Pivoting for Startups: Why, When and How
By Robert A. Adelson. This article was published in The CEO Refresher on February 10, 2021.
For the founder and entrepreneur launching a startup company, as well as the CEO and officers in a startup or early stage company, it is important to understand the market for your products or services, the needs of your customers and the value proposition you offer, and to be able to make adjustments and even radical changes of direction as facts and circumstances warrant.
That ability to make the needed adjustments and more radical changes to address the current market and customer needs is often called pivoting and the ability to pivot.
Importance of Pivoting to Startups
For angel investors and VCs, generally the most important thing they look for in a potential startup or early stage company investment, is the quality of the CEO and management team. That is true in tech, life science, e-commerce and across the board, but most true in the evolving world of the innovation economy. And one of the big reasons investors place so much emphasis on the quality of management, is that surprises happen, things seldom go according to script. The quality CEO will recognize when the business plan is just not working. If mistakes are made, the wise CEO recognizes the mistake in timely fashion, then promptly makes the needed pivot before too much time and money is lost – to find the right approach, and to do so more than once as needed until the company is back on course and succeeding in its mission.
Pivoting and its importance to the startup and early stage companies has become all the more critical in these fast changing times as a result of the enormous changes wrought on business, the economy and everyone’s life due to the COVID-19 pandemic.
Examples of Successful Pivots
Many startups go through one or more pivots on its path to growth and success. For example, YouTube started as a video dating website, but failing to gain traction in video-dating, its founders noticed that customers have been sharing videos that are unrelated to dating and pivoted to video-streaming, hence achieving success.
Another example is when Yelp moved from a word-of-mouth referral site to an open source of unsolicited reviews. The referral network didn’t work because Yelp could not generate the critical mass of users to make referral requests and provide meaningful referrals. But in the process, Yelp found that users like to write reviews for local businesses and capitalized on the phenomenon, turning its website into a local business directory with reviews.
Slack started out as a video game called Glitch, and its founder, Stewart Butterfield, decided to shut it down after failing to build a sufficiently large customer base. However, they found that the messaging application that they had developed for internal company communication was actually better than existing products in the market. Glitch then successfully pivoted into Slack, a successful messaging application with 8 million daily users.
In each of these cases, the “pivot” was a strategic change that leveraged the startup’s technology innovations, adapted them for new markets, and eventually developed a product that succeeded.
What makes a good pivot is understanding the reason why a pivot is necessary, taking into account timing and process, and finally choosing the right leader to lead the company through uncertain new territory. Venture capitalists and angel investors look for leaders that can change direction adeptly. Startup entrepreneurs need to demonstrate their ability to spot and exploit new opportunities as capital is important to startups looking to make it big.
Knowing your market through secondary source data and actually going to market are two very different things. You can do all the research in the world ahead of a launch and still have a stinker on your hands. The market has not responded the way you thought it might.
Being open to new data, especially customer feedback, allows you to capture new business trends effectively and adapt or change course. This is the primary reason for pivoting a startup.
You may also need to pivot even when your idea is a successful one. Unfortunately, every blue ocean space will eventually be filled with competition. Establishing a new market niche can keep your business from having to compete on cost alone. Instead, you can rely on differentiation and a superior product, which is a much better position to be in.
Diversifying your investment into several parallel tracks can help a startup see through comparison which of its ideas are most successful and producing a profit. This can allow the startup to abandon pursuits that do not produce results easily.
Lastly, you simply may not be passionate about your business anymore. Perhaps you need to try something new and take the company with you. This is exciting and risky, but sometimes risks reap the highest rewards.
The best time to pivot is now. Don’t wait until you have sunk insurmountable investment funds into one idea before abandoning it. It is important to be open to the idea that a good idea just isn’t enough.
When funding your startup, you will likely be asking investors to take a chance on you and your product. More often than not, they understand that the idea will fail. This is why they choose both the product and visionary: you.
Investors understand that good leaders know when to switch course and pursue the next contingency. Poor leaders will cling to old dreams too long and watch their business sink.
Financials are a huge determinant of both if and when you will need to pursue a pivot for your startup. If your company is bleeding money, it will not be long before you have to file for bankruptcy. Founders and other stakeholders will do anything to prevent this from happening, including pivot their product or service offering.
Deciding to pivot is one half of the puzzle. The other half is execution. Unfortunately, this is often where startups can stumble.
You don’t have to let go of everything that you have built, but if you decide to leave something behind, do it quickly. No use in attempting to put a square peg in a round hole.
The reason for a pivot is because you think that the new market segment you will pursue can offer greater profitability to your business. Incorporate feedback readily and iterate your offering often. Go directly to your customer and ask what they want. Believe them!
Be wary of dead-end streets, or opportunities that present little to no growth for the future of your company. The last thing you want to do is pivot to a similarly unprofitable venture and take your team with you.
Never forget the fundamentals. A good idea presents a unique opportunity for a particular market segment. Maintain focus and avoid offering too much or too little. Additionally, don’t wait to bring your product or service to market. You can always make changes along the way – your fully-developed solution may never be ready.
Expert Advice Can Make the Difference
The best and most successful startups understand one thing above all else: incorporating feedback is important to developing a good idea. This starts with customer feedback.
But you should also consider startup mentors and consultants as well. They can provide the necessary outsider perspective, experience and professional network necessary to push your startup to new heights.