There is no more overused and reviled word in the world of tech start-ups than pivot. Pivot. Pivot. Pivot.
It seems to capture the manic energy of the current tech industry, in which an idea can get millions in funding before building a product and, if the users never materialize, or the business model never emerges amidst all hype, simply change their direction and try something new.
No company better epitomizes this idea of second chances than Turntable.fm, a social music site, born out of the ashes of a failed venture called Stickybits. Founders Billy Chasen and Seth Goldstein raised almost $2 million for Stickybits and worked on the project for about a year. The idea was to leave little stickers on physical objects that contained links to stories, photos and video on the web. Big brands like Pepsi thought it was a great idea. Users, not so much.
With little momentum and cash running low, they decided to pull a monster pivot. Turntable.fm, which launched a little over one month ago, has already attracted over 300,000 users and the interest of top tier investors on the east and west coast. Suddenly a team that was running low on funds is being courted for a fresh infusion of $5-10 million at a $40 million valuation, Betabeat has learned from multiple sources.
“Pivoting is sort of unique to the tech world,” said Kevin Ryan, probably New York’s most successful serial entrepreneur. Doubleclick, the ad serving platform Ryan founded during the dot-com boom, was eventually purchased by Google for $3 billion, and remains New York’s biggest exit. “Most people don’t realize this, but that company was actually a pivot,” says Ryan, leaning back deeply into a leather chair at the offices of his largest current company, Gilt Groupe.
“We were an ad sales network, a media company, and maybe ten percent was dedicated to tech for ad serving. What we saw was that the majority of the company was not growing or producing like the sliver focused on tech. So we sold off 90 percent of the company, something like 600 employees.” He stops and take a big sip of diet Pepsi. “As far as pivots go, that was a double backflip with a twist, because we had already taken the company public, and while tech folks understand the pivot, hedge fun managers do not. People thought we were crazy at the time, but Doubleclick wouldn’t be powering Google today if we hadn’t made that change.”
Pivoting isn’t unique to the East Coast, but New York is the first tech center to institutionalize the pivot as strategy for creating internet companies. Betaworks, where Billy Chasen cut his teeth as an entrepreneur, began with a simple maxim. 100 days and $100,000 to get a company into beta, a working product that can be released to users for feedback. “If you can shrink the cycle between idea, scrawling on a napkin, and testing with users, that is the most important piece of the puzzle,” said betaworks CEO John Borthwick, seated in front of a green chalkboard, pushing his bushy hair out of his eyes.
“What that means simply is you want to get to market as fast as possible, test and trail and then pivot if need be. Because the moment you get into the process of fundraising you begin to lock yourself up, both literally with investors, and psychologically, that I am going to build a business around X. Because my experience is, once people actually start to use your product, that X can turn into Y very quickly.”
As one of the co-founders of betaworks, Mr. Chasen built a product called Firef.ly based on the 100 days $100,000 model. It began as a way for web site owners to see how users were mousing around their site. But seeing what people were doing in real time didn’t help publishers learn much. So when this failed to catch on, Firef.ly pulled a quick pivot, adding a feature that let users visiting the same web page chat with one another. Problem was, users ended up talking about Firef.ly, instead of browsing the site. So the team at betaworks changed direction again.
“It’s most aptly described as a 180 degree pivot, because we sort of turned the product on its head,” said Mr. Borthwick. Instead of showing exactly what users were doing, or letting them interact, betaworks created a product that showed website owners exactly how many people were on their site, where they were coming from and what they were reading. That product, renamed Chartbeat, now has thousands of clients around the globe and millions in annual revenue.
It’s successes like that which have made changing ones mind and abandoning the original project a strategy without a stigma in the New York tech scene. Howard Morgan, the partner at First Round Capital who led the $1.6 million Series A in Stickybits, recently declared, “When we fund a company, we hope that we have picked the combination of a great entrepreneur and his/her team, along with a great product in a large available market. But sometimes it doesn’t turn out the way we all expected. Perhaps we need to modify the old adage to ‘If at first you don’t succeed, try, try again. Then pivot, don’t be a foolish slave to the first idea.’” Knowing that Chasen had pulled off an acrobatic pivot of Chartbeat’s caliber was part of the reason First Round backed him in the first place.
Chris Dixon, who recently pivoted his new startup Hunch from a consumer facing taste engine to a platform for businesses who want to offer recommendations, thinks most entrepreneurs don’t pull the trigger fast enough. “The most common mistake is to pivot too late. You have sunk costs. You get sort of married to your project. I find a sign of a mature entrepreneurs is someone who can throw away original hypothesis, and some of the dreams around that. That is a difficult thing to do.” It’s the language of romance applied to a labor of love. Some entrepreneurs learn to settle for good enough, some keep chasing after that elusive Mr. Right idea.
Back when Billy Chasen was still working on Stickybits, he sat down with Mr. Dixon for an interview on TechCrunch TV. Talk turned quickly to the merit of pivots and how Stickybits was refocusing itself. ““If your not willing to fail fast, not willing to figure out what’s working and what’s not, you’re going to have to do something like completely shut down and start over or ditch the project entirely,” said Mr. Chasen, who ended up doing just that with his move to Turntable.fm.
The two entrepreneurs, handsome and casually dressed, chatted on stools inside the Stickybits office. “It’s a tough trade-off, because on the one hand its important to be iterative and listen to the market, on the other hand some of the greatest companies were formed by very stubborn people,” said Dixon.
“You kinda doubt yourself sometimes, because you had this vision for something, you’re like, how stubborn will I be, because you know there are people who are stubborn and then time proves them…” said Mr. Chasen, looking a little abashed, before Mr. Dixon cut him off, throwing up his hands in agreement.
“Steve Jobs is an example, he doesn’t listen to the market at all, just decides what its gonna be!”
The stubborn success of Silicon Valley visionaries like Mr. Jobs haunts the agile New York entrepreneur. With all the emphasis on capturing user feedback and moving to where the market seems ripe, local techies have yet to build a true titan on the scale of Apple, Facebook or Google.
“I don’t know if I would have done the same thing as Mark Zuckerberg, with introducing the news feed,” said Mr. Chasen. “When they first did that everyone cried privacy—‘This is an infringement, this is horrible this isn’t what I signed up for.’ He said, ‘you’ll get used to it and you’ll like it.’”
The streaming music service Pandora recently filed for its IPO, giving hope to a young company like Turntable.fm that a big payday awaits at the end of a tough road. But Pandora was unprofitable for the better part of a decade before finally coming into its own with the emergence of mobile apps. Things would have turned out very differently if founder Tim Westergren had been a student of the pivot, instead of stubborn perseverance.
Having executed its graceful pivot, Turntable.fm seems well situated. Investors are looking to cut the company fat checks, and Facebook is sweating about the platform’s viral growth while struggling to get its own social music app launched with Spotify. But a little further down the road—if, say, the users stop signing up in droves, or the major labels start sending out their lawyers—Mr. Chasen will face a stark choice. Should he dig a little deeper and push on despite the challenges, or keep on running and gunning, moving to meet the market and every so often stumbling into success.
For the average entrepreneur, the best strategy for success is to fail, to learn and to change. But what if, like Jobs or Zuckerberg, the rest of the world just doesn’t understand, and the only way to make it big, really big, is to just ignore what the market is telling you, and follow your gut instead. The central paradox of the pivot is this: how do you know if you’re a visionary?