How to decide what idea to pursue

Facebook was losing the mobile war. It was early 2012 and Facebook was scrambling to play catch up in a space that was quickly leaving Facebook behind. Desperation was setting in as Facebook was about to go public in a few short months.

Apple and Google owned the mobile platform and the apps store economy. Facebook did not have their own platform or phone. Their bet on HTML5 left them with a bloated and slow app compared to native mobile apps that were starting to grab more and more consumer attention.

Then on Monday, April 9, Facebook announced that they would buy Instagram for $1 billion. It was a blockbuster deal that would be the biggest at the time for Facebook, and all for a startup with just 13 employees and 25 million users. The acquisition kickstarted Facebook’s anemic mobile strategy, and outmaneuvered Twitter’s own bid for Instagram to ensure Facebook maintained its dominant position as the leading social platform.

Nearly every startup will face an existential crisis to ask, “Is what I am building really the thing?” As founders, it is easy to fall in love with the product. We imagined it, we built it, and we launched it. Who doesn’t love their baby?

Once the product is out there in the world, we diligently monitor the usage and engagement. We build out dashboards to measure and report KPI’s. We actively employ growth tactics and strategies to juice user acquisition. Then we watch as all the metrics tick up slowly every day, but nothing that shows that proverbial hockey stick growth.

I have seen this play out time and time again with startups. Stack Overflow had bet on job postings and ads as the business model. When I came onboard to help launch a SaaS version of Stack Overflow for companies, we quickly realized that was the real money maker. Another startup that I was helping to develop a mobile CRM app realized that the better opportunity was ERP for medical device companies. Even Instagram was not the photo sharing app that everyone knows and loves, but rather a Foursquare clone called BURBN.

The common thread in many of these stories is that the founders storm out the gate with the amazing idea that falls flat in the market. They fell in love with the product when they needed to fall in love with the problem. Then comes the point every startup founding team faces, “the Pivot”.

In the previous newsletter, we shared thoughts on how to come up with initial startup ideas. But once you have already tested the initial idea, gathered feedback, learned what is working and not working, and evaluated next steps, you now come around full-circle to ask, what idea should you pursue?

You can take two approaches. The first is to scrap entirely what you had worked on to pursue something completely different. This is highly risky as you would be starting from scratch again without the benefit of any prior work, knowledge, or data. The second is to dive deep into how users are engaging with the product to understand insights into what they find most valuable about the product. The benefit of this approach is that you are starting with data and working backwards from users to develop a solution.

Every successful pivot was born from the second approach. This was how Instagram discovered that photo sharing was the better path for developing an engaging app. At Stack Overflow, we did small pilots for a handful of customers that expressed interest and saw huge uptake by users. Behind many successful startup stories is the story of a successful pivot.

But how do you determine whether a particular pivot is worth pursuing? In the most recent annual Amazon shareholder letter, I was reminded of the approach we use internally to determine what ideas are worth investing in. Andy Jassy shared four questions that we ask to help guide our own bets:

1. If we were successful, could it be big and have a reasonable return on invested capital?

2. Is the opportunity being well-served today?

3. Do we have a differentiated approach?

4. Do we have competence in that area? And if not, can we acquire it quickly?

We do this at every level of the company. It helps guide us through the numerous initiatives, projects, and think big ideas that we consider during our planning cycles. For any company from early startup to large enterprise, these questions can also provide a helpful lens for framing decisions on how to pivot.

For Facebook, they knew they needed to pivot to mobile. It was clear mobile was the future platform for growth, that no one had yet owned social for mobile, and that Facebook was the best social app with the largest social graph. Even with top engineering and product talent, a huge war chest, and an app that directly competed with Instagram on the way, they would still be in catchup mode. Buying Instagram was the best way to acquire the competence quickly to get ahead in the mobile race.

While many think pivots are dramatic shifts, often the insights from data and further exploration can lead to more modest changes. One startup I was close with started as a CRM for recruiters, but then pivoted to serving sales developer rep (SDR) teams. Another developer tools startup simply made a change to their core messaging, which led to a top post on Hacker News and growing from tens of users to thousands of users within a week.

Pivots are a simply a way of life for startups, so the more willing you are to learn, ask hard questions, and shift approach and strategy, the more likely you will find success. Having a framework by which to consider such shifts also helps you pick the most strategically via choice as to where to pivot.

As a startup founder, what other questions do you ask yourself or data that you consider when contemplating a pivot?

There are a lot of opinions on how startup founders should be spending their time. One of the common punching bags are events and networking, which are often viewed dismissively as a waste of time. As in-person events have come back from the pandemic, the volume of anti-networking rants is rising.

I even believed this myself when I had my own startup, but I realized I was missing out on opportunities by not meeting people and building my network.

I shared a post on LinkedIn about my own story of networking that resonated with a lot of founders who struggle with the balance of building product, leading a team, raising funds, and making time for events and networking.

The key is understanding why you go to events and being intentional about the time you spend at such events. Evaluate whether it is an opportunity to find customers, hire talent, engage investors, connect with founders, or seek partners.

Lastly, be willing to say no to stuff if you tend to be drawn to events. Conversely, be willing to say yes sometimes if you often shy away from networking. As long as you have a framework on how you decide on which events are worth attending in its value in impacting the business, you should be fine.

Basil is back in Dubai dropping some serious knowledge in his recent masterclass on incorporating AI into your startup. Just look at these posts from attendees!

On the other side of the Atlantic, Mark is continuing his Midwest tour stopping off in Indianapolis, the Racing Capital of the World, and a huge startup hub that few people are talking about. Thanks to the Powderkeg team for organizing a stellar event with Elevate Ventures, and we look forward to attending Rally in August.

Where to next? Basil is jumping across Europe for the next few weeks in June, while Mark is gearing up for Tel Aviv and the AWS Summit. If you are around one of the AWS Summits, definitely check out the Startup Loft!