by Serge Vartanov
In 2009, researchers at the University of Pittsburgh found that optimists live longer and happier lives than those who are skeptical or cynical. Unchecked optimism can indeed be a great source of joy, but for many tech entrepreneurs, it is also a great source of danger. The impact of a founder with unbridled optimism can be painful for a lean start-up: if the founder continues to believe in the product even after the core hypothesis around product/market fit has been proven wrong, then considerable angel and VC money can be wasted chasing an opportunity that doesn’t exist. Fortunately, for a new start-up, this destruction of value occurs on a relatively small scale and can be a good learning experience for everyone working on the team. This good doesn’t necessarily outweigh the bad, especially when a more developed company is attempting to conduct a pivot with an optimistic executive at the wheel.
Over the course of this semester, our class has studied a number of start-ups that conducted pivots early on as they sought to find their product/market fit. For small companies like Triangulate, having the opportunity to pivot from a failed hypothesis (social-dating) to a new idea (slightly different social-dating) can bring tremendous hope that the venture still has room to succeed. In a way, this undercuts the strength of the pivot – with so much riding on the new idea, it’s easy to get caught up in the hope and destroy value by expecting a better outcome than the early data indicates. Fortunately, once the post-mortem occurs, the experience and learning that comes from a lean entrepreneur pivoting into a brick wall can make the entrepreneur much stronger.
Pivoting into a wall may not be ideal for a small lean start-up searching for product-market fit, but the value destroyed is much greater for a more established player that already had product-market fit. Consider the classic example of Michael Jordan pivoting from basketball, where he was a perfect fit, into baseball. At the time, Jordan was optimistic that he would be able to hit a ball as well as he could shoot one – but his 2-year foray into America’s national sport caused tremendous injury to his brand and will forever serve as a scar on his otherwise impeccable sports record.
Perhaps a more relevant example for tech entrepreneurs would be the tale of Mochi Media, which brought on a new CEO who initiated a pivot from what was arguably a successful product that just didn’t have a big-enough payoff. George Garrick was so optimistic that the pivot into publishing would work that he led Mochi into launching a live version of a new game-portal, HelloGiant, before it could test all the hypotheses underlying the new product-market fit. Because there was already strong buy-in for the already existing current fit that Mochi offered, Mochi’s pivot received little buy-in from the firm or its clients, and ultimately failed.
Did Mochi learn from its optimistic misstep into the publisher world? Surely it did, just as Jordan learned much from playing baseball, but because of the large size of the organization, this failure destroyed more than just some seed money – Mochi experienced a sharp drop in employee morale and its relationships with its publishers undoubtedly suffered. Of course, not all late-stage pivots are prone to such failure – over the last few years, IBM completed an impressive transition from manufacturing to services – but both Mochi Media and Michael Jordan’s pivot serve as stark examples of how pivoting from a great fit can cause tremendous destruction.