Key Factors for Success: 1

Stephen Yagielowicz
The relatively low barrier to entry for entrepreneurs entering the online adult entertainment industry has resulted in many successful (and not-so-successful) businesses being run by principals with little or no formal business education or training. While this situation is actually a stunning example of capitalism and free market expression at work, it is a situation that presents many pitfalls along with opportunities. We'll look at some of the more common ones below, in hopes that the experiences of others will ease your path:

The More The Merrier
We've all heard the old expression, "Don't put all of your eggs in one basket," and it applies as a warning not only to farm girls being cautioned about losing their entire dinner over a single slip but to adult operations that are dependent on a limited base of customers.

For example, a one-man design firm may rely on today's "all the work I can handle" assignment creating banners for a major sponsor, but if that sponsor's needs change, he might find himself out of work. The same can be said for affiliates who rely on only one or two programs for their income. Sure, there's a lot to be said for maximizing sponsor presentation by focusing on one or two programs, but if one slows down, won't your income as well?

Diversifying your revenue streams and constantly courting new customers will pay off.

Can You Hear Me Now?
Nothing replaces testing — and not just of your website — but of your offer as well. This is all basic marketing, or "pre-marketing," where testing the market acceptance of your offer beforehand can prevent you from making a costly mistake.

For example, you might find the notion of twin gypsy girls smearing Hungarian goulash all over their olive-oiled backsides particularly appealing, but you might be alone enough in your little fetish that a site focusing on this content may not be profitably marketable. Of course, some testing might have shown opportunity in this "messy" niche, however.

It's really easy to fall into the "build it and they will come" trap, but it is smarter to see where they're going and meet them there.

Operators with tangible goods for sale have an advantage in this process in that away from an "instant download" environment, they can run preproduction offers, testing the response and making the final production decision based on actual sales, to the point of pre-funding the production from initial sales.

Sharing The Pie
The most successful adult operations typically involve the efforts of multiple players, and with many companies being closely held, partnerships are a fairly common occurrence. While this often is the result of longtime friends, "college buddies" and others getting together in a like-minded, "share and share alike" enterprise — or the result of needing to acquire qualified talent for your company without having the funds to pay a competitive salary — this sharing of authority can have unforeseen consequences for the business if not properly planned for.

For example, a 50/50 equal partnership can result in operational stalemates that hamper the effective running of the business. This situation is often magnified when multiple but equal partners are involved. The solution of course is to have an unequal partnership, such as a 51/49 split where the dominant partner (usually the CEO) has the final decision-making power. Alternatively, two partners could each have a 49 percent share, with a trusted "outside" partner having a tie-breaking 2 percent share, eliminating decision cycle roadblocks.

Pricing For Profits
One of the most important decisions that operators need to make is how much to charge for their products or services. There are many factors involved in making this decision, but one consideration is that of price vs. volume, where some operators believe that offering their wares at a lower price will equal increased profits from increased sales volume — but this isn't always the case. Lower prices do not guarantee increased sales, and the lower margin dictated by the lower price may not be sufficient to guarantee profits regardless of sales volume.

Try pricing your offer as high as the market will bear and raise your prices until sales begin to drop. If you have the infrastructure and can take the loss, try lowering prices on a test offer until you see how the volume fluctuates. Many operators have seen higher paysite profits and conversions on higher-priced sites; so don't just think that the blowout route is necessarily the key to sales to a free-porn satisfied audience, especially without testing.

It Takes Money To Make Money
Because of the low barrier to entry, many operators assume that the costs of running an online adult entertainment business are nearly nonexistent, but nothing could be further from the truth. Sure, you can make a profitable website for free, replacing financing with time and hard work, but if you want to go beyond the "beer money" level, you'll find a never-ending and ever-escalating series of expenses.

While it's easy to be overly optimistic in your forecasts and projections, the erratic state of the current market makes an over-reliance on "sunny day" wishes potentially deadly for some operations. Particularly susceptible are adult webmaster affiliate programs trying to offer competitive pay-per-signup payouts, where payouts are due months in advance of receiving any potential profits from the referred customer. All of this takes money up front.

The thing to remember is that while you're in business to make money, it takes money to run a business — often a lot of money — spent in ways that are unanticipated, often well before you ever turn a profit. More businesses die from under-capitalization than from a lack of customers. Keep this in mind while making your projections and budgets.

In part two, we'll continue to examine some of the pitfalls and opportunities along the road to online success.