Sheel on Mercury: The Power of Strategic Pivots

I’m Sheel Mohnot, Co-Founder of Better Tomorrow Ventures and investor in seed-stage fintechs. I joined Mercury at this year’s TechCrunch Disrupt in San Francisco to talk about strategic pivots, how to recognize the right time to pivot your company, and some things to keep in mind when it becomes time for a change.

Embracing the pivot

Strategic pivots are close to my heart. As an investor and founder, I've seen my fair share of shifts, both in my own companies and across my portfolio.

And pivoting — while sometimes associated with failure — is, in my opinion, a marker of resilience, a path to success, and a unifying factor across many of today’s most well-known tech companies.

In fact, several world-renowned companies began as something else entirely. Here are a few of my favorite examples:

Burbn to Instagram

• Burbn was originally a location-sharing app that allowed users to attach photos to check-ins. Its founders noticed that users cared more about the photo-sharing aspect than the location feature — an insight that led them to start Instagram.

Cicada to TikTok

• Originally a platform designed for teachers to create short-form educational videos for students, Cicada’s use started picking up on Thursday nights when a karaoke show was streaming, and the founders realized its potential as a social platform. The app evolved into Musical.ly, which eventually became TikTok.

Tiny Speck to Slack

• This is a super-famous one: the social MMORPG used in Stuart Butterfield’s company, Tiny Speck, turned out to have more potential than the game itself...

Tune-In Hook Up to YouTube

• Originally conceived as a video-based dating site in 2005, the video platform that’s now YouTube was designed as a place for people to upload videos talking about themselves and the relationships they were looking for.

And those are just a few examples. As you can see, many of the products we use every day were initially different products entirely.

That’s because businesses frequently start with one vision, then discover that customer needs don’t quite align with that vision. Businesses that stick with an initial idea that isn’t working almost always fail.

Whether your pivots are small (a change in payment structure or the customer you’re marketing too) or complete redesigns of a product and its use case, smart companies evolve when their users show them a better path forward.

How to know when to pivot

If your product isn’t seriously improving your user’s lives, you might need to evaluate product-market fit.

You need people to feel strongly that their lives are markedly better with your product in it.

Rahul Vohra, CEO of Superhuman, suggests asking users how they’d feel if they could no longer use your product. If the answer is lukewarm, it might indicate that product-market fit hasn’t been achieved yet.

If people only want it when it’s free, you might not have product-market fit.

Sometimes, initial interest for a new, free product is promising. But to evaluate how important the product really is to the lives of its users, you need to know if people will pay for it.

When one of my portfolio companies was on the brink of closure as they approached the end of their runway, they asked customers how much they’d be willing to pay for the service, with options from $0 to $14 per month. An overwhelming number of customers were willing to pay: 80% said it was worth, on average, $4 per month to them. Monetizing memberships helped the company raise new funding, and now they’re a unicorn.

Charging customers for your product is a great, efficient way to pressure-test product market fit. If no one’s willing to pay for your product, you have a strong data point supporting some re-imagination.

Timing is everything. Pivot as early as you can.

Early pivots provide the best chance for survival because they allow you to conserve resources and maximize your runway. If you wait until your runway is almost depleted, it might be too late to pivot.

Consider that within six months of launching a business — or even a new product or feature — you should have a pretty good idea as to whether or not you’re seeing strong customer pull. If there is customer pull, you’ll know: customers and investors will be talking about your product with their friends, on social media, or at work.

If you’re not getting that, it might be time to pivot — and that doesn't necessarily mean you need to change the business entirely. A tweak like moving toward a monthly subscription, or making adjustments to an existing product, customer, or payment structure, for example, can be incredibly meaningful pivots.

So you think it might be time to pivot. Now what?

Talk to your customers.

If you’re not sure if your product is resonating, or if you’re sure it’s not but you don’t know why, the best thing you can do is speak with your customers and gather their feedback. Listen closely for what comes after phrases like this:

• “I like your product, but here’s what I really need...”
• “This is helpful, but do you know what would help me even more?”

Ask as many questions as you can to understand the root of your customer's dissatisfaction or suggestions.

And try not to take it personally if you realize the product you’re working on is missing the mark: most products require a couple of iterations before they get it right, and you might be just a tweak or two away from making something that’s integral to your customer's lives.

Tips for a smooth transition from pre-pivot to post

While pivots can be game-changers, pivoting isn’t always easy. Especially when it’s a sharp turn, or a fundamental change to whatever you started with it, a pivot can disrupt teams and derail morale. You need your team’s buy-in, and to ensure they feel like they were heard in the process.

On that note, here’s how to handle a pivot gracefully.

Get alignment from the team.

As you plan for changes, big or small, ensure your management team understands and supports the pivot. And recognize that a pivot might, unfortunately, mean some of your employees are not so useful anymore. If you’re pivoting from a consumer fintech to a B2B fintech, for example, your growth marketing team might not have a whole lot to offer in the new iteration of your company. You may have teams with versatile skills that can pivot themselves, but you might also be looking at some painful-but-necessary changes.

It can be tough to get buy-in when that’s the case. And it’s also okay to start small with a side project that involves only a few key players, and wait to make big changes until you’ve proven out that pivot.

Evaluate your metrics.

As you pivot and your business shifts, your success metrics likely need to shift, too.

As ever, you should establish a few north-star metrics that you’re always talking about and working toward. And you also need to be constantly evaluating those benchmarks, and defining new benchmarks that align with your pivot. The last thing you want to do is hold yourself to outdated goals or metrics.

Remember, pivots should be moving you forward, not holding you back.

Summary

Pivots are part of the history of almost every company you know and respect.

Putting your head in the sand, or digging in your heels, when things aren’t quite right will only delay the inevitable — or worse, cause you to burn through your runway and eradicate the option to pivot entirely.

Adjusting your course when the situation warrants it isn’t just smart, it can be the difference between shutting down and becoming a unicorn.