To follow up on my posts regarding Smallness, it seems like an illustration may be really beneficial.

Enter Jim Kovarik and Cost2Go, with his initial offering Cost2Drive.com. I mentioned it in my post about winning investors. In fact, it was partial inspiration for the post.

Jim and C2G are the poster child for what I am talking about. If my theories are wrong and the company isn’t successful, I’ll be proven wrong. I don’t think so, though. Here’s why: Jim has shown an intuitive sense for building a simple, clean, scalable and profitable business. He’s done it to date and I expect that to continue. This should put him in a good position to adapt, adjust and take advantage of whatever comes his way. If funding is hard to get, he can stay lean and work on scaling traffic and revenue. If there is interest from the venture community, he is ready to go - he knows exactly what to do and when to do it and how to spend to get there.

To be transparent, I did know Jim form my previous life at AOL, but not well. Also, although I do want Jim to be successful and am talking with him about Smallness, I am not a shareholder in his company. But with his OK it probably won’t stay that way for long…

On to the case study.

As I laid out, there are a few basic principles:
- Clarity of Value Proposition
- Demonstrable market traction
- Existence of a revenue model
- Flexible decision making via scenario planning
- Clean funding

CLARITY OF VALUE PROPOSITION

Company Vision: “The vision of C2G (Cost To Go) is to make it easy for people to determine the costs of going places. These costs include monetary costs, environmental costs and personal costs (i.e., time).” I posted something before that was much more wordy - my own concoction. This is way better.

Another critical thing: Cost2Drive.com screams this value proposition through its simple UI/interaction model, uncluttered page design and zero-learning-curve features. To be clear - it’s not good enough to have a story about simplicity - the site needs to express that simplicity with high fidelity impact.

MARKET TRACTION
It’s early for C2G, so there’s not much history on the traffic side. The following graph shows a strong start.

There is a credible story that users are finding the site useful and are telling others about it.

Additionally, there has been a significant amount of market buzz. A writeup in CNet, a story from Kim Komando, and a lot of support for the idea in the blogosphere all add up to meaningful positive support.

It’s worth noting that there are good and less-good types of traction and it’s easy to get confused. The very best proof of your product has traction and market acceptance is a sustained and increasing number of uniques, visible through public reporting services like Compete.com or Quantcast.com. A line that shows the characteristic “up and to the right” trajectory will prove beyond a doubt that there’s something of value being created.

Less good traction… Blog and press buzz. Don’t get me wrong, it’s very very beneficial to get people instersted and talking. But that has got to translate into user acquisition and engagement or it’s fleeting. Journalists and bloggers are by definition fickle. They need to show the next new thing on a very rapid cycle. Exposure is great and necessary and the game can be won or lost here, but the effective company turns press visibility into retained users. There’s a lot of strategy about when and what to message. Big topic. Find someone you trust if this doesn’t come naturally to you. Also, be wary of SEO, same thing. Great to get it. Big part of the success story, but algorithms can be fickle. Google giveth and Google can taketh away.

Not good traction… SEM. If you’re buying a large portion of your traffic you have two complications. 1) If the site is good, people will tell each other. Clean feedback in terms of site usage is critical for measuring and refining your value proposition. A purchased link will cloud your metrics. 2) Buying retail (paid clicks) and selling wholesale (nascent monetization efforts) is a losing proposition. Nobody wants to fund Google via a startup.

REVENUE MODEL
This is where it gets interesting. And there’s a lot of conjecture. Sure, it’s possible to get a company up and running based on the idea of user attraction. While it can be done, it’s not recommended. In the same way it’s not recommended to do an appendectomy on yourself. Sure, it can be done, but you really need to know what you’re doing and have a lot of people around to help. In the midst of GMM (Global Market Meltdown) and on the heels of TM (Tech Meltdown) it’s unwise to wait to figure out the business model later.

C2G really lit me up. I was a skeptic. I didn’t see how this interesting little utility had a business model. Jim took me to school, pointing out that the underlying concept gets at the cross-section of two very interesting businesses: Autos and Travel. Autos from the perspective that C2G learns a lot about what people drive and can make suggestions about what might fit their needs next time they are looking for a car.

Travel from the perspective that people may need hotels, visit attractions, etc. So this little utility can actually be a category creator. The business model offers a nice mix of opportunities: Integrated partnerships, Lead generation and, to fill in the cracks, a little traditional display advertising. I have seen the projected RPM’s based on these and it’s respectable. Also, there’s the opportunity to optimize amongst various models for effectiveness. On top of having the potential for revenue, Jim is already out there signing up a few key partnerships who will grow with with the business as it scales.

SCENARIO PLANNING
I intentionally use the term Scenario Planning instead of strategy here because we’re talking about something very specific. Lots of companies plan for their exit. This is certainly a part of the strategic picture, but it should always be Plan B. Or Plan C. Plan A should be to operate the company to a strong market position and profitability.

Here’s what I suggest:
Plan A = The base case. What is the most difficult-yet-sustainable situation that the company should plan for? Low burn rate, adverse funding environment, slow partnership market and conservative revenue growth.
Plan B = The upside. What are the 2 or 3 things that could go well and what can the financial picture be if this happens? What needs to be done to achieve this?
Plan c = Acquisition. Who is the most likely suitor? What needs to be done to become and stay attractive?

Putting it into action - Plan A is your nut. It’s the foundation of the operating plan. Keep the lights on and build something valuable. Plan B contains the product features that you want to fit in and will accelerate yor growth. Lower priority in the feature-build process. Plan C takes Plan A and B and looks at it from a different perspective. Once you have a solid operating plan, do you have the right elements in place to command attention and a reasonable valuation should someone be interested. Get your plan C perspective and then put it away for board meetings.

This approach has worked with surprising consistency in the past.

C2G has inherently built itself on the Plan A-B approach. Burn is extremely low and the company can operate for an extended time while continuing to make progress toward its vision. To that end, the application of capital is to kick the company into Plan B - exceeding the basics. If it’s successful in building an engaged audience and monetizing it, Plan C may materialize.

CLEAN FUNDING
As I said previously, the key to clean funding is timing of milestones and application of capital. How much money, at what point in the life of the company, and what will each successive raise do for shareholders - existing and new.

Jim has done himself a huge favor by keeping the initial capital needs low as he builds value. The trick now will be to raise enough money that he can achieve the next milestone. This is where he’s spending his time now. He’s working the confluence of numbers, product features and market forces to estimate how much money it will take and how it will be applied to be at the front of the driving travelers mind as they plan their spring and summer vacations.

I look forward to seeing this company grow.