Do you continue what you’re doing, or do you pivot? Should you stick to your business model or switch to Plan B? Is there even a Plan B?
These are one of the hardest questions for startup founders everywhere.
Pivoting your business can mean admitting failure but it can also be a solution to all your problems. It’s hard to see which is which and after a company succeeds or fails hindsight is 20/20.
According to estimates, as many as 15-20% of startups pivot from their initial business plan at some point. Pivoting isn’t a bad thing, but a lot of founders misunderstand when it makes the most sense to pivot.
For a startup founder or any person at the helm of a company, it’s important to recognize when a pivot needed immediately and when it is best to stay the course. A reactionary pivot can be as dangerous to a company as no pivot at all. Therefore, we will introduce three business pivoting types.
Business pivot types
There are 3 types of pivots. Each type of pivot requires making a big change to your business model. So, keep in mind that this is both hard to do and has big consequences.
- Product Pivot: You learn that one part of your product is way stickier than the rest, and your customers care a lot more about it.
- Customer Pivot: You learn that there is a new segment of customers willing to pay more for your product than your current customers.
- Problem Pivot: As you talk to your customers and do research, you discover they have way bigger problems than the ones you’re trying to solve.
How to know if your pivot will be successful?
- Take nothing for granted and challenge every idea you come up with. Then validate your assumptions.
- Never get too attached to your original idea. By listening to your users and looking at the data you might be able to do much more.
- Ask yourself whether there’s any aspect of your solution that can be radically simplified. Or better yet, spun out as a standalone product.
- Dip a toe before you dive in. Try developing quick, inexpensive ways to put out feelers and see how receptive people are to your idea.
Slack is the fastest growing workplace software ever. The company’s CEO Stewart Butterfield co-founded the company in August of 2013, as a cloud-based team collaboration tool. However, Slack was actually started as a tool to help him build another product. A game that his team worked on from 2009 up to 2012 when it was shut down.
How do you pivot from a gaming company to a B2B chat/productivity IRC clone?
Having left Yahoo a few years after Flickr was acquired, Butterfield set up a company called Tiny Speck to work on Glitch. To collaborate remotely on Glitch, the team behind it built an internal chat tool, which they kept adding features to over time. They built features for searching the messages database. They added basic file-sharing, and more.
When Glitch failed the team decided it does not want to do another project without their collaboration tool so they decided to build a company around it. The entire team from product people to the developers loved using it.
How to monetize?
In just over two years, the app added more than two million daily users who collectively spend more than 320 million hours connected to the app, sending 1.5 billion total messages. And the company is doing something many tech startups find difficult—monetizing its customers. Some 95,000 users pay for the service, including major companies.
Not all product pivots need to be as drastic. Sometimes you will find out that a single feature of your product is simply the main reason why your customers use your product. Simplifying things and making that feature into a product of its own might be the way to go.
If you’re trying to figure out whether to pivot your product, ask these questions:
- Is one part of my product or feature stickier than the others? Why?
- Which product features correlate most highly to long-term retention?
- Where are people spending the most time in my app?
What if early customer feedback indicates that the problem solved is not very important. Or that money isn’t available to buy. This requires repositioning, or a completely new product, to find a problem worth solving.
In a customer problem pivot, we try to solve a different problem for the same customer segment. This is an exciting kind of change, usually. When doing intense customer development, the problem team can attain a high level of empathy with potential customers. If the results of that exercise is a realization that customers have a problem that our solution doesn’t address, and that problem is more promising – it’s time to pivot.
Many of today’s most successful brands are in existence thanks to a necessary pivot at some point in the past. Take Starbucks, for example. It may be hard to imagine but when the now ubiquitous coffee chain was founded in 1971 in Seattle, it did not sell cups of coffee.
The only brewed coffee a customer could be lucky enough to enjoy there at that time would be, perhaps, a free sample. But after the company was sold to now CEO Howard Schultz in 1987, it was time for Starbucks to start brewing up a major pivot and a whole lot of coffee. With Schultz’s vision, Starbucks pivoted to become a coffeehouse and not just a retailer of supplies.
The product a business sells is far more than just the specific goods or services that the business may promote. In fact, the product that consumers actually buy from a business is the sum total of the goods they collect + the services they receive + the perceived benefits that they enjoy, which together equals the total product approach.
While coffee is an important part of the total product that Starbucks sells, there are a great many more aspects of their product offer than just the coffee alone. In other words, ‘going for a coffee at Starbucks’ means far more than just satisfying a thirst or caffeine need. In actual fact, Starbucks have done what all other major global chains have done in the pursuit of profit, in that they only deliver adequate goods (coffee) while choosing to excel at services and in promoting their highly-valued/low-cost intangible benefits.
Starbucks realized the need of coffee users for more than just the end product.
To figure out if it’s time for a problem pivot:
- Is the problem I’m solving really a problem?
- What other problems are my customers facing?
When most people need recommendations for a good doctor or a good movie rental, they ask their friends. Jeremy Stoppelman started a company called Yelp and asked millions.
Along with co-founder Russel Simmons, the company began in 2004 as an automated system for emailing recommendation requests to friends. Although the duo received $1 million in funding from PayPal co-founder Max Levchin, the idea fell flat with their audience.
However, users viewed the system in a way they hadn’t expected: by writing reviews on local businesses just for fun. They decided to change course, capitalizing on the new “blue ocean strategy” of online reviews for local businesses. The original “Friendster Yellow Pages” now sees over 50 million users a month, with 17 million reviews online.
Maybe you have the right product and business model, but discover that your current customer base isn’t lucrative enough to support the business. If that’s the case, you have to figure out whether there are other customers worth pursuing.
It does not have to be that you do not have customers. Your product may attract real customers, but not the ones in the original vision. In other words, it solves a real problem, but needs to be positioned for a more appreciative segment, and optimized for that segment.
Early on in your business, it’s especially important to focus on who’s willing to actually spend money on your product. But what do you do when finding that there’s a more pressing, urgent problem they need to be solved?
To figure out whether to pivot around your target customer, ask these questions:
- Who are your highest-LTV customers? What do they use your product for?
- What might customers use your product that isn’t using it now? What’s their LTV?
When to pivot your business model?
Internal and external factors are two main reasons that a company would benefit from a pivot.
The inside changes of the startup can be staff turnover, lethargy and lack of performance. The occasional staff changes are normal. But losing key individuals within has the potential to devastate the startup. This requires an immediate action to prevent additional losses. Also, lethargy can slow down the capability of a company to work. It requires twice the effort to reach previously met goals. One more internal factor is the lack of performance. There is always a “good” reason why thing didn’t turn out as expected. If you have more excuses than products, you are in trouble.
Outside forces that can affect a startup are market changes, investor turnover, and customer needs. You should not wait for the market to fit the product. The product or service have to respond to the market, not the way around. Another indicator of the need to pivot is a high turnover of investors. A sudden exodus of investors indicates there is a problem lurking within the startup. Finally, your focus has to be on customer needs. As they shift, the startup must be willing to pivot. Your goal is to continue to accommodate the client.
Stay on the course or change direction?
So, think it was hard to create your initial business plan. Maybe it’s time for changes in your startup. Like everything in life, business constantly evolve. Change can be scary but at times necessary. This way, you can create a Plan B that will be sustainable and profitable. Pivoting is an opportunity to survive. And it can be even better than your first plan. Like you see in our examples above. A great Plan B is always your best Plan A.
Most of all, a pivot is essentially a second chance. You can change things in your favor. Without extra effort, just use all the hard work you have already done. Pivot will not be so far off base. Don’t need to change the whole concept of your business. Rather get on track. Get your startup back in good position. And prepare for development and profit.
Business pivots are responsible for some of the today’s most successful businesses. Maybe pivot is just what your startup needs to grow and change for the better.
Did you pivot your business? Looking forward to hearing your interesting story in the comments below.