## How Difficult Is It to Change Your Business Model After 2 Years? A Startup’s Reboot Story

Co-Founder AI

# Introduction

In this article, I want to share our experience of rebooting our business after two years of operation—why we did it and what we achieved in the end. I hope this information will be valuable to entrepreneurs striving to find a sustainable business model for their projects.

# Background

By the time we launched the paid version of Co-Founder AI on November 1, 2010, we had several hundred free registrations and hoped that 3-5% would convert to paid subscriptions. Unfortunately, our expectations were not met. Customers didn’t understand the value of the service, and there wasn’t a growing demand for such solutions. Each sale required reaching out to clients, explaining the value proposition, conducting presentations, etc. As a result, our Customer Acquisition Costs (CAC) significantly exceeded the Life Time Value (LTV) of a customer. We were operating at a loss.

I have always adhered to the principle: if something is going wrong, first look for the problem within yourself. So, we blamed our marketing, sales system, pricing, etc. We changed our licensing system multiple times, tried different sales methods, but the issue wasn’t with these aspects. Below is a growth chart of the number of registrations in the system. Currently, over 10,000 communities are registered, with more than 1,000 active.

# Seeking a Business Model

Initially, we targeted small and medium-sized businesses, hoping they would encounter the problems we aimed to solve. However, it became clear that either these businesses didn’t have the issues we addressed, or our solutions weren’t a significant “pain point” for them. Engaging with colleagues who worked on projects for SMEs revealed that we were far from their performance metrics. For example, on average, we registered no more than 15 companies per day—a drop in the ocean.

Meanwhile, we started receiving more and more inquiries from large corporate clients such as banks, internet service providers, retailers, FMCG brands, etc. To close deals, we had to hold meetings. Since our entire team was based in Bryansk at the time, I sometimes had to travel to Moscow twice a week for meetings. Each one-hour meeting cost us $100 and a day’s worth of time. I began to dislike trains.

Additionally, it was clear that selling a solution to a bank for $20 per month was simply laughable. Consequently, we began to change our licensing system and implement more expensive pricing tiers. By the summer of 2012, we had a mix of corporate clients, SMEs, and webmasters. Corporate clients accounted for 90% of our revenue. Below is our Monthly Recurring Revenue (MRR) chart—a crucial metric for SaaS startups that reflects monthly income from all clients. Unfortunately, I can’t provide absolute figures.

# Sink or Swim

On May 29, 2013, we sent out an email to our users informing them about the discontinuation of the free tier. Some clients accused us of using them for advertising and “abandoning” them. However, few considered that we had invested millions of dollars, thousands of hours of development time, and immense effort into the platform they used for free. Moreover, we hadn’t gained recognition among corporate clients who actually purchase licenses.

Discontinuing the free tier was a painful but necessary step for us. For our clients, we created a discussion thread in our community where we openly discussed this decision and answered questions. We expected much more negativity but were pleasantly surprised by the gratitude from our clients.

# Pivoting and Embracing Venture Capital

Faced with declining interest from small and medium businesses and increasing opportunities with large corporate clients, we realized the need to pivot our business model to ensure sustainability and growth. This decision marked our transition towards engaging with venture capital firms and private equity investors to secure the necessary funding for scaling our operations.

Engaging with venture capital firms and private equity companies provided us with the financial backing required to enhance our product offerings and expand our market reach. Partnering with angel investors and investment opportunities near us allowed us to align with mentors and advisors who offered invaluable guidance.

Our shift towards a venture capital business model enabled us to explore new investment opportunities, refine our approach to private equity, and leverage networks such as Y Combinator companies and 500 Startups. This strategic move was instrumental in transforming Co-Founder Ai into a more robust and scalable platform, attracting equity investors and securing our position in the competitive landscape of venture capital firms.

# Conclusion

Changing a business model after two years is undoubtedly challenging, but with the right strategy and support from venture capital and private equity firms, it is possible to reinvent and position your startup for long-term success. Our experience with Co-Founder Ai underscores the importance of adaptability and the willingness to pivot when necessary to meet market demands and achieve sustainable growth.

For entrepreneurs looking to start a startup, remember that finding a viable business model is crucial. Engaging with the right investment opportunities and venture capital firms can make a significant difference in your journey.

About Co-Founder Ai

Co-Founder Ai is a leading platform designed to support startups and entrepreneurs in navigating the complexities of business growth and venture capital financing. Whether you’re seeking startup jobs, exploring investment opportunities near you, or aiming to connect with angel investors, Co-Founder Ai provides the tools and resources to help you succeed.