If you’re a technology company, it’s painful to bury an obsolete product before it’s well and truly dead. Most established companies can’t bring themselves to do it, choosing instead to keep limping down the comfortable old path—which is why they so often lose out to newcomers (can anyone say Nokia or Siebel?).
By 2008, the writing was on the wall at Mindflash. The Santa Barbara, CA-based company had been around since 1999, selling learning management systems to big, Fortune-1000 companies, who used it to train new employees. Mindflash made a lot of money on each sale—the software cost about $50,000 to install—and it had a growing, cash-flow-positive business.
But there were some problems. Companies had to buy their own servers to run Mindflash. The software wasn’t just expensive to purchase up front—it was also costly to customize and maintain. Companies without full-time engineering and IT support couldn’t even think about using it. And it was so difficult to create new training material for the system that only two or three people inside each organization would ever bother to learn how to do it.
Contrast that to the emerging pattern in the Software-as-a-Service (SaaS) world, where software is usually available for a modest monthly subscription price, lives on remote servers accessed via the Web, and is far easier to use, meaning almost anyone inside an organization can master it. Mindflash’s investors and founding engineers looked at fast-growing SaaS businesses like Salesforce.com and figured it was only a matter of time before someone came along with a Web-based corporate training software package that would steal away the company’s livelihood.
That’s when Mindflash made the fateful decision to disrupt itself, rather than wait to be disrupted.
“They did something a lot of companies talk about and almost none do,” says the company’s current leader, Donna Wells. “They looked at the successful product they had and the niche market they were serving and said, given the direction technology was going, it was highly likely that two guys in a garage were going to reinvent their existing product and cannibalize their business.”
It was in order to cannibalize itself, rather than be cannibalized, that Mindflash hired Wells, a veteran of big consumer-facing businesses like American Express, Charles Schwab, Expedia, and Mint.com, as its new CEO in early 2010. Wells immediately brought in outside design and engineering consultants like Adaptive Path and Universal Minds to jump-start product development on a new Web-based training software system. She also moved the company from Santa Barbara to Palo Alto, where there would be easier access to software talent, and hit the fundraising trail, eventually collecting $4 million in new financing from the company’s original 1999 investor, the Investment Group of Santa Barbara (IGSB).
When the new Mindflash system was finally released to the public in September 2010, it contained not a single line of legacy code. “Almost every company has the intelligence to recognize when they are coming up to an inflection point in technology and that they might be on the losing side of that,” Wells says. “Very few have the gravitas to say, ‘Let’s become that company rather than watching as we’re put out of business.’”
Mindflash didn’t completely abandon its old users—there’s still an on-premise version of the training software for customers who can’t stand to part with their enterprise systems. And it didn’t break free of all competition: Louisville, KY-based eLeap offers similar Web-based business training software. But Mindflash has made an irreversible commitment to the cloud, even going so far as to … Next Page »
Wade Roush is Xconomy’s chief correspondent and editor of Xconomy San Francisco. You can e-mail him at firstname.lastname@example.org or follow him on Twitter at twitter.com/wroush. You can subscribe to his Google Group and you can follow all Xconomy San Francisco stories at twitter.com/xconomysf.