Bootstrapping to $15 Million: David Braun, CEO of TemplateMonster (Part 3)

Sramana Mitra: How did these people find you?

David Braun: Basically, because of the forums. I was very active.

Sramana Mitra: That’s awesome.

David Braun: But you know what, out of this $70,000, $60,000 were fraud and our account was frozen because it was all from stolen credit card numbers. We had to shut down the processing. This is how I knew that the word fraud existed. I decided that I would become a fraud guy to learn how it works. I learned through this shadow criminal community on how they buy these credit  card numbers. It was a digital product and was very easy to steal, so the fraud level for us was about 60% to 70% and it really damaged the business because none of the online processing companies would accept us. We couldn’t find a processor. I learned how it works.

I got to know the people who were the main distributors for these credit cards. I became friends with them online and told them that it was very bad that they were stealing from us, because we would basically give free templates to anyone who’s doing this fraud. There’s no need to steal it because we would give it away. You can’t believe but in the next month, the fraud level decreased down to 90%. It was a very structured community so once you know the top guys, they spread information about you. It helped. We also built a very sophisticated anti-fraud system.

We had people by that time who were manually screening every transaction. Because we gave the criminals our product for free, they gave us a black list of the computers that they are using as proxies. We blacklisted them on our end. Once we combated the fraud, we found a new processor and relaunched the website. When we relaunched the website, we used direct marketing techniques. We went to Yahoo! directory for the different kinds of businesses. We reached out to them, “Take a look at our templates. Maybe you would need to redesign it soon. We have 10 or 20 different designs for your business.” Two marketing people were generating lots of web traffic. In the first year, we made about $70,000 of clean money.

By that time, because we were based in Ukraine, the labor cost was cheaper. The team was about 20 people, and we increased our inventory dramatically. We had about 200 or 300 templates, so we had to rebuild our website to make a search engine for the templates and to categorise them properly and make it specific for different kinds of businesses. We had no competition yet. Nobody understood the potential for that so we enjoyed no competition for the next two years. During these two years, we grew dramatically. Our turnover was something like $300,000 to $400,000 a year. It was completely bootstrapped.

We never spent any money until Google AdWords came on to the scene. We never spent any dollar on paid advertising. We created an affiliate program. You have to realise that, at that time, there was only a couple of ways to make legitimate money online. There was Amazon, which paid less than a percent of the price of the goods. Second was gambling. Some countries love it and some countries don’t. Then you had banners. You could sell banners if somebody comes directly to your site and asks you specifically for a banner on your website and TemplateMonster affiliate program. In three years, we had more than 200,000 affiliates selling out templates. We didn’t white label. Basically, you could register and open your own TemplateMonster and name it as you like it, and put it on your website or open a separate store. When you look for the templates, the first 10 or 20 results in Google were TemplateMonster affiliates. It brought us a lot of business.

We reinvested 100% of our revenue into growth, in terms of production. A friend of mine told me, “You are the first person I see who built McDonalds in the web design industry.” We divided the design process into smaller operations. One guy was designing the front page. Another guy was designing icons and other small elements. When Flash appeared on the scene, we were happy to train Flash animators. I think we were making one of the best Flash jobs in the world. Many people started to buy our templates just to learn how they were built.

By that time, the competition started to pick up. A couple of  websites came to the market and repeated the same thing that we did. Some websites started to experiment with different pricing models. Some of the sites said, “You pay us yearly fee and you can download anything that we have on our inventory.” It damaged our business because instead of paying $50 for one template, you can pay $50 for thousands of templates.

We started to educate our customers that we don’t run memberships campaign. Memberships sites actually damage the whole industry because people reuse templates a lot of times. As a customer, you lose the uniqueness. You want as few people to use the template. It helped a lot because by that time, we were already popular. We were able to articulate this idea in a good level.

This segment is part 3 in the series : Bootstrapping to $15 Million: David Braun, CEO of TemplateMonster
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