The Lean Startup - Eric Ries [69]
Today, Wealthfront is prospering as a result of its pivot, with over $180 million invested on the platform and more than forty professional managers.3 It recently was named one of Fast Company’s ten most innovative companies in finance.4 The company continues to operate with agility, scaling in line with the growth principles outlined in Chapter 12. Wealthfront is also a leading advocate of the development technique known as continuous deployment, which we’ll discuss in Chapter 9.
FAILURE TO PIVOT
The decision to pivot is so difficult that many companies fail to make it. I wish I could say that every time I was confronted with the need to pivot, I handled it well, but this is far from true. I remember one failure to pivot especially well.
A few years after IMVU’s founding, the company was having tremendous success. The business had grown to over $1 million per month in revenue; we had created more than twenty million avatars for our customers. We managed to raise significant new rounds of financing, and like the global economy, we were riding high. But danger lurked around the corner.
Unknowingly, we had fallen into a classic startup trap. We had been so successful with our early efforts that we were ignoring the principles behind them. As a result, we missed the need to pivot even as it stared us in the face.
We had built an organization that excelled at the kinds of activities described in earlier chapters: creating minimum viable products to test new ideas and running experiments to tune the engine of growth. Before we had begun to enjoy success, many people had advised against our “low-quality” minimum viable product and experimental approach, urging us to slow down. They wanted us to do things right and focus on quality instead of speed. We ignored that advice, mostly because we wanted to claim the advantages of speed. After our approach was vindicated, the advice we received changed. Now most of the advice we heard was that “you can’t argue with success,” urging us to stay the course. We liked this advice better, but it was equally wrong.
Remember that the rationale for building low-quality MVPs is that developing any features beyond what early adopters require is a form of waste. However, the logic of this takes you only so far. Once you have found success with early adopters, you want to sell to mainstream customers. Mainstream customers have different requirements and are much more demanding.
The kind of pivot we needed is called a customer segment pivot. In this pivot, the company realizes that the product it’s building solves a real problem for real customers but that they are not the customers it originally planned to serve. In other words, the product hypothesis is confirmed only partially. (This chapter described such a pivot in the Votizen story, above.)
A customer segment pivot is an especially tricky pivot to execute because, as we learned the hard way at IMVU, the very actions that made us successful with early adopters were diametrically opposed to the actions we’d have to master to be successful with mainstream customers. We lacked a clear understanding of how our engine of growth operated. We had begun to trust our vanity metrics. We had stopped using learning milestones to hold ourselves accountable. Instead, it was much more convenient to focus on the ever-larger gross metrics that were so exciting: breaking new records in signing up paying customers and active users, monitoring our customer retention rate—you name it. Under the surface, it should have been clear that our efforts at tuning the engine were reaching diminishing returns, the classic sign of the need to pivot.
For example, we spent months trying to improve the product’s activation rate (the rate at which new customers become active consumers of the product),