How do you know when to make a change to your business model? I want to give you a formula, I really do. If only I could just tell you that if a(b+c) > d, then you should make the pivot. That would be great, wouldn’t it?
Sorry, but that’s not the reality you face as an entrepreneur. The startup life is quantitative and qualitative at the same time. It is both an art and a science. You have to be comfortable with messy, incomplete data because that’s mostly what you’re stuck with.
Don’t get me wrong — you need data. You should be gathering all the data you can from the very beginning. But you also need to know that your data is not absolute — it’s incomplete, and you simply don’t have enough of it to base your decisions fully on data. You gather all the inputs you can, but your decision really boils down to both using your head AND trusting your gut.
There’s a chapter on this very topic by Ryan McIntyre in Do More Faster, a book I co-authored. As Ryan points out, when you’re starting a new company that’s doing a new thing, possibly in a newly created market, it’s not always so easy to measure your results. You should measure every aspect of your business, gathering as much data as you can. But at the same time, you should be suspicious of this data, regarding all of it as anecdotal for the time being. What appears to be a pattern early on might turn out to be something very different in the long term.
Based on your confusing and uncertain data, you’ll get plenty of conflicting input from various people. Again, that’s something you have to accept and become comfortable with. You have to learn how to make decisions in the midst of data and input that is confusing and conflicting. And you can only do this by learning to trust both your head and your gut.
A good example of this is Next Big Sound. Co-founders Alex White, Samir Rayani, and David Hoffman met while attending Northwestern University, and they all ended up in an entrepreneurship class together. They created Next Big Sound as a “fantasy sports network for music.” Users got to act like record executives and sign artists that they thought would become popular. By the time Next Big Sound entered the Techstars program in 2009, their product had launched, they had thousands of users, and they were getting good press.
(Full disclosure: I invested in Next Big Sound)
Despite the success they were experiencing, they came to the realization that what they were building wasn’t sustainable. Without the ability to generate revenue, the product could never really go anywhere. The Techstars incubation period gave them an opportunity to focus on the product, evaluate their data, and seek advice from mentors. Taking all that into account, they decided to make a pivot and change their business model.
Thanks to that shift, they now offer a solid, marketable product to major players in the music industry, tracking online data for more bands than anyone else in the world. They measure daily music consumption and artist activity to provide artists, managers and labels with actionable data.
Next Big Sound’s pivot was successful because they took the time to evaluate their data and absorb the advice of some experienced mentors, while also trusting their own instincts to guide them. They’re not doing exactly what they originally set out to do, but they’re doing something they enjoy, working in an industry they love, providing a valuable service and being paid for it.
So while there’s no exact formula, when it’s time to make the decision of whether to make a change or stick with your original business plan: gather your data, consider all the advice, and take some time to listen to what your gut has to say.
This post recently appeared on The Accelerators at the Wall Street Journal, where startup mentors discuss strategies and challenges of creating a new business.