Good entrepreneurs know when to drop bad ideas

Posse founder Rebekah Campbell, driven to not lose $2.7 million she has raised angel investors, has steered her company through two major changes of direction. Photo: Wolter Peeters

Rebekah Campbell is feeling equally excited and exhausted by the mid-June launch date of her website, Posse. It’s third time lucky for the start-up.

“It feels different to the other product launches,” she says with a smile but with her head resting on her hand. “We’ve learnt so much every time.”

Neither of the two previous versions were total flops. But both had their own problems. Campbell, driven to not lose the more than $2.7 million she has raised from two angel investment rounds, has steered the company through two major changes of direction. In the industry lingo, this is a pivot. A cynical observer might call it a failure but in start-up land, it is applauded. A pivot, executed well, is a mark of an entrepreneur’s insight and maturity that they can identify a problem and have the nous and courage to adapt.

In the beginning, entrepreneurs should write down a series of “guesses” about their product, the founder of start-up accelerator Startmate, Niki Scevak, says. This may include who are the best customers, how much they’ll pay or how difficult they will be to find. Once a product is built there should be a process of “testing and observing how they do and don’t use the product”, he says. “Pivoting is the reaction after going through that cycle and seeing if a lot of your guesses are wrong or right.”

The customer and how the product is used, is the key to whether a business needs to pivot, Scevak says. “Repeat usage or continued daily usage of a product is a great sign you’re onto something that works,” he says.

“There’s the age-old business axiom of listening and responding to your customer. In some ways [to pivot] is just a relabelling of that.”

Campbell unveiled the first version of Posse in October 2010. It was a platform for the live music industry. Loyal fans used social media to get their friends to buy tickets to concerts of their favourite bands and received rewards in return. Campbell had raised $1.5 million from a syndicate of 21 angel investors and music label EMI. Posse chugged along for 16 months. By February 2012 it had 11,000 users and had facilitated $2 million in ticket sales. “It definitely worked and we could have continued to grow it into a business,” Campbell says.

But there were problems. Posse was integrated with a number of ticketing websites but “if you really wanted to do it properly you had to be integrated with everybody,” she says.

The technical development and negotiation to do that was time- consuming. And it would have been difficult to roll out globally. “We could have done it but we made a decision to take a gamble,” she says.

Through women’s business networking group Heads Over Heels, Campbell met retailers who thought the idea behind Posse of rewarding loyal customers who made recommendations to their friends, could be reworked for use by stores.

So Campbell and her team redeveloped the Posse platform but very quickly she realised the pivot wasn’t right. “Retailers flipped out. They loved it,” she says. “We signed up 40 retailers in four weeks, just with one [sales] person. They were all willing to pay $40 a month.”

The problem existed at the other end of the equation. Retailers encouraged their customers to download the Posse app to pass on vouchers to their friends. In return they would be rewarded with currency in store.

“It wasn’t solving a problem for customers; customers could already refer people to their favourite places,” Campbell says. “We made it a little bit more rewarding [by giving them currency] but it wasn’t enough to get them en masse really excited about it. We have got a two-sided network and it has to work for both of them.”

Campbell remembers, as part of her launch phase, sitting in a hairdresser’s salon, watching the snipper try to encourage his customer to download Posse. “People would go, ‘Oh, that sounds cool’ and then they wouldn’t go and do it and then you go and ask them and they say, ‘Oh you know, it sounds really interesting but I’ll do it next time’. And you think, ‘You’re not going to do it’.”

With a team of 10, she didn’t have time to wait for the metrics to come in to tell her that Posse mark 2 wasn’t working. “You’ve got to move really fast because you’re burning money every month if you don’t.” Before the second pivot, Campbell raised a further $1.2 million from investors such as Bill Tai [an investor in Twitter] and Elevation Capital.

The Posse team embarked on an “intense mission” to “solve a real world problem” for the customers. After many focus groups and more than 30 one-on-one interviews that Campbell conducted herself, the team were ready for pivot number two – to go from retail to social.

The latest version of the internet start-up plays into the “social search” trend. In Posse the social network, users have a virtual street where they can place their five favourite destinations. Stores can claim their listing on Posse (much the same way as they can on Four Square or Yelp) and can reward the customers who place reviews or include their outlet on their street. (Campbell says customers didn’t want currency but were excited to receive random gifts).

Friends on Posse can link their streets to create a town that can be explored in a map-like interface (Google Maps co-founder Lars Rasmussen is a board member and investor). The utility behind Posse is that users can search locations and categories, for example “Bondi” and “restaurant”.

Results from friends are listed first, followed by friends of friends and then “most popular”. “The idea being as it grows, the more it will just be your own friends,” Campbell says. “But you will always be able to get results.”

She believes she’s onto a good thing but will watch the use of Posse and tweak it further where necessary. What she’s looking for as proof that it works is regular logins and users’ streets connecting up and towns growing.

Taking the second step-change, although it was bolder, was easier for Campbell. “We weren’t as confident making the first pivot because it was our first time and we’d raised money on the basis of doing this music thing and it was working,” she says.

As well, there was push back from “one particularly very vocal investor” who would have preferred that Posse just stuck to flogging gig tickets but Campbell advises other entrepreneurs to be strong.

“The thing is the entrepreneur who is living and breathing the business, you have so much invested financially, not even your own money, it’s other people’s money. It’s so much riding on your shoulders,” Campbell says.

“You’re so focused on making it work. You know when you need to make the changes, you know when you see a bigger opportunity and you know intrinsically what the right thing to
do is.”

She advises other entrepreneurs, should they feel unsupported by any investors to research famous pivots (did you know that Twitter was originally a podcasting company) and use them as evidence. “Most investors who have experience know that that’s how it works,” she says.

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