When Carley Roney and David Liu met, they were undergraduates at New York University. But it took eight years for them to fall in love.
"While we didn't spend much time talking to each other, we probably saw each other every weekend for a year," Liu said of the art-school program he and Roney were both enrolled in.
"Yah, and we spent two weeks together in the Soviet Union [through NYU] in which we exchanged exactly one word," Roney chimed in.
Years later, the two ran into each other at a party. Suddenly, it struck Roney: "David's kind of cute!"
After that the pair were inseparable. Within seven months, in July 1993, Roney and Liu were married. It happened so quickly, Roney says her mother was convinced she was pregnant (she wasn't).
By 1995, they had started their first business venture together, making CD-Roms for brands like the Smithsonian.
The next business they founded was The Knot, in 1996.
The Knot, now known as XO Group, is a publicly traded company with a number of lifestyle brands in its portfolio, including The Nest for new homeowners and The Bump for new mothers. Liu says 80% of women planning a wedding join The Knot.
It hasn't been easy growing a publicly-traded business together. In fact, Liu and Roney give the following advice to other couples who want to co-found a company: "Don't try this at home."
Business Insider spent an hour chatting with Liu and Roney about their 18 years in business together, and how they created a lasting wedding brand from scratch.
Here's the lightly edited tell-all:
Business Insider: Your wedding didn't go as planned—it was on a rooftop in July without air conditioning on the hottest day in 10 years. How did you end up running a wedding business, when you didn't know much about weddings to begin with?
Liu: We did something terrible in our past lives, I think.
Roney: You do whatever you do when you're in the hot seat. You call everyone you know to call everyone they know to find anyone in the industry. I did everything from calling my high school best friend's fiance's dad because he ran a veil company. I remember thinking "Oh my gosh, what are we getting into here?"
We just went about educating ourselves and learning everything about weddings. I read 20 back issues of every bridal magazine I could find.
Liu: This was 16 years ago [The Knot launched in 1996]. It was a different time. The qualities we've held as high importance to be successful are curiosity and the desire to learn. Our approach was, "It's an exciting opportunity, we see these magazines as enormous, advertising-filled products and there's clearly demand."
There's a level of naivete that I think makes entrepreneurs successful. When you know too much you know enough not to start the business.
How did you establish roles both at home and in the company?
Roney: There were four of us who founded the company. I handled the consumer team. David had the entrepreneurial background and knew about technology. Another was into promotions and sales and the other came from an advertising agency. All of us went to film school together. We ran in our own directions and it worked.
Liu: We worked long 16-hour days, seven days a week. It wasn't until we got venture-capital financing that we needed a CEO. They said I was the person.
How did you manage three children and a startup?
Roney: We had our first baby at potentially the worst time ever—about 15 minutes after getting our first venture-capital financing.
So the heat turned on just about the time the baby popped out and it was a really, really challenging time. I took a two-and-a-half-week maternity leave and then brought the baby into the office.
We had a really tight staff who didn't care that there was a baby wandering around in the back. If I had a meeting or David had a conference call we'd give the baby to the intern who'd get strapped into a baby Bjorn.
You learn very quickly how to balance it all. You work in the middle of the night when the kids are asleep and you eat a lot of take out.
I get asked to be on panels about work-life balance. There's no such thing. When you have kids, it's work-life imbalance. At first you panic and think you're doing everything poorly. Then you learn you can be incredibly efficient. Having kids has made us better managers and more understanding.
In The Wall Street Journal, you said investors don't like married couples and you had to hide the fact that you were married. Is that true?
Liu: Carley didn't take my name. I don't think we were actively hiding it but it wasn't evident. When we were doing rounds of financing, one investor mentioned that the job of a venture capitalist is to manage risk. So they may like an idea and an opportunity and the entrepreneurs, but when you invest in a married couple, you invest in an element of risk that is uncontrollable.
That's not to say you can't get outside financing, but it is something, I think, that gives investors pause.
We brought our marriage up to our VCs right before we closed on the deal. Our VC [had invested in three other couple-founded startups] and invested anyhow. I asked after what happened to those three couples. They said one was a huge success and two of them were complete failures that wound up in divorces.
Is it difficult to be married to a fellow entrepreneur?
Liu: Particularly in the startup phase, you are spending most of your life with the people at work, and your work becomes your family.
If your spouse isn't actually working with you, I think there's a greater chance you wind up in divorce because of the lack of understanding of the intensity. The passion for the business steals the attention and time.
Our other two partners had significant others during that time ... unfortunately their relationships did not survive.
Roney: I'd hate to just be married to an entrepreneur. I'd rather be married and working with an entrepreneur.
Your advice to other couples is: "Don't try this at home." Why?
Liu: Cofounding a company with a spouse is really hard. The rate of failure for startups is so high that you kind of attach your marriage to a business that has unpredictable outcomes.
As a married couple in business together you will experience highs that most couples will never experience. When you close a big deal or IPO with your spouse it's extraordinary. But some of the lows can be unbelievably dark. Deeper and darker than other couples will likely experience.
Marriage is tough as it is. To add the unpredictability of a business is really hard. You have to really make sure you're ready for the ups and downs.
Roney: That said, we're big supporters of married couples with startups and have personally invested in them. We actually think it's a competitive advantage because we know they're doing business more hours of the day than anyone else. When you're brushing your teeth and pillow talk is all strategy.
Let's talk about this business you've spent 16 years building. How big is XO Group, as The Knot is now called?
Liu: We now have 650 employees. 80% of women planning a wedding sign up to be our members ... there is definite carry-over of membership across our brands—The Nest, The Bump, etc.—just not in the order you would think.
Roney: We have 17 city guides for weddings that come out twice a year and a national Knot magazine that comes out four times a year. The Bump has a magazine that comes out twice per year.
Liu: Our publishing is up 18%, which shocks even us.
And the site launched on AOL?
Liu: We were seed-financed by the venture arm for AOL. iVillage [also] came out of that. We launched on AOL in September 1996, and we didn't have a website until July 1997. There were no pictures on the Web and there was no advertising or ad servers online. It was the early days in the wild, wild West.
Roney: AOL had a platform, and they needed people to create "apps" to stay on the platform, kind of like Facebook now.... AOL liked our content category. They invested in us and an astrology group.
I kid you not, we were the first company to have advertising on our platform because we didn't really have another idea to make enough money for the business to survive. 2 million brides were not going to spend enough time on our section to make money. One of our first advertisers was Nicole Miller.
You survived the bubble burst, but barely. What was it like to be listed on an exchange, then delisted, then listed again? And how did you bounce back?
Liu: We went public December 2, 1999. I think we were one of the last consumer media companies to get out before the bubble burst. Our stock price doubled over the first day of trading then it descended over the next few years.
The requirements for being listed on NASDAQ are, if you trade below $1 for 90 days, you get booted. And we hit a low price of $0.26. You still remain a public company, you just trade in the pink sheets. We were delisted in 2001, just before the World Trade Center collapsed. Those were some of the darkest moments.
We never tried any tactics to manipulate the stock price. We always saw our revenue was growing and we were reducing our losses. By 2003 we became cash-flow positive. The hard part is getting attention from the equity market because once you're trading in the pink sheets, most hedge funds are no longer allowed to buy you. So you need the volume to get relisted.
It's not necessarily another IPO, but to get relisted you need to trade above $5 for 180 days. To get that kind of volume support, I spent a year with my CFO and investor-relations person going to investor conferences with doctors and lawyers and individual investors who might buy the stock. As people started seeing how profitable we were, we started trading above $5 and we got relisted in 2005. We made the decision to switch to the NYSE one year ago when we changed the name to XO Group.
How is XO Group doing now?
Liu: Now we have very high margins. Our gross margins are north of 80%. Operating margins are significantly less because we're investing in building the business. In the past year and a half we bought back $90 million of our own stock. We have no debt and still have $70 million in cash.
We have five different revenue streams. Local advertising (listing subscriptions; being paid by local vendors). That is our largest revenue stream. Then we have national advertising (Macy's, jewelry companies, etc). Then a registry business (comparison shopping meets an affiliate network). We get a commission on registry referrals. We have e-commerce (personalized napkins, glasses, etc.). Then we have our publishing business and the advertising that runs in our magazines. There are no membership fees for users.
How is social media changing your business? Is Pinterest a big competitor? Is it a struggle to stay relevant?
Roney: The more inspiration people are finding, the better. A healthy ecosystem is probably better for our business.
We were always built on social. We never came in to be the authority on weddings. We came in to be the connector between people. Our brand was built on word of mouth marketing. We created a world in which couples felt they were taking ownership and helping build this brand with us. Like a secret society and we were girls who were a couple of steps ahead of them, crowdsourcing advice from experts.
For example, on Valentine's Day we're launching a social initiative called The Knot Dream Wedding. The Knot Dream Wedding is the first ever live-streamed and crowd-sourced wedding. Beginning in January, America voted on everything from a couple to win the wedding of their dreams, to the theme of the wedding, tuxedos, etc. The couple is being flown to Bryant Park.
Liu: When you already have such a large market share, you're forced to be comfortable with the fact that there are other products people are going to rely on. We know that when that bride walks into that magazine store, she's going to walk out with all five publications.
We were never going to be the authority in the category, but we were going to be a place where you could talk to other women in the same mindset.
Final question: What is it like being the most prepared family in the world? You probably have more knowledge about marriage, homes and family-life than anyone else.
Liu: Well this is all knowledge we wish we had ten years ago! The day we drove home from the hospital with our daughter, our friend asked: "Do you have any diapers at home?"
We literally had to pull over to a 24-hour CVS to buy newborn diapers.
Roney: We're learning from our mistakes and helping everyone else not make them.
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