Features

Top Five Media Startup Mistakes

Written on
May 27, 2011 
Author
Mike Nolet  |

ADOTAS – My first title for this post was “top 5 ad-network mistakes”… then I realized that ad network was a “bad” term…. So intead I’m going to refer to a “media startup.” I’ll put networks, DSPs, trade-desks, dynamic creative providers… any company that buys and sells media (<cough>looks like a network<cough>) under this new “media startup” bucket.

It seems every young media startup I talk to keeps making the same mistakes over and over. Well, here goes in no particular order (even though they are numbered 1 to 5) my list of things every startup needs to watch out for… Maybe I can help prevent someone from making the same mistake!

1. Credit / Payment Terms

A $1 million insertion order is amazing.

A $1 million insertion order where you get paid net-90 but you pay out net-30 can kill your business.

A $1 million insertion order where you get paid net-60 but you pay out net-60… can also kill your business.

Here’s the problem: Agency margins have been on a nose dive downwards for years now. One of the ways agencies drive up their profitability by paying everybody late and making a little extra cash on the interest they earn by keeping the money in their bank account.

Even if you think the payment terms line up, just one client that sits on their check for too long can be detrimental to your business. If you don’t pay your big sellers they cut you off, killing your network. If you push to hard on the agency, they cut you out of next quarter’s budget.

Proper float and credit management is a must for any network. Have an open conversation with agencies and understand when you can realistically expect to be paid, and then make sure there’s always enough cash in the bank to pay sellers and publishers (and employees!). Many a media startup has gone out of business by badly managing their float.

2. Selling Sex

Did you know that perezhilton.com, wwtdd.com and idontlikeyouinthatway.com are present in some shape or form on every single exchange and supply platform — from the aggregators (PubMatic, Rubicon, Admeld, OpenX, etc.) to the big guys (Right Media, Google)? These “Entertainment” sites make liberal usage of pictures of scantily clad celebrities, their sexcapades and lots of other inappropriate content.

Now on a normal remarketing campaign the performance might be great, but there’s nothing worse than an angry email from your advertiser because your ads just showed up next to a raunchy porn image.

In the best case your reputation just took a little hit. In the worst case your advertisers simply refuse to pay out multi-hundred thousand dollar budget amounts…. Ouch.

It’s imperative that a network or buying desk has a strategy in place for managing inappropriate and sensitive content. Don’t assume that the “Entertainment” channel is fun sites that you can run any advertiser on… You’ll be in serious trouble if you do. On RTB you obviously get the URL, so use it. Supply platforms also have various forms of brand protection…

Advertising online is kind of like teenage sex… First take a sex-ed class to learn what the forms of protection are … and then don’t forget to use protection in practice!

3. Malvertisements

Here’s a very common story. One of your sales guys comes in super excited — he just closed an *amazing* deal: $0.75 CPM, no goals, all European countries for a major brand-name advertiser with a huge $100,000 budget. To top it off, the buyer will pre-pay $50k up front and promises net-15 payment terms.

The deal goes live… and within 24-hours exchanges shut you down and all of your publishers turn off their tags because for some strange reason all of their visitors are complaining that you are trying to install some sort of trojan/malware program with your ads.

Yep, there’s bad guys out there that will pay you serious cash to run ads that are really viruses in disguise. When you load them from the office they behave. Enter night-time and they turn into nasty beasts that will cost you publisher relationships, a bad rap with Sandi and potential scrutiny from the feds.

General rule of thumb… if the deal is too good to be true, it probably is. Google has done a terrific job setting up a website to educate the industry about this on www.anti-malvertising.com. Make sure every single one of your sales and ops staff reads this entire site in detail.

4. Not Focusing on Sales

If you are building something that’s amazing and scientific, it’s probably the wrong thing to build. No seriously… If you have even one PhD on staff, you’re probably doing something wrong.

Quarter after quarter at Right Media, I’d work with a team of engineers to push out improvements and features to the optimization system to increase efficiency, ROI and spend. You’d think that in a business running several billion ads a day that this would be the single largest driver of company revenue.

Yet… one sales guy at the original Right Media “Remix” Ad-Network single-handedly blew me out of the water one quarter with a single insertion order… and the deal didn’t even use optimization.

Relationships matter… a lot. Not every buyer out there just wants to buy into a magic black box that will auto-magically uber-optimize their life. Advertising is, believe it or not, about more than just clicks and conversions. There’s an inherent understanding of the target audience and the media and buyers want to work with companies that understand how they are thinking and who they are looking for. This means that the buyer wants to talk to someone he can relate to, who listens to him and whom he can trust.

This is why every media startup needs a strong sales team. You might have the greatest technology in the world, but if you can’t sell it, it’s not going to get you far. The smart guy in the room? They’re the ones that hire the sales guy that will close the multi-million dollar deal. (The above mentioned sales guy went to work for Invite Media, now of course a Google company…)

5. Over-building technology

To some extent this is a follow-up on the previous point, but so many companies I talk to seriously over-build their technology. The market today is simple. Yes, we will definitely be in a world one day with “traders” sitting at terminals with tickers and fancy secondary future markets and involvement from some of Wall St’s finest…. Just not today.

Today, one great trafficker/optimization analyst can beat almost any algorithm out there A team of five temps working for a week can apply categorizations to the top 1,000 internet sites with similar accuracy to the fanciest semantic engine. A smart BD guy can buy KBB data without a deep API integration to a data exchange. A buying strategy of “remarketing” will out-perform any other campaign strategy or behavioral data by at least 10 times.

Now don’t get me wrong — there is definitely a market for technology and technology is the only way in which you take the behaviors of brilliant individuals and scale them to be a hundred million dollar business.

Here’s the problem: most companies start by building technology, then trying to apply it. If you want to be a successful media business you should do the opposite. Hire some great people, watch how they operate, then build technology to automate what they do.

The above five are common mistakes… but there’s one very simple rule of thumb any and every CEO, investor or board member can use to judge the quality of a media startup.

If you ain’t making money, you ain’t doing it right.

Seriously. More than three months old with no revenue? Likely to fail. Low revenue with high burn? Doomed to fail. The simple answer is it’s easy to get at least one agency to buy in as an early adopter and throw you some money to “test.” If you can’t do this, you’re doing something wrong!

Originally published on MikeonAds. Reprinted with permission.





Prior to founding AppNexus, Mike Nolet was Director of Analytics and Product Manager at Right Media, where he designed and managed key applications including predictive optimization, inventory forecasting, and Media Guard, which protects publishers from harmful or unwanted ad content. At Right Media, Mike was instrumental in helping clients including Yahoo, MySpace, CPX Interactive, and others to leverage the Right Media Exchange for maximum benefit. Mike's insight into the intersection between business needs and technology innovation began at 15, when he sold his first software application, and continued at Princeton University, where he studied Economics. Mike is an active blogger at MikeOnAds where he analyzes the fast-changing display ad management and buying space, examining the interplay of ad networks, ad exchanges, real-time bidding and the entire ecosystem of players.

Reader Comments.

this article is good one, on number three.. that soo true and make sense..
advertising bussiness is so da** cruel..

that’s make me think twice to open a new advertising bussiness.. :D

thanks

Posted by Irdinata | 10:38 am on June 3, 2011.

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