Tag Archives: co:Athleon

The Art of the Pivot

16 Mar

With little argument, there has been much written recently on the revival in consumer internet. While there is no shortage of micro-themes behind the current innovation boom in companies focused upon the consumer sector, one area of particular interest has been on “older”, Web 1.0-vintage companies that have succeeded in two critical ways – (1) navigating and surviving the bruising post-2000 tech downturn; and, (2) continually innovating against rapidly changing market dynamics and consumer behavior to emerge as market leaders.

In many cases, the characteristics behind succeeding at point #2 lies in the ability for a company to pivot–jettisoning an initial business model, hypothesis or core focus for another approach or business that appears more likely to be successful. A quick scan of leading companies in the Web 2.0 sphere, broadly defined, reveals a high number of companies already on their third or fourth business model. Some of these pivots can be considered modest iterations on a principle strategic direction while others were wholesale changes to an earlier business model and a dramatic shift in focus.

Athleon, an online suite of coaching and team management applications focused upon the collegiate and prep sports market (where I serve on the Board of Directors), executed a fairly mild but ultimately essential pivot in late 2009 as it abandoned its freemium model for an all-pay platform. Predictably, some feathers were ruffled and there were early adopters upset at the change in policy and direction. That said, customer churn was modest and the change proved essential for the success of the business. 

In an example of a more extreme pivot, a Citron Capital company which began life as an image recognition software provider applying neural nets technology to eCommerce (i.e. finding every e-tailer offering, say, red cardigan sweaters with black buttons) dropped the eCommerce focus in the aftermath of 9/11 and became a security software company applying its facial and image recognition technology to help screen passengers and automobiles at high security checkpoints (i.e., airports, border crossings, etc.) 

Cases of successful pivots are myriad. As such, given the frequency with which early stage companies are often faced with the challenges inherent in pivoting, it is important to explore this topic to uncover lessons from successful pivots and best practices to follow when contemplating a pivot. Here are a few things to consider:

1. Everybody pivots. There was a time not long ago when the notion of pivoting was perceived in some quarters as an unmistakable sign of failure. Fortunately, with the recent and open discussions by founders and early employees about pivoting that went on at some of the biggest names in technology, this stigma has seemingly passed. There is seldom anything more destructive to a company’s long-term prospects than a management team clinging to a failing business model for fear that changing direction would be perceived as weakness.

Companies no less esteemed than Flickr and PayPal started off in very different businesses but pivoted to what the market was responding to and went on to become juggernauts in their respective areas of focus.

2. The initial idea/hypothesis about the business is probably wrong.  Yes, this is true whether or not the founders raised capital against the strength of that idea or not. Experienced angel and venture investors understand that a fair degree of iteration will occur at an early stage company and will, in most cases, support management’s plans to allow the company’s strategy and even its purpose to evolve dramatically provided those plans are well-reasoned. Just as there is seldom anything more destructive to a company than a management team clinging to a foundering strategy, there are few things more damaging than investors that insist that the company pursue the strategy that was the basis for the investment when all evidence seems to support that that strategy is not winning in the marketplace. Fortunately, most investors are properly aligned, first and foremost, with seeing the company succeed regardless of whether the strategy that ultimately works was the one that persuaded investors to initially commit capital to the company. (As a side note, this is why entrepreneurs hear so often how important the team is to an investor. The right team is what motivates an investor to participate in a company. As I like to say,  ideas are easy; execution is hard.)

3. Align Motivations, Not Just Incentives. In start-ups, particularly those with a prominent engineering-driven culture, one common problem can be that some at the company become enamored with building “cool” products first and a successful business second. This, of course, is never actually verbalized. Instead, it is something that becomes evident when the products are built, they are indeed “cool”, but few consumers outside a niche-y, tech-savvy community really care about them. As such, the management team might have succeeded on a technical level — i.e., can they build great products that actually work? — but at the expense of developing a business that is filling a market need and appealing to a broad base of paying customers. In these cases, the pivot has to happen simultaneously with a candid examination of company culture to ensure that everyone at the start-up has the proper goals in mind and are defining success along the same lines. Those that are not “on board” with the new strategy inherent in the pivot are not likely to be happy with the new direction and should be allowed to leave the company.

4. Once the pivot is determined, it should be executed quickly. While careful deliberation is critical before a pivot, once that analysis has occurred, and a new approach is determined, and the team is re-aligned or reconstituted along the lines of the new strategy, the pivot should be put into action quickly.

5. It’s OK to focus the business more narrowly . In many cases a pivot involves honing down a business to fixing a particular problem or serving a particular need. This does not mean the business opportunity is smaller, however. Often, a company launches (and receives funding) because of its focus upon a large market that is in dramatic transition. Almost by default, this means that the company is awash in opportunity. As the company evolves, however, it begins to learn the idiosyncrasies of its market and begins to identify areas where its solution will be most successful and where it will find its raison d’être. This allows the company to avoid the problem of boiling the ocean and/or trying to do too many things. Few start-ups fail because they were too focused.

8 Tech Trends for 2011

14 Jan

This being January it is fitting that we take a look at the next twelve months and consider themes that will likely come to define the new year. Given the intense pace of innovation across IT broadly, I’ve kept these themes at a fairly high level.

Last month, we looked over our 2010 predictions and conducted a fairly detailed post-mortem. As such, let’s jump right into a discussion of the themes and trends that I believe will characterize 2011.

1. Globalization:  While many appeared not to notice, some of the biggest names in consumer internet enjoyed robust growth in international and emerging markets in 2010, in some cases dwarfing their US numbers. Expect venture investors in 2011 to spend a great deal of time thinking about globalization, studying the best practices of companies executing successfully overseas, and paying particular attention to web services that can scale effectively across both emerging and mature markets.

2. LBS 3.0: As I touted in my recent piece on the Consumer Internet revival, Location-Based Services is entering what could be considered its 3rd wave of innovation—one defined not by “check-in” gaming mechanics, but by robust applications offering rich, customized user experiences via applications residing at the intersection of location data, identity and content with mapping technologies and couponing/revenue incentives as the connective tissue binding it all together. Travel is the most obvious segment, but expect to see LBS-driven tools and products penetrate a number of new and interesting markets in the coming year.

3. Demand Aggregation/Social Buying penetrates unconventional markets. Groupon and HomeRun are successfully focusing upon restaurants, salons and other SMEs that lend themselves particularly well to discounted group buying. Expect to see a number of new entrants cleverly leverage social buying/demand aggregation mechanics in less obvious ways. Examples of emerging categories are Travel and Events, where start-ups are developing ingenious ways of enabling emerging music acts to aggregate their global fan base to pre-sell venues in advance of tours—mitigating the risk of financial loss from engagements that don’t sell enough tickets to cover costs. If successful, this approach could revolutionize how live events are produced, promoted and underwritten. Are you listening, LiveNation?

4. Dramatic growth/influence of ad platforms/exchanges. I expect 2011 to be a watershed year for online advertising given the impressive growth and continued innovation in display ad exchanges, bidding platforms and the increased effectiveness and monetization of online marketing campaigns. Direct marketers are being more effective at reaching their customers than ever before. Moreover, traditional media buyers that until only recently eschewed some of the early exchanges and bidding platforms are refocusing on these channels and more readily embracing social media strategies and “promoted” ad campaigns and putting significant resources behind them. 

5. ‘Institutionalization’ of Secondary markets. Many regard 2010 as a year when the secondary market began to gain credibility as a legitimate exit path for companies, early employees and for direct investors themselves. While there appear some clouds on the horizon—i.e., potential regulatory entanglements and frothy valuations/new entrants putting a squeeze on performance—expect 2011 to further institutionalize the asset class. The stigma that was once often attached to being involved in a secondaries transaction seemed to lose its sting as well-known private equity names tapped the secondary market to either provide much-needed liquidity to their investors and/or to “rightsize” their portfolios to prepare for new investment vehicles.

6. E-commerce is sexy again. A new generation of innovative e-commerce companies has emerged in the past year that is pushing the proverbial envelope and turning the notion of traditional e-commerce on its ear. The two micro-themes behind this renaissance in e-commerce are The leveraging of the Social Graph and Customization/Long-Tail Economics.

Shopping online should be fun; it should be an experience of discovery, of sharing, and of leveraging the wisdom of crowds–ideally, crowds of people users already know and trust. A number of  startups are developing ecommerce platforms that cleverly stack recommendations and opinions from friends across one’s social networks with past order history; get instant feedback before the purchase decision; and, then layer in group buying/daily deal mechanics to drive urgency. 

7. Big data has its day: More data is becoming available as more computing devices come on-line through public and private networks. Moreover, the nature of information processing is changing as more analytic work (business intelligence, data mining, decision support) is being leveraged for competitive advantage.

The nature of data is changing as the number of “entities” in any given database has gone from millions to billions to, potentially, trillions.  Unstructured data is becoming the predominant data by sheer volume and is still relatively unaddressed. Traditional database implementations (Oracle, DB2, MS SQL Server) were not designed to handle these types of data, capacity or distributed nature. Finally, the success of Netezza, DATAllegro, Greenplum and others in taking on the big three (Oracle, Microsoft, IBM) and successfully returning value to their investors through acquisitions by IBM, MS and EMC indicate that there remains plenty of headroom in the sector. Companies such as Algebraix are well poised to exploit this market opportunity in 2011.

8. Tablet boom. The Apple iPhone was not the first smartphone, but it was an iconic, game-changing device that revolutionized the category and spurred a wave of innovation around software and services that is far from over. While consumers use tablets quite differently from smartphones, the tablet category is poised to continue on its torrid growth path in 2011. The Consumer Electronics Association estimates that some 30 million tablets will be sold in 2011, nearly double last year’s figure of 17 million. New entrants such as Motorola, Samsung, Acer and Toshiba either have tablets now in the market or will launch offerings shortly. Not surprisingly, expect to see a wave of innovation around applications and services delivered from and focused specifically on tablets.

The deepening penetration of tablets is impacting the launch of new applications and even new startups seeking to leverage the white space between smartphones and laptops. It is already evident that many companies consider tablets a clever way to extend their services and brands into environments where the options heretofore were unsatisfying. Companies such as Athleon, an online coaching and team management collaboration platform, are developing tablet applications that will enable ‘in-field’ use much more effectively than a smartphone application ever could.

The Care and Feeding of Early Customers

7 Jan

In a recent post, Paying Customers – What a Concept!, I proposed that many early stage companies were having to accelerate their products more than was planned on the initial roadmap in order to achieve two critical goals: (1) demonstrate that customers would actually pay for the product or service; and (2) get revenue in the door as quickly as possible to stanch monthly cash burn.

Our portfolio company, Athleon, referenced in the original post has since gone live with its all-pay platform and, thankfully, management and the board have been delighted with the response from users thus far. Granted, it’s early days but in the weeks ahead a fuller picture will emerge of how many beta customers converted to paying customers, what our overall churn numbers were, and — most importantly — what we have learned from the campaign and how best to leverage the experience into best practices for the company going forward.

I wanted to focus this post on the unique characteristics of early customers and some of the strategies that can be employed for the proper care and feeding of these critical players in a young company’s development. Over the years I have heard some in the start-up community opine that a customer is a customer, that everyone’s money is green, and that a company should not give preferential treatment to one subset of customers over another, or at the expense of another. There is some logic to this, I admit. Ideally, a great product of service is  desireable across a broad segment of customers and should not require special gimmicks or premiums to appeal to that broad demographic. The slippery slope argument would follow that each premium or discount cheapens the brand and its product and results in customers becoming institutionalized to freebies and other enticements in order to stay customers. An oft-cited example of this is the 1980s airline fare wars where the big carriers became enmeshed in a disastrous race to the bottom by heavily discounting their most popular domestic routes. Once cooler heads prevailed and the airlines decided to end their Pyrrhic game of chicken they were forced to spend the next decade re-educating consumers to wean them off the artificially low pricing on the affected routes. Passengers had gotten so institutionalized to the notion of a $199 R/T New York-LA ticket that they thought anything above that price was gouging. The airlines, of course, were losing a fortune on the $199 fares.

1. Handholding is not only OK, it’s encouraged. I propose that early customers are different. They are voting with their pocketbooks on a company that is usually not particularly stable with a product that is probably somewhat undercooked. These are the pioneer customers. In addition to being able to enjoy their much-needed cash to fuel the start-up’s business, a company management can learn a lot from them. Furthermore, they are almost by definition a small (but hopefully growing) group, so maintaining contact with them and interfacing with them is typically manageable in the early going. Pestering them is not recommended, but reaching out on a regular basis is advisable if done sensibly. Early customers can often provide invaluable feedback on new features, new products, policy changes, and the like — before rolling them out. Finally, deputize at least one person on your team to manage calls and inquiries from early customers in the first few weeks after launch. There will likely be some required handholding to get betas to convert. There will also likely be some irate beta customers that just need to vent. Sometimes they can be turned around and can become a paying customer after all; sometimes not. If not, then the exchanges can often defuse the unhappy betas sufficiently enough that the risk that he or she might pollute the well can be minimized.

2. Use premiums judiciously.  I find that valuable customers rarely angle for freebies to give you their business. They want your product, but perhaps they have not been sufficiently sold on its merits and why they need to pay for it. A free book, t-shirt or DVD is not the answer. Unfortunately, that seems to be the knee-jerk reaction from too many start-up teams as a way to ‘bribe’ betas into converting. Premiums like those can work, but they are rarely an elegant response and rarely result in “quality” revenue. Sell the product or service properly and there should be no need for gimmicks. If a beta who wouldn’t convert suddenly does once you throw in a free bobble head, you probably have a lousy (and one-time) customer.

3. Keep the pricing simple. Ideally, I like a really straightforward pricing model. Consumers tend to prefer it as do VCs. That said, I know there are instances where the business model is sufficiently complex that it is just not feasible. With early stage companies, often you are most concerned with getting customers to pay something — anything! — to validate the product and, by extension, the company. As such, don’t get hung up on structuring some overly sophisticated MBA-type pricing mechanism that seeks to perfectly price discriminate and revenue maximize every customer. That’s being too clever by half. The leap from non-paying beta customer converting to paying customer is challenging enough before complicating it with multiple pricing plans. There will be plenty of time for tweaking pricing plans as data rolls in.

4. Offers to early customers should never get worse; only better. One common mistake start-up teams make with pricing strategies is that they often roll out subsequent pricing plans that inadvertently penalize their earliest customers. As mentioned in #1 above, early customers took the greatest risk on the company at a time when few would and they should never be jettisoned or forced into more expensive plans due to some management errors or experience effects. They should also be granted all future premiums being rolled out to new customers. Management will certainly learn things about customer behavior and ideal pricing strategies as time goes on, but nothing ruffles the feather of a charter customer more than seeing a very attractive pricing premium being offered “for new customers only.” If it’s good enough to offer new customers, it’s just as good to offer charter customers if it’s the company’s intention that they remain customers for long.

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