10 Lessons from Pivoting to Product-Market Fit
In the three short years that Eden has existed, we have pivoted or materially changed our business model three times (1). Now that we have found our footing and are scaling quickly across the US, I wanted to share some lessons learned around how to pivot, so you will be ready when the time comes.
First — as context on what we pivoted to: Eden is a workplace management platform, with office cleaning, handymen, and other maintenance services for fast-growing companies. Our business model is one of a software-enabled marketplace, where we have 1,000+ offices on the demand side who use Eden for their on-site services and 1,500+ small service businesses on the supply side who serve our clients.
However, we started differently, as an on-demand provider of tech support for the home, directly hiring individuals to do the work.
Below is a graphical representation of the three pivots or business model transformations that led from then to now:
As a result of these pivots, we were able to find product-market fit, raise a $10 million Series A, and become the largest workplace management platform by marketplace revenue, geographic footprint, and number of small service businesses (our supply side). It has been an amazing few years, and those three hard decisions were critical (pivotal, even) to achieving our current reality.
I wanted to share a few lessons we learned while executing our pivots, organized chronologically.
Pivot #1: From The Home to The Office (2015)
Let customers use your product “incorrectly.”
When we started Eden in 2015, we did not ask for business customers. Our late night TV commercial showed a friendly millennial remedying an elderly couple’s wifi issues. But when office managers started to use Eden unsolicited, we did not stop them. Don’t force your vision on the world — most of the compelling businesses today let the invisible hand of market demand take them or an analogous competitor to where they needed to be. This is true from Uber (black cars to noticing the success of Lyft’s bet on regular vehicles) to Airbnb (air mattresses to normal beds) to Craigslist (email chain to listings). Box CEO & Co-Founder Aaron Levie has a great Tweet on this:
Perform a time-bound test and review the numbers.
When we finished the Y Combinator incubator program in the summer of 2015, we had performed a cumulative 1,000 total customer visits over our company’s first three months. When our collective adrenaline had come down post demo day, our team analyzed each job and noticed a weird trend. Without asking for B2B customers, they already represented over 1/3 of our revenue! Plus, it was the only part of our business that was clearly profitable (positive gross margin due to higher average customer transaction value and lower refund rate). We needed more of this!
Talk to your investors. Keep them informed as you go.
Here’s the thing: we had just completed a large seed round from over 30 of Silicon Valley’s most storied institutional and angel investors and the narrative was all about home services. We did not look forward to immediately having the pivot conversation, but what sounded even worse was choosing the wrong market and creating a VC-backed fireball. We let them know about the B2B opportunity through a combination of in-person meetings and phone calls, and sent monthly update emails for the next few months until the pivot to B2B was complete.
Pivot #2: From Tech Support to All Services (2016)
Listen to customer requests –– they may guide you to the promised land.
While running the B2B trial in the fall of 2015, we noticed that B2B customers had more complex needs than our home consumers. When our on-demand IT support team would be called in to an office to assist with a projector setup, we needed to do more than just traditional IT support. We were also asked to mount the projector to the ceiling, and then perform clean up. We required multiple types of service professionals to do any one job, and an internal project manager at Eden was needed to coordinate its completion. We realized that the market once again was speaking, and we needed to expand our service offering from one to many to satisfy the market’s needs.
Think about your addressable market and maximize the opportunity.
We started a trial for the multiple services offering, and discovered that our customers loved it. We then sat back and thought about this decision from an addressable market standpoint. What were the business consequences of being the full platform for all office services, assuming this worked? Once we did some simple math (and looked at a number of market research reports), we saw that being a platform for all services was at least a 10x bigger opportunity than just focusing on tech support. We also drew inspiration from Amazon’s success in the consumer products world, and decided to go for it! We could always reduce our ambition later if this approach was invalidated by data.
Pivot #3: From Directly Hired Individuals to a Managed Marketplace of Small Businesses (2016)
Worship [responsible] growth. When it stalls or seems too expensive, make a structural change.
While business was booming in San Francisco, the thought of scaling this business across 100 cities in the future was daunting. Up to this point, we had built a futuristic integrated facilities business. Local services are inherently sub scale, and we did not want to try to replicate that magic across the rest of the world. If we tried to scale this business model, we would spend frivolously, and we had always prided ourselves on being lean and thoughtful around finances. After thinking critically with our investors, such as the team at Bessemer Venture Partners, Comcast Ventures, and Maven Ventures, we decided to trial the marketplace model. It worked, and a couple years later, Eden is available to 65% of offices in the US.
Lean into hard conversations.
One thing to note: Hard conversations typically accompany pivots. This is definitely, absolutely, the worst part of pivoting. There will be wonderful people who had a clear role prior to the pivot but no longer do. They have done nothing wrong, but you are running a startup with limited cash, and you cannot afford to evade the truth even if you wanted to. Try to act quickly after the company’s new reality becomes clear, be open about the reasons, and be as generous as you can with severance. These conversation are awful, but it would be irresponsible to hide from them. The wrong business decision ultimately imperils everyone.
Post Pivot Reflection
A couple things helped us make the right moves without losing steam during the wild first years of Eden. Unlike the learnings above, these coming ones applied to all three of our pivots.
Create core values that enable a successful pivot.
The week before we officially started working on Eden, our founding team created a set of values. “How to create values” should be its own post, as it is mission critical and deserves its own decision-making framework. However, I will note that four of our core values proved essential to guiding us when we pivoted: 1) We are a learning entity, 2) We are data-informed, 3) We celebrate wins and acknowledge losses, and 4) We are human. Recognizing that we needed to learn always, follow the data, be honest about our business, and lean into our human imperfection was crucial to ultimately building Eden.
Build a team identity and culture that is not tethered to your business concept.
Cognitive dissonance is real, and if your team identity is too deeply intertwined into your v1 business idea, it will be challenging to pivot in response to future learnings. You are not your idea, and if your team can survive a pivot, the probability of a team win goes way up. We lucked out here, as we built our team’s identity around Harry Potter (Gryf4Life), and our team members have always been called “Wizards.” In fact, when new team members join Eden, there is an official “wanding ceremony” in which they receive a wand and our fog machine makes the crowd go wild. Silly? Sure. But when it came time to pivot, we were not losing ourselves. The Wizards did not change, our identity and values were intact. We were just on our odyssey to find the right market.
Raise 2–3x more money in your seed than you think you will need. You will need it.
While I don’t recommend spending frivolously, it is smart to raise more than you need at the seed stage (2), such as 2–3x expected spend for your first 18 months of operations. The reason is that you don’t know what the future holds, and for most of the companies in our Y Combinator batch, it was not a straight line to the Series A. There were some people encouraging us to be “dilution sensitive” at the seed, and I am grateful that we got greedy and ignored their advice. We ultimately raised 3x what we thought we needed in our seed round, and we would have gone to zero if we had raised even 1.5x of what was budgeted. Startup exits tend to be binary outcomes, so you should just do whatever it takes to make it a 1 and not a 0 when you are at the seed stage.
If you are a founder now or in the future, I bet you will need to pivot. When you do, I hope these learnings help you channel some magic!
(1) The startup definition of pivot is a bit subjective. In this post, I refer to “pivot” as a wholesale or majority change in your customer base, your product offerings, or business model. While the B2C to B2B shift is a generally accepted definition of pivot, I imagine some would consider the change in services and business model as an “evolution” or something else.
(2) While it is smart to raise 2–3x what you think you need in a *seed round* (up to $5 or even $10 million potentially), it is foolish to raise dramatically more than you need once you get to the Series A or beyond. The reason is a concept called “Liquidation Preference” –– basically, your venture investors get their money back before you or your team get to participate in any exit. So if you raise $5 million and then sell for $100 million, your team has a huge outcome. If you raise $100 million and then sell for $100 million, your team made nothing (and your investors will be upset, since a 1x return of capital is considered unimpressive for them).