have to write paychecks out of your own pocket and you don’t really know if you’re going to be around in six months, I think it really tests your fortitude and your resolution to be successful. And I think we’ve always come back to okay, what’s our mission? Our mission is to provide valuable content to law enforcement and public safety, and it helps keep them safe and helps keep them coming home to their families every night. So I think there’s both a personal resiliency as well as a dedication to the model and mission that kept it going during those periods.
I remember there was one night where I had locked myself out of my apartment, and it was a cold, foggy, rainy night in San Francisco. It was probably late 2002. I had creditors who were calling us because we were still settling some debt back from the dot com days, and I ended up sleeping under my desk that night. And I got up and I said, “Hey, I’m going to keep going with this and see what happens.” But it was very, very difficult.
Andrew: Did you use anything to keep yourself going, maybe self-help audio tapes or books of successful people that you used as inspiration or maybe a mentor who would shake you up or a spouse who would get you going?
Alex: Well, our angel investor and chairman Mike Herning has been really a stable rock and a person who has guided me on a day-to-day basis through all these challenges. He inherited his father’s company when he was very young, and he went through booms and busts and really had a recognition that economics and business is about ups and downs. When things are down, that’s when there are some good opportunities and when you really need to put your foot to the pedal and push. He kept saying, “Hey, it’s easy when things are great. This is the time when it’s tough. Let’s keep at it and see what happens.” And I really took that to heart.
Andrew: Yeah, the tough times is when you prove yourself. So what about an exit? You’ve got now investors who’ve been with you for ten plus years. Most people I interview are done with their companies within five years. So are you expected to give them an exit?
Alex: Well, I think I’m at a great point right now where the majority of the company is owned by myself and the chairman of the company. So we have different sets of objectives than just an exit. And I think we step back and look at out company and we say, “Hey, are we buyers of our own business today?” We’re buyers of our own business. We think there’s a great opportunity over the next couple of years, and we believe that you run a good company on a day-to-day basis, good things are going to happen. You know, whether that’s a potential IPO, whether it’s a potential acquisition opportunity, or whether it’s just an opportunity to acquire other businesses and build your footprint. And I think we’re focused on our day to day in building the business and we’re very lucky. I think that there are a lot of different paths for entrepreneurs and one of which is to raise VC funding or formal institutional investment. That does create a lot of parameters for you as an entrepreneur in terms of exit, in terms of how you run the business on a day-to-day basis. My chairman and I have board meetings over a glass of wine often, and that’s a nice luxury.
Andrew: The site says that you have a growth rate of more than 25 percent per year. At the beginning of the interview, we talked about how last year you did $7 million in sales, this year $8 million in sales. So I’m guessing that 25 percent growth doesn’t apply to revenue. What does it apply to?
Alex: Well, so our growth rate has gone from, certainly as you have a bigger base and a small market it’s gone from 50 percent to 35 percent to 25 percent to 20 percent. I think this year we’re looking at approximately 12 percent, 13 or 14 percent growth, somewhere in that ballpark. Our net income is growing strongly so . . .
Andrew: What size margins do you have?
Alex: That’s something that we do not share externally.
Andrew: Okay. But because of the way you’re structured, I think you guys are an LLC, and because of who’s running the company, you guys take money out of the business on a regular basis, right?
Alex: We do not.
Andrew: Oh, you do not. You leave the money in the business even though it’s profitable?
Alex: We do.
Alex: We do. So we have been using our net income to further grow the business. So for example this year we just launched an online video academy for law enforcement. And a couple of years ago, we started doing video filming. We hired a production team and realized that the future of Internet was going towards video. Obviously, you do as well since you’re doing a lot of video interviews. But we hired a video team and started doing training video segments. All of a sudden, we realized we had 300 of them, so we built an infrastructure to deliver online video training to law enforcement. Then we’ve invested a lot of money over the past year in video and in that solution. We just had our first couple of sales this past week, and we think it’s going to be a great opportunity.
So I think we’ve said we’re reinvesting in the business, we’re reinvesting in our mission, and that’s what we’ve chosen to do. So I don’t think we’ve even taken a dime out of the business.
Andrew: Really? Wow. And it’s how many straight quarters of profitability?
Alex: Well, we’ve been profitable since late 2005.
Andrew: Wow. Once you hit profitability that’s it, no going back?
Alex: Well, I think not yet, although there may be some opportunities where we get some debt funding and possibly have some opportunities that require a lot of investment in terms of expenses. But I think once you’re at a point where you’re managing your profitability, you can start to step back and say okay well our company normally would be this profitable, so maybe we would generate 300K of net income. However, because we’re investing in these three opportunities, our balance or our income statement looks like it’s about break even because we’re accruing other expenses. So I think for a company our size and as an entrepreneur, there’s always that okay what does my core business do in terms of profitability versus what are we doing with our income and how are we growing the business? And I think I always make sure to be able to tell that story to our investors and to our partners to make sure that they’re clear with what the business is doing.
Andrew: Frankly, unless you need to take money out of the business every year, you’re probably better off breaking even or even losing some money, because then if it means that you’re investing in the business and your equity is going up, right? You’d much rather have equity go up than profitability go up.
Alex: Exactly, and like I said, we’re buyers in our business right now and we think that’s a good investment.
Andrew: All right. Anyone else is stuck where you guys were in 2002, 2003, 2004, do you have any advice for them, for those people who might be in those situations?
Alex: I think it’s recognizing that being an entrepreneur is a process. It’s something that has a lot of ups, it has a lot of downs, and that you have to be very resilient to go through that process. And to start a company really takes several years. As you go through that process, there are going to be a lot of failures, there are going to be a lot of mistakes, there are going to be a lot of challenges, but the whole process is a learning experience. And there’s really no learning experience like it. The amount of experiences that I’ve gone through, the amount of challenges whether they be funding related, whether they be business model related, whether they be personnel related is incredible. And I think as someone who’s passionate about being an entrepreneur, it’s really the path and the story and the process of doing that, that you really need to keep a focus on because it’s easy to get discouraged. It’s easy to say, hey, I’m not where another entrepreneur is over here. Or one of my friends just took their company public but I can’t seem to break even. That stuff happens and it’s like what do you do? You just sit down and say hey, well this is a process, it’s a marathon and it’s not a sprint.
Andrew: All right. What a great place to leave it. Thanks for doing the interview. And guys where do we send them? The company is Praetorian Group. The website we kept talking about is PoliceOne.com. If you check that out, you’ll really get a sense of what the site’s about. Thanks for doing the interview and thank you all for watching it. Bye.
Alex: Thank you.
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