How to (successfully) pivot your startup, from a company that did it twice

In recent years, the word “pivot” became one of the buzziest in Silicon Valley. It seemed as if every other startup had switched gears and morphed into a new company. And it sounded as if a pivot was no big deal.

The truth is that pivots are hard. It’s hard to recognize you need a radical course correction. And it’s hard to pull one off once you’ve decided to go for it. We asked a CEO who had two successful pivots to share tips with us.

Pulling off a pivot is hard. “It’s essentially an irrational act.”

It was 2009 and the executives running a startup named Gigya recognized their survival required them to pull off a pivot. The then three-year-old company was selling widgets that customers used to spiff up their MySpace and Friendster pages, and it had no problem hitting its revenue targets.

But the digital world was changing fast. The first generation of big-name social networks was being replaced by a fast-growing upstart. “Facebook was taking over,” said Patrick Salyer, who at the time was Gigya’s vice president of business development and later became its CEO. “Our company wasn’t built for the megatrends that were shifting under our feet.”

And so like many other startups, Gigya needed to come up with a pivot strategy or forget its dreams of big success.

Throw out the old and embrace the new

A pivot, of course, is when a startup breaks with its core focus and changes direction in a fundamental way. Sometimes it happens early on in a company’s life; other times, after one or more rounds of funding. It might mean scrapping a key product or pursuing an entirely new market, if not both. In Gigya’s case, the founders dropped the very idea that first gave life to the company.

We still called ourselves Gigya but that’s about all that stayed the same,” said Salyer, now a partner at Mayfield, a top-tier Silicon Valley venture firm. The widgets, which the company monetized through advertising, were out. Instead, Gigya would try selling what it called “social infrastructure” to large enterprises seeking to capitalize on the rise of social networking.

In Silicon Valley, a pivot seems almost a rite of passage for the successful entrepreneur. Slack, the ubiquitous business messaging tool, began its life as a game developer; Instagram, as a location-based check-in service; and PayPal, as a way to “beam” payments wirelessly between personal digital assistants (remember the Palm Pilot?).

Yet for every Paypal or Slack, there are countless companies you’ve never heard of because they failed to recognize that survival depended on a pivot. Others may have understood the need for an abrupt change in strategy, but failed to execute it successfully.

Pulling off a pivot is hard. “It’s essentially an irrational act,” said Ryan Sarver, an early employee of Twitter and now a VC at Redpoint Ventures. “You’re all fighting to climb one hill but during the battle, suddenly leadership is telling you that you’ve been fighting on the wrong hill.” The shift can be emotionally draining for employees and zap an entire company of its energy. “The odds of success are low,” Sarver said.

On its way to a reported $350 million acquisition in 2017, 12 years after its founding, Gigya pulled off not one but two major pivots. Its story offers lessons for entrepreneurs on when to embark on a pivot and on how to shift strategy, focus and resources successfully.

Act decisively

If the first challenge of any pivot is recognizing the need for radical change, the second might be even more difficult: being brave enough to act decisively. “Early-stage teams get fixated on the new product that everyone has come together to build to the point they ignore warning signs in the market and miss the potential to build a different product of more value,” said Anarghya Vardhana, a partner at Maveron, a consumer-only venture fund.

Gigya suffered no such blind spot. Salyer vividly remembers a 2009 executive meeting where everyone realized the company was doomed if they didn’t adapt to the changing environment.

“To the founding team’s credit, they immediately shifted resources into building something new,” Salyer said. If they couldn’t build a thriving business around widgets, they would try something else.

The founders’ determination to build a big, long-lasting company helped. “When you see evidence that that won’t be the case, it’s a lot easier to let go,” said Salyer.

Speed was essential. Gigya continued to sell its widgets to help the 40-person company survive a difficult transition period. But every dime of R&D was immediately devoted to finding a new product. A few months later, Gigya was ready to start pushing a beta of a new “social infrastructure” product aimed at businesses. It allowed employees to log into a corporate social network using Facebook, giving them access to a social feed and the ability to share content with colleagues.

You’ll need new skills, and a new plan

“In some ways, it was like working at a brand new startup,” Salyer said. And a brand new startup often requires a very different workforce.

Gigya’s executives determined that the R&D staff would be able to shift gears and build the new product. Sales was a different story. Gigya’s salespeople were experts at pitching ads for a consumer product. Selling to businesses required greater technical sophistication along with the patience inherent in sales that typically took months. Gigya decided it needed to build a new sales team, which meant laying off some of its existing salespeople who couldn’t make the transition.

Gigya’s pivot also forced the company to alter carefully-considered financing plans. Gigya had raised an $11 million Series C round of venture dollars less than a year before this first pivot. Rather than try to raise a new round, which would have been difficult mid-pivot, the company persuaded its existing VCs to extend the round with an additional $6 million at the same valuation. That was in early 2011, by which time businesses had begun buying Gigya’s new product. The new revenue was enough to convince existing investors the company was on the right track, but may not have been sufficient to lure new investors.

“A lot of companies pivot when they’re seed companies,” Salyer said. “We were pivoting three rounds in at a much higher valuation, which I think made things even more challenging.”

Gigya’s first pivot:

• Recognized industry changes
• Moved fast to build an entirely new product
• Rebuilt salesforce
• Let go of corporate plans

Success today doesn’t ensure success tomorrow

Salyer took over as CEO on his 30th birthday, at around the time the company was closing on the extended C round. The first pivot proved successful. After some further internal changes, a growing number of customers embraced Gigya’s social infrastructure product, which was sold through a SaaS model.

And yet, by early 2014, Salyer found himself contemplating a second pivot. This time, the shift would be precipitated not by outside forces but by limitations in the company’s own product, which was bringing in some $25 million in revenue.

“I couldn’t see how I could grow that to $50 million,” Salyer said. Customer retention was a growing problem, leading Salyer to realize that Gigya’s service was a “nice-to-have” but not a “must-have” product, Salyer says. “With the high churn rate, the math just didn’t work out,” he added.

Even as you pivot, your existing products can help

Gigya’s answer this time was not to scrap its existing product altogether but to build on it. Using its social login service as a starting point, the company developed what it came to call a customer identity management platform — a service that allows companies to manage registration and logins to a wide variety of internal applications and tools. In doing so, Gigya helped to create a new market with its own acronym: CIAM, or customer identity and access management.

The product change required Salyer to shift the company’s go-to-market strategy to focus solely on large customers. As the social infrastructure product began to die from neglect, the company was faced with a familiar problem: it had the wrong sales team for the new job. Gigya shut down a 40-person office in Phoenix focused on reaching small- and medium-sized businesses and initiated additional cuts in other parts of the organization.

“The customer ID product quickly eclipsed the social product,” Salyer said. The successful pivot, and list of marquee customers that included the likes of Nestle and GlaxoSmithKline, drew the attention of enterprise software giant SAP, which partnered with Gigya in 2017. Later that year, SAP acquired Gigya outright for a reported $350 million.

Gigya’s second pivot:

• Recognized limitations of its product
• Build new one based atop existing offering
• Rebuilt salesforce

Move fast and rebuild things

A pivot is always painful and difficult, but it can save your company. You must be attuned to internal issues and market forces to recognize when a radical shift becomes imperative. And you must act decisively. “You have to be bold when you do these things,” said Salyer, who at the start of 2019 left SAP to become a VC. “You have to do what’s right for the business.”

Syndicated with permission from Silicon Valley Bank. Feature image courtesy Unsplash.