James Hong shares how he and his partner built everything themselves, relied on PR, and eventually sold the business.

James Hong

HotOrNot.com has inspired thousands of startups. They bootstrapped entirely, built everything themselves, and had a nice sale when they were tired of running the business. While I knew they did well, I didn’t know the specifics until this interview – they were making around $7M/year (mostly profits) between the two partners, and then sold for over $20M. And, all that time James and his partner were working 10 hours per week!

Read on to find out how they did it, including the critical role PR played in the success of their business. I’ve seen quite a few other interviews with James, but nothing like this. Its one of the more inspiring interviews I’ve done.

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Personal Info

Hobbies and Interests: Traveling, Technology, Trying new things.

Favourite Sports Teams: Cal.

Favourite Books:

Favourite Entrepreneurs: Richard Branson.

Twitter URL: http://twitter.com/jhong

Personal Blog: http://blog.jhong.org

Company Website: http://www.hotornot.com

Fast Track Interview

Adrian Bye: I am sitting in the house of James Hong who is the founder of HotorNot.com, which is revolutionary for a lot of us in the internet. It’s one of the first companies that was totally self-funded and made it by themselves online. It started out of his house, grew to quite a scale, and then sold. James has a good story. James take it away and tell us about yourself.

James Hong: Basically, I like to play online, and I’ve been doing it for a long time. I’ve been online since I was in third grade when I got my first modem. I grew up on BBSs, cracking games mostly on Apple II, and downloading software. I went to Berkeley and got into electronical engineering and computer science. After college, I got a real job at HP building and testing scientific equipment, but was still fascinated with the web. After I left HP, I went to business school for a couple of years and decided I wanted to get back into the stuff I really loved to play with, which was the internet.

HotOrNot.comI started HotorNot with my business partner, Jim Young, a year after business school. When we came up with HotorNot, we were trying to think of things where as part of using the product the user has to pass it on to someone else. We were not viral with HotorNot but had strong word of mouth. The concept was that someone would submit their picture to the site for other people to rate and then see the score. The concept was so simple that it didn’t take long for us to build. We had the idea one week, and then Jim coded most of it in a couple of days.

We launched it a week later and emailed it to 42 of my friends with a link to my picture on the site. The email said, "Here’s something Jim and I built, just be nice when you vote for me." We launched it on a Monday around 2:00 or 3:00 in the afternoon, and by the end of that first half day we had 37,000 visitors. That was in October 2000. It just kept growing on its own. We broke a million page views a day by the eighth day.

Adrian Bye: One of the things that drove you forward was that you really pushed PR, right?

James Hong: Oh yes, absolutely. We saw two classes of competitors that could potentially knock us out. One is another start up, who somehow out-executed us. The other is a big company that had distribution already.

We wrote off the big companies that had distribution already because we figured any big public company is not going to want to start HotorNot. At that time, it was regarded as edgy where people wondered, "Is this porn that will come up?" We were not worried about them.

We were worried about the start-ups. Within a week there were probably 100 copycats because it was a very simple concept. The strategy was that if we got press first then we would lock out any competitor from being pressed. No writer wants to write a story that’s already been written, and they certainly don’t want to write the same story twice themselves. The goal was for me to get as much traffic and as much PR as possible. Jim continued working on scaling the site to keep up with that traffic. At the beginning, I also did some BD, such as a deal with Rackspace that got rid of our server costs for a long time.

Adrian Bye: What was the deal with them?

James Hong: The whole managed host model was fairly new at that time. They were the leader in the space but were still fairly small. I went to them and said, "We can be your poster child for why scaling internet applications quickly makes the most sense on a managed host instead of doing it yourself." I also said, "By the way, I have interviews lined up with the Wall Street Journal and CNET Radio. If you want me to, I can talk about it." We were a good poster child for them, got them a lot of publicity, and we put Rackspace’s logo on our site above the fold.

James's photoWe also stopped hosting photos and started telling people to go to GeoCities, open an account, and give us a URL of the photo at GeoCities. Then we just put that URL in the HTML. We were hosting all the images for free on Yahoo’s GeoCities for a good year’s time.

Then we realized we needed to make money to make it sustainable because the free wasn’t going to last forever. We ended up going to Ofoto as well in the very early days of their affiliate program. Back then, most people didn’t have cameras, so they got their pictures from their friend who happened to have a camera.

In other words, if you didn’t have a camera you went to Yahoo GeoCities. If you did have a camera, you would go to Ofoto. Ofoto said they would host the photos of those users for us, and they paid us a dollar per user. We took something that was going to be our biggest cost driver and turned it into a profit center.

Those three were probably our biggest breaks that made the difference between us succeeding and not succeeding. The Ofoto deal ended up tiding us over but we saw how advertising was shrinking, so we knew that advertising was not going to be a sustainable model anytime soon. Then we created the dating part of the site and threw in the revenue model, which was subscription-based.

We had no real idea how well it would monetize. By the time we sold the company, over 15 percent of new dating site users would end up paying $6 a month at the time, which we felt was kind of similar to an impulse buy or the cost of two beers in a bar.

Adrian Bye: You had the slogan of fun, clean and real. One of the clever things you guys did was get a team of volunteers to help you run the site. You want to talk about how you got an army of guys to basically do your work for you?

James Hong: When we first started thinking of ways that we could monetize, we thought we would go with advertising. Then we talked to the founder of Double Click early on. He said, "If you’re going to have advertising, you’re going to have to be able to guarantee that there’s not going to be a naked picture on the site."

His words made us shift the model from pictures being "innocent until proven guilty" to "guilty until proven innocent." A picture had to be moderated before it would show up on the site. The first thing we did was build a system for Jim and me to look at pictures and reject them. We did that for about a day and realized it wasn’t going to work because we were too busy.

We then enlisted my parents to do it, and they started moderating pictures. A few days after they started my dad said, "Mom saw some really interesting pictures." I told Jim, "We can’t have my parents looking at porno pics."

James's photoWe asked, "What can we do?" I said why don’t we have our community do it. When we launched the site, we also added a forum through Yahoo’s bulletin board system. It was fairly large, and our user base inside it was very active. We came out with the fun, clean and real tag line because we felt it was a call to action the community could gel around. It was a mission to some of these people to try and keep at least one place clean on the web.

When people are in a community, they care about the community. It’s just like any other socializing. It’s human nature for you to care about the group that you’re active in. It’s just like teen behavior. People wanted to be on a winning team and people care about that more than money in fact. That’s why people buy virtual goods on communities.

The places where people are going to make the most money selling virtual goods are places where people care how they look to other people, especially when they interact with them even more. Facebook is so powerful because your friends see you and that’s what you care about. People care about their social networking profile because they want to look cool to their friends.

Adrian Bye: You guys started with the domain AmIHotorNot then you switched to HotorNot. How did that work?

James Hong: When we started HotorNot, the original name was going to be canyoutakeit.net, which just shows the naivete of Gemini at the time because nothing .net has ever worked. When we started HotorNot, we looked at different names, and we actually did look at AmIHot and AmIHotorNot. We also looked at HotorNot, but it was taken. We didn’t find anything on the sites, but AmIHotorNot was the only one that was not taken. We launched on that.

My understanding is that Howard Stern was talking about our site in that first week, and the next thing we know there’s a site on AmIHot.com. A month later, we got a cease and desist from them saying that we launched after them, which we knew not to be true but we didn’t want this legal action against us. We worked it out with them and moved from AmIHotorNot to HotorNot. That’s actually what we used all the Ofoto money for. As soon as that happened, I reoriented all the press to HotorNot.

Adrian Bye: Which is shorter and easier to remember.

James Hong: Yes and it rhymed. It’s catchier and little things like that matter. A lot of people asked why we thought HotorNot was a success, and I had two reasons. One was the name, and the other was because the java script auto submit we did. Back then all forum post people would have to hit a submit button, and we came out with the java script to make it just go. The interface makes it a lot more addictive. Those two things probably made us from a product standpoint.

Adrian Bye: I remember reading an interview with you where you talked about how everything was very efficient.

James Hong: We tried to automate wherever we could. That was a function of the fact that it was just two guys, we didn’t have employees, and we were running lean. If we have raised money, things would have probably worked out a lot differently.

Adrian Bye: Do you want to talk a little bit about what you’re doing now as an angel who is funding things.

James Hong: Yes. I started angeling things about four years ago. Mochi Media is probably the biggest one I’m in. We also have Slide and a company called Raptr. I was involved with BitTorrent and probably 10 other companies.

I started doing angel investing thinking that could be my career, but I have come to the realization lately that I’m not sure if I’m ready to be just an investor. I kind of miss the adrenaline of the creation aspect. I’ve always liked building things.

When I was a kid, it went from building with Lego’s and then programming. Internet services are not physical things, but they are meaningful to people. I enjoy making things that people like, and you get a rush out of it. My goal now is probably to go back to starting something.

James's photoMy family and I are going traveling for the next year, and I’m going to take this year to come up with ideas and think of different things. When I get back, I probably will get to work on some of them. I find that with a lot of the better ideas, there really isn’t a big hurry because the odds of anyone implementing or thinking of something innovative and executing on it too within a year timeframe is pretty low. Most good ideas can simmer for years, and the good ideas are the ones that stick.

Adrian Bye: What are some examples because my feeling is that the good ideas go with a certain timing.

James Hong: Yes. Timing is almost everything for a lot of things. A lot of the really big ideas are ahead of the curve. With HotorNot, we happened to launch right around the time digital cameras were getting cheaper, so more people could participate. That made it infinitely more viral because the content creation aspect drives a lot of the growth.

The timing for us was the content creation piece. When YouTube came out, it was right around when cameras started to have the ability to create videos. Often times ideas are ahead of their time and you have to wait for the technology that it relies on to become cheaper and widely distributed.

A good way to think about these things is "What is the future going to look like or what’s going to be different?" For instance I can tell you that the iPhone is changing everything right now. Not necessarily that everyone is going to be on the iPhone, but the paradigm and what people think of their level of connectivity with an iPhone is going to change how all smart phones are made.

Then you start thinking about things like the concept of ubiquitous connectivity where I’m going to be connected 100 percent of my day and not just when I’m at a computer or even my laptop. The fact that it has push notifications is also now insanely huge.

You start thinking within that infrastructure. When everyone has the ability to be connected for 24 fours a day, you can think, "What can you do now?" If you think like that, you’re going to be early because not everyone has connectivity now. Not everyone even has an iPhone now.

The truth is that people have been thinking about that concept for almost a decade now. Before it ideas were with WAP, but it’s clear that the paradigm shift just happened. A lot of ideas people probably had 5 to 10 years ago are only now possible. When I am traveling, I can think about ideas that might be the right time when I get back or maybe a little later.

Even with HotorNot, we had the general idea for a year and a half before we launched it. Our idea was a dating site where we could use collaborative filtering, but it wasn’t interesting until people had the ability to take and submit their own photos to that system. That’s why the timing was right.

Adrian Bye: But you didn’t know that.

James Hong: We didn’t know that. It wasn’t thought out, but the fact is more people had cameras. It’s not that we thought, "We’re going to wait until cameras are out then we’ll launch it." However, because cameras were starting to come out we started thinking about pictures again. It’s not a genius thing, but you just notice things. The timing is right when the idea comes back to you.