Pivoting is Not a Sign of Failure in Startups
Guest Post - 5 October 2015
Too many people seem to scoff nowadays when they hear of startups pivoting away from their original product. I've head this come from everywhere; people both within and without the startup world. There's a tendency to think that "this company made this obviously bad marketing / hiring decision before and so their original product was equally doomed to fail from the start". It's infuriatingly lazy thinking of the highest order.
Pivoting Shows Courage
This is because it takes courage to admit that you were wrong about the original model. I think that we could all point to Homejoy as an example where a pivot might have been helpful. The same is true of any of the numerous TaskRabbit clones that once dotted the Singapore startup landscape. Nobody can accuse them of lacking conviction in their business model, but it ultimately counted for little.
Pivots are a way to avoid big failures
The naysayers claim that failing fast is only good for investors who can then turn their attention elsewhere. They say that an entrepreneur should persevere through hardship. There's truth in both statements. However, that doesn't invalidate the truth about pivots either. When 2 seemingly contradictory positions collide, the truth usually lies somewhere in between, in contexts unique to each, in exceptions that defy norms.
Before I'm accused of prevarication, I would point out that it is precisely the difficulty of knowing whether a failure was due to a lack of perseverance or a genuinely impossible market that should give us pause before we scoff at the next pivoting startup that crosses our path. If you think that you're smart enough to spot a startup success just by thinking about it, you would probably think that some wacky ideas like Beauty Box for Bacon, or Sending Glitter to Your Enemies would never get off the ground, and you would be wrongtwice!
I found a couple of excellent examples of entrepreneurs who didn't succeed in their first business but later went on to flourish at their second venture. The first example was a small American company called Traf-O-Data from the State of Washington that processed data from traffic counting machines. This machine stood by busy city roads and was connected to 2 cables layed across the road. Each time a vehicle drove over the cables the counter would increment that day's count of vehicles by 1 on a tape. The machines were becoming increasingly common and the young founders believed that the enormous amount of traffic data generated would require tremendous amounts of processing. It was clearly a huge opportunity. Unfortunately for them the state government decided to offer free tape processing to all cities, and that essentially sounded the death knell for the business. The founders would eventually go on to start another business called Microsoft and change the world much more substantially.
If Microsoft isn't contemporary enough, there is another much more recent example that should have a place in the heart of every professional software engineer.
Chris and PJ were working on a startup called Famspam, which was a social network and email service oriented around families. The best nugget of trivia from this story was that in their first few months of operations, the company made a grand total of $12 dollars. Github was still in it's infancy when Famspam was launched. However, what began as a side project for Wanstrath and his friend Tom Preston-Werner eventually became the main focus for all 3 people. That gave birth to the world's most popular code repository today.
There is a temptation to say that neither of these companies actually pivoted per se. That would be missing the point. Business, especially startups, are messy. The main takeaway for me is that the same people decided that their existing business wasn't working out and sought a different way to succeed, while keeping the core team intact. The people, more than the name of the legal entity, is what has to stay together.
Failures That Teach Us Something Should Be Celebrated
Not all startup entrepreneurs will ultimately become Bill Gates though. We need a way for us to evaluate the wisdom of an entrepreneur's choices without a success story at the end of it. The metric for that ought to be the lessons learned from failure. homie billpin pivot
I can share a personal example for this. I worked for a couple of months from June 2013 with the BillPin team, led by Darius Cheung (founder of Tencube). The company had been in business for a short time since January. Darius is one of the smartest entrepreneurs in Singapore. After Tencube, this was a massive change as it was not as tech-centric as Wavesecure, and there was no clear monetization strategy to start with. However, the problem of bill-splitting was a real and pressing one for many young people, and the expectation was that user growth and activity would open up new revenue streams. Unfortunately that didn't happen. By October 2013, the team made the difficult decision to pivot to a different business altogether. However, the thread that bound the old business to the new one was that the team continued to solve problems faced by young adults.
Homie was the team's follow-up to Billpin, and the answer to flatmate hunting targeted at young adults. There were much better monetization opportunities this time, even though the product launched with no paid features. Users could save money on agent fees, and the focus on social connections instead of real estate promised to fill a new niche. By November 2014, the team pivoted again to a more traditional property rental portal, this time called 99.co. The focus on room and whole apartment rentals was different from the largest mainstream sites like Property Guru, and the modern map-focused interface was a breath of fresh air. However, there was one crucial difference. Where Homie was strictly a self-service website, 99.co welcomed real estate agents. Through this example, the evolution of the team's understanding of the problems and opportunities of real world young adults is apparent. Seeing how the team adapted to their constantly improving understanding of the world is evidence in favour of learning from failure and pivoting to use that knowledge.
We never really think about it, but the tech news of the past few months is like a list of walking wounded in the tech world, high on perseverance but low on adaptability. Groupon, Evernote, Dropbox have all had their core business models called into question thanks to evolving user needs. Groupon delisted off the stock exchange, while Evernote just laid off 5% of their global staff. Dropbox has been getting a lot of unwanted attention lately and their CEO has gone on the defensive at TechCrunch Disrupt, saying criticism of the company comes from "confusion". I don't think that a pivot is necessarily the right solution for all these companies, but their reluctance to move significantly away from their core products is clearly hampering their growth. Groupon belatedly expanded beyond deals with Groupon Live, Dropbox tried to get a foot in photo sharing with their Carousel app, and Evernote has been acquiring small apps for years to build an app ecosystem around core Evernote. None of these moves can be said to have made their future safe.
All said, pivoting is hard. And unfortunately hard things are scary. However, as startup entrepreneurs we should be willing to face up to what is hard. It is our raison d'etre. So the next time that you come across a startup pivot, take the hard route and think about it. If you can puzzle out some sort of reason for it, you have learned something and are already better off than your fellow armchair critics who only see failure.
tl;dr There is no reason to believe that pivoting is ipso facto a bad sign for a startup. Pivots have worked well for some big companies in their infancy, but pivoting without learning any lessons is the worst kind of failure.
- Weileen is a full-stack digital marketing consultant in Singapore at Lean Metrics. When he's not working he's selling wines for fun at Bottles of Joy. Ask me about SEO in the tropics at @ngweileen.