Recognizing an Approaching Business Pivot from an Investor’s Perspective

Uncertainty and Pivots

Being an investor is not for the faint of heart. Investing both time and money into people, ideas, or companies is always a risky endeavour with no guaranteed returns. While every business evolves and develops along it’s own course, pivots always represent additional risk. For many investors, the last thing they want to hear is that a company they’ve invested in is considering “pivoting”. The associated risks and uncertainties are enough to make some investors cut their losses and move on. Others, however, are much more patient, placing the value on other aspects of their investment.

When YUPIQ’s founders came to him with their plan to change focus, Owen Matthews was open to hearing them out. More than that, he was excited to support the young entrepreneurs through this big change.

Identifying the Issues

As the lead investor, Owen was not pleased with YUPIQ’s overall progress to date, and strongly supported them as the first team to enter into Alacrity’s Entrepreneurship@UVic program. With a growing user and customer base and big brand names interested in using the platform, YUPIQ was demonstrating all the leading indicators of success. But not everything was perfect.  After about a year and a half into pursuing the concept behind the company, it was becoming evident that the path to being a successful, self-sustaining company was going to be longer and more difficult than planned.

As Matthews notes in hindsight: “I liked the notion of the business, I liked the fact that there was user adoption, but how you got into the deal flow and the revenue model to take a piece of it was hard.

Although the demonstrated market need for a product like YUPIQ was clear, (a software solution to promote brands or events through user referrals), trying to get customers to pay for using YUPIQ proved to be challenging for the young team.

While user adoption was rapid and the customer base was growing, tracking the actual impact of a YUPIQ campaign was murky. Users would support brands they liked via social media networks by participating in promotional campaigns such as sharing movie trailers or participating in online events, but quantifying how customers converted many of these activities into revenue was hard. It was difficult to put a dollar sign on the impact that a YUPIQ campaign had, and that was making it challenging for the team to determine what the service was actually worth, and having the customer agree to pay fair value for it.

Separate from value based billing, another problem was customer retention. The cyclical nature of promotional campaigns meant engagements had a limited timeline, running only until the event took place. Even though a campaign may have been extremely successful, once it was over, there was no engagement between the YUPIQ team and the client.  This meant that the sales process was endlessly cyclical, even for the clients that had already engaged previously.

Owen summarizes the challenge succinctly: “The team had built software which was working, useful, and well-liked by a broad base of customers, but with no obvious way of making money from it.

With solid experience in prior pivots both as an entrepreneur and investor, Matthews was able to follow the company’s progress and offer direction and advice, as well as provide the necessary resources throughout YUPIQ’s development. By being closely involved with the team, and meeting with the founders on a regular basis, Owen was able to ask the appropriate questions that caused the YUPIQ team to challenge their assumptions on an ongoing basis, and this helped them pinpoint some key underlying issues.

I put a lot of time into the business and spent a lot of time asking questions to push them to consider how their business was working or wasn’t working. I would say they had a lot of support from me and advice on how they should look at the problem, without me saying that there was a specific problem that they needed to fix.

There came a time when answering these questions went beyond explaining why something was being done, and led to greater introspection. The ongoing self-assessment process made it evident to the founders that while adoption was excellent, revenue cycles meant it was necessary to reevaluate the company’s direction.  As Matthews noted, “it didn’t take much for them to recognize that they needed to change.

The founders had independently realized and recognized the need for a change and near the end of 2012 with the help of the entire YUPIQ team, they made some difficult choices.
To be continued February 16