In the January 2009 issue of Inc. magazine there is an article called “And the Money Comes Rolling In” about the dating website, Plenty of Fish, that I think is worthwhile reading for entrepreneurs. According to the article, this website gets four times the amount of web traffic as the other popular dating site, Match.com. Yet curiously, while Match.com has a staff of hundreds of employees, Plenty of Fish employed only the founder until 2007, and currently only employs three customer service workers. So, the founder, Markus Frind, must be a total workaholic, right? Wrong! Frind claims he only works about an hour a day. Sure, he doesn’t have the same level of revenue that Match.com has (which is estimated to be around $350 million), but he does have $10 million in revenue and a profit margin in excess of 50%. I’d say that $5 million+ a year for an hour of work per day is not bad!
I believe there are 8 things entrepreneurs can learn from Frind:
1. Determine & use an unexploited pricing and value proposition niche
Most dating websites charge its members a fee, and have very slick user interfaces. Many entrepreneurs who enter a market space assume that in order be competitive, they must offer similar pricing to competitors but create a point of differentiation or serve a different demographic niche in order to succeed. Frind could have matched his competitors’ prices, and pursued a more appealing user interface or a specific demographic such as over-30 Canadians who golf. Instead he realized that many people object to paying to use a dating website, and rationalized that far more people would use a free site, but that because it was free they wouldn’t expect it to be as sophisticated and slick of a service as paid sites like Match.com and eHarmony. In fact, paid dating sites pay Plenty of Fish for advertising to try to attract his website visitors.
2. A product or service must be adequate for its pricing, but doesn’t need to be perfect
There’s the saying that “you get what you pay for”, and Frind seems to embrace that concept. There are many entrepreneurs who, if they were offering a service that was low priced or free to consumers and were competing against higher priced services, would still commit significant time and resources to trying to make sure the quality offered was similar to the higher priced competitors. Frind doesn’t strive for the same level of quality as paid competitors. For example, when users upload their photos they are turned into thumbnails to show up in searches, but they are often distorted due to inconsistent sizes. While this would not be acceptable to site users if they were paying $20 per month for the service, when the site is free they don’t expect perfection.
3. Be careful about making changes, because even small positive changes can have significant unintended negative consequences
If Frind did take care of the problem of improving the photos associated with a user’s search, it could have a serious negative consequence to the business’ revenue. Here’s why – Frind’s business model is to charge advertising revenue which is driven by the number of page views. Currently, when a user does a search and sees a distorted thumbnail photo of a prospective mate, they are compelled to click on that person’s profile in order to go to the next screen and see their regular headshot photos. If the person doing a search didn’t have to click to see an accurate image of a person there would be fewer page views, and thus potentially lower revenue.
4. Understand that the consumer doesn’t need to be the source of revenue
While Frind’s services are for the benefit of consumers, he receives his revenue from advertisers – many of whom are competing paid dating websites who hope that Plenty of Fish users will migrate to their more user-focused dating sites.
5. Minimalism and Simplicity provide a strong competitive advantage
Frind is a minimalist. There are a variety of ways that Frind has kept Plenty of Fish simple. The site itself is very basic, and Frind is disciplined about refusing to add bells and whistles that users request such as chatrooms and video profiles. Plenty of Fish had no paid staff until 2007. Up until the summer of 2008, the business was operated out of Frind’s condo, and when the business was started he even used his home computer as a Web server. Today the business uses eight servers. In contrast, most websites that have the same level of traffic use hundreds of servers. According to the Inc. article, the social news site Digg generates about one-sixth as much web traffic as Plenty of Fish, and it employ 80 people, in contrast Frind employs just 3 staff members. The only way this can be managed is to focus on lean operations and systems.
6. Seek out ways to create back-end efficiencies
Frind believes that most code writing is extremely inefficient. The efficiency of the code at Plenty of Fish is the backbone of the business and significantly contributes to the business being able to operate using such a low number of employees and servers. Without these efficiencies Plenty of Fish would likely struggle with profitability, whereas currently they have net margins in excess of 50%.
7. Focus
When many entrepreneurs see that they are having some level of success with a particular product or service, they start looking for other opportunities. Often the new opportunities are new product or service offerings, and occasionally they involve starting entirely new enterprises. In contrast, Frind focuses solely on Plenty of Fish, and particularly on two aspects of it: 1, keeping the code efficient; and 2, making the site better at matching people.
8. Don’t be greedy
Since Frind only spends an hour a day working on the business he certainly has plenty of time he could devote to starting a new business or adding additional products and services to Plenty of Fish. Yet, if he were to do so he would risk the new activities being a distraction from what he does best. Instead, for Frind he is not greedy and yet . . . the money comes rolling in.
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