Dalton, a partner at Y Combinator, discusses the concept of pivoting in startups. He explains that a pivot simply means changing your idea and that it should feel lightweight, especially in the early stages of a company. The main reason to pivot is opportunity cost, as working on something that's not working takes away from other potential opportunities. Good reasons to pivot include not enjoying the work, lack of growth, and relying on external factors outside of your control. On the other hand, bad reasons to pivot include trying to avoid hard work or being influenced by trends. People often take too long to pivot due to loss aversion, having a little bit of traction, fear of admitting defeat, blaming others, or being influenced by inspirational messages. Dalton emphasizes the importance of taking accountability for your own actions and decisions in the startup world. He also mentions the concept of product-market fit and the advantage of having multiple shots at achieving it through pivoting. Taking several high-quality shots increases the odds of finding something that works.

- Taking multiple high-quality shots at finding product-market fit increases the chances of success.
- When looking for a better idea, choose something that excites and inspires you, rather than something boring or uninteresting.
- Assess your strengths and weaknesses and play to your strengths when finding an idea.
- Find an idea that can be quickly built and validated, rather than something that requires extensive research and development.
- Consider whether your idea is venture capital fundable if you want to raise venture capital.
- Pivot when you feel hopeless, when the idea is impossible to start, or when you know in your heart it won't work.
- Whiplash from pivoting too much can be more harmful than working on a bad idea.
- Avoid scaling up a team while still unsure of the idea.
- Evaluate the quality of an idea based on its size, founder market fit, ease of getting started, and early market feedback from customers.
- Brex is an example of a successful pivot, going from a VR hardware headset idea to a billion-dollar company.

- The speaker provides examples of startups and their pivots, evaluating their potential success based on various factors.
- The first startup, focused on VR headsets, had a low score due to lack of knowledge and difficulty in getting started.
- The second startup, focused on credit cards for startups, had a high score due to founder market fit and positive early market feedback.
- The third startup, focused on internal tools, had a high score due to a large market and founder market fit, but had average early market feedback.
- The fourth startup, focused on a blood pressure coach app, had low scores in most categories and ultimately pivoted to a successful idea.
- The fifth startup, focused on a classroom feedback tool, had moderate success but ultimately pivoted to become a top data infrastructure company.
- The speaker emphasizes the importance of pivoting and following best practices in order to increase the chances of startup success.

- Pivoting in startups means changing your idea and should be done early on in the company's development.
- Good reasons to pivot include not enjoying the work, lack of growth, and relying on external factors.
- Bad reasons to pivot include trying to avoid hard work or being influenced by trends.
- Many people delay pivoting due to fear of failure or loss aversion.
- Taking multiple high-quality shots at finding product-market fit increases the chances of success.
- When looking for a new idea, choose something that excites and inspires you.
- Assess your strengths and weaknesses and play to your strengths when finding an idea.
- Find an idea that can be quickly built and validated.
- Consider whether your idea is venture capital fundable if you want to raise venture capital.
- Pivot when you feel hopeless, when the idea is impossible to start, or when you know it won't work.
- Whiplash from pivoting too much can be more harmful than working on a bad idea.
- Avoid scaling up a team while still unsure of the idea.
- Evaluate the quality of an idea based on its size, founder market fit, ease of getting started, and early market feedback from customers.
- Examples of successful pivots include Brex, which went from a VR hardware headset idea to a billion-dollar company.
- Following best practices and being willing to pivot increases the chances of startup success.

YC Partner and Head of Admissions Dalton Caldwell talks about pivoting for startups and shares his advice on when and how founders should consider it for their companies.

Transcript and lecture slides here: https://www.ycombinator.com/library/6p-all-about-pivoting

This lecture is part of YC's Startup School, a free online program and global community of founders. Register and join the community at https://www.startupschool.org/

Timestamps
0:00 Introduction
0:29 What is a "pivot"?
1:54 Why pivot?
3:09 Good and bad reasons to pivot
4:51 People wait too long to pivot
8:57 Product/market fit
10:09 Finding a better idea
14:27 The best time to pivot
16:41 Scoring ideas
18:41 Real-world examples
26:50 Conclusion

In addition, I'm the head of admissions, which is our selection process for the companies that get into YC.

Why you should pivot, when you should pivot, and evaluating ideas to pivot to.

So we're gonna try to cover all the bases here, all right?

This is 1 of those terms that if I'm in a cafe and I hear someone talking about pivoting, I roll my eyes because it's 1 of those words that I associate with annoying startup people.

And so let's just explain what we mean here.

And technically, if we want to be really technical, I would call a true pivot where it's like a real company and you have lots of users and you've raised money and you're like, we're gonna shut this thing down and do something different.

They raised money and had like 100 employees for this video game called Glitch.

And then they went and just shut it down and did something crazy.

Probably what Most of the folks here are doing, I interchangeably call it pivoting, but you should just call it changing your idea.

When you're at the earliest stages of your company, especially pre-launch or very near after launch, changing your ideas constantly is kind of the norm, and I wouldn't think that this is some huge thing.

It should feel lightweight and frankly if you're not in a state where you're rapidly changing ideas or assumptions over and over and over again in quick succession you are likely doing it wrong.

You are likely moving too slow And so this is just like part of it, change your idea constantly, trying to find exactly the right version of your idea is something you should be doing in the beginning.

So the main reason I would argue is opportunity cost.

And the definition of opportunity cost is that the loss of potential gain from other alternatives where 1 alternative is chosen.

So in other words you can only really work on 1 thing at a time.

Sometimes people try to violate that rule but that's a whole different topic.

And so By working on something that's not working and you have evidence that it's not working, you are taking opportunity cost to not be doing something else.

I tried to write some pseudocode here for you about a, you know, it's a kind of a joke, but like how well things are working divided by the number of months of concerted full-time effort, if that number is less than excitement to work on something else plus confidence you can find something better, you should pivot.

And so the key thing to, if you look at this equation, like what am I really trying to say, it's that if you've worked on something for months and months and months and months and it's not happening, that's a pretty good signal.

Like that's what drives this equation that I put here the most is the number of months you worked on something and it's not working.

And so if you're throwing good money after bad, good time after bad and it's not happening for you, that is a pretty darn good signal.

But if it's really, really, really early and you've only been working on something a couple of weeks, it's less obvious.

Let's give you some good reasons to pivot.

I keep doing the thing and nothing is happening.

I'm not a good fit to be working on this idea.

Like the more you learn about this, the more you realize that you are just not the right person for the idea.

Another 1 is I'm relying on an external factor outside of my control to make my startup take off.

So a couple of examples of that are like relying on mainstream virtual reality headset adoption.

You know, like any day now, the new Facebook thing's gonna take off and that's when my VR app's gonna take off.

Or like relying on like mainstream crypto adoption, things like that.

Those are like totally out of your control and if you're just sitting here hoping someone else does something good and then your startup will work, man you should definitely pivot.

Another 1 is just where you're out of ideas on how to make the thing work.

You've thrown everything against the wall to make your current idea work, and you're actually kind of out of ideas.

You're trying to run away from doing hard work.

Sometimes you see people where they build a product, and right when it gets to sales time they pivot and they do that over and over again.

That's probably not a good reason to pivot.

It's just someone trying to dodge the sales part.

Also another reason not to pivot is if you're the type of person that changes their idea over and over and over and over again, like chronically, and you're detecting yourself doing that, it's good to actually follow something through all the way.

So you just wanna watch out for that happening.

Also, a good reason not to pivot is that, like, you just hear there's some hot new thing and you wanna pivot because you read a TechCrunch article because someone raised money for a hot new thing.

Let me give you some reasons on why people take too long to pivot.

And the reason I mentioned this is I would argue on average, most people take too long to pivot, right?

I think that's usually like if I had to put people in buckets, more people take too long than, than the reverse.

Loss aversion, when you feel like you've invested in something, you have a really hard time letting go to it.

Like you have a few users or like 1 customer, and you're like, maybe it'll work.

Another thing is like people are very polite in the world, and they have a hard time telling you the truth that they don't like the thing that you're working on.

And so a lot of founders get confused about politeness and getting that confused with traction.

And so you're never gonna really, I mean maybe I shouldn't say never, most likely you're not gonna have people being like your idea is horrible give up now I will never be a customer.

They're not going to tell you that to your face.

They're going to be like, oh, this is great.

Maybe if you add a few more features and come back, we'll take a look at it.

Because you can end up doing that iteratively over and over and over again for years and never actually get customers.

So watch out for politeness and getting the politeness confused with traction.

Another 1 is a fear of admitting weakness or defeat.

If you pivot, you're giving up in some way.

Another 1 is putting blame on why things aren't working on customers or investors.

So this is where you're like, I'm not wrong.

Things like that are not a not a great sign.

And usually people realize that maybe it is kind of on them versus on the external world, but it takes a long time to get there.

And then finally, there's a lot of inspirational stuff out there that's just like, if you just believe hard enough and keep going, you'll eventually be recognized and everything will be great.

And so there's a lot of those inspirational messages out there, and that can kind of be counterproductive.

I don't know if this is super legible, but basically, this is where I talk about the little bit of traction thing.

I call it the uncanny valley of product market fit.

I noticed as a YC partner, someone that gets into YC with an idea that's just a total fail, like immediately, is actually the huge advantage than someone that has like a little bit of traction.

Like a total fail, the founders can declare bankruptcy on the idea immediately and just work on other stuff with no regrets and no like second guessing.

Oh, should I pivot you know like wow that was really bad and having that freedom to immediately throw off the old idea and work on a new 1 is actually a weird advantage.

Isn't that counterintuitive and so you just want to really watch out for a little bit of traction because I've seen that be a trap that have captured a lot of really talented people for long periods of time.

And then let's just talk about the anecdotes.

So anecdotes about, you know, stories of people that just kept doing what they were doing and it didn't work and then 5 years later you know it was great.

I think those are cool and they're inspirational and I like them and they're all true, you know, they're anecdotes but it's kinda like anecdotes about people that you know played the lottery every day for like 5 years and then they won the lottery and now they're like really happy and you know that's super cool but that is not actionable for you right there's nothing you can do with this anecdote about someone that like just kept believing strong enough like I would much rather give people advice to play the statistics of this and to take accountability for like their own actions in the world than just like hope and dream that you might be 1 of the anecdotes too.

And so if you decide to pivot or don't decide to pivot just remember you decide It's your life and if it works out good or bad, that's on you.

And so often I get founders that want to push this decision on me as a YC partner or other authority figures about, is this idea working or not?

And ultimately all we can do is give you guidance, but this is exactly in the class of problems that is on the founder and never something you should look to an authority figure to tell you how to decide.

Product market fit, I'm sure, You know, we're talking about this a lot.

It's been discussed a lot in startup school, and it's because it is so important.

Probably most people watching this don't have it, even if they think they do.

And you know you have it when growth is not your biggest problem.

And 1 good reason to pivot is you just get more shots on goal to try to get this elusive thing.

Like if you made something and you launched it, and it's like, meh, not really working, a dang good reason to pivot is you get another roll of the dice.

And so I've just seen people that use these opportunities really well.

It's much easier to be lucky when you get like half a dozen shots on goal than 1.

And so just if we're just playing the statistics of how do I get product market fit, taking several high quality shots, and as I say high quality, you can't just constantly pivot through stuff and never launch it, but if you do a full awesome product iteration of making something, completing it, shipping it, giving it to people, following all the device you're looking here, and you can give yourself multiple of those shots, I would argue you are creating luck for yourself and the odds that you actually hit something that works are much higher than someone that only ever takes 1 shot.

Okay let's talk about how to find a better idea.

Here's the advice that I give people during the batch when they are looking for an idea to pivot to.

Find something that you're more excited about, and it makes you more optimistic about the world and just generally more excited to wake up in the morning and work on the thing and not less excited.

And there's a corollary here, and this, I think, is counterintuitive.

Often choosing what is perceived as a harder idea is more, is good.

And so I see a lot of people where they're like working on some like ad network, ad tech thing to like affiliate something, ad targeting, I don't know.

Those like never work and it's because they're not inspirational and no 1 cares.

And so when you see people go from that into something that's really, really exciting, right?

Like, oh I want to help small business owners do X Or I had a company in this last batch and they did, they started with this ad tech thing that they were all very bored with and they pivoted to Robin Hood for India.

And the moment they pivoted to that, the founders, they were like, They lit up and every conversation I had with them, they were like so excited about their idea and it was contagious talking to them.

And it was almost like a different, like the amount of change, it was the same founders, but what changed is they found an idea that was real, that they were excited about and not just some like boring ad tech crap.

So if you're doing something that seems like a good startup idea, because you're writing TechCrunch, people raise money for it, but it's not inspiring to you, and you're like, man, this is pretty lame.

You probably wanna find something that's more exciting to you.

Another thing to do on a finding a better idea is make an honest assessment of what you're good and bad at.

This is hard, but you want to be really self-aware of what you're good and bad at and play to those strengths.

And another thing here for finding a good idea is, especially if it's a pivot, find something that you can very quickly build and validate and not something that takes like a year or 2 of R&D.

Often like if you pivot from 1 thing that's impossible to ship into another thing that's impossible to ship, not good.

Ideally you find something that's way easier to ship like really fast.

Quick note here, caveat, it's totally okay to work an idea where you're not gonna raise venture capital, all good.

Most businesses in the world don't require venture capital.

And so all of your, if what you're doing is consuming lots of content on how to start a company like this, and it's all kind of like venture capital focused stuff, and you're not gonna do something that raises venture capital, you can kind of get blown off course, idea-wise.

And so, just be self-aware about this and realize that if you do want to raise venture capital, the idea does matter a lot.

And there's a constant recurring theme I see is people that are trying to raise money for something that is definitely not venture capital fundable, and they get really frustrated.

It just it doesn't make sense for all businesses.

And so just be self-aware of this when you're choosing an idea of like is this something that at least hypothetically is VC fundable.

Just to give you some rule of thumb, well what does that mean?

I don't think there's a guidebook for what venture scale means but here's some rules of thumb.

Can I imagine this business generating hundreds of millions or billions in net revenue per year?

Can I imagine the revenue growth to get to those numbers to happen in less than 10 years or 5 years?

Can I imagine this thing that I'm doing is a publicly traded company someday?

Kevin's first lecture talks about this, but these are all things like if you just can't see any of these that's not a great sign.

And other key properties is usually technology is a key component.

And usually the founders build the technology, at least in the early days, for something to be VC fundable.

You want to see really high margins, not for everything, but again, just a rule of thumb.

Software margins, you know, 80% gross margins, 70% gross margins, really high margins is something you would want to see.

And then just, it's funny, like, I think a lot of people learn about fundraising from Shark Tank, and I don't think a lot of that stuff is venture fundable, just in case you were wondering.

It's fundable for people that want to put product stuff together, but I don't know if, you know, I think you'd have a hard time raising money from venture capitalists for the majority of that stuff.

But hey, like I said earlier, it's your call, it's your dream, so figure it out.

As soon as these things happen, you've launched and trying to get users for weeks or months and you feel hopeless.

You should probably pivot when the idea is impossible to get started with.

Like, cool, once we raise $100 million, then we will build a prototype.

You should definitely pivot if you're 1 of those people, because unless you have $100 million, you are in a chicken and egg unsolvable issue.

You know in your heart it's not going to work.

A lot of founders know secretly that their thing isn't working, but they want to keep up this front to everyone in the world that it is working and they think they can fool people into funding them or working with them.

If you can't convince yourself and you know this isn't really working, man is that a good time to pivot, right?

Like you know more than anyone else about your business, You got to listen to yourself and it's sometimes not stuff you want to hear from yourself.

Okay let's talk about other epiphany stuff.

If you pivot over and over and over again it causes whiplash.

Whiplash is very bad because it causes founders to give up and not want to work on this anymore and that actually kills the company.

Weirdly it's more deadly to your company to get whiplash and get sad than to work on a bad idea.

Because if you're having fun working on a bad idea you won't give up and then conceivably you can maybe make it work.

If you get really sad and hate your life while you're working on your startup, you will definitely not succeed and it's because you will give up.

And so this is weird, like it's kind of better to work on an idea that's not the best 1 if you're really having fun.

And then you just want to be in a happy medium.

Some founders pivot way too much and they'll probably watch this lecture and then like pivot once a day for 6 weeks.

And some people just work on the same idea for 5 years and it's not working and they just are really obstinate about it.

Just find the happy medium like everything else in life.

Another thing is, it's really hard to have employees and be pivoting, so don't do it.

It just makes it slower and it makes them really sad.

And so trying to scale up like a team and taking all the advice here about how to scale a team while you don't even know what your idea is or you think you're going to change your idea, Definitely not best practices.

I would only add people to the team after you know your idea is working and you have confidence.

Okay, let's go to a different thing here.

I made this up for this lecture, and I came up with a subjective notion of a quality score just to give you a few criteria to evaluate an idea.

And so what I did is there's 4 key things that I think you could use to evaluate the quality of an idea.

And you could give them a 1 to 10, and you average those together to give an overall quality score.

And again, this is the stuff I talked about earlier.

Is this an obvious publicly traded company?

There's lots of publicly traded car companies that seems pretty big a new bank there's lots of banks that are publicly traded that seems pretty big the opposite of the spectrum is like I don't know a French subway I'm going to buy a subway franchise.

I'm more like, oh, I'm going to import some stuff and sell it on eBay.

Probably a little less obvious how it's big.

The cycle and founder market fit is really, really key.

So again, a 10 out of 10 would be, Hey, I was on the self driving car team when I was an undergrad and then I worked on self driving cars my whole career.

And so now I'm gonna do a self driving car startup.

A 0 out of 10 is like, I'm going to do some kind of advanced AI startup and I don't know how to program.

How easy is it to get started on the idea is actually, I think, under sold.

I don't know people realize this is actually really key is ideas that are easy to start are highly recommended and there's so many really good ideas out there that never work because the founders can't figure out how to get started.

And then someone in the future does the same idea and has a much better way to get started and then they win.

And then people get bitter because they're like, I had that idea.

So I would argue getting, finding an idea that's easy to get started with is just as important as the idea itself.

And finally, early market feedback from customers.

This just means, do people just want it immediately and a sales straightforward or is it just impossible?

So let me give you some examples of companies that I worked with and advised at YC that you may or may not have heard of.

They were in YC winter 17, and I funded them to do a different idea and talked to them a lot during their pivot.

And they pivoted during the batch, and they got product market fit pretty quickly.

And they have now raised hundreds of millions and are worth billions in 2 years.

So it's like 1 of those rare outlier stories.

I'm not saying this is common, but holy cow, I got a front row seat to watching kind of the most epic pivot of all time, I think.

Maybe there's other ones, but I was like, wow, that really worked.

So let's talk about the before and after.

They had this idea for a new VR hardware headset that you would use to do work or something.

And so if you, here's the scores I just put in, you know, and I put these in now, these weren't, I didn't do these at the time but how big does the same yeah it seems like medium big like VR headsets I don't there's no publicly traded ones but that seems like the future right founder market fit I gave a 1 out of 10 these guys knew nothing about hardware or optics or any of the things associated.

They were just fintech software folks so they had literally no idea what they were doing and they were very up front about that.

That's only a 2 and the reason is they had to hire hardware people to build a prototype, Not a good sign.

They needed millions of dollars to build a prototype not a good sign And it would take like years and years and years of manufacturing, so this is pretty bad And then finally early market feedback they went and talked to people and they're like do you want to use this and no 1 wanted?

To use it so this was bad Okay, so overall score 2 and a half out of 10.

Okay, post pivot credit card for startups That seemed pretty big.

There's tons of publicly traded comps of like fintech companies.

Again, even in startup land, there's Square, there's Stripe.

I mean, there's lots of examples of that.

The reason is they had started a fintech company earlier in Brazil And it was successful and they sold it for like 20 or 30000000 dollars So they knew exactly what they were doing and they could write all the code themselves and they could ship it themselves and they had all these existing relationships.

I'm only giving this a 3 out of 10 because they actually it's hard to launch a new credit card product.

This is 1 where if you don't have founder market fit I would not necessarily try this at home.

There was something about the founder market fit that made it easy.

And then finally, the early market feedback, I'm giving 8 out of 10.

And it's because in the batch, they were like, hey, do you have a credit card?

It's like a three-sentence sales process and people say yes, that is good.

They're a winner, 17, and they're a really good SaaS company.

And honestly, everyone should check it out and maybe use it.

I'm encouraging all the YC startups to use this to build internal management pages.

It's actually like a really great product.

They didn't really know anything about fintech.

I'm giving that a 7 out of 10 it's because they already launched they'd already had a bunch of users then so that was pretty impressive and you know the early market feedback though was only 3 out of 10 and the reason is no 1 wanted to pay and they were losing money on every transaction so there's all these reasons this wasn't really working and so they decided to pivot even though this is an example of the insidious sort of traction right they had enough traction that it was like hard to decide to give up on this because they had users and it was like kind of working so that was a tricky 1 anyway ritual post pivot is the no code internal tools bill builder.

I think it seems like a 10 out of 10, because 80 percent of all software built is for internal consumption, not external consumption like a big companies.

And so that seems like a big market to me.

See all Y Combinator transcripts on Youtube

Dalton Caldwell - All About Pivoting