We’re a popular online photo-sharing site. We’ve been around for four years. We sold our first account four years ago the first week of November. We currently have over 200,000 paying customers, more than 100,000,000 photos, and we’re growing fast and loving our job. Our customers are fanatic about our service. They’re kind of like TiVo customers that are foaming at the mouth and pushing you to try our service, which is really gratifying to us. We love coming in to work, because we get this great feedback loop and this great rapport with our customers.

You know, that’s something that we have sort of been trying to figure out ourselves. We knew that we didn’t want to VC capital or any sort of investment from day one, which meant that we couldn’t go the free route. So we had to go the pay route, and we weren’t sure that it would succeed. At the time, it was late 2002, the bubble had burst, and there wasn?t lot of startup activity going on. Big, huge brands had their own photo sharing sites. Adobe had one, Canon had one, Nikon had one. Sony, Microsoft, the list goes on and on. So for us, a little no name untrusted unknown brand to sort of charge you for your photo sharing was a risky proposition.

But it turns out that people are happy to pay, and have been happy to pay for the last four years. The reason is that our pay service eliminates a lot of the baggage and a lot of headaches that at least some percentage of the population doesn’t want. Quite of a few of the big brands have shut their free sites down. They shut them down without notice. It turns out that it’s sort of like a death spiral. When you offer accounts for free, some garbage comes in with the good stuff. People will upload porn or whatever. So you end up hiring eople to work at your company to filter out the bad stuff. I know Photobucket and Webshots and some of the other guys have an entire room full of people who, all they do all day is watch the photos that are coming in and say yes or no, this photo is OK or not.

But inevitably, some of the junk slips through, and then the people who are using your service who don’t have any junk see their photos side by side with the junk, and get up set and leave. Or even worse yet, some of your advertisers (because if you’re free you’re likely ad supported) see their ad right next to something disgusting or that damages their brand or something like that. So they bail. So eventually, your customers and your advertisers tend to run away screaming. Or you’re left with a demographic which isn’t a very important demographic for advertisers, or who wouldn’t be likely to upgrade. So it gets kind of nasty.

Whereas if you actually pay for something, it turns out that you have inherently assigned a much higher value to it, so you really only put up the good stuff. So if you search for, say, Stanford University, you’ll come up with lots of beautiful shots of the campus and some shots of people graduating there, but not a whole lot of drunken frat party photos that were taken with some crappy cell phone side by side with that stuff. It’s pretty much good photos.

When you think about it, when it comes to photos, most people value their photos quite highly. When their house catches on fire or something, they run and in and save their kids, and they run back in and save their pets, and they go in and get their photos. So something like $40 per year, which is what our base level account is, is relatively cheap for somebody who somebody who values their photographs and puts some inherent value over them, other than just $40, with their photos. They’re looking for somewhere to share their photos, to make them beautiful, and to keep them safe.

Every year during hurricane season, unfortunately, some of our customers lose their houses or have them so severely damaged that they can’t get their photos any more. And they come back to us desperate to get copies of their memories. These are the only copies of their wedding photos left on Earth. And we have them. Luckily, we have an API and lots of other ways that they can easily re-download them. We believe that vendor lock in, especially with something like your photos, is sort of an evil thing. We’re not like the Roach Motel, where the roaches check in but they never check out. Your photos are always yours. We’re happy that you’re lending them to us and paying us to keep them safe and sound, but we don’t consider them to be our property, unlike some of our competitors.

The fourteen day free trial is a relatively new offering for us. It’s less than two months old, I think. We used to have a seven day free trial, and we required your credit card up front. But our business has grown to be large enough financially that we’re willing to take a little bit of a gamble and give people a bigger free trial and more time. There’s no credit card required or anything, just an email address and a password. We’re still gathering stats on that. The conversion rate when we had the seven-day free trial was 92%, and I think that the free trial rate since the fourteen days, since we have so many more signups, is a little lower. I think it’s in the high 80’s now, but it’s still an amazing number.

I’ll touch on a couple of the big ones to start with. But I think it goes a little deeper than a just a couple of big features, which are certainly key. But if you think about why you buy a Toyota versus why you buy a BMW. And they’re both wonderful cars. I have one of each, so I completely love that the Toyota is reliable and relatively inexpensive and everything, but I love my BMW too for different reasons. And some of those reasons are hard to put into words. It’s sort of like the stitching on the leather seats. You don’t really say that the stitching on the leather seats is important to you, but you do care about it. So it’s sort the sum of lots of little parts, including a lot of the big features that I’m about to tell you. There’s just a huge, huge list of small tweaks, little features. A lot of thought and a lot of customer feedback has gone into our site, which seems to be missing from quite a few of our competitors.

Some of the big features, easily one of the biggest is that you can customize your site to look the way you want it to look. You’re not locked into one viewing style, or even one look and feel. You can adjust how many photos are shown on the page and how they’re laid out and things like that. You can also adjust the colors and the supporting imagery and everything. One of my favorite features, and some of our customers have told us this over and over too, is the concept of themes. We have something like thirty pre-built themes and we’re constantly adding more. Our customers can create their own too. They can apply a theme to their entire site or just a given gallery, or some mix of in between if they want.

We also provide really great customer service, which is sort of unheard of on the net. Not only is it unheard of, it’s almost expected that you get the opposite. At some websites that you’ve just bought a service from, in the back of your mind you’re thinking, “I’m probably never going to hear back from these guys.” But for us, it’s usually during business hours a response within minutes. Not hours, not days, within minutes. We view that as a really important marketing opportunity to our customer, not so much an added expense to our customers. When they have a problem, we want to know about so that we can fix the problem if it’s a bug on our end, or make it easier to use if it’s confusing to the customer, or clarify something for them, or whatever. I guess because the customers’ expectations of online companies and service is so low, they’re just blown out of the water that’s fast, that’s friendly, that’s to the point, that manages to help get them on their way.

Customizability and customer service are probably the two biggest things for us. There’s a lot of other features that go into it. Our mapping feature is very popular. Everybody gets a Google map on their SmugMug home page, so when to they take a trip to Italy, their friends and family can see where in Italy they went. We have a feature called PhotoRank where anybody, whether they have a SmugMug account or not, can give a photo a thumb up or a thumb down on that photo and it will contribute to its popularity ranking on the site. So people can see at a glance what a given SmugMug customer’s most popular photos are, or what the most popular photos about horses are, or the most popular photos tagged with some keyword tag. The list goes on and on. It turns out to be really popular, and people love to browse through the site to find little gems and making sure that other people get to find them after they’ve rated them.

We do that with a referral program. The referral program goes both ways. The friend whom they get to sign up with SmugMug gets a discount on their first year, and you as the person who brought them in get a credit toward your next year’s renewal. That’s been remarkably successful. Our signup rate is basically broken out into 60% of the people who sign up for our service we know are referred from another SmugMug customer.

And then there’s a 20% grey area where we’re not totally sure where they came from, but we suspect most of that 20% is also customer referral. It’s just that they didn’t happen to use a coupon or something like that. Every SmugMug customer gets a coupon code, basically. When you sign up for an account you can use that coupon code, or their email address, or whatever, and get your discount and apply your credit to your friend. We think somewhere between 60% and 80% of the people who sign up for SmugMug are referrals.

I think it’s huge. We don’t have any aspirations to become the market leader. We don’t want to ever offer a free service and try to sign up a hundred million customers or something like that. We’re very much into the customers who are willing to pay something. We think it’s a reasonable rate. $40 a year for unlimited storage and all kinds of great features. We’re not interested in becoming Yahoo Photos, Flikr or WebShots.

But having said that, I think visual photography, and particularly visual photography online, is a fairly new and growing space. I think it’s going to be explosive over the next ten years how many people end up buying digital cameras. And someday we’ll actually get decent lenses in cell phones and stuff, so they may actually become useful cameras. It’s hard to predict, but I suspect that our piece of that pie will be very large.

We offer video sharing right now. We’ve offered it for a few years, and it really sucks. It’s fairly embarrassing how badly it sucks compared to how great our photo offering is. It’s just so easy for us to tell our customers, “Hey, look, YouTube does a much better job at this than we do.” Although their video quality and bitrate are fairly low. But the user experience is so good. And it’s so easy and cheap and everything else. So we end up just saying, “Hey, look. We’re the best photo sharing site. So use us for your photos. But we’re not that great at video, so I would just go to YouTube.”

We will do something. We’ll improve it. We have the feature, and it’s bad of us to just kind of let it languish. So we’ll improve it. We don’t have any aspirations to become the next YouTube or anything like that. That’s not the market we want to have. The only reason we have the feature is because most digital cameras will take short little video clips right now, and I want to make it easy for everybody to just kind of batch upload them. But if they really want to share them with a lot of people instead of just their handful of their close friends and family who come to look at their Disneyland photos or something, they’re probably better off going to YouTube.

Yeah, so there are a couple of reasons. Smugmug was actually sort of an accident. We were building a social networking site around video game platforms. My background at least for the few years prior to starting Smugmug was that I was making video games and we really thought that there was something that could be done better online with the community around certain types of video games and so we were working on that. As part of it we built the photo-sharing piece and this was all in early 2002 so we sort of predated the whole concept and frenzy around social networking, we didn’t know what to call it or anything like that. But as we were demoing it to video game companies and publishers, they would get excited about the product, but the thing that they would get most excited about was the photo-sharing piece. And so we sort of gradually tweaked our presentation until the photo-sharing piece was the grand finale because people enjoyed it so much they resonated with the power that that could bring them.

One of our partners started to lag on delivering their piece of the video game experience, and so we launched Smugmug accidentally as a way to basically bring in some cash so we wouldn’t have to take VC to do the video game side. Of course as soon as we launched it, it took off and we haven’t spent a single minute of the video game idea. So all of that stuff was just gathering dust somewhere on one of our servers. We did Smugmug as a way to bring in some money to bridge us to getting another product out the door and then that’s all true. Looking back it probably would have been difficult to get a decent VC deal in 2002. The bubble had just burst; everybody was still putting ointments on their burns from all the money they had lost and all that worst stuff. And, you know what, with our connections in the VC community we probably could have gotten a deal, which is very surprising, but it probably would have been a low money high equity stake sort of a thing. Both my father and I have been through the whole investment process via his companies and mine. We decided that rather than taking in investors’ investments and being responsible to some outsiders who didn’t have their minds and hearts and souls into the product we decided to bootstrap it ourselves and see if we could really make the run for it, and it turns out that we were able to.

You know, I guess because I grew up watching my father and all his contacts here in the valley do startup companies, I sort of have startups in my blood. I’ve been through a whole bunch before we got to Smugmug, some of them successful, most of them either average or complete failures. I ran another company into the ground not too long before this one and wasted a lot of money, which really sucked, but at the same time I learnt a lot more from the failures than I did from the successes. So the last company, the one that I tanked, we spent a lot of time trying to kind of make the product fit what we hoped it would fit, and kind of developing it stealth mode, and using our own kind agenda as a driving force for it instead of actually going out and finding some customers, or even getting some customer feedback. And we spent a lot of time kind of tuning the product and the pitch to get investors onboard, rather than tuning the product to appeal to the people we wanted to sell the product to.

So I think at least that is a huge thing that I learned from tanking that last company, is that when it comes right down to it, what matters most is the product. It matters how innovative the product is, and maybe even more important than the innovation, how well it’s executed.

We spend a lot of time interacting with our customers, finding out what they like, what they don’t like about our service. We do hardly any competitive research. It’s just not really on our radar because we’re so busy focusing on our customers and trying to figure out what they want. We don’t have time to play catch-up with other competitors or try to do feature comparisons or things like that. To be honest, there’s room for lots of competitors in this space. It’s just like it is in every other space. If you go back a couple of decades, everybody was predicting that car companies would all consolidate and we’d all be driving one or two brands of cars. Well, that never happened. And it hasn’t happened in most other spaces either. Photo sharing is no different. There’s room for Flickr and SmugMug side by side. In fact, I send customers to Flickr all the time when what they want really is Flickr and they don’t want SmugMug. I know the Flickr guys do the same thing.

I’ve learned a lot from all of the companies I’ve been involved with, and every company that I’ve had friends at, and all of that sort of stuff. But I learn the most from failure, and easily the biggest lesson, by far the biggest lesson, was focus on the product, make sure that it’s a product that customers want, and customers buy, and that there will be a market there. Regardless of if you take investment or not. There are great reasons to take investment. Many companies need it to even get off the ground. We were lucky that we didn’t. But regardless of if you take investment or not, in the end you need to deliver a product that people will want. Otherwise, your company is going to be a failure. And I think a lot of startups really miss that. They want to throw buzzwords around, or tack buzzwords onto their product, or impress investors without impressing customers. And I think that’s probably a common cause for startups to fail.

In case you haven’t been able to tell, we’re sort of a different company. I don’t really care how many customers we have, as long as it doesn’t get to be such a low number that it puts us out of business or something. But I don’t have any targets for what I want our sales levels to be, or how many customers I want to acquire, or anything like that. Other than I would like us to continue to grow. I would prefer for us to grow at a rate that is manageable, rather than too fast. I know that sounds really strange coming from a Silicon Valley company, but I think that too quick of growth would probably damage or kill our company. And I say that because I think our company is really built on this customer relationship we have with our customers, and the trust they have that we won’t do something to bad to their photos, or go out of business, or something like that.

We’ve seen over and over and over in the Valley companies that get a little a little bit of rocket fuel in the form of VC or media exposure, or whatever the rocket fuel might be, and they go sky high and then come crashing down. There was an article recently about Friendster and how they turned down the offer to be acquired by Google years ago because they had huge dreams. I think I’m safe in saying that we really don’t have those sorts of dreams. Our long-term goal is to grow the company at a rate that we’re able to sustain. Currently it’s been about 80% per year, and we’re fairly comfortable with that rate. To maintain the extremely high level of customer satisfaction and customer loyalty. If we can continue to grow the company and maintain that loyalty, I think we have a winning combination. Our company is profitable already. We don’t have any debt. We have no investors. So growth plus happy customers equals success.