Sarah Leary
It’s a tough time right now for founders looking to raise their next round, and many are coming to the painful realization that VCs simply aren’t buying what they’re selling. Investors are looking for clear signs of stable, profitable growth. If your company isn’t seeing strong growth with customers eager to use the product and share it with others, it might be time to pivot the company in a new direction.
I learned this lesson the hard way when I started Nextdoor. Before Nextdoor became a publicly traded company with millions of users, we were a completely different business. Our original company was Fanbase, a fledgling startup with a big idea to disrupt the sports information industry. We had all the “right” ducks in a row: a committed founding team, top investors, and exciting early traction.
But even with a peak of 15 million monthly users, Fanbase failed to grow beyond that point. We mistakenly thought we had reached product-market fit, but when we looked closer at the data, it became clear that people weren’t engaging the way we’d hoped. They would visit and then bounce.
Since my co-founders and I didn’t have another idea to pivot to, we made the painful decision to give our funding back to our investors. Our lead investor was Bill Gurley at Benchmark, and instead of taking back his money, he suggested that we give ourselves three months to develop a new big idea.
After spending two-and-a-half years building Fanbase, it was excruciating to step back and say, “This isn’t working — Fanbase will never be the next ESPN.” Deciding to quit working on Fanbase and channel our energy into a completely new idea was personally and professionally difficult, but it was the step we needed to take to survive and unlock new opportunities.
Now, as an investor, I see founders going through the same periods of self-doubt and frustration. The market has shifted; the bar is higher. Founders need to get real: Are you building something the market needs? Maybe you need to shift the product, change your target market, or perhaps you need a full reset like we did. If you’re considering a pivot, here’s how to get your investors to support you.
Bring the data, not the bullshit
Startups are naturally going to deal with uncertainty, so how can you be absolutely sure that your company isn’t working — or isn’t going to work for the long haul? The short answer is: You don’t have real proof of product-market fit and you’re running out of money. These are red flags that it’s time to cut the BS.
If you’re swimming in this uncertainty, you need to study the data and get honest. Is it clear from user data that customers are desperate to use your product to solve a problem? If it’s not obvious that your customers need what you offer, you don’t have product-market fit. If you’re squinting to see a sliver of hope, you don’t have product-market fit. If users aren’t clamoring to tell others, you don’t have product-market fit, and just one more feature probably won’t change that. If users are not increasing their usage of your product, you don’t have retention and don’t have product-market fit.
At Fanbase, we spent several months trying to fix the product. We added more viral loops. We tested new features. We integrated with Facebook. Despite all these experiments and best practices from other companies, nothing changed and people kept bouncing. The reality was we were still not solving a meaningful problem for our users.
Earlier is better
If you think your product-market fit is weak or nonexistent, you should address the issue as quickly as possible. Many companies over the last few years raised capital ahead of their traction, which gives them time to try new approaches and possibly pivot. But you need to move decisively. Every wasted day on a weak product-market fit means fewer days to find one that will work. Address the elephant in the room as soon as possible.
We were fortunate to still have millions of dollars in the bank when we decided to pivot away from Fanbase. This allowed us time to work on new ideas, develop a prototype, and prove that we had traction and product-market fit before we raised a new round of funding.
Be honest with everyone about your pivot
There’s no halfway in a pivot — you have to go all in. When we announced plans for a radical change to our Fanbase team, we did not mince words. We explained that we were going in a new direction and that the future was uncertain. We invited anyone who was unsure about the new direction to opt out and offered them a severance package to transition out. We even helped these people find a new job without any hard feelings.
We gave each member of our 10-person team a week to consider the options and decide whether they wanted to opt in to the uncertain path of exploring new ideas. By the end of the week, three engineers elected to offramp. As heartbreaking as it was to lose three great engineers, a small and nimble team that’s 100% aligned is better than a larger team that doesn’t believe in the new mission.
Don’t be nostalgic — move on. Let go of the emotions that come with sunk costs. That said, remember your unique insight and what you’re great at. During our pivot, we may have discarded the entire Fanbase code base, but we remained focused on a community-centric model — that was our expertise.
When we pivoted to Nextdoor, we were laser-focused on seeing a clear signal of product-market fit, because we didn’t want to repeat our mistake. Startup success isn’t just about how fancy your tech is (looking at you, web3). The magic is in using technology to solve a burning problem for users and customers.
Think AI will solve all your problems? Think again
It can be frustrating to see another company in some hot space easily raise money when your company is struggling to get second meetings. At the moment, it can be tempting to think “pivoting to AI” or incorporating AI in a product is the quick fix to a struggling business or a surefire way to get investors’ attention.
But that’s not true for all businesses. AI or not, if you’re not solving an important problem for someone who’s looking for a solution, you probably won’t reach product-market fit.
Make no mistake: Founders should definitely think about how to leverage AI, especially if it improves the product or disrupts their current offering. But I challenge customers to avoid leading with “AI technology” pitches as a way to entice investors and customers and instead focus on how the product delivers better results without mentioning the specific technology that powers the improvement. AI in and of itself is not the reason people buy a product.
Tap your investors for insights and iterate quickly
Investors aren’t always a great source for ideas; otherwise, they’d be founders. But an investor’s “outsider” insights can save you a lot of time and pain. VCs look at companies and problem areas all day and are able to see around corners that founders don’t. Investors can also tell you if 100 other companies are trying to do the same thing as you. Use them as a periodic sounding board and sniff test, but rely more on your target customers to understand if you have a unique solution to burning customer needs.
Once you know you’re on the right track, get ready for action and iterate quickly — so long as you’re focused on the right problem. Compasses and checklists are helpful, but you also need to read situations and react in the moment. There is no simple checklist you can follow to build a successful company. Each founder must read the situation on the figurative field of play and make the decisions as they unfold in real time.
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