How Mindflash Disrupted Itself by Taking Training Software to the Web

12/13/11Follow @wroush

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—tens of thousands of dollars—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.

Mindflash CEO Donna Wells

“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 open a marketplace where third-party course developers can upload and sell their own training materials.

Given the product’s radically lower price structure—the startup offers a free 30-day trial, a $29 monthly plan for small companies, and plans that work out to about $3 per month per employee for larger companies—Wells’ hope is that the new system will basically sell itself, eliminating the need for a field sales force. And in fact, trainees have completed more than 100,000 online courses since the 2010 relaunch.

There’s no question that there’s a huge need for technologies that help corporate America and even small businesses with on-the-job training. Companies with high turnover, a large proportion of seasonal workers, or a highly distributed workforce need inexpensive ways to get new people up to speed quickly. “The most common use case is where an organization either has a geographically dispersed group of employees, or has a high velocity of information that they need to get out to employees—think about product and pricing information for your sales force,” says Wells. “Also, any retailer or franchisee with lots of holiday or summer employees—those companies are very aggressive in finding us.”

The Mindflash course dashboard lets employers track which courses trainees have completed, and how they scored on quizzes..

But Mindflash didn’t actually start out in the corporate training world. When IGSB first invested in the company, back in 1999, it was called MetaCollege, and its target market was the university classroom; founder Valerio De Angelis thought that “there should be a more efficient way to transfer information from professors to students,” says Wells. But the academic market—always a slow-moving one—proved unprofitable, and by 2003 the company had renamed itself Mindflash and refocused its product on the online training needs of businesses.

The startup was profitable in that niche, but its executives and investors soon realized that its 1990s-style on-premise software wouldn’t stay popular forever. “The thing that became pretty obvious to us in the beginning of the last decade was that these enterprise installs were at some point going to be disrupted by cloud-based applications,” says Reece Duca, the IGSB partner who led the firm’s original investment in MetaCollege. IGSB is an education-focused fund, and Duca says other portfolio companies like GlobalEnglish, an enterprise English-language training platform, were facing the same issues.

One big problem was that acquiring each new customer was an expensive and lengthy affair. “There are going to be survivors in this area of high-priced, feature-rich applications with field sales forces,” says Duca. “But the market we wanted to be in is the lightweight model where customer acquisition does not require a field sales organization, and where users could begin to experience the product during the customer acquisition process. We had a company that was growing, but we saw that if you looked at the long-term horizon, the opportunity was greater. So we essentially pursued a path that disrupted ourselves.”

In the end, that meant changing almost everything, including finding a new CEO who “had gone through hyper-growth and sustained periods of product introductions,” Duca says. Wells fit that bill—she’d been one of the first five employees at Mint, and as chief marketing officer, she’d helped to come up with the instant-signup process that made the personal-finance monitoring tool so popular among young consumers. Only a few key members of Mindflash’s original team stayed on through the transition, and more than half of the company’s 25 employees now focus on the new Web-based product.

Creating a course in the new system is as easy as uploading PowerPoint slides, Word or PDF documents, videos, and audio and arranging them in a timeline. Most course developers add multiple-choice quizzes every few screens to make sure trainees understand the material. “You want to present information in several different modes,” says Wells. “A combination of text, video, and voice, interspersed frequently with checks on comprehension, is the best practice in learning design.”

One big goal for the redesigned Mindflash system was to make course authoring fast and easy. “It takes 10 minutes to get from a PowerPoint document on your desktop to having a Web-hosted Mindflash course,” says Wells. “Within hours you can have employees enlisted and have the system reporting back to you. That is not the case for our older product, and it’s not the case for a lot of the other companies in the learning management system marketplace.”

When building a course is so easy, anyone who happens to be an authority on something can do it. “Organizations have subject-matter experts at all levels, and we wanted to put a product out there that really allows an organization to capture and leverage that experience,” Wells says. In companies where employees can take advantage of technology to share knowledge with each other, she says, everyone is in a stronger position to get their jobs done.

Indeed, Wells argued in a recent op-ed for Fast Company that better training software could be one cure for the perceived “skills gap” behind the glut of unfilled positions inside U.S. companies—3 million at last count, at a time when 14 million Americans remain unemployed. Businesses can’t wait for the education system to close this gap, Wells said. “Our economy’s open positions aren’t necessarily a perfect fit for our unemployed workers,” she wrote. “Rather than simply wishing that mismatch away, businesses need to embrace training to reduce it.”

In the end, Mindflash is betting that it can charge less for its new training technology and make it up on volume, in the words of the old dot-com cliché. “The vision of the investors, and it’s certainly my own as well, is that we’re now opening up the market not just to the 1,000 potential customers for a $50,000 piece of learning management software, but in theory to every small business owner in the country who’s got training needs,” Wells says. “The model is that we’ll sell $200 or $300 a month in software to tens of thousands, if not hundreds of thousands of companies. And when we get there, we will have a higher-margin business.”

Wade Roush is Chief Correspondent and Editor At Large at Xconomy. You can subscribe to his Google Group or e-mail him at wroush@xconomy.com. Follow @wroush

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  • Joe Goldberg

    I have no doubt Mindflash will be a success with Donna Wells as its CEO.

  • PO Salmon Creek

    I don’t think one company can “cannibalize” another unless they are subsidiaries, otherwise it is just old fashion competition – w”who can make a better mousetrap.” “Cannibalize” …. to quote the classic movie The Princess Bride, “You keep using that word, but I don’t think you know what it means.”