6 Signs It's Time to Turn Your Startup in a New Direction
StyleZen had a following of loyal customers. But the principals at the shopping site, which launched in 2011, were struggling to expand that user base. "We had amazing user engagement, but we couldn't figure out how to grow without spending a huge amount of money," says co-founder Michael Wohlschlaeger.
Like many brands, StyleZen turned to Pinterest to increase followers and traffic. The team experimented with pinning different types of content--products, blogger photos, etc.--as well as the best times to do so. They tried a vast array of combinations and permutations and discovered that there really was a method to the madness for success on Pinterest.
This experiment led to the in-house development of tools that enabled four key strategies for StyleZen: picking the right content; customizing that content for Pinterest; implementing "intelligent scheduling" for optimum traffic and engagement; and maximizing "post-Pinterest click" value. Once these tools were implemented, the startup experienced what Wohlschlaeger calls "straight-up, hockey-stick growth."
It was a classic "aha" moment. StyleZen was shut down, and the team decided to pivot into a new role: using its technologies to help other businesses leverage Pinterest as a marketing vehicle. In the fourth quarter of 2012, the Cincinnati-based company reemerged as Pinterest-optimization platform Ahalogy. It has received $1.65 million in seed funding and has grown from four employees to nearly 20. Clients include Procter & Gamble, Casio, John Frieda and ConAgra Foods.
Few startup ideas are perfect right out of the gate. That's why it's important to recognize when you might need a course correction in your idea, pitch, product or execution. From performance metrics and market feedback to the general mood of the office, there are several signs entrepreneurs should assess when deciding whether to stay the course or head in a new direction.
Scott Jacobson, managing director of Madrona Venture Group in Seattle, says that for many startups, knowing when to pivot can be more important than having the perfect idea from the start.
"Ideas are cheap, but execution is hard," he says. "As you hear market feedback, listen to customers and see how they experience your product, it's not uncommon to have to consider the fact that you may not have nailed it on the first go, and be open-minded to a pivot."
How do you know when it's time? Consider these six indicators that a pivot might be prudent.
1. One piece works better than the whole.
For StyleZen, the pivotal moment came when the team realized that the tools they were using to power their business had more potential for growth than the business itself.
"Once we figured the technology out, we had a very strong belief that it would be more valuable if leveraged across multiple brands as opposed to my one startup brand," Wohlschlaeger explains. "An internal tool turned out to be more valuable than the shell."
He recognized the distinction by applying a bigger-picture, strategic perspective to the detailed performance metrics the company had developed, such as unique usership and engagement.
"If we hadn't taken a step back and looked at everything, we would have just said, ‘Hey, StyleZen is blowing up, and it's absolutely amazing,'" he says. "Instead, we said, ‘What if we can replicate the same value these tools created for StyleZen for other clients?'"
2. You misjudged your market.
Neal Hansch, San Francisco-based managing director of MEST Incubator, says many startups forge ahead believing the market is dying for whatever solution they're about to introduce--only to find that the target audience isn't interested after all.
"It's not about having failed to get in front of potential users," Hansch says. "It's that the value proposition doesn't resonate enough with the target audience to generate sufficient interest for most to give it a try, much less become regular, repeat users." That means it's time to rethink the idea and assess how the core thesis was off-base.
Mistakes can also occur when introducing a paywall to a free service. If you add a fee, and the conversion rate from trials to purchases is low, or the willingness to pay is at a price point much lower than expected, it's a clear sign that your product or service is a "nice to have" option for consumers, as opposed to a "need to have," Hansch says. "If these stats are disturbingly low," he adds, "it's time to pivot the product and find where it can, in fact, address a pain point that's more compelling than the one currently being solved."
3. You're missing industry standards.
Patrick FitzGerald, lecturer in the Goergen Entrepreneurial Management Program at the Wharton School of the University of Pennsylvania, says understanding your industry's key sales cycles is important to assessing whether you are on the right track. For example, you should know whether the sales cycle for your target customer is four to six months, or whether sales typically come in the form of a quick yes or no.
"If you're finding that you're not getting a yes or no within that industry time frame, that's a pretty good red flag that you're outside the norm in your industry," he says. "If it happens once or twice, fine. But if it's ongoing, you've got to realize it's a problem and consider whether a change needs to be made."
4. The money's not there.
When Alex White was a student at Northwestern University, he co-founded Next Big Sound, a site where music lovers could create fantasy record labels to "sign" artists. While the site attracted thousands of users and had been covered by The New York Times, the metric its founders were tracking most closely was the dwindling amount of money they had left in the bank.
"We had one month where our Amazon web bill was due, and we didn't have enough in the bank to cover it, so we were kicked out into the cold water of reality," White says.
On the verge of shutting down the company, the founders were accepted into the Techstars incubator program in Boulder, Colo., where they promptly announced that they were making a change--but did not yet have a new idea. The team remained focused on the music industry and the mysterious process of how a band goes from playing in a garage to achieving worldwide fame. It was during the first month at Tech-stars that they hit upon the idea of tracking social media to measure the popularity of up-and-coming music acts.
That's when Next Big Sound pivoted from a consumer-oriented music site to an enterprise data and analytics company for artists, producers and labels.
The New York-based company now employs more than 20 people, has thousands of users, licenses two charts to Billboard magazine and has secured two rounds of venture financing.
"You have to be brutally honest about what's working and what's not," White says. "We were able to launch products successfully and build something we were proud of, but the business wasn't viable. You can't live in this entrepreneurial world if you can't make money."
5. A competitor is doing it better.
Amazon was not the first online bookseller, and eBay was not the first auction site. They just did it better than their predecessors.
Jacobson at Madrona Venture Group says that if your sales force is consistently losing to a competitor, it may be a signal that your price is wrong, you don't have the right feature set or you're not differentiated enough from your rival. It may be time to consider a pivot.
"Look at the metrics," he says. "If two apps launch at the same time, and one absolutely skyrockets because of virality, feature set, better marketing or whatever reason, you can see that difference in growth rates. If it's a winner-take-all type of market, then maybe that's a good indication you should go do something different."
6. The thrill is gone.
A startup won't succeed without founders who are passionate and enthusiastic. So if the low moments start to outnumber the good ones, it may be time to reboot. White says that while there were many reasons for Next Big Sound's shift, one of the biggest indicators that they needed a change was that his team just wasn't excited anymore.
"We didn't jump out of bed in the morning, and we didn't stay up all night working on it," he says. "Entrepreneurship is so difficult; if it's not gripping you and exciting, that's probably a clear sign to switch, because it certainly doesn't get easier."
FitzGerald of the Wharton School says the same applies to employees, who might quit if they're not feeling energized and fulfilled. "If your lower-level people are still crazy gung-ho and coming to work every day, you're probably OK. But if they're starting to drift off because they just don't think it's going to happen, you should really explore it."
He adds that while it's natural to get dispirited at times, when those feelings are constant, a pivot may be in order. "Depression, self-doubt and fear are naturally coexisting with an entrepreneur, and it's OK to embrace it to a point," he says. "But if it extends too long, that may mean it's time for a change."