“If you can't fly then run, if you can't run then walk, if you can't walk then crawl, but whatever you do you have to keep moving forward.” Martin Luther King
Part and parcel of the entrepreneurial process is that the results of some experiments lead to shifts in conceptualizing a venture idea, including fundamental changes to the targeted customer, business model, distribution channel, and sometimes the very product itself.
This is no different in the Zell Program where students assess the data gleaned from their experiments and change course accordingly. At first, teams are quick to iterate and even drop ideas when they find some data points that do not match their earlier hypotheses, however, as the year progresses and they learn to filter the noise, get to know their market more proficiently, and design better experiments, these iterations become more controlled and less volatile.
Alumni ventures follow a similar path, especially when ventures are developed outside of the domain expertise of the founders. Some shifts in thinking result in iterations and tweaking of the product or service, messaging, marketing strategy, or go-to-market plan, while others lead to full-fledged changes of course.
This chapter gives a brief overview of what the term The Pivot means and how it differs from iterations that are Not Quite Pivots. Then, it explores different types of pivots such as Pivot to Fundraise; Pivot in Product Offering; Pivot in Business Model; Pivot as a Result of a Changing World; the chapter closes with a final form of pivot in Pivot Fallout.
The term pivot96 refers to a shift to a new strategy based on customer learnings. It was popularized as part of the Lean Startup methodology, but has existed probably as long as businesses have had to counter changes in the market as a result of economic shifts, changing technology, consumer habits, the legal environment, etc.
Western Union,97 for example, was a telegram service in 1929 but pivoted to money transfer when telephones made the communication part of Western Union’s business redundant.98 Arguably, Western Union is probably overdue for another pivot with the advent of online money transfer services, including the services provided by Zell alumni venture Rewire.
Netflix99 is probably the most notable example of continuous pivoting or ongoing evolution of business model and product offering to tap into changes in technology and the market environment. What started out as a mail-order DVD service pivoted to downloadable films when that technology became more readily available. Then, it pivoted to streaming films when that technology became more prevalent, and from there, to content creation and filmmaking.100 Clearly, we have not seen the end of the Netflix pivot cycle.
In fact, in today’s world, agility and ability to adapt are fundamental to survival in the fast-paced environment driven by an ever more connected and more technologically dependent reality.
Not all changes of direction are pivots. Sometimes, and specifically early on, companies experiment and make changes to adapt to their market findings. When Ron Gura (Zell 9 – 2010) set out to create The Gifts Project,101 he had a notion that there would be a need for an application that would help people pool resources together to get a higher quality gift for a mutual friend. This is a classic online version of a solution that already existed in the non-digital world.
There were various approaches Ron could have taken to create group gifting, but after experimenting with different ways, he realized that the magic was in connecting people on a digital social network, not the part about procuring the gifts and handling the logistics. This was driven less by market forces and more by necessity. The Gifts Project team was small and had very little capital. Ron understood that in order to stay lean, they would need to be asset-light. This early iteration directed The Gifts Project into the group payments space rather than the group gift procurement space, and set the trajectory of the company through its exit and eventual establishment as the R&D arm of eBay in Israel.102 [See The Gifts Project Case Study]
During the program, the many changes and adaptations in the product offering, business model, target market, distribution strategy, etc. are par for the course given the iterative experimentation ethos we work hard to instill. We do this because we believe it provides value going forward, and that flexibility and agility are necessary for any entrepreneurial endeavor in this fast-paced changing world.
The early stages of a venture beyond the program demand that same agility and adaptability, not only to a changing and dynamic world, but also to the understanding of that world by entrepreneurs who, as newbies, may not be fluent in the language and rhythm of the market they are trying to serve, including the ability to raise money in the chosen space.
Founded as Pickeez by Zell alumnus Adi Eckhouse Barzilay (Zell 5 – 2006) a good few years after graduating the program, RealFace exemplified that.103 In fact, Adi set out to build the company after earning her MBA from Columbia University and working at Syneron, a medical device company. RealFace sought to address a market opportunity that Adi noticed while at Syneron working with fashion models. Even professional models seemed predisposed to prefer pictures based only on how they looked in the picture. The premise was that people naturally gravitated to their own image at the expense of any other subject of the picture (including the product being sold), and facial recognition technology could help users find that best angle.
However, Adi had limited experience in consumer-facing applications and specifically in how the important channels of distribution in this space worked. Consumer-facing startups require large marketing spend and Israel proved to be a difficult place to raise money for that purpose. So even before the mainstream commercial launch of her venture, a pivot was in order as a way to find a space where local investors would be more receptive.
Adi and the team went back to the drawing board, looking at what they had in terms of technology and what else could be done with it. From that team brainstorming session, RealFace was born. Using facial recognition for authentication for smart-phone access, the company went from a consumer-facing application to a technology company catering to big tech. [See the RealFace Case Study]
The switch from Business-to-Consumer (B2C) to Business-to-Business (B2B) is a recurring theme for ventures that are founded in the program and then venture out into the real world beyond IDC Herzliya. Companies founded during the course of the program often target a market that their student founders tend to understand (consumer), but once they leave the program and begin facing the challenge of fundraising (which is generally harder to do in Israel for consumer-facing companies), and of even getting the traction needed without large outlays of capital in marketing and advertising, many pivot their product offering to B2B.
Some notable examples are Feex, founded by David Weisz and Yoav Zurel (Zell 11 – 2012), who started out in the Zell Program by offering information on pension plans to end-users, but migrated their technology to service the brokers and financial advisors that service those end-users;104 and Fairfly,105 which was founded by Ami Goldenberg, Aviel Siman Tov, and Gili Lichtman (all Zell 13 – 2012) to harness the volatility of flight prices, started by tailoring its solution to consumers and then pivoted to become a corporate travel company.106
The pivot cycles for Bizzabo exemplify this consumer-to-business market adaptation, not only as they relate to the target audience, but also to the very product itself. When the team set out to make connecting at conferences more seamless for conference attendees, the focus was on the end-user, who was the conference participant. The product was geared to the consumer experience.
“We wanted to be the app for business events, and envisioned it as a fusion of LinkedIn and FourSquare with capabilities offered by the then just launched Whatsapp,”107 reflects Boaz Katz (Zell 9 – 2010).
The assumption was that as a B2C product, like the companies mentioned above, it would grow by virtue of virality, and would provide so much value to its users (the attendees), that they would download it and tell their friends to, and so on and so forth. But for all sorts of reasons, virality just did not kick in.
They did, however, see value for the conference organizers, and pivoted to a B2B2C business model, hoping that the service they were providing to conference attendees would make their offering lucrative to the organizers. Investors bought into the idea, and they raised their Series A based on those assumptions.
Taking inspiration again from analog offerings in the market (and even competitors) with the assumption that bundling was the holy grail, they set out to create an entirely new product. This ‘a bit of everything’ bundled product was a website builder like Wix108 with Email marketing capabilities like Mailchimp,109 including an agenda builder like Sched at the time,110 and an event registration platform like Eventbrite,111 which Bizzabo believed was the ultimate customer learnings-based product pivot.112 [See the Bizzabo Case Study]
They also pivoted their business model. From their experience, they learned that event organizers were usually overly optimistic about ticket sales and for Bizzabo, relying on that was not economically sound. So Bizzabo changed its revenue model from fees based on customer ticket sales to a simple subscription model.
“We stopped caring about the ticket price, if they were free or already paid for. Instead, we offered a few pre-priced packages where the expected number of people registering was the key differentiator,” said Boaz.
As an event management platform, they seemed to have finally found the elusive product-market fit, and were beginning to see indications of this working at scale. But then COVID-19 happened.
This, of course, led to a whole new kind of pivot. First, events in Asia started to be cancelled, and then the rest of the world followed. Bizzabo went from an average of about 110 events a week to zero.
The co-founders were all in Israel for a leadership off-site and realized that within a few days, the plans they were making for the next year would be utterly irrelevant in the face of the emerging pandemic. The first action item was to halt employee hiring (they were at 150 employees), but they also worked fast to gauge the landscape, and brought their board of directors into the discussion. They cut costs (travel being a no-brainer) but also realized that the biggest cost savings would come from employees.
The painful part of the journey was to have to let employees go. They attempted to do this respectfully and allow for a return if things would pick up, without directly promising. But as Boaz explains in an interview at Reversim Virtual Summit, “It was really tough to have to impact 40 families like that.”113
Being experienced in the art of agility, Bizzabo’s leadership crafted a plan and vision for the future, and asked employees they had to let go to keep in touch and to let them know if they found a job, so they could make the calculated decision of whether they could rehire them. They lost some valued employees but were able to rehire almost 80% following their pivot to virtual events management.
It was clear that there would not be live events for the near future, but it was also clear to them that people would want to meet and that their platform could bridge that need.
A turning point came after a virtual event they themselves ran. It was an experiment using their side brand, ‘In Person’, which included a blog and podcast that they had used to engage with marketing and event professionals.114 They decided to ‘eat their own dog food’, as the saying goes, and called it: (Almost) In Person – A Virtual Event for Marketing and Event Professionals.115
They managed to take the benefits of fully virtual events, namely scale and monetization, and harness their technology to service that end and reap the economic benefits.
After years of experimentation and numerous pivots in product, customer segmentation, and business model, they somehow found a way for the economics to work in their favor. As a result, they were able to raise a $138 million dollar investment at the height of the pandemic.116
Sometimes pivots can only happen when the leadership team changes. Outgage, led by Mika Kayt (Zell 12 – 2013), navigated several product and business model pivots and a complete rebrand, when the leadership team was reshuffled.
“We weren’t working together well, and in hard times, it’s very easy to find that out. I understood that if we continued to struggle like this, and strategize and play around with ideation once funded, we would eventually pretty much be killing the company, and wasting everybody’s time and money,” said Mika.
The company had started out as a provider of Do-it-Yourself (DIY) kits that complemented YouTube, creators arts-and-craft videos. But the business didn’t scale as intended and the founders could not agree what to do going forward. By 2016, as money was running out and the company seemed to be in a stalemate, tough decisions were made. The founding team split up, and with help from investors, Mika replaced her CTO and then navigated the first product pivot.
First, under Mika’s leadership, the company shifted its business model to a B2B model and adjusted the gifts to creative corporate gifting solutions. The second pivot involved a rebrand and complete product offering overhaul.
Today, the company provides mail-based direct marketing solutions for enterprises, specifically targeting marketing teams with a direct mail and analytics solution. The company remained online-offline in its offering, but its target market changed radically from YouTube stars to marketing teams in big enterprises. This shift was not unintentional. Mika leveraged her learnings of how one market worked to achieve better economics for the new business, in particular customer acquisition cost (CAC), or the amount of money needed to get customers to pay for the product. The next chapter will cover on the business end of the business, with a focus on unit economics, including CAC.
