Startups Must Learn How and When to Pivot

For over two decades we have witnessed numerous technology startups, which started small and exhibited phenomenal growth. Some of the current giants of the global IT ecosystem such as Dropbox, Uber and Facebook were startup enterprises few years before. Nowadays, there is a growing ecosystem of IT startups worldwide, which strive to follow the successful growth paradigm of these giant enterprises. Most of these enterprises follow the “lean startup paradigm”, which employs in “Build-Measure-Learn” cycle in order to develop an IT product and to obtain measurable user feedback about it, while at the same time exploiting this feedback in order to validate the startup’s business model. The lean startup paradigm is described in various textbooks and is widely known and used within startup communities. This paradigm provides guidelines about when and how to introduce changes to a product and its associated business models, while preserving agility and achieving maximum acceleration in business growth. Key to the implementation of the lean startup paradigm is the notion of a “pivot”, which is one of the most fundamental concepts of the lean startup methodology.

The Pivot Concept

A pivot signifies a change in a startup’s business strategy, which happens in response to feedback received from potential customers. This change leads to revisions to both the product and the business strategy of the company, as it signals a milestone where a new fundamental hypothesis about the product needs to be tested. Therefore, a pivot is a planned milestone of the lean startup methodology, rather than a failure. The methodology acknowledges that startups will have to be agile, change frequently and change fast until they find a successful business model that will propel their growth. This assumption is backed-up by experience: Most successful enterprises have pivoted several times prior to finding a viable path to accelerated growth. As a prominent example, Uber started as a Limousine service and undertook several pivots prior to establishing its current business model that relies on non-commercial drivers that use their own privacy vehicles.

A pivot takes place around a Minimum Viable Product (MVP) for a given business model. The MVP is a product development concept, which signifies a minimum version of the product that is needed in order to test a specific business concept and to receive tangible market feedback. The latter feedback is used to drive pivot related decisions and to trigger an iterative process of generating ideas, prototyping them in the scope of an MVP development, receiving feedback about them, analyzing the feedback and continually learn and improve the product development process.

Pivot Types

There are different types of decisions that are made during the pivot. In other words, there are different types of pivots, including:

• Zoom-in Pivot: This is the case where the enterprise decides to focus on a specific feature of its product. In particular, following the market testing of the product, it is decided to emphasize on a single feature of it, while ignoring a great deal of other options and functionalities. Hence, what was previously a single feature of a product, becomes the entire product.
• Zoom-out Pivot: A Zoom-out pivot occurs when an enterprise decides that it needs to provide additional features to a product, in order to complement the main feature of the MVP. While a Zoom-in pivot narrows the scope of a product, the Zoom-out pivot broadens it. Thus, following a Zoom-out pivot, a larger product will be developed.
• Customer segment Pivot: This is a customer driven pivot. It occurs when the company decides to focus the next version/release of the product on a specific customer segment, which is usually different and narrower that the one originally targeted. Such a pivot takes place when the original MVP seems to be appealing to customers of a specific segment, rather than to the original and broader target market.
• Customer need Pivot: This is a pivot that repositions the original product or even leads to the development of an entirely new product. It happens when the company realizes that the original idea is not appealing to customers and/or cannot be easily monetized.
• Platform Pivot: This is a change of the scope of the product from an application to a platform or vice versa. Platforms are able to support a wide range of solutions based on a common technical foundation. On the other hand, solutions can be offered independently from a wider platform. In some cases, companies opt to change the focus of their product from a platform to a popular application. In other cases, companies decide to generalize their application and create a platform for a broader set of solutions with similar characteristics.
• Business architecture Pivot: This type of pivot signifies a change in a business architecture. For example, companies may choose to focus on a high profit margin business model based on a low volume of sold items. Alternatively, they may opt for low-profit margin products that are sold at very high volumes. The business architecture pivot results in switching from one of the previous models to the other.
• Value capture Pivot: This is a pivot that leads to changes in the monetization strategy and/or the revenue model of the startup. Such changes have a direct impact on both product development and on marketing activities.
• Channel Pivot: This pivot type is sales-driven and refer to changes in delivery channels. Following market validation, a startup may decide to focus on one or more sales and distribution channels. This will subsequently impact the development of the product, in addition to its marketing and sales strategies.
• Technology Pivot: Nowadays IT startups are offered with a wealth of technology options for developing, deploying and operating their product. A technology pivot signals a shift in the technologies used, towards maximizing the cost/benefit ratio or even towards gaining a competitive advantage.

There are probably more pivot types driven by different factors. Nevertheless, the above-listed ones are some of the most commonly used and applied in practice.

No matter the pivot type, startup enterprises are increasingly realizing the importance of a pivot as a planned change in their growth plan. Startups must first map their assumptions in a business model and accordingly seek ways to test this model under realistic conditions and with the involvement of the target users/customers. In this context, a pivot is an indispensable step in the iterative and incremental development methodology that is currently employed by most startups in their efforts to build a unique product and find a successful business model for it. That’s the reason why startup founders and modern entrepreneurs must learn how to pivot in order to excel in a highly competitive landscape.