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Dalton Caldwell - All About Pivoting
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About the talk

YC Partner and Head of Admissions Dalton Caldwell talks about pivoting for startups and shares his advice on when and how founders should consider it for their companies.

Transcript and lecture slides here: https://www.ycombinator.com/library/6p-all-about-pivoting

This lecture is part of YC's Startup School, a free online program and global community of founders. Register and join the community at https://www.startupschool.org/

Timestamps

0:00 Introduction

0:29 What is a "pivot"?

1:54 Why pivot?

3:09 Good and bad reasons to pivot

4:51 People wait too long to pivot

8:57 Product/market fit

10:09 Finding a better idea

14:27 The best time to pivot

16:41 Scoring ideas

18:41 Real-world examples

26:50 Conclusion

00:00 Intro

00:29 What is a "pivot"?

01:54 Why pivot?

03:09 Good and bad reasons

04:51 People wait too long to pivot

08:57 Product/market fit

10:09 Finding a better idea

14:27 The best time

16:41 Scoring ideas

18:41 Real-world examples

26:50 Conclusion

About speaker

Dalton Caldwell
Partner at Y Combinator

Dalton Caldwell was the co-founder and CEO of imeem (acquired by MySpace in 2009), and the co-founder and CEO of App.net. He has a BS in Symbolic Systems and a BA in Psychology from Stanford University.

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How's everybody doing? I'm dolphin. I'm a partner at Y combinator in addition. I'm the head of admissions, which is our selection process for the companies that get into. Why see I'm here to talk about pivoting. Yeah, let's talk about Kevin and cool. All right, here's some stuff. We're going to cover. What the heck is a pivot? Why you should put it when you should pivot and evaluating ideas to Pivot to? So going to try to cover all the bases. He all right. Let's talk about the turn pivot. This is one of those terms that if I'm in a cafe. And I hear someone talking about pivoting, I roll my

eyes because it's one of those words, but I suppose he was annoying. Start up people. And so, let's, let's just explain what we mean here. It just means changing your idea. That's all it means. And technically, if we were merely technical, I would call a troop. Have it where it's like a real company. And you have lots of users, you raise money, and you're like, we're going to shut this thing down and do something different. So, the most famous example is slack. They raise money and have like a hundred employees for this video game called glitch. I was a beta user, and anyone J. Just

shut it down and like, did something crazy. I think that's the values of it. Probably what? Most of the folks here are doing, I interchange the cop happening, but you should just call it changing your idea. It should feel really lightweight when you're at the earliest ages your company, especially pre-launch revering your after lunch changing your ideas, constantly is kind of the, the norm and I wouldn't think that this is some huge thing. It should feel lightweight and frankly. If you're not in a state we are rapidly changing ideas or assumptions over and over and over again, in quick

succession. You are likely doing it wrong. You are likely moving too slow. And so this is just like part of it, change your idea, constantly, trying to find exactly the right version of. Your idea is something you should be doing in the beginning. Let's talk about why you should put it. So the main reason I would argue is opportunity cost and the definition of opportunity cost, is that the loss of potential gain from other Alternatives were one alternative, The Chosen other words, you can only really work on one thing at a time. Sometimes people try to violate that rule but that's a whole

different topic. Working on something. It's not working. And you have evidence of this not working. You are taking opportunity cost and I'll be doing something else. It's as simple as that, right. I don't know. I tried to write some pseudocode here for you about a a joke, but like how all things working divided by the number of months of concerted effort. If that number is less than excitement work on something else plus conference. You can find something better. You should put it into the key thing to do. If you like, look at his equation, like what am I really trying to say? It said, if

you work on something for months and months and months and months and it's not happening. Like that's a pretty good signal, right? But that's what drives this equation that I put here. The most is the number of months you work on something and it's not working. And so if you're throwing good, good money after bad good time after bad and it's not happening for you. That is a pretty darn good signal but it is really, really, really early. And you want me to work on some in a couple of weeks. That's why it's obvious. Let's give you some good reasons to Pivot. I hate working on it. It's not

growing. It's just not working. I'm keep doing the thing. And nothing is happening. I'm not a good fit to working on this idea. Like, the more you learn about this, the more you realize that you were just not the right person for the idea. Another one is I'm relying on an external Factor outside of my control to make my startup take off. So, a couple of examples of outer like relying on mainstream, virtual reality, headset adoption. That's a good one, you know, things going to take off and and you know, that's where my VR apps. Him take off or like, relying on, like mainstream adoption,

things like that. Those are like totally out of control. If you're just sitting here, hoping someone else does something good and then your sorrowful work, man. You should definitely put it. Another one is just where you're out of ideas on how to make this thing work. You're just you're throwing everything against the wall to make your current idea work and you're you're actually kind of out of ideas. That's usually a sign, you should put it. The reason to not pivot, you're trying to run away from doing hard work. Sometimes you see people where they build a product and right when he gets to

sales time. They did it and I did that over and over again. That's probably not a good reason. It's just someone trying to dodge the sales part. So, watch out for that. Also, another reason I can do that is, if you're the type of person that changes our idea over and over and over and over again, like chronically and you're just texting yourself doing that. It's good to actually follow something through all the way. So you just want to watch out for that happening. Also, a good reason, I spit it like, you know, you just hear there's some hot new thing you want to have it. Cuz you write a

crunch article cuz someone to raise money for hot new think, that's not a great reason to Pivot. Let me give me some reasons on why people takes too long to Pivot. And the reason I mention this is, I would argue on average. Most people take too long to put it, right. I think guys usually like if I had to put people in buckets, more people take too long then then the rivers. And so why do they take too long loss aversion? When you feel like you've invested in something? You have a really hard time. Letting go to And that's why I suppose you can you can research this. Have a little bit of

traction. Like you have a few users are like one customer here, like maybe it'll work. That will make you not get it. And that's, that's rough. Another thing is like, people are very polite in the world and I have a hard time telling you the truth that they don't like the thing that you're working on. And so a lot of Founders get confused about politeness and getting it confused with traction. And so you're never going to really. I mean, maybe I can say never most likely, you're not going to people being like your idea is horrible. Give up. Now. I will never be a customer. They're not

going to tell you that your face. If you had a few more features and come back, right? Oh, that's dangerous. Cuz you can end up doing it early over and over and over again for like years and never actually, get customers to watch out for politeness and getting us confused with traction. Other one is a fear of an a weakness or defeat if you have that you're giving up in some way. Other one is putting Play my why things aren't working on customers are investors. So this is where you're like, I'm not wrong. The world is wrong, you know, like no one get this. This is like way ahead of

time like that or not. I got a great sign and usually people realize that maybe it is kind of on them versus on the external world, but it takes a long time to get there. And then finally there's a lot of inspirational stuff out there that just like if you just believe hard enough and keep going, you know, the you'll eventually be recognized, everything will be great. And so there's a lot of those inspirational messages out there and I can kind of be counterproductive. The super like, basically this is why talk about a little bit of traction thing. I called The Uncanny Valley or product

Market fit. And you know, what's weird. I know this is a y c, e partner. Someone that gets in the way, I see, with an idea that should have total fail. Like immediately is actually the huge advantage in someone that has like a little bit attraction. Is that weird? Like a total fail? The powers can declare bankruptcy on the idea. Immediately just work on other stuff with no regrets and no like second-guessing is really bad and having that freedom to immediately throw off the old lady and work on. A new one is actually a weird Advantage intuitive and she just want to really

watch out for a little bit of traction. Cuz I seen that be a trap that capture, a lot of really talented people for long periods of time. And then what you talked about the anecdotes? So anecdotes about, you know, stories of people that just kept doing what they were doing. It didn't work and then five years later, you know, it was great. I think those are cool in there, inspirational. I like them. They're all truth, you know, their antidotes, but it's kind of like anecdotes about people that you know, play the lottery everyday for like five years and then they won Lottery and now

they're like really happy and, you know, that's super cool, but will for you, right? There's nothing you can do with this anecdote about someone that like just kept believing strong enough. Like, I would much rather give people advice to play the statistics of this and to take accountability for like their own actions in the world than just like hope and dream that you might be one to Anna goes to. And so if you decide to Pender, don't decide if it just remember you decide, it's your life. And if it works out good or bad, that's on you. And so often, I get

found that one that pushed, this decision on me is ryc partner. Other authority figures about this idea working or not. When should I know when to give up and ultimately all we can do is give you guidance but this is exactly in the class of problems that is on the founder and never something, you should look to an authority figure to tell you how to decide. Product Market set. I'm sure. You know, why don't we talk about this a lot? It's been discussed a lot in start of school and it's because it is so important. Most people will never get it. Probably most people watching this. Don't have

it. Even if they think that you and you know, you have it when growth is not your biggest problem. It's other stuff and one good reason to have it is you just get more shots on goal, to try to get this elusive thing. Right? Like if you made something and you launched it and it's like, man not really working a damn good reason to Pivot is you get another roll of the dice, get another shop. And so I just seen people that use the opportunities really. Well, it's much easier to be lucky when you get like half a dozen shots on goal than one. Right? And so just if we're just playing the

statistics of, how do I get product-market fit, taking several high-quality shots, unless a high-quality. You can't just constantly have it through stuff and it'll launch it. But if you do a full awesome product, innovation of making something completing it, shipping, it given it to people falling all the device you're looking here. And you can give yourself multiple those shots. I would argue you are creating look for yourself and the odds of you actually hit something that works are much higher than some of the only ever takes one shot. Okay. I have to find a better idea. Here is the

advice that I get people during the batch when they are looking for an idea to give it to find something that you're more excited about and it makes you more optimistic about the world and more just generally more excited to wake up in the morning, to work on the thing and not less excited. And there's a corollary here in this. I think it's counterintuitive often choosing what is perceived as a herder idea? Is more is good. And so, I see a lot of people were there like working on some like ad Network, add text saying you like affiliate something targeting. I don't know.

Those like never work and it's because they're not inspirational and no one cares. And so, when you see people go from that into something that's really, really exciting, right? Like, oh, I want to help small business owners. Do you ask? Or I'd accompany this last batch and they did. They started with this ad Tech thing that they are all very bored with. And they pay Go to Robin Hood for India, and the moment they debited to that day at the founders. There. Like they lit up and every conversation I had with them. They were like, so excited about their idea and it's contagious talking

to them and it was almost like a different, but the amount of change is impounded for what changes they found out. The other was a real that they were excited about and not just some, like boring adtech crap. No one cares about that stuff. Okay. So if you're doing something that seems like a good start, if I take his running, TechCrunch people raise money for it, but it's not inspiring to you. And you're like, man, this is pretty lame. I want to find something. It's more exciting to you. I know things to do on a make an honest assessment of what you're good and bad at this is hard, but you

want to be really self aware of what you're good and bad at and play to those drinks. And another thing here for find a good idea. Especially if I find something that you can very quickly build invalidate and not some of it takes like a year or two of our Indy, right often. Like if you paid it from one thing that's impossible to ship into another thing. It's impossible to ship, not good. Ideal you fighting it's way easier to ship like really fast. Highly recommended quick note here, caveat, it's totally okay to work. An idea where you're not going to Capital most

businesses. The world don't require venture-capital until all of your. If what you're doing is consuming lots of content on how to start a company like this. And it's all kind of like venture-capital Focus stuff and you're not going to do some of that reason. Venture Capital you can kind of get blown off course idea wise and so just be self-aware about this and realize that. If you do, you want to raise venture capital The idea does matter a lot and there's a constant like a recurring theme. I see is people that are trying to raise money for,

something that is definitely not Venture Capital fund a bowl and they get really frustrated. Everyone gets frustrated with that. It just it doesn't make sense for all businesses. And so just be self-aware. This when you're cheating idea of like, is this something at least? Hypothetically is easy. Fun of them, just give you some of them was. I mean, I don't think there's a guidebook for what Ventura scale means, but now I hear some rules of thumb. Can I imagine this business generating hundreds of millions or billions and net revenue per year. Can I imagine the

revenue growth to get those numbers to happen in like less than 10 years or 5 years? Like in It Happened really fast. Can I imagine this thing that I'm doing is a publicly traded company Someday my picture time? He lies. It comes first like to talk about this but these are all things. Like if you just can't see any of these, that's not a great sign and other Key Properties, as usually Knology the key component, and using the founders build, the technology, at least, in the early days for something to be findable. You want to see really high margins up for everything. But again just rule of

thumb software margins, you know, 80% gross margin, 70%, gross, margins, really high margins. If somebody would want to see and then just it's funny. Like I think a lot of people learn about fundraising from Shark Tank and I don't think a lot of that stuff is refundable just in case you were wondering, if it's possible for people that want to put products up together, but I don't know if, you know, I have a hard time raising money from Venture capitalists for the majority of stuff. But like I said earlier, it's your call is your is your dream. So I figured out, when's the best time

to visit as soon as these things happen, you've launched and trying to get users for weeks or months and you feel hope it feels hopeless. You should probably put it when the idea is impossible to get started with. Like cool wants me to raise a hundred million dollars. Then we will build a prototype. You should definitely pay that if you're one of those people because unless A hundred million dollars. You are in a chicken-and-egg unsolvable issue. And here's another one. You know, when your heart is not going to work a lot of Founders. No secretly. That their thing isn't

working but they want to keep up this front to everyone in the world that is working and they think they can fool people into funding them are working with them, if you can't convince yourself. And you know, this isn't really working, man is not a good time to Pivot, right? But, you know, more than anyone else about your business. You got to listen to yourself and it's sometimes not stuff. You want to hear from your phone. Okay, let's talk about other people's stuff if you put it over and over and over again, it causes Whiplash. Whiplash is very bad because it causes flowers to give up

and not want to work on this anymore and that actually kill the company. Weirdly. It's more deadly, to your company, to get Whiplash and get sad. Then to work on a bad idea is if you're having fun working on a bad idea, you won't give up and then conceivably you can maybe make it work. If you get really sad and hate your life while you working on your startup, you will definitely not succeed. And it's because you will give up and say, this is weird. Like it's better to work on an idea. That's not the best one, if you're really having fun and then You just want to be in a happy medium,

some powders pivot way too much and I'll probably watch this lecture and then like a pivot. Once a day for six weeks. Don't do that. And some people just work on the same idea for 5 years and it's not working. And they took a really upset about it. Just find a happy medium like everything else in life. So don't do it. It just makes it slower and makes them really sad. And so trying to scale up like a team and taking all the advice about how to steal a team while, you don't even know what your idea is. You think you're going to change your idea? Definitely not best

practices. It only slows you down. I would only add people to the team after, you know, your idea is working about confidence. Otherwise, it's just all downside. Okay, let's go to a different thing here. I made this up for this lecture, and I came up with a subjective notion of a quality score, just to give you a few criteria to evaluate an idea. Okay. And so what I did is there, you know, 40 things that I think you could use to evaluate. Quality of an idea and you can give them a 1 to 10 in the average, those together to give an overall quality store. Okay, so I may just go

into detail me how big of an idea. It seems to be earlier. Is this an obvious publicly traded company? Like, I don't know. Tesla. Hey, it's a new car company has lots of publicly-traded car companies. That seems pretty big. A new bank with lots of banks that are publicly traded. That seems pretty big. The opposite of the spectrum is like, I don't know if Ranch Subway. I'm going to buy from Subway, franchise new no more like, oh, I'm an import. Some stuff and sell it on eBay, you know, probably a little less obvious suspect.

It is really, really key. So, again, a 10 out of 10 would be, hey, I was on the self-driving car team when I was an undergrad and then I work on self-driving cars, my whole career. And so now I'm into a self-driving car, start up as you're out of town is like, I'm going to do some kind of advanced AI start up and I don't know how to program. That's a 0 out of 10 right there. Don't recommend that. How easy is it to get started on? That is actually, I think undersold. I don't people realize, this is actually really key ideas that are easy to start, highly recommended and there's so

many really good ideas out there that never work because the founders can't figure out how to get started. And then someone the future does the same idea. That's a much better way to get started and then they win and the people get better because I had that idea. So I would argue getting find an idea that easy to get started with is just as important as the idea itself and finally really Market feedback from customers. This just means does, do people want it immediately and a sales straightforward or is it just impossible? So, let me give you some examples of company that I worked with an

advise @yc that you may or may not have heard of braccus one there in 15 or 17. And then I found them to do a different idea and parking lot here in a bit. And if it in the batch and they got product-market fit pretty quickly and they have now raised hundreds of millions and billions in two years. So it's like one of those rare outlier story is I'm not saying this is common, but holy cow. I got a front row seat to watching one of the most epic pivot of all time. I think maybe there's other ones, but I was like, wow, that really worked out before and after he was what they started with. They

had this idea for a new VR Hardware headset that you would use to do work or something. And so, if you hear the scores, I just put in, you know, I put these on now, these entities of the time, but how big is a senior seems like medium big like VR? Headsets? I don't there's no publicly traded ones, but that seems like the future, right? I give a 1 out of 10. These guys knew nothing about Hardware or Optics or any of the things associated. They were just send text software, folks. So they had literally no idea what they were doing. And they were very upfront

about that, how easy it was to get started. That's only a two. And the reason is, they had to hire Hardware people to build a prototype. Not a good sign. They needed millions of dollars to build a prototype. Not a good sign and it would take like years and years and years of manufacturing is pretty bad. And then finally, really Market feedback they went and talked to people and they're like you want to use this and no one wanted to use it. So this was bad. Okay. So overall score 2 1/2 out of 10 most of it credit card for startups. That seemed pretty big.

There's tons of publicly traded,, So it's like, fend, tech companies, you know, I can even start uplanders their Square, their stripe. I mean, there's lots of examples of that, so I get out at 10 or 10. By the time, I found a market and the reason is, they have started a Fanta Company earlier in Brazil and it was successful in a solar for like 20 or $30 house and had all these existing relationships man. Is that such a better fit. How is he started? Cuz they actually it's hard to launch a new credit card product. This is one where he

don't have time to make it fit. I would not necessarily try this at home. There was something about the time to Marquetta. Made it easy. And then finally everything I could be back. I'm going to eat out of town just because in the back there like hey, do you have a credit card? Do you want to be a customer? And people were like, yes. No, the hotel process, like I witnessed it multiple times. So if, if that's your sales process, good, it's like a threesome and sales process and people say yes, that was about retool, their winter 17 and

there are really good tasks company and honestly, everyone should check it out and maybe use it. It's a tool to build internal tools. It awesome. I'm encouraging all the way she started to use it to build internal management Pages. It's, it's actually like a really great product. So that's what Rachel as usual look at it creepy that was venmo for the UK. How big is seems like a pretty day? Like then those big spider Marcos at 3 to 10. They didn't really know anything about centech but they managed to get along. There's something there. How is it with you started? I mean, that seven out

of ten it's because they already they already had a bunch of users that so that was pretty impressive. And, you know, back there was only three at a time and the reason is no one wanted to pay and they were losing money on every transaction. There's all these reasons this was Really working. And so, they decide to pay that, even though this is an example of the Insidious sort attraction, right? They had enough traction that it was like hard to decide to give up on this because I had users and it was like kind of working. So that was a tricky one. That way we have. It is a no code,

internal tools built filter because the belt is, for internal consumption on external consumption like a big companies. And so that seems like a big Market to me, find a market that 10 out of 10. One of the founders had made something like this. It is college internship. And so he had a very good idea of what the product should be relevant to it that they built in in 2 weeks straight and People interested in it, but they weren't sure they wanted to trust. Somebody start up to this thing. So it just one did not fly off. The proverbial

shelves, get some users but it was not immediately. Obvious product-market fit to build out of it. Next week. Magic. They were in Winter of 15 depended on the batch. And what's it about them that they built a profitable and sustainable company. Yay. I wish. We all could do that, right? How did they do it? They started off with his idea, for a blood pressure coach. Where that happened? You in your blood pressure and it'll tell you how to lower your blood pressure. Didn't seem like a huge idea. They didn't know anything about health whatsoever or much

along those lines. That's probably just have to add a 10ft box. Was like, not good. Everyone's really polite and no one use the damn thing for usage was horrible. So this one was again with kind of obvious. They should pay that. They realize it on their own pretty quickly. And then they pulled a bunch of prototypes. They actually built the magic prototype in a weekend. No joke. This is actually true an exaggeration and they put on Hacker News and it went to number one and got like 2000 up oats and it blew up

over night. I remember this thing, but it went like crazy by roll has like it was the most. It was an example of a shots on goal thing. I was talking about earlier where they didn't know that like five ideas and there's no way I would have known, they would have known that. This would be the thing that would capture the world imagination, but it did. And so not obvious, but it was very easy to get started. It got really good early Market feedback, and it seems pretty big. So it's rated also independently inspired. So, I would argue that anyone is doing chatbot stuff

for like a direct descendent about when this thing blew up in a regular Coke chatbots with a future with sort of like second-order effects from this going. So crazy viral and inspiring. So many people segment. Why do Summer Lovin had a bunch of times including years after the bachelor, took him a really long time to get it going? I didn't even have it in the back and now they're worth billions and it's a really good company to talk to infrastructure company. So they have this thing that was a classroom feedback to wear. Like, you would give it to students in a classroom. And they

could say, if it was, if they were lost or not. I think is what the future was. I'm so, if you were confused, you like push a button and it would tell the Professor. Okay, didn't seem huge. In my opinion. They were students, and they were young. So I would give that, like, a five out of ten. They were experts in education, but they understood the audience. It was easy to get started. They built a really fast and get feedback was actually decent where professors like it and they got a bunch of schools to adopt this thing. So their sales were successful alternate Lee. This was not you know,

which of them on the border of years to discard this one and yeah, just because now they're doing Again, which I'm going to use the data collection tool. That one did not seem obviously big interview segment. It's the JavaScript thing you put on your page and it connects the other tools. It was less obvious. How that would be a publicly traded company at the time but the bottom like if it was great because they built so much analytics stuff. They were World expert on a Lennox already when they built it. It was easy to get started because they

literally built this thing, an open-source it and give away for free and people beg for them to support it. Like the market bags of this product. We just didn't think this was a company. They just had this like thing on GitHub and so many people were obsessed with this thing that they built their like. Well, I guess the market soon as we can make us the company and they did it. So that I would say is easy to get started and really good Market feedback. You know, what the Market's begging for something, and that you don't even think it's going to have to give into. What's good. That's a

pretty good time. Is it? Okay, in summary, I tried even those examples just to give you a real real real life examples of stuff that I personally worked on just a show like the before-and-after and how do you say such things are really made. And so change your idea is part of a start up the sooner the better because the opportunity cost on the shots on goal type of stuff and when you're considering change your ideas, but the only stages shouldn't feel like a big deal. You probably do it all the time and following best practices is recommended. Hopefully, I gave you some good pointers

on. What does best practices are. But if you really scientific about this, you can dramatically increase the odds that you're starting to work. That's it for me. Thanks.

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