10 Course Corrections Every Startup Should Memorize
http://gust.com/angel-investing/startup-blogs/2012/11/25/10-course-corrections-every-startup-should-memorize/
By Martin Zwilling / November 25th, 2012
The popular view of a real entrepreneur is someone with a big vision, and a stubborn determination to charge straight ahead through any obstacle and make it happen. The vision part is fine, but successful entrepreneurs have found that the extreme uncertainty of a new product or service usually requires many course corrections, or “pivots” to find a successful formula.
This reality has fostered a popular startup approach which dramatically improves the efficiency and speed of these corrections, pioneered by Silicon Valley entrepreneur and author Eric Ries. His popular book on this subject, “The Lean Startup,” lays out how today’s entrepreneurs use continuous innovation to create radically successful businesses.
Eric espouses designing products with the smallest set of features to please a customer base, and moving products into the marketplace quickly to test reaction, then iterating. He does a great job in the book of making the case for management systems, rather than gut-level reactions, to make required course corrections (pivots), to dramatically improve the odds for success.
Pivots come in many different flavors, each designed to test the viability of a different hypothesis about the product, business model, and engine of growth. I agree with Eric’s summary of the top ten types of pivots to consider:
- Zoom-in pivot. In this case, what previously was considered a single feature in a product becomes the whole product. This highlights the value of “focus” and “minimum viable product” (MVP), delivered quickly and efficiently.
- Zoom-out pivot. In the reverse situation, sometimes a single feature is insufficient to support a customer set. In this type of pivot, what was considered the whole product becomes a single feature of a much larger product.
- Customer segment pivot. Your product may attract real customers, but not the ones in the original vision. In other words, it solves a real problem, but needs to be positioned for a more appreciative segment, and optimized for that segment.
- Customer need pivot. Early customer feedback indicates that the problem solved is not very important, or money isn’t available to buy. This requires repositioning, or a completely new product, to find a problem worth solving.
- Platform pivot. This refers to a change from an application to a platform, or vice versa. Many founders envision their solution as a platform for future products, but don’t have a single killer application just yet. Most customers buy solutions, not platforms.
- Business architecture pivot. Geoffrey Moore, many years ago, observed that there are two major business architectures: high margin, low volume (complex systems model), or low margin, high volume (volume operations model). You can’t do both at the same time.
- Value capture pivot. This refers to the monetization or revenue model. Changes to the way a startup captures value can have far-reaching consequences for business, product, and marketing strategies. The “free” model doesn’t capture much value.
- Engine of growth pivot. Most startups these days use one of three primary growth engines: the viral, sticky, and paid growth models. Picking the right model can dramatically affect the speed and profitability of growth.
- Channel pivot. In sales terminology, the mechanism by which a company delivers it product to customers is called the sales channel or distribution channel. Channel pivots usually require unique pricing, feature, and competitive positioning adjustments.
- Technology pivot. Sometimes a startup discovers a way to achieve the same solution by using a completely different technology. This is most relevant if the new technology can provide superior price and/or performance to improve competitive posture.
Every entrepreneur faces the challenge in developing a product of deciding when to pivot and when to persevere. Ask most entrepreneurs who have decided to pivot and they will tell you that they wish they had made the decision sooner. In fact, a startup’s runway is really not money, but the number of pivots they can still make. What are you doing to get to the required pivots faster?
When To Pivot: Is it Time to Retool Your Business?
http://www.forbes.com/sites/alanhall/2012/10/13/when-to-pivot-you-cant-carve-success-with-a-dull-knife-is-it-time-to-retool/
ENTREPRENEURS | 10/13/2012
As an entrepreneur are you willing to pivot?
You can’t carve success with a dull knife…
I have an amazing friend who during the day is a world class branding expert. In his spare time, he enjoys woodcarving. He tells me it’s a peaceful and enjoyable hobby that provides relaxation after a stress filled day at the office. Over the course of several years, he has carved numerous works of art and has improved his talent with every new creation. To enhance his skills, he has taken educational classes from accomplished teachers who have witnessed his progress as an artist.
My artistic friend has noted that the number one challenge of being a wood carver is keeping the carving knives razor sharp. With use, these fine tools lose their sharpness. As the blade becomes dull, the carver stops cutting and turns his attention to the worn steel edge. Sharpening the blade is a process as old as time. It requires a rotating grinding wheel covered with abrasive grit. The carver places the knife perfectly against the wheel to create a sharp new angle. The sharper the better, my friend says. On other occasions, I’m told the blade only needs to be honed, or buffed with a felt wheel to straighten, polish and clean an already sharp edge. This process is used to maintain the edge between sharpenings and prevents premature dulling of the knife.
Expert wood carvers always have a plan of what they intend to create. They know what material needs to be removed by their razor sharp tool and what wood remains. From time to time, they have to adjust their plan as they encounter unforeseen imperfections and impossible barriers. As they chip away patiently and thoughtfully around these challenges they ultimately produce award winning art.
In starting and growing a business, we likewise need to hone our strategies. At times, we need to stop altogether and cut an entirely new, sharp strategy edge. About 30% of the time, a business founder has to make only a few tactical improvements to a well conceived business plan that is directionally accurate. However, 70% of the time, entrepreneurs begin to execute what they think is a superb idea only to find that it is not engaging customers. Instead of buffing the plan, they need to energetically pivot in another direction to find their sharpest new edge.
In a like manner, a mentor or an investor may look at a new venture and suggest that a few edges need to be cleaned and straightened and they recommend a few modest adjustments to a terrific business plan. At other times, due to market conditions, changing customer needs and competitive improvements, advisors may strongly recommend a dramatic shift in priorities and use of resources; a time to sharpen the plan to create a new edge.
In my daily world of investing, I often find entrepreneurs who don’t recognize that their knives are no longer sharp and are not cutting effectively. Oblivious to the facts, they stubbornly continue down the same unsuccessful path, determined to do it their way. Foolishly they insist their business idea is optimal and will be wildly acceptable to customers in time. Blindly they continue, unwilling to change, to pivot, and then to re-tool.
We are struggling now with such a founder. We have invested tens of thousands of dollars in his firm only to receive requests for more money to cover losses from a dead strategy. Are we frustrated? Are we upset? Why won’t he listen to experienced advice and excellent counsel? Is it his ego? His pride? Since I see no change on the horizon, I anticipate this business will fail and our money will be lost. As investors, we will lick our wounds and move on to the next opportunity.
I can also report, happily, that I have invested funds in companies with wonderful entrepreneurs who see and respond to challenges both great and small. They are teachable, humble and willing to adjust their positions as needed. They recognize their ideas are imperfect and need to be enhanced. They are open to customer wishes. They seek to solve problems with the help of bright minds. They will continue to pivot and refine their operations until they achieve excellence. What a difference! As investors, we embrace these founders. We are behind them. We will go out of our way to provide funding and support. We know they will chip away at knotty obstacles, morphing until they get the strategy just right. The result is sometimes a work of art. In the end, we know our investments are solid and that in time we will attain the financial returns we desire.
If you are an entrepreneur looking for money from investors, consider carefully what I have described. Could your success boil down to your personal nature, and your ability to listen and learn and to re-tool and pivot?
It should be clear to you the kind of founders investors prefer.
Should Your Startup Persevere, Pivot, or Shut down?
http://www.forbes.com/sites/davidteten/2013/04/05/should-your-startup-persevere-pivot-or-shut-down/
ENTREPRENEURS | 4/05/2013
It’s a cliché of the startup world that successful entrepreneurs persevere even when everyone else thinks their idea is doomed (see: Pandora).
It’s a cliché of the startup world that successful entrepreneurs pivot when appropriate (see: Paypal, Apple AAPL -0.68% opening an app store, etc.)
Unfortunately, these two clichés are both true and they both contradict one another. The key question is: in the face of the inevitable challenges of entrepreneurship, should you persevere, pivot, or shut down?
Eric Ries and Steve Blank have correctly argued that you should have an articulated test for progressing with a certain business model, e.g., >25% of users use our site every month. If you pass the test, then persevere; if not, pivot. I love the lean startup methodology, but in practice it’s hard to develop bright-line tests.
The key to answering this question is to acknowledge the human reality that everyone thinks their own baby is beautiful. (I do!) You loved your startup idea, which is why you founded it. It’s hard for your ego to say that your idea is bad, and/or you don’t have the skills to execute it.
So, you’re a terrible, biased judge of the validity of your business. If you believe in your business, but every investor and potential employee thinks you’re wrong, then they’re probably right.
So the key test is: have you persuaded a new investor, new employee, or new client, with no historical relationship to your business, to invest time and/or money in your firm? If so, that’s a sign that your business is likely worth persevering with in its current form.
If three months have gone by and no new investor, employee, or client has joined you, that’s probably a sign you should pivot (if you have cash left) or shut down (if you don’t).
As Paul Graham observes, most entrepreneurial ideas are bad and deservedly fail. Most babies are red, wrinkled, and scream. Unfortunately, most billion-dollar startup ideas also look bad on first glance and for the first few years, before they turn into billion-dollar companies. I propose this “new recruit” test is a way of differentiating between the really-bad and the good-but-perceived-bad.
How To Tell When Your Startup Needs A Pivot
http://www.businessinsider.com/what-is-a-pivot-and-does-your-startup-need-one-2011-5
MAY 24, 2011
There’s a new vocabulary around entrepreneurship this year: it’s from the Lean Startup movement, and it is centered around making effective use of resources to reduce the chance of failure. Started by Eric Ries, it has captivated not only Silicon Valley, but startups worldwide.
The principles of the Lean Startup are nothing new, but they often seem novel to the engineers who design today’s products. The engineer looks to finish or improve the product, forgetting that the most important part of a business is not the product, but the customer. Without the customer, there simply is no business and actually not much point in improving the product. It’s the old idea of features (what the product can do) v. benefits (what the customer needs). Customers pay for benefits, not features.
My friend Dave McClure has put it down this way in his Startup Metrics for Pirates:
Customer Lifecycle
So the guiding principle of the Lean Startup movement is to get to market as quickly as possible with a minimum viable product (MVP), measure the response of customers through customer development, iterate quickly, and if you don’t see a sustainable business in the offing, PIVOT. Everybody in business has now adopted this term.
Customer Lifecycle This term pivot has come to mean many things. It’s probably a good idea at this point to do a re-set on it.
What pivot doesn’t mean is abandon your idea or your vision. What it MAY mean is change your business model.
I can illustrate this through a client of ours, Jimdo. Jimdo started before the Lean Startup hype began. Therefore, whatever moves the company made were made intuitively and organically. Jimdo wasn’t following Eric’s rules, and they weren’t even in Silicon Valley; in fact they were on a pig farm in Germany. But they came to the same place the Lean Startup movement begins: listen to the customer to make a product someone will buy. This, after all, is what builds a sustainable business.
Jimdo started as NorthClick, three co-founders who wanted to build simple web pages for businesses. After a short stint on the farm, they won a business plan competition, which gave them $20,000 with which to move to Hamburg and get an office.
Soon, friends were asking them if they could use the company’s technology for personal web pages. Clearly, the core techology was already quite good and easy to use. People were asking to become customers, even if they weren’t the people the founders expected.. And here was the pivot:
Over time, more and more of our friends asked us whether they could use our system for personal sites. We were really excited by the cool sites they created! Some used the system for pages about themselves, three guys used it to document their sailing trip from Germany to Sydney, Australia, some used their websites to promote their bands…and the feedback was just unbelievable!
That’s when the idea was born to give away what you now know as Jimdo. Simply put – Pages to the People!
The change was in the business model, not in the vision or the technology. By listening to people who wanted to become their customers, they found their “product/market fit”: the spot where their product hit an already-existing market. Jimdo now uses a “freemium” business model, in which entry level pages are free. That’s what customers wanted. And that’s how Jimdo actually got to revenue.
Once you have found the market, it’s easy to go after funding, because you don’t have to convince investors that your product has a market. You are asking for money to scale, and the risk is much lower for the investor. Jimdo raised one round of funding, which brought it to profitability.
Now, with 4,000,000 global users, Jimdo still keeps a close watch on what customers want, releasing features that make sense: an integration with DropBox for areas where bandwidth for uploading images and video is limited, and a mobile interface.
Get Paid or Get Pivoting
http://blog.leanstartupcircle.com/get-paid-or-get-pivoting/
April 9, 2013
Build Measure Learn Get Paid Get Paid or Get Pivoting(Editor’s note: Alex Cowan, author of Starting a Tech Business will be speaking at Lean Startup Circle San Francisco on April 17th)
Why don’t more entrepreneurs drive to the money? I think it’s because just about everyone would rather engage their inner artist/creator over their inner salesperson.
Don’t feel bad about it- we’re just wired that way.
That said, if you want to buck the odds and make yourself a successful entrepreneur you need to diverge from the herd. One such divergence is asking for money sooner and more often than you’d like- for most of us, a lot sooner and a lot more often.
Let’s start with some inspiration. Remember that scene in Good Will Hunting where Ben Affleck impersonates Matt Damon’s savant character in an interview with a fancy think tank? And he asks for $200? I’m not saying engage customers that way, but if you’re feeling timid try to connect with Ben’s bravado.
Asking For Money 1 Get Paid or Get PivotingAsking For Money 2 Get Paid or Get PivotingAsking For Money 3 Get Paid or Get Pivoting
One more example: I remember going to a ‘business’ workshop as an undergraduate. The organizers did a sales exercise where you had to convince the other person to give you a handful of pennies. The solution to the exercise was just to ask for the pennies- nothing else would make the counterparty give you the pennies. Most people didn’t get it (myself included).
WHEN, HOW, WHY?
When, how and why should you ask for the money? For starters, will a customer pay you to build it?
If that sounds audacious, consider the amount of software that organizations build for themselves. Much of that could be better supplied by 3rd parties if it weren’t for the overhead of identifying, contracting, and managing a third party relationship. Breaking down those kind of barriers is part of your job as an outlier, the successful entrepreneur. If you can get that done, you’re off to a great start.
If not, get your MVP out the door, emphasis on the M. Will they pay for it now? If so, great. If not, will they pay for a concierge version? Consulting is a great way to bootstrap a product idea, even if you’re billing below market (see my previous post on this).
They still won’t pay? Don’t panic but it’s time to go back to customer discovery and validation. See the diagram below for a summary of all this:
Get Paid or Get Pivoting Get Paid or Get Pivoting
(orthodox Lean Startup process simplified somewhat for sake of this post)
While some of this is more straightforward in B2B, many B2C ventures find themselves needing to be more focused on the money. Witness this extremely honest and insightful post by the founder of Referly.
IN SF?
At Leonid Systems, we built four products using a paid ‘concierge’ model driven by our various consulting practices. All four are out in the market today, heavily used by our customers.
I’m giving a talk, ‘B2B Hacks – Leonid Systems Case Study’, at the Lean Startup Circle-SF on Wednesday April 17th. We’ll talk about the integrated use of design thinking, Lean Startup, customer development and agile to create great products and drive revenue.
Slang HR Needs to Know: "PIVOT"
http://www.hrcapitalist.com/2012/06/slang-hr-needs-to-know-pivot.html
June 28, 2012
Here's a tech/silicon valley term HR pros need to know: "Pivot". Let's start with the definition of the type of pivot I'm talking about.
The Pivot - Sudden shift in strategy that turns a mediocre idea into a billion-dollar company. Try out new ideas, shed them quickly if they don't catch on, and move on to the next new thing. Pivots-final-large
How it's used:
--“Look at Groupon. They started out as some political chat forum, pivoted, and now they’re worth freaking $5B.”
--“Like, you know, every startup needs to pivot like two or three times before locking-in on its final strategy. That’s the nature of innovation.”
Here's a nice example - Instagram, which started out as a virtual "check-in" site and wound up as a photo-sharing service, is a recent high-profile example.
How's the "pivot" apply to HR? Our industry is pretty intent on being conservative and getting it right when we do something - often because we do massive rollouts of HR branded stuff to all employees. What we probably ought to be doing is to never roll out a new HR product/service/feature without testing it in a pilot of less than 10% of our employee base - probably much less than that, actually.
New performance management process? Roll out it out to single department - find what's broken, and pivot. Do it differently until everyone thinks you not only got it right, but that you're a world-class HR shop.
Tech's pivot is your pilot. Run pilots more and tell people you're testing with live data. Let them give feedback. Change your stuff up as a result and roll it out.
Pivot. If you look around, you'll see 3-4 things you've waited way too long to pivot on. You're already failing in some of those things if you look closely. Could a pivot and the resulting skunkworks project really be worse to your customers (i.e. employees)?
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