Less than 10% of start-ups “pivot their business model between round A and 3 years after an IPO”.
However, according to Fred Wilson of Union Square Ventures the number is higher than that as he says that 17 of 26 companies “made complete transformations or partial transformations of their businesses” between their seed investment and exit.
There will be hurdles for every start-up and every entrepreneur must have one trait, i.e. determination to battle and overcome the inevitable obstacles. But there comes a time when an entrepreneur needs to reverse his business plan, take a third option rather than just hanging in there. It is harder to follow but this is what a business often needs to be successful.
Time to Move On, Time to Pivot!
The third option is called pivoting, i.e. turning around the entire business strategy and moving it in a total unprecedented direction. Though it sounds scary, pivoting is, at times, the only option left especially when the original target market is not responding to your offerings per expectations. It plays even more crucial role for start-ups since it is almost impossible to predict what forces will drive the market when you’re building the product.
When it comes to pivoting, the hardest part is accepting that you need to re-strategize your business model. In other words, you have to accept your failure. But instead of shutting down or hanging in there, you are moving onto the next venture taking everything you’ve learned along with you. This is a good thing; in fact, it is a great bold move. Pivoting is a sign of a strong entrepreneur who doesn’t run away from failure, but embraces the shift.
If your target market is not responding to your business, it’s time to identify new opportunities and grow your business in that line and that’s what pivoting is all about. Here are some indicators that your start-up needs the reverse engineering approach.
You are Educating the Market
Having market foresight is very important for every business, but a start-up which is launched a few years too early definitely needs pivoting. You can predict the market demands to rise in the coming days and how your business can meet them, except that it is still in the future and nobody has been there, yet. The bottom line is you cannot educate the market about the future scope and gain transactions at the same time. Even to be a pioneer in a particular domain, you need to wait until the scope and demand build up.
To make such a venture successful you need to change your target consumers’ mindset, i.e. educate the market. It will be either too expensive to grow the business or chances are you’ll never be successful following that line.
Understand the thin line between being a pioneer and capturing a new, fresh market and being the one trying to educate the target audience to create market opportunities. In case of the latter, you’re probably too early. This is an arduous process that will drain you of money and energy and finally lead you to pivoting.
Investors aren’t Buying Your Ideas
It’s not that they don’t want to invest, but none of them likes your product.
Sometimes it takes a lot of investor meetings to find someone to invest in your project. Investors often ask you to get traction first before they make the seed investment or they may not be interested to invest in your targeted space. These are quite common reasons to get rejected by investors but if you’ve faced dozens of rejections and still the feedback is negative either on target market or on the product, it’s time to consider a pivot. Repeated feedback of your market being too small or your product not being compelling enough is a clear giveaway for the need to consider reverse engineering approach.
Your Beta Users are Not Satisfied
This is a clear giveaway that you definitely need pivoting when your beta users do not like what you offer.
It is a good thing to listen to your potential users. There was a reason why Google made its controversial wearable device Google Glass available for beta testers. Feedback is important, especially when you are bringing an innovation into the market.
It is quite natural that you will be passionate about your product, but it is another thing to be fiercely stubborn. It will surely lead you to the start-up deadpool. Therefore, listen to your beta users and if majority of them don’t like your product or just don’t get it or if they don’t find any value in it, pivoting is the best option.
Not Having a Definite Target Market
Start-ups often try to be everything to everyone, aka a ‘one-stop solution’. But these start-ups often fail as they mostly end up burning their resources on developing products that are bigger or more complex than they should be.
You need to focus on one user base and target market. You can direct your engineering and other resources in a proper direction without burning them out. Besides, going after everyone will confuse your users. They’ll likely to have difficulty making up their mind if your product is for them or not. So before it is too late, do some soul-searching and pivot your business with a more focused approach.
A Complex Road to Success or Pivoting — Which is Better
If someone asks you to describe your business model and you begin with some hypothetical examples, situations that do not exist at present, to explain why your product will be the next big thing, it is going to be a complex road to success. Your venture may not necessarily fail, but it will be too dependent on long-term variables that would make it too much of a risk for a start-up.
Contrary to popular misconception, pivoting is not quitting when you fail. It is just that you are moving on with Plan B when Plan A fails to deliver, and there is nothing wrong in it. There are examples of great companies that re-engineered their business models. Facebook, for example, started up as Facemash while Instagram began its journey as Burbn. Youtube too went through pivoting; this worldwide destination for entertainment was originally built as a video-dating platform.
Going by these examples, it appears that pivoting is a necessity for a start-up, well almost.