Fast Track Interview

Adrian Bye: Barry Judge, who is the Chief Marketing Officer for Best Buy, is joining us today. Barry, could you tell us who you are and where you’re from.

Barry Judge: I’ve been at Best Buy for about nine years. I actually got to Best Buy through the Internet. At that time, everybody thought the dot-com was going to take over retail stores. We were brought in with the mandate to “blow the company up.” I like to be in a changing and fast-moving environment, and Best Buy has that in its DNA. It changes quickly, and we’re responding to the competition and the consumer almost every day. Before this, I was in a start-up company called Caribou Coffee and also worked in packaged goods with Coca Cola, Gatorade, and Pillsbury.

Adrian Bye: I’m fascinated to see you on Twitter. What prompted you to turn up there?

Barry Judge: What prompted me to use it in marketing is that I am trying to understand where communication, people and culture are going. I wasn’t really participating in social media at all, but our company is trying to adopt a lot of open architecture philosophies. We’re now very focused not only on “what” we do but “how” we do it.

The “how” we do it is trying to figure out how everybody in the company feels they can contribute. Everyone’s point of view is valid, so there is this big effort focused on how we use collaborative tools to facilitate that happening. Within the company, one tool is called BlueShirtNation, which we launched a couple of years ago. This is the Web site where, outside the firewall, employees can talk about whatever they want to talk about. It can be an honest and genuine dialogue about what was good or bad about the company.

We’ve got the Water Cooler, which is an online forum focused more on specific questions. Then we have the Prediction Markets, which has employees trading fictitious stocks or things happening in the company and sharing whether they are going to succeed or not. We also have The Loop, which is an idea forum where you stick your ideas out on the site, and people can add to or subtract from them. You can also invest in them with fake or real money.

All of that activity intrigued me. A couple of people, who are heavily into social media, know that I’m up for things, so they essentially told me, “You got to go out in Twitter.” So far it’s a way for me to get information I might not normally get or even get it faster.

Adrian Bye: I see praises about Best Buy, but I also see a lot of complaints on sites like Consumerist. How do you handle the praises and complaints of the company?

Barry Judge: We have about five hundred million transactions a year and well over a billion interactions. The chances of getting every one of those right is pretty remote. We want to make it easy for people to complain because we want to know what’s going on. We’ve gotten better, and we continue to get better.

The conversations happening on the Web are the real ones. I don’t always believe in them, but they’re out there. We encourage people to tell us what they think. As the CMO, I don’t hear the real stuff always. I wish I did. For example, on Twitter I’m finding that not only are customers telling me the real stuff of what they think but I also have a different kind of dialogue with the employees than I would when I see them in the elevator.

As a retailer in this space, it is important for people to trust us. The only way people will trust us is if we are behaving in a way that makes us trustworthy. Part of that is sharing and being honest, genuine and open about what’s good, what’s bad, what’s working, and what’s not working.

Going forward with social media, maybe we can start to somehow get all those conversations on our Web sites. It’s not hard for people to see what’s being said about Best Buy, both the good and the bad. Whether we want to acknowledge it or not, it’s being said, so why not make it easy.

Robert Stevens, the founder of Geek Squad who still works at Best Buy said to me, “Let’s make it real easy for customers to complain. We want to hear it. Then we can do something about it, so let’s do all we can to make it easy.”

Adrian Bye: I’m interested in your online store. Is a large percentage of your sales done online?

Barry Judge: In the United States, we do about $35 billion in total revenue. You can imagine that we do a lot of business online as well given the products we sell.

We are one of the largest retailers online as well as the largest offline. We’re stronger in certain categories. Part of our value proposition online is that we have stores, and the products that lend themselves to having an offline component do better online. For example, I want to go look at a television and see how it works or I want to lift up a notebook and see how heavy it is; those kinds of businesses we do better online.

We don’t do as well in businesses where you get a lot of stickiness built in, like Amazon does with the personalization and history to make their site better for you.

We don’t think stores are going to ever go away; however, we do know that the direct base selling via the Internet is going to become a bigger slice of the mix going forward. We are doing a lot to invest, not only by dot-com, but also looking at alternative brands that we can launch online with a different value proposition which the Best Buy brand is known for.

Adrian Bye: Do you have much of an affiliate program?

Barry Judge: We do pretty good business that way. We’re spending a lot more time thinking of how to make our Web site more relevant and shoppable. Even though we already sell online, the bigger impact for us is how the Web site actually impacts in-store sales. We spend a lot of time building up our future site online so we can help our offline business. We do a decent business in affiliate marketing. Most of the time, however, we spend on ways we can actually help you figure out what you want to buy in our stores.

Adrian Bye: How does direct response marketing fit in with Best Buy?

Barry Judge: I would say 25 to 30 percent of our mix is in direct marketing. We have 29 million people in our rewards and loyalty program. Over 50 percent of our sales are run through using our card; that is a tremendous source for understanding consumers. In addition, we recently launched the silver tier within our rewards program. We are building into it experiential benefits, return policy differences, a special phone number to call us on, and guaranteed access to certain kinds of short inventory products like Nintendo Wiis. A lot of direct marketing goes on within that.

In addition, we’ve built different models that are very predictive in terms of who will respond to direct marketing offers and who won’t. During the year, we do about eight programs where we invite people in for sales. It is based upon understanding the future value as well as who will respond to direct marketing.

We do a number of trigger programs as well. Once you buy product “x”, such as a flat panel television, we know the kind of purchase pattern you’ll have and the products you are likely to buy in the next 12 months. This is based on the history of other people who bought that product. We’ll send that email or direct mail inviting you to buy the product that you are probably going to want.

Adrian Bye: What sort of patterns do you end up seeing with the card tracking purchase behavior?

Barry Judge: First of all, we understand how much a customer is worth to us. That’s important because it helps us understand more customer-specific investments versus mass investments. We can spend more money on retaining this actual customer versus another customer that might come in once, twice or three times a year.

Additionally, we use it to understand not just frequency of purchase but profitability. With our entire customer database, we’ve been able to essentially assign profitability to every one of them. We break them into three levels: best sales, top best sales, and bottom best sales.

The top best sales are interesting because they are the most profitable people. The bottom best sales are also interesting. First, we lose a lot of money at the bottom best sales level, but they’re not necessarily bad customers. They’re actually good customers. They are buying all over the store, and end up buying things that aren’t profitable for us. The opportunity with them is trying to figure out how to put more profitable ideas in front of them instead of the ones that cost us money.

It helps us understand customer-specific investments. Since we have an understanding of what people are doing, we can do more effective direct marketing. Lastly, it helps us understand when our sales are up or down in a particular business or geography. We can then understand who we are up or down with. That helps us fine-tune our promotional strategy, even on a mass basis.

Adrian Bye: Although you talk about your marketing mix, in fact, a Best Buy store is like a little direct marketing test pool where you’re testing all the time to see what works.

Barry Judge: Yes, exactly. That’s kind of what I talked about earlier when I mentioned creating an open architecture culture. It’s not my responsibility to come up with all the marketing ideas. If we can truly enable a culture where people believe and feel accountable, then they need to come up with their own marketing ideas. All of a sudden instead of 25 people in the Marketing Department trying to come up with ideas, you have 150,000 people across the company trying to come up with ideas. If every store has a plan, then they get some things from the corporate office, but they also have the responsibility to come up with things that the corporate office can’t see.

Adrian Bye: But then you have to do that while still protecting the brand and the customer interest.

Barry Judge: You do that by providing bumpers. We’ve got a brand idea, and we’ve broken the brand idea down into five ways that it’s brought to life. One of our promises is called “Never Leave You Hanging.” We are trying to get better at never leaving the customer hanging. As the store takes that as our mantra, they can act in a moment and a way consistent with that. Everything happening in a retail store is in that moment. If they can remember these broad-based principles in their head more often than before, they can make the right kind of decision.

Adrian Bye: What you have told me about the card is very interesting. With the card, you can look at member data and see which are the more profitable lifetime customers. Then when you understand who they are, you can target your outbound advertising in both branding and direct marketing to attract those people, can’t you?

Barry Judge: We can understand profitability by customer. There’s a stat that we are actually making too much money on the customers that are most profitable. We should be investing more in them and hopefully making them more loyal with how we are investing and experiential improvements, like the return policy, rather than trying to figure out how to make the people who are draining dollars more profitable. Then we spend less on the middle people because they are not contributing much at all.

Adrian Bye: You’ve almost taken it too far.

Barry Judge: Yes, exactly. You need to make sure that the people who are the most loyal don’t go anywhere. Make sure you invest in them because they are going to drive your business going forward. You can’t lose those people. If you lose one of those customers, you need to get 80 new customers. You shouldn’t just treat them like everybody else. You treat them differently, and then you have a better chance of holding onto them.

Adrian Bye: Some Web sites love branding campaigns from a company like Best Buy. They can have a certain number of CPMs, stick them up on the site, and they’ll burn through them quickly with no real perceivable returns. You don’t particularly look for a call to action or anything like that; you just want the banner in front of people. How does the advertising and branding work for you?

Barry Judge: We use advertising for different purposes. Some purposes are that we want people to click, and we’re trying to drive engagement during that moment or within a seven-day period. Other times, we’re trying to drive an impression.

With the products we sell, we are also trying to get top-of-mind awareness. For example, you might not be ready to buy a television today when you see an ad from us. However, three months later when you start thinking you want to buy a television, we want to be there in your head.

In mass media, we try to be more general and talk about Best Buy the brand because most people aren’t interested in buying a specific product next week. There may be people who are ready to buy a product, but the percentage of people who want to buy a PC is only 10 percent. The people who want to buy a TV are another 10 percent.

If we get really specific in mass media, then we’re turning off everybody else and just focusing on the 10. If we can land the brand idea, we can bring all of the people thinking about buying whatever it is they are thinking of buying.

Online is more targeted. Typically, there’s less awareness building stuff online. We actually are trying to drive an action to our Web site. About 90 percent of our online focus is based around action. Specific sites can give us an idea that people are in a certain mindset. Typically, we are trying to get them to do something, although it isn’t always buying.

We want to move them through the purchase funnel. If you’re just thinking of what to buy, we might get you to the next phase, which is “I want to buy versus I have to buy.” The typical thought process of buying a television takes six months from idea generation of “I want to buy a television” to actually buying one. During that time, people are thinking about what they want to do for a while. They research and study. We’re just trying to move them along at whatever stage they are at.

Fast Track Interview

Adrian Bye: Today, Joe Abrams from The Software Toolworks is with me. Joe, why don’t you tell us who you are and what you’ve done.

Joe Abrams: My background as an entrepreneur began in the early 1980s when I co-founded a small entertainment company called The Software Toolworks. My cousin and I started the company in his garage in Sherman Oaks, California. We did programming tools for operating systems. This was before the Mac and the IBM PC. We eventually had six or seven people and moved out of his garage. By 1988, we had grown to $2 million in revenue.

At that point, we branched out from pure publishing tools, such as C compilers and macroassemblers, to publishing applications. We had two hit products in the late 80s. One was a chess-playing program called Chessmaster. The other was a typing tutorial product called Mavis Beacon Teaches Typing.

We had grown the company all by sweat equity up until then, and we needed to raise some capital. Through a combination of circumstances, we did a reverse merger in 1988 and raised a couple of million dollars. We went public with a $10 million market cap. From 1988 until 1994, we used that public currency and access to the capital markets to grow the company to over $150 million in revenue. In 1994, we sold that company to Pearson, the British publishing and media company, for $460 million.

I then started working with small technology companies as an investor and also helping in other areas, such as business development. In 1999, I co-founded the company called eUniverse, a very early stage Internet company. We later renamed that company Intermix. Our most famous Web site was a site called MySpace.

Adrian Bye: Did Software Toolworks publish the game Defender of the Crown?

Joe Abrams: Defender of the Crown was Cinemaware. In 1989, The Software Toolworks acquired a company called Mindscape. Mindscape distributed Defender of the Crown on the Amiga, so yes, we published it. We were very early stage Amiga developers.

We were developing across many platforms: the Atari 8-bit, Commodore 64, Atari ST, Amiga, Apple II, Apple IIGS, Apple III, PC, and PCjr. Every time we would develop a game, we would have to find programmers who specialized in that particular hardware. Our products looked very state-of-the-art for each hardware platform we were developing.

Adrian Bye: You have been through a big wave of time and growth in the industry. You even competed against Microsoft. How did that feel?

Joe Abrams: Back in 1981 or 1982, we were close to the same size as Microsoft. One of the things I tried to do over my career is to segregate. There are two types of competitors at which I looked. One type is the traditional business going into new technology. Whether it is a movie company going into the software business or a book publishing company going into the social networking business, those types of companies don’t scare me. In fact, I’d look at them as opportunities. It’s relatively easy to compete against traditional companies going into new media or new technology because they don’t understand the culture it takes to create the products.

The other type of competitor has actually grown out of that industry. The Microsoft’s. The Google’s. I tend to try to stay away from those companies because they do scare me. We would never try to compete in the Flight Simulator market with Microsoft. I would never try to compete on the Internet side of the business or in the search-engine business with Google. They’ve grown up in that space.

I would have people come to me all the time and say, “I could write a better spreadsheet in Microsoft Word.” I’m sure they could write a better spreadsheet in Microsoft Word, but there’s no way I’m going to compete on the sales and the marketing side of that juggernaut. We’ll find a niche where we can compete and succeed. There is plenty of room to compete, make money, and build big companies without tackling these guys directly.

Adrian Bye: Why don’t you tell us your big story of Intermix and MySpace?

Joe Abrams: Brad Greenspan and I co-founded the company and were the first two shareholders. There are different perspectives on what actually happened. I will give you my take on it.

At the beginning, I viewed it as the cable TV model. Let’s build a network of viewers, and then we’ll have these little stations. For example, we’ll have stations for health and nutrition, photo sharing, joke of the day, and video gamer reviews.

In order to make money, we started selling advertising. We were having a fairly difficult time selling it. We said, “Let’s go into e-commerce and sell products.” We started to sell reusable inkjet cartridges. We then sold everything from Salt Lake City Olympic berets to health and nutrition products, and we were fairly successful in that.

Then we said, “We’re really not experts in marketing.” Instead, we decided to buy a marketing company. The guys who started that marketing company came to work for us and really helped it evolve. An idea had been percolating in the back of their mind for a social networking site. Of course, this is before anybody knew what social networking meant.

They said, “We have this idea. We’re amateur musicians. We think there’s opportunity to do something where people who are looking for band members can get together and say, ‘I’m in L.A. I’m looking for a drummer, and this is the kind of music I like to play.’”

They went to Brad and said, “We have this idea. We’d like to create this idea and plug it into the Intermix network.” From there it gets fuzzy. If you talk to Brad, he will say, “They sort of came to me with this idea, but it was really my concept and my implementation.” They’ll say, “No. It was my idea and implementation of the concept. Basically, we just leveraged off the Intermix traffic.”

I can tell you it was not my idea. They plugged it into the network. Inside of three months, we could really see that it was going to be bigger than the whole network. We knew we had lightning in the bottle.

Adrian Bye: Was your goal to build a social network and acquire traffic so you could then monetize that traffic?

Joe Abrams: It started as a marketing vehicle, but it gradually took over everything else. In fact, News Corp bought us for MySpace, which they had used successfully as a promotional vehicle for some of their TV shows and movie properties. It really wasn’t until after they bought the company that MySpace went to the next level. They were buying it as a marketing and promotional tool.

Adrian Bye: I was reading on Brad Greenspan’s site how they plugged MySpace into the various properties you already had, and that’s what gave it the initial kick. I also understood that a key part was the e-mail company you acquired, which helped you get mail through.

What was the key driver of sign-ups? Was it that you plugged into those properties and people informally invited each other? Was it the address book importing process people were using to send invites?

Joe Abrams: It’s one of those things where we were doing so many things. The viral marketing was working; the e-mail delivery was working; the Internet was exploding. The functionality of the site was good.

When we started doing this, Friendster was the gold standard. Within five or six months, they became, in effect, a bankrupt company. Because we were doing a lot of things, I’m not exactly sure what the big driver was.

You have to tell the story in as many different ways as possible, and you have to be creative about the way in which to do it. You want to do affiliates, viral marketing, sweepstakes, contests, and traditional PR. When something is working and you’re pouring fuel on that fire, it goes crazy.

I don’t usually figure out the one best thing to do. Instead, I try to do as many things as possible and let the market tell me if it’s working or not. It’s similar to the old days with software. When we had a hit product, I would increase the advertising budget. People, however, tend to decrease the advertising budgets. They’d say, “I don’t need the advertising because my product is selling well.” I need to advertise the hot product and promote it because that product is pulling the rest of my product line along with it.

Adrian Bye: You’ve hit massive home runs. First through the dawn of the computer industry, and then with MySpace.

Joe Abrams: I didn’t tell you about the third one. About 15 months ago, I took a company public in the solar space called the Akeena Solar (AKNS). That company has a $250 million market cap.

I’ve actually had three companies start with no one knowing what industry they were in, but they each have become very big winners.

I’m a believer in small companies that have great management using public currency to build their companies into mid-size companies and am now focused on helping them do that.

Adrian Bye: Why would a CEO of a company that could grow organically on its own want to talk to you?

Joe Abrams: Being the CEO of a public company is not for everybody. Just like everything else, there are good and bad points. The bad points are that you’re in front of the public eye all the time. You really work for the shareholders. You probably have to spend a third of your time involved in the things that are necessary to being a public company, such as investor conferences. The good news is it’s a way to build incredible wealth.

In terms of raising capital, there’s no better way to raise capital than in a public company. When you’re a public company, the only question is how much of a premium of my stock price am I going to pay. When you’re a private company, you get into issues of worth and earn outs. You can spend months arguing over valuation. At the end of the day, it’s still an art, not a science.

Very few IPOs are now being done. Most mature companies that already have revenues and profits are really not candidates for venture capital money anymore, and venture capital comes with its own baggage. If you need to raise capital, then the only alternative is the private equity market, which is every bit or more onerous than the venture capital market.

There are very few alternatives for people today in terms of raising capital. If I had a business that was generating $5 or $10 million a year in profit and I was putting all that in my pocket, I’m not sure I would go public.

However, if I was doing $5 or $10 million a year in revenue and trying to figure out how to get to $100 million in revenue, or I was making a salary but wasn’t building any wealth, I would then try to figure out how to grow bigger faster and compete. All these businesses have shelf lives. You either have to grow bigger or become less significant. If you’re a one-product one-market company where you haven’t spread your risk around, then you really run into a situation where you’re just one competitor away.

A perfect example, by the way, is Friendster, which was rumored to have turned down a $50 or $60 million offer to buy their company. Several months later, they were close to bankruptcy . You have a very narrow window as a private company sometimes. If you don’t take advantage of that window, you’re doomed.

I like being a public company because there is always access to capital. Your stock price may be down, but you can always have access to capital.

Adrian Bye: Would you rather be thinly traded on the Pink Sheets or on one of the smaller exchanges?

Joe Abrams: I wouldn’t do pink sheets, but I would do over-the-counter all day long.

Adrian Bye: What type of company was Intermix?

Joe Abrams: We started over-the-counter. Then when you meet the reporting requirements, you go to NASDAQ. Last year there were maybe five IPOs in the United States. There were probably 250 or 300 reverse mergers in the United States, and all those raised capital. Since I have done a lot of reverse mergers, I have a very defined process for how to do them. Just like any business, there are things to avoid and things to be careful of during the process. It’s not for everybody.

I always do triangular mergers, which is a combination of capital, public vehicle, and the private entity. I would not go public unless I have enough capital to make sure the company was able to perform for at least the next year.

In effect, AOL was a reverse merger; MCI was a reverse merger. It’s a very common process. It’s very fast and bypasses millions of dollars of accounting and legal fees because to do an IPO is a very expensive, very time-consuming process.

Then the issue is getting the stock trading. That in itself is its own process. That’s why the CEO has to spend a third of his time talking to after-market investors and speaking at investor conferences. At the end of the day, management raises money in common stock with no board control and no liquidity preference on the money. Then they have a currency with which they can build their company. If they execute on the plan, they’ll be rewarded.

Today, private companies sell at two to three times cash flow. Public companies sell at 20 times cash flow.

Adrian Bye: Why is there such a difference?

Joe Abrams: Full value is 20 times cash flow. In the public market, it’s giving credit to the full value. In the private market, they’re giving you discounts because you are a private company, and there’s no competition for that. You wouldn’t pay what you’re getting in the public markets for a private company. It just wouldn’t be worth the acquisition cost.

Adrian Bye: What kind of companies do you look for? What constitutes a company you are interested in?

Joe Abrams: I have looked at 200 companies over the last 25 years. I can look at the company, the market it’s in, and the financial metrics and tell whether the company would be an easy or a hard one in the public markets. Then, it depends really on the entrepreneur’s goal. Is the goal to sell out and go off to the islands? Is the goal to build something even bigger? Is the goal to take on partners to help?

After understanding the entrepreneur’s goal, I figure out, “What’s the right financial strategy? What’s the right deal?” At the end of the day, if the entrepreneur is not happy, the deal doesn’t work.

Fast Track Interview

Adrian Bye: Today I have the pleasure of talking with Ian Schafer, who is the CEO and founder of an agency called Deep Focus. Ian, tell us a little bit about who you are and what you do.

Ian Schafer: Deep Focus is almost six years old. We are a full-service interactive marketing agency. We have four core disciplines: media planning and buying, creative development, publicity, and consulting strategy. We look at things holistically, strategically, and with an integrated approach where advertising is not just thrusting a message upon the consumer but actually fostering a conversation.

I was raised in New Jersey. I grew up around entertainment, marketing, and market research. My father worked at ABC for about 15 years. He was Vice President of Market Research and left that position to run a company called Marketing Evaluations, which is responsible for Q Scores or celebrity and personality ratings. I went to George Washington University in Washington, DC from 1994 through 1996. I spent my summers programming Unix at AT&T where I was working on building the back end of one of the first major ad-supported Web sites for AT&T. I was also working on the alpha version of Net Gravity, which ultimately became DoubleClick.

At school, I started as an International Affairs Major. I realized that didn’t quite interest me. I switched my focus to Business and entered a five-year Masters Degree program in Information Systems Technology. When it was time to graduate with my undergrad degree, I saw what was developing with the Internet and realized the great potential for both myself and the industry. I decided to leave the Masters Degree program and get to work.

In 1997, I went to work at a start-up interactive shop called iTraffic, which was one of the first media-buying agencies. Within a couple of years, I became a senior guy on the Disney account, which was one of the agency’s largest accounts. Following my time at Disney, I went to work for Miramax Films, which is owned by Disney, where I was Vice President of New Media until 2002.

I saw a lot of agencies come in and out the door as we were reviewing agencies and determining which agencies would be the best partners. I realized it would be nice if I could get everything in the same spot with world-class service and output and have someone thinking about my brands strategically rather than just thinking this would make a good Web site. I wanted someone thinking about how the Web site fit into my overall marketing goals or what I could get without having to necessarily pay a CPM. Those were all things I saw were not being offered.

Adrian Bye: Were agencies not doing that at the time?

Ian Schafer: They weren’t, and most of them still aren’t. Big design agencies may have a vice president of Media, but they don’t have media planning and buying. They just have someone that understands media and can speak about that with the client. We have a full team that plans and buys online media everyday.

Adrian Bye: How scalable is your model?

Ian Schafer: I’m not sure if I want this to scale into a 1,000-people organization with a tremendous amount of revenue. I would prefer to be recognized as a thought leader and change agent in this industry.

We’re almost at 100 people, and we’ll probably be over 100 people. Once process trumps innovation, we will have an issue and have to look at things.

Much of what we do relies on interaction between human beings. When we send a RFP to a site, we usually come up with some really crazy idea that we want to do with their site. For example, we say, “Can you do this?” or “Maybe you have a better idea, but this is really what we want to do with you. This is the concept.” That usually has the input of the creative team in it as well.

The video ad on the home page of YouTube is a perfect example of that. We essentially created that ad on behalf of YouTube. We went to them really early on, sent the mock-ups, and said, “This is what we want. We know you guys aren’t selling it, but this is what we want to buy.” The light bulb went on over their heads, and they said, “Wait, this could be an ad product for us.” They gave us the first home page ad to run on the upper right-hand corner of YouTube as a click-to-play video.

Adrian Bye: I’m looking at your Web site now at deep-focus.net. You have some pretty impressive companies, TV shows, and things like that. Why don’t you tell us about some of the campaigns you’ve done and how those deals went together?

Ian Schafer: One of our longest tenured clients is HBO. They have been a client for almost four years now. It started with me essentially gracefully begging for a campaign with those guys. When I thought of entertainment brands that I wanted to work with, HBO was the first one that came to mind. We wound up getting a campaign and delivered on our promise of doing a great job with it. Within six months, we wound up winning all of their creative and media assignments, so we plan and buy all of HBO’s media. We also build all the creatives.

Adrian Bye: What does that mean? For example, do they really need to advertise The Sopranos?

Ian Schafer: HBO is a premium channel, so people have to subscribe to get this. The Sopranos is one of those properties that is everywhere because it’s such a cultural phenomenon. The fact remains that The Sopranos would take a year and a half off between seasons, so there is a potential loss or attrition of viewers that’s going to happen. People would say, “It was a year and a half. I don’t even remember what happened,” or “Nothing happens in that show.”

We did one campaign for The Sopranos after its longest hiatus, of a little over a year and a half. In addition to an ad campaign to support what they were doing traditionally, we also created the first commercial mash up using Google Maps imagery or Google Maps service itself. People could zoom in on the areas of New York and New Jersey where the previous season’s key 15 events happened. You could zoom into each one using satellite or map imagery and watch scenes play out in video overlaid onto the map at each location. You could literally zoom into Tony Soprano’s house and watch the scenes happen. With the map, we allowed people to catch up on a season that was last on a year and a half ago.

It became one of those things that actually have a legitimate viral effect because it was a new use of existing technology that millions of people use everyday. If there’s a formula to doing what we do, an ingredient is doing new things with what people are comfortable with because that lowers the barriers to entry.

Adrian Bye: Are you also working with my favourite TV show Entourage?

Ian Schafer: With Entourage, we developed a really great promotion with MySpace called MyEntourage. This was the first time MySpace let anyone adapt their name or logo on behalf of a promotion.

What we did was literally a subsection of MySpace. MyEntourage had a competition where instead of creating individual profiles for yourself, you could create profiles for your group of friends or your entourage. The idea was to get as crazy with the profiles as you could, have as much fun as possible, make them as appealing as possible, and of course, network yourself into having the most friends.

Of course, you had to have certain elements of the show on the profile in order to qualify. We wound up getting hundreds of groups with hundreds of thousands of friends amongst them. It was incredibly popular. We whittled the groups down in terms of popularity and then chose the winning group, a group of guys from Michigan, based on creativity.

As part of the promotion, we brought in Chrysler. The winning group members each won a Chrysler Crossfire as well as X-boxes, phones, dvds, and all kinds of things. We also flew them to Los Angeles for a weekend to live the Entourage lifestyle. HBO documented the whole thing. It ran as a special on HBO On-Demand and a bonus feature on the DVD.

Adrian Bye: If I want to go knock on the door of MySpace, that’s not going to be something easy. How does that get started?

Ian Schafer: It starts with a media buy. Also, people get recycled in this industry and wind up in weird and interesting places. I do happen to be friends with the former CMO of MySpace.

A huge part of what we do is built upon friendships, trust, and karma. Do good for others, and good will come back to you. There are a lot of ways to deal with business, and we’ve just chosen this way with honesty, trust, relationships, and reputation. We have a reputation for coming up with amazing ideas for smart, intelligent, trustworthy business, and it’s helped us forge these relationships.

We’re not the biggest kid on the block, but we get a lot done with Google because of our reputation. We get a lot done with YouTube. A lot also has to do with getting into a company early. We’ve been the first advertiser on many of the most popular Web sites. We were the first advertiser on Photobucket. There was a virtual world called Gaia, which is huge now, and we identified them as being a really fast grower. We have a knack for seeing what’s coming around the corner, and sites respect that.

Adrian Bye: How do you find these sites? Are you tracking Alexa and watching where the traffic’s going and things like that?

Ian Schafer: A few tools are out there to look at that, but it’s also just really paying close attention to the Zeitgeist. What’s interesting is a lot of agencies and holding companies have innovation labs. The culture of this agency is innovation, so I expect it to come from everybody.

Adrian Bye: While you work with many clients, let’s say you lost HBO, how big is the company then?

Ian Schafer: HBO actually represents a fairly small amount of our overall business albeit they’re a loyal client. We just signed on a major division of one of the world’s largest beverage companies as a client. We just handled their work around the Super Bowl. We are adding clients to the roster often, and the new relationships we’re bringing into this agency are actually non-entertainment. They’re more brand-oriented and CPG-oriented.

The vision is long, so we’re not looking at a series, a television show, or a three-month effort. What we’re doing is helping them develop and evolve their interactive marketing strategies across media and social media, which I consider two completely separate things. These guys come to us seeking help. If you meet the qualifications of what we project as being a good client, we’re going to take you on.

Adrian Bye: You have some big names, such as HBO, Miramax and FOX.

Ian Schafer: Yes. Also, New Line Cinema, Comedy Central, and CBS. We’re in the middle of the second season of Jericho, which is coming back onto CBS. We are wrapping up an alternate reality game around Jericho to build up excitement leading to the season premiere of the second season.

Adrian Bye: You have 100 people. I’m sure not all of those 100 people report directly to you, so you must have some capable management in there. How do you find and hire people? What do you look for in people?

Ian Schafer: Since day one, I have a very high bar set for bringing people into this organization. If I interview people, I’d probably let in one out or every 50. I’ve trained our managers in what to look for in people and what questions to ask. Experience is important to me to a certain degree, but intellect and an intellectual capacity is important.

Most of the hires, especially the senior-level hires that we’ve made here, have come from either one of two ways: a recruiting organization or through networking.

Adrian Bye: If you’re looking for senior management, how do you filter them?

Ian Schafer: That’s the toughest thing because I don’t want all of the same people here. I want people bearing different backgrounds. Recently, we hired a general manager here who is basically my lieutenant. He came from a traditional advertising agency.

Adrian Bye: Why did you pick him? Why do you think he’s going to work out?

Ian Schafer: It took months and months of interviewing and feeling out personality, drive, motivation, belief systems, passion, enthusiasm, and, obviously, intelligence. It also involved looking at experience in helping to build a business and having an entrepreneurial attitude.

What’s important for us is to continue being thought leaders that have opinions and not just saying what our clients or the industry wants to hear. We’re going to call it like we see it. We don’t have enough people or agencies like that in this business.

A lot of agencies have lost their personality. If an advertising agency or any agency, business, or person in this field lacks personality, how do we expect to give the brands that we work with personality? You want the personality of the agency to shine through.

Fast Track Interview

Adrian Bye: So, today, I’m here with Gary Swart, who is the CEO of oDesk. oDesk is a company that’s focused around outsourcing and making it easier to manage outsourced teams. Gary, do want to tell us a little bit about yourself, your company and what else you guys do?

Gary Swart: oDesk is a global marketplace. We let employers hire, manage and pay world class technical talent at globally competitive rates. At oDesk employers can hire based on skills or work history, feedback ratings, pay rates, etc. The matching service is the first piece of our offering. Next, once the employer hires, they can manage directly as if they were in their own office. This occurs visually in real-time using a unique collaboration in the management solution we’ve built. The third piece of our solution is management of pay and includes payment and accounting for hours worked based on auditable time logs. We’ve figured out how to pay cost effectively in over 60 countries. So, think of oDesk as a one-stop-shop for staff augmentation or project needs to hire, manage and pay.

About me personally, I’ve been at oDesk for two years now. I came from an ill-fated startup, Intellibank, which got defocused trying to be extended relationship management. Prior to that, the balance of my career was spent in the software development tools space. I started at Pure Software, which became Rational, then IBM and spent about eleven years working at these companies.

Adrian Bye: Why would I care about working with oDesk when I can find people on Elance or another site and not have to worry about using all of your stuff which seems like a lot of work?

Gary Swart: You can go to an Elance or you could go to a Craigslist and post your requirement but that’s just a match. You are just finding talent that can help you, but what about building and maintaining trust in that relationship? What about collaborating and communicating? Then, how are you going to pay those people? Similarly, for the provider though they find work, they are not building their reputation and they’re not guaranteed they will get paid. They could do months of work and end up getting shafted not because an employer meant it to happen, but because money ran out or others things occurred.

So, we help create a trust environment where not only can an employer finds a good match based on history and on what past buyers say, but also by facilitating management and payment.

Adrian Bye: How do your tools fit in with existing project management tools?

Gary Swart: Our platform gives you the capability to monitor and communicate with your workers. For example, in order for me to get paid, I need to log into your team room and as soon as I do, you’re tracking all of my time. But, not only are you tracking my time, you’re also tracking my work. It’s like I’m sitting in the cube next to you and at any point during the day or night, you can ‘walk’ by my cube and see what’s on my desktop. We do that by giving you a screenshot of your provider’s desktop six times an hour, as long as they’re logged in to the team room.

The concept of visibility breeds accountability. Additionally, an employer may not like a direction the hire’s going on a design or on a story they’re writing or whatever the work product may be and can, of course, correct them in real-time.

Adrian Bye: When you talk about those corrections, you mean an employer can view the entire screen very easily, is that correct?

Gary Swart: That’s correct. It’s a thumbnail and you double click to expand it to full screen size. So, the employer can actually look at the provider’s code, can look at their design. An employer can look at whatever work product is on the provider’s desk. That happens six times an hour at random intervals as long as the provider is logged on in the team room. At the end of the week, the sum of the hours logged in the employer’s team room gets sent to them as an invoice. The employer can click on any of those hours to see exactly what the provider was doing. So, it’s fully auditable.

Adrian Bye: They are able to see the provider is working, or is it just a snapshot?

Gary Swart: We not only provide the snapshot but also have a status bar that shows keyboard strokes and mouse events and even add one other element. There is a camera, so the employer can make sure that it’s actually the provider working at the machine and they are not farming the work out to someone else. Then we also add the concept of a work memo and with the frequency the client desires, a little window pops-up and asks the provider to share what they are working on.

Adrian Bye: Let’s say, you had to pick the top three reasons people spend large dollar amounts like $8,000 through your system rather than the $300 spent on other sites, what would you say those would be?

Gary Swart: The flexibility of time-based work. The work diary, the visual, historical audit trail of work activity and the ability to only pay for hours worked, which takes a lot of the risk out of the process. Then, the other thing is pay management. It’s nice at anytime, to know what you’re paying for, to see your invoice. We can do the contracts, all the 1099s around the world and there’s a lot of value in that.

Adrian Bye: You charge 10% commissions, right?

Gary Swart: That’s correct. We charge at 10% on the direct labor rate. If you visit www.odesk.com, the rates you see on a provider’s profile are set by them and include the oDesk fee. We tell providers, “Look, you decide how much money you want to make and we’ll add 10% on top of that.” That’s the rate that we advertise to our buyers.

Adrian Bye: So on to some startup questions. Do you feel you now fit the role of experienced management or would you imagine starting your own thing?

Gary Swart: There are lots of options and there are lots of opportunities as well. I definitely feel like the experience I have gotten here over the last two years has been fantastic, especially learning this type of a business. There’s not only the skill, there’s also the ability to acquire knowledge about the domain and you can’t take that for granted.

Adrian Bye: What was your experience before you came on?

Gary Swart: I was an entrepreneur earlier in my career, went into technology and rose through the sales ranks. Then, ran the small to medium business practice at Rational, which was about 40% of the company’s revenue. I had a pretty substantial responsibility there along with the failed start-up mentioned before under my belt when I came here. That failure was an eye-opener and a valuable experience for me, mostly lessons on what not to do that I think uniquely prepared me for this opportunity.

Adrian Bye: If entrepreneurs are thinking about hiring a CEO or COO, what would be your recommendations? What should they be looking for?

Gary Swart: There are probably four areas that are important. Number one, are personal characteristics because they encompass things you can’t change. I don’t care how much skill or knowledge or motivation a person has, if they don’t have integrity, if they’re not a good communicator, if they’re not hardworking, you can’t teach those things. In other words, you can teach a chicken to climb a tree but you’re better off getting a squirrel in the first place. Next, is motivation. Why does the person want to do that specific job and why do they think they’d be good at?

The third important element is skills. Do they have skills in building, maintaining and retaining A+ teams? Do they have skills in attracting talent? Do they have skills in raising money? Do they have strategic or tactical skills that are important to the company at that stage? Then, the fourth important factor is knowledge. By knowledge, I mean, are they coming out of a domain where they’ve already done this? For example at oDesk it was important marketing-wise, to get an individual who understood Internet marketing as opposed to traditional software marketing.

Adrian Bye: Will you ever consider you’ve grown the company enough and it’s time for someone else to take over?

Gary Swart: It depends, though if that’s what the business needs, I’d be happy to help bring in the right person. I have very little emotion around that. I look at it and say, “Look, if oDesk wins, we all win.” There are plenty of opportunities for everybody. I’m pleased to have the reins and to grow the business as far as I can take it, but at any time, if I’m not the right person then I’d be glad to not only step aside but to help to bring the right person in. I’m actually confident in my abilities to do that as well, to help attract the right talent for the company.

Adrian Bye: Is there anything else you’d like to tell us about oDesk or that we should know but didn’t cover?

Gary Swart: Yes. I think we’re approaching the market uniquely and add a lot of value in the ‘manage and pay’ part of the equation. As we move into next year, you’re going to see new twists and opportunities. I encourage any company having difficulty in finding good talent or in building their team to give us a try and let us know how it works. We enjoy getting feedback because it helps us continuously make oDesk better.

Adrian Bye: Thanks for your time.