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The lesser-known startup pivot

By Anshu Sharma

Some of the leading Silicon Valley companies we know like Slack and Twitter are the result of a successful ‘pivot’. But what is a ‘pivot’, and do we really understand what makes for a good pivot?

Most people think that successfully pivoting a business is an unknown “dark art”, or achievable only by sheer dumb luck. But, what if we could understand the different types of pivots, and how to pick the one that’s right for your startup?

Over the years — having invested in over 50 startups, working at leading tech companies, and founding three startups — I’ve learned some lessons on what makes a great startup pivot.

To de-construct the pivot, let’s look into three questions:

  • What does it really mean to “pivot a business”?
  • What can you pivot around?
  • What is a lesser-known way (but one of the best ways) to pivot your startup?

First principles: what does it mean to “pivot”?

From a first-principles perspective, pivoting means a change in direction that’s based on your current position. And it also means choosing something to keep constant as you change everything else. So, a business pivot is a radical change to a business where some aspect remains constant. It’s a revolution short of a total reset. A couple of examples are:

  • Twitter pivoted from an audio podcast platform called Odeo to its current social network
  • Slack pivoted from building a game called Glitch to an enterprise messaging app

Basketball provides a great metaphor for pivoting a business: A basketball player whose original path is blocked must choose a new direction before they shoot. But, they also need to choose which foot to keep planted on the floor as they turn the rest of their body. Similarly, a business that’s looking to pivot must choose a new direction, and also decide what to keep constant as other aspects of the business are transformed.

So what should a business consider when they need a new strategy and it’s time to pivot? With such a high-stakes choice, it pays to really understand your options.

What can you pivot around?

A basketball player can choose between their left and right feet when looking to pivot. But for startups, there are several things that a company can keep constant as a “fulcrum” when pivoting, including their:

  • Product
  • Market
  • Customer

And, for each type of pivot, it’s good to consider how different companies made it work.

Pivot on your product

The most common type of pivot is keeping a product (or aspects of it) but pivoting to new markets or new customers. This is the most common approach because founders are emotionally attached to what they’ve already invested in. They’re also looking to recover sunk costs by finding something to salvage from initial R&D efforts.

For example, let’s say that you’re trying to sell HR payroll transaction processing software to a customer and you discover that there’s a better market for the core, innovative features you’ve built in ecommerce. Here, you’re salvaging much of your existing product as you change the rest of your business.

YouTube and Play-Doh both provide good examples of pivoting on a product:

  • Youtube started out as a dating site where users could upload videos. They kept the video platform (product) and simply pivoted their target audience to anyone who wanted to share online videos.
  • Play-Doh was originally sold as a wallpaper cleaning putty in the 1930s, but sales declined as wallpaper went out of style. They changed their customers (from housecleaners to kids) and market (from cleaning supplies to craft supplies) while keeping their product largely unchanged.  

Pivot on your market

Another approach to pivoting is when you stick with the market that you originally targeted, but you reinvent or completely replace your product. This feels like a harder step to take because it means scrapping what you’ve created. But, you’re leveraging your company’s domain expertise because you’re using what you’ve learned about the needs of the market. And this knowledge helps you to create a product that’s more likely to be successful. 

Because your product doesn’t fit your original market, you replace it with a new product that better fits the market. You might salvage some code or features, but that’s a nice-to-have more than a goal.

A good real-world example of pivoting on a market is PayPal, which stayed in the online payments market while pivoting from a payments encryption service to a PDA-to-PDA payments app and finally to a web-based payment processor. They used the insights from each unsuccessful product to propel them to the next, and ultimately, to success. And, they changed their customers along the way: from payments providers, to PDA users, and finally to all Ebay users.

You can learn more about pivoting on your market from Marc Andreessen’s post, The only thing that matters.

Pivot on your customer: the lesser known pivot

A lesser-known approach to pivoting your business is to stick with your customer while changing your product and market. The advantage of this pivot is that you leverage the knowledge you’ve built about the needs of your customer(s) so the next product you build will be a fit for their needs (and the needs of other potential customers). Instagram and Netflix provide great examples of pivoting on your customer.

Instagram first built a product called Burbn that was similar to Foursquare, focused on location-based check-in. But, they noticed that photo sharing, commenting, and likes were the features that customers used most. So, they cut all of the other features to create the product that their customers wanted.

Netflix first created a DVD-by-mail service to launch their subscription video content service because the internet didn’t yet provide enough speed and bandwidth to stream video content reliably. While keeping their customers, they gradually replaced their DVD-by-mail offering with a streaming video offering. Both were centered around catalogs of content but everything had to change — in fact, Reed Hastings literally created a separate office for the streaming unit. 

In my experience, enterprise software companies are especially suited to the customer pivot. If you have spent years talking to HR people building a benefits product, you have learned a lot about that buyer and their users. While not officially a pivot (because the team changed companies) the founder and early team of Zenefits pivoted on their customer when they built an integrated IT and HR product at Rippling. 

When is the lesser-known pivot best?

Instagram and Netflix provide some good examples of how pivoting on your customer can be a very successful strategy. While it is never comfortable for a founder or executive to discard much or all of the product that they’ve built because throwing away R&D feels like a failure, I’d advise leaders to embrace this discomfort. In short, don’t fall for the sunk cost fallacy.

Because if you can pivot on your customer, building on what you know about them and their needs, you have a huge edge. You’re keeping something more valuable than code – you get to keep deep know-how about what your customer cares about: their actual problems and needs, and their budget constraints. 

Final thoughts and the anti-pivot

The pivoting exercise ultimately boils down to the team making a gut call on what they think is much more likely to succeed than the approach they’ve taken to date. So, trust your gut when choosing when and how to pivot on your product, market, or customer.

Finally, I’d like to share the story of what I would call an anti-pivot. Veeva, one of the most successful enterprise SaaS companies ever built, initially planned to build a platform for multiple different verticals. But they achieved so much success in their very first vertical (pharmaceuticals) that they’ve grown to over $1.5B in revenue and $25B in market cap. They decided to stop building for other verticals and just focus on that one massive opportunity, and its huge TAM.

May we founders all be so lucky as to need an anti-pivot.