Iterate or Die – Part 2

In Part 1, I discussed the first iteration of the Hannon Hill business model, wherein we built a SaaS web content management system and launched it in the summer of 2001.  Initially, we charged $30 per month per website, but after realizing that there wasn’t a reachable market large enough to ensure our success, we quickly changed our approach to offering an installed version of the same product. To our surprise and elation, we sold our first $1,000 license by the end of August.  With this auspicious start, we were sure we had found a path to growth and profitability.

Over the next 24 months, representing the life of the application, we sold 25 licenses. Not surprisingly, it turned out that selling just over a thousand dollars’ worth of software per month didn’t make for a sustainable business model. Our big break did finally come, though, in December of 2001 at the Internet World trade show in New York City and was a direct result of changing our gameplan to pursue 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 Spring 2002 to license our product to them to be sold under their own brand name.  They would pay us a minimum monthly payment for the first twelve months along with a royalty for each license sold once the pre-paid amount was cleared.  We had our first big break!

At the time, I had just finished my degree at Duke in Durham, North Carolina. With a guaranteed revenue stream in place by the end of 2002, I moved the company to Atlanta, Georgia in August 2002. Why Atlanta? Growing up in Tallahassee, Florida, Atlanta was always the big city we’d go to for a Braves game or a trip to Six Flags, so I had been there many times and really liked the area. The Raleigh-Durham region is great, but I wanted a big city that was close to my family, had a low cost of living, and had a strong technology presence. Atlanta fit the bill perfectly.

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

Our next move was to build a completely new, mid-market Java-based web content management system using the expertise we’d gained over the past few years. I promptly put an ad in Craigslist and hired the best Georgia Tech software engineer I could find. Being that it was late 2002, there were lots of good people looking for work. I found our lead developer within a month and we were off and running. Our new product combined XML, search engine optimization, and distributed server publishing in a formidable package. And because we were building a next-generation product from scratch, we were able to address all the mistakes we made in architecting the first product.

Head on over to Iterate or Die – Part 3 to learn how we made this new product successful, and the sales and marketing iterations that ended up paying off.

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