By Thomas Heath
Monday, August 11, 2008
Staff writer Thomas Heath's Value Added column appears Tuesdays on the WashBiz Blog. Most weeks, it profiles local entrepreneurs, discussing how they make money and what they do with it.
One of my favorite business bromides is, "Pioneering doesn't pay." You don't want to be the first person to build railroads or airlines or power plants, the thinking goes. The real money is in the steel that the railroads buy. Or the jets that the airlines purchase. Or the fancy electric appliances people buy for their homes. You get the drift.
Pete Snyder is 35 and worth tens of millions of dollars. Home in McLean. Vacation place in Nantucket. The former political junkie thinks of himself as an online pioneer, but I see him as more akin to the steelmaker or the appliance salesman. He is mining a lucrative niche in an industry created by others.
In 1997, the Republican strategist and one-time campaign adviser to former New York mayor Rudy Giuliani was doing market research for Wired magazine. He realized communications were rapidly changing into a two-way dialogue that was empowering millions of consumers who had hitherto been passive.
He envisioned a zillion business opportunities.
"I realized the wall of communications had been broken down," he said. "Now, it not only matters what people were saying about companies and candidates, but now you had to respond directly to them in real time."
It led him to create New Media Strategies.
NMS has 87 employees filling two upper floors of the former USA Today headquarters in Rosslyn. It will gross about $17 million this year and turn a profit of $5 million or so. Snyder sold his interest last year for $30 million to Meredith, a publicly traded media company.
Snyder, NMS's chief executive, wouldn't comment on the deal, but the sale price could climb to $60 million if he increases revenue in the next few years.
What does New Media Strategies do? Some call it PR. Creating buzz. Or damage control.
"It's influencing the influencers," he said. "If you are a cable channel and the success or failure of a show that you have invested tens of millions of dollars in hinges on 100,000 viewers, you are going to want to identify the 100 tastemakers who are going to impact hundreds of thousands more who can make or break your show."
There are three arms to NMS: entertainment, corporate and the fast-growing public affairs division.
Example: NMS workers troll blogs that are talking about its clients -- and sometimes knocking them. When Burger King recalled 25 million Pokemon toys because they were dangerous, NMS employees (who identify themselves as working for their clients) dug into chat rooms and blogs to tell Burger King's side of the story.
Example: When the SciFi Channel desperately wanted to energize the hard-core audience base for its "Battlestar Galactica," NMS found the blogs the audience inhabited and started dishing. Influential bloggers were invited to attend backstage visits, where they were able to meet actors and writers.
Example: When former Tennessee senator Fred Thompson (remember him?) was gearing up to run for the Republican nomination for president, NMS laid the groundwork online.
"We have bloggers who specialize in the enlistment of online intelligence," Snyder said, sitting in his 14th-floor office overlooking the Potomac.
Snyder started the company in his Capitol Hill apartment in 1999 and thought big from the beginning. He envisioned a company with $20 million in revenue, so he incorporated in Delaware, which has favorable corporate laws. Revenue grew fast. NMS charged annual retainers of $250,000 to $1 million. The growing popularity of blogging and the blogosphere around 2002 "put NMS on steroids," Snyder said.
By 2006, the company was grossing $10 million and had 55 employees, according to published reports. Big clients rolled in: ABC, Merck, SciFi Channel, Paramount Pictures and Pepsi. Snyder had a line of bank credit and no debt, so the company didn't get dragged down by interest payments.
"The hard part was managing growth," Snyder said. "We spend a lot of time hiring and training. You can get college graduates now who understand the power of social media because they have been using Facebook for years. It wasn't true five years ago."
Employees earn from $40,000 to more than $200,000. The biggest rewards go to people who bring in new business. "I want to hire people with an entrepreneurial feel. And the only way you can do that is by giving them a piece of the action," Snyder said.
Payroll is his biggest cost, followed by rent and equipment/technology.
After the deal with Meredith, Snyder paid off his mother's mortgage and bought his Nantucket home. He hired a top financial adviser. Although he gets a small salary, his real reward is a windfall of about $30 million if he can dramatically increase revenue. He sees the online political world as his ticket.
"This town is just beginning to grasp Web 2.0," he said.
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