When Quibi announced it was shutting its doors recently after raising $1.75 billion, it begged an obvious question: If the original idea didn’t work, why not adjust its model or do something completely different while it still had capital? It wouldn’t have been the first company to decide to shift gears. Perhaps because of the unusually large amount of money it burned through in just six months of public operation, pivoting wasn’t an option for Quibi, but it has been for countless other successful companies over the years. Sometimes an original idea simply doesn’t pan out, a market gets too crowded or a company’s founders stumble onto something they have built that is actually a better business than the original idea.
There are many such examples:
- Perhaps the most famous is Slack, which originally was a multiplayer online game before pivoting to be a communications company.
- Box launched in 2005 as a consumer storage product before deciding to take on content management in the enterprise in 2008.
- YouTube started life as a video dating service and when they didn’t get much traction they began letting people upload whatever videos they liked. Google saw enough potential to buy the company for $1.6 billion just a year after launching.
These examples — and many more — show that when your first approach doesn’t work, pivoting may be the the only logical course, but it takes courage from founders and patience from investors.
We spoke to several founders and VCs who have been through this to find out how pivots happen, and how all the parties involved adjust to shifting priorities.
Sometimes it’s a long and twisting road
A big part of founding a company is having vision. You need to believe in your idea of course, but that doesn’t mean it’s the right way to go. Sometimes it pays to move on. The king of pivots might be the aptly named Pivotal, which changed direction several times and even swapped owners before it went public and got acquired, all in the span of about 20 years. Ed Sim, co-founder at boldstart ventures was part of Dawntreader Ventures in the late 90s when his firm invested in an early version of the company called Metapa. Sim had a front row seat to every twist and turn in the company’s long and intricate history.
“Greenplum, which was sold to EMC and eventually became Pivotal Software, was initially called Metapa. Metapa was in the Akamai space and as the markets cratered in 2001 for funding infrastructure projects, Scott Yara (the company’s founder) and team bought a small company called Didera and turned it into Greenplum, the first petabyte scale data warehouse built on top of open-source technology,” Sim told TechCrunch. It didn’t end there though as Sim continued, “Once again, years later, Scott recruited his replacement CEO, Bill Cook, and they paired together to sell Greenplum to EMC and eventually spin back out and take the company public as Pivotal Software.”
It’s worth noting that Pivotal eventually ran into financial problems when its stock tanked last year, but fellow Dell/EMC family member VMware saved the day by acquiring it for $2.7 billion.
Sometimes you stumble onto an idea
Segment, the customer-data platform company that was recently sold to Twilio for $3.2 billion was originally a college lecture sentiment platform, according to CEO and co-founder Peter Reinhardt. “Our first idea was a classroom lecture tool, ClassMetric, which gave students a button they could press in class to let professors know, in real-time, that they were confused. I like to think of it like a pulse monitor for class confusion,” Reinhardt told TechCrunch
That idea quickly failed when professors testing it found that inviting students to open their laptops to test their sentiment just led them to start playing Solitaire or checking Facebook. Professors weren’t thrilled and they moved on. The founders, who were MIT students at the time, decided they wanted to build an analytics tool instead, but it turned out that competition from Google Analytics and Mixpanel at the time proved too steep.
“We spent a year on development, but it was a crowded market and we struggled to carve out our own niche. We were rapidly running out of capital and the pressure was on to find something new,” he said. They were actually considering simply packing it in, but they had developed a tiny open-source tool called analytics.js, which they used to get data into their failed analytics product. At that point, desperate for an idea, one of the founders suggested posting the open-source tool on Hacker News.
How Pivotal got bailed out by fellow Dell family member, VMware
“I thought there was no chance it would catch on, so I thought this was a good way to kill the idea. I was wrong, of course. Within 24 hours analytics.js got hundreds of upvotes on Hacker News, thousands of stars on GitHub and thousands of email signups for a hosted version. This was the pivot that took us to what Segment eventually became,” Reinhardt said.
As Reinhardt recalled, the founders went to their investors and told them what was happening, offering to give them their money back. Some took them up on the idea, but several stuck around saying they invested in the team and were willing to let them try the new idea — given the eventual multibillion dollar exit, those who stuck around were rewarded handsomely.
“The key thing for us was really just to be honest with our investors, tell them when things weren’t working out, and show them that we were bold enough to let go of ideas that weren’t working — even when we’d spent months of late nights trying to make them a success,” he said.
Twilio’s $3.2B Segment acquisition is about helping developers build data-fueled apps
Sometimes a big customer takes you in a new direction
Sam Nagar, CEO at Pixeom says that his company took a different route, pushed by market forces and a rather large customer. The company originally wanted to build a consumer home storage device, but after six months they had a change of heart as the founders realized that the consumer market was a bit too finicky and they decided to pivot to enterprise software instead. The big impetus to change gears happened when Samsung connected with the company as a customer.
“Samsung offered us a large contract to supply them our software platform so they could deploy more on-premise capabilities into their products instead of doing it through the cloud. The contract was compelling enough for us to pivot. In parallel, we had learned how demanding and costly it can be to provide support to consumers, which further reinforced our decision,” he said.
When they made that change, they only had one angel investor, but he was happy to see them move on, understanding that consumer storage was a tough market, one which was crowded at the time. While that investor hoped that Samsung would acquire them, that didn’t happen, but he got his payday eventually when Siemens bought them last year. “He got quite a lucrative cash-out from our exit last year. Final stats on our company were $24.5 million in annual revenue, 62 Fortune 500 customers, 100+ employees compared to less than $500,000 in revenue back when he was hoping we got acquired,” Nagar said.
Pixeom raises $15M for its software-defined edge computing platform
Getting investors on board
Investors have to be in on the idea or the pivot can’t work. The folks backing you have faith in your personal vision. As Segment found out, some were willing to keep going, while others cut their losses. As Sim wrote in a blog post on the history of Greenplum in 2010, the new venture ran into scaling obstacles in the early days of the new idea, as the founders attempted to build its original product. As you can imagine, the investors were not happy after the number of previous false starts, but they still saw potential and decided to stay the course with the founding team.
“Our initial reaction was disbelief and then anger as we saw our venture money and the team’s efforts go down the drain. However, what we also saw was a founder and team full of integrity so Mission and Dawntreader (the lead investors) along with the founders decided to pump some more money into the company,” Sim wrote. It worked out when EMC bought the company, but it didn’t always feel like that would happen.
But not every pivot has to be this dramatic. In a more recent case, RushTix, an online ticketing platform saw business plummet as the pandemic took hold and people simply weren’t going to live events. Rather than throwing up her hands or shutting down the business, investor Ha Nguyen from Spero Ventures says that founder and CEO Jill Bourque pulled together a 15-day pivot (15 days!) to a livestreaming platform for comedy acts. She reports that RushTix has produced over 50 livestreams since April with one of their shows in August pulling in $65,000 in tickets and tips. Much like Reinhardt, Nguyen says that Bourque was always straight with her and other investors. “While the product and business model was different from the old business, the company kept true to their mission of building community through live events. Jill was fully transparent with us and her other investors as she was executing the pivot with detailed monthly updates,” she said.
Investors can lead the way
Frederik Groce from Storm Ventures says it’s his firm’s job to nurture startups through these kinds of transitions before they run out of cash and need to shut down. “We can often provide ideas since we see so many different companies and opportunities, but these ideas always need to be validated by actual customers. We also help them manage unit economics and burn during these periods to make sure they don’t run out of cash, which is ultimately what always kills a company,” he said.
Pivoting can surely be scary, but that doesn’t mean you shouldn’t do it. There’s lots of evidence that it takes time to find the product and market for you. Sometimes the first idea isn’t the best idea. Don’t be afraid to make a move when it makes sense to do so. Indeed many companies have thrived by doing just that.
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