Founder's Guide

How to Pivot and (When to) Sell Your Startup: Lessons from 2 Exits

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In my 10+ years as an entrepreneur, I’ve sold two companies: Clickpass, a single sign-on mechanism sold in 2008, and Heyzap, a mobile ad network that sold in 2016.

Heyzap pivoted at least 4 times over its 8 years — and these were sizable pivots, too. Our last one was in August 2014, from an advertising network to developer ad-tech tools. We had many top games using Heyzap by March of 2015, when we were approached for acquisition.

Throughout the 8 year life of Heyzap, all sorts of companies met with us for acquisition discussions. In retrospect, it feels like many big companies meet with startups to mine for information, not because they’re interested in an acquisition. 

  • Apple met with us several times, then Game Center improved.
  • Google met with us, also numerous times, and Google Play’s new design had many elements previously in the Heyzap app.

I’ve had more than my share of difficult learning experiences. I’m now working on my fourth startup, Mercury. As I reflect back on my time at Heyzap, I think I learned a lot about pivoting and selling, so I wanted to share some of my learnings around:

  • How long to wait out your current strategy before pivoting
  • Why you should pivot big
  • The advantage of selling your company earlier

Pivot strategies that work for me

Some say pivots are the secret to success, while others claim they’re nonsense. Part of this polarization is because the middle opinion attracts fewer eyeballs. That said, people in Silicon Valley do throw around the term “pivot” to a ridiculous extent. Pivots, like most business strategies, are not panaceas. There’s a time and place for them, and a healthy way to pivot.

Given my experience with multiple pivots, here are four considerations.

1. Pivot big

In my experience, there are two types of pivots:

  • Small pivots, staying within the same space
  • Big pivots to a different market or different industry

While you might suspect staying within a space to be the safer choice, my experience would suggest the best pivots change market/industry.

Same-industry pivots rarely find billion-dollar ideas. When you originally chose an idea for your startup, you hand-picked the largest market and best idea you could think of. If you pivot within the industry, that will no longer be true. You’ve tried your best idea within a space and failed, so finding a new idea in the space is unlikely to be better.

The only counter-example that I can think of, where a company pivots within-industry to a smaller idea, is Twitch. Why are they a special case? They started as a platform for all-things video streaming before pivoting into a more-constrained idea. Of course, they had accidentally discovered the very beginning of what would be a massive industry.

Instead, the best pivots typically come from internal projects that take off. It’s why Slack pivoted out of gaming and Twitter pivoted out of podcasting. They pivoted to a better idea, unconstrained by their previous industry.

On the whole, I recommend big pivots over small ones. In either case, the important factor is that you pivot to a bigger idea.

2. When should you pivot? Have you given it six months?

As an entrepreneur, it makes more sense to pivot earlier in the life of the company rather than later, but you don’t want to jump the gun either. I recommend not pivoting until you:

  • Have given the original idea enough time to test/iterate
  • Don’t see any growth over an extended time
  • Have fully explored the market of your original idea

With Heyzap, every time we pivoted was later than we should have. It’s generally obvious something’s not working, but as an entrepreneur, you keep an optimistic attitude. For myself, I’m fairly metrics driven, so I don’t fool myself on where the company is. The part I struggle with is deciding when to change course. I don’t have a give-up mentality, and the right time to pivot is tough to see from inside, so I have a rough time frame that I hold myself to.

For mobile/web development, I give it 6 months. It gives you time to try 2 or 3 big-ish iterations and capture the data on those iterations. Then, if you’re metrics-driven, “working” vs “not working” tends to be obvious:

  • Is revenue growing?
  • Is churn going down?

Some entrepreneurs give up too early, while others wait too long. For different industries, you’ll need to allow different time frames. The important part is you define a timeframe that lets you figure out whether your product is working, and that you set that time frame before you start working.

3. Instead of a pivot, should you shut it down?

If it’s not working, sometimes the best option is throwing in the towel. It’s important to remember that your greatest asset is time. Don’t invest it in something that’s no longer worth it.

Throwing in the towel doesn’t mean you stop being an entrepreneur. It means you come up with a different idea. You may be better off approaching that new idea from a fresh slate, with a new/relevant co-founder and a new set of investors, rather than a pivot.

One of the beauties of Silicon Valley is that people look fondly on “failure”. If you raise money for a startup, it fails, and you come back to raise money again, no one says, “you tried and failed, so I won’t give you money.” They generally say, “this is a second-time entrepreneur. They’re going to do better this time.”

4. Always be iterating, and don’t confuse it with pivoting

You should always be iterating your product on a level smaller than a pivot. What’s the difference? A pivot is massive, a shift in business model or industry. Heyzap went from social network to game developer adtech. When you switch customers and industries, you’re pivoting. So for mobile/web development, give yourself 6 months from when you originally start/pivot to evaluate how you’re doing.

You can do a lot of iteration within an industry without pivoting. Airbnb is a good example. They tested the market for over a year before eventually going to New York and nailing the market. Their website changed significantly, but they never truly pivoted. They were always aiming at accommodations and simply switched from air mattresses to actual beds. Some may call this a pivot, but I see it as a product iteration. They tested within the same market to find out what works.

Used right, pivoting will help you find your niche so potential acquirers start putting a much higher valuation on you. In my experience, they may even approach you for acquisition. We often think acquisitions primarily require outbound effort, but in my experience, that’s just one of acquisition’s many myths.

How I think about getting acquired

We do a disservice by discussing acquisitions as though they’re a single entity. In my experience, there are at least four types:

  • Talent acquisition: the acquirer is primarily interested in your team.
  • Revenue acquisition: someone is consolidating your revenue into part of their business.
  • Technology acquisition: the acquirer primarily wants your technology, irrespective of any revenue.
  • Other acquisition: some combination of the other three.

The type of acquisition dictates how the process plays out. My first company, Clickpass, was mostly a talent acquisition, so for us it felt like a job interview. My co-founder and I would fly somewhere, do interviews, and talk about our experience. I never wanted a job, however — part of why I became an entrepreneur — and being acqui-hired isn’t an impressive, great experience, so I ultimately didn’t stay with them and started Heyzap instead.

The second company I exited, Heyzap, was a combination of revenue and technology acquisition because we had both elements going for us.

Looking back on these two acquisition experiences, I have a few big takeaways.

1. Consider what’s important to you when contemplating an acquisition

Deciding when to sell is a personal question, so each person’s conclusion will be unique. There are, however, consistent variables to weigh. No matter who you are, I recommend considering:

  • The acquisition price, the most obvious and clear consideration
  • The value of your time, years you could be working on something else
  • Where you are in your career

Often, when talking to first-time entrepreneurs early in their career, I’ll suggest that they take a “decent” acquisition offer. Getting acquired makes things easier in the future. If you just left college, have no savings, and have been living poorly for years, selling your startup for a few million dollars makes a huge difference.

2. When do you take an offer?

When things are growing exponentially and you have product-market fit, it’s hard for an acquirer to price your future value. If you’re growing by 5x or 10x every year, no one’s going to pay you now the value you’ll be worth in 2 years, so it’s worth waiting.

Ben Horowitz also has a great post on when to sell that I generally agree with. Justin Kan also wrote about how to navigate an acquisition.

The clearest situation to sell is when you feel it’s not working. That’s also, however, the hardest time to find a buyer. If growth is stalled, it’s clearly time to sell if someone values you higher than you estimate your value. My new company now—I have no intention of ever selling. I could easily work on it for 10 or 20 years.

3. The earlier you sell, the more life you get back

In hindsight, for Heyzap, at each point we had an offer, we probably should have sold. We were in adtech and not that passionate about the space. It’s also difficult to make a big ad-tech company since Google and Facebook suck the air out of the space. We ultimately realized that, if we keep going, maybe we can sell for 2x as much value, but it would take 2 or 3 years to get there. Or, we could sell now and pocket that 1x. Part of the calculation involved getting more of our life back. You want to spend your time where you can have the greatest contribution.

4. There’s a large benefit to being a second-time successful entrepreneur

There’s a set of problems that require lots of capital—and not just money, but social capital too. They’re a hard set of problems for first-time entrepreneurs. After your first acquisition, investors will trust you more to tackle bigger problems.

My new company is building a bank. It would have been impossible to do back when I was at Heyzap. It’s still hard, but at least now it’s possible.

Being an entrepreneur never gets easy. Raising seed money might get easier, but raising series A won’t. Or, if you do really well, raising series A gets easier, but B or product-market fit stays hard. You shoot for big problems and do the best you can.

5. Ask other entrepreneurs for advice

I’ve found entrepreneurs who have gone through acquisitions to be much more helpful. There are a lot of nitty-gritty lessons to share, and fellow entrepreneurs can be both helpful and impartial. While it can be hard to talk specifics for confidentiality reasons, you can hopefully find peers you trust to talk with. I am happy to talk to any entrepreneur that finds themselves in this fortunate position.

Conclusion: Think about the big picture

It’s important to keep your options open, not undervalue your time, and be metrics-driven. Even when you put a lot of energy into a specific idea, you shouldn’t rule out a big pivot — or shutting it down, depending on the circumstance.

If you see success and have the option for an exit, consider the big picture. Make sure that you take advantage of the opportunities in front of you and remember that there’s always a next step either way!

PHOTO CREDIT: TODD JOHNSON/SAN FRANCISCO BUSINESS TIMES

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Immad Akhund is CEO at Mercury, a stealth fin-tech startup with $6m in funding. Immad is a repeat entrepreneur. Previously he was CEO and co-founder of Heyzap, a mobile developer tools company, which sold for $45m to Fyber in 2016, and CTO and co-founder of Clickpass, acquired by Yola in 2008. He is an active investor in Silicon Valley and has invested in 70+ seed stage startups.

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