Businesses can be born in unlikely places.
In the spring of 2010, when money-losing Newsweek was on the block and The Washington Post newspaper was wheezing, Washington Post Co. chairman and chief executive Donald E. Graham sat down for a steak dinner with his daughter, Laura, and her husband, Tim O’Shaughnessy, then a rising star as a co-founder of District-based LivingSocial.
They had come to BLT Steak, and Laura immediately had second thoughts about getting together at the hip, power restaurant on I Street Northwest. BLT’s glittery, look-at-me vibe seemed all out of character with Graham’s cardigan persona.
“I was mortified that we had taken Don to this place,” Laura would say later.
Nevertheless, they settled in an out-of-the-way corner and began catching up. Laura and Tim are very much part of the region’s digital scene, having met at Revolution Health, former AOL chairman Steve Case’s attempt to shake up the health-care market. Laura had run Revolution’s online marketing team. Tim, 28, an idea guy, ultimately left to build LivingSocial out of a Facebook app.
“If I weren’t running LivingSocial,” Tim said at one point, “I would be starting a company that helps brands use social platforms.”
Graham’s face lit up.
“That’s a really good idea,” said the businessman who sat on Facebook’s board. He knew how fast audiences and advertisers were flocking to the site.
Before the evening ended, Graham was probing his internal Rolodex, trying to think of someone who could turn O’Shaughnessy’s musing into a business.
The answer, it turned out, was sitting across the table from him.
Laura Graham O’Shaughnessy was a smart, hungry, University of Chicago graduate eager to step out from her family’s shadow.
A child of privilege, she was born with a gene to please. Growing up on one of the grandest streets in Washington, her parents encouraged her to live as normal a life as she could. She volunteered on the Bethesda Chevy Chase Rescue Squad as a teenager. She worked in hospices on Chicago’s south side while attending college.
“I have a customer satisfaction drive, even when I was a waitress at a Greek deli on the side in college,” she said.
Her summers were an eclectic mix. As an emergency medical technician in the mountains of Colorado, she learned how to stick a pen in a throat to help a choking patient breathe. During college, she was a live-in nanny and athletic trainer. She thought about becoming a physician, scoring well enough on the admission test that Kaplan, owned by The Post, invited her to teach test preparation.
After college, she ended up in Nepal, doing an analysis of hydroelectric power. She gave up the physician idea and headed to the Massachusetts Institute of Technology’s Sloan School of Management to work on an MBA. During the summer of 2005, she interned for mass media and information company Thomson. She earned her MBA in 2006.
“I couldn’t work in a 60,000-person company,” she said.
So she pitched herself to Revolution Health through a friend because it was small, and “I knew I wanted a really dynamic work environment.” She learned marketing. She learned Google search. She learned to spend company money smartly. She eventually left in 2008 to work at Slate, then the Washington Post Co.’s online media site.
She was at Slate when her father, several weeks following the BLT Steak dinner, asked Laura to meet him for breakfast. It was the Tabard Inn, a clubby, laid back neighborhood spot that is a short walk from The Post’s longtime headquarters on 15th Street NW.
As they sat in the outdoor courtyard, eating their omelettes, Graham had a request.
“I need you to get this started and push this forward,” he told his daughter.
He was talking about “the project.” Tim’s idea. The Facebook thing. They would name it SocialCode.
Laura agreed to take it on.
“I didn’t want somebody else to have it,” she said.
Laura O’Shaughnessy, 37, has rarely talked publicly about her role building SocialCode. She’s been too busy getting an unproven enterprise off the ground. Soon after accepting her father’s challenge, she set out to build a team. She looked inside the Washington Post Co. She traveled to conferences. She even offered someone $500,000 to launch the business.
She then visited Boston, home to Avenue100, a marketing firm wholly owned by the Washington Post Co. The Avenue100 team was “out there,” experimenting with Facebook and the various advertising possibilities inherent in the wealth of personal data that people included about themselves. Laura immediately gravitated to one of its creators, Addie Conner, who was doing novel things with technology and marketing.
Conner was a ski-obsessed free spirit, a 20-something techie who had grown up on a Vermont farm, but had an innate knack for social media. She made a name for herself by figuring out a way to directly advertise on Facebook, tapping into its profile information, which contained unheard gobs of data about nameless individuals: their likes, their behavior, their interests.
It was an advertiser’s dream, opening up amazing possibilities and scale. Instead of spraying giant messages in banner advertising, social media — and Facebook with its 1.3 billion users in particular — created the possibility of surgical targeting.
Conner was the expert at that. She became O’Shaughnessy’s co-founder at SocialCode.
Based from a shared desk at Slate, the Post-owned media company located near DuPont Circle, O’Shaughnessy then went to work, shamelessly using her connections. She attended parties put on by her aunt, journalist Lally Weymouth, cornering public relations big shots, such as Sir Martin Sorrell, chief executive of multinational advertising and public relations firm WPP, and Richard Edelman, president and chief executive of public relations giant Edelman.
The first big name she bagged was Geico, the auto insurance company owned by legendary investor and billionaire Warren Buffett.
Buffett was a close friend of O’Shaughnessy’s grandmother, former Post Co. Chairman Katharine Graham. He is also Donald Graham’s mentor and was a major Washington Post Co. shareholder for decades.
“I knew if I sold Geico, I could run campaigns for them and deliver,” O’Shaughnessy said.
She didn’t stop with repeated visits to the company’s Bethesda headquarters. She went to Buffett himself, attending Berkshire Hathaway’s annual meetings, crashing breakfasts where Geico executives were in attendance, and setting follow-up meetings.
Finally, Geico gave her $50,000 to “show us what you can do.”
The money wasn’t much, but it was a big name. Now she could boast that Geico was a client as she knocked on corporate suites.
She had a routine: Hop on Amtrak to New York in the morning, cold-call on businesses, sometimes with her father in tow, then take the train back home that night.
“I have made sales calls for SocialCode for years,” Graham said. “Whenever I am asked by Laura or anyone else, I make calls. I haven’t had any disappointed customers.”
“She came at SocialCode thinking about it as a good ad salesperson would, in terms of what does a brand marketer want to know, and how do we make that successful in social media,” said Ralph Terkowitz, former chief technology officer of the Washington Post Co. and now a partner with ABS Capital Partners, a growth equity fund based in Baltimore.
She recruited clients and staff, stealing people from the Washington Post’s innovation team, such as Cary Lawrence, who helped build the customer service operation. She asked colleagues at Slate to introduce her to potential clients, and one passed on an e-mail from a contact at American Express looking for help. O’Shaughnessy opened the message while heading to church with her in-laws one Sunday.
“I was replying from the back seat of the car, probably not paying enough attention to my in-laws,” she said.
On Nov. 13, 2010, American Express contacted SocialCode.
That changed everything.
American Express was leading the charge to make the Saturday after Thanksgiving a day for shopping at small, local businesses, and presumably coax people to make greater use of their Amex cards. The credit card giant was hoping to get Small Business Saturday “liked” by a million Facebook users, but with two weeks before Thanksgiving, American Express was woefully behind its goal.
Could SocialCode help?
O’Shaughnessy recognized it as a chance to validate SocialCode.
For the next two weeks, everything — turkey, sleep, shopping — took a back seat.
“The challenge was addicting,” said Conner, who was so obsessed that at one point, she was asked to leave a live performance because the glow from her laptop, iPad and mobile phone were disrupting fellow audience members.
“Stopping for even two hours didn’t seem like a possibility,” Conner said.
To reach its target, SocialCode used its technology to micro-target potential fans, sending very specific words and images to targeted users.
What ages and genders responded to what? Which term did users like best, AmEx or American Express? Were they more likely to click on the ad if it was a photo of a person or an image of a store? If there was charitable donation involved, which words elicited the best response: join, support or give?
On Nov. 24, the day before Thanksgiving, more than 1 million fans had joined the Small Business Saturday movement.
O’Shaughnessy and Graham journeyed to the American Express Tower in southern Manhattan, overlooking the 9/11 site, to receive congratulations from one of the financial services company’s executives.
From that point on, “I knew we had a real business,” she said.
Four years later, the idea hatched over a steak dinner has offices in Washington and New York, and a sales and technology office in San Francisco. The number of employees has grown from three to 160.
The expansion binge included opening a Los Angeles office in 2012. Big clients have followed: past and present customers include Nestle, Macy’s, Coke, Reckitt Benckiser and BP. The company has gross billings of more than $300 million, according to several sources familiar with the finances. Total gross profit margin, before expenses such as labor, leases and capital investment, is about 25 percent.
The company has three revenue streams. One is a managed service, where the company takes 10 percent for every dollar it receives from clients to spend on their behalf. Under that model, SocialCode consults and implements clients’ advertising strategies, even running “war room” ad campaigns like it did at the World Cup soccer games in Brazil last summer and the Winter Olympics in Sochi.
The second is media technology licensing, where the company takes a percentage of what a clients spends using SocialCode software across Facebook, Twitter, Pinterest and Instagram. The third is analytics technology licensing, where a client pays SocialCode for each social media brand page.
SocialCode is part of a varied mix of companies that sit under the umbrella of Graham Holdings, the new name for the former Washington Post Co. after it sold the newspaper to Amazon.com founder Jeffrey P. Bezos for $250 million in 2013.
Graham Holdings is sitting on a $650 million pile of cash and is preparing to spin off its valuable CableOne division, which could ultimately add to its cash hoard. The company is still left with its Kaplan education unit, several local television broadcast stations, and a flotilla of smaller companies the cover health care, energy and new media, such as the online magazine Slate and the news search service Trove.
The challenge for Graham Holdings is new media is far less lucrative than newspapers once were.
“It’s going from print dollars to digital dimes to mobile pennies,” said Mark Walsh, an early investor in media start-ups. “Graham Holdings is putting as many fishing lines in the water as they possibly can afford, looking for new revenue structures. SocialCode is a great candidate for this transition.
“But it has yet to be proven.”
Today, the company is a modest contributor to Graham Holdings’ bottom line, which was $236 million in net income in 2013. Some think SocialCode could be an acquisition target for a bigger retail or technology company or advertising agency.
Social Code has successfully executed in a fast-growing sector of the advertising industry, but its future is not assured. This industry has gone and is likely to go through a number of substantial transitions, any one of which could impact the growth or profitability of Social Code.
“SocialCode and Shift [a competitor] are getting interest at very high multiples,” said Terkowitz, the growth fund partner. “It’s considered one of the two premier partners for large, Fortune 500 companies looking for a social media strategy.”
Graham, from the school of buy-and-hold, said SocialCode is a long-term play with no plans for a sale.
“SocialCode has unbelievable momentum, and we’re going to pursue it as aggressively as we know how,” Graham said. “It’s growing faster than I ever thought it could, and it has a long run ahead of it.”
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