Matt is the co-founder of SitePoint a major destination on the Internet for Web Professionals. The company was named one of the 100 fastest growing businesses among all categories by BRW Magazine for 3 years in a row and has appeared on the Delloite & Touche Technology Fast 50 numerous times. In February 2008, Matt co-founded 99designs – the largest crowd sourcing marketplace for graphic design and followed it up with the launch of his 3rd company, Flippa.com in June of 2009. All three companies are profitable and turning over 8-figures annually (combined).
Eric Enge: Let’s start with an overview of how your business activities evolved.
Matt Mickiewicz: My story begins in 1998 when I was in high-school building websites and doing internet marketing as a hobby. At fourteen, I was finding I had to do a great deal of research & legwork to find all the information I needed to get the job done. So seeing that no centralized online resources about HTML, Search Engine Optimization, web hosting, or email marketing were available at the time, and figuring there were surely other people like me I decided to solve the problem. On April 1st, 1998, I registered the domain name, Webmaster-Resources.com, and launched a website compiling all my research and everything I was learning about the Internet space. My timing was absolutely impeccable because in 1998-1999 everyone wanted to learn about the internet development and there weren’t many places to go for information. The site quickly became one of the go-to- resources.
I ran the website myself, answering emails before school and spending my lunch hours at the local Starbucks on my cell phone selling advertising to wealthy venture-backed Silicon Valley companies who were being judged on their “burn rate” (the higher, the better). I worked after class, on weekends, and on holidays when my friends were partying. UPS and FedEx were at my door almost daily with software and books for me to review. It took off quite quickly and becaome overwhelming, leaving me with the decision of whether to sell the business or find a business partner who could help me take it to next level.
By that time I was in touch with Mark Harbottle, who is my business partner today. Based in Melbourne, Australia, at that point he was the fourth employee and marketing manager at an Internet startup that had gone public. He was looking to make a move so the timing was perfect for jumping off and launching a new business. I flew to Melbourne, Australia in the fall of 1999, we shook hands and incorporated the company, and Mark quit his job six months later to work on the business fulltime. We renamed the company SitePoint, a name that Mark, a branding expert, came up with.
Our business model initially was to simply generate tons of useful content and make money selling advertising. The business continued to profit from advertising sales until the NASDAQ bubble crashed. Without a lot of cash in the bank we had a big problem on our hands- by that point we had employees and an office in Melbourne. We needed to generate a new revenue stream quickly so we developed printed versions of our tutorials and content that people could buy directly from us. This meant people could have a printed book next to their keyboard when they were learning HTML, or CSS, or PHP.
We started off by turning the most popular tutorial on SitePoint.com into a print-on-demand book that sold for $35 plus shipping and handling. Even though the content was available for free online, we thought people would pay for the printed version and we were right. Using the unsold ad space on our site and in our newsletters to market the book, we ended up selling over 20,000 copies. These direct channels to our customers were very profitable in contrast to the low margins realized by major book publishing companies who rely on stores like Borders, Amazon and Barnes & Noble for distribution. Traditional publishers also suffer from high return rates because the books are essentially on consignment through bookstores and choosing what topics to publish on for them is guesswork. However, we didn’t have any of those problems. We published based on what was popular on our site, and we went straight to the customers without a middle-man and sold at high margins.
Because we had established lot of trust with the people visiting our website, when we asked them to spend $35 or $40 for a book, they eagerly paid it. We continued like this for several years before adding the retail channel as a method of distribution. It has really intensified the online brand to be able to walk into Borders or Barnes & Noble and see dozens of SitePoint books on the shelves, and cross-channel cannibalization wasn’t as bad as we had initially feared.
Eric Enge: SitePoint has also become a great place to look for websites and other products as well.
Matt Mickiewicz: Yes. SitePoint had a very active forum that ran on vBulletin with hundreds of thousands of registered members. Our Marketplace began when people started forum threads with the intention of buying and selling websites, holding an auction via a rudimentary forum thread.
There were also forums where design contests were occurring. People in need of graphic design work would post a description of their requirements and their budgets, and designers would compete for the business by creating fully completed concept designs. People seeking graphic design work were receiving actual design concepts – typically a couple of dozen concepts from multiple designers in less than a week.
Both the website marketplace and design contests continued to gain traction and became some of the most popular sections on SitePoint.com. However some designers started complaining about not being paid and support became a nightmare, which is when we thought to start charging. We created a PayPal button and charged people $10 or $20 to post a forum thread in which they could request for design work, or $20 to post a ‘website auction’. Despite our attempts to kill those activities, the volume continued to grow, and grow. People started making a lot of money and we also started making money from the listing fees.
We thought that forum threads was an awkward way to have design work done, which is why we created a “doghouse” project (1 designer, 1 developer plus my business partner in a conference room for 6 weeks with no distractions) to build some basic software to facilitate these activities. At the same time we doubled the price of posting a website auction or a design contest. We also created a separate tab on SitePoint.com to bring more attention to these applications which in turn grew the volume even more.
There was a fantastic response rate from our community, who loved the new interface, because it was cleaner, easier to use, and had more accountability. The volume continued to grow and we started seeing really interesting businesses – realtors, coffee shop owners, bakeries, and dentists getting logos and other graphics done.
We thought we had stumbled upon something much bigger than SitePoint, where creative service could reach a broader audience then only webmasters and website owners. At the same time, my business partner was writing a book called The 22 Immutable Laws of Branding by Al Ries and Laura Ries. One of the key phrases in that book says that the quickest way to destroy a brand is try and make it stand for everything. At that time SitePoint was about education and content, and was a community for web developers and web designers. It was not about custom graphic design work. In fact, a realtor or a small business owner coming to SitePoint would have seen an article about PHP or Ajax on our homepage rather than a call to action for outsourcing graphic design.
In 2007, we decided a separate brand was needed and we came up with the name 99designs because on average about ninety-nine different design concepts are received in repsonse to a posted project. We launched in February of 2008, and once again doubled the listing price. We started charging people $39 to post a design contest, and it took off like wild fire. Crowdsourcing of graphic design was a really disruptive & innovative model that appealed to entrepreneurs, and business has been on the upswing ever since.
Eric Enge: The crowd sourcing concept is intriguing because the notion of leveraging an audience changes the cost equation of sourcing dramatically.
Matt Mickiewicz: Absolutely. It’s quite a disruptive business model. In some ways it is similar to iStockphoto, which created one dollar stock photography by crowdsourcing imagery from amateur photographers, or eTrade, which got people to trade stocks for nine bucks. We changed the equation significantly and because it was unique and far superior to anything else, people fell in love with the idea. To this day, the vast majority of our customers come to us via word of mouth from people who have had positive experiences. We weren’t just 10% better or 20% better, we were 10x or 100x better than using a traditional marketplace where you request bids and end up working with a single individual.
Based on the success of 99designs, in 2009 we decided that the website auction marketplace on SitePoint also deserved its own brand name and team. In June of 2009, we launched flippa.com, which was intended for buying and selling websites anywhere from $200 all the way up to $400,000 using an auction method. Simultaneously, we shifted our business model from a straight listing fee to a 5% success fee to capture more of the value we were creating. This didn’t go quite as smoothly as 99designs. We had tons angry customers and the Internet community at large was calling us greedy, saying we had ruined a good thing. They didn’t like the brand name, they didn’t like the design of this site, and they didn’t like paying the 5% commission.
It was quite a different reaction than 99designs, which received almost zero negative feedback. We stuck it out and ultimately it proved very successful. Flippa is roughly five times larger than the old SitePoint marketplace in terms of revenue , the volume of listings, and the number of sites sold.
Eric Enge: You are quite young yet you’ve had a tremendous amount of success. Let’s dig into the key reasons for that success. Besides mentioning a bit of luck, starting with webmaster resources, and picking the right guy as a partner, there were certain strategies and methods with which you approached the business that were integral to the success. Can you elaborate?
Matt Mickiewicz: One of the keys to our success has been listening to our customers in order to be in-tune with what they want. When our advertising revenue stream started drying up in late 2000, we were able to quickly shift business models to publishing books by looking at what people were doing on SitePoint.com. We were able to quickly test the validity of the idea by simply taking existing content, repurposing it, and using a print-on-demand company meaning we had no inventory risk. Rather than waiting three weeks to print 5,000 books that may not sell, we were able to rapidly and inexpensively test our hypothesis that people would pay for printed versions of our content. We were able to put ourselves out there and let the market speak to us. The same concept proved successful with the design contest, and the website auctions.
We started off within the forums on SitePoint, which were initially free, and started charging a $10 listing fee. It continued to grow so we built basic software in six weeks and doubled the price. And still it expanded, so we invested a bit more money. We were very careful not to over invest in the product or the service before it had proven itself. This ability to be lean and nimble in determining what customers are willing to pay for our product has been one of the keys to our success. Another key has been our capacity to develop projects internally and dedicate a small team to them with the sole purpose of incubating a new idea.
Eric Enge: But you did begin with a customer base to listen to. How did you get that?
Matt Mickiewicz: The key to establishing that initial traffic was all about content. We were never expert marketers- SitePoint”s marketing budget was our content budget and still to this day largely is. We over invest in the quality of our content, the tutorials we publish, and in our blogs and books. In contrast to the guys looking for the cheapest way to outsource to India, we focused on quality.
Eric Enge: Right, quality alone isn’t enough; the concept also has to be unique. You could produce a great website that reviewed books and is brimming with great content, but if it is not first, or second and it’s not unique, success is not likely. Matt Mickiewicz: Absolutely. We were the first to teach PHP, and MySQL on a large scale as well as the first websites to push the use of CSS for layout. We also had the first book on Ruby on Rails 2, and we just published the official book to Cloud Hosting in partnership with Amazon AWS. People eventually copied us, but by being ahead of the curve, we captured many early adopters.
Eric Enge: You also did a good job of listening to your customers and using the existing sites for improvised testing grounds. Yet, in the case of flippa.com, you actually chose not listen to your customers but instead to stick to your guns. What made you treat that site differently?
Matt Mickiewicz: We thought if we rolled back the changes and listened to our customers demands, it would be a small company forever. We decided to roll the dice and take the chance of having a multimillion dollar business knowing the risk was that we could kill it along the way. Our mindset was essentially “go big or go home.”
Eric Enge: You believed strongly enough in the value of what you were doing to ignore the criticism. There was an element of judgment that was critical to your success.
Matt Mickiewicz: Definitely. We could have done a better job of preparing our community for the changes, because I understand that people hate change but it has to happen and yes, it was risky. We couldn’t have scaled the business without the change to a commission model.
Eric Enge: You also became skilled at rapid prototyping.
Matt Mickiewicz: Certainly. We are very good at testing ideas out relatively quickly, and not over investing in development. It is a great tragedy when people invest hundreds of thousands of dollars, and waste years of time creating something that no one wants to pay for, or even cares about. Ideally, you want to get something out there as soon as possible and engage market feedback whether through a simple sales page you drive AdWords traffic to, or more complex software.
Eric Enge: Another wondrous thing about the Internet environment is that as long as your concept has some value and is unique, you can use the audience to crowd source the design essentially – through the feedback they give you.
Matt Mickiewicz: Definitely. It’s so much cheaper and easier to test a startup today than it was in 2000 or 2001. When we started SitePoint, we built our own custom, content-management system, our own shopping cart, our own autoresponder system. We built everything from scratch which was expensive and time consuming. Today it can all be bought off the shelf and it only gets easier each and every month. There are new, fantastic hosted services coming out all the time like Aweber, MailChimp, Campaign Monitor, 1shoppingcart, Ektron, and InfusionSoft,. One of the big breakthroughs in the last three years for technology startups has been Amazon’s creation of Amazon web services and the concept of Cloud Hosting and Cloud Computing. In 2007 when we were building 99designs, I essentially forced the decision on our team to use Amazon Web Services as our hosting platform.
Eric Enge: Have you ever done rapid prototypes and decided to pull back because the feedback wasn’t good and it looked like it was not going to work?
Matt Mickiewicz: Yes, when we tried e-books in 2002, people were barely comfortable buying physical products online; selling e-books was a total unknown. We also tried video tutorials on SitePoint in 2007 but that flopped. We revisited the idea this year with a new twist and were much more successful.
We also created a crowdsourced naming website called NameMyThingy.com, that really hasn’t taken off. There are numerous examples of things we’ve tried and tested cheaply and quickly that haven’t done as well as we hoped whether because the market wasn’t there or the timing was wrong.
A great deal of the time, revisiting an idea works well. Entrepreneurs tend to think ahead of the curve, so ebooks in 2001, 2002 was horrible but now it’s mainstream and people demand it. Sometimes it’s worth retesting an idea after time has passed.
Eric Enge: It seems you have also experienced that the idea you start out with, is likely not the business you end up with.
Matt Mickiewicz: Absolutely. If someone had told me in 1998 when I started Webmaster Resources that we would be publishing books, I would have thought they were insane. I never thought I would be running website auctions, and design contests. But the ideas appeared in our community and we saw it, tested it and found out that people would pay for it.
Being flexible, and willing to change and test new things is essential. YouTube.com started off as a dating website. Flickr.com the photo sharing website, was an online game with a photo sharing component. There are many examples throughout business history of companies shifting business models;
We have also placed great emphasis on a culture of customer service. We tell customer service staff to do what’s right by the customer, even if it means we take a short-term loss. We don’t outsource our customer support; we have people in San Francisco answering the phones for 99designs. For ten years, I had my personal cell phone number listed on SitePoint.com, so any person who bought a book, any person who bought advertising from us could personally call me up day or night, whether I was sleeping or not.
Last year, we had a massive Christmas sale on SitePoint.com, and it did not go perfectly from a technology standpoint. On Christmas Day I took thirty or forty phone calls from customers and was completely happy to do it. That is the attitude an entrepreneur needs. You shouldn’t hide behind an anonymous email address. You should love your customers and want to help them because at the end of the day they pay for everything you have. And, if you are the CEO, you should be willing to answer support emails because your team is overloaded, or answer the phone because your staff is on vacation. Your attitude should be to do whatever it takes and never run away from your customers.
Eric Enge: Thanks Matt!
Matt Mickiewicz: Thank you!