The Lean Startup - Eric Ries [68]
The team worked valiantly to find ways to improve the product, but none showed any particular promise. It was time for a pivot or persevere meeting.
If the data we have discussed so far was all that was available at that critical meeting, Wealthfront would have been in trouble. They would have known that their current strategy wasn’t working but not what to do to fix it. That is why it was critical that they followed the recommendation earlier in this chapter to investigate alternative possibilities. In this case, Wealthfront had pursued two important lines of inquiry.
The first was a series of conversations with professional money managers, beginning with John Powers, the head of Stanford University’s endowment, who reacted surprisingly positively. Wealthfront’s strategy was premised on the assumption that professional money managers would be reluctant to join the system because the increased transparency would threaten their sense of authority. Powers had no such concerns. CEO Andy Rachleff then began a series of conversations with other professional investment managers and brought the results back to the company. His insights were as follows:
1. Successful professional money managers felt they had nothing to fear from transparency, since they believed it would validate their skills.
2. Money managers faced significant challenges in managing and scaling their own businesses. They were hampered by the difficulty of servicing their own accounts and therefore had to require high minimum investments as a way to screen new clients.
The second problem was so severe that Wealthfront was fielding cold calls from professional managers asking out of the blue to join the platform. These were classic early adopters who had the vision to see past the current product to something they could use to achieve a competitive advantage.
The second critical qualitative information came out of conversations with consumers. It turned out that they found the blending of virtual and real portfolio management on the kaChing website confusing. Far from being a clever way of acquiring customers, the freemium strategy was getting in the way by promoting confusion about the company’s positioning.
This data informed the pivot or persevere meeting. With everyone present, the team debated what to do with its future. The current strategy wasn’t working, but many employees were nervous about abandoning the online game. After all, it was an important part of what they had signed on to build. They had invested significant time and energy building and supporting those customers. It was painful—as it always is—to realize that that energy had been wasted.
Wealthfront decided it could not persevere as it existed. The company chose instead to celebrate what it had learned. If it had not launched its current product, the team never would have learned what it needed to know to pivot. In fact, the experience taught them something essential about their vision. As Andy says, “What we really wanted to change was not who manages the money but who has access to the best possible talent. We’d originally thought we’d need to build a significant business with amateur managers to get professionals to come on board, but fortunately it turns out that wasn’t necessary.”
The company pivoted, abandoning the gaming customers altogether and focusing on providing a service that allowed customers to invest with professional managers. On the surface, the pivot seems quite dramatic in that the company changed its positioning, its name, and its partner strategy. It even jettisoned a large proportion of the features it had built. But at its core, a surprising amount stayed the same. The most valuable work the company had done was building technology to evaluate managers’ effectiveness, and this became