“Pivoting”, or changing a company’s course to take into account changes in market or other conditions, has become a core part of startup lore. It has even been enshrined as a principle of the lean startup methodology — which includes building a feedback loop into your plans, so you can learn and adapt.
We spoke to our panel of leading Australian entrepreneurs and investors to find out how to approach adjusting strategy — when you know it’s the right thing to do, how you know this, and how to go about it.
The first key to a successful pivot is actually just generally good advice for running a business full stop — you need to be objective. You have to be able to dispassionately analyse how your business is faring, whether something is amiss or could be doing better. This includes the actions and decisions you have taken.
“It’s easier said than done, but the best founders have the ability to step back from the business and constantly reevaluate whether the path they are taking still makes sense,” says Elaine Stead, investment director at Blue Sky Venture Capital.
“They need to be able to try and look at it with fresh eyes, evaluate different approaches and then make an objective decision to try something new if the current strategy is not working.”
Objectively evaluating your own strategy can be tough. But it’s necessary. It’s what allows you to know something has to change, and what exactly that this. Failing to do so is one of the most common reasons for business failure, according to Stead. And you might need to bring on some fresh eyes to help you see what’s going on.
“The biggest common reason for failure or underperformance is when a CEO of founder team won’t acknowledge their strategy isn’t working, and its often because they are not consistently measuring the success of that strategy or they are measuring the wrong things,” says Stead.
“We believe it is super important to be able to measure success across the business with a few key metrics – otherwise it’s very difficult to determine what winning or failing looks like. Having independent board members or experienced trusted advisers can make a big difference.”
For Benjamin Chong, partner at Right Click Capital, the question businesses need to ask is whether they have product-market fit. In other words: Are you in a sizeable market, and are you able to satisfy this market?
“If there isn’t product-market fit, the founders should definitely consider adjusting their offering or pivoting,” says Chong.
There are plenty of different metrics you can choose to decide whether you have the right product for the right market. The 40% rule, for example, which entails surveying the market to see if at least 40% of respondents consider the product “essential”. But Chong has a couple of other suggestions.
“Some measures may include the number of potential customers that have trialled the product or service, the amount you’ve been able to charge customers, and the size of the target market. The absolute thresholds for each of these may differ based on market along with the time taken to canvas enough customers, but one definition of insanity is doing the same thing over and over, and expecting a different result.”
Annie Parker, co-founder of Muru-D has two ways of thinking about product market fit — what are your customers telling you, and are you OK with what they are telling you?
Parker says there are really two scenarios in which a company pivots. The first is “when you’ve tried every single test and all the evidence is pointing towards that either your customers don’t want to use what you’ve built or that even if they do they don’t value it enough to pay for it (or both!).”
In other words, when what you’ve built doesn’t quite have a home. But another reason for pivoting may be that customer feedback has changed the product so much that you aren’t happy with it.
“A pivot often happens when what the founding team end up actually building based on customer feedback isn’t something that they care about working on any more,” says Parker.
“The thing that’s most important here is that all these outcomes are OK – it’s not a failure as long as you keep learning from all these experiences.”
Tyson Hackwood, head of Asia for Braintree Payments, wants founders to understand why they are considering pivoting in the first place.
“Are you changing direction because you’ve learnt new things which impact the core of your business? Or is your strategy right but you’re facing challenges which could be addressed through operations, marketing, sales or other internal adjustments?” asks Hackwood.
Understanding why a pivot may or may not be necessary is not only key to satisfying investors and your team, but the answer will form the basis of your new strategy.
“If you can clearly identify a growing segment, or product type, and you have limited resources then it could be practical to channel efforts into growing this segment, and the revenue streams associated. Strategy is great, you need to have one, but any changes are often in the fine tuning of the plan and activity in market.”
“Also, appreciate that it can take years to be an overnight success, essentially smarter not harder is the way, however ‘sweat’ will be involved.”
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