This post is written by Rob and posted on the Monster Venture Partners site, but thought it would be appropriate to post here as well as finding the right person to run the domain business with our partner is critical to success. We have found that by hiring a great person and having them focus on the enterprise while assisting to expand vision (and of course fund the start-up costs) - we can develop a beta version of a business very quickly.

What I Look for in a Startup CEO by Rob Monster

With 18 ventures backed in the last 12 months, one would think that the rate-limiting factor for backing new startups is financial capital. In actual reality, this is not the case. A big idea, executed on a category-defining domain name, led by a stage-appropriate CEO, makes for a compelling early stage investment opportunity for which capital is usually available. The true rate-limiting factor for backing more startups is finding the leadership talent. And by leadership, first and foremost, I am talking about the CEO.

So, what do I look for in a startup CEO?

· Passionate, confident, tenacious, and goal-oriented. Passion, enthusiasm and confidence are highly contagious. You can only fake these things for a while. They love their work, and are driven to succeed, not just on a single venture, but have larger ambitions. They believe God put them on this earth with a purpose – even if they don’t quite know what that purpose happens to be.

· Genuine. A large part of genuine leadership comes from having character. Character comes from proving to yourself that you know who you are, what you are good at, what you enjoy, and what matters to you. The most effective leaders I have met are guided by a set of core values and principles. They know the difference between right and wrong, fair and unfair, and can navigate the gray areas in between.

· Adaptable. In short, we want to work with people who understand that “failure is not an option”. When results are not in line with expectations, a great CEO will figure out what is not working and adapt. This is often not just a function of “working harder”. It is often a function of listening to stakeholders — customers, investors, advisors, and employees – and then adapting in response to the data.

· Intelligent. CEOs need sufficient raw intellect so they can learn what they don’t know. Ideally, the CEO has domain expertise and can quickly formulate a vision for the company that has the potential of carving out a profitable niche that taps into a multi-billion dollar addressable market. To the extent that a CEO lacks domain expertise, the CEO needs to be able to recruit into his or her blind spots in order to be able to focus on areas of personal strength, while learning on the job.

· Ecosystem thinker: Monster Venture Partners is practicing a style of investing that I call “Ecosystem Investing”. It is different than Keiretsu investing in that the companies we back share a common architecture which extends across the core portfolio. The full scale of this common architecture is not yet fully apparent to the casual observer but the synergies are real and the consumer will be a primary beneficiary of a web experience is seamless. Sooner or later, the CEOs we back embrace this common architecture, often extending it.

· Demonstrates Integrity: Sooner or later, most people figure this out. Integrity is price of entry for any leader. An amazing thing happens if you focus on working with people that have high integrity. Everything becomes frictionless. Information is shared openly. Interests are aligned. Partnerships are built to last rather than for expediency. A CEO without integrity is a ticking time-bomb. It is like a deal with the devil. It rarely works out in the end.

· Tolerant, open-minded and prepared to deviate from convention. The crowd is not always right. The minority of today may be an early adopter, trendsetter or taste-maker. The kind of CEO we like to hire suspends judgment and instead forms a “working hypothesis”. Jean Ibrahim, an early boss and mentor at P&G taught me the principles of great consumer research. When analyzing consumer data, Jean would often tell me “first search for truth … and then use the data to explain truth.” Word to live by from Brother Ibrahim.

· Global-minded: Most of the opportunities we are interested in pursuing have a global component – whether it means global sourcing of inputs, or global distribution of products and services. A CEO may not have had global operating experience, but needs to be open to the idea and prepared to recalibrate how they develop products, how they hire, and how they go to market.

· Wired for productivity. Technology is a huge productivity booster. Blackberry, Skype, LinkedIn, Intelligent voicemail are tools for getting more done in less time. Most of our CEOs know what is in their inbox and process the important ones by the end of the day.

· Able to attract and retain talent. I have long believed that A-players hire A-players whereas B-players hire C-players. The first 20 people you hire are largely determinant of whether you win or lose. So, if you pick a B-player CEO, they will stack the team with mediocrity and you will lose. This is why most incubators fail. They spread the talent thin and too often settle for mediocre leadership. The results are entirely predictable if a course correction is not made early enough.

· Have a supportive home life. It helps to have a supportive partner and family. I read recently that a man’s most important job in life is to marry a good woman. Hallelujah. If you are married and want to see if you have a good spouse, do a startup. When the chips are down, you’ll get a pretty good sense. On the flipside, I strongly encourage married CEOs to make time for regular dates, and get-aways. In line with that directive, our CEOs also know that I am happy to pinch hit for them while they are off-grid, which is a primary reason why I often take the role of Chairman.

· Ask for help. Key contracts, key hires, and other key decisions are all good times to ask for advice. Most times, the advice comes in form of a suggestion, a document, an introduction, an anecdote or a (wee-hour) email. There are times when I am sure about something at which point, I will be emphatic on the direction I think a CEO should take. This is not the norm. Ultimately, the CEO is empowered to make his or her own decision. However, the CEO who ignores emphatic device, should explain the logic, share the data, or be right!

If you know of a great CEO, who is here to change the world, send them our way. We welcome the opportunity to match great leadership talent with great opportunities to reinvent entire industries.

I admit that I am an addict.  I love board games.  My favorite game of all time is Monopoly and I would play it for hours with my brothers and now my stepsons.  Why bother with the deeds for Mediterranean and Baltic when you can buy Park Place and Boardwalk (I still play the original version, not the Dane Cook version or the Boingboing version)?  The strategy, as you know, is to build houses and then hotels and then bankrupt your competitors until you win the game (I am a bit softer on my stepsons then I was on my brothers).  With this in mind, after many years in educational administration, I became a domainer.  It is Monopoly that taught me the only way to win is to build (and I don’t need to bankrupt my competitors).  A great domain parked can be lucrative, a great domain built will be lucrative.  It’s the Boardwalk and Park Place with the hotels. Domain Strategies gives you the tools you need to put your hotels on your Boardwalk and Park Place.

I came across Eliot Silver’s blog today on his endeavor to build Lowell.com - a geodomain dedicated to all things in Lowell, Massachusetts (blog.lowell.com). I think it is a true expression of the steps and challenges inherent in creating a business that has both uniqueness and sustainability:

1. A solid, domain name (how good is Lowell.com for Lowell, Mass?).
2. Business planning that includes uniqueness, problem solving and revenue.
3. Resourcefulness in finding solutions to development problems (ala the business directory issue, payment issue, cart issues, etc.).
4. Consideration for adding value to the advertisers while keeping prices within reason.
5. Consideration of legal issues - specifically the thoughts around the logo and how it might look like someone elses.
6. Business partnerships - working with the photographer for example.
7. Planning for traffic generation via search engines. This is also better done at the beginning of a design than at the end when an SEO retro fit is in order.

So far, Eliot is on the right track and I wish him good luck and two pieces of additional advice:

1. The recommendations and links he offers on his blog should be tied to the affiliate programs of the various vendors so he could make some money on referrals.
2. He should look to partner with other cities in the region to either help them develop their sites or work to cross-promote their content to draw a bigger crowd.

Good luck Eliot, we’re pulling for you!

We’ve just posted our first case study on domain development. Patents.com is an excellent example of the value Domain Strategies can bring to a premium, category defining domain. By utilizing our international network of partners and relationships, Patents.com will be the premier destination for patent content in 15 languages. Click here to read the Patents.com case study.

I wanted to post some thoughts about parking vs development and came across this post by Kevin Leto of BigTicketDomains.com and thought he put the decision in a great context. The following is the full, unedited post.

Parking vs. Development

“When looking at the debate of Parking vs. Development, much depends on the objectives a domainer has for his portfolio and the types and quality of his domains.

A high quality type-in domain will obviously have a higher CTR on a PPC page, usually 30% to 40%, sometimes even higher. Whereas on a web site you’ll see CTR’s of 5% to 10%. So you will see a drop in revenues initially.

The down side to PPC is it doesn’t create traffic growth, nor build a user base, nor offer any other revenue or site feature options. Bottom line you are limited completely. The upside is simplicity, especially if you need a monetization solution for tens of thousands of domains.

The down side to web sites are initial drop in revenues (for type-in domains), initial development costs, and then management of them. The upside is you now have the ability to grow traffic, grow a user base, and have total flexibility for implementation of all sorts of features and revenue generators.

It kills me when domainers say PPC is better. It is ultimately not, and if you sit down and deeply think about how much money you have been leaving on the table you’d fall off your chair when the realization sinks in.

If PPC was indeed better than we wouldn’t have any problems selling our fabulous sounding one word domain names to major corporations all day long. They’d be falling all over themselves to pay any price we ask. It’s not happening and it’s not going to happen, with rare exceptions of course.

Major corporations don’t want to acquire just type-in traffic for 20 years multiples, on an undeveloped domain. They do want to acquire USERS and a branded domain with a site that provides those users with a positive experience that they gain information, products, services, interaction or entertainment from.

Business.com is a fantastic domain as an example. It went from a $150,000 domain acquisition to a $7.5 Million acquisition for development as a search engine with companies paying annual fees of $199 to be included and paying for ad clicks to their directory listing, and just recently to a $345 Million acquisition by the R.H. Donnelly company. Most domainers would have that on a PPC landing page and would be making a ton of money surely. But would they be making $345 Million with that strategy? The answer is no. What surely turned Donnelly on was not just the traffic, but that established advertiser goldmine in Business.com’s databases. Those advertisers could then be further developed as advertisers across their entire ad network.

Web surfers come and either click and go on or just move on instantly when they hit a ppc landing page. There is no customer aquisition for the domain owner. Zippo. The most cherished and valued prize on the Net walks into your store and in seconds is out the back door to someone else’s site. It that smart business? I don’t think anyone could argue it is.

Let’s look at a big domain that has 30,000+ type-ins per day. Let’s say it’s been owned for 10 years. That’s 12 Million visitors a year. 120 Million since registration. Think about that number. 120 MILLION people have come to your store in the past decade. How many are “YOUR CUSTOMERS”? Not a single one. How many of their e-mail addresses do you have in a database? Not a single one. What kinds of stuff are they looking to buy? You don’t know a single drop of info about them. They’ve come and they’ve gone.

Now lets analyze the valuations. Under the PPC model, let’s assume a high 60% CTR paying 15 cents a click ove the life of the domain so far. The math works out to $10.8 Million you’ve earned over the past 10 years. That is great wealth and no one could deny a totally successful business.

Now lets say the site had been developed. After 10 years not only would you have those same 120 Million visitors, you would have captured a percentage of them in some way as repeat visitors, maybe a subscription, maybe just registered, maybe sold them something directly, any number of ways. But the main point is you would have tons of repeat visitors, and they would have provided free word of mouth, which would have brought in even more traffic and users. The revenues could be anything here since there are so many ways to generate cash flow when you have a web site. Surely in that time at a bare minimum you could have earned equal to the PPC and probably many multiples more. But the key point is you have not only an incredibly valuable domain asset at this point, but an even more valuable customer base asset. My guess is after 10 years you’d have at least 10 to 20 million users, probably way more. Now you own an asset worth a fortune, and in the hundreds of millions, and probably even close to a Billion or more.

So both ways make money, but the developed domain model is the true ultimate long term goldmine. And yes, not every developed site works, we’ve seen the dotcom bubble prove that, but the good thing about the Net now is the economies of scale are so efficient you can take down one concept and do another without much investment compared to the early days, and you always have your base type-in traffic. That is not going anywhere. If one building doesn’t work, knock it down and put up another until you get it right. It’s that simple.

Now to the points about mini sites. I personally have found mini sites work especially great for no-traffic domains bought at reg fee. They grow traffic, no if’s ands or buts. You do the math and even doing 1, 2, or 3 figs of revs a month, the numbers get amazing very very fast.

For most domainers I’ve polled, the majority of domains in their portfolio get litle or no traffic. Why did we buy them and why do we continue to then? It’s the expectation we all say that one day they’ll be good for development. What happens is domainers end up having thousands of these no traffic domains and basically get overwhelmed in their minds when they reach the point of saying “ok now how do I get these all developed?”. 99% of domainers aren’t developers. Nor do they want to be. It takes a lot of multitasking type skills and loads of energy to be a developer and even more to then manage it all effectively.

You also don’t want to put simple sites on exceptional domains. Great domains deserve and need great sites. And that doesn’t mean you need to spend an arm and a leg to get that. It certainly costs more to build a more robust site, but Internet technoloy has dramatically reduced the costs to an insignificant number compared to the early days. Over the past couple months I’ve evolved my mini site concept and system structure about 5 times over into something more robust, scaleable, and integrated with lots more features and capabilities than the original mini sites. I’ve now got a system designed to accomodate simple sites for no traffic domains reg fee domains, enhanced sites for moderate traffic domains and full scale sites for the premium type-in domains and have figured a way to still keep the costs in check even on the larger enterprise style sites. So its not just a strategy of instantly doing a zillion mini sites. You have to evaluate each domain and how much potential it has and then deploy a precision developed and custom tailored site on it. Once you do a few, then keep on going and build out more and more and more of them and you’ll soon have an enterprise sized ad network in your portfolio. Since a small number of domainers have the really huge traffic type-in domains, this is a way for the less fortunate domainers to get to that level too by having hundreds and thousands of small sites doing hundreds of visitors each a day and adding up to a big number of visitors network wide. It’s not easy to get small sites into thousands of visitors per day, but it is easy to get double and triple digits of traffic per day on them. You build with the end user in mind and they will come back and they will do word of mouth for you and traffic grows.

I’ve researched all the stuff you hear about SEO inside out, and there are some valid and genuine ways to optimize sites using SEO techniques. There are also many “black hat” ways that SEO wizards do to get high page rankings for clients. Many of these don’t last very long in the SERPS. My position is look at Google’s basic algorithm mantra. It’s as simple as their home page is. Sites that provide users with the best experience go to the top of the SERPS for the long term. You don’t need all sorts of fancy SEO stuff to accomplish that, nor be an SEO rocket scientist. You just need to do basic SEO optimizing and provide the highest quality site experience you can. Not only will you get good rankings, but users will tell other users, users will bookmark and come back again and again.

As I’ve indicated above when you place a high traffic domain on a site you’ll see an initial rev drop, but you will begin the process of solid traffic and user growth that will take you to the real treasure of dollars.

And here is where you have to really open your eyes wide and see exactly where the trove of money is. It is not doing thousands of bulk basic sites with Google AdSense on them. There is nothing wrong with AdSense. It works. It makes money. But it is NOT the treasure trove when you begin developing. It’s just the first step of the advertising monetization process. The gold rush comes when you enter Phase 2 of development and have traffic built across many sites with well targeted niches and users and can then sell impression based long term advertising deals directly to major corporate advertisers. This is where major major money can be made from advertising on developed sites. Plus at this point you now have the ability to implement premium subscription based type services and products to users to create additional revenue flows, do lead generators, and all sorts of exciting moneymakers.

Let’s go back to the 10 year domain example above. Let’s say after 10 years and your several hundred million visitors you had developed a site and out of all those surfers you grabbed 1/2 of 1% for a subscription of some kind. Not even taking into consideration the millions of extra visitors that would have been grown by a site on the domain, and just using the native type-in volume during that decade for the base factoring, you’d have roughly 500,000 subscribers paying you a fee every month. Or maybe just 500,000 subscribers with no fee but who you could then sell premium rate advertising on, such as in a newsletter. What’s 500,000 subscribers paying you $9.95 /month? That’s $5 Million per month, over 10 years thats $600 Million. So what’s better? $10 Million or 10 to 20x that number by having a web site asset to sell one day along with a great domain.

And think how much you could sell that asset for with 500,000 and up subscribers, with major corporate advertisers, and a huge income stream. Now you own a domain really worth the hundreds of millions of dollars we all say our domains are worth.

Cha-ching $$$. Once you look at domains with this understanding and vision, I think most domainers will quickly see the light, sit down with a calculator and know the future much more clearly and without hesitation, determine the wealth building strategy to aim for in the years ahead.”

Kevin Leto
Decemebr 11th 2007

Domains are bought and sold every day. Some are sold through auctions, some through brokers and some sold through direct deals. As a seller of a domain, you want to get the most money possible for it, as a buyer - you don’t want to overpay. The following is a checklist of elements to consider when valuing a domain so that you have the best perspective for either buying or selling:

1. Does the domain already have a business on it? The difference between negotiating for a domain that is parked (ie, a site with no original content that drives revenue strictly through placing directory style ads on it) and a site that has a more developed business is enormous. If the domain is parked, it is basically generating pennies to dollars per day through people typing in the domain name. Parked domains can be set-up extremely quickly and are normally part of a larger portfolio. Domains with businesses on them have had planning, development and content creation put into it and are much more valuable as much for the work already put in as the vision of what the domain can become.
2. Are the domain keywords short, sweet and memorable? Domains that are part of the english dictionary, shorter and memorable are more valuable. The longer the domain keyword or the more words in the domain, the less valuable the domain becomes.
3. What is the search volume of the keyword(s) of the domain? A domain that has a high search volume (also known as a high type in volume) will be worth more due to the “natural” traffic the domain will receive. In addition, a high search volume type of domain gives the business an advantage over similar business models due to the importance of the domain name in search engine optimization algorithms.
4. Is the keyword(s) spelled correctly? Mis-spellings and multi-word domains that share a letter devalue the domain vs a correctly spelled domain.
5. What is the top level extension of the domain? The .com extension is more valuable than all other extensions due to the wider acceptance of .com, the scarcity of domains available with the .com extension and the fact that .com can be used internationally.
6. Does the domain have a hyphen or any special characters? Any additional charactes in a domain name like a hyphen or non-standard character will diminish the value.
7. What are the natural buyers or natural business use of the domain? The more natural businesses that can sit on the domain, the more potential buying competition there is.
8. Are there potential trademark infringement or other legal issues with the keywords in the domain? Much like a title search on a new house or piece of property, making sure the domain is free and clear to be transfered is important. This is especially important for high value domains. In addition, any potential conflicts with an established trademark will reduce the value of the domain.
9. What are the comparable transactions? When valuing real estate, agents look at what other comparable homes, property or buildings sold for. Same thing for domains. What have similar domains sold for at auction or through a broker recently?
10. Does the domain have branding and advertising potential? Amazon is a river, it is also the largest e-commerce site on the internet. Google is a pretty successful site too. The words are short, snappy and have good businesses built on them. Could the domain you are considering have the same potential? If so, it will be worth more.

While no single element will drive the value of a domain, looking at all of these elements together will help you determine the range of price the domain is worth. The rest is up to your negotiating skills and options available on the market. Future blog posts will go into how to go deeper into these elements including the tools available online.