Everyone Pivots

Name a successful tech company and the overwhelming odds are it “pivoted” from its initial focus.

I make this point so often to my team at Wealthfront that one of our engineers spoofed the children’s book, Everyone Poops, by posting the following picture throughout our company:

Eric Ries popularized the word pivot in his fantastic book, The Lean Startup. Before The Lean Startup, I think most people viewed pivots as a sign of failure. Many people who haven’t read the book probably still do.

But a pivot is an often-necessary step on the path to success. Many successful companies pivot more than once in search of the right market.

To understand why you should embrace a pivot, let’s start by talking about how successful tech companies are created.

Begin with an inflection point in technology

Almost all successful technology companies start with a founder who recognizes an inflection point in technology that enables a new kind of product. Without change – the inflection point -- there is no opportunity. The challenge then becomes: Can you find a market that cares about this new kind of product? It’s almost impossible to get that right at the outset.

Contrary to what is taught at most business schools, companies that start with a market and look for a problem/product seldom become large successes. At best, those efforts lead to quick flips for a modest price, because the opportunity usually gets addressed by a number of competitors who had the same relatively mundane insight.

Starting with a product and finding a market is a lot harder than starting with a market and finding a product. However, if you are fortunate and hard-working enough to pull off the former, you are likely to have far greater success.

Figure out who cares

The challenge lies in is figuring out who cares about your incredible new product. Rarely do companies get it right the first time and it often takes years before they do … if they ever do.

You have to iterate through a number of markets before you might find one that cares. The process of iterating markets is now referred to as pivoting.

Google didn’t launch Adwords until more than 2 ½ years after it introduced its search engine. Oracle started out by charging minicomputer manufacturers to port its SQL based database. It took years before the company figured out it could do much better selling direct to departments within large enterprises. Apple started with a “kit” computer targeted at hobbyists, rather than a turnkey system meant for professionals.

How do you know if you need to pivot? The answer depends on whether you’re addressing an enterprise or consumer market. Enterprise-focused startups typically need to run trials with potential customers to prove the value of their products. If you pull the trial after 30 days and the majority of prospects don’t flinch, then you don’t have a compelling product/market fit. Therefore, you need to pivot. Another way to look at the problem is the productivity of your early sales force. My teaching partner, Mark Leslie, and another Stanford Graduate School of Business professor, Charles Holloway, wrote a Harvard Business Review article titled the Sales Learning Curve that offered a compelling insight. Until your sales people generate enough margin to support their own fully burdened cost, you haven’t found product/market fit.

It’s tougher to evaluate product/market fit if you’re running a consumer focused company. If your product/service doesn’t grow exponentially without marketing then you don’t have any “word of mouth.” Lack of word of mouth means lack of product/market fit. Bain Consulting developed the Net Promoter Score (NPS) to measure the strength of word of mouth. If your NPS is less than 30, you probably haven’ found a compelling market. Therefore, you need to pivot.

Pivots are often random

Interestingly the vast majority of entrepreneurs I have met who successfully pivoted say they “stumbled” into what proved to be the right market. Steve Blank and Ries turned stumbling into a scientific process with their books The Fours Steps to the Epiphany and The Lean Startup.

The consistent theme? Almost every successful company pivoted. Very few successful companies, on the other hand, were restarts.

A pivot is different from a restart

A pivot pursues a new market for the same technology, whereas a restart creates an entirely new technology to target a new market. Changing technology and market usually is too difficult for a young company.

Most restarts are lost to history, because they die young. Color is a recent example you might remember. Entrepreneurs try restarts when they lose faith in their original technology insights. If your original technology insight wasn’t compelling, then it is extremely unlikely you will find a new one simply by iterating.

Typically, entrepreneurs find an inflection point in technology before others because they have tremendous experience (authenticity) in a particular domain. Great insights find you, rather than the other way around. That’s why finding the product is much harder than finding the market. Unfortunately some people incorrectly describe changing technology – a restart -- as pivoting. Pivoting in the Blank & Ries sense only refers to markets.

My pivot experience

I started Wealthfront because I thought the availability of application programming interfaces from brokerage firms could enable a software based investment management service. My intention was to democratize access to sophisticated investment management.

In other words I started with an observation of an inflection point in technology. Just like most entrepreneurs, I picked the wrong initial target market.

It’s hard to admit you don’t have good product/market fit. Failure to be intellectually honest about the strength of product/market fit keeps many entrepreneurs from succeeding. Next to initially pursuing too large a market, (please see To get big you have to start small), unwillingness to iterate is the biggest mistake I saw entrepreneurs make over my 25-year venture capital career. (I was a founding partner at Benchmark Capital before I became a CEO of Wealthfront).

Once we admitted we hadn’t found a compelling market, we chose the customer development process advocated by Steve Blank to discover a market that did care about our technology insight.

Not surprisingly, it was a very different market. Wealthfront now focuses on young people, working in tech, who want someone to manage their entire investment portfolio but can’t afford the minimums or fees required by traditional financial advisors.

It’s amazing how quickly your business works once you truly tap into a consumer point of pain. (You can find that point of pain more easily if you focus on prospects who are already spending money to get their problem solved, preferably poorly.)

As I explained in my previous post on Inc.com, the initial market you choose doesn’t have to be large. It just has to be large enough to build a reference base to attack a larger market.

Many successful companies have revised their histories, which keeps people from realizing how many companies pivoted from their original target markets. As a result, entrepreneurs have a hard time learning this lesson: Everyone pivots.

Once you figure out you are no different, you are far more likely to succeed.