Module Description:
Ubiquity-backed LEVL founder/CEO Daniel Zahavi explains what pivoting is and shares some key triggers entrepreneurs can use to decide if it's time to pivot.
Full Transcript:
- Welcome, everyone, to our Ubiquity University session on the four signals that it's time to pivot. Today, we're lucky to have Daniel Zahavi, CEO and co-founder of Levl. Levl was actually Ubiquity's very first investment back in 2017, and over the next five years, he had a very interesting startup journey, including a major pivot that he's gonna talk us through today. Over those five years, it's eventually led to a successful exit to Comcast and Charter. And Daniel's just spent a lot of time reflecting on this, and I think we're all excited today to hear more about what's behind pivots, the mentality, the frameworks, and sort of signals that it's time to pivot. So, Daniel, thank you again for being part of the Ubiquity portfolio. Thank you for a great exit, and I'd love to have you dive in right now.
Thank you, thank you, Sunil, for having me on Ubiquity University. This is a great honor. And yes, indeed, it was a great, great ride, and we learned a lot, and I'm here to share some of those insights and hopefully this will be also useful for some other entrepreneurs that may be going through kind of the same, I would say, challenges and phases into their startup journey. I want to dive into what I think is an essential aspect of startup resilience, which is pivoting, as you mentioned. Pivoting is, I think, one of the most critical skills that an entrepreneur can hold, and there are many types of pivots. Some of them are bigger. Some of them are more major. And some of them may seem more minor. A pivot from a definition is a fundamental change in your business strategy, and many times, it's a result of a deeper understanding of your market or the realization that some of the core assumptions of your business plan are not valued anymore. So myself as an entrepreneur and any other entrepreneur, when we start a business, when we start a company, there are some assumptions that we take. Many of these assumptions are not assumptions that we can prove or disprove, but those are just how we believe the future is going to look like. And based on those assumptions, we go and start a company that we believe that will serve a need in that future that we envision. And those assumptions are very important to the success of your company. And through the time, you may find out that some of the assumptions are not valid anymore, and those assumptions will need your reaction to make sure that you readjust and make the changes needed before it's too late. Now, pivots seem scary, and statistics show that most of the pivots indeed fail, so there is a reason that they are scary. And many times, they're considered to be a signal of failure. And for us entrepreneurs who are obviously emotionally attached to our companies, many times it's hard for us to admit that we got some of those early assumptions wrong, and we have to change, that we were wrong. It's really hard for us to say so. Especially, I would say, in an industry that the mindset is, "Never give up, go, go, go. Continue all the time until you make it," it's many times hard for us to say, "Hey, I made a wrong assumption. I need to change something to make sure that I maximize the chance of success for my company." Now, the root of the success is understanding that you made, that some of the assumptions are no longer valid as soon as possible and take action as soon as possible before it's too late. If you think pivots are failure, well, our goal today is to kind of, in this presentation is to change that perception and to give you some knowledge to identify when a pivot might be needed, might not just be beneficial, but might be necessary for the survival and the growth of your startup. I will also share some of my personal experience of pivoting a company and what were the signs that made us realize that it was time for change and how that process looked like. I would say probably the most critical trigger for a pivot is the realization that some of the key assumption in your business plan have become invalid. Maybe you overestimated the market demand for a product or misunderstood the rate that the technology would be adopted. Maybe the revenue model isn't working as planned, or maybe the operational costs are just becoming too, too high, much more than you initially estimated. Recognizing these signals as early as possible are really, really crucial for pivoting. For example, I wanna give an example here, Groupon. They initially actually started as a platform called The Point. And their goal was, it was aimed at gathering people online to take collective action, for example. And they pivoted to Groupon, focusing on actually group buying and daily deals after they realized that the original concept wasn't gaining traction that they anticipated. So one of the key... They overestimated the market demand in some of their assumptions. For us, Levl started, our goal at Levl was to basically reinvent how devices are identified on wireless networks. And some of the early traction that we got at the company was from the automotive market. And for us, it was great sign of product market fit because we got the same feedback from every customer. Every customer was saying they had the same issue, and our product was great for solving that issue. So for us, we have found a fit between our product and what the market wanted. But one of the key assumptions that we had for Levl as a business was that the technology would be adopted at a certain rate, that the number of new vehicles equipped with the technology coming out would raise at a certain rate, that it was critical for our business plan, and it was critical for our cashflow, for example. And when that rate was shown to be a slower than what initially anticipated because of the market dynamics and because also from COVID that we had to go through, then we kind of understood that it was time for a change for us, and we basically overestimated the rate of the adoption of the product. And now we had to think what kind of changes we have to make to basically deal with that initial assumption being invalid. And after time, we basically understood that the market itself, the industry that we initially targeted, which was automotive industry, the dynamics in that industry were much, much slower than what we anticipated. And for a startup, many software dynamics can be fatal. And for us, it was a time that maybe our focus shall not be in that industry. Maybe we need to take the technology and the product and the platform that we built and solve similar issues in another industry. So we basically took the exact same technology, the same concept, the same team, and applied it into solving similar issues but in a different industry. And that industry came to be the telecom industry. And then they also had issues identifying devices in wireless networks. But from a sales cycle, from a use-case perspective, from a value proposition, it was very different. It had many similarities, but many things were different. But for us, we knew that we had to make a change because, for example, that understanding that the business plan assumption was invalid. That was, for example, our use case at Levl and how that triggered a pivot for us.
So I'm curious about the mindset at that point when you talk about shifting to a new industry. Did the idea of what you promised in the pitch deck or what you promised to investors come up in your mind? You know, "I promised we were gonna go after automotive. I'm changing my word," you know, did any of that come up as an issue in your mind?
Yes, it definitely did because, as you know, when we go fundraising, we show a certain revenue model, a certain type of pipeline that we're going after. And we give some promises of how we believe the future is going to look like based on the information that we had at that time. And obviously coming back and saying, "Guys, I think we need to change. We made a mistake here, and this market is not as good as we thought. We have to make a change," is obviously, it requires a lot of courage to come and say. But I think working with the group of investors that I was fortunate to work with and understanding that the goal that we all had was to maximize the chance of success for the company, then looking at it from a pure logical perspective, it was easier for me to explain why it was really needed and why we have to make that decision now and not wait another year to do it and convince them that this was for the best of the company, putting my ego and the promises that I gave to my investors aside. It was a hard decision for me to make, but as a CEO, you are the sole responsible for making the business work. That's your only job. And if for doing that, you need to stand up and say, "Guys, I made a mistake, we need to change," then that's what you should do. Moving to another important signal, signal number two, on why a change is needed is listening to your customers. I know there are a Silicon Valley myth after Steve Jobs that, "Hey, we're gonna make it, and everyone's gonna come, and they're gonna use it." But most of the times, that is not the case. Listening to customers is really important, understanding what they like and do not like about a product, and putting, again, our emotional mindsets aside. We are in love with our product. We're in love with our technology. And that can blur our mindset many times. But putting that aside and really asking the hard questions and being open to feedback is really, really important. If you get persistent negative feedback, or you feel that there is a lack of product market fit, or you have a high churn rate, these are all signals that your current path may not lead to sustainable growth for your company. And adopting your strategy in a response to these signals is really, really important. I think a great example here is Slack. Slack was originally an internal communication tool for a gaming company working on a certain game, and the game didn't take off. The feedback from the users for the game was not great. But interestingly, the communication tool inside that game got great feedback, great positive feedback. And the executive team at Slack, they knew that they needed to listen to the negative feedback coming about the game and to the positive feedback coming about the communication tool. And they pivoted completely the company, and they became a communication company, and they are the great success story that we know today. So that was an example of listening to the customer feedback and pivoting in order to take action before it's kind of too late. Moving to signal number three on when a pivot is needed is around financial sustainability of our business or in many cases, the lack of financial sustainability. This is a very, I would say, considerable indicator for the need for a pivot, a sustainable burn rate, if you have challenging in raising funds, if the cost revenue, you have an imbalance in your cost-revenue, or investors are concerned about your source of financial health. These are all signals that maybe you need to rethink your financial plan, and maybe there is a need for a change in your business model. I think two examples here for companies that had to deal with that, one of them is obviously SoundCloud, that initially they were heavily reliant on user-generated content, and because of that, they faced financial sustainability issues. They pivoted into kind of a subscription model. They completely changed their business model, and they focused more on providing a platform for artists. And that kind of stabilized the revenue stream and kind of made a change to the company. For us at Levl, slightly different, but we also, when COVID hit, and the global market stopped, when all the manufacturing lines for businesses in China, including automotive businesses, completely stopped, then we had started to see that our time to revenue and the revenue-generation goals that we had for the company, they started to be much, much, much longer than what we initially had planned if COVID did not hit. And that for us meant that we need to make a change in our business because obviously we projected considerable revenue coming that now it would not come. And we needed to find additional places to kind of source the funding for the company. And for us it was time to say, "Okay, if from those in that market, we are not gonna get revenue, then where are we going to get the revenue?" And that was another signal for us and another reason that we had to push from one industry to another industry, where we believed that the time to revenue was going to be faster and where it would not jeopardize the financial sustainability of the business.
Yeah, your particular customer set prior to the pivot, you know, automotive companies, OEM, tier-one suppliers, in that world, and I would imagine many other customer categories, it could be alluring to say, you know, "The big contract is coming. It's coming really soon," you know? How do you get over that in a pivot? You're trying to read the tea leaves, but there are promising signals that in one year or in one month or in three years, it'll become a gigantic contract, you know? Did you tell yourself that in your mind? And at what point did you get over that and say, "You know what? I have to look at the numbers today, not the sort of future promise"?
I think what we tried to do was to find trends. So yes, on the first contract, that is exactly what you tell yourself, "Yes, this is going to take a lot longer. This is my first one. I'm going to land it, and it's going to be okay." But then in the second one or the third one or the fourth one, you start to see a trend of this is not about you. This is how this market works. These are the times in which decisions are made in this particular type of customers, and these are the certain processes that are going to happen before you are going to make revenue. So before you go to the market, you have an understanding of how the process, well, what is the process for that type of customer type. But only when you really dig into it and start the conversations with them, and you start working with them closely, only then you really understand the dynamics, the processes, and many times the headache that you have to go through to get a customer from paying something to actually generating great revenue. To kind of reemphasize your question, it's an even, I would say, more challenging scenario is a customer that pays you in small portions. So, for example, you believe that you are going to get to $1 million ARR from this customer, but the customer that starts with 100K, another, then another 100K, and you see like the numbers are going up, but they are not going as much as you want it. And when you see the same trend with customer number two and customer number three and customer number four, then you understand that, hey, this is just what the market is, and either we are going to prepare ourself with the revenue coming in one year later, or if we are not going to do that, then we have to go and make a change in our business plan in order to set up customers we go after in order to generate revenue much, much faster. Moving to the last signal, signal number four, on when a pivot is needed in your product and your technology, and this is a famous one, I think we are all, I think from the Ubiquity perspective, we are all deep technical companies. And in a rapidly evolving, I would say, technological landscape, failing to innovate all the time or to keep pace with the technology trends can be fatal for a startup. If you're feeling behind in innovation, or if you are facing R&D challenges, you cannot get the right R&D talent to create the technology that you need, or if your technology is just be becoming obsolete, then obviously it is a clear sign that the pivot might not just be beneficial, but really necessary to remain relevant. I would say the most probably famous example is Blackberry where they failed, in fact, to pivot successfully in response to innovation and technological investments. Sorry. And they failed to do that in a smartphone market, which was then dominated by iOS and Android. And this for them basically served, it was a death penalty. And this is, of course, I think it's one of the most, probably the most famous example that kind of serves, you know, like cautionary tale for all of us building technological companies on why being ahead of the curve is so important. I want to kind of conclude by saying that pivoting, not only it's not a sign of failure, but it's strategic tool for adoption and growth. By continuously evaluating your business against market needs and staying flexible and resilient and willing to make informed strategic shifts and not being afraid of doing that, then your startup can navigate the challenges and the complexities in the business world. I would say I would call it embrace the change as an opportunity to unlock new growth opportunities and success. I think probably the most, probably the most famous and the most absolutely relevant example of why pivot is needed and why very successful companies make pivots all the time, I think it's probably Microsoft that under Satya's leadership, they pivoted from a focus on software licensing to more of cloud computing and technology services, which kind of emphasizes the importance of adopting to market trends and being ahead of the market rather than being reactive to the market. So pivot is not a sign of a failure. It's a critical tool that every entrepreneur needs to have. And we as entrepreneurs, we need to ask ourselves all of the time, "Are all our assumptions still valid? Are we flexible enough, and are we proactive about the changes in the market, or are we reactive?" We wanna be proactive all the time. We wanna stay ahead of the curve. And that is the key to basically a startup resilience in my mind. That kind of concludes the conversation.
Sure. Thank you for sharing all that. I know it's a delicate topic. My strong hunch is that there will be some founders who watch this video, and this triggers a pivot where, that may be something they were thinking about, but not quite ready to pull the trigger on. So I hope it's helpful. I know that you love helping entrepreneurs. Again, this has been our session on four signals that it's time to pivot. At Ubiquity Ventures, we'd love to hear from you, especially if you have a company that relates to bringing software beyond the screen. You can set up a meeting at pitch.ubiquity.vc. My name's Sunil Nagaraj, and I'm at sunil@ubiquity.vc. Would love to hear what you think about this session, and we'll put Daniel's contact information at the bottom. So thank you again, Daniel, and we'll conclude our session.
Thank you.