Raising $300k to Build a Marketplace Without a Focus on Revenue

Hi Matthew! Who are you and what are you currently working on?

My name is Matthew Anderson and I’m 31 years old. Originally from Indiana (USA), I have been based in Mexico City for the last 3 years. My time is currently split between professional projects and art projects.

Professionally - I’m working with a partner to create a Shopify App meant to be the engine that powers “Subscription-First” e-commerce businesses. I am also working pretty closely with a few DTC Subscription businesses (who are using our app) as a startup strategy and growth consultant.

Personally - I love making music and painting. My first full-length album is set to release this August, I just wrapped up creating what will be my second album, and I paint regularly with my work scheduled to appear in various upcoming art shows.

Adproval was a marketplace to connect blogging and social media influencers with brands (though the “Influencer” title didn’t really exist when we started). We really wanted to provide enough choice for influencers on our platform to only collaborate with brands that they felt aligned with their values and the values of their audiences. 

As it was 2011 when we first started, our primary focus was bloggers with their own sites. We started with a widget for them to easily customize embedded Display Ad slots that they could price as they wanted and receive offers from brands to purchase directly, from which we took a commission. We then expanded to broader social media promotion (i.e., “In addition to a display ad on my blog, I will tweet about your product X times throughout the month”).

I was a non-technical sole founder and CEO, so I pretty much carried all the non-technical job duties (which were handled by various contractors and ultimately a design and development agency partner). Fundraising, marketing, customer support, etc… you know how it goes :).

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What’s your background and how did you come with Adproval’s idea?

I was still in college at Indiana University when I started Adproval. Thankfully, one of my majors was Entrepreneurship and I had saved all those courses for my final year so I was able to use my own idea for all the business planning exercises in school.

I became personally interested in “how websites make money” which led to learning about digital advertising / Google Display Ads. Around the same time, a family friend’s lifestyle blog was starting to grow really quickly. I asked her how she was monetizing her site and discovered that given the relative niche of her site and the lack of control of display ad networks, she didn’t have a good system. She was working directly with advertisers from brands she was comfortable endorsing which required a lot of manual work with back and forth negotiating, ad image uploading, analytics tracking, lining up her next advertisers, etc…

From that initial point, my original idea was to be a “Blog Coach” of sorts to help set up monetization streams for bloggers as a consultant. I thankfully had a professor teach me about the limitations of a time-services company and suggested how the scalability of software could help!

Apart from this, I also ran my brother's lawn and landscape company in High School when he left for college. My family history is very entrepreneurial, though, from my great grandfather (who was one of the first inventors of the Travel Trailer / RV) to my dad (who always was tinkering with his own businesses).

How did you go from idea to product?

Thankfully, the same professor who set me on the software path had been through startups before and encouraged me to start with the “fake it til you make it” spreadsheet business model. So - I used a simple landing page builder to “fake out” a two-sided marketplace with a static listing of Bloggers who were looking for sponsors (brands to partner with), and then a listing of brands with opportunities to collaborate with Bloggers.

I had a Google Form on that page for more bloggers to sign up, and if they signed up, I sent them a survey form to collect more information as market research (How do you currently monetize? How many hours a month does managing your brand partnerships take? etc.). I also asked them if they had any friends who were bloggers that they thought would be interested. That helped grow that side of things at least in the static market research stage and I found out that most bloggers ran in pretty close online circles, so breaking into one or two influential bloggers in a digital community could lead to the rest hopping onboard.

On the brand side, when I had a good enough listing of bloggers (just like 15 or 20) on the site, I printed out little flyers and went to a local Handmade / Vintage Goods convention (like if Etsy sellers were in a convention center). I introduced the idea to them and collected feedback and email addresses.

This market validation stage probably lasted 3-4 months and was basically me having conversations with one side of the marketplace, taking tons of notes and making adjustments to a static landing page, then going to the other side of the marketplace, and back and forth. It was just me running the process with Google Forms, Google Sheets, and a landing page builder.

I used Photoshop to make a little animated explainer video, made my own landing page as a fundraising business, compiled all that market research, scraped together my own cash and some friends/family investment, and then did a first small fundraising round/equity partnership with an accelerator of sorts from there.

After building the MVP of the actual software marketplace, we sponsored a blogging conference with 300 attendees. It honestly went well! It helped us build a core base of bloggers using our tool.

The strategy was to first launch with a one-sided approach, focused on creating a tool for bloggers that they would embed on their own blogs to create a public listing page they could point advertisers to and then manage their own queue of advertiser submissions. The idea was that this would also introduce us to brands who were coming through the widget we had embedded across the network of blogs and then we could build out the brand marketplace offering.

With blogs, we charged no flat fee, just a 10% commission of display ad sales… and we covered payment processing. I pretty adamantly wanted this to be a really accessible tool for bloggers and wanted it to be a completely open self-service marketplace (as in bloggers had complete control of their own setups). We didn’t charge brands at first, either, hoping we could get enough volume to scale transactions and turn a profit.

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Which were the strategies to grow your business?

We started with maybe 20 bloggers from the network we tapped into from our market research phase. That number grew through sponsoring the in-person conference as our first big paid marketing initiative. As every blogger using the first version of our platform (pre-marketplace) was embedding a widget on their sites, we were able to effectively generate leads through that.

Probably the most impactful marketing strategy for us, though, was one that most people don’t consider as a marketing tool. Our live customer support chat was really the main driver of growth. We focused on going above and beyond with empathy and immediate responses to any support requests. When issues were resolved, we would more often than not see users tweet about how great our service and support were, which drove quite a bit of organic word of mouth.

One other idea was allowing bloggers to run free “ad swaps” through our platform. Bloggers would often cross-promote each other by showing ads for each other's sites. While we knew this wouldn’t be a revenue driver for us (as no money was exchanged to pull a commission from), it did help win favor and grow our blogger network.

I borrowed a customer support mantra from a friend who runs a clothing business (United State of Indiana). He operated their support with a three-word mantra: “Spoil, Reward, Enlighten.”

I don’t exactly remember what each of those words meant to him, but as I adapted them to our business, “Spoil” meant replying immediately and leading by seeking an empathic connection. When a customer reports an issue with their onboarding/installation, reply with “I’m so sorry - I know it’s really frustrating for me when I spend time on a platform and something goes wrong.” whether or not it was a user error.

“Reward” for us meant that, after going above and beyond to help resolve the issue for the customer, we would default to refunding. So if there was a bug (or user error) that caused it to not display properly, even if it was a user error and we were able to resolve the issue quickly, we would voluntarily refund the commission from that transaction.

“Enlighten”, then, was about education and/or a clear ask at the end of an exchange. “Also - just so you know - you can now run free ad swaps through Adproval. Are there any bloggers you’d like to link up with through our system?” -or- “We have a new brand getting onboarded next week in the _____ space, would you be interested in more information about their sponsorship opportunities?” Presenting a single, clear piece of information or ask with the chance for mutual value after Spoiling and Rewarding not only helped us with whatever business metric we were wanting to push but also tied together with the whole experience for the user.

When did things start to go in the wrong direction?

I don’t think we were focused enough on marketing to the Advertiser/Brand side of the marketplace. Our thought was that the bloggers in our network were already working with brands, so by providing a tool for them to make that collaboration easier, brands would be coming through our platform and we could convert them into repeat advertisers. 

We didn’t really focus on that funnel, though, and found that a lot of the advertisers were often very small or just other bloggers making $5 purchases to promote themselves.

Our revenue model was not right to optimize the high volume of low dollar (or even $0.00) transactions.

My own hubris was a huge thing. I was building this business in a city dominated by managed services and enterprise technology… and I kind of hated it when I looked at the tech landscape where I was. It just seemed like an excuse to me to build really shitty software than charging a ton for services to make the bad software actually usable.

So… I kind of refused to go down that road, and it was largely from arrogance and this fascination with the “purity of fully self-service software.” This was costly and didn’t lead us to revenue-generating activity early enough.

I was also inexperienced. I was a sole, first-time, non-technical founder. My primary competitor was, at first, a technical founder who was able to more effectively bootstrap (given that he was a developer). And, later, more competition appeared in the shape of PR and Marketing Agencies that started offering what we were doing as a service without their own tech platform (an angle I wish I would have pursued more intently and earlier on).

I eventually found technology partners who I liked a lot, but I was always paying for dev and design work and didn’t always have a clear vision for the necessity of certain features.

Which were the causes of Adproval’s failure?

I think definitely my inexperience and some of the refusal to pursue managed services at the start of the process already mentioned.

Our revenue model was also not great. I really got away from doing the things I was doing at the start of the process - building the business with just spreadsheets and static pages. I wish I would have kept doing that until we had regular revenue.

For example, this whole business really could have stayed as an email list for a lot longer than it did, and I could have charged brands (advertisers) for exposure to this list with the different influencer sponsorship opportunities they had. There was an opportunity to either provide that curated experience myself (for a fee) or to partner with more PR agencies that wanted to start getting into the “Influencer” world but that didn’t have their own technology or existing network of bloggers. 

I was so fixated on providing this flexible, self-service experience for each independent blogger because giving them control over their ads and advertisers was a core value from the start… but, I let that get in the way of the long term service of the market but not focusing on sustainable revenue creation.

We tried pivoting at the very end, and probably pivoted into a better positioning… we shifted to build a B2B platform that brands could use to manage and track their own existing influencer or “ambassador” teams. As digital Influencers/Ambassadors became more ubiquitous, we saw an opportunity in providing the other side of the market their tool to manage their digital ambassador teams and to charge brands for our platform.

I also finally found a good groove offering managed services. We helped a few brands with significant (to me at the time) budgets build out a strategy around their influencer/ambassador programs and then manually executed for them while we were pivoting the platform. This is what I wish we would have done from the start.

Really - it came down to severe burnout. I didn’t know it, but I was battling clinical depression and anxiety and the stress was impacting my physical body. Some body parts had become constantly numb, and I remember driving down the highway one time when my face and hands went completely numb. I had also developed a substance dependence on alcohol to help me fall asleep at night - otherwise, I would lay there for hours and hours with a very active (and depressed) mind.

So… I think I really just had to shut things down and move on. I probably could have done that earlier and saved my mental and emotional body a lot of anguish. After almost 6 years of largely bootstrapping by myself, I simply do not think I would have survived much longer.

I started by telling a few advisors who were not investors. They were super encouraging and gracious. I then started telling investors one by one. I felt a lot of anxiety to tell them and had convinced myself that I was a failure… I will never forget how graciously my investors received the news, though. They were so understanding and supportive and expressed genuine concern for me for the next steps in my life and career.

I quickly felt like a massive weight had been lifted off of my shoulders and remain incredibly grateful to them.

Which were your expenses? Did you achieve any revenue? In the end, how much money did you lose?

I committed myself to live off of a small fixed salary that started at $1,500 / month and increased to $2,000 / month over 5 years. I had a lot of privileged support from my family, but I was certainly trying to live on a budget well below that of most of my peers.

Our word-of-mouth marketing engines did work quite well, so beyond a couple of conference sponsorships, we didn’t spend there.

Design and development were the primary expenses. With high-quality contractors, we were spending between $85 to $150 / hour for design and development. That reduced some when we locked in a cash/equity split partner but was still a massive expense that could certainly have been delayed until the “manual version” of the business model was generating revenue.

I put in my own savings at the start of the business, raised a small amount from friends and family, and then did a few tranches of angel investment convertible notes over the $300k in funds raised and about 6 years of my life invested on the project.

Our revenue varied a ton. While we were just commission-focused on ad sales, we’d make at most $200 / month from that fully “self-service” side of things. Towards the end, as we started focusing more on consulting services on top of our platform, we had more success. Our last year was just over $200k in revenue.

If you had to start over, what would you do differently?

I would have told myself that you are innocent and forgiven and are worthy of love and acceptance from yourself! But I probably wouldn’t have believed me :). 

Would have spent more time on the “fake it til you make it” version of the business that, in hindsight, actually could have been (and still could be) a nice revenue-generating services company. I would have tried to then build software from that revenue and would have used the credibility of that business model to find a true technical co-founder as committed with equity, not an hourly payment or cash/equity split.

I was so worried about making a beautiful self-service piece of software that I spent more time on that than I did on revenue creation. I mean to be fair to myself, I would still have had no idea how to convince a brand to pay me to run their blog sponsorship programs for them at the start, either… but had I spent time doing that for free (or cheap), it could have turned into real consistent revenue streams without obsessing over the “purity of SaaS + Commission”.

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Which are your favorite entrepreneurial resources?

At that time, I used to watch all the Foundation.kr stuff from Kevin Rose. He had a site dedicated to publishing all new interviews which seems to no longer exist, but they live on through YouTube and really was super helpful and provoking content.

I read all the “Classics” back at the time… The Lean Startup, Art of the Start, etc.

Now, I am plugged into a few Product Management groups (Product School and TopTal), will check out Indie Hackers periodically, and will binge listen to Shopify-specific podcasts.

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Where can we go to learn more?

Professionally: https://www.linkedin.com/in/matthewroberta/

Personally, if interested in checking out my Art / Music: https://www.instagram.com/matthewroberta/

And anyone can shoot me an email if they want!