In this article, we’ll share case studies of successful startups that have overcome growth, marketing, redesign, monetization, and stagnation problems. Hopefully, these examples will inspire you for finding solutions to the issues that your business faces.
Some of the most well-known startups in the world began to operate without a clear business model. Their development only became sustainable after they realized their primary competitive edges and discovered ways of making money. Part of the selected businesses even had to switch from illegal operations to legal.
Google: introducing ads
At the early stage of its development, Google lacked a business model and didn’t make a sustainable profit. Its team tried to sell search solutions to companies and sell its signature search technology to other search engines. Only in 2003, this tech giant discovered a source of large and steady revenue: AdWords.
In five years, it generated $21 billion in advertising-driven revenue alone. Today, ads account for around 80% of Alphabet’s revenue (that’s the name of Google’s parent company). It equals almost $150 billion per year. MSN’s Bing platform and Yahoo’s Search Marketing borrowed this monetization model.
YouTube: enabling ads and improving content
Before Google acquired YouTube in 2006 for $1.65 billion, this platform lacked a business model and failed to generate any profit. But the Google team already knew how to make money on ads. In 2008, Forbes predicted that YouTube would generate $200 million in ad revenue. By March 2010, the revenue of the platform was pushing $1 billion per year.
Initially, YouTube lacked engaging high-quality content. Users would upload homemade videos of their pets and babies. To expand its audience, the platform signed partnership deals with NBC, ABC, CBS, and other top content providers. It allowed popular content creators to get a part of the ad revenue that their videos generated.
Napster: going legal
Originally, this was a P2P music-swapping service where people could listen to their favorite songs for free. In 2020, the Metallica band discovered its entire studio catalog on the platform. Together with the rapper Dr.Dre, the musicians filed copyright infringement lawsuits against Napster. Various record labels filed their own claims. At that moment, this website had 20 million unique users. It had to either close down or switch to legal operations.
Napster went bankrupt. Bertelsmann, a German media giant, purchased it for $85 million and converted it into a legal downloading service. From that moment, users had to pay to be able to listen to music. In 2008, Napster was sold to the Best Buy retail giant for $121 million.
Attracting and retaining clients
A major challenge for a startup is to get the initial audience. The task is to convince people to try the product and keep coming back for it. To achieve this goal, businesses might need to get creative. Some pay cash to their first clients, others fake user activity.
Airbnb: customer acquisition
As the Airbnb founders have raised initial funds for their startup, they began to think of alternative ways of attracting customers rather than paid acquisition. They framed the most important question perfectly: which website do people visit when they want to find a less conventional accommodation? The answer was Craigslist.
This is what the Airbnb founders did to leverage the power of this classified ads resource:
- Allowed their users to share their listings on Craigslist
- Attracted the attention of thousands of Craigslist users
- Convinced these people to switch from Craigslist to Airbnb because the latter had much better photographs and text descriptions
This tactic led to a viral growth cycle.
PayPal: user activation
From spring to summer of 2000, PayPal’s audience grew from 1 million to 5 million users. The solution was to pay cash to its clients:
- $20 for signing up
- $20 for successful referral
As the value of PayPal’s network increased, it lowered the sum of the reward to $10, then to $5, and then completely shut down this incentive. Such an approach turned out to be more cost-efficient than investing in traditional ads.
By the way, PayPal had to dismiss its initial business concept. It was conceived as a cryptography company. Then, its founders turned their eyes to transferring money via PDAs. Finally, PayPal evolved into an online payment system. In 2002, it went public and was later acquired by eBay for $1.5 billion.
Reddit: simulating user activity
This platform was launched in 2005 and couldn’t attract an initial audience. Its founders created fake accounts on the website and began fake discussions. Over time, organic users joined them. In February 2022, Reddit could boast over 1.5 billion unique monthly visits.
Innovative startup products need to have intuitive interfaces and be easy to use. It’s essential to create comprehensive tutorials for clients in text and video formats. Plus, the company staff should be ready to consult customers, listen to their feedback, and fine-tune the product accordingly.
Groove: client retention
Groove is a SaaS company. The average annual churn rate for this type of business falls within the range of 32–50%. To boost profit by 25–95%, it’s enough to increase the retention rate by 5%.
The cost of Groove’s subscription was $15 per user. Their monthly churn rate was 4.5%, which made the brand unsustainable. The managers of this startup divided their clients into two categories:
- Individuals who used their services for over 30 days
- Those who dropped out within the first month
Groove’s founders realized that people were struggling to make their product work. This is what they did to fix the situation:
- Analyzed the behavior patterns of users who were likely to quit soon
- Divided them into two subcategories depending on the duration of their app sessions and frequency of use
- Created and sent out a personalized email for each category
In their emails, Groove’s team offered users help with setting up the product. They encouraged their customers to schedule a 5-minute individual chat in Skype to discuss their issues. Such an approach enabled the startup to reduce its churn rate by 71%.
Popcorn Metrics: tutorials and consultations
The experience of this startup’s founders can confirm that around one-half of users who sign up for a free trial of a SaaS app will use it once and never come back. To decrease this number, it’s essential to facilitate and personalize the onboarding. This is what helped Popcorn Metrics:
- Tweaking the code of their product
- Offering 1-on-1 customer assistance
- Spending hours consulting people on Skype
Based on their conversations with customers, the team later created excellent articles, tutorials, and videos for their future users. It took them only 12 weeks to boost their revenue by 367%.
Conventional ads might fail to deliver the expected KPIs for selected businesses. Or, this marketing method might be too costly. Startups should leverage the word of mouth and distribute free trials among their audiences.
In 15 months, this startup managed to expand its audience from 100,000 to 4,000,000 individuals. Initially, it used to spend $250 per user for a product with a $99 price tag. Then, they introduced an incentive:
- If a client invited a friend to Dropbox, they would get 500 MB more storage.
- Each customer was allowed to earn up to 16GB of free space.
- The process of inviting new users was transparent and intuitive.
Word of mouth, referrals, and rewards secured viral growth for this startup.
SpringSled: pre-launch referrals
SpringSled is a project management tool. However, when its team began to generate referrals, it didn’t inform people about its product’s functions.
They asked their potential customers to sign up and invite 5 new users, in turn rewarding them with 12 months of free subscription. So by the time SpringSled went live, its user base had 120,000 individuals. The weakest point of this tactic was that a viral referral loop captured many people who didn’t need project management tools.
Nonetheless, the accumulated user base was big enough: even if less than one-half of all signed-up customers stayed for project management, the startup would still be able to take off. That was an impressive method of boosting brand awareness, and it showcases the power of rewards.
PicMonkey: freemium model
This startup operates in the photo editing niche, which is a highly competitive sector. A business that enters it has to present its competitive edge to clients from the onset. PicMonkey allows its visitors to try selected tools and filters for free. These features are so powerful and user-friendly that people become tempted to access the full functionality of the product.
Each month, subscribers pay $4.99. Such an approach enabled the startup to build a tremendous audience and reach a 40% year-over-year growth rate.
Products that are backed up by scientific research have good odds of revolutionizing the market. But innovation and the quality of goods or services can’t guarantee commercial success. To help these products become popular, startup teams have to actively promote them and be ready to resist potential backlash.
Netflix: willpower to ignore negative feedback
In 2011, Netflix’s Director of Product Management announced the new design of its Watch Instantly web interface. In the company’s blog, he emphasized that the upgraded service will be more focused on TV shows and movie streaming.
This is what the original design looked like:
- Personalized scrollable rows of titles
- Four titles in a row to select from
- ‘Play’ button and star rating under each thumbnail
- A lot of white space around each title
In January 2011, the Netflix team began to work on the new interface. They strived to create a denser user experience, that’s why the project was dubbed Density. The upgraded version got rid of ample white space around each title, ‘Play’ button, and star rating.
At the moment of introducing the new interface, the audience of the streaming service reached 24 million members. Most of them disliked the new design and expressed their opinion in comments of the Director’s blog post. Nevertheless, the company refused to dismiss that interface: it A/B tested the new layout on a small group of both existing and new members, and the new interface performed very well.
- Engagement increased by 30 to 140 basis points.
- Retention grew by 20 to 55 basis points.
In June 2011, the new version became available to 100% of Netflix viewers. Thanks to the upgrade, people began to watch more content. However, a small group of conservative users left negative comments. They were loud and pushy while the majority of viewers silently approved of the new design. Netflix had enough willpower to dismiss negative feedback and relied on metrics instead. The popularity and the revenue of the service kept on increasing.
The Purple Bed: research and marketing
Small startups can go public in less than a year. Larger companies with more complex products might need up to 10 years to get ready for an IPO. The Purple Bed required 20 years of research to create a disruptive product — and then, the startup became an overnight success. Here is a company’s brief timeline:
- Two brothers went fishing and discussed potential ideas for launching a business.
- They realized there was no perfect mattress on the market.
- The brothers invested time and effort into creating a mattress based on the Hyper-Elastic Polymer technology.
- They launched a Kickstarter campaign asking for $150,000 and gathered $172,000 in a matter of days.
The Kickstarter campaign became a resounding success largely thanks to a compelling 4-minute YouTube video. Its creators tested various types of mattresses using a heavy plank and four eggs. Only their innovative product preserved the eggs intact after the collision with the heavy object.
The Purple Bed founders detected an unsolved global need, found a way to fix it, and created an out-of-the-box marketing move.
At the first stage of a startup’s development, it can try to capitalize on the flair of exclusivity. If only selected people get a chance to try its products, they will be more eager to do so. Then, it’s crucial to detect the right moment to make goods or services available for everyone.
Pinterest: invite-only sign-up policy
From its launch in 2011 until August 2012, Pinterest remained an invite-only platform. Users joined it because they were excited by the flair of exclusivity. This is a superb tactic for generating word of mouth. Founders appreciated its impact so much that they didn’t make their product open for everyone even when they raised $100 million in investment in 2012. Developers benefitted from this approach too. As long as the user base remained small, they could promptly detect bugs and fix them without ruining the platform’s reputation.
Facebook: from secret society to global inclusivity
This social network was launched in 2004. Back then, MySpace and Friendster were the two platforms that strived to amass the largest possible audience. Mark Zuckerberg, by contrast, targeted his product exclusively to college students. To join it, it was necessary to have an .edu email address. The first batch of users appreciated the atmosphere of a secret society — but there was not enough space for the startup to scale.
Next year, Mark made the platform open to high school students. Users aged 13 or older were allowed to sign up by providing any valid email address. In 2009, Facebook became the most popular social network in terms of unique views and monthly visits. In 2022, this platform has around 2.93 billion users. In the second quarter of 2022, it expects to get up to $30 billion in revenue.
One talented and energetic individual might be able to do more for a startup than a whole team. Such people need to have freedom in making decisions and exercising their diplomatic skills.
Square: power of persuasion
In 2009, the startup’s founders came up with a solution to a financial problem: private individuals who weren’t registered merchants weren’t legally allowed to accept credit card payments. Getting a merchant’s permit was a costly and complicated process. Square enabled its users to install a free POS on their smartphones, bypass the pricey application systems, and conduct the payments safely and easily.
This business idea violated the rules of credit card companies. To overcome this obstacle, the founder showed the prototype to all major banks and they supported him. It took him only 6 months to make his innovative concept 100% legal.
Drawing inspiration from Apple, the Square team created a sleek and elegant design of its app to emphasize its premium features. Moreover, it launched a collaboration with Apple.
The marketing campaign of this startup began with a highly unusual move: an article named ‘140 Reasons Why Square Will Fail’. It featured 140 scenarios of the potential failure of the app. Each reason was accompanied by a list of counterpoints. The founder convinced the audience that his business had a strong emergency strategy. All investors who liked the concept of Square received a copy of this article.
Apple: rehiring the major talent
This brand was focused on disruption and innovation from the onset. It released game-changing products that people craved.
In 1985, Steve Jobs (CEO) left the company because of internal conflicts. Apple’s development trajectory turned into a downward spiral that lasted for 12 years. To remain relevant, the brand tried to release miscellaneous products such as TV appliances, portable CD players, and digital cameras. It would hire new CEOs way too frequently but no one could replace Jobs.
In 1997, Jobs was rehired. By that moment, the business had been operating at a loss and was about to go bankrupt. Jobs supervised Apple’s rebranding. In 1998, the company launched a new iMac and quickly restored its position on the market. The brand concentrated on what it does best — creating beautiful consumer electronics. Apple acquired several digital production and video editing companies.
In 2001, the brand released iPod. Within 6 years, Apple sold over 100 million units of this hit product. In 21 years, the brand discontinued this music player. By that moment, over 450 million iPods had been sold worldwide.
In 2007, the first generation of iPhone hit the US market. Since then, 2.2 billion Apple smartphones have been sold.
Luck and patience
Apart from having skills and expertise, entrepreneurs need to be patient, flexible, and committed to succeed. Moreover, survival of a startup might depend on external factors that its founding team can’t influence — such as behavior of investors that may act unpredictably.
EarthLED: a story of immense resilience
This is the story of a startup that nearly anyone could build. In 2006, Mark Costigliola launched a company called EarthLED in his own house. While he was decorating his home for Christmas, he wondered about how many people used LED bulbs in their households. He googled the answer, discovered that this business niche was empty, and decided to occupy it.
During the first year of its operations, EarthLED used to complete fewer than 10 orders per week. Many startupers would give up — but Mark preferred to store larger batches of products instead. He asked his parents for permission to keep LED bulbs in their house. Next year, he made $300,000. In the third year of his company’s existence, he made $1 million and had to relocate the inventory to a real warehouse.
Mark couldn’t run his startup alone anymore and hired employees. They began to steal products and even established cocaine production under his roof, disrupting work completely. EarthLED entered a two-year stagnation phase. Costigliola outsourced professionals to take care of financial planning. Thanks to this wise move, the company managed to generate $10 million in revenue.
The veterans of the industry were not too happy about a new rival. Using their connections, they could have prevented US LED bulb suppliers from working with Mark. The entrepreneur managed to come to terms with other players within the sector. He rebranded his company and became a distributor of bulbs instead of an importer. It took EarthLED 9 years to become a sustainable business.
Evernote: sudden streak of luck
This startup could have never taken off. In 2008 its founder decided to shut Evernote down because it was developing too slowly and failed to generate a solid profit. Suddenly, the brand received $500,000 from an overseas investor and this money helped it survive.
To take off and begin to generate a sustainable profit, startups need to overcome challenges. It’s vital to have a solid development strategy and a working business model. Here are key things to remember:
- Be ready to get creative to attract and retain clients.
- Educate your customers and find time to consult each of them.
- Carry out thorough research before launching an innovative product.
- Integrate word of mouth and referrals into your marketing strategy.
- Capitalize on exclusivity and detect the right moment to make your products available to everyone.
- Hire the right people and give them enough decision-making freedom.
- Keep learning from your own experiences and case studies of other startups.
In addition to the efforts that you put into developing your business, luck might contribute to your success considerably. So never lose hope — because it will be a failure only when you’ve lost it!