Trend Pie: Turning a Social Media Network into a Business
Victor Ricci grew up and went to high school in Rhode Island. He ran varsity track and held down several summer jobs. Like most other kids his age, he also had several social media accounts and enjoyed posting funny messages on various sites. In 2013, during his senior year, something amazing happened. He posted a life-hack video to his Vine account showing him using a water bottle to separate the egg yolk from the whites of an egg (
). The video went viral and, with a few more successful videos, his became one of the trendiest accounts on the site, with more than 1.4 million followers. As a result, he also became part of an extensive network of young people that is able to influence what people watch on social media sites such as Twitter and YouTube.
Victor soon realized that his status and his contacts with other social media personalities could be leveraged to create a business. Digital ad spending was projected to grow to $100 billion by 2020. Much of this growth was coming from social media and, in particular, from Twitter. Studies showed, in fact, that 49 percent of Twitter users followed brands and companies, compared to just 16 percent of social network users overall. Twitter, therefore, was becoming a major target for companies seeking brand and product awareness. Finally, advertising experts reported that budgets for “influencer” marketing were expected to double over the next two years. This was a growing trend in marketing and Victor wanted to try to get a piece of the action.
With this idea in his head, Victor began to study both competitors and potential gaps in the market. He noted three major types of competitors. The first was Twitter itself, which offered companies the chance to post sponsored tweets. While this worked fairly well for larger companies with professional marketing and communications staff, it produced rather poor results for smaller firms that had less training in how to get the right messages out to their targeted audiences. A second type of competitor consisted of influencer marketing companies that specialized in using stars from the worlds of music, film, or sports to push products and brands. These were strong competitors but were only available to clients able to pay the high fees these celebrities charged for their services. Finally, the third type of competitor consisted of a mixed group of marketing companies that more or less specialized in influencer marketing (Social Chain, Collab, Tapjoy, Speaker). These companies all used different social media personalities with large followings to promote their clients’ products. Here, he felt he had a chance to build a competitive advantage.
He saw that there was quite a bit of confusion in the market regarding both how customers were charged and how influencers were paid. Most service agencies followed a traditional model, invoicing customers at the end of the month for the number of messages produced and paying influencers according to the results obtained. There were several problems with this model, however. It was still unclear how to measure the results of influencer marketing campaigns and what clients should expect from their investments. The impact of a campaign could also vary substantially over the course of a month, with enthusiastic responses at the start and less interest at the end. This meant that clients often felt that they were paying more than necessary for what they were getting. At the other end, influencers were not being paid fairly for the messaging they were sending to their networks. In fact, if a campaign did not produce the desired results, the clients would still be charged for the work done while the influencers might not get paid at all. This situation had created a great deal of bad will among both marketers and influencers.
Developing the Right Business Model
Victor decided that he needed to do things differently if he wanted to compete in this new world of influencer marketing. By this time, he was enrolled at Seton Hall University. He decided to major in marketing and was taking courses in entrepreneurship. As he learned more about business and start-ups, he also began to work on a suitable business model for his start-up.
The model he came up with involved running daily campaigns rather than monthly ones. He thought that campaigns should be adapted continuously to follow the trends in any particular market. No campaign would be effective if you waited a month, or even a week, to analyze the results. He therefore decided to charge a flat fee for each daily campaign regardless of the results achieved. Clients would be asked to pay this fee up front, one day in advance of the campaign. Victor would then create the campaign and contact the needed influencers for the next day. The results of each campaign would be monitored in real time and, together with his clients, he could decide whether to continue, change, or stop a campaign day by day. In the same way, Victor decided that he would pay his influencers a daily flat fee for their services based on a percentage of what he was paid by the clients. But he also needed to manage his influencers well to make sure they implemented his campaigns correctly and in a timely manner. He therefore needed an efficient system that would allow him to have revenues and fees flowing in and out on a daily basis and to monitor the campaigns and their results in real time.
As he began to work on this system out of his dorm room at Seton Hall, he got his first paying client. It was an app called Drunk Mode. The manager of the company, Josh, offered him $2,000 to run a Twitter campaign to get the app trending in the app store. It turned out that Victor had to spend almost twice as much as what he was paid, the second half coming from his personal savings, to get the results the client was expecting. He also had to work much harder than he expected to find the right messaging. But his reputation depended on the campaign being a success. In the end, the app got more than the expected downloads and Josh was happy. He booked additional campaigns for the following days and weeks and also starting referring other clients to Victor. Just as important, this experience allowed Victor to experiment with different types of messaging and to test his administrative systems, which would allow him to keep control of both finances and campaign results.
The Early Challenges
Following this initial start, in 2015 Victor established a limited liability company (LLC). He named the venture Trend Pie. For the first months, he had a continuous flow of clients that provided him with a steady income. As his business grew, however, Victor confronted several challenges. The first was time management. Victor found himself spending at least 25 hours per week on the phone or on his computer managing the business. His schoolwork began to suffer, along with his athletic performance and his personal relationships. After a particularly harsh argument with his girlfriend, he decided that it was time to get help.
In his mind, Victor was not ready to take on a partner in the business. He did not think the business was big enough and he felt that a future partner should be someone who had something significant to offer to grow the business. Right now, he just needed an employee interested in earning a part-time salary by helping him manage the flow of messages with the influencers.
Victor tweeted out his needs. After reviewing a few of the candidates who responded to his tweet, Victor decided on Carl. He was young, a high social media consumer, and was already handling some accounts on Twitter with hundreds of thousands of followers. More than that, Carl was eager to learn and willing to put in the time without asking for equity. Yet Victor also realized that Carl would have access to a great deal of proprietary information about the business and that he needed to protect his assets in case things did not work out with Carl. Victor therefore contacted a small business lawyer who helped him to draft both a salary package for Carl and an agreement that included nondisclosure, noncompete, and nonsolicitation clauses. Carl was paid on a month-to-month basis based on his workload and time spent. Victor now had his first employee.
The second challenge Victor faced came as quite a shock to the system. He had been using PayPal both to receive payments from his clients and to pay his influencers. But one day, late in the evening, just as he was about to send out payments to his influencers for the next day’s campaigns, PayPal blocked his account. This problem risked damaging his reputation both with his clients (i.e., the word would quickly get out that he might not be capable of managing large campaigns and of guaranteeing results) and his network of influencers (i.e., they might begin to think that he didn’t keep his word as promised).
Victor quickly called PayPal to find out why his account had been frozen. It turned out that the account had been flagged for suspicious activity since there were large quantities of money going in and out of the account every day without any registered invoices or receipts to account for the movements. Victor then realized that the informal mechanisms he used to deal with his clients and suppliers were no longer tenable. Up to then, he had been working on the basis of verbal agreements and personal trust. But the size of the company and the customer base now demanded more formalized mechanisms to regulate conditions and payments with his clients. Again, he contacted his lawyer who was quickly able to draw up a standard contract that he could present to each of his clients. He called his influencers to explain why their payments were delayed that day. By the next day, the contracts had been signed, the influencers were paid, and he was up and running again. But the experience had taught him a lesson about the importance of formal contracts in a business setting.
With the business growing, Victor needed to hire a few more employees to help him in the business. He assigned Carl full responsibility for handling contracts with the influencers, while his new recruit, TJ, was given responsibility for handling client relationships. He later hired Barbara as a general office manager, although the office remained a virtual space; the team was still working out of their homes or dorm rooms. But at least he had employee contracts in place and hiring new people was relatively simple.
Now he was set up for a much bigger scale. But how could he achieve that? The business was growing well but was nowhere near what he could handle with the new team and processes. He therefore had to seek out new clients. He reached out to his first client, Josh, who by now had launched other businesses and had a solid network of connections in the tech world. He offered Josh a small amount of equity in Trend Pie in exchange for help in finding him new and larger clients. Over the following months, Josh helped to secure many new and important clients, and he also helped get Trend Pie press coverage in media outlets such as Entrepreneur, Adweek, and Tech.co. By early 2017, the business was managing between 35 and 40 campaigns every month for an average fee of $2,000, which was a highly competitive price on the market. He had reached his first major objective of $1,000,000 in revenues less than two years after launching the business and had developed a loyal base of influencers who were happy to work with him. His clients were also happy with the results they were achieving, which included higher than average impressions, user engagement rates, and monthly retention of users. While a majority of the clients’ fees went to pay his influencers, the rest could be used to pay his expenses (salaries, office costs, travel, legal, insurance) and to reward him with a small profit; at this point, he was making about $2,500 profit after expenses each month. But he knew the business had much greater potential for growth. Victor figured that if he could run at least 100 campaigns per month, the business could make something closer to $30,000 per month in profits after expenses.
In May 2017, Victor graduated and needed to decide what to do with his business. He considered several alternatives, including
1. Grow the business and bring on new partners to help it grow.
2. Keep the company as a part-time activity while Victor and the others work at other jobs.
3. Sell the business.
Multiple companies had begun to show interest in buying the business from Victor. But because he was still unsure about what he wanted and had no idea how to measure the value of the company for an acquisition, he had put off meeting these potential buyers. His team was young and they were all eager to gain experience running other types of businesses or working in other companies. But they also realized that they had a good thing going. The time had come to make a decision.
1. In what ways does Trend Pie represent a typical entrepreneurial venture?
2. What do you think about the actions Victor has taken to protect his business ideas and to ensure the continued growth of his business?
3. What lessons can be learned from the case about starting an internet company?
4. What should Victor do with the business after graduation?