Technology entrepreneurs of past eras took two years to build a product, hire a staff and figure out whether there was any real market for their service. But today all that typically takes only a few months as founders cycle quickly through different ideas until they find one that sticks.
Kevin Systrom's Instagram, which started out as a virtual "check-in" site and wound up as a photo-sharing service, is a recent high-profile example.
Learn more about whether to pivot or persevere with your business idea in a live chat with "The Startup Owner's Manual" co-author Steve Blank. The 28-year-old Mr. Systrom started a company about two years ago that attempted to put a new spin on the idea of virtually checking in at various locations via smartphones, then broadcasting that visit to one's social network. His company, which he called Burbn Inc., enabled people to leave messages via their phones that could be retrieved by others visiting the same location.
Over the next few months the idea evolved, and soon Mr. Systrom had seized on the concept of a mobile app that would allow people to take photos, alter them visually and share them. That app was called Instagram. Earlier this month, Mr. Systrom and his co-founder sold the company to Facebook Inc. for $1 billion.
Mr. Systrom is part of a new breed of entrepreneurs in their 20s and 30s who strategically "pivot"—try out new ideas, shed them quickly if they don't catch on, and move on to the next new thing. Their companies are mostly in the mobile and Web sectors, where it's relatively cheap and easy to tinker with software and create new products on the fly.
Words like "pivot" and the related "iterate" have been used in and around Silicon Valley for several years, generally to describe failing gracefully.
But their use has picked up significantly in recent months amid the broader public's fascination with the entrepreneurs behind high-profile start-ups, some of whom were able to get funding from investors despite significant changes in their original business plans.
Ben Horowitz of venture-capital firm Andreessen Horowitz used the word "pivot" three times in a nearly 800-word blog post earlier this week to discuss the firm's investments in businesses such as Burbn.
Investors say the founders who made left turns are generally more experienced—and less fearful of failure—than past generations of tech entrepreneurs. The founders who change products and markets between one and three times raise more money than those who don't, according to Startup Genome Compass of San Francisco, which tracks more than 13,000 Internet start-ups. In fact, they raised roughly 2½ times more capital than founders who changed products and markets either four or more times or not at all, its research says.
"You pivot as many times as you can, as fast as you can, until you run out of money," says entrepreneur Evan Kuo, a 27-year-old University of California, Berkeley, engineering graduate. He's currently working on a site he calls Curios.me, now in its second iteration.
Patrick Chung, a partner at New Enterprise Associates, a Menlo Park, Calif., venture-capital firm, says that what he once might have described as "failed seed investments" he now calls "experiments." And he's backing more of them. Just two months ago, NEA launched the Experiment Fund at Harvard University to invest in very early stage companies in the Boston area.
Many of the new breed of young guns have made mistakes, all the while gaining the seasoning and experience that may increase their chances of succeeding with their next idea, investors say. Like Mr. Kuo, Mr. Chung says, they may fail at one start-up idea but "don't just go away with their tail between their legs. They go on to do something else."
It has become easier to do this thanks to the rise of social-media platforms like Twitter and Facebook and the advent of stores that distribute mobile "apps," or applications. These advances have sharply reduced the cost of distribution, making it cheaper to get products into the marketplace fast.
The start-ups in the tech incubator Y Combinator, whose acceptance rate is less than 3%, change products and markets so frequently that the idea they applied with is often irrelevant to the final product, says founder Paul Graham. That prompted Mr. Graham to launch a program targeting groups that don't have an idea yet. It will begin this summer in Silicon Valley.
Even after what seems like a failure, an ability to quickly adapt is considered a key skill among founders. While Mr. Kuo was at the tech incubator 500 Startups, he founded the Facebook fan-site network CrowdRally, which had 40 million viewers. He says he decided to close it after Facebook lawyers contacted him. Facebook confirms its legal team flagged certain CrowdRally uses as inappropriate, but says it didn't shut down the start-up.
Keeping the same team intact, Mr. Kuo was able to stretch the $150,000 that 500 Startups invested in CrowdRally across eight months of experimenting. He tested a handful of ideas before deciding to create a version of question-and-answer site Quora.com for college students.
"Everything could be wrong or everything could be right, but you don't know until you get it to consumers," says 33-year-old Mike Ouye. He worked at three start-ups before he launched his first product, a mobile social-gaming app for smartphones, at Red Robot Labs, which he co-founded. The app was just 40% complete and he wasn't happy with it, but he says he went ahead anyway because he needed feedback on his initial thesis before seeking funding.
Mr. Ouye collected player data and used the suggestions to tweak the product. About five months later he secured a $2 million seed round for his company.
By pushing ahead, Mr. Ouye says, he benefited: "I've learned how to apply metrics to products, iterate quickly and make decisions without overthinking it." In September, he raised an additional $8.5 million, and he got $5 million more last month.
Kevin Systrom's Instagram, which started out as a virtual "check-in" site and wound up as a photo-sharing service, is a recent high-profile example.
Learn more about whether to pivot or persevere with your business idea in a live chat with "The Startup Owner's Manual" co-author Steve Blank. The 28-year-old Mr. Systrom started a company about two years ago that attempted to put a new spin on the idea of virtually checking in at various locations via smartphones, then broadcasting that visit to one's social network. His company, which he called Burbn Inc., enabled people to leave messages via their phones that could be retrieved by others visiting the same location. Words like "pivot" and the related "iterate" have been used in and around Silicon Valley for several years, generally to describe failing gracefully.
But their use has picked up significantly in recent months amid the broader public's fascination with the entrepreneurs behind high-profile start-ups, some of whom were able to get funding from investors despite significant changes in their original business plans.
Ben Horowitz of venture-capital firm Andreessen Horowitz used the word "pivot" three times in a nearly 800-word blog post earlier this week to discuss the firm's investments in businesses such as Burbn.
Investors say the founders who made left turns are generally more experienced—and less fearful of failure—than past generations of tech entrepreneurs. The founders who change products and markets between one and three times raise more money than those who don't, according to Startup Genome Compass of San Francisco, which tracks more than 13,000 Internet start-ups. In fact, they raised roughly 2½ times more capital than founders who changed products and markets either four or more times or not at all, its research says.
Patrick Chung, a partner at New Enterprise Associates, a Menlo Park, Calif., venture-capital firm, says that what he once might have described as "failed seed investments" he now calls "experiments." And he's backing more of them. Just two months ago, NEA launched the Experiment Fund at Harvard University to invest in very early stage companies in the Boston area.
Many of the new breed of young guns have made mistakes, all the while gaining the seasoning and experience that may increase their chances of succeeding with their next idea, investors say. Like Mr. Kuo, Mr. Chung says, they may fail at one start-up idea but "don't just go away with their tail between their legs. They go on to do something else."
It has become easier to do this thanks to the rise of social-media platforms like Twitter and Facebook and the advent of stores that distribute mobile "apps," or applications. These advances have sharply reduced the cost of distribution, making it cheaper to get products into the marketplace fast.
“'You pivot as many times as you can, as fast as you can,' says one entrepreneur.”"Pivot to me is not a four-letter word," says Tony Conrad, a partner in the early-stage venture capital firm True Ventures. "It represents some of the best methodology that the Valley has invented. Starting something, determining it's not working, and then leveraging aspects of [that] technology is extremely powerful."
The start-ups in the tech incubator Y Combinator, whose acceptance rate is less than 3%, change products and markets so frequently that the idea they applied with is often irrelevant to the final product, says founder Paul Graham. That prompted Mr. Graham to launch a program targeting groups that don't have an idea yet. It will begin this summer in Silicon Valley.
Even after what seems like a failure, an ability to quickly adapt is considered a key skill among founders. While Mr. Kuo was at the tech incubator 500 Startups, he founded the Facebook fan-site network CrowdRally, which had 40 million viewers. He says he decided to close it after Facebook lawyers contacted him. Facebook confirms its legal team flagged certain CrowdRally uses as inappropriate, but says it didn't shut down the start-up.
Keeping the same team intact, Mr. Kuo was able to stretch the $150,000 that 500 Startups invested in CrowdRally across eight months of experimenting. He tested a handful of ideas before deciding to create a version of question-and-answer site Quora.com for college students.
He built a prototype for Curios.me in four weeks, launched it, got student feedback and then presented the working idea as a company to NEA, which promptly invested $400,000.
Mr. Ouye collected player data and used the suggestions to tweak the product. About five months later he secured a $2 million seed round for his company.
By pushing ahead, Mr. Ouye says, he benefited: "I've learned how to apply metrics to products, iterate quickly and make decisions without overthinking it." In September, he raised an additional $8.5 million, and he got $5 million more last month.
No comments:
Post a Comment