Pivoting has become a bit of a buzzword in the startup world. While the concept has been around as long as people have been doing business, it was only applied to the startup world only about 20 years ago. Then it took the coronavirus pandemic for the term to spread even further and become part of everyday conversations. But what do we mean by pivoting? And how, when and why should tech startups consider taking a pivot? Here is a closer look.
What Does Pivoting Mean for Startups?
Linguistically speaking, the term pivot has its roots in the French language, referring to anything that turns. Around 100 years ago, it was adopted by American basketball players who used ‘to pivot’ to talk about a player’s ability to quickly change direction on the court.
In the early 200s, Eric Ries brought the term into the world of business and startup strategy in his book ‘The Lean Startup.’ Today, the startup community agrees that pivoting means a company’s strategic change in direction. Startups pivot for any number of reasons.
When and Why Tech Startups Pivot
In our last couple of posts (What to Do When a Startup Fails and How to Recognise the Warning Signs of a Failing Startup) we talked about navigating difficulties during the startup journey and finding ways out of crises. Choosing to pivot can be a valid way out of a challenging situation. But the reasons for pivot aren’t always negative. Some of the most common reasons for pivoting include:
- Focusing on a star product
- Changing the business plan
- Saving the business
- Managing competition
1. Focusing on a Star Product
Assuming your startup has brought to market a handful of products to start with, but now, one of them is really beginning to outsell the others. With limited funds for development and growth, one option for your business is to home in on your star product and focus resources and efforts on that particular item.
This approach allows your company to pool resources in one place. However, it bears the risk of ‘putting all your eggs in one basket.’ If your star product fails to deliver, there will be few or no alternatives. On the other hand, pooling resources and pivoting toward this product means giving your star product the best possible chance to succeed.
2. Changing the Business Plan
Business plans are built on a combination of information and assumption. If your assumptions and predictions are not working out in line with your projections, pivoting is a simple way of adapting your business plan.
Rather than spending too much time contemplating why your target audience is not responding to your product as expected, pivoting allows you to make a quick change. This quick change may well be all you need to address the mismatch between product and market and make much-needed adjustments rather than following a plan that’s not working.
3. Saving the Business
Speaking of plans not working out – if you’ve ever read any startup statistics, you already know that a large percentage of new businesses fail in their first few years.
Pivoting can be a viable strategy for saving and growing the business when your initial idea hasn’t worked the way you were hoping it would. Perhaps you do not have enough capital to back the initial idea and need to rethink your plans. Perhaps you need to adapt the idea to make it relevant to a new market. The reasons are almost immaterial. What matters more is that you’re honest with yourself and your business partners when it comes to making a decision about pivoting.
4. Managing Competition
How do you compare to your competitors? Sometimes, there are simply too many tech startups in an already crowded market. Choosing to pivot by focusing on developing one particular product or adding another service to your offering can help you deal with extreme competition.
Rather than trying to occupy a space that may be fully covered by your competitors, pivoting gives you an option to create your own space in the market.
When to Pivot Your Startup?
Reasons aside, how can you pick the right moment to pivot your startup?
We’ll let you in on a secret: There is no perfect time to choose to pivot your company. Instead, there is usually a period in which you realise that things aren’t going the way you’d like them to you. Assessing, reviewing, and adapting will most likely take a few months. The important thing is not to bury your head in the sand but to be honest with yourself and your team.
Deciding to pivot is not easy, but winding down a business is infinitely harder, so our advice is to make sure you understand your company’s trajectory and don’t miss the moment.
How Can You Pivot a Startup?
The process of pivoting from one idea to another is often somewhat similar to your initial product development. Unless one product is clearly showing itself to be a star product, you will spend some time discovering and fleshing out a product idea. Building a prototype, launching a minimum viable product (MVP) and testing the market will take some time.
Once your product or service has been validated, you need a solid strategy to complete your pivot. This will include watching the new product’s progress and iterating as you go. Here are some ground rules:
- Keep stakeholders, investors, and your team informed: It’s impossible to keep business difficulties secret, and the more open you are with all involved, the more trust you build for the future.
- Embrace change: Hand on heart, no one truly likes change. It’s uncomfortable, there’s plenty of uncertainty, and most of us find that challenging. The more you can think of pivoting as a normal part of the startup process (rather than a failure), the easier it will be to handle the changes.
- Be decisive: Choosing to pivot may not be a decision you make overnight, but neither should it take months. Acting relatively fast tends to keep more options open and help you pivot more smoothly.
Taking That Next Step
Do you think you need to consider pivoting? Making these decisions often hinges on your financial situation. If you’re not sure about where you stand financially, talk to your accounting team. Alternatively, if you’d like to hear another perspective, talk to us about our virtual, on-demand CFO services. We’re here to help you grow!