Table of Contents

• Intro

  • Common Myths About Pivoting

• When to Make a Pivot

• How to Make Pivots?

• Case Study - Making Pivot from Dinnerfy to Lamatic

• Conclusion

Intro

This edition is about the art of pivoting within a startup's journey. Pivoting, a significant strategic shift, often appears daunting due to prevalent myths that foster doubts and fears. However, debunking these myths reveals the truth about pivoting's potential to redefine success paths.

Common Myths About Pivoting

• 😟 Fear of Being Seen as a Failure: The misconception that pivoting signals defeat is widespread. Yet, pivoting often leads to uncovering more viable business models.

• 🤕 Worry About Damaging Reputation: Some believe that changing direction can tarnish a startup's reputation. In reality, the ability to pivot is seen as a strength, demonstrating adaptability and market sensitivity.

• 🔄 Becoming Habitually Indecisive: There's a fear that one pivot might lead to another, causing perpetual indecision. Successful pivots are, however, data-driven decisions aimed at better aligning with market needs.

• 🌀 Skepticism Within the Team: Entrepreneurs often worry that pivoting might demoralize the team. Clear communication and involving the team in the decision-making process can mitigate this.

• 💔 Disappointing Early Supporters: The concern of letting down initial backers is common. Yet, supporters typically prefer pivots over stubbornness that leads to failure.

• ⏰ Perceived Waste of Time and Resources: The notion that pivoting squanders previous efforts is a myth. Pivots can leverage existing learnings and assets, propelling the startup towards greater success.

But in reality, all these myths are wrong. In fact many great startups have pivoted like Instagram (originally Burbn) and Slack (formerly Glitch) illustrate the transformative power of pivots. We are pivoting as well ( Dinnerfy to Lamatic ) and as we announce this, I wanted to share my own learning of pivot and help you learn from it. In this edition we will see signs that should hint you a pivot, how to make a pivot and then our story.

When to Make a Pivot

Invalidated Problem Hypothesis

When you find strong evidence suggesting that the problem you aimed to solve isn't as pervasive or critical as initially believed, it's a clear indicator that a pivot might be necessary. This phase is critical, as it involves acknowledging that your core assumption about the market need might have been off the mark. Embracing this realization requires adopting a scientist's mindset, where hypotheses are tested and invalidated without bias—a crucial but often challenging step.

Example: Netflix initially started with a model based on DVD rental by mail. As the digital landscape evolved and broadband internet became more accessible, Netflix pivoted to streaming, recognizing the shift in consumer behavior and technology. This pivot transformed Netflix from a mail-order service to a leading global streaming content provider.

The Solution is Not Viable

It's essential to come to the realization that building the solution may be too challenging, and even if accomplished, customers may not be willing to pay the price for it. This disparity arises when the cost of the pain the solution alleviates is perceived to be less than the cost of the product itself. In general, for a solution to be viable, it should offer at least three times the value of the current best options available to customers. This ensures that the benefits of adopting the solution far outweigh any associated costs, leading to greater customer satisfaction and market acceptance.

Example: Magic Leap, known for its ambitious augmented reality projects, had to pivot towards focusing on niche markets and partnerships with businesses after realizing the broader consumer market was not ready for its technology in terms of both adoption and feasibility. The founder

Market Too Competitive

The market is overly competitive, making it tough for small players to grow and stand out. In such saturated spaces, visibility and expansion are limited. Therefore, exploring less crowded markets or untapped niches becomes essential for finding growth opportunities and differentiation.

Example: Shopify began as an online store for snowboarding equipment called Snowdevil. The founders pivoted to e-commerce platform development after realizing the broader need for an easy-to-use e-commerce system.

Impossible to Bootstrap and Unable to Raise Funds

You may find it difficult to sell your product until you've actually built it, which often requires funding. However, securing funding can be challenging due to factors such as market conditions or a lack of credibility in the industry, which may deter investors from providing financial support. Especially for complex technical problems like those in the automobile, aviation, or space sectors, establishing credibility is crucial. Investors are more likely to invest in ventures led by individuals or teams with proven expertise and a track record in these specialized fields. Therefore, gaining credibility through relevant experience, partnerships, or successful projects is vital for securing funding and ultimately bringing the product to market.

Example: Patreon was created by a musician who couldn't fund his music videos. This led to the development of a platform that enables creators to get paid directly by their fans.

Plateaued Customer Discovery

Reaching a point where despite exhaustive efforts, you're no longer able to identify and attract new customers signals a critical juncture. It means your initial customer base has been tapped out, and the strategies that previously drove growth are no longer effective. This plateau suggests either the market you're targeting is too niche with limited expansion potential, or your product's appeal doesn't extend beyond your initial customer segment.

Example: Groupon started as a social activism platform called The Point. The concept of collective action pivoted to collective buying, leading to Groupon's massive success.

Unable to Achieve Hockey Stick Growth

Your product may be gaining users, but it's not reaching the scale required to become a regional juggernaut or a future unicorn. Achieving sustainable unit economics is crucial for any startup, necessitating enough "escape velocity" that new customers continue to come even without additional spending on customer acquisition, akin to Google's model. Initially, acquiring customers is often easier, especially convincing early evangelists. However, as you progress, converting laggards becomes critical for scaling the product. These later-stage users are essential for reaching broader markets and sustaining growth.

Example: Instagram pivoted from Burbn, focusing on photo sharing and filters, which led to its explosive growth and eventual acquisition by Facebook.

Lost Interest in the Problem

Entrepreneurship is undeniably driven by passion, but if it starts feeling more like a job and motivation wanes, it might be time to explore other options. Admitting that entrepreneurship is exceptionally challenging and not everyone can withstand the pressure is crucial. Unless you're genuinely driven by the mission, the demands of entrepreneurship can become overwhelming. Therefore, it's okay to acknowledge if you've lost interest in the problem you're solving and feel inclined to pursue something else. Recognizing when to pivot or move on is a part of the entrepreneurial journey, allowing for personal growth and exploration of new opportunities.

Example: Stewart Butterfield, co-founder of Flickr and Slack, pivoted from game development to Flickr when he saw a greater passion and market need for photo sharing, and later from Glitch to Slack, finding a strong demand for communication tools.

Found a Much Bigger Opportunity

This is the best pivot of all. While working on your existing product you were able to find an even better opportunity and are okay with letting go of the progress in pursuit of that bigger opportunity. Many companies were started doing something else but while building their own service/product they realize that solving a subpart of their own problem turned out to be a problem for others and you have strong reason to believe that solving that problem can help you get more customers. But do note, there is a fine balance between having enough commitment that you seem serious yet can challenge your thinking. No matter what path you choose, it should persevere, thoughtful consideration, and a bigger picture.

Example: Slack pivoted from the game Glitch, utilizing its internal communication tool to become a major player in the business communication market.

How to Make Pivots?

Now that we have all the necessary signals on when to pivot, lets see who how you will execute a pivot.

Step 1: Validate Your New Pivot

Before you quickly jump into the pivot, it's important to validate this idea instead of falling into the same situation again. While I agree that working on something is important rather than just wandering in the ideation plane, no engineering effort should ever be wasted, ever. Once you have validated the problem thoroughly, then only proceed with the next step.

Step 2: Get Some Early Customers

A problem is only truly a problem if others also perceive it as such. Therefore, it's crucial to engage in customer discovery as soon as possible. This is the only way to ensure with certainty that your pivot is the correct move. One effective method for conducting customer interviews is the MOM test.

The MOM test stands for:

1. Market: Understand the market segment you're targeting. Identify who your potential customers are and what their needs and pain points are within that market.

2. Offering: Focus on understanding your offering or solution. What value does it provide? How does it address the identified needs or pain points of your target market?

3. Message: Craft your messaging in a way that resonates with your target audience. Clearly communicate how your offering solves their specific problems or fulfills their needs.

During customer interviews using the MOM test method, it's essential to refrain from immediately pitching or selling your solution. Instead, actively listen to your customers' own experiences and problems. By attentively understanding their perspective, you can gain valuable insights into whether your pivot aligns with real market needs and whether your solution effectively addresses those needs.

Step 3: Build a Prototype

Before committing to developing a full-fledged product, it's advisable to create a prototype first. If your pivot emerges as a byproduct of your current idea, consider showcasing your internal process or method to your ideal customers. Remember, if your product genuinely addresses a pressing need, customers are unlikely to be deterred by the absence of a fully polished product. Their primary concern will be whether your solution effectively addresses their pain points and offers value.

Step 4: Raise Some Funds

If you have thoroughly checked steps 1, 2, and 3, it's time to make the decisive move, recognizing that there's no turning back from here. Pivoting can substantially increase your burn rate, especially if you need to maintain two products simultaneously during the transition period. However, it's crucial for resetting your runway, as your existing business model may no longer hold true.

A savvy investor will view a well-considered pivot as strongly favorable. It demonstrates your willingness to acknowledge and rectify potential shortcomings rather than clinging stubbornly to a failing approach. This openness to change and commitment to growth significantly enhances your chances of securing funding.

Step 5: Migration/Continuity Plan for the Existing Product

This is a critical step indeed. While you're forging a new path, it's imperative not to neglect your existing customers, who played a pivotal role in getting you to this point. Customer trust is paramount in the entrepreneurial journey, as they believed in you when no one else did.

Firstly, assess whether your existing product can break even, where costs equal revenue, and providing continued support won't be an overwhelming burden. If you've built a well-planned Software as a Service (SaaS) without significant technical debt, this shouldn't pose a major issue. You may only need to cover minimal cloud costs. However, if this isn't the case, assist your customers in finding an alternative solution. You might even need to engage with competitors to negotiate a deal that benefits your customers at a discounted rate, without compromising your integrity.

Consider making your solution open-source and allowing customers to self-host it. Above all, strive to make the transition as smooth as possible, providing ample time for your customers to adapt to the changes. Remember, maintaining the trust and support of your existing customer base is crucial, even as you pivot and explore new opportunities.

Step 6: Announce Your Pivot to Your Existing Customers

Plan a celebration for your D-Day pivot announcement. Share your journey openly, emphasizing the positive aspects of change. Spread the word through various channels and engage with the entrepreneurial community. Stay optimistic and resilient, inspiring others with your entrepreneurial spirit.

Case Study - Making Pivot from Dinnerfy to Lamatic

Chuck and I initially launched Dinnerfy, leveraging GenAI to tackle the complex task of generating recipe ideas.

However, during development, we realized the significant effort required to create a reliable production application using GenAI. Recognizing an opportunity to address this specific problem for others, we observed several promising signs:

• Our solutions were effective and consistent.

• Through customer discovery, we found consensus among others facing the same problem.

• People were investing significant time and money into solving this issue.

• We secured upfront paying customers.

• The lifetime value to customer acquisition cost ratio was notably high.

• Investor interest was relatively easy to attract, given the hot market for GenAI.

After mutual agreement, we made Dinnerfy entirely free, benefiting from excellent engineering by our team. Despite this, we successfully launched our product, achieving recognition as Product Hunt's Product of the Day, gaining over 4000 signups, and being featured on various podcasts and blogs. We're immensely grateful for the community's support and consider Dinnerfy a success, offering invaluable learning experiences. Now, our focus shifts to Lamatic.ai. Visit our Lamatic website for more information.

Conclusion

Pivoting is not a sign of failure but a strategic move towards greater success. It reflects a startup's agility and responsiveness to market demands and opportunities. By debunking common myths and understanding the signs and processes of pivoting, startups can navigate these transitions more effectively. Our experience transitioning from Dinnerfy to Lamatic exemplifies the positive outcomes of well-executed pivots, highlighting the importance of adaptability, validation, and customer engagement in the entrepreneurial journey.