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Why “Pivot” Isn’t a Four-Letter Word

Why “Pivot” Isn’t a Four-Letter Word

By Matt Fates and Eric Schultz

In 2011, Eric Ries first used the term “pivot” to mean a “structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth.”[1] While Ries’s vision and best-selling book inspired startups everywhere to chart new paths to success, in some circles there remains a stigma attached to the word itself. “I won’t use the word ‘pivot’ in the office,” a CEO friend told us recently. But should the pivot be thought of in such villainous terms? It can be scary and challenging to overhaul your business strategy, but pivoting does not equal failing. And it happens more than you might think.

At Ascent, we have seen nearly half of the companies we work with go through a significant change in direction at some point in their journey to success. And they are not alone – some of the most respected companies in the tech world have “pivoted” from their initial plan.

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It is also important to make a clear distinction between ongoing change and a true “pivot.” Startups are constantly adapting and adjusting to what they learn about their market and customers. This is one of their advantages over the larger and less-nimble legacy IT providers. But a pivot is more fundamental. In practice, at least for start-ups, a “pivot” turns out to be one of the riskiest, most harrowing moments in the life of management team. Often a dramatic reorientation of the fundamental business model, the pivot inevitably comes when cash is tight, managers are feeling vulnerable and investors are paying their closest attention.

Last week, Ascent Venture Partners hosted a seminar for its portfolio leaders to de-stigmatize and discuss the “pivot,” and in particular, share a set of best practices. Portfolio CEOs provided case studies, and from those we’ve summarized below a few characteristics of a successful pivot:

  1. Listen to Customers. The front edge of a pivot often begins with company leadership concluding, “It shouldn’t be this hard.” This happens when the value proposition generates customer interest and meetings, but sales and growth are elusive. The company is progressing, but not at a rate that makes anyone happy. More often than not customers will drive the pivot by comparing the solution offered by the company to precisely the one they want. “What you’ve got is interesting, but if you only had this we’d buy today” is a sure sign that a pivot should be considered.
  2. Listen to the Market. Sometimes the pivot is inspired by an outside event, which can change customer needs overnight. Many companies pivoted into security offerings after 9/11, and others into web security offerings after the WikiLeaks scandal. Sometimes the success of a single company, like Salesforce.com, can lead to changes in business models across entire industries.
  3. Overcome Internal Resistance. Selling the new plan internally can be one of the most difficult but important parts of the pivot. Even entrepreneurial-minded people can be change-averse, and if you can’t convince fellow managers and investors, it’ll be hard to convince customers. On the other hand, this is an ideal time to test assumptions and seek comparable experiences and best practices from your brain trust.
  4. Avoid Falling in Love. Entrepreneurs need to possess the “pivot gene.” In the dynamic and rapidly changing world of technology, few start-ups get their product or service offering right the first time to market. Strategic and tactical agility are essential parts of a successful CEO’s toolkit. Beware the management team that has fallen in love with its product or service and, because of that, resists changes to its business model.
  5. Be Disciplined.  The pivot for a start-up must often be rapid and dramatic, like tearing a bandage off a wound. While profitable revenue from the old model is hard to give up, few small companies have the resources to run two business models simultaneously. One team took the approach of firing everyone, then deciding who it made sense to re-hire, including the senior team members. Fully committing funding and the organization to the new model can be essential to its ultimate success.

So, are you ready to pivot? It’s one of the most important moments in the life of a start-up team, and few can avoid it. If implemented successfully, however, the pivot will reflect intimate customer feedback and can power the kind of hockey-stick growth the initial strategy was designed to achieve.

Eric Schultz serves as the Executive Chairman of Hubcast, and is a venture partner at Ascent.

[1] Ries, Eric, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, Crown Publishing, 2011, p. 103.

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