Problem: Know When to Hold Them, Know When to Fold Them
One of the challenges business owners have is determining how closely to stick to their business plan once the business is launched and they start receiving customer feedback. In almost all cases, some changes will need to be made to the firm's plan. But the degree to which business plans pan out as their founders envisioned varies. In some cases, a business plan is spot-on and the worst thing a founder could do is vary from the plan. In other cases, a plan needs to be significantly tweaked, and in still other cases it needs to be thrown out the window and the business needs to start over. The following are brief descriptions of businesses that have experienced these various outcomes. songkick-no Changes needed Songkick was founded in 2007 by Pete Smith, Michelle You, and Ian Hogarth. The problem the company solves is music lovers missing out on seeing their favorite bands because they didn't know they were in their area. Concertgoers try to avoid this problem by subscribing to venue e-mail lists, checking band websites, and surfing through generic concert newsletters. This is a clumsy process and doesn't ensure that music fans won't miss a concert they'd like to see. To solve this problem, Songkick indexes a large number of ticket vendors, venue websites, and local newspapers to create the most comprehensive database of upcoming concerts available. Its mission is to know about every concert that's happening in every location-from an indie band playing at a local nightclub to Beyoncé playing at Madison Square Garden.
Users can track the performers they like, and Songkick will send them a personalized concert alert when those performers announce a tour date in their area. Songkick makes money by selling concert tickets on its website. While Songkick has enhanced its service offerings over the years, its business plan has remained unchanged. The site now has over 8 million users per month. grubHub-Minor Change needed GrubHub began in 2004 as a simple resaurant listing website. The idea was to set up a website that listed all the restaurants that deliver to a particular user's home or office address. The initial business plan was based on a "freemium" pricing model. GrubHub would list restaurants for free and make money by charging a subscription fee for restaurants that wanted to be placed in a premium position on its website. The idea was that the restaurants placed in a premium position would get more orders from existing customers, and would have a better chance being "discovered" by new customers. As time went on, the founders of GrubHub realized that restaurants loved what they were doing, but weren't comfortable with paying up front for sales that might or might not happen. Its customers were clear that they only wanted to pay GrubHub when a GrubHub user placed an order. These insights prompted GrubHub to revise its business plan.
The company switched from a subscription pricing model, where they charged restaurants for a premium place, to a transactional model where they collected a commission for each order placed. After the change was made, GrubHub saw a dramatic increase in restaurants asking to be placed on its website. instagram-Major Changes needed Instagram almost wasn't Instagram at all. Before Instagram became the photo-sharing hit that it is, co-founders Kevin Systrom and Mike Krieger were working on a check-inservice called Burbn. Burbn was a location-based service similar to foursquare. Users could check in to locations, earn points for hanging out with their friends, and share pictures inside the app. Systrom and Krieger worked on Burbn for over a year. It was completely done, had generated buzz, and had $500,000 in funding. The only problem-Systrom and Krieger didn't like it. To them it felt cluttered and overrun with features. They also worried about its competitiveness. Two similar services, foursquare and Gowalla, already existed. They would have to fight it out with foursquare and Gowalla for market share. So they stepped back and reconsidered. They concluded that the best approach was to pick a single feature and execute on it extremely well. So, they stripped Burbn down to the one group or feature they liked and felt they could contribute to the most. As it turned out, it was the photo-sharing, comment, and like capabilities. What was left was Instagram. Instagram is now a widely popular online photo-sharing, video-sharing, and social networking service that allows its users to take pictures and videos, and apply digital filters to them. Instagram was acquired by facebook in 2012 for approximately $1 billion.
Questions for Critical Thinking
1. Despite all the changes that have happened with the Internet since 2007, when Songkick was founded, why do you think the company has been able to successfully stick with its original business plan?
2. What do you think would have happened to GrubHub if it hadn't changed its business plan?
3. Why do you think some start-ups find it difficult to change their business plan, even when presented with evidence that their current business plan isn't working?