It can happen that an original business model fails for various reasons. In such a situation, a well-considered change of strategy is required to get a young company back on the road to success. But that is easier said than done. What can a start-up do to escape defeat and remain competitive? Pivoting proves to be the optimal solution. We briefly explain what is behind this term and what is important.
How is pivoting defined?
The term pivoting (also called pivot) in a business context means a substantial change in the business model. A start-up usually decides to take this step oraction when it notices that its previous business model is no longer working. The reasons for this can be very different:
- The demand for one’s own offering is falling or not existing.
- Crises and new market conditions make a radical change of direction necessary.
- The competition introduces innovations.
From a strategic point of view, a pivot can be seen not only as a way out of a difficult situation, but also as an opportunity. In the startup world, it is often used to move forward and ensure economic success. If a business idea turns out to be unsuitable for the market, this is a clear sign that it should be optimized accordingly or discarded entirely. Many companies, including Apple and Instagram, have chosen to radically change the business model. In doing so, they laid the foundation for their success stories.
Pivoting and lean startup
Pivoting is ideologically linked to the lean startup method developed by Eric Ries. This has changed the way startups develop their products and services in the early stages. The idea behind the lean startup is to bring the own offer to market as quickly as possible and to measure its success. Thanks to this approach, young companies can recognize changes in the market in good time and – if necessary – make relevant adjustments.
Particularly in difficult economic times, startups need to be extremely flexible and able to react effectively to crises. Otherwise they risk losses and run the risk of going bankrupt. The lean startup method, which feels bound to lean ways of thinking and principles, provides for permanent pivoting. The aim is to draw conclusions from the long-term customer feedback in order to initiate a change of direction. A pivot can take different forms.
The main types of pivot
- Zoom-in-Pivot: In this case, the focus is on a specific feature of the original product, which is now the product.
- Zoom-out Pivot: This is where the generalization of the product occurs by using the original product as a feature.
- Customer segment pivot: The main change is that the same product is aimed at a different target group.
- Customer-Need-Pivot: The primary goal of this change is to reach the same target group with a different product.
- Business Architecture Pivot: In this context, a start-up decides to switch from B2C to B2B and vice versa.
- Business Model Pivot: Depending on the current situation, a young company changes its pricing model or repositioning it.
- Technology pivot: In this regard, there is a fundamental change in technology that is relevant for internal company processes.
4 important success factors
There is no doubt that a business model should always remain agile and flexible. This is the only way to ensure that it can be adapted to new circumstances if necessary. However, the agility and flexibility mentioned do not mean that a start-up tries out new business models as the mood takes it. Rather, pivoting is about acting carefully. The idea behind this is that a young company should operate more successfully in the market than before. The following factors are decisive:
- Customer feedback: As already indicated, customer opinions and reviews are very important for young companies in the early phase in order to recognize their development potential. Constant customer feedback is the be-all and end-all.
- Sunk Costs: Some startups tend to consider sunk costs when deciding on a pivot. This is not a good thing because when you change direction, only future income and costs count.
- High transparency: A pivot requires an open and respectful corporate culture. This is expressed in the fact that a start-up speaks openly and honestly about the change of direction with its staff and investors.
- Consistent management: A pivot goes in line with far-reaching changes at company level. Consistent management ensures that the transformation of this type is successfully implemented.
