CreativePlanet.com started out as a news and information site for entertainment-industry professionals, sort of an online trade publication. Now, the two-year-old company aims to be an online project manager for Hollywood, procuring services for film and video projects.
The thought of Ford making cashmere sweaters or Boeing entering the gourmet food market is fairly ridiculous, but such seismic shifts in business models are becoming relatively common at Internet companies.
Many of these firms, after a short period of market testing, are discovering that their initial business model just isn’t working. And because they don’t have assembly lines or inventory or brick-and-mortar stores, these virtual companies are able to turn around on a dime.
In fact, these changes are so common that even fairly drastic shifts like the one being undertaken by CreativePlanet hardly raise an eyebrow with local experts.
“It happens all the time,” said Rock Schnabel, a partner at venture capital firm Trident Capital Inc. “Since it is such a new world, and since it is moving very, very rapidly, people have to be able to adjust to that marketplace and change course.”
CreativePlanet officials like to call their transformation an “evolution.”
“We were always focused on the idea of focusing on the business activity of creative professionals,” said Allen DeBevoise, the company’s chairman and CEO. “We expected that over time things would have some element of change, new angles, new competition. People are building companies with a thousand employees in a couple of years. That requires a kind of mentality that you’re ready to pounce every day.”
A $25 million investment, with Chase Capital leading the way, allowed CreativePlanet.com to buy key project management software used by the film and television industries. By this summer, those applications will be available at www.creativeplanet.com, allowing for fast and cost-effective project management, DeBevoise said.
Investors, who include former Universal Studios Inc. chief Frank Biondi and Motion Picture Association of America head Jack Valenti, are excited about the company’s change of focus, DeBevoise said. “I think investors who are smart about the Internet realize there’s a core value proposal, and you invest in that and in a management team.”
Although an increasing number of dot-coms are changing direction midstream, such radical shifts can create problems.
“You can lose people who may have signed up for the original strategy and don’t fit with your new strategy,” said Jon Funk, general partner at venture capital firm Media Technology Ventures. “You’re going to have to explain to investors why you changed.”
Funk described one company, which he declined to name, that is experiencing those very troubles.
The company, in which Funk’s fund has invested, started out developing software for large businesses to manage employee access to computer networks, but decided the marketplace was saturated and it didn’t have a competitive advantage. So it transformed into an application service provider (ASP) business, offering electronic transaction processing services to the real estate industry.
“We lost a large part of our engineering team; they didn’t understand the technology. We had to recruit some new executives who fit in with the new domain,” Funk said. “We’re raising capital now, and we sometimes have to explain why we did what we did, which doesn’t reflect well on the management that’s still there.”
Further, a company changing its business plan better do so with research to support the change, investors warned.
To stay or go?
“When the next round (of venture funding) comes up, you can decide if you’re going to support this new strategy or not,” Funk said. “That’s always one of the hardest decisions, whether to walk away or not. If investors don’t buy into the new direction, (the company) can’t raise new capital.”
Despite a few companies that have experienced problems, many businesses have been able to pull off significant direction changes without alienating employees or investors.
WWW.com, an online radio company, entered its beta test period as a news and entertainment site offering music, news, sports, weather and even an online romance feature.
“We found through our tracking that a majority of the people were there to listen to music,” said Michael Romano, vice president of marketing at WWW.com.
CEO Scott Purcell then rewrote the business plan, turning WWW.com into a business-to-consumer site offering listeners hundreds of thousands of songs on hundreds of niche genre music stations. The company radically changed focus, but investors hardly balked.
“Investors today are very Internet-savvy,” Romano said. “They invest in Internet companies with the knowledge that Internet companies need to be able to change midstream to take advantage of opportunities. And this was taking advantage of an opportunity.”
The company continues to adapt based on its research. In addition to running its own site, WWW.com now provides online radio services to other businesses, so visitors to their Web sites can listen to online broadcasts.