The Case Study: Start-up changes model

The story
Founded in 2007 in Zurich, when web-based communities were relatively new, Amazee was an early entrant to the brave new world of crowdfunding. Such business uses the web to connect small-scale backers with new projects in need of cash to develop products and services.

The three founders’ idea was to match charitable projects around the world – from building water supply infrastructure for sub-Saharan villages to setting up an IT training facility in Sri Lanka – with micro-financing donations.

Amazee’s key differentiator was that it used cutting-edge technology to enable a customisable crowdfunding process in which Amazee’s web platform could be adapted by any organisation to use on its own website. The charitable sector was the target market because the founders felt charities would have the greatest need for Amazee’s offering. Revenue would come from online advertising and a small commission on each transaction.

The challenge
Using the latest in web-based technology to help charities was laudable, but it was proving unsustainable.

A financing round in early 2008 kept Amazee afloat, and a few non-profit organisations signed up, which brought in some revenue. But the underlying business model was unprofitable.

The strategy
Thanks to its tech-savviness, Amazee was able to capture data from each transaction, which helped it analyse what customers needed. In addition, it focused on making the Amazee platform very user-friendly.

The company was steadily shifting the emphasis from a standardised offering towards a number of increasingly bespoke versions.

However, while providing clients with ways to tailor Amazee’s platform to their needs produced an increase in sales, the gains were modest and costs exceeded revenues by 15-20 per cent. In late 2009, one of the co-founders left.

What happened next
The two remaining co-founders set about revamping the business. This centred on three key areas: redesigning the website with the aim of simplifying the product to align with clients’ needs; incorporating an even more sophisticated version of the technology to allow clients to achieve further customisation; and reorganising the management team after the high-level departure by recruiting a new head of technology.

During this period, the managers took care to keep morale up among its small team by sharing news of all small successes throughout this period, as well as to keep in close touch with clients.

Next, two multinationals adopted Amazee’s crowdfunding product both for their own charitable projects and their employee programmes. This move finally killed off Amazee’s initial offering. In its place, and key to its subsequent turnround, was a business model aimed at corporate clients rather than charities.

The company relaunched as Amazee Labs. It acquired further corporate clients, thanks to the expertise it had in developing online communities, both for their own employees and for their customers. This provided the critical kick-start for growth in 2011 and 2012. Amazee Labs expects to achieve 50 per cent growth in revenue year on year over 2011 and finish 2012 with cash to spare.

The lessons
An idealistic, niche product or service is part of the romance of start-ups. But even if the founders see their idealistic ideas as indispensable, this does not mean those ideas will necessarily generate revenue.

It is important to focus on the value to customers of the core offering. Amazee’s founders had envisaged a standardised offering, but it was the bespoke way its technology could be used that was of most use to clients.

Maintaining Amazee’s in-house expertise in the technology was essential to the turnround. This was retained at least in part by the management team’s focus on maintaining a positive team spirit and ethos during a difficult time.
Financial Times, Dec 10. 2012