A startup is basically an experiment testing the viability of a business hypothesis. If the idea doesn’t instantly skyrocket or the product does not satisfy the needs of the target audience, the founders face a dilemma: either to step aside or to pivot. However, there’s no use in dramatizing the change of the business idea: it’s a crucial part of the startup approach. What pivot does is demonstrate the project’s ability to adapt to market conditions.
What is a pivot?
Pivot is a fundamental change in the concept of a startup, be it a business model, a product, or a niche. The term was first introduced by the American entrepreneur Eric Ries in the book “The Lean Startup. How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses.” The angle of a startup’s turn can range from insignificant to a real game-changer.
The change is required if the results differ from the initial business plan drastically. Sometimes even a tiny shift (such as a few improvements to the product) can help a startup pull through.
You should realize that pivoting is not a failure or a defeat, but an opportunity to validate a new idea.
Hundreds of world-known brands survived the pivot. Yet, a pivot is a serious step affecting the fate of the team and the company. That’s why you must perform a clear-eyed risk assessment prior to pivoting.
Types of pivots
In his methodology, Eric Ries suggests that there are ten types of pivots. Choosing the appropriate option depends on the existing startup problems:
- Zoom-in pivot happens when one of the product’s elements becomes the main one. The startup focuses on the key and most financially beneficial function separating it from the main product and turning it into an independent solution.
- Zoom-out pivot is based on the transformation of the initial product into a multifunctional one, meaning that the old solution becomes a part of a new, large-scale one. The demand for an all-in-one solution occurs when the target market looks for a variety of offers and formats.
- Customer segment pivot is the change of the target audience. If the product cannot solve the problems of the current market (for example, due to an insufficient CustDev), the startup switches to a segment where there is a high probability of being in demand. A very popular example is changing the business line from B2C to B2B.
- Customer need pivot takes place when a problem tackled by the current product turns out to be insignificant for the consumer. Thus, there’s no need in focusing the business around it. However, market analytics points out the presence of another “pain” that a startup is able to kill.
- Platform pivot means changing the platform, such as switching from an application to software, and vice versa.
- Business architecture pivot is a process of choosing one out of two business models as there’s no way to use both of them simultaneously. The first option has high profit and flat sales, while the second one has low margin and huge sales.
- Value capture pivot is changing the way of making a profit. For example, the transition from a freemium monetization (providing a limited version of the product for free) to generating revenue from advertisers.
- Engine of growth pivot. Based on a startup’s goals, an owner can choose the best-suited growth model: sticky (focusing on customer retention), viral (promoting the product via consumers), or paid (increasing the profitability of each buyer or reducing the costs of attracting them).
- Channel pivot focuses on a new method of delivering the product to customers.
- Technology pivot takes place when the new technological solution is used for building the current functionality of the product. As a result, the quality of the product increases, hence the demand for it. Moreover, the costs may be reduced, or the price gets increase.
A startup can either combine several types of pivots or focus on one.
Why startup founders are back-pedaling
The main reason why the founders stall and do not pivot timely is the fear of change. Often startup owners see this turnaround as the “beginning of the end” instead of a business shift.
Reasons of refusing to pivot:
- Founders are unwilling to abandon the active business in which money and effort have been invested.
- There are hints that the product might be soon introduced to the market (revenue, regular customers, etc.). But despite some results, there is no progress or it’s too insignificant.
- It’s scary to admit the death of the idea.
- Accusations of failure fall on partners, investors, or consumers.
However, it is a mistake to think that pivot is an answer to all your problems. It is reasonable to do it if other attempts to save the startup were unsuccessful.
How to realize it’s time to change
The signs indicating the need to pivot:
- The startup cannot keep up with the market trends, or the chosen strategy cannot provide sufficient development. In this case, you may need to change the growth mechanism, sales channel, or monetization method.
- High competition, especially from the larger companies. Enterprises have more resources leading to better chances to thrive, so you need to be ready to withstand the competition. In addition, the market saturation with similar products already covers the initial need of the target audience, resulting in fewer chances for a startup to get a full-fledged benefit.
- Only one function of the product is efficient. Perhaps it’s time to focus only on it and make this direction a key one (zoom-in pivot).
- There is no demand for the product or it doesn’t solve the user’s problem. Even if the consumer seems to be interested, this might happen at the MVP stage. If there is no proper feedback from the target audience after the product introduction, a pivot can save the situation.
- You couldn’t find proper ways to instantly attract customers. Therefore there’s no income or it gradually decreases as well as the flow of consumers.
- Changing goals and objectives. It often becomes clear after project launch that there are more promising directions in the niche than the current one.
- High development costs. Startup founders definitely need to look for ways to reduce costs, for example, to pivot the technology of manufacturing the product.
- Negative product reviews are indicating dissatisfaction with the target audience’s needs. If you regularly receive feedback from customers about an inflated price, poor functionality, cheaper analogs, and so on, then it’s high time to pivot.
Get inspired by some well-known pivots
A lot of world giants owe their success to a timely pivot. By effectively changing the business idea, they turned their failures into wins. The example of large enterprises clearly shows that sometimes the failure of an initial idea becomes a springboard for rapid startup growth.
The platform was originally designed to be a video-dating app where anyone could post a video with a story about themselves and the description of their ideal partner. However, the dating idea didn’t boom, and the founders made a pivot by turning YouTube into a video hosting service. A year later, YouTube was acquired by Google for $1.65 billion.
The Slack case is another classic example of a successful pivot. Initially, the Tiny Speck company launched the Glitch game, which was instantly considered unsuccessful. But during the development process, the company built a platform for internal correspondence that turned out to be very promising.
The team switched to the development of this communication tool. In 2014, the Slack messenger was introduced to the market and soon became a unicorn with a market capitalization of more than $1 billion. In this case, the success of the company was ensured by the zoom-in pivot.
In 2004, three friends organized an online store selling snowboards. The profit margins were really sad, and the founders decided to pivot. In 2006, they launched the Shopify eCommerce platform. In terms of global popularity, it only took the back seat to the WooCommerce Checkout plugin for WordPress.
The infamous discount service appeared thanks to The Point project -- an online platform for different joint activities, such as forming petitions, organizing events, and etc. The founders highlighted the key function of the startup: uniting users to receive group discounts. The new idea turned out to be a pure success, and the Groupon service turnover for the first year of operation amounted to $94 million.
The company went through not one but two pivots. In 1997, Netflix was a DVD rental service with mail delivery. 10 years went by and Netflix changed its course of action to launch a streaming service with online access to movies and TV programs.
But gradually the competition won over and the company started to lose its positions and once again shake things up and pivot. That’s how they started making their own content. In 2013, the first successful Netflix original series House of Cards was released. To date, Netflix is a synonym for streaming and a global brand for creating a variety of content, from TV series to movies.
The photo exchange service was initially created as an online game Game Neverending that was, however, never launched. Once they realized that the technology solves a more promising user problem, the company changed its business line and released an application for sharing images. The product gained popularity among the consumers, resulting in a subsequent acquisition by Yahoo.
Initially, the company’s business idea was to transfer debt receipts between Palm Pilot smartphones. But the demand for this service was poor and the startup switched to electronic payments by email.
In 2002, the company was bought by eBay, thus ensuring the success of the company. Since 2015, the service has been operating as an independent platform for online money transfers.
Instagram has grown out of the mobile game Burbn. After attracting the funding, the founders (Kevin Systrom and Mike Krieger) turned the game into a photo application by inventing the first X-Pro II filter. A free exchange of photos and videos seemed to be a great concept, so the product development kept going. Instagram introduced new filters and attracted more and more users. Saving the simplicity was the must, so no wonder it became the app’s biggest advantage.
By the way, despite having an audience of more than a million, the Instagram team remained really small. In the year of the launch, its number numbered only 6 people. At the time of Zuckerberg’s acquisition, there were 13 people.
Initially, the service was a system for requesting recommendations. The idea wasn’t successful, but the founders noticed that users like to write reviews for local businesses, such as restaurants, cafes, beauty shops, etc. As a result, this direction became the key one, which brought success to the startup and made Yelp an influential business directory with millions of reviews.
The social network of microblogs, Twitter is a project of Odeo, a company engaged in the development of text-based Internet services. In 2006, Jack Dorsey suggested creating a simple platform for exchanging short messages. Initially, the service was only used by Odeo employees as a means of internal corporate communication.
Twitter was gaining popularity, but Odeo was taking losses. At some point, the microblogging network was singled out in a separate direction. Consumers liked the new option for real-time communication, and by the end of 2007, the social network had gained worldwide fame. On Twitter, people share news, make appointments, cover cultural events, and so much more. Its number of monthly active users is about 330 million people.
Common mistakes and risks of pivoting
The above-mentioned successful pivots of global brands can create the illusion that changing the business concept will sooner or later lead to business success. But it’s not so easy in real life: a U-turn is always associated with the risk of failure. Therefore it requires an objective assessment and timeliness. First of all, this refers to the radical changes, since their necessity must be 100 percent approved.
The typical mistakes that make a pivot high-risk or unprofitable include:
- There is no need for a shift. A pivot is only appropriate when all the startup participants (founders, investors, and mentors) have decided that the current project is unprofitable. It is recommended to change the concept as the last resort when every other maneuver was ineffective.
- Being late with the pivot. Startups often stall with making a final decision because they fear changes and expect that things will eventually get better. They are often uncertain about their capabilities and the validity of a new direction. As a result of time loss, the startup capital is running out, leaving no opportunities for a smooth and planned turnaround. In this case, a head start can be provided by other sources of income, such as a side business (if applicable).
- Narrow-minded teams. Too often, startup participants focus on one direction alone, excluding other ideas. You need to constantly monitor the market and its trends, work on the product, and improve it. The target audience can give lots of signals about the needed change. So you need to study their pains to indicate the necessity of pivot, segment expansion, or offer optimization so that it fully meets the identified needs.
- Refusal to calculate key metrics; no understanding of pricing. The unsatisfactory idea is well identified by performance indicators (MRR, LTV, churn rate, CAC, and so on). If there’s no income or it’s insignificant, or there are no regular consumers and ways to attract them, or the churn rate is more than 5% and other maneuvers failed to improve it, then it’s time to think about pivoting. When planning a new idea and starting to implement it, you also need to take into account such things as a qualitative assessment of the product, its compliance with the market, production costs, and customer acquisition. It is important to understand how the product price is formed, what affects the cost, how to reduce it, and what other pricing factors are.
- Lack of competitor analysis. Studying the offers available on the market allows you to objectively assess whether a pivot is needed or the user’s problem has already been solved. Make sure that you’re not trying to reinvent the wheel. In addition, you’d better use the competitors’ effective solutions about the product, ways to attract customers, sales channels, and so on.
- Frequent radical pivots. If you constantly subject a startup to significant changes, you lose concentration on the main idea. Small pivots regularly occur in a young project, but radical shake-ups should be well-founded and well-planned.
Life hacks on how to pivot
If a startup has decided to make a pivot, it is recommended that the founders draw conclusions and follow the rules that will help them choose the right direction and prepare for changes:
- Use past experience. Put aside the previous work, analyze the product: its weaknesses and strengths, what can be saved, and what is better to abandon.
- Evaluate growth opportunities, so in order not to hit a dead end, analyze the market size, the needs and structure of the target audience, the level of competition, and so on.
- Be persistent. Get ready to implement your own vision, which may not be clearly presented to partners or not supported by them.
- Do not contradict the mission that attracted your customers earlier. For successful refactoring, it is recommended to preserve the semantic binding and sequence.
- The pivot should be transparent. You need to openly and reasonably sell the idea of changes to investors and partners (with the justification of the pros and cons), take into account the partners’ opinions and criticism.
- Communicate closely with the team. Justify the decision, discuss each step and possible consequences, keep feedback. It is important to maintain the cohesion and motivation of startups, inspire them with a new ideas.
- Do not doubt the choice and do not look back. Doubts are acceptable at the debate stage, but not after the decision to pivot is made and agreed with the startup participants.
Each separate startup is specific and requires an objective and comprehensive assessment before making a decision on changing the concept. When the prospects of the project are vague, the economic performance indicators are not encouraging, the development has reached a dead end after a dead-end, the motivation of the team is reduced — the time for a pivot has come.
Study the target audience, get in touch with consumers, find out what hurts them, and come up with a solution. Gradually test a new or optimized product. You can not change the concept abruptly, without a clear goal, proper planning, and a preliminary forecast of results. If the offer satisfies the market, scale the project.
Many well-known startups went through several “shifts” before finding their niche. Pivot is the beginning of a new path, which gives you the opportunity to get knowledge, experience, and deploy a project in such a way as to ensure its rapid growth and maximum efficiency.