The power of the pivot

By George Deeb

We are all familiar with the meteoric success (and recent stumbles) of Groupon Inc., the daily-deals website. But as you can read in this Groupon case study at Business Insider, Groupon originally was a struggling business in the group fundraising space called the Point.

Had Groupon’s founders not pivoted their business model from a “tipping point” for fundraising needs to a “tipping point” for consumer deals, they would most likely be out of business by now. Somebody inside the Point realized their old business model wasn’t working, and they needed to think drastically out of the box to create a different approach. And, as you remember, there were many other examples of successful business pivots that we discussed in an earlier post on startups requiring flexibility.

Today, we are going to tackle:

1) When pivots are required

2) How to identify what pivot opportunities may exist

3) How these pivots can be minor or material in nature

To start with what might seem like an obvious point: If limited revenue or traction is being made with the current business model, something needs to change, and fast.

But is the business model flawed (requiring a pivot), or is the sales and marketing plan or the management team the real problem?

You need to do your best to assess each element in isolation before resorting to a business pivot. So, for example, if you have the exact same business model as several other successful businesses, your problem is most likely the wrong sales and marketing plan or management team. But, in other cases, where the sales and marketing plan makes sense for your industry and you have a proven and competent team in place, if nobody is buying your product, that most likely means it is time to pivot.

In determining where the pivot opportunity is, you need to study the core assets of the business and how they may be applied in new ways. In the Groupon example, it was the “tipping point” technologies used in a new industry (e.g., consumer deals, instead of fundraising). There are other examples where the exact same product wasn’t working for B2B clients but was demanded by B2C consumers. Or the product doesn’t sell as a branded front-end solution but does as a white-label back-end solution. Maybe corporations don’t need your solutions, but government or university clients do?

Or maybe there are dramatic changes that could lead to much better financial returns on your investment. At MediaRecall, a digital video services and technology company serving film studios and television networks, we learned that instead of taking an upfront cash fee for services provided, we could do the work free and keep a 50-50 revenue share on the resulting professional entertainment content. These content royalties would ultimately result in 10 times the revenue than what we would have received from the upfront for-fee services model, as the resulting content gets distributed and monetized on sites like YouTube and Hulu. So, if we could fund the upfront work, it was definitely worth the wait for revenue over time, instead of upfront.

When looking for your strongest assets, look enterprise-wide. Your asset can be a technology. Or in distribution and logistics. Or in search engine marketing. Or offshore product sourcing. Or in call center operations. Whatever. Just figure out what it is, and leverage the hell out of it in new industries, sales channels or applications.

George Deeb is a managing partner at Red Rocket Ventures, a Chicago-based startup consulting and fundraising firm with expertise in advising Internet-related businesses. More of George’s startup lessons can be read at “101 Startup Lessons — An Entrepreneur’s Handbook.”

George’s posts appear on Crain’s blog for Chicago entrepreneurs on Fridays.

Follow George on Twitter at @georgedeeb.

Join Crain’s LinkedIn group for Chicago entrepreneurs. And stay on top of Chicago business with Crain’s free daily e-newsletters.

The power of the pivot

By George Deeb

We are all familiar with the meteoric success (and recent stumbles) of Groupon Inc., the daily-deals website. But as you can read in this Groupon case study at Business Insider, Groupon originally was a struggling business in the group fundraising space called the Point.

Had Groupon’s founders not pivoted their business model from a “tipping point” for fundraising needs to a “tipping point” for consumer deals, they would most likely be out of business by now. Somebody inside the Point realized their old business model wasn’t working, and they needed to think drastically out of the box to create a different approach. And, as you remember, there were many other examples of successful business pivots that we discussed in an earlier post on startups requiring flexibility.

Today, we are going to tackle:

1) When pivots are required

2) How to identify what pivot opportunities may exist

3) How these pivots can be minor or material in nature

To start with what might seem like an obvious point: If limited revenue or traction is being made with the current business model, something needs to change, and fast.

But is the business model flawed (requiring a pivot), or is the sales and marketing plan or the management team the real problem?

You need to do your best to assess each element in isolation before resorting to a business pivot. So, for example, if you have the exact same business model as several other successful businesses, your problem is most likely the wrong sales and marketing plan or management team. But, in other cases, where the sales and marketing plan makes sense for your industry and you have a proven and competent team in place, if nobody is buying your product, that most likely means it is time to pivot.

In determining where the pivot opportunity is, you need to study the core assets of the business and how they may be applied in new ways. In the Groupon example, it was the “tipping point” technologies used in a new industry (e.g., consumer deals, instead of fundraising). There are other examples where the exact same product wasn’t working for B2B clients but was demanded by B2C consumers. Or the product doesn’t sell as a branded front-end solution but does as a white-label back-end solution. Maybe corporations don’t need your solutions, but government or university clients do?

Or maybe there are dramatic changes that could lead to much better financial returns on your investment. At MediaRecall, a digital video services and technology company serving film studios and television networks, we learned that instead of taking an upfront cash fee for services provided, we could do the work free and keep a 50-50 revenue share on the resulting professional entertainment content. These content royalties would ultimately result in 10 times the revenue than what we would have received from the upfront for-fee services model, as the resulting content gets distributed and monetized on sites like YouTube and Hulu. So, if we could fund the upfront work, it was definitely worth the wait for revenue over time, instead of upfront.

When looking for your strongest assets, look enterprise-wide. Your asset can be a technology. Or in distribution and logistics. Or in search engine marketing. Or offshore product sourcing. Or in call center operations. Whatever. Just figure out what it is, and leverage the hell out of it in new industries, sales channels or applications.

George Deeb is a managing partner at Red Rocket Ventures, a Chicago-based startup consulting and fundraising firm with expertise in advising Internet-related businesses. More of George’s startup lessons can be read at “101 Startup Lessons — An Entrepreneur’s Handbook.”

George’s posts appear on Crain’s blog for Chicago entrepreneurs on Fridays.

Follow George on Twitter at @georgedeeb.

Join Crain’s LinkedIn group for Chicago entrepreneurs. And stay on top of Chicago business with Crain’s free daily e-newsletters.

CBS green-lights Groupon sitcom

By John Pletz

We were surprised back in January when Crain’s Taking Names columnist Shia Kapos reported that someone was pitching a TV show loosely based on Groupon Inc.

Color us even more surprised when news broke that CBS is picking it up.

It’s not clear how faithfully the show, to be named “Friend Me,” will represent life at the Chicago-based daily deal giant. For one thing, the company depicted in the show will be based in Los Angeles. But here’s the rough story line, according to Entertainment Weekly:

“Friends Rob and Evan move from their hometown of Bloomington, Ind., to Los Angeles to begin their exciting new lives working at Groupon.”

“Evan is having trouble breaking his old slothful habits and, rather than go out after work to explore L.A. and meet new people, he prefers to play online poker with his buddies back home. Rob has different plans and is determined to drag Evan, kicking and screaming, along with him.”

Look for the pilot on a teevee near you starting this fall.

John Pletz is a senior reporter covering technology and aviation for Crain’s. Follow him on Twitter: @JohnPletz.

Groupon snaps up FeeFighters

By John Pletz

Feefighters, an online startup that helps small companies comparison shop for credit-card processing fees, has been bought by Groupon Inc.

The company, which sprang from the University of Chicago’s Booth School of Business, raised $1.6 million last January from Hyde Park Angels, i2A Fund, OCA Ventures and Sandbox Industries. Most of the employees will join Groupon, CEO Sean Harper said in a blog post Friday.

Terms of the deal weren’t disclosed.

(Crain’s November 2010 “Chicago Business Today” video, above, takes you inside Feefighters.)

John Pletz is a senior reporter covering technology and aviation for Crain’s. Follow him on Twitter: @JohnPletz.

Lightbank, Tullman fund sink $4M into SoCore as Wrigleys, Ferro hit the exits

By John Pletz

SoCore Energy LLC, which provides solar panels to retail stores, has raised another $4 million in venture funding from investors including Lightbank.

The Chicago-based company, which provides solar panels to retailers including Walgreen Co., Ikea, J.C. Penney Co. and Lowes Cos., raised money amid worries over the wisdom of solar investment sparked by Solyndra LLC.

The latest round brings total investment in SoCore’s to $12 million since it was founded in 2008, says CEO Pete Kadens. The company last raised money in 2010.

Investors in the round included Allscripts CEO Glen Tullman’s 7-Wire Ventures, its largest backer, and new investor Lightbank, the Chicago-based venture fund started by Groupon Inc. co-founders Brad Keywell and Eric Lefkofsky. The new investment doesn’t include an undisclosed amount to buy out previous investors the Wrigley family and Michael Ferro’s Merrick Ventures LLC.

Mr. Kadens says much of the new investment will go to hiring additional staff, primarily engineers. It has 25 full-time employees, mostly in Chicago, up from 19 a year ago, and just moved into offices at 225 W. Hubbard.
Revenue grew to $10 million last year, up from $3 million in 2010, as users moved to take advantage of federal grants for alternative-energy investments such as solar panels that ended last year. Yet he expects revenue to hit $40 million in 2012 and for the company to become profitable.

Mr. Kadens says that unlike wind-power subsidies that are drying up, investment tax credits for solar equipment continue through 2016. “We don’t see that affecting us all that much,” he says. “If we stay focused, we still have the chance to be successful.”

The company, which designs and installs solar panels for retailers and other customers, finances the cost of equipment about half the time and leases it to customers. Other times, customers finance it. He says banks are still willing to finance the equipment, and the price of solar energy is declining.

John Pletz is a senior reporter covering technology and aviation for Crain’s. Follow him on Twitter: @JohnPletz.