Also called: Course Correction, Change in direction, Strategic adjustment, Product-Market Fit pivot, Business Model Pivot, Customer Pivot, and Technology pivot
Relevant metrics: Conversion Rate, Customer Retention Rate, Average Order Value, Customer Lifetime Value, and Net Promoter Score
What is a Pivot?
Pivot is a term used to describe a change in strategy or direction. It is a process of re-evaluating a product or service and making adjustments to the existing plan in order to better meet customer needs or to take advantage of new opportunities. Pivoting can involve changing the product or service itself, the target market, the pricing model, or the distribution channels. It is a process of trial and error, and requires a willingness to take risks and to be flexible in order to find the best solution.
Where does the term Pivot come from?
The term “pivot” originated in the early 20th century in the United States. It was first used in the context of basketball, where it referred to a player’s ability to quickly change direction while dribbling the ball. The term was later adopted by the business world to refer to a company’s ability to quickly change direction in order to adapt to changing market conditions. The term has since been used to refer to any kind of change in direction or strategy, whether it be in business, politics, or any other field.
It wasn’t until the 2000s that the term “pivot” became popularized in the context of startup and business strategy, thanks in large part to the influence of Eric Ries and his book “The Lean Startup”. Today, “pivot” is a commonly used term in the world of entrepreneurship and innovation, where it refers to a strategic change in direction made by a company in response to market feedback or other factors that suggest a need for a new approach.
A Structured Course Correction
When starting a new product or service, we often make assumptions about its potential success in the market. However, reality may not always align with our expectations, and we may find ourselves struggling to achieve the desired results. In such cases, we have two choices: persevere with our existing hypothesis or pivot to a new one. This is where a structured course correction comes into play - a pivot.
A pivot involves changing the old hypothesis and testing a new one through a new Minimum Viable Product (MVP). In other words, a pivot is a strategic change in direction made by a company in response to market feedback or other factors that suggest a need for a new approach.
Pivoting is not an easy decision to make. It requires a judgement call and a thorough understanding of the market and its trends. It is crucial to be aware that if the data shows that the current business model is not successful, it is time to redesign some elements, change the business model, and start again.
Persevering vs. Pivoting
Persevering means continuing to experiment with the current hypothesis and making changes to the experiments to see if they work. It is an option when a company is willing to wait and take a chance on the current hypothesis.
However, if the experiments fail repeatedly, pivoting is often the best course of action. A pivot involves changing the business model and retesting the hypothesis with a new MVP.
It is important to keep in mind that a pivot does not necessarily mean abandoning the original vision altogether. Instead, it is about adapting to new information and making the necessary changes to increase the chances of success.
The Build-Measure-Learn Cycle of the Lean Startup
While many business books emphasize the importance of pivot-like changes, they often lack specifics. With the Lean Startup methodology, the pivot is built into the methodology and processes. This is what makes companies that follow Lean Startup resilient in the face of mistakes. If they take a wrong turn, they have the tools and agility needed to realize it and find another path.
This process is typically explain through the Build-Measure-Learn cycle. The Build-Measure-Learn cycle comprises three interdependent phases: Build, Measure, and Learn, although these phases may not necessarily occur in that particular order.
The Learn phase of the cycle is where the startup needs to make decisions based on the measurements accumulated. The startup must decide whether to persevere or pivot. Persevere means carrying on with the same goals, while pivot involves changing or shifting some or all aspects of the product strategy. Documentation of findings is necessary, including preservation of obtained knowledge and identification of the next steps for the startup.
Many business books discuss the importance of pivot-like changes but lack specifics. With Lean Startup, the pivot is built into the methodology and processes. It is what makes companies that follow Lean Startup resilient in the face of mistakes. If they take a wrong turn, they have the tools they need to realize it and the agility to find another path
A Hypothesis for Business Growth
A pivot is better understood as a new strategic hypothesis that will require a new MVP (minimum viable product) to test. Successful pivots put a company on a path toward growing a sustainable business. Pivots are a permanent fact of life for any growing business, even after achieving initial success. Decisions on when and how to pivot cannot be made formulaically. It requires human judgment.
As the goal of a startup is to find a path toward growing a sustainable business, the runway should be measured by how many pivots a startup has left. It is the number of opportunities it has to make a fundamental change to its business strategy. In that sense, the startup has to find ways to get to each pivot faster and cheaper.
The Art of Pivoting
Pivoting is a delicate balance between staying true to the original vision and adapting to market feedback. It is not an easy decision, but it can make all the difference in the success of a company.
When to Pivot
The decision to “Pivot or Persevere” is critical because it determines whether a company should continue on its current course or pivot to a new direction.
The decision to pivot should be based on feedback from the marketplace. Companies that are unable or unwilling to pivot in response to market feedback can become stuck in a state of stagnation, where they are neither growing nor dying. This state can be a terrible drain on human energy and resources.
It’s important to understand that a pivot is not just a small adjustment to an existing strategy. Instead, it is a new strategic hypothesis that requires testing with a new Minimum Viable Product (MVP). Successful pivots can put a company on a path toward growing a sustainable business.
Why you may pivot too early
Conducting effective experiments can be quite challenging and often results in failure, either due to misguided assumptions or flawed execution. In such cases, it is all too easy to attribute the failure to faulty assumptions and hastily resort to an early pivot.
Unfortunately, even if the experiment were to be successful, without the ability to execute the resulting plan effectively, the startup will inevitably face failure. Therefore, pivoting prematurely will not change the ultimate outcome. It is thus imperative for startups to thoroughly scrutinize any failed experiments and focus on identifying and addressing any flaws in execution before considering a pivot. Rectifying execution issues is significantly easier than attempting to resurrect a failed business model from scratch.
- Misinterpreting of experiment results. One of the main reasons why startups might pivot too early is due to a misunderstanding of the experiment’s results. Entrepreneurs may misinterpret “vanity metrics” or overemphasize positive data points, leading them to believe they are making more progress than they actually are.
- Launch and see. Startups frequently lack clear hypotheses regarding the metrics they need to achieve and instead adopt a “launch and see” approach that fosters complacency in the face of lackluster results.
- Impatience. Some entrepreneurs are too hasty in their decision-making process, and may pivot too early simply because they want immediate results. This can lead to premature pivots that don’t fully explore the potential of the original business idea.
- Overconfidence. Conversely, some entrepreneurs may be too confident in their ideas, and may pivot too quickly if they don’t see immediate success. This can lead to a lack of commitment to the original idea, which may have had potential if given more time to develop.
- External pressures. Startup founders may feel pressure from investors, stakeholders, or even the media to make changes to their business, even if it’s not in their best interest. This can lead to pivots that are not well thought out and may harm the company in the long run.
- Lack of focus. Some startups may not have a clear understanding of their core value proposition, and may pivot too quickly without a clear direction or strategy. This can lead to wasted resources and a lack of progress towards achieving their goals.
- Fear of failure. Some founders may pivot too early out of a fear of failure, without giving their original idea a chance to succeed. This can lead to a lack of confidence in their abilities and a tendency to give up too easily.
Why you may pivot too late
Many entrepreneurs who have successfully pivoted look back and wish they had done so earlier. But why is it so difficult to pivot at the right time?
- Vanity Metrics and the Illusion of Progress. One reason why entrepreneurs may hesitate to pivot is the allure of vanity metrics. These are metrics that look good on paper but don’t actually contribute to the bottom line. Entrepreneurs may be so focused on these metrics that they fail to see the bigger picture of their startup’s success.
- Lack of Clear Hypotheses. Another challenge is that startups often lack clear hypotheses about what metrics they need to hit in order to succeed. This can lead to a “launch and see” approach, where entrepreneurs become complacent with whatever results they get, rather than actively seeking out the metrics that matter.
- Fear of Rejecting Ideas. Entrepreneurs may also be afraid to reject an idea too soon, before it has had a chance to prove itself. This can hold people back from launching bare-bones MVPs (minimum viable products) that could provide valuable feedback and insights. However, the alternative is much worse - running out of money and facing bankruptcy.
To avoid this, it’s important for entrepreneurs to define what failure means in the context of their startup. If they are not meeting their goals, it’s time to pivot or risk failure. By embracing the possibility of failure and being willing to pivot when necessary, startups can increase their chances of success.
Types of Pivots
In the realm of entrepreneurship, adaptability is key. The ability to pivot - to make a strategic shift in direction - can be the difference between success and failure. Eric Ries, acclaimed author of Lean Startup, has identified ten types of pivots that entrepreneurs can use to evolve their businesses. In this article, we’ll explore each of these pivots, and provide examples of how they can be applied to real-world scenarios.
- Zoom-in Pivot. This type of pivot involves focusing on one specific feature of a product, and developing it into a standalone solution. By doing so, entrepreneurs can allocate more resources towards perfecting this feature and ensuring that it caters to the customer’s job-to-be-done. For example, an online project management tool that offers multiple features such as group chat functionality, bug tracking, agile board management, and time management, may choose to pivot to focus solely on the specialized time management solution.
- Zoom-out Pivot. The opposite of the Zoom-in pivot, the Zoom-out pivot involves expanding a product to include more features, broadening its appeal. What was once considered the whole product, now becomes one (or several) features of a larger product. This pivot can be useful when an entrepreneur identifies additional opportunities to address customer needs within their existing product.
- Customer Segment Pivot. A pivot to customer segments involves shifting focus from the initial targeted user group to a new segment. In this case, the product positioning, value proposition, pricing, and channels would all need to be re-evaluated to ensure that they cater to the new customer segment. This pivot can be beneficial when a product proves popular, but not with the intended user group.
- Customer Need Pivot. An entrepreneur must identify early on whether the problem they are trying to solve with their product is important to customers. If not, a pivot towards finding a problem they are willing to pay to solve is necessary. This may involve changing the target customer group or developing a completely new product altogether.
- Platform Pivot. A platform pivot involves a shift from an application to a platform, or vice versa. Examples of platforms include eBay, Airbnb, Uber, and the Android store. This pivot can be useful in expanding a product’s reach and creating additional revenue streams.
- Business Architecture Pivot. There are two types of business: high-margin, low-volume businesses and low-margin, high-volume businesses. While a business cannot be both at the same time, a pivot from one to the other is possible. This pivot can be beneficial in response to changes in market demand or industry trends.
- Value Capture Pivot. This pivot refers to changes to how a business monetizes or earns revenue. When the business model changes, this impacts sales, marketing, operations, and the product itself. This pivot can be useful in adapting to changes in the market or in customer needs.
- Engine of Growth Pivot. Most startups use one of three primary growth engines: the viral, sticky, and paid growth models. A pivot from one to another may be necessary when a business is not achieving the desired growth rate. For example, if a business is struggling to acquire new customers through paid marketing, a pivot towards a viral growth model may be necessary.
- Channel Pivot. Changing how and where products and services are sold can be a significant pivot for a business. Channel pivots require adjustments to various elements of the business model, including sales, marketing, and operations. This pivot can be useful in expanding the business’s reach and accessibility.
- Technology Pivot. A new technology may be used to achieve the same outcome, often with lower costs and/or better performance. This pivot can be beneficial in adapting to changes in the market, or in technological advancements.
Pivoting for mature companies: Success through Adaptability
Pivoting is often necessary when an organization’s current strategy is no longer effective. This could be due to changes in the market, customer preferences, or the competitive landscape. In such cases, the organization must be willing to make changes in order to remain competitive. This could involve changing the product or service offering, adjusting pricing, or shifting the focus of the organization.
Pivoting can also be beneficial when an organization is looking to capitalize on new opportunities. By being able to quickly adapt to changing conditions, organizations can take advantage of new opportunities and capitalize on them before their competitors. This could involve launching a new product or service, entering a new market, or expanding into a new geographic area.
In order to successfully pivot, organizations must be willing to take risks and be open to change. They must also be able to quickly assess the current environment and make decisions based on the data available. By doing so, organizations can remain competitive and capitalize on new opportunities.
Examples
Airbnb
In response to the COVID19 pandemic, Airbnb pivoted their business model to focus on longterm rentals and virtual experiences. This allowed them to remain profitable while providing a safe and secure way for people to travel.
Uber
Uber pivoted their business model to focus on delivery services, such as food and grocery delivery. This allowed them to remain profitable while providing a safe and convenient way for people to get the items they need.
Microsoft
Microsoft pivoted their business model to focus on cloud computing and software-as-a-service (SaaS). This allowed them to remain profitable while providing a secure and reliable way for businesses to store and access data.
PayPal
Originally started as a way for people to beam money to one another through their PDAs, PayPal eventually pivoted to become an online payment system for eBay auctions. This pivot proved successful, and PayPal was later acquired by eBay for $1.5 billion.
Nokia
Nokia, originally a paper mill founded in Finland in 1865, pivoted to become a mobile phone company in the 1980s. By the early 2000s, Nokia was the world’s largest maker of mobile phones, but the rise of smartphones threatened the company’s dominance. Nokia then pivoted to become a telecommunications equipment company.
Originally launched as a location-based social network called Burbn, Instagram pivoted to focus solely on photo sharing. This pivot proved successful, and Instagram was later acquired by Facebook for $1 billion.
Wrigley
Wrigley, known for its chewing gum, originally sold soap and baking powder. However, the company’s founder, William Wrigley Jr., found that customers preferred the free chewing gum he offered with his products more than the products themselves. So, the company pivoted to focus on chewing gum, and the rest is history.
Originally launched as a podcasting company called Odeo, Twitter pivoted to become a microblogging platform after the popularity of the status update feature on their platform. This pivot proved successful, and Twitter is now one of the most popular social media platforms in the world.
- What is the purpose of the pivot?
- What is the expected outcome of the pivot?
- What other data or information do I need to consider when pivoting?
- What are the potential risks or challenges associated with pivoting?
- What other methods could I use to achieve the same outcome?
- Brian Solis @briansolis
- Jeff Gothelf @jboogie
- Eric Ries @ericries
- The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses by Eric Ries (2011)
- The Four Steps to the Epiphany: Successful Strategies for Products that Win by Steve Blank (2005)
- Running Lean: Iterate from Plan A to a Plan That Works by Ash Maurya (2012)
- The Tipping Point: How Little Things Can Make a Big Difference by Malcolm Gladwell (2000)
- Switch: How to Change Things When Change Is Hard by Chip Heath and Dan Heath (2010)
- The Three Engines of Growth – with Eric Ries by Lars Lofgren
- #11 – 10 Ways to Pivot by
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