9 Ways To Make A Billion-Dollar Company From Scratch

Mike Lazerow Buddy Media

Photo: Daniel Goodman / Business Insider

Mike Lazerow recently sold his company, Buddy Media for $689 million to Salesforce.com.There are a few things he did right.

Here are nine ways Mike Lazerow made a billion dollar company >
 

Note: A modified version of this post appeared earlier on TechCrunch.

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The first thing, of course, is that Mike Lazerow, the founder of Buddy Media, met me

He created the business with his family

He saw the potential of Facebook

Not everyone did. In July, 2007 I got laughed off the set on CNBC by saying Facebook would be one be worth north of $100 billion. In September, 2007, Mike bought a technology called AceBucks, which worked similar to how Facebook Credits works now. A bunch of us put together the first round but we had no idea how this would work. The idea is that AceBucks / Buddy Media would make games and people would buy or trade virtual goods using AceBucks. Sounds like Zynga right? Come to think of it, Mark Pincus (and Peter Thiel) was also in that first round of Buddy. Perhaps hedging his bets.

For whatever reason, the Zynga games caught fire and the Buddy games didn't. I really like word games. Buddy had a boggle-like game and Zynga had one. I kept playing the Buddy game until I was the only one left. Everyone had moved to the Zynga game. Screw Zynga! In any case, the Buddy games and AceBucks weren't really catching on.

How did he see the potential of Facebook when few did? He had spent years honing his mental idea muscles. He had started golf.com. Before that he had started and sold Student Advantage. He was always coming up with ideas. He gave me ideas for free. Because he did that so generously we were able to become friends and I introduced him to the people who put together his first round of financing. This is how you succeed. You give, you connect, you give more, you give generously. It all comes back to you 10 fold. In this case, I would say it came back to Mike 1000-fold.

You don't need to start companies to become an idea machine. You just have to start TODAY coming up with ideas, honing that mental muscle, not letting it atrophy, until everyone around you gets the overflow and you are the source people turn to when they want good ideas.

He switched business models to survive

He became a software-as-a-service company

He saw that many of the services he was building for companies were the same. So he standardized them and created a platform of tools. This platform-as-a-service approach allows you to make money while you sleep. In other words, you now can command a higher valuation. Your tools and intellectual property become valuable. They don't walk out the door at night.

Companies can sign up, use the tools, add more games, apps, engagement tools, etc without the need for the usual overhead from a service company: project managers, programmers, workflow specialists, designers, etc. It was all done for them one time and they can just keep going.

It also created a huge moat around Buddy. Once a company signed up, they couldn't easily switch because they were using all the tools that Buddy owned. Valuation got higher and Mike raised enough money at the right moment to stay in business forever.

It's like having children. You give birth, you raise them, but then you need to let them go. Then their creations are yours by inheritance and you can share in their bliss.

He brought on distribution as equity partners

He worked beyond human capacity

He sold the company

He sold for $800mm+

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