A little more than a year ago, I wrote an article for Under30 CEO, titled “Start a Company, F the Rules.” It was my personal manifesto on how to start a successful company. It was all about the early days; working from coffee shops, with everything on the skinny.
Thirteen months later, I’m in a different world. Now it’s about growth, innovation, and commercialization; meeting milestones and raising venture capital. My company, Ethical Ocean, has grown revenue at 50 percent month over month. We’ve gone from one full-time staff member to six full-time superstars. We went from being self-funded to raising $500,000 in angel funding. We went from a skimpy catalog to a truly world-class catalog offering 5,000 high quality, desirable ethical goods, and above all, we’ve chiseled out a solid foundation in a booming market. All because we deliver true value to our customers. Thirteen months ago, I was the only investor in our company—today, the best VCs in NYC and SF are in my vertical. I attribute much of our success to know when to Pivot and when to Stay the Course.
As a start-up, you’ve got a single mission: demonstrate exponential traction on a yet-to-be-proven business model and strategy. Whether you’re aiming for a Sequoia Series A, or bootstrapping all the way, it’s the same. You’ve got to prove to yourself, your team, and your capital, that your business works—and that it’s going to be big.
That’s not easy. Execution is difficult. Out-competing everybody is difficult. Trail blazing is difficult. Your idea will sound slick in a pitch deck and your strategy will sound brilliant on paper, but I promise: the moment you put rubber to the road, you’ll feel like your initial strategy sucked, and that you had no idea what execution really entailed.
So you’ll be tempted to ‘pivot.’ Meaning, you’ll make a material change to your game plan. Maybe you’ll reinvent your go-to-market strategy, or completely overhaul your product, or entirely redefine who your customer is.
Almost every good business pivots at some point. But if you pivot too early, you’ll abandon an idea or strategy that might have worked if you’d had better execution or just more time. On the other hand, if you stay the course too long, you might drive a sinking ship to the bottom even faster, squandering resources.
When to stay the course, and when to pivot… it’s something any fast-growth, start-up CEO needs to figure out. Here are three tips from me to help you get the balance right.
1. Go all-in on a high level strategy first, then test the specifics
Testing elements of your business model before deciding on a strategy that unites them will waste you a lot of time. If you’re really so anxious to test something, make it your core business thesis: how you acquire and deliver value to your customers.
We did a lot of investigating in the early days of Ethical Ocean. It taught us a great deal about how to do many different things important to our business… but after six months of operation, we still had no idea if our core business thesis made sense. We had to learn from our mistakes.
Case in point: A week ago, we re-introduced our site as members-only, after a year and a half of open access. Many advisors encouraged us to test this approach in isolation, leaving the legacy business running as is, but we knew better. Our approach may seem risky, but by going all-in this way, we’ll get the definitive answer we need, soon.
Besides, if you don’t have at least some faith in your own business sense, why are you in business?
2. Be explicit with your hypotheses and set the thresholds for failure
Early on, we did neither of these things. The result: it was nearly impossible for us to draw conclusions or contextualize the data we generated. We wasted months on tests that should have provided definitive answers in weeks, because we didn’t really know what answers we were looking for.
Nowadays, when we try something new, we say something like, “Using this new strategy, we should be able to acquire 150,000 new customers in nine weeks. If we fall short of this, even just a bit, we’ll consider this experiment a failure and move on.” This is important. It puts boundaries on your iterations, but also gives you the confidence to make changes—to pivot— with a cool head. Outcomes can’t always be predicted, but failure can be accounted for.
3. Manage your burn to allow two to three major pivots
My third tip is to avoid is poor resource timing. Google CFO, Patrick Pichette, once advised us that our job was to spend money fast and to try uncover a nugget of innovation and growth. But it’s also important to fail fast, because if don’t uncover that nugget, you’ll need to pivot while you can still afford to. So, set some money aside.
The worst time to raise money for a pivot is when you’re in the middle of one. The best time is when you’re showing great traction on your latest and greatest strategy. Determine the rate at which you’re going to burn through cash and make sure to raise amounts that allow for a major pivot or two—even if you’re 100 percent certain that your latest idea is a brilliant one.
Look at Fab.com. It started as a gay dating site, eventually losing market-share to Grinder. Fab knew it had great resources in its name and URL, and now they’re one of the biggest success stories to come out of 2011. Now that is a pivot!
As a CEO, knowing when to stay the course and when to pivot is one of your most important skills. Whichever your path you decide upon, keep in mind that your team will be looking to you for strength. Show them backbone—a strong leader is a source of stability, even for those employees who have doubts about the decisions being made.
I am, of course, taking my own advice. The new-and-improved Ethical Ocean is running 12 simultaneous split tests right now; if you can find them, you’ll see that each is in harmony with our core strategy. This is the result of careful pre-planning, utilizing all three tips offered here. If I can do it, so can you.
Chad Hamre is the CEO of EthicalOcean.com and is based in Toronto, Canada.