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Just Managing: ClickZ Kicks Out the Jams

Don't get confused by the fact that both CMGI and ClickZ call the small town of Andover, Mass., home. CMGI, the holding company that has produced billions of Internet dollars, and ClickZ, a small-but-spirited online marketing information Web site, are pretty easy to tell apart. CMGI is public, and ClickZ is privately held. CMGI is run by high-visibility visionary David Wetherell, and ClickZ is helmed by low-profile partners Ann Handley and Andy Bourland.

If you're still confused, here's another simple way to tell them apart: ClickZ is profitable.

It seems kind of quaint today, but founder/owners Handley and Bourland actually make money on their company - right now, this month, this year. Starting with an investment of nothing more than time, the pair saw profitability in their third month of operation. Today, they are riding a cash express. In their first year, they hit $500,000 in sales; last year, they exceeded $2 million. For 2000, they project sales of $8 million to $10 million, with more than half dropping to the bottom line.

Wait, there's more. They are expanding the business, and they are actually financing their growth out of their own cash flow. Radical, I know. Late this month, ClickZ will hold its first conference, the "eMail Marketing Conference," at the Charles Hotel in Cambridge, Mass. More than 200 participants have signed up at $1,495 per person, and more than 300 are expected. Handley and Bourland proudly say the conference will be profitable from the get-go. Their first publication, a 200-page guide to online marketing that comprises 100 pages of content pulled from the site along with a 100 page index of services, marks another cash-flow positive extension.

The business model for ClickZ isn't radical. The firm makes money by selling advertising and sponsorships to businesses that want to connect with the ClickZ community. For $15,000 to $20,000 per month, depending on the length of your commitment, you can sponsor an area of content. For lesser amounts, you can buy ad space throughout the site or on their daily newsletter.

Bourland and Handley, who own 100 percent of the company (a 60-40 split, respectively), launched the site without planning to change the world. Bourland was motivated to start the company out of a pressing short-term need. In May 1997, he was flat broke, had a big tax bill to pay and needed a quick way to make some cash. While working as VP of business development for Andover.net, Bourland couldn't find any useful information about online marketing on the Web, and he suspected that filling this need would offer value to others.

Bourland called his friend Ann Handley, a freelance journalist who had a 3-month-old baby and needed a moonlighting gig. Together, they conceived ClickZ, envisioning the site as a community in which people in the trenches of online marketing would share what they know. Bourland designed the site; Handley took on the editorial responsibility. Rather than asking journalists or pundits to pen articles, they invited people in the business to contribute.

The site's early days were relatively modest. "When we started, it was a single article every day on how to get more clicks on your banner," says Handley. (Today, the content is increasingly granular and covers areas such as e-mail marketing and one-to-one marketing. At least five or six new pieces run daily. Most writers are still paid with the "queen-for-a-day" treatment: The scribe's photo runs with the article, giving them play that might lead to greater opportunities.)

Handley and Bourland built the company by bootstrapping, pulling themselves up by their own available resources: hustle, ingenuity and free cash flow. This might sound counterintuitive to a generation of business people who automatically seek outside venture capital, yet it remains the predominant method of growth for healthy companies today.

Handley and Bourland didn't have cash to put into the operation in those early days, so their first deals were barter-based. They negotiated a deal, for example, with Web hosting company SimpleNet to host ClickZ's site for the first month in return for banner advertising. During the third month, the company got its first paying customer in DoubleClick, which bought a series of banner ads. (The company remains a client today,)

In the first six months, the two focused on growing the community, building the brand and what Handley calls "working the market." Neither gave up their day jobs. Only on January 1 of the new year did they take the leap: Bourland left his "real" job for ClickZ, and Handley gave up other assignments to work exclusively on their business. The two began to travel to conferences, make new contacts and continue to grow the site.

In May 1998, ClickZ hired its first employee. Yet the company remained "virtual," with Bourland and Handley continuing to work out of spare bedrooms in their respective homes. Only in the spring of 1999 did they open their first office, a 600-square-foot space located above the Andover Anxiety Clinic ("which was perfect for us," says Bourland). By then, they had to take the space - their six employees needed a place to work.

ClickZ continued to grow profitably. Last October, it moved to a new 3,000-square-foot office, enough to house their growing staff. (They are up to 16 employees and plan to grow to 20 soon.) They just opened a Los Angeles office and have been approached by an increasing number of suitors hoping to invest in them or buy them outright. So far, they have refused.

To get a little perspective on ClickZ, I spoke with Brad Garlinghouse, a general partner at CMGI AtVentures. Garlinghouse is a likable, smart guy who previously worked as head of business development for AtHome. Garlinghouse says CMGI AtVentures funds offer seed-stage capital to great people with great ideas. "Venture capitalists go for big ideas and big opportunities and swing for the fences," he says.

I ask Garlinghouse how many of the companies in which AtVentures has invested have been profitable at the time of funding. He laughs and says, "Oh my God!" The answer is none. He's been involved with about a dozen deals, while AtVentures has funded perhaps 60 in the past two years. And the closest to profitability he can come up with is FindLaw.com, a law and government information portal whose "revenue stream was parallel to its cost structure" at the time AtVentures ponied up some cash. Since the investment, the company has been spending a great deal more to scale up. "Based on our encouragement, they have gone into a cash-flow negative position, and they are spending our capital to do that," Garlinghouse says.

Venture capital works for a select breed of company. Garlinghouse's group helps companies that need to scale up quickly in order to take advantage of big, competitive, dynamic market spaces. On the other hand, he concedes that this model might have suffered from recent excesses. "It's harder for us to understand today how some of the companies we have invested in will be cash flow positive - how they will scale to create a business that will cover the fixed costs," he says.

Now, don't get me wrong. VCs play a crucial role in launching some of the most dynamic businesses fueling our economy. There's little argument about their profound value. They just aren't for everybody. Chasing (and securing) venture money forces a great deal of choices on a company: how fast you are going to grow, how much you are going to spend and how much you are going to lose. Small businesses that land venture capital take on smart and experienced investors who, in turn, exercise their expertise.

The fact is, many entrepreneurs are far better served spending their time "working the market" - listening to customers, evolving their offer and reinforcing their brand - than they are selling their idea to a bunch of über-bankers. The rewards of such a path can transcend a fat bottom line: Some people find it rewarding to use the Web's distinctive features to build solid, self-sustaining enterprises.

"People's default mode is that they have to get funding in order to grow, to exist," Bourland says. "And I don't think that enough entrepreneurs have taken the time to examine their assumptions and ask if they can get by for less initial startup investments. They assume that they have to start up with all the computers and the fancy desks and the employees."

Bourland and Handley have no moral objections to venture capital. It just doesn't match their business needs, and they aren't wasting their time chasing after that validation. They say they have a solid, sustainable business and don't want to get too distracted. "Andy and I have very complementary skills and understand each other very well," Handley says. "We have been able to execute a lot of things quickly and efficiently because we are backing each other up. The idea of inviting someone else in who doesn't necessarily have the same goals and aspirations as us is scary."

Naturally, Handley and Bourland think about an exit strategy. "Neither of us is planning to add '& Sons' to the title," says Handley. They think about going public. They would consider being acquired. One day, they might even consider venture capital. But they're in no rush. They can afford, literally, to wait.

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