How to Pivot Successfully?

Pivots are far more common than most founders think. Over half of YC companies pivot. Many well-known startups have executed pivots to great success:

  • Twitch: live streaming → broadcasting gamers → $1b acquisition
  • Segment: classroom lecture tool → data integration → $3b acquisition
  • Brex: VR → corporate credit card → $7b valuation

With my last startup, I went through 4 to 5 pivots before landing on a product that was acquired by Microsoft. The overnight success is often 10 years in the making. 

If you’re going to pivot, here’s how to do it successfully.

Part 1: Prepare for the pivot 

Coming up with new ideas is non-linear; you can't think harder to get to a better idea faster. 

  • Expectation: If you sit around, amazing new ideas will come. 
  • Reality: t's a full-time job to come up with an idea to which you want to devote your next decade.

Your first step is to come to terms with this fact and know that it can be incredibly frustrating for high-achieving founders to feel like they are spinning in circles. 

Give yourself the time and space to ideate.

Be prepared to make tough decisions 

You’re going to have to make some hard decisions here.

You might shift focus away from a market you've invested a lot of time in. That might mean letting go of teammates who no longer bring a relevant skillset to the table.

You may have to give up on tech that you’ve spent a lot of time (and money) building and really believed in. Don’t get sucked into the sunk cost fallacy. If the opportunity is no longer there, move on.

You have to make the tough calls to stay alive, and you’re going to have to have some tough conversations. 

Telling your investors

Advise your investors early of your intention to pivot.

This might be daunting, but keep in mind that most early-stage investors expect pivots. Their bet is on founders, not just ideas.

A pivot is a lot like shutting down a company. Copy this communication framework from shutting down a company to pivoting: How to Shut Down Your Startup gracefully to get funding next time.

Whether or not you need to return your funding is going to depend on the exact details of your detail.

Some investors bet on markets. If you pivot outside that market, they may need funding back. 

This is the exception rather than the norm; most investors are more founder-centric.

Consult your term sheet, and communicate with your investors early and regularly. Your confidence will give them the confidence to keep betting on you.

Part 2: Come up with new ideas 

Remember: generating new ideas is a full-time job.

Build out a plan for ideation. Here are a few tips:

  • Create a schedule. Block 90min whiteboarding sessions for pure idea generation.
  • Force your team to write down ideas daily. Quantity often leads to quality.
  • Surround yourself with other founders. Go to a co-working space, attend meetups, and get involved in startup-related subreddits.

Great ideas don’t just happen. Approach the ideation process like any other work project. Use established frameworks to kickstart ideation.

Here are some frameworks to fuel your brainstorming:

Democratize proprietary tools 

Look inside big companies for tools that can be brought to everyone else.

For example, Asana was inspired by Facebook's internal tasks tool.

Invert a successful company's core competency

This is a good differentiation strategy.

Snapchat started in 2011 to be the opposite of FB. 

  • FB = forever
  • Snapchat = ephemeral

Build a product that the incumbent's business model makes it impossible for them to copy. 

Pro tip: Read "7 Powers" for startup advantages over incumbents.

Extend consumer behaviors to businesses

Look at popular or fast-growing B2C businesses and look for a B2B conversion.

LinkedIn and Slack are solid examples of companies that brought existing models (social media and chat, respectively) to a business audience

Open-source projects <> SaaS businesses 

You can take this one either way:

  • Red Hat built a consulting model on the need for help with open-source implementation
  • Airbyte built a SaaS tool to connect open-source platforms

Unbundle the government

Look for opportunities to privatize government initiatives (SpaceX is a private NASA).

Note: this approach can be capital-intensive. Break down the idea into milestones that align with funding. For example:

  • Seed = Letter of Intent
  • Series A = Contract

Verticalize an already successful business

A niche within a large market can be a huge business.

Veeva is a pharma industry-specific CRM worth $27B+ built on top of Salesforce. 

Build the compound startup 

This two-step approach comes from Parker Conrad, Zenefits and Rippling founder:

  1. Find a single business process that requires too many tools and build the entire stack
  2. Find a foundational data layer that makes the intersection of each product better (i.e,. compounds)

Draft on a regulatory shift 

Your goal here is to compete with incumbents who will be slow to move (e.g., PPP loans during Covid).

Ideally, you want a regulatory shift that's lasting. You can leverage the shift to get initial customer,s but without the stickiness, you may be back to square one.

Revisit ideas that were too early 

Old ideas with high demand and high cost are a good place to look because new technologies can help lower costs today.

Make sure you understand why the idea initially failed. 

Webvan went in on refrigerated warehouses that cost close to $40m each. Instacart leveraged its partners’ existing inventory.

Ask: Why now? 

There are rarely new ideas in startups. If you have an idea, someone has probably already tried it and failed. 

So, "why now?" is often the critical question to answer.

There are five groups of answers to that question:

  • New tech, e.g., AI
  • New regulations, e.g., Obamacare
  • New business model, e.g., ads support free content online
  • New user acquisition channels, e.g., FB Platform v1
  • Customer behavior shift

This article by Avichal Garg breaks down the need to answer the “why now?” question.

Part 3: Get feedback 

Once you have an idea, move quickly to test and refine it.

Move through these three steps as quickly as feasible:

  1. Find a founder who has tried your idea and failed. They can help you quickly understand why this is a harder problem than you expected.
  2. Build a prototype and share it. Get feedback from other founders, potential users, and product people.
  3. Try to break your idea. You want to understand all the ways where it can fail before you commit to the next decade.

Pivoting is part of the model 

Generating and validating new ideas is an iterative process. Keep an open mind and don't be afraid to fail. Consider options and explore ideas outside your original vision.

Above all, remember that pivoting is not the be-all and end-all many founders think. In fact, pivots are commonplace.

Just check out this thread on how Jasper was many pivots in the making.

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