On August 3rd my new company, DeclareMedia, launched its first local business directory at UtahWebDesignFirms.com. At least I think that was the first one…anyway, it doesn’t really matter. In the past three months, we’ve launched 2,759 more directories, have 709 listings, and have brought in a grand total of about $2,000 (I just realized it would be handy to have that figure in the dashboard stats…just sent a note to the developer about it).
What is DeclareMedia? We run thousands of local, online business directories. As mentioned above, if you own a web design firm in Utah, we’ve got a directory for you. If you’re a financial planner in Arizona, we’ve got a directory for you. We’ve got directories for plumbers, locksmiths, PR firms, dentists, dance studios, and 100+ other things.
The business model is simple. If you want a listing on our New Jersey attorney directory, theoretically because you are an attorney in New Jersey or own a law firm in NJ, then you can go there and create a listing for free. Why would you do this? Two reasons; 1) because people will see your listing and call you, email you, or click through to your website, and 2) creating a listing gives you a link back to your website, which will boost your website’s rankings in search engines like Google. Or in other words, it helps with your search engine optimization/SEO efforts.
But wait, there’s more! Most of the traffic coming to our New Jersey attorney directory is going to hit the homepage first. Therefore, we offer “featured listings” on the homepage that you can buy for $20/month. We limit the number of featured listings to 10 per directory, and whoever signs up first gets the top spot at the top of the homepage. Would you pay $20/month to get one additional paying client per month? Hopefully that value proposition is a no-brainer. And hopefully you would get more than one paying client per month.
Now you can see where this is going. The goal is to launch as many of these directories as we can. We’re almost up to 3,000, but let’s say we eventually get to 50,000. And let’s say we sell, on average, one featured listing per directory, and for only one month per year. 50,000 x $20 = $1M. Fair enough, you say, nobody is going to sneeze at a million bucks, but that’s gross revenue. How much profit are you making on that?
This is where the lean part starts to come in. The marginal or variable cost of launching a directory consists of nothing else but the domain registration fee of $7.49 per year. 50,000 x $7.49 = $374,500. There are hosting costs, but they don’t change regardless of the number of directories we launch (within reason). Right now we spend around $400 on hosting, but let’s say we have to get some more servers in order to handle 50,000 directories, so that it’s $1,000 per month. There’s another $12K per year, meaning we’re up to $386,500. That’s it. There are no other expenses. That isn’t to say we can’t or won’t find other things to spend money on, but those are the only absolutely necessary expenses, meaning we’ve got $613,500 left over at the end of the year to divide amongst the people working on this project, of which there are two; me and the programmer.
But this isn’t enough to qualify as “lean”. It’s not just about having a lean team and not spending money on anything unnecessary, it’s also about how you launch and how you develop your business. According to Eric Ries, a lean startup will typically employ “The use of platforms enabled by open source and free software.” Check. Although we used .NET to build DeclareMedia’s core functionality, we used an open-source (or at least free…or at least cheap, since the developer never bugged me about paying for it) component that greatly sped up development.
Another factor is to engage in an “agile” development process. Eric has a good/simple slideshow on this. In essence, you build what you need today and you prefer flexibility to perfection, or in other words, you throw your product/service out there and then continuously improve it, rather than waiting until it’s perfect to ship. The time between starting development and launching our first directory was about a month. Granted, there were 10 years of thought and planning before that, and about $15,000 I threw at 6-7 different developers, none of whom could get it right, but once I found the right programmer, he went from scratch to launch in about a month. That was three months ago, and considerably more work has gone into the project since then than before then.
And that’s really the third part of what makes a lean startup “lean”–”Ferocious customer-centric rapid iteration.” We threw our directories out there, and then started making changes based on customer feedback, as well as the problems we saw emerge. More on those in future posts.
The point is, I think DeclareMedia is an almost ideal case study for what lean startup is all about, and we started down this path before we knew what a lean startup was. Granted, this doesn’t mean we’re going to succeed, but if proponents of the lean startup strategy are correct, it greatly enhances our chances.
Going back to revenue, where things get interesting is when I start asking myself “What if we can sell more than one featured listing for just one month each year?” What if, on average, we can sell one featured listing per directory, for the whole year, on 50,000 directories? Now we’re looking at $12M per year. What if we can sell two featured listings per year? $24M. And what effect would that have on our company structure? What kind of investments would we need to make in terms of personnel, hardware, etc.? Not much. I believe we could effectively manage 50,000-100,000 directories with a team of, at most, perhaps 10 full-time employees.
Where’s the weakness in all this? There is an Achille’s Heel, which is that it all depends on Google ranking our directories well. If the directories don’t rank well, then there is very little value to pass on to our customers. But so far, the results are promising–658 of our directories rank in the top 10 on Google for the keywords they target. 112 are in the #1 spot. And bear in mind many of our directories were only launched a few weeks ago.