The Vanderbilt Pivot: The Why and How of a Strategic Pivot

In 1810, a young sixteen-year-old earns enough to buy his first boat. Many more would follow. With his first boat, he set his initial route between Staten Island and New York. His first boat fit a mere twenty people charging eighteen cents per passenger. Revenues from his first boat were half of the nighttime fares as other revenue flowed back into his parent’s pockets.

With his meager revenue earnings, he would start to buy shares in other’s boats. Those profits, not shared by his parents, would set him on a course of becoming who we know him as today: Cornelius Vanderbilt. Vanderbilt is the 3rd richest American adjusted for inflation based on a 1998 edition of American Heritage Magazine listing the 40 richest Americans ever. Only two other Americans, Andrew Carnegie, and John D. Rockefeller would later go on to out earned Vanderbilt.

In 1817, Vanderbilt agreed to captain a boat that would give him exposure to an emerging technology that would further cement his status as a rising transportation magnate: The steam engine. Operating a number of steam engines, Vanderbilt took down a state monopoly with “elbows out” competition.

Enter the Vanderbilt Pivot. After out-competing a monopoly, Vanderbilt saw the Rail Roads start to use the steam engine to transform transportation and pivoted to investing and owning Rail lines. As a railroad owner and operator, Vanderbilt became the billionaire we know today. Vanderbilt pivoted into an emerging technology based on his knowledge of transportation. The Vanderbilt Pivot moved him into a more attractive market with much higher growth potential than the original market he dominated.

The Vanderbilt Pivot by the Numbers

Two entrepreneurs, Bjoern Herrmann, and Max Marmer created the Startup Genome report. Using data from 650+ startups highlights the value from a pivot. According to the report, “startups that pivot once or twice times raise 2.5x more money, have 3.6x better user growth, and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all.”¹ Pivots set startups for a larger success story than the original market the founders entered.

In another wide-ranging study of 10,000 startups, researchers at EPFL, a European university, found that “73% of start-ups must pivot to another market over time as their initial market did not provide the fertile ground for the product or service that the founders had hoped for.” The researchers suggest founders build flexibility into the business plan to account for a necessary pivot.

And yet, a pivot shouldn’t be confused with a complete restart or hard pivot. A pivot from the basketball definition involves keeping one foot anchored while repositioning. In other words, it’s a slight movement into an area close to the anchored position on the court. It’s an evolution or iteration of the original idea. A pivot can use some of the assets the company has already built to tackle the same problem from a different angle.

Hard pivots, however, might be better for founders to start a different company instead of trying to pivot. Fred Wilson, at AVC, highlights the issue with a hard pivot if a company’s original idea fails and they “pivot into a new idea, you will take all of those investors, team members, and dilution with it, whether or not they are excited about it.” If it’s a hard pivot, then letting the business fail to pursue the new idea might be best for all involved–employees, investors, and founders.

Lyft Pivots: Mini-Buses into Billions

Zimbabwe’s inflation collapse created shared taxi routes. Zimbabwe entrepreneurs would buy a mini-bus, drive popular routes and once the bus was filled, another entrepreneur would buy another bus.  After the trip to Zimbabwe, co-founder Logan Green created Zimride.

Zimride grew into a small, profitable business with 150 clients, universities and businesses. With 5½ years of building Zimride, a team of developers created a mobile app to explore what a mobile-first experience would look like. June 2012 Lyft launches.²

“With Zimride, every ride was hard fought; with Lyft the growth took off like nothing we had seen before,” explained Green in a Business Insider interview.

After a few months of seeing the growth of Lyft, they made the decision to pivot to Lyft full time. A few years later, Lyft now has 23 million riders, 1.4 drivers, and over 500 million rides³. With a recent round of funding, Lyft scored a $15.1 billion valuation.

Failure to Pivot

A study from CB Insights looking at the post-mortem of why 101 different startups failed, 7% of founders listed failing to pivot as the main reason for failure. Staying married to the original idea not only drains cash but also drains employee motivation from a lack of progress.

Keith Nowak a former VC turned to founder details a failed pivot as the cause of one of his companies failures. Imercive a social media marketing providing a branded instant messaging applications raised $500,000. Starting with instant messaging for restaurants, Nowak explains, “after just over a year of trying nearly every conceivable idea to make this pilot program work, we eventually concluded we were not getting the proof of concept we needed to continue with this strategy and needed to pivot.” The pivot would move Imercive to a larger market for all brands looking to engage customers with IM apps.

“our current investors were not able to participate in another round and we did not have any demonstrable results or traction for our new strategy which made finding additional investors quite difficult. We were caught mid-pivot – half way between a strategy we knew wouldn’t work and one which we believed could be successful but was not able to be aggressively pursued,” explained Nowak.

Once a strategy doesn’t gain the traction or the market isn’t adopting as quickly, founders need to quickly pivot to larger opportunities. As Nowak concluded, “I believe the biggest mistake I made as CEO of imercive was failing to pivot sooner.”

What to Pivot

A pivot can be any of the 9 different parts of a business model. Steve Blank reviews all the different areas of the business model that could need to pivot, “your customer segment, your channel, revenue model/pricing, resources, activities, costs, partners, customer acquisition – lots of other things than just the product.”


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