Nivi: How is an investor supposed to know which companies to invest in, given how much they can pivot?
Naval: Since companies often pivot, your people judgment really matters. A pivot means keeping one leg in place and moving the other one around. It’s not a jump or a leap into a completely different industry.
Oftentimes a company pivots into an adjacent space, so it’s still operating within the broader market. In that case, you’ll give more weight to evaluating the team and execution and give less weight to the exact product approach, assuming the market has enough room to pivot around.
The valuation should reflect that the company might go through pivots, and the company’s cash burn and cash planning should, too.
Naval: Uber’s move from black cars to shared rides wasn’t a pivot; it was an extension. Zimride’s move from long-range shared rides to short-range shared rides also was an extension—and a brilliant innovation on their part.
Odeo to Twitter was a pivot, but it wasn’t a jump. It was a pivot from podcasting to micro-blogging by the person who popularized blogging as we know it, Evan Williams. It was a bet on a great individual who was staying within his space.
Burbn to Instagram was barely a pivot; it was more of a step. Now, Geni to Yammer was a jump. David Sacks is one of the greatest product designers we’ve ever seen. He was early at PayPal, pivoted Geni into Yammer, and ran Zenefits. He was an early investor in some of the greatest hits out there. Geni was a David bet, similar to an Elon Musk bet. The people who bet on David would bet on him all day long.
Glitch to Slack was another jump. Glitch was a gaming company, but Stewart Butterfield had done something similar before. if I remember correctly. Even his first hit, Flickr, had also been a jump of sorts. People were investing in Stewart and hoping for the best—and he delivered.
But for every one of those, there’s 10 failures.