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After their first three months, Covr.fm’s team had dedicated a lot of time and effort, burned through most of their funding, and were still facing a dead end in the business. Mr. Gutzmann and his friends knew that they had to make a fundamental change if they wanted to make a profit, and they would need to make that change soon
After their first three months, Covr.fm’s team had dedicated a lot of time and effort, burned through most of their funding, and were still facing a dead end in the business. Mr. Gutzmann and his friends knew that they had to make a fundamental change if they wanted to make a profit, and they would need to make that change soon

Case Study

After generating $12 in revenue, startup faced a difficult decision Add to ...

THE CHALLENGE

Early this year, 21-year old Nigel Gutzmann and two of his friends launched a music streaming website called Covr.fm in Toronto. Barely two weeks later, the platform had received hundreds of thousands of visitors and interest from notable musicians such as Moby and Our Lady Peace. These early results were encouraging but, like so many startups, the business struggled to convert popularity into profit.

Three months after that launch, despite a growing user base, no clear revenue stream was materializing. The business had generated a grand sum of $12, far short of its server costs, not to mention any salaries for the two full-time engineers and designer employed. Like many new entrepreneurs, Mr. Gutzmann and his friends were volunteering in a fun financial flop. But they didn't want to abandon their dream of running a startup.

How could they transform their software and marketing skills into an online product that people would pay to use?

THE BACKGROUND

Mr. Gutzmann, an electrical engineering student from the University of Calgary, met Michael Cheng and Christopher Bowal in 2013 during their time at The Next 36, an entrepreneurship program operated out of the University of Toronto. The program annually attracts 36 of the highest achieving undergraduates from Canadian universities, organizing them into teams, assigning them funds and mentoring them as they work together to create high-tech companies.

These three Next 36 grads were still students, but they were eager to build a business and earn a living using their skills and passions. “It was just the three of us and our laptops,” Mr. Gutzmann says. “The cover music site was fun because it was something many people really enjoyed using, even if we just gave it away.”

After the first three months, Covr.fm’s team had dedicated a lot of time and effort, burned through most of its funding, and was still facing a dead end in the business. Mr. Gutzmann and his friends knew that they had to make a fundamental change if they wanted to make a profit, and they would need to make that change soon.

THE SOLUTION

To identify what change needed to be made, they focused on a simple reality: bands, record labels and musicians had all expressed interest in promoting their music through Covr.fm. Bands wanted to advertise and sell their music on top of covers of their songs – they wanted to market on top of content. The three wondered: “Couldn’t this trend be easily extended to a much larger market? What if companies could advertise their products and services on top of any relevant piece of online content?”

This idea inspired Mr. Gutzmann and his team to pivot out of the competitor-rich and funding-poor amateur music industry and into the social media marketing space.

Most businesses using social media to establish themselves as industry experts do so primarily by curating content. That is, they select and share web content on social media, but since they don’t engrave their calling card on the content they share, opportunities are missed to leverage and convert readers to their own business. One never knows the impact, if any, of one-dimensional content curation.

What if companies could share content and drive readers back to their own business at the same time? If brands could showcase themselves by layering on top of the content they share, they would have a powerful new marketing tool bolted on to their social media content sharing activity. And that’s how Snip.ly was born.

Mr. Gutzmann and his team moved quickly to write the software for marketers. Snip.ly solves the content marketers’ impact and conversion uncertainty by embedding a customizable call-to-action on every shared web page. Now content marketers can drive their marketing goals directly and measure results.

Users give Snip.ly a URL to a piece of content (such as the link to this article), a photo, a message to overlay on that content, and even the settings for a button to click. Snip.ly immediately generates a short link to share on one’s social profiles. When people click on the link, they see not only the third party content shared by the Snip.ly user, but also the Snip.ly user’s message overlaid on top of the web page. Companies and influencers use Snip.ly to convert their social capital into customers and followers.

Most importantly, Snip.ly solved Mr. Gutzmann‘s monetization challenge. Snip.ly offers a free basic service package and two upgrade packages for $15 a month or $100 a month, depending on users’ needs. The upgrades offer more user profiles and customization options for colour, call-to-action, positioning, shortlinks and branding.

THE RESULT

Pivoting away from a floundering startup, Mr. Gutzmann and his teammates made the tough decision to leap into an entirely new business. In four months, Snip.ly has already served more than four million clicks, and it has maintained a muscular growth rate of more than 7 per cent week over week in revenue and users.

The online startup universe has virtually no barriers to entry. All one needs is a good idea in its time, a few laptops and the technical skills and determination to pull it off.

“Snip.ly is a completely different enterprise from Covr.fm because of the revenue that we are generating,” Mr. Gutzmann says. “It’s also exciting to have millions of people using my software.”

Peter Bowal is a professor of law at the Haskayne School of Business.

This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Report on Small Business website.

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