The Ultimate 8,000 Word Guide to Preventing Your Startup from Failing
With more than 90% of all startups ultimately failing, building a successful startup in today’s world is the exception rather than the norm. And yet efforts at launching technology-driven startups, especially in the web and mobile sectors, show no signs of slowing down. What, then, can new founders do to increase their chances of building successful companies? In this article I’ll discuss 6 comprehensive strategies for preventing startup failure that all new founders should practice.
Fact: the vast majority of startups never succeed.
On average, more than 9 out every 10 new startup companies ultimately fail, with founders dissolving their ventures, investors losing some or all of their money, and employees being forced to find new jobs.
Some, such as G3i Ventures’ Gordon Miller, suggest that as many as 98% of entrepreneurs who receive funding still end up failing.
Clearly, then, if you try and launch a startup in the 21st century then you’re very likely to fail.
However, even if these figures are entirely accurate it’s still the case that massively successful startups can be, and indeed are being, built these days.
Airbnb, Facebook, FourSquare, Google, Groupon, Instagram, LinkedIn, Pandora, Pinterest, Twitter, Uber and a whole host of less well-known but still hugely successful companies have emerged over the past two decades or so and many more will arrive in the years to come.
So, yes, it’s extremely difficult but by no means is it impossible.
The obvious question then becomes: how can you drastically increase your odds of building something that ends up in the hallowed 10% club of success (rather than the graveyard of 90% failure)?
What should you, the founder of a new startup, do to successfully create the next seven- or eight-figures company?
That’s what this comprehensive guide aims to teach you: the foundational strategies upon which massively successul startups can be built.
As a preview, here are the 6 key strategies I’ll be discussing:
- Have at least one co-founder
- Assemble a strong team
- Develop a supportive and authentic team culture
- Ensure that market demand exists for your product
- Release your minimum viable product (MVP) and ditch the perfectionism
- Understand the meaning and value of “pivoting”
STRATEGY #1: HAVE AT LEAST ONE CO-FOUNDER
Whilst it’s certainly possible to find examples of successful companies built by single founders, many experienced entrepreneurs and investors insist that:
Startups are far more likely to succeed when they’re rooted in talented, complementary, and dedicated teams of two or three co-founders rather than in single creators.
In most cases, launching and running a successful startup entirely on your own is simply too difficult to accomplish, especially over the long haul.
Paul Graham, venture capitalist and co-founder of Y Combinator, claims that single founders virtually always need the support of one or more co-founders:
“Starting a startup is too hard for one person. Even if you could do all the work yourself, you [still] need colleagues to brainstorm with, to talk you out of stupid decisions, and to cheer you up when things go wrong. … The low points in a startup are so low that few could bear them alone”.
In a similar vein, entrepreneur and venture investor, Adam Callinan, emphasizes just how important it is for founders to be able to rely on each other during times of high stress:
“As a result of the enormous amount of work that is required to launch a new enterprise, mountains of stress inevitably come. … As a solo entrepreneur you’re never going to feel more alone [than when working on your company by yourself], so put yourself in a situation to share the stress with someone that you’re working with every day”.
Super angel and French entrepreneur, Fabrice Grinda, similarly argues that the trials and tribulations of the startup life require the resiliency of multiple founders:
“Being a [single] startup founder is incredibly lonely and it’s great to have someone to pick you up when you are down and keep you grounded in reality when you become exuberant. … [S]tartup life…is anything but a continuous series of uninterrupted successes. … Having a partner…makes you much more resilient [to the problems you’re bound to face]”.
In addition, there’s the fact that venture capitalists will sometimes refuse to invest in a startup if it has only one founder.
Instagram is a famous example of this: the very first backer of Burbn, i.e., the app that preceded what we know today as Instagram, agreed to invest $50,000 USD but only if Burbn’s founder Mike Krieger found a co-founder (which Mike did in the form of Kevin Systrom).
So, unless some sort of extraordinary circumstances demand otherwise, you should seriously consider building your new company with one or two other co-founders rather than committing to going it alone.
Launching a startup by yourself is almost certain to involve more anxiety, emotional and financial pressures, and everyday struggles than are necessary.
STRATEGY #2: ASSEMBLE A STRONG TEAM
The second key strategy for protecting against startup failure consists in finding the right people, i.e., assembling a strong startup team.
Existing research and the experiences of many top entrepreneurs reveal that:
Disruptive, unsupportive, imbalanced, or otherwise ineffective startup teams represent a leading cause of startup failure today.
A well-known study published in 2014 by big data company, CB Insights, reveals that the wrong startup team is the third most common cause of contemporary startup failure:
The number one and two reasons for startup closures, i.e., the lack of a market need (which I’ll discuss shortly) and cash depletion, are to be expected.
However, the fact that team dynamics are the third most common factor behind the dissolution of new companies shows just how crucial it is for startup founders to assemble and maintain strong teams rooted in productive and authentic work cultures.
Many highly successful entrepreneurs stress the need to bring together the right kinds of people in order to build winning startup teams.
Here are a few examples:
- Mark Zuckerberg (founder of Facebook): “The most important thing for you as an entrepreneur trying to build something is, you need to build a really good team”.
- Noah Kagan (founder of AppSumo): “You can’t do it all alone. Multiply yourself by hiring the best people”.
- Neil Patel (co-founder of Crazy Egg, Hello Bar, and Kissmetrics): “A founder doesn’t make a startup succeed, it’s the team. So make sure you surround yourself with a team that is smarter than you”.
- Paul Graham (co-founder of Y Combinator): “Most of the disputes I’ve seen [between startup] founders could have been avoided if the[ founders had] been more careful about who they started a company with. … The people are the most important ingredient in a startup, so don’t [ever] compromise there”.
With the knowledge that a solid startup team is highly influential on your company’s chances of success, let’s talk a bit about how you can assemble a fantastic team and then, further below, how you can ensure that a supportive, passionate, and authentic culture thrives.
HOW TO CHOOSE THE RIGHT PEOPLE?
Here are 3 tips for putting together a talented and cohesive startup team consisting of people with matching skills who contribute to, and support the overall goals of, your company’s vision and operations:
1. Seek out team members with complementary skill sets.
Take the time to carefully think through the different kinds of technical abilities, sets of knowledges and experiences, and overall thinking habits and attitudes that your various startup projects — both the day-to-day stuff and the more long-term tasks — will require.
Don’t stack your team with identically qualified people; rather, hire folks whose individual talents help make up for what others might lack.
You should be going after people who are uniquely talented in a small number of specific areas (e.g., programming, marketing, raising funding, etc.) rather than recruiting individuals who are “pretty good” at all things startup related.
Alex Bard, CEO of Campaign Manager, puts it well:
“Have the confidence and self-awareness to analyze your strengths and weaknesses, and build the rest of your team to complement what you bring to the table. … [Y]our founding team [should] resemble a Venn diagram — some skills will overlap, while each person will have his or her own specialties”.
2. Hire people with the same drive, passion, intensity, and commitment as yours.
Although this advice may be quite obvious to some readers, its significance bears spelling out in some detail.
The success of your startup depends on assembling a team of people that’s as enthusiastic, dedicated, creative, and “amped” as you (and your co-founder(s)) are about bringing your startup vision into reality.
Launching a startup is a very ambitious and difficult pursuit.
Creating a new company in the startup world is basically like announcing to everybody around you:
“I have a truly innovative product that’s soon going to dominate the market; it’s based on a yet-to-be-proven business model that must constantly adapt to endless uncertainty — BUT I *AM* GOING TO SUCCEED!”
In other words, it takes balls to launch a startup.
It also takes an incredible amount of self-belief, determination, perseverance, and hard work to become successful.
How could it be any other way? You’re explicitly trying to disrupt the market and do a specific thing better than anybody else does it.
All of this to say, then, that you’re setting yourself up for failure if you don’t purposely surround yourself with talented people who will enthusiastically devote as much time, energy, grit, and creativity to your startup as you do.
Research by Mark Murphy, which looked at the fates of 20,000 new hires, bears this out:
“[W]hen new hires failed, 89% of the time it was for attitudinal reasons and only 11% of the time for a lack of skill. The attitudinal deficits that doomed these failed hires included a lack of coachability, low levels of emotional intelligence, motivation and temperament”.
In other words:
Startup founders typically fire employees not because the latter aren’t talented enough to do the work but rather because factors outside of technical abilities — such as attitude, motivation, coachability, and overall disposition — conflict with the core values and operations of the companies for which they work.
You and your co-founder(s) know what you want and expect out of your new venture; make sure the people you bring onto your team have the skills, values, and dispositions to help you achieve those objectives.
3. Go beyond merely talking: actively engage with your top candidates by assigning tasks
At the end of the day, hiring employees is all about finding qualified people who can meaningfully contribute to the success of your startup via their actions — not merely their words.
You can’t determine whether somebody is the perfect fit your company simply by having a formal chat in which he/she more-or-less recites the contents of his/her resumé or cover letter.
TechCrunch’s Chris Rickborn describes his thinking on this very point:
“One of the biggest mistakes I’ve seen made in the hiring process is the failure to directly engage job seekers in the process. There’s way too much emphasis on ‘screening’ and not enough time devoted to ‘communicating’. If you’re running or managing in a startup … you need to engage your candidates. A brief telephone interview to screen candidates is not what I consider engaging”.
This serves as a good start. On its own, though, it isn’t enough to allow you to make informed and intelligent decisions about bringing the right people into your startup.
You need to assign relevant and challenging tasks or small projects to potential candidates who have made it through to the final rounds of hiring.
Doing so will allow you to acquire a first-hand impression of exactly how these candidates think about, respond to, and execute on the very kinds of problems with which they’d have to deal were you to hire them to work for your company.
Get yourself into the habit of assigning candidates one or more individual and group tasks before ever making final hiring decisions.
Yes, you want to watch potential hires apply their individual skills and expertise as they work to solve problems on their own but you also need to develop a sense of how effectively they can work with others.
In their early stages, virtually all startups operate as small, close-knit, and intimate teams of people who come to know each other very well as they work in high-pressure, intense situations.
This being so, you need to be able to determine which candidates will fit into your existing team and thereby successfully contribute to the culture and operations of your startup.
The only way to do this with any certainty is to have candidates work on temporary group projects with others who are already part of your company.
Writing for 500.co, Crystal Huang sums up these points quite well:
“Candidates should show, and not tell you what they can do. Consider assigning them projects instead [of merely asking them questions]. You can tell how great of a skill-set a candidate possesses by working with him/her, and [you can] see what kind of personality they have [in order] to [figure out] if they will be the right culture fit for your company”.
Running these kinds of individual and group trial projects with your candidates is the closest thing to officially bringing people onto your team without actually signing any contracts.
Given that they allow you to actively witness the habits and attitudes of your potential new employees, be sure to incorporate such performance activities into your late-stage hiring practices from here-on-out.
STRATEGY #3: DEVELOP A SUPPORTIVE AND AUTHENTIC TEAM CULTURE
The third main strategy for increasing your chances of startup success consists in developing a team culture centred on hard work, dedication, passion, mutual support, and authenticity.
Once you have assembled a solid startup team you need to commit to further developing, growing, and maintaining that strong team.
As we’ve seen, startups often fail because they’re founded on the wrong teams.
One key aspect of developing a winning startup team is cultivating a strong foundational culture that supports the values of your company.
Paul Mandell, founder and CEO of Consero Group, succinctly summarizes the impact that startup cultures can have on new businesses:
“A positive culture can do wonders for an organization. It can boost morale by making the workday more pleasant, which translates into higher productivity and lower employee attrition. … By the same token, a negative culture can poison the office environment, damage external relationships, and generally lead the company down the road to ruin”.
So, how should you go about cultivating a successful team culture at your new company?
Josiah Humphrey, c0-founder and co-CEO of AppsterHQ, recently published an article detailing numerous strategies that startup founders can use to develop winning workplace cultures that support strong startup teams.
I will briefly highlight what I consider to be the four most important of these strategies:
- As a founder, you need to lead by example: “[Y]ou simply can’t expect your team members to trust and follow you if you don’t exhibit the excellence of character that you want to see emulated around you. [Don’t ever forget that] your attitude as a founder affects the way you act, which then affects both the attitudes and actions of your co-workers”.
- Engage in the right forms of team-building exercises: “[E]ffective team-building activities [are those that] avoid unnatural or otherwise forced situations. If you’re picturing a room full of employees rolling their eyes…after hearing…that the entire workforce will be heading into the woods for a private team-building retreat…then you know what I mean by ‘unnatural’ and ‘forced’. Successful team-building occurs when such ‘exercises’ are carried out in normal, relevant, and familiar social situations”. Examples include volunteering, sharing (and possibly preparing) meals, and playing sports (or attending sports events).
- Replace traditional meetings with “daily scrums”: “[Conventional] [m]eetings are the biggest…energy killers in the corporate world. … [R]eplace the traditional top-down, long, and boring business meetings with daily scrum (“stand-up”) meetings. A daily scrum is held in the same location and at the same time (usually in the morning) each day. They are strictly time-boxed (typically to 15 minutes each) in an effort to keep the discussion brisk, on-track, relevant, and impactful”. Daily scrums are often far more productive, efficient, and enjoyable for employees than conventional meetings, which research shows are very often complete wastes of time.
- Ditch the micromanagement and (prudently) increase employee autonomy: “[C]hoice and autonomy — not strict control and close supervision — positively impact employee happiness, motivation, and performance amongst startups”. Josiah recommends that startup founders boost and sustain team morale and productivity by giving employees more individual control over their time, work habits, and collaborative partners. Google’s famous 20% policy is an example of this strategy. Each Google employee is permitted to allocate up to 20% of his/her work week to personal (unofficial) projects, a policy that has resulted in increased creativity and output on multiple occasions (including the creation of GMail, Google News, and AdSense).
In sum, these 4 techniques are intended to foster the organic — not forced or artificial — emergence of a cohesive, supportive, and passionate startup team whose members work well together and respect core company values.
Subjecting your startup team to unnatural and hyper-planned attempts to boost solidarity and group spirit is destined to harm your company’s chances of success (and to damage your reputation in terms of workplace environment and culture).
STRATEGY #4: ENSURE THAT MARKET DEMAND EXISTS FOR YOUR PRODUCT
CB Insights’ 2014 study on startup post-mortems (referred to above) found that the number one reason for startup failure is the lack of market demand for the product being sold.
Venture capitalist Vinod Khosla hit the nail on the head when he publicly stated: “If there is no problem [then] there is no solution, and no reason for a company to exist… Nobody will pay you to solve a non-problem”.
The only way your startup will ultimately survive and become massively successful is if you create and sell a product that the market actually wants.
And what does the market want? The same thing it always wants: better — i.e., more effective, easier-to-use, longer-lasting, and/or more efficient— solutions to existing problems!
As AppsterHQ’s Josiah Humprehy recently put it:
“[E]ven if you’re the first to create some new gadget or process with serious potential to help consumers, if it’s going to take years or even decades for a market to emerge within which [your] invention can be bought and sold then your invention is basically useless”.
Investor and software engineer Marc Andreessen agrees, stressing that launching in a hungry market — whether already huge in size or, alternatively, relatively small at the moment but expanding feverishly — is essential to ensuring startup vitality:
“Th[e] market is the most important factor in a startup’s success or failure. Why? In a great market, a market with lots of real potential customers, the market pulls product out of the startup. The market…will be fulfilled…by the first viable product that comes along. The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product”.
You, as a startup founder, do indeed need to care about the structure and strength of your team but even a startup dream team won’t be able to save your company if you try and sell products to customers that they don’t actually want.
Don’t make the mistake of dedicating years of your life to building something that you believe you *might* be able to convince customers to buy one day.
This isn’t to say that people always know exactly what they want or need or even why this is so — indeed, people often realize how much they need something only after it’s offered to them.
It does, however, mean that you’re wasting your (and probably other people’s) time, energy, and money if you’re trying to create a product for which there is no market demand or — which is just as bad — for which you have not done enough research to figure out whether any such demand actually exists.
And let’s be clear:
It is absolutely YOUR responsibility to determine whether a market exists for your product and whether the core assumptions on which you’re basing your company are valid.
You must gather convincing evidence to show that you’re on the right track in terms of the problem you’re addressing, the solution you’re proposing, and the ways in which you expect your customers to respond when you launch.
Laurence McCahill, co-founder of The Happy Startup School, agrees:
“Most business ideas are based on a set of assumptions made by the founders, and without rigorously testing these you’re significantly reducing your chances of success. Many business disasters could have been avoided simply by talking more to their customers and stakeholders. It’s your responsibility to discover a product that is valuable and desirable. It makes no sense to proceed to building something until you have evidence that you have discovered the right product”.
How, then, can you go about determining whether the problem around which you’re considering building your startup is significant enough to translate into a monetizable customer pain, i.e., a market-driven demand for an immediate and potentially profitable solution?
- figuring out how widespread/significant your core problem is;
- calculating the sizes of your total available market, serviceable available market, and target market (very important distinctions that you must understand and utilize as a startup founder!); and/or
- validating your product idea before actually launching a tangible item.
Once you have determined that there is sufficient market demand for your proposed solution then it’s time build and launch your MVP.
STRATEGY #5: RELEASE YOUR MINIMUM VIABLE PRODUCT (MVP) AND DITCH THE PERFECTIONISM
Paul Graham, co-founder of Y Combinator, lists both “launching too early” and “slowness in launching” as two common reasons that startups ultimately fail.
On the one hand, launching too early is the sin that founders commit when they don’t thoroughly establish that strong market demand exists for their products (see strategy #4 above).
On the other hand:
Launching too late is the mistake founders make when they let perfectionism, unchained ambition and excitement, and/or fear prevent them from releasing their products into the market and collecting real feedback from real customers.
As the founder of a new company, it’s perfectly natural for you to want to make the best first impression possible.
You’ve spent many months if not several years assembling and strengthening your team, researching your market, developing your product, and gathering data on your customers.
You want to make sure that all your time, energy, and money have been well spent.
You’re looking to avoid embarrassment, impress your users, and make a name for your startup by releasing something truly special.
You also want to reward your employees for all their hard work by launching something that will generate lots of profit.
And you want to prove (to family, friends, lovers, colleagues) that you have what it takes to be a successful entrepreneur.
I get it, trust me!
But here’s something crucial that you must always keep in mind:
One of the surest ways to sabotage your new startup is to allow your desire to release the “perfect” product prevent you from jumping into the market and offering a concrete solution to a specific problem.
Committing to fixing every last bug and/or slapping on a bunch of “unique” and “game-changing” additional features before ever launching will very likely cause your company to fail.
You must get your product into the hands of your customers as soon as is reasonably possible.
Of course, you certainly don’t want to blindly jump into the market by releasing something without first having amassed sufficient data to show that it’s likely to succeed.
So, the key question becomes: How do you know when it’s the right time to launch?
How do you know when you’re product is “good enough” to release?
This is where the all-important stage of creating your “minimum viable product” (MVP) comes into play.
According to Eric Ries, who helped popularize the concept, a MVP is the “version of a new product which allows [you] to collect the maximum amount of validated learning about [your] customers with the least [amount of] effort”.
Techopedia provides a definition that’s a little more precise and a bit less technical:
“A minimum viable product (MVP) is a development technique in which a new product…is developed with sufficient features to satisfy early adopters. The final, complete set of features is only designed and developed after considering feedback from the product’s initial users. [As] the most pared down version of a product that can still be released[,] [a] MVP has three key characteristics:
 It has enough value that people are willing to use it or buy it initially
 It demonstrates enough future benefit to retain early adopters
 It provides a feedback loop to guide future development”.
Jessi Salonen, Lead Digital Producer at AppsterHQ, recently published an excellent article (which I had the pleasure of editing) detailing the reasons why startups must commit to releasing MVPs if they want to achieve real success.
She helpfully describes MVPs as equivalent to a kind of no-frills black coffee that offers a caffeine-induced energy increase — but nothing else:
“Creating and launching your MVP … [is] all about striking the right balance between giving your users what they need before you’re absolutely certain of every last feature they might eventually want. It’s basically your morning coffee without the latté, i.e., it has the caffeine hit consumers crave but it lacks the fancy whipped cream and chocolate shavings that bring that extra bit of pleasure. …
Your MVP comprises all the core features of your application [that your users need], i.e., the high value must-haves rather than the potentially valuable nice-to-haves”.
Why, though, is it crucial for startups to release pared-down/streamlined or “lean” (more on this shortly) versions of their products?
Why not add all the extra features and take care of all the troubleshooting right now and then just sit back and watch the cash roll in (yeah right…) as your customers use your new product without a single glitch or hiccup?
For three reasons:
1. Because there’s no such thing as a perfect product or a glitch-free release — period.
No matter how much money and time you spend on development or on pre-launch troubleshooting, your customers will always find one or more faults (or “missing” features) with your product and you will always have to change things after your first release.
2. Because the only way that you can even begin to understand whether, and if so then how, your prospective customers will actually use your product is to let them try it out in the real world.
Sean O’Malley, co-founder of SmartBiz, puts it like this:
“[Y]ou never really know if you’ve got the right product for the right market at the right time until you’ve [actually] launched the product. Getting to market quickly is the best way to start validating with real customer data. …What ‘getting to market quickly’ should mean is that you understand your customers’ needs and desires enough to narrow your offering down to the minimum set of features necessary to acquire and inspire”.
(Your “minimum feature set” is, essentially, your MVP).
3. Because prioritizing nice-to-have features at the expense of must-have features wastes precious time and money that could be better spent collecting data about the fundamental reasons why your customers use your product in the first place.
Jessi Salonen nails this point when she explains:
“[E]very new feature you tack onto your product…pushes you further and further from the goal of actually launching[.] … Are [all] these different features worth the investment? Yes, they almost certainly are. But they are not a priority at the very moment when you’re trying to get into the market in the first place! Create your MVP now and launch now. Otherwise, build three or four fancy nice-to-have features into your yet-to-be-released [product] and watch helplessly as two or three of your competitors actually launch…”
For a great description of various strategies you can use to successfully create and launch your MVP — including applying A/B split testing, embracing User-Centred Design, and staying focused on coding the essentials whilst blocking out the “noise” of calls for more bells and whilstles — check out the rest of Jessi’s article here.
STRATEGY #6: UNDERSTAND THE MEANING AND VALUE OF “PIVOTING”
Let me begin with a bit of context.
Josiah Humphrey of AppsterHQ summarizes Ries’ basic methodology in the following terms:
“In a nutshell, Ries’ approach is all about the various ways in which startups can intelligently and effectively cut wasted time and resources by efficiently creating, testing, and refining products that actually fit the demands of the market precisely because they are based on the experimental (i.e., data-backed) needs and desires of real customers”.
Two concepts essential to understanding Ries’ views on leanness are:
- “Iterative”: i.e., back-and-forth/circular development rooted in continuous customer feedback; and
- “Validated learning”: i.e., several stages of analytics-based testing of core assumptions, intended to further develop and refine a startup’s main hypotheses and in turn gradually compile a sustainable product that matches consumer wants/demands.
Ries’ primary thesis is the following:
A) Traditional businesses spend long periods of time trying to develop “perfect” products by conducting extensive market research “from a distance” and putting together elaborate business plans.
B) Startups, on the other hand, succeed when they get to market quickly by initially offering less-than-ideal products.
C) Startups use scientific experimentation (in the form of measurement analytics) to develop and release MVPs, carefully assess customer engagement, and tweak their products in an ongoing, continuous process.
D) As this cycle repeats, a tighter and tighter product-market fit emerges and startups begin generating profits as their products become increasingly adapted to consumer demand.
(As an aside: if you’re interested in learning about the specific tool that many startup entrepreneurs use today in place of conventional business plans, i.e., “lean canvases”, then I suggest checking out this post written by Ash Maurya (who created the lean canvas) as well as this article that I recently edited for Josiah Humphrey).
So, why all this discussion of lean startups and of Ries’ ideas in particular?
Because one of the core elements of Ries’ methodology is the pivot — a frequently misunderstood but crucial aspect of running a new company, one that is often essential to the very survival and ultimate success of a startup.
It should be noted that there is just as much, if not more, controversy (and palpable annoyance) surrounding Ries’ notion of the pivot as there is with the lean startup methodology as a whole (examples: 1, 2, 3, 4).
This being the case, I nevertheless maintain that learning when and how to pivot is fundamental to the success of modern-day startup companies.
THE ESSENCE OF THE PIVOT: EVIDENCE-BASED, CAREFUL, MARKET-DRIVEN ADJUSTMENT
In Ries’ own words, the pivot consists in the following ideas:
“The hardest part of entrepreneurship is [learning] to develop the judgment to know when it’s time to change direction and when it’s time to stay the course.
[T]he concept of the pivot…[recognizes] that successful startups [often] change directions but stay grounded in what they’ve learned. They keep one foot in the past and place one foot in a new possible future. Over time, this pivoting may lead them far afield from their original vision, but if you look carefully, you’ll be able to detect common threads that link each iteration.
By contrast, many unsuccessful startups simply jump outright from one vision to something completely different. These jumps are extremely risky, because they don’t leverage the validated learning about customers that came before”.
A more concise definition of the pivot might be something along the lines of:
A calculated and intelligent response to the recognition that one or more of the key assumptions of your startup are flawed.
Martin Zwilling, founder and CEO of Startup Professionals, expands on Ries’ ideas by specifying that startups can potentially engage in at least 8 different kinds of pivots, including market segment pivot, product feature pivot, and sales channel pivot.
To dispel some rather unfavourable interpretations of Ries’ work, let me point out the following.
Pivoting is not what wannabe entrepreneurs do when their first get-rich-quick scheme fails and they move onto their next “big” idea.
Pivoting is not what short-sighted founders do when they receive a bit of negative feedback from early adopters and instantly decide to abandon their entire MVP.
Pivoting is not the buzz word that copycat creators use during dinner conversations when they have to explain why their latest Instagram or Pinterest clone gets no traction.
Pivoting is what the passionate yet reasonable, dedicated yet adaptable startup team does when a) the real-world market data it has collected suggest that one or more of the company’s foundational assumptions is mistaken and b) the founders recognize that in order to continue pursuing their startup’s main vision and core values they must strategically apply all the experiences they’ve accumulated thus far to a new or different kind of product, market, revenue stream, etc. and grow their business from there.
Pivoting, therefore, is:
- a measured, thoughtful, and evidence-based attempt to adjust a startup’s operations
- in response to the intricacies (demands) of the market
- undertaken whilst the venture continues to pursue its foundational corporate and cultural/ethical objectives.
This means that, when executed properly, pivoting is the opposite of giving up.
(On the topic of quitting: if you’re a startup founder/entrepreneur who could use some serious motivation right about now then I highly suggest checking out this heartfelt, no B.S. post on refusing to give up written by Creatomic’s Jon Westenberg).
AN EXAMPLE OF PIVOTING
What does a practical (hypothetical) example of pivoting look like?
Let’s consider a potential revenue model pivot by assuming that you’re a new startup looking to sell premium WordPress themes.
As part of your MVP development process you release a beta version of your first premium theme to a community of early adopters.
(The beta version of the theme you share is, of course, based on sets of market data you’ve already collected as part of your efforts to ensure that a monetizable customer pain exists, that your product idea is solid, and so on).
One of the core hypotheses you seek to evaluate by running these pre-launch tests is your belief that the user-friendliness of your theme — including the straightforward installation and troubleshooting guide that’s included in the download package and the theme’s easy-to-use customization settings —is such that the majority of users won’t have any difficulties setting up and tweaking the theme to their liking.
Your basic expectations are that a small minority of users will email you asking technical questions about installing and setting up the theme but that most email inquiries will have to do with other matters, such as providing general feedback on the look and “feel” of the theme, suggestions for additional features and improvements, and so on.
Based on this hypothesis, you provisionally plan to utilize a revenue model based on a one-time product sale, i.e., you will sell your premium theme for a one-time, fixed price (let’s say $59.99 USD).
After conducting the first round of early adopter testing and analyzing the resulting data, you realize that far more people than you had originally expected had emailed you seeking help with the installation and customization of the theme.
Believing that most of the user confusion is being caused by a bit of unclear language and several under-developed explanations in your installation and troubleshooting documentation, you improve the quality of this information by including more detailed descriptions, additional screenshots, and a more elaborate FAQ section.
You then run a second round of beta testing to see if your hunch about the inadequate documentation causing user confusion is true.
Again, though, you end up receiving — and having to take the time to respond to — far more email support questions than you had anticipated.
Deciding to make the documentation even clearer and more comprehensive, you hire an editor who’s well versed in WordPress and blogging to enhance your troubleshooting guide.
Finally, you run a third round of beta testing and analyze the results.
To your amazement, the number of emails from early adopters asking for help with the installation and tweaking of the theme hasn’t decreased at all.
You also notice that a certain trend has persisted across all three rounds of testing, i.e., users asking numerous questions over email for which the answers are explicitly provided in the theme’s support documentation.
At this point you then have three very important insights:
- No matter how straightforward and comprehensive you make your support guides, a significant number of users are going to continue emailing you to ask for technical assistance with installing and using the theme.
- There is, therefore, significant demand for ongoing support and assistance with the installation and use of your theme.
- This demand represents a very lucrative opportunity for changing your revenue model from a one-time product sale to a subscription-based service. Connected to this is the fact that you’ve determined that the amount of time you expect that you (or your support staff) will have to dedicate to responding to and dealing with technical inquiries is such that you will actually lose $7 or $8 USD every time you sell a theme for a one-time price.
Therefore, based on all the data you’ve collected thus far, you make the informed, forward-thinking, and market-driven decision to couple your premium theme with a kind of 24/7 online support service and to sell that package as a subscription-based product/service.
After performing a bunch of calculations to try and determine the proper price point, you re-align your startup to a subscription-based revenue model.
Users will now pay a yearly fee (let’s say $99.99 USD) for access to the theme itself, unlimited free upgrades, and always-available online support (in the form of password-protected forums, special email access, etc.).
Congratulations! You have just successfully and justifiably pivoted.
As in basketball — where a player who has stopped dribbling is permitted to move one foot any way he likes so long as he keeps the other foot planted firmly on the ground — you have kept one foot grounded in what you’ve been doing all along, i.e., trying to design and sell a user-friendly premium WordPress theme, whilst simultaneously making a lateral movement with the other foot by intelligently adjusting your revenue model, i.e., moving from a one-time product purchase to an ongoing, subscription-based product/service.
PIVOTING IN THE “REAL WORLD”
It’s important to note that evidence shows that successful companies are often those whose histories reveal one or more instances of having had to pivot in order to stay alive and/or scale.
Amongst others, here a few real-life examples of famous startup pivots:
- Flickr was an online role playing game before it became a popular photo sharing website;
- Instagram was a location check-in app before it became the world’s biggest mobile photography app;
- PayPal was a digital wallet service prior to taking its current form as a worldwide online payments system;
- Pinterest began as an e-commerce site before becoming a “pin”-based photo sharing and publishing service;
- Twitter started out as an audio sharing/curating service before becoming the 140-character “social network” we know today; and
- YouTube was a video dating site before its founders recognized the demand for an easy way to upload, search for, and share internet-based videos (sources: 1, 2).
Finally, in addition to these popular examples, there’s Paul Graham’s oft-cited remark that anywhere between 70% to 100% of all Y Combinator-funded startups abandon their original core ideas for new ones by the end of the first 3 months of funding.
Pivoting, thus, is a common and crucial aspect of creating successful startups in the 21st century—as a new founder, it’s essential that you take the time to study this practice and apply it intelligently when necessary.
Here’s a quick recap of the 6 main strategies for preventing your startup from failing that I’ve discussed in this article:
- Have at least one co-founder: Startups are far more likely to succeed when they consist of teams of two or three skilled, passionate, and supportive co-founders rather than in single creators. Launching and sustaining a successful startup is extremely difficult to achieve: there’s little reason, if any, to make the task even more taxing by refusing to draw on the abilities, resources, insights, and assistance of other equally dedicated individuals.
- Assemble a strong team: Unproductive, unsupportive, insufficiently talented, or otherwise ineffective startup teams are a huge reason that so many new companies fail in today’s world. As a founder, you need to do all you can to attract the right kind of people for your startup. Seek out team members with complementary skill sets; hire people with the same drive, passion, intensity, and commitment as yours; and actively engage with your top candidates by assigning them tasks where they’re forced to show — rather than merely tell — you what they can do and how they behave in a high-pressure, team environment.
- Develop a supportive and authentic team culture: Developing a solid team culture founded on genuine solidarity, honesty, shared passion, and support for company values is crucial to ensuring the continued success of your startup. Rather than using artificial, hyper-planned methods to try and force the emergence of a cohesive group culture, you need to embrace techniques that allow authenticity amongst your team members to arise organically. Lead by example, engage in the right forms of team-building exercises, ditch conventional top-down meetings for daily scrums, and prudently enhance employee autonomy.
- Ensure that market demand exists for your product: the number one reason that so many of today’s startups fail is that they never attain a solid product-market fit. At the end of the day, the only way for your startup to succeed is to create a profitable solution to a pressing problem that the market wants (i.e., needs) to be fixed. Even an all-star set of founders and an employee dream-team can’t save a fledgling startup if the company isn’t actually selling something that its customers have clearly shown they want. As a founder, it is undeniably your responsibility to verify (i.e., to test) that the market actually desires the solution you’re offering.
- Release your minimum viable product (MVP) and ditch the perfectionism: One of the most costly mistakes you can make as a new founder is to allow your perfectionism, ambition and over-excitement, and/or your fear of failure prevent you from releasing your product into the market and collecting real feedback from real customers. If you hope to succeed as a startup then you absolutely must release (one or more iterations of) your minimum viable product, i.e., a less-than-perfect version that contains all the core features essential to ensuring that early users will embrace your product but that lacks the nice-to-have features that might be added at some point in the future. Remember: there’s no such thing as a glitch-free product or a perfect launch. Plus, the only way to actually test each of your fundamental assumptions about your product, your market, your customers, and so on is to get your product into your users’ hands and have them use it in the real-world. Therefore, the longer you wait to launch by obsessing over getting every last detail “just so”, the more time, money, and other precious resources you waste as your competitors work more practically to get to market first.
- Understand the meaning and value of “pivoting”: Many, if not most, of today’s ultra successful startups (from Facebook and Pinterest to Twitter and YouTube) know how, when, and why to pivot. In contrast to some of the caricatures circulating online, pivoting is not some fancy term that wannabe entrepreneurs invoke when they screw up their businesses or fail to engage in any sort of analytics-based testing of the core assumptions of their operations. Rather, pivoting is a measured, thoughtful, and evidence-based attempt to adjust a startup’s operations in response to the demands of the market as the company continues to pursue its foundational objectives and values. As a careful and data-driven effort to adjust course in order to survive and grow, pivoting is the opposite of quitting. When understood properly and applied carefully, engaging the pivot can be fundamental to your startup’s success.