TokBox, a US-based video chat startup, raised $12 million in Series C funding from DAG Ventures, Sequoia Capital and Bain Capital last November, after going through a significant pivot. TokBox essentially stopped developing its consumer facing product, instead focusing on Open Tok, its video chat API, as its core business. We had a chance to conduct a short interview with Ian Small, CEO of TokBox to find out how the pivot decisions were made.
VC Cafe: What was the point where you decided, there’s no point in running with the old business plan?
Ian Small: The consumer-facing tokbox.com business is healthy with 2 million registered users, and has continued to grow since we launched OpenTok in late November 2010. However, the traction we have seen on OpenTok in the 75 days since launch — with 30 partners live and almost 200 in development –supports our belief that the market opportunity represented by being a video chat platform is larger than that of being a destination video chat site. As a result we decided to focus our resources on OpenTok and close down our consumer facing business.
2) Once you decided to change, how did you go about prioritizing the different ideas? Was it a consensus?
Ian Small: This was not a case of a number of different ideas on the table. We have always had an API business, powering video chat for partners like Meebo as well as a wide range of sites including dating, education and healthcare. We saw this business growing and built OpenTok in response to partner demand and as an opportunity to create and own this “multi-way video chat across the Web” category. Once we launched OpenTok and saw its growth in the market, the decision to shift our business to focus on OpenTok was clear.
VC Cafe: Where there differences in the execution of the 1st and 2nd strategy? What did you learn the first time around?
Ian Small: OpenTok is built on the same technical infrastructure as the consumer-facing video conferencing business. Over the last three years we have learned a lot about the technical and operational challenges that come with owning and operating a real-time communications business. We leveraged all of those learnings and innovations to launch OpenTok.
VC Cafe: What advice would you give startups that are going through a similar process?
Ian Small: Here we like to use a sailing analogy. When sailing a boat you have the whole crew focused on one direction, which is essential to making headway. However, the skipper always has to keep his eyes open to changes in the wind that could require a change of tack. The skipper determines whether that is the right tack before giving the whole crew the command. In this case, the CEO of a start-up needs to give the team clear direction while keeping their eyes open to adjacent business opportunities. The CEO then needs to assess those opportunities, validating them through market research and customer development and if ultimately, one of those new opportunities proves to be larger than or incremental to the existing business opportunity, they need to clearly articulate that change of direction to the team and execute the transition rapidly.
Pivoting is not just reserved for seed-stage companies. If you’re business is not going to grow in an Internet pace (even if you have 2 million users) you should consider whether there’s an adjacent product, market or service that you could provide. I’d recommend signing up to the Lean Startup Wiki and Steve Blank’s blog for insights on how to go about a pivot.