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PIVOT: WHAT DOES IT MEAN IN ENTREPRENEURSHIP?

Marketing Manager
Anastasia Shevchuk

INTRODUCTION

Every entrepreneur starts with a strong conviction that their solution is a perfect match for their target market, and yet almost everyone later admits a need to "pivot" before finding their niche. Course corrections, or pivots, are normal for new ventures, so expect them and be ready to implement.

Failure is the unwillingness to learn and change based on better information.

The types of pivot are innumerable, but there are some more effective ones that every early startup should contemplate regularly during their early growth period.

Let's dive into the business pivot world to see how it works and helps startups to succeed.

WHAT IS A BUSINESS PIVOT?

A pivot in business means fundamentally changing the direction when you realize the current products or services don't meet the market needs.

Pivot can test fundamental hypotheses about the product, business model, and growth mechanism.

THE PIVOT STARTUP PYRAMID

Customers are the foundation of your startup. The problem you solve, the product you build, and the technology it's built with — all depends on who your customer is.
There can be many reasons for a customer pivot. For instance, your initial customers' needs changed or you took a turn when building your product, that resonates more with a different target group.

Be sure to evaluate the rest of the steps in the pyramid, if you make changes here.

Here's an example:

Facebook changed its user base from a semi-secret college club to a global party where everyone is invited.

Layer 5: Customers

Layer 4: Problem

Maybe you have identified the right customer, but you are solving a problem that doesn't exist or doesn't matter that much. You can pivot here, but you'll need to re-evaluate and change your solution, tech, and growth strategy. If you have the customer and problem right — you have a market.

If you decide to pivot on the problem, be sure to have a closer look at your solution, the technology, and your growth strategy as well.

Let's give an example:

The retargeting campaign company Criterio, started as a recommendation system for online retailers. But as it turned out that issue wasn't as important to retailers as another one.

Online retailers struggled with a large number of "almost-customers", who abandoned their shopping cart right before checkout, never to return. This was hurting the retailers way more than the issue Criterio originally identified, and so they set out on their retargeting quest.

Layer 3: Solution

The solution you're offering will probably be subject to a lot of changes.

Be ready to make updates, create new features or offer new services.

You may also discover that people use one feature and don't spend too much time on the others. Or that you've focused mainly on one feature, but your users are requesting other features too.

If that's the case, consider a pivot to meet their wishes. When you make changes to your solution remember to have a look at the technology you're using. Is it the right one? What adjustments could you make to keep growing, once you've made the product changes?

Example:

Nintendo started as a playing card company. But as the market changed and technology evolved, so did the demand for new entertainment and games. Nintendo went on to revolutionize the gaming industry. They did that by making a very smart solution pivot.
They decided to stay in the field of games and entertainment and acquired the rights to distribute the first - ever video game console in 1977.
pivot pyramid

Layer 2: Technology

As your business grows, your tech needs may change. The technology you chose in the beginning may not be good enough to keep your business growing.

Your users may not know what technology you use, but they will know if something will not work. That's why you need to keep the options for changing your tech in mind.

Here's one more example:

When Facebook started to take off, its PHP programming couldn't keep up with the scale. So they developed a technology called HipHop that converted PHP into a more scalable language (C++). This pivot allowed them to keep up with the demand and eventually get to where they are today.

Layer 1: Growth

If everything up to this point goes smoothly, you're really on the right track. So now is a great time to start experimenting with your growth strategy.

What are you doing to reach your customers? Are you getting enough users, or do you want to get more?
HAVE AN IDEA FOR A PRODUCT?

TYPES OF PIVOT

A single feature of your product becomes the whole product.

Sometimes one specific feature gets significantly more attention than the rest of your product. In these cases, channeling your resources into that feature alone can allow you to get your product onto the market much more quickly.

Zoom - in pivot

Zoom - out pivot

Your current product becomes a single feature of a bigger product.

This is the reverse of the above. It means you've established that there's an interest in your product, but you have reasons to believe that it needs to be a part of a larger, more developed product to be successful.

Customer segment pivot

In this pivot, the company realizes that the product it's building solves a real customer's problem but not those it planned to serve. In other words, the product hypothesis is confirmed only partially.

In this case, you don't need to change only your customer persona.

Customer need pivot

Sometimes early customer feedback indicates that the problem that the product solves is not very important. In this case you may pivot if you decide that the problem you're solving is not important enough to your customers.

It involves better understanding their needs, to find a problem that they would pay you to solve.

Platform pivot

This type of pivot is a change from an application to a platform or vice versa.

Value capture pivot

This pivot refers to changes to how you monetize or earn revenue. When you change the way you make money, this impacts the product, business, sales, marketing, and operational sides of the business model.

Business architecture pivot

Companies choose either a complex systems model (unique custom product for a relatively small market) or volume operations model (offering standard products to a big market). In practice, it means choosing between B2B and B2C models.

Engine of growth pivot

This pivot is about growth strategy changing for achieving faster or more profitable growth.

Most startups use one of three primary growth engines:

▪️ Sticky growth — attracting and retaining clients for a long period of time.
▪️ Viral growth — spending marketing budget on acquiring new customers.
▪️ Paid growth — increasing income per each paid client (for example, those that come via
AdWords) or decreasing the price of acquiring them.

Channel pivot

This type of pivot is about changing the way you sell your products and services (in stores, online, through partners, in-app). Therefore, channel pivots often require adjustments to many elements of the business model.

A channel pivot acknowledges that the same solution could be delivered more effectively through a different channel.

Technology pivot

This type of pivot is about changing the technology that your project is built upon.
This pivot comes about when you know you can achieve the same outcome with a different technology that is lower cost and/or better performance.
pivot types

THE SIGNS YOU NEED TO PIVOT

Target audience is not interested in your offer as it doesn't address your audience's pain points. Turn to the audience that will find your solution valuable or identify the pain points of the current audience.

Startup is not solving a user problem

One feature stands out

Sometimes, a single feature of your product, service, or business model will perform considerably better than the others around it. If that's the case for your company, explore the possibility of pivoting to support that single aspect exclusively. Your goal is to be as efficient as you can be — to work smarter and get the best possible returns for your effort.

Gross profit margins are diminishing

If demand for your product is falling or your business's gross profit margins are diminishing, you most likely need to pivot. There needs to be a strategy in place to expand and diversify your revenue base so that economic downturns are manageable.

You're consistently being outperformed by the competition

Your idea may seem unique and original at first, but there's always the chance that a bigger company with more resources and funding and a built-in audience will come along and create an offering that's similar to yours, only better. Since you don't have much of a choice in this situation, your startup is probably better off doing something completely different.

Your company has hit a plateau

If you notice slow progress in your company's development, then it may be hit a plateau. This may be the result of boredom or an unmotivated team, or simply an inefficient strategy, but whatever the cause, a pivot should be considered. It doesn't need to be a major pivot, but take an honest, objective look at your company and identify something that can be changed.

Your early adoption don't find value in your product

One of the benefits of customer interviews and validation experiments is that you get many opportunities to test and validate your solution and the riskiest assumptions of your business, even before building your startup product.

TIPS FOR PIVOTING YOUR BUSINESS

Develop a prototype before you pivot

If you are thinking about pivoting a startup, develop a prototype first and see if people would use it, find it valuable and give feedback. Feedback at the beginning stages is important for determining where the impact of the product would be the greatest. The prototype would also enable you to identify whether the product is a good fit for the brand.
WANT TO BUILD A PROTOTYPE?
A pivot is not a complete revision of your strategic plans. It's important to find what's not working, so you don't throw out good work.

Don't fix what's not broken

Listen to your customers

The feedback you receive from customers is a great indicator of whether you should pivot or not. Occasional negative feedback is expected but if you're constantly getting criticisms like "too expensive", "not enough features", "the purchasing process is too complex", "there are other, better products out there", or any other feedback along those lines, perhaps you might be ready for a pivot of some sort.

Keep the investors in the loop

At every pivot stage and when you are making the decision, make sure the investors are kept in the loop. In case you think the company's mission and objective is going to change, start talking about it with your internal stakeholders including investors at least six to eight months in advance. Any drastic change without any discussion with the investors can harm the relationship and make pivoting unachievable.

SUCCESSFUL BUSINESS PIVOTS

Instagram is one of the most famous pivot software startup stories.
Instagram is today one of the biggest social media platforms. Before becoming a social media platform with millions of users, Instagram was a prototype known as Burbn that was made with check-in features, photo post options, and the capability to gain points, in addition to other capabilities.
The founders, Mike Krieger and Systrom soon realized that the UI was too difficult and thus they pivoted. They limited their Instagram startup software development to posting, commenting, and liking features – making it one of the most simplistic visual platforms in the market.

Instagram

Twitter

The most legendary pivot in social media history is the transformation of Odeo into Twitter.
Odeo began as a network where people could find and subscribe to podcasts, but the founders feared the company's demise when iTunes began taking over the podcast niche.
After giving the employees two weeks to come up with new ideas, the company decided to make a drastic change and run with the idea of a status-updating micro-blogging platform conceived by Jack Dorsey and Biz Stone.

YouTube

Today it's the most popular video - sharing platform, but in its inception, YouTube was set up to be an online video dating site.
Launched on Valentine's Day 2005, the unofficial slogan "Tune in, Hook up" didn't exactly reach worldwide appeal.
The YouTube team noticed that people were beginning to upload videos other than dating profiles, such as planes randomly taking off and landing. This led to co-founder Jawed Karim posting "the first video on YouTube" titled "Me at the zoo".
His silly, yet honest video inspired others to post their funny videos on the site, thereby providing proof of concept that people uploading videos of themselves online could be profitable.
pivot examples

CONCLUSION

Summing up, a pivot is not easy to execute.

Launching and running a startup is a risky adventure. Many startups fail. They fail due to different reasons. Some of them survive due to pivoting at the right time.

Pivoting is the secret to survival. It's the closest you'll come to failing without actually failing.

Learning to pivot could save your business from failure, and allow you to succeed in the long run.
DO YOU HAVE ANY QUESTIONS?