ProblemThere were two major problems that led NEXT to bankruptcy:
1. Market.
We were too optimistic about the dynamics and size of the market we were operating in. From the beginning of launching the company we have invested heavily into software developers in the hope of market leadership when it matures....but it never really did. Web development became more like a commodity: with almost everyone using free design templates and free Content Management Systems building websites. And as for the clients, their major concern
was price: they were not ready to give away big money. So, when we understood it, we were in debts.
2. Two founders, two visions.
Both us (founders) thought of the company as their child and wanted very, very much to succeed it. It was the good part and the bad part was that we each had sharply different visions for the company. I believe it was a classical situation and the classical mistake was the failure to clearly set out responsibilities and decision making power between two of us. It led to malfunction of the organization and even to interpersonal problems.
ActionWe had to solve this stalemate and I decided to buy the stake of my partner. From the first sight it seemed risky because NEXT was in full debts and software developers ran away from the company. But I knew I had to move from technology development to advertising in order to survive.
First of all, I changed the company's name from NEXT Technology to NEXT interactive. That was clear indication that we have adopted a new way. Then I got rid of small (in terms of profitability) and troublesome businesses such as web hosting service. Every web development and internet marketing shop here had their own web servers, so this decision was perceived by them as at least as 'weird'.
The next step was to make web development cheaper. I outsourced the development of new and flexible Content Management System (CMS) that would allow us to create website with minimum resources: We had one web designer and one web developer (with beginner level) to adapt the back office of the website using the new CMS. This allowed me to double the profit from each website we were building.
At the same time we began offering interactive marketing, media planning and buying services. These services were at the center of the turn-around strategy. After 1 month of these changes we got our first client for our new business model: Samsung Electronics Uzbekistan. We developed online marketing plan, developed media planning and buying for the client, as well as we developed a promo site for the campaign. This approach allowed us to go upmarket and earn
more (because under the old NEXT we would be only doing web development).After Samsung Uzbekistan online campaign, Coscom - third Cell operator in Uzbekistan - picked us to conduct their interactive marketing promotion.
After 8 months of restructuring NEXT we paid off our 90% of our debts. It was crystal clear that we were on the right track.
ConclusionIt was a big lesson. I learned two things:
- First, you need to do anything to avoid misunderstanding with partners and investors in leading business, especially if other founders and investors are participating in daily operations.
- Second, you need to be brave to shed unprofitable and low marginal businesses in order to focus on businesses that will bring in more in the future.
