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Smart startups should be prepared to pivot

Written by Adam Pescod on Friday, 09 October 2015. Posted in Investment, Finance

Pivots are an important part of many a startup journey but their success often hinges on the support of investors

Smart startups should be prepared to pivot

In October 2012, Wahanda, the online spa and salon marketplace, shut down the daily deals service it had launched in 2010 and which accounted for 80% of the company’s revenue. It was a bold decision but, three years later, Wahanda is now reaping the rewards of its pivot, with a recent investment of £30m helping to propel its growth across Europe.

As Wahanda founder Lopo Champalimaud explains, there was a solid business case for switching off daily deals. “It grew rapidly but the customer dynamics and economics stopped making sense as the space got more competitive,” he says. “We could see that consumers and merchants were becoming fatigued by the model.”

Of course, Champalimaud still faced the challenge of convincing Wahanda’s investors to back the pivot. “I told them I couldn’t justify investing money in this area anymore and that we should focus on investing in our core business, which at this point was really growing faster than our daily deals business had ever grown,” he says. 

Despite the financial implications of the move, the investors supported Champalimaud and the company is now stronger than ever. “There was a period where we were basically treading water and in fact some months shrinking – that’s never fun for any investor,” he says. “But they understood the long-term vision and what we were trying to build so, despite some difficult conversations, they stuck by us.”

The Wahanda story demonstrates that while taking the decision to pivot is far from easy, it’s often a crucial step in a business’s route to the top. “Pivots are much harder than you think they are going to be,” says Champalimaud. “They can have a huge impact on a business but if you really think the pivot makes sense, then you have to take the hard decision. It’s certainly paid off for us in spades.”

One pivot is hard enough but Droplet, the mobile payment and rewards app, had to pivot twice before finally landing on a successful business model. The company launched in 2011 as a fee-free payment service for small businesses. However, despite some positive feedback from early adopters, the first version of Droplet didn’t quite take off as expected. 

The company soon came to the conclusion that their product wasn’t solving a big enough problem and, after taking a look at the market, decided to pivot the company into a peer-to-peer payment app. “We realised there are already lots of ways that you can pay businesses but there aren’t many ways that you can pay other people,” says Steffan Aquarone, co-founder and CEO of Droplet. “For example, if you want to send a friend some money for a meal that you’ve shared, there are only a few quite clunky ways of doing that; you have got to know their bank number or remember to bring cash with you. We thought that looked like a much bigger problem and that’s why we pivoted.”

The resulting product looked like being something of a game-changer. “We excited a lot of people with it because nobody else at the time was letting you send money across the room with the click of a finger,” says Aquarone. “Apple even said it would give us PR support and publicise us on the App Store when we released it.”

But the initial buzz once again dissipated when consumers didn’t take a shine to the product. As Aquarone admits, the problem that it sought to solve didn’t really exist. “We realised that if you were out with six friends and you’ve got to split a bill, there’s no way you would convince all six of your friends to download Droplet just for that one day,” he says. “When you start going out with the same group of people regularly, you just end up rotating who pays the bill each time; you don’t split it. That was obvious when we realised it but before then we were just chasing this fictitious problem.”

Droplet found itself facing another pivot but, after taking a look at its user data, it was surprised to learn that the majority of people using the product were customers of small businesses. It suggested that it was on the right track with its initial iteration; it just needed a bit of tweaking. “We needed to talk to people who were still using it and understand what else we could do to strengthen it so that it would grow faster,” says Aquarone. “That’s where we came up with the whole rewards idea and that has really moved the dial in a big way for customers because now it’s not just a new way to pay; it’s a way to pay and collect loyalty points from the places that you go.” 

The company completed a seed round in May, raising £575,000 from 328 investors on Crowdcube, the equity crowdfunding platform. Suffice to say, things may have turned out differently if Droplet’s early investors had jumped ship. “We have really depended on the quality and character of our investors but at the heart of that has been communication and honesty,” he says. “If we hadn’t been honest about the fact that it hadn’t worked, we wouldn’t have got their ongoing support; if we hadn’t communicated before we had done it, we would have lost their trust.”

Pivoting twice has helped Droplet unearth some pitfalls with its initial model, such as an inappropriate sales strategy. “We discovered that salesmen who work in phone shops were not good salesmen for Droplet,” explains Aquarone. “We now have ambassadors whose job it is to work closely with their local communities to get it off the ground.”  

Aquarone also admits that success could have come sooner if Droplet had listened to its early customers and sought some investment from outside the tech space. “Sometimes people with no experience in tech are even more valuable than people who have experience in tech because they see it from the consumer’s point of view,” he says. 

But despite twice enduring the pain of pivoting, Aquarone has no regrets. “You can’t really point at what has gone wrong unless it has actually all gone wrong,” he says. “We are now in the strongest position we have ever been; we are making revenue, we are growing fast and we know we have got the right product.” 

About the Author

Adam Pescod

Adam Pescod

EB's former editor, Pescod was tasked with ensuring these hallowed pages are rich with excellent, engaging and error-free stories, all written with the entrepreneur in mind. Pescod previously plied his trade penning pieces about pubs and pints. He is also a sucker for alliteration. 

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