Youโ€™re reading an excerpt of Angel Investing: Start to Finish, a book by Joe Wallin and Pete Baltaxe. It is the most comprehensive practical and legal guide available, written to help investors and entrepreneurs avoid making expensive mistakes. Purchase the book to support the authors and the ad-free Holloway reading experience. You get instant digital access, commentary and future updates, and a high-quality PDF download.

The Pivot

Not having a market for the product or service is the number one reason startups fail.

โ€‹exampleโ€‹A company may be struggling to sell a digital advertising network product. Their sales prospects donโ€™t see the need, since the existing solutions are sufficient; but they keep saying that what they really need is an ad network analytics product to inform them on how the advertising networks they are using already are performing. The company uses the same team and pivots its product strategy to an analytics product.

The history of successful startups is full of pivots: Twitter started out as a podcast directory; Pinterest was initially a shopping app called Tote. Some successful startups have pivoted multiple times, in some cases to completely new product categories. So if your portfolio company is simply not finding paying customers for its current product in its current market, perhaps they need to pivot. You can be helpful by encouraging that exploration and acting as a sounding board for new ideas.

Pivots work best when there is significant runway (more than three months!) left in the company and the team can apply some aspects of its team and technology directly to the new market. It takes time to evaluate the new market and get a detailed enough understanding of the new customer set to be able to build new features with confidence. It also takes time to build those features, update the website and all the marketing, start prospecting for sales, et cetera. The more the team can leverage their existing assets, the more likely they are to succeed. The more the team stays within its domain expertise, per the example above, the more likely it can save time in customer discovery and have some existing relationships that it can leverage for early sales.

โ€‹importantโ€‹ Pivots are not to be taken lightlyโ€”it is akin to hitting the restart button. Suddenly, the company has no product, and it has no customers for the new product they donโ€™t yet have. There are times, however, when the new idea is so compelling and it comes directly out of the companyโ€™s experience with its existing business that the entrepreneurs can convince existing investors to provide some additional interim financing to get the company to a significant milestone on the new business. Then it will be in a position to raise an external round with new investors.

If you found this post worthwhile, please share!