Nicholas Thomas is the Director of Business Development at Docudesk Corporation and is passionate about user experience, design, and innovation. You can follow him on Twitter @nicholaswthomas and read his blog at NicholasWayneThomas.com.
Although some discount “The Pivot” as an overused buzzword, for a startup, pivoting can mean the difference between becoming the next success story and joining the deadpool. The principles behind the pivot apply to any industry. With lean resources, fickle users and quickly changing markets, startups have the most to gain from pivoting, and the most to lose from missed opportunities.
The reasons for changing course are often varied, and there are many factors to take into consideration when making the decision. Some companies have discovered that their products need to be significantly tweaked — or even scrapped all together. Others found that they had the right products, but have marketed to the wrong audience. For some, the only thing they had right was their team.
There may be some valid criticism in the over-usage of the term. Some of what can be identified as pivoting may just be the natural evolution of the company. The technique is not new though, and many established companies look significantly different now than in their early days.
Fortunately for today’s startups, pre-existing companies provide examples of successful adaptation.
When most people need recommendations for a good doctor or a good movie rental, they ask their friends. Jeremy Stoppelman started a company and asked millions.
Along with cofounder Russel Simmons, the company began in 2004 as an automated system for emailing recommendation requests to friends. Although the duo received $1 million in funding from PayPal co-founder Max Levchin, the idea fell flat with their audience.
However, users did viewed the system in a way they hadn’t expected: by writing reviews on local businesses just for fun. They decided to change course, capitalizing on the new “blue ocean strategy” of online reviews for local businesses. The original “Friendster Yellow Pages” now sees over 50 million users a month, with 17 million reviews online.
Lean startup wisdom says to start small and focus on niche markets. But when you have a great team in place though, focusing on the bigger picture can be worthwhile.
Founded in 2005, YouTube began as a video dating site called “Tune In Hook Up,” similar to HotOrNot.com. When the site failed to gain traction, the founders scrapped the idea, and instead focused on simply sharing videos online.
Arising from the merger between two companies specializing in financial services (X) and cryptography (Confinity), PayPal originated as a way to exchange money via Palm Pilots. Peter Thiel is credited with seeing the potential to solve a much larger problem – an easy way to transfer money online.
After securing a relationship with eBay, PayPal was soon handling over 40% of eBay transactions before being acquired by the company in 2002 for $1.5 billion. PayPal now has over 100 million active accounts, and is again bullish on the mobile strategy, expecting to process over $3 billion in mobile payments in 2011.
A successful pivot can begin as a simple means to an end, or as a solution to a purely internal problem.
Woot.com began in 2004 as a way for Matt Ruttledge’s 12-year-old wholesale electronics distributor to clear out unsold inventory. The result was a new model for online shopping that combined bargain hunting with scarcity and urgency, all while maintaining a sense of humor that would become a company trademark.
After establishing the framework for daily deals sites and expanding their offering, Woot was acquired by Amazon in 2010 for $110 million.
A great example of a feature becoming its own product, Flickr’s roots lie in the development of an online role-playing game from gaming startup Ludicorp.
Recognizing they had developed a solution to a much larger problem, Caterina Fake and husband Stewart Butterfield decided to scrap development of the game, and focus instead on the larger potential of simplifying photo sharing on the web.
Ludicorp never actually published a game, and Flickr was purchased by Yahoo! in 2005 for an undisclosed sum.
Sometimes the idea can be completely right, but the target market completely wrong.
Founded in 2006, The Point began as a platform for mobilizing groups of people towards action for various causes. Groupon was initially just one subset of another site, (even launching at groupon.thepoint.com).
The group buying aspect struck a nerve with users much more so than the social and political concept the platform. As founder Andrew Mason put it, “The Point should have been the book, and Groupon should have been the company.”
Shopify is another example of a company born from solving an internal problem, but recognizing a bigger need.
In 2004, Tobias Lütke and Scott Lake needed an online shopping cart for their new snowboard business. When they found no suitable choices available, Lütke decided to write his own, and make his solution available to other small companies running into the same issue.
Shopify now hosts over 10,000 stores and is processing over $100 million in revenues.
Outside pressure can go a long way in sparking truly paradigm-shifting innovation.
In 2006, podcasting startup Odeo was quickly made irrelevant after the release of iTunes and other competition. Seeing the writing on the wall, Twitter began as a side project originating from “hackathons” to identify viable new opportunities.
Allowing your users to influence the nature of your offering can be rewarding.
Launched in 2008 as a dating site for groups, Ignighter grew modestly in the U.S., adding 50,000 users in its first year. The idea of a dating site for groups rather than individuals caught fire in India though, where the site began adding as many users in one week as they had previously added in an entire year.
In 2010, cofounder Adam Sachs made the company’s pivot official, stating, “We are an Indian dating site.”
At nine months old with 1.25 million users for every employee, Instagram proves that the team can sometimes be more important than the product itself.
Founder Kevin Systrom started Burbn to learn programming outside of his marketing day job, aiming to blend elements of Foursquare and Mafia Wars in a mobile HTML5 app.
After receiving funding from Baseline Ventures and Andreesen Horowitz, Systrom added cofounder Mike Krieger to the project. The duo decided to take a mobile-first strategy by scrapping the original code for a native iPhone app. The resulting feature-rich app felt cluttered, inspiring the team to remove everything except the most important features and rename the app to reflect the new use case: Instagram.
Although no more divergent than Twitter was to its inception at Odeo, Turntable.fm’s origin is at least equally disparate, and for the time being at least, much more mysterious.
What makes this pivot intriguing is not just the divergent nature of the products, or of the established players Turntable.fm is challenging, but is their team’s reluctance to talk to the press about it.
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