What is a Startup Pivot?
A startup pivot is essentially a shift in the business strategy which is implemented for testing out a new approach associated with the startup’s business model after receiving specific feedback. In other words, a startup pivot occurs when a company shifts its business strategy to accommodate changes in customer preferences, industry or any other factor that impacts its financial bottom line.
Not every startup pivot is a fundamental change to the entire company. Often, a company only needs to address a single problem instead of entirely restructuring itself.
A startup pivot could be anything - from shifting marketing efforts for appealing to new buyer personas to changing how a product is manufactured. While the term is relatively fluid, it always entails a change in the startup's business strategy, and is generally dictated by factors beyond the company’s control.
A great example of pivoting: Instagram
Instagram wasn’t always the Instagram that we know today. Meaning: it did not start as instagram.com, the dedicated photo-and-video-sharing social networking application.
The platform that exists as of today was born out of a service called Burbn, a location-based check-in app. After observing the extreme popularity of the app’s photo-sharing capabilities as compared to the popularity of its other features, Burbn's leadership stripped the application of virtually every other aspect. They started focusing exclusively on 3 of its functions:
- Photo
- Comment
- Like
Burbn ultimately rebranded itself and became Instagram, the big photo-and-video-sharing giant that we know and love today. Which was undoubtedly a terrific strategy - one that culminated in a valuation of over $100 billion for Instagram by 2018 (Bloomberg).
The route taken - turning Burbn into Instagram - is an example of a lean methodology concept known as startup pivot.
Why, When and How should your startup pivot?
A good number of hot-shot tech giants like Facebook, Instagram and Slack have enjoyed highly popularised success post-pivoting. This has led the current crop of new-age founders to believe that startup pivoting could be a great success formula for them, too.
When should you considering pivoting?
Here are some factors to help you decide when to pivot:
- Only one aspect of your product/business really stands out
- The market response didn’t align with your anticipation
- Your competitors are constantly outperforming you
- The financial viability of the business isn’t certain
1. Only one aspect of your product/business really stands out
Sometimes, a single feature of your service, product, or business model performs considerably better than the other features around it. If and when this happens, explore the possibility of pivoting to support that single aspect exclusively.
Trimming the unnecessary fat from your business ops is one of the best ways to streamline production. Shedding such - inconsequential yet operationally hefty - weight is the key to getting lean. This could, in turn, extract more value out of the capital and time you invest in your company.
If you can identify a single feature of your service or product that your customers leverage or enjoy more than the others, consider pivoting and building around it.
2. The market response didn’t align with your anticipation
The prospect of shipping your service or product to the market is exciting. However, you might sometimes overestimate the scale of the problem that you address. Alternatively, your target audience just might not be willing to pay what you’re charging them. Or, you’re afflicted with any of the 23 other causes of low customer traction.
Generally, any case where your service or product doesn't resonate with the market like you thought it would, is cause for a startup pivot. You need to change your business model to convey better value to your target audience, one way or another. Take steps to generate consumer interest in your solution.
That could mean focusing on strategies that include (but are not limited to):
- Redirecting efforts on previously not thought of product features
- Changing your target market
- Lowering your price
Your ultimate goal is to make consumers see your business in a new (and better) light.
3. Your competitors are constantly outperforming you
In the dog-eat-dog world of the startup realm, you’re always going to be pitted against some kind of fierce competition. You should know that it’s time for a startup pivot if either of these two events occur in this competitive landscape:
- Other companies are confining you to a niche you're unhappy with
- Other companies are taking up business that you need, thereby dominating your space
That’s not all…
Your startup pivot is going to be drastic, in this case. You'll need to radically alter your company and its operations. Indeed, you might have to completely revamp your sales strategy, or even modify your product (or service).
4. The financial viability of the business isn’t certain
Your business can only go so far as its capital carries it, despite what it might mean to you personally. This implies that if the company is running out of money, you'll need to learn the difficult art of letting go of the idea or processes behind it and pivot to something that’s more financially viable.
You’ll need to analyse everything to determine:
- Which aspects are burdening you financially
- What you can strip back, and
- Where you might then go with the resources you have left in hand
Using all that information, you can identify a reference point for your startup’s pivot.
4 crucial considerations about startup pivoting
- Pivot big (if possible).
- Wait out your current strategy before you pivot.
- Should you shut it down, instead of pivoting?
- Always iterate, and don’t confuse it with startup pivoting.
#1: Pivot Big (if possible)
There are generally 3 types of startup pivots:
- Pivoting in your existing market
- Repositioning your product
- Pivoting to a different market or different industry
While staying within the same space is generally thought to be the safer option, same-industry startup pivots rarely lead to the discovery of massively successful ideas. In fact, stumbling upon what seems like a new idea in the same space is unlikely to land you in a significantly better position.
Twitch is probably the only counter-example in this case (of a company that successfully pivoted within-industry to a smaller idea).
(Though even Twitch had to change its business plan 4 times in 5 years before becoming the success it is today.)
However, the best startup pivots generally come from internal projects that take off. Take the successful startup pivot examples of Slack walking out of gaming and Twitter moving out of podcasting. Unconstrained by their previous industries, these companies pivoted onto a better idea.
Bottom line?
Big startup pivots are recommended over small ones.
#2: Wait Out your Current Strategy before you Pivot
It makes more sense, as an entrepreneur, to pivot earlier in the life of the company rather than later - but you don’t want to jump the gun either.
Startup pivoting is not recommended until you:
- Have given the original idea enough time to iterate/test
- Have fully explored the market of your original idea
- Do not see any growth over an extended period of time
The part that entrepreneurs and business-owners struggle with is deciding when to change course. Some entrepreneurs wait too long, while others give up too early. You’ll need to allow different time frames for different industries.
It is important to define a timeframe that lets you figure out whether or not your product is working. It is even more important to ensure that the time frame is set before you start working.
Identify the root cause of why your startup isn't taking off the way you expected. Sometimes, the things blocking your success are not what you think (for instance, your product may do well if your user experience is improved)...
Some metrics to keep in mind:
#3: Should you shut it down, instead of pivoting?
Sometimes, the best option is throwing in the towel if the business is not working out.
This doesn’t mean that you stop being an entrepreneur (or that you are any less of one). This means that you now have room to come up with an idea that is different. You may profit more from approaching that new idea with a fresh state of mind, with a new set of investors, and a new/relevant co-founder - rather than how much you’ll profit by pivoting on the existing business model.
The best part?
In the startup ecosystem (especially in California), people generally look upon “failure” with a fair deal of respect. It is one of the beauties of the place. If you built a failed startup and come to raise money again (for a new venture), you won’t hear someone say, “I won’t give you money because you tried and failed”. What they usually think to themselves is, “They might do better this time, considering their familiarity and experience with this entire process.”
Therefore, the factor of being a second-time founder oftentimes ends up playing in your favor.
This post explains the advantages (and disadvantages) of being a second-time founder.
#4: Always iterate, and don’t confuse it with startup pivoting
An impressive amount of iteration could be done within an industry without pivoting as well.
Airbnb is a good example in this case. Before eventually going to New York and nailing the market, they tested the market for over a year. And although their website changed significantly, they never truly pivoted. They had always aimed at accommodations and simply switched to actual beds from air mattresses. While some may call this a startup pivot, this is actually a product iteration.
Conclusion
It's important to realize when you really need to pivot vs. when you need to iterate and fine tune a few things to really hit it off. Evaluating in a frequent enough but logical timeline will help you make this decision better. In some cases, you may be better off shutting shop and starting fresh with a new idea and a heap full of learnings.
If you have any query related to startup pivoting (or any other startup issue), feel free to write to hello@abstractops.com or visit us at AbstractOps.
We help founders like you manage your back office functions (HR, Finance, Legal, Regulatory Compliance) so that you can focus on product and growth!
Note: Our content is for general information purposes only. AbstractOps does not provide legal, accounting, or certified expert advice. Consult a lawyer, CPA, or other professional for such services.
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