What is pivot
“Anton, stop twisting your head around” - the teacher often told me at school. And we were taught to concentrate on one goal and not look around. Who would have thought that this is sometimes useful for business ...
Pivot (turn) - a change in the course of business development in order to check other areas of activity and development. The pivot is used to test fundamental hypotheses about a product, business model, or growth mechanism.
There is a misconception that a change in direction is a failure for a startup. We believe that pivot is an integral part of the development of any business. After all, it is better to understand in time what you are doing wrong and change the vector of development than to end up losing everything and not solving a single user problem.
Do you have doubts? Then the time of proof for the example of large companies. In the 2000s, Kevin Systrom began learning programming and created the Burbn photo-sharing app with rich functionality reminiscent of something between Foursquare and Mafia Wars.
The company grew, but at a very slow pace. Many features were not successful because they were better implemented in Foursquare. After joining Mike Krieger's company, entrepreneurs decided to "discard" all unnecessary and focus on simple photo and video sharing with filters and social distribution (which was the most popular among users, but slowly developed due to other functions that complicate the interface).
As a result, in 2012, the project known today as Instagram, bought Facebook for $ 300 million.
And there are a lot of such stories. Further in the article we will give a few more examples for clarity. For now, let's continue to discuss the curves. Think about when a reversal is needed? Let's talk about this further, you can check your answer options.
How do you know when it's time for a reversal?
The startup doesn't solve the user problem
If you released the first version of a product or MVP to the market, but did not receive the expected demand from the target audience, consider a pivot. There are two options: define a new target audience that will be interested in the current solution, or implement new functionality that will solve an acute problem of current consumers.
This is the most common reason organizations have to take turns. Moreover, many successful companies have gone through this. For example, Yelp in 2004 was a service for sending recommendation requests. The idea is dubious and it is not surprising that it failed.
But during the first tests, the founders found that people are interested in writing reviews of local businesses and reading similar posts from other users. The functionality of the platform was changed, the course of development was directed in the other direction. Today, the company's annual turnover is $ 500 million, and the monthly audience is 50 million users.
Startup fails to attract the right users
This situation most often arises for two reasons: startups did not begin to make MVPs to test the hypothesis, or the target audience was not as large as planned.
A way out of the situation is to expand the functionality of the product to attract new users or completely change the course of development to another audience.
User acquisition and retention is too expensive
The product works, solves the problem of the target audience, but the strategy of attracting and retaining users is ineffective - the cost of attracting new and retaining old users is high. In such situations, they do not radically change the vector of development of the startup (business), but think about the bend of the monetization method, growth mechanism or distribution channel (we will talk about them later).
Customers are not willing to pay a startup
The business is functioning steadily, solving the problem of consumers, but they are not ready to pay the set price. This happens due to a too high price or a mismatch in the cost functionality. In such a situation, there are two options:
- Reduce functionality and reduce product price.
- Expand functionality and find a new solvent audience.
Which option should you choose? It is up to you to decide based on management experience and objective arguments (for example, tests performed).
It's too expensive for a startup to make a product
This problem is most often faced by companies that manufacture physical goods. Nevertheless, IT startups sometimes encounter it.
In such a situation, they are looking for ways to reduce the cost of the product. Moreover, the problem often lies not in the production itself, but in related areas. For example, high costs of maintaining an online store. Sometimes they abandon sites and switch exclusively to applications. All this is the pivot of the platform, which we will talk about in more detail below.
Catherine Fake and Stuart Butterfield, the owners of the startup Ludicorp, originally developed Flickr as an online game, but then realized that their technology could solve a more global problem. They pivot the platform and concentrate on photosharing. By the way, the original game never came out, and the project was bought by Yahoo! (the amount of the transaction is still unknown).
If you encounter any of the above issues, analyze and make a quick reversal decision. This will save you money and put your business on a sustainable path. Plus, you already have real data about user behavior, needs and concerns. This will facilitate further development.
Pivot types
Once you've identified the reason for the unsuccessful product launch and made the decision to pivot, choose the best pivot type for your situation. Next, we will consider all the existing options.
Pivot-increase (Zoom-in pivot)
One of the functions of the current service becomes a separate product. The creators of Instagram took this path: they left the exchange of photos and videos with filters and social distribution from the previous Burbn service.
Pivot-reduction (Zoom-out pivot)
The current product becomes part of a new feature-rich service. Yelp has evolved in a similar way - from a service of regular emails of recommendation requests, it has become the largest portal with reviews about local businesses.
Customer segment pivot
The company understands that it solves the problems of the wrong customers, which it was initially oriented towards (as a result of which the business develops slowly). As a result, they switch to the segment in which the product is in demand.
Customer need pivot
At the moment, the service is solving the problem of the audience, for which it is not so important. But the collected data makes it clear that there is another segment in which the demand for the product is higher.
PayPal made the pivot of customer needs in the early stages of development. Initially, the service served electronic auctions and was not very popular. The creators realized that they were able to solve the problem of another segment and switched to online transfers.
By 2002, PayPal had become so popular that 40% of eBay transactions were processed through it. The e-commerce giant bought the company out for $ 1.5 billion.
Platform pivot
Moving from application to platform and vice versa. A striking example is the end of support for Palm Pilot by the startup Cofinity in favor of developing a web platform. As a result of this pivot, the small organization managed to grow into the large company known today as PayPal.
Pivot method of monetization (Value capture pivot)
Changing the way to monetize the product. For example, access to the service was opened for a one-time payment, due to which there was not enough income to cover expenses. Subsequently, they switched to a monthly subscription and began to receive a stable profit.
Business architecture pivot
There are two popular business models:
- Complex systems - high profit margins and low sales volumes.
- Volume of transactions - low profit margins and high sales volumes.
As a rule, the first corresponds to the B2B model, and the second, respectively, to the B2C model. A striking example of pivot is Slack, which was not developed as a messenger familiar to everyone, but was offered as a convenient means of interaction for business.
Pivot of the mechanism of growth (Engine of growth pivot)
If the company develops slowly, the growth mechanism is changed: the one that best suits the set goals is chosen. Experts distinguish three types:
- The mechanism of "sticky" growth - attracting and retaining customers for a long period of time.
- The mechanism of viral growth is the promotion of a product at the expense of existing users (for example, a referral program). With this mechanism, current customers take over a significant portion of marketing.
- The mechanism of paid growth is to increase the profitability of each paid client or reduce the cost of its acquisition.
Channel pivot
This pivot involves changing the channel through which the company delivers the product to the customer. For example, an online store abolishes its own platform and moves to Ozon.
Pivot technology (Technology pivot)
Transfer of current functionality to a new technological platform. Pivot is typical for stable companies that already have customers, a workflow is established, but there is not enough capacity to serve everyone. For example, Spotify took such a turn when it switched to Symfony2.
Now you know that mistakes or poor planning are not the end of a startup, but sometimes the beginning. This can be seen in the examples described in the article. The main thing is to pinpoint the reason why something went wrong and choose the right pivot type. If you still have any questions, ask them in the comments, we will be happy to answer them.