Patrick Llewellyn, chief executive of 99designs, explains how making the difficult choice to kill a spinoff brand that wasn’t working led the design startup to profitability and becoming a better company.
Any entrepreneur lucky enough to get out of the gate with a pioneering concept that quickly gains popularity understands the challenges of balancing innovation and investment in new ventures. With today’s “grow or die” startup mentality, it’s tempting — and often rewarding — to take risks and stretch your offering and resources into new opportunities. However, it is equally critical to know how and when to pull up the stakes, cut your losses and retreat when that venture doesn’t pan out.
My company, 99designs, learnt this lesson firsthand a couple years ago when we made the tough call to kill off a popular, but underperforming, spinoff brand in order to focus on our core brand and ultimately achieve profitability.
By 2013, 99designs had established itself as the largest global online graphic design marketplace largely via the popularity of our design contest model (designers compete to design logos, websites, book covers, etc. for small businesses or anyone seeking design work).
We had been observing an increase in requests for simple, on-demand design tasks — such as updating logo colours or tweaking a business card — that fell outside our traditional model. We had already introduced a new product called 1-1 Projects that allowed our designers and customers to work with each other after meeting via a contest, and we were reticent to add another offering into the mix under the 99designs brand.
Ultimately, we decided to create a separate brand called Swiftly, which we treated like a brand new startup.
Swiftly was launched and we started to relearn how tough it is to establish a new brand in a hurry. We achieved a fairly strong and loyal user following early on. We saw promise and had gained some momentum, but unfortunately, the gains were draining our profit margins, due to the number of resources dedicated to making it work and the divergence of focus from our core offering. Even more worrisome, the new brand confused customers who didn’t understand the connection between the two companies or the differences in our offerings.
After about 18 months, we decided to pull the plug on the brand and instead look to incorporate the compelling aspects of the product as a feature under the 99designs core brand in the future.
Ultimately, we shifted focus to hone in on custom design work — which is the core of our company — even if it meant sacrificing other opportunities for a short-term payoff.
Now four years down the road, 99designs is generating about $US60 million ($78.9 million) per year and has reported six consecutive months of profitability. Of course, killing off Swiftly is not the only or most direct reason for pulling into the black, but it’s a contributing factor along with many other situations where we’ve pressed pause and refocused.
And in the end, we walked away with some very valuable lessons, including:
Trust your customers to evolve with your brand
Your brand is not only what you want it to be, it is what your customers believe it is. Because we built a company initially based on contests, we put too much focus on the how versus the why, which limited our perception of our own brand, and our ability to facilitate design in different ways with it.
Focus and prioritisation can be exciting goals, too
Let’s face it: aiming for efficiency and profitability is never going to be as inherently exciting as growth and expansion. But, knowing what your company’s core competency is and how to maximise the opportunities within these areas of strength can be fulfilling in their own right.
For example, over the past couple of years, we’ve noticed an increased demand for our services by corporate marketing department
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With Swiftly, we learned that the biggest challenges were not just in having the courage to make the decision, but in keeping people motivated through disappointment. Clever and creative communication was our strategy.
Because we knew our rationale for shutting down Swiftly was not inherently inspiring, we came up with a mantra: “Let’s become the masters of our own destiny”. We wanted to emphasise that reducing spending and not duplicating resources would mean bigger things for 99designs and the team behind it and enable us to grow and expand self-sufficiently without relying on outside partners. We wanted to communicate that we were working to avoid the fate of other companies in our space who were starting to fail because they could not self-sustain.
Complacency is never an option
Let’s get one thing straight: focus and prioritisation do not mean it’s time to stop taking any risks or investing in growth. In fact, just when you’ve gotten into the profitable groove is when it’s time to start brainstorming the next big opportunity (this post by Buffer chief executive Joel Gascoigne provides some great tips for that). If you’re not thinking this way, remember that your competitors will be. The key is to keep a critical and measured eye on new ventures, while allowing enough time and resources to gauge the success or failure before moving on to the next new thing.
As many, such as noted leadership consultant Michael Hyatt have pointed out in articles like this, failure is always an opportunity to learn more and do better. This is particularly true for startups. I believe we’re a better company today because we recognised what wasn’t working and redirected our resources. Startups are nimble, and it is those that embrace that mentality that can sustain the path to long-term success.