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Cashing In on Cyber-Coupons

They've never met, but legendary investor Warren Buffett would probably like Matt Moog, CEO of CoolSavings (CSAV), the top coupon-and-rewards site on the Internet, according to Nielsen/NetRatings. At 33, Moog shares the Oracle of Omaha's view that a short-term approach is a fast track to trouble -- and he also appears to share Buffett's belief that honesty isn't just the best policy, it's the only policy. Last year, for example, CoolSavings' annual report included such blunt statements as "We have incurred significant losses since our inception [1995]," and "We expect to continue to incur net losses during 2003."

Fortunately for Moog, things have improved since that dismal projection. In 2003's second quarter, the outfit reported net income and positive cash flow -- for the first time ever. "This year," he says confidently, "we'll be profitable."

Formerly Chief Operations Officer, Moog took over as CEO in the summer of 2001, when the Chicago-based startup was teetering on the edge of oblivion. The dot-com implosion was wiping out scores of Web-based startups, CoolSavings' primary clients, and the stock was trading for pocket change on the NASDAQ (it now trades over the counter). "At the end of the second quarter of 2001, when we had $260,000 in the bank and $17 million in currently due debt -- that was sort of the low point," recalls Moog.

RISING MEMBERSHIP. The company cut costs aggressively, dumped noncore functions, found new clients, and hooked up with Landmark Communications, a media company based in Norfolk, Va., to get the funding to stay alive. Landmark now owns a controlling interest in CoolSavings and seems set to stick with its investment -- and its sunglasses-sporting, pink-piggybank logo -- for the long haul.

CoolSavings works by using survey data to individually target coupon offers at members, who appreciate the discounts on brands they already buy. Manufacturers and retailers that do business with CoolSavings include major players such as Bank One (ONE), Pepsi (PEP), Nestle (NSRGY), Kraft (KFT), Unilever (UL), General Mills (GIS), Wal-Mart (WMT), Sears (S), Gap (GPS) and J.C. Penney (JCP).

Consumers seem to like what CoolSavings offers, as membership numbers keep climbing. The company had 12 million households active over the last 12 months, and a total of 27 million households have registered since the site launched in 1997. Moog, who dumped a job at Microsoft (MSFT) to sign on with CoolSavings in 1996, recently explained to BusinessWeek Online's Lisa Miller why he sees no need to stretch the truth about his outfit's prospects, and also about surviving the sort of problems that demolished so many other Web-based startups. Edited excerpts of their conversation follow:

Q: When you took over as CEO, why did you think you could turn things around?

A: In 1996, [when] I joined was, literally, four of us with an idea. We had no product launched. We had almost no funding. It was banging on doors, and talking to advertisers and trying to evangelize both the Internet and our own concept.

In the first couple of years, it was very slow going. And then, in year three, which was 1999, things started to explode, because of the Internet. So I was there from zero revenue to $100,000 to $40 million -- and then back down to $20 million. I knew the business inside and out.

Q: Did CoolSavings get caught in the short-termism of the IPO frenzy?

A: Yeah, we did -- there's no doubt about it. It was very, very easy to raise capital. The ease of that made you start to be much more aggressive and take more risks. [T]he entire company, including myself, learned a really good lesson, though: It doesn't matter what the investment bankers tell you, or what outsiders tell you about what you should be doing with your business. What really matters is what you know about your customers and the various economic drivers of your business, and just sticking to your fundamentals. It seems sort of boring to a lot of people.

Q: Who are your main competitors?

A: There are a couple of small [Internet] competitors out there offering savings [programs] and things like that. But we really regard our competition as other sources of coupons and savings. So, it's the Sunday paper, it's the entertainment book, it's the coupons available in the grocery store.

Q: What about those ardent coupon-clippers who are late-comers to the Net?

A: The two characteristics [we notice] are that they are more female than the rest of the Internet, and that they are lower income.... When new people come online, and they're moms and they run households and they do the grocery shopping, they're not necessarily going to go and buy the groceries online, or start shopping at all the online drug stores. They're going to look for ways they can save on doing what they already do. That's where we're a particularly good fit.

Q: What about your current member base?

A: We've been adding 2 million members -- plus or minus 100,000 or so -- for the last six or eight quarters. It has been an important aspect of our growth. But we've also been very successful at getting those who are already members with us to take more actions and respond to more things. That has been a very steady growth curve, every year, for the last three years.

Q: Are you thinking about making any acquisitions?

A: Yes, we have been. There's nothing specific. There are a lot of businesses in this market space -- they're a fraction of our size -- and many of them would prove to be very good potential acquisition targets.

Q: Will the new do-not-call registry benefit you, if companies shift from mass telemarketing to a targeted approach?

A: We've already started to benefit. One of the unique aspects of our that we have a fantastic ability to collect self-reported data from our members. We're able to then market to them very specifically and get their permission to do so.

For example, if somebody says that they're looking to refinance a mortgage, or they want information about diabetes, or they're interested in buying a Tivo, or they're expecting a baby in the next 90 days, we can market to them via direct mail, via e-mail, and call them.

Q: Early on, what did CoolSavings try that didn't work?

A: The list is so long. It's not that any of the things we tried weren't good ideas, it's just that we went in so many different directions at once. Nothing got quite the focus it deserved. So, we had a comparison-shop and search engine. We had a points program. We had a lot of sweepstakes and games.... We also did a significant amount of TV advertising: network, cable, and things like that. We did outdoor, we did radio. And, while none of them was an absolute bomb, we were spending ahead of where we appropriately should have been, in hindsight.

Q: Did you find Landmark, the company that helped save CoolSavings, or did they find you?

A: They really found us. They're an amazing company. Most people don't know a lot about them. They're a 5,000-person company with very substantial revenues. They own several TV stations, newspapers, and the Weather Channel. They've been around for more than 50 years, and they're extremely well-run.

The management is strategic, ethical, very focused on the long term for the businesses they're involved in. Landmark has invested over $27 million dollars into CoolSavings, yet we've never hired a single Landmark employee and no Landmark employees work here -- but they've provided phenomenal strategic direction, insight, and advice, and helped us to mature as a business.

Q: What's your leadership style?

A: No matter how bad the situation gets, you have to constantly communicate with your employees, with other stakeholders in the business, about what's going on. We didn't do that for a while -- we shut down. It was very clear to me, when I took over as CEO, that that needed to change.

We [also] critique everything we do. Every sales meeting, every company meeting, everything gets surveyed. We try to look for insight into how can we make it better next time.

Q: What advice do you have for CEOs struggling through tough times?

A: Number one: Make sure you're involved in a business that you really believe in and that you're passionate about, so it gives you the fortitude to stick it through.

Number two is, stay as close to your customer as you possibly can. Go out on sales calls, read their feedback, understand what they need, so that everything you do in the company is focused on making them happy, and retaining and growing the business that you have with them. If you're in a business where you [also] service consumers, make sure you do the same thing with consumers.

The third step is, once you're in a business that you love and you've made every effort to stay close to your customers, then you need to rationalize the expense base of the company against what you think your value is to customers. [You need to] get your costs in line with what your expected revenue is going to be.

That's why I love the job so much. There's no silver bullet. There's no one little thing you do that solves everything. A lot of it is just fundamental, the basic building blocks of how to build a high-performance organization with people who like working here, with customers who are happy, and with a service that's delivering value. And with a cool pig.

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