Allhiphop.com's Founders Thought a Weeklong Event Would Raise the Company's Profile and Boost Growth

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"Man, how are we going to get through this?"

"Just enjoy the moment, brother," Creekmur replied. "That's all I can say. Just enjoy the moment."

But Watkins knew the next few months wouldn't be enjoyable at all. How would they survive the cash-flow crunch? And how could they make sure it never happened again?

A week after the concert, Watkins and Creekmur regrouped in the Manhattan offices of their accountants. They spent hours poring over spreadsheets and dissecting the business. Bottom line: The business was healthy and would survive, but the next few months would be painful.

Both founders had run up tens of thousands of dollars in personal credit card debt. Creekmur's credit rating suffered because of the additional debt, and he called his mother to warn her that he might need to ask for a loan. "We paid those people we had to pay," Creekmur says. "If someone could wait a month or a few days, that's exactly what we did. Without those people who were gracious enough to work with us, we would have had a serious, serious problem." Luckily, their accountants, lawyers, and Web-hosting provider all agreed to wait, since AllHipHop.com had always paid its bills on time in the past.

The near crackup had exposed the fault lines in the partners' business practices. Their company had outgrown its old ways; it was time to grow up. One of the first goals was to get cash flow under control--a crucial step for a business that spent tens of thousands of dollars just to host and maintain its website. Creekmur and Watkins instituted a formal process for going after delinquent accounts. Their accounting firm would more closely track receivables--and staff members would start shaking the trees when bills were overdue.

The business had expanded so quickly that the founders failed to realize how much potential was being wasted. The site generates 140 million webpage impressions per month, and most of those pages weren't being filled with revenue-generating ads. AllHipHop.com hired two full-time salespeople to boost ad revenue. Creekmur and Watkins signed a deal with a bulk advertiser that committed to filling 80 percent of the site's ad space, thereby guaranteeing millions in revenue per year. They started targeting advertising to the specific tastes of each viewer. They also launched an e-store selling CDs, DVDs, jewelry, electronics, and games, and signed partnerships with Amazon.com, iTunes, and Thumbplay to sell music and ring tones.

After about six months, the company was back to paying its bills on time. Meanwhile, the entire operation went through a makeover as Creekmur and Watkins sought to raise its global stature. They spent more than $100,000 to relaunch the website. They added more video interviews, audio streams, and content that expanded beyond music into lifestyle, such as sports, health, gaming, and fashion. They had resisted outside funding in order to retain control over their business; in 2007, they opened themselves up to the idea of investors and began talks with venture capitalists who might help them expand further. In 2007, Watkins says, revenue exceeded $4 million, and the site was recently dubbed "the CNN of hip-hop" by Essence magazine.

In retrospect, both partners are glad they decided to leverage themselves to the point of breaking. "We took two steps back and five steps forward," says Creekmur. "No question we did the right thing. It really raised the profile of the company. It put us in a league that no hip-hop website had ever been in."

For the 2007 AllHipHop Week, they planned more carefully and gave contractors firm budgets. They signed a sponsorship deal with American Airlines, which saved them tens of thousands of dollars in travel expenses. And they pulled off the event for $200,000--$100,000 less than in 2006. The week had an appropriate theme: rebirth.

The Experts Weigh In

Find partners

Watkins and Creekmur should think about forming partnerships to expand their brand instead of doing it all themselves. They could branch into clothing and other merchandise by licensing the AllHipHop brand to Russell Simmons, for example; he already knows the market and has a network of manufacturers and distributors. Margins would be lower, but volume would be higher. If they donate money to a nonprofit in exchange for some publicity, it would boost the brand at a fraction of traditional advertising costs.

Lawrence Gelburd
Lecturer
The Wharton School
University of Pennsylvania

Get Back to Basics

This is the same story that I've seen many times: entrepreneurs with no plans, no budgets, and no discipline. Watkins and Creekmur should develop a board with three to five advisers who meet regularly to review and approve the company's plans. They should spend money only when they can quantify a return on the investment. Finally, they each should take a course or two annually at a local business school to learn the quantitative aspects of business. Passion and energy are not enough; the fundamentals must be practiced and applied.

Steven Rogers
Professor
Kellogg School of Management
Northwestern University

Are events the best bet?

My main suggestion is to take a long, hard look at the value of the live events. The Web has dramatically altered the calculus of marketing dollars. How many new viewers would $200,000 have bought them if they had used it for search engine marketing, instead of spending it on the latest event? It seems clear that AllHipHop was growing very rapidly without the events. Going forward, I would encourage them to refocus on what has worked so well for them in the past--high quality editorial combined with merchandising.

Tim Westergren
Founder
Pandora Media
Oakland, California

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