The market reality frequently changes – and not only in economically unstable times. Even before the pandemic, many companies had to redefine their business model – for example, to adapt to the ever-growing digitalization.
Until last year (or even early this year), business pivoting was mainly associated with new ventures. It seems natural for startups to pivot their business when it’s not doing as well as expected. There might be various reasons for early on failures, for example, an incorrectly identified customer group, failing distribution channels, or, a lack of unique value for customers. But currently, due to COVID-19 and subsequent limitations, many companies – even those well-established – can’t run their business as usual. Every day brings the risk of huge revenue losses and bankruptcy.
Pivoting may be a way to overcome all the mentioned obstacles – whether for a short time (pandemic period) or permanent, both for new and experienced enterprises. To do so, a company needs to identify those parts of its business model that stopped working recently, are not performing as expected, or… were never working in the first place.
What is a Business Pivot, Precisely?
Paraphrasing Steve Blank, professor at Stanford University (and one of the creators of the term “pivot”!), a pivot is a substantive change to one or more business model components when a business hypothesis doesn’t meet the reality.
What does this mean, practically?
Before starting any a business, a company needs a clear picture of what their product or service should be. This includes, mainly:
- what value will it deliver to customers,
- to what group of users it is dedicated,
- through which distribution channels will it be delivered,
- who are the key partners and suppliers,
- what resources are needed and what costs it involves,
- and in the end – will customers be willing to pay for it?
All the above contribute to a company’s business model. If any part of this business model is based on an incorrect hypothesis, the business may likely be in trouble. In its essence, pivoting is about giving up some of these false assumptions and failed plans, but keeping the original goal. So, briefly speaking, it’s about a change in strategy without a vision change.
Quoting Jeff Bezos, CEO of Amazon: “Be stubborn on vision, but flexible on details”.
To hear more about the core idea of business pivoting, watch this 2-minute video from the pivoting guru himself:
Steve Blank: Pivot — Firing the Plan, Not the People. 2 Minutes to See Why
What Types of Pivots are There?
There are two types of pivot classifications. The first (and more popular) one, proposed by Eric Ries, founder of the Lean Startup theory, consists of the 10 types of pivots listed below:
- Business Architecture Pivot – when you change from one model to another, i.e. between one of the two below:
a) complex system model focused on a small group of clients but with a high margin product or service (mainly B2B branches or products),
b) volume-based model focused on a wider group of clients but with a low margin product or service (usually B2C market). An example of a business architecture pivot company is IBM who was a leader in enterprise mainframe computers; as the personal computer began disrupting the industry and after failing to dominate the PC market, IBM pivoted from hardware to software and consulting services.
Another great example is Nokia:
- Channel Pivot – it’s about changing the distribution channels. Many companies rely on middlemen and their distribution channels. Once their position on the market is established, they start thinking about introducing their own distribution channels. Another example – in the face of COVID-19 and the lock-down, many restaurants and other gastronomic places had to pivot their business towards food delivery.
To learn more, watch our Pivot Talks episode about Yell.com:
- Customer Segment Pivot – when you discover that you have the right product, but you’ve been selling it to a wrong group of users. Snapchat is an example of such a pivot, where it was initially addressed to students. Soon it occurred that the real customer segment is the teenagers and… their parents! Another example is Airbnb where the initial customer segment were people travelling to conferences and looking for a place to sleep; now it’s a platform for travellers who seek a cheap place to stay.
To learn more, watch our Pivot Talks about Giacom:
- Customer Need Pivot – your product solves a problem that you identified, but it seems that the bigger pain for your customers is somewhere else. You’ve been focusing on the wrong problem. A good example is Odeo that once was a podcasting company and turned into Twitter. Recently, due to the pandemic, we can observe shortages with products like one-time gloves, masks or visors, to name just protective products. And this is an opportunity for many companies to pivot their business like a BrewDow company who transformed its distillery to produce hand sanitizers.
Learn more in our video about Twitter:
- Engine of Growth Pivot – when a company changes its strategy to find a faster and more profitable way for growth and development. There are 3 types of engines of growth:
a) the sticky engine of growth – for companies that focus on retaining customers for the long term. The key here is to find a way to keep customers coming back for your product or service, which results in a low-level customer attrition rate. A good example here is Netflix or web hosting.
b) the viral engine of growth – when your product advertises itself, either by people talking about it to others (word of mouth) or simply by people using the product. The tricky part here is how to make sure that each customer brings their friends to use the product. c) the paid engine of growth – this is probably what most businesses are familiar with. Every form of paid advertising falls into this category.
- Platform Pivot – refers to changing from one platform to another. Facebook can be an example; it moved from a web platform to the mobile version, and then further pivoted introducing independent applications like Messenger.
- Technology Pivot – when a new technology is introduced and changes the way that the service is provided. A good example is Calypso, an open–source backend platform enabling managing multiple WordPress powered websites across unlimited domains.
- Value Capture Pivot – is about changing the monetarizing. A good example is Duolingo, a language learning application. Initially, the app was free, and revenue came from crowdsourced translation services. Now, they’re offering a subscription service that removes ads and offers offline usage.
- Zoom-in Pivot – like the name suggests it’s when a company takes its complex product and decides to focus on a small/one aspect of it. A good example is the polish company Benefit Systems which initially offered a complex non-wage employee benefit programs to focus on health and fitness operators eventually. Another example is Instagram. Once it was a location-based service like Foursquare with some gaming elements (e.g. points earning system). Finally, it decided to focus on pictures only.
- Zoom-out Pivot – it’s the opposite of zoom-in pivot, i.e. expanding a product till the moment when you come up with a valuable product for your customers. An IT example of zoom-out pivoting is DotCloud, once a Platform as a Service (PaaS) provider allowing developers to focus on the code. At the same time, they handled scaling, deployment and load balancing. It was actually successful, but the management realized that customers wanted more. Therefore, in March 2013, they released the first Docker Containers, lightweight platforms allowing developers to move their applications between environments and clouds without modifying the code. Since then, the number of dockers is growing rapidly.
Some of the solutions described above can be a combination of a few pivot types. Facebook, for example, was, on the one hand, a platform pivot, changing from web to mobile, and on the other hand, a zoom-out pivot, as at the beginning Facebook, called Facemash back then, that allowed to match two portraits together and asked the user to vote for one.
Another classification of pivots, by Marty Cagan, a Silicon Valley-based product executive, distinguishes two pivots: vision pivots and discovery pivots:
- Vision pivot: a product vision describes what a company wants to achieve in few years, it’s often why people join the company or team, and it’s compelling a problem worth solving (or at least that is the belief). The job of the product team is to make that vision a reality. But if vision is the problem, e.g. the company is solving something for what there is no real market, then a vision pivot may be in order. In short: “A vision pivot puts you on a path to a different business with a different vision”.
- Discovery pivot: during product discovery, while working on the vision, many ideas will be tried, and some will not work. But it’s important not to get wedded to a particular solution, approaches or features and keep trying various ones. If it makes the vision come true, no idea is bad. In short: “A discovery pivot moves you closer to realizing your product vision”.
Nomenclature Itself Matters Not
In the end, it doesn’t matter how you call a pivot, or how many of which types are combined within a new solution. The most important part is to identify the business areas that are not “working” to come up with ideas for a fix or upgrade.
Another crucial part is also to validate these ideas as much as possible; a well-crafted plan maximizes your chances for success.