Before they were famous. 15 startup pivot to fame

Learn about two interesting startup pivots, that of Woot and Yelp.

• Woot began in 2004 as a way for Matt Ruttledge’s 12-year-old wholesale electronics distributor to clear out unsold inventory
• Yelp began as an automated system for emailing recommendation requests to friends.

Key learnings:

• Woot: If you have a problem, test stuff. Being different is better than being the same. Embrace your inner weirdo
• Yelp: Pay attention if users user your product in a way you do not expect. That might be the thing you should be focusing on

Video on Woot and Yelp

Woot

Woot began in 2004 as a way for Matt Ruttledge’s 12-year-old wholesale electronics distributor to clear out unsold inventory

“Woot is a term of excitement, like ‘Yahoo!’ or ‘Hooray!’, but much nerdier,” says Matt Rutledge, the founder who turned Woot.com into one of the most unusual and frequently-trafficked ecommerce companies in the US.

In 2004, Woot emerged not from a grand vision of e-commerce domination but from a practical necessity faced by Matt Rutledge’s existing business. His wholesale electronics distribution company, then a 12-year veteran in the industry, grappled with a classic problem: excess inventory. This predicament wasn’t just a matter of storage space; it was a financial albatross. Unsold goods represented tied-up capital and rapidly depreciating assets.

Rutledge’s company initially thrived by supplying electronics to big-box retailers. But as these retail giants narrowed their focus, often cherry-picking only the hottest items, Rutledge found himself increasingly burdened with products that, although valuable, had no immediate buyers. The shift in the retail landscape left his company with a growing stockpile of these electronic misfits.

This is where Woot’s story begins. The site, Woot.com, was an innovative solution to a rather mundane problem. It was a digital outlet store, but with a twist. Instead of a traditional online storefront with pages of products, Woot offered just one product each day at a steeply discounted price. This model created a sense of urgency and exclusivity. Buyers knew they had a limited time to snag a deal, and once it was gone, it was gone for good.

Let’s let Matt tell his story:

Woot evolved from a distributor company then that I had started in the 90s that was basically a non-internet company. This was get on the phone and sell computer parts to stores both locally in the Dallas area and then nationwide as we started to pick up more and more sort of closeouts from manufacturers.

We persisted in that model for a lot longer than our peers and then before Woot was launched our customer base was down to the big box retailers, the CompUSA’s and Computer City’s and Circuit City’s and all these places that are now out of business themselves. But basically Best Buy type stores. Huge, multi-location, sometimes hundreds of locations stores that would buy big batches of inventory to move through.

When we’d get stuck with an item, when we had something that those customers didn’t want because that customer base had become so focused in only a few accounts we realized that we were up side down or stuck with a product more quickly than we had in the past.

So we looked for outlets to blow that product out as quickly as we could because it was controversial that we needed to do that.

So Woot was actually a solution for the wholesale companies’ problem of making mistakes and having run out and bought a bunch of either computer related or consumer electronics related items that we were sort of stuck with. It wasn’t really designed as a “Let’s have fun on the internet and be snarky and invent this daily deal model” which we did but we didn’t invent those things for the glory of inventing them. We invented them to solve the very real problems of our business. They achieved that and then I think what leaked through and maybe added to people’s enjoyment that was more our personality coming through.

It transformed excess inventory from a burden into a cornerstone of a new business strategy. This approach not only solved the immediate problem of moving unsold stock but also tapped into the consumer psyche. People loved the thrill of the hunt, the excitement of snagging a deal, and the playful, often humorous product descriptions that became a hallmark of the Woot brand.

I think we had some robotic law mowers the first day. We were fairly arrogant about our marketing and we sold cheap. People thought, ‘They must be stolen!’

The funny thing is, as you can see with a lot of these case studies, luck and just trying shit actually can pay off.

We’re almost a study of how lazy you can be and still have success. It’s been fun to prove conventional wisdom wrong.

Woot’s success story is rooted in its origins as a practical solution to a business problem. Rutledge’s ingenuity turned a challenge into an opportunity, creating a unique and beloved e-commerce platform. This genesis story highlights a key lesson for entrepreneurs: sometimes, the most effective business ideas are born from addressing simple, everyday challenges.

Matt ultimately sold Woot to Amazon for $110 million and worked with Amazon for a couple of years but most recently left to start meh.com which is by his own admission very similar to Woot.

Key learnings

Woot’s journey from a solution to clear out unsold inventory to a major e-commerce player offers several key learnings for businesses:

1. Solve a Real Problem: Woot originated from a genuine need – to offload surplus inventory. This pragmatic approach ensured that the business had a clear purpose and target market from the outset.
2. Innovate Within Constraints: Faced with excess stock and limited options, Rutledge innovated within his constraints. This led to the creation of the ‘one deal a day’ model, turning a limitation into a unique selling proposition.
3. Leverage Scarcity and Urgency: By offering a single product per day, Woot capitalized on scarcity and urgency, compelling consumer action. This tactic can significantly boost sales and customer engagement.
4. Inject Personality into Your Brand: Woot’s humorous, quirky product descriptions and marketing created a distinct brand identity. This resonated with consumers and set Woot apart in the e-commerce space.
5. Adapt to Customer Behavior: Woot’s model aligned with the evolving online consumer behavior, which craved simplicity, excitement, and value. Understanding and adapting to how your customers shop can be pivotal.
6. Use Data to Inform Decisions: Woot’s model allowed for the collection of valuable data on consumer buying patterns, preferences, and price sensitivities. This data can inform business strategies and operational decisions.
7. Embrace Risk and Innovation: Woot’s approach was unconventional, and embracing this innovative, risk-taking mindset was key to their success. Companies often need to step out of their comfort zones to achieve breakthroughs.

Yelp

Yelp began as an automated system for emailing recommendation requests to friends

The Humble Beginnings

Once upon a time in the bustling tech landscape of 2004, in the wake of PayPal’s acquisition by eBay, two ex-PayPal employees, Jeremy Stoppelman and Russel Simmons, found themselves brainstorming startup ideas. Their muse? A simple, everyday predicament – finding a reliable doctor.

One day Stoppelman was looking for a doctor but had no clue how to find a good one (Same story for Zocdoc, btw). That gave him and Simmons an idea for an overly convoluted automated system in which people could e-mail friends asking for recommendations on, say, local doctors. To make it scaleable, the answers would be stored in a communal site for everyone to see if they had the same question.

This quandary planted the seed for an innovative venture, initially envisioned as an automated system for emailing recommendation requests to friends. Picture this: a digital town crier, sending out calls for advice, with responses congregated on a communal platform. It was a neat, albeit slightly convoluted, solution to a common problem.

The Initial Stride and Stumble

With a $1 million investment from PayPal co-founder Max Levchin, Stoppelman and Simmons set out to bring their idea to life. However, they soon encountered a fundamental truth of the startup odyssey: the path to success is rarely a straight line.

The original model, reliant on email inquiries, proved less engaging than anticipated. It was akin to casting a wide net and hoping for a few fish. The magic, however, lay in unexpected user behaviour.

The Pivot: A Serendipitous Discovery

I remember the moment that Russ said, ‘There should be a way for you to write your own reviews without asking questions.’ – Jeremy

As often happens in startup, the turning point for Yelp was born out of an unintended use of their platform. Users began leaving unsolicited reviews of local businesses, not out of necessity, but for the sheer shits and giggles of sharing their experiences. This phenomenon was the spark that ignited Yelp’s pivot.

Recognizing the potential in this organic, user-generated content, Stoppelman and Simmons reimagined Yelp. No longer just a query-response system, it transformed into a comprehensive review platform. A digital agora, if you will, where opinions on the best local businesses were freely shared and explored.

What they really wanted to solve for though, was not a new doctor, it was their search for the greatest restaurants and clubs in San Fran. I love to party too…

To fuel this newly pivoted platform, Yelp ingeniously combined business with pleasure. They began hosting parties at local businesses, blurring the lines between social gatherings and content creation. These events weren’t just about clinking glasses; they were strategic moves to boost engagement and populate Yelp with a wealth of reviews.

Yelp Today: A Testament to Adaptability

Today, Yelp stands as a prime example of startup adaptability and user-centric innovation. From its initial email-based recommendation model to its current status as a leading online review platform, Yelp’s journey is a masterclass in pivoting according to user needs and behaviors.

What’s funny is that people get their rocks off using Yelp as a form of social network.

One of the first surprises was the length of reviews and the attention to detail. People think they have to write reviews of a certain quality or there’s no point. A lot of them are funny. Some are poetry. I saw one review in the form of an IM conversation with Skeletor

Some people take it seriously to the point that South Park made a rather ‘delightful video.” It’s actually totally gross.

The Takeaway

Yelp’s story is more than a business case; it’s a narrative about the fluid nature of innovation and the importance of listening to your users. It teaches us that sometimes, the best way to move forward is to let go of your initial idea and embrace the organic, often unexpected, ways in which your users interact with your product.

Let’s not get into the accusations of blackmailing retailers now.

Key learnings

1. Embrace User-Driven Innovation: Yelp’s pivotal moment came from observing and adapting to how users were naturally interacting with their platform. Embracing user-driven innovation can lead to more sustainable and organic growth.
2. Flexibility in Business Model: Yelp’s willingness to pivot from its original idea was crucial. Businesses must be flexible and open to change, especially when original models do not perform as expected.
3. The Power of Community Engagement: By hosting parties and events, Yelp created a community around their platform. This not only generated content but also fostered a sense of belonging and loyalty among its users.
4. Recognizing and Capitalizing on Unintended Uses: Yelp capitalized on the unexpected user behavior of writing unsolicited reviews. Recognizing and leveraging unintended uses of your product can reveal new market opportunities.
5. Content as a Growth Driver: Yelp’s strategy of using user-generated content as a key growth driver demonstrates the power of content in creating value and driving user engagement.
6. Local Focus with Global Potential: Starting with local businesses and then expanding, Yelp shows how a local focus can provide a strong foundation for wider, even global, expansion.