Today I had a realization, VC is full of opportunity!! While there is a science to valuating companies for VC purposes, I realized that it is more of an art than a science…

My realization came about because of my experience in real estate and valuating homes… just like VC valuations, real estate has a science component to it… most realtors, buyers and sellers look at the average price per square foot of the area and base the value of the home mostly on that… but the art side of real estate is in being able to see when adding granite countertops and tile doesn’t increase the value of the house by the cost of the materials put in, but rather by the love the home buyer feels when they see it… there’s no way to measure, but experience teaches you how much the improvements are really worth…

To contrast, we learned in class that companies are valuated on their assets and cash flows primarily…but that only tells us part of the story… how much cash the company has, what is the actual net income and how much is the company worth should we have to liquidate it?… those are some of the questions investors ask when looking at a company… and just like real estate, a good estimate of the value of the company comes by multiplying the income by a multiplier… sort of like a cap rate for real estate, but you multiply the net income or revenue by a multiplier… (gross revenue multipliers are lower since it doesn’t consider expenses)…

In other words, the multiplier is sort of like figuring out the cost of buying the cash flows from the business compared to similar businesses or businesses in the same industry…

So that’s the science part of it…

… but even then, the numbers used to figure out revenues or net income are often times projections with many what if’s… so even that is somewhat of an art… it takes good judgement on the investor’s side to determine what the company is really worth just based on that…

… and if that wasn’t enough, part of valuating a company takes into account intangible stuff like the quality of management, the brand of the company, and more or less a gut feeling…

There really is no way to tell how an investor goes about establishing a value for the management team… they may be referrals, relatives, famous entrepreneurs with previous track records… strictly an art…

One investor may think the management team is worthless while another may look at it as the most valuable part of the company…

The brand? not sure how a company can establish a brand within the start up phase when they need VC the most, but apparently that’s taken into consideration as well…

My favorite however is a gut feeling… in the end, if the investor is familiar with the industry, they’ll be able to ‘feel’ whether the company has a good chance of success or not… if they are not familiar with the industry, even if they company is the next big thing, their gut may get them to hesitate long enough to say no and pass up a great investment…

This blog is part of my Venture Capital Blog series

Since the introduction to Venture Capital blog I posted, I have picked up a few things about venture capital that I thought would be worthwile to share…

The first and possibly most important thing about venture capital is that the process to get a company founded is not by any means scientific or methodical… there is an element of judgement and gut feeling which can not really be taught… some investors are just able to see what others can’t either through a gut feeling or experience with the industry…

We had an investor as a guest speaker in our class and told us the only methodical part of venture capital – at least in his firm – is the filtering of deals that they come across… A brief summary or cover page is the deciding factor of whether or not a business plan will even be considered…

In my eyes this means that good opportunities can be missed if a good cover page doesn’t compel the investor to keep looking… you can have the best business plan, but the summary or cover sheet is what gets the business plan looked at to begin with…

The second most important thing I learned was that success in Venture Capital – from an investor’s point of view – is highly dependent on having expertise in an area. Some investors will only invest in an industry they are familiar with, while others will venture out and look at other industries, but they run ideas through consultants who are familiar with the industries… Sometimes, having experience in an industry allows you to see opportunity in other industries that could use an idea borrowed from another industry… this is why expertise in at least one area is important and believed by many investors to be a determinant of success…

Last… there is no right way to go about choosing which deals are good and which are bad… a recent blog published by the Thunderbird Angel Network stated that roughly half of the Angel investment exits were at a profit… This to me sounds like flipping a coin and winning 50% of the time and losing the other 50%… So what are some ways to minimize the losers and find more winners? Well that’s what I hope to learn in the next few weeks!

As part of one of my classes at ASU, I will be blogging about topics related to venture capital… For the most part I have steered away from borrowing money but I can see some advantages to doing so when you have a solid business plan behind a great idea…

I have managed to remain debt free (no car loans, no student loans and no credit card balances until recently when my car needed $2,800+ worth of repairs) and will probably continue like that… however, if I see the opportunity to speed up the cash flow of a proven business I may take on financing temporarily to reach certain goals…

Hopefully with this class I will have all the tools needed to see where to seek financing and become educated enough on the topic of Venture Capital to see how I can use that for my businesses…

Pay per click is becoming history… it really is… Cost per Thousand (CPM) and Cost per Action (CPA) have outperformed every PPC campaign I’ve ran with Google AdWords…

But pay-per-click remains part of my marketing strategy for one big reason… TESTING…

Success with AdWords used to be a matter of split testing your way to the top, but that is no longer the case… the cost of advertising online is going up thanks to big websites spending more and more money on CPM and CPA ads…

From a customer point of view there is no difference… the ads show up on the same spots for all PPC, CPM and CPA… but from a marketers standpoint there is a big difference and it has to do with price and how Google treats the ads…

PPC is by far the most expensive… CPM can be the cheapest, but it requires constant management… CPA may get you the cheapest traffic at the expense of getting less traffic…

So trying to figure out whether CPM or CPA is better is not a matter of comparing advertising prices directly…

With CPM, Google understands the advertiser is the one taking the risk and therefore impressions are cheaper… but that won’t matter if you Ad Copy is not good… CPM is best for high Click Through Rate (CTR) campaigns… that means ads that get clicked often…

CPA also benefits from high CTR, but not as much as CPM… what’s more important for CPA campaigns is conversion ratios… what the user does once it lands on your website… if you are collecting leads, then that conversion ratio will be your leverage point to get the most out of CPA advertising…

One thing I’ve noticed with CPM VS CPA campaigns is the places where they are shown are not the same… CPA ads are filtered to ensure high conversion rates… CPM ads seem to be unfiltered and shows in more places…

I’ve ran the same ad with the same parameters and CPM always gets me more impressions, but a much lower CTR compared to CPA ads…

Where I’ve seen CPM outperform CPA is with managed placements on the content network… This takes work because you have to actually study the websites where your ads are shown… some websites will run your ads below the fold (the part of the website you can see without having to scroll down)… and that means you are charged for an impression even if the user doesn’t scroll down to view your ad…

… but if you find good websites where you your ads will have high click through rates, then you may be able to get cheaper clicks and rely on your landing page to keep the high conversion rates to minimize advertising costs and maximize profits…

What Is Google AdWords

Google AdWords has completely revolutionized businesses around the world… it used to be you paid other media like the newspaper to show an ad and you were the one taking the risk of whether the ad worked or not…

You could target specific demographics like real estate if you placed ads in the real estate section, but even then, it did not guarantee results…

When Google AdWords came around it changed the way marketers thought about spending their advertising dollars…

Google AdWords realized that people who were going to Google and searching for something, were people trying to solve a problem or fulfill a need…

So if someone searched for ‘how to play golf’… that person wants to learn how to play golf!… and as an advertiser you have the ability to make your ad appear on the search results for keywords like “how to play golf” and sell your ‘golf training’ products…

In other words, Google allows you to show your ad only when someone searches specific keywords which you decide upfront… and even better, you only pay if your ad gets clicked on…

That’s like having the newspaper charging you for your ad only when someone contacts you…

But it gets even better…

The way Google charges for these ads is what has really made them grow exponentially and turned them into a multi-billion dollar company…

Rather than setting up a straight bid system where the highest bidder gets to be on the top position, they take into account how well your ad is working…

See, the main goal of Google is to deliver the most relevant results to their users… and they hold advertisers to the same level of relevancy as they do organic search results…

So they look at what’s called Click Through Rate (CTR)… which simply means the percentage of clicks you get compared to all of your impressions… If your ad is shown 100 times and it gets clicked all 100 times, then you have 100% CTR… if your ad is shown 100 times but it only gets clicked 50 times then you have 50% CTR… if it only gets clicked one time out of a hundred then you’d have a 1% CTR and so on…

Now I don’t know the exact formula Google uses to determine how much your bid counts, but take the following example for illustration purposes only…

Say you bid a dollar and you have 100% CTR… then Google will say you are bidding 100% of your dollar… but if you bid a dollar and only have 50% CTR, then Google will say you are bidding only 50% of your dollar or fifty cents…

So if you take two advertisers… all things being equal… if bidder ‘B’ has 50% CTR and bidder ‘A’ has 100% CTR… then bidder ‘B’ would have to bid twice as much to be at the same position as bidder ‘A’…

In other words, if you ad gets clicked on more often, Google sees that as being relevant and rewards you by charging you less…

Now since there are very smart marketers who know how to inflate their CTR by writing ads too compelling yet irrelevant, Google has a third criteria to determine bid prices… it’s called Quality Score…

Not only does your ad on Google have to get clicked on, it must also take the user to a relevant page where the user finds what was promised… and the way Google determines this is various factors like page loading time, site navigation from the landing page, but most importantly the time the user spends on the site…

So if your ad gets clicked on and the user clicks the back button immediately, Google sees that as your landing page not being relevant… If on the other hand, the user clicks on your ad and spends a minute on the site then Google will see that as more relevant… if they click on your ad, spend more time and perhaps even click on other links on your site then it becomes even more relevant…

… and similar to CTR, if your page is 100% relevant (quality score of 10) then it takes the full dollar amount that you bid… if your page is only 50% relevant (quality score of 5) then it only takes half of the dollar amount that you bid…

So just for illustration purposes only your bid is worth: $$ x CTR% X Quality Score %…

The higher your Click Through Rate and Quality Score, the less you have to pay to get on the first position of Google AdWords… so now you have to learn how to boost your CTR and Quality Scores to pay less and make your campaigns more profitable… and you have to learn the structure of AdWords and exactly how does Google AdWords Work…

The number of strategies people are using to make money on the internet is virtually endless… but I am going to cover a few different ones just to give you ideas on what YOU can start doing…

First off, you should know the 3 things you absolutely need to start a business online…

… once you’ve got that covered, everything else becomes a variation or a combination of different strategies, but always including all 3 things.

1. Information Marketing

People are making money online by selling information, how to guides, and other similar resources. This can be in the form of an ebook, audio, video or a combination of the three… some deliver the material digitally and others ship physical products.

2. Affiliate Marketing

This is by far the fastest way to get started online… someone else has already created a product, and all you do is market the product and sell it for them… you basically are paid on commission and many affiliate programs pay up to 75% or even 100% commissions!!

If you don’t know how to market or drive traffic to other people’s websites, then you can do the reverse… You can be the one who creates the product and get affiliate marketers to sell it for you…

In other words, you are borrowing other people’s skills so you can all make money…

3. E-Commerce

Selling actual physical products is another way people are making money online… now, you don’t need to have a brick-and-mortar store or hold inventory to do this… in fact, I know of people who buy cheap stuff off of Craigslist and then turnaround and sell the items on eBay or Amazon…

4. Publishing

Another way people are making money online is using the publishing model… like magazines, they create websites with lots of useful content and then sell advertising space. This model is usually combined with other forms of advertising revenue like Google AdSense, or affiliate marketing.

Personally I don’t like Google AdSense… these are the Google ads you see on some non-Google websites. The way they work is the website owner applies for a Google AdSense account, and installs a widget that displays the ads on their website so whenever someone clicks on the ad, they share revenue with Google. Unfortunately, those ads seem to lower the visual appeal of the site…

Instead of displaying Google ads, I would opt for affiliate marketing. You basically decide what to promote, but you only get paid whenever someone buys through your links and not whenever someone clicks on the ads.

Even better you can do what’s called CPA or Cost Per Action affiliate marketing. This is very similar to affiliate marketing and AdSense, but you get paid to get people to take some sort of action. This can be filling out a survey, form (lead generation), signing up to a newsletter, etc.

The problem with this is that usually you must have experience with marketing and have an established website or email list…

5 Email Marketing

The most leveraged and possibly the most long-term, profitable business model on the internet revolves around email marketing. This means you get people to opt-in to your email list and then you offer them lots of free relevant and targeted information along with offers to purchase related products.

This can be used to sell your own products, sell products as an affiliate, sell actual physical products, drive traffic to websites that have AdSense or affiliate offers, including CPA offers, etc.

These are just a few variations of what people are doing to make money on the internet, but there are literally hundreds of business models out there… these are just the most common and often the bread-and-butter of all online businesses. Good established businesses online combine all these strategies and scale up their business by monetizing the clients they currently have access to…

So if they are selling training guides to dog owners, they may start selling actual physical dog-related products to the same people on their email list. They may look for people with similar products that have affiliate programs and promote them or sell advertising space.

It’s no different than selling advertising space on TV or the radio…

It’s really all the strategies used in the offline world brought to the online world… hope that helps you get started…

I can’t believe you need to be convinced to start a business online, but here’s the reason why you need to start one even if you have to crawl naked over broken glass… there are two types of people in this world… those who need to work to make money, and those who don’t need to work to make money…

Better stated… there are those that wake up and see their bank account grow even while they sleep, and those that wake up and see their bills pile up and their credit cards hide in their own wallets…

See, the beauty of owning a business online is that you do the work once and you get paid indefinitely… it’s like being a musician… they create a song once, and sell that song over and over… they make cd’s, they charge people money to hear them play that song at a live concert… maybe make a music video… they charge TV and radio stations whenever they play their songs…

Point is… the work to create a song was done once and artists are able to make money from that work indefinitely…

… an online business is very similar, and even better…

You can create a product that teaches people how to do something… that product is created once and you can make money indefinitely with it… in essence making information marketing the new commodity…

… but here’s where it gets better…

… an artist may need to constantly send out broadcasts, place billboard ads, or magazine ads to let people know about their product… in other words, they have to constantly try to find their customers (fans) and let them know about the new concert, album cd, etc….

… but when you have a business online, people find you… they are the ones searching for someone like you and if you set up your business right, customers come to you… now that doesn’t mean there is no work involved, but it means that the work is done once and then monitoring is all that’s needed… heck you can hire someone to monitor for you if you are too lazy to do that…

But that’s not all…

See, you may be wondering what it’s like to have a business online and let me tell you that the satisfaction you get when you get email notifications or checks in the mail paying you for something you did a year ago, two years ago, ten?… however long it was when you started… the satisfaction is amazing…

Now let me clarify what I said at the beginning… the second type of person, or those who don’t need to work to make money, are usually not people who don’t like to work… it’s quite the opposite…

It’s been my observation that those who don’t need to work tend to work much, much harder than those who do need to work… however, they don’t see what they do as work and it usually is very satisfying that it’s almost like they don’t work at all…

Those that need to work, may work extremely hard, but many times their job is not very satisfying and doesn’t allow them to live the lives they wish they had… and to think that starting a business online is simple…

Here’s the deal…

There are 3 things you need to start a business online… a product, prospects, and marketing… there is no reason why you can’t access either one and hopefully I can get you started…

The biggest hurdle you will have to jump is coming up with a product or service… but the good news is that you don’t even need to have your own product… you can sell someone else’s through affiliate marketing, which can be one of the fastest ways to start making money online…

In essence, what you are doing is marketing other people’s products and making money until you come up with your own product…

So, you really don’t have any excuses… fear and “I don’t understand computers” are pure baloney and shitty excuses… “I don’t know anything about marketing” is another crappy one…

Business is for grown men and women who are willing to reach their goals despite anything… You have to options to get started… you learn how to do this yourself, or you hire others to do it for you…

If you want this lifestyle, you will get started now…

People see the internet as some crazy, uber-technological way to make money open only to techies and geeks that know all about building websites and them complicated advertising mediums we refer to as Pay-Per-Click (PPC), Search Engine Optimization (SEO) and such…

… but the truth is, that online business is no different that a typical brick-and-mortar business…

There are two things you need to run a business: you need a product or service to sell, and you need a market to sell to…

That is as true online as it is offline…

What separates online businesses from offline businesses is the medium chosen to advertise… There are many brick-and-mortar businesses who are using the internet to advertise, but not all of them are online, and few of them know who to use the internet to drive business…

True online businesses, are businesses that advertise only online… many successful businesses are using both online and offline mediums to advertise… they mail postcards, post ads or inserts on local newspapers, advertise on Google, facebook, etc….

… but they both have a product or service to sell…

If you want to know the three things a business needs to succeed is everything I’ve mentioned until now… a product or service to sell, a list of prospects to sell to, and a way to let those prospects know that you have a product or service for them…

Products/Services, Prospects, Marketing…

It’s not rocket science… go to Google and search “how to _____”… whatever… play golf, build a deck, etc. Search anything you can think on how to and there will be BUSINESSES with a product, using Google as their marketing medium to reach their prospects looking to learn how to _______ (fill in the blank)…

… That’s information marketing…

… but, business is not limited to selling information (information marketing)… search wedding favors, and low and behold you’ll come across websites like “My Wedding Favors”, which sell exactly that… and they are using Search Engine Optimization to reach their prospects looking for wedding favors…

… that site by the way was started by one of the creators of StomperNet, which was one of the biggest product launches online, and a course I went through that changed the way I did business online forever…

At the risk of being redundant, I will give you one more example of business… how about Coca Cola… their product? well, they have multiple products, but we’ll stick to soda… that’s what they sell and they use TV, Billboards, and god knows how many other marketing mediums to reach their prospects…

The point is, you need a product, prospects to sell to and marketing to let those prospects know you have something for them…

I can not break this down into simpler terms… product, prospects, marketing…

There is one more thing that brings all of this together… the product is a solution to a prospect’s problem or need… marketing is just the way you articulate how your product is supposed to solve or satisfy the need your prospect has…

You play golf, but can’t hit the ball straight?… guess what, there are products out there that solve that problem… that is exactly what business is… solving problems…

Now, how do you make tons of money from that one product? you don’t… you make tons of money by having multiple products which you can sell to the same list of prospects…

… that’s the secret few internet marketing gurus ever talk about, yet they all do it…

So… what exactly does it mean to start a business online?

Well, it just means you are going to be using the internet to let people know about your products or services… you are going to set up a website so people can learn about your products or services and you are going to drive traffic to your website…

If you are reading this, you have the skill necessary to do all of this…

For those of you who don’t know AdWords is an advertising platform that allows you to reach customers by bidding on specific keywords or phrases customers are likely to type into Google’s search engine… this gives businesses the opportunity to drive highly targeted traffic to their websites and make more money… but is a Google AdWords certification needed?

Well… picture someone selling ‘dog training’ products or services and is looking for a way to reach customers online… they write a couple of ads, post them on Google and within minutes they can get highly targeted traffic to their website by showing their ads whenever someone types keywords into Google related to dog training such as ‘how to train dog’, ‘teach dog new tricks’, etc…

… now Google AdWords also has a feature called the display network, which allows you to advertise on websites, thta have opted to display Google Ads…

… basically the advertiser targets websites related to their topic, like dog websites, and Google shows ads in those websites…

The way Google charges to advertise with these various programs varies. The advertiser can choose to pay per click or they can pay per thousand impressions.

There are more advanced features like paying per action, which is known as cost per action or CPA…

So if you can begin to see, the concept of marketing with Google AdWords sounds simple, but if you really want to use all the features it has to offer, then you definitely need to spend some time getting to know what you can do to reach your customers…

In today’s world, I don’t see the need for a certification…

What is most important is to understand YOUR customer… who are you selling to? what do they want? what are they searching for?…

See, the thing is that it’s easy to see how someone going into Google and typing in ‘how to play golf’ is looking to learn exactly what the phrase says ‘how to play golf’… so you can write up an ad and offer to teach the searcher how to play golf…

But because that is too easy to see, many advertisers will bid on the keyword and drive the price up…

On the other hand, few marketers truly understand their customers and take advantage of the display network. A chiropractor once figured that over half his clients played golf and he went out and targeted golf related websites and displayed an ad that had to do with back pain and golf… he was therefore able to tap into a source of traffic no other chiropractor was getting because every other chiropractor was bidding on ‘chiropractor’ related terms instead of using the display network and thinking of all the places their customers would hang out…

Learning the difference between the search and the display network takes a day or two by just playing around without having to get a certification… but learning how to reach the right audience, takes marketing know-how and street smarts salesmanship, which is often learned with direct response marketing training…

That’s my opinion, but I would love to hear from anyone who has gone through a Google AdWords certification program or is looking for one, to tell me the pros if any?

Imagine droves of traffic flooding your website even while you sleep… sounds like the same empty promise many internet gurus make right?…

Well, before I give you the top 5 ways to drive traffic let’s get one thing clear… it’s not about the amount of traffic you bring to your website… it’s about the amount of buyers you bring into your website…

The difference?

Targeted traffic is not the same as plain traffic… I rather drive to my website 1000 people who will buy rather than 100,000 people who don’t have interest in what I’m selling… make sense?

So with that being said, here are my top 5 ways to drive traffic to your website

Display Networks

This is possibly one of the largest advertising mediums online and for some reason one of the least competitive… well I guess that depends on the market, but overall I think it’s less competitive.

Now the display network uses both text ads and image ads. Image ads have outperformed all my text ads… and reason for it is because a text ad usually appears with other text ads and its harder for it to stand out. An image ad on the other hand tends to appear on it’s own and it stands out more…

CPA (Cost Per Action)

Cost per action is when you pay only after someone has taken an action on your website, such as sign up to your newsletter or download a report. This used to be available only through affiliate networks, but now Google AdWords has made this available inside their platform…

This is a great way to build up a business because if you know your numbers you know how much you are willing to pay per lead you get.

CPM and Media Buys

Cost per thousand (CPM) and media buys go hand in hand. It’s essentially the same as the display network except it is manual. You basically go to websites related to your product and buy advertising space in their website. They usually charge per thousand impressions.

CPM is also available in platforms like Google AdWords and Microsoft AdCenter, but when you talk to websites directly you can often get better deals or advertise in high traffic websites that you wouldn’t be able to reach through one of these platforms…

Pay Per Click

Pay per click is great for testing your marketing and sales funnel. You can get a lot of traffic, but the massive traffic usually comes from one of the sources above.

The great thing about pay per click is that it’s targeted and you can find your highest converting keywords which you can then use to advertise in the display network. The display network will find websites related to those keywords and you can then search through those websites and find other similar ones where you could potentially do media buys.

I use this as a discovery tool and for marketing testing.

Facebook

It’s no secret that Facebook is kicking butt in online traffic and that you can get targeted traffic based on people’s interests. It can be a little tricky because not every facebook user has all their interests listed and some markets don’t do well when you drive traffic outside of facebook.

Many times you have to direct traffic into a fan page and then try to get them into your website from there…

Well, that’s what I have on my list… I haven’t tried some methods like Cost Per View, and I specifically excluded free traffic sources like article marketing, social networks, etc. The only free traffic source I would include on this list would be SEO.

I don’t include it as a top way because it takes time to get good traction. If you have good quality content and use the methods above, your SEO will kick in faster without any kind of magic voodoo or link building tricks.