The modern business reality is incredibly turbulent and competitive. These two statements alone should be enough for companies to integrate startup pivoting into their DNA. But to do so, businesses must wake up to the increasing importance of pivoting.
Pivoting your startup includes extending business models, surviving the current pandemic reality, and preparing for the predicted economic collapse. The meaning of pivoting, a bit vague by nature, has become even more complicated today. When adding certain questions that can’t be ignored by entrepreneurs, such as when to pivot a startup or how to pivot a startup, these considerations can pave the way to confusion. So let’s slice and dice all questions and find a way to succeed.
What is pivoting?
Pivoting is a strategy change to test a new approach to a business model or product, and it is one of the fundamental concepts of a lean startup. Budding entrepreneurs question everything, from their initial idea and design choices to the features they plan to add in the future. During this process, startups explore their minimum viable product (MVP), which is usually released for a small group of testing customers to identify needed improvements. To pivot a lean startup, every entrepreneur needs courage.
While the MVP is often minimalist and simple, test feedback helps entrepreneurs understand what works and what doesn’t, and figure out what direction they should take next. The general idea is that aspiring entrepreneurs should follow a model called “build-measure-learn,” with the goal of turning MVP into a sustainable business. Often, this feedback causes startups to move from one idea (market or niche) to another in search of a better product. But the pivot business isn’t always easy.
The pivoting approach is becoming almost a ritual for entrepreneurs. Most people who have launched a startup have stories about how their company turned into a completely different company. In reality, such agility still varies from one startup to another. Winners never quit, but they do cut their losses while there is still something to salvage.
When you should pivot?
Pivoting – a decision to change business vectors due to various reasons – helps startups adapt to a new, dynamic business environment. To avoid feeling like a hamster on a wheel, however, startups should be straightforward in their decision-making. For example it begins with being attentive to signals that say it is time to take the first step. Thanks to years of collaborating with entrepreneurs, Unicsoft can single out typical situations of when to pivot a startup, allowing businesses to be sensible while gaining a foothold in their market. We are ready to share these with you.
1. Quest for a Sustainable Business Model
We’re doing well, but we’re not making money. This category usually unites tech-savvy companies, working on amazing products. Their proof of concept (PoC) or minimum viable product (MVP) might have caught the target audience’s fancy, but they are missing something – monetization. Let’s be honest, though, this isn’t an easy topic.
As long as a startups’ business model lacks durability and monetization components, customers won’t help owners reach their desired level of revenue. A lack of monetization is a clear signal that even the technologically superb product is a far cry from what the users really want. In this situation, pivoting your startup should be swift and resolute to find other, often drastically different, approaches to monetize your startups’ products. If done successfully, it will prevent the time lost to perfect a product that won’t work as it’s needed.
Featured story. Google is one of the insanely famous companies that has traveled the described pivoting path. This multinational titan has always strived to excel with their products and services. In their history as a search engine, Google’s founders created a great product that was opposite to the paid placement approach and monetization of aggressive advertising. At that time, paid placement was the core working principle of all search engines. While they succeeded with the product, they failed with monetizing. Google found no other option but to advertise. Yes, they pivoted to change their philosophy and business model. At the same time, they reached a compromise — no invasive advertising, as their competitors had, yet paid search options. Today, advertising accounts for the majority of Google’s total revenue.
Google’s example shows that when a business lacks sustainability, a drastic change is not the only option. Even a minor revision of core technology can shift the market response and improve a startup’s product-market fit. In our opinion, what works best in this situation is to establish pivoting as a process. Once a company understands how to continually generate hypotheses, test them and develop PoCs rapidly, it will find the right source of investment over time.
2. Moving up the Value Chain
We’re making money, but feel we can do more by bringing in a greater value. Even if a startup has managed to find the right product-market fit, it becomes genuinely distinguished under one condition only – outstanding value.
Customers’ needs can be satisfied in multiple ways. First, your product can be an instrument you place in the hands of your users. It’s the very basic, do-it-yourself stage of the value chain in business. Second, your service or products can be an instrument in your hands, which stands for the do-it-with-you type relations. Finally, the third way to bring your client value is the do-it-for-your approach. In this context, startup pivot meaning in business equals the ability to successfully rise as high as possible through the value chain. When startups arrive at this level of cooperation and responsibility, they learn how to resolve all the client’s pains quickly by using reliable products. In this way, they bring great value to their audience. Being at the top allows you to increase your revenue and customer loyalty, as well as acquire a bigger market share.
Featured story. One of Unicsoft’s clients managed to move up the value chain. They started from a do-it-yourself product — an algorithm collecting data from a person’s activity. Their target goal was to find out what a particular person does at a specific moment. To move up the value chain, they extended functionality into a business intelligence product. It offered not only data, but also the context in which it was gathered and for what marketing purposes it can be used. Nevertheless, they strived for more and applied the do-it-for-you concept. One of the best attempts was creating a PoC for taxi apps. Their algorithm was designed to predict when a user would need a taxi and display a push notification with specific details of a taxi service. So our client managed to move up the value chain to the very end. It started from data collection that demanded a lot of businesses’ efforts on data processing, and ended with a full-service solution performing data analysis & executing data-driven marketing campaigns.
3. Show your Capacity and Gain Trust
Not to brag, but our tech capacity is stunning! Just look at how we adapt to all requirements. This category of startups desires for a loyal audience to appreciate their technological expertise; the rest they already have — tech competency, bold ideas and market insights.
For these businesses, pivoting is the right way to show users their scalability options and the technology capacity they need to adapt to specific market demands. To succeed, such companies must resort to pivoting as a way to reach a wider audience and quickly show them the best features and opportunities technology bears for their industry, niche and business partners.
To cover a wider market, startups can pivot by splitting core technologies or products into several satellites. But they must be easy-to-comprehend and showcase the most robust features of your technology. For instance, developing a PoC tailored for a specific event won’t cost you tons, but it can bring your startup the desired use cases and various industry insights you are looking to attract. One can pivot, as well, through creating several PoCs for different target audiences in order to gain a stronger audience response and credibility.
Featured story. Another Unicsoft client built a proprietary mathematical algorithm that could detect instabilities of the cryptocurrency market, helping users mitigate the risks of unexpected currency behavior. Offering it as a B2B model, their algorithm was introduced as an effective instrument for semi-automated trading. It was effective, yet the client was feeling like there was an untapped potential they were leaving on the table by sticking just to the B2B business development model.
With the help of Unicsoft, the client pivoted into a new product with a different business model. It switched from the B2B service to the B2C mobile application. The product, a crypto hedge fund, consisted of a cryptocurrency investment platform, which was integrated with an affiliate platform. It was accompanied by iOS and Android apps as well. The proprietary algorithm in this context is used to verify a hedge so it’s less risky. Consider pivoting your startup from this angle. Even though a B2C app isn’t what brought our client the most money, it engaged more than 10 000 users in two months, managed to win users’ trust, and showcase the entire product as reliable. Pivoting to the B2C mobile app has also helped the company promote its core algorithm, implemented earlier on its B2B service, among the financial market that resulted in growing B2B sales. So investment funds that avoid investing in cryptocurrencies directly, due to their volatility, can access the crypto trading market in a more balanced and safe way.
4. Seize Scaling Opportunities
If our product brings significant value in industry A, why isn’t it as useful in industry B? Once a startup has established a sustainable business model, hit their target with a product-market fit, and is doing well in sales, the question of how to make a startup pivot successfully doesn’t seem that complex. Startups in this stage are great candidates for investing resources in R&D and marketing. They can use core technology to pivot in various industries where there are technological siblings wrapped in different branding. By changing the target audience, you can attract investment injections and discover better monetization options. It can also help open opportunities in previously unexplored niches and offer new approaches for rapid business advances.
Featured story. This story is about one of our clients – a San Francisco-based startup – that offers a SaaS platform for iOS, Android and web versions, streamlining bar inventory (bottles, liquids, etc.). Their product was created to reduce inventory time, lessen shrinkage, optimize orders and suggest detailed, cloud-based analytics and predictions on the bar’s consumption. As you can imagine, due to the current pandemic, our client’s target audience is experiencing a tough time lately. The client decided not to wait until the skies clear again, but to pivot into another industry. Along with their main product for bar inventory, they chose to be helpful in healthcare, which is currently in the spotlight. They are now offering their technology to medical centers and healthcare companies, revealing similarities between the inventory of liquids in bars and medicines in hospitals. This was the right move to fulfill social duty while testing the grounds in a promising, but previously unknown, field.
5. Finding Possibilities on U-turn
Desperate times call for desperate measures. Even successful startups with advanced technology and devoted users, can hit a pothole. Pivoting serves as a way out of a situation, which can’t be handled — exactly the case with the COVID-19 outburst. What seemed like a time of flourishing business and promising industry at the end of 2020, turned upside down in the twinkle of an eye. In this case, pivoting a startup was not a matter of choice but of survival. Turning points like market fluctuations, global crisis, or revolutions leave no other option for businesses, but to pivot. Waiting until all is clear might cost owners everything they have. Entrepreneurs should be brave enough to rebrand core technologies to suit more profitable niches.
Featured story. Another Unicsoft client, whose business solution faced challenges in the face of COVID-19, is a fintech startup working in the sphere of loans to grant digitalization. Their technology streamlines the collection of farmers’ loan applications and analyzes their credit scores. Under the present conditions, however, loan issuing has taken a back seat to loan restructuring. Without proper restructuring, the credit institutions lack information on the current state of affairs and won’t have a clear picture of how many new credits are safe to issue. On top of that, the avalanche of applications may simply hinder their operating capacity.
Unicsoft assisted our client by walking them through a business analysis of the possible pivoting opportunities, which could solve the pressing issues of their target audience. We concluded that the costs for our client to make a technological shift towards another business niche would be feasible. Instead of digitizing the loan process, they chose to offer an automatic collection of credit restructuring application forms and streamline restructuring decisions.
Pivoting as a process
Startups would give anything to have the recipe for a successful product redesign or a change in business model. There are many factors that influence the outcome of pivoting efforts and, unfortunately, no silver bullet. But, there is still something you can do – consider pivoting as a process.
One of our clients succeeded in doing just that. Their successful startup devoted a specific department to the needs of pivoting. It was led by the CTO, allowing technology testing, data, and business approaches to become a part of the company’s operating model.
Concerning PoC, they attempted to develop it quickly, not paying as much attention to quality as to their focus on the UI, which showcases the general idea. Next, the PoC is passed to the R&D department, which polishes and integrates it with the core product, adding new functionality. At this stage, quality and further scalability play a key role. Adding an R&D department on board, our client is fully-armed and can react quickly when pivoting a startup means gaining competitive advantage or increasing income.
Through cooperation with this particular client, Unicsoft actively participated in the implementation of a successful pivoting strategy. Testing PoCs against the target audience is no less critical than their technological implementation. With first-hand feedback, our client can adjust products precisely as the target audience expects. To achieve this goal, we came together to develop and test various PoCs to enhance and supplement the core functionality.
Depending on the KPIs, we tested multiple hypotheses as to the market needs, including but not limited to the following:
- Demonstrating how businesses can achieve highly personalized contextual services and experiences while providing unmatched privacy control
- Verifying effectiveness for marketing and sales campaigns of real-time notifications, based on a user’s micro-moment – activity, time of day, location, etc.
- Showcasing the abilities to detect and analyze driving habits, as well as everyday activity.
How to Pivot Correctly
Throughout Unicsoft’s cooperation with this particular client, along with other 50+ startups I’ve worked with as Unicsoft’s CEO, I came to several conclusions. Below are my key findings on pivoting your startup successfully.
- Divide and govern — products. As a product owner, you should strictly differentiate products and experiments to protect both your core functionality and business models from bold experimenting. But when you step on the pivoting path, it’s better to work with specialists who are ready to lead limitless experiments. To begin pivoting, you may start by asking a few people their opinion. But to implement changes to your core product, the thoughts of one or two clients are not enough. Significant changes require a defined roadmap.
- Divide and govern — people. Your pivoting team must be a squad of daredevils. Look for enthusiasts who desire to create and create quickly, but not expensively, and give them the time needed to come up with fresh ideas. On the other hand, a team composed for product development should have profound engineering and architectural skills, as well as a desire and vision for how to create. Their time usually is expensive but precious. Consider it a future investment in maintenance and scaling.
- Divide and govern — psychological aspects. Unicsoft experts admit a specific mental attitude is crucial to successful pivoting. This is especially true for project managers who assist clients with pivoting projects. For example, a team of scrupulous people who cherish every feature of a product, may feel quite attached to developing PoCs. If, for some reason, their work is suddenly cut in half, they will feel let down and might take it personally. This should be kept in mind when forming teams. Pivoting is born out of a necessity to morph, so changing requirements, cropping features, and shifting concepts are inevitable.
One practical case to mention: The Unicsoft team performed an expert evaluation of two client’s legacy solutions and concluded that development from scratch was the only right move in this case.Read more about our SMART-Solutions pivoting experience
Lean startup pivot
If you’re constantly receiving criticisms, your business might be ready for a pivot. Mistakes or bad planning are not the end of a startup: sometimes, they are the beginning. Because pivots don’t necessarily require a radical change of course, it’s important to determine the precise reasons why something went wrong. Next, you choose the right type of business pivot, depending on your goals. If you have any questions on what pivot strategy is best for your startup, feel free to ask us for a consultation.
You’d use this type of pivot when one of the features of the current service becomes a separate product. The part of the product (its modification, package, option or service) that shows the best financial results becomes the main product. Thus your team focuses all of its efforts on what generates most revenue. That’s the way Instagram creators went: they kept the photo and video sharing with filters and social distribution from Burban service.
When the current product becomes part of a new feature-rich service, you choose a zoom-out pivot. To pivot a startup with this strategy is quicker than using other strategies. Yelp evolved in a similar way – from an email-based referral network to the largest local business review portal. Since Yelp did not really have much of a choice, it was better off changing the initial concept to something different.
Customer segment pivot
This type of pivot is used when a company realizes that it is not solving the problems of its target customers. As a result, it switches to a segment of customers who are after its product. For example, a company might reposition its product from B2C to B2B or vice versa. Some companies can make a great jump in revenue using customer segment strategy.
Customer need pivot
A customer needs pivot when its service solves a problem for an audience that considers the issue unimportant. For instance, collected data on a product might suggest another segment in which the demand for the product is much higher. It might apply when initial users say the problem the product solves isn’t significant, or when people aren’t willing to pay the asking price for a product.
PayPal made a pivot to customer needs in the early stages of its development. Initially, the service served electronic auctions and was not very popular. The founders realized that they could solve the problem of another segment and switched to online transfers. By 2002 PayPal became so popular that 40% of eBay transactions were conducted through it. The e-commerce giant bought the company for $1.5 billion.
This means moving from an app to a platform and vice versa. Most consumers pay for a solution to a problem. A prime example is when Cofinity stopped supporting Palm Pilot in favor of developing a web platform. As a result of this pivot, a small organization was able to grow into a large company known today as PayPal. As we can see, to pivot startup is sometimes vital.
Value capture pivot
Value capture pivot is a change in the way a company monetizes a product. If a product or service is free, it recruits users faster, but it’s slow to make money. Each product or service should have value. A good illustration of that principle is a service that charges only a one-time fee, while its costs outstrip its revenue. Using the value capture pivot, the company can switch to a monthly subscription and start making a more steady profit. Any business might find that its revenue model does not suit its product.
Business architecture pivot
Marketing guru and venture capitalist Jeffrey Moore identifies two main business architectures: “high margin – low volume” and “low margin – high volume.” So, there are two popular business models:
Complex systems – high-profit share and low sales volume.
Volume operations – low-profit share and high sales volumes.
As a rule, the first corresponds to the B2B model, and the latter to the B2C model. Startups need to get creative about exploring business models. A striking example of a business architecture pivot is Slack, which did not develop in B2C but in the B2B sphere.
Engine of growth pivot
This type of pivot means that if a company is developing slowly, the growth mechanism changes: the company chooses the one that best meets its goals. The speed and profitability of growth depend on the right engine. Experts distinguish three types:
Sticky growth mechanism – attracting and retaining customers over a long period of time.
Viral growth mechanism – promotion of the product at the expense of existing users (for example, a referral program). With this mechanism, a significant part of marketing is taken over by current customers.
Paid growth mechanism – increasing the profitability of each paid customer or reducing the cost of their acquisition.
This pivot implies a change of the channel through which the company delivers its product to the customer. To pivot your startup with this strategy is easier than with other strategies. An online store switching to Amazon is one way of changing channels.
This type of pivot involves a business transferring current functionality to a new technology platform. Technology pivot is typical for stable companies that already have consumers and established workflow, but don’t have enough capacities for serving all comers. Startup founders might decide that they need completely different technology for their products. Moreover, the new solution might raise the price because it improves the product’s performance, responsiveness, and overall efficiency. This was the case with Spotify, when it when it switched to Symfony2.
When something goes wrong while pivoting your startup
In most cases, companies who pivoted incorrectly, did not pivot at all. While they were once the rage, they somehow didn’t notice the alarm bells screaming: “You’re missing something!” Fame has a tendency to flee.
Among other reasons for failure are choosing the wrong hypothesis to test, investing too many resources in PoC, late pivoting, choosing the wrong niche to pivot into, and so on. Here are several examples of companies that didn’t understand the meaning of pivot in business correctly.
- Nokia. Nokia is probably one of the brightest examples of pivoting after it’s too late. At the dawn of the smartphone era, they were overconfident in their brand and lost competitiveness on the UX front to both iOS and Android devices.
- Jawbone. Jawbone Fitness Tracker was valued by many but couldn’t outrun the competition. Still, they have at least one successful pivot to their name. Jawbone originally developed military-grade audio hardware and changed the niche to a consumer market.
- The HTC First, aka the Facebook phone. This was an unsuccessful attempt to gear the Android-skinned device towards the Facebook Home application, forcing AT&T to drop its price from $99 to $0.99.
Successful cases of startup pivoting
The good news is a number of successful pivots prevail over failures. Moreover, there are even cases showing how to pivot out of a failed startup. We’ve gathered several success stories featuring high-street names.
- Shopify. While building their own e-commerce storefront to feature an online equipment store for snowboarding, Shopify creators managed to pivot the storefront to be used by nearly 1 million businesses, skipping out on their own e-commerce business.
- Airbnb. Airbnb was launched as a price-tolerant housing solution focused around conferences. However, they lacked sustainability. Luckily, the owners managed to turn Airbnb into a perfect place for travelers to search for accommodations and experiences.
- Twitter. Odeo, a podcasting creation and aggregation platform, pivoted into what all we know today as Twitter – a $22 billion-dollar company. The shift was a result of fluctuation in the market and fierce competition, mostly from iTunes.
The bottom line
In the world of entrepreneurship, there is nothing more sure than the constant need to change. Today’s businesses won’t succeed without the ability to pivot from one idea or model to another. Testing approaches to find a sustainable business model, proving the product’s credibility, and surviving the economic turbulence by bringing real value to demanding consumers, are all lofty and demanding goals to achieve while pivoting your startup. Moreover, entrepreneurs who are not afraid to pivot are more protected from premature scaling and are more likely to find the niche they love while providing ultimate value. It may entail failures, but the very notion of pivoting is not a failure. It’s a normal and crucial process in the startup lifecycle. Just be sure to do it the right way.
Do any of the above-mentioned situations sound familiar to you? Have you heard alarm bells signaling it’s high time to pivot? Unicsoft’s “pivoting squad” is ready to answer all your questions and assist you with any pivoting path you choose. Feel free to contact us today.