by Demetrios Sapounas
Part 7: Adjust/ Pivot
In the past decade and a half, I have had the opportunity to work on several new ventures and advise and mentor numerous entrepreneurs on their journey to building a successful company from an idea. Recently, I also began working as a business coach with the Small Business Development Center (SBDC).
A common theme with all these interactions is the emphasis on building a product. This includes: raising capital, developing detailed revenue models, recruiting a team and getting customers – not necessarily in this order. This is the “classical” approach of going about launching a new venture where the belief of “build it and they will come” still seems to influence early- stage activities.
A common term you often hear, when engaged in business conversations, is “pivot”. One dictionary definition of pivot is “a dramatic change in policy, position, or strategy”, which conveys a change from how things were. That is exactly what companies do with their strategy, products or services, how they approach a market, etc.
Many companies have gone through such change, many multiple times. In many cases this change has been drastic, in others it has been a more tempered course correction or adjustment. For a company to pivot, should not be taken as a negative thing, rather, as a positive. It signifies that the company has acknowledged problems with what it was doing and implemented changes to improve things. The company used internal and external input to understand the current state and risks, define a target state and develop a plan to get there.
The phrase, “fail fast, fail often”, popular in the start-up world, conveys that a company failed at what they tried and thus changed course, to try something else. Unless this is well planned, it is a risky and costly behaviour. As discussed in a previous segment, the customer discovery process can reduce the risk of following the wrong direction and needing to pivot, but it will not eliminate the risk. The important thing in all of this is, as a founder, to be self-aware that you may need to change course in order to have a higher probability of success and be prepared and open-minded to do it, when indicators point it is necessary. Keep in mind that change does not take time, but it takes commitment.
Some time ago I was at a company operating in the B2C space. The company had received a lot of investment capital and felt that they will be able to penetrate the consumer market to become profitable. The reality was that some high-end consumers did purchase the company’s products, but that was not sufficient to sustain the company. Furthermore, the up-front cost of the products was quite high and the recovery period long. It was normal to be faced with a lot of hesitation in the marketplace and with a very long sales cycle. In essence, the product market fit and the value proposition were not there. What the company did was to pivot into the B2B space.
This was a brilliant move because the value proposition was there and easily understood. The product market fit was there. The up-front cost of the products was not very high for a corporate client, but the most important value to customers was that they could realize immediate value. This also made the sales cycle shorter, and the company started generating revenues. The pivot not only changed the company’s outlook, but also led to a successful exit, a few years later.
This is an example where self-awareness and the desire to succeed pushed aside egos and personal beliefs, resulting in actions based on data and market facts. That made it possible to make the right pivot and execute on a plan that led to success. It does not mean there were no hardships or difficulties along the way; those are part of the normal business life. Being evidence and data-driven it was possible for the leadership team (and the investors) to stay the course and reach the desired goal. That is not always the case and there are many cases where companies refuse to acknowledge what the market is telling them and continue on a path to slow death.
A number of years ago, a company was formed to bring to market a product that would be a solution to a number of problems, with applications across industries and government. The founder and CEO was able to get sizable capital to develop the product and bring it to market. On paper, the concept looked good and all company-developed projections indicated the future would be bright. A number of years later, the company was in exactly the same stage, having lofty goals, no customers, no revenues, and had burned through all the capital. The CEO had not performed any customer discovery, kept insisting that the course being followed was the right one and was constantly rebranding the product and offerings, thinking that will bring customers. In this case there was no effort to really look at what the market and potential customers were saying, there was an unclear product-market fit and there was no consideration for a pivot.
If you are considering a pivot or some change in course, there should be a good reason for doing so. This should be a decision based on data and facts and not on gut feelings or pressure from investors, the Board or other stakeholders. Often the market you operate in dictates the best or desired approach. For example, slow growth if you have a platform where the cost of adding new customers is fairly small and the offering becomes more valuable the more participants there are, is probably not desirable. Here the threat can come from a a better capitalised and more aggressively growing competitor, who can surpass you and prevent you from reaching your full potential. An adjustment to your approach towards investing in rapid growth and becoming the market leader could keep out direct competitors, because they could not generate enough added value. This is a winner-take-all scenario.
Amazon is the best example of a winner-take-all. For years, Jeff Bezos was reinvesting revenues into the company, thus showing zero profits while revenues were growing. Many in the investment community believed that the tight margins were a sign that the business is unsustainable and it will eventually fail. Now we know that the reinvestment of profits in the business, for years, was the key strategy that made Amazon the world leader in ecommerce. This approach may not work for every business, but any amount of capital reinvestment in ways that can help growth could make a huge difference in the long run and be the difference between hugely successful and “just another company”. This demonstrates that even an adjustment of how you manage your cash flow can pay huge dividends, longer term.