Once there was a data backup company called Carbonite.
In its August, 2011, IPO prospectus, it spelled out its ambitious business model for growth:
We generate substantially all of our revenue from the sale of subscriptions to our solutions. In order to grow, we must continue to attract a large number of customers on a cost-effective basis, many of whom have not previously used online backup solutions…. Currently, we rely significantly on advertising endorsements by certain radio personalities. The loss of one or more of these endorsement arrangements or our inability to obtain additional effective endorsements could adversely affect our advertising and customer acquisition efforts and our operating results.
And according to their February 27, 2012, 8-KA amended current report, that model seemed to be working. Revenues, for example, were up, to $80.9 million. The all-important retention rate had grown to 85.6%, which, the report said, “equates to 5.9 years average customer life.” Profit margins were up, subscriber acquisition costs were down.
A key, perhaps essential, element in this success was sponsorship of Rush Limbaugh’s midday radio program, and his on-air endorsements, on Richmond’s WRVA and some 179 other radio stations nationwide, reaching about 15 million listeners.
But then came March.
Biting the hand that feeds you
In March, way back three months ago, a 30something law student paying $48,835 tuition a year at Georgetown testified before Congress that having to pay $9 a month for birth control pills was impoverishing and otherwise victimizing her.
Limbaugh came down on her with both feet, Media Matters promptly organized an advertising boycott with the stated mission of driving Limbaugh off the air, and Carbonite was one of the first (and few) advertisers to go along with them. In fact, writes Cornell Law School Professor William Jacobson, “Carbonite became the poster child for the Rush boycott movement.”
In a public statement, Carbonite CEO David Friend remarked:
No one with daughters the age of Sandra Fluke, and I have two, could possibly abide the insult and abuse heaped upon this courageous and well-intentioned young lady. Mr. Limbaugh, with his highly personal attacks on Miss Fluke, overstepped any reasonable bounds of decency. Even though Mr. Limbaugh has now issued an apology, we have nonetheless decided to withdraw our advertising from his show. We hope that our action, along with the other advertisers who have already withdrawn their ads, will ultimately contribute to a more civilized public discourse.
So how’s that working out for you?
Now, thanks to that decision, taken on a Saturday night, Carbonite has become the poster child for something else — marketplace failure.
“On August 1 Carbonite released its 2nd Quarter 2012 results, the first full quarter after dropping Limbaugh in March,” Prof. Jacobson notes. “The results shocked Wall Street, as Carbonite did not meet its growth targets, causing multiple analysts to drop the target price. The stock dropped 15% in a day.”
In a subsequent conference call discussing these results, Friend claimed that that there was so much noise in spiking web traffic at the time that he didn’t know what was going on for weeks. But that fails to explain why within weeks he tried to reinstate his advertising on Limbaugh’s broadcast, only to be rejected.
“”There were four factors that contributed to this slower [i.e., negative] growth,” Friend went on to say:
First, in March we stopped working with one of our top producing radio endorsers… I’d say it turned out to be a bigger issue than we had anticipated… It turned out to be a bigger hole in our revenue than we had thought when we initially did this.”
(You can hear the conference call here.)
Don’t kill your golden goose
Within a year of Carbonite getting started with a shaky IPO, the company’s once-promising future looks shaky again — and all because of a Saturday night decision its CEO made in response to political pressure and in total neglect of his company’s business model.
So before you make that crucial advertising or other kind of business decision, think ahead to its effects on your brand’s future. And think back on what made your business the success it is today.
Every successful business has a golden goose — a product or strategy or marketing technique that keeps driving sales, growth and profits. It’s crucial that you know what it is and that you do all you can to keep it safe and healthy.
It’s the hand that feeds your business. Chopping it off at the wrist — especially for political or other non-business, feel-good reasons — will only help your business bleed to death.