Fast-Track to Funding: The One Fact to Know about Pivoting that will Impress Investors (Angels and VCs)

What is the one fact you can know about pivoting that will impress angel investors?

Refer to the famous TED talk by Bill Gross (VC and founder of IdeaLab) “The Biggest Single Reason Why Startups Succeed” If he’s right, and I believe he is, and so if good timing is the most predictive factor in startup success, then the timing of pivots has to be equally important.

Refer to my earlier articles on pivoting, such as Make Investors Sit Up and Notice – 10 Ways to Pivot. A major pivot is thus highly likely to be needed AFTER your investor invests. Therefore, there’s very little in your pitch that’s actually helps predict if your company will be successful.

Why is a major pivot highly likely AFTER they invest?

  1. Your investors’ experience: Most investors will tell you that very few companies make it to a liquidity event without a major pivot.
  2. Rapid change: The rate of change in every factor that matters to your business success (technology, markets, competition, customer needs, intellectual property, government regulation, exit paths etc.) is increasing. What’s true in each of these areas today is unlikely to be true in five years, maybe even less than that. Yet it takes on average 9 years to reach a liquidity event. Ipso facto: how well your company deals with these factors does not predict whether your company will get to a liquidity event.

This is something we can laugh about together because you and your investor prospects will proceed to discuss all these rapidly-changing factors; the customer, the need, the market, the product, the techno9logy, the financial prospects, the intellectual property, EVEN THOUGH we know it’s all a fool’s errand. So the need to drill down into the product and market is a demon in their minds, which seems to take over control of every investor’s mind. You have to free them from this demon. Here’s how:

There is one thing in your pitch that IS predictive of your company’s success: the team, which is mainly the two leading co-founders. If pivoting is necessary, then the ability to pivot at the right time has got to be one of the aspects of your team that matters most, right?

There are other aspects of you and your team that are equally predictive of success, and which you should call attention to, but we’ll discuss those in coming blogs. For now we’ll focus on showing investors that you know WHEN to pivot, that your ability to judge the timing of a pivot is good.

The One Fact to Know About Pivoting

So the one fact you can use to impress most investors is that pivot timing is key to success and that you’re prepared to pivot with the right timing.

This really two facts, but forgive me for simplifying. Reminding your investor of this fact about pivoting will allow them to follow their angel, not their demon, and focus on you and your team, not the product and market so much.

The investor’s internal angel says “Bet on the jockey.”

Investor’s internal demon says “Bet on the horse (the product and market.)”

And one key factor about the jockey (you and your co-founding team) is your ability to time pivots well.

What if you could quantify your ability to know when to pivot? Investors seem to love numbers, so let’s give them some numbers.

Pivot Timing Seems to Involve These Skills

  1. You don’t tend to pivot too early – i.e. you don’t have a bias for every “new and shiny” idea that comes along.
  2. You don’t tend to pivot too late – i.e. you don’t suffer from “endowment bias” – unwillingness to give up something you’ve worked long and hard at, or another way to say this is, overvaluing what you’ve created.

This is really a balance, isn’t it? You can’t be too far in one direction, nor too far in the other direction.

You have to be flexible (willing to pivot) but not overly flexible (willing to pivot at every opportunity, i.e. impulsive.

You have to be persistent (willing to carry on when others would give up) while not stubborn (unwilling to pivot when needed.

If you think of this as a dimension of skills rather than two different skills, then I call this the axis of pivoting:

Full axis

Unfortunately, most of us are not perfect, especially not the Vision Masters among us. The ones among us who like to “move fast and break things”, “disrupt the markets.

Fortunately, the greatest mistake is to pivot too late, because you can’t recover from that easily if at all. Pivoting when the company is in a downturn or a stall-out is more difficult than when pivoting while still in forwarding motion. It’s the same as sailing a boat, riding a bike flying a plane: it’s much harder to change direction when you’re standing still or falling over than when you’re in forwarding motion. So given the choice, I’d rather invest in a founding CEO (aka Vision Master) who is on the left edge of this spectrum (flexible, though not impulsive), with two caveats:

  1. There’s a “no-person” on board as a co-founder whose viewpoint the Vision Master respects, the kind of co-founder who finds all the faults in every good idea, and puts the brakes on when necessary, who really looks at the dark side of implementing a new idea. This is the company’s “Execution Master.” This co-founder can’t be so conservative that no ideas get past them, just willing to look at the downside thoroughly and veto a new idea that’s really unlikely to succeed.
  2. A clear agreement between co-founders as to the overall longterm vision of the company in addition to making money. Preferably the co-founders agree on the iIMPACT of the company.

On point 1, you want the two main co-founders to have complementary biases about change.

On point 2, you want the two main co-founders to share the same vision for the kind of impact the company will make.

In short, the two main co-founders must be misaligned in their approach to pivoting and aligned in their business vision. So what you show is a pair of leaders (or three or four, each with a complimentary place on the above axis.

Co-founder 1 (Vision Master): flexible axis

Co-founder 2 (Execution Master): persistent axis

Team as a whole. : balanced axis (both co-founders together)

Now, these are not the only factors that impact the timing of pivots. For example, it’s important that you have processes for making major decisions on pivots that consider contrary views from a number of team members and advisors, without squeezing the creativity out of yourself and your more disruptive team members

Please comment on your experience with this topic in your own company or past companies, and what other factors do you think affect the ability to well-time your business pivots.

Key Takeaways – The One fact to Know About Pivoting:

  1. Good timing differentiates successful startups from failures.
  2. For the same reason, good timing determines the success of your pivot.
  3. Pivots are inevitable.
  4. You can quantify your team’s ability to time pivots well, as follows:
    1. Make sure that your Execution Master is willing to be your “no-person”.
    2. Make sure the key co-founders are aligned on your vision for the company.
    3. Make sure you have a process for thoroughly vetting pivot ideas.
  5. By expressing these assessments to investors, you will impress them, and increase your valuation in the investor’s mind.

Connect with me if you would like to discuss The One fact to Know About Pivoting – or other funding concepts, Rob