A pivot is a structured course correction designed to test a new hypothesis about the product and business model. When we begin a new product or service, we make an assumption (or make a hypothesis) that this product and business model is something that customers will be delighted by and that the business can reach its objectives by building this product. But that isn’t always the case. Few companies ever create successful plans from the beginning and may go through a series of “course corrections” before finally emerging as a success. 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.
We may run several experiments and never get results that back up this hypothesis. For example, imagine we try to acquire traffic profitably through Facebook, Twitter, Google Ads, blogging, direct sales, events etc. but we still cannot achieve the desired results. We have two choices: pivot or persevere.
- The Pivot is where we change our old hypothesis to create a new one. We find a new Minimum Viable Product and try to prove that this new hypothesis is true.
- The Persevere approach is where we keep trying to prove our old (existing) hypothesis. We design new experiments or improve old experiments and see if those work.
Deciding whether to pivot or persevere is a judgement call. Just be aware that sometimes if your data shows that the business model isn’t successful, it is time to redesign some elements, change the business model, and start again. 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.
Inflection Point Pivot
Action plans should include testing for inflection points…Companies are selling “jobs” to be done. Rather than thinking of customers buying products and services, it is more helpful strategically to consider the outcomes customers want; in effect, they are “hiring” products and services to achieve those outcomes. What becomes clear when looking through this lens is that outcomes can be achieved in many ways and do not always conform to traditional industry boundaries … inflection points require changes to your business model … a pivot … always testing for inflection points costs less and provides tested business model evolution rather that huge spending to catch up or becoming irrelevant and going out of business when hit with an inflection point.
Types of Pivot
Eric Ries, author of Lean Startup, suggests that there are ten types of pivots:
- Zoom-in pivot. This pivot can be useful when you see that one feature in your product gets far more traction and interest than the other features in your product. You can then “pivot” by offering a new product that offers only that one feature. Obviously, by doing so you can dedicate more resources to perfecting this one feature (and really making sure the customer’s job-to-be-done is well-catered to). You can also get to market more quickly and build an MVP more efficiently. For example, imagine you have a project management tool that offers a group chat functionality, bug tracking, agile board management, and time management. Pivoting your product to only offer the specialized time management solution could be more successful.
- Zoom-out pivot. This is the above pivot in reverse. You broaden your product to include more features. Now what was considered the whole product becomes one (or several) features of a larger product.
- Customer segment pivot. Your product may prove popular but not with the user segment that you had initially targeted. Therefore your product positioning may need to change and the value proposition, pricing, and channels would all need to be reviewed.
- Customer need pivot. Life is too short to build products that nobody wants. Imagine you use the Lean Startup framework to identify early on that the problem you are trying to solve with your product is not very important to customers. Then you must understand more deeply the job that they are trying to do and find a problem they are willing to pay you to
solve. You may need to point your existing product at a different customer “job” or you may need a completely new product.
- Platform pivot. This talks about a change from an application to a platform or vice versa. Examples of platforms are eBay, AirBnb, Uber, Android store etc.
- Business architecture pivot. Geoffrey Moore, author of Crossing the Chasm, tells us there are two types of business: high-margin, low-volume businesses and low-margin, high- volume businesses. You cannot be both but sometimes you can pivot from one to the other.
- Value capture pivot. This pivot refers to changes to how you monetize or earn revenue. This is how the business captures value, typically by charging customers money. When you change how you make money, this impacts the product, business, sales, marketing and operational sides of the business model.
- Engine of growth pivot. Most startups these days use one of three primary growth engines: the viral, sticky, and paid growth models. Viral growth is when current users recommend other users. Paid growth is when you spend marketing money on acquiring new customers. Sticky growth is when you manage to retain most of your users and churn rate is low. You can pivot from one of these growth engines to another.
Note: The churn rate of a product or service the percentage of subscribers that stop subscribing in a given period.
- Channel pivot. Here you change how and where you sell your products and services (in stores, online, through partners, in- app). Channel pivots therefore often require adjustments to many elements of the business model.
- Technology pivot. This pivot is when a new technology can be used to achieve the same outcome. This can be beneficial if the new solution has lower cost and/or better performance.
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 attributed to things within a company that deal with the inside working of the business. Several issues can indicate a problem that may require a pivot in the near future.
- Staff Turnover: 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: 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. For instance:
- Market Changes: 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 business or 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.
- Investor turnover: 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.
- Customer needs: 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.
How To Pivot Your Business
According to one estimate, as many as 15-20% of startups pivot from their initial business plan. In some ways, pivoting a company can be like pressing the restart button on your laptop, and it can breathe new life into a failing venture. At the same time, pivoting a business also means abandoning a tremendous amount of invested work. Before you choose this path, consider these answers to when and how you should pivot.
When should you pivot?
One common reason to pivot a business is difficulty generating sustainable revenue. Many startups, for instance, operate according to the following model: they first build a user base, and then they determine how to monetize that user base. Some startup businesses choose a freemium model in the hopes that a certain percentage of their customers will convert to paying users. The average conversion rate for freemium models is 2-5%, so if your organization fails to generate sustainable revenue due to this low industry average, it is likely time to consider pivoting your business direction.
This is also true when a subset of your users – or a subset of your product or service’s features – is gaining significantly more traction than the original intent of your product or service. Perhaps you own an online booking service for restaurants, but rather than using your app to book tables, your customers use it to look at menus.
Or perhaps you are deciding between offering a high volume of your product at a low margin, or a low volume at a high margin. Take Ford and Maserati – Ford produces millions of automobiles each year at a reasonable cost to consumers, while the much more expensive Maserati might sell just 50,000 luxury cars a year.
A great system to consider implementing is, “Build, measure, and learn.” First build your product or service, and then measure the metrics most relevant to your company’s growth. What you learn from them can help you refine your product/service and your core focus. Wrigley did not begin as a business selling gum. Instead, the company gave gum away for free to its soap customers. When those customers were more interested in the gum, it became a viable business direction. Today, Wrigley is first in market share, with roughly 35% of the gum market.
How should you pivot?
First, share your new direction with your team members, your business partners, your customers, etc. In short, clarify this direction with your key stakeholders. This can help you avoid unwanted surprises and confused consumers who may be seeking your original product or service. Consider paying additional attention to early adopters who were passionate about your initial direction – this might involve introducing them to products or services from other companies that offer the same functionalities.
Next, ensure your team is comprised of the correct members who are engaged with the pivot. Pivoting your business likely means changing your mission and/or your vision. If your current team members are not aligned with this new direction, it may be better for both parties to part ways. A loss of confidence in their company is one of the most frequent reasons why people leave their jobs, which is why it is critical to appropriately onboard new staff members. To prevent a mass exodus of team members when your business pivots, aim to clearly outline your direction, as well as how leadership is taking steps to achieve this vision and a smooth transition.
Finally, align your resources and expenditures to your new direction. Metrics can again serve you well. Your new direction may have proved promising at first, but this does not mean that it will continue to do so. PayPal, for instance, has experienced multiple pivots. It began as a service that enabled PDAs to beam payments to other PDAs, and after a number of pivots, it is now an online payments business (that has recently been split off from eBay). In addition to revenue, consider tracking these metrics: customer acquisition rate, customer retention rate, and customer referral rate. These metrics could assist you in diving deeper into company analysis, and in identifying additional processes to adjust and refine your new vision and mission as you move forward.
Change can be a daunting prospect, and the best companies thrive because they can navigate these changes successfully. For businesses that are unsustainable or whose metrics do not support their current vision, pivoting direction can be a great way to get back on track to sustained growth.
For more thoughts on business pivots, read the blog entitled You Don’t Have To Pivot In a Crisis.
Copyright ©John Trenary 2021