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Why is it hard to monetize ad-driven businesses? Answer: it’s not if you have the right people.

About a month ago, I was talking to Jeremy Liew of Lightspeed Ventures about the state of the advertising market.  Many of our portfolio companies have a free, ad-supported business model.  So the ability to get revenue is correlated to the ability to sell the advertising inventory at attractive rates.

We both marveled at how some companies can get significant traction with users but cannot translate that traction to ad revenue.  Then he gave me an example of a couple of NewYork-based businesses that were really good at extracting ad dollars, even though they had smaller traffic.  What is about those New Work companies that made them special?  The answer was: management that grew up in the advertising agency world.  They knew how to pitch their service to advertisers and get their dollars.

I have been thinking about this ever since.  As if to make the point, we recently met a small startup that was an ad supported content business.  The business was really young, started at the beginning of the year.  The founders had come from the publishing world, where they knew how to sell ads online.  The traffic growth was very nice but still small.  Conventional wisdom would say it’s not even time to sell ads yet (“You won’t get the interest of the buyers. Build the traffic and go back when you have a big audience.”)  But guess what, this company was almost close to breakeven!!!  Why?  Because they knew what buyers wanted and how to get it to them.

Here’s the rub: many of the latest cool tech consumer companies are started by techies.  They come up with a better way to do something or a totally new innovative service.  They are really focused on the product, tweaking it, making it better, getting users to try it, etc.  They are good at that.  They know how to use all the online tools to get adoption.  In many cases, those are ad-supported products.  They then turn over the business of selling ads to a network,  i.e. they assign the most important responsibility of making money to a third party.

My conclusion is that this is the wrong approach.  An ad-supported business is ultimately a media company.  A media company has an audience that it needs to nurture and grow. But its customer is the ad buyer.  In this sense, the “product” the business is selling is “access” to that audience.  Just like any other product it has to be designed well, packaged appropriately for the customer and sold competently and effectively.  It has to be second nature, it has to be part of the culture of the management team.  In its absence, those companies cannot grow.  Many of the people that understand this have been in media companies in New York.  In this sense, New York has a big advantage.

So I have started to more aggressively push my companies to learn to think like a media company.  Understand the customers, the ad buyers, speak their language, hire salespeople that know them early.  And start experimenting with selling early.  I don’t buy the argument that you have to be big before you can start thinking about revenue.  West coast angels and techies will preach this as gospel.  Learn the lessons early and make money sooner.