Pivoting, as you may know, is a bit of a buzzword amongst startup founders.
You don’t have to spend too long at an entrepreneur meetup group, before you start to be bombarded by people telling you of their plans to ‘Pivot.’
So, odds are, you’re familiar with the term.
But do you know what it actually means to pivot?
More importantly – do you know whether or not you should be pivoting right now?
Pivoting now has a variety of connotations and definitions, because so many people misuse the term and for many entrepreneurs, the concept of pivoting be scary and confusing.
After all, plenty think that it’s a something done out of desperation because things are going horribly wrong with a company – almost like an admission of devastating failure.
However…Others think that it’s a way to take their startup to the next level.
We’re going to walk through exactly what pivoting is, the circumstances that should surround a pivot and how you can successfully pull off a pivot.
We’ll even review some existing companies that have pivoted successfully, helping you to understand what separates a good pivot from bad.
Once you’ve finished this post, you’ll understand what pivoting is and how the concept directly relates to your company.
Let’s get started!
A short overview – Why and how businesses become monster successes
The most successful businesses in the world are often the those that have found a way to truly meet the needs of their customers.
Such businesses are often regarded as companies that achieved something known as ‘product market fit.’
If you want to a successful enduring company – achieving product market fit should be at the top of your agenda.
And who doesn’t want a successful enduring company, right?
Now, figuring out how to meet the needs of your customers isn’t always obvious – especially if you’re a startup.
In fact, going through process of finding a product/market fit is often what kills most startup’s.
That’s because the process can be drawn out and incredibly tough to get through.
For the most part, founders run out of money or willpower.
But going through this process is vital, because it’s the very thing that ensure you have a successful business, as mentioned.
Pivoting is an instrumental part of creating a scenario in which your business is successfully and fully meeting the needs of your customers.
You could say that pivoting is the process of finding a product market fit.
In the next section we’re going to deep dive, into exactly what pivoting is.
But if you ever feel overwhelmed by the idea of pivoting, just remember that at its very core, it’s simply the process of achieving a greater level of product market fit.
What is a Pivot?
The word pivot get’s thrown around a lot and so it’s definition can be hard to describe nail down.
We’ve put a lot of thought into what pivoting is and so here is a definition that we think is true to the concept –
[Noun] | /pɪv.ət/ | piv – ot
- The shit that most startups go through to find the right customer, value proposition, and positioning.
A pivot is essentially when you make a large and almost always fundamental change in the way your business works.
This could include changing the way you serve your marketplace, or the serving an altogether different marketplace. Whilst it can include changing your business model, pivoting can often require you do more than just that.
All in all, the goal of pivoting is to create a scenario wherein your company achieves a greater level of product market fit, in the name of increasing company growth.
We’ll cover this in more detail later, but when product market fit exists, there is massive alignment between the way you serve the marketplace and what the market place actually wants.
When you can do that, you’ll have a successful, profitable business on your hands.
Pivoting, is what’ll allow a company to reach that coveted scenario.
It’s worth mentioning that Pivoting is different to growth hacking.
For the most part, Growth hacking involves challenging assumptions related to your marketplace. This is so that you can increase the popularity/engagement of your current solution, within it’s current marketplace.
So, for instance, how you can get more people to download your app or how you can get more people to visit your website.
Growth hacking can sound fun, but you don’t want to growth hack a mediocre company, that just barely meets the needs of your customers.
Pivoting, on the other hand, is about challenging the assumptions that you have about the entire marketplace and the customer’s/end users.
With pivoting, you’re questioning what the actual needs of the customers are and the ways in which you think you should be serving customers, so that you can best meet their needs.
For instance, you might find that a certain feature of your product is being used disproportionately and so you might create an entirely new product out of this feature.
Or you may find that there is a certain kind of customer that is disproportionately using your product and so you may create a product to serve the marketplace of this customer instead.
A successful pivot can produce massive improvements in growth, that’ll far outweigh any growth hacking experiments you might run in the future.
In order to pivot successfully, you’ll need to use a well thought out approach as it isn’t something you can just dive into haphazardly.
The good thing, is that, as a startup founder, you may already have all the skills needed to pivot effectively.
That’s because you’ve probably had to do some growth hacking in your time.
… And, as mentioned above, growth hacking is all about adopting a scientific mindset that’ll help you challenge assumptions so that you can find a better way to grow your business.
… And challenging your assumptions in order to find a better way of doing things – is an instrumental part of pivoting.
After all, a startup is essentially a bunch of assumptions.
In order to pivot successfully, you need to do is lay down your assumptions about the customer and the problem and validate them all – the same way you would for a growth hacking experiment.
Now, if you haven’t done this already, you need to really think about the assumptions you have about the problem you’re trying to solve, your customers and your marketplace.
You need to apply a scientific mindset to your entire business, if you want to achieve the greatest level of product market fit.
If you have a background in growth hacking all you need to do is apply a growth hacking mindset to your entire company, so that you can figure out which way to pivot in order to reach a perfect product to market fit.
Then later on, you can use actual growth hacking to capitalize on a what looks like a successful pivot, so that your company will experience a fast rate of growth.
Will Pivoting work for everyone?
Before we really really get into the process of pivoting, it’s worth covering who this will work for, and who this won’t work well for.
Pivoting works best for startups that are open to change and want to do whatever it takes to to better meet the needs of their customers.
If you’re open to change and you aren’t romantic about doing things in a certain way, your business can benefit from pivoting.
It’s worth mentioning that pivoting isn’t just for companies that don’t have a lot of customers or revenue.
Pivoting is all about achieving better product market fit, so that your company can achieve greater growth.
You can still do that if you have a business that has annual revenues of $1 million or $100 million or $1 billion.
Just take a look at Amazon or Tesla.
Pivoting won’t work well for startups where the founders aren’t open to change.
If you’re not open to change, pivoting won’t work well for you.
It’s important that you’re upfront about this right now – or else you’re really just wasting your time with this blog.
If you think that things need to be done a ‘certain’ way and that certain approaches won’t work for your business– then you need to either change your mindset, or forget about pivoting.
Product Market Fit
We’ve touched upon the concept of product market fit earlier on but let’s take a more in-depth look at the concept of product market fit, why it matters for your company and how it relates to pivoting.
What is Product Market Fit?
The ability to achieve product market fit, is probably most coveted scenario for a company, as it means that a company has reached a state where customers have the very least amount of resistance to buying.
For product market fit to exist, the following needs to be true–
- There must be an alignment between the core problem faced by customers and the product created to solve the problem.
- There is a resonance between the problem faced by customers and ability to build and deliver solutions using current technology.
- Channels exist that make it easy to reach and market your solution to customers, thereby allowing for growth.
It is worth mentioning that when you pivot a company, the way in which you achieve product market fit will likely change.
For instance, suppose you identify different needs in the marketplace or a better ‘kind’ of customer to serve.
In order to fully meet these needs, you probably need to build different products of which might be built using different technology. You may also need market your solution using different channels. For instance, Apps require different marketing channels when compared to websites.
That is because each of these factors will have ‘dependencies’ on one another.
A change in one area of your business, will affect all the other parts that have an impact on your company’s ability to achieve product market fit.
Why Product Market Fit is important
Product market fit is important, because it creates a situation where your company is able to tap into the latent demand that exists in a certain marketplace.
Because of this, when you achieve product market fit, the marketplace will demand your solution – almost naturally.
This creates a situation where your company will be able to achieve sustainable and significant growth.
How do you know if you have/haven’t achieved product market fit?
When you achieve product market fit, odds are you won’t get a message from the heavens letting you know that you’ve hit this coveted goal.
What you will see though, are some dramatic changes in the numbers of your business.
One of the most obvious signs that you’ve achieved product market fit, is when you start to experience a dramatic rate of growth.
Should you achieve product market fit, there’s going to be a point where people are getting a lot of value out of your product, and they’re voraciously recommending it to people they know.
This cycle compounds and leading to the kind of massive growth.
Keep in mind that this effect can also happen (and be magnified) when find a marketing channel that works best for your solution and target market.
You’ll also experience something known as the ‘Shut up and take my money’ effect, where it really doesn’t take that much convincing to get customers to invest/engage in your offer.
On the other hand… if you’re not experiencing any of the above, you probably haven’t achieved total product market fit.
In this situation, you’ll need to go back to the drawing board and start out with a different set of assumptions.
Why most startups will fail at trying to find product/market fit.
As you might’ve guessed, achieving product market fit isn’t easy and many startups fail at the task.
So what it is that causes startups to fail, when it comes to finding a product market fit?
A lot of the time, it comes down the assumptions that a company has about the marketplace.
For instance, you may have the right customer base, but you might not be targeting the right problem.
Or it could even be that you have the right customer base, but you’re going after a problem that isn’t significant/pressing enough.
It’s important that you pay close attention to the data that your business is feeding back to you everyday.
Within the data, you’ll find vital insights that will tell you how you can get closer to achieving product market fit.
Now, keep in mind that some companies will still fail at achieving a product/market fit, even if they do have an alignment between the core issues faced by the marketplace and the product that they’ve created.
That’s because timing also plays a big role, of which can manifest itself in a variety of ways.
Whether or not a company can be first to market, is such an example of how the importance of timing can manifest.
Social Camp, a company that was bought by AutoCad for over $400 million, is an example of a company that benefited from timing.
One of the reasons they grew really fast is because were one of the first successful video applications built on Facebook’s open graph.
Because they were first, they were able to capture a large portion of the people who would be interested in using a service like the one provided by Social Camp.
Emerging trends are another way timing can play a big role in whether or not a company will be able to successfully achieve product market fit.
One of the reasons Uber was really successful is because they tapped the emerging trend known as the ‘Gig Economy.
A Gig Economy is essentially where people can easily find others who can help them meet their needs.
Those who want to provide services can quickly earn money by just by joining a platform, of which introduces them to an existing thriving marketplace.
The platform is built in a way that makes it easy for them to earn some decent, quick money, by providing something fairly straightforward.
Existing solutions for the ‘Gig economy’ typically catered to ‘white collar professionals, who had certain skills.
However, Uber gave ‘blue collar’ workers a way to benefit from this emerging trend. As long as someone can drive a car, they can become an Uber driver.
If existing examples of the Gig Economy didn’t exist, Uber might’ve found it difficult to pave the way.
Identifying Product Market Fit opportunities
Identifying opportunities for product market fit can be difficult.
The trick is lies in finding something that’s so obviously desirable by the customers, but somehow overseen by the competition.
At first, you might think that such a goal is impossible to achieve.
However, it’s actually not too hard.
In most industries, the smaller companies are too scared to go after a big industry, and the big companies are too comfortable and fat to take any big bets on their future.
This all creates opportunities for someone who wants to take advantage.
What you need to keep in mind, is that it’s hard to see this sort of stuff without getting your hands dirty.
In most cases, you need to serve a marketplace/build something, before you really get a sense of what it wants.
If you’ve created some novel technology, you need to let people use it, before you can really figure out the best way to serve a marketplace with it – or even which marketplace you should be serving.
Pivoting works best when you pay attention and you can only pay attention once people are actually using your stuff.
Myths about Pivoting
Hopefully by now, you should know what pivoting is and what it isn’t.
But, you might still have some doubts about whether or not you have what it takes to pull off a successful pivot or whether or not your company would survive a pivot.
If you feel this way, it’s likely because you’ve bought into some of the myths surrounding pivoting.
Perhaps the most widespread myth about pivoting, is that it requires for you to be immensely courageous and that to pull it off, you need to be someone who has a massive tolerance for risk.
It’s often because of this myth, that you’ll come across entrepreneurs who like to talk about the fact that they’re pivoting – after all, who wouldn’t want to be regarded as having those traits?
But the notion that you need to be a crazy, risk seeking entrepreneur in order to pull off a successful pivot, couldn’t be further from the truth.
Now sure, there might be stories out there of entrepreneurs who remortgaged their house, in order to pivot their business – but those stories are the exception rather than the rule.
… And as we’ll see later, a lot of the time such scenarios could possibly have been prevented by taking some proactive steps.
In any case, if you apply the right methodology (of which we’ll cover in later chapters), it’s quite easy to cap downside and maximize upside when pivoting.
That’s because pivoting is all about running rapid, sturdy experiments, of which will help you figure what you should do next in order to achieve product market fit.
(Testing assumptions like a scientist remember?)
Companies that run into trouble when pivoting, often do so, because they take too long to run these experiments.
And that is a point that segues nicely into our second myth about pivoting…
Pivots are not always done with all or nothing mentality and out of desperation.
Right, let’s clear this up once and for all.
Pivoting should be seen as a positive, iterative process, of which is done over the long term – it’s not necessarily a bad thing.
The goal of pivoting is to figure out how you can achieve better product market fit, so that you can better serve your marketplace (or another marketplace), all so that your company can achieve sustainable long term growth.
Marketplaces change naturally over time and if your business is to survive in the future, it’ll need to pivot at some point or another.
Heck even Coca Cola needed to pivot toward producing ‘healthier’ options and 43% of their sales now come from healthier options!
So the question isn’t whether or not you’ll need to pivot.
But more so whether you’re going to implement a preemptive process whereby you’re constantly implementing ‘pivot’ experiments.
Should you wait for the marketplace to tell you when to pivot, your business will be put in a precarious position and the future probably won’t look rosy.
Well, definitely, not as rosy as it should.
For those that wait – the myths about pivoting will stop being myths.
That’s because pivoting will become something you’ll need to do out of desperation putting you in a position where you may even need to remortgage your house!
If you implement a consistent ‘pivot process,’ then pivoting is actually something you can have a lot of fun with, as you conduct experiments to figure out the best way create long term growth for your business.
Examples of Successful Pivots
We could go on and on about pivoting, but odds are you’ll learn the most about pivoting when you’re presented with some examples of successful pivots.
So with that in mind, let’s take a look at some companies that have pulled off successfully pulled of pivots that lead to some amazing rewards.
The first company we’re going to take a look at is PayPal.
PayPal, as we know it today, is a platform that makes it easy for people to securely send others money, using only their email address. It also allows for businesses to easily conduct online transactions, say for their ecommerce store.
But PayPal didn’t start out that way, and Reid Hoffman talks about the story of PayPal and it’s pivots in an interview with Fast Company.
To begin with PayPal wasn’t even known as PayPal – it was called ‘Confinity.’
PayPal is quite an interesting company, because it went through a number of pivots and their story follows a nice arc.
With that in mind, let’s explore each of the pivots that they went through, starting right at the start…
In the beginning: Confinity was designed to provide encryption on mobile devices.
The idea here, was that someone else would build the application, of which would require the encryption technology created by Confinity.
It was then, that PayPal realized that they were dependant on people having to build these kinds of applications.
The First Pivot: Following their realization they then focused on building an application, of which could make use of the encryption technology.
As a result, they decided to go down the route of building an application related to financial transactions on a mobile phone.
Soon after this, they realised that it would take a long time for mobile phones to be able to effectively handle financial transactions.
The Second Pivot : The company then changed directions and focused on the financial transactions between Palm Pilots.
They did this with the hopes that this approach would make it easy for them to eventually service financial transactions on mobile phones – their ideal scenario.
The Third Pivot: It didn’t take long before the company realized not everyone had Palm Pilots.
Reid Hoffman, one of those working at the company, went through a potential use case, that highlighted this problem.
He detailed a scenario where there would be a group of people who went to dinner, of whom wanted to split the tab after dinner.
He questioned how many people at the dinner table, would actually have a Palm Pilot in the first place. Reid argued that you’d only be able to split the dinner tab successfully, if everyone had a Palm Pilot – a scenario that was rare.
So they decided that they needed to adjust their approach.
The Third Pivot: The company then decided to do Palm Pilot Payments and Email Payments.
Not long after, they found that the email payments feature was being used a lot, with this feature having a significant impact on the business.
Payments made using Palm Pilots, though, weren’t really that popular in comparison.
The Fourth Pivot: PayPal then decided to get rid of Palm Pilot payments and focus solely on email payments.
This also meant that they placed a sole focus on the web and doubled down on the concept of web payments.
All of these changes, happened during the space of around the space of 15 months.
Over time, they noticed a lot of traction amongst eBay users, as buyers and sellers were using PayPal to complete transactions.
It was at this point that PayPal realised these individuals were their customers.
They decided to focus on this core group of people, and the general idea of buying and selling things online – of which at that moment in time, related to heavily to eBay, but eventually web wide payments too.
eBay had their own online payment service known as Billpoint, however, they eventually gave in and bought PayPal for $1.5 billion, in July 2002.
It’s clear to see how everything we mentioned earlier, in terms of finding a way to best serve customers, comes to fruition, in the story of PayPal.
Yet, what’s even more important, is that timing was a arguably big factor in PayPals ability to succeed.
eBay was a big part of PayPal’s success, and if it eBay was gaining as much traction as it did, PayPal’s story may have gone a little differently.
Flickr, as it is known today, is a photo sharing site that is used by millions of people around the world.
But, it originally started out as a Massive Multiplayer Online Role Playing Game (MMORPG), known as ‘Game Neverending.’
One of the features of the game, was that it allowed players to take photos and then save them to the web, for all else to see.
This feature, quickly became one the most loved aspects of the game and it was at this point, that the founders decided to launch Flickr.
The platform grew quickly and was then acquired by Yahoo, for somewhere around $22-25 million.
When reviewing this pivot, an interesting thing to look at is the fact that Flickr made use of something known as a ‘Zoom in Pivot.’
This is essentially where a feature, becomes a/the product and in this case, the feature of Game Neverending, which allowed players to share and showcase photos online, became the end product.
There’s a lot of similarity, here, in terms of what PayPal did.
The founders of Game Neverending noticed that a certain aspect of the product was receiving a disproportionate amount of attention/usage, and doubled down on that aspect.
For PayPal, it was email payments vs. Palm Pilot Payments. For Game Neverending it was the ability to share photos vs. the rest of the game/the entire MMORPG.
Incidentally, one of the founders of Game Neverending, Steve Butterfield, also founded the $1 billion dollar unicorn Slack.
Those with a keen eye, may probably notice that the game Game Neverending, also had a popular ‘chat’ feature built into it, of which has a lot in common with Slack.
You probably know a lot about YouTube’s current popularity, already.
But if you’re a little hazy, here are some quick stats to remind you how massive the platform is at the moment –
- It has over 1 billion users.
- Almost ⅓ of people on the internet, watch a video on YouTube everyday.
- The platform reaches more reaches more 18-34 and 18-49 year-olds when compared to any other any cable network in North America.
We could go on…but you get the idea.
YouTube, like the other companies we have featured, had humble beginnings and the platform looked very different when it first started out.
To begin with, it was a ‘video dating site.’
The site was called ‘Tune in Hook Up’ and was designed to be sort of like the video version of ‘Hot or Not.’
This idea didn’t take off – even when they tried to pay women $20 to put videos on the platform.
Nevertheless, despite this initial failure, they still had this technology that allowed for people to easily upload videos to the internet.
Following the Superbowl ‘Wardrobe Malfunction,’ one of the founders of YouTube struggled to find a video of the drama.
It then struck him to use the video uploading technology to solve this problem.
The founders took their video uploading technology, and reworked their approach so that their technology now served the marketplace of people who wanted to view/upload user generated content – or content related to ‘viral moments.’
This opposed to using their technology to serve those in the dating marketplace, of whom wanted to use a video dating site.
A feature, or more specifically an underlying technology, was used to create something that would allow the founders to achieve greater levels of product market fit, compared to their last outing.
In the beginning Yelp was a way to automatically ask for recommendation requests from friends, via email.
Automatic emailing didn’t work out for the best and it’s easy to imagine why.
But one thing the founders did discover, as a result of launching and promoting this ultimately failed product, is that people enjoyed writing reviews for the places that they had visited.
The more that they dug into the data, the clearer it became that people really valued reviews.
Based on their research, the founders shifted their focus towards creating a ‘review platform.’
As of December 31 2016, the platform managed to generate an average of 73 million visitors in Q4, with a 121 million reviews in total on the site.
You could say that things worked out.
Yelp has a similar story to everything a lot of the other companies we’ve covered.
Their marketplace told them what was the best thing about their product.
Based on that, they changed their approach to focus on the most loved feature and turn that into a full blown product– adapting their product so that it focused solely on reviews.
They then built the product in a way that appealed to the marketplace of people who want to read reviews, before they go somewhere (or even those who want to write reviews, based on places they’ve visited).
This had greater product market fit, compared to the product that generated automatic recommendation requests… and so that future of the company became brighter.
One Startup = One Customer = One Problem
Wrapping up this blog post, there’s something important we need to delve into, just to make sure you’ll get the best results when pivoting.
Startups often get the best results, when they focus on meeting the needs of just one customer.
Which makes sense, to be fair.
Because if you’re going after multiple customers, you’ll need to solve multiple problems (one for each customer).
However, the more customers you’re going after, the more difficult it becomes to achieve success.
Because in the beginning you only have so many resources to allocate..
By spreading yourself too thin, you won’t be able to put everything into meeting the needs of your chosen groups of customers.
And this means it’ll either take too long to achieve product market fit – or worse, you’ll never achieve it at all.
As Confucius says – the person who chases two rabbits ends up catching none.
So, if you want to Pivot successfully, focus on one customer.