In early 2001, a struggling computer company decided to launch a digital music player to break into new markets. With just five months left for the official launch, the team worked all seven days of the week. The software was still work-in-progress at the time of the launch, and the company needed to decide on the manufacturing plan.
Despite the rocky start, the iPod was launched amidst great fanfare and went on to revolutionize the music industry.
The story doesn’t end here, though. Despite getting critical praise for its innovative scroll wheel and selling 125,000 units – “It was dead,” according to Fadell, the inventor of Apple’s iconic music player. Sales from the iPod weren’t enough to rescue the company from its financial quagmire. It wasn’t uncommon for companies to cancel their first product in nine months because they didn’t want to invest in the product’s next generation. But Jobs decided to keep going.
It took another three generations of the iPod for it to become a household name that it eventually became. Like a cycle, the team continually worked on it to improve the product and its experience. Besides legitimizing the category and dropping some iconic ads, the iPod also laid the groundwork for the company’s mother lode: the iPhone.
Success stories, in retrospect, look reasonably obvious. Apple – the most valuable company today – is no stranger to risk-taking, right? To put things in perspective, Apple reported a loss of $195 million in the last quarter of 2000; the company was struggling, its sales which came from Mac computers were declining and the future didn’t look promising.
Bold bets in the face of tough times separate the history makers from the rest.
Today we’re diving into why keeping the spirit of experimentation alive during a downturn is essential and how you can build a culture of innovation within your organization.
Go Big or Go Home: Experimentation as a success marker during an economic downturn
At its core, the spirit of experimentation fuels humanity’s race to the future. Risk-taking has always been a double-edged sword – you go big or go home. It’s easy to look at Amazon’s experimental culture and phenomenal success and connect the dots. Similarly, Netflix’s obsessive experiments from launching a subscription model for DVD rentals in 2000 to releasing ten different versions of the trailer of the TV show House of Cards geared towards different audiences – have more than paid off in shareholder returns.
But during a crisis, the stakes are raised; businesses become more risk-averse, and reduced budgets don’t have the place for ambitious experimentation. But companies that continue to innovate and iterate despite economic fluctuations often retain their competitive edge and can better capitalize on future market opportunities.
For instance, Peloton is a fitness company that offers a subscription service for its at-home exercise equipment. During the pandemic, they saw a surge in demand as people could not go to gyms. However, they also introduced a new business model: Peloton Digital, a standalone app that allows users to access their fitness classes without purchasing a Peloton bike or treadmill. This new business model has helped Peloton expand its reach beyond its hardware offerings.
“When money is easy, there is less incentive to operate at peak efficiency. Investment standards get lax to chase growth at nearly any cost. During down markets, the availability of capital is limited. This forces the weak operators out of the market. The remaining market players are forced to become more efficient with resources, which sets them up well for the next growth cycle,” says Tim Kysela, VP of FP&A and Data Analytics at Chargebee.
Ingenuity doesn’t have to stop at experimenting with new business models; calculated and strategic investments can also maximize your odds of success during periods of uncertainty.
The New York Times, a subscription-based newspaper, acquired the viral word game Wordle in early 2022. According to the newspaper’s financial reports, the game brought “unprecedented tens of millions of new users to The Times.” Although the delightfully simple game remains free, NYT used Wordle to advertise other games from its collection; a subscription to New York Times Games costs $5/month, driving the company’s best quarter ever for net subscriber additions to their Games category.
Staying competitive could also be obsessing over your operational efficiency and streamlining your processes to prepare for future demand; businesses leveraging the downtime to get their house in order can sail full steam ahead once the tides turn.
“The last year has seen businesses pivot to cost reductions and a greater focus on operational efficiency. As the slowdown emerged, we implemented new processes and systems that enabled us to perform better; our People Success team rolled out SuccessFactors (tool), and Accounting implemented a new chart of accounts and integration of our accounting and planning software to improve the speed and transparency of financial reporting,” notes Tim.
Safe and sorry: The cost of not experimenting
The last time the world was shaken overnight was during the COVID-19 pandemic. It was a global litmus test of agility and resilience: businesses adapted on the fly to market conditions that evolved daily. The ones that survived to tell the war stories built significant risk-taking muscle and bragging rights that come with it. And the ones who played it safe?
Discounting the black swan events for a moment, there is a cost to playing it safe even when times are good. Macro changes are gradually and constantly unfolding around us, and businesses that have an ear to the ground and evolve with the times fare strikingly better.
Infamous names like Blockbuster, Kodak, and Blackberry are cautionary tales of industry leaders getting complacent and leaving their market share up for grabs. Up-and-coming businesses are not immune to this mindset either. Promising value propositions and would-be disruptors have been snuffed out before their time in the sun because they didn’t innovate rapidly enough.
Moviepass, a subscription-based service, wanted to disrupt the movie theater industry and allowed users to watch a movie daily for less than $10/per month. If this sounds too good to be true, it was – the business struggled to monetize this model and find additional revenue streams. With miscalculated demand and a poor profitability strategy, the company deteriorated quickly and filed for bankruptcy in 2019.
Moviepass relaunched its subscription services in 2022 to capitalize on the resurgence of in-person theater experiences. Now offering different pricing tiers based on geography and a credits system that lets you purchase tickets, the company is hoping for a more successful stint this time around.
Lack of innovation or risk-taking doesn’t always present as omission bias. Sometimes, it’s a matter of knowing when to stick with an experiment and when to call it quits.
“Product obsolescence and platform technical debt are clear areas where companies can falter if they do not take a long-term investment view. The less obvious ones are investments in particular markets. For example, a former employer stopped marketing in Brazil, a large but struggling emerging market, due to political factors. We could have stayed and doubled our investment while competitors were pulling back. When COVID hit there, the market exploded. Unfortunately, we had pulled out completely and could not reenter quickly enough to be a factor in the market. Again, a long-term view would have helped.” says Tim.
Balancing short-term market constraints with a more holistic long-term strategy for the organization is a tricky rope to walk on. So how can business leaders do it?
Building a culture of experimentation: best practices
While it’s easy to advocate an experiment-friendly mindset, most businesses find it hard to implement it. There are standardized protocols and protective guardrails set up – for good reasons. So how can business leaders run a well-oiled organization while keeping the startup mindset alive?
Culture and tools go in hand: Most startups experiment when they start, but scaling that mindset with them becomes more challenging as they grow.
Booking.com transformed itself from a startup into the world’s largest accommodation platform by running 25,000 experiments a year. They achieved this by centralizing their experimentation platform and democratizing their experimentation so that any employee can technically run any test without running it through upper management.
At any point in time, hundreds of live experiments are being run on booking.com’s site. You and I most likely see different home pages!
Fostering an organizational innovation culture requires a radical, fundamental mindset shift and tools to eliminate the overhead effort in running experiments. Chargebee enables easy experimentation with your product catalog – whether it’s hybrid pricing, one-time purchases, or a new pricing structure altogether, you can execute an experiment and roll back the changes (if required) with equal ease.
Prioritize low-cost experiments in high-impact areas: If you open the floodgates of curiosity, you will be flooded with ideas. While we would all love to indulge our wildest ideas and frolic around like scientists, as a judicious leader, you’re also likely to remember the economic fluctuations outside the metaphorical company gates.
You can begin by narrowing down your priorities and identifying the areas you plan to experiment with for the upcoming financial period. Depending on your budget and risk appetite, you could define the threshold for experimentation in the selected areas. Prioritizing low-cost experiments in high-impact areas is a great way to make small bets that could balloon into more significant initiatives. Experiments in your homepage experience or your product’s sign-up journey are critical areas that could inform your PLG efforts and accelerate value delivery.
For example, Superfoods, a natural, plant-based product company, continuously iterated its pricing strategy and observed a 4x growth in revenue in 12 months. With the help of Chargebee, they increased their subscriber base from 10,000 to 200,000.
“30 minutes is all it takes to roll out a new pricing experiment!”
– Paul Kapsner, Director of Finance, Superfoods Company
Once you have org-level priorities and the right tools (like Chargebee :)), get set and experiment away!
(Knowledge) sharing is caring: Running experiments can be an intellectual pursuit but also time- and resource-consuming. Consciously setting up guidelines within your organization to document your experiment conditions, findings, and impact on revenue growth can save a lot of experiment redundancy.
Centralizing your data sets and decision criteria can inform organizational dialogue and other cross-functional initiatives and have a cumulative impact on your organization’s experiment engine.
Every great product or idea has been a disruptive thought at first, a chance that somebody took. Building a business is often a multitude of events working out in tandem. Achieving product-market fit requires several elements of your business to fit together perfectly. This usually takes time and some trial and error. Even after you achieve PMF, experimentation is needed to remain relevant in a world that never stops changing.
‘Experiments’ may not have the most favorable reputation but don’t throw out the baby with the bathwater. Your ideal pricing structure, the suitable business model, or your brand’s unique voice – could be an experiment away.
Revenue Growth Management software like Chargebee can provide the flexibility and capability to fuel your experimentation engine.
You can restructure, roll back changes, and rebuild your product families seamlessly with our robust product catalog – a pricing change needn’t be a quarter-long project. Experiment with feature provisioning to monetize your product effectively sans developer dependency; bundle and unbundle features from plans to identify the ideal feature set that provides maximum value. With granular customization in invoices, billing cycles, discounts, and add-ons, Chargebee acts as a command center for your recurring revenue lifecycle, allowing you to play around with the nitty gritty while keeping an eye on your revenue big picture.
How is your organization’s experimentation engine? Is it sputtering on the last few dregs of fuel, or is it full steam ahead? If you’d like to find out if your tech stack is the growth catalyst that you think it is or if it’s impeding the experimentation culture within your company – you know where to find us.