Bootstrapping, Pivoting, Gaining Liquidity, Scaling to Over $100 Million: MediaAlpha CEO Steve Yi (Part 4)

Sramana Mitra: Each of you had worked on this travel startup before, and you had sold this startup. You got a little bit of money and were willing to put some of that money into starting something else as a collective group.

Steve Yi: That’s exactly right. You said it much better and succinctly than I did. One of the things that I fell into the trap of was thinking too hard about trying to find a great idea. Ultimately, we were successful when we decided to focus on the auto insurance lead generation. It was after we decided to keep it simple and focus on an industry that was generally doing well. In our case, we were in Internet advertising, so we wanted to pick an industry where there was a lot of advertising.

The advertising ecosystem in auto insurance was very similar to what we had dealt with in travel. We felt very comfortable with the technology platforms that we had built in the past and our ability to leverage our expertise there to build better advertising platforms tailored to the auto insurance market. Once we knew what industry to focus and what type of ad product, it was just a matter of getting that website up and understanding the space more. We didn’t have any grand visions about dominating the auto insurance online advertising space at that time.

Our goals were relatively modest which was, “Let’s make some money because our money is about to run out. Let’s start making some money so we can pay ourselves. If this turns into a great lifestyle business, great. If it ends up making $10 million in revenue per year, of which $2 million can be taken out, fantastic.” That’s how we got started. We were lucky enough that, within the first year, we were able to accomplish that and then some.

Sramana Mitra: Tell me, in a nutshell, what was the business model? How long did it take you to start generating revenues?

Steve Yi: The business model was a very straightforward lead-generation business model where we buy traffic from one source, qualify that traffic into becoming a qualified advertising click that we sell to.

Sramana Mitra: Traffic arbitrage.

Steve Yi: Exactly. Taking media risk and then getting paid a premium for taking that on.

Sramana Mitra: How did you run it in terms of the constraints and discipline meters that you were putting on yourselves? How much were you willing to spend to get what kind of revenues?

Steve Yi: Between the three of us, we had the skill sets to build the website, do all the search engine marketing, and build the basic core optimization platforms that we needed, which still underlie our much larger, more complex business today. We were able to build that and it took us about three months to get everything into place. Then it was a matter of fine tuning the model and being able to make it work because you need to start to acquire the traffic efficiently and see where the pockets of traffic are that are high quality but underpriced.

You need to lose money for a while because GEICO and Nationwide were our first two advertisers. You’re not working with every advertiser right from the beginning. They want you to have some traffic before they start buying from you. You need to build up a history with them before they pay you the market rate for the ads that you have. We knew we were going to lose money for, at least, three to four months. That was the toughest time. How much losses can we withstand? How quickly can we iterate in order to be able to acquire traffic cheaply enough and then sell the qualified traffic on the backend at a fair enough price in order to make this arbitrage work.

This segment is part 4 in the series : Bootstrapping, Pivoting, Gaining Liquidity, Scaling to Over $100 Million: MediaAlpha CEO Steve Yi
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