8 Must-Haves to Revive a Failing Startup

Everyone knows most startups will fail. Even if you race out to a blazing hot start, become a media darling and raise millions of dollars from VCs, the odds are that your business will fall short of becoming a sustainable, high-growth company.

Of course some startups do beat the odds - but most do not. As venture-backed entrepreneurs, we are supposed to accept this reality because, well, it is the reality.  

My co-founder John Ernsberger and I were on the verge of this reality a few years ago when time and money had run out for our company StellaService. We had raised tens of millions of dollars, signed the biggest retailers in the world as clients, received wonderful press coverage and hired a terrific team...but none of that mattered. We were stalled. The flywheel had stopped. It seemed impossible that we were going to be able to reboot. The consensus around the table was that it was time to shut it down and move on.

Like many entrepreneurs, though, we are relentlessly resourceful and gritty. As a side project, we had started building a new solution called Stella Connect. In early client trials, it showed a lot of promise. We increasingly believed that after all the years and capital invested, we were finally on the verge of the product that would set the company’s foundation for long term growth.

Given the circumstances, however, we knew that we needed a miracle of forces and events to come together to reset the company around the new solution - but we had to try. Thus, we began the long, arduous journey of the Hard Pivot.

The Hard Pivot...is Hard

Doing a Hard Pivot is not for the faint of heart. By Hard Pivot, I don’t mean a small team that worked on a business for a few months and then decided to shift direction. Instead, I’m talking about a company that is well into its growth trajectory, several rounds of funding in and seeking to change its core product and business model entirely. For us, this meant shifting away from our legacy retail experience measurement solutions and focusing exclusively on Stella Connect, our people success platform for customer service teams.

Investor and blogger Fred Wilson wrote about the Hard Pivot in detail in his recent post Pivot or Fail. He makes a very compelling case for why it’s so complicated - when you look at it rationally, it just makes more sense to shut down, return whatever cash is left to investors and move on to the next opportunity.

However, if the pieces of the puzzle are assembled just right, there may be a way to successfully revive the startup. It’s a long shot, but it’s possible.

With the help of a passionate, talented and nimble little team around us, John and I have done just that. We grinded our way through the quicksand of the Hard Pivot for the last couple years, and we have finally made it to the other side. In looking back, we could not have done it without these eight critical elements.

1. You need supportive co-founders

The founders need to be in lock-step and support each other in every way through such a tumultuous journey. If the founders are close friends, it makes this a more manageable process. I could not be more fortunate to have John Ernsberger as my co-founder - we hung in there together through good times and bad. Plus, it always helps to have a non-work release to your relationship as well - John and I love nothing more than beating each other up on the golf course whenever we get the chance! 

2. You need supportive investors

Without investors willing to stick their necks out for you and the company, the Hard Pivot will not work. And it typically requires ALL of the major investors’ consent if the company has raised multiple rounds of funding with numerous lead investors.

We could not have pushed through the Hard Pivot without the bold backing of VCs like Neeraj and Logan from Battery Ventures; Josh and Lisa from Norwest Venture Partners; Sam from Comcast Ventures and Ross from Gotham Ventures. We also could not have made the transition without the support of our Independent Board Member Eric Gould. As another well read investor Mark Suster recently explained, high functioning boards are critical for getting startups through turbulent times. Independent Board members are key to a high functioning Board.  

3. You need a scrappy, devoted and talented team

Founders cannot build companies alone. Getting the right people in the right seats is essential. It’s critical that you have a solid team in place to maintain the legacy business while it supports the new business. Of course, it’s also mission critical to hire and train an experienced group of people to get the new business off the ground, and quickly. There is very little room for error in any startup, but there is even less room for error during a Hard Pivot. We have been fortunate to work with such an amazing group on both sides of our business for the last couple years; solid execution made the Hard Pivot possible.  

4. You need rock solid values and culture

Everything you read about the importance of great culture is especially true for a startup in transition. When the perfect product, perfect packaging and perfect go-to-market all hit at the perfect time (less than 0.01% of startups), a company can get away with mediocre culture.

The 99.9% of startups that experience twists and turns must rely on a solid set of values that contribute to a supportive, positive and empowering culture.

To be fair, Stella is not perfect and no company is on this front. However, a genuine effort by the founders and other leaders in the company to make this happen is a must-have. We always kept this top of mind and even more so during the Hard Pivot.  

5. You need traction and excitement for the new product

For investors, founders and employees to make the sacrifices associated with the Hard Pivot, the new product must have serious potential. It needs to show traction even faster than in a non-pivot situation. The usual VC-backed-company qualities have to be there as well – huge market, high margins, easily scalable, etc. We saw killer results with Stella Connect out of the gate with a level of customer love we had not seen before. It was obvious that the new product’s potential was far greater than our legacy solution, so we were able to generate internal momentum. 

6. You need strong client relationships

Clients are the lifeblood of any business. If you are transitioning to a new product, you need a core group of clients to experiment with. For that to happen, you need to have built significant trust and credibility over the years. If you have proven yourself as a capable, professional, client-focused partner, your clients will hear you out on a new solution that could add even more value for them than your original product.

We have had opportunity to develop terrific partnerships with executives at some of the most innovative companies in the world. Stella Connect would have never seen the light of day without the willingness of these executives to test and iterate with us. Their success with Stella Connect validated the Hard Pivot, both with our other companies and our investors. No one will sell your product for you better than your first few clients who realize they are in early on something great. 

7. You need to check your egos at the door

Founders: You used to be a star when you showed up at your VC’s offices…not during the Hard Pivot, not anymore. You used to have a steady stream of world class resumes flood your inbox…not anymore. You used to get calls and emails from reporters wanting to do stories on you and your company...not anymore. You need to be OK with all of this going away. You need to be able to hunker down, reboot and manage your business with an imperturbable focus. The only thing that matters is finding talented people to build something great that your clients will love – that’s all John and I did for the last three years.  

Investors: While I have never been a startup investor, I imagine when things are going well with a portfolio company you enjoy talking about the decision to back them…not during the Hard Pivot, not anymore. I imagine peers and the tech press recognize how savvy you are for making the investment in that company…not anymore. I imagine you contemplate the size and scale of the mega-exit when thinking about the next few years for that company…not anymore. You need to be OK when things don’t go according to plan, and even more, you need to dig in, roll up your sleeves and support the company now more than ever. Our largest investors did this in spades. The Hard Pivot was only possible because they did not put their personal brands above the time, effort and pain of enabling a path forward for the company.  

8. And lastly...you need patience

Startups take a while to get going (especially B2B businesses), but once they get going a positive flywheel takes effect. Small wins create bigger wins. Bigger wins create more visibility. More visibility attracts more talent and investment. More talent and investment accelerates speed and scale of the wins. With a great product, a big market and strong execution, this flywheel can take off dramatically, but it’s no easy task to get it started. 

The Hard Pivot puts a grind into the gears of this flywheel – all of the momentum stops. Restarting the flywheel takes a maddening amount of patience. It may not even be possible, but if it is, it will not happen quickly. John and I knew it would take years to get another flywheel going again, if at all.

All of us at Stella – the founders, employees and investors – made the commitment to power through and work toward that goal. As Scott Belsky said on a recent interview about his new book the Messy Middle:

the competitive advantage of most startups is sticking around long enough to figure it out.

As long as you have the pieces that make up this puzzle, fortitude might just be the secret sauce for your startup after all.