Are You Married to Your Startup’s Business Model? Time to Pivot (Part 2)

In Part 1, I described how a company can—and often must—pivot away from its original business model to achieve success. For this post, I wanted to provide examples of companies that did just that. In each case, the original business plan had elements of pure gold, but also some serious flaws.

Here are the three best pivots I could come up with:

PayPal

What they kept: Fast and secure peer-to-peer electronic payments

What they scrapped: The partnership with Palm Pilot

Why it worked: Now accounting for the lion’s share of eBay’s valuation, PayPal (then known as Confinity) originally used their encryption software exclusively for payments between Palm Pilots. In fact, they symbolically received their first $4.5 million in funding by “beaming” it from their VC’s Palm Pilot to their own.  While this concept has recently been gathering momentum (see Venmo, among others), in the early 2000’s it was a decade ahead of its time. The market was tiny, and the typical corporate Palm Pilot customer didn’t need to split restaurant checks, the most obvious application of Confinity’s software.

Recognizing this, the company set its sights on the wider world of internet transactions and merged with X.com, which specialized in email-based payments. Within three years, the company had won the battle for the burgeoning market of P2P transactions and was acquired by eBay. Applying their superior technology to a different market, PayPal was able to pivot its way to a $1.5b payday.

YouTube

What they kept: User generated videos with an easy upload process

What they scrapped: Online dating

Why it worked: Even today, in an age where people feel the need to document and broadcast every detail of their lives, video dating is still way too awkward to find a mass market. That’s what the founders of YouTube found out when their original idea, Tune In Hook Up, failed to get off the ground.

After briefly exploring a PayPal-inspired video supplement to eBay, they broadened the idea into its current incarnation. With minimal changes in the technology, they were able to leverage ubiquitous broadband internet and digital cameras to tap into an audience that was much bigger and more enthusiastic than the one they originally conceived. Without this well-timed pivot, the world may never have seen gems like this.

Chartbeat

What they kept: Real time web analytics

What they scrapped: Their focus on the mouse

Why it worked: Billy Chasen’s original project, Firef.ly, tracked mouse movements in real time to help companies understand how visitors were using their websites. As it turns out, a person’s mouse doesn’t actually do a great job of describing his or her thoughts, so the information didn’t prove very useful for Firef.ly’s e-commerce clients. While a less enlightened entrepreneur might have gone down with the ship, Chasen recognized that the issue he was trying to address was legitimate, even though his original hypothesis for solving it was incorrect.

The company renamed itself Chartbeat, abandoned tracking visitors’ cursors, and instead tracked basically everything else about their visit, displaying it in an attractive real-time dashboard. By using the failure of Firef.ly to inform a new hypothesis, Chartbeat found the right content and format to fulfill an unmet need. Now it’s off to the races for the company and its founder.

Is there a great pivot I missed? Feel free to comment.

Click here for Part 1