Should You Pivot Your Startup?

0:00 Should You Pivot Your Startup? An Introduction It's never been easier or a better time to change your idea because of how fast you can grow. And if you're going to re roll, please don't get into pivot hell. Like, like like that's not actually obviously better. 0:18 Speaker 2 This is Dalton plus Michael, and today we're going to talk about Should You Pivot? We've never been asked questions about startup pivoting before. So this fresh, fresh content. 0:28 Speaker 1 I would say this is the most common topic that I got is AYC partner for someone that wanted to book office hours with me and this would be like the title of the office hours. 0:38 Speaker 2 What if she's someone that wasn't? 0:39 Speaker 1 Your you didn't find if someone was like I need to talk to. 0:42 Speaker 2 You first. 0:43 Speaker 1 And this would be, this would be the topic. And so I got very practiced at doing this office hours. And I think something great about these videos is we can kind of give you the audience an office hours experience without meeting with all of you. 1:00 So I think we'll kind of go from there, right? 1:03 Speaker 2 So let me try to ask you some kind of a setup question. So what's the difference in kind of how you would take an office hour like this when you're talking to a founder who is maybe three or four months in and and kind of afraid of their lack of progress versus a founder who was two years in? 1:25 How in your mind, were you calibrating slightly differently based on just that? 1:29 Dalton's Doctor Framework for Startup Pivot Diagnosis The first thing that I would do my framework for this type of office hours was I kind of would think of myself like a doctor where you know, when you go to the doctor's office, you, you don't get off the prescription pad, at least not a good doctor. You're not like, OK, well here's your prescription. You know, that would be, I think, deeply unethical. 1:46 I think would be the term for that. I. 1:47 Speaker 2 Came in for her. 1:48 Speaker 1 Shoulder, here's her shoulder, here's her shoulder. It's been great. And instead what I would do is spend a large amount of time. It began the office hours asking a lot of questions. Just like what a good doctor would do is they would want to assess you, they would want to lick you all over. They wouldn't ask family history. 2:04 There's just like all this context that you need to make a diagnosis as a doctor. And so the way that I would diagnose case of the pivots would be would be to ask, OK, remind me the back story of the company. How long have you guys been working on this idea? 2:20 When did the founders come together? How much alignment do you have between the founders that you're working on the right idea objectively, how is it going? Do you agree objectively of how it's going? And then I would always like to ask what is your next best option? 2:36 So I would say, OK, so you're asking about pivoting. Do you have an idea like in the in the can here? Or are you just in the? 2:42 Speaker 2 Abstract into a blue. 2:44 Speaker 1 OCD because again, on that point, just let's just say that they said, oh, Dalton, we do have other ideas. I mean, well, what are they? We're your top three because sometimes their top #1 backup idea was phenomenally good and they put a lot of time and thought into it. 3:02 And so my diagnosis would be like, wow, that sounds, it sounds like you're pretty high conviction on that idea and you're, you've thought about a lot. Maybe you should look at that versus, oh, we have no other ideas. We're just asking you this very abstract question. I would tend to be like, well, so I'll pause here. 3:17 And so the, the way I think about this is there's like a decision tree of asking a ton of questions about the founders context. And, and as per what you said a moment ago, Michael, if it's a company that's been in the bash for four weeks and is not talked to a single customer and has no other ideas, generally be like, yeah, you probably shouldn't pivot. 3:34 Like you should at least try. But if you've been working on it for three years and it's going nowhere, yeah, you should. You should probably pivot, right? 3:42 Understanding Founders: When to Pivot, When to Persist On average, founders know less about the problem that they're trying to solve than they think. And there's this kind of frame of like, I'm going to start this company because I know the right solution, which is like a helpful frame to convince yourself to like do the idiocy of starting a company. 4:00 But the reality in my mind is that in the first couple years of a company, you're actually trying to figure out everything, like trying to figure out what the customer's problem is, Can it be solved? Is it worth solving everything? And what I find is that I encounter, and this is very, very generalized, two types of founders. 4:19 I encounter a type of founder who like, once they realize their vision of the world is slightly different than what the world's turning out to be, they get scared. And they're like, this seems like a harder problem than I thought, but I think this problem over here is easier. 4:35 I want to kind of run away from the hard and that's kind of what I tend to see as the early pivoter. 4:43 Speaker 1 100% And let me give you the textbook example, and I mean this from a place of love audience. If any of you are working on this idea, this is not, I'm not trying to give you a hard time, but the classic one was companies working on some idea and they're like, OK, we're going to pivot. 4:58 We're thinking dentists. Like for some reason, oh God, dentists was the thing where it seemed. 5:03 Speaker 2 Really. 5:04 Speaker 1 Easy. Yeah, Like somehow fill out the alarms for you. Yeah, this thing sounds hard, but I was asking ChatGPT and I think we're going dentists. And I'm like, oh, another one of these that was like the classic pivot. 5:15 Speaker 2 I thought you were going to go the the the user interview product. That was another classic. 5:19 Speaker 1 That was and again, I'm sure there's some great dental start-ups. We love you like no, no disc. I just that one was a great example of a startup idea that feels easy. For whatever reason, a lot of founders searching for an easier startup idea gravitate towards dentistry. And it's it's always entertaining to me, so carry on. 5:38 Speaker 2 And then there was the second kind of pivot conversation I would have where basically be a founder who they actually know about their industry now they actually know about their customer. I can sit down and have 1/2 hour extremely interesting conversation about what have you learned? 5:54 And they can teach me all kinds of stuff. And for that founder, when they say they want to pivot, I take it completely differently. 6:03 Testing Your Core Hypothesis and Using Your Own Product I basically take this as like, have they actually tried their core hypothesis and has it not worked? And then like once that's happened and you've given that a good faith effort, it's you kind of should either pivot or shut down like. 6:18 Speaker 1 I think that's fair. Another another rubric I would do in my diagnosis is it was a developer tool. I would say OK, are you all using this yourselves? 6:26 Speaker 2 Yeah. Oh God, that's a big one. And it was. 6:27 Speaker 1 It was actually surprising how many companies building a developer tool could not be bothered to use their own product to build their own company. 6:35 Speaker 2 That was the whole thesis about pivoting or doing a developer tool. It's like if you're a developer. 6:41 Speaker 1 Here's the area. You know really well, we spent six months building this AI coding thing or whatever. And I'm like, what cool are you? Are you using it on a daily basis? And they're like. 6:48 Speaker 2 Now we're using cursor. 6:49 Speaker 1 You know, we'll get back to you on that. That was generally a sign that it probably wasn't the right space for them, or the very least, they're not on the right. 6:54 Speaker 2 Track. 6:55 How the AI Era Changes the Startup Pivot Landscape So let's just say everything we've talked about before, I think I believe in the pre AI world and the post AI world. Let's talk about how the AI world changes this concept of pivoting. One of the things that I see is that a lot of hypothesis that founders had about how the world works for companies that were started, you know, let's say before February this year. 7:17 That was my awakening. Maybe it was. 7:19 Speaker 1 It was like December, but. 7:20 Speaker 2 December. 7:21 Speaker 1 Last year. 7:23 Speaker 2 Maybe AI is kind of proving some of those hypotheses wrong. And so let's talk about a company where it's basically like their set of assumptions. Oh, it takes 100 developers to build blank or it takes a lot of humans to do Y or the best we can do to improve a process is improve the UI and some screens and some work flows. 7:43 What do we think about pivoting to some to those companies? Or maybe like the core assumptions just wrong now. Yep. And like maybe we don't. They don't have to be two years in like they're going out to customers now and their basic customers are just like, this is categorically not what's going on, but maybe they've raised some money and they're excited and da, da, da, da, like, how do you think about that kind of case this is? 8:06 Speaker 1 Very nuanced feedback and I'm glad I have video to do this because I don't know how I would tweet this. This is way too subtle of a point. So here's what I would say. It's never been easier or a better time to change your idea because of how fast you can grow and the growth rates are real. 8:26 And so you're taking a bigger opportunity cost than ever to keep grinding on an idea that structurally was rendered obsolete by Claude code or what have you, right? It's super clear. 8:40 Speaker 2 Can I extend that? I'd also argue that AI probably opens the opportunity aperture, so it's probably was more opportunity post AI than pre AI. 8:48 The Dangers of Constant Pivoting and Chasing Hype And the nuance here, though, is I would be really sad if people were watching this video and it causes them to get into pivot hell. And let me define pivot hell. It's where you change your idea every week, and you just rotate through whatever you read about on social media. 9:07 And you have no conviction. You're just chasing hype. And you're, yeah, like, you have no conviction. You have no ideas. You're just a vessel for what you read about on x.com and. 9:19 Speaker 2 And what just raised money it would be? 9:20 Speaker 1 So sad if someone watched this video and I accidentally got them into pivot hell. And so the nuance here, is it such a fine line? It's such a delicate balance for the viewer to yeah, you know, it's not working. You should probably roll the dice again. Like you get a re roll in the age of AI. 9:36 And if you're going to re roll, please don't get into pivot hell. Like like, like that's not actually obviously better. And so again, there's some some feedback I would give, there's some structure that I would give someone when they're choosing ideas, which is try to find an idea that you know something about. 9:53 Try to find an idea that you can get early customers on. Try to find an idea that is not just a regurgitation of who's raising lots of money. Like try to avoid the obvious, you know, gravitational pull towards Pivot Hill, which gives very bad place to be. It's better, it's honestly better to be working on kind of a not great idea than me and Pivot Hill, which is yeah, yeah, yeah. 10:11 Very nuanced. Again, what we're saying is yeah. 10:13 Why Deep Connection to Your Idea Leads to Success Very nuanced. I think that if we could blind pull a lot of early stage founders and they would never get attributed back to them. I think a common belief is that most of the companies that win, those founders kind of like played around in the sand and figured something out. 10:36 And this whole idea of knowing something about what you're working on is not true. Like the stories are much more like this seemed cool and I tried it out and I was running a bunch of experiments and this ended up working versus like I actually had some kind of deep connection to this idea space, something about it. 10:57 And I think what's so frustrating to me is that when I look at the winners, I can always tie or more way more often than not, I can tie some deep connection to what the founder was into. And yeah, I think we live this personally in Twitch. 11:13 And it was, it was weird to watch 'cause I think there was this initial phase where like we were trying to make celebrities and Justin was the first one and he wanted to be a celebrity. Like we were solving his problem. Then there was this kind of middle phase where all we cared about was graphs and metrics and our more people coming to the website. 11:32 And then there was the phase that worked, which was kind of Emmett caring about video games and he somewhat irrationally cares about video games. And it's so funny when I go through so many stories of startups and I kind of get to the meat of like, so why are you doing this? And then there's some like, oh, my dad was a pharmacist or I grew up in a restaurant. 11:51 Like, you know, there was like an actual and I always think to myself, if you're competing against somebody where you're just doing the random walk of what sounds like a good idea and they're doing something that. 12:01 Speaker 1 If they're doing their life's work and you're just like hanging out. 12:04 Speaker 2 Trying to get lucky. 12:05 Speaker 1 Who's going to win? Yeah. 12:07 Speaker 2 And so it's a, so it, it doesn't seem kind of true to say this, but it's like your best dice roll is in a game you know how to play. Like your best shot, even if it seems out of vogue, is probably something that you know something about before you sat down to think about sort of ideas. 12:24 And like, I don't think people like to hear that because they're like, I grew up in a middle class family and I went to a good school and I had no problems. 12:31 When to Force It, When to Try Something New How do you advise someone on how to figure out what the next thing is if the thing you're convinced the thing isn't working? 12:38 Speaker 1 There's two things I would do #1 my diagnosis would be to understand if their natural state is to pivot too much or too little. And so do you have a case of pivot itis or do you have a case of like, yeah, I don't have a name for it, The opposite. 12:55 The the opposite. And if someone was already pivoting every week, I'd actually prescribe to them. Don't pivot for a three months. Like force yourself to work on this long enough to learn something because right now you're getting such surface level insights to just work on an idea for a week and then change again. 13:11 You're learning nothing is it you're wasting your time to pivot every week so you know my prescription is work. Pick any idea, I don't care what it is, but force yourself to work on it for three months so that you have enough time to learn something. 13:23 Speaker 2 What about the opposite? 13:24 Speaker 1 And now the opposite would be they've been working on some for two years and it's still not working at all. And so I'd be like, just do something like the prescription is just try some stuff because your natural order is to is to never try anything new. And also that device is always much harder for a hard tech company where if all they know if the founders are like doctors or something, there's only so many ideas they can really work on. 13:45 And so that's tricky. The the scope of things that they could try out is is much smaller. 13:50 The Challenge of Pivoting for Established Companies So let's wrap this up with kind of two interesting thoughts. And I, I will desperately try not to make them depressing, but here I go. One observation that I think we've both shared is that there were a large number of mobile startups funded pre the iPhone App Store. 14:10 There were folks that were building on top of BlackBerry, on top of feature phones, on top of Palm OS, on top of Microsoft. Like all of these were were smartphone platforms pre iOS. And as far as I can tell, none of the big mobile winners started until after the new platform was adopted. 14:31 And So what gives there? Right? Because I think that if I'm a first principles thinker, I would say here's a company who already understands the power of smartphones, who already has a software, a product live in smartphones, who has funding, who has engineers. 14:49 Wouldn't they have so much more of an advantage against someone who's starting fresh now that they have an iPhone in their hand And like, oh, here's what I wish I. 14:55 Speaker 1 Could do, I think if I wanted to engage with that thinking, it's that it's a disadvantage to have inertia working on the wrong thing and that if you spent a lot of time and effort boarding your mobile game to BlackBerry, the iPhone comes out, you're going to have a lot of cope to not basically just reboot your whole company. 15:18 Like the day the iPhone comes out, you're like, OK, well, we're going to lay everyone off and we're going to throw away all the code we spent years building and we're going to admit to our investors we were wrong. And I think there's probably some founders who have the wherewithal to do that. Most people don't. 15:34 I think where you're going with this is that's kind of happened with AI, where a lot of companies that have been around for a while, they need to either be like, well, we're just rebooting everything. You know, like all that stuff that we spent millions of dollars, all that code we wrote, it's worthless and it could be replicated in two months with cloud code. 15:54 Thanks for playing. And, and, and basically you have to almost like declare emotional bankruptcy on your existing business to truly reboot it. That is such a hard thing to do versus a brand new company. There is no emotion. They're like, cool, we just started yesterday. 16:10 And so it's almost like an existing company has to, to put themselves on a level playing field with a brand new company. They have to go through your emotional state of letting all that stuff go and letting go of all the cost before most people can't, won't choose not to do that right man? 16:28 Speaker 2 Like what I'm hoping is that this cycle is different and, and here's what I've seen and I've got a couple companies in the back of my mind. One thing I've seen is that a lot more companies, the kind of got later stage pre AI, the founders took some secondary off the table. 16:45 And like in a weird way that's kind of helpful. Like in a weird way that kind of gives them the freedom to say like, I can take a bigger bet because if this didn't work out, at least I already got some secondary off the table. So I'm seeing that. 17:00 And then second, I think that a lot of founders maybe due to some of our advice, I don't know when they went through COVID and they saw the crazy times, they got financially more responsible. So it's a lot easier to think about these big moves when you're running your business at break even versus like you've got this train and if you can't keep talking on the. 17:18 Speaker 1 Line, if you're like, Oh no, the board's going to fire me. Like if you feel like the the hatchet's hanging over your head harder. It's much harder to be like, hey, all the stuff we did is worthless. Like, like that's a much. 17:28 Speaker 2 Harder pitch. Harder pitch. 17:29 Speaker 1 Yeah, harder to explain that to your. 17:30 Speaker 2 Board and so I've seen a couple companies kind of in this position really reboot and like what's fun about watching it is that like in some ways, if they can get their mind around this cope, it's an advantage like their ambition levels high. 17:48 They actually are good at what they do like they got this business so far. They're actually kind of like talented. Often times if they're AI told they can kind of look at all the stuff they've done before and see, oh, we could have done it like this and they can actually package that up and use it. 18:03 And often times they had time to learn about some customers, some market, some problems. You have some insights. So I hope and I maybe I'm, I'm optimistic that this cycle is different, but I think that if I was a founder of a company between let's say 10 million in revenue and 300 million in revenue, and most of that business was built on pre AI assumptions. 18:26 This is a moment, right? Like 5 years from now, you're going to look back at this moment and you ask yourself some really hard questions. What like I might argue that like if you're a company at 500 to a billion in revenue and good economics and maybe you can IPO in the next year or two, maybe you can like sneak over the bar. 18:47 But if you're not there, that bar is moving. And I think sometimes I talk to founders and and, and I'm just like, look, you got to make a bigger move than maybe you think. And it's so. 18:59 Speaker 1 And it's almost like they know it. They just feel unable to make the move. They're like, yeah, I know, I know, but. 19:04 Speaker 2 There's a but right? Like if they were advising another company, they would tell them to make them. Yeah, yeah. And it's it's, it's hard, but I'll tell you, folks are doing it. Folks are starting products at 0 revenue that have 10s of millions of revenue. And like what you mentioned before, AI's powerful tool, you can go fast. 19:24 Speaker 1 Sure can. 19:25 Speaker 2 You can, if you've got the right idea, you can make moves. And so I think more companies five years and ago, five years from now are going to look back at this moment and say. 19:34 Speaker 1 Why didn't we do X? 19:35 Speaker 2 Was this the iPhone moment? Yeah. Should we have just gone all in? And the other nice thing about a lot of these companies, and maybe it was different in the Mobile World, a lot of them have money. 19:45 Speaker 1 Yeah, their capital is not the issue. 19:47 What Investors Truly Care About: Company Success, Not First Idea And I think a lot of them also, I hear the story like, what will my investors think? And it's like you're an investor now. 19:57 Speaker 1 Can you? Your job is not to manage optics unless it's someone that can fire you. And again, we can't, you know, we don't take board seats. So standard capital? 20:05 Speaker 2 Structurally. 20:06 Speaker 1 You get, you know, there's no university, you have to worry that dolphin is grouchy with you. You're good, but your job is to is to is to win and to perform as an investment and not to like perform for us like it's not here for my entertainment. 20:23 It's kind of like, well, I hope I hope this investment works out and I want to help you the best I can. But at the end of the day, that's what matters. I think, I think sometimes founders think that the personal relationship matters more than if their company does well. And I, as someone who's a former founder and as are you, that is not true. 20:38 No, no, no. 20:39 Speaker 2 No. 20:40 Speaker 1 Having the company work is what matters more. 20:42 Speaker 2 Well, and what's funny is that you, what you didn't say was having the first idea work or having the thing the company's doing now work. 20:48 Speaker 1 None of that matters. Just. 20:50 Speaker 2 Company. If the company works, the investor will brag about it. If the company doesn't Amen, they will. They will. You might not even know they. 20:59 Speaker 1 Invested, it's true. 21:02 Speaker 2 There's like there's no extra points for it was my first idea, no. 21:07 Speaker 1 No extra points, no extra points. 21:09 Aligning Pivots with Your Unique Founder Expertise And I guess my my final thought for more early stage founders that I would always give people. There's a there's an old video where I talk about pivoting still on the the YC channel. I think it's called like all about pivoting and one of the one of my comments is the best pivots are getting closer to the founders zone of expertise. 21:27 A good pivot feels like coming home. And So what I would say is if you're at this precipice of pivoting, you should ask yourself what makes me special? What am I best in the world at? And sometimes you don't know something that I would do as AYC partner a lot is tell the founder what made them special. I would look at their LinkedIn. 21:42 I would look at the resume and be like, wow, you are writing papers about this, like really esoteric topic as an undergraduate. How about that? And they'd be like, oh, I never thought about that dolphin. I was too busy, you know, worrying about dentists and like, well, like, seems like you know a lot about this thing. 21:58 You were writing papers. 21:59 Speaker 2 About and how much you know about dentists again, Seriously. 22:01 Speaker 1 And it was sometimes when you're in your own little world, you forget what makes you special and different and what you're a world expert at. And so I would just really encourage the audience to do that inventory of your upbringing, of where you're from, of the jobs you've had, even internships you've had. 22:19 And you might have more super elite expertise than you realize. And that's such a great source to move towards and not away from. 22:28 Speaker 2 I love that thought because what most founders will do will say none of those things are hot right now. And that's like, yes, we're aiming for it looking good. 22:40 Speaker 1 10 years, yes. Yeah, we're about today. 22:43 Speaker 2 So if you're not like a machine learning AI expert today, like that is OK. I would just speak for myself as an advisor. It is so much more fun to work with the founder who has an expertise in what they're doing. 23:00 Like it's so much more rewarding. I think we don't think about this, but like as an advisor, when the founder can teach you something, it gives you more energy to help them. As a founder, when it's like you feel like you know more about the problem they're solving than they do, It's a, it's a drag unless it's your weird hobby or something. 23:21 But like, and, and so man, I really wish people started with their expertise versus started with what's in vogue. That'd be really nice. All right. Good luck pivoting or not pivoting. 23:33 Speaker 1 Thanks, Michael. Appreciate it.