How to create the main regional portal and sell it profitably to a corporation
Stories at Hopes & Fears
Source: http://www.hopesandfears.com/hopesandfears/entrepreneurs/story/128999-nn-ru
In the early 2000s, entrepreneurs launched regional Internet resources actively. Ilya Osipov was one of those who managed first to develop a successful project and then sell it.
Ilya Osipov: founder of NN.ru
Nastya Chernikova
Creation of the site
I always liked programming, and when I was a student, I even was a winner of the All-Russia Students’ Olympiad. In 1999, my partner Mikhail Ioselevich and I launched an information site in Nizhny Novgorod. It was called NN.ru.
It had everything, starting from a “flea market”, where you could sell (and buy) a cell phone, and ending at local news. That your neighbor has broken a leg is always more interesting than a catastrophe in South-East Asia. Our advantage was that we were to local rumors, gossips, and similar information that kept circulating. It only remained to create a ground, a site, where all this information could spread. At that time, in Nizhny Novgorod, as in other regions, there was a local traffic exchange point, that is, ISPs gave free access to local sites to their subscribers. This helped us gather the initial audience.
All we had was US$1000 borrowed by Misha from his father. We bargained a friendly free lease, for the starting period. Later, I borrowed $10000 more from my parents, but repaid the debt without fail. At that time, the both cofounders of the startup had to be Jacks of all trades. Often, I would come home at 3 after midnight. My first wife left me and said that I was an idiot, even if a clever guy: from her viewpoint, I could find a job and earn decent money.
I had a different dream, however: I wanted to establish myself in life, do something that really mattered. We created a news aggregator, opened a municipal events guide, developed a news rating system, which reflected subscribers’ interest to specific information and presented it to other subscribers basing on the rating. It turned out soon, however, that communication was in more demand than “pure” information. In six months after we had launched the site, we opened a forum. It was a city-scale common kitchen, where news were discussed and people, picked to pieces. The forum attracted attention of journalists and authorities. One of the Mayors was an avid reader of our forum.
We used every effort to kindle the interest in our site, we put many external advertisements on its pages. They were deliberately provocative: we wanted to attract attention. And we did attract it, for example, officials paid attention to us. We were in litigation with the Anti-Monopoly Committee five times at least, almost each time when we had a major advertising campaign. Erotic images, omissions, half-words were treated as bad language, for example. We printed elision marks (…) on our posters and then proved at court that it was the Committee who something indecent in them. Sometimes we lost and had to pay penalties. But we regarded it as success costs, since we managed to attract huge audience in this way.
We added new functions constantly in response to people’s needs: a classified advertisements site (analog of American craiglist) and virtual mail, to name just a few. Our development was similar to that of Arsen Tomsky who created his projects in Yakutia.
In 2003, we launched what is called “social network” now. Initially, it was just a private message exchange system, an internal bulletin board of a kind. We added extended profiles, built-in blogs, advertisements, and recommendations of users. Then, the technical possibility to create galleries and video blogs appeared. It sucked people in, and they would always come back.
Online communication of users erupted into offline meetings rather fast. In 2001, one user invited others to a city park to celebrate his birthday. I also came and was astonished to see about two hundred people having gathered there. We made jokes saying that we should get permissions for such events from local authorities. Hundreds of people would come for outdoor picnics during May holidays. When thousands started coming, we actually contacted the municipal authorities to get their approvals.
Small profits
Actually, we never were loss making. Our profit, though, was beggarly. For about five years we lived hand to mouth, though we still were leaders at all times, and would frequently get it in the neck.
At that point, ISPs were top kicks on the Internet. They were guys who supported sites. We had no end of troubles, we were seen as smartasses, rotten apples, who misappropriated the “Main Site of Nizhny Novgorod” brand and were using it to grow. In the long run, they got used to it. We became the largest site, our competitors falling behind by tens of times.
I think that we managed to overcome many things because we never had a key advertiser. Each month we received small amounts from each of about 300 clients, so it did not affect us greatly, if one of them left.
Another thing was that Mikhail and I received our money only after all payments had been made, acting like a buffer of some sort. If we had no money left, we earned nothing. This is a situation contrary to that which I described recently at roem.ru. Making business is gathering no fat, running fast, and making right turns at right moments.
We did not have extreme incomes, but still we earned more than a million of dollars annually. Another interesting peculiarity, by the way, was that where in Moscow advertisements were traditionally sold on the “banner view” or “clicks” basis, the typical model used in the regional Internet was the “banner-sold-per-month” approach, which allowed one to teach a company to expenses which were similar to those paid to a service provide. Our clients knew that once in a month they should pay us a fixed amount. And it should be said that there are brand names, who were with us at the very start and have been paying without fail each month till 2012.
Competition
Some sections of the central site were converted into individual projects, for example, “auto nn.ru” for car owners, “property nn.ru” with maps, advertisements about property sales, services of agents, etc. On the one hand, we were developing a multifunctional site, on the other, we supported niche projects, which had strong competitors, because niche players arrived, whereas we were dealing both with the city-wide resource, and our niche projects.
Seeing our success, one of local ISPs made an effort and aggregated all its resources in the NNOV.ru site, which we had to compete with desperately in 2003-2004. New sites would appear almost every year, but they would come and go, because this market is not very profitable. NNOV.ru was an exception: its audience became comparable with ours. Later, though, the site was registered as a separate legal entity and unbundled from the ISP, because, as I became aware of, the latter had many problems.
Then we decided to use the following stratagem. I made an arrangement with a friend of mine who was very good at making good impressions. We printed business cards of a big Moscow company with his name on them. He got acquainted with the director and co-owner of the site in question, and offered investing in the site. After three months of negotiations, we bought the control stake of our competitor, that is, it was a typical hostile takeover. We used the eternal myth which was popular in many regions: big bullies would come from Moscow and buy us for many millions. Our purchase was relatively inexpensive, though. We decided to develop NNOV.ru as a separate project, but that was a sophisticated game, for few people in the city knew about this deal, and advertisers would come to the both companies, so we had to find our ways out.
According to the Pareto principle, 20% of the strongest get 80% of money, and the rest 80% get what is left. I think that in the case of Internet resources, the “double Pareto” principle is valid: 2% of leaders collect 98% of money. That is why we always fought for the first place.
Unsuccessful expansion
Around 2005, we occupied a stable position of the largest Internet company of Nizhny Novgorod. Each day we had 30 000 - 40 000 visitors. It was not bad for a city with only a 1.3 million population and noticeably slower Internet penetration compared to Moscow.
Then we started looking around and thinking, where we could open sites in other regions. There was a global idea of building a common network. We knew how to reach out to regional markets, but, probably, were either just too lazy, or over the hill. We should have opened offices in all regions and dealt with the sites seriously. We worked on the remote-control basis: opened an office in Vladimir, and tried to do something in Cheboksary and Kazan.
Unfortunately, all these efforts were rather feeble, and my greatest personal fail was the Moskva.com site. It had more visiting traffic than NN.ru, but no further development followed. I gave much effort and two years of my life to this site. At some moment, they stopped funding us, and we did not reach the breakeven point. We had accrued debts to contractors and employees, so we had to clear up the huge mess.
Moscow has an absolutely different mentality. If you ask 100 Nizhny Novgorod residents in the street and ask them, who they are, more than 50% will answer that they are “ Nizhegorodtsy (Nizhegorodians)”. Nothing like that in Moscow. There is no psychological connection similar to that between NN.ru and Nizhegorodians.
Moreover, the advertising market works differently there. In NN.ru, we had 90% of direct sales. Somebody would post an advertisement or a press release on nn.ru, add a site to the site catalog, and the salesmen would see it and work with the information accordingly. In Moscow, companies have agents and sell everything through them. You are sent to this agent, and the agent tells you that the annual budget has been approved already, etc. The sales cycle is longer here, and we fell into this cash gap, where the product is ready, it consumes money each month, but advertisers are still thinking and looking at additional TNS ratings, while media agencies include us in their lists.
I took this fail very hard: I put on 20 kg; doctors found that I had nervous diabetes, etc. I just ruined my health. It’s easy for me to tell about this now, because since that time, I have reduced my weight by 10 pounds, I am a semi-marathon runner and take part in competitions. I fixed myself by a pure act of will. As they say, what does not kill us makes us stronger.
State relations
When I came back to Nizhny, I understood that the trend towards suppression of the Internet and its freedom was obvious. Our site, however, was pro-opposition from the very start: people criticized authorities here, published slogans, and even organized mass events here.
That is why FSB guys frequented our office and always asked many questions. They are not that bad, these guys, though: at least, they understand what an IP address is, at least, because they are from an appropriate department. Guys from the police (militsiya, at that time) were less pleasant. The discussion would always follow the same pattern: “Is your Windows licensed? Do you have a license for Photoshop? And where have you taken your computers? Show us the papers.”
Then it would become clear that they needed information about some user. But they never ask for it, they just come to bully you. It happened more and more often. We had a confrontation with Mr. Shantsev, the Moscow-assigned Governor, who was not met in Nizhny Novgorod with great hospitality. There were unpleasant talks with people from his administration, because we were not willing to cooperate. For some reason, they treat media as their own patrimony. It was a highly charged atmosphere, and the tension was growing. We had found common grounds with FSB, but it was very vague with the administration.
Still, you had to survive in this mess. Then, the Personal Data Law was adopted, and we had to collect these personal data.
Once I received a phone call in the morning: “Ilya, rush to the office, this is an emergency.” I come to the office and see Special Police Force there, and all employees are standing with their face to the wall, like in a bad joke. All system units have already been taken out. “What does it mean?”, I say. “A commercial company wrote a complaint about you”. “On what grounds?” “They believe you use an unlicensed Windows copy. We decided to seize evidence.” Without any court decision, without anything at all! Next day, we called cops that we knew, at a higher level, and received everything back. The case was closed. It turned out later that the complaint had been written by a client who owed a huge amount of money for his advertisements that we published, and we threatened that would sue him. Instead of trying to make a settlement, he wrote the complaint. That’s regional business for you. By the way, one girl from the staff resigned after this incident, saying that she did not want to work in a company that the Special Police Force would break into.
Business for sale
We started talking discreetly about our plans to sell the company at various meetings including those in Moscow. To be perfectly frank, I have been thinking about this since 2005. I believe that after a project has stopped growing fast and become stable, I should leave it. I just do not like being an operating manager, creating something new is much more interesting.
In 2012, we closed the deal with Hearst Shkulev Media. These were the best negotiations in all my life. As far as I understand, they made a strategic decision about going on the Internet, and their idea is to buy out large-scale regional sites and join them in a common network. We were bought by an American company, since the deal was approved in New York. According to our agreement, I cannot disclose the deal amount, but can say that it was equal to several millions of dollars. The editorial policy was not changed radically, they just asked to be “slightly less oppositional”. The commercial department uses a slightly different approach, but all the rest is at the same level. The visiting traffic is about the same. As far as I know, they earn more now.
Currently, their network includes about 15 sites, that is about 14 million of users in a month. I think that if they advance in this direction, they can create a very big federal player comparable with the top-10 Internet companies. For example, this network includes NGS.ru, a well-known site that was launched simultaneously with ours. I was always looking at what their cofounder, Maxim Sidorkin, was doing in Novosibirsk.
When I sold NN.ru, I put my affairs in order, moved to the USA, started learning the language and developing my own startup. It will be an absolutely different sphere for me: I made a prototype project in the field of educational technologies, found investors, and soon everybody will be able to see it. This my new personal challenge, like semi-marathon.
Source: http://www.hopesandfears.com/hopesandfears/entrepreneurs/story/128999-nn-ru
In the early 2000s, entrepreneurs launched regional Internet resources actively. Ilya Osipov was one of those who managed first to develop a successful project and then sell it.
Ilya Osipov: founder of NN.ru
Nastya Chernikova
Creation of the site
I always liked programming, and when I was a student, I even was a winner of the All-Russia Students’ Olympiad. In 1999, my partner Mikhail Ioselevich and I launched an information site in Nizhny Novgorod. It was called NN.ru.
It had everything, starting from a “flea market”, where you could sell (and buy) a cell phone, and ending at local news. That your neighbor has broken a leg is always more interesting than a catastrophe in South-East Asia. Our advantage was that we were to local rumors, gossips, and similar information that kept circulating. It only remained to create a ground, a site, where all this information could spread. At that time, in Nizhny Novgorod, as in other regions, there was a local traffic exchange point, that is, ISPs gave free access to local sites to their subscribers. This helped us gather the initial audience.
All we had was US$1000 borrowed by Misha from his father. We bargained a friendly free lease, for the starting period. Later, I borrowed $10000 more from my parents, but repaid the debt without fail. At that time, the both cofounders of the startup had to be Jacks of all trades. Often, I would come home at 3 after midnight. My first wife left me and said that I was an idiot, even if a clever guy: from her viewpoint, I could find a job and earn decent money.
I had a different dream, however: I wanted to establish myself in life, do something that really mattered. We created a news aggregator, opened a municipal events guide, developed a news rating system, which reflected subscribers’ interest to specific information and presented it to other subscribers basing on the rating. It turned out soon, however, that communication was in more demand than “pure” information. In six months after we had launched the site, we opened a forum. It was a city-scale common kitchen, where news were discussed and people, picked to pieces. The forum attracted attention of journalists and authorities. One of the Mayors was an avid reader of our forum.
We used every effort to kindle the interest in our site, we put many external advertisements on its pages. They were deliberately provocative: we wanted to attract attention. And we did attract it, for example, officials paid attention to us. We were in litigation with the Anti-Monopoly Committee five times at least, almost each time when we had a major advertising campaign. Erotic images, omissions, half-words were treated as bad language, for example. We printed elision marks (…) on our posters and then proved at court that it was the Committee who something indecent in them. Sometimes we lost and had to pay penalties. But we regarded it as success costs, since we managed to attract huge audience in this way.
We added new functions constantly in response to people’s needs: a classified advertisements site (analog of American craiglist) and virtual mail, to name just a few. Our development was similar to that of Arsen Tomsky who created his projects in Yakutia.
In 2003, we launched what is called “social network” now. Initially, it was just a private message exchange system, an internal bulletin board of a kind. We added extended profiles, built-in blogs, advertisements, and recommendations of users. Then, the technical possibility to create galleries and video blogs appeared. It sucked people in, and they would always come back.
Online communication of users erupted into offline meetings rather fast. In 2001, one user invited others to a city park to celebrate his birthday. I also came and was astonished to see about two hundred people having gathered there. We made jokes saying that we should get permissions for such events from local authorities. Hundreds of people would come for outdoor picnics during May holidays. When thousands started coming, we actually contacted the municipal authorities to get their approvals.
Small profits
Actually, we never were loss making. Our profit, though, was beggarly. For about five years we lived hand to mouth, though we still were leaders at all times, and would frequently get it in the neck.
At that point, ISPs were top kicks on the Internet. They were guys who supported sites. We had no end of troubles, we were seen as smartasses, rotten apples, who misappropriated the “Main Site of Nizhny Novgorod” brand and were using it to grow. In the long run, they got used to it. We became the largest site, our competitors falling behind by tens of times.
I think that we managed to overcome many things because we never had a key advertiser. Each month we received small amounts from each of about 300 clients, so it did not affect us greatly, if one of them left.
Another thing was that Mikhail and I received our money only after all payments had been made, acting like a buffer of some sort. If we had no money left, we earned nothing. This is a situation contrary to that which I described recently at roem.ru. Making business is gathering no fat, running fast, and making right turns at right moments.
We did not have extreme incomes, but still we earned more than a million of dollars annually. Another interesting peculiarity, by the way, was that where in Moscow advertisements were traditionally sold on the “banner view” or “clicks” basis, the typical model used in the regional Internet was the “banner-sold-per-month” approach, which allowed one to teach a company to expenses which were similar to those paid to a service provide. Our clients knew that once in a month they should pay us a fixed amount. And it should be said that there are brand names, who were with us at the very start and have been paying without fail each month till 2012.
Competition
Some sections of the central site were converted into individual projects, for example, “auto nn.ru” for car owners, “property nn.ru” with maps, advertisements about property sales, services of agents, etc. On the one hand, we were developing a multifunctional site, on the other, we supported niche projects, which had strong competitors, because niche players arrived, whereas we were dealing both with the city-wide resource, and our niche projects.
Seeing our success, one of local ISPs made an effort and aggregated all its resources in the NNOV.ru site, which we had to compete with desperately in 2003-2004. New sites would appear almost every year, but they would come and go, because this market is not very profitable. NNOV.ru was an exception: its audience became comparable with ours. Later, though, the site was registered as a separate legal entity and unbundled from the ISP, because, as I became aware of, the latter had many problems.
Then we decided to use the following stratagem. I made an arrangement with a friend of mine who was very good at making good impressions. We printed business cards of a big Moscow company with his name on them. He got acquainted with the director and co-owner of the site in question, and offered investing in the site. After three months of negotiations, we bought the control stake of our competitor, that is, it was a typical hostile takeover. We used the eternal myth which was popular in many regions: big bullies would come from Moscow and buy us for many millions. Our purchase was relatively inexpensive, though. We decided to develop NNOV.ru as a separate project, but that was a sophisticated game, for few people in the city knew about this deal, and advertisers would come to the both companies, so we had to find our ways out.
According to the Pareto principle, 20% of the strongest get 80% of money, and the rest 80% get what is left. I think that in the case of Internet resources, the “double Pareto” principle is valid: 2% of leaders collect 98% of money. That is why we always fought for the first place.
Unsuccessful expansion
Around 2005, we occupied a stable position of the largest Internet company of Nizhny Novgorod. Each day we had 30 000 - 40 000 visitors. It was not bad for a city with only a 1.3 million population and noticeably slower Internet penetration compared to Moscow.
Then we started looking around and thinking, where we could open sites in other regions. There was a global idea of building a common network. We knew how to reach out to regional markets, but, probably, were either just too lazy, or over the hill. We should have opened offices in all regions and dealt with the sites seriously. We worked on the remote-control basis: opened an office in Vladimir, and tried to do something in Cheboksary and Kazan.
Unfortunately, all these efforts were rather feeble, and my greatest personal fail was the Moskva.com site. It had more visiting traffic than NN.ru, but no further development followed. I gave much effort and two years of my life to this site. At some moment, they stopped funding us, and we did not reach the breakeven point. We had accrued debts to contractors and employees, so we had to clear up the huge mess.
Moscow has an absolutely different mentality. If you ask 100 Nizhny Novgorod residents in the street and ask them, who they are, more than 50% will answer that they are “ Nizhegorodtsy (Nizhegorodians)”. Nothing like that in Moscow. There is no psychological connection similar to that between NN.ru and Nizhegorodians.
Moreover, the advertising market works differently there. In NN.ru, we had 90% of direct sales. Somebody would post an advertisement or a press release on nn.ru, add a site to the site catalog, and the salesmen would see it and work with the information accordingly. In Moscow, companies have agents and sell everything through them. You are sent to this agent, and the agent tells you that the annual budget has been approved already, etc. The sales cycle is longer here, and we fell into this cash gap, where the product is ready, it consumes money each month, but advertisers are still thinking and looking at additional TNS ratings, while media agencies include us in their lists.
I took this fail very hard: I put on 20 kg; doctors found that I had nervous diabetes, etc. I just ruined my health. It’s easy for me to tell about this now, because since that time, I have reduced my weight by 10 pounds, I am a semi-marathon runner and take part in competitions. I fixed myself by a pure act of will. As they say, what does not kill us makes us stronger.
State relations
When I came back to Nizhny, I understood that the trend towards suppression of the Internet and its freedom was obvious. Our site, however, was pro-opposition from the very start: people criticized authorities here, published slogans, and even organized mass events here.
That is why FSB guys frequented our office and always asked many questions. They are not that bad, these guys, though: at least, they understand what an IP address is, at least, because they are from an appropriate department. Guys from the police (militsiya, at that time) were less pleasant. The discussion would always follow the same pattern: “Is your Windows licensed? Do you have a license for Photoshop? And where have you taken your computers? Show us the papers.”
Then it would become clear that they needed information about some user. But they never ask for it, they just come to bully you. It happened more and more often. We had a confrontation with Mr. Shantsev, the Moscow-assigned Governor, who was not met in Nizhny Novgorod with great hospitality. There were unpleasant talks with people from his administration, because we were not willing to cooperate. For some reason, they treat media as their own patrimony. It was a highly charged atmosphere, and the tension was growing. We had found common grounds with FSB, but it was very vague with the administration.
Still, you had to survive in this mess. Then, the Personal Data Law was adopted, and we had to collect these personal data.
Once I received a phone call in the morning: “Ilya, rush to the office, this is an emergency.” I come to the office and see Special Police Force there, and all employees are standing with their face to the wall, like in a bad joke. All system units have already been taken out. “What does it mean?”, I say. “A commercial company wrote a complaint about you”. “On what grounds?” “They believe you use an unlicensed Windows copy. We decided to seize evidence.” Without any court decision, without anything at all! Next day, we called cops that we knew, at a higher level, and received everything back. The case was closed. It turned out later that the complaint had been written by a client who owed a huge amount of money for his advertisements that we published, and we threatened that would sue him. Instead of trying to make a settlement, he wrote the complaint. That’s regional business for you. By the way, one girl from the staff resigned after this incident, saying that she did not want to work in a company that the Special Police Force would break into.
Business for sale
We started talking discreetly about our plans to sell the company at various meetings including those in Moscow. To be perfectly frank, I have been thinking about this since 2005. I believe that after a project has stopped growing fast and become stable, I should leave it. I just do not like being an operating manager, creating something new is much more interesting.
In 2012, we closed the deal with Hearst Shkulev Media. These were the best negotiations in all my life. As far as I understand, they made a strategic decision about going on the Internet, and their idea is to buy out large-scale regional sites and join them in a common network. We were bought by an American company, since the deal was approved in New York. According to our agreement, I cannot disclose the deal amount, but can say that it was equal to several millions of dollars. The editorial policy was not changed radically, they just asked to be “slightly less oppositional”. The commercial department uses a slightly different approach, but all the rest is at the same level. The visiting traffic is about the same. As far as I know, they earn more now.
Currently, their network includes about 15 sites, that is about 14 million of users in a month. I think that if they advance in this direction, they can create a very big federal player comparable with the top-10 Internet companies. For example, this network includes NGS.ru, a well-known site that was launched simultaneously with ours. I was always looking at what their cofounder, Maxim Sidorkin, was doing in Novosibirsk.
When I sold NN.ru, I put my affairs in order, moved to the USA, started learning the language and developing my own startup. It will be an absolutely different sphere for me: I made a prototype project in the field of educational technologies, found investors, and soon everybody will be able to see it. This my new personal challenge, like semi-marathon.