Blog Post

Good Migration

Loomia today is a fast growing company with real revenues and customers. But Loomia is a different company than when it first started — like many start ups, we had to change our business plan early on just to survive. The story of how Loomia became the company we know today offers lessons that I hope will help other founders deal with this all too common startup challenge.

When Loomia first launched in June of 2005, we provided recommendations for podcasting content on our own web site. While this idea was novel and popular with users, by January 2006 we had completely shifted our business to provide recommendations on *other* web sites using our technology platform. This is the story of that transformation from the inside.

*The Writing On The Wall*
Just weeks after Loomia launched to the public, the first sign of trouble dropped into our otherwise nascent market: Apple added podcasting support to iTunes. Because iTunes was already installed on millions of desktops, this was trouble. We estimated the market share of various competitors, and it was immediately clear that Apple had grabbed more than 50% of the “podcast finding” business overnight. Ouch.

At this point, just a few months after launch, business became an uphill battle for market share. We had growth, but hardly the kind of growth needed to transition into a robust business. Even worse, our best-funded and capable competitor, “Odeo”:http://www.foundread.com/story/index/date/410, was also struggling to get real traction despite heaps of positive publicity.

It was apparent that nobody, other than Apple, was going to win the millions of users necessary to be truly successful. We knew there were ways to improve Loomia 1.0’s product incrementally, but seeing others spend ten times as much as we did and still not succeed was disconcerting.
Podcasting hype only made things worse. Literally dozens of “podcast finding” sites popped up over the next few months. Worthwhile ideas bring competition, but thirty or forty competitors is not a good thing. Not everyone was doing the same thing as Loomia 1.0, but it didn’t matter enough to the end users. We were all just fighting over a small slice of the pie.

*The Moment of Truth*
Just a few months into the business, I asked myself the question “If I was going to start this business today with all the assets and skills Loomia has, would I do it?” I was not sure. Things weren’t going as planned, so I reached out to others to get a reality check. My and my co-founders were very passionate about helping our customers find great podcast content, but it wasn’t clear we’d be able to do it and succeed as a business. One of our advisors told me on the phone “You should do something to let other sites use the recommendations system — I’d use that kind of thing on my site.” I had actually received earlier requests for exactly this idea from other web sites, but I’d brushed them off as a distraction. Now, given the landscape of Loomia’s original market, it was time to consider a “Plan B.”

After doing some analysis of the new market and collecting more information from possible customers, I called a meeting between my co-founders. I presented my analysis of the situation and a proposal for a new Loomia – Loomia 2.0 – focused on a recommendations service that can be added to any web site in just a few minutes. In January 2006, Loomia launched its new recommendations service for media and retail web sites. Over a year later revenues are growing, customers are lining up, and millions of users interact with our service every month on a network of customer sites. Loomia is a real, thriving business and we’re achieving our goal of helping people find the stuff they like online in a big way. We learned three key lessons about changing the direction of a startup:
*1) Hope is not a strategy*
It’s critical that you evaluate your market and your own growth continually. Is the market growing quickly? Is it big enough to support you and the other companies in the space? Are your competitors thriving, or struggling? Is there a dominant player with a huge amount of market share, and more important do you have a solid plan to beat them? Our situation was a small market with one large competitor and dozens of little ones… not fertile ground for a successful startup.

*2) Listen to the market*
One of the things that helped Loomia was listening to users, advisors, potential customers, and friends. When we calculated that Apple had the majority of our market, and estimate our market size as limited, we had the data we needed to make a good objective decision to switch. Hearing from potential customers was instrumental in showing us where our real value existed.

*3) Be decisive*
Once you decide you need to change direction, communicate clearly the new vision to your stakeholders: users, investors, advisors, employees…everyone who might care. There is a temptation to trickle resources into your old business in the hope that one or two new features will make the original idea succeed. Resist this distraction by explaining the opportunity ahead, and that the data supporting the change of business direction. It’s hard to say no, but you must be focused on the new business because your will need all of your available resources to make the new plan succeed.

Changing your business model is hard to do. Yet a surprising number of start-ups have changed direction radically, and become hugely successful. Paypal’s original business plan was for transferring money exclusively between PDAs. The Flickr team started out making online games before launching the popular photo sharing site. When you realize your model needs a shift, be prepared to make it, decisively.

10 Responses to “Good Migration”

  1. Great article. There is always that difficult balance to find between persistence and nimbleness, but in reality, most startups I know went on a plan B fairly early on – then persisted.}

  2. I don’t know a single start up that hasn’t changed the business model at least once to succeed, and most companies I know that closed up are those that failed couldn’t make this transition. The other real take away that I hope people grab is listening to your customers. Create a company – put it up on the web – then let customers tell you what they really want. Why have a dev team of 10 internally when you can have a dev team of millions externally.}

  3. matt_trossen

    Refusing to shift with the current is a certain recipe for disaster. There is something to be said about being firm in your convictions about certain goals and visions, but to ignore what the market is telling you is foolish. I’ve watch more than one bullheaded small businessperson refuse to alter their ways and drown in the changing current because of it. But then again, it’s Darwinian isn’t it :)}

  4. Great post, David. I have often struggled on when exactly to give up on an idea and change course. While on one hand focus and persistence is a must-have to be successful, on the other hand – a constant reality check of potential impact is a must too. We talk about google too often, but what about Alta Vista and Inktomi – who focussed on search early on and gave up on their business model and changed course probably too early.
    I haven’t followed any of the podcasting recommenders. Are any of your original competitors doing well now?}

  5. Excellent story. This definitely does reflect reality. The most important thing is not to be afraid to change. When starting/running a business, you should “expect” to change with the environment. It may hurt the morale of the team in the beginning, but it is a necessity. Great Post!}

  6. rajshekhar

    It was a nice read. Many startups are not prepared for a sudden shift from their preplanned strategy and as a result they face tough challenges to stay alive in the market. It’s always good to measure your market presence and success by looking at the market share that your company/products has but certainly not the best way to go with. One should offer product that will capture the attention of customers and win their hearts, market share will increase automatically. Google for example, did not aim at grabbing a major chunk of market share when they launched. They, in fact, launched a search engine which was excellent and won!}

  7. It’s worth noting that most pre-funding startups will change their idea and their business model many times before things really get rolling. What I find more interesting, as in your case, is major direction change later in the stage of the (still young) company. I would guess the change from podcast recommendation to recommendation engine was not the first major change you’d made, but considering the timing it was probably the riskiest you’ve made so far.}