Iterating in a Startup – Part Two

In Part One, I outlined the first iteration of the Hannon Hill business model where we built a SaaS web content management system and launched it in the summer of 2001 for $30/month/website. After realizing there wasn’t a reachable market that was large enough for us to be successful, we quickly changed to an installed model of the same product. To our excitement, we sold our first $1,000 license by the end of August and thought we had a path to growth and profitability.

Over the next 24 months, representing the life of the application, we sold 25 licenses. That’s right, selling slightly more than $1,000/month worth of software doesn’t make for a good business. Our big break actually came in December 2001 at the Internet World trade show in New York City, and was a result of changing to an installed software model.

At the trade show, we serendipitously met another, much larger software company that was explicitly looking for a content management system to sell to their installed client base of over one million licensees. We had several rounds of discussions with their management team at the show and eventually consummated a deal in the Spring of 2002 to license our product for them to sell under their own brand name. They would pay us money up front along with a royalty for each license sold. We had our first big break.

Now came the next big iteration: we completely shelved our product that we had spent two-and-a-half years building in order to build The Next Big Thing. By the Summer of 2002, we knew we were never going to be successful selling installed PHP software to small businesses, and that a competitor with much greater resources would be selling a slightly modified version of our product to the same audience. It was a pretty easy decision to make.

Our next move was to make a completely new, mid-market Java-based web content management system using the expertise we’d gained over the past few years. The special sauce of our new product was a combination of XML, search engine optimization, and distributed server publishing. Of course, building a next generation product from scratch allowed us to address all the mistakes we made in architecting the first product.

Stay tuned for part three to learn how we made this new product successful, and the sales and marketing iterations that paid off.

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