READ TIME: 2 mins
HINT: Pivoting is not a business strategy, but a tactic.
HINT: Constantly pivoting is called a “death spiral”
Pivot is not a business strategy
Nowadays the trendy way to mask a failure is to successfully pivot – before the cash runs out – and then become successful. But for every one of these successful pivots there are hundreds, if not thousands, of technology companies that have crashed and burned. Sadly, they ran out of funding before they discovered their perfect market. Or they are limping along barely breaking even each month.
Words like “pivot” and the related “iterate” have been used in and around Silicon Valley for several years, generally to describe “failing gracefully”.
But their use has picked up significantly in recently amid the broader public’s fascination with the entrepreneurs behind high-profile start-ups, some of whom were able to get funding from investors despite significant changes in their original business plans.
Ben Horowitz of venture-capital firm Andreessen Horowitz used the word “pivot” three times in a nearly 800-word blog post to discuss the firm’s investments in businesses such as Burbn.
Never heard of Burbn? I am not surprised. Burbn attempted to put a new spin on the idea of virtually checking in at various locations via smartphones, then broadcasting that visit to one’s social network. It enabled people to leave messages via their phones that could be retrieved by others visiting the same location. The idea evolved, and turned into a mobile app that would allow people to take photos, alter them visually and share them. That app was called Instagram which was sold to Facebook for $1 billion.
“Pivot to me is not a four-letter word,” says Tony Conrad, a partner in the early-stage venture capital firm True Ventures. “It represents some of the best methodology that the Valley has invented. Starting something, determining it’s not working, and then leveraging aspects of [that] technology is extremely powerful.”
Investors say the founders who are not afraid to pivot are generally more experienced—and less fearful of failure—than past generations of tech entrepreneurs. The founders who change solutions and markets between one and three times raise more money than those who don’t, according to Startup Genome Compass, which tracks more than 13,000 Internet start-ups. In fact, they raised roughly 2½ times more capital than founders who changed solutions and markets either four or more times or not at all.
However revolutionary this seems, there is a fundamental point.
No matter how many pivots you make and how understanding your investors – eventually you need to find a market that works. That is why we wrote IMPACT (download free abridged copy). But to give you all hope, inspiration and amusement I have listed a few of the most successful pivots.
Then: It started as ThePoint.com, a site launched in November 2007 that lets you start a campaign asking people to give money or do something as a group – but only once a “tipping-point” of people agree to participate.
Now: Groupon is the group-buying site that helps people save money all over the country through targeted offers.
Then: The founders had built a location-based service called Burbn, most comparable to Foursquare. You could check into locations, earn points for hanging out with their friends, and share pictures inside of the app.
Now: Instagram is a hugely popular app for adding artsy filters to your photos and sharing them over Facebook and Twitter.
Exit: Sold to Facebook for $1billion
Then: It was Game Neverending, a massively multiplayer online roleplaying game that ran from 2002-2004.
Now: Flickr is one of the go-to sites for sharing photos online, popular among amateur and professional photographers.
Exit: Sold to Yahoo in 2007 for $40 million.
Then: It was Facemash, a site comparable to HotOrNot.com, putting two pictures of people next to each other and asking the user to identify which one was “hotter.”
Now: It’s Facebook. If you don’t have an account and use it actively, you’ve at least heard of it.
Then: It was Odeo, a service that revolved around personal podcasting and sharing audio content.
Now: It’s Twitter. People use it to share thoughts and updates in 140-character bursts.
Then: It started as Confinity, a cryptography company designed for exchanging money over Palm Pilots. It didn’t work well, but they did identify the lucrative market space of enabling people to take credit card payments.
Now: PayPal is the brand-name way to pay for items online.
Exit: Acquired by eBay in 2002 for $1.5 billion.
Then: Started as supply-chain management optimization for high-tech manufacturers.
Now: Shifted to dynamic ad price optimization for online media companies.
Exit: They were bought by Microsoft for undisclosed price.
Then: It was a video online dating site
Now: YouTube is the go-to location for internet video.
Exit: It was acquired by Google for $1.65 billion in stock.
Then: Their first product was Glitch, a Flash-based massively multiplayer online game.
Now: Tiny Speck launched Slack in August 2013 and they have just raised an additional $120m taking the total to $180m.
IMAGE: Pivot Digital Strategies