Revenue model can be pivotal moment

When Robert Burns wrote his line about the "the best-laid schemes of mice and men" often going awry, he was probably not thinking specifically about entrepreneurs. But he could have been.

A recent case in point is technology start-up Huddle, which has just celebrated its fourth birthday. It operates in the very happening field of cloud-based computing, creating the ability for people to share documents online and across multiple devices.

Its technology, originally available to download for free, then for a fixed fee, has been adopted by 85,000 companies in more than 180 countries. Huddle, which is based in London, opened an office in San Francisco to capitalise on demand from the US, where excitement about cloud computing is greatest.

This succeeded in attracting blue-chip names such as Disney, Procter & Gamble and Merck. But the problem was that 85 per cent of Huddle's users were small and medium-sized businesses, which used the service heavily, but generated little revenue to support Huddle's growth.

As a result, about six months ago, founders Alastair Mitchell and Andy McLoughlin realised the company would quickly run out of cash if it continued with its pricing strategy.

Mitchell recalls: "If we had carried on as we did, we probably wouldn't have survived."

It was then that Huddle did what is known in Silicon Valley as "a pivot" — a term taken from the move basketball players make to pass to other players. Huddle's pivot involved changing its pricing model from an "all-you-can-eat" fixed fee to a monthly charge based on the number of people who would access the service.

Large customers

Huddle's large customers liked this because it was more like the way they were used to paying for IT services.

By using Huddle, however, they paid a lot less than they did for their other IT services — up to 90 per cent less, according to Mitchell.

Huddle liked the new pricing mechanism because it would eventually mean that large companies provided 80 per cent of its revenues. Also, by making new users pay more, Huddle's revenues would start to grow at the same dramatic rate as its customer base, Mitchell says.

Since changing the pricing model six months ago, sales have more than tripled and are set to be close to £10 million (Dh59 million) for the full year, says Mitchell. As a result, the business is moving from Bermondsey to London's tech hub to accommodate more staff.

There are difficulties in changing such a key part of a business strategy. It had to reassure existing customers that the move would not cost them more by promising not to change their existing price plans.

Huddle still faces risks from outside as well. Cloud computing is becoming an area of intense competition as the global technology goliaths — Apple, Google and Amazon — have each made the technology core to their service offerings. Mitchell says this does not worry him because Huddle is operating purely in the business-to-business space.

Just down the road from Huddle's new Old Street office is another technology start-up that has had to pivot in a different way.

Spoonfed began in the bedroom of Alex Will and Henry Erskine Crum as an entertainment reviews website, differentiating itself from rivals by being driven by events rather than venues.

— Financial Times