The Entrepreneur’s Dilemma: Perseverance or Pivot?

The startup community loves to latch onto buzzwords and phrases, to the point where they become apparent badges of honor when you can somehow claim that you’re using them. Arguably the hottest of these buzzwords is “pivot”, which typically means making a significant change to your business model of product offering based on customer or market feedback. The counter-argument is perseverance or maintaining your current course. Choosing between the two is perhaps the hardest choice that entrepreneurs need to make.

While I can’t deny that pivots make sense, I’m definitely concerned about the blithe discussion of pivots (for example, as in this article from Forbes which promotes pivoting as a necessary key to startup success). As I reflect on 2011, I’ll describe some of the changes we’ve made over the past year or so, and you can judge for yourself to what degree we’re staying course, pivoting, or if the distinction even matters. I’m most proud that no matter what you call these changes, we’ve stayed true to our vision of creating breakthrough products and services through collaborative play.

 

What’s a Pivot? Common Sense By Another Name

Borrowing from a lot of very smart people (Eric Reis, Steve Blank, Stealthmode, Tristan Komer and Rob Go), I started this blog post by defining a pivot as “a significant change to your business model of product offering based on customer or market feedback.” More plainly, a pivot is a lot of common sense. If what you’re doing is not moving you towards a repeatable and sustainable business offering, you’re going to have to have to change something. And since most entrepreneurs have a bit of a stubborn streak (which we like to affectionately call “vision”), it is really challenging to know when to stay the course and when to change direction. The blogs cited above cite some great examples of when, and when not, to pivot.

At the risk of getting a lot of negative feedback from the Lean Startup community, I can’t help but wonder why there is so much energy around pivots. Pivots aren’t special or radical: They’re just common sense. Giving them a taxonomy helps us understand them, but let’s face it: most every successful product evolves through actual use. Before you flame me, please know that I’m all for the word pivot if it helps obstinate entrepreneurs adapt to customer feedback. I just don’t think “pivoting” is all that new and definitely not all that special. And if another entrepreneur tells me how they’ve pivoted their company – well, I’m just doing to hit them hard enough to shut them up, because it seems to me that a lot of the times these entrepreneurs are just losing their belief in their core ideas because they didn’t hit some special growth rate that indicates they’re magically successful.

In what follows, then, are three stories from our experiences in building a successful and sustainable business. And with a tip of the hat to pivot-hungry startups, first up is the story of how we changed our Value Exchange Model, which likely qualifies as a full buzzword compliant pivot.

 

Changing Our Value Exchange Model From Transactions to Subscriptions

There are a lot components to a business model. One of the key components is what I call the “Value Exchange Model”, or how you trade money for value. I believe that there are seven atomic value exchange models that drive all business models. You can think of them as the “words” of the business model alphabet that allows you to develop interesting and compelling stories (I wrote about this in Beyond Software Architecture; you can see an overview presentation on these here).

It is important to align the exchange of value with how people want to pay so that as customers derive more value, they feel good about paying you more money. It isn’t easy though, because everyone wants to pay as little as possible for the value they receive, and you have to make sure your value exchange model doesn’t inadvertently motivate less use of your product as customers try to save money.

Before we launched Innovation Games® Online, we asked several potential customers how they’d like to pay for the service. The overwhelming preference was on a per-game basis. This is transactional, where each transaction is based on a completed game. This also made sense, as the value in our system occurs when you play a game. Unfortunately, transactional business models often lead to variable pricing, which makes corporate buyers uneasy: How much will a project cost? And how can corporations easily purchase “all you can eat” use the system? More insidiously, we learned that a transaction model works against our goals of having companies play lots of games with their customers because the easiest way to keep costs low is to reduce the number of games played. We didn’t sell any transactional games, and though it was really painful at the time, it was probably a good thing in the long run.

So we went back to the drawing board and designed a Value Exchange Model based on subscriptions. These have the virtue of reliable and a-priory known payments on monthly and annual terms. They also make it very easy for our enterprise customers to purchase “all you can eat” access to our online platform (Reed Elsevier, MassMutual, and Rackspace are among our “all you can eat” enterprise customers). Subscriptions also allow us to create different subscription levels, so that we can more effectively tailor the features of our system to specific market segments. For example, a Product Manager who wants to play a relatively small number of games can get by with a Basic subscription, while a professional Market Researcher or Portfolio Manager, who needs to play games with multiple facilitators, can purchase a Professional subscription. We’re now seeing very solid growth in our all of our licenses.

While we likely executed what the lean community would call a pivot, it wasn’t trivial, fast, or easy. Changing your Value Exchange Model is one of the hardest, least-Agile changes you can make in your business. For example, in the transaction world, we had to make choices about how much a transaction cost, how to pay for them, and what actually defined the transaction (e.g., starting a game? ending a game? games are supposed to be tested – do we charge customers for testing?). When we switched to a subscription model, we had similar questions that required precise answers (e.g., what happens to game data when a customer upgrades their account? How do we handle refunds when an individually purchased subscription is converted into an enterprise account?). These took time to answer and implement.

Ultimately, this change was worth it. It made it easier to sell licenses in a way that enterprise buyers wanted to buy them. But this change wasn’t the change that has produced our hockey stick of growth that you see at the top right. And, as it turns out, neither did a pivot.

 

Driving Dramatic Growth Through Instant Play Games

I’m proud that our team has created an incredibly powerful platform that allows you to convert any image into a collaborative game (read more about this here). Unfortunately, the power to create your own game comes with a fairly steep learning curve in creating new games.

We’ve long suspected that most people didn’t want to create their own games when they were first using the system. Instead, they want to “instantly” play games created by other people. For example, they want to:

 

The list is literally endless because there is an infinite number of images that we can use for a game. However, the actual set of games that people use is relatively finite. Paul Henderson, an Innovation Games Trained Facilitator at Clarify, once referred to visual collaboration games as tools that you use to accomplish a goal. And like a good toolset, you have some core tools that you use frequently and some specialized tools that you use episodically.

I quite like that definition, because most of the time we’re not making our own tools. We’re using tools that others have created for us.

So, our dev team did the same. They took visual collaboration games, and with a bit of coding magic, created instant play games (our growing catalog of these games is here). These games are little snippets of HTML code (“widgets”) that you can embed in any web page and use with one click (embed them in your own website or your employer’s website to make it fast and easy to play games). Our instant play games provide the fastest and easiest approach to focused collaboration that you’ll find on the web: one click to play a game with others. More importantly, we’re finding that sharing these instant play games on partner websites drives better growth than any Google-based SEO advertising campaign ever could.

This wasn’t a pivot, though. It was just a much-needed improvement in usability that has made our platform much, much, much more accessible to the world, without sacrificing any of the core, underlying capabilities that power all of our visual collaboration games. Our roadmap has a number of other similar improvements that customers have requested. None of them are pivots, of course. Just good old-fashioned listening to customers and observing them use our system.

For me, this is the most important area where perseverance is much more powerful than a pivot. The popular press seduces entrepreneurs into thinking that if they just find the magic pivot all of their worries will be over. They’ll suddenly have customers begging them to stuff their Ferrari’s with cash. A more realistic vision is that you’ll win by consistently working hard in service of your customer’s needs. No pivots. Just grinding it out. And sometimes, you need to have the guts to just stay true to your vision.

 

Knowsy – A Whole Slew of Pivots Rejected

I’ve presented one story that qualifies as a pivot and second story that qualifies as one kind of perseverance. However, there is another kind of perseverance that must be told – the true commitment of the entrepreneurial team to the problem they are solving for customers.

A little over a year ago a neighbor who worked as a Select Account Manager for Cisco finally relented to my incessant pitching of Innovation Games and agreed to a lunch date with me so that I could listen to his problems and propose game-based solutions. Two hours later, he agreed that our games were powerful and then demonstrated why a SAM (aka Strategic Account Manager) couldn’t easily integrate the games into a sales call. What we needed, he concluded, was a game that helped SAM’s quickly and easily identify account priorities. And it couldn’t require a facilitator and must be really fun.

After a bit of design work, I played the first prototype of a game I tentatively called “I Know What You Like” with our company over lunch. We loved it. I then asked my friend to play it. Except he decided to play it with his family. And they loved it. At his urging, I told my team that I’d play the game at our family reunion. And if the 80+ people from my wife’s family liked the game, we’d build it. And release it for the iPad. The family loved it, and a few months later we released Knowsy®. (I was very lucky to have César Salazar on our team. He’s not only an amazing visual designer/developer, he invented the name Knowsy – significantly better than “I Know What You Like”).

We released Knowsy after we had moved to subscriptions and before we had created instant play games (see timeline). This may not seem significant, but it is. Because it made us face a really tough question: Should we stay the course or should we pivot the company and focus on family-friendly, consumer games? The question was not trivial. Although we had built up a good number of enterprise customers, the reality was that we were not realizing our growth targets. Perhaps a pivot to consumer mobile gaming based on Knowsy would be a good idea.

What gave me pause, though, is that while the mobile gaming market is large and growing rapidly, most mobile games are not multi-million dollar hits. It would take tens of thousands of sales of Knowsy to equal just a one enterprise license for Innovation Games online. And our team is comprised of enterprise veterans, not consumer-gaming experts. Pivoting in this way would not play to the strengths of my team.

On the surface, Knowsy is a really fun, family-friendly game. Under the covers, Knowsy is a sophisticated choice modeling, brand engagement, and contest engine platform. And building enterprise platforms plays to our strengths. So, what could we do with Knowsy?

One option provides merchants like the Savvy Cellar Wine Shop in Mountain View, CA, who sell on expertise and customer relationships, a clear alternative to the money-losing one-night stand phenomenon known as Groupon. We did this with Know the Savvy Sommelier, a fun iOS contest and brand engagement engine built on top of the Knowsy platform. Our success here motivated us to ask the question: Should we pivot into this space? It was a tough call. Although much has been written about the dangers of the “daily deal”, the reality is that that market is just too darn crowded with too many “me too” offerings. Although Knowsy presents a radically different alternative to a devaluing daily deal, pivoting the company into the merchant retail space didn’t seem like a good idea.

So, we stayed the course. We continued to make updates to Knowsy and Know the Savvy Sommelier because shipping working software was the best way to continue learning. Along the way, we continued to talk with large enterprises about ways in which the patent-pending Knowsy platform could help them engage customers. And we never lost sight of what Knowsy could do for SAMs. And through all of this refinement we discovered a progressive enterprise who has engaged us to create a version of Knowsy as I originally designed it: a fun, engaging, serious game that SAMs can use to understand account priorities so that they can sell bigger deals faster (view the overview here, and stay tuned for a lot more news about Knowsy in 2012, when we launch this version of Knowsy).

This is a different kind of perseverance than our commitment to improving our offerings based on customer feedback. This was staying true to our belief that SAMs will eventually be playing lots of serious games. And the right games will help them make lots of sales. It wasn’t easy, but we’re sure glad that we didn’t pivot on this one. For me, perseverance > pivot.

 

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