When And How To Pivot A Business Model
As an entrepreneur, it is easy to become attached to the business idea you had when you started your company. Through the startup process, you pitched your idea to investors who bought into the concept that you had developed, and your company has been busy fulfilling its mission. But what happens when progress stops? How does a company react when the initial plan fails and expectations aren’t met? Unfortunately, many startups give up at this point. A few, however, have learned to pivot their company and go on to achieve success.
Read on to discover 1) what a pivot is, 2) when a company should pivot its business model, 3) common types of pivots, 4) elements of a successful pivot, and 5) examples of corporate pivots.
WHAT IS A PIVOT?
Eric Ries first applied the term ‘pivot’ to startups in his book, The Lean Startup. A successful entrepreneur in his own right, Ries advises startups on how to go about creating a lean, agile organization that can act and react quickly in the marketplace. In Ries’ opinion, few companies ever create successful plans from the beginning and may go through a series of ‘course corrections’ before finally emerging as a success. According to Ries, a pivot is “making a change in strategy, without a change in vision”. A pivot, then, could be defined as changing the process a company uses to accomplish the same goal.
Loosely defined, many people have conflicting opinions about what constitutes a pivot of a business model and what constitutes a complete change of vision. The actions taken by a company may be described as a pivot by one analyst, only to be completely disregarded by another – it is all a matter of opinion. What is clear in a discussion that includes pivoting is that entrepreneurs who wish to succeed must keep an eye on the market and be prepared to make a change. The details of how that change will look in the company will vary based on the company and the industry, but the fact remains that in order to continue, the startup must make changes.
The word ‘pivot’ has worked its way into everyday language, and has even made its debut as part of a spoof on television. However, a genuine pivot allows for a fresh perspective on the company and prevents the startup from being stagnant and outdated. Understanding the basics of pivoting is crucial before making rash decisions or planning corporate strategy.
In Ries’ strategy, a company is constantly evaluating data: hypotheses, graph (bar charts), testing new products. Done as a continual process, the data collected and evaluated can give a clear indication of how a new product is faring in the marketplace, as well as the success or failure of a marketing strategy. This collection of information can then be passed to the CEO of the company for final decisions in the strategic planning meeting. The decision to pivot (or not to pivot) ultimately lies with the CEO of the company, but should be presented to investors and other key individuals who may be invested in the success of the startup.
Learning to Pivot
WHEN SHOULD A COMPANY PIVOT?
There are two main reasons that a company would benefit from a pivot of its business model: internal factors and external factors.
Internal factors are attributed to the factors within a company that deal with the inside workings of the startup. Several issues can indicate a problem within that may require a pivot in the near future.
It is not unusual to have the occasional staffing change at a company. It is to be expected, and rarely causes large scale disruptions. However, if large groups of people begin leaving the company at the same time, there is a definite problem. Mass exoduses of people leaving a company are a warning bell to the corporate structure, and demand some sort of explanation. Losing key individuals within an organization has the potential to devastate the startup. Immediate action is necessary to prevent additional losses and salvage the remaining company.
Lethargy can be seen in two ways: the overall company climate, as well as in the staff. When the overall corporate climate is one of disinterest and neglect, there is a problem that must be addressed. When lethargy begins to set in, processes suddenly begin to require twice the effort to reach previously met goals. This can be seen in the addition of bureaucracy that bogs down performances or outdated equipment that creates as many problems that it solves. Anything that slows down the ability of the company to do work can be classified as lethargy.
Lack of performance
There are two components to a lack of performance: a perceived lack of performance and an actual lack of performance. The perceived lack of performance can be seen when there is no media coverage of the company’s material. Newscasters will only broadcast events that are current and relevant the business world. If your company fails to attract even a minimal amount of coverage, there is a chance that the media has classified the company as having a lack of performance.
An actual lack of performance is demonstrated when the company begins delivering more excuses than products. When there is always a ‘good’ reason thing didn’t turn out as expected and it is never the company’s fault, the startup is likely suffering from a lack of performance.
The outside forces that can affect a startup can also indicate the need for a pivot. A company that fails to recognize the changes happening in the business sector can be caught unawares and be forced to make a pivot, even if, in fact, the pivot is a good move.
The rise and fall of the market is an indicator of the whims of the public. Failure to keep up with the swinging pendulum of public desires can be a death toll to a startup. As much as many entrepreneurs would like to think that the market doesn’t affect their startup, the reality is that the market is what drives business. The services and products that the company offers should respond to the market – not wait for the market to fit the product.
Another indicator of the need to pivot is a high turnover of investors. Investors are typically hesitant to jump ship mid-stream, preferring to see an investment in a startup through to the next stage. If there is a sudden exodus of investors, it should be a flag that indicates there is a problem lurking within the startup.
Often, companies are built around an idea of what a customer should want. The focus, however, should be on what the customer needs – and then the company is built around meeting that need. As the needs of the customer changes, the startup must be willing to pivot to continue to accommodate the customer.
Israel Ganot – When to Pivot
It is tempting to classify any change in direction that a company makes as a pivot. However, just jumping from one vision to another is not a pivot and will most likely end in disaster for the company. For example, a company that has been selling used cars and suddenly decides to open a produce stand has not executed a pivot – they’ve recreated their entire company. A pivot is simply a change in the avenue a company takes to reach its goal, and there are several types of pivots that can be done.
The arrival of a major supplier setting up shop next door may cause alarm and consternation within a startup. It does not have to mean that the startup will fail, however. By performing a pivot, the startup has the chance to capitalize on advantages that they may already have in place and maintain a lead over the new supplier. Pivot types can include: a product feature pivot, the revenue model pivot, technology pivot, product versus services pivot or the customer problem pivot. Conducting a pivot is a means to differentiating and allows the entrepreneur to refocus efforts on building their company.
It is a common mistake among startups to determine what services or products the company believes a customer will use, as well as how the company feels they will be used. The reality, however, is that customers will often not only use the products that are expected, but they will use them in ways the company may never have considered. In conducting a product feature pivot, the company will either zoom in on the features that the customer uses or zoom out to add more features for the customer. Monitoring customer usage will help give direction for future product development and pivoting.
When customers are the focus of a startup, it is easy to perform a customer problem pivot. In this pivot, the product or service solves a different problem for the same target customer group. Pivoting in this manner allows a company to maximize on the strengths they already possess, to the customer base they have already established and present their product as a solution to a problem the customer has. An example of this method can be seen in the way that Starbucks began as a retailer of coffee beans and expresso makers, but then pivoted to sell the coffee already brewed. As a result, their brand has dominated the coffee shop market and continues to gain a steady, loyal following.
ELEMENTS OF A SUCCESSFUL PIVOT
To be considered a successful pivot, the entrepreneur must ensure that the move solves a major problem within the company, allows the startup to maintain relevance to the company’s identity, and that it is a result of listening to customers.
Solve a major problem
For a pivot to truly be successful, the entrepreneur must take the existing business and solve a new problem. To accomplish this, the entrepreneur has to be up to date on the relevant issues that their customers face and be creative in developing a solution out of the processes that are already in place. It may be the use of products in a better way, or the application of services to solve a different problem. Whatever the situation, the company must shift their focus while keeping their system the same.
Maintain relevance to the company’s identity
A pivot is simply a slight variation of the corporate strategy – the process the company is going to take to accomplish their goal. The corporate goal, along with the company’s identity, is unchanged by a pivot. It is important to understand that the “failure of the initial idea isn’t the failure of the company”, according to Ries. Computrace, a computer program that focused on the recovery of stolen computer devices, performed a pivot when they realized that the data on the devices was more valuable than the devices themselves. By developing a tool that allowed a customer to remove data from a stolen device remotely, they had repurposed their method but still maintained their corporate identity. They continue to pivot their company, but each step is still in line with their established identity of computer and technology security specialists.
Listen to customers
By establishing pivot strategies that are customer-centered, startups are more likely to move toward success. Engaging in meaningful conversations with customers about the solutions that they need, the services that are offered and the missing links in their daily operations, the entrepreneur is able to incorporate customer driven solutions into their pivot. Using the information gathered from customers can propel the company to innovative solutions and can also provide redirection when a pivot isn’t working. When an entrepreneur truly understands the needs of the customer, they are better equipped to offer solutions that can work. A consistent process for feedback from customers ensures that the startup maintains relevant products and services, and is constantly improving their offerings.
Pivoting a Business with Barbara Findlay Schenck
EXAMPLES OF PIVOTS
A New York company, Bilingual Birdies teaches babies and toddlers English, French and Farsi. At the onset of the company, the classes were structured in a pay-per-class manner. Held in local libraries and civic centers, attendance at the classes was sporadic: sometimes the classes were full, sometimes they weren’t. When the owner of the company was approached by an organization who wanted to offer a flat rate to hold classes, the owner was concerned. While the steady income amount would be welcome, the overall amount of money earned would be lower per class. The upside, however, was that the steady income would allow for more development and expansion, while ultimately leading to higher overall profits. The owner made the pivot, and the new class model worked. By reducing the amount of time the owner spent trying to fill classes; she was able to focus on adding locations and was able to hire additional teachers, increasing the growth potential as well.
The vision for Stylous was to create a one-stop shopping experience for high-end fashion accessories and pieces, without the hassle of going to individual brand websites. By going to the Stylous site, shoppers could click on a product picture and be taken to the retailer site that sold that particular item. Stylous would receive a commission based on the completed sales at each retailer. The results were less than stellar. Sales were abysmal and the company was scrambling for answers. In conversations with users, they discovered that the search process for products was not customer friendly, and that most users were simply looking for sale products. To accommodate the user requests, Stylous began using social media to broadcast special sales, with links to the products on Twitter. The day after they launched a Twitter feed, their sales began to skyrocket. While it is not the process that they envisioned when they started the company, the owners of Stylous realized that to stay in business they would need to pivot – a decision that changed the future of their company.
The adage, “if at first you don’t succeed, try, try again” is apropos for entrepreneurs. By performing strategic pivots, a company can maintain its progress and prevents the stagnation and lethargy that are the key signs of corporate demise. It can be frightening to face a group of investors and confess that the original idea didn’t work, but for a truly successful startup sometimes it must be done. Developing a pivot strategy can not only lessen the feeling of failure, but it can position the company to move to success in a new direction.
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