On GigaOm and the Dangers of a VC-Funded Media Business

This post originally appeared on Medium and is used here with permission.

I can’t speak with any authority about why GigaOm suddenly ran out of money. But I’ve already seen the rumblings about what it may mean for other tech and vertical publications. Are they also likely in trouble? I’d submit if they’ve taken lots of VC money, yes. But if they’re bootstrapped or following what I call the “SimCity” model of growing, probably not.

I’m mostly known as the founding editor of Search Engine Land or “that search engine expert.” But I’m also one of the founders and a senior partner of the company that publishes Search Engine Land, Marketing Land and produces the SMX and MarTech conferences. That’s Third Door Media.

Third Door Media started in late 2006. It never took investment. We grew our staff as our revenue grew, according to our business plans. In 2008, when the world economy crashed, we hunkered down and came through without losing people. In part, this was because we’d been careful not to over-extend, not to build a large operation beyond what it could support with native revenue.

‘Sim City’ approach

It’s what I once called the “SimCity” model of growing. I used to often play the game years ago. I would take two approaches. One was to use the “FUNDS” cheat to get all the money I needed to build everything at once. But in doing this, I often found my cities built that way didn’t thrive. Instead, naturally growing my city slowly over time allowed it to stablize and do well.

Third Door Media has taken this SimCity natural approach, over the years. Our growth has continued. Two years ago, we were even able to take money out to return to some of our early employees, who have shares in the company. We’ve made the Inc. 5000 list four times in a row. We’ve done three hires this year and have several others planned, bringing our overall staff to nearly 50 people. This will all be funded by our own revenues, not because we had VC money pouring in. We also have a solid cash balance in the bank because our CEO Chris Elwell is dead serious (and right) on being conservative and being prepared.

I say these things not as a brag or a humblebrag but because, I suppose, it can be frustrating running a successful vertical and knowing what your company is doing – and other companies like it — simply isn’t recognized. That’s not inspiring for newcomers. It also doesn’t reflect the overall publishing world.

There have been any number of articles written about the growth of BuzzFeed, Fusion, Vox and other new media darlings. There are good reasons for writing about them, too. But all this gives the impression that the entire publishing world is up-for-grabs by the few publications that get a lot of VC now and capture the eyeballs.

The publishing world is broad, incredibly broad. I read these articles about the giants and the wanna-be giants, and I have an inner sigh that they’re not capturing the whole story about the publishing and journalism revolution that’s continuing.

Sometimes, it’s not an inner sigh. Sometimes, it’s public, as happened ironically last month after GigaOm published a story suggesting that even “niche” media wants to be mass. I countered that no, we didn’t – and others chimed in.

Third Door Media generates income in three diverse ways: direct ads on our sites; lead generation and conferences. I often joke that this is like our “nuclear triad” of revenue redundancy, so that we’re not vulnerable to any single thing. But none of this relies on a mass audience. In fact, our revenue would be worse if we had a broad audience. We produce content for digital marketers, so your typical BuzzFeed reader interested in that damn dress isn’t going to be much of value to us.

And that’s fine. We know our audience; we know the content we’re producing for it, and by growing our audience, our publications become more valuable to readers, attendees and advertisers (who I don’t deal with – as chief content officer, I oversee editorial).

Over at The Information, Jessica Lessin’s kick-ass crew has been producing some of the most outstanding tech coverage you’ve ever seen. That’s not for a mass audience, since most of the masses aren’t going to shell-out $400 per year for it. But it doesn’t matter to Jessica, because as long as she’s got the audience she needs paying the bills and producing profits for her company to do great journalism, she’s good.

VCs Make Bad Investments Too

That leads to me back to the big miss that I suspect is going on when it comes to publishers like Third Door Media, The Information, Skift and others (or past self-funded publications like Ars Technica and TechCrunch). If your company is working fine internally to generate the revenues you’re after, no one notices. Instead, all the attention (and thus role-models, good or bad) goes to the VC-funded.

Folks, someone getting a lot of VC investment isn’t a sign they’re successful at anything other than getting VC funding. I’ve been covering the search and tech space for nearly 20 years now. VCs make bad investments. An investment in a company could be a vote of confidence in it, that a VC has made a careful analysis that success is likely. Or, it could be a crapshoot.

Last year, BuzzFeed’s Jonah Peretti was interviewed about all the growth and change he’s been a part of through The Huffington Post and now BuzzFeed. One section of that interview on VC funding resonated with me about what a freaking genius he is, in terms of insight:

“If you want to own 100 percent of a company and build it over twenty years, even if it’s a fairly fast growing company, in a market where revenue is booked quickly and ideally where the revenue comes before you have to sell the product so you have nice cash flow to build a business from, then it’d be great to do it without VCs. If you want to build a business that generates $10 million a year in revenue and $2 million a year that goes to you and your partner, and that’s what you’re interested in, then you should figure out how to bootstrap. A lot of agency businesses are that way. When you look around New York, there’s a lot of really successful fifty-person boutique agencies, where the people who started them are making a lot of money and no VC would ever touch them.

If you read the tech blogs, they converge into this idea that the only way to build a good company is a venture-backed company and it probably should be in Silicon Valley, but maybe it could be in New York or a couple other places, and no other company matters. That is clearly false. If you’re a budding entrepreneur who wants to start a business, depending on the idea and depending on your temperament, it might be great for you to take VC money, or it might be terrible for you to take VC money. It just depends.”

Damn straight. Sing it, brother. There are plenty of great verticals doing fine. There are plenty of little tech pubs, doing fine. GigaOm’s collapse, while incredibly sad – especially for so many of those great journalists — isn’t necessarily indicative of the future for media publications.

Instead, it’s perhaps a warning to anyone taking VC money. You’d better expect if you’re taking all that money, you have a plan so the VCs get a pay-off. Are you going to generate those millions invested and more so? Or do you really think someone’s going to buy you for absurd multiples based on potential value? If so, maybe the VC money makes sense. But just because some publications go that route, not all need to.

Let me conclude by saying again how sad I am to see GigaOm end so suddenly. I hope the journalists there quickly find new places to write, as I’m sure they will. I also debated writing anything about this at all, when the loss of GigaOm remains so personal to so many and is still being digested. But seeing others writing about what it all means in the grand scheme of publishing, I thought another perspective might be useful.

Considered a leading digital marketing expert, journalist Danny Sullivan has written about search and internet marketing for nearly 20 years. He’s a partner and chief content officer for Third Door Media, which publishes Marketing Land and Search Engine Land and produces the SMX & MarTech conferences.