Notes – Stanford’s Entrepreneurial Thought Leaders Podcast – Joshua Reeves founder of SaaS Startup Zen Payroll

I’ve been listening to a lot of Stanford – Entrepreneurial Thought Leaders podcasts lately. These are amazing free podcasts where successful entrepreneurs talk for 30-60 minutes about that the difference that makes them success is.

You can check them out here if you want. Stanford – Entrepreneurial Thought Leaders


Do you Actively Listen?

Don’t waste your time just to tick a box. With all books on tape, podcasts, etc I like to make sure I actively listen.

What does this mean to me?

I find that a lot of people will read or listen to a book just to tick the box and say “I read that book”. I’d much prefer to read one book slowly and suck as much of it up as possible. Vs. read a ton of books and not incorporate the learnings into my life and belief system.

How I Actively Listen…

Listen through it one time without taking notes or looking for huge take aways ( this is hard to do, I always want to write down distinctions). I like to listen while running or at the gym where I can’t really stop to take notes every few minutes. I feel this gives me the whole picture of the message that the entrepreneur is trying to convey.

Once I’ve done this I listen through it a second time hitting pause CONSTANTLY while jot down quick take aways. I make sure I pause because I want to have a stream of thought for that thing and not feel like I have to write quick while the speaker says something I may miss. I found myself going back and re-listening to parts over and over again because I feel like I missed something while I was writing.


Joshua Reeves – Zen Payroll – Notes

Now these notes aren’t necessarily in any order. Just my stream of consciousness af takes aways from his talk on entrepreneurship. So here goes….

Mentorship doesn’t need to be a structured thing. It can be parents, friends, books, network of people. Don’t box yourself into thinking a mentorship is about meeting with someone every X period of time and going through a list. A lot of mentorship happens via just on going conversations.

I’ve never had a desire to create a business. I’ve had a desire to be curious, solve meaningful problems.

It’s not just about accomplishing a goal. It’s being proud of how we achieved a goal. He talks about the Journey a lot!

What are the main puzzles in our business. What are we prioritizing? Are we maintain the culture. Way we communicate, hire and celebrate.

How do you empower people in a startup to treat them like owners? How do you make employees feel appreciated for what they have done? It’s usually much more about appreciation then compensation.

Not about a task but a common mission.

When you hire or raise money. What are their values, motivation and skill set. Do they fit with your values, motivation and skill set?

What is a values founder? What do you stand for? What’s your identity? It impacts hiring.

As CEO what should you focus on?
1. Set good direction and strategy for the business
2. Optimize how you organize and communicate.
3. Finding good people that fit your culture & values. That have a skill set that fills a hole. 50% of the time networking and interviewing people.
4. Lead by example.

As long as there are problems to be solved there are businesses to be created.

Find something that really bothers you and seems solvable. Then focus on that.

Idea of entrepreneurship is to take the impossible and make it real.

Interviewing is a very important skill. Should focus on becoming great.  
1. Ask why how for things they accomplished. In that chapter of their career what was and wasn’t working. How did they personally make a change to overcome?
2. In this next chapter what do you want and what are you looking for? Understand values, motivation and skill set.
3. How did their last job change their view of the world for the better? What take aways did they leave with?

Make sure you take time to step away for introspection. Structured. What’s working what’s not working and how I spend my time.

As a person decide who you want to be like and study them. Find a few traits that make you admire them and work on building those into who you are as a person.

When starting any business ask yourself if you’ll still be excited to talk About it after 10,000 times. If you’re not don’t start.

Trade offs of mission tie to prioritization.

Prioritization is the key to success. In any great business there’s always many things you “could” do. The test of a truly great CEO is know what you must do for the next steps.


I know this may not make sense to a lot of you. If you have questions please just post them in the comments and I’ll be happy to elaborate.

P.S. If you haven’t figured this out yet. This blog is basically my notes to myself :D

How To Use Your Campaign Data To Reverse Engineer Yahoo Gemini Ad Delivery Algorithms (Part 1, eCPM vs Clicks)

I haven’t had much time to blog lately so I had one of my A4D media buying team members write up something cool that we’re doing to figure out how Yahoo Gemini’s algorithm works.

Consistent ad delivery is the bane of every advertiser that uses Yahoo Gemini. Here’s how you can use data from your Yahoo campaigns to better understand their algorithm. 


To an owner of online advertising real estate like Yahoo, all that matters is an ad’s eCPM (effective cost-per-thousand impressions). To a publisher, it’s pretty much “earnings-per-thousand impressions”, because it’s the dollar amount of which you end up paying them to advertise. On Yahoo, if you’re bidding on CPM, that’s also your eCPM. If you’re bidding on a CPC, then eCPM is calculated as “CTR x CPC x 1000”. The higher your eCPM, the more Yahoo should theoretically be delivering your ad. Theoretically, that is.

Pulling The Data

To take a closer look at what Yahoo’s actually doing with ad delivery, we’re going to need to look at a graph of each of your campaigns’ eCPM and total clicks over their lifetimes. Export your campaign data in Yahoo by going to the reporting tab, setting the date range to as far back as you can up to today. The export to .CSV button is to the right of that, it’s a little square with an arrow coming out of it.


Yahoo Gemini Report Select

In case you’ve never tried to look at Yahoo’s reporting, this is the bar you want.


Using The Data

In your exported CSV file, you’ll see a column for clicks and for CPM (same as eCPM). Create a scatterplot of CPM vs Clicks with this data, and generate a line of best fit. I’d add instructions, but Google is much better at explaining excel than I am. Make sure to show the line’s equation. Here’s what we got:

Yahoo Gemini Campaign Scatter Plot

Shoutout to Janell and Lorie for actually putting together this data.


Data Analysis

First, let’s suspend all judgment on how many campaigns we have cluttering around the origin. Online advertising is hard sometimes, and that’s okay.

Second, let’s take a look at the line’s equation.

Y = 3490.9X – 897.5

So what does this mean?

1). For every dollar you increase your eCPM, you can expect to get 3490.9 more clicks on average.

2). Your eCPM must be at least $.257 (897.5/3490.9) to expect to get ANY clicks at all. With an estimated CPC of $.30, this means you need at least a CTR of .08%.

3). According to this linear model, if you manage to get an eCPM below $.257, Yahoo will actually make you give them clicks. (hah, math jokes.)

Third, let’s just take a look at the graph itself.

The variance is enormous. This goes hand-in-hand with Yahoo being an unpredictable ad platform. Even with pruning this data for outliers (taking out ads with an eCPM of $3 and only 50 clicks, or vice-versa) we still have plotted points flying way above or below the line.

Yahoo’s platform probably delivers exponentially. This is just from taking a look at the points and how they’re scattered (the amount of clicks scales upward extremely quickly as eCPM increases). If you’ve ever experienced a campaign explode overnight, that would be an example. Here’s the line of best fit exponentially:

Yahoo Gemini Scatterplot

So this means if I bid $8 on a CPM I get infinite traffic, right?


In conclusion, an ad’s delivery still comes down to its CTR. This is truth for pretty much any advertising platform ever. Sure you could artificially inflate an ad’s CPC/CPM bid, but as people who’ve already tried that, let us just say that you’ll either a). be unprofitable or b). see that Yahoo’s still aware that your ad sucks and doesn’t want to embarrass its users with it. Moral of the story? If you’re having a hard time getting Yahoo to deliver, take the time to develop yourself into a better copywriter. It’ll raise your overall average eCPM, and that’ll definitely get you more delivery, guaranteed.

P.S. If you take the time to do this analysis (and you should), share your results in the comments. Particularly interested in gathering more data on minimum eCPM required for delivery in the linear model ($.257 in this example).

This content brought to you by the A4D Team. Are you looking for users or want to generate users for others????

CLICK HERE to start working with A4D today!


Success can take time…. Amazing artistic representation of success taking time

started from the bottom

started from the bottom – 5 years to go from the left to the right

Very few of us are born with an innate ability to do affiliate marketing. As we think about affiliate marketing there’s:

Server Management
Split Testing
Tracking Tech
Marketing Math
and more I’m sure I’m forgetting right now

I often times see people come in to this space and say I have $500 to spend to start making money. I think this will definitely set you up to FAIL. Success in anything takes a consistent long term repetitive approach.

The art of learning is:
Reading about it
Repetition, Doing it over and over
Trial and Error, small course corrections
Asking questions and learning from others more successful then you

All of these things take time. Some people will pick this up and start making money right away. 9.5 out of 10 times these people end up in a much worse off position then the ones that fail for a while at first. If it’s hard for you and you’re persistent and push through you will continue to be successful throughout your career. If you see easy early success you’ll probably expect that moving forward and it will elude you most of the time. At which point you’ll quit.

I think one of the best articles I’ve seen that shows this is this Huffington Post article. It shows where artists started and where they are today. It gives you an amazing graphical perspective of what hard work & the learning process produces.

I’ve now been in this business just over 10 years. My first year I worked 17 hours a day 7 days a week and made $26k that year. $23k of that was unemployment. So effectively I made around $3k for that years worth of work I invested. Month 13 I made around $100k in profit. I finally found something that worked. I don’t say this to impress you but to impress upon you:

Fall in love with the process & journey
Be committed
And Learn, Learn Learn

Live these traits and I believe you can be successful at anything.

Free User Test – Listen to You Audience, Get An Honest Opinion

testing image

We use for various projects. It’s a great service to get verbal feedback and recordings of users talking about your web site & landing pages. We use it quite a bit for our game developments to find bugs in browsers we don’t have as well as get feedback on playability and the ever elusive “fun”.

Often times when we ask friends they answer “in kind” meaning they tell you it’s great because they don’t to hurt your feelings. This will give you much more honest feedback.

Try it free here Click Here

P.S. Leave comments on how your test came back. Was it the feedback you expected? Worse? Better?

Life Changing FREE Productivity Tool – Get 30-50% more productivity out of your Team

what is this stuff?

As affiliates we often start by just doing stuff.

We different things and eventually learn what are best practices and what just sucks.

But very often we just log that away into a special place in our brain and it becomes an innate ability.


Guess what innate abilities are amazing but have some real issues.

  • They don’t scale well, you’re only 1 person
  • It’s hard for other people to read your mind
  • It creates frustration because you talk with others and there’s a level of “assumed” knowledge

There’s others but those are the big ones.


The learning process and it’s flaw in growing a business

The learning process all start with


You don’t know what you don’t know!


This leads us to the 4 basic stages of learning.

  1. Unconscious Incompetence -You don’t even know this thing exists. Affiliate Marketing was probably this for you at some point.
  2. Conscious Incompetence – You’re aware it exists but have no idea anything
  3. Conscious Competence – You work on the skill for a while and can start to do it. BUT you have to think about it constantly
  4. Unconscious Competence – It becomes Innate ability where you no longer have to think about the mechanics, it’s natural.

The learning process always breaks down  into these 4 steps. You’re always at one of them or transitioning between 2.

This process happens through

  • reading and educating yourself, this is the least important phase. Book learning, I feel, is 10% of the learning process.
  • trial and error, if we don’t make mistakes we’re not pushing ourselves.
  • repetition, doing it over and over again making small corrections through trial and error.

All learning happens this way. Whether it’s learning to setup DNS or learning to write copy for ads. In the beginning you go from not even knowing it exists to it becoming innate at some point.

Once it’s innate you really “know” it.

And knowing it is great if you’re going to work by yourself for the rest of you life.

Want to know a secret? An ability becoming innate is only half way there. Why is this you ask?

Something that is innate and not written into process becomes very hard to optimize, train and manage others with.

I think most of us want to build and outsourced team or hire employees to grow our companies. We also want to optimize our processes and make them more efficient so we can get more done in less time.

We want to work smarter, not harder. Right?????

Constantly doing all the heavy lifting yourself limits growth and gets very very tiring at some point.

You learned all this stuff once. Do you want your team to take as long to learn it? Or do you want to abstract out your ideas into systems and processes to you can accelerate the teams growth?

Abstracting out how you do what you do

Now that you agree we have some innate abilities and we need to pass them to others.

Guess what we have to build systems and processes for others to understand.

I remember when I hired my first employee. He was an affiliate so he had a lot of understanding about the space. But he didn’t know anything bout merchants, businesses, accounting, compliance, etc. And most of us talk with people with an assumed level of knowledge of the other party. Well that was all wrong. I had to go back and start to breakdown and analyze everything I do.

If you read my post on system break down we’re going to use your broken down tasks again. If you haven’t done this go read and do the exercises here Earn More $ with a Throughput Management System – 1 of 3. I’m sure you’re keeping a list next to you at all times and anything new you do you write on that list.

Lets take each of these items and start to answer these questions.

  • What you do
  • How you do it
  • Why you made the decisions to do it that way


Now for our bad ass new tool

What you’re probably going to find is that everything you do is 90% a repetitive process. This is called “work” :)

That repetitive process has a work flow. I’ve posted about some of mine on my blog. I’ve posted Charles Ngo’s workflow on setting up a new campaign. So there’s plenty here and ideas how to build them.

The tool we’re going to discuss is going to give you an easy visual way to track all these work flows.

The tool I’m talking about is called TRELLO

It’s a tool that follows this thing called KANBAN methodology.

It’s very flexible and you can use it in many different ways. I’m going to  explain how I use it.

It’s composed of 3 basic components

  1. Board, this is similar to a bulletin board you might hang on your wall
  2. Swim lanes, these are lanes that are stages of your project or activity
  3. Cards, these are the tasks that need to be done

What i do is figure out the steps of a process. For example to make creatives I create a card for an offer I want creatives for and put it in the first swim lane which I’ll call “Backlog”

Then I’ll have another swim lane called “Queued to Build”. Backlog is where ideas are but we’re not sure if we want to execute yet. Once we decide we want to execute I move the card from the Backlog to the “Queued to Build”. Effectively I own the Backlog swim lane. Anything in that swim lane I’m the one that would execute on. And that execution in this case it moving it to “Queued to Build”. Make sense?

Now I’t not going to discuss our whole process for that. But I will post a screen shot here in just a minute.

Every process isn’t done by one person so you can add people to a board. Then they can own swim lanes (not from a technical stand point, more if they see something there they know it’s there’s to act on). Same as I explained the “Backlog” column is owned by me in this example. The “Queued to Build” is owned by designers. Now you can also apply a designer to the card to make sure they work on it. Or you can leave it open and they can assign themselves.

Like I said here’s a screen shot.

Trello ad creative building process

You can click on each card and add description and detail. There’s also a thread for responses back and forth on the collaboration. Here’s a view of what a card looks like.

Trello ad creative building card


As you see you can add checklist for things you want to make sure get included. These could be things like best practices for whatever the thing is you’re trying to build. That would give your designers a constant reminder of the important stuff. You can also see where you can comment back and forth with the designer and can say tweak this or that.

I’m not going to go into how to do everything. But you get the idea. This could be used for any linear process that happens repetitively in you business.

And guess what the best part is it’s free. So go try it. Trello

Hope this helps. If you have any cool ideas on how to use Trello or any other cool tools please leave comments below.

As always thanks for reading. Stay classy!

Free Getty Images – No Watermarks

hallelujah cat

Not sure if you saw this but it’s HUGE news.

Getty is the largest store of of online photography and is known for going around and suing people for using their images without the proper license.

Basically you can use a Getty image on your site as long as you give attribution back to Getty. They do this by giving you an iframe to embed in you blog posts or website. It has a footer on the image that says it’s from them.

BUT you have access to full size images at no cost now. Hopefully people don’t abuse this by just taking the image and screen shotting it, then posting it without the attribution.

You can read more here.

P.S. the image above didn’t come from Getty. I searched it on google, went to the site, saved it and then posted it here. Sorry Hallelujah Cat please don’t come get me :D


4 Rituals; I Follow These and They’ve Been Found In A High % of Successful People

Golden Key

Fist off I wish someone had given me this list and said “Make these into habits and you’ll be successful”. Of course I had to learn the hard way.

There’s lot of lists like this around and I’ve even posted some here. Some are long, some are shorter. But I thought this one was a tell tale indicator for success with only 4 points. I’m going to be adding these to our hiring questions because I know if someone is doing them they’ll fit very well into our environment as well as accelerate success in our organization. And I know this based on my own habits….

Those Ah Ha Moments

I love it when I have “ah ha” moments, as in Ah Ha I Get It. This typically comes when something is in front of our face but all of a sudden something clicks and what was not visual before is now clear and makes sense. Often that “ah ha” moment is connected to something that will make a difference in your life and creates some what of a pivot point.

I had one of those when I first saw this list….

As I was talking with my copywriter, who’s building out the copy for a new product we’re coming out with, he was showing me his latest iteration of our script. In reading through the script he’d done a bunch of research on what makes successful people successful. In doing this he stumbled across a guy Dave Ramsey. Now I’ll be honest I don’t have a clue who Dave Ramsey is and haven’t done any research to find out at this point either. But he had done a bunch of research into habit of successful people and there was 4 that seemed to be the most powerful.

And here’s where the Ah Ha moment came. I realized I had developed these habits over years of getting to where I am today. Often times people ask me “what do you think the difference is that makes the difference?” As soon as I read these 4 things I went “AH HA” thats’ it in a nutshell. Do these 4 things and your chances of success skyrocket.

Now these aren’t things you start doing today and your life changes tomorrow. These are rituals or habits that you do every day.

To create a habit or a ritual you need to find a way to love and enjoy it. Or it’ll be like setting a new years resolution [insert quitter photo here]. If you don’t love it and enjoy it then it’s just work. And well most people work for money, not love (unfortunate but true). So if you’re not getting paid directly to do these things you need to find reasons to love them.

The Magical list of Rituals


According to financial expert Dave Ramsey…
• 80% of the wealthy are focused on accomplishing some single goal… while only 12% of the poor do this…
• 67% of the wealthy write down their goals vs. 17% of poor…
• 88% of the wealthy read 30 minutes or more each day for education or career reasons vs. 2% of poor…
• And 86% of the wealthy believe in lifelong educational self-improvement vs. 5% of poor…


I know you’re saying GREAT ANOTHER LIST OF CRAP. Yes but here’s where it’s going to get good.

As I said before, part of being successful is making things rituals or habits.

In order to make rituals sustainable you have to derive joy from them.

We as humans are pretty simple creatures despite all the contrary belief. Everything in our world is based on a pain pleasure ratio. What this means is the scales always have to tip in order for something to change.

The pleasure of doing something has to be much greater then the pain of not doing it.

As an example someone can stay fat and eat like shit their whole life. They know what’s right and know they’d have pleasure being fit. They’d get accolades from people, be more attractive to the opposite sex, etc. So why don’t they do it? Well the pain of doing it to them is greater then the pleasure of being lazy. Now if a Dr. said you need to lose 50 lbs. or you’re going to die in the next 6 months. Guess what happens most of the time? The scales tip!

But that’s enough about that we’ll save more elaboration for that until another post.


How to create the success Rituals

So we have a basic understanding of how we create a ritual. The scales of pain pleasure need to tip in the rituals favor. Simple enough right?

Now we have a list we know that makes successful people people successful. So sit down and put those rituals on a piece of paper. Split it into 4 quadrants and write each ritual on the top of each. Then start writing all the things that excite you as an opportunity to spend the time doing each ritual. Think big here….

Here’s an example:

Educational Self Improvement – Write down one thing you’d like to learn. Then why would you want to learn it? How would it change your life emotionally, physically, financially?

I highly suggest being very granular here. Meaning write down big goals and break them into smaller goals. This will give you that feeling of accomplishment.


Did you see that head fake? ( term from sports where someone looks one way but runs or throws another )

One of the things on the list you just started doing.

Setting goals…. NICE!


Now I know you’ve read this and thought “oh I’m going to do that.” Tomorrow! Guess what the pain of doing it is not outweighing the pleasure of sitting on you but watching TV. First thing to build up the emotional reasons for is to get through this exercise and this list done.

I’m going to invite you to send me your list when you have it done. I’m happy to give feedback to you and see if I can help in anyway. Of course I run 6 companies so I’m a bit busy, but if you put in the work I’ll take a glance and give you some feedback.

I look forward to hearing form all of you.


*unedited due to time, sorry it’s a personal blog :D

Affiliate Founded Tech Startups = Great Investment Opportunities for Angels and Venture Capitalist

Food for thought

The most resilient creative business people I’ve ever met are successful affiliate marketers.


Imagine you were at the greatest competitive disadvantage you could possibly be at.

Does that sound something like this?

  • Own no product
  • Have and aren’t building a brand for all the marketing being done
  • Have no competitive advantage
  • Make nothing after the sale happens (typically), no Life Time Value
  • Have 100-1,000’s of competitors buying the same media as you for the exact same product at the exact same commission
  • All the advertising networks don’t want to work with you
  • Have merchants that don’t pay you
  • Have merchants that take all the hard work you invested figuring out a campaign. That then block you from that advertising source and run the campaign themselves internally.
  • Have sales people inside networks actually taking what you build and giving it to other people
  • Have merchants and networks saying they’ll pay you per conversion then intentionally not credit you for all the conversions you deserve
  • Can’t use tools like retargeting because they don’t own the product or service website. They’re just sending clicks to a 3rd parties.

These are the rules to the affiliate marketing game. And there’s 1,000’s of people that overcome these odds and become very successful in spite of the odds being stacked against them.

And that’s just a few of the challenges they have to be overcome. On top of that, quite often you invest a lot of time, energy and money into getting a campaign going only to be shut down and have to run something else. In the Venture / Startup world they call this a Pivot. You were headed down one road, that didn’t turn out and how you’re heading down another from what you learned. This is a week to week, month to month things for most good affiliate marketers. It’s very frustrating at first but after time I think people like the diversity and getting to learn new things. It’s part of what makes it fun and challenging.


Optimal basic success components for a Startup

For those of you that don’t know there’s a few components that most VC’s and Angels look at as they look at an opportunity. There’s many actually but there’s 3 major ones.

  1. Team – Who’s in the company
  2. Idea – What’s being built
  3. Traction – How much market validation is there

Depending on who you ask these will vary by order. But more often then not Team is the number 1.

Why is that? Well and idea can fail but if there’s a strong team in place with funding they will often find a better and bigger opportunity. Ideas often don’t work for whatever reason as most of us know. Failure is just part of the equation. The idea often won’t work and with a weak team your money as an investor is likely lost.

Great Team = Greater Investor Security

If I think back over the last 11 years in the affiliate world both as an affiliate and and affiliate network my history looks like and a roller coaster ride. Time of great highs followed by times of great lows. But I wouldn’t trade it for the world.


What are successful affiliates masters of?

Lots of things but there’s some major ones and I’ll cover them here.

Masters of the Pivot

As mentioned above their campaigns, rankings, sites, etc ore no longer viable for one reason or another. So they have to analyze the market, see where they opportunity lies, build a strategy and rebuild. it’s possible they’ll have to do this 2-3 times a year. I think I’ve probably done it personally 20-25 times over my 11 year career in the affiliate world.

Masters of user acquisition – Can you imagine how difficult it is to overcome all those hurdles to be successful? Now imagine if that person had the benefits of building their own buyer list, could up-sell customers, had life time values, etc.

It was fun meeting with VC’s for our game company because they always asked “how do you plan on getting users?” They had a standard questioning path they go down as they talk with 100’s of businesses a year. No sooner did they ask that then they would correct themselves and say …. oh that’s right you’re building a game on how to teach people to generate users and customers, “well I guess I answered my own question”

Masters of Optimization

Most of the time the only real competitive advantage an affiliate has is their intellectual property… meaning their knowledge. And then a strong understanding of the tools that of optimization. If everyone is running to the same offer how does some one beat out someone else? Well ad and landing page optimization. The best affiliates are masters of creative, copy writing and testing.

Masters of their Emotions

Think this is the most important of the bunch. Because there’s so many ups and downs in the affiliate world the most successful affiliates learn to control their emotions. They don’t get to high when things are good and they don’t get to low when things are bad. Because if they do they typically just won’t make it. You’d go insane.

Much like the best traders on wall st. there’s a powerful strength in sticking with logical decisions.  It’s very easy to let emotion get in the way and cause you to make a bad decision.

Lets take running a campaign as an example. There’s this thing called statistical relevance which mean you need so much data before there’s certainty if something is or is not going to work. So for example image that you’re split testing 2 offers or 2 creatives. One has 500 clicks and 1 sale the other has 500 clicks and 4 sales. Now emotion says well number 2 is obviously doing much better. But logic does not. The great affiliate sticks with logic and many time once e get to statistical significance the early front runner will lose. If you chose ad one = bad decision based on emotion.

You want someone that can stick to logical decisions running your company.

Masters of Adversity

I think the most important of all of these is that affiliates have all those obstacles thrown in front of them and still figure out a way to be successful. I believe this will translate to anything they do. Any road block they run up against they’ll figure out a way over, under around or through. In startups there’s a ton of road blocks, you always have to see how it’s possible vs. how it’s not.


Those are just a few of the benefits of successful amazing affiliate marketers. If you get a chance to look at a company founded by one make sure you look closely. They don’t come around too often. Most affiliates under stand how to make user on the acquisition of the users, so they don’t often need VC capital. But if you get a chance make sure you consider it.


Advertising Network – Risk and Capital Management

Risk Reward

I wrote a long post on Stackthatmoney so I thought I’d post it here.

The premise of the post was why I don’t believe that Ryan Eagle from EWA intentionally went Bankrupt and stole everyones money.

Running an ad network in the Performance & CPA world is a very high risk proposition. Getting paid slow and paying out publishers quickly is a reciepe for disaster if you don’t know what you’re doing.

Pretty sure EWA was flat broke. Ryan put his reputation on the line for EWA. He even borrowed 2 million for receivables from a friend of mine (who got screwed over) to try and keep it alive.

This business on the network side is a double edge sword it’s easy to get going but cuts deep and hard if you’re not EXTREMELY careful.

Case in point:
There’s 2 things we need to think about and look at

1. Risk Management, how much risk you have if the merchant doesn’t pay.
2. Cash Flow, how much float capital is required to pay affiliates weekly and carry the terms with the merchant.

Now lets walk through a scenario (using cash based accounting):

Advertiser is on monthly net 30 terms which means you run traffic to them for 30 days and then invoice. Then you get paid 30 days after that.
Affiliate gets paid weekly net 4 which is what we pay. This means Monday thru Sunday paid the following Thursday.

Volume being run is 100 leads a day at where we’re getting $40 from the merchant and paying out $36 to the publisher.

Risk: Because they’re on monthly net 30 the max outlay will be 60 days. This is 30 days for the traffic run and then 30 days of waiting for the invoice to get paid. (P.S. advertisers rarely pay on time, so doesn’t usually work out this well). So for our example we’d have 100 leads/day x $40 x 60 days = $240k in risk. Risk meaning if the merchant decides to not pay for WHATEVER reason we stand to be out top line revenue of $240k. But this isn’t totally the whole story. We’re really only risking what we have to pay to the affiliate which is 100 leads/day * $36 * 60 days = $216k

Sounds painful if they don’t pay right? And it happens often if you’re not super careful. That’s a 100 leads a day on 1 credit report deal.

Float: This is the amount of money required to carry this 1 account at this level. You might be saying well it’s roughly the same. This is only sort of true because being on weekly net 4 terms means that the affiliate gets only weekly. This has no effect on Risk because we have to pay the affiliate regardless of everything else. Weekly net 4 = 7 day + 4 days = 11 days that will reduce float d (11 days * $36 * 100 leads/day) = $39,600. Which gives us a grand total for float of $216 – $39,600 = $176,400 in float capital needed to carry this business.

Yeah but he was balling out of control he was making $400/day on those 100 leads at a $4 margin. Yes that seems all fine and dandy as long as everyone pays their bills. We’ll do a little math and take a look at what is at risk here. And how long it takes to mitigate that risk.

$400/day is only realized on a turn of money. What this means is profit is realized on traffic->invoicing->cashing checks. Every turn of money reduces the risk of initial capital loss by what ever % of margin that they’re running at. so for our example.

Ryan would have to run for 11 months = 10 months of running plus 1 month for the net 30 terms to get paid out. At this point he’d be break even on the campaign if they stiffed him. That’s almost a year to recoup capital.

You might be saying sweet that math is all fine and dandy but what happened.

I don’t know the exact story but let me illustrate how easy it is to blow through a few million carrying the wrong people.

Monthly net 30 terms from a merchant like + weekly pays to unknown and untested affiliates (remember we pay everyone weekly, this means super high risk for bad traffic where a merchant doesn’t pay for anything. Even the good traffic.)

Did Ryan seem like a saver or a spender? As a network owner things like non-payments actually happen a lot if you’re not super careful. I took around 3.5-4 million dollars in non-payment hits from merchants. They BK’d and ghosted out of the industry. You might say why would you give high risk people that sort of credit? You kind of have to if you’re going to be competitive in the space. How many people want to run offers? Not many. Most people want direct response good performing campaigns. These aren’t always the most stable of companies. Networks have to keep good cash reserves built around good risk models and profiles or you can end up insolvent in the blink of a eye.

Another thing that can often take hold in this space in all positions is the big ugly green headed monster called GREED.

When numbers are flying up in the system, everything looks amazing. You’re buying house and cars in your mind. You’re annualizing profits and how rich you’re going to be as this continues. Only to find it all come crashing down. Things I’ve had non-payment for:

Merchants getting funds frozen by the FTC
Merchants having their merchant processing accounts steal from them (holding funds and never giving them back)
Merchants just disappearing
Merchants disputing traffic and leads that were good
Merchants …. and the list goes on

I’ll leave you with this. Know who runs the company you work with. Know what financial models they operate under. Know how much cash they keep in reserves or what access they have to credit lines if for some reason they take a hit. All these things matter to insure you’re money and your business is secure.

I don’t think Ryan did anything intentional. I think he might have been flamboyant with his money but that was all an act. It’s how he roped in noobies to the industry. “Look at this young kid balling out of control, I want to be like him.” He did the best business he could and I don’t think he wanted to ruin his name or fuck anyone. This business just got the best of him.

As with most things in life you can point the finger at someone else. Or you can point the finger at yourself because you are all you can control. If you made a bad decision running traffic to a network that went out of business how could you do things differently in the future? I always blame myself for the things that happen to me, even if other people do them. It was my choices that got me in that situation. This is how we all learn!

If you’re not from the affiliate world you may be asking yourself why would you pay people out faster then you’re getting paid?

The answer is Google and Facebook. These mediums require most people to prepay for traffic or on daily net 1 terms. So the affiliates often don’t have the capital to float the buys. If they run out of money the traffic stops. If the traffic stops the network & merchant make no money. So the wheels of commerce are oiled with money…. but you know that.

What Vertical Should You Be In? – Next Level Stuff (are you sitting down?)

I get people asking me a lot where they should start in affiliate marketing.

Typically I give the same answer. Pick a vertical with low paying, high converting offers. Then you can get statistical relevance quicker and at a much smaller cost. This speeds up the learning process 100% + makes you feel like you’re making progress.

This article is for people LONG past that stage.

They’re also past the stage of I just want to run whatever will make me the most money.

This article is for people that are ready to think future forward and are ready to build a real business with a long term vision! Now I know some of you like your very simple life with just yourself running traffic and not having any responsibilities. Again This is not for you.

This is for the person that wants to build something BIG!

Well if you’re ready…

I recently optimized for efficiency and service a lot of the internal systems and structure for A4D. Any time I change anything for any of my companies I build financial models, which I did again this time as well. Once I was done I started to ask myself question. How does this model stack up with other industries and is there any examples out there and is our department overhead costs where they should be?

Then I jumped over to Google and started hunting around for “average net margin by industry” to see if I could find some standards. Obviously as a company A4D is still in growth mode so we’re investing heavily in R&D as well as front loading staff for growth. But, I was curious of 2 things

1. How we were doing compared to others in the space.

2. Where we could end up at full scale.

After poking around for a while I came across some good sites with industry data averages. Then pasted them in a Skype chat I’m in and some others found some more. Now obviously, these are for very large corporations and averages across an industry. And thats’ where I want to go, multi-hundreds of millions in revenue.

When I show you these, at first glance you may think…. cool whatever.

But, stop and imagine you can build a large company in any of these verticals, it all just starts with the first step. Why not head down a road with the brightest of lights at the end of the tunnel?

As you now begin to look at these charts think to yourself a couple of things

  1. Could I start promoting in one of these verticals today? Could this be my entry way into the next step. Typically the important part of most businesses is understanding the customer. The customers motivations, needs and wants.
  2. Is there a logical road map to becoming a larger player in one of these industries in the long term? Whether you say you can or you can’t, you’re right.

Here’s a few charts:

There’s a handful of charts by industry and how they stack up as far as profit margins.

Do you see any industries you could start generating leads for.

By generating leads would you get to know the consumer on the front end?

Do you see an industry you could start learning about, then open a small call center?

I didn’t say these things are easy to build. But when you’re ready I’d take a look at these charts and find out where it makes the most sense to think about learning.

Start with the end in mind. Not sure where I heard that but it couldn’t be more true. So many people in our space and in life just listlessly wander through things without definiteness of purpose. Without a big goal and destination they’re heading to. “I just want to make money” is neither a goal nor a destination. It’s the recipe for a hamster wheel. Nothing more powerful then picking your destination and making it huge. Bigger then you can comprehend. Then breaking it down into achievable smaller goals along the way so you feel a sense of accomplishment.

In looking at this list I like Insurance. Good margins, usage of other peoples money, can start as an affiliate and generate leads to understand the consumer. Could easily transition to starting a small brokerage with someone else fulfilling the insurance on the backend. Then once you have enough customers you could transition to fulfilling the insurance yourself. Sounds like an amazing business.

There’s lots industries on the lists that fit this model. As an amazing media buyer and affiliate you can buy media in any vertical and typically make it work. It’s just all about focus and time. Why not learn about one that has an amazing pot of gold at the end of the rainbow?

What vertical looks interesting to you and what’s you plan?