I've posted quite a bit about business models and lean startups and related topics. Inherent in a lot of what I've posted is the idea of a "pivot" - a change to a startup's business model based on learning from experience. This is the central idea of Mullins and Komisar's book "Getting to Plan B: Breaking Through to a Better Business Model" - that most initia business models (i.e. Plan A) are flawed in one or more ways that either limit growth or even threaten existence. Further, the only way to find those flaws and pivot or break through to a better business model is through learning based on actually trying to sell and deliver the startup's product or service.
All of that is a somewhat long-winded way to get to the point of this post - there is a nice example of a startup pivoting to a better business model in this article from last Friday's San Francisco Business Times. The startup in question is Palo Alto-based EchoSign. The pivot was changing the target market for the company's web-based service from small, web-based startups to larger, older, more established companies:
One year into his business venture, Jason Lemkin nearly made a fatal mistake.
As a web-based contract service, he naturally pursued other tech companies as clients because they were more likely to take a risk on his product, he said.
“The largest mistake we made was not listening to our customer,” Lemkin said, co-founder and CEO of Palo Alto-based EchoSign, a web-delivered contract, signing and tracking service.
Sexy tech companies can come and go in the Internet world, but Lemkin recognized bigger opportunities with older, more established businesses cautiously open to e-commerce tools. “Small businesses don’t have anybody out there looking for web solutions. Nobody has any time,” he said.
So Lemkin switched focus, and rapid growth followed. He had $3.5 million in sales in 2009, up 400 percent from $700,000 in 2007. This year he expects $8 million in revenue. “Strategically, we said we’re not really a sales tool. Let’s focus on webbies,” he said. Then “we said listen, we are a nitty-gritty sales tool.”