How I made my business profitable from day one

Guy King founded coupon aggregator RetailMeNot with business partner Bevan Clark a few years ago, using the site as a portal to provide users with discounts for online retailers. It became a runaway success, and records over 10 million unique visitors a month with revenue of about $5 million.

But King says the lean nature of the business, and the nature of operating online, enabled the site to become profitable nearly straight away. He says businesses can help their profits by cutting costs on unnecessary items.

How did RetailMeNot start?

I’ve built a lot of sites in my spare time over the years. And then a few years ago, on a whim I built RetailMeNot over a weekend. It’s a vastly different site to what it is today, but straight away it seemed to get a lot of traction. People just seemed to like it, we hit that critical mass early on and it grew from there.

As far as revenue is concerned, the model is gained mostly through affiliate links. If you come to our site, click through to Amazon and buy something with a coupon code, then we get a cut out of that.

How did you start becoming profitable straight away?

Being at the end of the purchase cycle really seems to have helped because we don’t offer anything other than a coupon, we have basically no infrastructure. I wish I could say it was foresight, but really I think it was just dumb luck that we picked a shopping application.

That being said, we’ve always operated rather leanly, and we have a bit of a mantra that we won’t spend money unless we can directly measure the effects of it. So early on we tried some traditional advertising campaigns, but it felt as if we were just throwing money into a black hole. So we took the stance that we would only spend money where we could measure a direct effect.

Also, we have quite a few people here who have backgrounds working in large companies in a bureaucracy, and that’s something we’ve resisted as well. If we want to change something on the site, we speak to the developer and it’s done then and there. We have competitors with staff of about 50 and we’re still outperforming them, because we have such a lean way of running things.

Really, it comes down to cost. We manage our finances fairly thinly and so when we started, there was the ability to make money straight away. We still try to keep that feel of keeping costs down, so we have a fairly small team. I built the site on a computer over a weekend; this stuff doesn’t cost much to run. I wanted it to be as simple as possible.

Is there a disadvantage to deliberately keeping the business smaller?

An example of that would be an issue where, let’s say we want to get into a large partnership with other sites. We don’t have the resources to do that, because we don’t really have dedicated account managers who can handle all of that. It is a detriment in some ways, but it does keep us focussed on the user which is a big part of how we’ve gotten to where we are. And it keeps costs low.

For other businesses looking to become profitable more quickly, what can they do?

As far as keeping costs down, I think a big clue is that just because everyone has done something traditionally it doesn’t mean that you need to be doing it too. We see small businesses spending a fortune setting up exchange servers, hosting services, and so on.

Instead, we use Google Docs, outsource our hosting and use Gmail – really, it’s a no brainer for us. It frees up our energy doing what we are good at which helps us get money. Why go out and buy Quicken when everyone else has, when you could get a good hosted software effort on the internet for free? Costs you a fraction of the price – it’s these little things that add up that you can get rid of.

As you get bigger, is it more difficult to keep costs down?

I guess you could look at it both ways. It’s easy to lose focus, but I think we are able to keep that same focus we did when we started. We do spend on advertising now, but we have built tools we use to record our spend and we know we can get all of that back. We are still very lean, and we are very careful about what we spend our money on, which once again, goes back to profit.

I always recite this point, but it goes along the lines of, the only thing you can do better with an online business than save people money is make people money. Obviously we’re in the saving money category, and it’s such a strong incentive for people to use the site. We just make sure that we’re not throwing a lot of money at the site to deliver little benefit, which allows us to keep that money for ourselves.

Do you spend more money on advertising now?

We do advertise, but we track it more accurately and it gets us a return on our investment. But really it’s just been word-of-mouth. The more people who use the site, the better it gets. Simple sites like Wikipedia which rely on user interaction may have one out of a thousand users editing articles, but they are still gaining momentum and it builds up.