Ryan Wilson, SVP Intela republished from ADOTAS.Some ideas seem to have the perfect fit; they seem so groundbreaking and significant that you are positive they will work. All you need to do is build it and customers will come. You immediately dive head first into development of your idea sparing no expense on features and functionality along the way. This site is going to be perfect. Several months pass and your product is finally ready to be released. You swell up with pride a bit as you announce to your friends and colleagues what you have created. You may have invested far more than you thought you would initially, but you know you have made all of the right decisions for your customers. The consumer’s experience on your website is exactly as it should be and you are virtually guaranteed success. So it’s time to release the website. You buy some initial traffic to the site to see how it works, but it’s not generating enough revenue to offset the traffic cost. You double-check the technical functionality of the site and it all checks out. It must be the traffic. You segment the traffic differently and buy more. It’s still not backing out. You have invested so much into this site you are determined to make it work. You keep spending and tweaking the site, but its just not working like you thought it would and you are still losing money or barely breaking even. You cut your losses and either let the website run with no additional investment or shut it down and move on to the next idea already in the hole from your last project and confidence depleted.
Don’t feel too bad because you are not alone. In fact, most online businesses never obtain the desired traction and never turn into hugely profitable businesses for their owners. I know this from personal experience. I have spent years developing a variety of websites and I am not ashamed to say that the vast majority of those websites have been complete failures. What I have taken away from those experiences is that most ideas for websites will fail, those failures are a normal part of the process, and that through acceptance of those failures as a normal part of the process and being prepared for them, you can increase your chances for future success. In other words, through the creation of a lean process which gets the right products to market quickly and cheaply, you can let consumers test the idea of your website. If they like it, their feedback and response will drive the feature set development for the end product. The process involves three major steps: pre-defining your success metrics, iterating through ideas, and accelerating failures.
Pre-defining your success metrics is a two-part process. First, you need to justify why you are building the site. There are many justifications for building websites and those justifications vary greatly from one website owner to the next. Identifying your justification prior to creating a site will allow you to make sure that you build the right type of site to meet your needs and that you recognize when your site is fulfilling its purpose. Some typical justifications include: building a marketing list, generating a new revenue stream, stabilizing media buys when ad spends change frequently across advertisers, providing value to and/or cross-selling to an existing consumer base, building a unique offering for a publisher base, and more. Second, you need to define the competitive landscape for your proposed website. You need to understand exactly what you will have to pay for traffic and how much you will have to earn on the backend of your website in order to afford that traffic plus your margin. There are many metrics that traffic publishers are going to care about. There are open rates, click rates, conversion rates, etc., but the most important metric used by savvy publishers is effective revenue/cost per thousand (ECPM) because it factors all of those metrics together. Publishers will use the ECPM of your website to valuate their traffic against alternate websites so they can make relative comparisons between multiple types of offerings with different conversion metrics and payouts. Each type of traffic has significantly different ECPM values as well as different associated costs to a media buyer. You need to figure out which type of traffic you are going to test with and what the typical ECPM’s are for that traffic. Once you know competitive ECPM’s, you can take the amount of traffic that you want to buy, divide it by one thousand, and multiply it by the target ECPM to figure out what your target revenue per user sent to your site needs to be. That revenue per user needs to be enough to achieve the publishers target ECPM plus your margin if you want to continue to receive traffic from that publisher and make money for yourself. In real terms, if you are going to buy one hundred thousand units of traffic to your site, your target ECPM is five dollars, and your target margin is 20 percent then you need to make six hundred dollars off that traffic to both keep your publisher happy and make margin.
Once you have pre-defined your success metrics, the next step in the process is to iterate through ideas for the site. Generating ideas can be done in brainstorming sessions. Try to do this with a small group of people in a creative and positive environment. Focus on ideas that are not so different that you can’t find a site that is similar in some way and already successful. You want an idea that your traffic providers will be comfortable with and that you can use other successful implementations as guides for. Choose the best idea and start on implementation. This is the point where most ideas get very misdirected. Companies get lost spending time and money trying to develop the perfect product. Their natural inclination is that they can think of everything given enough time and that they know precisely what consumers want. This is not impossible to pull off, but the odds are stacked sharply against you. Designing and implementing these ideas costs real money and there is no guarantee of return. Rather than taking the risk of high investment on the front end of the development, you should design for a soft launch of a scaled down prototype version of your idea. Get the idea into form as quickly and cheaply as you can. Put live traffic on the prototype and collect as much information as possible. You can use analytical software, revenue tracking information, conversion information, etc. Collate all of this information and overlay it against your success metrics. This should tell you very clearly if your site is working and if not in which areas it is breaking down. Focusing on those specific areas will maximize the efficiency of your development efforts. Brainstorm ideas to fix those specific weaknesses, implement cheaply, test, and repeat.
The final step in the process is accelerating failure. Being able to identify failure quickly will take time. People don’t like to fail and become attached to their ideas. They feel like they have to succeed on every attempt and failure is a personal reflection on their efforts. As I have mentioned, the reality is that the process is heavily swayed toward failure. It is impossible to correctly predict every time what consumers will want. Some ideas work for one website owner and won’t work for another because of alternate justifications. Some website owners are able to support different success metrics because of scale or access to traffic. Regardless of the reason, rest assured that if you are trying enough ideas some of them will fail. The value in accelerating failure is to create an environment where failure is not condemned, but it is used as a learning experience for everyone. The more failures communicated to and understood by everyone involved in the process, the faster they will learn and the faster future failures will be identified and avoided. This will lead to less wasted resources and ultimately a better ratio of success to failure when building websites.
