One Million by One Million Blog: Learning From Mistakes: Roy Peleg, CEO of FirstImpression.io
Sramana Mitra / Feb 7, 2017
FirstImpression is Roy’s fourth startup. The prior ones had all failed, and Roy candidly discusses how and why they failed. There is much to learn from failures and mistakes, possibly even more than from successes.
Sramana Mitra: Let’s start at the very beginning of your personal journey. Where are you from? Where were you born, raised, and in what kind of background?
Roy Peleg: I was born in a city north of Tel Aviv. When I was 12, my parents separated. When I was 16, I left high school and started my entrepreneur journey. At the age of 18, I joined the army. After getting out of the army, I started a career as an IT manager. I then transitioned to being a junior developer and later went on to lead a team of developers. I also became a SEO team leader.
Sramana Mitra: What timeframe are we talking about?
Roy Peleg: I finished my last job when I was 30.
Sramana Mitra: What year was that?
Roy Peleg: 2012.
Sramana Mitra: What happens in 2012 after you finished this job?
Roy Peleg: I started a startup, but before that there were three other startups that failed and shaped a lot of what went on in the current startup. Everything is always divided between entrepreneurship and making a living.
Sramana Mitra: When you were doing this in the Bootstrapping With a Paycheck mode, what were the ideas that you were working on and what processes did you follow to do those businesses?
Roy Peleg: The first startup was a computer website. It’s one of the first ones in Israel. I did that when I was in the army. Sometimes, we had some time for ourselves. I was using my cell phone as a modem to connect my laptop to the internet. Then I actually learned how to program and set up the site.
That was the first project. It’s live until today. At its peak, I had 16 team members. We ran very large forums. We ran an article section. I learned a bit about monetization of websites and leading people. When I was released from the army, the next step was another project called The Future of Things. That website was in English and dealt with anything in technology and science. I had, again, more than 10 people contributing content for it. I made money from that. It got some recognition. All the startups I mentioned right now I did while I was either in the army or while I was an IT manager.
Sramana Mitra: It sounds like the kinds of projects you’re describing are media sites. Basically, websites with content. You were getting people to contribute content and would then generate revenues by advertising?
Roy Peleg: Yes.
Sramana Mitra: It is very difficult to make a success of those kinds of businesses. As you may have been following what’s happening in the online media industry, most of the companies are failing in that space.
Roy Peleg: You’re correct. I would say that revenue was secondary. There were hardly any independent computer websites back then. The next site I made money from. It was in English, so that market was bigger. We were able make a few thousand dollars a month, but it was hard.
Sramana Mitra: I would summarize your startup attempts as probably having been hard because of the business model that you chose to pursue. These business models of ad-supported media sites is not working. Let’s come to what happens after that.
Roy Peleg: After that, I tried again. The concept was to create a platform that allows you to say which features you want in a product and surface products that fit your criteria. We started with consumer electronics. There were lots of ups and downs in this startup. I didn’t get along well with my two partners and ended up letting them keep about 10% of the equity.
Then I went to find partners abroad and got some big shots like a former SVP of Amazon. They were really strong people, but I was working with them remotely. In the end, I decided to drop the idea. Partners were an issue even in the second iteration.
Then I decided to start another company. It was a marketplace for articles. Because of my SEO background, the idea was to sell articles off-the-shelf allowing publishers to acquire articles fast. We started generating revenues and launched with a thousand articles written by more than 200 freelancers. I had three other partners. I was the head of product.
After a year, the partners were not getting along. I offered to acquire them, but they didn’t agree. They said that maybe they’ll acquire my share. I decided to quit and then came this startup. Instead of a full-time job, I took a part-time job in order to do this startup. I was able to make progress and generate revenue.
Sramana Mitra: The startup where you had conflict with your partners, were you doing it part-time or full-time?
Roy Peleg: I was doing full-time while working part-time to make a living.
Sramana Mitra: You’re saying that the two content startups you did before, you were doing while working a full-time job. The article marketplace, you also had a part-time job?
Roy Peleg: Yes. I was working full-time and I asked my boss to reduce the load to 50%. After the previous startups, I couldn’t see myself doing it part-time.
Sramana Mitra: This startup didn’t work either.
Roy Peleg: Yes. After a year, I had learnt a lot about relationships, but I decided that it wasn’t worth continuing with that startup. It was time for a change.
Sramana Mitra: What year are we in now?
Roy Peleg: Around 2012.
Sramana Mitra: What happens in 2012?
Roy Peleg: I left the previous startup and came up with the idea for my current company, FirstImpression.io. What actually happened is that I decided to completely quit my day job. I did some consulting along the way, but almost 100% of my time was dedicated to the startup. I listened to a lecture by another entrepreneur who found a way to monetize websites by securing the unused page that you see after you download a software.
Usually when you download a software, you see a message saying, “Thank you for downloading our software. Download will start in five seconds.” That guy actually realized that it is a very valuable real estate that no one else had thought of before. I thought that was genius. Instead of a generic message, you now have new inventory that actually can add value.
I needed to come up with another real estate that no one uses. My first attempt at that was to actually try and create some kind of a tooltip with an ad when you click on a like or share button. I realized that I was probably going to get sued by Facebook or whatever social network I tried to leverage. I decided to create a new solution that would allow me to create additional ad products regardless of the type of website, layout, or functionality. The idea was to, very easily, supplement the site with just the right ad products at the right opportune time. That was the start of the product that we have today.
Sramana Mitra: Can you give me an example of what kinds of publishers we are talking about?
Roy Peleg: Just content. It’s the same type of publishers – news websites and blogs.
Sramana Mitra: You’re talking about small publishers?
Roy Peleg: Yes, initially small publishers – just give them a very easy-to-use tool. Instead of needing templates or development resources, they can design the ad products without coding. I’m sure that everyone has this challenge. I also saw that people want to be experimental in ad placements. I thought of saving all of that work with a drag-and-drop solution that you can use to create an ad in minutes.
Sramana Mitra: What was the form factor of the ads that you were going to be putting on these publishers’ sites? Were they regular advertising form factors?
Roy Peleg: Yes. Initially, the idea was regular display ads.
Sramana Mitra: How is it different from any old ad network? There have been ad networks since the beginning of blogging. What is different about what you were offering?
Roy Peleg: Think about it as building the billboard but not dealing with what’s on it. The idea was to provide the tools to build and position the billboard in the right place where people would see it. What we did was actually decide where the ad products would appear and in what specific cases would it be applicable, such as the device or the length of the page. You can’t make these kinds of decisions by simply using an ad network. That is completely different from the job of an ad network, which is simply supplying ads. We were creating a solution that allows you to create the ad products in which the ads appear.
Sramana Mitra: Where I would really understand the difference is if you can tell me what you were able to do in terms of CPMs. I’ve had a blog for 10 years, so I know exactly how blog advertising and ad networks have evolved. The CPMs are real shit. If you tell me that what you did has really impacted the CPM, that would actually give me more concrete understanding of what’s going on here.
Roy Peleg: We have done a few things along the way to improve the revenue. The CPMs you could expect from AdSense at that time were around a dollar to dollar and a half.
Sramana Mitra: A dollar to dollar and a half was what AdSense was generating?
Roy Peleg: Yes.
Sramana Mitra: What were you generating?
Roy Peleg: About the same.
Sramana Mitra: So what is the case for using your product?
Roy Peleg: The use case involved tailoring the ad products to the right opportunity. The idea was not to replace the ads on the site. That, in the beginning, didn’t give value. The idea was to supplement the site with additional ad products. Usually, when publishers try to monetize sites, they look at the website template, try to pre-define the areas that will probably appear throughout the site, and then enter the code.
That’s, more or less, how the site stays. What we try to do is look at the website in a more granular way and say, “Longer pages have more opportunities than shorter pages. Image galleries present different opportunities than textual pages. Smartphones should be treated differently than very high-definition desktop monitor.” The idea was to come up with the right ad product for the right opportunity without technical resources.
Sramana Mitra: What were you able to achieve in terms of your publishers getting a lift in inserting you in their monetization mix?
Roy Peleg: They would get a separate revenue stream that they didn’t have before. It varies depending on the website and how well the site was optimized. Some got 30% and some got more than 100% increase in revenue.
Sramana Mitra: How many of these were you able to get? When you started this company, how many of these were willing to work with you?
Roy Peleg: In terms of publishers?
Sramana Mitra: Yes.
Roy Peleg: You can probably count them on two hands. We started it, initially, with a SaaS model. We thought that they would be able to put their own tags within the ad products that we create and they’ll pay us a subscription fee for utilizing the platform. That was the initial model. We had three plans – $19, $99, and $349. Within the first year, we got around 10 publishers and around two were using the $349 plan. I started it on my own. Then I actually started hiring employees. In the beginning, I did it with my own money. I didn’t take any salary.
Sramana Mitra: You were doing this full-time? You didn’t have a full-time or part-time job at this point?
Roy Peleg: Right. My sister was looking for a job. I decided to hire her full-time. When she went on her honeymoon, I started to look for someone to replace her and also found our first developer. A month later when it was becoming difficult to manage the developer, I found my CTO.
Sramana Mitra: Were these people taking salaries? How did you find them?
Roy Peleg: I was paying salaries out of my own pocket. I convinced the developer to take a lower salary and gradually increased during the year. He probably got paid 30% to 50% less, but he believed in the idea. I found the CTO, who I consider my co-founder, within a year of starting the company. He got a very basic salary, which was less than the developer’s. I invested about $90,000.
Sramana Mitra: Talk to me about the business validation. You got a few people to pay you $300 to use your technology to improve their monetization. How did you get to a point where you thought that there is a business here? I know this business. It’s very difficult to monetize blogs with advertising. I’m curious to see how this business even gets to any kind of scale.
Roy Peleg: Initially, there was just a handful of clients. Things were running very slowly, much slower than I expected. We decided to apply to an accelerator. That was in mid 2014. The company started in March 2013. We decided to apply and were accepted.
Sramana Mitra: What did you get out of joining this accelerator? What was the key value that they added to your process?
Roy Peleg: They’re based in the Silicon Valley. The entire team flew to Silicon Valley and stayed there for four months. We were six startups in one big house. The idea was for them to introduce us to the US market and get a ton of feedback about what we were doing and how it can be improved, increase sales, and take meaningful steps in terms of business goals. They basically gave us a little bit of money to sustain ourselves there.
Sramana Mitra: What year are we talking now?
Roy Peleg: We are talking 2014. We started the acceleration in August.
Sramana Mitra: What did you learn from this process?
Roy Peleg: It was an amazing experience to be close to your target market. I got to pitch more than a hundred times to various people including investors and potential customers. We understood a lot of things. We understood that the SaaS model would be difficult here and that we should aim for the classic model of revenue share – basically monetizing the ad products that we operate and splitting the revenue with the publisher.
Additionally, we understood the name was quite bad. Back then, we were called AppendAd. After getting the same feedback over and over again that it sounded like a medical product, we rebranded. We are now called FirstImpression.io. While we were there, I got connected to a few people who introduced me to a few people. The business started growing while we were there.
Sramana Mitra: Was this was a 3-month acceleration program?
Roy Peleg: No, it was a 4-month program.
Sramana Mitra: Then you went back to Israel?
Roy Peleg: Yes. The business started growing a bit, but not too much. With the feedback that we got and the additional focus on our business model, we gradually added more people to the team. Every time the revenue increased, we just took on another employee. We were breaking even every month.
Sramana Mitra: Talk to me about the revenue. How many publishers did you have? What level of publisher inventory were you representing? It sounds like you were becoming more and more of an ad network.
Roy Peleg: Back then, we are talking about a few dozen [publishers].
Sramana Mitra: What kind of scale are we talking? How many unique visitors per site?
Roy Peleg: It’s a bit hard to remember. I can tell you that in 2014, we finished the year with gross revenue of about $300,000.
Sramana Mitra: From the ad network business model?
Roy Peleg: It was actually a mix, but a majority of revenue was coming from revenue share deals. When you talk about revenue share, it’s top line revenue. While I’m talking about $300,000, we take just a small cut and give most of it to the publisher.
Sramana Mitra: In 2015, how much did you do in top line revenue and what was your real revenue?
Roy Peleg: About a third or $100,000.
Sramana Mitra: That’s 2015?
Roy Peleg: 2014.
Sramana Mitra: So what happens in 2015?
Roy Peleg: We improved our offering. Back then we had about four or five ad products for monetizing a site. We added new ad products. We also gave up on the idea of a self-serve solution for small publishers. The amount of time that we were investing in supporting small publishers was the same amount of time that we would need to invest in the mid-tier ones.
Sramana Mitra: That’s right.
Roy Peleg: We just decided to move to the mid-tier. In addition, we decided not to spend so much time supporting the user. They kept asking for additional features. We found ourselves, behind the scenes, adding another tweak or control to allow them to make that change on their own. After doing it for a few months, we just decided, “Hey, it makes more sense to do it as a managed solution. Why don’t you just give us a call and tell us how you would like it to be done?” I would say that making this decision of going off the self-serve and focusing on the mid-tier is the key that put us on the path for rapid growth.
Sramana Mitra: I could have told you that if you came to me 10 years back. Over the years, I have been pitched for so many of these tools. I don’t even have the time to consider small publishers. I can imagine the kind of sales cycle and time that you’ve wasted on small publishers just to close 10 deals.
Roy Peleg: You are completely correct. It took us time, but we were humble enough to change the strategy after one and a half years.
Sramana Mitra: Once you made these vital switches, what happened? In terms of revenue, how did you do in 2015?
Roy Peleg: We ended with gross revenue of $1.3 million. In the month of December, we generated $185,000. The trajectory was great. We quadrupled the revenue in 2015. Then we took on a few more employees. We actually raised the bar even more. When it came to publishers, a million to two million page views a month was considered an adequate publisher to pursue. Most of 2015 and 2016 we focused on publishers with 5 million page views a month. In 2016, we actually tripled the revenue. In 2016, I’m talking about $3.9 million in gross revenue and for the first time, we were profitable. Our current revenue run rate is more than $6 million a year.
Sramana Mitra: This is $6 million in gross revenue right? Your revenue is more like $2 million.
Roy Peleg: Yes.
Sramana Mitra: I’ve seen a lot of Bootstrapping With a Paycheck stories. We actually support Bootstrapping With a Paycheck very diligently in the One Million by One Million program, and we’ve had lots of success. My observation of just listening to your story of three false startups and getting the hang of this one is that the business model in the previous three is flawed. If you just got some help, which you eventually did and did start moving the business model a bit, you would probably not be spending so many years bumbling around.
Roy Peleg: Correct. At the accelerator, our mentors pushed us to keep the SaaS model and they told us that we can’t do both. While that’s correct, the SaaS model is much more appealing to the premium publishers while the second-tier publishers appreciate the revenue share model.
Sramana Mitra: The thing is you can’t build both businesses. If you had this discussion with me, the first thing I would tell you is forget about these little publishers. They’re going to suck you dry in terms of sales cycle, and they’re not going to deliver the level of revenue that would make them interesting. Focus entirely on the larger publishers where you can probably do the SaaS model. If you’re doing revenue share, at least, you have meaningful revenues coming into the account. Otherwise, this whole exercise of long sales cycles for tiny deals is a flawed business model.
Roy Peleg: Correct. In terms of just a few points along the way, we were eight people at the end of 2015. Today, we are 18. We aim to triple the revenue by the end of 2017. By the way, when we were in the accelerator we tried to raise some funds and we, miserably, failed. The ad tech industry then took so many blows.
Sramana Mitra: I would say that’s a blessing for you because you now have a business that doesn’t have to scale in a way that would fulfill the venture capitalists’ aspirations. You’ve been forced to be very diligent and disciplined to find a business model that works. Now you’ve got a business model that works and you can scale reasonably well based on your organic growth. In a way, I would say it’s a blessing that you don’t have the pressure of venture capital financing.
Roy Peleg: It is a blessing. We did meet with angel investors back then who gave us $100,000 when we were already breaking even. We got a few acquisition offers along the way that we turned down. While we were at the accelerator, we got an acquisition offer from a multi-billion dollar company. I remember me and my co-founder speaking. We couldn’t believe what we came to do. $8 million sounded like a nice amount for the time invested, but we decided not to go through with it. We realized our business had more potential.
Sramana Mitra: Those were aqui-hire offers?
Roy Peleg: Yes. We were four people.
Sramana Mitra: All this is going away. Right now, Silicon Valley is not in this mode. You got this probably a couple of years back when all this throwing money around was happening at a much faster pace. At this point, the market is a more sober market. At the end of the day, what you’ve done is built a fundamentally sound business that is scaling because of its own business model merit. That is what entrepreneurship is about. It’s customers, revenues, profits, and being sustainable. You got those pieces in order and that’s really the achievement of your business.
Roy Peleg: There were many questions. Until we got market validation, it was very difficult. I was throwing money out of my own pocket. It made a difference in being humble enough to say that what I did was a mistake and then trying a different path.
Sramana Mitra: I’m very happy to hear that it has finally found its groove and that you’re in a place where it’s real execution. It’s a great pleasure to meet you. I enjoyed your story. It was painful to listen to you at times, but that is the reality of a serial entrepreneur’s journey, and it has taken you a few different starts to get to one that is working. I’m thrilled that you found that success now.
Roy Peleg: Thank you very much. Thank you for giving me the chance to tell my story.
Sramana Mitra: My pleasure.