Promote My Site

Today's article at Bruce Clay was about avoiding a PR nightmare. He rightly suggests that the easiest way is to be smart and not get into one in the first place, which is easy advice, but then he knocks one out of the park by giving a 1-2 punch to the most human of impulses, retaliation:

1. Refrain from personal attacks. At all costs. There are no exceptions.
2. Refrain from responding to personal attacks. At all costs. There are no exceptions.

Not content to summarize a Dali Lamaesque ("We are not anti-China, we are pro-Tibet" - how clean is that?) truth clearly, he goes on to give you a good physical marker you can use to guide yourself:

As a general rule, if your hands are shaking after you have finished typing out your five page rebuttal to their argument, DO NOT PRESS PUBLISH.

Perfect.

Politics

Not the politics of the personal, which is what the above is all about, but the politics of, er, politics. For example, I was using Brian Schaler's Digg Status tool and got an interesting error message.

I'm not sure if he's kidding about how people complain about Bush on Digg or is encouraging people to complain about Bush on Digg.

It doesn't matter, but the possibility of offending a large number of people is certainly present.

Around here we have the usual mix of big-L and little-l libertarians, democrats, liberals, conservatives, and republicans. I think we even have a communist and an economist. But our ironclad rule is:

1. No politics while you're representing the company

If a client brings up politics we are polite (no matter how much we agree or thing he's crazy) and move right along.

I have an English friend (nu-Labor if you follow that stuff) who finds American's willingness to talk politics at work with customers appalling. I think I agree with him.

At least. Which is a pretty good piece of pocket money. I suspect even Warren Buffet would slow down to pick that up.

I attribute this to SEO because even thought it was a change in business process coupled with good SEO that made it happen it could not have happened without SEO.

Fair warning to people looking for "advanced" techniques - they ain't here. But what I'm going to talk about is a LOT more valuable than a trick that may or may not work with Google next week or next year.

Best Ever YouMoz Article

Let's look at the real money quote that J Kelly Garrett put in his amazingly excellent SEO article at YouMoz. This piece of advice will serve you while you climb up the value chain from a specialist to a trusted business advisor:

I took the pile [of papers, documentation, etc], pushed it aside, and asked him [the business owner] to tell me about himself. This is a common technique of mine, whether it is a small business owner, or the Chairman of the Board for Burlington Northern Railroad.

He wasn't asking to hear about the guy's soccer team, he wanted to get the gestalt around the company. What is important about the environment, goals, challenges, employees, culture, customers, etc, etc, etc.

It's Not About the Technology

Really, it's not. Not even in SEO. I wasn't about the technology in OO programming. It wasn't about the technology in robotics. It wasn't about the technology during the dang moon shots either.

It's about how the technology serves the business and makes it more successful. Sometimes 'success' means one or more of:

• Improved profit
• Increased revenue
• Decreased risk
• Stronger resilience
• Faster new product introduction
• and on and on...

But if the technology isn't in service to the goals of the business then it will eventually fail.

The $2M Piece of Advice

I know exactly when I finally understood this. No kidding.

I left one job as a consultant making $55/hour doing NeXTStep programming (hey, that was LOT of money back then) and got another one making $75/hour. The had two slots to fill - lead programmer ($50/hour) and technology business advocate ($75/hour).

For some reason, don't know why, during the interview I was homing in on the business objectives of the billing audit system they were building. I kept asking about change management (people, not source!), about deployment, about disruption, etc, etc.

Next thing I knew I was walking about into the freezing flipping cold in Chicago holding onto a 50% raise. Bubba, you don't get too many of those.

If you work that out - 48 weeks a year, 40 hours a week, 40 work years in a lifetime - you find out that that change in focus gets you a $1,920,000 raise.

Actually, it's even more than that because you keep the advantage while you march up the food chain.

Back to The SEO Example

What really struck me about Garrett's example was that the business took the fairly traditional and predictable approach of getting some SEO guys to graft web and SEO onto a traditional "ring and pitch" business.

The SEO guys put together a campaign that generates 2,500 leads and it kills the guy because:

• ROI goes from "signup" to 2 years.
  
• "He is looking at ROIs that should apply to heavy machinery and commercial aircraft."
• Growth rate drops from 19% to 3% because of process issues:
• "growth rate has plummeted from 19% per year to 3% per year because he is in the office answering the phone all the time with close rates of 12% [down from 97%]"
  

Actually, there were a lot of issues, but those are the two killers. Look at what happened - his profits got pushed out a year from acquisition AND instead of looking at an yearly "takehome" increase of $67,032 he was seeing an increase of $10,584. That is an opportunity cost of over $55K!

You can go broke quickly making money that way.

Do the math

I'm just going to quote Garrett's point in toto because it sums up the whole problem so neatly:

SEO Firm Declares “Success.” The PPC campaign is bringing in over 2500 hits per month. Closing the sales is not really their job. They just need to work with the business owner to further tweak everything to bring in more hits. “Obviously” the copywriting needs work to further capture the ones that do get there, or there is something wrong with the business, or whatever...but we are getting people to the site. Just wait till the site starts to rank higher with the search engines!

Remember, the owner is now going broke pretty quickly, has sunk a fair bit of capital into the new venture AND is probably pretty much apoplectic. In fact, if he's like any dial-and-smile salesguy I know, physical and financial threats are probably in the offing.

What's the Solution?

I won't repeat the meat of the article but basically Garrett becomes and advisor and helps the owner re-engineer his business so that he goes back to ROI on close. But most importantly the business growth goes back up to the previous 19% and then all the way up to 28%.

So, back to the math - previous to the first campaign the owner was looking at a yearly "raise" of $67K based on growth. The slap-on-SEO campaign took him down to a $10K raise. The SEO+BPR campaign took him to a $98K yearly raise. Thus the title of this post because the SEO catalyzed a $31,752 additional raise.

I'd like to read a lot more articles like this, and I hope he keeps writing.

You know, when a tanker full of eggs hits a rail car of charcoal and they roll into the propane factory? You don't get omlettes for Lubbock, you just get a stinky mess.

Digg Is Not A Stinky Mess

Well, it's a fascinating mess, some sort of mixture of socialism run amuck and web bubble captitalism.

By socialism I mean that people profess to want to "do good" while gaming the system like mad, pretending money doesn't matter and not understanding the tragedy of the commons.

(Capitalists would profess to being efficient, game the system like mad, say money is just a score counter, and sell you a share in the commons. More for a share on the golf course side.)

In any case, it's a chaotic system with Ron Paul screeds fighting with lolcats for front page attention by 10M readers. You have ardent wikipedia like zealots burying anything sniffing of SEO or SPAM or just not-what-we-like. You even have an entire sub-industry of people selling tools and techniques and Amazonian Mechanical Turks to game the system.

I liked the grand Bazaar in Istanbul too.

So Digg Went Down. Again.

Surfing over to Digg in the morning is my personal equivalent of choosing the long supermarket checkout lane so I can finish The Enquirer. So what do I see first thing this morning:

No, you're down because your servers crashed like, well, like that egg truck earlier. It may well have been because your engineers made an excusable mistake - we've all been there. But I think it is because of bad management.

Hubris, Look It Up

Kevin Rose, who I admit bugs me, said in Amsterdam recently:

Moreover, the Digg-founder told me that the company is large enough now - 55 employees - for things to happen on their own. He used to panic when the servers crashed, now he has a team to take care of a crisis like that.

Kevin, dude, get a team that prevents crisis. Better yet, and I know this is going to sound strange to a 30 year old, hire some guys in their late 40's and early 50's who've run data centers and development teams bigger than your current company. Ask them to put some process in place.

I will quote your own words back at you:

Interviewer: So the first question that comes to everybody's mind is: how can you handle three start-ups at the same time?

Rose: "It's a matter of getting the right management in place".

Ok, so you've clearly got the wrong management in place. Not because your system went down (though that really shouldn't happen) but because it happens often enough that nobody was surprised.

Moving Forward

I dunno what to say. I've heard the same rumors as everyone else - "Digg for sale at $200M" or "$400M Buyout of Digg Rumored."

I will say that if I were giving Kevin some advice I'd tell him to pick one company and pay 100% attention to it. I'd pick Digg over Pownce or MyBlogLog or whatever else he's got going on.

And if he didn't listen I'd pick up the phone and start calling friends who had tens (or hundreds) of millions in stock from Webvan, Pets.com, Scient, etc, etc.

I've given Cari.net a hard time about giving almost good customer service and TracFone for looking like they just don't care about their image. So here is an example of an excellent proactive response to a potentially serious problem. We use Redbox (automated DVD vending jukebox) a lot for kid and probably-do-not-want-to-own (ex: I am Legend) films. It's not perfect, and their online rental interface could certainly use a tuneup, but it's a buck a night and that saves me three bucks a movie for new releases, so I will put up with a lot.

However, apparently someone put a credit card skimmer on a machine somewhere so below is their response:

To Our Valued Customers:

A few days ago redbox detected and removed an illegal credit card skimming device at one of our 7,400 locations. At the same time, redbox also discovered evidence of skimming attempts in two other locations. Skimming involves the placement of an illegal device above the credit/debit card reader on a vending machine, ATM, or in this case a redbox. These devices are used to illegally read or store personal credit card information.

Even if your redbox was not targeted, it never hurts to pay a little extra attention and check for any unusual activities or changes at your local redbox. If you suspect your redbox has been tampered with (click this link to see pictures of skimmer devices: http://www.redbox.com/creditcardsecurity/ ) please call 866-REDBOX3, e-mail alerts@redbox.com , or notify the store/restaurant manager of your concerns immediately.

Although there is no evidence currently that these skimming attempts were successful, consumer security is a top priority for redbox. Reviewing transaction records, there is a possibility that up to 150 customers may have been affected. Although only a small percentage of the millions of customers who use redbox each month, redbox has notified the major credit card companies so that they can monitor the situation. The redbox team is also working with local authorities to investigate the incidents and ensure your security.

Skimming is not new (click this link for more details: http://www.uboc.com/ ). It has been attempted numerous times on ATMs, gas station pumps, and now redbox has been targeted. Redbox has been aware of these industry threats and has spent significant time and resources to prepare for them. The 7,400 redbox locations are visited frequently by redbox associates to maintain smooth operations and an optimum customer experience. In this case, a redbox associate found evidence of skimming attempts and initiated the actions in the team's response plan (including this e-mail message).

Redbox greatly values our customer relationships. As a result, redbox is open and direct in our communications about this type of situation. The redbox team also utilizes industry-leading technology to ensure you have a safe shopping experience and aggressively combats attempts by criminals to defraud customers. Please see the questions and answers below for some additional details on skimming and how redbox ensures the safety of your account information.

Sincerely,

Trina Graham-Hodo
Director, Customer Service

Bill Caputo
Director, Security

Ok, so far so good - clear explanation, promise to stay vigilent. And well written too!

And then they go the extra mile and provide you with more information using outside "expert" sources to help you understand the issue.

Additional Questions / Answers:

Q. What is credit card skimming?

A. Skimming is the theft of credit card information used in an otherwise legitimate transaction. It often involves the placement of an illegal device above the credit/debit card reader on a vending machine, ATM, or in this case a redbox. For more info click these links:
http://en.wikipedia.org/wiki/Credit_card_fraud#Skimming
http://www.uboc.com/about/main/0,,2485_703976951,00.html

Q. What does redbox do to protect consumer credit card information?

A. Redbox employs state-of-the-art security technology to ensure the privacy and security of our customers' data before, during, and after their visit to our kiosks. Customer credit card information is encrypted the moment it's swiped through our readers. Redbox uses further layers of encryption to protect all data transfers, too. Kiosks are also actively monitored and regularly inspected both on-site and remotely. Redbox never moves or stores unencrypted customer information. Credit card information can not be accessed by outsiders or even by redbox employees once the card is swiped at a kiosk.

Q. Where can I get more information on credit card skimmers?

A. Please use these links to get more information on credit card skimmers:
http://en.wikipedia.org/wiki/Credit_card_fraud#Skimming
http://www.usatoday.com/tech/news/computersecurity/infotheft/2007-07-31-gift-cards_N.htm
http://www.uboc.com/about/main/0,,2485_703976951,00.html

Q. How do I know if a skimmer is on my redbox?

A. Redbox credit/debit card readers are standardized for all locations. Click this link for pictures of the two approved readers and some examples of skimmer devices: http://www.redbox.com/creditcardsecurity/

Q. Who should I call if I have questions?

If you suspect your credit card information was improperly used, contact your financial institution immediately. If you have specific concerns related to this incident and redbox, please visit http://www.redbox.com/creditcardsecurity/ or call 866-REDBOX3. Please do not reply to this email.

Perfect job, IMHO. Responsive, attentive, explanatory, links to authority sites to inform you, etc. Good job guys.

[Stumblers, welcome!  Before you leave, check out our Digg Friend Finder (or our other SEO tools on the left hand sidebar) to find people on Digg who have posted stories with your keywords of interest in them!]

Recently I have been bending over backwards to be a good digg friend and to really nuture my network.  Not only because I am a nice guy (when I don't have low blood sugar!) but because I have been thinking and reading a lot about the dynamics of friends, voting, and vote "power" on digg.  And I had been planning to do some testing with different kinds of stories and shouting methods.  So I've had some focus on the subject for a week or two.

And that is when I realized that there was a whole different kind of play going on which in my head I've labeled: The Cheap Shot.

Cheap Shot

A cheap shot play is when someone "unfriends" you so that your vote counts for more.

Let me elaborate....  Someone "fans" you so you check them out and make it mutual  Or you "friend" someone who posts neato stuff, they make it mutual.  Ok, we're all, like BFF, and we shout and digg and it's all very very keen.  For sure!

A few weeks later they unfriend you (and stop digging your stories!) and you don't notice for a variety of reasons:

• You have a lot of friend action, incoming fans, etc;
• Your friend list is so big it doesn't really all fit in the shout window so you don't notice you are "one short"
• You notice but don't do anything because, hey, you're still a "fan" of their work
• You just don't think about it

Now this former mutual friend can shout you but you can't shout them.  Which means that you aren't cluttering their inbox, but most importantly, your vote counts for more.

Voting Power

Now, there are a lot of theories about how votes are counted in Digg, and nobody outside Digg really knows the answer,  and if they accidently erase that whiteboard it won't be clear to them anymore either.  General consensus is that, time and voting blocks aside (which Digg clearly discounts like crazy), there are different "power" levels in digg votes and they move your stories around into the places where the great unwashed can see them.  (I strongly recommend the 97th Floor guy's 3 Milestones of A Front Page Digg as a clear and cogent description of the promotion process.)  I'd probably summarize it like this:

Now, who the heck knows what kind of divisors Digg throws into the mixture, but lets just use this (overly) simple formula for examining your network. 

Digg Network Thought Experiment Part One

Let's assume that you have a network of 1,000 people in your friends list and that, on any given story you get 5% voting, or 50 votes, almost automatically.  And let's also assume that you have a pure network (you won't, but let's assume).

If you have all mutual friends then you have (50 votes * 1 Power) = 50 Power on your story.

If you have all fans then you have (50 votes * 2 Power) = 100 Power on your story

Hmmm.  Kind of explains why people will take the cheap shot action - they know that they stand to gain a LOT and lose very little.

Digg Network Thought Experiment Part The Second

Take a look at that stranger for a second - he is the vote you really want.  And if you read the 87th floor article (or if you've been digging) you know that you get that vote by moving into places where there is more traffic (duh).  But how can you manipulate your network to actually get access to that stranger before you get out into the open?  Here we are back to the cheap shot and how valuable it is.

What this picture shows is that when a Mutual Friend shouts your story to someone and they vote, they vote you as a stranger.  But Digg can easily see that relationship and probably discounts that stranger vote.  If the Mutual Friend was a "Fan" then that stranger-once-removed vote is probably a lot more likely to be 3 Power.  You can also see that the network passes more power more quickly onto your story - and we all know that time counts a lot in getting your story "popped" into view.

Let's assume again that 5% of your network will vote on a story, so that is still 50 people in our 1,000 person network.  And let's assume that 10% of those will re-shout a story for you.  So that is about two people who will shout it to, say 1,000 people total.  Now you have 50 "strangers" voting on your story so you have 150 Power points.  This will appear to happen twice as fast under all circumstances if you have a mostly "fan" network.

Six Degrees of Kevin Bacon

How far does Digg discount "almost a stranger" votes?  Who knows, but they can't discount it too much or too far.  I don't see how they can because, at some point, they run out of computational power (remember, they have to do this in near-real time!) and, probably, there is a severe 6 Degrees of Kevin Bacon problem here too.  I know Digg has a zillion billion quadrillion users, but given the number of active Digg'ers who have hundreds and hundreds of friends, how many votes on a story before everyone is connected to everyone else?  My mind reels at the math, but my gut says that at 150 votes you probably have 90% inclusion.

Gaming Digg With Multiple Users or Silent Voting Blocs

I think it's obvious that having people who are not obviously connected to you (multiple users *cough* *cough*) shout your stories into a network, especially a fan network, is the bees knees for making your story pop.  Enough said.

How Can You Spot The Cheap Shot Artist

Good question - I have no idea.  There are people with a LOT of fans and few friends and it is because they are really picky - I know a real person like that on Digg, so I know they exist. There are others who look like throwaway digg users who have been churning thier 'friend' base for a month or two to get a more powerful voting network.

The problem is that there is no setting for notification of unfriending.  There is no notice in your friends activity log.  You can pull it out of the API (sure, in my spare time) if you want.

At least in high school when someone unfriended you it was clear because you couldn't sit at their lunch table anymore.

I don't think you can apply a pure Turing test (human or robot?) to Diggers, because Digg is a highly complex system and you can't know as much as you need to.

But I can look at a diggers profile and see that 24,000 posts in 90 days say.... Robot. And I can look at his "friend" network and see a lines of robots stretching out to the horizon.

And robots run by not very bright programmers.

Is Your Fan A Robot?

Let's just pick a random and very active digger, OptimusPrime01, off of one of my submits:

He's been a member, as of today, for around 210 days. Let's look at his activity:

He has 10,000+ diggs in 210 days. Given some vacation time in there we're looking at 50 per day. That is a LOT of time digging. But if you work at the DMV or IBM I guess you have plenty of time.

I think Opty is a human because he passes a curosory turing test:

• An eclectic voting record - all around the block
• I've shouted him back a few times and he doesn't always vote.
• There are 221 comments, which is more than one a day.
• The comments are clearly from someone who is a native English speaker, so no obvious outsourcing
• His profile is very human and has had a lot of changes.

The only thing that makes me raise my eyebrows is that his "popular" record is very very high at 9%, which either means that he's a hardworking SEO/SEM or just a dedicated digger. I come down on the side of digger with a lot of free time on his hands! (Heck, SEO's are allowed to be diggers, as long as they don't brag. :-)

Commentary on Comments

I have many friends whose native language is not English and am from the deep South, so I'm pretty relaxed about syntax and vocabulary. But it is a dead giveaway when a "23 year old girl from New York" uses words like "compliance" or is shouting you with: "Please to digg rapidly my submits." It's a dead giveaway for a robot or a sock puppet.

Human Or Robot, Part Deux?

I recently posted a digg (Best. Digg. Shout. Ever.) about a hysterical shout I got from a user called SteJules. I admit that I didn't take much time before deciding to post his shout because (without torturing you with the screen shots), he'd been a digg member for 31 days and had over 10K diggs and had a 20% hot rate. You don't have to look at stuff like that for a minute to realize it is a robot plus a really good linkbait writer.

If you looked more closely at his stories, half of them were chaff to disguise the other half linking to his websites. So his hot-rate for the stuff he cared about was closer to 40%.

Wow.

He's been banned now, so obviously discretion is the better part of robotics. But his stories are still up, still flowing traffic to his websites, and still garnering links from bloggers that dug his stuff. And since digg membership is free, it is hard to see what the human behind SteJules lost.

Robot Networks?

Oh, no doubt. Let's look at one of SteJule's friends, oboy. He's been a member since Jan/8/2008, or around 90 days. He has 24,000+ diggs. To avoid having you do what I did and drop the zero, that works out to 266 diggs/day.

[Update: DoshDosh says that oboy is human, but I still say that that rate of daily diggs is astounding. If each navigate/review/digg took 10 to 15 seconds each you'd have an hour of pretty furious activit a day!]

[Double update: I should not do math in public.  I have corrected my math above from 400 to 266 diggs/day.]

How Does A Human Fight Robots?

Don't. You can't. And it is not your job to police digg. They have staff and tools - I think the average lifespan of an obvious robot on digg is just a few months. I suspect that oboy will be gone shortly.

My suggestion is to take a walk among the less popular stories and digg/friend those people.

And look at your "fans" before you friend them. If they look too active or otherwise too good to be true, well, you might want to avoid them.

Look, this is not something you can write on 1-Apr and have anyone believe it:

Li Ka-shing, Hong Kong billionaire and CEO of telecommunications conglomerate Hutchison Whampoa, has increased his investment in Facebook in excess of $100 million.

Man, that is some walking-around money to throw around. Or away. I know this cat is several billion dollars smarter than I am, but look at the numbers:

• Facebook: 60M subscribers
• QQ: 300M subscribers

What is QQ? Well, I'd say it was the facebook of China, but there is a major difference - it is profitable.

Profitable?

Yep , they had around a 40% operating margin - $224M bottom line off $523 million.

Facebook? Uh, not so much. I've heard estimates that Facebook lost $200M last year on revenue of, well, diddly.

What is kind of interesting to me about QQ is that <15% of their revenue comes from advertising and the rest is ringtones and krep like that.

So there is some real upside left there.

Why Invest In Facebook

I have no idea. Perhaps it gives him some leverage to be a dealmaker, maybe the later investors are getting crazy mad warrants.  Or maybe there is so much money and so few good deals that people are spreading their bets around the margins.

Why is QQ Profitable?

I suspect that the QQ guys went into this thing from day one with plans to make money.

I know the Facebook guys were just "gaining marketshare" (of what?) and "getting momentum" (towards what?) and "achieving critical mass" (I know of what!).

Beware The Bubble

Remember the Time Warner / AOL merger?   Remember what happened six months later?

Well, if you see QQ and Facebook merge to get "synergies" or "global market" then you should probably go long on cash equivalencies. 

I was over on Mixed Martial Arts and saw the best google ad in a long time:

It'd take a long time to make a million bucks at $20K/month! 

But, for some reason, it seemed very apropos given that the topic was Entrecard taking $112K on a pre-money valuation of $998K. It wasn't the odd numbers that caught my attention because that sort of thing is always negotiated and you get some strange round-offs.

It was the odd deal.

First, What is Entrecard?

It takes a bit of time to tease out what is going on since there are no fees, etc. It turns out that their business plan is to get footprint (they are on 6,500+ blogs) through cooperative advertising.

Imagine if instead of getting paid when someone clicked an adsense link on your blog you got a google credit to buy a keyword. Also then you'd have to imagine that you could click on the ads on your site and get paid for that too, but put that aside for a moment.

Short Term Revenue

To bring in short term cash:

Once per day we will allow a larger company to drop their card into the inbox across the entire network. This will not appear on your website anywhere, but rather only in your inbox when you log into entrecard. You will also receive 5 bonus credits for visiting these sponsors. We will also allow for sponsorship opportunities for our system emails and all of our RSS feeds.

Longer Term Revenue

Once the network is very very large:

When the [Entrecard] economy is in great shape, we will roll out a credit exchange for bloggers to sell their credits to advertisers, and we will take a commission.

So you can sell advertising slots (and thus traffic) like, well, like you do today for lots of other people.

A Revenue Model

Since Entrecard has 6,500 blogs in their network and can place an ad a day on each of them, that means they can serve up 2.3M ad/days/year. If every ad/day gets 10 views and they get a CPM of a quarter that is $6K/year in revenue across your revenue.

Which is not bad to start off with, because if you can scale up your blog network to fifteen or twenty million you have some serious dough rolling in.

I'm not dissing 6,500 blogs, but there are probably a million or more created every single day and these guys are getting naught point diddly percent of them. I looked through their "featured" page and didn't see any biggies.

I reckon that this model is pretty much stuck to the bottom end of the market. This is not stupid because that is the biggest part of the market, and if you can serve it right and with low costs, then you can get very very big - see WalMart.

And this "traffic for an ad-a-day" model really works in the bottom end of the market where people live on their sitemeter stats and are excited when they break a 100 for a week in a row.

Why do I say low volume blogs only? Because a big traffic blog doesn't want marginal traffic from other blogs, it wants placed ads (at best) or expensive adsense ads (at least).

Also, as a side note, this is why google bought blogger and why it has always amazed me that adsense isn't a default on all blogs. (Yes, I understand why, but they barely push it.)

You can also see that they aren't exactly ramping crazy revenue or traffic - look at the valuation.

Clearly these guys are not getting valuation based on hype. Facebook is losing money hand over fist and is "worth" billions pre-money to Microsoft (who are not stupid).

So they are getting their valuation based on revenue.

As a side note: this is why I would NEVER have released the details of this deal. Your competitors and the general public can find out a lot from a little.

Valuation Information

Ignore the $112K number because it's really three numbers: $34K in three tranches. So the revenue valuation ends up with the end-of-period revenue of the company - or in a year. Differently put, Andrew Te paid $112K for 15% of a company based on it's valuation at the end of a year.

Nice trick, and that tells us that the Entrecard guys really needed that money.

I know $34K can sound like a lot of money, and if you've hooked yourself up into Amazon's Web Services (like I said you shouldn't), then you've got to write that check every month. I know they're there because their model spreadsheet showed hundreds of thousands of bloggers signing on every month and they (thought they) needed the capacity - and I might have done the same.

For example, if your last 12 months revenue was $50K, then the investor will say: "Five times trailing is a pre-money of $250K."

But if the last month was $8K and this month was $10K, then you'd say "At a growth rate of $2K/month over the next 12 months our revenue will be $252K so our five times leading valuation is $1.26M!"

And if you're hot hot hot then you say, "Our growth rate is 25%/month so our yearly revenue will be $670K and our five times leading valuation is $3.3M."

So, yeah, if you're trying to figure out how strong someone is you can kind of look at their valuation and see what they managed to pull off.

The Devil Is In The Details

One of the things you often see with tranche based investment is some really tough conditions for the seller. Looking at the valuation options you can see that the Entrecard guys fell towards the bottom.

How can I say that? Well, remember that they're really only getting $34K, which is what percent of $250K? Right.

If they use the money to keep paying Amazon and to, say, quadruple their blog base, then, hey-ho, they get the next $34K. And so on.

And if they miss their numbers, I am betting that there is some ugly change of control stuff in there.

Conclusion

Look, I'm not saying they shouldn't have taken the money, and I'm not dissing their business plan. I hope to never be in the position of having to take VC money again, and if I do, I hope it's a big big pile for a teeny tiny piece of the pie.

Sigh.  Once again they almost avoid being the rotten apple of my eye.  My not so snarky comments in red.

This evening Cari.net will conduct an emergency maintenance window to provide additional protection and redundancy for the C2 Data Center. [Planned emergency maintence window. Nice!] Every attempt is made to provide advance notice of these windows; however, in the interest of our customers ,it has been decided that postponing these actions may subject our customers to undue risk. [We forgot to send the email, we got the Special Post Mortem Version of D&D.]

At 12:00am this evening (Friday, March 28th) [Ooops, 12:00am Friday was this morning, around 18 hours ago.  You probably mean midnight tonight, or Saturday morning.][Wait, what time zone?], Cari.net Network Service Teams will install an additional BGP router [Oooooh.] within the C2 data center. This router will provide load sharing and additional redundancy to this segment of our network.

The maintenance will begin promptly at midnight and is expected to take approximately 15 minutes. Service impact should be minimal, though customers with equipment or services located in C2 may notice brief periods of latency and intermittent loss of connectivity during this short window as BGP tables are recalculated. [Is my stuff in C2?  How would I know.  Don't you know?  Why don't you tell me?] Senior Networking Team members will be onsite managing this event. [Blame will be allocated immediately!]

This work is being done to augment changes made during the March 21st window and to provide protection against additional large-scale network problems in the future. [We are not sure we fixed it right last time.   Now we're pretty sure it's the fuel injectors and not the distributor.] Customers located in Cari.net’s C5 facility will be unaffected by this maintenance window. [Probably.]

 Golly.  I am starting to think that Dilbert's PHB works there.

Earlier this week I had a perfect storm of things go wrong at work, any one of which would have been likely to infuriate me on a normal day. Combine them all together in a row, thrown in a quick round trip flight on United Airline (motto: You Think K-Mart Has Lousy Service?) and then add in several off-diet expensive-but-yucky airport food meals that made me gain three pounds. Result: One Ready To Explode Guy.

Bad Temper = Bad Decisions

I'm about as old as a dinosaur and one of the things I've learned is that I make bad decisions when I'm mad. Really really bad decisions. It's not that I haven't made good decisions when I was tee'd off, I have. It's that the ration of good:bad decreases. (Or increases, if that is what I meant, I have never properly understood how to say ratios.)

Worse Ever Bad Decision Made When Mad

At an earlier startup we negotiated a $12M round with a fund-of-funds that wanted to get some exposure to the boom in tech. As this was right before the bust, you may assume that they got more exposure than they really wanted. But at the time everyone and their grandmother's bond fund was buying into tech startup.

So we negotiated a deal with these cats, and while they were not VC's per se, they were very very smart and tough people, who checked us out from top to bottom, inside and out. Like seeing the doctor after 40, but with a spreadsheet instead of a glove. At the end of several months of work, and tens of thousands of dollars of legal bills (on my side alone, who knows what they spent) we had a rough draft of a contract and were just fiddling with valuation and board seats ($20M or $18.5M, 3 seats or 4.) I must admit that I was negotiating pro-forma and really was already getting a better valuation than I'd hoped and losing fewer board seats.

Then, after it was all settled, I got the final copy of the contract and they'd slipped in warrants for 15% of the company.

What you can't see is what signs he's making with his paws.

I even slept on my answer, thinking that would help me be more reasonable and let me re-enter negotiations.

Not As Smart As I Thought I Was

Because, you see, I'd confused letting some time lapse to letting my temper subside. So the next day, feeling deceived, I called them up and read them the riot act and, basically, told them where they could stick 12 million one dollar bills folded up into tiny little points. Not that you could have fit them all in there, but the piledriver I suggested they rent might have packed a few more in.

Now, this is a very human response to being systematically deceived, but it was foolish on many levels.

Wait, Deceived?

Yes, well, someone doesn't come up with a perfectly worded 4 page section in a contract overnight, with full references to other sections special provisions. So they'd always been planning on putting this section into the document right before signing. And, thus, I was deceived and duped into spending the things that are most scarce in a startup:

• Money
• Time
• Attention
• Energy

Why It Was Foolish

Well, turning down the money because they would be bad business partners would have been fine, assuming one had other options (we suddenly didn't) but turning it down mad was foolish because:

• I burned bridges. I have those guys in my contacts list so I can avoid them because I can only imagine how stupid they thought I was.
• We needed the money. Knowing what I know today, I would have taken the money. Could I have come to that conclusion if I was calm and focused? Maybe.
• Their plan was to manipulate me. They weren't making a mistake in slipping that stuff in. The only reaction where I could have still been in control was if I'd remained calm. So they won as soon as I got mad and started reacting without calm, deep, and mature thought.

Getting Smarter

Now I know that time does not equal calm, and I have learned to recognize when I'm stomping around mad, or even just sitting working on strategy stuff in a rapid simmer. So today I have restricted myself to working on the administrative items that I hate but have to be done: review of next year's health care plan, lease renewal review, reading all the inbound customer comments for the week (yes, I still do that), etc, etc. All things where I might take a to-do, or have to get something done, but all transactional and places where even a bad decision is not disastrous.

And if I'm not better by Monday, I'll know to keep myself out of the game until my head is ready to go there and do a good job.