A Brief Guide to Startup Pivots: Linking Your Thinking

A Brief Guide to Startup Pivots: Linking Your Thinking

Pivoting is a crucial decision that startups often face when their original product or business model doesn't yield the desired results. In such cases, founders have three options: sell the company, return money to investors and shut down, or pivot. While the first two options may seem like giving up, pivoting allows startups to adapt and find success in new directions.

When considering a pivot, founders often make the mistake of limiting their options within their existing market. They worry about the industry knowledge they have built and the sunk cost of their original product. However, this approach can lead to failure if there is a bad product/market fit. Andy Rachleff, founder of Benchmark Capital, famously said, "When a great team meets a lousy market, the market wins. When a lousy team meets a great market, the market wins. When a great team meets a great market, something special happens." This quote emphasizes the importance of finding the right market for your product.

One type of pivot is to reposition or edit down your product. This involves identifying a specific use case or user base within your existing market that shows enthusiastic adoption of your product. By focusing all your attention on that use case, you can amplify its success and create a stronger product/market fit. However, it's important to consider the downside of keeping the original product alive. It requires significant time and attention from your team, and it can create confusion about your brand and the changes you are making. If your legacy business provides sufficient cash flow, it may be worth launching a new brand to avoid these challenges.

Another type of pivot is a market pivot or product repositioning. This involves launching a tool that you used while building your own company. Building something for others that you need for yourself is often a successful way to identify a real product or market need. However, this type of pivot requires rebuilding your team to be able to build the new product or sell into the new market. If layoffs are necessary, it's important to do them quickly and be as fair as possible to your employees who supported you in the past. Losing some employees along the way may actually be beneficial, as you need a core set of true believers to weather the storm.

In some cases, a pivot may require a complete restart of the company. This can happen when the co-founders of the company need to change or when investors no longer want to support the team and its new vision. In such situations, it's better to restart the company than to engage in conflicts over equity allocation or with investors who no longer believe. The key to managing a successful restart is to return any remaining cash to investors, form a new founding team, offer a new portion of equity to investors, and go after the new mission with a fresh start.