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The Hidden Costs of Pivoting

Instagram was famously a pivot from Burbn, a failed check-in app. Twitter was a pivot from Odeo, a failing podcasting platform. Slack was a pivot out of a failing game company.

The successful pivot is revered in Silicon Valley. But, while some entrepreneurs snatch victory from the jaws of defeat, I think the Valley would be a far healthier ecosystem if more companies naturally failed and then restarted, and fewer pivoted.

When companies pivot, they are effectively deciding to keep their corporate structure, team, and cap table in place and try something new. If you have a well-functioning team and a new idea, you can maintain some momentum. Pivoting vs. starting over allows entrepreneurs to skip the hassle and expense of winding down the company and incorporating again. And if the founders have some money left in the bank, they don’t immediately have to fundraise.

But there are hidden costs to the approach that become apparent later on.

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If people operated more often this way, and were truly willing to let things fail and try again, the ecosystem would be a more efficient place for deploying time and money.

Doug Crets and David Ulevitch commented on this article.
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When it was simply harder, more time-consuming, and more expensive to set up things like payroll, finance and accounting, the capital and labor that went into starting a company was truly valuable.