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The idea behind the startup “pivot” is captivating. It certainly makes for a great story — especially if the pivoting startup eventually finds success.
But pivoting isn’t a magic switch that can suddenly turn a failing business around. In fact, pivoting can backfire, putting you in an even worse position than when you started.
If you find your startup in dire straits, should you consider pivoting? Or is it better to simply move on?
What is Pivoting?
A pivot is a strategic move in which an existing business, usually a startup, transforms in order to survive. Oftentimes, this strategy begins when a company is struggling with limited customers, limited capital, or other issues. Rather than giving up and closing the business permanently, an entrepreneur decides to change the business model – ultimately focusing on a different demographic, developing a different product, or in some cases, rebranding entirely.
Pivoting looks different for different businesses, since there aren’t any hard rules for what constitutes an official “pivot.” By some definitions, any substantial change could be enough to justify the “pivot” nomenclature.
Notable Pivoting Success Stories
There are plenty of famous examples of startups that pivoted, eventually finding success. It’s proof that pivoting can work – at least, when the conditions are right.
For example, consider YouTube. We all know YouTube as the massively successful video streaming platform it is today, but that’s not how it started. In the early days, it was a video-based dating service; think Tinder or OK Cupid, but with short video introductions instead of card-based profiles. It was only after a few years of middling results that it began to broaden its approach to a wider audience.
There’s also Groupon – or, as it was called back in the day, The Point. The Point was designed as a social media platform where individual users could pool their efforts and support charities together. It had an impressive launch, but momentum quickly fizzled out.
To support it further, the founders introduced a new subdomain, “Groupon,” where users could band together to get interesting local discounts. When this model proved more successful, the founders leaned into it, ultimately transforming the entire business to suit it.
PayPal is another strong example. When PayPal started, palm pilots were the dominant form of mobile technology. PayPal itself was a technology designed to help users transmit IOUs from one device to another. This didn’t quite work out (for a number of reasons), so the PayPal team pivoted to focus on transferring money via email. The company continues to be a top innovator today.
The Problems With Pivoting
But despite the thrill of these vibrant success stories, pivoting isn’t a surefire approach to succeed.
Consider the problems with pivoting:
- Time.How much time is it going to take to pivot the business? Are you rebuilding everything from the ground up? Are you retooling every structure and developing new technology from scratch? If so, it may actually take you more hours and more months to complete a transition than it would take to simply start a new business from scratch.
- Money. A similar issue emerges when you consider your monetary limitations. It costs money to transform a business, and you’ll probably have to cut some losses if you want to move on. On top of that, startups considering a pivot are often struggling financially – meaning they don’t have much of a budget to work with in the first place.
- Failing to solve the problem. If you’re seriously considering a pivot, there’s something wrong with the business – a problem that needs to be solved. Transforming the business is one way you could solve the problem, but it’s not a guarantee that the problem will be solved. For example, if you’re dealing with stiff competition, and you change your business model only slightly, the competition will still be a problem in the new iteration of your business.
- Facing new uncertainty. There are situations where a pivot is grounded; for example, when Groupon pivoted, it knew there was a viable model to be found in this new territory because they were already working on it and succeeding. But if you’re attempting a new pivot from scratch, you’ll have to deal with far more uncertainty.
If you want a chance to succeed in a startup pivot, you need to spend time analyzing your current situation. It’s not enough to simply try something new. You need to understand why you’re here; why are you in this position and what are the main problems still faced by your business?
You also need to understand what resources you can use during the pivot.
Fortunately, you can address both these big questions with the same analysis.
- Funding/capital. Some startups begin the downward spiral toward failure when they start running out of capital. If this is the main source of your stress, you need to figure out why you ran out of money. Did you not have enough funding? Did you waste money with premature spending? More importantly, how will pivoting the business resolve this problem? Will you be able to make do with the current capital you have? Will you have an opportunity to seek new funding once you make the transition?
- Demand and appeal. Is your business struggling because of a lack of demand? Is there a reputational problem associated with your brand? If so, pivoting the business may not be the best move. Those reputation issues may linger indefinitely, plaguing the new version of your business well into the future. Conversely, sometimes changing demographics is all it takes to solve a demand problem.
- Competition woes. How much competition are you facing? Are you being beaten with lower prices, better offers, or a better overall presence? If so, these problems will only disappear if you significantly overhaul the entire business. If you’re only planning a minor pivot, you’ll still need a plan to overcome these challenges.
- Team and staffing issues. Most startup entrepreneurs who consider pivoting already have a good team in place; they want to keep these partners and use them to build something new. If you don’t have a solid team, pivoting may not be the best route. It’s tough to pin all the problems of a failing startup on the team members that constitute it, but if they’re a contributing factor, it may be better to start fresh.
Minimizing Transition Pains
Much of the risk inherent in a startup pivot is in the transition. You’ll spend a lot of money and time fundamentally changing your business and pursuing a new direction, no matter what. But you can minimize the strain here by transitioning to an adjacent model.
Is there a current product or service you can use as the foundation of your new business? Is there a way you can harness your existing resources in a clever and efficient way? Can you transform the business into a form that’s recognizable in your current industry?
If not, the transformation may be too much of a stretch. At that point, it may be better to close down and start over with an entirely new model.
Many startup entrepreneurs attempt to pivot because they’re afraid of losing what they’ve already built, or because they’re too proud to admit defeat. But there’s nothing wrong with starting over. Failure is a natural part of the learning and development process of an entrepreneur, and starting over from scratch is often the best way to make discernable progress.
However, you decide to transform your business (or start over), you need to keep business fundamentals in mind. Pivoting isn’t always the best approach, and it could end up making your existing problems even worse. That said, pivoting has helped thousands of promising businesses survive otherwise catastrophic conditions, and in the right hands, pivoting can be an incredibly powerful strategic move.
Image Credit: andrea piacquadio; pexels
Originally appeared in ReadWrite