When, Why, and How to Pivot a Startup
Running a startup or business is somewhat like sailing a ship. Sometimes you have to readjust the sails to keep the boat moving forward. If you're just at the start of your journey, the need to modify the initial route, at least to some extent, is almost inevitable. Or, just as it happens with the shifts in weather that you have to monitor to stay safe, when the market conditions change, you might have no choice but to steer together with them in the same direction. These are tough calls for those at the helm. But, at times, a pivot can be the tailwind moving your company toward success or even the only way to survive in the harsh environment of the high seas of business.
On this page, we've taken a close-up view of startup pivots. We answer questions like "what does it mean to pivot in business" and describe what a company can pivot on. Next, we'll go over the ways to determine that it's time to pivot, how to do it, and explain which risks are on the line.
What Does Pivot Mean in Business?
Let's begin by defining this startup term and specifying the pivot meaning in business. It implies making significant changes to the company's strategy in view of a shift in market conditions, new opportunities, or other circumstances. Such a change in direction can concern the product, target market, business strategy or model, or result in a total transformation of business focus.
Why do businesses or startups decide to pivot? In general, this happens because founders or decision-makers see that something isn't working as expected. For startups, it can be a crucial step that's necessary for growth or startup scaling. It may also be integral if the young company is still undergoing the process of target market identification and is just shaping the business model. On the other hand, companies that are more established and have developed products may opt for pivots to keep up with the competition.
At the end of the day, it's all about adapting to the often altering market conditions, strengthening your position on the market, and doing something to boost the business' chances to thrive. To achieve this, you need to test your hypotheses by investing in change, which is among the main lean startup fundamentals.
What Can a Startup Pivot?
As a matter of fact, multiple factors can be pivoted when it comes to business. Let's go over the main types of pivots for a startup or an established company.
1. Product or service pivot (involves changing the offered product or service; for instance, you can modify its purpose or the ways to utilize it, add new features or remove old ones, change the MVP design or that of the existing large product or build a completely new one, invest in modernizing the used technology or change the format, say, build a native app in place of a web application).
2. Addressable market pivot (changing the market a business is aiming at after launching a startup, e.g., narrowing or expanding it or trying to enter a totally different market, including geographically).
3. Customer segment pivot (attempting to target a different audience or client type, for example, focusing on another gender, age group, or consumer industry; as such, you might decide to target the B2B segment instead of B2C).
4. Business model pivot (this may entail changing the way the company gets revenue, say, modifying the pricing strategy, switching to freemiums or subscription-based pricing, trying other channels of distribution, reworking the company’s mission and core values, among other things).
In essence, a startup or a mature business can simultaneously alter multiple things when pivoting. The combination of factors to pivot on will differ each time and depend on the individual business specifics. As such, a tech company offering a multi-functional marketing product can invest in a spin-off feature to cater to the needs of a smaller target audience. They can even turn the feature into a separate SaaS product with a standalone mission and offer it on a freemium basis.
What Are the Associated Pivoting Risks?
Pivoting is a big step in any event. It's sort of like a gamble or bet that may either alleviate you or leave you with nothing. Let's find out the risks of taking this leap or deciding to do nothing.
What If You Do NOT Pivot?
Of course, at times, business owners or startup founders decide not to pivot, leaving things as they are. Such a call can have its consequences, especially if things are already getting shaky and there are vivid signs of an upcoming "storm". Here are the most notable potential risks:
- you may end up falling behind and becoming outdated if you choose not to adapt to the quickly changing market;
- if you decide not to make a strategic pivot, this may lead to not living up to customer expectations and needs, resulting in a drop in sales and overall client dissatisfaction;
- your approach that stopped working can make your customers leave you for another solution that's better, and you'll lose the market share;
- importantly, you may drain your resources; since a business or startup budget isn't endless, it is crucial to know when and how to redistribute resources instead of continuing to pour in money, effort, and time into something that doesn't work;
- your company can face stagnation, meaning you'll be deprived of growth opportunities, which is among the main points investors are interested in.
What Are the Business Pivot Risks?
Sure, pivoting can be a way for a startup or business to adjust to the new conditions. However, deciding to pivot also has its own risk set. What if this decision sweeps you out even deeper into the raging "sea"? Certainly, there are things you have to carefully weigh before navigating in another direction. Below we list a few of the possible associated risks of making fundamental changes.
1. You May Lose Your Customers
Yes, there's a flipside to pivoting, as there is always a chance that some of your customers won't support the changes. For some, your new trajectory might mean that your product or service is no longer relevant, so existing clients might flee if they don't find the offering useful anymore.
2. You Might Cause Confusion
People tend to get used to the way things work. This regards your clients, employees, and even stakeholders. If your pivot changes the messaging too much or makes habitual things too different, you may create confusion. For a part of your target audience, this could mean abandoning your product, while for others, it might signal the need for additional explanations.
3. You May Destabilize Your Credibility
If changes in direction happen too often, people might begin questioning your credibility. Can they trust someone who gets sea-tossed and keeps skipping from side to side? Hence, your pivot decisions have to be backed up by a solid strategy that can remove doubts.
4. You Might Go After the Wrong Market
Strategic changes regard the product or market and are never without a consequence. If you haven't planned things out too well and are pivoting on impulse, you can be wasting time and resources on chasing the wrong customers.
5. You May Waste Investment
Of course, there is a risk of lost investment if the pivot doesn't go well. The process is usually resource-intensive and requires lots of effort, but, in a sense, you never know, yet always hope for the best as this is the only path toward startup growth.
How Do You Know When It's Time to Pivot a Startup?
One of the most common scenarios of when a company decides that it's time to make a pivot is realizing that the approach they're using now doesn't work. In this case, making a strategic change is seen as an opportunity to respond to the current market conditions to stay afloat and reach success in the long run.
Sometimes the need for a pivot in business is sudden, while in other cases, it's gradual. Either way, you have to be alert if you don't want to miss your chance and shouldn't procrastinate with decision-making before it's too late to change anything.
But when does pivoting start, and how can you tell that now is the right time? Determining the appropriate time is challenging, but there are some signals and warning signs that can hint at such a necessity for change.
1. There's No Traction
Lacking traction can be one of the signs that the time is right for a business or startup pivot. This is the case when there's no demand or market interest in your tech business idea or in what you're offering. Or if you're struggling to reach your customers (say, your offering doesn't resonate with prospects to the anticipated extent), this may be an indication that you have to try something different and change your approach. Perhaps, you should review your pricing strategy, messaging, usability, or anything else.
2. Red Flags in Analytics
Certainly, various data, statistics, and indicators can be a flag that you need a business pivot. By carefully monitoring the market trends, looking into the customers' needs, and exploring the possible growth opportunities, you'll be better armed when making up your mind on what to do after MVP or product release.
To achieve this, you have to continuously track and study the metrics and KPIs that show how your business is performing and which strategies and hypotheses are living up to the billing. By being proactive in this respect, you can make conclusions about what to invest in and which initiatives to drop.
3. Market Changes
If the market evolves, making your original service product less relevant than initially, this might signify that a pivot is required. You'll have to revise your product development roadmap and other core decisions your business is based on to stand a chance.
4. Tough Competition
If competitors are close on your heels or you're already out of breath from the multiple attempts to combat big and established players on the market, things can get tough (or even impossible) if you stick to a standard approach. This may put pressure on you; however, pivoting a business can give you the opportunity to gain a competitive advantage and stand out. If you are no different from the rest of the competition, you won't acquire the market share. Nevertheless, moving to further startup stages in this case might imply a big makeover.
5. Running Out of Money
If your budget is close to an end or you're struggling to secure funding, this can be a sign that you need to iterate your plan. No matter how attached you are to an idea (especially if we're talking about a startup at the beginning of its journey), taking another route instead of being stubborn could make all the difference.
One of the reasons for that is that you may have to undergo numerous startup funding rounds to get more money. However, if you won't have an actionable business plan and don't manage to create a pitch deck that's convincing and fact-backed, your chances of raising funds won't be high. A pivot, in this case, can be your way to show potential investors how you're reacting to the changes and are planning to accommodate them.
6. One Aspect Outperforms Everything Else
On a more positive note, though, if a specific feature or part of your offering visibly surpasses the others, this could be your cue to go for a pivot and put in all of your resources there. Yes, it might imply the need to trim your product or business model, unburdening it from things that took lots of effort to create. Nonetheless, doubling down can lead to more efficiency and a more significant return on investment if customers become more satisfied with the value you deliver.
7. Customer Feedback
Considering what your customers have to say is one of the proven ways to create a product or service that'll basically sell itself. This is why if you receive lots of negative reviews, complaints, concerns, or feature requests from your clients, you should take action and plan the changes. This is relevant both when you're testing an MVP or already have a full-fledged product.
What Are the Business or Startup Pivot Alternatives?
If you aren't ready to commit to a full pivot, the good news is that a business or startup can sometimes make smaller course corrections and adjustments. Let's review several examples of the alternatives to a radical pivot strategy:
- Expanding the market geographically (if your product or service isn't too popular in the current location span, you can always try to test it out in another region without making many changes to the offering itself);
- Trying different demographics (similarly, you can attempt targeting a different industry or demographic, perhaps your offering will correlate more with some other target market);
- Making minor tweaks (instead of shifting to a totally different business course, review your marketing and sales strategy or make small changes to the product to address specific problems, ensuring the offering better aligns with the customer needs, then observe the results and note whether there are any positive changes);
- Product expansion (if you don't want to work on creating a completely different product or massive redesign, you may expand your offering with extra services or add-ons that would complement it and bring additional value);
- Consider partnerships or even mergers (this is the biggest alternative path, however, sometimes partnering up with another company or uniting forces can be the right way to acceleration and advancement).
What's the Pivot Process Like for Startups?
Let's begin by noting that the business pivot process can be different for startups and established companies.
- For startups pivoting is more about being agile and open to fast changes and iterations in order to achieve a more sustainable vision and business model. Typically, this is based on startup analytics and the feedback given by early adopters and first customers. Since their resources are limited, pivoting may be an urgent necessity, determining the project's survival chances, especially if there's a need to pivot a software startup.
- More established businesses, however, usually have larger customer bases and resources, which allows them to shape their business model more gradually. As a rule, mature companies are less flexible about trying completely new routes, as keeping their loyal customers and growing the revenue are their areas of focus.
Nonetheless, being open to change is a vital aspect when making pivots regardless of the company's size. Here's how the process usually works.
Step 1: Problem Discovery
It all begins with noticing and distinguishing an issue that's backpedaling the product from performing as expected or moving forward. You need to find out what's causing the problem, which startup mistakes you could have made, and why you may be failing.
This involves investigating the existing processes, how things operate, and reviewing the generated hypotheses on which the business model is based. You'll need to:
- examine feedback;
- conduct market research;
- review the used programming languages and tech stack;
- look into the analytics and the sets of OKRs and KPIs.
Step 2: Outlining Possible Solutions
Brainstorming how to improve the current situation and noting the possible workarounds goes next. It's similar to going through the discovery phase when you make predictions based on research and plan your further moves.
I.e., what if a different pricing model can be the way out? Or what if a new product feature or a change in marketing can solve the problem? You have to study the market and competitors and dig deep to determine your target audience and their true needs.
Step 3: Preparing for the Changes
Once you have finalized which direction you'll attempt to move in, you have to start bringing the ideas to life and test them before making a drastic large-scale change. Depending on the scale of changes ahead, you might start with making a prototype or building an MVP fitted just with a minimal set of features. Or you can begin reworking your messaging, pricing model, or whichever things you'd like to amend.
Step 4: Putting Hypotheses to the Test
Of course, making incremental changes to the business model can be intimidating, but you'll never be positive unless you give the theory a try. After you've rolled out the changes (e.g., launched the MVP and showed it to the world), you have to evaluate whether your predictions are correct and whether the move was viable.
You can conduct split A/B or multivariate tests to observe how the audience is reacting to the changes. Or you can utilize other MVP testing methods to analyze data and feedback to make conclusions.
Step 5: Deciding to Pivot or Not
Based on your observations, you can then decide if you'll take the risk and pivot or stick with your initial plan. If you've made up your mind to go in a different direction, you have to turn the obtained knowledge and feedback into a consistent plan.
Your business might be making a U-turn, so you have to revise the mission statement, objectives, financials, and timelines. The team might need to shortlist the optimal stack and technological approach, think about feature prioritization, and the rest of the pillars. They can then begin working on implementing the changes and embrace them when everything is ready.
How to Pivot a Startup: Strategies and Tips
The procedure described above is not an easy undertaking. After all, not being able to pivot or pivoting unsuccessfully is among the core reasons influencing the startup failure rate. So, if you're not sure how to pivot your business, we've gathered some recommendations for smoother sailing.
Go From Big to Small
If you're at a crossroads and feel completely lost, don't panic, as shaky times don't necessarily mean it's time to give up. There are many fantastic examples of how the decisions to pivot products led small businesses to become globally renowned ones.
For instance, did you know that the creators of Slack initially built a game and then pinched off their built-in chat feature into a separate product? Of course, it took lots of work to mold it into the messaging and communication tool thousands of people use today, but the point is that you can pivot by narrowing things down.
So, don't underestimate the potential of a minor yet unique selling point. If you have a standout feature or a top-performing service, it can evolve into something big. If you have a feature that can be repurposed, why not take a shot at "recycling" it and give it a second life?
Both of these growth hacking methods can become your pivot strategy. And at the same time, they don't force you to drop your legacy product if you don't want to. For example, you can keep some things constant and build a side product if you have the resources to keep the original idea running alongside the new one.
Procrastination Can Be Harmful
Not taking action is also a choice that will have certain implications. Yet rushing into things and making impulsive changes can be risky too. Therefore, making weighed decisions and taking timely measures can determine whether your startup or business initiative will survive the storm or sink. Hence, don't delay your pivot work and don't rush, as it's better to base your decisions on analysis and facts.
Silent Changes Won't Do You Good
Secrecy might not be the best option here, so being transparent with the team and stakeholders about the current state and pivoting plans is a best practice. With more minds on board, your efforts can be more fruitful.
Fill Knowledge Gaps
If your team lacks some required skills, it may be a good idea to find the missing talent. As such, if you need advice from a domain expert, you can contact someone outside your company to get a professional opinion on how to proceed with the project. Or, if your team capacity doesn't allow for a drastic shift, you can opt for IT staff augmentation services to aid you in quickly building an MVP so you can quickly test your pivot hypotheses.
Final Note on a Pivot in Business
Daring to make a business or startup pivot can be a hard decision to make. In some scenarios, such a strategic experiment might be a stressful time which almost means that you're back at square one. The required effort is immense, but sometimes, it's your only chance to avoid failure or reach a scaleup. Bottom line, the pivoting approach is an integral part of the business and product development life cycle and can bring many benefits.
As an established product studio with over a decade on the market, Upsilon has helped multiple startups build MVPs and take their products to the next level. So, if you're in search of a trustworthy tech partner, feel free to reach out to us to discuss your business needs!