What happens when you build a company, show growth and clients, get investment, and then the market drops out? Sound like last year? Wendy Tan White was a Dot-Com entrepreneur who started and built MoonFruit in 1999, and her story is a good lesson for any entrepreneur to learn. I interviewed White at this years South By Southwest (SXSW) Interactive festival in Austin, TX, at the Social Media Clubhouse.* I learned the necessity of having clear communications with investors and customers, even in the most dire of circumstances.

White's vision was to 'allow users to build communities and share passions online, and to remove for them the barriers of technology and cost.' She and her partners wanted to create a system that allowed non-technical users to create these community websites by dragging and dropping shapes and boxes, designing their sites without knowing any code.  This isn't revolutionary in 2010, but 11 years ago it was not very easy. MoonFruit successfully created a website builder in Flash, and gained 100,000 customers. They got funding from French Giant LVMH's EuropAtweb and Flash creator Macromedia (now part of Adobe.)

'After the NASDAQ crash and September 11th, funding dried up, and EuropAtweb  closed most of the businesses they had invested in, but not ours,' said White. 'We had customers, and we had good relationships with our investors.' White and partners bought back the company at a fraction of the investment cost, but had to scale back from 60 employees to 3. 'It wasn't easy – we had friends and even family working in the business, but we had to fire them. Then we went to our existing customers and asked them to pay for the software [which had previously been ad-supported]. We used freelancers and contractors to keep the costs down. We saw we had customers who were using the product, and we didn't want to just close up their sites and leave them without a web presence.'

MoonFruit could barely support their users, but in their online forums, their own customers started answering other's questions. This support from their customer-advocates generated word of mouth about the company and their growth started. By 2004, they had 9 employees and they changed their pure subscription-based model to a 'freemium' model – basic functionality was free, and became their marketing channel for the premium package, which was purchased by about 5% of users. They also found that graphic designers were using the site to create websites without needing code, so they created a reseller platform, and a version of their tool that other ISPs can 'white label' and offer to their customers.

Around 2005, White's husband got into the business after leaving McKinsey. After an aborted attempt by a large company to purchase them, Moonfruit ended up buying Gandi Group, the owner of the top domain registrar  in France, and recently started offering hosting services. Last year, MoonFruit grew by 70%, while the whole business grew 30%. "It seems that post the blogging boom, consumers are more confident about building their own websites," said White. "Last year we did a Twitter campaign last year in the US to raise awareness, and people started doing crazy fun videos about the brand, and made it a lot of fun. It helped us understand value of social media, and brought us back to our roots of sharing community online."

Now Moonfruit has sales of 14MM Euro ($22MM) per year, with 2.5 million sites and about 75 employees. White's advice to other companies that have to survive scaling back? "A lot of people believed in us - we had tenacity and our customers kept us going by deciding to pay for our services. You need to take a good look at what you really have - see the metrics - if you believe that you'll get to where you want to go , you can scale back and then bootstrap. Make sure you have an appetite to do so. In the UK there's more fear of failure, where as in the US people tend to carry back on even when they've failed."

What "near death experience" has your company had? Share it below in the comments.


(Disclosure: Moonfruit was a sponsor of a program at the Social Media Clubhouse. The clubhouse was run by Social Media Club, where I'm on the board. It's a non-profit (filed for status), and I didn't get specific compensation for writing this story.)