This interview is sponsored by Grasshopper, the virtual phone system that entrepreneurs love, because you can use your own phones and manage it on the web. Check out grasshopper.com. It’s also sponsored by Wufoo, where you can go right now to get embeddable forms and surveys that you can add to your website for free. Go to wufoo.com. And it’s sponsored by Shopify. When you go to shopify.com, you can create a store within minutes and have all the support and features that you need to make that store grow. Check out shopify.com. Here’s the program.
Andrew: Hey everyone, it’s Andrew Warner, founder of Mixergy.com, home of the ambitious upstart. This is take #2. Take #1 I was going too much on a rant about how the technology here isn’t always cooperating, but it doesn’t really apply today. Today you and I’ve got a clear connection, Scott, and I think that we’re going to be able to stay connected for the full interview. I’m a little frustrated because I was looking at a past interview that I did and seeing how many edit marks there are, and how many hiccups people have to deal with in the middle of an interview. The goal, though, is to make these interviews so fricking valuable that if there’s like a record player being scratched in the background as we’re talking, people will still listen because the information is so fricking valuable and useful, and that’s what I keep pushing for. That’s why you and I spent I think maybe half an hour doing a pre-interview before this interview. That’s why I spent so much time on your website. That’s why I have all this research here, and that’s why we’re just going to keep pushing it in this interview.
Interviewee: Excellent.
Andrew: Thank you Scott. Who am I talking to here? Today I’ve got with me Scott Tilton. He is the founder of hookit.com, the largest and most active social network for lifestyle sports. Social network, I thought this business was over. I thought Facebook got all the users. Myspace used to have all the users, and all the other sites are just kind of in their shadow – in the shadow of those two companies, and LinkedIn, and Twitter. But I didn’t think there was room for any more social networking sites. How many people do you guys have? How many members?
Interviewee: Yeah, so we have about 550,000, and at the end of the day we’re a vertical network, so I think the way that we’ve always positioned the site is that we are a social network with services. And because of our focus on action sports it’s enabled us to really define a very clear niche for ourselves, and our customers are the action sports athletes and enthusiasts, and then the brands and sports marketers that are going after the demographic to market and sell their products.
Andrew: This is beautiful. This is why I wanted to talk to you. Because you’re creating a social network in a world where people feel like there are too many social networks. You’ve got hundreds of thousands of members on the site, and it’s a niche. Niche sites supposed to be tiny.
Interviewee: Yeah.
Andrew: Half a million people, that’s a lot. What about profits? You guys profitable?
Interviewee: Yeah, so we got profitability last year. We had raised some capital in the past, and it helped us get to a point where we are now. And you know, we’ve actually been around for a while so I think that’s why we’ve been able to stay around as a social network. And we rarely call ourselves a social network. At the end of the day, we’re a community, we’re a network. Our members and brands are both participants in the community. But we’ve developed the business model over time, and we got to a point where we were able to achieve profitability last year. And we we’ve been able to hold our own against the bigger networks.
Andrew: Wow. What size revenues?
Interviewee: So we did a couple million in revenue last year. We’re a private company and we don’t disclose everything but at the end of the day, the profits were modest last year, and this year looks really good too. So I think our industry as a whole was challenged with the economy last year, and as a result of the way that we’ve developed the business model over the years, we were able to really charge and navigate right through that, and this year it seems like everyone’s getting back on track which is really good to see.
Andrew: How many years ago did you guys launch?
Interviewee: A while ago. I originally founded the company in 2001, and at that time we were called sponsorhouse. And the business began as a community site for athletes to go to build profiles and they could promote themselves, and then connect with brands for sponsorship or deals on products. So essentially what we did in the early days was we created an entire niche for ourselves where it really expanded the market of athletes who could find and connect with sponsors. Becuase in the past it was really historically designated for professional athletes, and we created a really efficient way for brands to build affinity groups that they could then market their products through local and regional athletes. And in exchange, provide discounts or deals on products.
Andrew: That’s another thing that I like about the business. It’s not just about people talking to each other and trading pokes with each other. It’s a way for athletes to get sponsors, and it’s a way for companies to connect with athletes.
Interviewee: Yeah.
Andrew: So here’s what we talked about in the pre-interview that we’re going to be going over in this interview. We’re going to talk about how Scott and Hookit got so many members on their site. We’re going to find out about how he got revenue and to profitability. And he mentioned that his company had a name change, actually had a couple of name changes. One of the last, in fact the last name change, was due to a legal issue, so I want to find out about that.
Andrew: …was due to a legal issue so I’m going to find out about that. We’re going to spend about an hour going into every one of these issues. The first thing I’d like to talk about is members, because if you don’t have members everything else is meaningless. So how did you get your original members?
Interviewee: I So originally as I mentioned, we started as a company called “sponsor house” and it was very much a sponsorship service, this was long before Myspace and Facebook even existed so you can arguably say that we were, you know, couldn’t be much longer than we are now, but at the end of the day we’ve always had a really defined service and a value that we provide to our members, and in the beginning we were self funded for the first 3 or 4 years and we didn’t raise any capital, so my business partner and I literally started this out of an apartment. We traveled to events every single weekend to distribute the stickers, postcards, got the word out about the service which then in turn had natural network effect growth because members were talking about they could get sponsored on this site and it really created a great way for us to grow our initial base. Early on we actually used to charge the members a subscription fee to use the site so it was a little bit of a barrier for us to grow the membership quickly and it was around 2005 that we actually started adding the services for free and downplaying the premium account and that’s really when our membership started to take off
Andrew: And when you guys started, was it a social network or did you just bill it as a place to go and get sponsorship?
Interviewee: It was designed as a sponsorship service so the members could not connect with one another for the first three years. So it was really designed for the members to connect with brands and they could interact with each other and we didn’t introduce the member to member interaction until about 2004.
Andrew: Okay I guess so if I, I guess if an athlete would go on the site, create a profile for himself, tell people..
Interviewee: Yeap
Andrew: ..about his achievements, so what sport he’s in and so on and then the idea was that brands would be able to go and search the database of athletes and find the athletes that they want to sponsor…right?
Interviewee: Yeah, that’s how it all began
Andrew: How did you get the money people to come on board and to even check out your site?
Interviewee: Money people being the brands? Or the industry?
Andrew: Yeah right the brands that ended up sponsoring, because that’s the hardest piece it seems to me.
Interviewee: Yeah so when we started out, and we talked about this in our pre-interview as well, the industry as a whole are a little bit behind or a little bit slower to adopt certain technologies, so you know for ourselves some of the features on our site may seem like they are a little bit elementary and things that have been around for quite a while, but they are still really new to the brands that are using it.
When we first started in 2001 a good portion of the brands didn’t even have email yet or an internet connection at some of the brands. And this was 2001, it’s not like it was ’96. So you know we were always a little bit ahead of our time in terms of the service we provided to the category we were focusing on. So we just had to roll with the punches and be patient to let the service get adopted. So with regards to the business model we charged to members in the beginning, because they were the only ones that would pay, and the brands didn’t view it as an advertising outlet because there weren’t enough members and it was such an unproven, you know uncomfortable thing for them, so it was really about 2004/2005 when we really started down playing the subscription service to the athletes and we were finally at a point where we could start charging the brands. And it really only took a handful of brands getting the ket influential brands to participate and pay as an advertiser and then it started to really start rolling in after that.
Andrew: But from 2001 to 2004/2005, what was the, you had sponsors right?
Interviewee: Yeah we had sponsors, I’m sorry so we charged to the member and we gave it to the brand…
Andrew: Okay how many brands did you get to take it, to accept it and actually use it?
Interviewee: For free? About 100
Andrew: A 100?
Interviewee: So we…yes we had a 100. Even to this day, a good portion of those are grandfathered in that we still don’t charge to this day just because they have been with us, we also negotiated an exclusive where they couldn’t use another site for their sponsorship program, and so we grandfathered in some really old customers that we were very close with and a lot of them have just upgraded and are now you know premium advertisers and do e-commerce and other aspects on the site that we provide and then they now pay us for it.
Andrew: How’d you get the original sponsors in?
Interviewee: So I, it was extremely grass-roots in the beginning so in addition to the apartment that my business partner and I worked out of, and my forerunner at the time that we traveled to events, we ended up getting a motor home and we traveled the country going to all these different events. We actually lived out of the motor-home for about 9 months, and re-located from the north east to San Diego. And while we were on the road we just made sure that events where a lot of these brands congregate to market their products to the participants at the events were there, so we would market to them on site.
We would also go to companies while we were on the road and stop in and say hi and educate them on the service. So it was very manual, very grass roots, and very time consuming in the beginning.
Now, we have an inside sales force. We have trade shows that we go to. We have members inviting brands onto the network, so it’s definitely…we hit that tipping point where now a lot of it’s happening organically and on it’s own.
Andrew: OK. I’m gonna have listeners right now who are listening to the things you’ve talked about, driving cross country in a motor home, and they’re gonna be saying in their heads, hey, maybe we should do it too. Maybe we should just go out there and go meet the people who are gonna be our customers in the future. So I’ve got to ask you, how effective was it? Realistically?
Interviewee: Wow. Bear in mind that I was also 24 at the time so I could do this and we didn’t have family and kids that we had to worry about. So if you’re young, by all means. It was some of the best years of our lives. We weren’t making any money, but we were having a great time.
Without it I have a feeling we wouldn’t be what we are today. Because everyone knew us as the guys at the races with the motor home and it kind of positioned us as in the field. We were out there. We used to be these kids racing and participating in the sports. So it really helped us to gain credibility and it would’ve been a lot more challenging to do it without that.
So, on one hand it was very effective. On the other hand it was time consuming. And other companies that have tried to come in and buy their way through advertising media have been unsuccessful. I think our roots are just so deep and so broad because of it.
Andrew: I see. What did you learn about customers back then?
Interviewee: You know, we just came at it from…I don’t think we were naive, but we acted naive and were sponges. We tried to learn everything we possibly could. We took notes from other brand that we talked to…what their request for services were. We’d followup with them in three months when services were available. So we just came across as we wanted to learn, we wanted to understand what their needs were, then we just tried to understand and deliver on it; and if we didn’t, we’d explain why and give them alternate solutions. So we just came across as young entrepreneurs who would do anything to get the business.
Andrew: I see. When you’re pulling up to an event in a motor home that you’re living in, and you’re telling the athletes that you can get them sponsorship money. Aren’t they looking at that motor home and saying, but you live out of it. If you’re still living out of a motor home, how can I trust you to get me money that will help me do better?
Interviewee: Yeah, so at the end of the day, the member and customer at the time were amateur athletes so they weren’t expecting to get paid. They were just looking for breaks on products, so we saw that as an opportunity to develop what’s better known as a loyalty program. We put the moniker of sponsorship on it and now brands could use this as a mechanism to build relationships with up and coming athletes. If they made it big great. If they didn’t, no big deal, we were still enabling them to be able to connect with this audience and provide some type of benefit — whether it was free stickers, free t-shirts, discounts on products, an introduction to their local retailer so they could go in and get deals…
So it was really just a relationship building process and you’d be at all the sites. So our purpose was never to be an agent or be an agency that would go out and find money for these kids. That wasn’t what it was about. It was about helping the athletes live their lifestyle and have fun doing it.
Andrew: OK. Where do your interests come in? I mean, it sounds like you’re interested in sports. Sounds like you’ve been active too. I see, is that a…
Interviewee: Snowboard?
Andrew: Snowboard. I’m tongue tied today aren’t I, Scott? You’re gonna have to do most of the talking here. Usually, I can go on and on, but today I’ve gotta hold back. What’s that? Oh, a helmet.
Interview: It is. This is actually a downhill helmet. Actually, my racing helmet when I was racing mountain bikes. So I grew up racing BMX from the age of six. I transitioned into motor cross when I was ten. And I raced straight up until I went to college.
I got my undergraduate degree in sports medicine. At the time I really couldn’t figure out what I wanted to do with myself. When I was going into college I had been in and out of physical therapy for so long because of knee surgeries and back problems.
So I went for sports medicine. I continued racing straight through college. Then I graduated and went back for sports marketing, and ended up getting my Master’s degree in internet business systems.
So Sponsor House actually started as a school project and here I am 10 years later.
Interviewee: …and then here I am, ten years later.
Andrew: Wow. Who’d you found the business with?
Interviewee: RJ Krauss. So he’s a…him and I raced motor cross together for the better part of eight or nine years. And he went to college in New York, I was in North Carolina and we regrouped after college and moved on to doing business projects together.
Andrew: What other projects did you do before this?
Interviewee: So I had one other sports company that I had started and at the time it wasn’t an internet based company. It was more of an event management company and it was very hard to make money. We were talking only with local advertisers and there was a lot of competition and when I got more involved and intrigued with the internet that’s when I tried to figure out a way to put it all together and just somehow I kind of stumbled into the whole sponsorship model because as a former racer, up and coming athletes and riders were looking to me to help them write resumes because I was college educated and could actually help them do things like that. And that’s when it clicked and we knew that we needed to build a service that all these athletes could go register online, build their own profiles and then it’s just continued evolving over the years with the introductions of MySpace, Facebook and twitter. And we’ve managed to build a real business out of it which is really cool.
Andrew: So while you were charging…actually, how much were you charging back in the old days?
Interviewee: $48 a year. So four bucks a month.
Andrew: And how many people did you get to pay?
Interviewee: It’s close to 10,000. I think it was just shy of 10,000; at our peak we had 9200 members that were paying to use the site. And it’s not hard to do the math to figure out what that is. But we were hitting a critical mass because 10,000 people isn’t a big enough audience to sell ads against. So that’s when we started kind of phasing it out and now we have about 2000 upgraded accounts and 550,000 members. So it’s definitely a much smaller aspect of the business at this point and most of our revenue’s coming from the brands.
Andrew: Okay. Can you get to 10,000 members, 10,000 paying members, just by going out and meeting each one of them one at a time?
Interviewee: That’s what it felt like some days. Is that we were signing them up one by one.
Andrew: But you must have been doing more than that, right? To get to the 10,000 number.
Interviewee: I think we’ve always been pretty creative and I think most entrepreneurs are or you have to be if you want to start a business from scratch. So we always had developed win-win partnerships with media properties, brands, with anybody who wanted to work with us and it was relevant. So I think we started building relationships with some of the media properties and we were trading out advertising in the magazine or on their website in exchange for us distributing magazines at events, as an example. So we were always very creative in that regard and we got a lot of mileage out of our partnerships in exchange for us doing things for them on our site.
Andrew: Wow. That’s pretty cool. What magazines did you give out?
Interviewee: So there’s a company called Moto Playground. They’re the biggest amateur motor cross magazine out there. We also now have relationships with ESPN, FIO TV which is part of Newscorp, Trans World Media and Source Interlink which they pretty much control all the print advertising and FIO TV covers the broadcast as well as ESPN with the X Games. So we’re essentially…we’re pretty much working with everybody at this point because we’ve got the biggest community for action sports.
Andrew: What else did you do to get members in the early days to get to the 10,000 paying member number?
Interviewee: For four years we lived on the road. We had our home base, we had two employees that stayed at the office and we were out doing our thing, racing, talking to members, talking to brands and that’s how we did it for the first four years. And then we finally got to a point where we realized we could probably be a little more effective being in the office, managing the product road map and managing the relationships with our partners from the office. So these days I don’t travel nearly as much. I have a 15 month old son and a great wife so I travel maybe four or six times a year to go to the trade shows, go to the major events and I’ll try and still do some local events here and there but we’ve got a great marketing team that’s out doing the same thing that we did years ago.
Andrew: Wow. How many people in that marketing team?
Interviewee: So right now it’s only two people full time and then we’ve got a couple of part time depending on the where events are around the country. So we’re 15 people head count in the office full time and three part time.
Andrew: I see. So going back to the early days, it seems like you were able to cut costs by travelling? Is that true?
Interviewee: That we would be able to cut costs?
Andrew: Yeah. How did it impact your expenses because that’s a big issue? You’re trying to build a business, you don’t have enough money to get a great apartment and to furnish it and to get a car and do everything else that’s involved in starting out in life.
Interviewee: There were some definite sacrifices to be sure. When we first moved to San Diego we chose to live in the motor home and rent an office. So we definitely did it the really hard way. A lot of start ups start in a garage and we started in a motor home. We definitely had a lot of sacrifices early on. We made sure our expenses were covered but we weren’t taking salaries. We’re truly kind of living the dream at this point. So it’s really working out now; we’ve got a solid business and we’re just excited to see where it goes from here.
Andrew: When did you guys get profitable?
Interviewee: One more time.
Andrew: Sorry. I was wondering with such low expenses and the revenues that we talked about it seems like you would have been profitable pretty early on. No?
Interviewee: Yeah. So we were and then when we finally brought in some capital from some investors…I’ve got a great investment group, it’s all private funded mostly through angels. And this is actually one of the things that we had talked about and there’s pros and cons to the way that we did it. I found people that were passionate about our space, passionate about the industry and liked us and liked what we were trying to do. So we were able to raise a fairly significant amount of capital doing it this way and it was over a span of a couple of years and so that money went towards improving the system. Growing from four employees…
Andrew: Sorry. The connection’s acting a little funky again. Can you repeat that? Just that last part.
Interviewee: Yeah, so the investment just really helped us take it to the next level. So at the time before we raised any capital we were four employees and then the capital helped us grow to eight, ten. And we’ve always just been really smart about how we’ve invested the money but what it really did was it helped us develop an entirely new platform that supported the business model that we wanted to do. It helped us bring on some talented peopled that were able to help us grow the company and we’ve got a great group of angels who will do whatever they can to help us out. The cons to it are getting them engaged and making sure that they stay really passionate and really interested in what you’re doing because no one has enough money at stake that they’re going to be in the poor house if this fails. So I think a lot of companies, when you go the VC route, they either want it to work out very well, very quickly or fail. We’ve been on the other side where we’ve had some very patient angel investors who’ve been very supportive and helped us grow.
Andrew: All right. Let’s come back and talk about the investors in a little bit. I want to spend more time talking about the members because I want to make sure that we’re helped people figure out how to grow their membership. What else did you do to bring in people and get them to register?
Interviewee: Yeah, so to close out the early days we focused on being incredibly grass roots, being very open and listening to everybody who wanted to give us feedback and it grew organically and virally because of that. Into the middle years we were focusing on partnerships and the…We would go out and establish partnerships with the different media properties no matter how big or small. If they catered to one of our sports we wanted to work with them. Just a tremendous amount of good will and camaraderie was created because we would be getting features in their publications in exchange for us doing features on the magazine and doing distribution and sampling when we go to events. So we really figured out a creative way to leverage our partnerships to drive traffic into the network. And we’re still doing that to this day. So in some cases we have brands that are large advertisers on our network but they also have skin in the game to drive traffic to their profiles or communities. So in most cases brands will have links or icons on their websites driving traffic to their pages on our site. They’ll do promotional cards to drive traffic to our site. So we’ve really done a good job working with our partners and it’s important that people that are trying to build a social media presence have buy in and have the desire from their partners and members to drive traffic.
Andrew: I see. So today a big source of membership for you guys. They tell any athlete who wants to get sponsored, wants to get supported by the brand to come to a page that’s essentially on your site but looks like it’s part of their experience and then they get them to register since it’s free, since it helps them stay engaged with the athlete. And they’re the ones who are out there recruiting on your behalf?
Andrew:…the athlete and there the ones out there recruiting on your behalf?
Interviewee: Yes…so we certainly work together and we try to make it as easy as possible for them but these loyalty programs, cause it’s so much more then just sponsorship now,so,in some cases a brand might have, 25,000 people on the network that are connected to there brand of which 500 of those they might sponsor and have a really personal relationship with and then the rest are what we call brand insiders who have opted in to get exclusive news,updates,promotion discounts on their products and so the brands, we give them every tool possible to make sure that they know how to promote their page on our network and we’ve really focused on that as our strategy to keep our member acquisition costs low.
Andrew: I see. Mose from the audience has a question I should have asked earlier, he’s saying,”What platform are you guys built on?”
Interviewee: So we’re built on .net and that was a choice we made early on to keep things organized, there’s pros and cons to going that way and at the time that we built it it was a relatively new code base and our head of engineering at that point really wanted to build in that environment.
Andrew: So you built it all yourselves custom from the ground up?
Interviewee: Yeah. So the core community platform is built, it’s all ourselves, it’s all built in .net and since then we’ve been developing APIs, we’ve been developing ways for e-commerce providers to connect to our network, so that…and I think that we should probably recap quickly on what the business model actually is. So, every brand pays to play, they either have a profile, which is a marketing page,they can get a community which is kind of like a group and they can take over the look and feel of the pages, we maintain our consistent navbar and that’s a really popular product. An example of that is Monsterarmy.com which you’ll see points to Monsterarmy.hookit.com and that’s their grassroots athlete sports marketing program. So that’s, profiles,communities, and in addition to that brands can add on e-commerce or they can do display advertising across the network to drive people to their pages or communities.
Andrew: Daniel in the audience is saying,”Andrew it looks like you have your eye on something.” Yeah I have my eye on the chat room. I’m checking out what you guys are asking. Apparently, what platform is hookit.com built on is a popular question here. Lets see what question people are asking as a follow up. Mose is asking .net nuke?
Interviewee: 3.5
Andrew: .net 3.5 . Who at the company built this software,built the platform?
Interviewee: We had a head of engineering that was with us for the last four years and then we just recently handed it off to a new engineering lead to help us kinda take it to the next level.
Andrew: What did that first version of the site look like?
Interviewee: Very similar to the way it is today. It was, we had some pretty powerful technology people on our board and the former CTO of EBay is one of our investors and also on the board so she’s helped to work with our internal team to make sure that the systems architected well scalable and at the end of the day is a valuable asset to the company.
Andrew: Ok, so, go back to Monsterarmy.com you said that when people go to that website they end up on a subdomain of hookit.com
Interviewee: Yep.
Andrew: But monster pays you for that because you guys are maintaining it,you guys are encouraging participation and you guys are helping them grow that community. It’s not just them growing that community on there own right?…Let’s see if we lost the connection or not. So we lost the connection, we’re back. I was asking you about Monster and your relationship with them. This is Monster energy drink, what do you charge them, by the way?
Interviewee: Can’t tell you that.That’s the secret sauce but we’re essentially an extension of their sports marketing team. We have people here dedicated that are actually on site at monsters office on a regular basis. So, three days a week we’re up there consulting them on how to leverage our network, how to leverage other sites like Facebook and at the end of the day we’re essentially kind of a hybrid service provider as well as a marketing tool to build this Monsterarmy program. So they have essentially two sites, Monsterenergy.com, which is their corporate site and they post alot of their information and news to and then Monsterarmy is their real community site and, they’ve got upwards of 250,000 members in that community now. So,it’s a really powerful tool for them to be able to aggregate information, feedback, launch new drinks to and at the end of the day they still are sponsoring some of those kids that come through that program.
Andrew: Michael Wackowski in the audience is asking if charging brands is your main source of revenue?
Interviewee: Yes.
Andrew: It’s the only source now right?
Interviewee: Yeah, we still have a handful, 2,000 premium accounts for members…
Interviewee: … premium accounts for members. So, we didn’t fully shut that down because in some cases some members just want to pay. They, in exchange for paying, they get featured placement on the site and it is really geared toward the original sponsorship service. But about 90 plus percent of our revenue comes from the brands and our E-commerce at this point.
Andrew: Wow. What was it like when you decided to stop charging?
Interviewee: It was scary. You know, I think… you’re always turning the knobs on the model and trying to figure out which things work and which things don’t and when you are a start up and you have limited runway to test new things it is nerve racking but, it ended being the right decision for us because it grew us into a completely different scale in terms of membership. You know compared to Facebook it is small, but in our category it is large and it is still a really valuable asset for some media property out there.
Andrew: Monster(??) is a big company; they got a big brand name, why don’t they just do this on their own? They can just use an open-source community system or maybe they can use Ning or something else… they don’t need you… or do they? .. Why? Why do they work with you?
Interviewee: Ya, I think it’s partially our know-how from the space, it’s the core audience that we have on the network and then finally it is been kind of proven time and time again that stand-alone community sites don’t work. It is hard to get someone to go register for another profile that they have to maintain and the repeat visitation, the active user base is so small and minute, it doesn’t end up being a good ROI for the brand. So. we have, at the end of the day we have positioned ourselves as a vertical network for action sports and brands that are going after our audience can have a community within our network. It looks exactly how they want it to, they have their own marketing URLs, and they have a more active base because there are already members here doing things elsewhere on the network. So, it has worked out really well for us in terms of creating these win-win relationships with our customers.
Andrew: How did you introduce it to the audience? Was there any hedging? -Hey guys if it doesn’t work out, we might have to start charging you again – was it anything like that?
Interviewee: No, I think we.. full on went out that we just made sure that we did a good job differentiating what the free service was compared to the premium service because the challenge was making sure we didn’t tick off the people that were paying and saying “well I just paid last year and now I can get all this stuff for free” .. so we slowly introduced it and phased in our free account and kept giving more and more away over time.
Andrew: Ah.. I see, interesting. That’s clever. And at that point did you already have outside funding?
Interviewee: So yea, 2005 was when we got our first round of funding in. And the way it happened was we… I entered a business plan competition here in San Diego through UCSD connect and the San Diego venture group and we ended up going through that whole process, which was another great startup story. Ya know, I submitted our executive summary into a panel of judges who were evaluating these things and as an action sports site … yea know, most of the time the response you get is “what is this” like “ugh .. no”. So we weren’t even selected for the process. I went to the coaching session anyway, I met one of the judges on the panel who happened to be an avid surfer so he got us into the semi-finals and we ended up winning the entire thing, which … three months later helped us… which resulted in our first round of funding.
Andrew: Oh wow, and so that gives you a little bit more confidence and gives you room to take risks I imagine.
Interviewee: Ya, I think so. It’s, ya know, I think like any entrepreneur you just can’t be … you can’t give up. You just have to keep charging and I think my personality… we just don’t take no for an answer so you always have to figure out how to find your way through.
Andrew: All right, I see [inaudible (Moe is)??] linking us to an article on Tech Crunch about how Ning … let me see what it says… Ning apparently is not offering any more free social networks on their platform. Now they are starting to take only paid networks so you have to pay in order to get it… to get a network up and running on Ning.com. I looked at. There are a lot of communities on Ning that are just tumbleweeds. They have, ten – twenty – thirty people on there and nothing else, no conversation and it just falls apart. These guys are experts at creating communities and it still falls apart. And I imagine the reason that they are giving these networks away … that they don’t want to give these networks away for free anymore is because there isn’t enough activity on them to make money off advertising. So they figured if they start charging, only the serious sites will… will remain and it will be a much fewer group. All that is to say how did you get your network to grow? What advice can you give to somebody who has a community, who wants to build one up and needs interaction and more people? What advice can you give them on how to do that?
Interviewee: It is hard because if I was starting one from scratch at this point…
Interviewee: ..point, I don’t know that I would try and do it again the way that we did it. I think there’s, we’ve carved out a niche that enables us to be in the space at all. But it’s true, I mean Facebook is, is the behemoth now, MySpace has kind of reverted back to being a music vertical network, and they’re trying to kind of re-establish themselves as a, as a music destination site for the musicians and the artists to go. But the, like, Ning, it’s, people ask us that all the time, why don’t I just get it, go this for free on Ning? At the time when it was free, I guess. But at the end of the day there’s no audience there, so you, you have a social network that you put all this time into building out, and it’s the same thing as going out and building your own technology to host it on your own, because there’s no audience, like a built in base, that you can launch your community to. That’s like hey, Monster’s now on the network and we can drive all this traffic to ’em because we’re a cool, influential brand. Ning doesn’t have that all, because you’ll have you know, you could go build a fan site for, you know, the Boston Celtics and then your mom can go build one for Ilovemycat.com and it’s, and there’s nothing that really connects any of those communities together, and you’re left trying to do all of the activity driving on your own.
Andrew: I see, all right, I can see how that would help here. Did you do anything though, to encourage conversation or encourage vorality and use that to help grow?
Interviewee: Yeah I think, you know, we, we just tried to make sure that everybody was part of the experience. So even on our site now with the brands, the brands are really positioned as another member of the site, so they’re not positioned really as an advertiser, they have to be an active participant that is providing value to the overall community. So you know in terms of that I think that that’s one of the things that we’ve always differentiated ourself on from a monetization standpoint. Brands are an accepted member of the community, they have, you know we have a really high engagement rate, I think it’s like eighty eight percents of our members have engaged with a brand through one of our features or programs that we’ve created, so it’s, they’re just an accepted part of the community and it’s worked out really well for us.
Andrew: Ok. Lets talk more about revenue?
Interviewee: Yep.
Andrew: How did you know what to charge the brands in the beginning when you brought them in?
Interviewee: It’s not as scientific as you’d think, ’cause we’re not a CPM model, you know we, and just to recap on the model we, brands pay for a profile, they pay for a community, they can add e-commerce to their profile or community, so we can do it through, we have third parties that they can work with to get an integrated store, and those all integrate with their profiles and communities, or we can do it through an affiliate program, like mission juncture hub uplink. And then finally we have the traditional CPM display advertising model, but we actually outsource that to a third party, so we don’t focus on selling the CPM ads. Ours are, we call it more of an integrated advertising and marketing model that’s, you know, kind of service based. And in the beginning, back to my earlier point about the industry and knowing the segment and how the marketers think, we, from day one, were comparing it against print ads. So here’s what you pay in a print magazine and you get virtually nothing out of it and it’s really hard to track. So for the same money, you can do this on here, we’ll share demographic data with you, we’ll show, here’s how we’ll promote you across the network. So we, you know, it was almost….
Andrew: Were you charging them based on how many users or how many eyeballs you were gonna get them? No?
Interviewee: No, not at that point, it was, no…
Andrew: So, how do you compare? It seems like an apples to oranges comparison with print ads.
Interviewee: Yeah, it is, but it’s, but it resonated. Because we could still, you know, we could still educate them on how much traffic we get and compare it to the readership of a particular magazine and the marketing page was a living breathing ad that they could use all the time and it had these services that are associated with it. So it wasn’t as difficult as you would think to really justify and compare. And at the time it was exactly what we had to do because the marketers, all they knew was print. So it was a really easy comparison, it’s like, wait a second, so what I spend in a magazine for one month, I can get six months of advertising and marketing on your site for the same thing? So it’s that’s really how we positioned it in the beginning. We are now testing, we are testing some more performance based models, because we have certain brands that sign up, you know, larger eye wear companies like Spyoptic or Scott USA, will get way more activity than a brand new start up eye wear company. And …
Andrew: Is there a train, by the way, going through your office right now?
Interviewee: Yeah, we’re, we’re by the Miramar Air Force Base so every once in a while they fly overhead.
Andrew: Oh wow. I was kidding, but, but I hear now where the noise comes from.
Interviewee: Is that better?
Andrew: Yeah, it’s fine.
Andrew: If I got tech trouble, you could have all kinds of noise in the background too. Lets see, … CNBC if anyone out there is watching, I’m telling you, just a little bit more work and I’ll be prepared to be in your studio. No more of this Skype, I’m not, I’m not using Skype because I love it – I am using it because it is the best way [inaudible] CNBC wants to invite me in to do a show, I know Donny Deutsch, or I think Donny Deutsch isn’t doing his show anymore -I could be the new Donny Deutsch. And believe me, I don’t even look as bad as I look on this camera. I’ve got this little tiny eyesight camera in my computer and no lighting here. Imagine with good lighting how good I would look. I would be ready to take over! CNBC contact me, mixergy.com/contact. And yes Pedro, I will charge them 25 million for a year, if that is what you are asking.
Interviewee: [Laughing]
Andrew: [Laughing] You said also, early on, you decided that you guys were going to charge. Why now? Why didn’t you say we are going to build this up as much as possible then we will figure out advertising in the future?
Interviewee: We didn’t have that luxury. We started it with the savings that we had built up between the two of us, which obviously wasn’t a lot of money – being right out of college. So, we didn’t have that luxury to raise some funds that gave us enough runway to build communities so we were forced to figure out the revenue model from day one. And then I think it helped us and it also hurt us. Because when we were out discussing funding with DC’s(??) and we’ve done that whole dog and pony show and you know, the first thing out of their mouth is “wow, you guys have an amazing monetizing strategy – its great – but the audience isn’t big enough”. So, because we had been around, because we were making money it was too easy to figure out, ya know, how big it could get or what ramp it was on. So we, so … as that… that’s one of the reasons why and it is just a combination of things of why we have just been on this path of building a real business.
Andrew: OK, what else do we need to know about revenue before we move on to the last topic?
Interviewee: Ya know, I think, ya know, the one metric that we always share with our investors and people that are interested in … from a marketing perspective because of the way everything we just talked about for the last half-hour. The way that we have developed our membership strategy growth with the monetization strategy from a revenue standpoint … we’ve got a great story and the sense that it costs about a dime, ten cents, to attract a new member to the site and we are monetizing at a rate of almost four bucks per member, per year. So, its .. ya know, that’s a 40 X return on what we are actually investing to get new members to come to the site. So it’s been a really interesting way that we have done it. And I think it people can figure out ways to do it in whatever categories they are passionate about there is opportunities to build these vertical networks and figure out ways to monetize pretty easily.
Andrew: When you say ten cents per member is what it cost you… that’s ten cents spent where… on advertising?
Interviewee: Yes, so we have a limited amount of collateral, stickers, banners and some travel to events that we do. So, when you add it all up it is pennies compared to what other brands are spending to market their products.
Andrew: Ok, alright, and we know where the four bucks comes from, that comes from the sponsors.
Interviewee: Yup.
Andrew: Alright, name change. Why did you make that first change from sponsor-house?
Interviewee: Ya, so we started realizing early on that … ya know we got to about 50,000 members in 2006 and we were starting to outgrow the sponsorship model. Because brands were getting a little bit finicky because they didn’t want all these kids to think that they were going to be able to get sponsored. We had people registering for the network that weren’t necessarily worthy of sponsership and they were getting sponsored because of the way the brands were utilizing it as a way to kind of sell discounted product –if you will. So we made a decision back then that we wanted to be more than just sponsorship and expand out of the sponsorship service model and we ended up expanding the model to insider programs, adding the member to member interactions, and then we really set our sites on being an action sports social network and where we had services that were available to the members and the brands. So we went with Looped, and we got our trademark approved and then as we started getting some press attention we ended up getting into a trademark dispute with another company up in Silicon Valley. And at the end of the day, its … I don’t want to say it’s the best thing that has every happened to us but it’s a really good thing…
Andrew: So you called yourself Looped, the idea is that your site is the place to get in the loop….
Interviewee: Yup.
Andrew: and there is another company called… is it called L-O-O-P-T… is there name?
Interviewee: Correct
Andrew: Ok, so you were L-O-O-P-E-D, they’re L-O-O-P-T… I see how
Andrew :I see how they’re similar, who had the name first?
Interviewee :So, the funny thing, we both had our marks approved in the same week, if you look on the USPTO, we were in completely different categories, and you know, I can’t talk to you much about it, but it’s… at the end of the day it all worked out well.
Andrew :I’ll be careful not to ask things that we’re not supposed to talk about.
Interviewee :Sure
Andrew :But, who sued who?
Interviewee :We were the defendant.
Andrew :Ok.
Andrew :Alright. So, you’re not building a business. You have funding at that point, right?
Interviewee :Yep.
Andrew :You have funding, you have an audience, you have sponsors, then, you’re under attack. whether they’re right or wrong to sue you, it’s out of the scope of this interview. But to understand that an entrepreneur who has a lot to worry about can deal with a law suit, we can all understand that.
Interviewee :Yep.
Andrew :What do you do? How do you respond to that?
Interviewee :It was challenging, because we had closed around a capitol, literally it was a month or two months before the lawsuit happened. Obviously that pool of people that just came in is very frustrated that this has happened and it created challenges there. More than anything it was just a distraction, you know and instead of focusing our time on how to refine the model and how to refine the site and the product, we were trying to figure out who we were going to be next year and are we going to change our name? And so just the process of going back and forth and it ended up being, i think, a nine month process, and then we finally settled at the end of 2008, and you know just to say we settled favorably and I’m still on good terms with Sam, the CEO. It’s not like there’s any hard feelings whatsoever. It’s unfortunate that we both had to go through it, they’re trying to protect themselves, we’re trying to protect ourselves.
Andrew :Through it all though, what happened to the size of your audience as you were battling?
Interviewee :As we were battling, we grew from 200,000 members to 500,000 members.
Andrew :Over how long?
Interviewee :It was about 18 months.
Andrew :How did you do that, why did you grow so much over that period?
Interviewee :To be honest, it was all a blur. It was, I think, all those pieces that were put in place it was just happening on their own. I mean, we were getting some promotion and some visibility as looped, and we, during the dispute we were still aggressively promoting ourselves, but then as soon as we settled, which was over a year ago, we stopped promoting ourselves, and that began a whole new process that we began to work on. So we were growing, we had all of our partnerships in place, we had all of our links on all of our partner sites, and all the activities that were already going on and just kind of naturally happening, and when the settlement happened, then we immediately had to kind of, recalibrate and say, ok what are we going to do now in terms of a name and how are we going to go about it? So we spent a good three months trying to figure how, how do we want to go about picking a name? And anyone who’s been out trying to find a url lately, it’s virtually impossible to find something decent and then following up with it’s almost impossible to find something with clearance now. So we set out, and we’re like, why don’t we just be super open with our whole community? We’ll tell every brand what’s going on and that we’re going to have to change and that it sucks and you know, we feel terrible that we’re putting them through it as a partner and then we’ll get the members to embrace it by helping us pick the name. So we brought in our new director of marketing and he’s a pretty strong brand guy, he worked at one of the energy drink companies before and understood the whole lifestyle marketing aspect of how things should be done. So we started with focus groups and surveys and opinion polls and all these different things. And starting from scratch what members thought our network was all about. And this theme kept coming up, over and over and was a term in action sports, I want to get hooked up. And kids want to feel like they’re hooked up, like they’ve got the inside track to the pro athletes, the brands, the each other, so we ended up, we seated hookit.com in there and it immediately shot to the top and then people got it immediately, and it’s like ahh, i can get hooked up. So it ended up clearing the trademark clearance and we re branded and relaunched in January and it’s been a really good experience for us.
Andrew :Alright, but let’s, that’s great. But I’ve got to understand even more. We’ve now gone through three different names in the course of about two years or so, right?
Interviewee :Yep
Andrew :And, alot of your audience knows you from meeting you at events when you were sponsor house, you then go to Loopt, and so I imagine, some of them get confused. As Loopt, you continue getting media from your media partners so people start knowing you as Loopt, and then you end up as Hook It. That seems like such a confusing blur, that you’d lose audience. How do you grow during that period? What did you do?
Andrew: such a confusing blur that you loose audience, how do you grow during that period? What did you do? Lets start with [inaudible] if we can talk about every bit of growth and where it came from. Maybe we can find out where you got the most growth?
Interviewee: Yea, it wasn’t pretty and it’s not preferred path to end up at a brand name. The… but I think … and you are referring to really the last 18 months of where the growth came from?
Andrew: Sure, yea, where that big growth, you about doubled your audience.
Interviewee: Yea, so I think it was… we did a couple kind of strategic partnerships with… our partnership with ESPN happened a year and ago and we have … we host the official online community for the XGames and we get some benefits on XGames.com and the ESPN/Action site. Fuel TV is a popular show, broadcast in 30 million homes and….
Andrew: I see, so you are partnering up with all these big brands. Their brands are at the forefront, people don’t care that the guy underneath or the guy that is backing up ESPN has a name change. They just care that ESPN is still ESPN.
Interviewee: Yea so it is… I can’t say it wasn’t an inconvenience and it wasn’t frustrating for some of the members because we heard all sides of it. At the end of the day, we just… we put ourselves out there that… we know that this is the most annoying and inconvenience that we could possibly put on you guys but we have to do it – here is why and help us find a new name. It ended up having an adverse effect where… oh I’m sorry… a very positive effect where people felt even more connected to the network that the didn’t give a heck what the name was. Like they could have been anything, they’d still use it because they knew that the favorite brands were on there. They knew that all these other programs and services were happening on there and… So, we did get a lot of that too but people were like call it whatever you want type thing. So, I think as a community site, you have to be willing to embrace the community to help and guide the business. So, I don’t know if that answers your question but it was … we leveraged partnerships, we were super open with everybody involved and it just ended up being a great thing, that we now [inaudible] get into it, not completely unscathed but we came out of it much stronger then when we headed into it.
Andrew: Alright, a few people in the audience are saying… actually lets read one of them. James F is saying “am I missing something, but when I look at Compete.com for all three domains; Sponsor-house, Looped and Hookit it still shows huge ten times growth in traffic between January and February, from 3,000 to 90,000 unique, how?” It is more than ten times… How did, [inaudible (that big of)??] growth happen between January and February?
Interviewee: Yea, those sites are challenging for me because its, ya know our Google Analytics were, ya know, 600,000 uniques and 1.2 million visits every month. So, the… and it is tricky because we have had three URLs in the mix over the past couple years, so…
Andrew: But they are taking them all into account and Dave [inaudible Cancannon(??)] saying that he is seeing about the same thing happening on Alexa. What happened between January and February, how did you get such a big spike? What ever the spike is, it is a big spike.
Interviewee: Yea and it’s and you are … and it is …. talking about this year, right? January – February this year?
Andrew: I’m assuming, guys correct us if we are wrong, but I am assuming you are talking about this year. So, was there a big spike this year?
Interviewee: It has been pretty consistent, I mean… we are trending upwards but it wasn’t…. ya know, our internal metrics don’t show a 30 X increase -which is what they see on there from 3 to 90.
Andrew: Do you see a 10 X increase?
Interviewee: Yes, so… we’ve doubled in traffic since Q4 of last year. And it is on a strong upward trend right now because we hadn’t marketed the site for almost a year until we got into the name change and now we’ve got all our media partnerships in place again. We’ve got print ads hitting … all of our brand partners have updated their links and we are now focusing on search and all the other elements again.
Andrew: I see, ok, alright… well I think that covers all the questions that I have. Is there anything else that you want to say, any other advice that you want to give entrepreneurs?
Interviewee: Ya know, I think you just have to work hard and try to work as smart as you can and you can’t be fazed by anythings that come up and get thrown at you because it is … ya know a lot of stuff has happened to us over the years, we’ve stuck it out. It has been 9 years since we started Sponsor-house and we are still having an amazing time and we’ve built a nice size business that we think still has a lot of potential to go even further and … you just got to stick it out and be ready for anything
Andrew: Lets sum it up a little bit more. I want to make sure that we give people a lot of useful information, so lets sum up the useful information we gave them today. First, if you got nothing else just get in a bus or get in an RV
Andrew: First, if you’ve got nothing else, just get in a bus or an RV. Travel the country. Meet people one on one. It’s an inexpensive way of bringing people in. It’s not the most efficient way to do it, but it also adds a lot of credibility and that’s the first thing. Second thing is…
Interviewee: Just to add to that too, it’s more than just getting in the motor home and going. It’s a commitment. If you’re going to do something, just commit and go do it, and that’s what we did.
Andrew: OK. And then partnerships, I’m hearing that a lot. You use partnerships to take better and more advantage of the time you’re spending out on the road. And, you’ve partnered up with media companies that were able to give you free traffic, free branding, free articles.
Interviewee: Yep.
Andrew: What else did we learn? We learned that you’ve gotta want revenue in order to get revenue. You guys made it a focus early on because you had to and that helped.
Interviewee: Yep.
Andrew: We heard about partnering actually throughout. We heard about partnering and deputizing these brands and making them your evangelists, getting them to bring people in.
Interviewee: Yep.
Andrew: I think those are the big ones. What do you guys think? Oh, Mike B. keeps saying that you want to give away shwag to him, or that you’re trying to tell me that you want to give away shwag to my audience. I’m not sure that I want to get involved. If you want to do anything like that, let me know. I’m not sure that I want to get involved in giving stuff out like that especially not if I’m…from Buenos Aires.
Interviewee: Shwag to your audience?
Andrew: Sorry?
Interviewee: I’m sorry. Who? He wants shwag?
Andrew: I don’t know if he did, if he wants shwag for himself. Maybe I should be ignoring this comment. He’s saying that you want to give shwag away to my audience. I’m guessing that he wants a t-shirt or something. Tell you what, Mike, wherever you are…
Interviewee: Send an email and I’ll get him something.
Andrew: You’re gonna get him something?
Interviewee: Yeah. For sure.
Andrew: I was gonna say that I’ll get him something when I get back in the U.S. and have a little bit more time. OK, there you go, Mike B., it pays to ask. That’s the last lesson we learned in this interview. Scott, thank you very much. Thanks for spending so much time with me here in the interview and the pre-interview. Thanks for dealing with all the technology issues.
And we’re all gonna check out Hookit.com because we’re all gonna want to figure out where all these millions in revenue and all these hundreds of thousands of users are coming from for ourselves. So thanks. Guys, check out the site.
Interviewee: Thanks…I appreciate the opportunity.
Andrew: Thank you. All right, thank you all. Bye.
This program was sponsored by
Wufoo– The easy way to add elegant forms and surveys to your site. (I use them on my site’s contact page. When we got married Olivia and I used Wufoo on our wedding web site to collect RSVPs because their forms are beautiful.)
Shopify – Thousands of stores are built using Shopify because it’s easy to set up and manage. Tim Ferriss recently announced a contest that offers $100,000 prize for the highest grossing store. Go start your store now.
Grasshopper – Entrepreneurs (like me) love and use Grasshopper because it offers all the features of the big, expensive phone systems (like multiple extensions, music on hold and call forwarding) but it works with any phone and starts at only $9.95 a month.
[This interview was suggested by Espree Devora, “the girl who gets it done.”]
