So I was under the impression that "product/market fit" meant adapting your product to an existing market as early as possible, so you don't get stuck building the wrong thing.
For example, IMVU started out with the founders writing 40k lines of code or so to make plugins for AIM/MSN/etc chat clients. They then found out nobody wanted it, and did the market research and saw that people did want something else that was related. Then they built that and made lots of money. They hadn't worked on the product/market fit early enough. Perhaps I've got the wrong definition in my head about this "product/market fit".
Sort of right. The problem is most startups don't go after existing markets, as there's already existing companies there. So startups try to hit an emerging niche in an existing market or even a brand new market. And it's much harder to discover a market do that then copy an existing product and market meaning during the initial life span of a company, much of it they spend floundering about trying to find "product/market" fit. So what IMVU did is very typical, they thought they understood their market, built a product to meet that market, and only then realized that their product didn't fit their market. When a company reaches this realization they can then "pivot" meaning they can either take their existing product and try to find a new market or take what they've learned about their market and build a new product.
Isn't "pivoting" a huge drain on a startup though? You throw away a few months of code and have to create another product. It just cuts into your runway, so much better to get the right product as early as possible, through early customer development.
If you don't have a fairly good idea of what your market looks like, you shouldn't be spending money yet. I sometimes wonder if "pivot" is too strong of a term. If you are making 180 degree "pivots" after you've ramped up development, you are in trouble.
On the other hand, if you are making those kinds of corrections before spending money, then start making 10-20 degree pivots after you've started spending some money, you'll be OK.
By the time you want to SCALE (and really spend some money), your pivots are 2-3 degree, which really means things like messaging/marketing tweaks, fine tuning for your buyer personas, etc.
I think of it like a system moving towards a steady state. It may bounce around for while, but whole time it moves towards the steady state and the oscillations decrease each time.
Pivoting and customer development are synonymous. The whole point of pivoting is to change the direction of your efforts based on what your (potential) customers are telling you.
Yeah, this is what I don't understand. so when do you cut your losses, close down the company, and move on to your next venture?
I mean, I understand about pivoting. when I first started I blew a bunch of money building a setup to sell storage, then amazon s3 turned that market upside down. (as an aside, I'm considering that market again. S3 is still here, and it's still pretty good, but it's prices are way higher now, relative to hardware and bandwidth costs, than they were then.) I pivoted fairly quickly to FreeBSD chroot jails, which also didn't do so well, and then to Xen VPSs, which worked okay, though it took me another few years before I got the formula completely right.
The thing was, I blew through a significant amount of money (well, significant to me; we're probably not talking about more than two porsches of consulting income) but if I had used other people's money, they would have owned quite a lot of the company. and other than my own experience and knowledge, the money spent before a pivot doesn't really help after a pivot. (I mean, the experience and knowledge matter a lot, but bankruptcy court can't take that away)
Now, from my perspective (I own my company wholly; no investors, any company commitments and/or debit are co-signed by me personally) unless I'm willing to declare personal bankruptcy, there isn't much difference between shutting down the company and starting a new every pivot, vs. keeping the company the same every pivot. However, I did spend some significant money. If I was using investor money, wouldn't it make sense for me the founder to close the business and start a new one, thus either retaining more equity or gaining more capital (if I got new investors)
I mean, obviously, if you do that from one very similar business to another, you are going to probably have legal problems, and at the very least damage your reputation amongst potential investors.
But, take for example, my first pivot. Going from selling raw storage to selling shell accounts could reasonably be said to be a completely different business. I don't think investors would blame me for failing to anticipate amazon would swoop in with a price point I couldn't beat, and I don't think they'd hold it against me if I decided to start another company later, selling chroot shell accounts.
How does that usually work? what motivates the founder to stick with the existing investors when the business must 'pivot' to something unrelated to it's original intent?
"cut your losses, close down the company, and move on" only works if you have no investors, or if you end up on the verge of bankruptcy.
While there are investors around, they'll be looking for pieces of the IP portfolio that they can carve off and auction away or for teams of developers that can be sold as a capability to a company that needs help doing what your startup did.
As for "what motivates the founder to stick around", the only things I can think of are continuing opportunity to take what you have an make it successful, mercenary compensation, or protecting your ownership through continuing vesting. If none of those apply, and you don't like the direction the investors want to go, you might be parting company with them.
Anyone have thoughts on what this means for how startups might structure founder and early employee equity differently, given that they are going to take on a lot less capital and give up less of the company?
