_Jay originally published his piece on “Start-Up Review”:http://www.startup-review.com/blog/about, “here”:http://www.startup-review.com/blog/how-to-work-with-imperfect-timing-%e2%80%93-an-elance-example.php. We welcome this adaptation of his popular case study for Found|READ._
YouTube’s success is an example of what happens when entrepreneurs stumble on the right idea at just the right time, but I suspect that most companies miss the time window slightly and have to adjust. Elance is a case study in how to adapt when the market isn’t ready for you — and, therefore, might have more to offer founders by way of instruction.
“Elance”:http://www.elance.com/ is an online agency that matches technical, design and other professionals with businesses needing such services. Project “owners” post their requirements and service providers bid on them. The company was founded in 1999, currently receives 130,000 unique visitors per week, and matches 2,500 projects with service providers every week.
*A “long detour” through a secondary product.*
Elance launched in 1999 as an “eBay for outsourcing”, a marketplace where project sellers could shop for professionals to get the work done, and vice versa. The company raised $80M, $60M at the height of the bubble, only to see the market collapse. Worse, at the time “outsourcing” was viewed by many as distasteful and distributed workforces were not well understood. Due to all of these factors the online marketplace struggled.
One bright spot, however, was in large corporations. Although Elance was founded to bring outsourced, decentralized workforces to a range of businesses, it found that big companies were the segment of the market that had most embraced the concept. Many of these companies had engaged the services of numerous contractors, yet had no reliable systems to manage their distributed workforces.
*In 2001, Elance scaled down to conserve cash and refocus on the opportunity to serve large corporations.* It kept the online marketplace, but put its principal energy behind the development of an enterprise software package to permit big companies to manage and track contract workers. By 2005 the enterprise software product was used by 200,000 employees of companies such as “American Express”:http://home3.americanexpress.com/corp/default.asp?us_nu=footer, “BP”:http://www.bp.com/home.do?categoryId=1, “FedEx”:http://www.federalexpress.com/us/about/ and “GE”:http://www.ge.com/index.htm, to procure manage over $10B of contract work.
In 2005 Elance perceived that the enterprise software industry had started to consolidate while the general public had come to understand and accept distributed workforces. Elance then re-evaluated its product line and decided to return to the original business idea by selling the enterprise suite to “ClickCommerce”:http://www.clickcommerce.com/CKCM/Rooms/DisplayPages/LayoutInitial_webrQS%20_Q29udGFpbmVyPWNvbS53ZWJyaWRnZS5lbnRpdHkuRW50aXR5JTVCT0lEJTVCRkUxQ0Q1N0Y0MUJCRDY0OEE3QTdCMjQ5RTVCMzRCQTYlNUQlNUQ “for $8M in stock in May 2006”:http://www.clickcommerce.com/CKCM/Rooms/DisplayPages/layoutInitial_webrQS%20_Q29udGFpbmVyPWNvbS53ZWJyaWRnZS5lbnRpdHkuRW50aXR5W09JRFtBM0M4RUJFMTI1Q0JFNTQ1OEY3RUEwQTVCMDFFRTA1RF1d. Elance’s CEO “Fabio Rosati”:http://www.elance.com/p/corporate/about/management.html#fabio described this product arc as *a “long detour”* on the road to deployment of the founders’ original vision.
*Flexible business model, but adherence to the original ideals*
Elance could have simply abandoned the marketplace concept and pursued the enterprise software path exclusively, but didn’t. I asked Rosati why the company chose to maintain two product lines, and why they ultimately decided to refocus on the original concept.
He told me that “the Board”:http://www.elance.com/p/corporate/about/management.html considered a variety of strategic alternatives and ultimately came to the conclusion that the online market route offered the best mid- and long-term prospects. At the same time, near term needs in 2001 required that the company secure revenue from another source, namely the enterprise market. During the detour the company continued to believe that the marketplace product held promise and decided not to abandon it, but instead to maintain and manage it for the future.
*I find the concept of the “long detour” fascinating.* It says that the company believed strongly in the original vision, but recognized that the time was not ripe to realize the plan. In addition, Rosati told me that the company saw the enterprise product as having limited room for growth except as part of a larger supply management software suite, whereas the distributed workforce market was still virgin territory. This combination of factors led the company to end its detour and come back to the path originally envisioned.
*Reasons to sell or not to sell a product line*
Elance could have sold off or simply abandoned the marketplace product to simplify its operational workload. I asked Rosati why the company didn’t do this, and he told me that the company analyzed the situation and concluded that the marketplace, if properly managed, would not damage the enterprise product or divert undue resources from it (in cash or personnel). That being the case, there was no reason to abandon the possible long-term opportunity it represented.
*Getting another shot*
The founders and investors originally envisioned the idea of a broad market to match many thousands of service sellers with buyers. The enterprise software “detour” secured the company’s survival during the dot com meltdown and culminated in the sale of the enterprise suite for $15M, a return of less than 20% of investors’ capital but more than adequate to fund future growth. If Elance’s only product line were enterprise software it would be deemed a less-than-successful exit for the company. Maintaining and returning to the original idea, however, gives the company another chance to fulfill the original vision.
Elance’s early vision caused it to launch before the market was ready. As noted earlier, I suspect that many companies have the same problem and need to adapt. Elance adapted by reviewing the market landscape and developing a product to satisfy the immediate revenue-generating opportunity. Many businesses may be able to develop a service offering that can bring steady cash flow sooner, and fund development of the original product.
At the same time, keeping the original product rather than changing the business model entirely gave the company a chance to evolve with the market. Elance’s strategy illustrates one way a company can be flexible and capitalize on available opportunities while preserving a range of options for the future.