The opinions expressed by contributors to Entrepreneur are those of the respective authors.
Your startup is in trouble? It can be difficult to pivot, in business or life. When you recognize that your battle is losing, and it’s time to stop fighting the fight, this takes courage. Another option is to sink with the ship. Here are a few tips if that is not your style.
In 2014, after years of trying, and with only a few remaining weeks, I and my team faced an existential threat. Our ratings platform Bugscore had little acceptance. It took us years to conceptualize and build this global rating platform. It was always going to be a big gamble to let anyone rate anything, even people, with a budget under $400,000. We and some angels financed the majority of it. Some highs were achieved, such as brainstorming with Wikipedia co-founder Jimmy Wales at Home House in London about integrating his company or securing a SaaS multi-year contract with Ernst & Young Germany for Bugscore 360. These highs did not translate into enough revenue for the company to maintain its vision.
They fed into our confirmation biases, which delayed the inevitable. In her article about investing biases and relationship, my former Goldman Sachs colleague, Elsa Rocha, explains that holding onto a poor project is similar to hanging on to bad investments.
We were faced with dwindling finances and our insatiable thirst for success. By the summer of 2014 we only had a couple of weeks left of the budget before it was cut off. The stagnant numbers of user acquisition and the risk of financial ruin made it difficult to have a discussion about fundraising. As the abseil grew closer, the discussions were almost impossible.
Instead of pushing forward, we stopped everything and concentrated on solving the problem that we were familiar with. Financial trading was a part of the income we received on the side. Broker fraud was a problem in the sector, with many of our clients being fleeced. The pivot we made was to fix that problem. It monetized fast, leading to our greatest success to date.
These are some tips and lessons.
Understanding when and how to pivot is key to your business’ survival. This is What you need to do.
Embrace failure
The best management teams have a balance between vision and reality. Statistics shows that the chances of your startup succeeding is less than 10% in 10 years. It’s important to realize that your startup will fail, whether it is due to factors in your control or external ones. Take the less-travelled road, where many unknown unknowns and known unknowns await. It’s not that you should close your business at the first rejection. But if you find yourself with one success for every nine failures in terms of KPIs after several years, you may want to reconsider.
The life we have is precious. You can fail up to twice before you succeed. Jeff Bezos, arguably our most successful entrepreneur today, is the best person to learn from. He knows a few things about failing, whether it was kozmo.com and pets.com. The longer you delay, the more difficult it is to change direction.
Communication is key
All investors were kept regularly informed of both the good and bad things that happened in our project. It’s counterproductive to sugarcoat anything. It is easier to execute an organic pivot if you are able to inform people and help them understand your headwinds. Make your former shareholders whole if a pivot means a different company or new funding. You should make them whole, even if it’s not required by law. They were the ones who initially backed you.
Hedging bets
When hacking growth, focus is the key. A single product or service idea executed properly is better than trying to be everything for everyone. If you choose the wrong horse to back, then you will fail. It may be worth your while to look for monetizable side projects if you’re a startup that is cash-strapped, and trying to bootstrap to breakeven. It was financial trading within an industry that is inherently corrupt (FX). What we were doing internally, became a valuable service to traders in need. It grew faster than anticipated. It is important to keep your third eye on the ground for new opportunities. They could be vital in ensuring that you survive.
Are you worried about the market? What do Ray Dalio and Harvard University, as well as Warren Buffett have in common?
Pivot with purpose
You should pivot with purpose into an area you are familiar and skilled in. Do not pivot to another grandiose or worse yet, an iteration on your existing idea. You will quickly run out of money and time.
Research and development
After you’ve repositioned and stabilized your ship, investing time and resources in research and development is wise. Today, R&D accounts for around 12% (or more) of our turnover. This should usually be something that is related to your main revenue generator. It was smart contracts on the blockchain that we studied. This was something revolutionary for 2015/2016. We wouldn’t be able to move the company forward if we hadn’t done it. Nokia’s main focus in the 1980s was on rubber, consumer electronics, and cables. Behind the scenes they also had a R&D department that worked on mobile technology. Nokia introduced the Mobira Cityman in 1987. It was one of the early handheld mobile phones. They were all doubtful. Nokia’s former CEO Jorma Olila decided to pivot Nokia towards mobile phones. It’s all history.
Prioritize health
It’s like trying to navigate a big city in rush hour without GPS or much fuel. This will challenge your patience, resolve and financial resources more than any corporate job. This is no easy task. You may never imagine the toll it will have on your health. Do whatever activity you enjoy, whether it’s a sport, yoga, or hobby. Your health is the most important thing you can work for.
In 2016, I was given a wake-up on this issue. My friend would relax by playing the flute. I used to laugh. It turned out that the joke was on me. After burning out from intense exercise and martial arts, it took me seven years to adjust my body. It was difficult to continue building while doing this, and I probably should have begun earlier.
Are you feeling stressed and exhausted? Over half of founders say they never’switch off’.
We prefer entrepreneurs who are able to pivot and survive when things get tough, rather than those who only have a single hit. In our opinion, those who’ve embraced failure and pivoted are more bankable and grounded. These people will have a smaller ego and be more willing to change direction in the future. They are also easier to deal with. Therefore, they are more investible. Netflix, Nokia or Instagram (previously Twitter), YouTube and X have all had to make a pivot to get to where they are now.
What are you going to do if that’s the case?
