Scott Rewick knows the impact taking venture capital can have on a company and has insight on how to invest your own money.
This interview is with Scott Rewick who was one of the Netblue (now Connexus) founders. Some key points of the interview: Hear from one of the Netblue (now Connexus) founders about how the company was started. Learn what impact taking venture capital can have on your company. Discover how Scott invests in companies – and how you can too!
Full Interview Audio and Transcript
Hobbies and Interests: Brazillian Ju-Jitsu, Bee Keeping, Rare Coins.
Favourite Sports Teams: Whoever wins.
Favourite Books: The Power of Now: A Guide to Spiritual Enlightenment by Eckhart Tolle.
Favourite Entrepreneurs: Richard Branson.
Company Website: http://www.netblue.com
Adrian Bye: You and Ken Chan originally got Netblue started. Tell us how you initially got started and how the business evolved?
Scott Rewick: Ken and I first got involved when I was with MetaReward. He was in the early stages of building a company called Your Free DVDs. This was a company in the business of giving away DVDs for consumers taking a variety of actions. He got it going without a lot of money out of his room in San Jose. I was lucky to come in very early in the company’s development. We were young and probably had about four or five people in the company at the time. My first desk was an IKEA plastic desk in an office in his bedroom. I had a three-month-old little girl and a lot of reason to succeed and that’s generally the beginning of it.
Adrian Bye: So Ken got things going then with what became Netblue. He came to you and said, “Hey, do you want to come on board?” probably because of your media buying capability. And you joined and were working out of his office/house on the plastic table, is that correct?
Scott Rewick: Something like that. In my position at MetaReward, which was one of the earlier affiliate networks, I was privy to see a lot of successful marketing campaigns manifest through the affiliates I had and was working with. I was able to understand why people were making money and how they were doing it, since I was promoting many of the offers through them. MetaReward didn’t really buy media, per se, but had a lot of interaction with high quality clients. That helped us understand what was working, what wasn’t working. So I think when Ken and I met, he was impressed by the fact that I considered myself an entrepreneur and had a lot of valuable expertise on how to make his campaigns that much more successful.
Adrian Bye: Ken had some campaigns running, you had the experience on how those work, and jumped in to help make those run better.
Scott Rewick: That’s right. People back in 2001-2002 were trying any number of things and I was fortunate enough to be able to peek behind the curtains and see what was actually working and converting. Not only because MetaReward had a site called Net Flip which in essence was doing something very similar with cash, but also I could see best practices from the thousand affiliates we acquired over a period of time. So I could understand who was doing what, how they were doing it and get a better insight as to how Ken could be successful.
Adrian Bye: What were some of the sorts of things that you started helping with?
Scott Rewick: Well when we started, we didn’t have a lot of media buying. We were really doing affiliate networks’ media buying through folks like Commission Junction. We began in earnest to get distribution for the offer which, at that point in time, was the give-away of DVDs to consumers for doing a variety of actions. And so, I took my contacts and we began to grow the business by expanding distribution. One of the key things we did – and I think we were one of the first to do it – was really get distribution through other affiliate networks by helping them promote their offers. The main source of distribution back in the day for us was Adteractive, a place where we advertised. We also became a publisher of Adteractive. So we kind of coined the term “private offer network” to describe their heavy promotion of our offers to their affiliates, and in return, the offers we promoted on the page were all theirs. This helped them earn margin in such a way that they were promoting our offers to other affiliates. And, similarly, we were driving an awful lot of volume to their advertisers such as Columbia House and Netflix. This was our first big success in terms of distribution.
Adrian Bye: So, you take offers from someone’s network or for a publisher, run those offers as part of what you do for Netblue and then get them to help you drive that traffic. So they get commissions on you driving traffic for them as well as commissions on the offers that you drive at the same time.
Scott Rewick: You’ve got it. This allowed them to present our offer, in those days typically $1.00-$1.25 per submission or e-mail submit at little to no margin to their publishers because they were then making up the volume by us doing offers through Columbia House. So vis-a`-vis other ad networks, the offer that we promoted came out high because Adteractive decided to take little to no margin, quite wisely. We got an awful lot of distribution and in turn, promised any leads that came through the door would be redirected toward their backing advertisers. So, as I mentioned, we kind of coined the term “private offer network.” That relationship led the way to a lot of similar type of distribution arrangements down the road.
Adrian Bye: So, you were basically grouping a bunch of offers together at the same time and then driving traffic to all of them and then customers pick the offer they like the best. Because it’s customer-selected, it led to an overall higher effective CPM. Is that correct?
Scott Rewick: Yes. We looked at incentives and offer types, but in general, the model worked. We were finding we were distributing the offer for between $1.00-$2.00 and effectuating north of $2.00 -$3.00. When we figured out the correct mousetrap that elicited the consumer response we wanted, the main issue became scaling it. We really scaled and were one of the first to embrace CPM advertising. Even back in those days there was heavy competition to these offers and nobody seriously contemplated doing CPM buying because the onus is on you. In other words, if your creative doesn’t work, you lose, not the publisher on a CPA basis. We started off with Microsoft in 2003 with a $10,000 campaign buy. And by the time we were done, they were probably spending several hundred thousand dollars a month over a period of a few years.
Adrian Bye: And when you did that first buy, how did that work out? You spent ten grand, what did you get back?
Scott Rewick: Well you know, what’s interesting was back in the day Microsoft was commonly viewed as the most difficult to work with. But in this example, they had a program called P-Plus that allowed guys like us, to operate kind of on a modified CPA basis. To a large degree, our success predicated itself on having a sales rep that had been there for a number of years and knew the space. In the $10,000 ad buy, we got crushed for probably three months. But one of the things I appreciate that Ken did was he set a mandate that if we were going to succeed at the company, we had to be the ones that embraced and consumed CPM advertising or we’d die. The entire company rallied around embracing CPM advertising which meant you had to be a creative organization. You had to get banners that clicked. You had to watch the campaigns much differently than if you were promoting a CPA campaign. We held hands with Microsoft early on. We lost a little and they gave us a chance and that relationship grew nicely over the years.
Adrian Bye: So the fact that you guys embraced CPM early on, was the critical thing. Had you not done that Netblue wouldn’t have become Netblue.
Scott Rewick: There’s no doubt in my mind that is true. A number of smaller incentive-based sites have done okay, but our ability to scale and change the game was predicated on the idea of buying media differently than everybody else. And it was a big risk, but what we found was once we did it successfully, predictably, other companies joined suit. If we were buying $200,000-$300,000 a month on Fastclick on a CPM basis, you can imagine that our competitors would like to jump in there as well. And they did. In online business, if you have the eye for it; the ability to see if things work or don’t work becomes easier than most people think.
Adrian Bye: And how long after you guys started working heavily at CPM did other people come in?
Scott Rewick: Not much longer. I’d say the one that came in the quickest was a gentleman named Nunu who ran The Useful. As we began to scale up on places like Fastclick he took note very quickly and began to emulate our model quite successfully, actually. I would say that it was no more than a few months before we began to see very similar campaigns show up alongside ours on places like Fastclick, which we had really been able to scale in addition to the Microsoft campaign.
Adrian Bye: This was around the time when CPM rates dropped because of the dotcom implosion, etc. Publishers were saying, “We’re not going to do CPA,” and there was kind of a void that you guys filled, right?
Scott Rewick: We became proficient at the three main ways things are priced online; CPA, CPC, and CPM and became proficient at both types of buying. You are right there weren’t a lot of advertisers, advertising on a CPM basis. So while publishers had massive amounts of inventory, they were holding as steady as they could to keep their rate cards. But if you know who to talk to and how to navigate organizations like Microsoft or Yahoo, you find ways to buy rented inventory very inexpensively.
We were also able to put up large dollar amounts. Many of these bigger sites we found were frustrated dealing with smaller ad buys in the $5,000 -$10,000 range. We realized this was a defensibility position, and were able to put up $50,000-$100,000, get all that inventory and box out our competitors. There was a lot of cheap inventory back in the day, and I see something similar with places like Facebook and MySpace generating massive amounts of cheap inventory every day.
Adrian Bye: What would you start with as an initial buy with Yahoo?
Scott Rewick: We probably started with $25,000 or $50,000. We had a good understanding of what creative, what sites and campaigns worked, the type of prices we should be paying, and the type of click-through rates we should expect. So, we walked in with an awful lot of knowledge, and were quickly able to ascertain based on placement, based on creative type, campaigns that work versus those that don’t work. If you have built the infrastructure to be able to do that, you’re able to quickly make unprofitable campaigns profitable. We probably started on Yahoo Mail buying 88 x 31s or 468 x 60s and as those placements and campaigns became successful, went on to other parts of Yahoo. We even purchased a one-day homepage on Yahoo buy for $20,000 or $30,000 at some point.
Adrian Bye: At what point did you decide to raise money to grow the business?
Scott Rewick: There was a shift in the venture community and we began to look at lead generation and realize how much money we were all making. The space got very hot and we interviewed a number of different venture capitalists. We tried to figure out what we could do with money, where we could expand to. I credit Ken with being able to tell the story of what Netblue did and where it was going. And so at some point, we decided to take venture capital and scale the business accordingly.
Adrian Bye: Do you think that Netblue would have reached the scale that it reached without funding?
Scott Rewick: It may have taken us a bit longer to do, but sure, we would have gotten there eventually.
Adrian Bye: As you took the money in, and were able to start doing these $500,000 buys through Yahoo and some of these others, did it make a noticeable difference to the need and scale that you got at that time?
Scott Rewick: In hindsight it was good and bad. In other words, it allowed companies like The Useful to see what we were doing and copy us. Any company with more than 10 or 20 people, at some point take their eye off the ball. So the challenge in growing a business is taking your eye off the ball, but still being focused enough while working on other initiatives.
Adrian Bye: Let’s say you’re a start-up or things are going reasonable well; revenues are working and the company has made the decision they do want money to grow faster, how should they go about raising it?
Scott Rewick: The first point is to focus on building a great company. Building something of interest, tends to revolve around being able to tell a big story in a particular vertical that happens to be growing, with revenues attached to it that are profitable. Once you’ve done that, there is really no shortage of ways you can go. Venture guys are everywhere and it’s sometimes as simple as picking up a phone and setting up a meeting. There are investment banks that will represent you and shop your deal around and there’s no shortage of money out there. It really comes down to what you think the money is going to be used for and how it’s going to affect your business. It also depends on the type people you feel comfortable working with, the types of conditions you think are appropriate for you or your partner.
And, I’ve been a part of money being raised for a couple of different companies and was part of money being raised fairly recently, but I’d say take your time. It’s a big decision to make. It’s a lifestyle decision. Do you want to have 100 employees or are you pretty happy with 10? Do you want to have board meetings where you’re basically reporting financials or do you want to run it on Quicken and not worry about it? If you’re blessed with having a successful, profitable company, it’s a good problem to have, approach it carefully.
Adrian Bye: So you feel it defocused the company once you brought the money on?
Scott Rewick: Oh no, question and it’s not a unique problem. I mentioned earlier The Useful was probably able to compete successfully with us, because you do lose focus. Rather than staring at spreadsheets all day and figuring out click-through differences on a particular campaign with a placement, you spend time hiring new people or in meetings with boards or trying to report numbers and such. It does defocus you and all you can hope is that you can train a set of people that think, act and do what you do or have done successfully to get to that point. In some cases you are able to do that and some cases you are not, but it does require an awful lot of work to be able to scale past yourself.
Adrian Bye: Do you have any points then you’d like to add in closing or anything else?
Scott Rewick: No. Hopefully, I’ve been able to give people my perspective on things.
Adrian Bye: Cool. Well thank you very much, Scott.