What Makes an Entrepreneur (3/11) – Ability to Pivot

Posted on Dec 17, 2009 | 77 comments


basketball pivotThis is part of my new series on what makes an entrepreneur successful.  I originally posted it onVentureHacks, one of my favorite websites for entrepreneurs. If you haven’t spent time over there you should.

I started the series talking about what I consider the most important attribute: Tenacity.  I then covered Street Smarts.

3. Ability to Pivot – I don’t like to invest in people that I’ve never met before who come through my office wanting to have a term sheet within 30 days.  I don’t think most VC’s do.  Yes, there is the mythical company you all heard about that walked into Sequoia and had a term sheet 24 hours later.  I’m sure that happens.  But in most situations a VC will want to be able to judge how you perform over time.  It’s what prompted my post on how to build relationships with VCs.  I also wonder about the entrepreneur who would sign a term sheet that came from somebody they hadn’t gotten to know over time.  It’s sort of like going to Vegas and marrying a good looking person without knowing more about what makes them tick.  Good on paper (or good brand) does not necessarily equal good spouse.

VCs often tell entrepreneurs that they want to see “traction” before they’re ready to invest.  What I believe they really want is to get to know you longer.  And part of what they’re looking for is how you adapt to the business you’re building over time.  Every entrepreneur starts with an idea that they believe makes sense.  But then your customers start using your products, your competitors come out with new offerings and your business partners decide to launch a similar product rather than working with you.  You’re forced to “pivot” on a regular basis.   The best entrepreneurs get market feedback regularly and change their approach based on the latest information.  The best entrepreneurs seek advice from everybody they need, learn lessons and make minor adjustments on a monthly basis.

To be clear: most serial entrepreneurs who are working on an early-stage concept know that whatever they’re working on in year 1 is likely to be dramatically different than what they’re doing in year 5.  That might even mean a totally different business or it might just be a totally different business model.  Google had no clue that they were going to make so much money in sponsored search.  They really just copied and out executed Overture (originally goto.com).  We all know Flip Video cameras by Pure Digital.  Did you know that their original product wasn’t a video camera?  What about PayPal – think you know their story?  Their original concept was transferring money via Palm Pilots!  Twitter was an offshoot of Odeo, a website focused on sound and podcasting.  It was originally called Twttr and didn’t initially get rave reviews from TechCrunch or GigaOm.  Seesmic (now a Twitter client) was originally a video blogging platform.  Geni.com beget Yammer.  I could go on and on.

Great entrepreneurs pivot.  Evan Williams, Loic LeMeur and David Sacks are great entrepreneurs.

This is the reason that I’m personally not that anal about your financial model.  I’ve stated publicly that you MUST have a financial model because it serves as your ongoing compass and strategy but it will change on a regular basis during your first 2 years.  So much so that you’re financial model 2 years out won’t resemble your starting model at all. But year 5?  Not so much.

So for me seeing how you respond to market challenges, what you learn and how you adapt is one of the most critical pieces of information I can collect about whether or not I want to invest in your company.  It’s one thing to be tenacious but if you’re not listening to the market and changing things based on that feedback you’re dead.  Unfortunately if you’re not street smart you probably don’t recognize the changes in the market early enough and the pivot comes too late.

I once wrote a piece called JFDI (a play on the Nike Slogan) in which I stated that entrepreneurs need to make quick decisions and take quick actions.  At best you’ll be right about 70% of your decisions.  It takes a wise leader to spot the 30% – what they’re doing wrong.  It takes a leader with humility to admit that he was wrong and reorient people in a new direction.  It takes a real leader to bring everybody with him when he changes directions.  Look at what Mark Zuckerberg achieved when he reoriented Facebook around the status update to combat Twitter.  That was an amazing pivot and why I believe Mark has achieved all of the success that he has with Facebook.  Let’s just say that the market didn’t exactly embrace his changes but directionally I think he was right (in hindsight).

An example:

My best recent example of this is Ophir Tanz and Ari Mir.  They are some of the most talented young technology entrepreneurs in LA.  They came to me 2 years ago with their company, GumGum, and were trying to raise an A round of capital.  They were trying to build a DRM system for digital image owners to protect and better monetize their images.  They had surrounded themselves with great advisers like David Sacks and Mike Jones.  Mike introduced me to them so they came qualified.

I instantly liked them but wasn’t sold on the DRM solutions for image owners.  They went away and made progress in their business.  The next time they came back they had changed their business plan to become a variable rate pricing mechanism for image owners to sell to websites and had created an image-based ad-network platform for remnant photos.  They had signed up Gawker Media and the New York Post.  More interesting but still not my cuppa tea.

They came back 2 months later and had raised money from Crosscut Ventures, an early-stage venture firm in LA run by Rick Smith and Brian Garrett.  I really respect these guys.  They had also raised money from Howard Morgan at First Round Capital who if you check out his bio you will see is legendary.  Hmmm.  These guys seem to be making progress.  They had signed up Glam Media and TMZ.

The next time we met they had launched a few new product concepts including the ability to buy clothes that were in an image through an affiliate link by clicking on the image itself.  I didn’t believe strongly in this product line but they just kept showing the ability to quickly launch and test new products and each time I met them they had made progress.

And then came came the second big pivot (the first being moving away from DRM).  They suddenly had Javascript on pages that covered 40 million unique users and they were coming up with innovative ad products that combated banner blindness.  They had started to launch new products that helped web site owners better load applications from third-party vendors and they started experimenting with totally new ad models that drove the daily revenue up by 7x in less than 30 days.

I had seen enough.  I knew that these guys had the right DNA.  They were product and cost focused.  They were rapidly innovating and involving customers.  They were pivoting when they launched things that didn’t monetize.  And now they were showing that they could ring the cash register.

And then the BIG pivot.  With their new products taking off Ari Mir came up with an idea.  He wrote a 7-page positioning paper that said, in essence, “publishers know best how to monetize audiences.  We’ve proven that through innovation and experimentation we can do significantly more revenue than we’re getting through Google AdSense.  What if we created a market place that let publishers create their own ad units and sell keywords to buyers who would want to buy these in real-time.  We’ve already proven that we can outsmart AdSense, which isn’t hard.  In essence publishers use banner ads that unless you’re a super premium site don’t drive high CPMs and people aren’t looking anyways.  Or publishers can use ad-words where they’re constricted to the Google container and contextual links.  Both of those models work for some but not for others.  What if we gave the publisher the ultimate flexibility?  What if keyword buyers had more choice than just buying expensive and competitive terms through Google?”

Damn.  That’s a great idea.  So the team did a 60-day sprint to get product out the door.  In this period we decided to invest in both GumGum and this new product line, that was later to be named Bedrock.  We then ran customer pilots for 30 days which proved very compelling.  We called a series of publishers who gave us input on what they were looking to achieve.  We spoke to buyers to understand their concerns.  After just 90 days the project was green-lighted and after a few more months we announced it.

I’m proud to work with these guys.  And as I told them when I wrote the check, “I’m not only investing in today’s business – I’m investing in your potential.”  So true.

Next up: resiliency.

  • http://lmframework.com/blog/about David Semeria

    Ah, I think perhaps for once you may have missed the point!

    I'm talking about a long dev cycle in which the product/service changes radically prior to launch and without much customer feedback.

  • http://bothsidesofthetable.com msuster

    Gotcha. Yeah, I had misunderstood.

  • http://fr.linkedin.com/in/joaquingonzalezdecastejon Joaquin de Castejon

    Great post, Mark.

    This has reminded me of some other startups that began with products that have nothing to do with what they're known for today: HP, Sony, Nintendo… I agree, the ability to keep going until you find what really ticks is vital for entrepreneurs.

    I love the GumGum/Bedrock story. A great example to follow.

    Great series, can't wait to read the rest!

  • http://www.logicalconsensus.com Lucas Dailey

    Are there two types of pivots? One in which a company changes development or strategic planning due to product/market fit, shifting to better solve roughly the same problem. The other in which your company may have unique skills or placement to take advantage of an adjacent opportunity.

    GumGum may be a good example of the first, Nintendo a good example of the second.

    I would call the first a pivot, but not the second.

    Maybe it’s the difference between running a business by philosophy vs. bricolage.

    We had our first big pivot a few weeks ago which I have complete confidence in partly because it fits both scenarios listed above. It better matches our philosophy and takes better advantage of our underlying assets.

  • http://www.logicalconsensus.com Lucas Dailey

    I think he’s talking about the paradox of wanting mutually exclusive characteristics. Someone that says “I want a tall woman”, then a few minutes later says “I want a short woman.” But there are no tall/short women.

    We want an entrepreneur that never gives up against all odds!/ that can retreat!

    But pivoting isn’t retreating, it’s advancing in a different direction.

  • http://twitter.com/jgwaller John Waller

    That's exactly what I mean. Thanks for clarifying my words :).

  • http://bothsidesofthetable.com msuster

    Thanks. Post 4 just went live (and now I'm off to bed).

  • http://twitter.com/jgwaller John Waller

    Except I don't necessarily mean retreating. In order for an entrepreneur to be willing to pursue his vision (risk everything, be laughed at & all of the other challenges that entrepreneurs face), he is presumably bull headed & extremely passionate about that vision. In order be that iron willed about something, but also have the ability to objectively realize when the vision needs to pivot (not retreat) & change the course of the vision is rare. Although I suppose many entrepreneurs are passionate simply about being an entrepreneur, as opposed to a particular business idea. In that case, it is probably easier to exercise good judgment & analysis based on wise feedback.

  • http://oddfellowstudios.com Shava Nerad

    Feel free to delete after reading. Just a typo: Seemic s/b Seesmic

    Nice series, btw!

  • http://www.logicalconsensus.com Lucas Dailey

    Are there two types of pivots? One in which a company changes development or strategic planning due to product/market fit, shifting to better solve roughly the same problem. The other in which your company may have unique skills or placement to take advantage of an adjacent opportunity.

    GumGum may be a good example of the first, Nintendo a good example of the second.

    I would call the first a pivot, but not the second.

    Maybe it’s the difference between running a business by philosophy vs. bricolage.

    We had our first big pivot a few weeks ago which I have complete confidence in partly because it fits both scenarios listed above. It better matches our philosophy and takes better advantage of our underlying assets.

  • http://www.logicalconsensus.com Lucas Dailey

    I think he’s talking about the paradox of wanting mutually exclusive characteristics. Someone that says “I want a tall woman”, then a few minutes later says “I want a short woman.” But there are no tall/short women.

    We want an entrepreneur that never gives up against all odds!/ that can retreat!

    But pivoting isn’t retreating, it’s advancing in a different direction.

  • jwaller

    That's exactly what I mean. Thanks for clarifying my words :).

  • jwaller

    Except I don't necessarily mean retreating. In order for an entrepreneur to be willing to pursue his vision (risk everything, be laughed at & all of the other challenges that entrepreneurs face), he is presumably bull headed & extremely passionate about that vision. In order be that iron willed about something, but also have the ability to objectively realize when the vision needs to pivot (not retreat) & change the course of the vision is rare. Although I suppose many entrepreneurs are passionate simply about being an entrepreneur, as opposed to a particular business idea. In that case, it is probably easier to exercise good judgment & analysis based on wise feedback.

  • http://www.civiside.com/ Ken

    Funny that your post on pivoting should come out a day before all this news about Google negotiating for Yelp!

    http://www.fastcompany.com/blog/kit-eaton/techn

    Makes me laugh because the writer doesn't understand the natural ability of an entrepreneur to find the right angles to solve any problem. If Twitter and Four Square are really threats, they are only threats to this current model. Yelp! will figure out the angles.

  • http://bothsidesofthetable.com msuster

    Thanks for spotting!

  • http://bothsidesofthetable.com msuster

    I don't really know. I'm mostly looking for entrepreneurs who are tenacious but flexible. They notice when what they're doing isn't working or when what they're doing might spawn a more interesting opportunity that they are uniquely positioned to grab. Whatever you call it – that's what I'm after.

    Glad to hear you've recently pivoted. Best of luck.

  • http://bothsidesofthetable.com msuster

    You might be right. I'm not sure. Thus far it seems like FourSquare and Gowalla are capturing some attention that Yelp! has not captured. Buying Yelp! won't necessarily help in that effort because the entire team will be focused on integration (and bank accounts). I hope the Yelp! team pivots – I like the team and the product. But the jury is out

  • http://www.civiside.com/ Ken

    Funny that your post on pivoting should come out a day before all this news about Google negotiating for Yelp!

    http://www.fastcompany.com/blog/kit-eaton/techn

    Makes me laugh because the writer doesn't understand the natural ability of an entrepreneur to find the right angles to solve any problem. If Twitter and Four Square are really threats, they are only threats to this current model. Yelp! will figure out the angles.

  • http://bothsidesofthetable.com msuster

    Thanks for spotting!

  • http://bothsidesofthetable.com msuster

    I don't really know. I'm mostly looking for entrepreneurs who are tenacious but flexible. They notice when what they're doing isn't working or when what they're doing might spawn a more interesting opportunity that they are uniquely positioned to grab. Whatever you call it – that's what I'm after.

    Glad to hear you've recently pivoted. Best of luck.

  • http://bothsidesofthetable.com msuster

    You might be right. I'm not sure. Thus far it seems like FourSquare and Gowalla are capturing some attention that Yelp! has not captured. Buying Yelp! won't necessarily help in that effort because the entire team will be focused on integration (and bank accounts). I hope the Yelp! team pivots – I like the team and the product. But the jury is out

  • http://www.trafficspaces.com Niyi

    Good point Roman.

    Pivoting by definition implies that the strategy has turned to a different direction but is still centered on the same general principle.

    The Facebook analogy is spot on because despite the emphasis on status updates, they are still focused on connecting people with similar interests.

    We had an epiphany of sorts about a year and a half ago when my first startup (essentially an ad network in a commoditized red ocean) failed to gain sufficient traction.

    Rather than give up, we listened to the feedback and realized that publishers want to take more control of revenue and ad quality. So we used the same codebase to create a white label, self service ad manager.

    The result – Trafficspaces. It was a great decision. One that highlights the importance of introspection and pivoting.

    Great article Mark.

  • http://howhealthyisyourpersonalfinance.blogspot.com/2009/12/internet-marketing-affiliate-program.html scheng1

    It's best that the entreprenuer has good communciation skill as well. I doubt any employee can stand a boss who changes direction without informing the rest of the team.

  • http://www.trafficspaces.com Niyi

    Good point Roman.

    Pivoting by definition implies that the strategy has turned to a different direction but is still centered on the same general principle.

    The Facebook analogy is spot on because despite the emphasis on status updates, they are still focused on connecting people with similar interests.

    We had an epiphany of sorts about a year and a half ago when my first startup (essentially an ad network in a commoditized red ocean) failed to gain sufficient traction.

    Rather than give up, we listened to the feedback and realized that publishers want to take more control of revenue and ad quality. So we used the same codebase to create a white label, self service ad manager.

    The result – Trafficspaces. It was a great decision. One that highlights the importance of introspection and pivoting.

    Great article Mark.

  • http://howhealthyisyourpersonalfinance.blogspot.com/2009/12/internet-marketing-affiliate-program.html scheng1

    It's best that the entreprenuer has good communciation skill as well. I doubt any employee can stand a boss who changes direction without informing the rest of the team.

  • Pingback: links for 2009-12-19 « Blarney Fellow()

  • http://www.ecoelectrons.com rahul

    Thanks for the great GumGum example Mark. Now your formula of 70% people and only 30% business model/idea/industry/timing is so clear to me. Though after reading this post, I would venture to say 70% is too conservative ;) But I guess it would be dependent on the above factors and is not a set percentage. An internet advertising company starting out in 1997, for instance, would have less emphasis on the people part of the equation than an internet advertising company starting out in 2007.

  • http://twitter.com/rahul2084 Rahul

    Thanks for the great GumGum example Mark. Now your formula of 70% people and only 30% business model/idea/industry/timing is so clear to me. Though after reading this post, I would venture to say 70% is too conservative ;) But I guess it would be dependent on the above factors and is not a set percentage. An internet advertising company starting out in 1997, for instance, would have less emphasis on the people part of the equation than an internet advertising company starting out in 2007.

  • Pingback: Business Lessons from an EMT :: Liz Wiltsie()

  • Pingback: What Makes an Entrepreneur (3/10) – Ability to Pivot Get Pivot()

  • Pingback: Born or Betterment: can you learn entrepreneurial attributes? — giffconstable.com()

  • http://twitter.com/cthomaschase Charles

    Spot on. When we started Leads360 we were selling leads and only built our lead management platform as potential “give away” to sweeten the deals, kind of like the razor and blade model. 6 months into the business it was clear that the software side of the business was more attractive (less capital intensive, less competition, etc.), so when Matt Coffin (of Lower My Bills) as me, “are you in the business of selling leads or selling software to manage leads?”, it was clear how to answer the question. From that point we got the majority of our sales referals from LMB, as they liked us more as a partner than a comp. Things change, most likely you won't be int he same business 5 years after start, BUT….we were only able to it out by getting in the mix and learning what would work.

  • cthomaschase

    Spot on. When we started Leads360 we were selling leads and only built our lead management platform as potential “give away” to sweeten the deals, kind of like the razor and blade model. 6 months into the business it was clear that the software side of the business was more attractive (less capital intensive, less competition, etc.), so when Matt Coffin (of Lower My Bills) as me, “are you in the business of selling leads or selling software to manage leads?”, it was clear how to answer the question. From that point we got the majority of our sales referals from LMB, as they liked us more as a partner than a comp. Things change, most likely you won't be int he same business 5 years after start, BUT….we were only able to it out by getting in the mix and learning what would work.

  • cthomaschase

    Spot on. When we started Leads360 we were selling leads and only built our lead management platform as potential “give away” to sweeten the deals, kind of like the razor and blade model. 6 months into the business it was clear that the software side of the business was more attractive (less capital intensive, less competition, etc.), so when Matt Coffin (of Lower My Bills) as me, “are you in the business of selling leads or selling software to manage leads?”, it was clear how to answer the question. From that point we got the majority of our sales referals from LMB, as they liked us more as a partner than a comp. Things change, most likely you won't be int he same business 5 years after start, BUT….we were only able to it out by getting in the mix and learning what would work.

  • Pingback: Monday Motivation Goals » Blog Archive » –()

  • Pingback: Acton School of Business – Entrepreneurship – Higher Education » Blog Archive » Are Entrepreneurs Born or Bred?()

  • Pingback: What makes an entrepreneur » Mirage()