We were prepared to close down and give back the remaining funds to our investors, revealed Aage Reerslev CEO at Wrapp when we met him at the Wrapp HQ yesterday. Wrapp, founded in 2011, was initially one of the most hyped startups. The team was very experience and had already the first year investors like Creandum, Atomico (Niklas Zennström), Greylock Partners (Reid Hoffman), and American Express. Expectations were extremely high, the service was launched and did initially perform quite well. But after some time it became clear that the business model did not work. The company, stressed by high expectations and aggressive competition by copy cats, had fallen into the trap of premature scaling. The very tough decision to close down the initially launched service and pivot was taken. International operations were closed down and the team in Stockholm developed a new version of the service based on the experience gained. Going from a hyped startup with all the right names in the team and board, to a company closing down the service, most expected that the Wrapp story had come to an end. But that was not the case, the new version of the service was launched spring 2015 with very strong partners and this time it looks like they got it right. The service now creates significant value for all involved parties (retailer, banks, end users as well as for Wrapp) and the expansion and scale up seems now to be more strategic and controlled. We are happy that we had the opportunity to visit Aage Reerslev and Wrapp and wish them a bright future.
Business Creation 
From what I heard from my classmates the meeting at Wrapp was very interesting and inspiring and it sounded like they had really found the right path this time and that their future looks promising. From what I heard Nordea has invested in the company and they are in negotiations with at least 2 other large banks. The classmates I talked to explained how previously the clients of Wrapp wasn’t really the banks but rather the stores however they realized that their business model was not working, so they had to decide whether to close the company down and give as much money as possible back to the investors or change the business model. They decided to keep the company and make a pivot with a new business model. A law was passed that enabled them to get data on customer transactions from banks sometime during this period which was part of the success. So the conclusion is timing, circumstances, jurisdiction and the right people are important.
As Steve Blank said in the video – most of your hypotheses will be wrong and you need to learn from each iteration. But when do you know that it is time to learn from your iteration and start over or pivot. I can imagine that this is one of the hardest decisions to face as an entrepreneur because most entrepreneurs are so passionate about their idea that it is hard to say that it is time to rethink the initial proposal and either completely abandon that idea or change it into something else. But I think a lot of startups fail because they don’t see it as a learning process and they take to long time before they decide to reevaluate their idea. I think part of the process is not to see pivoting as a failure but as something that needs to be done all the time in order to continuously improve, whether it is realizing that your business model isn’t working and therefor you need to pivot like Wrapp did or pivoting by making small adjustments to meet the market needs if they change. If you see it as part of the process of starting a company it might be easier to come to the decision that it is time to change course. I also believe that it is important to have the right people around you who support change and that you have a team with different strengths and qualities among them.
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From interviewing other students who visited Wrapp I think that it is of vital importance to put the customer in focus when creating and working with a business model. Much of what we have learnt so far in the course has also been confirmed by Wrapp, such as “finding a solution to a problem” is the best way of finding a business idea. Another good way to do research when working on a business idea is to gather information about laws and regulations will be enforced on a higher level (like EU-regulations). Wrapp did this and found out that the charge card companies could charge for transactions would be reduces with regulations which menat that these companies would have to seek other ways to increase their income. Here Wrapp saw an opening for their business idea.
Keeping the customer in focus when creating a business model can also be discussed though a Big Data perspective. Big Data is not that interesting for the customers itself, however the customer’s own data is what is of importance. Wrapp’s business idea is based on this kind of thinking.
When deciding whether to proceed with an idea or pivot one must firstly find the product market fit, that is, finding out if the the value propositions matches the needs of the customers.
Secondly, it must be realized that the “idea” does not work as it does not meet the needs. What is important here, is to learn from each mistake and iteration in the process, meaning that each pivot is a lesson learnt. When working in a process where proceeding is not successful one must either pivot or restart, keeping a mindset of learning by doing. I think this is very important since most companies who are successful today are proof of this kind of thinking.
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First of all, the visit at Wrapp seemed to have been very interesting and inspiring. Something that was discussed at the visit was how important it is to have the customer in focus when creating a business model. For example, for a customer big data may not be very interesting however the customers’ own data is what is important for them. Based on the interviews conducted with some classmates this is something that Wrapp took into regard when reconstructing their business model. Wrapp’s new business model, in comparison to the old one, is connected to the customers’ credit card and thereby allows them to know how much the customer shops and where they shop. This information doesn’t only become valuable for the customers and Wrapp, but also for companies so they can tailor offers and campaigns towards the segments that shop a lot etc.
Wrapp made a pivot and created a new business model instead of closing down the company. When doing this they changed the view on who the customer was. As was described in the video, many businesses have to learn from their mistakes and start over before they can succeed. By identifying problems to find solutions companies can learn and create a more successful business model. However, it may be difficult for an entrepreneur to strive away from its original business idea. If one wants to succeed one has to learn from ones’ mistakes and maybe take a new path. It is a process. Pivoting is not equivalent to failing. By taking a step back and actually analyzing why a business model isn’t working, a new one can be created, which is stronger and more innovative than the previous one, which is exactly what Wrapp did.
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From interviewing classmates it seems the visit was very interesting and rewarding. From the interviews I have gathered that he put emphasis on focusing not on the tool used to create a new business, as in big data, but rather the importance to always have the customers and their needs in focus. So the tools itself should not be seen as something holy that cannot be changed, but rather something that should be modified in accordance with changing business model or that observed customer activity is different than expected. In the same context it seemed as though one thing he emphasised was that through identifying problems, either in the market or that the customer experiences, en entrepreneur can find the idea that will be the seed to a successful business.
When it comes to what is needed to successfully do a pivot or to just make the decisions whether to pivot or no, multiple factors need to be taken into account. As was mentioned in the video one needs to honestly look at both the market in relation to ones product and also how the business has been run so far. To learn from the experience one has gained is crucial to continue developing the business, regardless if you pivot or not, but how this information is used can vary. Obviously, a market for your product is necessary for the business to work, but there may aslo be cases where there are strong indicators that a market for a certain product will exist, just not yet. So before scrapping or pivoting one may have to alter the product to cater to an existing market or niche of a market while waiting for the indented large market to mature, either by external factors or by your own product, ex. Tesla. But if the decision to pivot is made the analysis behind this has to be good enough that you have a fairly clear idea of where you want to go/what you need to do to be competitive on the market. Apart from that the mindset with which you start a company is important, if founders and/or investors are set on a specific idea it may be hard to change course, but if the idea is too vague it will be hard to reach and work for as well as difficult to attract capital and employees, so a balance is needed.
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Deciding whether or not to pivot makes sense to me as being difficult. I can imagine how the meme of the idea being the most valuable thing in a startup has led to a culture in which pivoting is seen as a sign of weakness since it is in essence admitting that you were wrong the first time around. It also appears to be a decision which is affected by the irrational behaviours of our human minds since the time already spent building the business is a sunk cost.
The startup community is (or at least appears to be) focused on learning from successful entrepreneurs, causing unsuccessful entrepreneurs to be marked as failures whose insights should be treated with suspicion. This makes it in some ways appear to be rational to dread the pivot, since it involves admitting defeat. Although it is undesireable to achieve perpetual non-success, it is even less desireable to fail. Maybe this is part of the reason why so many startups fail – it is prefered to run with the first idea until the money runs out over admitting defeat and taking the company in a new direction.
In that climate, deciding to pivot as Wrapp did earns them my respect. As discussed in class and in the video from Kauffman Founders School, investors are as interested in the founders as they are in the idea itself and pivoting does not change who the founders are. I think pivoting is something that should be encouraged and seen as a natural part of the process of converging on a reasonable business model.
It appears that there are also further challenges to pivoting when your earlier idea was not really a failure even though it didn’t take off the way you expected it to; my view from talking to classmates about the Wrapp visit is that it was difficult for them to change people’s view of the company and make them stop associating your name with the old product. This appears to me to make it so that you would in some ways rather restart as a new company than pivot your existing one (administrative and economical hassle notwithstanding).
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