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How much of the old business belongs in the new one?

Startup guru Howard Tullman says it pays to figure out what your customers really want. "Once you've learned that, make sure you aren't dragging down your business by trying to carry your useless and inefficient code forward. Take the best and leave the rest."

THE CODE CHANGE

When David Rush, 42, launched Evzdrop Inc. in September 2012, he built the company around an app that enabled strangers in the same location to chat with one another. The idea was that business owners would benefit from knowing what their customers had to say; if a restaurant patron complained about a particular server or raved about an appetizer, for example, management would know immediately rather than finding out from a Yelp review.

The fatal flaw: Evzdrop's model required building a new social network—it needed to acquire lots of loyal users, fast.

That didn't happen. After six months of effort, only about 20,000 people had downloaded the app, and even that group wasn't using Evzdrop frequently. Mr. Rush didn't wait long to pull the plug. "I always knew that if we didn't succeed in building this large community of users, there was still a really good business-to-business opportunity here," he says. "Going into Evzdrop, I wasn't planning on a pivot—but I knew it was Plan B."

Plan B, though, wasn't so simple. Mr. Rush's six-person team spent last summer writing new software code and building a new product called Earshot. Similar in concept to Evzdrop, Earshot skirts the key problem of its predecessor: fostering its own social network. Instead, Earshot uses geo-fencing technology to track Twitter conversations generated in a specific location. For example, the Chicago White Sox, an Earshot customer, can identify and respond to tweets from U.S. Cellular Field even if the user doesn't use a White Sox-related hashtag. Other customers include restaurant group Lettuce Entertain You Enterprises Inc. and marketing agency Zocalo Group LLC, both of Chicago.

Although Mr. Rush had raised $300,000 from investors including Chicago-based Lakewest Venture Partners to fund Evzdrop, his backers responded well to his careful explanation of why he needed to pivot, partly because they had been kept informed as Mr. Rush navigated Evzdrop through its promise and struggles. "It wasn't like we invested and then eight months later we had our first phone call," Lakewest partner Jonathan McCullough says. "It would go too far to say we saw the writing on the wall, but it didn't throw us for a loop, either."

Mr. McCullough and his partners also were ready to back Earshot, because they agreed with Mr. Rush's market analysis and because they had already agreed on which element of Evzdrop was most essential to Earshot's success: its founder. "We invest in people more than products, and that's bearing fruit," Lakewest partner David Mann says.

On May 21, Mr. Rush added more than $1 million in venture capital from investors including Mohr Davidow Ventures in Menlo Park, California.

"When you're starting from scratch, it's inevitable that you're going to evolve, and it's a roller coaster," he says. "There's still a long way to go, but now we're seeing signs that are good: affirmation from customers who are telling us that we're helping them do their job more effectively."