257. Pivoting Your Startup: What, Why, When and How

0:00Pivots are behind most of the greatest startups of all time. If you're considering pivoting right now, this is the video for you. I'm going to cover why it's okay to pivot, the signals to tell you it's time to pivot, what the different types are, and then finally how to execute one properly. So first, what even is a pivot? Because people get it confused between iterating and pivoting. Iterating is small changes, constant small changes, bit by bit based feedback. Pivots are more substantial where it's not so obvious it's the same company as you were before the pivot. They often feel much scarier than just an iteration but you shouldn't be scared.

0:39It's so normal for so many companies to go through different pivots. Many of the ideas and stories you've seen in the past from all these incredible startups sometimes they skip some of those pivots just to make their story easier and sometimes you're worried that if you're pivoting you're admitting that you failed. But again, that's fine. Failing is a normal part of growing a startup. And if you've got investors, you might think that investors are going to be worried about it too. Usually investors, they're investing in you, not your initial idea. So if you've done the research, you've done the validation, and you've decided this isn't the best path anymore, the best investors will continue to back you as long as you're staying in their realm.

1:20So if you're pivoting from health tech to fintech and you've got a health tech investor, they might be a bit uneasy. But if they believe in you, they could still invest in you anyway and continue that relationship. And when we think about shame, it's that most people won't even remember how you started out. I can't remember how we started out. There's so many different companies that people hear about, so many startups they see, they're likely that they're going to hold something against you five years later that you started with this idea and then you went into that idea is actually really little.

1:53So in a comforting way you're not that important. Your idea, you tried it, it didn't quite work, go on something else and everyone will forgive you as long as you've treated them right of course. So how do you know it's a good time to pivot? What are the signals that are really important? Because what you don't want to do is just have one single bad day, things went wrong, you had a bit of a cry and it's totally normal for fans to have a bit of a cry and then decide to change everything, right? So you've got to have a bit more substance to it. Otherwise, you're just going to keep pivoting and not really knowing if you've given it a proper go to know if this is something which is you giving up or you're reacting rationally to the signals you've got.

2:32And sometimes if you're building something complicated, it's just going to take a bit of time and not getting any traction just means you've got to do a bit more work and you've got to understand what you're building and whether that makes sense. Say, for example, with Deep Tech, with a company such as Wave where Amashar has been on our podcast you can't just give up after the first few months because it's a 10-year build right but over that time they got traction and they got other signals that enable them to continue. You might also just be having so much fun that even with the negative signals you want to continue anyway and that's totally fine as long as you're in a finite position to do that.

3:08If you're enjoying what you're doing if you feel like you're bringing joy to others by doing it, crack ahead. And that brings us to our first signal, burnout. Every founder starts with what I call the honeymoon phase. Everything is amazing, everything is new, everyone around you is like, oh my god, you're so brave for quitting your job, congratulations. That doesn't last forever. The biggest lie in entrepreneurship is that starting is the hardest thing. It's not. The hardest thing is to keep going through all the different times you've been punched down, all the times you've been knocked down, and all the days that things aren't going right.

3:41That's the hardest thing to keep going. Starting is easy. So are you still excited to work on the problem you're working on? Do you have that sinking feeling in your gut every day when you wake up? Because if you do feel like that, that's a signal, right? And it's actually a lot more common than you think because so many people will lie about it. They'll not want to let people know that they've maybe made a bad choice. They don't want to let people know that they feel this way because they feel like they might be judged. But by people avoiding sharing this information and sharing this transparency it can lead you down the wrong route because reality is if your heart isn't in it somebody else's heart will be in it and they're going to outcompete you so you can keep going along like a zombie or you can step out of the way and move on to something which you do love and which really makes sense for you you only get one life don't waste it building something you don't care about the second signal is where the excitement is elsewhere and this is where you don't actively resent the startup you're building or the product you're working on or the problem you're just way more excited talking about something else and it could be related to your problem it could be you're building something in this particular niche but actually the adjacent niche is where when you talk to customers about that the energy in the room which is much more palpable right and you might find yourself going down rabbit holes on that area and it could be something totally separate too it could be i know so many founders who in the first company were building something deep tech or fintech or climate tech but then they started having health problems while building that and then they got obsessed with that health problem and that led them down a rabbit hole where they're much more interested in that than the actual startup they're building and it's a very common thing for second-time founders or third-time founders to build in health tech because of this.

5:23If you find that your obsession has shifted then maybe it's time for your startup to shift too and for some people this could be shutting down and starting anew, it could be exiting another way but that's always an option right if you're no longer obsessed with the problem you're trying to solve move on to a new problem the third signal is that customers just don't seem to care and this could be because you've done customer validation poorly so you failed the mum test great book you should read it and if you failed that mum test it basically means where you've done the customer validation in a way that gets people to agree with you but then when it comes to actually getting them to buy it it's much harder and what you've got to also differentiate between here is it because you just suck as a salesperson and if you had a good salesperson if you improved your sales skills you could convert them or is it that fundamentally they don't want what you're selling you can keep trying to force it but if you are solving a problem that people care about you should find people want to engage with you people are recommending it to their friends people are giving you that feedback proactively because they want that solution that you're building and if you're not getting this and you're just getting apathy then maybe it's time to move on if your startup disappeared for a week or your product stopped working would anyone notice a key red flag on the other side of this equation is let's say you are really good at sales but your customer retention isn't there let's say you can convince people okay this is a problem we're solving but your solution isn't meeting their requirements and they might sign up for a subscription but then cancel it after a few days in that case again you're not your solution isn't solving their problem and customers don't seem to care about your solution.

7:02It's not valuable enough to stick with. Sometimes it isn't your fault at all. A new technology especially in the age of AI has come along and just meant that your product and your solution is just no longer viable. It could just mean that people don't need what you're building because there's something else out there that's just much better. A lot of startups have been destroyed recently by an AI from a big tech company just eating their pie. And if this has happened to you, you can keep trying to fight it or you can find a new problem. Fourth is team struggles. So this is where we live in a market right now which is tough for people trying to find jobs.

7:40There are so many highly skilled, highly competent people out there who can't get a job. if those people can't be convinced to work for you and you're paying them a good salary that's a really damning signal for you because it means that they don't believe in your company it means they don't believe in your trajectory and if you can't convince them to come and they'd rather stay unhappy in another job or be unemployed again like you should be really taking that feedback into account if you've already got employees how engaged are they are they talking about the problem Do they seem obsessed with the problem?

8:15Do they seem obsessed with helping you to solve that problem? Or are they disengaged? Are they seeming to switch out? And what that means is that when you hired them and you sold them the dream, they didn't feel like they're getting that dream. And you might start to find people leaving, having that churn, and them not sticking around. And again, if you can't convince people who seem to be really passionate about the problem you're trying to solve to stick around, then again, you need to consider your future. Fifth is the signals coming from investors. Rejection is a normal part of raising capital for a startup and some people get over 100 rejections before finally getting funded but you can still read between the lines.

8:54What is the feedback? Is the feedback that you need to get more traction first? Is the feedback that they're just not a right fit for you? That their thesis doesn't match what you're trying to build? Or is it that fundamentally they don't think what you're building has any legs? It's think there's enough customer base for it. They don't think there's a big enough market for it. They might also believe that the idea is good. You're just the right person to build it. And as you're getting the feedback from people as you're pitching, you should be constantly iterating your deck and your pitch. And if you're still getting the same response, like every single time you're doing that, even though you're trying to mitigate that, that's probably a major red flag.

9:35And this is where it comes down to, can you bootstrap? Can you build that traction? Can you prove them wrong? And if you can't and you're not excited by the prospect of trying to do that, then again, it's probably time to move on. The final signal is stagnation, where none of these signals are bad enough to make you stop on their own. Everything is OK. Customers, some customers seem to care. You're somewhat motivated. Investors are somewhat coming on board and giving you some backing. your team is going a bit above and beyond and all of these mediocre signals combined add up this stagnation element where you're not growing fast enough you're not getting enough excitement it's just there it's just a blur right and this is sometimes be like next week will be better and if you keep feeling in that zone where the big break is coming the big break is coming but it just never seems to come and there's just not enough excitement it's not enough it's not a 10 out of 10 thing you want to work on.

10:38That stagnation is another reason to let go. So we've covered the different signals there to look out for when it's time to pivot. Now we're going to look at the different ways you can actually pivot and it comes in all different types and shapes and sizes. First we have the customer segment pivot. This is where the solution you've built is actually pretty good but the customer you're targeting maybe aren't the right ones. Sometimes it's down to personal biases where in your head you think this is the best product for these people but the market and the data you're getting is disagreeing with you and actually other groups are using the product way more.

11:13One example of this from my own portfolio, a company called Tuck. So they're building the savings app for everyday savings for cash back. They initially targeted students and young people thinking those people are going to want to save and want to get money back. But in reality they found that it was actually young parents and people in charge of household budgets that were using the product the most. And these people were actively looking for ways to save money, to be responsible with their money. And even though students also have some of the same problems, the intent and the hair on fire problem was greater for these young families.

11:49Once I could realise this, they could change their strategy, change their customer validation, change they're talking to get feedback and since then they may have to grow massively and really increase the transaction volume on their platform and this can work in different ways it could be to do for example with geographies it could be you've launched in different countries and one country just seems to be way more interested in your product than others and then you double down on that so rather than becoming say a London first company you become a New York first company the second type of pivot is a problem pivot and this is where when talking to your customers and building your product and iterating you're realizing that actually there's another problem which is adjacent to your problem that's way more important it's a real hair on fire problem and this is instead of building a product for something created an okay or mediocre problem you can capture this other problem and do way better and again sometimes this is down to assumptions you make because of your own personal experience where you think this is the most important thing but from a customer validation over time you're realizing actually we're working on the wrong thing here we need to be solving that problem instead.

12:55Third we have the product pivot. This is where you've built something which you think is great but in reality it's just not gaining the traction and the customers still really want the problem solved but the solution you've got isn't solving it for them and even after iterating you're just going down the wrong path. Sometimes it's best to drop that ego, scrap what you've built and start again from the beginning from first principles and make something better. And sometimes this is enabled by tech, right? With the use of AI, with the use of other tools now, it could be the product you initially built was great at that time, but now with other tools, you can build something way better, which is going to solve that problem much more effectively and means that you get high customer retention, customer might be willing to pay more, and you're really solving that hair on fire problem in a much better way.

13:43Fourth, we have the feature as a product pivot. This is where you build something and you've got all these different random features in there. I do think your killer feature is one thing, but actually when you look at the data, people are using another part of the product much more. And the classic example of this is Instagram and when it was bourbon, where they had this tool which did different things, but actually people love the photo filter part. and by doubling down on that part of the business Instagram did way better overall and the best way to know about this type of pivot is by really tracking the customer feedback and the metrics well because you might just find that that particular feature is making a big difference something you didn't realize and you've got to be talking to customers understanding like why are using that feature so much and getting that new new research new validation before you push down that path too heavily.

14:35Next is what I call the internal to external pivot. This is where the product you're building and the users that are using it maybe aren't too enthralled by it, but there's something you've built internally which has helped you to build that, which actually could be the underlying product. So this is where, let's say you're building something innovative, you're building something new, it's really complicated, and to make that happen you've had to grow your systems internally. So again another classic example here is Slack. So Slack started off as a video game which was doing okay but not amazingly but in order to build that they had Slack internally which allowed you to talk to each other and to have that asynchronous communication.

15:19They then realized that other companies needed this too and then that became the hero product instead. So this is generally a case for companies which are a bit further ahead where to get to that position they've had to really transform something and to create a new layer underneath the covers which is really useful for others. So that's another way to pivot especially if you've got a bit further ahead in a bit later stage. Sixth we have the revenue model pivot. This is where customers love your product but maybe they're not paying for it or maybe it's just not the case of you actually making any money from it.

15:55So if you've got something, okay, you're solving a problem that people want to be solved, you're doing it well, but you're not making any money, this with the revenue model comes into play. You can check this channel for another video about the different business models and how to experiment with them. But the idea is essentially, let's say you have a few customers who are using the product really heavily and it's giving them a huge amount of value. Then instead of having the same subscription price for everybody, maybe instead turn it to usage-based pricing and what this could then do is mean that those power users you're earning a lot more money from them but you're also then making it cheaper for everybody else so it makes it easier for people to test it rather than having really high subscription rates for everybody and perhaps putting off new users and for you maybe that model is much more effective and allows you to create more profit and finally we have the total pivot this is where you completely change the business and you're almost a completely new company.

16:49This is where nothing seems to be working but you have a great team and potentially you have lots of capital too and this is very existential crisis or emergency where you just realize this just isn't going to work. So Twitter famously did this right well Odeo as they were previously known where their podcasting platform wasn't working out they did an internal hackathon the idea for twitter came about and they pivoted the entire company to a totally new region this becomes more viable when you've got considerable investment and you want to use that investment and your investors are willing to back you otherwise it could just be worth shutting down the company and starting again now the benefit of a pure restart is it cleans up a lot of potential issues around ip around employment all of those different issues So if you're going to pivot and keep the same company, you've got to really consider is it the right path or not.

17:44Total pivots at a later stage are more rare, but at the beginning phases it could be you completely scrap what you're building and start something fresh. And especially if this is before you've got any customers or anything going on there, it's not as big of a deal as you might think it is. Hopefully I've given you some ideas there. Now we're going to look at how do you actually execute a pivot well so that you get the best result for you and your company. the first concept to think about is reversible and irreversible doors and i believe this comes from jeff bezos or one of the billionaires but how you think about you've got two types of decisions irreversible doors are once you go through there it's very difficult to go back again so if you think about in terms of pivots if you've got lots of customers and you've got a huge brand and you pivot it's hard to undo that where on the other hand you're reversible doors these are ones which you can make a decision and if it doesn't work out you can just go back again very easily And when you think about execution, if it's an irreversible pivot, you should spend more time thinking about is this the right path or not.

18:44For reversible decisions, just make the decision and move with it. And some of this depends on your stage, right? There's more irreversible doors than later stage of your company is. Right at the beginning, no customers, no capital, no partners. You just scrapping the product and starting again doesn't make a big difference. And you can go back on it if you want to. So when you think about your decisions and how you make them, irreversible doors, don't do on a win. Think about it. Talk to, as we're going to get into the next phase, your different people and stakeholders. And the second point is don't do it alone.

19:18If you're looking at these irreversible doors, make sure that you're getting the main people involved. Make sure you're aligning as you go through. Obviously, the key most important relationship is your co-founder or co-founders. you need to make sure that you're on the right path you both or all of you are in the same alignment that you think that is correct decision make sure everybody is comfortable in raising their objections make sure you all have all the information you need before pivoting because if you go and force your co-founders to pivot when they're not necessarily ready all you're going to do is cause resentment and cause probably problems down the line one of the realities if you're doing quite a substantive pivot is that the relative importance of the co-founders might shift.

20:02It could be that one of the co-founders no longer makes sense to have as part of the company. And having these open discussions is really important because otherwise, again, you're just letting it all surface, under the surface, bubble up, bubble up, and eventually it will blow up. So you want to make sure that you have these conversations straight to the point and everybody knows where they stand. Then you're also going to be talking to the team. If you've got employees, they need to understand where do they fit in this new world, in this new pivot you're doing. are they still important are you going to protect their job maybe do they want to go and it's really important as well for your team to make sure they're all on board same thing with co-founders if they don't want to be there you've got to let them go because having somebody who doesn't want to be there in your team is just going to sabotage yourself from within and when you do that right you can still maintain good relationships if they know that this is the path you have to take and it's not anything personal and you allow them to leave and have good terms, maybe they come back in the future, who knows.

21:04But you don't want to create enemies unless you absolutely have to. Then looking at investors too, tell them why you're doing what you're doing, give them the data, give them the reasons and the best investors, if they believe in you, will continue to back you. You can have cases where investors won't be happy and they'll cause problems but this is where that initial phase of when you're picking your investors is so important and it's really important to do diligence on your investor beforehand and talk to founders who have pivoted in their portfolio and find out how they took it, what was your reaction, were they supportive, did they help or did they not help and if it is a case that is no longer a right fit, if you can return their money return their money but otherwise try to work out a plan towards getting them off your cap table so that you're going to have that clean cap table where everybody believes in you.

21:53Finally on this point of not going alone look at your stakeholders have you got key clients and partners who rely on you and if you can can you give them a heads up can you prepare them can you off-ramp them so that it's not such a harsh ending right because again you don't want to make enemies if you can help it and in this case especially for irreversible doors if you just say to them look this is the situation this is the impact here's how we can try and make it less impactful for you but you've got to understand longer term this is what's best for us they should understand and there's not much they can do about it if they don't and the third point of execution there is related is don't half pivot you can't keep other services going keeping other things going confusing your branding by keeping both the pre-pivot and the post-pivot company all in the same place it's just going to get confusing and your team is going to be confused you're going to be confused your customers are going to be confused everyone's going to be confused that's not a good look that's not the way you want to run a business if you're going to go for it and it's an irreversible door go for it properly go hard and do the best you can in that industry fourth to do the best you can in the new industry you have to go back to first principles you can't just take okay this worked in the previous thing we were trying to do this is also going to work here you've got to look at do you still have the right team do you still have the right mission do you have the right tech do you have the right distribution you've got to think about this as a new startup go through the lean canvas again and look at how are we going to succeed in this area and what needs to change what do we keep and what do we leave and think about it from that very basic thing this is our problem how are we going to solve the best we can and make as much money as we can and keep both ourselves investors and other stakeholders happy the final point execution again is don't let it fester.

23:48If you know it's not working out, it's better to end it there, get all the communication ready, start to plan for it rather than just allow yourself to slowly decay over time, over time, over time and lose a lot of goodwill, have investors unhappy with you, have a demoralized team, have your own burnout get worse and worse and worse. Pivot's a normal part of startup life. If you're going to do it and you realize that it's just not the right path and you're not changing your idea every week, go for it, go for it fully and go with your full heart, right? Don't do things in life if you're not going to believe in what you're doing.

24:26I hope you've enjoyed this video. If you have, please subscribe to this channel. Please support us. It means a lot. And also check out the other videos on the channel. There's all different videos about what we're doing here, about how you can grow and scale your startup. And I hope you enjoy. Take care.