StartupNorth

Month: June 2009

  • Friday Night Fights

    Whether you think of the UFC and mixed martial arts (MMA) as bloodsport or entertainment, there’s no denying that it is big business. Sure it’s still a bunch of individuals pounding the hell out of each other, but it’s an interesting brand building exercise capturing the attention and wallets of  18-34 year old men.

    Dana White along with Frank and Lorenzo Fertitta, as Zuffa LLC,  purchased a near bankrupt UFC for $2 million in 2001. By 2006, the UFC grossed more annual pay-per-view revenue than any other ‘”combat sport” promotion, think boxing, mixed martial arts, etc. The 2008 estimated revenue was close to $250 million through a mix of pay-per-view, live event tickets, television deals, advertising, video game promotion deals, and other varied revenue streams. It had become a huge business. Big enough that Mark Cuban has creating HDNet Fights as a promotion and leveraging the HD television outlet to highlight other combat sport promotions.

    Love it or hate it this is big business. It’s no longer “human cockfighting” as it was referred to by Sen. John McCain (R-Az).

    So how do organizations like Zuffa LLC and Oscar De La Hoya’s Golden Boy Promotions make money. And what can software startups learn from these marketing organizations. MMAFrenzy provides “A Look Behind the Curtain: Zuffa’s Finances Come Into Focus” that provides a breakdown of the financial side of a private company. And Portfolio.com provides insight into the wheeling and dealing that is Golden Boy Promotions

    Television Licensing & Promotion

    Television promotion is about “the people who create something worth watching and the audience”. Both Golden Boy and Zuffa have crafted television deals to help them reach fans beyond their strong base. Golden Boy Promotions has a deal with HBO and Zuffa has a deal with SpikeTV to broadcast their shows to cable audiences. For both promotions this allows them to focus on building brand awareness, create superstars and sell their live pay-per-view events. In the case of Zuffa, this has resulted in the creation of new content specifically for their television broadcast partner with the reality television show, The Ultimate Fighter (orignially created for $10M), and a host of other shows out of the archive materials from live events. The networks either sell premium cable subscriptions (HBO) or advertising (SpikeTV) based on their audience reach and demographics. Better content equals more diverse people watching, which allows for a shift in advertising demographics (details on Traditional Television Business Model and Video on Demand). The Ultimate Fighter has become the “most-watched original series on SpikeTV” with over 1.8 million viewers.

    Pay-per-view Revenues

    UFC has 5.1 million pay-per-view (PPV) buys in 2007. The PPV are split with the PPV distributor. The PPV buys number is reported for most major sporting events, Yahoo!Sports has a summary of the 2008 business which the UFC was reporting $237.9 million on 5,315,000 buys (average price of $44.75/purchase). Assuming a 60/40 split between Zuffa and the PPV distributor that generated approximately $142,740,000 in revenue.

    Live Event Ticket Sales

    Average ticket price in 2007 was $250/ticket. For example, UFC 99 attracted 12,800 fans and had a live gate of $1.3 million for an average seat price of $101.56. Different venues and fighter cards have different results, UFC 90 drew 15,359 fans and had a live gate of $2.85 million for an average seat price of  $185.92/ticket. (As a side note, these figures include the seats/tickets that the UFC gives away as part of the promotion. If you assume that 30% of the seats are given away to promotion companies and others the price per seat changes to $145.09 and $265.61 for each event respectively). The interesting part is that these numbers do not include any of the costs associated with running a live event: arena, security, medical staff, athletic commissions, promotion, etc.

    Other Revenue Streams

    The great thing once you have an audience, content and a recognized brand you can look for an infinite number of ways to monetize it. You start to ask questions like how do you find new audiences? How do you increase the average revenue per user (ARPU) of your existing users? What are new channels for reaching the audience? What other partnership and revenue generating opportunities exist?

    Video game rights licensing. Subscription internet video. Wait it seems that was tried and failed. No it looks like another opportunity presented itself with Heavy.com. Apparel deals with TapouT. Once you’ve built an attractive global brand, the world is your oyster. Zuffa has negotiated broadcast distribution rights in Australia.

    What can startups learn?

    1. Build a product that people want to pay you for
      I know this sounds cliché. And is not always as straightforward. Just look at the broadcast licensing and pay-per-view revenues for sports promotion. There are complex relationships between the people that produce the content and the people that watch the content. It involves cable companies, advertisers, intermediaries. But it starts with creating a product that people will use, in this case a product that people will watch/use and pay you for.
    2. Engage and support your loyal fan base
      The goal of the adoption funnel is to move from awareness to loyalty. You need to nurture and support the audience that is passionate about your product/service. Go read Kathy Sierra or Saul Colt to learn about how to inspire your customers to become evangelists. It’s about figuring out how they help their customers “kick butt better than their competitors”. Who are your super stars? What are you doing to help them kick butt?
    3. Don’t be afraid to self promote and create superstars
      You’ve got to love Golden Boy Promotions, the UFC and Saul Colt. They are masters of self promotion. Dana White, who owns 10% of Zuffa, has become an instant celebrity from his appearance on SpikeTV’s The Ultimate Fighter. The non-stop promotion of UFC Pay-Per-View events through the SpikeTV audience (2.8 viewers million for TUF9) help reinforce known revenue streams while building characters and superstars. Do all of the commercials feel like their cross promoting other UFC events? Well there is a reason for that, 75% of the UFC revenue comes from PPV sales. Startusp need to find ways to promote the features and solutions that help solve problems, inspire users and make superheroes. Rinse, lather, repeat. By refining their messaging and telling a better story, startups make it easier for customers to tell their story. Saul Colt (who is a big deal) does a great job promoting his companies (Zoocasa, FreshBooks) the power of community and sharing and asking the audience to promote using the channels that are important to users.
    4. Diversify your revenue streams
      There are many different ways to diversify revenue streams. Look at consulting companies that run training events (educating others about great design). Music television channels that are game companies (isn’t it all about music distribution regardless of channel). Go read Peter Frisella’s 2 awesome posts for a review of the different types of business model (part 1, part 2) to figure out your business model. Have a look at Alex Osterwalder’s Business Model Generation and look at his presentations on SlideShare to learn his Business Model Canvas.

    Building a successful startup is hard work! But after watching combat sports, building a startup sure beats the hell out of getting punch in the head for a living.

  • Weekend Reading

  • StartupDrinks – July 29, 2009

    startup-drinks

    DemoCamp Toronto 21 is sold out! But that is no reason that startups in Toronto shouldn’t get together.

    Raymond Luk from Flow Ventures will be in town for DemoCamp and suggested that we host an informal StartupDrinks event the night that immediately after. July 29, 2009 coincides with the next Montreal StartupDrinks and for Ray it maximizes his time in Toronto to meet entrepreneurs and hear about the great things going on in this city.

    What is StartupDrinks?

    A simple concept: startup culture in cities around the world gathers around a bar to have a pint and discuss what they are working on, what they need help with and what they can do for each other.

    Basically, the idea is that if you are involved in a startup or looking to get into a tech startup, come have a drink, meet new people and discuss startups. No rules, no keynotes, no schedules, no sponsors, nothing fancy, just some plain good old drinks, great people, hopefully good weather, hopefully awesome startups to talk about 🙂

    Where is StartupDrinks Toronto?

    The location is still up in the air. It’s looking like it will be at Pogue Mahones at 777 Bay St starting at 7pm.

    Where do I register?

    Really simple. Sign up for the Canadian Startups! Facebook Group and then RSVP on the event page.

  • Weekend Reading

  • Weekend Reading

  • Weekend Reading

  • Built to Exit

    Image by konstriktionIs a company that is built to exit the same as a company that is built to flip? Not in my opinion. Understanding how to build a company that is attractive to a potential acquirer can help entrepreneurs understand how to build product suites, acquire customers and pick technologies.

    Possible Exits

    Entrepreneur.com list five (5) possible exit strategies:

    1. The Modified Nike Maneuver: Just Take It (basically preferred shares that pay a huge dividend)
    2. The Liquidation
    3. Selling to a Friendly Buyer
    4. The Acquisition
    5. The IPO

    For me, #3 and #4 are almost identical. And #2 is not something you should aim for just staring out. Liquidation is something that happens at the end of your business. Whether it is something that happens in bankruptcy or other it is not a useful model when you are trying to grow a business. So if you merge #3 & #4 it leaves you 3 realistic exit strategies. This is not rocket science.

    • Operate profitably
    • Get acquired
    • Go public

    We know what the IPO market for tech companies looks like. That leaves companies with 2 choices. Build a profitable business or get acquired.

    When I talk to startups everyone seems to think that acquisitions are a dime a dozen. That even based in Toronto, Montreal, Ottawa, Waterloo that they are prime acquisition targets for Microsoft, Google, Oracle, Cisco and other Valley companies. Which surprises me! Sure all of these companies have done Canadian acquisitions, they are the exception and they are done for very specific reasons.

    Why acquire a startup?

    Benjamin Kuo talks about the takeaways looking at the acquisition deals done by Google, Microsoft and Yahoo. The other companies that have done a lot of acquisitions include Oracle and Cisco. Summarizing the 2007 Microsoft acquisitions including Multimap (mapping), Global Care Solutions (healthcare), Palarno (enterprise chat), AdECN (advertising network), aQuantive (public traded – advertising tech), TellMe Networks (mobile voice solutions), and Medstory (health search), he concludes:

    Key takeaways from this, at least if you want to be acquired by Microsoft: you really need to expect to be in business for at least seven to 10 years; you need a lot of traction and a product that people have been using for awhile; enterprise software is hot, consumer web services are not; and you need to have a fit to their strategic plans.

    Companies get bought for a variety of reason:

    • technology;
    • customers;
    • people/talent;
    • the scale for monetization offered by a corporate giant.

    It starts to make a very short list for entrepreneurs about what’s important regardless of the type of exit you’re looking for. You need to have technology, customers, the right talent and a path to monetization. Companies are looking for technologies that solve problems with shared customers and that round out their offerings (then there is a the whole question about do we build it or buy it). They are looking for great teams of engineers, sales people, designers, i.e., the talent. And often large public companies bring a scale and access to market and manufacturing that are just not available to startups without huge amounts of cash. 

    Does this all sound familiar? It’s pretty similar to investment criteria. There’s nothing wrong with building defensible technology that solves a problem for customers with a team of rockstars on a common technology platform.

  • Weekend Reading

  • Extreme University

    extremevpExtreme Venture Partners is hosting a summer program for start-ups called Extreme University. It’s reminiscent of the Trilogy University, which should come as no surprise given Farhan Thawar is ex-Trilogy Software (TU98 to be exact). The Extreme University program is a rapid start 12 week program that aims to bring the rigor and mentoring and connections for start-ups. The program is based in Toronto, but given Extreme’s strong ties to Silicon Valley, New York, and around the globe you can imagine that these companies will gain access to their network.

    Applications are due by June 12, 2009. The program runs June 22 to September 4, 2009. And will conclude with a Demo event on September 12, 2009.

    What: A summer technology start-up program that focuses on industry networking, technology mentoring and above all delivering a product to potential follow-on funders after only 12 weeks.

    Who: We are looking for four smart and fast moving teams to participate. Typically all members of the two-three person team will be deep technically, but at least one of the founders should have a technical background.

    How: After you apply and are accepted you will:

    • Get $5,000 (US) per founder in exchange for a 10% ownership stake in your company
    • Move your team to our shared ExtremeU office space at Yonge & King (downtown Toronto)
    • Have weekly mentoring sessions by industry experts in technology, funding, legal, PR, marketing and HR
    • Meet a who’s who of experts at our weekly socials and have an opportunity to practice your pitch and demo your in-progress prototype
    • Have access to local shared resources to accelerate product development (mentors, servers)

    When: Applications are due by Friday June 12th, 2009. The program starts Monday June 22nd, 2009 to Friday September 4th, 2009 at the ExtremeU offices in Toronto at Yonge and King. The final demo day will be Tuesday September 15th, 2009 at Demo camp.

    It’s a great opportunity for entrepreneurs and founders to come to Toronto. Work with a group of people at Extreme Venture Partners, gain exposure to a local, national and international network to help you build and grow a new company and product.

    Apply Now!

  • Big Hairy Audacious Goals for Startups

    Reid Hoffman talks about LinkedIn’s startup story on CNN. It’s a very interesting story about a successful entrepreneur becomes a serial entrepreneur by focusing on both a vision and a set of success metrics.

    We had this initial challenge of, "How do you get a million people?" The first challenge was getting enough people so that functions like searching for people or sharing information had enough people in it to be valuable. The year 2003 was all about tuning and viral growth.

    I’m a huge believer in getting a million people, getting them engaged, and then building a business model on top of that.

    Why does a million people matter? Is this a good metric for other startups? How will know if you are successful? This requires having both a set of measures and a set of goals.

    AARRR! Be Bold. Be Humble.

    What should you be measuring? The good news is that others have done a lot of the heavy lifting. Dave McClure has a great presentation on Startup Metrics for Pirates. The

    Dave has a quick 5 point plan for understanding how to frame a startup, the business model and the performance of both the marketing and product development efforts.

    • Passion for problem/solution + Hypothesis of Customer Lifecycle
    • 1 page Business Model: Prioritized List of (Users + Conversions + Priorities)
    • Critical, Few, Actionable Metrics + Dashboard of Measured User Behaviour
    • 1 page Marketing Plan: (Channels + Campaigns) * (Volume, Cost, Conversion %)
    • Velocity of (Product Execution + Cycle Time of Testing) * Iteration

    This shouldn’t feel like rock science. It’s a way to frame the problems that all startups should be used to answering. What problem do you solve? What is life cycle of your customers? Who are your customers and how are you acquiring them? How do you reach your customers? How do you know if your development process is healthy? How will you know if you’ve been successful? It’s not rocket science.

    BHAGs

    Startup Metrics provide the baseline set of things a startup should be measuring. You should be building the data collection into your application, and he suggests you should “delegate each metric to someone to own”. This is the what, but it’s missing the Big Hairy Audacious Goal. The metrics are the starting point for measurement, and not they are not the target for an organization. 

    What is your “million users” goal?