Pivot or Fail?

The Pivot is celebrated in startup land. Huge successes like Twitter and Slack are all the results of pivots. So surely pivoting is a good thing, right?

Well, I am not so sure. And I certainly don’t want entrepreneurs to think that pivoting is the right thing to do when their original idea fails. It may be better to let the failing startup fail and start over again from scratch.

I am not talking about the slight pivot; making a change in business model with the same product, selling a slightly different product to the same customer, going up market to a different customer. Those are not really pivots, they are evolutions that every startup company goes through. 

I am talking about the hard pivot. Changing the product, market, and business entirely. Essentially starting over from scratch.

And I am not sure hard pivots are good for anyone.

Here is why.

If you raise funding for a startup idea, you will take some dilution and you will have a bunch of investors who backed you and your idea and are believers in it. You will have assembled a team that you built with the original idea in your mind. 

If that idea fails and you pivot into a new idea, you will take all of those investors, team members, and dilution with it, whether or not they are excited about it.

You can always swap out old team members for new ones, and so the team issues are real but probably not as significant as your investor and dilution issues.

If you choose the pivot approach, you will have investors for the life of the pivot who did not choose to back your new business and may have no interest in it other than their financial interest. 

But the bigger issue is the dilution you take into your next startup. I have never understood why entrepreneurs would want to use a company and a cap table that they no longer own 100% of to do a new startup. They are just carrying baggage that they don’t have to and probably should not carry.

I understand the argument that starting a new company by pivoting with cash in the bank and a team that is already built is attractive and giving those back and starting over from scratch is harder. But the harder path is often the best path. And the easy path is often the harder one.

If you were able to do a startup from scratch once, I would imagine you can do it again. And doing it again allows you to keep a lot more of the new company and custom build it from scratch, putting together the ideal team and the ideal investor group.

I have always suspected that entrepreneurs also choose the pivot over some sort of loyalty to their investors. If that is the case, I would like to say that this investor does not want any of that misguided loyalty. 

The truth of seed and early stage investing is that the failure rates are very high. We write off investments in failed companies in every one of our funds at USV, usually multiple times. The Gotham Gal, who invests much earlier than USV, writes off investments at an even higher rate.

So early stage investors are used to failing. It is built into our business model. What we want in return for accepting this high rate of failure are the spectacular successes that we get when everything clicks; the right idea, at the right time, with the right team, the right investor group, and the right execution.

And while pivots can deliver all of the “rights”, I am not sure that they do that at the same percentage as the startup from scratch, given all of the baggage that they are carrying.

And there is nothing I dislike more than carrying on with something when I’ve lost interest, and worse, the founders have lost interest.

So my view is if you’ve failed, accept it, announce it, and deal with it. Shut the business down, give back the cash, and rip up the cap table. Then do whatever you want to do next. If it is another startup, do it from scratch and keep as much of it as you can. If it is something else, well then do that too.

Startups are not indentured servitude. And I have been around some that feel like it. That sucks. I would encourage everyone in startup land to reject that approach and focus on a better one. There are so many options for things to work on that everyone should make sure they are working on the right thing and excited about it. Anything that gets in the way of that is suboptimal in my view.


Comments (Archived):

  1. jason wright

    Sunday breakfast must be good in the Wilson household.

    1. fredwilson

      I wrote this before going to the gym. I just had breakfast post gym and coffee. I love Sundays when the pace is slower and demands on me are lighter

  2. kenberger

    2 comments from me today:1. Turntable.fm, anyone?

    1. jason wright

      churn. weak network effect.

      1. Donna Brewington White

        Still miss it. But, then again, I wasn’t an investor.

  3. kenberger

    2. I’m seeing this a TON right now, with crypto companies who started up until this past Q1– having to pivot from a different *funding paradigm*. And I’m only talking about the ones who started with, and still have, a solid tech idea and tech team.They started with the real belief that they could use this tokenized/ICO financing path, which seemed great until it wasn’t, shunning the VC’s that wanted in, and now they need some of those VC’s (to at least give them a path towards growth etc), and the 2018 discussions aren’t quite the same. Many won’t (or already haven’t) survive the jump.

    1. jason wright

      excessive burn rates. ‘plundering’ would be more accurate. they lack conviction and short their own projects. who would want to work in partnership with that mindset?

  4. iggyfanlo

    Great post.Fred. You mention loyalty and I’m sure in many cases you’re right, but from my seat as an entrepreneur I have to admit the pivot is mostly fear of humiliation; fear of failure; fear of not being as good as those unicorns folks. It’s hard to put the pencil down, but ironically when you do your world feels lighter, more open and more available to new ideas.Pivoting is like getting a failed romantic relationship to work again. It’s possible; it’s hard work; and it may be great, but in the end it’s almost certainly better for all parties to part ways and find another path.

    1. fredwilson

      Great analogy to a failing relationship

    2. Lawrence Brass

      It’s not you honey, it is the pivot. 🙂

  5. William Mougayar

    As someone who has done a (real) hard pivot, couldn’t agree more with this post. We left the previous business behind and didn’t let the baggage come with it.I would add one thing to this “Shut the business down, give back the cash, and rip up the cap table.” ..or try to sell it to someone one who can do something with it.

  6. falicon

    Not to mention, most of the ‘successful’ pivots actually end up rebooting the cap table early into the new success anyway….the one challenge/exception I see is often around tech and the tech team.A hard pivot means risking losing all of that (and the cash to rebuild it)…even if you intend to build something completely different, you’ll likely stick with a sim. stack and at least some common tech components from the orig thing…which, I think coupled with fear and the self-confidence hit makes it *really* hard to accept or do for many.

    1. falicon

      But yes, more often than not, it’s *way* better to stop. Reset yourself, your team, and your approach. Then start again fresh.

      1. jason wright

        Have you cloned yourself?

        1. falicon

          I can neither confirm or deny that…

          1. falicon

            But I can. 🙂

  7. pointsnfigures

    Hard pivots can separate teams as well if there is not agreement internally on what to do.

    1. PhilipSugar

      As you know from basketball pivot means keep one foot firmly planted. That is what the term really means. But it has been bastardized to mean “commit a walk”

      1. Pointsandfigures

        NBA vs all other

        1. PhilipSugar


  8. Seth Godin

    Pow. Great post.It points to a truly significant gulf: Entrepreneurs often conflate their story of money with the story of money that the investor has.This can go wrong in two directions:1. You raise money from dentists and other non-professional investors, and they’re busy counting pennies and driving you nuts (this was my first investor, ouch).2. You raise money from professionals and fail to understand that they use money as a means to an end, a tool to achieve their goals as opposed to the way most humans see it.Getting clear about who’s here and why they’re here make things a lot more clear.

    1. fredwilson

      That’s a great way to explain why this happens Seth. I don’t think I ever heard your dentist story. I will need to hear it over some hummus but sadly Dizengoff left Chelsea Market and my lunch options have suffered

      1. LE

        The ‘dentist’ (non professional investor) gives you money because they have underestimated the time that it takes for you to hit it big. Two things could happen if you tell them how long things might take ie ‘5 to 10 years’.a) They will not give you moneyb) They will give you money but think it will come sooner.By telling them ‘how long’ you manage expectations and prevent the nudnik at the risk of not getting the investment. The problem is it’s a balance (in selling not investing) of loosing the sale vs. managing the expectations in advance.Clean up the mess afterwords:Restaurant quoted a 35 to 40 minute wait time. The wait time ended up being 1 hour 20 minutes. What did the restaurant do? Apologize and give free dessert or drinks.If they had said ‘1 hour 20 minutes’ what would have happened is obvious.

        1. RiganoESQ

          lets not all forget this is America, where business litigation is more than any other country … this is why its so important to either (1) have high grade investors (who wont sue u for failure as long as u didnt commit fraud) or (2) if you’re taking $ from “dentists” or the ICO bros of 2017, the terms need to be forthright and specifically laid out as to what rights/expectations they are receiving …

    2. PhilipSugar

      This is as good as the post which is great totally right

    3. LE

      2. You raise money from professionals and fail to understand that they use money as a means to an end, a tool to achieve their goals as opposed to the way most humans see it.Similar in many different businesses. Concept ‘the merchandise’.You go to the high end car dealer. The salesman and the dealer see what they are selling as ‘merchandise’ to be moved off the lot before the floor planning ends. [1] Sure some of the people working there might actually also like the product. But more often than not, they are just moving a car. They don’t even see that ‘nice color’ as better than the dog color. To them, generally, it’s all the same. Customer on the other hand are emotional and fall in love with a particular model/color (why they overpay). At least they used to.My father was in the giftware importing business. To him it was ‘merchandise’. He had no attraction to the things that others bought and loved. But people, the stores and the customers, would react much differently. They would ‘love’ and get attached to the products.In our house growing up I don’t think we had any of those nice things at all. Maybe a menorah and of course mezuzahs. Because they were functional and necessary. But he could have had for free any of the other items. Because it was ‘merchandise’ he didn’t.[1] https://www.investopedia.co

    4. LE

      1. You raise money from dentists and other non-professional investors, and they’re busy counting pennies and driving you nuts (this was my first investor, ouch).Per my other comment this may also have to do with the amount of frequently they have with investing. (Exposure to a large amount of data tends to desensitize you. If you are looking at Porsche 911’s all day long vs. the one you own in your own garage you are for sure not going to react the same way.).The question is if the dentist did 30 investments how would he act? He would act like a professional investor not a penny counter.

    5. sigmaalgebra

      In high school football, the main effort is just to put points on the scoreboard, more points than any competitor, and win games. The main goal of pure research is to understand something where the understanding might be important in some sense in the future. The goal of Doctors without Borders is to save the lives of poor people.All that said, bluntly but still quite correctly, the goal of business is to make money, as in green cash in the bank. E.g., like my brother once said, in particular we like “obscene profits” — those are the “best kind”.Sure, we also want the work to be legal, ethical, safe, etc., hope that the customers are happy and even helped (we’re not selling heroin), want to leave clean air and clean water, don’t want to hurt the plant life or the wildlife, hope that the employees have good lives, e.g., do well at family formation, etc., but, still, to repeat, the main goal is just to make money.E.g., there is a part of applied math optimization. Here the goal, quite literally, exactly, clearly, precisely is to exploit available freedom of action to make some numerical measure as large as mathematically possible. So, we exploit what freedom we have to make as much money as possible. Examples: (A) Feeding a lot of livestock, say, 100,000 chickens, is not much like feeding Fluffy, the loved pet cat. Instead the feed for 100,000 chickens is big bucks. And there are lots of options on how to mix the feed. So, part of making as much money as possible in the chicken business is how to mix the feed. And there can be other sources of freedom to be exploited. (B) Flying an airplane is in nearly all respects darned expensive. So, can lower expenses, and make more money, by exploiting what freedom we have in operating the airplane. (C) The H. Markowitz Nobel prize work on stock portfolio construction was to maximize the rate of return. We could go on and on with examples. So, the definite goal of the applied math of optimization is to exploit available freedom to maximize, in particular, to maximize money.Lesson: At least in that applied math, maximizing money made is quite clear in the work. So it’s possible to be quite clear, definite, explicit, and creative, and developing powerful means, on wanting to maximize money.Parts of our society regard such a strong and narrow focus on making money in pejorative terms, e.g., as nasty, selfish, crass, greedy, ignoring larger issues of human life, etc. So, anyone who makes a lot of money in business might get criticized.Lesson: If pursing business, then have to realize that the goal is to make money, e.g., “obscene profits”, and (A) have to focus narrowly on making the money, (B) might be creative, insightful, and grimly determined about making the money, (C) might even use some applied math to help making the money, (D) shouldn’t be unclear, uncertain, or ambiguous about the goal of making money, and (E) have to put up with criticism from the narrow goal of making as much money as possible. If for whatever reasons don’t like this narrow focus, this single measure, the potential criticism, then maybe pursue some other line of work.Or, “it’s not personal; it’s business”, and the goal is to make money.Still, of course, “Man does not live by bread alone” or on only money. Instead, a person needs to pursue and achieve a good life. Making and then having the money can help. So, once have plenty of money for the rest of life, then maybe leave business and concentrate on the rest of having a good life.Lesson: One is making the money as part of the goal of a good life. Still, in making the money, it is from appropriate to nearly necessary to concentrate on JUST the money.Net, business is about the money. So, accept that fact and don’t get confused about it.

      1. jason wright

        Money as the end verses money as a means to ends (plural, diversity of ends).

        1. sigmaalgebra

          Yup.But, even if want to save the world and use a lot of money to do that, then in making the money just focus on the money. Saving the world is quite separate and usually comes later.E.g., Mike Bloomberg just gave $1.8 billion or so to Johns Hopkins; that’s not his first gift to Hopkins; at least one earlier gift was for $100 million; at Hopkins, with a lot of interest in the medical school, there is the Bloomberg School of Public Health or some such. [I have a sister in law who was a nurse at Johns Hopkins hospital.]So, maybe we could chalk up Bloomberg’s giving as an effort to save the world. He has had other such efforts, e.g., being Mayor of NYC, arguing against 32 ounce soft drinks, salt in restaurant food, global warming. And he’s proposed putting wind turbine electric generators on the tops of the NYC tall buildings, e.g., more hideous than in Gotham City in Batman movies.But we can be fairly sure that Bloomberg was good at collecting the bills he sent to the users of his Bloomberg terminals for news relevant to stock prices.And POTUS Trump has stated, IIRC, that he’s forgotten about his old businesses and now cares only about his goal of MAGA, saving if not the world then the US.And Bloomberg and Trump are not the only people successful in business who wanted to give away some of their fortunes to help people — Carnegie libraries, the National Gallery of Art from, IIRC, the Morgan fortune, etc.Point: When they made the money, they focused on making the money, not philanthropy, and concentrated on philanthropy quite separately and usually only later. I.e., when making money, we have to focus narrowly on just that one goal.

    6. JamesHRH

      Many pivot founders are more worried about keeping the investee relationships.I agree with Fred but the answer for most pivots is: a) loyalty; b) fear.

    7. Donna Brewington White

      And this is why you are Seth Godin.

  9. Dara Albright

    Gr8 insight. Thanks, Fred. I’ve thought about pivoting versus failure a lot over the years. I’d be curious to hear your thoughts on this: https://daraalbrightmedia.c

    1. creative group

      Dara Albright:If Fred doesn’t know you personally the best way to get that evaluated would be to ask the contributors in the room. Many are just as verse in business acumen as Fred.There are various business owners, entrepreneurs, etc in this space. We are aware of one in particular whose political views were mixed with something else but their business operations chops not many in this space can ever question him on. (He does consulting) Facts!Captain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT

      1. Dara Albright

        Thanks! I’d love feedback from any and all.

  10. creative group

    COBTRIBUTORS:Based upon our limited experience in pivoting the mindset is you don’t want to accept failure. How difficult it would be to raise funding on a new venture. What are the long list of founders who have failed by closing down a startup who returned with a successful company? Can you only count them on one hand because they are the few who have the funding connections?Captain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT

  11. Tom Labus

    I don’t believe that you can keep your same team even after a successful outing. Something emotionally different.

  12. PhilipSugar

    I give Seth Levine props of foundry group giving this exact advice. (I’ll just say it was liquidated to a MN entity)This is so entrepreneur friendly. The dentists of the world want you to slave after it for yearsOnly one small point sometimes “living” means that you continue to be able to wait for the market.That is the hard part. Wait for the market which didn’t develop fast enough. OR. Maybe it never develops.That is the hard thing to see

  13. LE

    If you were able to do a startup from scratch once, I would imagine you can do it again. And doing it again allows you to keep a lot more of the new company and custom build it from scratch, putting together the ideal team and the ideal investor group.A few things:a) The above statement shows what an ‘investor’ you are. Because in no way can you say (other than probabilities) that ‘I would imagine you can do it again’. By probabilities I mean I guess someone who has raised money once is more likely to raise money again (in this day and age) because there is a halo and experience and contacts and knowledge. But it’s the same person really.Usually a business idea is a combination of many thing including importantly serendipity and luck.Ask your self if Marc Zuckerberg didn’t do Facebook, Bill Gates didn’t do Microsoft or Steve Jobs didn’t do Apple if they’d be able to dream up (from scratch) or ‘run into’ an idea anywhere close to that. Simply would not happen. Both would probably be running 50 million and under companies (if that; which is great but not ‘cigar’). You can’t dream up from scratch a killer idea. The killer concept is something that you trip onto when you are not looking for it or you have a hunch or an idea. It’s creativity like writing a song also.b) This meme of someone failing and getting backed again is an idea that was born in the 90’s with the Internet pretty much. Prior to that if you failed you failed and it was in no way looked on as a good bet to be backed on something else.Now that failure is celebrated. In the past it was a black mark.c) For an entrepreneur it is infinitely easier to use the existing infrastructure to front or explore a new idea. You already have the office rented and the labor in place. You don’t go to the Amazon website or stop at the Lowes and duplicate that in an hour. That operating entity is a big advantage even if everyone is not into it or on board. Door number two is ‘close it down’ because ‘you can do it again’.

  14. LIAD

    If you’ve managed to snag top grade investors who you wouldn’t manage to get again for whatever reason, you might deduce through a cost benefit analysis that the needless dilution of essentially giving them a free ride in Newco makes sense, either because you can leverage their brand down the line for more than it’s costing you or saving face by not having a “fail” on your record is worth the price

    1. fredwilson

      A free ride is exactly what it sounds like

  15. LE

    So my view is if you’ve failed, accept it, announce it, and deal with it. Shut the business down, give back the cash, and rip up the cap table. Then do whatever you want to do next.So dissecting the post it’s very clear that this is what is best for the investor because from their experience they don’t rate the chance of success very high and it would be easier for them to simply not have to deal with a lame duck investment (with the resources that it requires vs. the chance of success).But I have to say that it’s also clear that in this case the entrepreneurs interests are not necessarily aligned in the same way.(This is said w/o respect to valuations and cap tables..)

  16. simon

    great article!minor point: i think for many entrepreneurs, shutting down means getting a “regular” job because they don’t have the financial resources or pedigree (ie. contrived examples: jack dorsey, max levchin) to start over from scratch after a failed startup — they may have burnt out their life savings or even gone into debt and their situation changed since their initial foray into entpreneurship, and the hard pivot might be their most realistic shot of “staying in the game”.so perhaps this advice is mostly relevant for the subset of entrepreneurs with the privilege of being able to start over from a financial perspective.

    1. fredwilson

      There is a lot of startup capital out there looking for ideas and people to back

      1. LE

        Like finding a home initially it looks like there is a huge amount of choices. But when you figure in what is important to you all the sudden it comes down to very little that you actually like, accept or want to make an offer on.

      2. simon

        absolutely, although I think it’s still extremely competitive to raise capital. YC is harder to get into than harvard, pretty much all VCs tout their selectivity (ie. we fund one out of a thousand deals we see..) to LPs. I also recall recently reading that the # of startups getting funded is actually going down, with the overall funding $ numbers are skewed by funds like vision.while there is more capital than ever, the bar is also higher. unless you’re in deeptech, you need traction to even get to a conversation, which requires some financial resources (at a minimum living expenses) to get to.. I think some founders that have already burned their savings face the real choice of either a hard pivot, or going back to a day job for at least a few years to replenish.that said, there are plenty of founders that come from means, who can easily have friends+fam write a check to fund their next endeavor. I’m just suggesting not everyone has that luxury, and for whom the hard pivot might be the most realistic option (to reuse the phrase) at staying in the game. just my 2c!

    2. David Semeria

      Not a minor point Simon, a major point. I would also say this desire to stay in the game increases with age.

      1. Jeffrey Warshauer

        And the number of heartbeats under your roof.

  17. Jim Chappell

    Fred, I’ve been an engaged reader of your posts for awhile and found this to be incredibly insightful for entrepreneurs, I’ll be sharing it with all the team’s I’m working with. As a former executive with multiple start-ups, some successful, some not, the notion that understanding the cap table and characteristics of it, from both sides, is critical for entrepreneur’s. Thanks for sharing from the investor perspective!!

  18. Popa Bogdan

    Does this apply also to a huge pivot like kik did?

  19. Neil Jain

    Great post as usual, Nailed it here “And there is nothing I dislike more than carrying on with something when I’ve lost interest, and worse, the founders have lost interest.” Also find sometimes founders prolong the inevitable which wastes time and money of all involved.

  20. Guido Giordano

    Hi Fred, thanks for the valuable insight. I was wondering, what should a founder do if he doesn’t pivot but his business turns out to be a lifestyle business and he’s fine with it? Should he give the money back to the investors? What do you guys do in this case? Do you write off the investment? Do you stay on the cap table?

  21. Danielle Morrill

    Wow, so spot on and speaks to my own experience. After shutting down Referly, we took the last $250K of the $1M we raised to start Mattermark. Looking back, I think as a first time founder failing for the first time I had the idea in my head that I might never even raise $250K again. $17M in additional funding later I know that was totally wrong, but we ended up with a much more complicated cap table and were very lucky we found someone willing to take on that mess (the wonderful Brad Feld). So I think that is another misplaced founder mindset that might be in the mix sometimes.I’d love to hear a post or your thoughts in the comments on when to pursue M&A in the “failed” process, versus just shutting down and returning the money. Should good teams with interesting tech who didn’t find PMF bother with this if they’re going to pivot and do another startup anyway?

  22. Phil Hayes-St Clair

    Nailed it. Great post Fred.

  23. Sid

    Fred: Brute reality of early stage investing is that firms like yours come in to support the entrepreneurs at second, third, or sometimes even fourth stage of fundraising.For many entrepreneurs, especially the first timers, their first money is from close friends, successful ex-bosses, influential executives from their prior employment. And they are all the network this entrepreneur have. Fred Wilson’s of the world may not even give a meeting to this entrepreneur.So the misguided loyalty argument doesn’t quite hold.

  24. JLM

    .When the dentists get in, get out.When the institutions get out, get in.An old school large comm’l real estate investment commandment.JLMwww.themusingsofthebigredca…

  25. Val Tsanev

    Great post. In my experience many entrepreneurs use pivots as a justification to keep on going when deep inside they know they have failed. No one wants to admit she/he failed so best justification is to say “we pivoted”. I think both pivots and failures are celebrated too much in silicon valley. Ultimately, especially early on no one knows if a startup will succeed, no investors, no founders, no one. Ultimately it is luck and perseverance and the founders listening to their inner voice know best, that inner voice of the founder(s) is the one that knows best, everyone else derives and comes to conclusions from established data points for which the information is always incomplete and therefore it is an imperfect decision.

  26. Donna Brewington White

    This reminds me of some of the downsides of turnaround businesses. Much harder to recruit for than startups, in part because of the inherent baggage and the stigma of failure. Really exciting to see when it works and I enjoy the personalities of the breed of operators that can do this.

  27. Steven Kane


  28. Prokofy

    Very good post.