Wall Street Journal Small Business News

By Sarah E. Needleman And Emily Maltby
Google Inc. recently tweaked the way its search engine ranks websites, seeking to downplay sites it suspects of artificially boosting their rankings. Now some small businesses say they are scrambling to avoid being relegated to the Internet's junk bin.
Among them is Andrew Strauss, the 47-year-old co-owner of San Francisco-based Oh My Dog Supplies LLC.
In the past, about 70% of his customers found his company from the results of Google searches, often for terms such as "dog beds" or "dog clothes."
Ever since Google's algorithm change at the end of last month, he says his website isn't showing up in Google rankings—at least not where most people would see it.
Traffic through Google has plunged by 96%, he says. Mr. Strauss expects his six-year-old business to generate sales of $25,000 this month, down from $68,000 in March, the month before the changes. "We're completely crippled now," he says.
Mr. Strauss thinks it's possible his site's rankings nosedived because he had paid for hundreds of inbound links in response to a traffic drop of more than 50% following one of Google's 2011 algorithm changes. He says he abandoned that strategy because it didn't work.
His business also contributes posts about dog-related topics to websites like EzineArticles.com and Squidoo.com, with links to his site in each. Still, he doesn't believe his site should be punished for that. "It's just a regular marketing activity," Mr. Strauss says.
Google declines to divulge specifics of its search-ranking algorithm, but it discourages paid links and low-quality website links. According to Google, the recent shifts in its algorithm, known as "Penguin," will enhance the user experience and don't punish businesses that follow its guidelines.
"The Penguin algorithm update was designed to reduce Web spam, which is when websites try to get a higher search ranking than they deserve by deceiving or manipulating search engines," says Matt Cutts, a Google engineer. "In many cases, the affected sites had been spamming for a long time," Mr. Cutts adds.
Among the tactics Google dislikes are "keyword stuffing," or overloading Web pages with keywords, and paying for inbound links as a way to artificially boost search rankings.
Google makes about 500 changes to its algorithm annually. Penguin, the most recent update, affects only 3.1% of U.S.-based Google search queries, Mr. Cutts says.
Ralph Slate, 43, of Springfield, Mass., also says he's getting pushed way down in the rankings as a result of the recent changes.
In the past, his database of hockey players often appeared in the first page of rankings when users searched for hockey players such as Evander Kane, or Jonathan Toews, for instance. But now, HockeyDB.com appears several pages deep into the ranking—an area where Mr. Slate worries few Google users would bother to go.
Traffic to HockeyDB.com is down by roughly 30% from the 50,000 daily visitors it was averaging prior to Google's update, he says.
Mr. Slate suspects the reason is that thousands of other websites, including hockey forums, link to his HockeyDB.com. He doesn't know which of those other websites Google might view favorably or unfavorably.
"I have never paid for a link, and I don't do link-sharing sites," says Mr. Slate. "I don't do keyword stuffing. That's why this is so frustrating."
Google provides free tools, exposure and advice for webmasters and small businesses around the world, Google's Mr. Cutts says. "We're trying to level the playing field for those focused on building useful sites with compelling content for their users," he says.
Because Google makes so many changes to its algorithm, it's often difficult for small-business owners with limited resources to stay on top of all of its tweaks, says Barry Schwartz, a search-engine analyst in New York. ‪
Still, those whose business models rely mainly on Google to draw customers to their websites should plan to follow Google's guidelines, advises Lee Odden, a search-engine marketer in Minneapolis. "You want to make sure that income doesn't go away," he says.‪
Some entrepreneurs say that as a result of Google's recent adjustments, their websites are getting boosts.
The Austin, Texas, company SpareFoot Inc. has seen traffic to its website double in the past few weeks, according to Tony Emerson, who handles search-engine optimization for the 41-person firm.
"It was vindication," he says, because he believes that some of his competitors engaged in unfair practices to get their sites to rank higher than his. "It's been frustrating. We'd been doing the right thing for so long."
SpareFoot, a database of storage companies, gets paid each time a customer who is moving—or simply needs extra closet space—uses one of the self-storage facilities listed on the site. Mr. Emerson projects the heightened traffic will yield a proportional increase in sales.
"We should fare well," adds Jim Hale, a marketing manager for the Mayo Clinic. The Rochester, Minn.-based medical nonprofit saw its traffic increase 63% last year, compared with 12% in years prior. Mr. Hale credits Google's earlier rounds of algorithm changes as the biggest factor for its traffic increases.
But Michael Eisenwasser, president of SongLyrics.com, a subsidiary of SoundMedia Inc. in Chicago, says his website is suffering. Traffic to the website, which relies mainly on advertising to generate income, has declined 20% from Google since Google's update last month.
Mr. Eisenwasser says he doesn't believe he's guilty of violating Google's guidelines. But he suspects his site's rankings suffered because low-quality sites point to his. "We're being punished because other sites are linking to us, sites we've never talked to," Mr. Eisenwasser says. He's now trying to contact the sites to ask them to remove the unwanted links in hopes of restoring his site's previous ranking on Google, he adds.
Stained-glass artist Pam Hansen, 57, of Savannah, Ga., thought she was helping her Internet business by reciprocating links with other websites and signing up to get her site on link exchanges, such as LinkPartners.com and LinkMarket.com.
Now, she's racing to remove the links because her site, AGlassMenagerie.net, is ranking much lower for certain search terms, such as "stained-glass windows"—one of her top products.
"I'd rather focus on doing the glass but I'm spending all my time trying to redo the website," says the entrepreneur, who launched the business in 1996. She has no formal computer training, she adds.
Ms. Hansen says she knew there was a problem the day Penguin launched. Her Web traffic, usually hovering between 500 and 600 visitors a day, plummeted to less than 200.
She used to get several customer inquiries and one or two orders each week—but no more.
Write to Sarah E. Needleman at sarah.needleman@wsj.com and Emily Maltby at emily.maltby@wsj.com ...

By Angus Loten
David Karp has focused on expanding Tumblr Inc.'s network of free bloggers for the past five years.
Today, 55 million of them are posting text, photos and videos on the site. Even Beyoncé and Jay-Z turned to Tumblr's blogging platform earlier this year to release the first photos of their newborn to the public.
But now, both Mr. Karp, a 25-year-old New Yorker, and his company are heading into a risky new phase: making the site profitable. For the first time, he is making plans to sell advertising and sponsorships to Tumblr's network of bloggers and their followers.
It's also a big switch from product development: In the past, Mr. Karp has been critical of Internet advertising, even saying that traditional online ads turn his stomach.
Meanwhile, his long-time mentor is moving on. John Maloney, Tumblr's New York-based president since 2008, is leaving the firm this month.
The departure will result in some significant changes because, according to Mr. Karp, Mr. Maloney has put "everything in order" at Tumblr, from paying the bills to wooing investors, hiring staff and steering day-to-day operations.
Mr. Karp says he has never worked for—let alone run—a company of Tumblr's size. He got his start in the tech world at the age of 15, when Mr. Maloney hired him to write computer code for Urbanbaby.com, a parenting Web site.
Mr. Karp later used his share of the proceeds from Urbanbaby.com's sale in 2007 to start a Web consulting firm where Tumblr was initially a side project.
Tumblr, which was named after Web posts known as tumblelogs, now has 105 employees. It was valued at $800 million last fall, when it raised $85 million in a funding round led by Greylock Partners and Insight Venture Partners.
Mr. Karp spoke to The Wall Street Journal about how he started the company and where he's headed with it next. Edited excerpts:
WSJ: How did you get the idea for Tumblr?
Mr. Karp: In 2006, the idea of having an identity online that was totally yours was the thing. But the established tools were geared to writers, and I wasn't a writer. I needed tools to share little glimpses of the stuff that I was working on, looking at, reading, watching. That was the impetus for Tumblr.

WSJ: What made it take off?
Mr. Karp: Six months in, we introduced the ability to follow blogs. Twitter had formalized the follower model. And we're like, make this a consumption thing, too, not just a content-management system. That changed everything.

WSJ: What's wrong with online ads, in your eyes?
Mr. Karp: The video ads that we're hit with are always in the form of pre-roll, the video reel you get at the front of an online video. So they're delivered at the most frustrating moment possible. And everything else, I think, is strikingly uncreative.
We've seen brands show up and use our tools very creatively. Our promotional tools are built around elevating that stuff up to the top more quickly. We were already promoting a lot of this content.
Now, 5% of the time we're not the ones pulling those levers. The advertisers will now have the opportunity to buy a chunk of that attention.

WSJ: How do you think your bloggers will react to Tumblr with ads?
Mr. Karp: Our ambitions are to keep Tumblr true to what it is. And to us, that's a platform for creativity.
We want lots of ways to promote yourself on Tumblr when you've got something great. You can hustle and do it organically, or you can feed a little money into the system to jump start it.
The next extensions of that are being able to make it stand out even more, having it featured in front of users who aren't following you yet.

WSJ: How do you expect things to be different without your mentor at your side?
Mr. Karp: John had been sticking around to look out for me, keeping the bike steady as we learned how to ride. He saw the path for Tumblr being to build a really great and experienced leadership team. And that's what he's spent the last year doing.
Before that, it was basically me with my head down over in the product team. If anything else came in, I would say, "John can take this, I don't want to deal with this."
Write to Angus Loten at angus.loten@wsj.com ...

By Javier Espinoza
Small businesses are about to get a powerful new tool for raising capital—crowd funding.
Under the recently passed Jumpstart Our Business Startups Act, small firms will be allowed to sell equity stakes online to large numbers of investors, just as some companies now solicit funds on platforms like Kickstarter.com. And businesses won't face the usual rules and red tape that come with larger equity offerings.
Even though the process will be simpler, there are a lot of nuances and potential pitfalls companies will need to keep in mind. We asked experts for their best advice and biggest caveats.

The easiest way to offer stock online will be to use an existing platform like Kickstarter, experts say. A few sites have even handled crowd-based equity sales using different methods, such as permitting only sophisticated investors to buy shares.
But after the JOBS Act takes effect later this year or in 2013, many new sites will likely enter the market. How can you tell what's the best choice?
David Millard of law firm Barnes & Thornburg LLP in Indianapolis recommends carrying out extreme diligence on any site you might use. "You want to make sure that the platforms are not fly by night, they satisfy the legal obligations" imposed by the Securities and Exchange Commission, he explains.
Of course, he says, just because a site has a good pedigree doesn't mean it will take hold as the industry standard: "In the tech world, the tried, true and established can become irrelevant and passé overnight."
Under the new rules, businesses will be able raise up to $1 million annually, and most small investors can give up to $2,000 total. But how do you decide what your company is worth? And how big of a stake should you sell?
A common mistake that small-business owners make, experts say, is to give away too much of their equity when they are at their initial stages of raising capital.
"You started your business to keep as much equity as you could, so you should work hard to do that," says Dave Lavinsky, president of Growthink Inc, a business-planning firm and investment bank.
Michael Bush, a small-business adviser in San Francisco, recommends offering less than 10% of equity. As for valuation, he offers a rule of thumb: Figure out how much annual revenue you expect your company to bring in two years after raising the capital. Then value the business at one to two times that number.

One of the biggest changes in the new rules is removing limits on who can invest. Unlike regular stock offerings, crowd offerings are open to people of any wealth level, and companies can reach out to them directly through social networks and other venues. But that doesn't remove a very basic hurdle: Lots of people won't want to be the first on board.
"Anyone who considers funding you knows exactly how much you raised already," says Mr. Lavinsky. If investors "go to the site, and you have zero dollars raised, [they] are going to be skeptical."
One solution is to tap your existing customer base. "Nurture your customer base and have loyal customers," Mr. Lavinsky says. "When it comes to crowd funding, you will already have an existing relationship with those people."
Companies might also consider turning to suppliers as potential stockholders. Still, some experts recommend caution, since investors will have access to the financial statement a company files with the SEC.
"Business owners should think about whether or not they want their suppliers and vendors to have access to sensitive information like margins and earnings," says John M. Torrens, a professor of entrepreneurial practice at Syracuse University's Martin J. Whitman School of Management.

Under the new rules, small businesses don't have many reporting obligations.
Before they sell stock, they must file financial statements with the SEC and disclose any risks related to the offering, says Mr. Lavinsky. They also need to make available to potential investors their income-tax returns for the most recent year, as well as certified financial statements. Aside from some other rules aimed at very large investors, that's essentially it.
Still, experts advise that it's a good idea to go beyond those basics. For one thing, says Mr. Bush, small companies should be specific about how they plan to use the funds that they raise from investors.
"If someone asks you how you're going to use the money, you should be able to be very specific and provide a lot of details," Mr. Bush says. "You don't want to say general things like, 'to buy new equipment.' "
Experts also think that it's a good idea to give investors regular updates every three months or so, perhaps in the form of a webcast or an email newsletter.
"Let them know how the business is doing, where you've been having some trouble, what you're going to do to mitigate that trouble" and other important points, says Mr. Bush.
It's also important to spell out those ground rules early on. "Let them know that you will be providing updates this way prior to getting the money," Mr. Bush says. "You will not be returning phone calls because you need to focus on your business."
Mr. Espinoza is a London-based staff reporter for The Wall Street Journal Europe. He can be reached at javier.espinoza@wsj.com.
...

By Barbara Haislip
Like the saying goes, a picture is worth a thousand words. But many of the pictures on company websites inspire just one: "Huh?"
Without the resources to hire professional shutterbugs, many small companies tap employees to handle the pointing and clicking—with disastrous results. They put up product pictures that are too fuzzy to make out. Or employee photos that are more embarrassing than the ones in a high-school yearbook. Sometimes they even use shots that are patently off-putting, like a picture of their offices with traffic cones and construction rubble out front.

Whatever the problem, poorly considered pictures can hurt a company's sales and reputation. Sarah E. Endline, founder of chocolate maker sweetriot, found that out when she put blurry photos of her chocolate-covered cacao nibs on the company website in 2005.
Ms. Endline got emails from customers asking what exactly the product was. (One popular guess: chocolate-covered raisins.) The photos were so hard to make out, they even confused the staffers. "One time we almost printed the product photo upside down," Ms. Endline says.
The photo flub ate into her sales, she says, although she can't quantify how much. By 2009, she realized she needed better pictures, and turned to a French photojournalist, Jean-Luc Mège, whom she had met at a restaurant. The photos—both of the products and the company team—have been amazing ever since, she says. Now "customers love our photos," Ms. Endline says. "We put them in every delivery box and send them often as postcards."
Sometimes pictures don't just leave customers confused—they make them a little queasy, too. Matthew Griffin, president and chief executive of Baker's Edge, says he had some cringeworthy photos on his site between late 2005 and late 2006.
To show that the company's signature brownie pan could double as a roasting rack, "we had a photo that had our brownie pan with a huge, bloody hunk of meat on top—showing off its awesome features," Mr. Griffin says.
The photo "wasn't doing us any favors," he says. Customers asked, " 'What is a giant meat hunk doing on your pan?' " and " 'What is going on with the product?' " he recalls. Around April 1, some folks wrote to say they thought the picture was a great joke.
Mr. Griffin can't say how much business he lost due to the "horrifying meat pans," but by 2007, the company got the message and ditched the photos. It now taps employees who are talented photographers to take the shots, and has outside pros touch them up.
Another poor picture didn't bring any customer blowback, but Mr. Griffin suffered "direct consequences" for it: an image of his then-pregnant wife squeezed into a chef coat. She said it made her look "gigantic," he recalls. "I had to personally delete that image so I could stay married."
Some photo issues are more subtle than Mr. Griffin's, but can do just as much to hurt a company's image. According to presentation-design firm ProPoint Graphics LLC, one of the most common problems comes in the "About Us" section, where companies put up pictures and bios of their officials. All too often, it ends up as "headshot soup," with photos of individuals all taken at different times and with different backgrounds.
"The disparity in the photos distracts from the intended use of the photos, which is to portray a cohesive unit of individuals," says Daniel Pries, co-founder of ProPoint. "Rather, it portrays a jumbled assortment of individuals, which communicates inconsistency and carelessness."
In some cases, the individuals who show up on company sites don't even work there. "We have experienced clients of ours using stock photos in their presentations and website to represent actual people—mainly office or meeting shots," Mr. Pries says. One client, he adds, was called out on it by a customer "when the photos of their supposed people showed up on another company's materials."
Sometimes Mr. Pries has to use a bit of trickery to keep company presentations looking good.
In one case, a client had a corporate group shot in which everyone in the photo was wearing a suit except one person who refused to do so. Mr. Pries didn't want to leave the image as it was, because it would send a message that the company was disorganized. So, ProPoint grabbed a stock image of a man in a suit and put the suit on the dissenter in the group shot.
Getting those details right is crucial, Mr. Pries says. "The images you use should reinforce your brand and message," he says, "because in the end it is the pictures that your clients will remember."
Ms. Haislip is a writer in Chatham, N.J. She can be reached at reports@wsj.com. ...

By Shayndi Raice
Silicon Valley start-ups are being energized by some new big spenders in town: Facebook Inc., Groupon Inc. and Zynga Inc.
This year, Facebook and newly public Groupon and Zynga have been snapping up companies at a record pace. In the first three months of the year, the three companies bought at least 21 firms, more than double their combined acquisitions in the same period a year ago, according to Dealogic and people familiar with the deals.
While Facebook, Zynga and Groupon haven't been shy about buying companies in the past, they recently have ramped up their acquisitions pace and delivered some of their highest-ever prices for deals. Many of the deals, such as Facebook's purchase of app developer Glancee, are strategic moves into mobile technologies or new markets, instead of like past acquisitions to grab engineering or other talent.
The activity is an outgrowth of the huge sums that the Web companies have raised, or expected to soon raise, through IPOs. Groupon and Zynga went public late last year, snagging $805 million and $1 billion, respectively. When Facebook goes public this week, it is expected to raise up to $13.6 billion.
The rapid-fire acquisition pace and the swelling deal prices are rippling across Silicon Valley, boosting the expectations of many entrepreneurs and investors that lucrative—some would say overly expensive—payouts will continue.
"The effect [of Facebook, Zynga and Groupon buying companies] has been throwing a match into an already very heated venture environment," said Patricia Nakache, a partner at venture-capital firm Trinity Ventures, which invested in travel start-up Uptake that Groupon acquired in February for an undisclosed sum. "It is leading in the short term to an even more frothy investment environment."
Jason Willig, chief executive of San Francisco-based mobile game company Booyah, agrees: "I think there is tremendous opportunity for big exits."
Of all the companies, Facebook has been the fiercest acquirer, buying 12 firms in the first three months of 2012, compared with 12 for all of last year, according to Dealogic.
That puts Facebook in line with one of Silicon Valley's most voracious buyers, Google Inc., which grabbed 13 companies in the first three months of 2012, according to Dealogic.
Since the first quarter, Facebook's deal making has included its biggest-ever purchase: the $1 billion agreement last month for photo-sharing app firm Instagram Inc. At the time, Facebook CEO Mark Zuckerberg said the acquisition differed from past deals in that Instagram's technology would be incorporated into Facebook's mobile strategy to help the social network beef up its presence in the mobile market.
The Menlo Park, Calif., social network is spending its funds in other ways too, buying $550 million worth of AOL Inc. patents from Microsoft Corp.
Meanwhile, Zynga this year also made its biggest-ever purchase: a $180 million acquisition of games maker Omgpop in March. The sum exceeds the $147.2 million that Zynga said it spent in all of 2010 and 2011 to buy 22 companies.
Zynga declined to disclose how many acquisitions it has made this year apart from Omgpop.
Rob Coneybeer, a venture capitalist at Shasta Ventures, has seen firsthand how hungry Zynga has been in acquiring start-ups. He invested in 20-person mobile game company Wild Needle Inc., which he said Zynga scooped up several weeks ago for an undisclosed sum.
Mr. Coneybeer said Zynga executives were "rapid in their decision making and they made an offer that was easy to say yes to." Zynga wooed Wild Needle by selling the start-up on its reach and cross-promotion abilities, he said. Wild Needle employees were "really fired up," he added.
"Zynga can't afford to miss the next big hit," said Mr. Coneybeer. "Games have a shelf life so Zynga by definition will have to be a voracious acquirer."
Groupon, the Chicago-based daily deals site, bought seven companies in the first three months of 2012, compared with seven in all of 2011, according to Dealogic. But unlike Facebook and Zynga, Groupon isn't spending big sums, instead shelling out just $28.4 million on start-ups so far this year, according to a regulatory filing.
Recent deals include San Francisco mobile-payment company Kima Labs, which Groupon bought in February. Terms weren't disclosed.
Groupon said the purpose of the deals has been to snag talent to build up product and technology offerings. That is a shift from last year, when Groupon focused on buying daily-deal sites in international markets to expand its footprint.
Executives at Zynga and Facebook have sought to blunt expectations that their buying streaks will continue. Zynga CEO Mark Pincus said in an earnings call last month that big acquisitions such as Omgpop will be rare.
Facebook's Mr. Zuckerberg, in a blog post announcing the Instagram deal, said, "We don't plan on doing many more of these, if any at all."
But entrepreneurs aren't discouraged. Mike Ouye, CEO of games company Red Robot Labs Inc. in Mountain View, Calif., said Zynga's $180 million for Omgpop is a sign that entrepreneurs building one-hit wonders in the mobile space have the chance to sell that hit for potentially hundreds of millions of dollars. Mr. Ouye adds that he has already had some calls from bigger companies looking to buy, but wouldn't disclose the details of the conversations
Venture capitalist Ms. Nakache said hope springs eternal. "Silicon Valley is a glass half-full optimistic place," she said.
Write to Shayndi Raice at shayndi.raice@wsj.com ...