Pivot tables

It’s one of the oldest adages about putting together a good CV, especially for founders and entrepreneurs: don’t be shy about mentioning your failures. The logic runs that while experiencing failure in the past is not a strict requirement for (or guarantee of) success in the future, it can often give entrepreneurs the critical resilience and practical insight needed to build a lasting business. Potential investors and partners broadly view a founder’s past failure as a valuable badge of honour and experience, provided of course that the failure came from honest market miscalculation rather than something a bit more sinister such as unethical behaviour.

A similar approach should be expected with regards to a pivot or full reinvention, increasingly seen as arguably the ultimate test of a founder’s learning velocity, ability to read market signals, willingness to ditch what might not have much of a future, and (perhaps above all) fluid intelligence. Video games such as FIFA and Football Manager rank footballers by a huge series of metrics and attributes, from speed and acceleration to jumping reach and positioning. Were a video game based on founding start-ups to be developed (and might I add that it is about time it was), the list of attributes that ranked the best founders from the worst would include a metric or two based around reinvention readiness.

With so many investment decisions still taken on instincts (often primary) about a founder and not their pitch deck, run, or acquisition rate, demonstrating an ability to reinvent is a key part of a founder’s arsenal. Or at least it should be, because there’s plenty of evidence to suggest that investors like (and reward) a good pivot. Keeping the video game theme, Slack began life as a game called Glitch, and its founder, Stewart Butterfield, had already turned one failed game into Flickr years earlier. YouTube started as a dating site before it became the video platform Google bought. Instagram was a muddled, complicated check-in app called Burbn until it was stripped back to photos. None of these was the original plan but each of them made some smart investors rich(er).

In a market where the ground keeps shifting, the founder who can shift with it is worth far more than the one whose only asset is a pitch deck.

These, of course, are some of the bigger pivot-to-success stories but the reasoning holds at a smaller scale. As far back as 2020 research was suggesting that start-ups that pivot once or twice raise two and a half times more money, and grow their users more than three times faster, than those that pivot too often or never at all. Failure, meanwhile, is close to the base case; Shikhar Ghosh of Harvard Business School says that three-quarters of venture-backed companies never return cash to their investors. When most bets are destined to miss, the ability to change the bet starts to look highly attractive. In a market where the ground keeps shifting, the founder who can shift with it is worth far more than the one whose only asset is a pitch deck (likely made with AI). Investors are starting to interview for precisely that: how a founder has killed an idea or product, how quickly they recognised and acted on signals, and what they built next.

Were that founder-sim video game ever to appear (and if I had the time or know-how I’d build it myself), reinvention readiness would not be a single metric but a whole range of them. Learning velocity, the speed at which a founder turns a signal into a decision, would be one. So would the clever habit of noticing that customers are using a product for something other than its stated purpose (or not at all), which is where most good pivots begin. A third, and possibly the hardest to score, would be the readiness to drop a beloved idea without sulking over it or pretending that the pivot had been the plan right from the start.

Of course, there are limits, and investors have grown reasonably skilled at telling a founder reading the market from one simply running away from some bad results. The same AI craze that rewards real reinvention has generated a plethora of charlatans, with outdated ideas given an ‘AI’ makeover in the hope that somebody, somewhere, will buy the snake oil. Pivot too many times, past the second or third go, and a founder stops looking smart and shrewd and starts looking like someone in search of not just funding but an idea. No investor will hand them any money. Reinvention impresses investors, but only when it comes across, convincingly, as a deliberate, strategic decision. Right now, that’s the skill business schools and start-up academies should be teaching their students before anything else.

Much of this, for now, is still a matter of vibes, to use the word de nos jours. An investor who says they value reinvention readiness is usually betting on the same instinct that has always decided who gets their money and who doesn’t. And that instinct is now drifting in the clear direction of those founders who can persuade the people with the money that when things (inevitably) fall apart, they already know how to build something else. And, speaking of which, somebody really ought to build that video game.