9 September 2022
Many famous companies did not look like their early-stage ancestors. For example, Slack was a minor messaging feature of a game called Glitch and Flickr was conceived as an image-saving tool for the Game Neverending. Then, the founders decided to give up on the entire entertaining idea, focus on an in-built tool and develop a new web application.
This is the way how to implement a concept of startup pivot. Let’s learn what pivoting is and how you can shift to a new business strategy and stay resilient.
What is Pivoting?
Pivoting is one of the core concepts in a lean startup methodology presented by Eric Ries, the founder and CEO of the Long-Term Stock Exchange. Founders often believe that pivot changes the entire company drastically, but it does not always mean giving up everything you have done. In some cases, a business has to change one important aspect. Here are some examples of pivoting:
- Turning one product feature into an independent product (zoom-in pivot).
- Putting the available product into another one, making it part of a more extensive functionality (zoom-out pivot).
- Shifting to another set of customers or reaching a new market.
- Changing a platform, for example, from mobile to desktop.
- Adopting a new monetisation model (say, a particular company can move from the freemium to an ad-based model).
- Transition to other technologies to reduce expenses or develop a more solid product.
The lean pivot concept comprises numerous directions for startup founders, whereas they can focus on one or more aspects.
When Should You Pivot Your Company
Success stories of hot-shot businesses can create the illusion that the pivot is the magic pill to address all challenges. However, this idea comes into play when other methods do not work. Look at six signs that you should change your company’s direction.
Lagging Behind on the Market Situation
If, despite considerable efforts, the business grows at a glacial pace, consider pivoting. It may not be necessary to change everything. Just choose another monetisation model or change the target market.
Intense Competition
If you enter the market with a unique idea, there is always a risk that a large company will make something similar to your product but better. The competitor will have more resources and loyal customers, so it is better to switch to something new instead of hardly handling a giant.
Only One Direction Works
If you see that only one company’s direction is working well, it may be time for a pivot. One solution is to cut off the unnecessary functions and direct all efforts to where there are benefits.
No Demand for the Product
Sometimes, at the product development stage, market research shows that customers are highly interested in your offering. But when a product or service enters the market, it may not resonate with your audience. If you fail to attract clients, it is better to admit failure in time, make a pivot and become one of the possible tech unicorns.
Change in the Brand’s Vision
Over time after the product launch, your goals and values may have changed. When you dive into a niche and look at the market from within, you may find more exciting and advanced opportunities and realise that the current course is not suitable for you.
Massive Amount of Negative Feedback
Customer reviews are a good benchmark of whether you need a pivot. If you regularly get feedback with words like “too high a cost,” “weak functionality,” “too complicated ordering process” and “there are much better analogues,” then it is time to make a turn with your startup.
Three Core Types of Pivots
Now that we know all cases where you can shift to another business strategy, let’s review the three most common scenarios of pivot in lean startup.
Pivot In Your Existing Market
In most cases, founders decide to change the direction of a startup in a current market environment without creating a new customer segment or providing new market knowledge. However, this pivoting strategy will likely end in failure. The reason is simple: companies stay on the market instead of looking for new target audiences to expand their activities.
Change the Product’s Positioning
Sometimes, a specific feature of your product might have much greater practical implementation potential than the entire app. That is how Discord, Slack and many other businesses came into being. But there is also a downside to the coin: founders should consider whether or not to give up on their legacy software. There are two ways to deal with pivoting:
- Develop a new product or service, leaving the initial project intact.
- Launch a brand new business and wind down the legacy business.
The founders’ choice depends on the money stream situation. If your old product or service generates income and receives a constant inflow of clients, you can decide to keep it intact.
Do Something Completely New
It is considered the most extreme type of pivoting when you give up on your idea and start exploring something entirely new. Besides, you can also think about rolling out the existing company and using the remaining money to finance the new project.
Any startup takes time and effort to bring the idea to life. And, of course, it requires having enough money to develop a project of any scale. Read more about investment rounds and sources of funding here.
How to Pivot Your Company
While you might think that pivoting your business is a straightforward task, you must put considerable effort into fulfilling it successfully. Let’s learn some tips on shifting your development model.
Focus on Things That Perform Best
In most cases of a business pivot, the founders can work backwards from the most widely used functionality (one or more features). Assess your product and leave things that work well.
Involve Stakeholders
Each project team member (from investors and product owners to developers) should understand why you have decided to pivot and what direction the company will choose. At this moment, it is crucial to unite the team and inspire employees with new ideas.
Act Promptly and Wisely
Pivot can be a reasonable solution for startup tech companies through the roof. But if you perform this task without understanding the prospects of a business, you may find yourself on a dead-end street. It is better to estimate the size of the new market, the target audience structure and competitors in advance.
Use Best Practices
If you decide to pivot, it does not mean you must abandon everything that has been done. Analyse what parts of the product and business work well and what can be saved and reused. Do not discard what you have learned, but find ways to incorporate it into your new business.
Embrace the Change
Shifting to another direction is not a decision to treat lightly since you should put in a massive effort. But to pass the pivoting process smoothly, you must let go of past mistakes and focus on reshaping your project. At times, it may even feel like developing a product from scratch. So, it is better to get rid of the stress and make your business the best it can be.
Successful Business and Startup Pivot Examples
There are many startup success stories when companies risk turning the initial business idea upside down at an early development stage and do not fail. Here are five startups that would never have become tech giants if not for a timely and successful pivot.
Kevin Systrom, one of the founders, changed college courses at least five times before settling on investment science, so his penchant for pivots should not be surprising.
After a brief stint at Odeo (before it became Twitter) and Google, Systrom decided to launch Burbn in 2009. It was an app similar to Foursquare with check-in mechanics. Users could use it to leave messages to friends at different locations. With another co-founder, Mike Krieger, Kevin closed a $500,000 seed funding round with Andreessen Horowitz and Baseline Ventures, but things did not turn out as they had hoped.
Over the following year, Systrom and Krieger decided to apply location-based and mobile-sharing features to photos in the new app called Instagram. On the first day, 25,000 users registered on the service.
Last year, Facebook acquired Instagram for $1 billion in cash and stock. As of now, more than 2 billion people use the service.
Feastin
The COVID-19 pandemic has drastically struck the HoReCa industry. Restaurants and cafés rapidly had to adjust to a new reality, adopting a delivery-only business model. At that time, Hannah Wagner and Sebastiaan Van De Rijt, the husband-and-wife duo that operates Northern California fast-casual chain Bamboo Asia, tried to help their colleagues stay on track and plan more autonomous delivery activities. As a result, they changed their business model and developed Feastin.
This service provides a delivery service from cafés, restaurants and supermarkets throughout the San Francisco Bay Area. Clients can connect directly with local vendors to get the items they want. Besides, Feastin does not charge food establishments and suppliers, so they can keep more income and not impose additional commissions on customers.
Discord
This instant messaging social platform began its path with the video game Fates Forever and was one of the gaming industry hallmarks for years. But in June 2020, its founder Jason Citron shifted the focus away from video gaming to a more all-purpose communication for all functions. After this pivot into a startup, businesses worldwide use this application for online meetings and other purposes.
Shopify
The history of Shopify began in 2004 when Tobias Lütke, Daniel Weinand and Scott Lake decided to create Snowdevil, an online store for snowboarding equipment. Sales were poor, but the founders saw that the store was good.
Eventually, they decided to change course and sell a digital solution to create online stores. In 2006, they launched Shopify, the second most popular e-commerce platform (after the WooCommerce Checkout plugin for WordPress).
Groupon
Groupon grew out of The Point project, an online platform for getting people together to accomplish a goal (organising events, filing petitions, donations). After a while, the project had a groupon subdomain, where participants could unite to get group discounts.
This idea was so popular that the founders, Andrew Mason, Eric Lefkofsky and Brad Keywell, focused entirely on it. As a result, Groupon completed its first year of operations with a turnover of $94 million.
Conclusion
Running a startup is a risky event. But when you plan for success, remember that the more you prepare, the fewer resources and efforts you need. Making hasty and ill-considered decisions is a way to disaster, so you should learn what pivoting means in terms of a startup. However, there is a time- and resource-saving option: looking for a trustworthy vendor to guide you through the pivot process.
At Rocketech, we share our business and tech expertise for building functional and marketable software. If you have an exciting idea and want to turn it into a digital product, our dedicated team can help you to solve this issue. As a result of productive collaboration, you will get an application that can generate income and skyrocket your business. Learn about our portfolio and contact us for more details.