Recognizing when to pivot
In Life and In Startup
January 2020 ushered in a new year and a new decade, signaling change for many people. Change involves either a pivot towards or away from something. A successful pivot requires a bit of art, a dose of luck, and a lot of hard work. Granted, some of these are out of your control, but focus on what you do control: your mindset.
The first step to change is recognizing that you need to change.
But before even getting to that step, how do you recognize you need a pivot? Here are some signs that a pivot may be in store for your life and your business:
You have exhausted all possibilities on growth
When a baby is first born, milestones happen on a daily basis. When the baby doesn’t grow at a certain pace, something is wrong. In the early phases of a product or startup, growth is so critical that if you’re not growing, then something is wrong.
If you are not growing, you are dying.
For founders, the short-term goal for any startup is growth and progress, usually measured in revenue or usage.
We raised seed money for our first product – a corporate social network. After seven months of emailing all of our friends and family, three product iterations, cold calling companies, we only had 1400 users, 20 cease and desist letters and 5 daily active users. It doesn’t take a math genius to know that we were dead unless we did something drastic.
If your company or product is not growing after exhausting all possibilities across a reasonable span of time (3-6 months), then it’s time to pivot.
But, what if your growth is okay but not great? Look to your long term goal for your company. If it’s venture backed, you should research benchmarks within your industry, factoring in stage and size. YC pushes founders to grow 10% week over week, but on average their companies grow around 5-7% week over week [1]. For a Series A, revenue growth of about $1-$2MM in ARR for SaaS companies and organic month over month growth within 12-18 months are expected. [2] Note:These are rough benchmarks, it’s best if you do your own research. Basically if you are VC backed, you need to grow really fast in a short amount of time.
The success case is not winning.
Early in life if you’re not surviving then you are dying - and survival looks like growth. But change is more enduring when you can define the end goal. Even with kids, it’s easier to model the behavior you want from them rather than telling and showing what you do NOT want.
It is better to run towards something than run away from something.
In order to run towards something, you need to think about the long term, especially when you finish what winning looks like. In life, only you can determine what winning looks like. People can be successful and (e.g. make a lot of money, achieve a great feat), but they may not have felt like they have won. This is akin to winning the battle but not the war. Make sure your life is not set up for a series of successes but fail to win.
Success is more easily measured for a business. A successful business sells a product or service at a profit and usually that’s what winning looks like. However, this isn’t the case for every startup, especially VC backed tech startups. If it were, then companies like Amazon or Uber could not exist. Amazon and Uber do not make a profit but focus on growth. Depending on the type of company you want to build, the winning case may look very different.
We were successful, but we didn’t win.
We took $500K in seed funding from venture capitalists before we had the product. You should consider the goals of the investors that give you money and what is their winning case. The pressure on growth from venture capital is enormous because becoming a winning venture capitalist is dependent on the Power Law. In short, very few companies will make a lot of money for venture capitalists - which means growth.
The founder will continually move between growth and profitability. Yes at some point the founder will have to make a profit, and when even that happens making a profit may not even be winning. For us, we needed to have a profit and grow.
We were more than 1,000 employees and had several profitable games. Some of these had two people running them; however, we decided to shutter or sell profitable games. This seems counter-intuitive, the games had been around for awhile, but growth stalled. Profitability wasn’t good enough to overcome our low growth rate. Selling the profitable games would help us focus the entire organization on our 1-2 winning games.
Exogenous conditions cause irrecoverable harm.
Sometimes life can force a pivot. A loved one gets sick, you get injured, or a bundle of joy comes earlier than anticipated. In many of these cases a pivot is forced regardless of how many times you ask “why me” or “why now”, it does not change the fact that you need to change.
In startups, forced pivots can be caused by market conditions such as a recession or external factors like Google changing its algorithm. Basically any change outside of the startup’s control that is disaster for the business can force a pivot.
We had a problem. The day we were to receive funding for our Series B in our bank account was the same day Bear Stearns and Lehman Brothers crashed. For a whole week we didn’t hear from our Series B investors. Finally they told us they could not fund us. They were too scared. With no investment money coming in and ad-revenue tanking, we built Kabam. Nine years later that forced pivot became a billion dollar company.
No matter what causes the pivot, recognizing the need to do so is more important than the reasons why a pivot is needed. And sometimes “disasters” might be the “why” to pivot into a billion dollar business.
You cannot create a flywheel in your life or business
A flywheel is something that gets faster the more it moves. It should feel like nudging a snowball down a hill. It gets bigger and bigger with very little help. In personal life, you can create a flywheel by looking at the tiny changes that will build remarkable results in the form of atomic habits.[3]
If you do not create a flywheel, it feels like pushing a snowball uphill. The more you try, the more difficult it gets. Successful companies create a flywheel by exposing (or “exploiting”) one thing in the ecosystem setting off a chain reaction of bigger events. Dominant companies use flywheels to build moats. For example, Musical.ly (now TikTok) exploited app search engine optimization to help them climb the charts (flywheel), once they got their they had viral content that allowed them to share, and when shared the watermark was visible on every video shared (moat), making it hard now for any new competitor to grow. Now, instead of the snowball going uphill, it goes downhill with very little help, picking up every snowflake along the way.
In 2009 we launched our game “Kingdoms of Camelot” on Facebook when many game developers were using viral tactics to get users. For us, no matter how hard we tried, we couldn’t get our moms and our aunts to try building their kingdoms in Camelot, to raise armies and then go to war. In short, our game content was not inherently viral. We appealed to people who were already gamers, but did not have games for them on Facebook. We had to pay for advertising to acquire players, which was not something Facebook game developers did, making the prices cheap. This was our flywheel. Because we were able to acquire users cheaply, they would make new friends, engage and spend money within the game. The pyramid was flipped upside down. Instead of playing a game because your existing friends were and to not be “left out”, we provided another type of game where you played because you liked the game and where you could meet others who shared their passions - “never feeling left out”.
Acquiring users through paid advertising was our flywheel. One small nudge started a chain reaction and our first game took off. Of course other things fell into place, but that was the catalyst to move from pushing a snowball uphill versus downhill.
When looking for your flywheel, boil it down to the one thing that needs to go right for your business to work well. For us, it was finding players cheaply. We went looking in places no one else was looking at the time. Those are the best places to find treasured flywheels.
The team won’t be able to move the business from initial growth to sustained growth.
Sustained change and deep fulfillment in life happens when you are doing what you are meant and built to do. It is easier to do something you were created to do.
This is similar to a strengths based approach to what you should do with your life. Remember when Michael Jordan quit basketball to play baseball and then went back to basketball? Even Michael Jordan can’t be good at all sports let alone two sports. If he can’t do it, what makes us think we can be good at something that is not rooted in our strengths?
For your startup, imagine the success case three to six months out: are you the team to make it successful? Can you hire the team to make it successful? Is it the type of company you want to build?
Going back to our first product - a corporate social network. We decided to pivot. Part of the reason is that we were the wrong team to be running this type of business. It was clear if we were to continue to be successful, we would have to be superb at sales; however, all of us had consumer backgrounds – spending the last five years not just building consumer products but also analyzing and investing in them. Our intuition and expertise were in different areas. It was as if we were raised by wolves but expected to be successful humans.
Growing up in the US schools give you a broad foundation and reward you for being good in all of them; however, to be exceptional at everything is impossible. Pick one or two things to be very good at and preferably they’re things that naturally align with your strengths, talent and experience in. If not, many things will be uphill.
*******
The first step to change is recognizing that you need to change.
Once you have decided you need to change, the next question you need to answer is should you pivot or shut down. Stay tuned for more on that.
In the meantime, feel free to send me a note or DM me @hollyhliu !! Here is looking to a great year and decade!
**Footnote**
[1] Startup = Growth. Paul Graham
[2] Series A Startup SaaS Benchmarks. Thomas Tungz. Please note that this is for SaaS companies in 2018. There are different benchmarks for consumer and B2B, and even more granular when you look at industries and competitors.
[3] Atomic Habits. James Clear