Why Pivoting Can Be A Double-Edged Sword For Founders
It can be both life-saving and painful for any startup, especially in the valley
Pivoting is something every entrepreneur has heard of. If you’re a founder, especially based in San Francisco Bay Area, you know exactly what it means but for those who might not know, pivoting is when a startup shifts its business strategy to help accommodate changes in the industry or customer needs.
During COVID-19, many startups had to pivot to survive, especially those in heavily affected industries. For some, it’s a pivot after realizing the startup they’re building simply doesn’t have product-market fit.
One of the favorite examples of a successful full pivot is Slack.
Originally a game called Tiny Speck, Butterfield (co-founder and CEO of Slack), realized his game wasn’t getting enough traction as he anticipated. He realized, however, that the in-house IRC chat system he built might be a product to take to market.
After this realization, he pivoted from a game to productivity software and the rest, as we know, is history. Of course, this isn’t really a standard pivot, but more so a complete shut down of his old company into the launch of a new one. After all, Butterfield changed the startup’s name and product into a completely different one.
There are plenty of stories and statistics that prove that startups that pivot have a higher chance of survival and often do better than their peers. Here are some from startups that had to pivot during the pandemic.
These are all the good stories we hear however
We hear how great pivots are and life-changing they are to a startup. There are, however, cases it becomes a double-edged sword.
Startups that pivot too early without focusing on their winning product
In my opinion, the most common example of a bad pivot is when a startup decides to pivot to chase after more market share. In other words, they abandon their main product to go after a completely new market in order to raise their growth numbers.
It’s often a greedy mistake of more early-stage startups. Instead of doubling down on the one product that made them successful, they take the risk of moving away from what made it successful in the first place to chase after new markets.
Many founders who realize they shouldn’t have pivoted end up having to spend a tonne of resources to focus back up again on their main product and, in some of the worst cases, end up going out of business.
Personally, this was one of the main reasons why my first startup failed. We had traction and discovered a growth channel for our product but pivoted to help secure even more growth and cater to a wider audience.
As with basic 101 startup knowledge, we ended up losing focus on our original niche, which was one reason for our downfall.
Pivoting too much
Pivoting can be great if you nail that product correctly in the right direction. But doing it too many times can be detrimental to the growth of your business.
Each pivot you do takes time, effort, planning, and strategy. It also means growing your business from scratch in a potentially new market and having to re-educate your users on what you’re doing that’s new.
Startups that pivot 1–2 times have 3.6x better user growth and raise 2.5x more money. Startups that pivot 0 times or more than 2 times do considerably worse. — Startup Genome Project
As seen above, startups generally do need to pivot at least once to find that product-market fit. Unless you hit the nail right on the head, it’s most likely the case you’re going to have to shift at least once or twice to help align your product.
This becomes a major problem, however, when you’re doing it more than two times. This usually prints a picture of desperation and, honestly, a waste of time and resources to go after so many pivots.
Just start again instead of pivoting
This is a proposition aimed at startups still looking for product-market fit. It’s an interesting one and an idea I briefly mentioned with the Slack example.
If Butterfield had decided to pivot using Slack with his gaming company, it would have 99% failed. Even though it would be a pivot, it would not be the same as spinning out the productivity tool as its own software into the market.
This is why Fred Wilson, managing partner at Union Square Ventures, says that startups need to realize that failure can sometimes be better than pivoting.
“Let the failing startup fail and start over again from scratch.” — Fred Wilson
Early-stage investors understand the risk of investing in earlier-stage startups and would rather see it fail and start again than pivot into another similar product with no chance of success.
More so, these pivots are aimed to please investors and to show “some sort of loyalty to their investors.”.
Pivoting can be both essential to a startup but also one that could cause its failure. In my opinion, pivoting should be treated more strategically and carefully for all startups out there.
It’s a powerful way of positioning your product in a way that helps locate product-market fit, but as seen in the examples, it can also be a way to getting lost during your entrepreneur journey.
Hopefully, this article paints a picture on both sides of the fence, one that shows how powerful pivoting is but also one that showcases how dangerous it can be if done incorrectly.