GOAT: In Defense of the Pivot
The “pivot.” If you spend much time in the VC industry or reading tech press, it starts to sound like a cliche. Like a punchline. A last, desperate scramble to make something out of a business that, rightly or wrongly, couldn’t make their model work the way originally thought or how early metrics had indicated it might.
And when you’re surrounded by examples of failed pivots, it can be easy to become jaded about them. For every successful pivot like a Twitter, Instagram, or Slack, there are countless others, high profile and low profile, that never managed to find product-market fit and simply ran out of runway.
I sometimes say be careful with pivots, as the referee will blow the whistle for traveling. You can lose your key players, key coaches and influential fans and supporters. And yet, sometimes that pivot can create a clear path to the basket leading to a wide-open slam dunk. Trust me, the basketball analogy will make sense in a moment.
Despite their sexiness, startups are hard. Entrepreneurship is hard. It’s all so f’in hard. Creating a business that can disrupt a decades-old, billion dollar industry — and doing so in an economically viable way — is damn near impossible. Who wouldn’t want to see a hungry team of entrepreneurs give it one last shot with a thoughtful pivot, even if success in such circumstances is few and far between?
When I first started working with Eddy Lu and Daishin Sugano in 2014, they were already a couple of years post-launch into a company that Upfront Ventures had initially funded in 2012 out of Y Combinator, before I joined the firm. That company, Grubwithus, was a mobile app for bringing together groups with like interests for family-style meals and conversations at restaurants, connecting the online and offline world. As founders, Eddy and Daishin had been (and continue to be) incredibly disciplined stewards of capital, keeping burn rate modest until the market indicated there was enough traction in which to more heavily invest. Sometime even against the advice of investors.
As a result, they still had a meaningful chunk of Series A cash in the bank and some solid tech with great product and design aesthetics. But, to be brutally honest, they had little in the way of traction to show for all the work. The flywheel and market validation that is so critical to a social startup simply never really got moving. They knew I was growing more concerned that the current path was just not going to get there. We had hard conversations — very hard, honest and open conversations. Yet Eddy and Daishin’s passion was still palpable. Their team remained hungry and committed to building something material. By a long shot, they weren’t ready to throw in the towel.
In March of 2015, knowing that Grubwithus (and Superb the pivot after that) wasn’t going to be the business that got everyone to the promised land, we sat down as a group and created a list of potential options and outcomes for us all. There was enough capital to make one more 12-month run. The list of ideas ranged across industries and markets, with one key criteria — that the eventual business had to be in an area about which Eddy and Daishin were authentically knowledgeable and deeply passionate. They needed to benefit from an unfair advantage. Something they already loved, outside of their current business creating social-offline experiences. Something that would keep them excited and engaged to keep building. Something that, candidly, I thought I could sell to my partners and other existing investors. Put simply, startups are life consuming and these guys had been at it for a while. For them to re-commit to the grind of building something from nothing, the focus had to feel fun and compelling.
After a number of ideas were rejected, Daishin said something to the effect that we were all wearing really nice sneakers. I had previously done some work on the incredible commerce community that surrounds sneakers (think sneakerheads); there was something about the category that reminded me of eBay in the early 2000s, in that sneakers were one of the few collectible categories that millennials actually participate in. Everyone smiled.
And that was the pivot: GOAT (which stands for “greatest of all time”) launched in summer of 2015 as a mobile marketplace for the growing collectible sneaker industry.
The app did $14,494 in GMV in August of 2015. Daishin used some of the available cash to buy sneakers to seed the marketplace — maybe $20,000 if I remember. The next month, GOAT did $27,166 in GMV. It wasn’t a ton of volume, but one day they did $1,000 in sales. Another day, they sold a then-record, five pair of sneakers. There they were. The green shoots. The genuine excitement about finding something that few others saw.
Organic momentum continued with GMV growing to close to $100,000 in October. Too much demand (and either a brilliant or terrible promotion) crashed the site in November. December 2015 saw more than $400,000 in GMV. I thought it might just be lucky holiday demand. It wasn’t easy to handle the volume. The USPS guy was pissed because he had to make so many trips to the GOAT office. Everyone was taping and organizing boxes.
2,000 pairs were sold in January, costing me four lower-level tickets to a Lakers game (as I had created a monthly stretch goal for GOAT — they beat it by MLK Day).
They weren’t spending any real money on marketing but instead saw organic, community-driven growth, which in turn drove inbound investor interest. There was more than a “there” there.
It has now been just over a year since the launch of that fateful pivot, and GOAT has become a leading sneaker marketplace in what is quietly a billion dollar category. 20,000 pairs of sneakers are in and out of their building every month.
In a world where millennial consumers increasingly reject status possessions, sneakers are one of the few categories that drive excitement, buzz and purchases among a passionate fan base. But it’s not a market without its challenges. If you don’t happen to be a rabid fan of, say, the Yeezy Boost 350 Pirate or even original Air Jordans, you may not know that high-quality sneaker fakes can run rampant. That’s why the GOAT team quickly focused on security authenticity for buyers and sellers, verifying every seller and sneaker that’s sold on their app, as their entry point into this market.
Since the iOS and Android apps went live, hundreds of thousands of members have downloaded the app and actually use it, and many thousands more sellers want to be on the site but still haven’t been vetted. GMV this quarter will be eight digits. They still really aren’t spending money on marketing, but the passionate sneaker community around GOAT continues to grow and engage. Members create sneaker wish lists and make offers to one another for sneakers they want. Buyers regularly photograph and film the “unboxing” of their newest pair of kicks from GOAT. And I’m not naming names, but when the NBA season starts in October, you might even see some of GOAT’s biggest customers on the court (literally and figuratively).
This is all a very, very lengthy lead-in to acknowledge that GOAT has emerged from the uncertain early days of its pivot into an exciting and rapidly growing business with a ton of upside ahead. It is the talk of our partnership and is brought up by friends and business associates that I didn’t even know knew anything about the category. And I’m thrilled to share that today GOAT formally announced $5M in new funding, led by Josh Hannah from Matrix Partners with additional participation from us at Upfront. There are few who know and understand marketplace dynamics better than Josh.
I’m not only excited for Eddy, Daishin, and the GOAT team (p.s. they’re hiring, really hiring), but I’m excited to see GOAT emerging as another data point validating the tenaciousness and resourcefulness that is required to succeed as entrepreneurs. Congrats guys, and keep after it! You’re still in the early part of the game, but you have earned the right to keep playing in front of the big crowds in the big arena.
