I personally know of a similar story on a smaller scale, where a consulting team was developing custom web solutions for client after client (in the CRM space), and one day decided to turn their product into a SAAS offering instead.
They went from selling 3-4 sites a year to having several hundred clients in about 3 years, and even spinning the SAAS business out into it's own separate company that is now 10x the size of the consulting company (which they still run for other types of custom work).
So it's definitely true that sometimes the pivot is in the approach and not the product.
And isn't that basically the 37 Signals success story also? They took their custom products and turned them into SAAS offerings..
"Sometimes you have the right product but the wrong business model"
This is the 3rd time I've heard a variant of this in the past couple of days. Most of the time when I think of a pivot I imagine changing the product pretty substantially, but I think this seems more true to the analogy. I've seen some success in changing my business model as I started pitching again recently. People are responding much better to our new approach than the one we had a year ago. (Not that successful pitches are the same thing as real success)
In other words, because TACODA was selling services, by changing accounting practices their customers saw a radically different product - one which made the person recommending it to their boss look clever.
The pivot more fully leveraged TACODA's expertise. Because their they understood the how and why and when of the data's value so much better than their customers, the fraction of their monetization sent to their customers was more money than their customers were ever likely to extract.
"How can I send someone a check?" is a counter-intuitive business model for most people. Even though it is used all the time.
>> "How can I send someone a check?" is a counter-intuitive business model for most people
Great Point. This was the sole reason for Groupon's success even though were a lot of coupon companies before. Imagine what would have happened if Groupon charged small business to distribute their coupons instead of paying them?
The customers didn't see a different product. They completely changed the product.
I doubt you change from publisher saas model to be an ad network just changing your Billing contracts (like the little anecdote makes you believe), now they have to go after they agency and sell to them, and manage impression mismatch claims and what-not
Yes. We worked very hard for years to build, sell and service "tools to help web publishers sell more ads for more money." Once we pivoted, we realized that all publishers really wanted was "more money."
Most of the time when I think of a pivot I imagine changing the product pretty substantially, but I think this seems more true to the analogy.
Well... if you are an advocate of the @sgblank "Customer Development" approach, then changing the product is the last thing you do. The goal of Customer Discovery is to find a market for "the thing you are building" and you only change to a different "thing" if you can't find a market.
Of course, there are cases where the line between the "thing" and the "business model" can be a bit fuzzy. In the case of TFA, switching the business model essentially was a change in the "product" that was being offered. But the important thing is that they found product/market fit - even if they didn't follow the letter of some process in doing so.
The pivot of TACODA occurred more than 3 years after launching the business and a lot of work in the product. We weren't pressured into the pivot. But, as Fred Wilson related, we were working super-hard at the business and only had a modest technology license business to show for it. Our board - Fred, Brad Burnham, Rich Levandov (Masthead/Avalon), Habib Kairouz (Rho) and Curt Viebranz (COO) - was composed of folks who were long-time VC's and very strategic and senior, so they were comfortable with the idea that we should try to go big. We knew that our clients couldn't exploit our platform as well as we could. So, when Brad pushed us to really evaluate whether we couldn't build a bigger (and easier) business doing what our clients weren't doing well - using our platform to deliver and sell better targeted online ads - it didn't take long for all of us to realize that we should take the chance and pivot.
As for post-AOL ... a lot was going on at that time that makes it hard to analyze without the advantage of hindsight. While most of the team didn't end up staying with AOL very long, the technology still powers most of Aol's targeted ad business, I believe, and the team has spread out and populate dozens of adtech start=-ups today.
I think successful "pivots" like this usually have to do with rebalancing the risk of the customers. In the article's example, the risk is shifted away from the publishers ("am I sure this software will be worth it?") to the startup ("we only make money when this works").
To my eyes, even the more traditional enterprise-to-SaaS model shifts that are happening reflect the same trend - trading the (customer) risks of big $$$ up-front, long implementation etc for the (startup) risks of needing to attract more customers to make the same amount of $$$.
I think most seasoned experts (in their respective domains) have applied this approach in one shape or form to their individual strategy. Working smart instead of hard has to be learned the hard way though. It's very difficult to see the wood from the trees unless you're actually in a forest. A certain amount of trial and error is required before anyone can reach this point in my opinion.