The first episode of 'The Deal'. A startup podcast featuring founders DISSECTING a deal they made, or didn't make, that was instrumental to their success.  

Introduction:

Joel Gratz is the founder of OpenSnow, a team of meteorologists who write local blogs, inch-by-inch forecasts, and send powder alerts so their customers can catch every powder day. What started as an email to a few friends every Friday, now is a website, mobile app and email list that covers the Lower 48, Japan and Canada. To get there though Joel had to make a choice: Continue to juggle the challenges of developing and maintaining the product, while also managing ad sales and partnership, or make a deal to outsource ad sales. Joel’s words here, not mine: “It was either going to be a hobby or a business, but it couldn’t be both.”

Topics Covered:

0:42 Email list open rates and why OpenSnow dominates email campaigns

1:52 Pricing ads for the first time and learning what didn't go right

4:50 Ceding control to make the right deal

7:45 Dealing with the timeline and risk of a deal that could make or break OpenSnow

11:45 Working through the potential to be paralyzed with fear 

12:58 Timeframe from when the initial decision to make the deal was made to when the first ad was sold.

Text Interview:

Tim: We’re here today with Joel Gratz founder of Opensnow.com. Opensnow is a micro forecasting site for mountain regions, specifically ski resorts, helping people find the best power days. What started as an email list to friends on a Friday has turned into a website, mobile app and an email list that is pretty incredible. So Joel, why don’t you tell me a little about who you are and your business. Joel I remember in previous conversations we’ve talked about the open rate in your email. Give me a little bit about that because it’s pretty high right?

Joel: It is, so initially though I thought it was low and it depressed me, because initially I was emailing friends to tell them when they should go ski the most snow, and these are people that asked to be on a small little email list they just had in gmail and so I assumed when i sent emails to 30, 40 ,50 people who all asked to be on the list they read the email, well, once the list got to about 500 to 1000 people I figured the list should get on a real platform so we jumped over to MailChimp and I finally had open stats, and I was crushed to find out only 50% of people were opening my email. But, over the last five years, the open rate has consistently stayed at 45 - 50% even as the list has grown from 500 to about 80,000. I’ve since come to find out a 45-50% open rate in an email newsletter format is phenomenal and 2-3X of what is considered average or pretty good.

Tim: When you took your email list from Gmail to MailChimp did you start selling ads at that point or was it more of a management tool?

Joel: Well at first it was just a management tool because in Gmail, Gmail only allows you to send an email to 100 people at a time, so in order to send an email to 500 people I literally had to copy and paste the email five times, so that was the only reason to go to MailChimp. But once I went to MailChimp and the email list grew, I had a couple ski resorts say ‘hey i’d love to buy some advertising’ and i had no idea how to price it at all, and I came to find out it was way, way underpriced, but it was at least some revenue to give me an idea that there might be some money in this.

Tim: So if you were underpricing your ads at the beginning, how did you overcome the hurdle of starting low and then moving up?  

Joel: So advertising I thought was going to be one prong of a two prong advertising strategy -- advertising on one prong and subscriptions, users actually paying us for features on the other prong -- and I thought maybe that split would be 50/50. Well at this point 5 years into it, advertising is 80% of our revenue, and the way we got there was me overcoming the desire to control everything. I was forecasting, organizing, and planning out the website, I didn’t code it, but I was deeply involved in the planning of it, and figuring out the business, figuring out how to make money and that initially started with advertising as we talked about, but I knew nothing about advertising. I googled, asked some some friends and got some helpful advice, but I wound up charging way too little money, and I didn’t know how to sell advertising. I didn’t understand the lingo, how to package deals, price deals, work with agencies, none of this. And after the first year I was thinking ‘well I’m getting the hang of this and I might be able to figure it out,’ and then after the second year I realized I was leaving a ton of money on the table and this was not a good situation. So the biggest deal that we have made to date in our five-year history was to outsource our advertising. We wound up working with the Denver Post, and it was in hindsight incredibly beneficial and a no-brainer, but at the time it was somewhat scary and took about six months to figure out.

Tim: Walk me through some of that fear. What was going on in our head? What was your hesitancy?

Joel: Yea so in my head I realized I just left 50,000 on the table by not being a good advertising sales person, I should fix that. On the flip side that means ceding control over an important part of the business over to somebody else I may not have any experience with. So that seeding of control was my biggest fear Allowing somebody to represent us in the market and potentially make very large financial decisions on our behalf. And of course like I said, in hindsight it all worked out great and it was a no-brainer and I should have figure it out earlier, but at the time this was our my baby, our baby, I was was working with Andrew Murry who did all of our technology, and our customers loved it. It was this grass roots type of thing, and so I was scared of making it a little more corporate and I didn’t have that last touch.

Tim: But you’ve already given away some control with Andrew and the website, so did this happen faster for you? Or was it because there was strong revenue tied to it you were a little more hesitant?

Joel: That’s a good point. Andrew filled a niche that I absolutely couldn’t do, which is all the technical backend of a rather complicated website, but I thought I could do advertising. I’d actually gone to a couple of talks here in Boulder, and I love boulder and that’s why I’m still here because of the entrepreneurial ecosystem, and I know it sounds like a buzz word, but I’ve probably gotten two or three business schools worth knowledge going to talks and meetups over the last five years. I remember one of them specifically, and I forget who it was, said that a lot of CEO’s think that if they have sales problems they should just bring in a better VP of sales or somebody who just knows the market, and they said a lot of times it doesn’t fix anything because the CEO as the number one product advocate can’t make a sale, there’s a bigger issue here than needing a better salesperson. So that was resonating in my head, ‘well hey if I can’t do this maybe we don’t have the right product, or we’re not presenting the package the correct way,’ so that’s why initially I was hesitant for those first two years to give it up, but eventually I realized that people are still interested in buying from us, it’s really my salesman skills, not necessarily the product that is the problem, and another part of the problem is that I just didn’t understand the market of advertising. So I could either be in it for years more and figure it out and keep leaving money on the table, or we can make a switch and try to actually make money now, which we needed because we weren’t funded in any way and the coffers of Joel's savings were going to run out at some point.

Tim: Your business model is based around winter, so I’m assuming a majority of your revenues are going to be tied to a six-month, seven-month span, so you go into this deal, but you weren’t necessarily thinking you were going to go into this deal the previous year. So how did you bridge that gap between your finances and how did you understand the risk.

Joel: I was approached by Eric from the Denver Post, but I also talked to another company as well, figuring it’s good to get a second option, and after looking at that it made sense for a host of reasons to go with Erik and the Denver post. Mainly also because that other company in some ways was a direct competitor to ours so they know the space which was great, but I felt a little iffy in there. So the Denver Post was great, however, working out the finances of that deal proved to be a little bit tricky. Initially they were looking to keep a little bit higher of the revenue than I was comfortable with and that I saw was standard in the market, so that took a while to even out, and plus they hadn’t really made a deal like this before and neither had I, so there was a lot of back-and-forth from the folks on their end trying to figure out what would work. And for OpenSnow as a small entity cash flow is a big issue, and so as you said we get most of our advertising money in the winter and spring, and then it’s basically a desert through the summer and the fall. So our lowest cash flow point is in the fall. Basically kinda September through November, and we were going to be really close to running out of cash. Now it wasn’t a huge deal to lend the company a little bit of money from my savings, but not ideal, especially from longer term thinking about how to run a company correctly. So I was able to to negotiate a deal with the Denver Post where they were able to give me a cash advance on the advertising. They saw our numbers, they knew what inventory they could sell and even though they didn’t have money in hand from advertisers this was proof to me they could go out and sell this inventory for quite a bit of money. So for them to say yes, here Joel have $25,000 which is what I think it was, upfront before our deal, helps smooth over our cash flow needs and it also was a signal to me that these guys are serious and they really think they can bring in real money, and in that first year they brought in 10X that initial advance. That was about 4X what we had made in advertising the year before. Through actually less work, no work in fact on my end. They did all the work and cut us a check. So it wound up being phenomenal and that number has continued to grow and it now accounts for 80% of revenue for our business, but at the time it was, you know sales guys, they talk and their friendly and they smile a lot and they promise things, and I wanted to think the best of this, but I was cautious because it felt a little to good to be true because, but it wound up working, but it was somewhat of a leap of faith at that point. So I tried not to think about that too much because that fear can kind of paralyze you a little bit, but that was in the back of my mind.

Tim: How do you work through that?

Joel: I’ve worked through the potential to be paralyzed by fear, by somewhat ignoring it and not focusing on it. And that’s not heroic in any stretch, but this was a recognition that if I did a business plan at the beginning of this back when I was in my job, and this was just a few hundred people, I probably never would have gone through with this. Because I would have looked and thought it’s going to take me years to get an audience, and I’d think that’s crazy, and were can I get that money, and all that. So if I had done that business planning process maybe there would have been positives, but I may not have got here in the first place. On the flip side I didn’t really do that business plan process at least at first, which allowed me to be semi unreasonably optimistic perhaps and say ‘people like this product, I like doing it, let's see how we can make a business out of it.’  Because usually the biggest issue for a business is product market fit. Actually doing something people like. We had that from the get go, the hardest part was scale and trying to monetize that. But we had that inherently, that thing that people wanted, so I think that gave me that unreasonable optimism of just put your head down and talk to enough people and work hard enough you’re going to figure out how to make some money on this.

Tim: And when you decided this was something you wanted to do from choosing that you didn’t want to do with the other company but go with the Denver Post, how long did it take, from that to them selling their first ad, and was there any part of that where you thought it was all just going to fall apart?

Joel: So the time that Erik first talked to me in the spring, to when we signed was probably six months. It wasn’t like we were negotiating everyday for eight hours, but that’s how this worked out and we did it in time for them to sell advertising in the fall. Well, we did it in time for me to think they had time to sell advertising in the fall, but I quickly realized that many of the fall deals are made in the spring, so it jammed them up a little bit, but we made it work. I was concerned at certain times during the deal that it was too good to be true. I was spending all this time chasing this thing with salespeople who are smiley and happy and promise a lot, that just may not happen and I just wasted a bunch of time. I would say 95% of partnerships that people have approached me with for the company, have not only have they not worked, but literally nothing has happened of little value to anybody. Lots of talk, zero value, so I have become very judgemental up front and quickly say no, and I’m thankful that I didn’t say no to this one.

Tim: Great, thank you very much for your time and we look forward to watching you in the future.

Joel: You bet.