Research
Sunday, September 23, 2007

Posted by gzleus 11:51 PM 1 comments Links to this post    

Telling a Good Story

You may have the greatest company in the world. But if you don't know how to convey that to customers, you may as well not exist.

Every entrepreneur believes his or her business is remarkable. As I work with clients to uncover and determine brand strategies, they're always very eager to tell me about how special their business is. Most of the time, I reply by saying, "You're right. You definitely have something unique to offer, and have a good operations system in place to deliver what you promise to customers."

"Then why," they ask, "are we struggling just to stay even, let alone grow?"

"Perhaps," I respond, "you're not telling a good enough story."

When it comes to marketing your business in a powerful and meaningful way, you need to give serious thought to that which makes you stand out in a way no one else can -- your brand story. Consider some of the most successful marketers in the small-business landscape today, and check out the stories they're telling:

The J. Peterman Company. Yes, there really is a J. Peterman, and the reason behind the clothing company's success can be found in a quote from J. Peterman himself. "People want things that are hard to find. Things that have romance, but a factual romance, about them." You're not buying an ordinary polka-dot skirt -- you're strutting down the Boulevard St-Germain in Paris. The man's Estancia shirt tells a tale of wealth and polo ponies in Argentina. J. Peterman weaves a tale around each and every piece of clothing that is very compelling. Customers aren't purchasing outerwear; they're buying into a dream of adventure.

Columbia Sportswear. In the mid-1970s, Columbia CEO Gert Boyle knew it was time for a change in marketing. "I always thought our advertising was kind of weird, with the 'engineered' and all that. Because the average person doesn't care anything about having something engineered. People care about having it fit well." That was the beginning of Columbia's "Tough Mother" campaign. Customers are convinced of the sturdiness of Columbia clothing, not only because of engineering, but Gert's stories about what she herself puts a piece of clothing through before selling it to the public. And what better guinea pig that her son, Tim? Their most famous ad showed Tim (now the company's CEO) submitting to a run through the car wash to test a Columbia parka, at his mother's behest. Today, Columbia Sportwear is a $1.2 billion company.

One Hour Heating and Air Conditioning. What is the biggest complaint about repair people? You have to wait around for hours and they're always late (that is, if they even show up). One Hour Heating and Air Conditioning took that bad rap and turned it on its ear. They don't market themselves as having "timely service." They actually guarantee "Always On Time or You Don't Pay a Dime." And they mean it. If the repairperson is not there within an hour of your appointed time, you pay nothing. Quite a powerful story, and One Hour can do it, because they have the operations system in place to back up their guarantee. It is now one of the fastest-growing franchises in the United States today.

If you had to tell you story, what would it be? Would it have the right balance of fantasy, whimsy and fact? When creating your story, remember to:

Be authentic. The examples above are success stories because they draw from the "heart" of the company -- J. Peterman's love for storytelling, Gert Boyle's tough nature, and One Hour's commitment to saving the customer time. Anyone can make up a story, but the customer's innate sense of authenticity is what transforms a story into a brand message. Spend a good deal of time looking back at your history and personal values in determining why you're even in the business you're in. What's your passion, and how can you tell customers about it?

Be consistent. It's not enough just to tell a story; you must live it everyday through everything you do. I've written about the fact that every touch point of your business is a marketing opportunity. Columbia Sportswear wouldn't be the success it is today if the company talked about toughness, and then the zippers on their parkas disintegrated after a week. One Hour knew it had to have its operations structure in place to deliver on its promise of timeliness. From message to delivery to customer service, every element of your company has to align with your story.

The companies we call "super brands" use their unique (and sometimes personal) story to connect with customers in a way that makes them feel special; customers feel that they're in-the-know about who the brand is and what it offers. Do your customers really know you? And does the message get reinforced in everything you do? You can tell, and deliver on, a good story, even on the smallest of marketing budgets. It's a remarkable marketing strategy for a remarkable business -- yours.

Posted by gzleus 6:26 PM 0 comments Links to this post    

Enter Agloco

Analysis: AGLOCO

This analysis is centered around the amount of personal value an AGLOCO user could get, with a special focus on a user who is actively referring new users to AGLOCO. Material used included the AGLOCO website (membership agreement, privacy policy, FAQs and general information pages). management interviews, critical blog postings concerning AGLOCO, internet advertising and commerce data, valuations of other Internet communities and the business model economics of Google, Yahoo, MySpace, You Tube, etc.

Conclusions:

The valuation conclusions are based on AGLOCO reaching two million users in a two year time span:

• A user who has no referrals should receive ownership in AGLOCO worth on average about $150. (plus monthly cash distributions)
• The average value of an AGLOCO user’s referral network should be $30 each in ownership shares plus the referrer’s share of monthly cash distribution.
• The average AGLOCO direct referral should be worth in excess of $3,000 each (see example below for details)
• The analysis also shows a range of monthly cash distributions of between $5 and $15 a month per user.
• The AGLOCO business model looks theoretically sound – (assuming they get to a decent size quickly - at least 500,000 users within nine months to a year)

The cost of recruiting new users to AGLOCO can vary. For many users it is simply sending an email to friends or contacts – or talking to them directly. For others it is blog postings or website notices and for some users paid ads on search engines. The privacy and anti-spam policies of AGLOCO and the track record on these issues of Ray Everett-Church (AGLOCO’s Chief Privacy Officer) makes the risk of getting spam, pop ups and other trash as a user a non issue.

In general, given the low level of work needed to recruit new users to AGLOCO and the zero cost in terms of money, the cost/benefit ratio of recruiting new users to AGLOCO seems to be highly favorable. Because there is no limit as to the number of referrals a user can recruit, the upper end on this opportunity could be high (which means it can be worth putting in the effort to promote actively). This analysis was done two weeks after AGLOCO launched and there have been user postings noting referral networks of 4,000 and 5,000 already. At $30 value each this would be $120,000 to $150,000 so far, which means AGLOCO could make some serious recruiting users a high return on their efforts.

Referral Example:

• A user recruits ten people (10 direct referrals) –
• If on average, each direct referral recruits 3 new users (some will recruit many and some none, but the average is 3 for each level of your network) -- Value of 10 referrals $300
• The user would have 30 indirect users one person removed. – Value of 30 referrals $900
• The user would have 90 indirect users two people removed -- Value of 90 referrals $2,700
• The user would have 270 indirect users three people removed -- Value of 270 referrals $8,100
• The user would have 810 indirect users four people removed -- Value of 810 referrals $24,300
• Total referrals the user would have in the network would be 1,210.

• At an average value of $30 for each referral the total value would be $36,300

It should be noted that the AGLOCO referral system achieves two tasks:

• AGLOCO saves all the costs of marketing its services to potential new users. This is sometimes a major cost many Internet companies face. Other network companies like MySpace, Skype and YouTube also achieve this goal of users telling users, but in those cases users do not benefit in the value created by the growth of the user base.
• Users who help build the AGLOCO network are financially rewarded for doing so. Because most the value of network oriented companies is based on the size of the network, it isAGLOCO’s stated goal that the people building the network share in the value they help create.

Detailed Analysis:

Business model:

Three major aspects of the business were analyzed; the people who drive it, the revenues and the expenses.

1. People
   
   • Management ability - – for a start up AGLOCO seems to be pretty good as it has combined experience with raw talent:
     
     • The raw talent – is in the form of current Stanford MBAs. AGLOCO is a revenue driven business model – passion and aggressiveness are good attributes to have for part of the team. The average age of a Stanford MBA graduate is 28 years old – these are not just passionate and aggressive, they come with a few years of experience behind them as well.
     • The experience – AGLOCO has some – it may need more. Jorgensen was CEO of AllAdvantage, Ray Everett-Church was the Chief Privacy Officer there and Sam Flax was the Chief Architect for technology at AllAdvantage. AllAdvantage grew to over 10 million users and over $30 million in first year revenues. A good fit for on point experience.
   • Management reliability - The reality of the internet is such that every new entity should be investigated from this perspective. Below, is why AGLOCO should not raise any Internet scam worries:
     
     • There are over 50 people listed on the about page of AGLOCO.
       • The ‘development team’ has eight Stanford MBA students – not the type of people who would risk their pedigrees and reputations.
       • The ‘development’ team includes two veterans Ray Everett-Church and Jim Jorgensen – both of who are well known enough to have Wikipedia bios.
       • The ‘contributors’ include a couple of easy to spot people like; Gil Penchina, CEO of Wikia, Zaw Thet, CEO of 4info and Valerie Williamson a VP the Open Source group OSTG plus a sprinkling of major firm law partners and venture capitalists – not scam types.
     • Press interviews – some of the founders have been interviewed by major bloggers (VentureBeat, John Chow, GigaOM, and Red Herring). AGLOCO’s management is out front and visible.
2. Revenue sources– this is the core of the business model. Some revenue sources are very dependant on the size of the user base. Here are the major ones:
   • Search revenue – AGLOCO can become a significant source of search volume. Google gets 40% of its ad traffic from third parties (the biggest one being AOL whom Google pays an average of $0.10 per search). The average Internet user searches over 35 times a month. AGLOCO should be able to capture virtually all search revenue and its users are more likely to be active Internet types (given that the active users are the early adopters who will be the first to find AGLOCO’s proposition appealing ) – When AGLOCO is of sufficient market size, its search revenue should grow to between $30 and $50+ per user per year
     
   • Advertising – the AGLOCO toolbar software is stated to contain a thirty second targeted text ad:
     • The targeting is further defined as being related to the current site a user is on or based on past user behavior or demographic information. AGLOCO also has very granular location information with city and postal code for users. AGLOCO should be able to take advantage of Google, MSN or Yahoo’s ad engines immediately (AdSense, adCenter and ‘Panama’) and during the next two years add a local ad overlay.
     • AGLOCO’s available monthly ad inventory should be somewhere between 600 and 1,800 ads a month per user (1 ad per 30 seconds, 120 ads per hour and 600 ads per month given 5 hours or 1800 ads given the more likely scenario of 15 hours surfing per month). With 100% of these ads being available for ‘keyword’ targeting as it now exists. This is substantially more inventory than leaders Yahoo or AOL have and this will definitely increase the attractiveness of the AGLOCO user community for advertisers.

   It is difficult to estimate what ad revenue per user will be two years from now. It should start low and grow substantially over time. A quick starting place for analysis might be a $10 to $25 run rate in this period and much higher later. Targeted keyword CPC rates vary dramatically with Google and Yahoo both averaging over $0.50 per click in search (non-search ads are substantially lower, but do not have AGLOCO multiple targeting.)

   • Commissions - Sales commissions (and affiliate fees) should be a substantial source of revenue for AGLOCO. Almost every online merchant pays them. Link Share and Commission Junction each have thousands of companies in affiliate programs. Sales commission varies from quite low 2% on some airline tickets to nearly 50% on some financial transactions, and is generally in the 10% to 15% range.. Spending per active Internet adult users (one on line in excess of five hours a month) is estimated at more than $2,000 a year – twice as much as the $1,000 overall online spending average.) . For valuation at the end of year two, an estimate between $50 to $150 per user in commissions was used
     
   • Distribution – The distribution of products and services may become the largest source of AGLOCO revenue. This revenue source is different than the sales commissions since AGLOCO states it would be a direct distribution source (or a direct signup source). There are four basic areas of distribution:
     • AGLOCO can distribute to its members products and services ranging from new credit cards to home loans and to computers or software. Credit card and loan revenue can vary from $50 to $500. Online software distribution should be a normal AGLOCO activity (for example backup software should earn at least AGLOCO $1 a month.)
     • Upgrades on paid-for or free software – This includes payments from companies like Adobe which will pay for each time a user upgrades free program like Flash or upgrades of paid for software like Norton anti-virus.
     • Referral fees of online communities – This includes payments for new active users. Examples include: eBay ($22), Skype (a % of anything spent), eFax ($10 -$50) –there are at least one hundred of these
     • Offline large buying group – AGLOCO can act as a large buying group. (Example; referral fees on car sales are anywhere from $200 to over $1000. Using a $400 average and a one-in-ten to one-in-twenty annual user participation rate (5% to 10%), then cars alone will be a $20 to $40 per year source of revenue for the entire user base. Similar but smaller sources exist in other products.
   • An annualized distribution revenue amount of $100 a year per user by the end of AGLOCO’s second year should be a reasonable estimate.

   Total Revenue – With the above detailed analysis, the total revenue would be estimated to be between $200 and $300 per user – (annual revenue run rate at the end of year two). Below is a chart showing potential revenue growth per user by category over a two year period.

   
   

   
   

   
   
   
3. Expenses – operating costs seem to be dominated by:
   • Servers and bandwidth – since most of the communications with users are coming from search company servers and ad network servers it would seem should be a relatively small amount.
   • Sales and business development – passionate MBAs etc –while expensive people, this should still be a low cost as a percentage of total revenue
   • Customer services – lots of users, lots of questions – AGLOCO has started by using teams in India, China and the Philippines. Most communication is email so language should not be a significant problem
   • Technology - should be much simpler than a Yahoo or Google as AGLOCO is not building much (a toolbar is a known and simple technology platform.)
   • General and administrative costs need to include processing user payments (PayPal and others make this cheaper) and the management company fee of 10%

A reasonable estimate two years out (assuming 2 to 3 million AGLOCO users) would be a 20% to 30% cost structure - as a % of gross revenue

Valuation:

To make this a bit stable and understandable, the time for valuation chosen was the end of year two for AGLOCO (approximately December 2008) and with AGLOCO having two million or more active users at that time. Also the projected revenue was reduce from the $200 to $300 per user range to $100 (again to be conservative.)

• Given market comparisons,; a growing community of two million users with revenue above $100 per user and heading toward $200, $300 or $400 per user and a profit margin of 70% prior to cash distributions to users should have a sizeable value, anywhere from $200 to $1,000 per user (depends on the rate of growth of users, rate of growth of per user revenues. With very little per user revenue Facebook valuation was near the $200 amount this summer. MySpace had very little revenue and was losing money when sold and YouTube was similar.
  

• With a 15% to 20% net profit margin (after cash distributions to users), annual profits of $15 to $40 per user would justify a value of at least $300 per user.

AGLOCO is in the advertising and sale/distribution business – somewhat similar gross profits of Yahoo and Google. Yahoo and Google both have valuations exceeding 35 times earnings. A 35 times profit per user would value AGLOCO at $350 to$1,400 per user. Yahoo has a value of 6 times revenue and Google has a value of 16 times revenue. Even at the lower estimate of $100 of annualized revenue per user at the end of the second year, the corresponding value of AGLOCO would be $600 per user.

• With a $300 per user valuation and 2 million users, AGLOCO would have a total valuation of $600 million. A good range to be in for a fairly new public company.
  
• Per the AGLOCO website statements, about half of the AGLOCO ownership is given directly to active users and about half is given to the referrers who build up the network. With a $300 per user valuation the average each regular user would have been given $150 worth of ownership in AGLOCO (of course people who started earlier would have more than average and people who started later less.)).
  

• That also means that the referrers would (on average) receive $150 of shares for each AGLOCO user – again with the early referrals providing more. There are five levels of referrals in the AGLOCO user referral system, so the $150 is split equally between five levels of referrers, $30 each.

Posted by gzleus 11:57 AM 1 comments Links to this post