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Business In Transformation

How One Young Entrepreneur Pivoted a Business Failure into Success

When my team launched Boomerang last August, we thought it was a sure thing -- until we knew it wasn't.

Our goal was to create a consumer-gifting platform that would let Facebook friends give each other real-world gifts from the best local businesses. Americans consume $100 billion in gift cards every year, and 70 percent of consumers we surveyed said they would prefer to give a local gift than a traditional gift card from a big brand.

An inevitable slam dunk, right?

We had a great product and sales team, a differentiated focus on local gifting and backing from storied investors in local e-commerce. So off we went to top restaurants, bars, spas and other attractions in our four favorite cities to negotiate unique gift packages. Some were totally free to give. We built a simple, beautiful gifting experience for desktop and mobile users.

By the time we launched, however, I knew we had a problem: Customers weren't biting.

Recognize your flaws.
The good thing about launching a consumer-facing startup is that false hypotheses are exposed very quickly if you test them correctly.

For my first startup -- a misadventure in social travel called gtrot -- I was too slow to recognize failure. Instead, like many inexperienced entrepreneurs, I believed our anemic growth was the result of imperfect execution, rather than an unsound concept. And so we invested too much time trying to fix what was broken instead of iterating toward what worked.

Related: Picked the Wrong Major? Here's How to Pivot Into Entrepreneurship

With Boomerang, we were committed to being faster and smarter. It turned out that several of our early hypotheses were false. Consumers told us they wanted to give local gifts, yet gift cards from national and online brands were far more popular from the moment we added them. We thought Boomerang could grow quickly by offering free gift cards while making money from selling higher-value gifts, but no one really engaged with paid options.

On top of that, several well-funded competitors jumped into the space, including Facebook Gifts. We understood in a few short months that our certain glory wouldn't be found in consumer social gifting -- at least not in the way we had first imagined.

Find your sweet spot.
While we didn't ignore the signs of failure, we also didn't dwell on them. There were serious bright spots in the business, and chasing them down ultimately transformed our understanding of the real opportunity in social gifting.

First, when negotiating with national retailers, we discovered there was a business model after all: Even if consumers didn't want to buy gift cards for friends, we could make money on free gift cards if recipients used them.

Then we saw that free gift cards converted into purchases at a wildly high rate. Nearly one in four recipients went shopping on the gift card retailer's website, even though the average free gift value was just $7. Moreover, recipients were excited to share these free gifts with friends.

Related: How Two Recent Grads Turned a Study Abroad Trip into a Social Venture

It turned out that Boomerang was a powerful advertising platform, not a consumer e-commerce business. And small, free gift cards have become "super ads" -- that is, they offer high rates of conversion, naturally go viral and they're profitable for both Boomerang and the retailers we work with.

Explore growth opportunities.
By embracing the failure of our launch concept and pushing toward the bright spots, we stumbled upon a form of advertising that advertisers, publishers and consumers benefit from.

Since then, my team has worked relentlessly to expand the applications of this model beyond peer-to-peer gifting to far more scalable forms of distribution. We've also begun exploring other models such as allowing companies to offer awards and incentives through gift cards.

Manifold challenges remain, as does the general stress of startup life. But it's hard to describe just how different the journey feels now that we focus on developing the bright spots rather than rethinking and reworking ideas that just won't stick.

Related: How ZinePak Built a Growing Publishing Empire on the Back of Bieber Fever

If you've pivoted your business, when did you know the timing was right? Leave a comment and let us know.

Zach Smith is the founder and CEO of Boomerang, a Chicago-based gifting and rewards network for publishers and advertisers. He is a graduate of Harvard College, where he won the 2009 Harvard Innovation Challenge and founded the company that became Boomerang. He was formerly an associate consultant at Bain & Company and founded gtrot.com, a local discovery service. Smith is passionate about social commerce, healthcare policy, travel and penguins.

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