OPW - Mar 1 - Mark Brooks: Remember True.com? (see news on OPW). True was started in 2003 by Herb Vest, who had an 8-figure exit in 2001 with his innovative but controversial H.D. Vest accountancy firm to Wells Fargo. I remember sitting down at iDate in 2004 with him and his strategist, Trish Bellows, when the site was TrueBeginnings.com. After iDate they relaunched as True.com and started to scale up rapidly. (Full disclosure: True were a client of Courtland Brooks for a couple years circa 2005). The company grew rapidly and was similarly innovative and controversial, and achieved 8-figure revenues a few years later. Then it went into steep decline but soldiered on through to 2013. Ruben Buell is the former CTO and President. I asked him what happened, and he weighed-in with this frank account.
Ruben Buell: At the peak of our success I was managing over 10 million dollars a month in marketing spend. We had grown a company from nothing to over $130 million a year in revenue within four years. It took longer than that to unravel, but it seemed just as quickly as we had risen, we had fallen back to nothing. What happened, and what changed?
Much of what happened at True was external, but internally we had done nothing to protect ourselves in case we hit a speed bump. We were moving at full throttle with full confidence in ourselves, our technology and our plan. 2008 presented one large-ass speed bump. The success of our marketing and site had hidden other problems that existed within our business model. When the housing market collapsed and the banks began pulling back credit we did not fully comprehend how that would affect our business model. It became very clear very quickly.
Online dating is a recurring business model. We charged individuals an average of $55 a month for our services. As with all online dating sites some people used the services and huge numbers of other individuals just never bothered to cancel. It is the cornerstone of the industry, people are lazy. In 2008 the banks were cancelling credit cards en masse. The cards they didn't cancel pulled the credit down. Individuals didn't have any additional room on their cards. This resulted in monthly billings dramatically falling off a cliff. When half your customers have their cards cancelled, it isn’t exceptionally great for your business model.
2008 hit True harder than other large dating sites for several reasons. The primary issue being lack of capital. We were putting every dollar we earned back into marketing spend. We were growing the business as fast as we could, and why let money sit in the bank earning a percent and a half when it is earning three hundred percent over eighteen months? When 2008 hit our models completely changed. Our ROI calculations no longer worked. Ten million a month in spend no longer made sense. We slashed spend to what was working well, or at least what seemed to be working. The recession continued and things did not get better for a very long time. Marketing spend went from ten million a month to three million. We did not have the capital to ride out the storm. We also had not spent money on traditional branding. All of our marketing was directly targeted on the Internet. This meant that we didn't have traditional goodwill or free traffic organically that had been built up year after year. So when we could not advertise at high levels any longer we could no longer replace the clients we had.
The company itself was also just too big. True was around four hundred and fifty employees when the recession hit and we were very reluctant to let any of them go. We had just cut our marketing spend by two-thirds! In the online dating space that really means you need to cut your staff by the same amount which we just were not willing to do. Not right off the bat at least. It really was one of the key mistakes at True since the beginning.
We tried to be everything to everyone. We spent money and had staff focusing on psychological testing, and continuous site improvements, better matching algorithms etc. The truth in the dating industry really is that you need to get your site up and running well, and then spend everything on marketing. It is one of the misconceptions in the industry. When truth be told once you figure out how to get the right picture in front of the right person they sign up and pay you money. True could have competed just as well with a third to half the staff that we had in place.
There were other factors that helped take down True. From always balancing credit card charge back rates to the rise of Facebook and therefore the loss of MySpace as an advertising source. The CEO going through a terrible divorce and landlords that were out for blood.
We had our chance to profit hugely from True. In 2007 we were meeting with investors. The firm was worth $250 million dollars. The initial investment was a little more than $50 million dollars so this would have been another huge success for our Founder/CEO, Herb Vest. We did not agree to sell. The company was just taking off too fast. At the end of the day it was the biggest and most expensive lesson to learn.
When you have a chance to cash out at a huge profit, take it. You never know what the next year or the next quarter will bring for you. Timing is everything.
Post by Mark Brooks @ Courtland Brooks