Late last year, my friend Shripriya Mahesh interviewed me about my experience as a founder and startup CEO for Omidyar Network’s podcast, Founder’s Corner. While there are myriad considerations for budding entrepreneurs to entertain when building their businesses, one of the most daunting challenges that founders often face is how and when to pivot their businesses, meaning a shift in strategy that has essential and substantial effects on the business model.
Pivoting a business isn’t just risky — it can be gut-wrenchingly difficult. You have an established mental model of what your business does and where it’s going, and challenging those established models can be excruciating. But it can also invigorate and be essential to the survival of your business.
Just over five years ago, really right after I signed on as Turo (then RelayRides) CEO, we not only launched nationally, but also were coming out on the other side of making a significant business pivot. A pivot so significant it could have derailed the team — and the business — if not thoughtfully managed.
So Shri’s question effectively was, why? And how?
An early vision
When Turo was founded, the premise of the business model was to connect people who need cars with people who had cars but didn’t use them all the time, and to intermediate that transaction via hardware technology (e.g. remote unlocking technology).
Harken back to a snowy night in Cambridge, Massachusetts in 2009, when RelayRides founder (and Turo Board of Directors member) Shelby Clark was stranded and in need of a car. Zipcar was in its heyday, and it was emerging as a genius solution to car ownership. Observing the cars lining the streets of that snow-blanketed street, he had an epiphany — all these cars could be Zipcars.
And thus the RelayRides model was born. It was so simple, anyone could be in Shelby’s situation — needing a car when traditional options weren’t readily available — so it seemed such an elegant solution to establish a peer-to-peer Zipcar. Such a model would:
- Remove the capital expenses by crowd-sourcing the fleet
- Deliver on the Zipcar promise of “wheels when you want them” by creating a network of rentable, remotely unlockable hourly car rentals
- Create tremendous economic opportunities for car owners to see a return on their investments.
No muss, no fuss, just frictionless access to transportation for the carless, and easy passive income for car owners.
Executing on that vision, car owners would install hardware in their cars that would remotely unlock the vehicle for the renter, who would then be billed by the hour. We postulated that going all-in on hardware would make the experience as hassle-free as possible for both host and guest. But something just didn’t feel quite right.
Letting the data decide
For one, the demand for car rentals doesn’t really fit within the hourly segment. In the US, hourly rentals represent less than 2% of the car rental market, which is a $35 billion domestic market, $80 billion worldwide. The hourly opportunity was pretty small, so perhaps we were barking up the wrong tree.
Second, the hardware wasn’t as solid a concept as previously thought. After a thorough funnel analysis, we discovered that our drop-off rate for new listings was 99%. We interviewed several of the abandoners and learned that when it came time to install the hardware, nearly everyone abandoned, since it gave no immediate return on the not-insignificant time and effort investment.
Additionally, while the hardware reduced friction for transacting, transacting without meeting the person driving your car created its own friction. Who is this person renting my car? Why should I trust them? That connection of meeting someone face to face is absent from the hardware experience. So not only was the hardware a nuisance to install, but using it intimidated people, and it inadvertently cultivated an insecure and dubious community culture.
Additionally, while the hardware reduced friction for transacting, transacting without meeting the person driving your car created its own friction.
Finally, our expansion was really limited to where the hardware could be installed, which back then was only in San Francisco and Boston. Anyone else anywhere in the country wasn’t able to list a car (or rent one), so we were inherently limiting ourselves. In a platform business, supply is of the essence. You can build super savvy software with the most stunning interface, but if there’s nothing to offer your customer, all’s for naught.
So after a lot of debate and data analysis, we decided to pivot away from the hardware-reliant, geographically isolated, hourly rental model.
So… now what?
Pivoting can be emotionally gut-wrenching. When a team has a clear direction and has been working hard toward excellence in that direction, it’s more than jarring to wrap your mind around the change. You’re admitting to yourself and your team that your philosophy may be flawed, your values, irrelevant. That existential admission alone is enough to make a team (and consequently, a business) spiral. But when all the data points clearly away from your chosen tactics, starting anew is essential for the health — and ultimately the survival — of your business.
And so we started anew, and several painful implications ensued. For one, the DNA of the team needed to change. We were previously all about the hardware, so our team — from our customer support reps to our hardware and software engineers — was thoroughly groomed as hardware experts. Pivoting away from hardware was a mind-bending head-scratcher for literally every employee — now what? They all wondered.
You’re admitting to yourself and your team that your philosophy may be flawed, your values, irrelevant. That existential admission alone is enough to make a team (and consequently, a business) spiral.
It’s incredibly difficult for an entire team to switch disciplines — imagine being a track and field athlete, and then one day, your coach tells you you’re a gymnast now. What’s expected of you? Where do you lean in? Are you still bringing the same value you did before?
As CEO, I had to acknowledge that the team may not be the right team to take on this pivot. We needed strong conviction and unity to execute such a bold move and remain intact; strong conviction, unity, and a lot of hand-holding. As I’ve mused previously, unilateral, top-down decisions, while necessary, need to be tempered with data, proper expectation setting, and proactive transparency; if only 5% of the company is game for the pivot, that leaves 95% dissenting and asynchronous. Especially if the C-suite is that 5%, you’re going to have some serious issues getting everyone to rally behind you (OEMs trying to forge into the mobility forefront may be a real-life example of this skew).
For me, this all boiled down to an upsetting realization: we’d need to lay off some teammates to correct the mismatched skills needed to achieve our new direction. We had to lay off our entire fleet management team, who were dedicated to hardware installation support out in the field. This was neither easy nor pleasant, especially with such a small, tight-knit team. Back then, we were 10, so this felt like a massive betrayal of the people who had been working their asses off for years. They were casualties and it was awful. Morale took a devastating hit.
With depressed morale, it takes a lot of courage to move forward, and Shelby, as our Chief Community Officer back then, did an admirable job projecting strength, vision, and rallying for solidarity. And fortunately for us and the business, while the tactics may have proven misguided, the mission — to put the world’s one billion cars to better use — was not only still incredibly relevant, but also still an unparalleled opportunity to disrupt a monolithic and archaic industry.
The mission > the tactics
The fact that the mission still stood strong while the tactics changed was critically important to the team’s sense of purpose and morale. To other entrepreneurs contemplating a pivot: tactics are just tactics, but your company’s mission — its heart and soul — should stay as strong and constant as possible. It’s critical for the entire team to truly believe in the business, to drink the Kool Aid, and to be able to genuinely rally around the company’s raison d’être.
Five pointers for pivoting
Five busy years later, our pivot yielded not only a viable, growing business, but some important lessons that I’m sure other entrepreneurs might find handy.
First, take a good, hard look at your data. In this day and age, that may seem like a no-brainer, but I mean it. Dig in, see what it tells you, and don’t let your emotions get the best of you. If something’s clearly not working — even if it’s something in which you’ve invested a lot, personally and financially — be honest about whether it’s best for the business.
Second, talk to your customers. They’ll give you some of the best insights into your product, especially into areas where you’ve become blind. And become one of your customers — data is only as rich as the experience that drives it.
Next, for a pivot to be successful, it’s critical to get buy-in from the entire team. You may need to pitch it, prove it, and really sell it to your colleagues; without their support, there will be mutiny. From well aligned skillsets to a confluence of purpose and direction, everyone must be aligned.
That said, you need to be honest with and about your team. With a new course charted, there may be talent mismatches. There may be vestiges of your bygone business anchoring you from moving forward. As excruciating as it inevitably will be, you must do what’s in the best interest of the business.
But it’s also critical to execute staffing changes with courage, honesty, and humility. Your ego and the egos of your colleagues aren’t as important as the success of the company — which is the reason you all came together in the first place. Pivoting is an exercise in self-effacement that really forces you to separate the self from the company. It’s incredibly humbling.
Lastly, stay true to your mission. Tactics come second. The mission is the soul of your business, and it’s important to cultivate an internal and external culture dedicated to the mission. Though we changed the fundamental trajectory of our business over five years ago, we made a herculean effort to keep its soul squarely intact. And what could have been a capsizing moment became a buoyant one that didn’t just gel the team, but charted the course for our reinvigorated business.