Startups & Pivots
BGV General Partner Anik Bose shares his perspective on pivots in Venture backed startups. Wikipedia defines Pivot as the point of rotation in a lever system, more generally, the center point of any rotational system. In 2011 Eric Ries designed Pivot as a method for developing businesses and products. Lately the term “pivot” is in vogue with VC’s and entrepreneurs. In some cases it is even viewed as a badge of honor. The reality is that pivots often cause early stage VC backed companies to burn through far more cash than originally planned along with founder/management change disruptions. All of which can significantly reduce the probability of success and stretch out the time to liquidity. It is little wonder then that 15,000+ startups get seeded every year but the number of successful exits every year – M&A or IPO ranges between 500-700. Randy Komisar from Benchmark Capital explains in his book “Getting to plan B” that the business plan you fund is almost never the business plan that you end up executing. The book argues for agility, continuous adjustments, fast learning, and the courage to change. In reality, making continuous tactical adjustments is always necessary and often rewarded but this logic is often used as the justification for making a “strategic pivot”. There are two root causes that create the need for a VC backed company to execute a pivot:
- Significant change in market and or competitive environment
- Compensating for a poorly thought through market/customer selection strategy.
- When developing a new business concept begin with the customer – Invest time talking to potential customers to develop a fine-grained understanding of the pain point and the shortcomings of current competitive solutions.
- Build in Product Marketing/Management DNA into the team (part time or full time) in the early days thus ensuring process discipline such that the above input is fully reflected in developing the Market and Product requirement documents that guide the product development effort.