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STRATEGY

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.

Meanwhile, Eyetools was coming apart. It felt, Johnson says, like being in a sealed room that was slowly running out of oxygen: "If you can get someone to just open the window, crack it a little, it would help."

The Decision

Johnson and Edwards decided to hold their breath a little longer. No more distractions: They would throw everything they had into getting their software ready for market. The two men stopped taking salaries and sent their contractors home. Johnson met with the company's vendors to negotiate extended payment terms and borrowed cash from friends and family. He told Edwards, "Give me the software with the features and functionality so I can sell it. I'm champing at the bit to do it."

Edwards threw himself into a grueling schedule, catching only a few hours of sleep a night, when he got any sleep at all. Johnson pulled a few all-nighters himself, redesigning the Eyetools website, refining the company's marketing materials, and scrambling to generate prelaunch publicity. "I don't know how we functioned," Johnson says. "It defies science."

Finally, in January 2004, seven months behind schedule, the software was finished and ready to go. The first success came quickly: The company sold a $5,000-a-month license to a large federal agency (Johnson declined to identify it), which brought in a much-needed cash infusion--the first substantial chunk of change that Eyetools had seen in seven months.

Johnson has been hitting the road, trying to sell the software to everyone from financial services firms to website developers and advertising agencies. The company still has a ways to go, but Johnson has no doubt that he made the right call. A consulting job would have delayed them another year, he believes. "It would have been much less painful to do it that way," he says. "But we would have more competitors than we have today." While their ultimate success has yet to be determined, Johnson is hopeful of at least one thing: His days as a consultant are drawing to a close.

The Experts Weigh In

Just because they've built it, it doesn't mean that they will come. Eyetools needs to stay focused so they can get to the next phase of the mission, which is sales. They also have to realize that in most markets, technology alone doesn't get you very far. I think they're going to find that clients will need people to tell them how to use the software--in other words, their clients will probably still want them as consultants.

Jim Cioban President and CEO
Cierant Inc., a New Milford, Conn., marketing firm

Eyetools made the classic mistake of underestimating what it takes to commercialize a product. Even though they already had the software, they should have treated this like they were designing a new product. Now, Johnson needs to get his product adopted as quickly as possible. Adoption is about communication. That's how ideas and products take off--people say, "Wow, you've got to try this new thing." Johnson needs to identify the communication network around his product: Who is going to tell who about it, and how is he going to get to those people to get the buzz out?

Norman Wolfe President and CEO
Quantum Leaders, an Irvine, Calif., strategy consultancy

A lot of entrepreneurs run screaming as soon as things get tough, but Eyetools had enough glue to stick to its guns when the cash got tight. That's very important. Sticking to what you've been doing, when you have the sense that you're on to something that can make the company grow, provides a false sense of security. In fact, it's a disastrous way for a company to operate. Many companies have turned away too quickly and walked away from an opportunity when success was just around the corner.

William Crookston
Professor of entrepreneurship University of Southern California

Last updated: Apr 1, 2004




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