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Pivot a Business, Advice on Changing the Direction of a Small Business, Key Considerations for Radical Business Overhauls: Strategy Feature by Oliver Milman

Is it time to pivot?

By Oliver Milman
Monday, 30 April 2012

feature-pivot-thumbAs far as buzzwords go, to “pivot” is a term that many Australian start-ups would still respond blankly to. But the concept, now established in Silicon Valley, is starting to gain traction Down Under.

 

New businesses are going to ground, seemingly having failed, only to rise from the ashes under a new iteration.

 

Previously, this would be called a “radical overhaul” or, less kindly, an “entrepreneurial disaster.” But pivoting is becoming a badge of honour for Aussie start-ups, especially in the tech space, that can nimbly extricate themselves from early mistakes in order to flourish.

 

Just witness the example of Nikki Durkin, who has already had an eventful career as an entrepreneur, despite being just 21 years old.

 

Durkin’s much-hyped clothing business, 99dresses, shut up shop earlier this year citing numerous difficulties, such as its rather arcane payment system.

 

Rather than this being the end of the road for Durkin, however, she has since been lavishly praised by blue chip US accelerator YCombinator and is in the process of getting the business back on track via an invitation-only process for customers.

 

It’s a story that is becoming increasingly familiar to Pollenizer, the Sydney-based incubator that first helped 99dresses get off the ground back in 2010.

 

“(Pivoting) is certainly something that we encourage at Pollenizer and that we observe more and more in the various start-up events,” says Pierre Sauvignon, who is product director at the start-up hub.

 

“Pivoting, when done right, is definitely a healthy thing for start-ups. You could fight the market to try to impose your vision, but that's going to cost you a lot of money and still doesn't give you any guarantee of success.”

 

“Start-ups don't generally have that kind of money so should rather pivot as they go and learn what the market really wants.”

 

But isn’t pivoting just a more polite way of saying that you’ve stuffed up?

 

“That's exactly right,” Sauvignon concurs.

 

“Pivoting is recognising – through validated learnings – that there is a better way to spend the business time and money than previously envisaged. Not recognising this would be the mistake.”

 

“I can't actually think of many successful web-businesses that haven't pivoted from their original premise.”

 

“To give you some recent examples, Instagram started as a location-based app called Burbn and Fab.com was initially called Fabulis and meant to be a social network for gay men.”

 

“Premises are generally flawed by definition. To quote German military strategist Helmuth von Moltk: ‘No battle plan survives contact with the enemy.’”

 

Brad Lindenberg has a less favourable view of the rise in pivoting. Lindenberg, who blogs for StartupSmart, founded Lind Golf in 2007, an online service that allows golfers to build their equipment via the internet.

 

“I understand that things don’t work out sometimes, but you should be able to build a business without pivoting,” he says.

 

“Some people see it as their right to do, but if you can pivot so easily early on in your business’s life, how big can your idea really be? If you look at the best businesses out there, they have founders who stuck with it and believed in themselves.”

 

“You have to keep the long-term in mind. It comes down to the business model too – if you’re trying to build the next Instagram for example, and you have no revenue, you can keep pivoting, but all you’ll be doing is pivoting in circles.”

 

Lindenberg concedes: “Pivoting can work if you pick up on a trend while you’re building your business. Groupon is a good example of this – they picked up on a trend and changed the business’s direction. But pivoting out of failure is questionable.”

 

For Tony Faure, ex-CEO of NineMSN turned successful start-up investor, pivoting needs to be carefully defined as a change of tactic, rather than a complete change in business model.

 

“All companies should go hard on their initial idea and test if it works,” he says. “Many of them then use that germ of an idea in another way and attack it in a different way. That’s pivoting.”

 

“Lasttix (Faure is an investor and chairman) began life as MyTickets, which was a classifieds market for tickets. It acted as a big search engine for tickets to help promoters sell more of them.”

 

“It turned out that this model didn’t have a huge value for promoters, but what came out of that was Lasttix, which very clearly works and is a valid model – it’s lower cost and can operate as a smaller organisation.”

 

“The proposition of the business – to help promoters sell tickets – didn’t change, it was just the way we delivered it. If your initial assessment isn’t tight, you need to move quickly.”

 

“But changing from running a jobs site, for example, to a real estate agent site is changing to something with a completely different proposition and with different customers. That’s not a pivot. It’s a fail.”

 

Sauvignon says that start-ups should make daily tweaks to their business in response to what they’ve learned.

 

“Launching your product – ideally in the first days of the start-up's life – will most likely bring back learnings that will, one way or another, require some sort of changes,” he says.

 

“In this context it becomes clear why launching as early as possible is so important for web start-ups.”

 

“If your product is very simple and the market tells you that this is not what it wants, it will then be easy to pivot onto something that the market actually wants.”

 

 

Three key tips to pivoting your business

 

If you are considering pivoting your business, there are three key considerations you need to make:

 

1. Work out your metrics

 

Your business may not be hitting the mark, but how do you quantify this?

 

You need a defined measure of success or failure in order to know if you’re on track or not.

 

“Don't pivot because your friend thinks you should,” says Sauvignon. “Pivot because you've learned something through a substantial test.”

 

“Find the right metrics for your business as soon as you can. Base them on real value. ‘New users’ is often not such a good metric. ‘Time spent using the product’ might be better, for example. If well picked, your metrics will signal you when and why to pivot.”

 

2. Test, test, test

 

Once you’ve made your assumptions, don’t just proclaim yourself a business genius and smugly await your payday.

 

You need to test the ideas underpinning your start-up idea.

 

“Running a start-up is hard – if it were easy, everyone would do it,” says Faure.

 

“You make a lot of assumptions when you start but you’ve got to test them really hard. If they don’t work, that can be a good thing, because you can build a better business out of it.”

 

“Every good founder starts with a validation point – typically, it’s customers. Find out what they think by talking to them. Once you can get one, then five, then 50 customers to validate your business, you are on the way to testing your assumptions.”

 

3. Go early or go home

 

If you’re going to pivot, don’t wait until you’ve burned through all of your money on a failed approach. Do it early on.

 

“Don't be shy or ashamed to pivot,” says Sauvignon.

 

“Pivoting can be an emotionally tough decision to make. But better recognise your business’s weaknesses early on, rather than waste your investors’ money and employees’ time building something that the market has clearly told you it doesn't want.”

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Don't forget that pivoting is for startups who are trying to find a working business model.

If you're starting up a cafe, recruitment firm, web design company, then you're trying to start a small business. Startups are trying to find a small business.

Very different.
Mick Liubinskas , May 01, 2012
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