In 2005, Tacoda CEO Dave Morgan realized his company needed a shakeup. Three years after it was founded, Tacoda was licensing its behavioral targeting technology to 25 publishers for up to $20,000 a month, but its business was growing slowly. It was “working too hard for not that much money,” Morgan recalls.
So he set about transforming Tacoda from an enterprise software vendor into an ad network and never looked back. Revenues began to grow rapidly. The change in direction, or “pivot” as it’s known in startup land, saved the company, Morgan’s relationship with his investors, and ultimately led to its sale to AOL for $275 million in 2007.
Tacoda isn’t the only marketing and ad tech company to change its model successfully. The ad tech world changes too quickly. What was a great idea at one point suddenly becomes yesterday’s news. The hits of ad tech are filled with companies that were nimble enough to change course. Turn morphed from an ad network to a data company. Buddy Media moved from what was essentially a Facebook app agency to a social media content-management software company. Pictela’s rich-media ad offering grew out of a geo-location photo sharing site.
Here, ad tech CEOs who have pulled off successful pivots recount their advice to those who might need to make a change — and fast.
Don’t have an ego.
Entrepreneurs like to think of themselves as people who see around corners, a species with powers to predict the course of history. That’s not the case. And that’s OK. Markets are always shifting. Even investors who back a business plan expect it to change, possibly quite radically. The old saw of VC is they’re backing teams more than ideas.
“Assume that whatever you put in your business plan and your financials, not only is it wrong, but all investors know that it’s wrong,” Buddy Media CEO Mike Lazerow said in a 2010 interview. “You’re going to spend a lot of time building this really long business plan and financial models and hire people to do it, and at the end of the day, it’s just pretty much bullshit.”
Buddy Media is a classic case of a successful pivot. The company was originally a virtual currency maker, before it shifted to making apps for brands on the Facebook platform. It wasn’t a great business, quickly becoming a production model. But Buddy Media saw one trend not stopping: people on Facebook. Suddenly, when Facebook introduced its platform with brand pages in 2007, Buddy Media saw an out. Lazerow shifted the business from building apps to building a brand content-management system for managing brands’ pages. That meant charging fees to brands for use of their software. Last year, the business was sold to Salesforce.com for $689 million.
“What a good start-up does is to pivot, and to continue to do that until they are a real company and no longer a start-up,” Lazerow told BetaBeat back in 2011. “Your job is to become a mature, profitable business, and you react and you iterate until you reach that goal. That is the kind of approach that has driven the tech ecosystem in this country for decades.”
Make sure you have somewhere good to pivot to.
The Wayne Gretzky quote about “skating to where the puck is” is overused, but it’s an apt analogy in this instance. If you’re going to risk spending time and money pivoting your business, there’s probably no point moving it to an already-crowded market. It’s all about looking for open ice.
“We pivoted to an area with lots of open space which made things easier for us,” Morgan recalled. “That’s probably a lot harder to do now because the ad tech market is so crowded.”
If you decide to pivot, don’t half-ass it. If you’re going to change your business, there should be no going back, so don’t give yourself an out. In 2008, for example, Turn board member Bill Demas decided the company should be more than the ad network it was at the time. He wanted to change it to become a self-service data-management company and assumed the role of CEO in 2009 to try to do just that. One night, the company ceased being an ad network, and the next day it began life as a data company.
“We were going down a road that wasn’t very interesting, and the only way to do something else was to make a drastic change,” Demas recalled. “I borrowed the analogy of ‘burning our ships.’ I’d decided there was no going back, and I didn’t want the temptation. It was the hardest thing I’ve done in my career.”
Be ready to piss people off.
The old culinary cliche holds true: If you want to make an omelette, you have to break some eggs. That means irritating current customers by switching off products and services they rely on, alienating staffers by switching up their jobs, and potentially firing hoards of engineers or salespeople as you reorganize your business. Sometimes it also means explaining to investors why you’re walking away from perfectly good, profitable revenue streams.
But make sure financial interests are aligned.
Your early investors might be motivated to sell, while late-stage investors are often in it for the long run. According to Morgan, a successful pivot always relies on management, investors and the board getting behind it. It’s a subtle thing, he said, but unless everyone is on board and pulling in the same direction, it can create crippling tensions.
“The financial situation at Tacoda meant everyone’s interests were aligned at the time; we were all in it,” Morgan said. “When the board or investors said they were nervous, I listened to them because they had the same interests I did.”
Any startup, to an extent, is taking little more than an educated gamble when it comes to ad tech products. It always helps if the market moves in your direction at just the right moment, a fact that both Morgan and Demas were quick to acknowledge. As with anything in life, it always helps to be in the right place at the right time.