What Are They Thinking? Rafat Ali’s Skift is Bootstrap-Plus
There’s bootstrap, and there’s “bootstrap plus.” Bootstrap plus is what digital media entrepreneur Rafat Ali calls his Skift modus operandi. Three years ago, he set out to raise about $4 to $5 million to build his second start-up, a travel-industry website. As the company celebrates its third anniversary on July 30, he told me he’s closing in on profitability in the third quarter, having gotten there on about half that funding.
“Almost everything has changed, except the mission,” he said. “We’ve grown very inward in the past year. We are a small boutique media company that has the ambition to be the largest media company in our space.”
A former journalist who sold his first start-up for $30 million in 2008, Ali is well known in and around the digital news business. Turning “inward” meant some hard choices for Ali—and some major changes in direction. He had to decide what to focus on—and what to jettison.
Skift offers digital media watchers a useful set of pointers. It’s certainly a well done contemporary website. As it begins to make inroads toward dominating its target category, the travel industry—among the world’s top two in size—its model forces a bigger question. How ripe is traditional B2B publishing for next-stage disruption? If Skift can rethink the travel biz, what about everything from construction to gaming to health care? Hundreds of B2B incumbents populate a business that’s been successful for a long time; in travel that includes such titles as Travel Weekly and Aviation Weekly.
First published at Capital New York
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Furthermore, Skift’s C.E.O.’s tough choices tell us much about business and revenue models in mid-shift, as many publishers increasingly look beyond, and even discard, “traditional” digital advertising as a major revenue source.
Ali sold his first site, PaidContent.org, a chronicle of the emergent news and information media that launched back in 2002, to the Guardian for $30 million; they then sold it to GigaOm in 2012, where it was merged into that larger site. (GigaOm then collapsed last March, and Austin start-up Knowingly said it is restarting the site in August.)
Follow Ali’s thinking from his 2012 founding (“Newsonomics: 12 Business-Building Lessons from Skift’s Rafat Ali”) to today. It flows from a growing understanding of what his audience wants to read to how he can get that audience to pay him.
Skift, at first, promised currency and curation. In part, that was Ali’s sense of what the market needed. In addition, the start-up didn’t have the resources to create much original content. “Skift Takes,” one-paragraph what-it-means toppers, appeared in many aggregated travel stories, as they do today.
Travel-industry readers may have liked the ability to see stuff in one place, but that wasn’t what Ali saw as the thing that would build the business.
“We latched onto ‘trend’ and that transformed our business,” he said. What readers wanted was to understand that unending flow of news about their work, and to make sense of it in a larger, more forward-looking context.
There is a slightly dark side to this kind of business. “Trend channels fear into business use-case,” Ali told me. The need to learn more is another side of the fear of competitors eating your à la carte airline lunch—and that is a position you can make money from.
“Overarching is, ‘What’s the future of travel?’ That’s what Skift stands for,” he said. The site’s tagline: “Travel I.Q.”
But Ali has a refined sense of the future Skift needs to be charting.
“If you think of what PaidContent did, we were always two steps ahead of the industry, not 10 steps ahead. Our window is 2020.”
So, that’s the near-term future, for companies with three-plus year road maps; not the futurology of Toffler and Nesbitt, the clickbait of an earlier magazine era that still seems to pop up on covers today.
“Trend redefined our brand,” Ali told me.
If readers want context, they also appreciate regularity. So Skift began producing and packaging twice-monthly reports, which connect the dots. So far, it has produced more than three dozen, branding those Skift Trends Reports. Some are annuals, like Mobile Booking, with this year’s edition updated on Mobile Booking 2014. These reports build habit, and they build new franchises.
Series. Directories. Annuals. Old formats newly updated smartly for today’s digital readers. That reminds us: The world isn’t really brand new. Just like a falling-down property with good bones and a great setting, it just needs to be updated.
Last month, Skift Podcasts launched, moving that brand position to a new platform, with such weekly programs as “How Bikes Are Changing The Way We Experience Cities and “The Renegade Tours Disrupting City Visits For Tourists & Locals.”
Skift’s revenue model breaks roughly into thirds, now.
1) Branded content: Content marketing done out of Skift Studio, with videos now joining text in the creative effort.
2) Subscriptions: Skift moved from selling single reports to annual subscriptions to enterprise licenses, as it has ramped up. The new price for enterprise licenses: $35,000. This is a model he said is borrowed from Politico. (Capital New York is owned by Politico, and shares its business model.) Annual subscriptions go for $1,595 and single reports at about $195. Subscribers get access to all previous reports, something Ali sees as a real benefit.
3) Conferences: Ali embraces the old AllThingsD conference rationale: One big, well-remunerated conference a year (because “doing 10-12 conferences takes a lot of work”). He said the Skift Global Forum made a 70% profit margin last year, and is now doubling in size to 800 attendees this year, in Brooklyn.
Essential to this model and others like it: Their readers often make the decisions for their own companies on marketing spend. So Mastercard, Amex, Expedia, Hilton and other travel giants are both paid subscribers and event sponsors. While Skift, like so many newer sites, eschews digital space selling, sponsorship packages including report sponsorship and event branding are extended from campaigns sold on site, so the site builds ad revenue as well.
“These are the most consumer facing people in their companies, and we focus on consumer experience,” Ali said. Skift, looking across the travel horizon as consumers do, doesn’t dwell on the separate, traditional silos of lodging, airlines and things to do. That, too, is an intended differentiator against its more traditional industry coverage competition.
Skift now employs 15 staffers. Co-founder and head of content Jason Clampet heads a staff of four, with another five fairly regular freelancers. Another five focus on sales, including branded content and then there’s staff for project management, design, development and marketing.
Ali thought he’d had a bigger staff by now, with more editorial people and more developers.
But when a Series A funding lead investor fell through, he faced a turning point in the business.
It was on the annual staff trip, in Iceland, that he said the decision was made to move forward with money already invested. “Living the brand” means that Skift staffers get away together once a year to sample their business and plan. Medellín, Colombia in May, 2015. Iceland, a year earlier.
“We decided we’d raised $2.5 million in seed money and that’s it,” he said. “We don’t want to raise more. We call ourselves ‘bootstrap plus.’”
That’s meant less hiring and an intense focus on revenue building. It’s also meant back-benching an early focus, the building of a data-centric business line. Ali still wants to do that, but said he now sees the long development and sales cycle inherent to that business.
Why did investors shy away?
Ali sees a fatigue among investors in small digital news start-ups, ones that may not need big and continuing injections of money, like the Voxes, Vices, and Buzzfeeds. One Skift investor characterized the Skift business model as a longer, slower build—much more dependent on individuals and companies paying for content than on advertising, and requiring a certain kind of risk from investors. Indeed many of the $500 million-plus valuations we’ve seen on the biggest digital news start-ups are based on getting a decent slice of the digital ad market.
Ali believes he’s not alone in choosing this route, thought, and he has led the formation of a Verticals Collective, an ad hoc sharing group loosely populated by those running single-topic sites.
Focusing intensively on a single subject and turning all attention to what that means has led Skift to this point, as it moves toward profit, with its big annual conference.
While “humbled” by the inability to raise funding beyond seed, Ali said that going forward without it “is the best decision I ever made.”