The nature of the human spirit is such that even in the most difficult times, people are compelled to create. In fact, the harshest events in human history have spawned some of the most magnificent and enduring works of art and literature: Picasso’s Guernica and Tolstoy’s War and Peace, for example.
Business creativity tends to run in the other direction. Economic uncertainty and civil unrest cause businesses to slow down, pull back and focus on core competencies instead of expanding into new endeavors that, no matter how promising their concepts, could be deadly if they fail to attract an audience. There are notable examples of the opposite, of course: Software giant Microsoft Corp. arose during the U.S. recession of the mid-1980s. The company launched MS-DOS in 1982, and based on the resounding success of that product, mounted an initial public stock offering in 1986. The rest is computer-age history.
Although it is much too early to know how history will judge the global economic crisis occurring at the end of the first decade in the 21st century, already the world has seen the collapse of industry titans many thought were “too big to fail.” Banks, mortgage companies, automobile manufacturers, publishers and technology firms have fallen under the weight of ideas and practices that could not survive a “market correction” the likes of which hasn’t been seen since the Great Depression of the 1930s, at least according to government statistics. How long the situation will last is anyone’s guess, although new positive and negative predictions emerge almost daily.
Despite the typical business modus operandi, some entities have continued forward with plans to debut new products despite the global slump. AVN spoke with three, who all conceded that launching a new product in times like these is beyond challenging. The process can be depressing, demoralizing and an unimaginable drain on personal and corporate resources, but not one of them is sorry he continued his quest.
Nor are any of them willing to concede defeat.
Biding Time
CPAWins, a managed-offer alternative payment platform that allows webmasters to offer freebies to consumers and make affiliate-like revenue from those freebies, has been a mainstay in the video games industry for several years. When co-founders Andrew Tong and Al Wells decided to make the jump to another market they felt could benefit from their platform, product development was not an issue.
Uptake, however, turned out to be. “We launched in the adult space as the recession hit—or at least at about the same time everyone realized we were in a recession,” co-founder and Chief Executive Officer Al Wells says. “We thought [CPAWins] would take off in the adult space since it reduces the barriers for users to monetize adult publishing efforts. But, the challenge with providing anything new when times are hard is that everyone is gun-shy.”
Wells and Tong were disheartened by initial response to their product, even though deep in their hearts they knew the problem wasn’t the product itself but the overarching gloom and doom of the economic climate. Adult industry publishers and affiliate program owners simply were afraid to take a risk on something new. “It’s strange that the space that built the internet has become so risk averse,” Wells mused. “Hasn’t anyone here ever read a Tom Peters book?”
Adult industry entrepreneurs—many of them clearly in need of the “adapt or die” business model espoused by best-selling author Peters—were “much slower” to respond than Wells and Tong expected. The introduction process was “more difficult, more time consuming, more frustrating” than they expected. The financial landscape was foreign. Entrepreneurs were suspicious. Quickly Wells and Tong figured out that in the adult sphere, often who one knows matters immeasurably more than what one knows.
Eventually the CPAWins crew found their footing with the help of an advisory board they now admit they should have formed much earlier in the game. “If we had it to do over again, we would have gotten a better lay of the adult land [before we approached the industry],” Wells says. “The industries we’ve worked in [previously] don’t have affiliates they have to pay. Users come to them of their own volition or via portals specifically set up to send users to them. Since we did not have an advisory board before we launched here, we got our first customer, got the system all set up … and then found out that they could not launch until we integrated with the affiliate management software providers they use. We completed our first integration on that front [in July, with Mansion Productions MPA3 backend].”
With one hard-won success under their belts, Tong, Wells and company are encouraged about their potential for success despite the economy. “Expectations are high,” Wells says. “We’re committed to the adult space, and want the adult space to be committed to us.” He still has trouble understanding how an industry famous for pushing the envelope suddenly became what looks to outsiders almost like a group afraid of its own shadow. “We propose that it’s better to try something new to get your revenues up than to sit there and watch them go down as you just continue the status quo,” he says. “This is doubly true when you consider that users still want adult publishers’ services—they just don’t want to pay for them. So, why not collect their money in a more roundabout way? We believe adult publishers can make more money by putting this platform in today than they were making when the economy was flourishing.
“[Adult is] a wide-open market, and we can have a deep impact,” he adds. “It’s about making money. We hope that adult publishers come to realize that we would not reach out to them and spend our time getting our platform up [in their space] if we were not going to be rewarded for doing so. And, if we get rewarded, guess what? So do they. This only works if everyone wins.”
Bottom line, from Wells’ and Tong’s perspective: In a slow economy, it’s even more important to take risks, especially on systems that have proven themselves in other markets. Companies that want to jumpstart their profit potential should “take a chance, for Christ’s sake,” Wells says with a wink.
The Waiting Game
“In the summer of 2008, the ink was barely dry on our new business plan for the launch of an adults-only virtual world,” says Kevin “Stroker Serpentine” Alderman, chief executive officer of Eros-3D. “The research had been vetted, the accountants and lawyers had all signed off, and it was only a matter of proofreading before sending [the package] off to FedEx-Kinkos [for duplication]. Our optimism was at an all-time high, and preliminary response was extremely favorable. Initial investors meetings and teleconferences were encouraging. The nation was getting ready for elections, and there seemed to be a pervasive attitude of enthusiasm toward a new administration and new ideas.”
And then the bottom fell out of almost everything, almost overnight. “When the stock market fell 3,000 points between mid-September and mid-October, it became obvious that financial markets were not merely correcting, but spiraling,” Alderman says. “The emails we exchanged with formerly enthusiastic supporters waned, and voicemails went unanswered. It became evident it was time for ‘Plan B.’ It was time for triage.”
Determined not to become “just another great idea whose time never came,” Alderman and his confederates did what they hated most to do: They scaled back their aggressive plans and took a temporary side street. Instead of the massively multiplayer online universe they had hoped to launch, Eros-3D’s team decided “to dust off several smaller projects that would provide needed cash flow rather than dissect and dilute the core product.” Eros-3D-the-universe would launch—it just would launch later than expected. “The last thing we wanted to do was value-engineer our proposal and risk a tepid launch [near the originally scheduled debut date].”
The team’s enthusiasm for its core product has not cooled, and Alderman remains convinced the product will wow consumers and investors alike once the economy is back on stable footing. Of course, the sooner that happens, the happier he’ll be.
“The timing of this recession was horrendous,” he says. “It blindsided us and effectively dried up capital resources. However, there are still opportunities, and we are not giving up. The tide lifts all boats.
“Recession or not, entertainment has always been a mainstay during tough economic times. That’s still true, and the demand for content like ours has not quelled. Fortunately, our secondary properties are integral to our core product launch, so we have made inroads toward the endgame. We planned to launch when we did last fall because we saw the need and felt the time was right. The demand did not disappear, but disposable income has now been earmarked for necessities across all sectors. We will bide our time, weather the storm and wait for the inevitable cyclical uptake.”
As disappointing as Alderman’s experience with the anticipated new product has been recently, he would not have changed a thing about the journey, he says. “We felt all along we were on the right track, and we still have great confidence in our product and in our target market,” he avers. “We are just waiting for our potential investors to feel more secure about a market over which we have no control in order to be able to move forward.” And, he adds, other entrepreneurs should not let the economy scare them off, either. “As legendry ad man Ed McCabe put it, ‘All great enterprises move forward in a recession, and the weaklings move back,” Alderman says. “The dumbbells cut back ... the smart people don’t.’ There are dozens of examples of recession phoenixes. Just a few decades ago, the dot-com bubble ballooned in the midst of an oil crisis and skyrocketing unemployment. This is still the land of opportunity.”
However, he adds, those considering launching something new in the foreseeable future should approach their tasks with eyes wide open. Dreams are fine, but they don’t pay the bills. “Gauge your risk,” Alderman advises. “Consider Plan B and Plan C. And remember: Cash is king. Even minimal revenue streams can give you the competitive edge to jumpstart your new launch when financing and capital abound once again.”
Creating Buzz
Four years after he began developing a website where models, photographers, film and video producers, and other creative types who need each other’s services could connect, George Kajaia launched EBuzzSpace.com—just in time for the recession to whack him upside the head. Kajaia says the site is not exclusively for adult or mainstream users. Instead, he hopes to cross boundaries and attract members from across the creative sphere.
EBuzzSpace, which went live in June, is based on a social-networking model and is free to join and use. The site includes categories for models, performers, photographers and other industry professionals; casting calls and job offers; and merchant services. Essentially, it functions as a third-party intermediary to smooth the onerous task of finding just the right professional to fill a specific artistic need—sort of like a talent agency, but with a twist. Talent lets EBuzzSpace handle the funds, but they make direct connections with each other to iron out the details of any work.
Kajaia had planned to monetize the property with a proprietary third-party processing service based on the PayPal model and an escrow service he hoped would make both sides of every transaction feel more secure about working with un-agented others they don’t know. He figured the time had come for financial processing carrying only a fixed 6.85 percent fee on the receiving end of each transaction, with no additional per-transaction charges or sign-up fees and no funds held in reserve.
Even with what he considers attractive financial incentives, Kajaia admits he has been underwhelmed by response so far. The marketing efforts to date, he says, just haven’t hit the right spot. “This is the first product I have launched,” Kajaia, a photographer by trade, admits, “and it has been very, very slow to find an audience.” That’s particularly disappointing, he says, because not only is he proud of the way he and his team have integrated employment opportunities into a social-networking environment that should reward members who are the most active, but EBuzzSpace is part of a much larger concept. “This website is a little part of a bigger project that defines Web 3.0,” he says.
Part of Kajaia’s concept of Web 3.0 is that as the internet ages, it will become more like the media to which everyone is accustomed. Content will not have to be free if it’s compelling, and he wants to help content producers create and track that compelling content. “Defining who creates the content and when it is created allows us to facilitate the creation of content by users and the ability to attach ownership to that content,” Kajaia says.
“Internet entertainment content should be like a movie or a show on TV: pricey and interesting when it’s new,” Kajaia explains. “As it gets older, it becomes less important. So, the production date and who was involved in the creation of the entertainment content needs to be monitored by an independent entity—in this case EBuzzSpace. The production of internet entertainment content does not require a big studio effort, it does not take a long time, and it will be controlled by transferring funds and checking metadata [which includes public feedback from both sides of a transaction].”
Despite setbacks, Kajaia remains positive about EBuzzSpace’s possibilities, though he says it’s hard not to give up some days. The thing that keeps him going, he says, is a belief that creative professionals need to be the masters of their own destinies, and he is certain he can help them with that since he is a creative professional, too. “The internet bubble burst of 2000 did not destroy the adult entertainment bubble, which continues bubbling bigger,” he says. “What becomes important is to define who is involved in content creation—creation time, place and parallel integration between involved parties—meaning that artists freely can communicate with each other and their fans and consumers. All of those parties have to be involved somehow in the production of content for any creative system to work, otherwise the whole thing falls apart.” Kajaia says he’s just waiting for the rest of the market to catch up with that thought.
If he could go back and start over, would he change anything to make his offering more appealing in the current climate? Well, first and foremost he’d change the current climate, he says. Because Kajaia started EBuzzSpace’s development four years ago, he had no way to predict what the environment would be like when the product finally debuted. Failing that, he says he would have paid more attention to advance promotion—creating buzz before he even had a product to unveil. He feels a bit behind the eight ball now on that score, but EBuzzSpace’s charter members are happy with the product and word of mouth does travel, he notes. From his perspective, he says, blogs are about the best promotion going for an operation like his, because to consumers, bloggers seem more honest and genuine than ads.
In Kajaia’s case, success hinges not as much on attracting venture capital or the goodwill of major players in the adult space as it does on convincing independent contractors he can help them increase their earnings—and then getting them to part with a small percentage of earnings they would not have had without his help. “The future [for creative professionals] is Web 3.0,” he says. “I’m working in that space now. Everyone is a creator of content of some kind now, and that’s only going to become more important in the future. But we have to own our content. Without sites like EBuzzSpace, we’ll all be left without jobs.”
Counting Crows
The bottom line: In all three cases, companies had products well on their ways to market when circumstances thoroughly beyond the developers’ control sidetracked their ambitions, plans and best intentions. Still, in none of the cases did the company principals—all evangelists for their products—consider throwing in the towel. CPAWins embraced additional market research and gathered a group of industry insiders to advise the core team. Eros-3D regrouped and decided to proceed with smaller, related projects while putting the major release on temporary hold. EBuzzSpace continued to forge ahead on the same path, intent on breaking through barriers by sheer force of will.
All three companies remain determined to succeed, if not quite at the pace they initially anticipated. Did they become discouraged? Of course. Did they quit?
Absolutely not.
Would they do it again? They gave a single response: “You bet.”
This article originally appeared in the October 2009 issue of AVN, accompanied by the sidebar below.
Five Habits of Highly Effective Companies
Before committing yourself to a new product launch during “slow times”—or anytime, for that matter—be sure to consider the following five things:
Research the market, then research it some more. Obtain information and data from as many sources as possible, and then analyze everything with a skeptic’s eye. Especially in times of economic uncertainty, there’s no such thing as too much information.
Have a plan, but be prepared to make modifications as situations change. Things may go much better or much worse than you think, so having a backup plan—and maybe even a backup for the backup—is a good idea, too.
Simplify and/or downsize. Not every project must comprise the “super-duper deluxe” model out of the starting gate. Attaining a series of smaller goals often is more manageable and less stressful. Also beneficial: The smaller projects can provide revenue to finance the endgame.
Spend wisely. Tackle the most necessary components first, then move on to the options that would be nice to include as time and resources become available. Be sure to invest the most time, energy and money in items that are projected to deliver the most return on investment. Those may or may not be the items about which you are the most excited.
Maintain your enthusiasm. If you’ve done the research, planned and capitalized the project and nothing along the way has dissuaded you, give the product everything you’ve got. Above all, don’t commit unintentional hara-kiri by incorporating someone else’s negativity. If you don’t believe in your project, no one else will, either.
