Ted Rheingold has good reason not to return my calls, answer my mails, or want to talk to me.
Step 1: Take Content…
A few months ago - November 13th to be precise - I wrote something about the cooky state of consumer internet media, and used the craze surrounding his website, Dogster.com, as prime example of that. My argument, somewhat tongue-in-cheek, was that the same wave of euphoria that surrounds a social community for dogs, such as Dogster.com, preceded the dot com bubble bursting when investors drove shares in Pets.com to stunning levels, hitting $11 in February 2000 and finishing up at $0.19 at liquiditation.
In other words, if history repeats itself - and it always does - then the tea leaves are suggesting an ominous future, right? Could it be that we have a short memory: after all, dogs, while cute as a button, a business do not make.
Or could it?
Step 2: Stir up a Community…
Having studied Pets.com and always broken down the consumer media space online between the famous 3 C’s: effectively Content, Commerce and Community, I sort of understood his reaction to the post:
Hey,
Thanks for checking out the site and taking a hard look.
Pets.com was a epic eCommerce play. Dogster and Catster are online communities bootstrapped and only augmented by user demand.
Today’s our third birthday and 2006 was a profitable year. It actually does deserve looking deeper if you really are interested in why one is a sustainable growing company and the other failed. They really have nothing in common in all.
Of course, his answer was fairly laced with sarcasm, had I really “taken a hard look”? Probably not. But even in my first post, I understood that this time, things would be different, because, well, Dogster.com is very different than Pets.com.
Before we delve into all of the ways why and how, it should be noted that the recipe for success for practically all internet consumer media companies has proven to be the following:
- create or aggregate Content
- develop a Community around the content
- monetize the site through Commerce.
For transactional companies such as eBay and Amazon.com, it’s a different story, but those are largely marketing driven strategies.
But for online media companies, it’s a time tested approach. I lived through it myself in 2000 when I worked in the men’s publishing space. Our company focused on content, leveraged that to create a community, and then monetized it through ad sales. Our main competitor had little content, tried to focus on commerce to generate a community, and ultimately failed, burning through $17.5M in financing from Highland Capital Group. As such, I sort of understood that Pets.com was very different than Dogster.com. But, the fact remains, until Dogster is barking and kicking, the comparison will come up.
“If Pets.com did not go extinct, there is a good chance Dogster.com would not exist,” admits Rheingold when I spoke to him yesterday. “But the two companies are very different, Pets.com is like Amazon.com for pet products, whereas we do not sell any products, carry inventory or anything like that. We might have affiliate programs but we really have a different business model,” continues the 36 year old CEO of Dogster.com, a profitable social community for dog lovers, created in January 2004.
While I was exchanging emails with Ted to set up the interview, I imagined he was a pet-loving idealistic who just wanted a place to post pictures of his dog Max and hence was born Dogster.com. Naturally, that was not to be, when we finally talked, I asked him where he got the idea for Dogster.com:
“I was looking for repeat, recurring revenue, to ensure that I could pay the rent,” starts off Rheingold.
“Hmm, what about Max?,” methought.
“My girlfriend and I lived in studios, so we could not have any pets, and I would see my girlfriend going to the ASPCA website to look at pictures of pets, and it was sad cause many of these dogs would be getting euthanized,” explained Rheingold, “I asked myself why there wasn’t a site to share images and stories for dog owners.”
Step 3: Generate Commerce.
“I was hoping to have an advertiser in place by June, 2004, but by March I had clients,” and while the ad offerings were simple and modest ($50 for your banner to run in equal rotation for the month), the potential was clearly there, according to Rheingold. The problem was, he had a day job building and managing websites for clients, and that took precedence, even though Dogster.com was growing and eating up a lot of his time. The clients were lucrative but the cash flow sporadic, hence the desire for “repeat, recurring revenue.” But of course, until a consumer media destination gets big enough, it’s a large hole sucking money, time and energy.
An Expensive Hobby
In other words, Dogster.com was an expensive hobby, something that I know all too well from my first year running Mojo Supreme, and mainly, WatchMojo.com Web TV. Because of the resources it was eating up, Rheingold sat on it and would add features slowly but surely, waiting to see if “Ad Sense would make more money for us the next month than the previous one before really diving in more, I didn’t want to invest more money,” he admits, adding “Dogster.com was starting to show signs that it would be a bigger success than I thought it would be.”
The Realities of Startups
Listening to Ted talk, I could not help but get what he was talking about, mainly on two important realities:
- Many entrepreneurs start a company because they see something or look to satisfy a need, there’s no magical story. Pierre Omidyar started eBay - not because his girlfriend wanted to trade her Pez dispensers (that was a PR story) - but because he knew that the Web was perfect for auctions. Ted Rheingold started his company because he wanted recurring revenue and nothing like Dogster.com existed.
- Bootstrapping a company means that you have a lot of options and leverage down the road, but don’t even kid yourself, for the first months, lest years, you are going to lose money, plenty of it, and there’s no real guarantee of getting that back, let alone making any. If you are comfortable with that, start away.
By 2004, Ted brought on two partners, John Vars and Steven Reading. They were doing it part-time, but by 2005 they had some marquee advertisers joining them for the ride: Animal Planet and Target.
As a consumer media site, once you get major advertisers, you sort of know “this will work.” I had that moment at my old job when I closed a deal with Universal Pictures. We felt great about ourselves with my ex-boss displaying one of his usual moments of gratitude, mind you…
The Financing Equation
At that time, Dogster was getting the usual invites from venture capitalists to come in and talk about their little operation. I asked Ted what it was, in particular, that excited the VCs, to which he was very quick to add: “passionate communities.”
“But I could not see, how we could take in $3M in financing, when we had something like 50,000 registered members, mainly, we were worried about being pushed out…” - things that all entrepreneurs who talk to VCs naturally think of and are concerned, no matter what anyone says before a deal is signed.
The Tipping Point
By July 2005, “we were paying ourselves a salary, expenses were paid and we became profitable.” At that time, the dynamics change. As an entrepreneur, there are many tipping points, or milestones, you look forward to. One is when the product, website or service is complete, the other is a simple launch. Once you have launched, there are specific milestones in terms of usership that you get excited about. Generating revenue is a major one and hitting profitability is arguably a coup as well. When these things happen, you effectively see the balance of power shifting from potential investors to yourself. Of course, there are other tipping points, where you see how large the opportunity is and want to explode your business, but monetization and profitability are easily two of the major milestones in any company’s life, and it was no different for Dogster.
Dogs and Cats
Of course, by now, Dogster had a sibling: Catster.com was born in August, 2004. Both names were registered by an artist who appreciated what Ted wanted to do with the URLs, so Ted was able to acquire these for… $400 and $750 respectively. Indeed, no Pets.com similarities here.
Once the company was profitable, “we ramped up, hiring more people and adding features. The advertisers began to sign 5-digit deals, a few even agreed to 6-digit deals, and we were constantly making improvements to what we offered them,” boasts Rheingold: ”We were a 14-person compay!”
At that time, Rheingold and company wanted to realize the potential of Dogster.com and Catster.com so they turned to outside investors. The group was wary of VCs, “we didn’t have a good feeling, we met with a lot, many who said they would be fine with doing a small round, but we did not want to lose control by doing a large equity stake,” so they turned to angel investors instead.
Touched by an Angel[s]
“We also had a lot more to prove,” confides Rheingold, so they put together their own angel syndicate and raised $1M in financing from 24 investors, who are now trusted advisors who are in it “for the long haul, and believe in what we do.”
It should also be noted that the list of investors are no mom and pop investors, they include the cream of the crop of what you could dream of amongst angels: Jeff Clavier, Michael Parekh and Michael Arrington, Joshua Schachter - del.icio.us./Yahoo, Adam Beguelin - Truveo/AOL, Michael Tanne – Wink, Jim Young – hotornot, Mike Jones - Userplane/AOL, George Sarlo - Walden Funds, Frank Caufield - Darwin VC, Aydin Senkut - Felicis Ventures, Robert Simon - Alta Partners, Brad Feld – Mobius Ventures… and more.
[as a very interesting, related sidenote, most of the blogger/investors asked readers of their blogs to comment on their investment after visiting Dogster.com and Catster.com, in a sign that they knew - like Rheingold - what they were getting themselves into].
Over the years, Rheingold has gotten himself a dog. Initially, you think that not having one and running a site like dogster.com would be blasphemous, but Rheingold has the right priorities in sight. Indeed, while the backers and management of a company like Pets.com was thinking short term and thinking fuzzy by thinking that people would be interested in paying $20 in shipping and handling for a $10 bag of pet food they could get easily from the mall around the corner, Dogster.com has tapped into the power of social communities to build something that has a lot of value to advertisers and members of the community: in 2006, the company generated $1.1 million in revenue, spread across 40 advertisers, with “a couple of big-hitting, brand awareness-type advertisers leading the way,” according to Rheingold.
Rheingold’s team has charted an impressive trajectory and the growth targets he has set are nothing short of ambitious: he wants to hit 1M registered members, and sitting at 325,000 in March today, he says organic growth will take him to 500,000. In other words, marketing savvy and luck will have to play a role to hit the remaining 500,000. Can he hit it? I don’t know. I do wish him well. Demonstrating a pragmatic and practical sense of things, you know he won’t do it by hiring an expensive pet sock, though. And the beauty of his past management style has allowed him to surround himself with angel investors who won’t ask for his head if he misses by an inch.
Social Networking’s Next Wave: Niche Communities
Taking a step back, you can anticipate (and already see) tremendous numbers of social commuities spawning within niche verticals, Rheingold’s team at Dogster and Catster is to be the largest in their respective fields.
In this context, if history does repeat itself, then maybe it will be reminiscent of how MySpace inspired itself from Geocities and went on to become the largest site in the world, and not how Pets.com fared.
In the meantime, check out Dogster.com and Catster.com.
Check out our previous Interviews and Profiles of People, Places:
:: Keith McAllister - CEO, Mochila
:: Matt Sanchez - CEO, Video Egg
:: Alex Laats - CEO, Podzinger
:: Scott Maxwell - Managing Partner, Openview, Former MP of Insight Ventures
:: Brian Buchwald - GM, NBBC
:: Tod Sacerdoti - CEO, BrightRoll
Subscribe: