In 2011, my startup at the time raised $2 million from some of the top investors in Silicon Valley. The startup, SocialWire (later renamed Manifest), helped online retailers instantly personalize the shopping experience when their customers signed in with Facebook. But we soon learned that it was hard to convince the big retailers to add our product recommendations to their websites. We also found that not enough customers wanted to sign in with Facebook while they were shopping online to get a more personalized experience.
With most of our $2 million still in the bank, and a technology that was good at matching Facebook users to the right products, we decided to pivot on the problem we were solving for the same customer and rebuild our product. Instead of generating product recommendations using Facebook , we would dynamically generate personalized product ads on Facebook. This new direction resonated with online retailers, and the company was eventually acquired by Rakuten.
Searching for product/market fit
Finding product/market fit is hard. Most companies fail while searching for it. Marc Andreessen, in his 2011 essay, introduced the term as a moment in your startup’s journey where things start to work. More and more customers demand your product and you achieve sustainable growth.
Most successful companies go through several pivots to find product/market fit. What makes it work is usually not one major pivot but a series of experiments across target customer, problem, product, technology, and growth channels. Is there a process for entrepreneurs to experiment across these areas of their business efficiently?
Growth marketers have already figured this out. Great growth people are not necessarily the most knowledgeable marketers — they approach marketing like scientists. They have a thesis on how their idea (e.g. new advertising channel) will lead to growth, they run the experiment, look at the data, and — if the experiment is successful — make it repeatable. I strongly suggest you read this by Brian Balfour, check out this talk, and spend time on growthhackers.com to understand the growth experimentation process.
But growth experimentation is the tip of the iceberg that is your startup. How can entrepreneurs apply this process of experimentation to other areas of their business and pivot to find product/market fit?
Introducing the Pivot Pyramid
Enter the Pivot Pyramid. It is a visual guideline to help founders make changes and run experiments in different areas of their business to drive growth. It’s similar to how investors ask questions and evaluate your startup. As founders, you could use the same guideline to come up with ideas or pivot your startup.
Customers are the foundation of your startup. The problem you solve, the product you build, and the technology it’s built with all depend on who your customer is. You may change and pivot your customer, but when you do, you will need to re-evaluate everything above in the pyramid.
Maybe you have identified the right customer but are solving a problem that doesn’t exist or doesn’t matter that much. You can pivot here, but you’ll need to re-evaluate and change your solution, tech, and growth strategy. If you have the customer and problem right, you have a market.
You’ve identified the problems that matter to your customers. Now you have to build a product that resonates with your customers better than existing solutions in the market. Like any other changes in the pivot pyramid, changes you make in product must target quantifiable growth.
Your technology is just a means to build your solution. Even if your product resonates well with your customers , your technology choices may be hindering your growth and retention. For instance, one of the main reasons Friendster failed as the first mainstream social network was because it couldn’t keep its servers up with demand.
All changes in the pivot pyramid must lead to growth. But some experiments do not require any significant change in your product or technology. These changes reside at the top of the pivot pyramid. A great marketer should frequently experiment with new growth tactics. This is needed because most growth channels get saturated or become too expensive over time.
Here are some famous examples of pivots at each stage:
Key lessons from the pyramid
1. Start with the customer and problem. A common mistake entrepreneurs make is that they start with their product and technology without truly understanding who their customer is. If this is broken, nothing else works. That’s why you shouldn’t focus too much on marketing before you nail the customer, problem, and solution. First, you have to make something people want. You don’t want to put jet fuel in a car with a broken engine. Fix the engine first.
2. Pivoting below changes everything above. The changes you make at the bottom of the pivot pyramid will impact your decisions above. But the changes you make at the top don’t necessarily require you to change things below.
For example, if you pivot on your problem, you will need to change or re-evaluate your product, technology and marketing channels. On the other hand, if you changed your technology stack, your customers may not notice any changes in your product. Similarly, experimenting with a new marketing channel may not require any changes in product or technology. So you should expect your pace of experimentation to increase at the top of the pyramid.
3. You can’t have multiple types of customers. A common mistake that kills early-stage startups is focusing on different types of customers at once. The changes you make at the bottom of the pivot pyramid will impact the decisions you make above like product, technology, and marketing. So if you focus on more than one type of customer, you are literally building multiple startups at once. As you mature as a company and achieve product/market fit , you can target more types of customers (e.g. SMB and enterprise). But as an early-stage startup, you can’t afford to do that.
Marketplaces such as Uber and Airbnb are an exception to this. Marketplaces have two types of customers from day one: sellers and buyers. But that’s why building marketplaces is really hard.
All experiments must lead to growth
One of the most important things founders can learn from growth marketers is the scientific process of experimentation. That is also the foundation of the pivot pyramid. If you have an idea for a pivot like “testing a new marketing channel” or “implementing a referral program” (growth) or “migrating your servers to AWS” (technology), make sure it is closely tied to a measurable goal to help with growth. Have a thesis, run a low-cost experiment, measure the results, and — if it works – implement change.
[A version of this story originally appeared on 500 Startups’ blog.]
Selcuk Atli is a Venture Partner at 500 Startups.