After much speculation and anticipation, Facebook went public in May 2012. Facebook’s IPO is one of the most infamous stock let-downs in recent history – making a huge splash and ultimately disappointing thousands with disappointing numbers. Since the public launch, Facebook has rolled out several ways to better monetize their website in creative ways and ultimately improve their IPO.
Since it has always been a free-to-join service, most of Facebook’s revenue comes from ads. However, a site can only have so many ads before they begin turning off users to the point where they quit. In order to keep their IPO rising, Facebook has had to resort to micro-fee monetization tactics to earn more revenue.
Increasing Facebook’s Revenue Through Promoted Posts
With a simple click of a button, business and personal users have the option to promote a post for a small fee ($5-$10 or more), which makes the fan page or a particular post highlighted on followers’ news feeds. Promoting a post is not only helpful to highlight high-level messaging and direct more pointed traffic to their pages – but also steadily increases a fan page’s following.
Facebook has also increased the reach of sponsored posts by increasing the budget amount. Previously, promoted posts and pages were limited on how much they could spend to promote. This budget increase allows businesses with large social media marketing budgets to pay more to improve a post’s visibility.
Personal profiles also have the ability to promote posts to their friends. For a small fee ($7 as of Spring 2013), personal users can highlight significant posts. Many users are taking advantage of this for fundraising for their personal hobbies, work-related items, and more.
In late 2012, Facebook launched a feature that allows users to buy their friends gifts for special occasions, like birthdays and marriage announcements. Gift suggestions are based on the recipient’s likes, and include things like gift cards for iTunes and Starbucks.
This not only allows Facebook to make a little cash, but also creates an opportunity for users to quickly buy a friend a gift at the last second if they forgot about a loved one’s birthday until the day of the event. In the future, Facebook will likely be expanding the types of gift that are available for purchase.
Monetizing Messages for More Revenue
One of the other ways Facebook is increasing their revenue is through paid messages. In the past, if a user was not connected to someone and they sent them an email, there would be a potential for that email to go into the recipient’s ‘other’ inbox, which acts as a sort of spam filter and is rarely checked. Now, If a users is not connected to someone, they can pay $1 to ensure their email goes directly to the person’s Facebook inbox rather than their ‘other’.
Users have been highly divided about having to pay for a message to be received, but so far thousands of Facebook users are using the service.
All of these new changes are adding up. Facebook’s revenue shot up 40% in Q4 2012 over Q3 2012, however as of Q1 2013, their IPO has remained steady at $25-$30/share. Facebook is continuing to find creative ways to monetize the website, and users expect to see more of these changes roll out in the coming years.
Starting a new project can be very stressful for a startup. Investors typically want to see a product, or series of products before jumping on board to help the business grow. Part of the early stages of a startup involves finding the funds you need to get those initial projects off the ground. Not everyone is capable of bootstrapping these early initiatives, and the risk involved with doing so can far outweigh the potential for success.
Enter Kickstarter, a popular alternative to publishers and investors that allows you to find the funding you need by appealing directly to your potential customers. A lot of startups use Kickstarter as a combination marketing tool and pre-order system. Your prototypes may be complete and all you need is some extra funding to initiate the first round of production – or your startup may have a great idea that just needs some extra funding to hire on the extra hands needed to make it a reality.
No matter what your needs are for these funds, Kickstarter is a great way to generate them without giving up a piece of your company to do so.
Here are a few ways startups can prepare for your first Kickstarter project.
Overestimate Your Needs
Offering rewards for various donation levels is great, but it could set you back more than you think. A lot of project founders use Kickstarter with a goal in mind that will just meet their needs, but forget the amount Kickstarter, Amazon, and the rewards take away from that total.
You don’t want to ask for $1,000 when you really just need $500, but you do want to make sure that what you’re asking for is enough to meet your needs. Failing to deliver on a promise made in a project can have a long lasting negative impact on your reputation. It would make it almost impossible to successfully launch another Kickstarter project in the future, and could result in legal action.
Every interaction you have with Kickstarter backers will have a direct impact on your reputation. Your first customers are the ones that pre-order whatever it is you’re putting on Kickstarter, and that means you’re pulling double duty as both a PR and customer service representative.
If you can’t meet the estimated delivery date, explain why in a video and combat pushback with transparency. Kickstarter is a very social experience, and so you definitely want to control the message.
Under-promise and Over-deliver
If you make your project look like the best thing since sliced bread, but know that it won’t realistically be as amazing as you claim, then you’re probably going to end up with a lot of disappointed customers which will be more hesitant to back your project(s) in the future.
Imagine the buzz that would surround your product when it comes out in stores (thanks to the Kickstarter funding) and pre-order customers are eagerly showing their friends and family what your product can do.
You Have to Spend Money to Make Money
Don’t be cheap with your rewards, and spend a little money producing a decent pitch video. This is the first time your company and/or project is being introduced to the world. First impressions is everything, and very few people will be inclined to back (or spread the word about) a project that has no visual representation beyond a few photos and rewards backers poorly.
Let’s face it: A bumper sticker is a terrible reward for someone willing to cough up $25. Consider your needs and calculate the reward into the project total. See if you can’t sweeten the deal with additional content and information. Offer a digital download, exclusive bonuses, and cut the price on your product from what you would expect to get out of it retail. These customers are your front line in generating buzz once the product launches.
Indiegogo is an increasingly popular alternative to Kickstarter. Not only can you start a project and receive funds if you don’t actually hit your goal, but many users reluctant to back Kickstarter projects (for whatever reason) may be more inclined to do is in the socially-rich environment of Indiegogo.
Not every project has to be funded by the crowd. There are still plenty of wealthy investors out there willing to invest in your project, and perhaps even help your startup get on its feet. Kickstarter isn’t (and should never be) used as a startup funding source. It’s intended to fund projects, and that’s a limitation many startups have a tough time working around.
No matter what your reason for seeking this additional funding may be, consider Kickstarter as a lot more than a source of revenue. It could very well be the catalyst that allows you to generate the buzz you need to make your project the next big thing.
GlobalMojo CEO, Daniel Todd has some advice for entrepreneurs looking to start their own slick startup: have advisers, hire great talent, and get feedback. Todd has a team of advisers who he can “beat up ideas with” and who aren’t afraid to hurt his feelings. This honest feedback allows him to make quick adjustments and produce results.
Feedback from consumers is also priority and people can stay in touch with GlobalMojo via Twitter, Facebook and The Mojo Blog. Asking users what’s meaningful to them inspires ideas and helps create a browser product worth using. But Todd doesn’t just listen to users, he’s also in touch with his talented employees. Employee culture matters around GlobalMojo, and “hiring the right people is one of the most fundamental pieces of long term success,” Todd says.
And just to test how hip Daniel Todd really is, we used the universal measuring stick: Mac or PC? “I’m stuck as a PC, but I’m seeing the light. It’s only a matter a time, and then I’ll make the jump. So, I guess I’m a PC, soon to be Mac?” Can’t argue with that.
Since returning from MIT back in June I’ve been focusing on the growth of the company. It has been pretty much on mind non-stop for months now. The part that I’d like to zero in on is when you’ve got a high growth company what are some of the best practices out there to distribute equity to the founders, advisors, and employees?
Equity for Founders
The Founders’ Pie Calculator by Frank Demmler, an Associate Teaching Professor of Entrepreneurship at the Donald H. Jones Center for Entrepreneurship at the Tepper School of Business at Carnegie Mellon University invented an interesting way to divide equity between founders in a way that is both logical and fair. Sometimes when people start up a company they make decision to divide up the equity evenly because it’s “fair”. Demmler’s approach is a bit different in that the calculator provides a way to quantify the elements of the decision making process, and that it appears to be logical and fair. The elements of the decision making process are 1) Idea; 2) Business Plan Preparation; 3) Domain Expertise; 4) Commitment and Risk; 5) Responsibilities.
The idea behind the calculator is to come up with a weight for each of these five elements and then assign a value to each founder on a scale of 0-to-10. Then you take the weight and multiple it by the founders score to come up with the weighted score. From there you can get the percentage of equity. I like this a lot better than splitting things equally because it allows you to quantify what is important. See table below for example of how this works.
|Weight||Founder 1 (Contribution)||Founder 1 (Weighted Score)||Founder 2 (Contribution)||Founder 2 (Weighted Score)|
|Commitment & Risk||7||0||0||7||49|
|% of Total||43%||57%|
Equity for Board of Directors and Advisory Board
When figuring out how to provide equity to advisors, you can use this chart as a guideline. Typically for an Advisory Board it ranges from 1/10th of percent to 1/2% and for Board of Directors from 1/2% to 2%.
Equity for Employees
It’s important to figure out how much equity you give to your employees. David Crow writes in his article “Founders versus Early Employees“, “Remember the goal is to incent early employees to have an emotional ownership of the product and company they are building. Equally said, potential employees need to understand what they are getting into”. The one thing that I think is missing is distributing equity to every single employee in the company regardless of title. Quite honestly, it takes an entire team to build a company and giving each employee a piece is important so that employees are rewarded in the upside of the company as they have made a decision to work for you instead of some other opportunity. Giving equity to employees also helps foster the “act like an owner” kind of mentality. Below is an example of how some companies may approach distributing equity to employees.
|CEO||5 - 10|
|COO||2 - 5|
|VP||1 - 2|
|Director||0.4 - 1.25|
|Lead Engineer||0.5 - 1|
|5+ years Experience Engineer||0.33 - 0.66|
|Manager or Junior Engineer||0.2 - 0.33|
Number of shares = Meaningless. Just the % Matters
Chris Dixon wrote a blog post about “The one number you should know about your equity grant“. The one number you should know about your equity grant is the percent of the company you are being granted (in options, shares, whatever – it doesn’t matter – just the % matters).
- Number of shares: meaningless.
- Price of shares: meaningless.
- Percent of the outstanding option pool: meaningless.
- Your equity in relation to other employees: meaningless.
- Strike price of options: meaningless.
All this information that I’ve gathered up here seems rather logical. Are there other tools that you’ve used that you think would be helpful to share with other entrepreneurs and founders? Are there principles that you live by that you’ve implemented in your startup that have worked really well? How long should people vest – four years? Five years? No cliff? Should founders have anti-dilution rights? I would really like to hear your thoughts on this.