RVNU #007: When To Make a Pivot
Insights into the timing and impact of pivots
AI Audio Discussion of this Newsletter
When I turned up to Wonderschool, it was a 4-year old marketplace, burning a ton of cash every month, had never broke $500k in ARR and had only 10 months of runway remaining. Within 12 months of me joining, we had closed $2M in ARR, had a realistic pipeline of >$10M, and we were profitable.
What happened?
In summary, strategically I convinced the CEO, and board that we had to make a pivot, away from a marketplace, to an enterprise B2B SaaS platform in the GovTech space. Tactically on the ground, it was about the heroics of the whole Wonderschool team getting behind this strategy, and executing. The rest is history.
What made me so confident this was the right move?
Easy. A scientific framework I had built over 20 years in SaaS that impartially evaluates idea market fit and product market fit from a go-t-market perspective. That scientific framework is the backbone of RVNU’s engagements today.
We use the early stage analysis in idea market fit, and product market fit largely to qualify in or out prospects. If you don’t have idea market fit, or product market fit by our definition, then we know it’s our coaching you need versus our co-pilot resources, for example.
GTM debt may signal time to pivot
We also use this analysis alongside venture firms, who want to do due diligence on a potential investment. We’ll join a few calls with founders they are looking at and get answers to key questions that allows us to ‘score’ the startups growth maturity. Below is an example of what we typically see from founders trying to raise a series A, prematurely.
The delta between the founder’s maturity stage belief, and our conclusion post analysis we determine to be the startup’s go-to-market debt. Closing that gap is critical to deliver up to the right revenue growth.
Our advice to the capital allocator in this scenario would be to temper their expectation for 3x ARR in the next 12 months, and propose that we work with the founder to truly prove product market fit, and prove repeatability before putting them under pressure to 3x ARR.
In these scenarios often we find the founder concludes they need to go back to the idea market fit phase, and make a pivot. Most founders struggle to fathom the idea of a pivot, especially post taking institutional money. However, Wonderschool had raised a significant A round led by a16z and made the pivot, and there are many more famous examples of making extremely successful pivots around the A round.
Here are 5 biggies!
5 examples of hugely successful pivots:
1. YouTube
- Pivot Point: From a video-based dating platform to a general video-sharing platform.
- Funding at Pivot: YouTube had raised a $3.5 million Series A from Sequoia Capital in November 2005, just before the pivot from their original dating concept to a broader video-sharing platform.
- Revenue at Pivot: At the time of the pivot, YouTube had no significant revenue, as the platform was just gaining traction.
- Post-Pivot: After pivoting to general video-sharing, YouTube quickly gained massive user adoption, and by November 2006, Google acquired the company for $1.65 billion. At this point, YouTube still had little revenue but had shown immense user growth, which was key to the acquisition.
💡RVNU Insight:
Pivoting based on unexpected user behavior is key to validating market need.
• Application to RVNU Framework: In RVNU’s IMF phase, YouTube’s pivot from a dating platform to a general video-sharing platform demonstrates the importance of validating the real problem users face. Early user behavior didn’t align with YouTube’s initial dating hypothesis, but the founders noticed a broader market demand for video-sharing.
The insight here is how important iterating the MVP based on real user data is, a core principle in RVNU’s problem identification and MVP validation stages. Understanding and reacting to actual user behavior can help refine and achieve product-market fit faster.
2. Twitter
- Pivot Point: From Odeo, a podcast directory platform, to Twitter, a micro-blogging platform.
- Funding at Pivot: Odeo had raised a $5 million Series A from Charles River Ventures in 2005. The pivot to Twitter happened in 2006, after Apple’s iTunes announcement made Odeo obsolete.
- Revenue at Pivot: At the time of the pivot, Odeo had no meaningful revenue, as the podcasting market had been disrupted by iTunes.
- Post-Pivot: After pivoting to Twitter, they gained early traction and went on to raise a $22 million Series C in 2009. Twitter’s monetization began with advertising and has since grown to over $5 billion in annual revenue by 2022.
💡RVNU Insight:
A sharp pivot in response to competitive pressure can unlock new markets, enabling PMF.
• Application to RVNU Framework: In RVNU’s IMF and PMF framework, Twitter’s pivot exemplifies the need to react swiftly to competitive threats. When Apple’s iTunes entered the podcasting space, Twitter realized the need for a new product direction. This mirrors the market analysis phase in RVNU’s framework, where understanding market dynamics and competitor movements are crucial for success.
Their micro-blogging pivot capitalized on an under-served need for short-form communication, demonstrating RVNU’s proof of adoption phase in PMF: identifying a high-value feature that solves a new, unmet user need.
3. Slack
- Pivot Point: From Glitch, an online multiplayer game, to Slack, a team communication tool.
- Funding at Pivot: Slack’s parent company, Tiny Speck, had raised $17.2 million in venture funding from Accel, Andreessen Horowitz, and other investors by 2011 to build Glitch. However, the game failed, and they pivoted to Slack in 2013.
- Revenue at Pivot: When they made the pivot to Slack, the company had no meaningful revenue from Glitch.
- Post-Pivot: After the pivot, Slack raised a $42.75 million Series C in 2014, as it rapidly gained users. By 2019, Slack went public with a $23 billion valuation and had reached over $1 billion in annual recurring revenue (ARR) by the time of its acquisition by Salesforce for $27.7 billion in 2021.
💡RVNU Insight:
Solving your own internal pain points can lead to scalable product opportunities.
• Application to RVNU Framework: Slack’s journey shows how dogfooding—solving your own internal problems—can become a basis for broader market success. In RVNU’s IMF phase, the internal use of the Slack tool within the team (originally working on the failed game Glitch) exemplifies how solving clear internal problems can reveal scalable market opportunities.
This speaks to RVNU’s focus on problem identification: founders should stay attuned to the pain points experienced internally, as they often reflect broader market needs. Once Slack pivoted to address team communication more generally, it quickly achieved PMF, showing strong proof of value exchange.
4. Instagram
- Pivot Point: From Burbn, a location-based check-in app, to Instagram, a photo-sharing app.
- Funding at Pivot: Instagram (then Burbn) had raised a $500,000 seed round from Baseline Ventures and Andreessen Horowitz in 2010. The pivot to Instagram happened shortly after this initial funding round, as the founders realized users were primarily engaging with photo-sharing features.
- Revenue at Pivot: At the time of the pivot, Instagram had no revenue model in place but was focusing on user growth.
- Post-Pivot: After the pivot, Instagram quickly grew to 1 million users within two months and raised a $7 million Series A in 2011, led by Benchmark Capital. In 2012, Instagram was acquired by Facebook for $1 billion. Today, Instagram is a key contributor to Meta’s ad revenue, generating over $51 billion annually.
💡RVNU Insight:
A sharp focus on a single high-value feature can drive rapid product-market fit.
• Application to RVNU Framework: Instagram’s pivot to focus solely on photo-sharing highlights the importance of focusing on a single core feature when users show strong adoption in a particular area.
In RVNU’s IMF phase, Instagram’s success can be linked to MVP development, where simplification to a high-value core feature allows for quick validation. Instagram’s decision to focus on photo-sharing and remove other clutter (like check-ins) aligns with RVNU’s emphasis on iterating and simplifying the MVP.
This rapid focus enabled Instagram to quickly demonstrate proof of adoption and value realization, key stages in achieving PMF.
5. Shopify
- Pivot Point: From Snowdevil, a snowboard e-commerce store, to Shopify, an e-commerce platform for merchants.
- Funding at Pivot: Shopify was bootstrapped during its early days as Snowdevil. The founders pivoted to Shopify in 2006, before raising any venture capital.
- Revenue at Pivot: There was no significant revenue from the snowboard business, but the Shopify platform started generating revenue by charging merchants a monthly fee.
- Post-Pivot: Shopify didn’t raise its first institutional funding until a $7 million Series A in 2010, led by Bessemer Venture Partners. Today, Shopify generates $5.6 billion in annual revenue (2022) and has become a major player in the e-commerce space.
💡RVNU Insight:
The real market opportunity may lie beyond your initial narrow focus.
• Application to RVNU Framework: Shopify’s pivot from a snowboarding e-commerce store to an e-commerce platform for all merchants shows how market sizing and analysis in RVNU’s framework can lead to a much larger opportunity. Shopify’s founders initially built the platform for themselves but quickly realized that their tool had broader applicability.
This resonates with RVNU’s emphasis on market sizing—what appears to be a niche opportunity could often be validated into a much larger one if founders are willing to rethink their target audience. The pivot unlocked their ability to reach broader PMF by expanding their scope to serve other businesses.
Summary Table
In Summary:
Finding the courage to pivot is never easy, but grounding your analysis in a proven framework can boost your confidence in deciding whether to pivot or persevere.
In my experience, every pivot I’ve been involved in has been a small but crucial adjustment, often just a degree of separation from the original idea. However, one constant in every successful pivot is this: you can only make the right move by deeply understanding the market—and you can’t do that from a distance.
To truly appreciate the opportunities you’re missing, you need to engage directly with your customers. At Wonderschool, as the new CRO, I put this into practice by developing a set of questions to uncover value exchange and opportunities within our existing customer base. Over the course of two weeks, I personally spoke with 50 customers, and two members of my team did the same. We gathered over 100 pieces of direct feedback, which provided real insights that helped us determine whether we had achieved idea market fit and product market fit.
If you’re struggling to make sales work, but believe you have product market fit my advice is to stress test your assumptions by getting back into the weeds with your customers and make sure that you are truly solving their biggest pain points.
Thanks for reading folks!
You got this 👊🏼
Wayne
Struggling to make sales work?
If you’re a founder who believes you’ve achieved product-market fit but are struggling to make sales work, it may be time to reassess.
One effective way to determine if it’s time to pivot is by taking our free GTM Debt Self-Assessment.
This tool will help you analyze your go-to-market strategy and identify any gaps or areas of misalignment. You’ll receive a customized version of the chart you’ve seen above, tailored specifically to your company, providing clear insights on whether you need to pivot or adjust your current approach.