Wise entrepreneurs treat lost causes as pivot points

Tuesday, May 8, 2012 in U-T San Diego

Pivot, or pull the plug. Entrepreneurship is often defined by young men and women who are willing to demonstrate discipline, courage, passion, fortitude, the relentless pursuit of success and the fierce determination never to give up so as not to be blotted with the stain and shame of failure.

The startup model is often characterized by technology solutions in search of a problem. And thus is born the infamous pivot. What used to simply be called “We are clearly headed down the wrong road, with no revenue and no customers, so we better change course and do something else before we go broke” is now called elegantly — to pivot.

And one of the most successful pivots in the last decade belongs to Instagram, a 20-person company recently sold to Facebook for $1 billion (yes, with a “B”). But Instagram started as a “check-in” site called Burbn that enabled people to leave messages via the mobile phone. That concept got very little traction, so the team developed a mobile app that allowed people to take photos, alter them visually (make them appear “old”) and share them. It took off and had 27 million users as of last month. Voilà, Mr. Mark Zuckerberg came calling, and the rest is history.

The statistics favor pivoting. Startups that change products between one and three times raise more venture money than companies who don’t, according to a 13,000-company survey by Startup Genome Compass. An often-repeated Silicon Valley mantra is “fail fast.”

But constant pivoting can also be deep denial. Sometimes the right decision is just to pull the plug. I have a very good friend who came to see me recently, and after much discussion, my advice was “Sell it for whatever you can, get your life back, and then go do something else. You are pushing on a rope, and it is wrapped around your neck. You need to cut the rope or it will strangle you.”

What followed was a lengthy and painful discussion. The topic was not the product, the marketing, the investors or the company. It was about the personal feelings of shame, failure, letting people down, followed by maybe, just maybe, if we tried to raise one more round, we could pull a rabbit out of the hat.

Let me be very clear. I have stood in that young man’s shoes. I know that feeling of humiliation and disappointment. When you are the CEO, there is some unspoken tribal belief that you are also Houdini and can escape from any straitjacket or lock and chain. And the truth is, sometimes you can’t. This is tough stuff, because every entrepreneur knows in his head that he could fail, but every one of us also believes in our heart that we won’t.

The pivot is important. It gives a company a couple of chances. But running a company is not magic. We are not Penn and Teller; there are no secret trap doors. And sometimes, it is better to accept the inevitability of defeat, salvage what you can and save your soul than irrationally run the company into the ground.

And the hardest question to answer is “When?” When is it time to pull the plug, rather than double down? There is no simple iPhone pop-up that says, “Now, pal.” The elements that lead to that decision are enormously complex, and we will explore some of those in a future column. But one of them is not, “We have run out of money.” If that is the case, then you have missed the signpost up ahead.

Rule No. 109

“To pivot, perchance to dream.”

— Hamlet, 2012

Neil Senturia and Barbara Bry, serial entrepreneurs who invest in early-stage technology companies, write this weekly column about entrepreneurship in San Diego. Please email ideas to Barbara at bbry@blackbirdv.com

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