[lewisgersh]

Introducing Programmatic Skywriting

I apologize for our recent radio silence. It was due in part to our focus on securing $15 million in Series B funding. But there was another reason, which I’ll reveal with a sneak peek at the press release that’s going out tomorrow.

FOR IMMEDIATE RELEASE

Viewability Is Never an Issue with Programmatic Skywriting Featuring BlueSky’s Proprietary Drone Technology

NEW YORK — April 2, 2017 — PebblePost®, the inventor of Programmatic Direct Mail®, is pleased to announce the launch of an ancillary venture, BlueSky, which will debut a revolutionary new marketing channel called Programmatic Skywriting. 

“It’s exactly what it sounds like,” said PebblePost founder and Chief Stamp Licker, Lewis Gersh, who adds another line to his job description: Air Traffic Controller.

Manna from Heaven “BlueSky’s programmatic drone technology enables us to pinpoint customers for a unique marketing encounter,” Gersh said. “Best of all, it doesn’t disrupt the user experience because the sky itself is our platform.”

BlueSky retargets your most discerning customers with an escalating series of seductive messages from above.

Day One It starts with Drone Drop, which utilizes proprietary geo-targeting software to sync device ID with latitude and longitude coordinates. BlueSky tracks your prospective customers down, no matter where they are, and buzzes them with a drone that drops a plastic egg containing a “key” and a unique promo code for an item selected from their recent search history.

Day Two BlueSky ups the ante with a banner ad — the old-fashioned kind, towed by a vintage biplane. The message? “Hey, <<customer name>>! Don’t forget that <<product name>>!” Our pilots are instructed to follow the customer everywhere for a minimum of eight fly-bys in the course of the day.

Day Three If your finicky customer still hasn’t taken the bait, BlueSky’s team of talented skywriters will execute a detailed drawing of the targeted purchase, accompanied by a simple message: “You know you want it, <<customer name>>!”

Our market research shows that programmatic skywriting results in an astounding 88% response rate by this point. But if your customer is among that hard-core 12% that hold out, we’ve got one final option...

“Resistance Is Futile” That’s the cryptic skywritten message that greets your prospective customer as they step out the door on the morning of Day 4. We then literally blow that message away by executing a full-scale Blue Angels-style flyover. …

The Payoff OK, OK, OK. By now you’ve probably figured out that this “press release” is an April Fools’ prank. What’s disturbing about it is that I could probably fund this fictitious company. Because when it comes to tone-deaf retargeters, the sky really is the limit.

[lewisgersh]

Sears and the Wholesale Collapse of Legacy Retail

A recent Business Insider piece provided grisly details of the “death spiral” at Sears, the legacy retail chain that has devolved from iconic to irrelevant. The story came on the heels of an announced 150 store closings, including 108 Kmarts. (That gives you a hint of the problem right there — although it was Kmart that acquired Sears in 2004, the new corporation took the name Sears Holdings.)

The reasons for Sears’ decline are obvious. Today’s consumers would rather shop online using their devices than visit a store in person.

The only problem with that obvious conclusion is that it’s wrong.

Numbers Never Lie (But They Can Sure Mislead You) It’s an understandable mistake. Combine the precipitous decline of Sears and other suburban mall stalwarts like The Limited with Amazon’s ubiquity and it’s easy to conclude that the war is over and e-commerce has won. But the numbers don’t support that. According to the most recent figures available, U.S. e-commerce accounts for just 8.4% of retail sales. That means American shoppers still spend more than nine out of every 10 dollars in a physical space.

The real problem for Sears and other legacy brands isn’t that retail is migrating online. It’s that it’s migrating to a different kind of in-store experience. And it’s unfathomable to me that so many legacy retailers have failed to recognize this.

Eddie Lampert, the former Wall Street investor, faced a steep climb when he appointed himself CEO at Sears Holdings four years ago. Sears hasn’t been an envelope-pusher since the heyday of the Sears catalog. Their stores are empty. They feel dated. Compounding the problem, Sears can’t attract and retain higher-quality employees on the front end to deal with the consumers. (Granted, this problem isn’t unique to legacy retail. Fast-food franchises and supermarket chains — even the successful ones — face the same challenge.)

So you have low morale and high turnover, and it becomes a vicious cycle. If you were a young person with a lot of energy and vitality, would you rather work at Sears or Colette? (If you haven’t experienced Colette in Paris, you must.) Kmart or lululemon?

Retail Is Alive and Well — When It’s Done Right The lululemon formula for success — premium prices for quality products associated with a specific lifestyle — demonstrates that bricks-and-mortar retail is alive and well.

Another element of lululemon’s success has been moderation. There are only about 300 lululemon stores worldwide. Ikea, the quirky Swedish home-furnishings chain, is thriving in part due to similar restraint. While it’s set to open its largest American store yet in Burbank, Ikea has only about 40 locations nationwide. (Kmart, by comparison, had 1,300 U.S. stores at its peak.)

Same story with Apple Store: There are only about 490 Apple Stores worldwide, spread across 20 countries. And by the way, I can’t think of a better rebuttal to the “digital is killing retail” argument than the success of Apple Store. Apple, one of the pioneers of the digital world, was in its death throes, and it survived by reinventing itself and going into retail. And now Amazon is opening bricks-and-mortar stores, too. Something I’ve been recommending since they could have bought Borders in bankruptcy years ago.

The Sears Catalog of Catastrophic Blunders So to look at the death spiral of Sears and conclude that e-commerce is the culprit is a lazy analysis. Just as it was lazy to say that Netflix killed Blockbuster.

No. What killed Blockbuster was that it became incredibly bloated. Too many locations, too much product. For years, that was the driving force behind public companies: It was about total revenue and driving revenue margin as opposed to average single store revenue.

“Traditional big-box retailers have been hit hard by the rise of online shopping and falling foot traffic in shopping malls,” Business Insider wrote. “But current and former workers say Sears' problems have more to do with Lampert's management and strategies than the larger industry changes.”

Exactly. Eddie Lampert is precisely the wrong guy at the wrong time for Sears Holdings. He’s a financial guy with no branding experience, trying to fix an aging, bloated retail chain that has lost its identity. (CBS.com ran a piece challenging people to name the taglines at Kmart or Sears — and that was seven years ago.) Worse, consumers have written off the identity of those brands.

What could possibly go wrong?

Sears Holdings’ one attempt at building a “consumer experience,” the Shop Your Way rewards program, is so user-unfriendly that it lends itself to parody. Maybe that’s because the real reason for the rewards program was not to reward the consumer but to mine their personal data and sell it to other companies.

Really, when you add up all the mistakes that Sears has has made, it should be in a death spiral. And blaming the company’s demise on the rise of e-commerce is a cop-out.

[lewisgersh]

The Commitments (Or: Welcome Aboard the Board)

Once, during a panel discussion, someone asked me why I got into venture capital. I told them it was for the privilege of working with entrepreneurs who have the vision to see what doesn’t exist yet, the enthusiasm to will it into being and the courage to fail in front of everybody they know — and many more they don’t know.

Everyone on the Board of Directors here at PebblePost embraces that philosophy. That includes our two newest additions, Lynn Wunderman and David Bell. On behalf of our investors — including entrepreneurs, my portfolio CEOs, co-investors, colleagues and the Board — I’d like to welcome them. Given the connections I’ve formed with both Lynn and David over the last 10 years, their arrival feels inevitable.

You can learn more about Lynn and David’s professional credentials here. What I’d like to talk about is the kind of people they are.

Tea for Two When I first read Lynn Wunderman’s résumé, it was hard to believe our paths had never crossed. Once I learned about her background I couldn’t wait to meet her.

While building one of the largest portfolios of targeters and retargeters in digital media, I led the seed round for Chango, which had invented search retargeting for the free-range web. We eagerly sought experts on data-targeting best practices. But we also wanted to avoid digital myopia. We wanted a more holistic view across all marketing.

Mutual contacts introduced the board at Chango to Lynn. She had spent about 20 years in direct marketing and was founder of I-Behavior, a pioneer in the field of attitudinal targeting. We met for tea near Grand Central and clicked immediately. We had a common vision of what’s good and bad and right and wrong in digital media.

Soon after, Lynn joined the Board of Directors at Chango. Over the years, I saw up close her expertise on data targeting and financing early-stage tech ventures and admired her temperament as we navigated some critical moments of decision.

Fast-forward to when we were working on the idea of PebblePost. We spent nine months architecting before we really started building. As part of that process, I once again met Lynn for tea near Grand Central. This time, however, I was meeting her for input on the vision for PebblePost.

I outlined our plan for inventing Programmatic Direct Mail® and the big vision of where it could go over many years. Lynn asked great, insightful questions. She got it. She added enormous value, especially with her understanding of data strategies and where we would find overlap between traditional direct marketing, digital and this new channel.

Lynn joined our Board of Advisors before we even incorporated and has been a wealth of knowledge every step of the way.

A Founder, a CEO and an Investor Walk into a Meeting … I’m humbled to have David Bell’s insights and assistance at the Board level here at PebblePost. As a member of the Advertising Hall of Fame, a Senior Advisor to AOL and a former Senior Adviser to Google, he is simply a giant in this industry.

But you’d never know that to hear him run a meeting. He always puts the room at ease by starting with a good, long joke. And as “the medium is the message,” it’s all in his delivery.

David and I met for the first time for lunch at the 21 Club. I had just changed the name of my seed fund from Gersh Venture Partners to Metamorphic Ventures and was looking to add a partner. The idea was for us to get to know each other and compare notes. David’s experience was working with startups and public companies with incredible perspective on the landscape across technology companies, agencies and media companies.

One of the things I most love about working with David is his insight across all those levels of businesses. We did CEO seminars where David would give presentations not from a pitch deck but from his heart and his mind and his soul. He shared what he knew to be true in the industry for entrepreneurs who were creating the next generation of innovation. They had endless questions for David, and they would all leave so thankful and appreciative.

So, of course, when we were in beta with a working platform at PebblePost, I met with David Bell. And it was uncanny how quickly he leapt through both our market development and product development timelines, going out several years. He not only got the concept as we presented it to him, but he was also able to add to it and see directions that we had considered but hadn’t crystallized. He saw them with clarity and priority, and an opportunity to create the first new marketing channel since search and social and how important that was on a global landscape.

Watch This Space I couldn’t be more pleased, not only with what is happening but how it’s happening. Having great success in business is one thing — having fun doing it is another. Lynn Wunderman and David Bell both understand that and our enthusiasm to will it all into being.

[lewisgersh]

You’ll Never Wok Alone

Ask a successful male of a certain age to cite a role model who taught him the value of preparation, discipline and plain ol’ hard work during adolescence, and chances are he’ll name a grizzled American archetype like a football coach.

For me, it was a petite Chinese chef named Eileen Yin-Fei Lo.

When I was growing up, my parents were good friends with a successful couple: Fred Ferretti, a former investigative reporter who had become a food critic for The New York Times, and Eileen Yin-Fei Lo, a world-class chef. She’d written books about the art of Chinese cooking and taught at various culinary institutes.

As it happened, Eileen was conducting private classes out of her home in Montclair, New Jersey. When I was a teenager I had a flair for cooking. My mom asked Eileen if she would be willing to take on a teenage boy as a project. Next thing I knew, I was part of a select group. Our class consisted of several middle-aged, married women — and me.

It was one of the best learning environments I could have asked for.

An experience to savor The key to Eileen’s success wasn’t her “cooking” per se. It was the enormous amount of research she devoted to each recipe. She tried to determine what it was in a particular province or region that made a recipe unique. What influences came from that area’s culture and the society? Why was a dish one style in a particular area and a different style somewhere else?

Eileen talked about that a lot when we were doing the incredibly detailed prep. In the process, she made me realize just how important that step was. Precise, thorough preparation was about 85% of what made a dish successful. Literally, that was the math — we would do an hour and a half of prep for 15 minutes of actual “cooking.”

In hindsight, I realize what terrific real-world experience that was. Preparation is about 85% of anything, whether it’s learning a trade or researching a business opportunity. You need to carefully plan each move.

Sure, circumstances sometimes force you to improvise. I recall Eileen’s story about the time she went to pick up rice wine for a dish, but the liquor store wouldn’t sell it to her because she forgot her ID. So she raided the liquor cabinet at home and substituted some of Fred’s gin for the rice wine. It’s now a permanent ingredient in her recipe for barbeque sparerib marinade. (Maybe someday someone teaching a cooking class will discuss that tweak as a regional interest point, too.)

In general, though, precision pays off. The details matter in any deal, for the same reason that the size of the pieces matters when you’re dicing ingredients while preparing a dish. Every ingredient has to be perfect, set up and ready to go. Because once that wok is up to a smoking temperature — that is to say, once you’re ready to burn money — you have to cook the ingredients in a very specific order and then combine them at just the right time. If you don’t have everything ready, something will cook too long or be substandard in some way.

Much of the class was devoted to reinforcing that principle. You had to think each dish through and have the steps organized and all the ingredients in the proper sequence before you could make it and serve it — or “bring it to market,” so to speak.

The secret ingredient is… When I look at my career in tech, those lessons I learned from Eileen Yin-Fei Lo hold  true. The more you have everything thought through before you start building, the more successful you’ll be. That means having a detailed plan and combining it with the right people and the right assets — capital, technology, things like that. Then when it’s time to start building, it’s a simple matter of putting together pieces that are all just sitting there, made to fit according to a specific blueprint.

Really, that’s all it comes down to. If there’s a “secret ingredient” that’s helped me succeed at organizing a business in tech, it was a Chinese chef who taught me that lesson more than 30 years ago.

[lewisgersh]

Whacking the Piñata

During my career, I’ve spent time at every point along the investor food chain. I’ve experienced the purity of being a venture-backed entrepreneur in the dot-com bubble. Then I founded one of the first seed funds in New York City. Now I’ve gone back to the operating side.

I was on a panel recently and somebody asked me what that transition was like — from entrepreneur to fund founder and back to entrepreneur. My answer: “That’s easy. I went from being the piñata to whacking the piñata and then back to being the piñata.”

Like any good joke, that answer contains more than a grain of truth. There’s an inherent tension in the startup/investor dynamic. The entrepreneur seeks venture funding. The VC firm provides that funding in order to achieve outsized returns in a relatively short period of time. And the VC firm, in turn, has to answer to its institutional investors who have the same goals, and the institutional investor has to answer to its constituents. That’s a pretty long line of people eager to take a swing at the piñata. And the more bats you hand out, the more candy you have to provide.

The uncertainty of when the candy will rain down can cause problems. “Eventually” and “soon” are staples of the entrepreneur’s glossary. That’s particularly true with early-stage tech where all assets are illiquid. Even if your investment grows, you don’t have much to show for it until the company sells, goes public or allows insiders to sell some in a round of funding. You’ve just got paper wealth — which has about as much practical value as an unbroken papier mâché piñata.

That can breed impatience. Early on there are minor exit opportunities, and smaller investors would be more than happy to sell quickly with a big return. It might not be at the right time or the right market, but they often don’t care. Small funds need to show their investors they are producing liquid returns. They’re under pressure — personally to their partnership or to the fund’s investors. So a lot of them get angry: “Why isn’t the piñata breaking? Whack it harder!”

As a guy who goes to a lot of kids’ parties these days, I can assure you that a piñata breaks when it wants to break. And it’s almost never on the first whack. I understand the anticipation. Everybody wants the candy to come bursting out, and when somebody gets a good whack at the piñata and it doesn’t break everybody’s reaction is “Awwww!” That’s like a company that almost gets bought but then no deal happens.

Bigger funds require bigger exits, which takes longer. You’ve got investors with different motivations and different levels of pressure that they want to put on a deal. It’s like angels and seed funds are given plastic bats to swing at the piñata; larger funds get lead pipes. And a lot of times the fateful whack isn’t the one you expect. It has to be the right person swinging the right-sized club at the right moment after the right amount of softening up and with the piñata at just the right angle.

The entrepreneur and employees want their candy. Investors want their candy. It’s a system of relatively aligned motivations.

And you know what? I wouldn’t want it any other way.

[lewisgersh]

A Funny Thing Happened on the Way to the Forum (Or: The Ancient Roman Origins of Native Advertising)

Truly original ideas are hard to come by. Search was a big one. The way social media has evolved makes it unlike anything else as well. And marketers have told us that PebblePost’s Programmatic Direct Mail® is a unique new marketing channel.

On the other hand, a lot of entrepreneurs who think they’ve invented the next big thing have merely imitated ideas from the past, whether they’re conscious of it or not. Here’s a case in point. One day we were at an agency making our pitch. (Yes, I know a lot of my stories start like this, but that’s life at a startup.) We set the stage for our presentation by telling the assembled group that we had this incredible innovation.

A young woman spoke up and said, “We do a lot of innovative things, too. We do this thing called native advertising.”

I paused. “You mean advertorials?”

“What are those?”

“Have you seen a full-page ‘article’ in a magazine that’s labeled at the top in small print with ‘Paid Advertisement?’ That’s an advertorial. It’s a form of native advertising that’s been around for ages.”

“Yeah, but we do it in entirely new ways. We do it on tablets.”

I smiled. “Romans were doing native advertising on tablets back when that meant chiseling a rock.”

Everybody laughed. They all thought I was kidding. To be honest, so did I.

Turns out it was no joke. I have a relative who’s an expert in medieval literature and oversees the collection at the Getty Museum. When I told her that story, she informed me that Romans actually did scratch out ads in rock.

Here’s how it worked. Public spectacles were an integral part of the culture; the Colosseum drew crowds of more than 50,000 people. Those with an entrepreneurial bent were smart enough to take advantage of these captive audiences by advertising their services. That included the two most important professions of the era: dentists and prostitutes. Leave it to the Romans!

But I’m left to wonder about a couple of things. If a spectator at the Colosseum showed an interest in one of those tablet ads, would he have encountered a series of related carvings on his way home from the races? Would a smaller tablet have appeared at the entry to his dwelling that day? What kind of incentives might it have offered? Free admission to the chariot races?

Also, what’s the Latin word for “retargeting?” And how did they measure the effectiveness of their tablet ads? They must have done something. After all, it was the Romans who put the M (for mille) in CPM.

[lewisgersh]

The Farmer in the Deal (Or: Sowing the Seeds of a Startup)

The most common question we get here at PebblePost is: “How did you come up with the idea for Programmatic Direct Mail®?”

The answer is like that old saying: slowly at first, and then all at once.

I have a deep background in digital and programmatic advertising, of course, dating back to its earliest days. And like a lot of people I was fascinated by how quickly programmatic evolved. It swept through display advertising, swept through email, and then into video ads. People thought the next stop would be in-home, with IPTV, then on to radio, outdoor, etc.

I was concerned with IPTV privacy issues and with liquidity—how to get high-quality video ads to run at the right time in the right place.

At any rate, I’d been giving the question of where programmatic would go next a lot of thought. And one of my favorite places to think is at my farm in upstate New York. It’s a rural retreat, mostly just fields and woods—a great antidote to city stress. When I’m there with my family I’ll often lose myself in a simple task and let my mind go wherever it wants. Call it free-range thinking.

So one day I was cutting a field on my tractor, running all these various programmatic scenarios through my head, when it hit me: Wait a minute. Everybody forgot about direct mail. It’s the second-largest ad spend next to TV. It has the highest response rate of any media. And there’s been no new product in 25 years...

I turned the tractor around and headed back toward the house, still thinking: If you could do retargeting with direct mail and make that work, you could build up a lot of data and eventually make a complete programmatic loop…

I knew there would be a lot of technical details to work out, which is why I couldn’t wait to talk to my buddy Rob Victor back in New York City. I knew he had this really great idea for a workflow management system that would bring digital tools to direct mail. We might be able to merge ideas into something really big. Own programmatic for an entire marketing channel. So I sent Rob a text: Let’s grab a beer. I got a big idea.

After that I went back outside, got on my tractor and finished thinking through the basic framework of what became Programmatic Direct Mail®.

I’ve told that story often. And I had just finished telling it to my dinner companions at an event PebblePost sponsored in San Francisco when a woman I’d never met gave me a dumbfounded look. Apparently she’d heard only the very last part of the story. “Wait,” she said. “Are you telling me that before all this you were a farmer?”

Yup, that’s me and Rob. Just a couple of entrepreneurs in overalls, working that fertile land where American Gothic meets programmatic.

[lewisgersh]

Wax On, Wax Off (Or: A Mentoring Moment)

The dynamic is as old as business itself. The young hotshot wants to go all in on the current trend. He’s frustrated that the old hand is skeptical. Then one day reality smacks the kid in the face and he realizes the old hand was right.

It happened to me once. OK, maybe more than once.

It was dot-com bubble 1.0. I was a young CEO, running my first company, eager to conquer the world (or at least some of the World Wide Web). I had just founded worldlyinvestor.com, which became the largest provider of free investing newsletters online. It was a great opportunity to implement my ideas around user-driven segmentation and Transactional Media, and for our company to leverage the emerging world of digital advertising.

And it all happened because of where my parents happened to sit at the French Open.

One year, sitting next to my parents were Robert Ellis and his wife Jane. Robert, a very successful serial entrepreneur and investor, had founded an AOL site called Bonjour Paris for Americans interested in The City of Light. When they moved to Paris, Bob brought Karen Fawcett, a dear friend of Jane’s, onboard the Bonjour Paris team. (Karen went on to buy and run the site from Bob when he returned to the U.S.) Karen’s husband, Victor Kramer, was an expert direct marketer and my future business partner and mentor. Needless to say, Robert, Jane and my parents hit it off, and they later told me all about the Bonjour Paris site.

Fast-forward a bit. I’m working with AOL in Dulles and having lunch with Marta Grutka when a man stops at the table to say hello to her. Like me, he has a site on AOL. I ask what site. He says, “Oh, you’ve probably never heard of it. It’s a content site for Americans who have an affinity for Paris.”

I said, “Is it Bonjour Paris?”

His eyes widened. “You know it?”

I said, “You had lunch with my parents last year at the French Open.”

And that, basically, is how Bob and I became friends and I ended up starting worldyinvestor.com with Victor Kramer. It’s a great reminder that for all of our reliance on metadata and programmatic, successful businesses are still founded to a large extent on serendipity and personal relationships.

Victor Kramer (pictured below) provided frequent reminders of the importance of staying true to yourself and your roots. Victor had a resume that included work with Fidelity Investments, The Putnam Companies and Lipper Analytical Services. He had advised financial organizations in Spain, France, Portugal, Greece and the Philippines. He was truly a worldly investor.

But Victor’s sophistication in financial matters was anchored in bottom-line common sense. That was, no doubt, a function of his years of experience in direct marketing. And when Victor looked at digital, he didn’t like what he saw — even though selling digital ads was our bread and butter. “Online ads really don’t work on a performance/ROI basis,” he’d say.

Victor thought old-fashioned direct mail was a much better option. “It’s not really sexy,” he’d say, “but it actually works.”

At that time, Victor’s attitude was anathema to all the enthusiasm and excitement that was happening in digital. So, as the resident young upstart, I became a little dismissive toward him on that topic.

Then one day we were in a meeting, brainstorming ways to get more site traffic. My dad, who happened to be sitting in, said, “Why don’t you just buy a bunch of online ads?”

I blurted out my answer: “Are you kidding me? They don’t friggin’ work! We’ll go broke if we do that.”

My words were still echoing in my head when I glanced at Victor. To his credit, he didn’t say, “I told you so.” Then again he didn’t have to. His grin said it for him.

Victor has since passed away, but I know that he’s still with me here at PebblePost. I got an unmistakable sign the day our seed round closed and I was opening a bank account. I was at Silicon Valley Bank telling a young woman a little of my history, including my relationship with Robert and Victor. She said, “Well, that’s really weird.”

I asked her what she meant. She pointed at the name of one of PebblePost’s founders: Robert Victor.

Serendipity indeed.

[lewisgersh]

“My Preference”

Eric Wheeler, Founder and CEO of 33across, and I came up with this joke at a venture event. If you’re in the VC world and familiar with “Lord of the Rings,” you’ll immediately understand the reference.

For the rest of you, a little explanation is in order.

Pictured is Gollum, the epitome of greed. He coveted the One Ring, which possessed special powers over others. He obsessively called it “My Precious.”

Gollum kept his Precious for 500 years, largely by hiding in a cave where he transformed into a grotesque version of his former self. Then he lost his Precious and became obsessed with regaining it.

The similarities to venture land are greater than you might think.

Full disclosure: I was a venture capitalist. So I know that in general, venture capital is a well-intended market. Without it, a major part of our economy would stagnate. Unfortunately, many venture capitalists have become obsessed with what’s called a “preference,” meaning that a particular VC has preference (power) over other invested capital and, therefore, many decisions in that particular deal. It’s a provision that’s designed to protect the investor if a deal goes bad.

Many VCs fall prey to the power of preference and exploit it. Ideally, a VC gets a simple liquidation preference. That means if the company sells, the VC either gets their money back before anybody else gets a penny, or they share equally on percentage of ownership, whichever is larger. It’s a smart way to encourage investment while reducing the risk.

Unfortunately, like Gollum and his Precious, some VCs are seduced by the power in their hands. They demand a liquidation preference for multiples of their money. They also receive what is known as “participating preferred.” That means they not only get their money back first, but they also share in distributions based on their pro rata ownership.

Such overt greed is inevitably harmful. The more preferences you add on, the harder you make it for the company to bring in new investors and more capital, exacerbating risk and creating disharmony.

Gollum-like venture capitalists forget that investing is a privilege. Talented innovators and entrepreneurs are a VC’s greatest renewable asset — and you don’t abuse your renewable assets. But some VCs just can’t help themselves. Like Gollum and his Precious, once they glimpse the power, they want more, and they morph into a grotesque version of their former selves. And like Gollum, they meet an apt fate. 

[lewisgersh]

Stop the World — I Want to Get Off

“The only thing worse than a company that’s accustomed to failure is a company that is failing and unaccustomed to admitting it.”

That was my take on AOL and Yahoo!, respectively, back when Tim Armstrong stepped in to turn around AOL and Carol Bartz had her reign at Yahoo!. And recent events have proved it correct.

I was at a dinner that my friend and co-investor, Oren Michels from Mashery, was hosting. The guest list featured a cross section of digital leadership, including Geoff Judge, Jeff Clavier, Ian Sigalow, Jeff Stewart and Scott Kurnit.

Scott spoke about the lack of respect he’d experienced during a recent meeting at Yahoo! That led us into a broader conversation about the growing challenges facing Yahoo! and AOL — another behemoth in digital content — as Google and Facebook asserted their dominance in programmatic advertising.

By then, AOL was accustomed to failure, dating back to the ill-fated merger with Time Warner. But at least they were addressing it. They had long since lost their edge as an innovator. (For some, the very name AOL evokes the quaint days of dial-up.) 

After becoming AOL’s CEO in 2009, Tim Armstrong made the smart decision to sell the numbers. It was painful, with all the layoffs, but it had to be done. By 2015, the numbers had become attractive enough for Verizon to acquire “a proven platform that could get it back into the services and content market,” as Fortune put it.

Contrast that to the course that Yahoo! charted in recent years. First there was Carol Bartz, the Howard Stern of digital CEOs, with her constant cursing for attention. She famously said her goal when she took over at Yahoo! was to find some “friggin’ breathing room.” When that didn’t work, Yahoo! turned to Marissa Mayer, who went on what amounted to a $3B spending spree.

It was a strategy that was destined to fail. If you’re an innovation-driven company, the one thing you can’t buy is the thing you need most: time. 

Sure, you might be able to save yourself by segueing into a financially centered company that tries to drive results as opposed to innovation. The two aren’t necessarily at odds, but they’re very different. And in the end, Yahoo! was neither.

So Tim Armstrong, head of a company that knew it was failing and did something about it, effectively devoured Yahoo!, the company that was also failing but had too much hubris to even admit it.

[lewisgersh]

Digital Myopia and Geo-Targeting

One of the fun things about being an early-bird digital media entrepreneur and seed-stage venture fund founder is that I have gotten to enjoy a lot of [r]evolutionary moments. Often it’s like the famous scene from 2001: A Space Odyssey, when the Neanderthal throws the bone in the air and in the blink of an eye it becomes a spaceship. But sometimes, it’s like a crew member on that ship forgot basic terrestrial skills.

We had one of those moments while pitching at one of the largest digital agencies in the country. 

I was explaining to a room full of people how we align our data with each marketer’s strategy by using campaign management filters, such as frequency capping, suppression lists, A/B testing, control groups, audience tagging, geo-targeting, look-backs, and . . . 

An agency person interrupted the pitch at that point. “Wait, what do you mean by geo-targeting? Tell me about that.”

I said, “Well, sure, we can do Northern California versus Southern. Or downtown San Francisco versus the Mission District. Or urban versus rural.”

The person picked up a mobile phone, staring at it with a puzzled look. “How do you do that? Tracking a mobile beacon or doing an IP address lookup?”

“No,” I said, with a bit of a smirk. “We use the ZIP code.”

Everybody cracked up — no one more so than the person who had asked the question. Geo-targeting as I described is virtually impossible to do in the purely online world, and before we bridged the channels what we do wasn’t possible either. Yet direct mailers have been doing it since the 1950s when they first slid rods through punch cards, a data processing tool from — get this — the 1830s.

And so it goes, as a Neanderthal threw a bone and in a blink of an eye it became a spaceship, with the insertion of a rod in a punch card, so too it became Programmatic Direct Mail®.

[lewisgersh]

Is Digital About To Have Its Curtain Call?

I just posted my most recent column in Marketing Land, looking at trajectory for one of the biggest shows in town - digital marketing. True, when you add up all of digital marketing it is big enough to eclipse the size of the TV advertising business in the US. But that growth is going to be challenged by ad blockers, response rates, and challenges on fraud and viewability. The column gives advice to digital marketers for where to find respite from the challenges they face. The answer that is emerging is what I call "situational targeting" which is both hard to do but has an amazing impact on consumers' response to campaigns. Read my column, Bubble, bubble, toil and trouble: Tough times ahead in digital, and let me know what you think.  

[lewisgersh]

Funding Is For The Cast And Crew

I am very excited to share that PebblePost received a $5M investment led by Greycroft. But I’m most excited about something other than the money.

Startups and venture capital are actually not so much about money - they are mostly about people. I believe this deeply from my experiences over many years on both sides of the equation. A team is only the sum of its character and talent, including the chemistry between the employees, founders, advisors and investors.

Someone once asked me while I was on stage at a talk, “Why do you like being a VC?” I don’t know that anyone had ever asked me that before and it wasn’t expected.  My answer came easily and from my heart, and I never forgot it: “I get to work with entrepreneurs who have a vision to see that which doesn’t exist, have the enthusiasm to will things into being, and have the courage to risk failure in front of their family, friends and the public.” It is a special privilege.

I know this all too well from my past, first as a venture backed CEO in Bubble 1.0, then as the founder of one of the first seed stage venture funds in the country in 2005, and now back on the operating side. I loved working with my portfolio company CEOs. They knew me better than anyone else in business, as I did them. Together, we went through relentless ups and downs, sometimes relying only on  each other’s character, loyalty and selflessness. It is an exciting journey.

So, I am excited that we have investors both from great venture funds and world-class executives with careers leading some of the biggest and best companies in digital media, e-commerce, programmatic advertising, data processing and agencies.

I am excited that we have a team that has so successfully executed on our vision, creating groundbreaking technology, and producing marketing performance many orders of magnitude higher than the averages of all offerings that have come before us. I am excited that we have over two years’ worth of product completed and are creating an entirely new market here and abroad.

I am excited we have one of the fastest market adoption cycles any of us involved has ever experienced. I am excited we have a fantastic IP strategy, from trademarks to patents pending, that create a serious set of defensible assets to share with our sales channel partners, agencies, print and logistics partners. And I’m excited to see our vision coming to fruition, so much larger than most people realize, and every month it only gets more clear that we have nailed it.

Yes, that’s all exciting, but here’s what excites me the most.

People. Good people. Ten of my portfolio company CEOs are now investors in PebblePost. Five seed-stage venture funds with whom I co-invested are investors. Six founders of companies I worked with or invested in are advisors to PebblePost. And this is my favorite and most humbling: Four founding CEOs whose deals I passed on at my prior fund, but I helped along the way, have invested in PebblePost.

The cast and crew are what bring this show to life and make it all worthwhile. Thanks to all, especially our team.

[lewisgersh]

Another Shout Out: On Stage At National Postal Forum

I was at the National Postal Forum in Nashville, couple of thousand attendees. The keynote was given by Megan Brennan and Jim Cochrane

Megan is the first woman Postmaster General and earned her master’s degree at MIT. Jim is the Chief Marketing and Sales Officer of USPS, and former CIO of USPS. Their keynote was primarily focused on data and connecting digital with mail, right out of our songbook.

At one point, Jim discussed what he called 'digitally reactive direct mail," and displayed our logo wide and high on the main screen (see picture below), describing what we invented and that we coined the term Programmatic Direct Mail®.

It was the third time in our first few months since we launched that we have received such attention on a main stage, all three from people I had not met yet (I later got to meet Jim when I joined him at his table at an awards luncheon). It is an amazing testament to our team, product and vision!

I also gave a presentation on the history of programatic and the ironic parallel that direct mail evolution has to the digital, and where it possibly/probably goes from here. I will be posting a version of it and blogging more frequently in concert with our upcoming announcements.

[lewisgersh]

They're Singing From Our Songbook

When you get a tune stuck in your head, it’s usually because it was either catchy or meaningful to you. I usually write about my business opinions here, but this time I want to share a couple of moments that really struck a chord with me. 

  Moment #1: I was at LiveRamp's RampUp 2016 conference for data driven marketing last week. The keynote transitioned to a fireside chat with three industry leaders and topic was innovation in data driven marketing.The execs all felt most of what they get pitched doesn't even qualify as a new idea, just a minor tweak that clutters up the options for a marketer without a chance of moving the needle. Joshua Lowcock, the head of digital for Universal McCann Worldwide, then said "you rarely see anything truly ground breaking, but I've seen one and it's a game changer. It's a company called PebblePost that's doing Programmatic Direct Mail." He then described the basics of what we do (very precisely) to the entire audience. I had never met Josh before that day, and after introducing myself after his panel, we had a great time discussing our platform, vision and the market .   Moment #2: I was at a Total Retail dinner event for marketers in NYC as few weeks ago. The panel had three CMO’s and the topics varied. As it turned to discussing omnichannel strategies, Shawna Hausman, VP of eCommerce and Digital Marketing at giggle, began to sing our praises as a very cool way to cross channels and producing fantastic results. This was to an audience of 100+ marketers in retail, and she very accurately went on in detail for several minutes. Later, during the Q&A, a customer prospect in the audience asked Shawna to provide more details on how giggle uses us because she was very interested in it. They went back and forth for a few minutes on our “incredible innovation”, “amazing results” and “very cool use cases.” I never met either of them before that night. It was really cool to hear us being brought up at conferences with such accolades only ~120 days from our launch announcement! I was very proud of our team, investors and advisors. Thanks to all involved for believing and supporting the vision, it truly means more to me than you will every know. Lastly, we had our first feature article covering us appear in a publication, some of you have already seen the article. You can read it below or click through the link to read it on Direct Marketing News. Will Programmatic Direct Mail Be the New Growth Channel?

Martech impresario Lewis Gersh strikes out on his own with what he envisions as a multibillion-dollar business.

Lewis Gersh is well known on the marketing technology scene as an investor, and he's placed several winning bets in that regard: Madison Logic, Indiegogo, Sailthru, and Tapad, to name a few. But the funder of startups in cross-channel marketing, personalization, and retargeting has left his full-time

VC gig

to run his own company. What breakthrough digital technology would make the 48-year-old magic-maker leave the strategy room for the battlefield? Programmatic direct mail.

PebblePost

, for which Gersh serves as CEO, has secured a trademark on that term. He sees his digitally reactive version of direct mail as a billion-dollar proposition, a new channel that blends the scale of digital with the efficacy of direct to lift digital marketers to stratospheric heights of engagement. “Programmatic was sweeping through display, but it was getting overdone and efficacy was falling. PebblePost was born out of that,” Gersh says. “Everybody looked at anything but direct mail as a solution. But direct mail is second only to TV in marketing expenditures, and no new products have come out in direct mail for 25 years.” PebblePost

launched

last June on a promise of 8% response rates and 15% conversion rates. After its first five customers posted rates closer to 20% and 40% in those regards, according to Gersh, he knew he was on to something. PebblePost is run on an ad server that is activated by customer-determined hierarchies such as product segments. For instance, should a customer go to a retailer website, look at some shirts and blazers, and then leave without purchasing, a 4x6 postcard with an offer on an apparel purchase could be sent out to her within 24 hours of her visit. Of course, the retailer must have her physical address on file in its database. “We've built the first server connecting digital with direct mail,” Gersh maintains.

"This was really enabled by the printing machine manufacturers. This is a cool extension of variable data printing.” Gersh now claims to have more than 100 brands engaged in real-time, reactive direct mail. One of them is Boxed, an online retailer of consumer packaged goods in bulk sizes. It is a true multichannel marketer, using Facebook, Instagram, email, and desktop and mobile display ads, as well as direct mail, for customer activation. Boxed sees itself as “Costco Online,” and since it's often easier  for customers to just stop by the warehouse club on the way home from work, the e-com has been focusing on re-engagement strategies. A good number of its customers have lapsed and it's difficult to re-engage with them.

“We started testing PebblePost targeting our unsubscribe list. Many of them have unsubscribed in the past 60 days and have come back to the website but not made a purchase,” says Nitasha Mehta, senior marketing manager at Boxed. “Prior to PebblePost, we didn't have a way to engage with them. It's been groundbreaking for us.” Mehta says that conversion rates via PebblePost have been running six times higher than those Boxed sees from emails. She says the company is still feeling its way around programmatic direct mail, but she thinks higher conversions might have something to do not only with the surprise factor of mail retargeting, but also with increased impressions for the postcards (above). “One email sent is one impression, but one postcard sent is likely to receive several impressions among members of a household,” says Mehta, who is currently preparing a March Madness themed PebblePost campaign. A big differentiator between programmatic direct mail and triggered direct mail, says Gersh, is real-time metrics and campaign management. PebblePost users get a dashboard they can check on an ongoing basis to see the volume of mail sent, response and conversion rates, and return on ad spend. “You could never do this before on direct mail,” says PebblePost CMO David Cooperstein. Both Gersh and Cooperstein say that programmatic direct mail remains in its formative stages and that more can be expected of it in years ahead, such as third-party access to physical addresses. As more customers come on board, PebblePost will continue to add breadth to the Address Cloud it's constructing and validate addresses as specific users of clients. Then programmatic mail will shed its reliance on first-part day and users will be able to mail to unknown website users without taking ownership of their names and addresses. Of course, they'll be able to capture them if they convert. “We'll have ownership of the address and won't give it to the client. It's like when someone does a search and clicks on a link for an item. The retailer doesn't know who it is, though Google may know,” Cooperstein explains. Pebblepost's reception in the marketing community far exceeded his expectations, Gersh says. Brand marketers love it, he says, because they can load it into their programmatic budgets, digital agencies see it as a natural extension of both programmatic and retargeting, and traditional direct mailers employ it as a way to eliminate some of the waste in an expensive channel. “We have a product roadmap for PebblePost that goes out five years,” says Gersh, the digital era version of Victor Kiam, the former president of Remington Products, who proclaimed in ads that he was so impressed its razors he bought the company. “We're looking at multibillions in revenue.”      

[lewisgersh]

Programmatic Invasion

 A consumer engages an eCommerce site, searches and browses, unaware that a legion of display ads lay bivouacked just beyond the horizon under cover of algorithms, data, and cookies. Brands take great care to curate the story on their sites in order to enhance the user experience, and they know they have the chance to continue the dialog with their audience based on what data provides them. Yet they forget that marketing is an art, and they too often bring a tuba to a violin recital. Programmatic is a term that came from music, and believe it or not, I find it especially relevant today. 

Originally “program music” was used to tell a story in a specific sequence, evoking certain, specific emotions at certain, specific times. It was an integral part of the user experience for listeners that were used to augment the desired output of the score as an accompaniment. The producer, conductor, and performers all focused on creating the best experience possible for their audience. Program music grew through the years to enhance musicals on Broadway and then modern day Rock Operas, something close to my heart. My parents represented The Who for Tommy and Andrew Lloyd Weber’s Jesus Christ Superstar. Bob Ezrin (who produced The Wall) and I chat about music, technology and consumer experience. 

In this genre, the music and the story are one; in fact the story was the accompaniment to the music for many fans, not the other way around. And it worked fantastically well. A consumer should barely notice the programmatic advertising complementing their activity, as any good accompaniment would do.

But today’s online ads play out the antithesis of a program music effort. Consumers shouldn’t need a restraining order to protect themselves from online reminders for the next six weeks after viewing a pair of flip-flops. And programmatic advertising doesn’t just enable retargeting; when abused, it insidiously invades the consumer’s every user experience across every digital interface of life.  

Worse, in the case of mobile, it completely disrupts a consumer’s attempt to act on anything. Is this really the program a brand wants the consumer to hear? It’s like going to an opera with Motorhead in the orchestra pit. Advertising should evoke an intended feeling and entice a dialog between a consumer and a brand, very much the same as program music. In digital, programmatic is a tool that can be used to accomplish these goals; unfortunately, most brands haven’t found the right maestro to ensure the best libretto of messages for their audience. Worse, as response rates fall, they just play the same song, only louder.  

[lewisgersh]

Odd Man Out, Newly Enlightened

Let me set a scene for you based on a recurring situation I’ve encountered more in the past three months than in all the 20 years prior. It is one that is unfamiliar, unnerving, uncomfortable, but most of all, enlightening. 

To set the scene, Jacquelyn (our Director of Sales) and I are entering a normal pitch meeting. Our pitches are to marketing teams and the attendees are mostly, often entirely, female.

This is in stark contrast to my career as the founder/CEO of a venture fund. While I built a fund portfolio with one of the highest percentages of women and minority founders/co-founders in the country, as high as 40 percent at one point, most of the pitches took place in entirely male-dominated rooms. I now find myself the “odd man out.” 

That phrase is intended as “I am not just the only male in the room, but I find myself viewed as the outsider.” I have been afforded a glimpse into what it’s like being the only one of a gender in a well-attended meeting.  And I am sure it is but a glimpse into the feelings and dynamics that women have felt throughout their careers. A pattern has became apparent, and Jacquelyn has affirmed it. 

The female attendees direct their “greetings” to her when we walk into the room. From eye contact to handshakes to pre-meeting chatter, I am gently avoided.  Consistently in these meetings, the person closest to me comes to realize that it’s now time to acknowledge the person of the other gender in the room. 

Maybe it was her boss motioning with her eyes. Maybe it was just the uncomfortable pause. It’s my momentary ice age. And it’s clear she’s not thrilled to have to be the first to engage the one male in the room. 

I am grateful, and feel a sense of relief that the awkwardness has been addressed, if not abated. I express my gratitude.. Interestingly, as handshakes are exchanged, not everyone makes full eye contact with me.

Once introductions are completed, I am somewhat invisible again. My role has become observer as the conversation ricochets around the table, like watching a pinball inside a glass case. I can only imagine how many alpha-males have been pitching to this team, the booming reverberations of egocentric megaphones relentlessly barking away.

And finally, business begins. Jacquelyn (Completely aware of the room’s dynamic): We are so excited to be here today! I think you’ll love what we do. 

First, I want to introduce you to our founder and CEO. 

Me: (Eager but careful) Hi, it’s a pleasure to meet you all, thank you for dedicating some of your time to us today.

Marketers in Room: (Interested but cautiously distant) 

Me: We think our platform will be very interesting to your team. If it’s OK with you, I would like to give you a brief overview and then we can discuss it in more detail and answer your questions. Sound good?

Marketer: (Relieved this is not an egocentric megaphone meeting) Sounds great, go for it.

Me: (Don’t interrupt, don’t say “good question” because it might sound patronizing, don’t use selfish-sounding personal pronouns, no pitch deck to ‘control’ the audience, just have a truly interactive conversation. Don’t be the typical male pitching...) Thank you. PebblePost invented … Our discussion proceeds. 

Jacquelyn and I handle Q&A and wrap with end-of-meeting pleasantries. Exit, stage left. 

 The moral here: Walking in another person’s shoes is very uncomfortable, especially if the other person is a woman wearing high heels and you have fat, hairy toes. But embracing the discomfort in order to learn is very valuable in many walks of life. This new and powerful (for me) dynamic has taught me more on the topic from this series of meetings than I could have realized from all my prior career experience.