Case Study

Colin Johnson had a bold plan to transform his consulting firm. But when things went awry, sticking to his guns meant risking everything.

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It was the summer of 2003, and Colin Johnson was watching his company slowly die. Eyetools Inc., his Sacramento, Calif., consulting firm, had booked no new sales in months. Bills were piling up, and cash flow had slowed to a trickle. Johnson and his partner, founder and CTO Greg Edwards, were even thinking of seeking part-time work to pay their living expenses. Says Johnson: "Every day, we asked ourselves: 'Can we take another step, or are we going to fall over?'"

The worst part was that Johnson had no one to blame but himself. It was he who had driven Eyetools to the brink--with a decision to radically revamp the company's strategy. And time was running out.

Since launching in 2000, Eyetools had built a thriving consulting business by helping clients understand exactly how Internet users react when navigating a website. Using a specially designed piece of headgear outfitted with a camera to capture reflections on the surface of the eyeball, Eyetools consultants recorded the way a viewer's eyes responded while clicking from page to page. Then, using proprietary software, they analyzed the data and came back with a plan to make the site more, well, eye-catching. The process, known as "eyetracking," enabled companies to identify and fix a website's "dead spots" and had attracted a cadre of blue-chip clients, including eBay, Microsoft, and Yahoo.

But Johnson, 32, had begun to harbor serious doubts about Eyetools' long-term viability. The problem was the camera. Not only was it cumbersome, but training consultants to use it was costly and time-consuming. Johnson's fears were confirmed in December 2002, when a Swedish firm introduced a new, far more elegant way to record a Web surfer's eye movements. After testing the device--a flat-panel computer screen with a built-in eyetracking camera--Johnson became convinced that his company had to change.

Until now, the hassles associated with the camera had kept competitors out of Eyetools' unusual niche. This new, easy-to-use device effectively demolished that barrier to entry. What's more, the Swedish company had also developed analytic software of its own, and Johnson sensed it wouldn't be long until other companies--including, he feared, major players like IBM--did the same. These new dynamics, Johnson became convinced, changed everything. Eyetools' true strength was not its consulting services, but its software, which remained far more powerful than anything else out there. An informal survey of clients suggested that the market for an out-of-the-box version of Eyetools' software could be robust.

The challenge, of course, would be changing from a consulting firm to a software provider--and doing it fast. One thing seemed certain: With limited time and resources, Eyetools would not be able to commercialize its software while continuing to consult. So in April 2003, the company made a bold move: Eyetools would devote all of its energy to its software and get out of consulting completely.

Sure, it was a risk. But Johnson and Edwards figured it would take only about three months of full-time work to prepare the software for prime time. They set a deadline of June 16. The company's 10 consultants and tech pros would wrap up their current projects, but new clients would be politely turned away, and accounts receivable would pay the bills until sales of software licenses began taking off. The two partners went back into start-up mode--Edwards fine-tuning the software to make it more user-friendly, and Johnson creating new marketing materials and developing a beta-testing program.

But the June 16 deadline came and went, and Eyetools was nowhere near its goal. Johnson's marketing efforts were mixed: Potential clients seemed intrigued but were unwilling to purchase something they could not yet see. Edwards, meanwhile, had realized the software needed a lot more than a tune-up if customers would be able to use it without first undergoing extensive training. It needed a total redesign, which could take months. Johnson agreed, but neither had planned for the company to be dead in the water for more than three months.

An immediate solution was to hustle up some consulting work and put the software project on a slower track--something that Edwards, who has a wife and three children, brought up repeatedly. "I can't just go sleep on a friend's couch," Edwards told his partner. "Isn't there an option that will let us infuse the company with any amount of cash?" But Johnson, who knew how intense and all-consuming consulting projects could be, was persistent. Trying to bring in venture capital or angel money was another option. But in a tough fundraising market, Johnson didn't think his chances were good. Plus, it would take time and energy--two things that were in short supply.

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