Three years ago, Odeo
was a struggling startup on a path to nowhere. Odeo's core offering--a set of
tools for users to create, record and share podcasts--was facing serious
competition from Apple and other heavyweights. The management team made a
radical decision to "reboot" the company, and Twitter was born.
As I read the Twitter story, narrated eloquently by Dom Sagolla, I
can't help but look back over the many startups that I've been associated with
over the past twelve years. In my various roles as a founder, an
investor, a board member, and an advisor to startups in Silicon
Valley
Startups flounder for countless reasons. Perhaps the market opportunity is not
as big as imagined, or perhaps there is a mismatch between the technology and
the market. Maybe the world changed in some significant way, invalidating the
key assumptions on which the startup was based. For example, an established
company such as Google or Microsoft might enter the market. Or perhaps the
deepest recession in recent history dried up demand for the original product or
service. In these cases, the founders and management team have to ask
themselves the question: should we push ahead, assuming superior execution will
win the day against long odds? Or should we change what we're doing?
Companies that decide to reinvent need to acknowledge
the bad news first: most startups fail, even the reincarated ones.
Those are just the odds. The good news is that certain approaches to reinvention
work better than others, and companies can increase their chance of success by
carefully calculating their reboot strategy.
Every technology startup has four core components: team, technology/product,
market, and business model. Rebooting involves changing at least one of these
components, while leaving the other factors unchanged. Let us look at each
component in turn:
1. Team. Reinvention usually leads to changes in the team. To qualify as
a reboot rather than an entirely new company, however, there must be at least
part of the team -- and usually at least one of the founding members -- who
continues to remain with the company through the transition. In my experience,
one model that usually does not work is when VC investors replace the
entire founding team with new management. I've never seen a startup with none
of its founders remaining succeed.
2. Market. Many startups try the most tempting option: to keep the same
technology/product and look for a new market. After all, the investment
in product development has already been made. Unfortunately, while this
approach seems the most logical, it is also the least likely to succeed.
Why? The hardest part of a startup is understanding the requirements of the
market, not building the product. After the dot-com bust in 2000, many consumer
internet startups tried to reinvent themselves as enterprise technology
providers (remember Chemdex?).
The startup junkyard is littered with the carcasses of dot-coms that took this
route and failed.
3. Business Model. A very attractive strategy is to keep the same
product and market, but change the business model. In my experience, this is
the most likely option to succeed. For example, enterprise software companies
can reinvent themselves by open-sourcing their software and providing
consulting services, or a premium version. A software vendor can reboot as a
software as a service (SaaS) provider on the Web. Consumer websites can move to
a subscription model from an advertising model, or vice versa.
4. Product. Another smart reinvention approach is to addressing the same
market (or a closely related one), but change the product or the business
model. This option works best when the market need is real, but the product
does not adequately address the opportunity. I've found that the key to success
is to throw away the old product completely and start from scratch, using the
hard-won learnings about the market acquired from the first iteration. In some
cases, it makes sense to move the old product to "maintenance mode"
and reassign the bulk of the team to developing the new product.
I've applied this particular model of reinvention to both companies where I
have been a founder -- Junglee
in 1997 and Kosmix ten years later, in
2007.
We started Junglee in 1996 to create virtual databases that integrated data
from multiple websites. Although we had some initial success, we quickly
realized that the architecture of our first product limited our ability to deal
with rapidly-changing information, a key success factor in certain markets. We
completely rebuilt the product from scratch in 1997, and created the world's
first comparison shopping service. This service was enormously popular
and led to Junglee's acquisition by Amazon.com in 1998.
We introduced Kosmix as a vertical search engine, initially in the health
sector. Our idea was to find a better way to help users understand
open-ended queries such as "diabetes", which have no single right
answer; that is, explore topics rather than find the needle
in the haystack. We'd planned to take a vertical-by-vertical strategy,
launching sites named RightHealth, RightAutos and RightTrips. Very soon,
however, we realized that the vertical approach carries severe limitations,
because it's hard for consumers to remember to go to different sites for
different topics of interest. We decided to rewrite the product from scratch,
and we relaunched
Kosmix.com as a horizontal site. Kosmix lets you explore any topic
and gives you a 360 degree view of anything than interests you -- including information from the Deep Web that is inaccessible to the usual search engines.
This transition from vertical to horizontal was much harder than it sounds; it
required us to rewrite our technology from scratch. But we did it because of
our passionate belief that the problem is real and the market opportunity is
vast.
While most startup reboots involve rethinking only one or two of the four core
components, in some rare cases it makes sense to go the whole hog. Sometimes it
pays to be bold: go after an entirely new market opportunity, create a new
product, find a new business model, and make large-scale team changes. This
approach is fraught with risk; but there have been a couple of spectacular
successes. One clear example is Twitter. Another is Twitter's cousin SMS
GupShup, a similar service in India
Some startups are born great: the right team starts with the right idea at the
right time, and the rest is history. Some have greatness thrust upon them: the
right conjunction of market forces propels an unlikely startup to dizzying
heights. Other startups, not so lucky as those in the first two categories,
need to earn their greatness. And sometimes that requires a reboot.
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