Pivot, Perish, or Persevere

Sector began with my desire to give every investor access to a low-cost, diversified portfolio that’s precisely tailored to their specific economic and moral preferences.  Existing solutions made it possible to get two out of three attributes: low-cost, diversified, or personalized, but hitting all three was usually impossible.

For example, Vanguard funds are a fantastic, low-cost foundation for a diversified portfolio, but they’re hard to personalize.  You have two choices for each fund: take it or leave it.  I realized this because I didn’t want to own airline stocks (the industry is historically unprofitable), yet all of the major publicly traded airlines are stinking up my brokerage accounts.  I actually tried to cobble together a personalized portfolio that was tailored to my preferences using existing ETFs and mutual funds, but the process was difficult and the results were terrible.  It was poorly balanced, hard to manage efficiently, and it wasn’t even cost-effective in the end.

In this light, I began work on Sector.  With Sector, the investor would start with a typical index-based approach, but then they could personalize those indexes, kicking some companies (or industries) out, and doubling down on others.  They could turn the S&P 500 into the S&P 482 or the S&P 512.  Instead of trying to match each investor to a combination of the world’s existing funds, Sector would create a personalized fund for each investor.  It’s mass customization for retail investments.

Unfortunately, we found a problem when we zoomed in from the strategy to the tactics and operational details.  We created implementations that were legally compliant, but had sky-high COGS and we found approaches with sustainable COGS but big legal challenges.  After many months of effort, we failed to find an approach that was both cost-effective and legally defensible.  Worse, it didn’t feel like we were chipping away at the problem, it felt like we were going backwards.

This left me with a decision: pivot, perish, or persevere?

  1. Persevere. I could continue on the original path, by searching for a solution to the tactical and operational problems. 
  2. Pivot to a different jurisdiction.  The biggest challenges were with regulations, not with product or market, so another idea was to switch to a different jurisdiction.  This would involve accepting  risks related to entering a jurisdiction where neither I nor any of my partners nor advisors had meaningful expertise.
  3. Pivot to a different target market.  Our technology held some promise if we limited our market to HNWIs. However, the go-to-market strategy required by that market couldn’t be supported at low-price, so the value proposition would be substantially weaker.
  4. Pivot the product.  We could postpone personalization  and start with a basic robo-advisor along the lines of Betterment or WealthFront.  This approach presents one major challenge: no personalization means no differentiator.  That’s not a strong starting point when facing formidable foes with impressive products and a huge head start.
  5. Perish.  Reallocate my time and energy into something more valuable.  

I persevered for quite a while, but as the problems stacked up I explored the pivot strategies.  Unfortunately but in each case I felt like I was unlikely to achieve my objectives.  As such, perishing was my best alternative.  Better to fail fast, and find a way to move onward and upward.