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Last Minute Tips for a Solid gTLD Application

John Matson

With the new top-level domain (gTLD) application process down to the last two months, here are three last minute tips on how to submit a successful gTLD application to ICANN:

1. Show your work
2. Don't go negative
3. Make your application stand alone

Show your work. Sometimes the most obvious information is also the most important. In ICANN's supplemental notes under the "Best Practices" section, the first best practice ends with the parenthetical statement (i.e., show your work). For an applicant, these may be the three most important words in all the ICANN guidance.

Your written application and attachments are the only means to communicate with the panel evaluators reviewing your application. And any individual panel evaluator may review 10 to 50 applications. Remember back in algebra when your teacher made you write your math calculations on each side of the equation? It is the same idea here. Make it easy on the evaluator to understand your rationale.

Not sure if your Continuing Operations Instrument (COI) calculation is "correct" because you are choosing between straight-line, stepped-level or tax-table method of COI guidance table interpretation?

Are all of your calculations hidden away in a mass of spreadsheet attachments to each financial answer?

Put key tables or equations in-line with your answers so that the evaluators can easily understand your calculations. That will help simplify their review of your gTLD application. If your answer is "not applicable," explain why or why it is zero. Show your work.

Don't go negative. It is not only a political campaign strategy. It is also a worst-case scenario principle.

When you evaluate your worst-case scenario, make sure that your cash balances never go negative during any month of the three years of operation. That would be a bright red flag to the financial evaluators that you have not resourced your string adequately. Worst-case scenarios should include significant cash inflow reductions coupled with reasoned cash outflow reactions.

The key characteristic to be demonstrated is sustainability of the registry. If the cash balance goes negative, it's game over. Increase your initial cash funding to cover the shortfall or take more drastic action to cut costs. Don't go negative.

Make your application stand-alone. Let's say that you are applying for three top- level domains and have a parent company that is allocating cost down to the three applications. Each application absorbs one-third of the parent cost and all things are good. Right? Wrong. You have now just made the cost structure of your application dependent upon the approval of another application. What if only one of your applications passes initial evaluation? Does that mean that ICANN should burden each application with 100% of the parent cost structure as a worst-case scenario?

How you organize your parent business is important. But how you determine the method to allocate those costs to multiple applications is more important. First, start with the unique elements of each individual registry and develop the cost rationale for independently running each string. Then find comparative cost structures in the industry and provide your evaluators a clear rationale for your estimates.

The total cost of your individual applications will likely add up to more than your planned parent company allocated, but now each application stands alone in its cost structure. This also provides a more conservative cost estimate for the application. Make your application stand-alone.

These are basic tips but ones that can help make your application more reader friendly to the panel evaluators. Submitting an application by April 12 is only the first stage of a long race. But only those who pass initial or extended evaluation have the opportunity to go on to the next stage. To increase your odds of participating in the next state, the old adage still rings true: "put yourself in someone else's shoes," in this case of course, the shoes are those of the panel evaluators. Remember to show your work, don't go negative and make your application stand-alone.

By John Matson, Co-Founder and COO of Architelos. Mr. Matson has advised Fortune 500 companies on cost structures, margin enhancement and implementation of new growth-oriented business models. He has performed several projects for ICANN, including advising on the new gTLD program and benchmarking previous gTLD launches. Architelos provides Top-Level Domain (TLD) application guidance and front-office services for clients in the DNS and IP industry. Mr. Matson can be reached directly at jmatson@architelos.com.

Related topics: ICANN, Top-Level Domains

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Comments

Before jumping into cost and cash flow Alex Tajirian  –  Feb 22, 2012 11:14 PM PST

Before jumping into cost and cash flow estimation issues, shouldn’t you have a sound competitive strategy on which you build your expected cash flows? By first warning against estimation issues, you are putting the carriage in front of the horse.

If the cash balance goes negative, it's game over. Increase your initial cash funding to cover the shortfall or take more drastic action to cut costs. Don't go negative.

If your forecasted cash balances go negative, one solution is to follow your suggestion of increasing initial cash balances. But that adds an opportunity cost resulting from “cushion” funding. Alternatively, you can borrow short-term to finance your short-term imbalances, which is the typical solution to short-term liquidity problems.

When you evaluate your worst-case scenario, make sure that your cash balances never go negative during any month of the three years of operation.

Shouldn’t you first concentrate on cognitive biases in determining the worst case scenario? Nevertheless, a large number of successful tech IPOs had negative estimated profits in the few years following the IPO. Are you saying that financial markets should have abandoned these IPOs because they had “a bright red flag”? Or are you saying that the new gTLD “financial evaluators” don’t know any finance?

The total cost of your individual applications will likely add up to more than your planned parent company allocated, but now each application stands alone in its cost structure.

I am confused. How can the total cost of three independent projects be more than the sum of the individual initial costs? Shouldn’t the total initial cost be less due to synergies in application preparation? Evan if you look at the three applications as a single project with probabilistic future cash flows, the initial cost should be less than the sum of the individual costs.

Alex, thanks for your comment. My tips John Matson  –  Feb 28, 2012 2:37 PM PST

Alex, thanks for your comment. My tips are meant to be pragmatic for the applicant.  Yes there are sophisticated financial considerations related to any TLD application, as we advise all our clients who have considered and/or applied for a new TLD.

My last point was that the cost represented in multiple applications should be more than what the parent business plan is likely to show. The parent business plan will take into account synergies of multiple TLD's in operation.  But ICANN is not concerned with approving your portfolio business of TLDs.  ICANN is concerned whether you have demonstrated the financial and technical understanding and resources to operate the string of the application.  ICANN can’t determine if an applicant for multiple TLDs will end up with one or several TLDs.  Some of an applicant's TLDs may pass initial evaluation but what if there are multiple other qualified applicants and the strings go to auction? 

What I’m saying is don’t put your "synergies" into your independent string applications.  The synergies may never happen.  Each application must stand on its own cost and merits.

John

gTLD Applications - The Financials - Cashflow profit / Accounting profit Phil Buckingham  –  Mar 04, 2012 6:24 AM PST

John, Excellent tips . Definately agree with all three.
Alex, If I were a financial evaluator and saw negative cashflow in your worst case scenario . Goodbye $185000. Dont confuse accounting profit and cashflow profit .Again if I were a financial evaluator I wouldnt expect to see any accounting profit for the vast majority of applications in the first three years of registry operations.
Applicants( and their consultants ) - we will be organising a "private session" re financials for gTLD applicants @ ICANN CR . Get in touch. Phil

As I noted in my comment, to Alex Tajirian  –  Mar 04, 2012 6:49 AM PST

As I noted in my comment, to remedy potential negative short-term cash flows is to include a short-term financial cushion account, not a longer term initial capital. Thus, there would be no negative cash flows showing in the valuation analyses.

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