Brad Powers from Active Response Group
ad networks, lead generation, management, media buying, trafficThis interview is with Brad Powers, CEO of Active Response Group in New York. ARG is an online lead generation company that owns and operates 400 different sites as well as runs its own banner network serving 4.5-6 billion impressions per month. It’s an interesting mix of being both a lead generation company and a publisher I haven’t come across before. One thing that sets ARG apart from many Internet companies is that it answers to a board of directors. Brad shares the importance of having mentors to help walk your company through financial, operational, and legal issues. His insight is helpful, especially if your company is growing very quickly - and these guys have had phenomenal growth.
Fast Track Interview
Adrian: Today, I am here with Brad Powers, who is the CEO of Active Response Group. ARG is an online lead generation company based in New York. Brad, tell us a bit about who you are and what you’re up to.
Brad: I was born and raised in New Rochelle, New York. I went to Clark University for both undergraduate and graduate. I started my first business when I was still in graduate school. That business was called Wanakee Design and Products, which is a direct marketer of cosmetics. I grew that to about 250,000 active customers and sold it to my partner in 2000. That same year, I started eWOMP, which stood for Electronic Word of Mouth Platform, with two of my friends.
When we started eWOMP, we moved from having no business model to becoming an e-mail marketing and service provider. We relabeled the business and called it Next Response. We focused on high-end e-mail delivery and services that surrounded e-mail list management. One of those services was lead generation.
In 2004, my partners and I had some divergence in terms of where we wanted to take the business. I went to my board and said, “I’ll personally buy out my partners, and I have this idea for a lead generation company. Why don’t we roll the dice and see where it gets us?”
Later that year, we rebranded and relaunched under Active Response Group. Today, we own and operate approximately 400 different sites as well as our own banner network. The genesis of the company is that we take the risk for our clients on the initial media cost and generate either a transaction in the form of a lead or a sale for them. We satisfy everything internally either off our banner network or our network of sites.
We started ARG with one client, which was T-Mobile. We were doing lead generation for some of their cell phone and BlackBerry products. At the time, we did not have the luxury of having our own network of sites or our own banner networks, so we were outsourcing the procurement of leads to various other properties. What we developed was the original version of AMP (our marketing proprietary marketing platform), which would ingest the leads from the various partners, qualify the leads, and verify the data’s integrity. We kept track of the lead source, and then we built a bridge into the T-Mobile system, which was called Watson. We could track the credit approval rate, ship rate, the return rate off of an order, and match that back to the original source. We were able to say, “Okay, these leads are worth X. These leads are worth Y. These leads are worth Z.”
We quickly discovered that if we had our own properties, we could remove a middleman layer and increase our margin. Hence, we started developing our own lead generation sites and started in the promotional space. Then we started adding more clients to develop a reg-path business, which is one of the bread and butter staples of Active Response Group today.
On a weekly basis, we develop probably 6 to 8 new sites. They could either be vertically-focused or promotionally-focused. We use the registers, and we have the backbone technology, which allows us to show what we think would be the most appropriate offer for that user. When a user signs up, we can validate the data and send it to the client in whatever format they want and whenever they want it. We are able to provide a high-quality, high-volume lead to the client.
In 2006, we acquired the U.S. assets of the banner network Oridian, which used to be called Cydoor. We did that to disintermediate some of the media costs associated with driving traffic to our various properties. From 2005 to 2006, we grew 400 percent. From 2006 to 2007, we nearly doubled the size of business. Right now, we’re around 51 people in three offices.
Adrian: Can you talk about annual revenues?
Brad: Because we’re a private company, I don’t like to give specifics on revenue. We register anywhere between 50,000 to 100,000 unique visitors a day, and we serve about four and a half to six billion impressions per month on our banner site depending on what time of year it is.
Adrian: How is your model similar to or different than what QuinStreet is doing?
Brad: This whole industry is incestuous, so everyone who’s a competitor is also a partner competing for media dollars. QuinStreet focuses on very specific verticals. They probably tend to do more search engine optimizations, especially around the educational vertical. While we certainly have the strength in the educational market, we are more vertically agnostic and run a Darwinian environment where we maximize toward yield. That doesn’t mean we don’t have an expertise in each vertical. It just means that we’ll run whatever is going to make us the greatest amount of yield off of the media that we’re buying. Whereas QuinStreet will develop very deep vertical relationships and vertical expertise, we tend to go for a larger volume of media play. We happen to fulfill leads for QuinStreet on some of our properties. Although they are a competitor, in some sense, they are also a customer.
Adrian: How many media buyers do you have?
Brad: Right now our team has about five media buyers. If you add the creative staff, it probably brings the number to 11 or 12 folks. They’re maximizing our banner network, our affiliate relationships, and our e-mail marketing partners to arbitrage the difference between what we’re paying for media and what we’re yielding off a particular individual.
We also have a sales force. We probably have 400 different offers in our bank. We can get extraordinarily micro-targeted because of our sheer volumes. Someone can say, “I’m looking for men who are between 21 and 35 and looking to become engaged in the next six months.”
Adrian: How does that work? If someone asks for those kinds of leads, do you design all the creatives for them?
Brad: We’ll design the creative for it. We’ll generally design the form as well. Some people will come to us with the forms already predesigned. We host everything, which is another differentiating fact. We only have one non-hosted page in our inventory list.
When someone registers for one of our sites, it’ll immediately start profiling them based on what creative they came from, what site they are registering for, and their demographic and geographic information. Then we’ll start targeting offers directly to them.
Adrian: You mentioned that you have a board. How does that feel to answer to a board of directors? That’s very different than a lot of other Internet companies.
Brad: Even though I do have to answer to my board, I don’t view it as having to answer to someone. My board members certainly have more experience than I do in running larger operations. Sometimes just the fact that you have to answer to a board provides a level of discipline and rigor on a financial level, an operational level, and a legal compliance level that some of the other companies lack.
One of the big things in our space was several of the large players had FTC lawsuits. We have always been on the forefront of compliance issues and making sure the consumer knows what they get into especially in our incentive-based sites. All of our personal identifiable information is stored in a secure environment. Additionally, everyone who handles data in this company takes a training module and has to pass a test with complete audit trails. We have a pretty robust compliance and security apparatus.
We probably could have accelerated the growth of the company a little bit more had we taken a more aggressive stance on some of our own promotional-based offerings. But in the end, we never received an AG lawsuit or a FTC complaint.
Adrian: What other kind of benefits does your board bring to you? If someone starts a company and is doing $100 million a year, should that person have a board of directors?
Brad: If he doesn’t have a board of directors, he should certainly be getting himself a board of advisors. It’s generally good to surround yourself with people you can count on to help mentor or guide you. If you’re running a sizeable company, and especially if you’re taking it from zero to that type of level, a lot of externalities come with that. There are issues such as employee handbooks, legal operations, and cash flow. Many different things can go on within the context of a fast-growing company.
Adrian: How is a board of advisors compensated?
Brad: People can be compensated in different ways. Generally speaking, a small amount of equity or a token cash amount is fine for a board of advisors. A board of directors is a little bit more formal with legalities surrounding it. You’ll be surprised though. Most people are happy to help.
Adrian: What kind of equity would they be getting?
Brad: It all depends on the arrangement, and it also depends on the structure of the company. If you have good lawyers, they can put together a package for the board of directors, board of advisors, and your employees. There’s not one straight formula.
Adrian: On that board, do you want to have someone with legal experience or guys that have built similar companies?
Brad: I would pick some folks who are strong in finance and potentially M&A activity. You may want to pick some who are potential long-term clients. A board member doesn’t even need to be in a similar business but a good operator who has built businesses and gone through the pains and the trials of building a business because at each stage of your business’s life cycle, you face different challenges.
If you go through growth so quickly, the first thing you need to do is put together a really good legal team. The second thing you need to do almost simultaneously is assemble a strong financial team. Then, you need someone in operations to make sure the infrastructure is there. When we grew 400 percent, we were chugging along, chugging along, chugging along, and then we figured out the right formula. We just grew exponentially, and we were building an infrastructure as we were growing the company. It was not an easy task to do.
Infrastructure doesn’t just mean technology; it means organization, process, and procedures. Even things like accounts receivable, accounts payable, having a good controller, setting policies, and having things documented. We spend a great deal of time developing a very robust project management and wiki system where there’s knowledge bases for each department and one overall project management solution from prospect through billing. You want to make sure an apparatus is in place where one individual is not a linchpin that could sink your whole company.
Adrian: How do you partner with different lead generation companies? What does a typical deal actually look like?
Brad: Generally speaking, they would be using us as a fulfillment source for one of their clients. They would be coming to us and saying, “I need this number of leads per day for this offer. Here’s what the offer needs to be targeted to. Here’s what we’re looking for. Can you produce this volume at this price?”
Adrian: Do you ever know for whom the leads are being generated?
Brad: A lot of times we do.
Adrian: Let’s say you know these leads are being generated for GEICO. Don’t you have an incentive to just work directly with GEICO and cut the lead generation company out of the deal?
Brad: In some cases, yes. In some cases no. It’s about who holds the relationship. Using GEICO as a theoretical example, they might want to go to a company like Modern Consumer who may satisfy some of the leads on their site, satisfy some leads on our site, and satisfy some leads on other sites. They get a blended average. In some instances, we actually wind up fulfilling the entire budget for a particular client without them even knowing it. They’ll go to an agency that will then come to us to fulfill the actual budget.
We are moving toward more direct client relationships. You need an account management staff that goes along with that. Right now, we certainly have a strong sales department and account management, which is basically what the broker or agency is doing. Our apparatus is not as robust as I would like to handle as many direct clients as we have indirect clients.
Adrian: How and why does a site become a member of your network?
Brad: It all depends on what type of site it is and what works on that particular site. One of our unique value propositions is that we have our own products to place on those sites. Meaning we have our own creative team and our own design team. We actually use Right Media as our ad server, but we’re able to plug our own products into someone’s site. Through Right Media, we deliver those creatives and optimize them in addition to our other client’s creative. In some cases, we won’t be able to use the Right Media serving platform, so we’ll just work directly with our client using their own serving platform.
Adrian: What do you think about services like TACODA or Frank Adante’s Rubicon Project where they’re doing behavioral-type targeting to increase eCPMs?
Brad: A matter of fact, I just moderated a panel for OMMA on privacy concerns surrounding behavioral targeting and personal identifiable information. Behavioral targeting and behavioral retargeting is just a natural outgrowth of direct marketing in our space. In the end, it will allow consumers to receive better and more targeted ads.
From our own perspective, we use behavioral targeting and behavioral retargeting based on anonymous cookies, and we store it in a metadata format.
Adrian: What do you think about it in terms of competitiveness?
Brad: There is so much inventory out there right now. It is almost worthless because there’s a lack of high-quality inventory, which would mean the first two or three pages a consumer visits. A ton of inventory is five, six, eight, or 12 pages deep into a site or after someone’s checking their eightieth e-mail on Hotmail. The use of behavioral targeting should increase the effective yield of that because that will increase click-through rates and, ultimately, increase eCPMs to the publishers. Hopefully, if they’re more targeted, it will increase conversion rates to the end-client and produce better quality.
BIO: Brad Powers founded Active Response Group in 2004. His mission was to provide marketers, agencies, and brand managers a way to simultaneously increase revenues, decrease costs and get closer to their consumers. Under his leadership, ARG quickly became one of the leaders in the online lead generation space. Before starting ARG, Powers served as executive vice president, sales and marketing for eWOMP Technologies, a provider of customized email and viral marketing solutions. His clients included Microsoft, Town Sports International, Zone Perfect, Petersons, Thompson Learning, and Prometric. Previously, Powers was chief marketing officer for Wanakee Design and Products, a direct marketer of high-end cosmetic products. Powers received an MBA and BA in Psychology from Clark University.
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