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REID HOFFMAN:
Welcome back to Day 16 in the Mindset of Scale. Today, I want to talk about something every entrepreneur has to learn, and sometimes the hard way: you have to expect the pivot. The road to entrepreneurship is filled with many lefts and rights – and a fair share of u turns. Don't fight it, expect it, and turn it into an opportunity. Use those times to refocus, refine, and redirect – it's how you'll ultimately achieve scale.
To show you what I mean, here's a story from Payal Kadakia, founder of ClassPass, a fitness subscription service. But ClassPass was originally born as a product called Classivity. Payal and her team spent a year and a half building it and then released it to the public. Here's what happened next.
PAYAL KADAKIA:
I was online, I was searching for a ballet class. I obviously had used things like ZocDoc, OpenTable, SeamlessWeb, and it made sense. I was like, okay. Let's build an OpenTable model for classes.
HOFFMAN:
OpenTable lets you search restaurants near you and find, well, an open table at the right time. With Classtivity, Payal aspired to the same model – offer comprehensive listings and a passthrough service for reservations.
KADAKIA:
It made sense to investors. I raised capital. I hired a team that bet on the idea.
HOFFMAN:
So how would Classtivity break even? Simple – like OpenTable or Seamless – she would charge a small transaction fee.
And like that, she'd be in business. In fact, Payal was so convinced she'd be in business – big business – that her team invested a year and a half in web development.
KADAKIA:
And we just wanted it to be perfect, 'cause we just thought it would work.
HOFFMAN:
It was gorgeously designed – a fully realized vision, ready for launch day.
Frequent listeners of this show may recall my theory that you never want to release a fully realized vision in the software world – because it's most likely flawed. In fact, if you're not embarrassed by your first release, you've released it too late.
Many successful entrepreneurs have discovered this counterintuitive theory the hard way. They perfect their product, as Payal did, and then on launch day, well...I'll let her tell the rest.
KADAKIA:
And so, June of 2012, we launched Classtivity, finally open to the public. We had thousands of classes listed, a beautiful design. And I would say we did about ten reservations a month. It was terrible.
HOFFMAN:
Yes, she said 10 reservations a month.
KADAKIA:
I mean, our whole entire business was obviously based on the revenue share we would get off of every transaction. And the business model was built on getting millions of transactions through the platform, and we weren't doing that.
HOFFMAN:
So, you launched with this notion of being the Yelp or the review site, and the ability to choose good classes and be informative.
KADAKIA:
Right.
HOFFMAN:
And then what you found was people used you as a search engine, but didn't actually book.
KADAKIA:
Right.
HOFFMAN:
I hear this story all the time – from entrepreneurs who failed and those who succeeded. The difference? The successful ones keep trying. Not by digging in and assuming they were right, but by asking themselves, over and over, "Where did we go wrong?"
Payal's team started with the problems they could see on the website itself... which created another problem.
KADAKIA:
So, in the middle of the summer, we started playing with buttons. I always remember, I call it "the summer of buttons," 'cause we were contemplating – well, maybe it's cause the color's wrong, or the shape is wrong. We were thinking it might be a UI problem, and it wasn't.
HOFFMAN:
The "summer of buttons." I know a lot of entrepreneurs who have lived through that sorry season.
And I sympathize with Payal. When your service is under-performing, it's incredibly tempting to hyper-focus on the user interface – because that's under your control. You can swap out colors and move buttons around the page for months. Sometimes it creates a breakthrough. More often, it's a dead end. Interface changes are really useful for improving a user interaction that's fundamentally working. What design can't do is solve a fundamental problem in your business model.
All those other entrepreneurs who survived a "summer of buttons?" They all came to a similar crucial insight, which Payal has carried with her throughout her career:
KADAKIA:
I think the other thing I realized over time is that technology actually wasn't going to solve everything for me. And I think of a lot of times, and you're like, oh, I have an engineer to build the site, and I don't need to do anything, or I don't need to get any other information. And that was actually wrong. It was really, just see if I can actually get someone to class in any mechanism possible, even if it was manually making reservations, which we did a lot of once we figured it out. Because it wasn't important yet to get to a place where we were building scalable technology, because we didn't actually even have one customer.
HOFFMAN:
But ultimately, if you're a visionary like Payal, you're not just trying to change the way a user interacts with a button. You're trying to change the way they interact with the real world. And she was not about to change the world at a rate of 10 reservations a month.
I want to bring out something Payal didn't do at this critical juncture in her career: She didn't go on autopilot. And believe me, after pouring a year-and-a-half of work into a website, you'd want to go on autopilot. Instead, Payal had a moment of reckoning.
KADAKIA:
And I remember there was this clear day. It was about two months after we had launched. And I think I just had to have that honest moment with myself. I was talking to an advisor. We had money in the bank, so I wasn't actually worried. But the worst thing you could do in that moment was actually just coast and let it fail.
HOFFMAN:
For Payal, she kept returning to that founding theory that everyone should discover a fitness routine that doesn't feel like a chore, but rather a calling or an escape. You shouldn't force yourself to go to class. You should feel compelled by the class itself. It should be for them, like dance was for her: A source of inspiration.
But there was a fundamental flaw in her theory – one that she wouldn't discover – and never could have known – until she started really asking her users, "What do I have to do to get you off of your couch and into a class?"
KADAKIA:
To me, the hunt was to get someone to go to class. And I think all ideas were on the table. But I just was like, let's go build something new.
We were sitting behind the screen here, right? For a year-and-a-half, we were building API integrations. We were building scrapers to get the schedule data. We weren't talking to our partners or our customers. And that was also something that we started doing.
HOFFMAN:
Payal started interviewing fitness studio owners. She asked one after the next, how do you get people to sign up for a class? And immediately she spotted a pattern of responses.
KADAKIA:
Many of them were offering a first class for free. Till this day, most studios do that.
HOFFMAN:
A free class – that might not sound innovative – but "free" is actually the force multiplier that countless Silicon Valley companies have used to achieve scale. It's like the dynamite that they use to blast through mountains of indifference. And like dynamite, freebies are also pretty dangerous. You better know what you're doing and set off a controlled detonation.
Freebies are an extreme example of the "fatal pricing" that will bleed your business. There's no faster way to get a lot of people in the door than with a give-away. But if those freebie-seekers don't convert to paying customers, then you're just left with hemorrhaging. For the price that bleeds your business to save your business, you need a conversion path.
Payal devised the perfect experiment. She had already partnered with studio owners across the city. She had a central view of all their freebies. And it occurred to her that she could bundle all of those free classes together into one package deal. A user could then hop from class to class – and perhaps discover their true fitness calling. And Passport would benefit by bringing them in the door of all these varied studios.
KADAKIA:
We had this idea of packaging it together into one product called a passport. I said, what if we could offer a 30-day period where people could go and try ten classes, and on the other side of it, we would do retargeting and remarketing to get you to go back to these studios. This was a new idea. It was great that we had built a lot of, like, the scheduling software. And what was nice is people did like this idea, so we started finally seeing reservations. We had people buying this product.
HOFFMAN:
The Passport was an immediate success. User enthusiasm ran so high, that when their 30-day grand tour expired, some users tried to cheat the system. They signed up for a new passport, under a new email address. Basically, they started forging passports. Payal was delighted.
KADAKIA:
So, we started thinking about this, and I was like, okay, everything is really actually pointing towards a subscription, because people were signing up with multiple email addresses.
So, we did a survey, and 95 percent of our users said they would buy the product again if they could go back to their favorite studios.
HOFFMAN:
Through the power of free – Payal had discovered a whole new market. You might call it the market for fitness dabblers. To Payal's surprise, they never discovered their fitness calling through one class alone. They found their fitness calling through a variety of classes. Her vision had come into focus, and it revealed a picture that she could have never foreseen.
KADAKIA:
They wanted to do a spin class on Monday, a dance class on Thursday, a yoga class on Saturday. And I think the other really beautiful thing here was that people realized their potential. And I think for me, as a founder with the vision we always had, I wanted people to find what I had had in dance.
In a strange way, this passport product, that was the magic to it. And that was, still is, the core of what made ClassPass everything it is. People loved variety. And no one realized that. There was this market out there for dabblers, when everything was trying to push everyone to be like complete loyalists. And there are definitely both sides, and I think people go in and out of those cycles in their life. But there was only sort of the gym for the dabbler.
There was another problem, which was that people weren't going back to these studios.
HOFFMAN:
That's right, the other half of her user base, the studio owners, were essentially asking, "What's in it for us? Would any of those users taking advantage of our first free class ever return as paying customers?"
KADAKIA:
And that was ultimately the promise we had made. And these studio owners were giving us these classes for free. So, long-term, it wasn't great for our partnership with them. But the good side of this product was we realized people loved variety.
HOFFMAN:
So Payal had to make a decision – would she continue selling a 30-day passport? Or would she remove that expiration date, and enable users to take a variety of classes, indefinitely? In essence, should she rebuild her business model?
This wasn't an easy decision – because Classtivity was finally generating real revenue. They were making money. It was a simple business model based on a small transaction fee for each booking.
KADAKIA:
We actually were 100 percent profitable 'cause we weren't paying the studios. But at the end of the day, I was fast-forwarding in my head, and I'm like, this just feels like a bad deal site and a bad program.
And I didn't want to change people's lives for a month. I wanted to change people's lives constantly, and the only way to really do that was through a product that was gonna have more retention. And so, we decided to move into the subscription.
And I think my team was like, I think they were tired. I think people – you have to remember, this was three years in. And I mean, at this time, we were also making every reservation manually. We all stayed up till 2, 3 in the morning every night. A reservation would come in. We didn't build the technology early on. It would literally send one of us an email. We would go onto the site, make the reservation, and send a confirmation back to the customer. And so, all of us were doing that. We were all doing customer service. So, there was a little bit of that, of people just being like, well, we finally are there. Like, why do we need to change? And what we ended up agreeing on, which was fine, 'cause I didn't know, is we actually didn't know if the passport would become lead gen for the subscription.
So, we decided to not completely let go of the passport at the time. And then when we launched ClassPass, we realized it was just tweaks to it, right? So, from an engineering perspective, it was the passport, it was just with – you could go back to a studio. Okay, great, and it was a monthly subscription.
HOFFMAN: And so, in 2013, one year after the launch of Classtivity, Payal launched a service that would become her second startup. She called it "ClassPass."
ClassPass is still going strong today. And Payal's pivots worked because she stayed true to her original mission, while responding to how actual customers actually used the service.
For today's exercise, we're going to do a little soul-searching, in the form of a pop quiz. Get your favorite writing utensil, and a clean sheet of paper.
Write out these three questions. After each question, write the word Yes, and the word No. You'll circle the correct response in a moment. Ready?
Question One: Have your customers responded differently than you'd hoped?
Question Two: Are you forcing them to behave in a way that's unnatural to them?
Question Three: Are there changes you can make – even small ones – to remove friction and get you closer to your goal?
Now go back and answer these questions. Circle either Yes, or No. If you have at least one Yes circled, it may be time to pivot.
Everything in today's Daily Practice, including the action item, will be hitting your inbox soon. Look out for that email.
Tomorrow on the Mindset of Scale, what happens when pivots aren't enough and terrible ideas... must die. See you then.
Welcome back to Day 16 in the Mindset of Scale. Today, I want to talk about something every entrepreneur has to learn, and sometimes the hard way: you have to expect the pivot. The road to entrepreneurship is filled with many lefts and rights – and a fair share of u turns. Don't fight it, expect it, and turn it into an opportunity. Use those times to refocus, refine, and redirect – it's how you'll ultimately achieve scale.
To show you what I mean, here's a story from Payal Kadakia, founder of ClassPass, a fitness subscription service. But ClassPass was originally born as a product called Classivity. Payal and her team spent a year and a half building it and then released it to the public. Here's what happened next.
PAYAL KADAKIA:
I was online, I was searching for a ballet class. I obviously had used things like ZocDoc, OpenTable, SeamlessWeb, and it made sense. I was like, okay. Let's build an OpenTable model for classes.
HOFFMAN:
OpenTable lets you search restaurants near you and find, well, an open table at the right time. With Classtivity, Payal aspired to the same model – offer comprehensive listings and a passthrough service for reservations.
KADAKIA:
It made sense to investors. I raised capital. I hired a team that bet on the idea.
HOFFMAN:
So how would Classtivity break even? Simple – like OpenTable or Seamless – she would charge a small transaction fee.
And like that, she'd be in business. In fact, Payal was so convinced she'd be in business – big business – that her team invested a year and a half in web development.
KADAKIA:
And we just wanted it to be perfect, 'cause we just thought it would work.
HOFFMAN:
It was gorgeously designed – a fully realized vision, ready for launch day.
Frequent listeners of this show may recall my theory that you never want to release a fully realized vision in the software world – because it's most likely flawed. In fact, if you're not embarrassed by your first release, you've released it too late.
Many successful entrepreneurs have discovered this counterintuitive theory the hard way. They perfect their product, as Payal did, and then on launch day, well...I'll let her tell the rest.
KADAKIA:
And so, June of 2012, we launched Classtivity, finally open to the public. We had thousands of classes listed, a beautiful design. And I would say we did about ten reservations a month. It was terrible.
HOFFMAN:
Yes, she said 10 reservations a month.
KADAKIA:
I mean, our whole entire business was obviously based on the revenue share we would get off of every transaction. And the business model was built on getting millions of transactions through the platform, and we weren't doing that.
HOFFMAN:
So, you launched with this notion of being the Yelp or the review site, and the ability to choose good classes and be informative.
KADAKIA:
Right.
HOFFMAN:
And then what you found was people used you as a search engine, but didn't actually book.
KADAKIA:
Right.
HOFFMAN:
I hear this story all the time – from entrepreneurs who failed and those who succeeded. The difference? The successful ones keep trying. Not by digging in and assuming they were right, but by asking themselves, over and over, "Where did we go wrong?"
Payal's team started with the problems they could see on the website itself... which created another problem.
KADAKIA:
So, in the middle of the summer, we started playing with buttons. I always remember, I call it "the summer of buttons," 'cause we were contemplating – well, maybe it's cause the color's wrong, or the shape is wrong. We were thinking it might be a UI problem, and it wasn't.
HOFFMAN:
The "summer of buttons." I know a lot of entrepreneurs who have lived through that sorry season.
And I sympathize with Payal. When your service is under-performing, it's incredibly tempting to hyper-focus on the user interface – because that's under your control. You can swap out colors and move buttons around the page for months. Sometimes it creates a breakthrough. More often, it's a dead end. Interface changes are really useful for improving a user interaction that's fundamentally working. What design can't do is solve a fundamental problem in your business model.
All those other entrepreneurs who survived a "summer of buttons?" They all came to a similar crucial insight, which Payal has carried with her throughout her career:
KADAKIA:
I think the other thing I realized over time is that technology actually wasn't going to solve everything for me. And I think of a lot of times, and you're like, oh, I have an engineer to build the site, and I don't need to do anything, or I don't need to get any other information. And that was actually wrong. It was really, just see if I can actually get someone to class in any mechanism possible, even if it was manually making reservations, which we did a lot of once we figured it out. Because it wasn't important yet to get to a place where we were building scalable technology, because we didn't actually even have one customer.
HOFFMAN:
But ultimately, if you're a visionary like Payal, you're not just trying to change the way a user interacts with a button. You're trying to change the way they interact with the real world. And she was not about to change the world at a rate of 10 reservations a month.
I want to bring out something Payal didn't do at this critical juncture in her career: She didn't go on autopilot. And believe me, after pouring a year-and-a-half of work into a website, you'd want to go on autopilot. Instead, Payal had a moment of reckoning.
KADAKIA:
And I remember there was this clear day. It was about two months after we had launched. And I think I just had to have that honest moment with myself. I was talking to an advisor. We had money in the bank, so I wasn't actually worried. But the worst thing you could do in that moment was actually just coast and let it fail.
HOFFMAN:
For Payal, she kept returning to that founding theory that everyone should discover a fitness routine that doesn't feel like a chore, but rather a calling or an escape. You shouldn't force yourself to go to class. You should feel compelled by the class itself. It should be for them, like dance was for her: A source of inspiration.
But there was a fundamental flaw in her theory – one that she wouldn't discover – and never could have known – until she started really asking her users, "What do I have to do to get you off of your couch and into a class?"
KADAKIA:
To me, the hunt was to get someone to go to class. And I think all ideas were on the table. But I just was like, let's go build something new.
We were sitting behind the screen here, right? For a year-and-a-half, we were building API integrations. We were building scrapers to get the schedule data. We weren't talking to our partners or our customers. And that was also something that we started doing.
HOFFMAN:
Payal started interviewing fitness studio owners. She asked one after the next, how do you get people to sign up for a class? And immediately she spotted a pattern of responses.
KADAKIA:
Many of them were offering a first class for free. Till this day, most studios do that.
HOFFMAN:
A free class – that might not sound innovative – but "free" is actually the force multiplier that countless Silicon Valley companies have used to achieve scale. It's like the dynamite that they use to blast through mountains of indifference. And like dynamite, freebies are also pretty dangerous. You better know what you're doing and set off a controlled detonation.
Freebies are an extreme example of the "fatal pricing" that will bleed your business. There's no faster way to get a lot of people in the door than with a give-away. But if those freebie-seekers don't convert to paying customers, then you're just left with hemorrhaging. For the price that bleeds your business to save your business, you need a conversion path.
Payal devised the perfect experiment. She had already partnered with studio owners across the city. She had a central view of all their freebies. And it occurred to her that she could bundle all of those free classes together into one package deal. A user could then hop from class to class – and perhaps discover their true fitness calling. And Passport would benefit by bringing them in the door of all these varied studios.
KADAKIA:
We had this idea of packaging it together into one product called a passport. I said, what if we could offer a 30-day period where people could go and try ten classes, and on the other side of it, we would do retargeting and remarketing to get you to go back to these studios. This was a new idea. It was great that we had built a lot of, like, the scheduling software. And what was nice is people did like this idea, so we started finally seeing reservations. We had people buying this product.
HOFFMAN:
The Passport was an immediate success. User enthusiasm ran so high, that when their 30-day grand tour expired, some users tried to cheat the system. They signed up for a new passport, under a new email address. Basically, they started forging passports. Payal was delighted.
KADAKIA:
So, we started thinking about this, and I was like, okay, everything is really actually pointing towards a subscription, because people were signing up with multiple email addresses.
So, we did a survey, and 95 percent of our users said they would buy the product again if they could go back to their favorite studios.
HOFFMAN:
Through the power of free – Payal had discovered a whole new market. You might call it the market for fitness dabblers. To Payal's surprise, they never discovered their fitness calling through one class alone. They found their fitness calling through a variety of classes. Her vision had come into focus, and it revealed a picture that she could have never foreseen.
KADAKIA:
They wanted to do a spin class on Monday, a dance class on Thursday, a yoga class on Saturday. And I think the other really beautiful thing here was that people realized their potential. And I think for me, as a founder with the vision we always had, I wanted people to find what I had had in dance.
In a strange way, this passport product, that was the magic to it. And that was, still is, the core of what made ClassPass everything it is. People loved variety. And no one realized that. There was this market out there for dabblers, when everything was trying to push everyone to be like complete loyalists. And there are definitely both sides, and I think people go in and out of those cycles in their life. But there was only sort of the gym for the dabbler.
There was another problem, which was that people weren't going back to these studios.
HOFFMAN:
That's right, the other half of her user base, the studio owners, were essentially asking, "What's in it for us? Would any of those users taking advantage of our first free class ever return as paying customers?"
KADAKIA:
And that was ultimately the promise we had made. And these studio owners were giving us these classes for free. So, long-term, it wasn't great for our partnership with them. But the good side of this product was we realized people loved variety.
HOFFMAN:
So Payal had to make a decision – would she continue selling a 30-day passport? Or would she remove that expiration date, and enable users to take a variety of classes, indefinitely? In essence, should she rebuild her business model?
This wasn't an easy decision – because Classtivity was finally generating real revenue. They were making money. It was a simple business model based on a small transaction fee for each booking.
KADAKIA:
We actually were 100 percent profitable 'cause we weren't paying the studios. But at the end of the day, I was fast-forwarding in my head, and I'm like, this just feels like a bad deal site and a bad program.
And I didn't want to change people's lives for a month. I wanted to change people's lives constantly, and the only way to really do that was through a product that was gonna have more retention. And so, we decided to move into the subscription.
And I think my team was like, I think they were tired. I think people – you have to remember, this was three years in. And I mean, at this time, we were also making every reservation manually. We all stayed up till 2, 3 in the morning every night. A reservation would come in. We didn't build the technology early on. It would literally send one of us an email. We would go onto the site, make the reservation, and send a confirmation back to the customer. And so, all of us were doing that. We were all doing customer service. So, there was a little bit of that, of people just being like, well, we finally are there. Like, why do we need to change? And what we ended up agreeing on, which was fine, 'cause I didn't know, is we actually didn't know if the passport would become lead gen for the subscription.
So, we decided to not completely let go of the passport at the time. And then when we launched ClassPass, we realized it was just tweaks to it, right? So, from an engineering perspective, it was the passport, it was just with – you could go back to a studio. Okay, great, and it was a monthly subscription.
HOFFMAN: And so, in 2013, one year after the launch of Classtivity, Payal launched a service that would become her second startup. She called it "ClassPass."
ClassPass is still going strong today. And Payal's pivots worked because she stayed true to her original mission, while responding to how actual customers actually used the service.
For today's exercise, we're going to do a little soul-searching, in the form of a pop quiz. Get your favorite writing utensil, and a clean sheet of paper.
Write out these three questions. After each question, write the word Yes, and the word No. You'll circle the correct response in a moment. Ready?
Question One: Have your customers responded differently than you'd hoped?
Question Two: Are you forcing them to behave in a way that's unnatural to them?
Question Three: Are there changes you can make – even small ones – to remove friction and get you closer to your goal?
Now go back and answer these questions. Circle either Yes, or No. If you have at least one Yes circled, it may be time to pivot.
Everything in today's Daily Practice, including the action item, will be hitting your inbox soon. Look out for that email.
Tomorrow on the Mindset of Scale, what happens when pivots aren't enough and terrible ideas... must die. See you then.
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