At the Sigalow house we have a ritual of ordering Chinese take-out on Sunday, and two nights ago I got the following fortune, “If we do not change our direction, we are likely to end up where we are headed.” I think the forces of the universe, or perhaps just the forces at China Fun, are telling me to write a blog post about companies that change direction (fashionably called a “Pivot” in VC lingo).
At Greycroft we typically invest after the angel stage, which means that almost every company has a product and some customers prior to our investment. Nevertheless, seven of my thirteen companies changed business models some point after I invested. I didn’t do the count for the entire portfolio, but my guess is that it falls along a similar line. Generally speaking I think this change is a good thing.
The changes that I mention above run the gamut – everything from business model changes, like selling managed services instead of software licenses, to complete 180 degree product and model changes, such as switching from a consumer-facing blog network to an open-source B2B software company. This shouldn’t be surprising because I do early stage investing, but it is a nice reminder of the differences between venture capital, where change is expected, and the private equity business, where change triggers debt covenants. We even have one company in the portfolio that changed three times and ended up back where it started. We collectively deemed that to be a “pirouette”.
Good entrepreneurs are always tweaking their business to improve performance, and one obvious differentiator between good CEOs and great CEOs is the ability to get out in front of change early. There are a lot of theories to this – some experts say you want a sales-oriented leader who spends a lot of time with customers so he can see trends emerge (like Benioff at Salesforce) while others say you want a product-oriented leader with great ideas (like Zuckerberg at Facebook). Ultimately I think it doesn’t matter. In my experience the best leaders have a common trait – they execute quickly and without prevarication. In a start up, the two most valuable resources are time and money, and there is nothing worse than watching these slip away because of poor execution. I tell entrepreneurs this all the time, how you execute honestly matters more than the quality of the idea.
As a last point, when I was an entrepreneur I noticed that some people have the “creative gene” for problem solving and some do not. If you are considering taking early stage money from a venture fund I recommend you find someone who you think would add value in a brainstorming session. I am not going to make this a shamless plug for Greycroft, but it is something to think about if you realize that there is over a 50% chance that your business will have a completely new business model between now and the time you exit.