Imagine you’ve just borrowed $750,000 from someone because you have this “incredible” business idea. You’re going to disrupt a sector that you know is just begging for innovation. You’ve even got users already giving positive feedback–what could go wrong?
Fast-forward a year or so: You’re face to face with this same investor again. Her money’s almost all gone, but it gets worse. You’re back to ask for more–because this time around, you’ve figured out exactly what was missing (you promise).
Like many startups before and after us, we did that to our investors. And it was the hardest and most agonizing, but also, ultimately, the best decision we could’ve made.
Pivoting is a rite of passage for many successful companies. Some of today’s biggest tech brands started out as something else, including PayPal, YouTube, and Twitter. In fact, the word “pivot” gets thrown around so often among tech entrepreneurs that it starts to sound like the most natural thing in the world.
In my experience, though, it wasn’t. Abandoning a “baby” I had poured 18-hour days into for years hurt like hell. If I could go back in time, here are a few things I’d tell myself before pivoting.
You know something’s not clicking with your company. Maybe you’re not able to monetize. Or you’re hemorrhaging clients. You have an idea for a new direction. What’s the first thing you do? You talk–to everyone. Share your new vision with colleagues, prospective customers, and industry insiders. Get insight on what they really need in a product, then begin by building something super simple, iterating all the while on their feedback.
My company, Nestio, started out in 2011 as a tool designed to help renters in hot markets find the best apartment listings. Two years in, however, we realized we might’ve got it wrong. The real need (and the real money), we discovered, was in providing online tools for the landlords and brokers doing the renting. They were swimming in inaccurate and out-of-date listing info–because they were still using spreadsheets and whiteboards to track millions of dollars in inventory.
It sounded great on paper, but we decided to test it–and it was only later that I realized how important this was to our pivot’s success. We started with a few select clients in New York, giving them 60 days to use our new platform. A few weeks later, when we went in person to check in, we saw our software up on every screen in the office. While still just anecdotal evidence, it was enough to know we had a solution the industry wanted–and, just maybe, couldn’t live without.
The moral: Most pivots happen with minimal data, but having some kind of insight beyond just a gut feeling is important before you take the plunge.
Hands down, the hardest part about pivoting is rallying the troops, in our case our investors and early employees, around the new concept and business plan. After all, most got on board because they believed in the original idea. Instead of sending out an email blast or hosting an all-hands debriefing to break the news, we decided to talk to employees and investors one by one and tackle any and all questions head-on.
We went into this blind; never having pivoted a company before, there was no way to know ahead of time what kind of resistance we’d face. But it turned out to be a smart move. In person, the explanation rang true–but never once was it easy.
I’ll always remember how nervous I was approaching that one early investor who’d sunk so much of her personal money into the business. I was sweating in my chair as I sat in her house that night, pitching the new plan. At one point, after a lot of fast talking, I stopped to ask, “What do you think?”
There was a long pause, and then the answer, which I confess took me aback. She said, “I knew you’d figure it out.” I almost cried. She wasn’t so much backing the product we were creating, she explained, as the gumption of me and my early team. Not only did she approve of the pivot, she also invested more money into our startup and then convinced others to do the same.
In the early days, we didn’t have a ton of concrete data to prove our pivot would lead us in the right direction. And not all stakeholders were convinced, either–we lost investors; we lost some employees. Worst of all, we lost someone central on our team, who just wasn’t interested in building a business-to-business tool. After the initial high of the pivot subsided, there were some very low days when I wondered if we’d survive at all.
Still, we knew we had a minimum viable product and a great deal of confidence from the investors and employees who stayed with us. We also knew that the multifamily rental market (apartment buildings) was growing rapidly and really did need a dramatic overhaul in terms of technology. We had seen how other platforms that were using the cloud had transformed traditional industries. OpenTable, for instance, had upended the restaurant reservation business, giving owners an easy way to handle bookings. Nestio was in a different sector, but the business fundamentals were similar, and there was no reason our idea shouldn’t catch on–at least in theory.
The reality is that about 90% of startups fail. The other 10% usually have a near-death experience somewhere along the way. That was us. But two and a half years on from our pivot, we’re bigger than we imagined. Our skeleton crew is set to grow to 60 employees by year’s end. Our platform now helps landlords in big cities across the U.S. market their properties and seal the deal on leases. And investors are now coming to us.
It turns out that, by one recent measure, startups that pivot once or twice raise 2.5 times more money, have 3.6 times higher growth, and are 52% less likely to scale prematurely. A pivot, in other words, can be an eminently healthy move. Looking back, my only regret is that we didn’t pivot sooner.