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Commentary

Here’s Where Most Startups Fail

Jun 08, 2017

The Entrepreneur Insiders network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question, “What should budding entrepreneurs know about building a business?” is written by Sharat Sharan, co-founder and CEO of ON24.

If you think launching a startup is tough, try building one into a legitimate company. Many of the challenges would-be entrepreneurs tend to encounter during the startup phase of a company’s life can be easily overcome with a mix of dedication, competency, and resources. But taking that startup to the next level requires all of that and much more. To make it, you’re going to need patience, experience, resolve, and something I call mental agility.

Let’s focus on that last one, mental agility, as it’s the least obvious of the group. Mental agility is one’s ability to basically roll with the punches—to be nimble and agile in the face of great adversity. This can be applied to nearly all aspects of a growing business, from hiring and firing employees to signing an office lease. Your mind can’t get stuck going down one road; it needs to be agile and willing to deviate from the original path.

It’s normal for a startup to make at least one major pivot throughout its lifetime; indeed, two or three major pivots aren’t that unusual. This holds especially true for tech startups, where market trends move at the speed of light. If your company wants to keep up, chances are you’ll end up making a pivot sometime down the road.

That’s what happened to Kabam, the mobile gaming startup. Originally called Watercooler, it began life riding the social networking craze of the mid-2000s as a social network geared specifically to sports and TV fans. While Watercooler enjoyed some success, it became clear to the startup’s co-founder and CEO, Kevin Chou, that the company wasn’t going to be able to match Facebook (fb) and LinkedIn in the race for ad dollars.

See also: Passion Won’t Make You Successful Unless You Have This

So, instead of banging his head against the wall, Kevin decided to make a major pivot. He took the company’s technology and refocused it to serve a burgeoning market that had come about thanks to social networking: social video gaming. Kevin’s gamble turned out to be wildly successful, and the company’s first gaming titles spread like wildfire through Facebook’s vast social network. But, after Facebook adjusted its terms and started to take 30% of game developers’ revenue in 2011, the company was no longer profitable. That led to Kevin’s next big pivot to mobile gaming, which turned out to be the better move. Kevin focused on building up his company's mobile gaming talent and business, and in December of 2016, agreed to sell its most profitable studio to Netmarble for $800 million.

And then there is ON24, the marketing technology company that I founded nearly 15 years ago. We power businesses to engage their customers and prospects at scale through our webinar marketing platform. But, if you had told me when I started the company years ago that I’d be leading the company that allows other companies to create webinars, I’d probably ask, “What’s a webinar?”

That’s because ON24 began life as a 24-hour multimedia news platform, which focused on the retail investor, like an online version of CNBC. Everything was going great for the company—until the markets imploded. The dot-com bubble of the late 1990s forced us to deviate from our original path. We asked ourselves, “What could we do with this streaming technology other than something in media?” We realized that the same digital transformation that was reshaping the news industry was also impacting traditional business communications. This was where the idea for a marketing webcast was born, and we decided to focus on helping companies create digital experiences over the Web to engage with their customers.

Where most businesses fail is when they pivot too far off the mark. Imagine a CEO of a coal company pivoting his business away from mining coal to building wind turbines. While wind and coal both produce energy, the two businesses share very little in common and require vastly different skills and workforce.

You minimize the risks of a pivot by applying your core expertise and talent to a different use case. Kabam’s employees took the experience they gained from making their own social network to create a product—social networking games—specifically tailored to service that market. At ON24, we took a product developed for news and expanded its value to marketing.

Reinventing the wheel is expensive and time-consuming; making a pivot doesn’t have to be. Your company is filled with talented people who can deliver more than just one product for one market. Don’t be afraid to deviate from your initial business plan if things aren’t working—your investors will understand and your employees will rise to the challenge.

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