by Jens Lapinski, Director, Techstars London
Over the last few years, I have been involved with the creation of over a dozen businesses, and I have invested into another dozen businesses or so. Most of these deals were very early stage and typically before these companies had product market fit.
I recently made one observation that has impacted the way in which I invest and advise companies. The observation was that either a startup works from the start or it doesn’t. When a company first launches a product into the market, the product either gets immediate traction making the company work, or there is no such response. I have seen 20 companies or so try to modify the original version of the product to get to product market fit. Some companies succeeded, but most failed. Overall, every company that succeeded in finding product market fit pivoted successfully. A pivot is a change in the target customer, product proposition, marketing and sales approach or a significant business model change.
Every single company that tried to optimize its way out of trouble — making the best of what they had and essentially trying to force a product market fit without pivoting — failed.
I have thus come to the conclusion that you are either winning (for example, you have found product market fit) from the start, or you are not winning. When you are not winning, you either pivot until you are winning, or your company dies.
Below, I show some stats from my first-hand experiences. Green indicates companies have product market fit; yellow means there is some traction, but no fit; red means there is no or very poor traction; black indicates the business is no longer active. One Month means one month after initial launch, and One Year means one year after initial launch.
Overall, 35% of the projects or businesses that I have been involved with reached product market fit. About half of the companies had product market fit from launch; others pivoted into it. All companies that had very poor initial traction shut down. Some of them did a total restart, and I have counted this as a new company. About half the companies that had partial traction pivoted and became successful. Several tried to pivot, but failed to find product market fit. Every ‘yellow’ company that optimized without pivoting failed.
I draw several conclusions from this:
- If your business doesn’t work from the start, I would encourage people to pivot at least one part of their business as quickly as possible. Continue to pivot until the business works. Following the Haas Defining Principles, be a student always as you adjust the product, business model or target market.
- When doing early stage investments, one can either invest in companies with initial product market fit or companies with no fit. If you invest in ‘yellow’ companies or companies that are pre-launch, you are effectively investing in the team’s capability to pivot. Questions are then closely tied to their ability to learn, implement changes quickly and have the mental ability and stamina to pivot and pivot and pivot until the business works.
- If a business doesn’t work at all after launch, it either needs to pivot significantly — meaning multiple aspects of its business — or look at a total restart.
If one pivots quickly enough, the probability of producing a successful company is actually quite high. But unless you are willing to pivot, I believe your business will die.
Jens is a Director at Techstars, London, where he is responsible for selecting companies for investment and operating the Techstars London program. Prior to Techstars, Jens co-founded Forward Labs, which built profitable startups at high speed using lean startup principles. He also co-founded and was CEO of aiHit, which provides automated company data to the business information industry and is now backed by Amadeus and VTB Capital. Find Jens on his blog, Founders View or on Twitter: @jenslapinski