Peder Sahlin is the CFO of online dating service, Avalanche. Avalanche is now in its 18th year in the business, having launched on Valentines Day 1997. It now has 20 niche and general dating sites, catering for every demographic.
Peder joined Avalanche in 2005, and during his tenure, the company has gone from strength to strength.
We sat down with him.
How did you get started in finance?
For me it was a career change. I went from a high school drop-out working as a mechanic to a CPA with both a bachelors and Master’s degree in 7 years starting in my early 30’s. Since then I have worked primarily in highly entrepreneurial companies and for the most part directly with the principals and senior management. So far I have been in specialty chemicals, agriculture (flowers), pharmaceuticals, Audio-visual (sales, distribution, installations, and government sales), construction, defense industry sales, and now online dating.
My career path is a bit different. I dropped into a position right out of school, working directly with the founder of the third largest printing ink manufacturer in the US.
What unique challenges have you faced within your industry/in your role with your current company?
In my industry, which is internet social networking - in other words online dating - there are many challenges we face. One of the major challenges is dealing with the merchant accounts (the CC processors), as we are considered a high risk company. As such it is very hard for us to board our sites for credit card processing and we need multiple accounts to spread the risk. Many of the banks will not take us on as their portfolio within their Bin (the accounts they hold) might have too much risk in them already. The rules for Visa and MCI (in the US) are no more than 100 chargebacks per mid, and if you are over you must be under 1% in chargebacks. We have a business model that is a credit card not present/recurring billing that makes things a challenge for us to stay under the guidelines with the CC companies. We do it by having multiple mids per revenue channel (site), and we make sure we never get near the 100 chargebacks in a month. We kind of run under the radar.
We also face continuous challenges in fighting both friendly and unfriendly fraud. Unfriendly fraud is a constant in the internet. In our industry it's basically stolen credit cards that someone is trying to use primarily for romance scams. Friendly fraud is someone who pays for something and then decides they do not want to pay for it, so they call their CC company and chargeback the transaction. The calculation to figure CC CB ratios is initiated chargebacks / total transactions per month. It does not matter if the CB is unsubstantiated or not it counts against you.
The industry itself is also changing. At one point in time, the major players would spend massive amounts of capital to try and attain critical mass for their sites to get them to be self-sustaining. This was kind of a “build a house and they will come” strategy. This strategy failed as they ran out of capital, and once they did their sales fell. What drives this is the high churn most sites face, for us, our membership rolls over every about 4.5 months. Some M&A targets I have looked it there subscriber base rolls over in less than 2 months.
We avoided this, and have so far survived where many have failed. Now these players are either trying to sell their companies or they are starting to understand that you need to spend capital for profitability as you cannot throw good money after bad. Also, to try and compete in this space you cannot really go after the market as an all-encompassing generic dating site as there are too many large players, such as Match.com and E-Harmony, to compete against. What we opted to do, and we have been successful in accomplishing, is to diversify into niche sites. Our best growth sites are currently dating sites for seniors, golfers, and geeks and nerds.
To what extent have you seen the finance function further integrate with other areas of those business in recent years?
The finance function actually integrates into all functions, you become the mentor to show management what really matters and what does not in the business. I am involved heavily in cost accounting and modeling for marketing. I also look at how they run things and make suggestions so that they look at things a bit different than how they look at things. For me, I look at the forest, for departments functions, they look at the leaves and sometimes things just need a little emphasis that they do not see in the details.
The same is with the principals, especially in regard to M&A and capital preservation, which I have been heavily involved with.
What will you be discussing in your presentation?
I will look at the CFO in a highly entrepreneurial environment. Basically, you act in many roles, not just as a CFO. A lot of the time you are more of a mentor to the principals and senior management more so than anything else.
You can hear more for Peder at the Corporate Performance Management Summit in Miami this January 27–28.