Pivot stories are often stories of failure before businesses changed strategies but that doesn’t always have to be the curve to propel you to pivot. Eric Ries, the man that made ‘pivot’ part of the business vernacular coined the term after seeing a pattern in startups that he was working with. When companies ran into a series of obstacles, they re-routed their GPS but the destination and vision remained the same.
Even YouTube was initially launched as a video dating site in 2005 on Valentine’s Day with a slogan, “Tune in, hook up”. They tried paying women $20 to upload videos. The original idea didn’t quite take off as planned, but users realized a better use of the platform than what the creators pitched. Co-founder Jawed Karim uploaded the first-ever video “Me at the Zoo” inspiring users to upload random videos of themselves on the internet, and that was it.
Instagram distilled out of Burbn (yes, it was named after the booze), a check-in app with a small photo-element. Co-founder Kevin Systrom found the platform cluttered and hard-to-understand so he scrapped everything except the photo sharing feature. That’s what a pivot is, it is “redeeming the failure because we learn so much about what’s possible,” Ries says.
What is NOT pivoting?
If you’re an entrepreneur, you’ve probably heard or been told to “pivot” to get through the pandemic inflicted economic crisis. What’s become a buzzword is seeing several connotations or is being surrounded by myths such as it’s done out of desperation, it requires changing your mission, or the most common – you need to be a risk-seeking leader to pivot.
Many entrepreneurs will comment, “we pivot everyday” or “we’re open to it” but that’s not what pivoting is. You do not pivot your strategy every so often. Often “big decisions” are misquoted as pivots. Wharton management professor Jacqueline Kirtley, conducted a field study to see how strategic changes affect startups, and describes “pivot” as something very evocative. “You think of basketball players who have planted one foot and changed direction but kept that one foot down. We usually think about that as the technology or the firm — there’s something you keep, but you change your direction very completely.” You create a set of hypotheses about your firm and test them. The hypothesis either gets validated or invalidated. In the case of the later, you pivot, or change your strategy.
How do you know if you should pivot?
One of the reasons companies pivot is that the founder realizes a major contradiction in their belief, leading to an incremental change, an addition or subtraction in the core strategy, according to Kirtley. In looking at whether or not your company should pivot, here some signs worth considering:
- Your target demographic’s needs have evolved
- The product isn’t serving your target market anymore
- Your business has hit a plateau
- Profits have consistently been declining
- Your product is losing relevance in the marketplace
- One of the elements is getting more traction than others
Lessons on cost-cutting when pivoting
John Runningen, principal at Commenda Capital LLC, a merchant bank providing capital, strategy, and operations support, shared insight on cost-cutting for companies looking to pivot. He says, value is more comprehensive than where a company currently sits or the new strategy they are pivoting to, especially when factoring in today’s economy. “Because the pandemic created such an anomaly, looking where the company currently stands isn’t the best interpretation of their overall value. Instead, you have to factor in the estimated future profitability of the company.”
For some companies, this period is just a blip in the radar and shouldn’t have a major lasting effect. For others, it can be severely impactful. In regards to the latter, you want to ensure that you are protecting that future profitability, which means you have to have a long-term viewpoint. “You have to be innovative with your offerings, willing to pivot to the new market with both your products/services and operations, and streamline your costs as much as possible.”
Eliminate extra costs but not to the point where it stifles growth
“Reducing costs is the quickest way to increase profitability, but it can also be the most stifling,” Runningen says. In addition, there is a ceiling that you hit with cost cutting – you can only reduce so much before you are at your bare bones budget. Increasing revenue, on the other hand, allows you to exponentially increase profit – there is no ceiling. This can be a longer process and definitely not guaranteed. “I believe when choosing between the two, it’s always good to first start with eliminating any waste in your business on the cost side of the equation but not to the point where it stifles growth. Focus on ways to increase revenue from there.”
Pay attention to areas that have potential overlaps in job responsibilities or where resources are not fully being utilized. Eliminating and/or streamlining those are easy ways to find quick cost reductions. “One of the best methods of identifying these is by reviewing job responsibilities, your systems, and procedures.” Ask yourself: Is there a way to do this better? Then, look at value-add vs. non-value add activities, with a focus on reducing the latter. Can your travel budget be reduced? Can you outsource some in-house staff? Is there an obsolete product in your warehouse you need to unload?
When cutting costs, you want to ensure you’re not stifling the growth of the company. Make it more streamlined. “With an economic downturn, there can obviously be times where companies must make major changes in order to survive, but those changes should still be strategic with a focus on how to build back up once the economy recovers.”
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