When a business idea strikes and it begins to take shape with a few notes written on a napkin, entrepreneurs have a vision of where they want to go with these ideas. While entrepreneurs might have somewhat of a plan hashed out as to how to reach their dreams, the path is never a straight line. It is very likely the idea, the market, and even the customer base will change and evolve into something that was never part of the original plan. Throughout his book, The Lean Startup, Eric Ries makes the argument that startups do not know who their customers are until they start offering products or services and learning from these interactions (2011). The argument is not very clear until reading his thoughts on accountability and the decision of whether to pivot or persevere.
Accountability is key to running a successful startup. However, traditional metrics and methods are not necessarily the best fit for startups. Instead, Eric Ries suggests using a milestone approach to accountability. This approach starts by establishing a baseline of the business and moving towards ‘tuning the engine’ from the baseline toward the ideal, followed by decisions to pivot or persevere, likely more than once (2011, p. 118). Entrepreneurs can be blinded by their love for a business idea and fail to recognize some warning signs of trouble. A slight increase in revenue can be misleading if it was achieved at the expense of significantly more indirect and not so easily quantifiable resources such as personnel, time, or other materials. Ries makes a valid case for using more abstract benchmarks such as retention rates, customer registration, repeat usage, etc., as more accurate metrics. Being able to accurately account for what is happening within a startup is tremendously important because it helps to identify deceptive moves such as the revenue example mentioned earlier. Also, accurate accountability helps to determine the need to pivot if certain benchmarks are not being met.
It is frustrating when things do not happen according to plan. However, sometimes change is need to move a startup forward. Consider the following two quotes from the Eric Ries’ The Lean Startup and Matt Blumberg’s Startup CEO, regarding pivots:
Companies that cannot bring themselves to pivot to a new direction on the basis of feedback from the marketplace can get stuck in the land of the living dead, neither growing enough nor dying, consuming resources and commitment from employees and other stakeholders but not moving ahead (Ries, 2011, p. 149.)
Usually, startups pivot because their product market fit is off or because their strategy isn’t working. Occasionally though, opportunities present themselves and you have to act. They might be the result of broad macroeconomic shifts, like the one we experienced in 2008 or 2009, or they could be specific to your industry (Blumberg, 2013)
Both of these quotes illustrate internal and external factors that can push a startup to pivot. While pivots tend to have a negative connotation, it is important to look beyond ‘the plan’ and adjust the startup’s heading in order for it to survive. Entrepreneurs have a grand plan that has a product, a customer base, a market, and much more. But, what happens when those components of the plan fail to live up to expectation? The best thing to do is a pivot. Now, pivots are not intended to throw everything out and start from scratch. Pivots are a structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth (Ries, 2011, p. 149). While this post is intended to introduce a discussion of pivots, entrepreneurs are encouraged to become familiar with each type (see list below) and reflect on their own startups. Remember, ignoring something doesn’t mean it is not happening.
List of Types of Pivots:
Zoom-in Pivot
Zoom-out Pivot
Customer Segment Pivot
Customer Need Pivot
Platform Pivot
Business Architecture Pivot
Value Capture Pivot
Engine of Growth Pivot
Channel Pivot
Technology Pivot
References
Ries, E. (2011). The lean startup: How today’s entrepreneurs use continuous innovation to create radically successful businesses. New York, NY: Currency.
Blumberg, M. (2013). Startup CEO: A Field Guide to Scaling Up Your Business [Audiobook]. Retrieved from https://www.audible.com/pd/Startup-CEO-Audiobook/B00G4HLM6E?qid=1549811703&sr=1-1&ref=a_search_c3_lProduct_1_1&pf_rd_p=e81b7c27-6880-467a-b5a7-13cef5d729fe&pf_rd_r=MQG4RKJSRJY188S3HD7T&
Hi Jose,
I appreciate the breakdown of pivots and ways to measure the success of a startup. Too often, startups use capital as the only measure for their success. Just as you stated, that can be a grave mistake. Not only that, they fail to have a plan to reach milestones or what to do when milestones aren’t met. I wholeheartedly believe that the planning stages in the startup is a very important stage for the success of a startup.
Jose,
An interesting analysis of how to measure success. I can certainly see how a brand new start-up business probably shouldn’t try to determine their success the same way as a bigger company. A start-up company is small, new, and has yet to find that unique quality in the market and with customers that will ensure that the company can take root and grow. It takes more than just profits and revenues to truly assess how well a company is doing, because that only gives information on a whole. It’s like trying to diagnose a misfiring engine and only relying on the fuel efficiency and when the last oil change was done. They might tell you something useful about the problem, but odds are that they can’t tell someone anything useful about the engine itself. Companies need to measure how they use physical and labor resources and how their customer base responds to any actions if a company wants to have an accurate picture of their world and how well they are doing. Do you have some personal experience on trying to make these types of decisions?
Jose,
A business being able to pivot is probably one of the most important characteristics it needs to survive! This even applies to companies who have been around for hundreds of years, we see many brick and mortar stores close like Payless just this week because they aren’t willing to listen to their customer and pivot accordingly.
Many companies do this well, Walmart for example, is crushing it in Ecommerce and still seems to do well at its stores with the implementation of delivery and pickup options. It knows who its customers are and what they want.
These metrics you mention are extremely important! I think its so easy to get lost in how much revenue you did in a certain month and not pay attention to who your customers are and what you can do to serve them.
I agree! I think pivots are actually a positive thing. Does anyone think that even a company like Amazon would survive in the long run if it did not make some changes over the next few decades? People would move on to the next Amazon very quickly. Pivots are essential to survive!
Tom
Jose,
The ability for a start up, or even an established company, to monitor and evaluate their successes is key in the fast paced and ever-changing business world. Recognizing opportunities and what’s working well or not working well should be a significant focus that drives the decision making process. Being able to “Pivot” in the right direction at the right time is the genius behind many great companies. I think the other sound advice is to make many small corrections, not big ones, in order to stay in context of the goal.
Devon
Your post got my attention right from the start with the graphic with the word “change” that you used! Change! Most people do not like change, yet change can be so important especially when they must be made. Not changing at the right time, could cause a huge loss. So, your comments that business owners must know when to “pivot or persevere” is so true! I like the idea of setting milestones, that if not met, would be a target for new start-ups to know they need to consider changing something. Great advice!
Hi Jose,
Pivoting is such an interesting topic. I see it as something that can be both positive and negative. Like you said, they are sometimes used to move a business forward, but can also do the opposite. I am a firm believer in strategy. If your startup has a great strategy and strategic advantage, the right consumer should come to you. This consumer will understand your “why,” which will lead to sales and growth. If a startup listens to too many consumers or even the wrong consumer and pivots because of this, they might be headed down the wrong path. A consumer can tell you what they want, but it doesn’t always mean that’s what they need. For example, if back in the 1800s if someone said they needed to go to the market quicker the consumer would ask for a faster horse instead of a car. The consumer doesn’t always know what they need. But, pivoting in a strategic way can be very vital. All companies need to evolve in order to grow. I really love the first quote you chose because it is so important for companies to stay relevant and evolve with their consumers.
Carter Jones
Hi Jose,
That was really informative, thank you. It seems like entrepreneurs need all-seeing eyes in order to view the bigger picture of things. What entrepreneurs need to understand is that pivoting isn’t always a negative thing. It could actually mean extreme growth! With the expansion of technology, entrepreneurs need to understand that their product could serve a multitude of purposes with slight adjustments and that there is room to reconfigure a strategy, even when the company is doing WELL.
-Hailee
Jose,
Great topic! In the book I’m reading, the author talks about the importance of being able to pivot towards your market’s needs/wants and how this can be difficult for startups that have a lot of financial backing. Investors can push for growth early on in the process. It’s much harder to pivot when you’ve invested time and money into a launch. Smaller startups with less control from investors can have an easier time making these adjustments.