Startup Experts Reveal Their Favorite Pivot Stories

You don't know what the thing is that you're chasing when you wake up every morning? Then you probably need to pivot. Right? So many founders have to work on the wrong thing before finding the right thing. It's like they've internalized, "I'm gonna fail, yeah so I might as well do something cool on the way down."

You might think that pivots are a mistake or something that only startups that don't make it have to do, but the truth is the exact opposite. A huge number of the best startups had to pivot, and today we're sitting down with YC group partners to capture some of the best stories on how to pivot.

Thank you. Pivoting is one of these words that people use all the time that means a lot of different things. So I always like to just say changing your startup idea. You know, if you're not making something people want, you usually need to change your idea, or your startup will fail.

What are some of your favorite pivot stories and the history of crazy pivots? I'm going to start with Brex. I mean, look, when they initially applied, the idea was a virtual reality headset. Beyond is basically an augmented reality company focused on replacing your laptop using your smartphone. What was funny about it is the two founders had no experience with hardware or with the physics behind this stuff. When they were younger, they actually built a payments processing business in Brazil.

So there were like these high school kids who built something kind of like Stripe for Brazil and were successful enough that it got acquired. They were like, "You know, we're reasonably successful." So their idea for their second startup was, "Hey, we've done this payments thing. We want to do something way more high-tech." And they were like, "I don't know, VR headsets."

What was funny about it is, like, I thought there was no way that that idea would stick. When they interviewed, once they went and talked to a bunch of hardware experts on the mechanics of building one of these things, they realized that they were not the team to do it. Luckily, they went back to the thing that they knew a lot about, which was payments.

Do you remember how far into the YC batch they were when they finally gave up on the VR headset? I did. It's probably like three or four weeks. It wasn't like on day one. Yeah, I think we had them talk to a bunch of experts. Reality sort of started to seep in, where they're like, "Wait a second! What do we even know about this stuff?"

It might also be like something that affects smart people, where I think smart people feel like things that are worthy need to feel really hard. Like you're trying to overcome a really steep hill or try to do really hard challenges, and you ignore the stuff that actually just seems very easy to you. So it's probably in the Brex guys, maybe like a payments-related company, maybe felt easier than building like a VR. I'm just like, "Oh yeah, I've done that. We've been there, done that. On to the next one." Makes sense.

One dramatic pivot would be Goat. It's a YC company that we actually funded a long time ago—like over 10 years ago at this point. But I bring it up because it took them a while to figure out what to work on. We funded them as Grub With Us, which is basically a site that let you meet local people through group dinners.

Yeah, it was like, and it was really cool. Actually, it really took off within a very specific community. So for like the invested community in San Francisco, loved it. It's like some way to meet other founders and investors. Right? But it had awful retention, didn't go anywhere.

It took them, I think, two years post-YC to realize that they themselves were really into collecting sneakers and that there was a growing market in these sort of limited edition sneakers that would often sell out on the day of release. And there was like a really big secondary market for them. They were like, "Oh hey, we know a lot about this stuff. This seems like a really growing industry. Let's just ditch the whole group dinner thing and go down like a sneaker marketplace."

And what year was this? That was, I think, 2015. And so to me, this is the instructive point about this story. Now, in present day, you can see on CNBC or reading the New York Times, "Oh, sneaker collecting! This seems much more like a real thing."

Yeah, in 2015, this was so far outside the norm of conventional wisdom to decide to pivot your company into sneaker collecting. Yeah, I just want to make that note because a lot of the really great pivots like that are when you're years ahead of consensus.

When I heard about this pivot in 2015, it seemed, I don't know, unconventional is a nice way to say. Yeah, sometimes the founders arrive at that idea, they almost need to have the morale so low that they hit a point where, like, you know what? Like, I'm just gonna work on something because, yeah, I'm interested. It's like they've internalized, "I'm gonna fail, yeah, so I might as well do something cool on the way down."

That's what lets them take the blinders off to actually see the potential for something like that. Yeah, I agree. Both Brex and Goat are some of the biggest and most successful startups of our time now, but as Dalton and Harj walked you through, each had to realize the prior idea they had was not right before they could get to the next step.

Next Step, Tom Blomfield sits down with Michael Seibel to talk through the first of his two billion-dollar startups he co-founded. "Why don't you kick it off?" "Yeah, I'd love to. This is kind of embarrassing. We did YC. My first company, my co-founders Matt, Hiroki, we applied with an idea called Group A, which is a classic fintech tarp pit. Like every college kid thinks this is the best idea in the world."

And we were those college kids back in 2011. But we didn't know that at the time. No, it wasn't targeted exactly. I think we helped prove it was a target. You did a public service!

Yeah, exactly. So basically, it was group payments, bill splitting—like collect money from your friends for your college soccer team thing. We all know how this ends. We know we hassled our friends into using it, and they like it wasn't that useful. So no one ever retained. They'd like drop off, churn, and we'd phone them up again. They'd start using it again for a week or two, and then churn, eventually.

So it's like we weren't delivering value really. It wasn't useful enough to people for people who really cared about. We did office hours with PG in the Mountain View office, and I remember very vividly we sort of walked around the block.

And he told us to like stop building functionality, stop building new features, stop piling more crap onto the sort of mountain of turds we had already, and instead just try and go and get users. And to do that, all our users were in the UK, and so we got up at three or four a.m. to cold call like hundreds and hundreds of um, treasures of sports clubs.

And after two weeks, we've got like one new user. After four of us cold calling for two weeks, we knew it was the time to pivot then. And so what we did is took kind of the core technology—the payments infrastructure way of making bank-to-bank payments—and instead of trying to sell it to college kids, we applied it to businesses.

So starting with small businesses who are collecting recurring payments from their customers, it turned out direct debit was a perfect use case for that. And 12 years later, that company is GoCardless, basically doing the same thing: recurring business payments back to bank. It's a multi-billion-dollar company.

When you're young, you think of the entire world as consumer, and the older you get, the more you're like, "Oh, I guess businesses buy software." Yeah, it's funny. I think especially college kids, all of the problems you have been exposed to are the problems that college kids in developed worlds have. You know, like, "Is bill splitting? Is how do I organize to see my friends next week? How do I pick the right day of the week?"

It turns out knowing what problem to solve is a huge part of the battle. It's the primary one. If you're already a builder, the process is truly about finding a problem you can solve, and often you won't know what that problem exactly is until you've actually made contact with real customers. That's the knowledge you're looking for.

Next up, Gustav and I hang out and talk through yet another billion-dollar startup: Clipboard Health. The founder, We Deng's journey, is a case study in finding the right problem. While the other examples mentioned so far came together over the course of months, sometimes you have to spend years in the idea maze to find the key to unlock product-market fit.

One of the big awesome questions that founders should always ask themselves is, "What do I understand, or what do I know, and what do I believe that nobody else knows or believes?" And that's actually sort of the core of a lot of the pivots that really work incredibly well.

My favorite one is actually Clipboard Health. So this is a company that came in as a hiring—really almost like an Indeed but for nurses. The founders of Two Magnets, a program that helps nursing graduates get jobs, which is somewhat of an idea that we see quite frequently. You know, hiring is a big problem, and then seemingly, there are a lot of nurses.

You know, how do you walk into that market and be successful? And it turns out that if you're just doing Indeed but for nursing, it's going to be a slog. Like there isn't really a "why now," and that is actually what We Deng, the founder, found for actually a couple of years.

But the cool thing about her is that she just spent enough time selling to hospitals and just talking to everyone around the hospital. Did she realize that this person, when someone, when a nurse would call in sick, they would always have to go to an agency? And that's what really was sort of the key insight that made Clipboard go from a startup that was just really trying to create another Indeed for nurses to now one of the biggest software-enabled skilled nursing facility sort of agencies.

I think what was so impressive about her—I worked with her in the early days when I was at YC—was how she adopted the "doing things that don't scale" motto so well. She didn't really build a lot of software early on to solve this problem. It's like she literally spent time with—I’m trying to understand exactly what is the problem that I need to solve.

And like, maybe I can just like manually solve this problem, and that's what she did. She manually like kind of like self-coordinated getting these nurses from in front of these hospitals. And it wasn't until she'd done this a few times that she was just like, "Okay, there's an opportunity to build software here and automation."

But she started completely in the right direction, which is so difficult for founders because founders love using software to solve the problems and love getting into the code editor. That it can be extremely distracting in a typical process, trying to overbuild things when you really need to just understand the problem that someone's having.

So you've learned it can take a long time to get to product-market fit. What about the other end of the spectrum? You keep trying new things in faster and faster cycles, but it doesn't come together. This is called pivot hell, and Serbian Jared are going to explain how to avoid getting stuck in it.

Can a company pivot much? Yes, a company can pivot too much. We even have a term for it at YC: we call it getting lost in pivot hell. Just thinking. And we see this with companies in the batch sometimes, where like every week we see them for office hours and they're working on a totally new idea—not like a slightly different idea, like you get like completely, it's like an all-new startup every week.

What causes founders to get lost in pivot hell? I think that if you're too much of a perfectionist upfront, and you want everything planned out perfectly, and you want to be able to see exactly how the cards are going to unveil themselves kind of beforehand, I think that keeps you in this loop of constantly iterating instead of just saying, "Look, there's a bunch of unknowns, and I know that. But the only way I'll truly learn is if I sink my teeth into one idea and push it forward."

If you're searching for the perfect startup idea, you just keep looking for new ideas because no startup idea is ever perfect. As soon as you find an idea, you realize the problems with it, and then you switch ideas. Can companies still survive it? Right. Do you know of any companies that were in pivot hell and then moved on from it?

I do. There is this company that went through pivot hell all batch when they started at YC. They had one idea, and every week it was a different idea. In fact, they were so deep in pivot hell that when they got to the end of the batch, they had to defer demo day because they literally had nothing to present to investors. So they didn't know what their company was going to be.

We kept doing office hours for them to talk about their new ideas and about six months after the batch, they hit on a really high-quality idea. And the idea that they pivoted to is they realized that there had been a regulatory change. They created the first company, really, that productized this regulatory change— the kind of idea where, had they come to us earlier in the batch, we would have been like, "That's the one! That's way better than the other seven ideas that you pitched us."

Right. And how are they doing now? They're doing super well now. But an interesting thing is how they came up with the idea. Yeah, basically in order to have this idea, they had to go through a whole bunch of bad ideas first. But in the process of doing this, they got to know the industry really well. They got to understand what people actually cared about and tipped them off to this regulatory exchange and this big new opportunity that had opened up.

So many founders have to work on the wrong thing before finding the right thing to work on. And so the biggest thing, because pivoting is an option if you want to be a founder and there's a space you want to change or have an impact on, is to start somewhere. That's how you learn about the space and find the right idea.

You start somewhere and become an expert. The only way you're going to find a real market and a real problem to solve is in direct contact with users. The market itself will teach you if you're in the right place, ask the right questions, and listen.

Next up is Diana who is talking with Nikola Desane about her own YC startup, As Your Reality, which she sold successfully to Niantic, the creator of Pokémon Go. But before finding product-market fit, she started in a very different place.

For a bit of context, As Your Reality would build an augmented reality SDK for game developers. That's what it became. But what we started with was augment the reality technology, and we don't know what we're doing. I mean, we’re really much technologists and engineers and we love writing code.

So I would call it one of the syndromes for founders that we had was very much a cool technology in search of a problem. We had no idea who wanted this. So some of our first customers were actually marketing people trying to do splashy things with AR. I mean, they’re very nice people and excited.

They felt like they wanted it because they were so excited. And it wasn't until we got into YC that we understood that that wasn't real feedback, and we went on a series of user interviews and learned that marketers were just being nice to us.

It's a mistake that a lot of founders do because you're like you're so excited about your idea, and people just want to like reciprocate that excitement. But that doesn't mean that they really want to use it because when we get to like, "Oh, are you going to pay us?" which is really the real, real better feedback, and yet not ask that before.

Yeah, we kind of got some soft yeses and this and they signed up, but not really. But the conversations really changed when we started selling them to game developers. For a bit of context, we had started a company before Pokémon Go was a thing, which is what made augment the reality in gaming more of an SDK that people wanted.

So that was not as a pivot in terms of changing the complete idea. It was pivoting more in terms of our go-to-market and who our users were. And this is actually a very common thing that founders do in the batch and who we work with is really understanding who really wants what you build is a big question to try to figure out.

And the first people who like it may not be the right customers in the end. The idea here is to validate your idea as much as fast as you can so that you don't waste too much of your time working on something that doesn't matter—that people don't want. When you get to the right idea, it becomes a "hell yes." That's what you're looking for.

That's qualitative, though. A feel. What if you want something more quantified? Aaron Epstein sat down with Brad Flora to talk about how important it is to pick the right metrics to follow. When things are working really well, it's easy to know you should keep going.

Yeah, when things are not working, it's obvious you should do something else. It's that gray area, where you're like making some money but it's maybe not repeatable, that it becomes tricky to figure out, like, should I pivot or not?

My favorite understanding of pivoting is when you change what you're working on but not necessarily always every part of it. Right? In basketball, when you pivot, you have to keep one foot stationary. And so you may keep the type of product that you're building, but maybe the audience that you're going to build it for is going to change.

Or you might build a different product for the same audience that you're already going after. But it's basically to change your idea in some way that hopefully builds on the learnings that you've had from the prior ideas that you've worked on.

We actually applied and got into Y Combinator as Color Lovers, which was and is a creative design community for people to create and share color palettes and patterns and shapes. And we'd built that up to a community of more than a million members. And we tried all these different ways to monetize the community.

We tried selling software, we tried an ad model, we tried running contests on the site to our community, all kinds of crazy non-repeatable, non-scalable things we were trying for honestly probably a year and a half after the YC batch that we went through. So it took us a long time.

And I like to say that we were wandering in the wilderness. And the reason it took so long was because we didn't have a main KPI that we were focused on. It never even occurred to us that it wasn't working for that long time because we never had this main KPI that was not growing, so we just weren't paying attention to that.

And so ultimately we pivoted to a marketplace for graphic design assets that we called Creative Market, and we launched that. And as soon as we launched that, all of a sudden the main KPI was clear—like, are people buying on the marketplace? And is that number going up every day, every week?

And it was much clearer, like you were saying earlier, with the clarity and the focus of what we needed to do to grow and whether it was working or not. So that's my advice for all founders out there: make sure you have a main KPI that you're focused on, and make sure that you're tracking it on a regular basis.

I became obsessed with it. I was like refreshing it every 15 minutes, you know, to see, "Are we growing? How are we trending versus yesterday, versus last week?" And that's going to be your main indicator for whether your business is working or not.

And if you hear what Aaron just said and you don't immediately know what your main KPI is—like you don't know what the thing is that you're chasing when you wake up every morning—then you probably need to pivot.

Right? One thing that I think is group partners, because of that experience that we had, we try really hard to get founders to that moment of realization a lot sooner. Totally, sometimes in the interview. Yes, but if not, then, you know, early on in the batch to try to help push them along to that moment of clarity of like, "Oh, this doesn't add up. Let's do something else."

One of the ways that I like to think about it is it's kind of like when buying real estate. A lot of people say, "Location, location, location!" Right? And really, when it comes to startups, it's really like the founders, the founders, the founders, the founders because everything else can change.

And we've seen this so many times where, you know, it's the same founders. That's like the location. You can't change that, but you could knock the company down to the studs, rebuild it. They can work on a totally different idea, and all of a sudden it looks like a different company.

Oftentimes the founders even act like different founders. They become more formidable when they're working on an idea that they're excited about and they're well-suited for. Each successful startup we've talked about today had to pivot to find product-market fit.

This is the process, whether you're just getting started, or still thinking about launching a startup, or even wondering if you need to pivot. I hope these examples helped. I'm proud to say the group partners at YC are some of the most experienced people in the world at helping founders in the idea maze try to figure out their market.

We can do it not just because we've been there; we can also do it because we've directly worked with more zero-to-one startups than anyone on the planet. Thanks for watching and we'll see you on the next episode of office hours.