Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
Reputation.com – USA
Prepared by George Foster and Sandy Plunkett
Reputation.com was founded in 2006 to give individuals and businesses the power to control their digital privacy and reputation. The company continues to pioneer patented solutions that safeguard and remove personal data from the Internet, monitor and respond to online reviews, build a positive and accurate Web presence for clients, and help businesses proactively engage customers.
Reputation.com is a World Economic Forum Global Growth Company and multiple award winner, including the recent Silver for the Best in Biz Awards for “Most Customer Friendly Company” in 2012. It is funded by top-tier venture capital firms and has customers in 100 countries.
Michael Fertik founded Reputation.com with the belief that people and businesses have the right to control and protect their online reputation and privacy. He is viewed as one of the world’s leading cyberthinkers in digital privacy and reputation. Fertik was most recently named “Entrepreneur of the Year” by TechAmerica. He is a Member of the World Economic Forum Global Agenda Council on the Future of the Internet and a recipient of the World Economic Forum Technology Pioneer 2011 Award. Through his leadership, the Forum named Reputation.com a Global Growth Company in 2012. Fertik is an industry commentator with guest columns in many business magazines. He regularly blogs on current events as well as developments in entrepreneurship and technology and frequently appears on national and international television and radio shows. Fertik is a co-author of Wild West 2.0 and The Reputation Economy (Crown, 2013). He founded his first Internet company while an undergraduate at Harvard University and received his JD from Harvard Law School.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable, growing company? How did it change over time?
Fertik: “For me, there are only two kinds of venture-backed companies. There’s faster-better-cheaper, and there’s Brave New World, neither of which is more noble or less noble than the other. Faster-better-cheaper tends to have more successful exits, though they are still few in number as a percentage of starts. Those exits tend to be smaller, although there are major exceptions; Google and Facebook are the major, major exceptions. Brave New World tends to be more capital intensive, more risky, but the exits tend to be larger – Intuit, Yahoo!, Amazon, eBay and Microsoft. For me, it has to be Brave New World. So that is the first factor I considered. Second, the market has to be there and/or getting much better in the future. I have to see some kind of inevitability to the size of the market. Third, it has to be hard, something that is going to keep me interested for five or six years.
“The problem of what we now call cyber bullying was of high interest around 2006. Pre-Internet this obviously occurred, such as children writing on the bathroom wall at school. One change here with the Internet is that everything is written, posted, etc. Somewhat related was what was appearing on the Internet. It’s like we’re all being co-opted into a machine without our knowledge or permission by people we can’t identify for purposes we can never know. Moreover, our very own data is being transacted without our knowledge and exploited without us capturing any of its value. I was angry about this but for a while did nothing about it. I had the choice in my own mind of put up or shut up. My driving passions were to (i) protect people and their reputations, (ii) to protect people and their privacy, and (iii) protect kids from the same two things. That was the initial kernel of the idea.
“We do all of those things basically today, except the products for kids. I thought parents would pay to protect their kids online, but there is little evidence they are willing to pay to do this. I kept a set of products for kids alive for four or five years, when I probably could have shut it down after two years. It’s interesting that there were two funded copycat start-ups about two years after we got started, one called Social Safety Web and the other called Social Shield. Both raised about US$ 15 million focusing only on kid-related products. Both crashed and burned and went out of business. One by-product of not closing our kid products earlier was that we did not signal to the marketplace that we thought it was not a great opportunity.
“Over time, the basic vision has remained the same. We’re basically protecting reputation and privacy. We are doing it for businesses as well as individuals. And we are now collecting a huge amount of data about people, places and things that we can eventually dump into a data vault. This will allow us to monetize for our customers their data with their explicit knowledge and consent for purposes they can identify, with people they can nominate and elect and deselect.
“There were several learnings from our early days. First, adults want not only to protect themselves but also to enhance, burnish, and explain their reputations. It’s not just about defending or repairing a problem. It’s about explaining who you are to the world and understanding this is a kind of marketing avenue for your business and for your life. Second, we learned that people and businesses are prepared to pay sizable amounts to go well beyond cleaning up a few things. This evolved into our Reputation Defender product, which is one of our better sellers. Third, we learned that businesses care very deeply about their reputations and they care deeply about their reviews. A high percentage of consumers across developed markets will consult a review and be influenced by a review, positively or negatively, before the transaction moment. The absence of reviews or the prevalence of negative reviews can turn business away, full stop, and so that part of our business has been a surprise.”
Q2: What were the major growth accelerators for your company in the early years of high growth?
Fertik: “Some key ones were:
Market reception to our products. Our message that ‘the Internet is possibly bad for you, there’s no delete button on the Internet, you’ve got to do something about it,’ hit a chord in the zeitgeist, and among the media. Within a couple of days of launching our website in October 2006, both Wired.com and National Public Radio (NPR) reached out to us. Those two very quickly gave us some traffic and currency. Since then there have been between 100 and 500 interviews a year in the US and overseas. These interviews give us free publicity to many important potential customers. Our international press has been very important to building organic growth. Germany has been especially important here.
Key hires. In 2009 we hired a marketing person from Comcast. It’s actually very hard in Silicon Valley to find someone who is good in marketing. We hired someone who could market something and create a market instead of just riding the wave of traffic and pixilating their way into 10% improvements.
Financing from leading venture capital firms and having leading people from those firms provide insightful advice. In our A round in 2008, we raised US$ 1 million. Then in 2009 in a B round we raised US$ 4 million – US$ 2 million from Bessemer Ventures (David Cowan joined our board) and US$ 2 million from Kleiner, Perkins, Caufield & Byers (Ted Schlein). We subsequently did much larger rounds in 2010 and 2011, which provided important growth capital. Cowan and Schlein as advisers have well exceeded even the very high expectations I had when they joined our board.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Fertik: “For our type of business, there is a huge benefit from starting the business in the United States. The capacity to build an Internet business from the US that is either very narrow or very deep in scope is unrivalled here. Many options are available. The size of the US Internet market economy is compelling, especially for those like us who are in the business of protecting reputations and privacy.
“Mentors have been very important. I certainly gained much when David Cowan and Ted Schlein joined our board. I have also been looking for my own rabbi. A real rabbi to me should have to have little to no economic interest at stake. In the early years, I viewed myself as CEO 1.0. Now I’m CEO 2.0 trying to become CEO 3.0. That’s my current project. Several very well-known CEOs outside of my product area have been providing very good mentorship and advice. They have been generous with me of their time.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges.
Fertik: “Northern California is a superb place for lifestyle. It provides enormous rewards of all kinds and a very creative environment. You have brilliant people who are very, very interested in novelty and creation. And that set of things is extremely rewarding. California is a nation and earth unto itself, and northern California is half of that.
“However, there are very concerning aspects in the regulatory and governmental area. The personal tax situation is punitive at around 53%. Labour laws can be punitive and are a mess. The only thing that helps is that you can hire people and they don’t get non-competes, which sometimes hurts you, but mostly helps. As regards the regulatory environment for doing business, if I could just transplant Texas to California, I would.
“Silicon Valley does not think enough about Washington, DC. It appears you have to get to behemoth size to afford putting your hand in there. We have seen no interest from DC in getting input or advice from us on the reputation or privacy area that we have built up as expertise. It’s a similar problem with immigration issues. Silicon Valley recently finally realized they had to spend some money to lobby for immigration reform. But we haven’t been good at influencing regulators and policy-makers. We have had this notion that we are somehow above it, beyond it. That’s a big, big mistake.
“Silicon Valley is not a huge centre of Global 2000 enterprise-sized businesses. New York has a much broader set of industries represented at the large enterprise level. We do not have the really big companies in many key areas, such as cars and insurance.”
Q5: At what stage did you invest significant resources seeking to grow your company internationally/beyond your domestic country or region? What factors were pivotal in deciding when to seek growth internationally and where to seek that growth?
Fertik: “It came to us. We have paying customers in 100 countries. We were very lucky in getting a lot of international press coverage immediately after launching in 2006. Europe (and many other countries) is very concerned with digital privacy issues. For the first four or five years, about 30% of our organic growth was from overseas and 20% from Germany. We had a German-language website and opened an office in Munich. In 2012 we bought a UK company and are now growing the UK/Ireland team. It’s only been in the last year that we’ve really been affirmative and decisive about our approach to Europe.”
Q6: What were the biggest challenges in building growth internationally? How did you meet or adapt to those challenges?
Fertik: “Much of the business challenge in growing internationally, especially for a consumer facing company like ours, is language and knowing when to walk away. When you are protecting someone’s privacy and reputation you need a highly facile and nuanced assessment of the language in order to do the job for your customers. And you need international markets where there is a huge penetration of the Internet. That means people who are accustomed to spending 100 to thousands of dollars by credit on the Internet.”
Q7: What major role, if any, did key aspects of the ecosystem in the country (or countries) you first sought international growth either promote or impede your ability to grow in those international markets?
Fertik: “Language, culture and time zone are important factors that are relevant. But in terms of walking away, it’s language. There are certain places that are very hard to do business for a US Internet company like ours. For example, Germany has been a lot easier to do business with than France. It really gets down to ease of use, and ease in doing business. Italy is very difficult unless you’re on mobile (platforms). Japan and South Korea are probably the best markets in Asia for our business because you have enterprise businesses that are huge, small businesses and customers in large numbers, and large consumer markets with a lot of wealth and of course large penetration of the Internet. Most other countries for us are going to be either enterprise markets or wealthy family markets, e.g. Brazil, and South Africa. In many markets the consumer market is just not ready yet.”
Q8: Seeking international growth often has both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in seeking international growth.
Fertik: “The low moments in the United States have been about losing key employees. You know, just people who you’ve been with for years who depart poorly and you are shocked to lose but it turns out they had been ‘dating’ privately and secretly outside for a while. You feel betrayed and for me that’s the hardest thing. My first class action lawsuit was tough but I had to quickly get over that.
“The highlights for me are usually also about people, and a tremendous working experience through developing a product, launching a product and finding out somebody likes it. Also getting international business is a real highlight. Getting purchases in international markets and getting people to respond to the issue and discovering the international scope was a very, very big deal for us.”