Bebo founders Michael and Xochi Birch

Company: Bebo
Founders: Michael and Xochi Birch
Age at start: 35 and 33
Background: Insurance and online ventures
Start year: 2005
Business: Social networking site

When social networking site MySpace sold for a whopping $580 million in July 2005 and YouTube followed suit for a mind-blowing $1.65bn in October 2006, critics in the UK asked how and why the US had managed to steal the show.

Thing is, they were wrong and their children could have probably told them why in one word: Bebo.

Bebo is a UK based "social networking website", similar in nature to sites like MySpace.

While many might still not be familiar with it, in the UK more people now visit Bebo than visit the BBC online or Amazon. The site has signed up a staggering 28 million members in its first 18 months.

So just how did Michael Birch, the site's founder, create such a phenomenon? "By giving people want they want and not giving them something they don't want," he answers simply, "and by not being greedy".

Network knowledge
That sounds simple enough, but Bebo's success was also the result of a long process of trial and error for

Bebo has become one of the big fish in social networking

Michael. Since quitting his IT job at an insurance company, Bebo was Michael's sixth online venture. Three had failed, two were moderate successes and Bebo, of course, has been a total smash.

Michael knew from an early age he wanted to start and run his own business, and the arrival of the internet provided the impetus, and more importantly, the platform he needed - and that he also understood.

Stumbling upon success
Michael had success with one of his earlier websites, BirthdayAlarm.com. This is a diary alert site that reminds you of key dates by email, to stop you forgetting people's birthdays or anniversaries.

Once this was up and running successfully, Michael started experimenting with online social networks.

"Online social networking" is the new phenomenon that has taken the world by storm, and in particular people under the age of 25; for those that don't know what this means, it involves a website where anyone can register and set up their own profile page, telling people what they like and dislike and allowing them to communicate with one another.

"I was fascinated with the first social networks such as Sixdegrees.com," he says, "and had ideas on how that content could be improved. We designed a social network in 2003 called Ringo.com."

Ringo proved an instant success and Michael and his team struggled to cope with its growth. So decided to sell just three months after starting it.

"We just couldn't afford to throw resources at it, we'd had three offers in a week and it was the hot property of the time," he recalls. "It was the second biggest social network next to Friendster. We decided to sell and focus on other things we were running at the time."

The birth of Bebo
Having played around with a number of emerging social networks, Michael sat down with a blank piece of paper to produce what, in his eyes, would be the ultimate network. It emerged initially as a photo-sharing network - but quickly evolved into a broader social networking site by the time a non-compete clause from the sale of Ringo had expired.

Standing out from the crowd
Michael was aware he had to enter the market with a unique proposition. For him, it was to address the youth market with a product that matched their user demands and understood exactly what they did - and did not - want from a network host.

"We always intended Bebo to be a broad social network," says Michael. "Where there were niche verticals such as YouTube, we always wanted Bebo to be for everyone."

That also meant not being too complicated or as feature-heavy as some competitors.

"It's designed to be simple to use. You can register, get a homepage and be up-and-running in minutes. There is a depth of features that a power user would want, but you don't need to use them. Other sites put people off by being too tricky."

The second fundamental issue for Michael was to create an environment to harbour and encourage a network - something he insists is key to the member numbers Bebo has attracted.

"It's about trying to encourage a healthy community without trying to dictate how that community behaves," he explains. "We control things such as pornography otherwise that would just escalate, but we won't delete things because we think it's silly. If you want to create profiles for your dogs and cats, that's fine by us.

"We've been very careful about using the right language, treating people with respect but making it light-hearted and fun.

"It was absolutely crucial that we weren't too corporate," he says. "If you're too corporate, the social network society will backlash against it. They don't want a corporate feel or for a large corporation to be running it."

Guerilla marketing
Not being "too corporate" meant mass advertising was a no-go. For most cash-starved start-ups void of marketing budgets that's great news, but it's also a major test of product too.

"It's almost impossible to contrive a natural-feeling social network by driving people there," says Michael, drawing the comparison that Milton Keynes was a perfectly conceived city that nobody wanted to live in.

As a result, there was almost no launch advertising or promotion for Bebo when it went live in July 2005. "I threw a link up on BirthdayAlarm.com for, I think, two days, then we took it back down," says Michael. "So we literally just seeded it with the first few people and then it just grew on its own."

The Cost Behind the Craze
In terms of initial startup cost, Michael already had two technical programmers working for him on a freelance basis and insists that the launch site "didn't cost that much". Initially, his and co-founder and wife Xochi's wages, in addition to the programmers' fees, were just covered by BirthdayAlarm.com profits.

Aware that growth could be brisk from his experiences with Ringo, Michael also invested in new servers to support the anticipated new traffic. But Bebo was quickly in a position to support the purchase.

"Within a month it was generating revenue from advertising," says Michael. "It took another month for that money to come through, so within eight or nine weeks it was cashflow positive."

Michael used a thrid-party company to seel advertising and a widely available software product to "serve" the adverts to their site - enabling Bebo to start far faster than had it done everything itself.

This also allowed them to sell advertising in different countries even though they were only based in one.

Advertising is Bebo's sole revenue stream - but Michael insists long term success and wealth is better achieved by nurturing it, not exploiting it.

"Ultimately it is all advertising," he admits, "but advertisers are always looking for new ways to reach people and while banner advertising works very well, engagement marketing is becoming increasingly popular. Placing ads outside traditional ad units helps it get noticed and then people also don't think of it as advertising."

Looking Back
Bebo's membership figures today are incredible, yet the company is not two years old and it's only fours years since Michael was still banging his head in frustration on his insurance desk.

Michael insists he wouldn't have got where he has if it wasn't for his determination not to be deterred by failure - three times. Ultimately however, he insists it was a combination of this and the ability to let go of a stumbling idea that let him move forwards.

"You need to know when to quit. We could have spent our lives on three websites that might never have worked. Quitting one idea shouldn't de-motivate you."

David Lester is a successful entrepreneur, the founder of the small business website startups.co.uk and the co-author of How They Started (Crimson Publishing, £12.95)