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This Is Why Startups Fail (and How to Avoid It): #3 Pivot Gone Bad

Pivoting a startup

“It’s 2013, Denmark. The world was in the midst of an app revolution, and my co-founders Kasper, Yana, and I created Swipes, a personal task list that would define the next 6 years of our lives. Unlike other task lists, Swipes made users feel like winners in control. At its peak, the app had more than one million users and was featured multiple times by Apple. Even today, people still write to me about how much they loved the product. But then why did we shut down the company?,” starts Stefan Vladimirov, Founder, Sales and Branding at Question Base, an AI knowledge base.

A well known statistic in the startup world is that 90% of startups, more or less, fail. But why? In this series, we aim to explore the most common reasons for which startups fail and share their lessons for future entrepreneurs wanting to beat the odds. Check out the first part and the second part of the series.

In this third chapter, we’ll focus on another important reason for startup failure: pivoting, but not being able to execute the plan properly, and burning out in the process.

Pivot gone bad: What can go wrong and how to avoid it

Change is never easy. So when you are about to pivot to a new business model, expect to have your adaptability, resilience, and agility stretched to the maximum. 

There are many reasons why founders get tempted to pivot. Maybe you couldn’t find the product-market fit in one market but pivoting to another niche seems more promising. Or there have been external factors turbulating the market and the startup is trying to recover from a difficult time. You may have also discovered an opportunity elsewhere that would help you grow faster.

For the Swipes team, the decision to pivot came as an attempt to monetize the product better and thus grow faster. So they decided to pivot their business model from B2C to B2B:

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“Swipes was a free app, which helped with growth, but it also meant we had to raise investor money. Our attempts to monetize the product didn’t yield enough results, so we decided to pivot to a B2B model,” Stefan explains.

Yet they had just hired a team in Bulgaria that was geared towards growing the B2C product. 

“We were burning through cash quickly, had no revenue stream, and had made a bet on building a new product. We had put ourselves in a bad position,” he adds.

Pivoting an entire business model means locking in the entire resources of the startup, increasing the risk that the whole business will collapse. When assuming such a risk, it is important to tell the difference between when something is challenging, yet achievable, or impossible altogether. 

“For more advanced startups that managed to get an initial traction and pre-seed or seed funding, the most common mistake is to run expensive experiments in a single area, experiments that fail to produce results and drain resources for further growth. This is valid regardless of where the funding is invested (i.e. putting large amounts in either product development, sales and marketing, development of service capacity), or simply hiring more people than the organization and its culture can sustain,” shares Mihai Guran, CEO at Guran Consulting Global and Vice-President at TechAngels Romania.

Even with a strong and dedicated team and a great product, failure can still lurk at the corners if the team cannot properly execute the plan.

“Poor execution can take many forms, such as failing to meet milestones, burning through cash too quickly, or failing to adapt to changing market conditions. As a VC investor, it’s important to assess the startup’s ability to execute on their plan and make adjustments as needed. Business plans and pitch-decks are good to have but at the end of the day action and traction are what matter,” says Milen Ivanov, Managing Partner at Sofia Angels Ventures.

Max Gurvits, Managing Partner at Vitosha Venture Partners doubles down on the importance of agility and adaptability for startup success:

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“If we dig deeper into objective reasons, beyond the subjective prior experience, I think that agility and adaptability are the biggest reasons why startups succeed, and conversely, the lack of such often pre-determines failure. The ability and skill to pivot, to let go of a business model or even an entire product, even when it is performing well, in exchange for another that can grow faster, is what allows good founders to become great ones. The mindset to always push harder, and always question your achievements is a very contradictory one, and it becomes harder to do so with every next bit of traction and every next investment euro that a startup obtains.”

Returning to Stefan’s story, he notes that the initial success of the personal app had misled them into thinking that creating a successful product was easy. It wasn’t.

“We let go of almost the entire team and moved to Silicon Valley for 2 years. We iterated constantly, raising funds and then running out of money, and we were feeling exhausted. When we returned to Bulgaria, we decided to continue the venture by self-funding. Half of the team worked on the product while the other half worked on client projects. In 2019, after six years, we burned out and shut down the company. We felt like massive failures,” he candidly shares.

Yet the experience didn’t let them down completely. The most important part about failure is that it teaches you how to do better the next time around.

“The main thing we learned was to never put ourselves in a position of weakness where we couldn’t wait, fast and think. This is the lesson we are taking to heart when we built our new company, Question Base, which is a B2B product that helps companies automate internal support in Slack”, Stefan concludes. 

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https://therecursive.com/author/antoanelaionita/

Antoanela is a Sustainability Communications Specialist and Deputy Editor at The Recursive media. From these roles, she is helping organizations communicate their latest sustainability goals, strategies, and technologies. She writes about climate tech, ESG, impact investment, sustainability regulation, and related topics.