Josh Levy and Ross Cohen left the offices of Beyond.com, a hiring website based outside Philadelphia, feeling like fools. They had driven in from New York City that day to pitch their product, a background-check engine called BeenVerified. Their hope was that Beyond would use the software to fight fraud by ensuring that its users' credentials were legitimate. Cohen and Levy had spent months making similar pitches to the likes of Match.com and Craigslist. They got lots of positive feedback but had yet to close any deals.

Now, Levy and Cohen understood why. A member of Beyond's team had been brutally honest: BeenVerified, he said, was great. But it could actually do online communities more harm than good. After all, he explained, once one user was verified, the value of those who were not would plummet. "These companies are revenue driven," Cohen says. "They were never going to cannibalize their own communities." BeenVerified's business model, they realized, was inherently flawed.

1. The Backstory

"On the Internet, nobody knows you're a dog."

High school friends from Marlboro, New Jersey, Cohen and Levy launched their business in 2007, a few years after graduating from college. Inspired in part by the well-known New Yorker cartoon about a Web-surfing dog, the pair figured there would be strong demand for a service that could verify the identity of the people you meet and do business with online. Their start-up, BeenVerified, was designed to work like PayPal. After registering, users could authenticate themselves on any website that had integrated BeenVerified's software. "It was like a driver's license for the Internet," Cohen says. Companies like Match.com seemed like perfect customers.

Cohen and Levy hired another high school friend, Jason Amster, as CTO, and by the end of the year, the three friends had built the software, a website, and a system to integrate the technology with third-party sites. Levy met with Doug Herman, a friend of his father's who was part of an angel investor group. "Honesty and integrity are so important when you're giving someone your money," Herman says. "I knew with these guys, I'd never have to worry." He and his partners kicked in some $600,000.

With cash in their pockets, Levy and Cohen set out to pitch the product.

2. The Problem

A product in search of a customer

Cohen and Levy began contacting dating and hiring websites. Despite their inexperience, they had no problem getting meetings, and their pitches generally were met with enthusiasm. But they couldn't get anyone to sign a deal.

It wasn't until the mid-2008 meeting with Beyond that Levy and Cohen realized the extent of their problems. They had spent nearly half their funding, at a rate of about $50,000 a month, on things such as office space, trade shows, and salaries for their five-person staff. By late '08, it was clear that they had to change.

3. The Options

Is small business the answer?

At first, Cohen and Levy looked at the small- and midsize business market. They had had limited success selling BeenVerified to hiring managers to do background checks on potential employees and figured they could diversify and also offer the service to job seekers looking to verify themselves. To reach their new target audience, Cohen and Levy decided to make a television commercial. TV spots had put companies like FreeCreditReport.com and Ancestry.com on the map. Why not BeenVerified? They would purchase airtime via Google TV, a relatively inexpensive way for small brands to gain national exposure.

Cohen called another childhood friend, Russell Streit, a writer and producer for VH1 who offered to produce the ad for free. They found amateur actors on Craigslist for $100 each.

But just weeks before the shoot, Cohen and Levy decided to change directions again. "We're never going to make money off the job seeker," Cohen said to Streit. Instead, they were going to go after the broader consumer market. Other background-checking services like Intelius had done well selling checks online for $50 apiece. BeenVerified, the partners figured, could position itself as a low-cost alternative, charging $8 to $16 a month.

This was only a hunch; the two had done no formal market research to test the idea. There was no telling how people would react to the commercial. Could they really gamble it all on an unproven model when their margin for error was so slim?

4. The Decision

Preparing for showtime

On February 24, 2009, Cohen and Levy spent the day shooting the commercial. Actors played the roles of an online dater, a mother, and a man checking up on his accountant, all explaining why they used BeenVerified. Over the next six weeks, while the video was edited, Amster built a bare-bones website. After some initial tests with Google TV's local ads, Cohen and Levy invested about $1,000 in a national spot and rolled the dice.

5. The Aftermath

A very good day

At 11:58 a.m. on July 14, 2009, during a showing of When Good Ghouls Go Bad on the Syfy channel, BeenVerified's national commercial aired for the first time. Cohen and Levy were sitting in their conference room with Amster and other members of the BeenVerified team, waiting for traffic to arrive. At first, nothing happened. "We thought, OK. That's it. We're done," Cohen says. But moments later, traffic on the new website surged. Soon, the site crashed. The group was too busy celebrating to care. "It showed us how much potential there was," Cohen says. "From then on, it was nonstop laser focus on the consumer market, optimizing our television spend, and building out the product 15 hours a day."

6. The Takeaway

Lesson learned: Market trumps product

In 2009, BeenVerified had revenue of about $500,000. This year, that number is expected to hit $11 million. Five million people have registered on the site, whether they are online daters or people checking out their own records. Television remains a key marketing tool, but Levy and Cohen have also invested in search advertising and an iPhone app, which has been downloaded some two million times.

Cohen and Levy say they learned two major lessons. The first: Don't depend on anyone else to make your business a success. The second (which they concede should have been obvious): Don't spend years developing a product that doesn't have a market. "I wish someone had given us that advice earlier," says Cohen. "But maybe it's one of those things you have to learn yourself. You have to feel the pain before you appreciate it."

The Experts Weigh In

Too Risky
Cohen and Levy were smart to go with television. Given the nature of their product, the emotion you can convey in a TV commercial, as opposed to in a digital ad, was crucial. That being said, they were testing a whole lot all at once. They were testing the medium, the message, the creative, the landing page, the ability to convert, and their pricing. If I'd had only $50,000 left, I would have spent at least $10,000 trying to find out what was going on with consumers first. On the other hand, they were successful, so congratulations to them.

Pete Hayes
Principal and CMO
Chief Outsiders, Austin

Sweet Pivot
I'm impressed that Levy and Cohen did such a major pivot. The small-business market is incredibly hard to make money on. It's Death Valley for start-ups. I also like that they moved quickly and didn't wait to launch the commercial until they had capacity. You never want to have a speech in a room big enough to handle the crowd. You want people waiting to get in. Now that they have the people, they need to figure out what else they can sell them. It's cheaper to grow customers than it is to get new ones.

Steve Blank
Lecturer | Stanford University
Menlo Park, California

Turn Off the TV
TV can get the word out. But would I agree with putting all your media spending in TV? Probably not. You need to be spending on digital, even if you're primarily doing a television push, especially with a product that's tied into people's behavior online. I'd suggest things like contextual advertising on dating sites. To target the dating market, I would advertise on Facebook and look for people who have changed their relationship statuses. The first piece is getting the word out, but to keep customers they need to make sure they're covered from all points of view.

Marci Ikeler
Director of Digital Strategy
Grey Group, New York City