Key Takeaways:
Instagram and Netflix represent just two examples of how pivoting can change the world. In order to be successful, startups should embrace fundamental change in the process of improving their product or service.
Investing in smaller pivots can position a company of any size for success as market conditions evolve.
As a cybersecurity accelerator, we help founders know when and how to pivot, increasing their startup’s chance of success.
Introduction:
In its journey to changing the world, every startup must question the status quo. The company may wonder whether their product is good enough to sell or if there is a different model that may work better. In the many sleepless nights founders might suffer through, it’s only natural to question the current approach--after all, a business can always get better. In fact, reevaluating the current condition and taking steps to improve the business is the exact reason that many of today’s top companies have thrived.
Pivot Successes:
For instance, the popular social media application, Instagram, started out as a concept mobile application named “Burbn” that initially featured a myriad of functions such as location-based check-in, text posts, and photo sharing (1). While the app was a hit with initial investors, initial feedback indicated that the wide array of features might make the app confusing. In this situation, some leaders might have stuck to their guns, hoping that customers would catch on after the initial learning curve; however, Kevin Systrom, the founder, continued to evaluate how Burbn could be improved. Once the traffic of each feature in the demo app was analyzed, Systrom’s team observed that subjects were primarily using the image-oriented aspects of the app. Specifically, users loved sharing pictures and reacting to pictures with “likes” and comments. Using that information, Burbn was rebranded as “Instagram” (a combination of the words “instant” and “telegram”), which was a stripped-down version of the original Burbn platform. On October 6, 2010, Instagram launched, grossing 25,000 users on its first day. By mid-December, the app boasted one million users. Even with that kind of success, the pivoting was not over.
The Instagram team had taken notice of an app called Hipstamatic, which had the ability to take a phone’s pictures and filter them. With that inspiration, the team implemented an in-house photo filtering feature that proved to be a booming success for the app. As users continued to pour in, Meta (formerly Facebook) acquired the company for $1 billion when Instagram boasted just 13 employees (2). Today, the app has over 1 billion monthly active users and has, contrasting with its original model, added many features such as temporary “stories,” a marketplace called “Shops,” live video broadcasting, and a short film division called “IGTV” (3).
Another example of genius pivoting is with Netflix, one of the largest names in streaming. Netflix began in 1997 as a DVD mailing service that generated income via a subscription model delivering unlimited shows and movies (4). One of its founders, Reed Hastings, knew that the internet promised to change the way viewers interacted with shows and movies (hence, the company name being a combination of “internet” and “flicks”) (5). Even with a grand vision, Hastings still fell victim to self-doubt, attempting to sell Netflix to the rental giant Blockbuster in 2000 when losses were at an all-time high (6). When Blockbuster turned Hastings down, he was forced to persevere with his vision despite mounting uncertainty. Luckily, the company turned things around, finishing in the black for the first time a few years later.
In 2007, Netflix decided to heavily invest in developing a digital streaming platform (4). This, of course, was a logical pivot as smart TVs and high-speed internet were becoming more affordable for the general population. But investing so heavily in a website that will destroy your current business model still has its risks. This streaming service grew to be immensely popular, eventually completely choking out all DVD-based competitors. The change from mail delivery to streaming was not the only pivot that Netflix made, however. In 2011, the company announced the development of a show exclusive to their platform called House of Cards. This represented a sharp change in strategy where third-party turned to first-party; a DVD delivery company, of all things, was shifting to the entertainment sector. This kind of change may have been daunting to the company, but they learned from the 2010 bankruptcy of Blockbuster that they must continue to innovate to keep the edge (7). The risk paid off: pivoting into content creation was unimaginably successful, boasting household names like Stranger Things, Narcos, The Crown, Bridgerton, and Squid Game. It is worth noting that this pivot was temporarily successful: companies like Amazon, Hulu, and Disney have grown their own exclusive content offering, driving Netflix’s market share down. Perhaps it is time for yet another pivot from Netflix? In any event, Netflix proved that it could rise from the ashes by aggressively pursuing innovative change.
Analysis:
When looking back at successful pivots, we may wonder why more established businesses with a large pot of resources sometimes fail to make the changes that would give them the edge. Before Instagram started, everyone knew that photo sharing was a crucial aspect of most existing social media platforms and that photo editing was becoming increasingly popular. Why, then, was a duo of twenty-something-year-olds the group that best capitalized on these trends? When Netflix pivoted to digital content delivery, nearly anyone in the technology industry would have agreed that internet connections were only going to get faster and that TVs would only become smarter. Why, then, did an online DVD delivery company and not a large software development factory produce the first global streaming service? When industry-changing advancements are approaching, why do businesses seem to turn a blind eye to potential gold mines?
The first thing to understand is that pivots are extremely difficult to make. They require self-reflection and awareness. Is what our business is doing right now what it should be doing in the future? Is the growth high enough to survive? What happens if we keep doing the same thing? If we don’t change, how much longer is our financial runway? In order for a company to pursue a new pathway, it means diverting resources to something completely risky. Often, these pivots would make the old business model obsolete, so it can feel counterproductive for any success the company has already seen. When Instagram pivoted away from Burbn, it had a grand total of two employees. It was the kind of situation where shifting approaches meant changing the entire company and its product. The pair of founders were courageous and pushed a lot of chips to the center of the table. Unfortunately, for small companies, there are fewer chips to go around, so mediocre hands can spell disaster. Larger companies, however, can divide and conquer with their surplus of resources, hoping that any one of their R&D activities payoff. Therefore, when making large pivots, smaller companies experience much more exposure, but this weakness sometimes becomes a startup’s greatest strength.
When a small group of people is forced to heavily commit to a cutting-edge pathway, they sometimes flourish. Armed with a do-or-die motivation, they may exhibit more creativity, perseverance, and critical thinking that leads to world-changing products. Since the Burbn company was small, they were able to try a minimalist approach, choosing to reduce the feature set of their app rather than add to it. It’s impossible to imagine a company like Google or Microsoft taking a simplistic approach when they have near unlimited resources to execute any feature idea they have. Instagram’s weakness, therefore, became its greatest strength.
Just as Instagram was in its early days, most startups are light, agile, and open to change; they are often able to pursue large, radical change without too much red tape. What happens when a company wants to take a softer approach? Jacqueline Kirtley, a researcher at Stanford, analyzed decisions concerning large pivots and concluded that many of the best pivots may come from much smaller decisions that compound (9). This can be shown with the Netflix example. At some point, an employee might have asked, “well why can’t users just watch a movie on the website if they’re ordering from there anyway?” Later on, someone else might have asked, “I don’t like watching shows on my computer--why can’t we shift to delivering Netflix on iPhone, Android, smart TV, and game system application stores?” Even later, an employee may have asked, “I’m bored with the current content--what if we made our own shows and movies?” Netflix did not go from providing DVDs by mail to streaming original 4k content in one large pivot. Instead, small development decisions compounded to continuously grow the company’s reach and value to consumers. When pivots are not as obvious, instituting small changes and gauging customer feedback can help a startup to find direction (8).
Conclusion:
Richard M. DeVos once said, “It is impossible to win the race unless you venture to run, impossible to win the victory unless you dare to battle” (10). Once moving, startups need to use their agility to sprint to the finish line and avoid the lumbering giants encircling them (i.e. behemoth companies that can copy ideas at warp speed). How does a startup know when to start running? This kind of question is why we have a devoted accelerator program for early-stage companies who are developing cyber-related products/services and are ready to take their business to the next level. In a cohort, startups can begin expanding their networks, learning key business approaches, and seeking funding. We encourage those interested to apply here to be part of the change that MACH37 can bring.
Who Are We?
VentureScope works with creative entrepreneurs, venture capital investors, and large private and public sector organizations around the world that are trying to solve interesting problems. Our team has extensive and unique experience launching new business ventures, investing in promising startups, running startup accelerators, and providing strategic innovation and general management consulting services to large private and public sector organizations. We’re on the pulse of emerging and over-the-horizon technology and are tracking their growth and development against important industry problems to inform our deal flow and give you exceptional advice. MACH37 is our start-up accelerator designed to facilitate the creation of the next generation of cyber product companies.
References:
(2) https://backlinko.com/instagram-users
(4) https://www.britannica.com/topic/Netflix-Inc
(5) https://www.industryleadersmagazine.com/what-makes-netflix-the-first-streaming-success-story/
(6) https://www.marketplace.org/2020/09/08/ceo-reed-hastings-on-how-netflix-beat-blockbuster/
(7)https://money.cnn.com/2010/09/23/news/companies/blockbuster_bankruptcy/index.htm
(8) “The Lean Startup” by Eric Ries
(9) https://knowledge.wharton.upenn.edu/article/pivot-entrepreneurship/
(10) https://www.goodreads.com/quotes/732259-it-is-impossible-to-win-the-race-unless-you-venture
(11) https://leadwithastory.com/wp-content/uploads/2018/07/two-roads-iStock_000000922821_Small.jpg (cover image)
