Bet on a boss who can twirl on his toes

HAVING an idea and being passionately committed to it is important. But so is being clever enough to realise when it is not working, says Alan Patricof, a venture capitalist. He is looking to invest in young firms whose bosses know how to pivot: ie, dump their old business model and adopt a new one. Difficult times demand flexibility. At a recent presentation in New York, he says, he saw three firms he had previously seen less than a year before. “I didn’t recognise them,” he recalls.

This is a revival of an old argument: that investors should back people rather than ideas. What’s new is that the cost of starting certain kinds of businesses (especially web-based ones) has fallen, says Bill Sahlman of Harvard Business School. There has been a “remarkable increase in the degree of entrepreneurial experimentation,” he observes. It is easier to launch and test an idea, and to pivot to another if it flops.

Mr Patricof says that today’s entrepreneurs are more mature. Many have been through the start-up process before and are warier of burning up all their cash than they were in the 1990s. Hence their greater propensity to pirouette.

Fail to twirl and your start-up may become one of the “living dead”, warns Eric Ries, a serial entrepreneur and blogger. He writes that pivoting is particularly important if you are what he calls a “lean start-up”. Yet you can have too much of a good thing, he cautions. An entrepreneur can overdo it and become a “compulsive jumper, never picking a single direction long enough to find out if there’s anything there.”