Startups are unpredictable. You could be working on a business idea that you’re confident will be the next big thing. Then you find yourself pivoting in an entirely different direction just a few months later. 

This might sound wishy-washy from the outside, but pivots in startups are completely normal. Most of the successful companies Hustle Fund has backed did not look the way they did when they first started. In fact, Elizabeth Yin (General Partner at Hustle Fund) expects startups to go through a series of experiments before finding their real idea. 

The question then becomes: how does a founder know when to pivot? 

Timing is everything. So let’s explore this beautiful question.

Run lots of experiments

The most effective way to see what’s actually working in your business is through experiments. 

Ship your MVP (minimum viable product). Test your new home page. Share your product with your target demo. A/B test your outbound emails. 

Don’t build in silence. You don’t know what works until you try a lot of different ideas. So run as many experiments as you can to get your product in front of real people.

After each experiment, analyze what worked and what didn’t work. 

• Did people actually use your product?
• What features of your product were the most popular? 
• How did your A/B tests perform? 

Then – and this is crucial – talk to your customers. 

• What do they love about your startup? 
• What features can’t they live without? 
• What else do they wish your product could do? 

The results from these experiments will probably surprise you. 

Instagram didn’t start out as a video and photo sharing app

In 2010 Kevin Systrom launched Burbn, a location-based game that allowed users to check in, make travel plans, and upload photos. Their team raised $500,000 and had decent growth. But they didn’t quite find their sweet spot. 

It wasn’t until the co-founders analyzed the data that they saw how people were really using their product. It turns out most people were using Burbn to share photos. So they pivoted. The team stripped back a ton of features from their original product and focused solely on enabling people to post photos and engage with other people’s photos.

This pivot made Instagram the iconic unicorn company we all know today. They were only able to confidently pivot after looking at the data and seeing what users actually cared about. 

Pivots are different from jumps

A jump is when you scrap the original idea or space entirely. Then you start from zero trying to do customer development in a totally new space. 

Imagine a dating app jumping into crypto. A defense tech company jumping into a social media app. An AI language learning app jumping into coffee robots. 

In these cases, you’re not applying the learnings or insights from the experiments that you’ve done. You’re starting over. If that’s the case, Elizabeth thinks it’s best for you and everyone to shut the company down, return whatever capital you have, and start fresh. 

Why do this? 

Well it’s simply a totally different company. Investors don’t want to fund a whole new set of experiments that include no learnings from the previous attempt. 

The other reason is because of the cap table. When you start a company and raise money from investors, you’re giving those investors space on your cap table.

But if you “jump” (or start over with a totally new startup idea), you’ll probably need to raise more money. Only you’re at square one with customer development and customer acquisition. So you’ve got a crowded cap table without much (any) traction to show new investors. 

New investors do not like a crowded cap table.

It's better for founders to not carry a heavy burdened cap table and drag all your investors from before into the new business. Doing so often makes the fundraising process more challenging–subsequent funders may not like a busy cap table. 

So if you think you need to jump, it’s okay to shut the business down, return capital, and start again as if it were a completely new company. Because from an idea standpoint, it totally is. 

Keep in mind that your previous investors will probably appreciate that you returned some of their money. They may even re-invest in your new startup if they like the market and the way you hustle.

TL;DR

Pivots don’t need to be complicated. Founders should run experiments, collect learnings, and make meaningful changes based on their analysis. This is a natural course of what it means to build a startup. 

If you’re jumping to a brand new space, it’s better for everyone if you shut down the business and start fresh.