7 things I learned from Toading
For people who don't know me that long. I started Toading in 2005 together with Iwan Luiten.
We saw a gap in the advertising industry and came up with an innovation.
This was our 'about':
"Toading automatically generates online advertisements for all products and services your website contains and feeds these ads to Google's and Yahoo!'s advertising programs. The usage of a separate ad and keyword combination for each product enables us to include product specific features in the ad such as price and availability."This technology improves the conversion rates of online advertising campaigns with 300% while reducing the total ad spending with at least 25%. For some of our clients the results were even better.
We worked for:
KLM, Marktplaats/Ebay, Interhome, Reed Elsevier, Overtoom, Neckermann, LastMinute.com, HolidayAutos.com, Komplett, Shops.nl, The Phonehouse, Intermediair, VNU BP, 2Waytraffic, VillaXL, De VakantieDiscounter and many more.
We got a lot of coverage.
We were very profitable.
But this blog is not about that. It is more about the stuff we did 'wrong'.
It is about what I've learned from running Toading.
1. Understand the ecosystem
When introducing an innovation for a certain industry it is important to understand the workings of the different stakeholders. In online advertising stakeholders are:
- the clients DMUs
- their IT departments (technical limitations)
- their advertising agencies
- their online advertising agencies
- their search engine marketing agencies
- their web development and e-commerce companies
This means many different (commercial) interests, which makes it really hard to find the sweet spot for commercial success.
Sometimes deals were killed by IT departments who didn't understand the upside of integration. Sometimes the budget flows via ad agencies meant there was no budget for us. We had brands interested in the Toading technology, but using the technology would decrease the revenue for their search advertising agencies. These search advertising agencies would tailor to a wider spectrum of the client's needs and were higher up the decision chain than we were as a solution provider. So it was not in their interest to let us grow. We were a threat.
We discussed two options to tackle this:
1. Expand our products and services to come to the same level as those companies.
2. Partner with the search companies and share our revenues.
We went for the second option. In retrospect, I think this was not the right choice. We were not able to get the right insights to come to a good kickback solution so our partners were probably still making more money not using our solution than if they were.
We chose the second option, because option one required us to be an agency, not a technology company and I believed in the scalability of the technology, not in the scalability of the hour based model. 2. Run with an idea you're really excited about
Yes, maybe you found a gap in some market or came up with a really profitable idea, but keep in mind:
1. It takes time to grow a profitable idea.
We needed four people to get the first version of Toading up and running. That means four mouths to feed.*
With an average of 2.000 euro a month per FTE and additional 2.000 euro of monthly cost. This means your profit has to be 120.000 euro per year. It takes you 6 months to develop your minimal viable product and your first customers. You calculate how much time it would take to become sustainable.
* Sure you can chase funding for your idea which on the one hand make things more comfortable, but it also distract you from the things which are important. Not spending your own money maybe makes you less conscious about the outcome.
2. Developing the innovation is only part of the work
You also have to sell your product and that means contact with the buyers. When developing Toading I focussed on the product and technology. I saw some smart ways we could hook up the database of e-commerce companies and the Google Adwords API. I wanted to make a smart connection.
But when the minimal viable product was there I spent my regular week explaining the solution to web shop owners. If you choose an innovation, you're also choosing the potential buyers of that innovation. And the sales and operation take the most time so better pick a field or an industry in which you feel at home or in which you really want to grow. People wise. 3. Align your ambitions with your business partner
When picking a business partner it is not just important that you have complementary skills. Complementary skills no matter wha happens to your business idea means you will at least learn a lot. It is also really important to align your ambitions.
Iwan felt really comfortable with the monthly profits. We could make a great living out of those. I had a bigger ambition and I convinced him to expand our business to other countries. I also had a vision of making the technology plug and play for agencies so we could scale it more easily.
He often said: "That means investing and I'm fine with how it works out financially for us right now."
In the end I think this was the biggest reason the much needed energy to make this a big international success disappeared with the both of us.
Aligning the ambitions of your partners is therefore really important. 4. If you're outsourcing, stay on top of it.
In 2009 we opened an outsourcing office in Budapest. One of our lead developers who was studying in The Netherlands for a while moved back to his home country. We really wanted him to keep working with company and thought it was smart to start an office there. Budapest has six times more programmers graduating from university than in the whole of Holland. The costs for living are way less there, so an easy business case was made. We started an office on the Erzebeth Karut. There was one bedroom at the office, so the idea was that every other month Iwan and I would visit the office and manage it.
But the language and culture are so different, we, over time found out it was hard to manage it. We've been working on a big redesign of the technology and couldn't really grasp the progress.
5. Select a great launching customer
Something we did very well was launch with a customer which speaks to the imagination of other potential clients.Our launching customer was Interhome, a respected travel company. They rent out holiday homes and were one of the bigger players in the space at the time. The company was small enough to entrust us with their ads and ad spent and big a name enough to open doors to the entire travel space. Airlines, car rental companies, travel agents, hotel booking, more holiday home rental companies soon followed.
6. Put a lot of time in finding out the best business model
This is tricky when it comes to inventing new products. There is no status quo. With Toading we started by focussing on the effort which was relieved by our technology. Before Toading, ads had to be maintained by manual labor. Now this was automated, so you could state that something which would normally take 10-20 minutes would cost 15 euro (75 euro per hour isn't a strange rate). We charged our clients 10-30 cents for each ad or ad change.
Another approach would be focussing on the upside, the success. Because of our technology, clients would get a much better conversion rate on every euro spent. So besides making things way more cost efficient, a lot less money had to be spent to get the same returns, or the returns were up 1000% with the same ad spent.
We could have derived our business model from this, but we didn't. 7. Expanding into new countries
We desperately failed. We tried to find pilot customers in The UK and US. Using pilot customers really worked as a strategy in The Netherlands. To try to find these from a distance is way harder. The shared network with the potential client is way smaller. Flexibility in the planning meetings is harder when you are only visiting for a few days.
We hired a booth at a travel conference in London once. Spent 20.000 euros on accommodation, travel, the decoration, flyers etc. We got home with over 50 leads! None of which converted to clients. The follow up was too hard.
The best lead was with Booking.com, they were also an exhibitor. In the end they decided to built part of our technology themselves. We gave them the idea and I don't blame them. They are one of the biggest advertisers of Google so it is a too important part of their operations.
But the out take is that you need real presence in each country you want to do business with (if you product is complex at least). You have to built trust and network with your potential clients.