Last night I presented at the STIRR entrepreneur event called “Founder Hacks.” The hack I shared was how moving from ad networks and affiliate programs to doing direct sales inside made us profitable and changed our 2006 revenue from an estimated $225,000 to $1,100,000.

Here is my presentation.

In 2003, when I started working on Dogster AdSenses and other just-add-water ad networks we’re just getting going. So I knew if Dogster.com was going to make money it would have to be from advertisers directly buying inventory from me.

Once Dogster.com unexpectedly took off much faster then I thought I knew my experience building web apps and communities was not going to make this the business it could be. I knew that I needed to find a business partner that would be as passionate about finding advertisers and sponsors as I was about making a great community site. After courting as much of Silicon Valley I could reach out to, I found that partner from with my own circle of friends and made an equity partnership agreement within 30 days that has lasted us to this day.

Later in 2004 when AdSense and other networks were generating buzz that you could get a $1-$2CPM we thought we were home free. We forecast with great glee how much money we were going to make from simply publishing their advertising and taking our cut.

But our revenue lagged and it was because if you’re not showing ads related to sex, liquor, gambling, free ipods or deceptive email harvesting campaigns, you’re most likely going to get $0.25 cent CPMs and less. If you’re serving 10 million pages a day or working alone, preferably both, there is decent money to be found from all those quarters, but when you do the math, serving 250k pages a day is $75 a day to $1200/mo.

We also made very erroneous forecasts on how much money we’d make by offering affiliate programs on our site. Directing people to PetSmart, REI, and Target’s online store is very easy. You’ll get 7% of all pre-tax purchases, but unless you are selling hundreds to thousands of items every week, you’ll probably get what we did, about $250 a month.

I early 2005 we recruited an ad buyer. He could bring in five digit direct buy deals. He had contacts in the industry, could close deals and responsible handler involving and forwarding payments. But his 35% cut was too dear and had to do all kinds of presentation support for him as he didn’t really understand our brand. He had no passion for our product. He was just as happy to sell ads for any of the sites he represented then for us. And he pitched us with about as much fervor as that when meeting with potential advertisers.

This whole time Steven, the business parter, heading up biz dev was working full-time at CitiGroup. He’d end up playing phone tag all week with prospective advertisers and partners. Far too much time would pass just to get the right person on the phone. Once Steven could get them on the phone he had a great closing rate. Only Steven could explain the passion of our users and benefits of becoming part of our community. Only he could see why advertisers shouldn’t buy banners, they should by an integrated presence in our site. And only he could present them with a contract in such a way they got the ROI they wanted while still meeting all the quantitative demands they were under.

Around that time we had been considering, and teaching ourselves all the big investment opportunities in the book. We pitched $3M to VCs, we sought angel investors, we consider loans with notes and warrants. None of it was working because we didn’t want to bet our whole future on a premise we hadn’t fully proven yet. We had to know we could become a profitable company with good monthly revenues before we were willing to bet the farm that the most optimistic outcome for Dogster would be achieved.

So we finally tuned that all out and said how much money do we need for the three founders to work full-time for 6 months, get a small office and a laptop for Steven. We decided the only way we could know if it was a business was to cut the umbilical cords and see what happened when we could all work on only Dogster and Catster.

It turned out that number was only $100k and we did a very simple family and friends round. The first four people we approached invested. Within a week Steven had quit his job and was working the phones and preparing proposals and doing industry research all day long. Within 6 weeks we were profitable and still had about $80k in the bank.

One of the first two people we hired was a sales person who has now been with us for 15 months and now 1/5 of our company staff is sales. Having a full-time sales team that is 100% passionate and committed has made all the difference.

You’ll often hear inside sales is expensive. They’re right. Though sales people should pay for themselves, on bad months and even quarters your just pouring money out the door. But relying on a 3rd party to sell your ad and sponsorship inventory is, in most cases, more expensive due to the opportunity cost. With ad networks we would would ahve been a $250k company in 2006. With Direct Sales we were a $1.1M company.

Thanks Niall, for the suggestion.