There is no upside to modesty in American business. I had to aspire to be the next eBay, the next Martha Stewart, the next Priceline.com; and the paltry sum of $50,000 announced that I had no such ambitions at all. I was small potatoes.
How I Started a DotCom for Dogs
In the make-believe world of Internet start-ups, I learned that it might be better to be a novelist than a journalist.
Last spring, I was restless. My job was safe and predictable. And so, on a whim, I decided to start a dot-com in my spare time. In the olden days, I might have built a model airplane, or retiled the bathroom floor, or written an inspirational book. But this is the Internet age; and thus, I set out to build a Web site.
At dinner parties I'd attended, everyone at the table kept coming up with bright ideas for dot-coms, and this one was mine: I'd post a complete list of dog runs in New York; track down dog-friendly cafes and hotels; rate pet-supply stores; maintain a message board for dog owners. My Web site would be a community of city dog owners. It would be called "urbanhound: the city dog's ultimate survival guide."
What started as a sideline would become a full-time obsession. The transition wasn't easy: I've never run a company, and I don't have an M.B.A. A journalist by profession and temperament, I'm the sort of person who wants her facts and figures to be verifiable, a quality that doesn't serve me well in a world of make-believe—the Internet world, that is. There's another problem: in journalism, good articles tend to be built on conflicting points of view, on tension. That's not true of good companies, which need a single vision. A dozen venture capitalists, investors and friends have studied my business plan for urbanhound; so far, I've been offered 12 different road maps. Sometimes this lack of consensus gives me vertigo and makes me long for my old job in publishing. Then I think: if there are no set rules in this game, if it's a lottery, then my chances are as good as anyone's.
Phase 1: My life as a data entry clerk.
In my original vision for urbanhound.com, I intended to do everything myself. And that's how I set out early last March, with a manual called "Creating Web Pages for Dummies." Sitting at my blueberry iMac in what was once the dining room, I taught myself hypertext markup language, or HTML, the programming code of Web developers. From Internet message boards, I got tips from Web masters: make sure your Web pages are no longer than four clicks of the scroll bar; use only a white or black background; avoid Java Script; don't run more than two banner ads a page. I also read up on moneymaking schemes ("The Internet offers a unique opportunity that never existed before. . . . The rewards are HUGE!") and about marketing scams ("Learn how to fool the search engines and directories and get listed on top. . . . It's a gold mine!"). Money could be made on the Internet without resorting to pornography, I was assured by testimonials. ("I used these methods . . . and for three days my phones have been ringing off the hook! I sold over $3,500 in goods and services in three days!") My family was puzzled but supportive. "How fun!" remarked my youngest sister. "It's so artsy-craftsy!"
What I had in mind when I started was Yahoo's home page: a lot of text; no-frills graphics. Surely I could design and build something that uncomplicated all by myself. By the end of Week 2 at the blueberry iMac, however, I got anxious. Coding HTML was tedious; I felt like a data-entry clerk. As for my home page, it was ugly. Truth dawned: urbanhound.com was destined to be one more 10th-rate, underdeveloped, artsy-craftsy Internet site: an online version of a little boutique selling little homemade handbags.
At the same time, I began to imagine that urbanhound done properly could actually make money. Last year, Americans spent an estimated $25 billion on pet supplies, more than they spent on toys for children. Despite that, dog owners are underserved by the media. Sentimental and stuck in the past, magazines like Dog Fancy and Dog World run articles like "Is Your Dog a Person From Your Past?" How could such fare possibly appeal to sophisticated New York dog owners, the sorts of people who send their pets off to dog spas, acupuncturists and canine summer camps?
That there was a market for urbanhound, I had no doubt. But was it a business? I called a friend who works for a venture capital firm. "You have what sounds like a good idea," he said, after listening carefully; but good ideas alone count for very little. In the Internet game, he warned me, small players can be knocked off the screen by big players who can afford to have their ideas properly executed.
I began pitching my dot-com idea to a few imaginative friends and family members. The short proposal began, "urbanhound: the city dog's ultimate survival guide intends to be the definitive source of information for dog owners in major metropolitan areas." With only $50,000, I promised those people, urbanhound could get off the ground.
Phase 2: 50 grand is small potatoes.
Why $50,000? How I arrived at that neat and modest figure, I can't imagine. It seemed reasonable at the time, and I'm a cautious sort, and thrifty. To the people who read my proposal, however, the amount was self-defeating. "No one will take you seriously with that $50,000 figure," I was told. "You need to give potential investors something to dream about." There is no upside to modesty in American business. I had to aspire to be the next eBay, the next Martha Stewart, the next Priceline.com; and the paltry sum of $50,000 announced that I had no such ambitions at all. I was small potatoes.
Fair enough. If potential investors wanted me to think big, I'd ask for $100,000. That meant coming up with expansion plans: I'd launch in New York, then move into Boston, San Francisco, Chicago, Los Angeles, London and many points east. At the same time, urbanhound had to be more than just an Internet company, I learned. Venture capitalists were wary and increasingly picky. A Web site that depended on advertising was out of the question: venture capitalists were way down on that model; it was out of date. Now a company's plan had to be "holistic," a word used effortlessly by my older brother, a leverage-buyout expert.
My ever-more-complex, ever-more-confident business plan now read, holistically: "The Company's aim is to establish urbanhound as the leading multimedia brand for urban dog owners, offering books, television and e-commerce projects." Seven different revenue streams were proposed. I would publish a series of dog guidebooks based on the Web site content. I would start an online bookstore devoted to dogs, taking a cut of sales routed through Amazon.com. I'd sell dog accessories like raincoats and rubber boots; and I'd make money from local advertising.
Of all the things I undertook to get urbanhound launched, the hardest was writing a business plan. The numbers left me reeling. I couldn't stand the imprecision, the guesswork. First I had to reckon the number of dog owners in each city. Then I had to find out how many of those dog owners used the Internet. Then I had to guess what percentage of those people would visit urbanhound each month. Was it going to be 2 percent? Seven percent? Fifteen percent? How could I possibly come up with an answer? How could I know what percentage of Internet-using dog owners in, say, Milwaukee would visit urbanhound in the third quarter of 2003?
It got worse, the imaginary numbers game. What percentage of my visitors would be signing up for the urbanhound newsletter? How many would buy rhinestone dog collars on my site? How much would be spent on each purchase? In order to be featured prominently on urbanhound, how much would a corporate sponsor spend? How much money could I make syndicating content? How many urbanhound guidebooks could I sell?
Boldly I filled in every blank. My new, ambitious business plan was fairly well received by friends and family. It was late March; the tech stock market had not yet crashed; the dot-com bubble was still floating toward the heavens. In exchange for their $100,000, I gave away 10 percent of urbanhound, which meant that, on a piece of paper, the company was worth $1 million. How was that heady valuation established? Haphazardly. On Garage.com, a Web site that acts as a matchmaker for start-ups and small investors, I learned that early-stage start-ups have historically been valued at about $3.5 million "pre-money" (before they get financed, in other words). In Business 2.0 magazine, I read that an average first-round, pre-money valuation is between $1 million and $15 million, with most between $5 million and $12 million. In other words, urbanhound's paper worth could be practically anything. To ward off hubris, I aimed for the low end.
For me, back then, $100,000 seemed like an enormous sum. I didn't need an Aeron chair in my office; I didn't even need a real office; the company could be run virtually, from my iMac with its dial-up modem. With the help of a few freelance reporters, I'd create the content myself. I was a journalist, after all. My one significant expense would be a professional developer for urbanhound.com. So I started calling developers who had built Web sites I admired.
One of the first I called was Concrete Media, the firm that designed Beliefnet, a multifaith religious portal that looks very much like what I had in mind for urbanhound. The site is simple and utilitarian, with a generous amount of text and few graphics. Its message boards are well organized. It offers a place where users can post memorials to their loved ones. It lets you search for a church, mosque or synagogue near you. And it sells related products in its store (among the offerings, "Yoga Zone: Music for Meditation" and "Our Deepest Sympathy Bouquet").
Over the phone, I told an executive at Concrete Media about my vision for urbanhound, adding that my budget to develop a Web site was in the range of $50,000. He snickered. "Let me put it this way," he began. "It's like we build airports and you, you're looking for a little field where you can park your plane. Beliefnet cost millions of dollars to build." How many millions? I asked him. "Like $2 million," he answered.
Phase 3: Bargain hunting in the great white north.
It was my mother, the Canadian professor for whom time is not money, who suggested I call Web development firms north of the border. They took my phone calls with the greatest of pleasure. They didn't compare my company to "a little field." Fifty thousand American dollars go a long way in Canada. At the end of March, I hired Crescent Internet of Toronto to build what they promised would be "a compelling interactive channel that enhances the existing community of dog owners in the NYC area."
Now I needed content, on the double. I posted a notice on Columbia University's journalism school's weekly job e-newsletter: "Launching community/portal Web site for dog owners. Need enthusiastic reporters to help create content. . . . Job is open-ended: could lead to full-time position. Pay: $18/hour." I was paying $18 an hour because that's around what the Census Bureau was offering people to canvass New York. It seemed as good a measure as any.
I hired the first six people who responded in standard English, assigning them to collect information about New York's dog shelters, dog runs, dog laws and plenty more. All things considered, the group turned out all right. Two of my part-time reporters were extraordinary; two were average; and two were hopeless. One of the hopeless cases disappeared halfway through the assignment, never to be heard from again. (He is still alive, his roommate has confirmed.)
Looking over the content I'd assigned, my Web development team at Crescent advised that urbanhound needed more "sticky" material—stuff that would draw people back to the site time and again. One of Crescent's consultants, Michael Kulik, suggested a series of interactive questions to help aspiring dog owners pick a breed that's right for them.
Confident and thinking big again, I called up America Online. Two years ago, AOL bought a company called Personalogic, which creates online applications that help people find the right career, the right car, the right college and (yes) the right pet. It seemed to be just right for urbanhound, but when I caught up with the right man at AOL, Clifford Dickey, he turned me away, very politely. The hassle of processing the paperwork for a little venture like urbanhound wasn't worth the effort. As closure, I received an e-mail message: "On behalf of Cliff Dickey, we thank you for your interest in working with AOL and wish you all the best of luck in your future business endeavors." Thank you very much.
So I winged it. From the American Kennel Club, I got a list of the 50 most popular dogs in the country. By interviewing veterinarians, visiting the Web sites of breed clubs and consulting encyclopedias, I compiled the basic characteristics of each breed. To get pictures of those 50 breeds, I called up photo agencies, like the ones we used when I worked at magazines, and they demanded between $7,500 and $12,500 to use their photos for a year. Forget about it. Again I hit the phone, calling hundreds of dog breeders in the tri-state area. Within a week, I had 50 very nice photographs, gratis. We were rolling.
Phase 4: Surviving the crash.
Everything started to change in April. The stock market was wilting. Underfinanced dot-coms were folding their tents and getting out of town. More and more I kept hearing that venture capitalists didn't give a hoot about "eyeballs," or the number of people drawn to a Web site. Suddenly, venture capitalists cared about financials—not just revenues, but actual profits. I projected that urbanhound would lose $227,000 on revenues of $443,000 in Year 1, and become profitable in Year 2, earning $322,000 on sales of $2.2 million. But I couldn't swear by those numbers. After all, they were based as much on hope as on fact.
What worried me most about my projection was the estimated advertising revenue. I knew that the average CPM, or cost per thousand impressions on the Internet, was $33. Which is to say that, for every 10,000 visitors, I'd make $330 per banner ad. I'd seen other business plans use the $33 figure in their revenue projections. But it didn't make sense to me, that figure; advertising is said to be a hopeless way to make money on the Internet. So how was it that, despite my most conservative projections, urbanhound was supposed to be pulling in more than $1 million on advertising alone by the end of Year 2?
I arranged a meeting with a friend of a friend, an executive at 24/7 Media, one of the major Internet advertising agencies. When I told him my problem, he smiled knowingly. "If people think they're going to get a $33 CPM, they're dreaming," he said. The average CPM was over $30, but that was only for ad space that actually sold. Most Internet banner ads are bartered or given away free. Even Yahoo, the king of Internet advertising, sold only 15 percent of its "inventory." That 15 percent sold for a $35 CPM—but once you figured in all the ads that Yahoo barters away or uses for in-house promotions, the company's actual CPM was more like $7.
If Yahoo's CPM was only $7, what could urbanhound possibly hope for? "To be safe, I'd use $2 in your model," he said. Two dollars! My face got hot. But my audience is targeted, I protested; surely that counts for something. Sure it would count, he replied, if urbanhound had its own advertising sales force. "Then you might get one or two or three advertisers to pay $30," he continued. "That is, if you can get to the media buyers for big companies: a $20,000 buy with urbanhound isn't exactly top priority for Ogilvy & Mather's media buying department."
He suggested bartering my ad space on urbanhound for ad space on other people's Web sites; at least that would drive traffic to the site. He told me about something called LinkExchange, where, for every two spots I gave up on urbanhound, I'd get one urbanhound banner ad placed elsewhere. So this was how it worked, this Internet business. It was nothing but a giant Ponzi scheme financed with venture capital money. There had to be another way to get where I wanted to go. I had a last question: "If what you're saying is true, why then do all the business plans I see use that $33 number?" His reply: "Because venture capitalists don't know any better."
I consulted notes I'd taken at Bootcamp for Startups, a conference for aspiring entrepreneurs held in New York last April. "Do you read and/or believe the financials in the back [of business plans]?" the moderator asked the panel of venture capitalists. The replies were matter-of-fact. "No, I've never met a business plan whose numbers were right," said one. "We all know the numbers are wrong," said another.
Phase 5: The venture-capital adventure.
I wanted the opinion of a seasoned pro, and to get it, I had to use a little leverage. I sent an e-mail message to Jerry Colonna, a former journalist and co-founder of Flatiron Partners, a top New York venture capital firm with stakes in TheStreet.com, Gay.com, The Industry Standard, StarMedia and The New York Times Digital (owned by the parent company of this magazine). I asked him for feedback on my business plan, adding that I was not just starting a company, I was also writing a story about starting a company. I wouldn't have heard back from him otherwise.
He began with a few kind words. "Your business plan is extremely well put together," he said. "Seriously. It's very well thought out; very well constructed. I'd hire you to write business plans." That was darn good news, and reassuring: if urbanhound flopped, I could join the ranks of people who can't actually start a business but can advise others on how it's to be done.
Colonna was particularly impressed with the case I'd made for valuing urbanhound. I'd sent him a page of "comps" (companies that could be considered comparable), listing them by their unique visitors, revenues and market valuations. I'd written: "Using these revenue multiples as guidance, urbanhound might be valued in the range of $20.2 million to $47 million in Year 3, based on its projected revenues. Working backward from the lowest of this range ($20.2 million), assuming a 40 percent compound annual rate of return, urbanhound may be valued at $6.44 million." "I would argue with it," he said, referring to my analysis, "but it's still well thought out."
Now for the problems. "My first reaction to your plan is: You're kidding me, right?" Colonna said. "The pet market? I hate it. The biggest joke in the V.C. community is pet retailers." He was alluding to Pets.com, which went public last February at $11 a share and now trades at around a dollar. He also had in mind Petopia and Petsmart.com. (Victims of bad timing, both companies tried, but failed, to go public last spring.) Also, AllPets.com, PetPlanet.com and Petstore.com (which raised $150 million from venture capitalists, then went under in June after selling its assets to Pets.com for $11 million).
In Colonna's view, it was a waste of time for urbanhound to sell high-end dog accessories and books; my only hope was to position urbanhound as an online magazine that would compete against old-media pet publications. "Dog World and Dog Fancy have been playing to a low-end market," he said, "so there's an opportunity to create a higher-end lifestyle approach to the pet market."
What's he talking about? Aren't content sites just as bad as retailing sites? I was thinking of the collapse of APBnews.com, a content site devoted to crime; as well as the downsizing of the online magazine Salon.com, whose stock price has gone from a high of $14 to less than $2. "There's nothing wrong with the content business," Colonna insisted. "How long did it take Sports Illustrated to turn a profit? Eleven years! When did AOL turn a profit? After eight years! Sure, profit is a fundamental measure; but so is revenue growth. . . . What's frustrating to me is there's a lot of knee-jerk reaction out there."
Phase 6: The pet cemetery that changed my life.
Three weeks before launching urbanhound, I still hadn't planned our marketing campaign. In mid-May, I contacted Richard Laermer of RLM Public Relations. We'd once worked together on an article I wrote. He was energetic and very clever; he'd been referred to as an "Internet PR Guru" by PRWeek. "This is great! GREAT! I love it!" he said. "You'll have the best launch party EVER. We'll do a huge blowout invasion on this thing." A few days later I received from him a detailed six-page proposal that began: "Dear Nina: Thanks for all the meetings! We hope you 'get' us as much as we get you." The text included one great idea after another: we'd spray-paint urbanhound "curb your dog" stencils on sidewalks; we'd host charity events with the North Shore Animal League; we'd go out on morning "dog walks" with journalists; and we'd develop surveys of dog owners that would be picked up by the media. And I was to undergo "media training." Under the section titled Fee was written: "RLM's Year 2000 minimum is $25,000. . . . Expenses are reasonable. . . . Urbanhound is consulted prior to incurring any charges over $1,000."
I responded by e-mail: "I can't help but feel that I'm being offered a Mercedes when all I can afford is a VW. . . . Please let me know if there's any way we can work something out." (I did not say, "You're building an airport and I'm looking for a little field to park my plane.")
Over Memorial Day weekend he phoned. From his point of view, I just didn't get it. "I hear where you're coming from," he said, before repeating his enraptured pitch. "We'll blow this thing out of the water like it's the Second Coming of Christ! If you're raising money, you've GOT to do that." I resisted mightily. That same afternoon I received another e-mail message: "We understand your need for holding back costs." A new fee structure was proposed: $15,000 the first month; thereafter, $15,000 a month plus urbanhound warrants equal to $10,000 a month.
Maybe I didn't need a publicist after all.
Two weeks after it was supposed to launch, urbanhound.com went live, at last. That was on June 14. It was anti-climactic. I stared at the home page. Was it for this I'd worn the same sweat pants for three months? I slept badly that night, imagining hundred-dollar bills, thousands of them, blown out of New York in a windstorm. So far, I'd spent $70,005.87. According to my business plan, urbanhound would raise more money from investors soon after the site launched. What strategies would bring in that money? What if those strategies failed?
Meanwhile, people were flocking to urbanhound by the tens of thousands; hundreds of passionate dog owners were registering as members and posting photos of their dogs. They were sending me gracious e-mail thanking me for the gift of urbanhound. ("HELLO!! I just wanted to take a moment to tell you what an AWESOME site you've created!! . . . I have no KIDS except for a 5-year-old of the cocker spaniel persuasion. . . . She IS my daughter.") The media started paying attention to urbanhound: The New York Daily News, The Wall Street Journal, The Chicago Tribune, The Houston Chronicle, the "Today" show. By Week 3, urbanhound.com had received more than one million hits. It was raining cats and dogs.
Big important companies started calling me. Old Navy, for example, offered to sponsor Your Hound, the section of urbanhound where members post their dogs' photos. Each "Urban Hound of the Week" would receive a gift certificate from Old Navy. As well, John Gray, the company's online marketing man, requested a link to Old Navy's Web site. Great—until we got to the bottom line. I proposed the modest sum of $4,000 a month. Gray thought not. In his view, the gift certificates, along with his company's most distinguished brand name, were as good as cash. He was polite, and acting in the best interests of his employer. But surely I did not start urbanhound to provide freebies to big companies.
It would be late August before urbanhound got paid real money: a check for $360 was gratefully received from Abbey Glen Pet Memorial Park ("When it's time to say goodbye to your best friend. . . . ") in payment for an enhanced listing on the urbanhound services directory.
It was an exhilarating moment—until my summer intern whipped out his calculator and interrupted my reverie with this cold fact: "You only need to sell another 166 enhanced listings to cover your running costs for the year!"