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://twitter.com/juney Juney Ham

    Damn, it's great to be a part of that! ;) Looking forward to working with you through BEDROCK.

    My comment in your previous article relates to this in a major way, and you're right … if it's an “emperor's clothes” situation it's one thing, but the ability to pivot as you get feedback is critically important.

  • http://bothsidesofthetable.com msuster

    Yes, I'm super excited about what you guys are doing at BEDROCK and we're all glad that you've joined us to help in this effort.

  • http://twitter.com/harjanto Andy Harjanto

    Great post, Mark. It mirrors our experience as well. It took us 3 major changes in the direction, until we find the right product/market fit. Plenty of mistakes along the way, especially a start up like us operating globally. A day when most pilot customers got really angry because our server crashes for 14 hours, we know that we're approaching a product/market fit. Since then, we move all of them to cloud; very happy so far. I put together lesson learned slide deck 6 months ago,http://www.slideshare.net/Guppers/going-global-lessons-learned-from-a-startup, even since then we still have to tweak our business model.

  • http://www.davidblerner.com davidblerner

    I've learned this lesson (as I assume most investors do) the hard way. (Is there any other way?) We backed a guy who was so determined and tenacious that we knew he would almost “die trying”. What we didn't realize is that he lacked flexibility and would never budge from trying to make a failing model work somehow. Needless to say the result was not a good one. So I guess what I'm trying to say in the wake of these two excellent posts is that tenacity without the flexibility (“ability to pivot”) is not enough. You really need to have both of these qualities. Wow this is a tough business!

  • geekstack

    I think this is great advice for people that are unable to quit their jobs and work full time on their startup. You can go through several low-scale, low-cost iterations of an idea until you find something that sticks enough to dive into fully.

    My original plan for GeekStack was to have trading cards (like baseball cards) for science heroes. But after a look at the declining market for trading cards and the difficulty bringing them to market vs the booming business and engaging nature of online social games, I switched to a trading card game. That was a lot of extra work but put me in a more interesting business where I can leverage more of my strengths to compete. If I had quit and dived into the trading card idea full speed I probably would have run out of savings and had to go back to work, spurned and gunshy about entrepreneurship.

  • http://bit.ly/19kduZ Greg4

    I love the concrete example of a company going back to the drawing board multiple times, going from mediocre to good to great ideas.

    What do you think sets pivoting apart from thrashing? It seems like some startups run through a number of ideas, often in a haphazard, panicky way, but never really get anywhere with any of them. Pivoting seems to be more about applying what you learned about the market from each iteration instead of going off in an unrelated direction, but that's not true for companies like Twitter. So when you're involved with a company, how do you try to tell which is which?

  • http://twitter.com/juney Juney Ham

    Damn, it's great to be a part of that! ;) Looking forward to working with you through BEDROCK.

    My comment in your previous article relates to this in a major way, and you're right … if it's an “emperor's clothes” situation it's one thing, but the ability to pivot as you get feedback is critically important.

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

    Great post! My experience has definitely echoed your sentiments. My first start up started as a game show & morphed into an ad network. It took years & too many business models to count, but finally made it. I often think that a good entrepreneur is like a short/tall woman. Seemingly impossible impossible to find. The entrepreneur needs to be tenacious enough to hear “no” a thousand times & still fight for his (or her) vision, but also humble enough to see when his (or her) data just doesn't support the original hypothesis. Very rare Ying/Yang indeed. & no, I still haven't ever seen a short/tall woman. :)

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  • http://bothsidesofthetable.com msuster

    Yes, I'm super excited about what you guys are doing at BEDROCK and we're all glad that you've joined us to help in this effort.

  • http://twitter.com/harjanto Andy Harjanto

    Great post, Mark. It mirrors our experience as well. It took us 3 major changes in the direction, until we find the right product/market fit. Plenty of mistakes along the way, especially a start up like us operating globally. A day when most pilot customers got really angry because our server crashes for 14 hours, we know that we're approaching a product/market fit. Since then, we move all of them to cloud; very happy so far. I put together lesson learned slide deck 6 months ago,http://www.slideshare.net/Guppers/going-global-lessons-learned-from-a-startup, even since then we still have to tweak our business model.

  • http://www.davidblerner.com davidblerner

    I've learned this lesson (as I assume most investors do) the hard way. (Is there any other way?) We backed a guy who was so determined and tenacious that we knew he would almost “die trying”. What we didn't realize is that he lacked flexibility and would never budge from trying to make a failing model work somehow. Needless to say the result was not a good one. So I guess what I'm trying to say in the wake of these two excellent posts is that tenacity without the flexibility (“ability to pivot”) is not enough. You really need to have both of these qualities. Wow this is a tough business!

  • geekstack

    I think this is great advice for people that are unable to quit their jobs and work full time on their startup. You can go through several low-scale, low-cost iterations of an idea until you find something that sticks enough to dive into fully.

    My original plan for GeekStack was to have trading cards (like baseball cards) for science heroes. But after a look at the declining market for trading cards and the difficulty bringing them to market vs the booming business and engaging nature of online social games, I switched to a trading card game. That was a lot of extra work but put me in a more interesting business where I can leverage more of my strengths to compete. If I had quit and dived into the trading card idea full speed I probably would have run out of savings and had to go back to work, spurned and gunshy about entrepreneurship.

  • http://www.brekiri.com/blog/ Greg4

    I love the concrete example of a company going back to the drawing board multiple times, going from mediocre to good to great ideas.

    What do you think sets pivoting apart from thrashing? It seems like some startups run through a number of ideas, often in a haphazard, panicky way, but never really get anywhere with any of them. Pivoting seems to be more about applying what you learned about the market from each iteration instead of going off in an unrelated direction, but that's not true for companies like Twitter. So when you're involved with a company, how do you try to tell which is which?

  • http://bothsidesofthetable.com msuster

    Cool. Thanks for the tip on the lessons learned. And I would have been wise to couch this issue in terms of finding product/market fit but I didn't think of it. That's a perfect way to describe the process – thanks for pointing it out.

  • http://bothsidesofthetable.com msuster

    Ha. Yes, it is a hard business. I wish tenacity, street smarts and flexibility were all it took. Takes so much more. But at least that gives me some good inches for future blog posts!

  • http://bothsidesofthetable.com msuster

    That's a good lesson. I would also point out that the opposite is sometimes true. I see many people with good ideas that languish in jobs they don't enjoy because they're frightened to take the jump. One of my future posts in this series covers exactly this. In your case this seems to have worked out well. Thanks for sharing.

  • http://bothsidesofthetable.com msuster

    I think it's what Andy said above – pivoting is about constantly testing product / market fit. And I think that street smarts matters. You really need to have your ear close to the pavement to spot trends as they're changing and to know what to do about it. You're right thought, I don't advocate “thrashing” or as some people describe “throwing spaghetti against the wall to see what sticks.” That isn't a strategy.

  • http://bothsidesofthetable.com msuster

    I follow everything except the short/tall woman analogy. I think I'm missing something?

  • http://www.vumedi.com Roman Giverts

    I'm not sure I would consider twitter or seismic “pivoting” because the new products were completely unrelated. I would define a pivot as a change of strategy, direction, product that is still within the realm and market of the original product. These were failures and there was money left in the bank so they tried something else, completely unrelated.

    I think the twitter story is that they actually offered to give the money back to their investors because the podcasting thing was going nowhere, and their investors told them to just keep it and do something else. That's not really pivoting, that's investors having incredible faith in you :)

    seismic wasn't getting much traction either.

    That's why the zuckerman example is so awesome, he made a huge pivot while being the market leader and growing like crazy. That's a much bigger accomplishment than pivoting while you're failing.

  • http://www.vumedi.com Roman Giverts

    I think the toughest pivot is when your company is doing well. For example, let's say your company is solving a problem that has a $100-200 million opportunity. You're doing well, have a dozen customers , approaching break even, lots of momentum, etc. While meeting with your existing customers, you start to uncover a related problem that is a multi-billion dollar opportunity. In other words your customers are willing to pay you 10x more if you could solve this other related problem for them. This problem is much more complex and aside from your current customer relationship, some overlapping technology, and existing team, you're starting all over again.

    Mark, what would you do? do you double down and go for the real home run, and or do you stay the course, which will have a higher chance of success, but at a ceiling of about 100-200 million?

  • http://bothsidesofthetable.com msuster

    I agree to a point. Well, first, Twitter did give the money back – just FYI. But Twitter and Seesmic could have continued just plowing headstrong to prove they could make their businesses work. In stead the created internal side-projects that eventually became the company. Same with Geni – it was a side project.

    But, yes, I agree that the Zuckerberg pivot is far more impressive.

  • http://bothsidesofthetable.com msuster

    That is exactly the example I used with GumGum and Bedrock. Initially company is rocking. But we saw that Bedrock has enormous potential. Do we put all resources to a business we know will succeed or get behind a new idea who's strongest synergy is the team? I voted with my dollars.

  • http://www.vumedi.com Roman Giverts

    so essentially you were willing to invest in something that had no traction but huge potential, instead of something that had traction but not as much total potential?

    Makes sense since you're looking for the big hit in your portfolio. Now what if you were still the entrepreneur?

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  • http://bothsidesofthetable.com msuster

    For entrepreneurs it's a case-by-case basis, really. Ophir and Ari believed enough in the big idea not only to conceive it but to go for it. Not everyone will make that choice. As a VC it is my job to support the ambitions of the entrepreneurs, whichever path they take.

  • http://www.vumedi.com Roman Giverts

    Even if the entrepreneur has small ambitions?

    Anyway, I think you gotta go for it. Like that coach of the Jets said a few years ago “you play to win the game!!” It would be like getting to the playoffs and quitting ;)

  • jwaller

    Great post! My experience has definitely echoed your sentiments. My first start up started as a game show & morphed into an ad network. It took years & too many business models to count, but finally made it. I often think that a good entrepreneur is like a short/tall woman. Seemingly impossible impossible to find. The entrepreneur needs to be tenacious enough to hear “no” a thousand times & still fight for his (or her) vision, but also humble enough to see when his (or her) data just doesn't support the original hypothesis. Very rare Ying/Yang indeed. & no, I still haven't ever seen a short/tall woman. :)

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

    Mark, I'm reminded of the famous physicist Richard Feynman, who as a boy would fix “wireless sets” for pocket change. Most other people would swap out parts until success came, but he would see what the radio was doing, and then just ponder what the right cause of action could be. It was said that Feynman could fix radios just by “thinking”.

    Can people iterate great entrepreneurial ideas just by thinking?

  • http://bothsidesofthetable.com msuster

    Well, thinking is certainly the most important first step. But if it were only that simple … ;-)

  • 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://bothsidesofthetable.com msuster

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

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  • http://bothsidesofthetable.com msuster

    Cool. Thanks for the tip on the lessons learned. And I would have been wise to couch this issue in terms of finding product/market fit but I didn't think of it. That's a perfect way to describe the process – thanks for pointing it out.

  • http://bothsidesofthetable.com msuster

    Ha. Yes, it is a hard business. I wish tenacity, street smarts and flexibility were all it took. Takes so much more. But at least that gives me some good inches for future blog posts!

  • http://bothsidesofthetable.com msuster

    That's a good lesson. I would also point out that the opposite is sometimes true. I see many people with good ideas that languish in jobs they don't enjoy because they're frightened to take the jump. One of my future posts in this series covers exactly this. In your case this seems to have worked out well. Thanks for sharing.

  • http://bothsidesofthetable.com msuster

    I think it's what Andy said above – pivoting is about constantly testing product / market fit. And I think that street smarts matters. You really need to have your ear close to the pavement to spot trends as they're changing and to know what to do about it. You're right thought, I don't advocate “thrashing” or as some people describe “throwing spaghetti against the wall to see what sticks.” That isn't a strategy.

  • http://bothsidesofthetable.com msuster

    I follow everything except the short/tall woman analogy. I think I'm missing something?

  • Roman Giverts

    I'm not sure I would consider twitter or seismic “pivoting” because the new products were completely unrelated. I would define a pivot as a change of strategy, direction, product that is still within the realm and market of the original product. These were failures and there was money left in the bank so they tried something else, completely unrelated.

    I think the twitter story is that they actually offered to give the money back to their investors because the podcasting thing was going nowhere, and their investors told them to just keep it and do something else. That's not really pivoting, that's investors having incredible faith in you :)

    seismic wasn't getting much traction either.

    That's why the zuckerman example is so awesome, he made a huge pivot while being the market leader and growing like crazy. That's a much bigger accomplishment than pivoting while you're failing.

  • Roman Giverts

    I think the toughest pivot is when your company is doing well. For example, let's say your company is solving a problem that has a $100-200 million opportunity. You're doing well, have a dozen customers , approaching break even, lots of momentum, etc. While meeting with your existing customers, you start to uncover a related problem that is a multi-billion dollar opportunity. In other words your customers are willing to pay you 10x more if you could solve this other related problem for them. This problem is much more complex and aside from your current customer relationship, some overlapping technology, and existing team, you're starting all over again.

    Mark, what would you do? do you double down and go for the real home run, and or do you stay the course, which will have a higher chance of success, but at a ceiling of about 100-200 million?

  • http://bothsidesofthetable.com msuster

    I agree to a point. Well, first, Twitter did give the money back – just FYI. But Twitter and Seesmic could have continued just plowing headstrong to prove they could make their businesses work. In stead the created internal side-projects that eventually became the company. Same with Geni – it was a side project.

    But, yes, I agree that the Zuckerberg pivot is far more impressive.

  • http://bothsidesofthetable.com msuster

    That is exactly the example I used with GumGum and Bedrock. Initially company is rocking. But we saw that Bedrock has enormous potential. Do we put all resources to a business we know will succeed or get behind a new idea who's strongest synergy is the team? I voted with my dollars.

  • http://oddfellowstudios.com Shava Nerad

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

    Nice series, btw!

  • Roman Giverts

    so essentially you were willing to invest in something that had no traction but huge potential, instead of something that had traction but not as much total potential?

    Makes sense since you're looking for the big hit in your portfolio. Now what if you were still the entrepreneur?

  • http://bothsidesofthetable.com msuster

    For entrepreneurs it's a case-by-case basis, really. Ophir and Ari believed enough in the big idea not only to conceive it but to go for it. Not everyone will make that choice. As a VC it is my job to support the ambitions of the entrepreneurs, whichever path they take.

  • Roman Giverts

    Even if the entrepreneur has small ambitions?

    Anyway, I think you gotta go for it. Like that coach of the Jets said a few years ago “you play to win the game!!” It would be like getting to the playoffs and quitting ;)

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

    Mark, I'm reminded of the famous physicist Richard Feynman, who as a boy would fix “wireless sets” for pocket change. Most other people would swap out parts until success came, but he would see what the radio was doing, and then just ponder what the right cause of action could be. It was said that Feynman could fix radios just by “thinking”.

    Can people iterate great entrepreneurial ideas just by thinking?

  • http://bothsidesofthetable.com msuster

    Well, thinking is certainly the most important first step. But if it were only that simple … ;-)