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Many a company reaches the awareness, at some point in its evolution, that greater opportunity is presented by changing or "pivoting" onto a different path or into an entirely different business. It is quite common for venture backed companies to do this. But successfully pivoting a business is by no means an easy thing to do. Having watched teams do it well, here are 5 characteristics of a pivot that works out well.
1. Superior Market Awareness
Pivots that work benefit from tremendous customer awareness. They are more evolutionary than revolutionary by nature. The pivoting company learned what customers don't want and do want from the previous iteration. Simply put, the pivoter is saying "we worked really hard to sell our previous solution, the customers didn't want it. What they want, and we really know they want, is what we are pivoting to create and sell."
Pivots that lack this kind of understanding fail more often than not. The pivot into something with new customers in a wholly different market is a recipe for disaster. It is a pivot too far.
2. Head Start on a Solution
Companies that pull off successful pivots are typically able to use existing component pieces, they can get quick, positive feedback on the new solution. And more importantly, they can get to market quicker which will generate sales and momentum behind the pivot. Waiting 6 months for a new product to effect a pivot can be suicidal for pivoting companies.
3. Money in the Bank
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The CEO who decides to pivot only after exhausting all available funds is a knucklehead. The VC who lets him do this may be worse. If something isn't working and a pivot is being seriously considered, decisiveness is critical. A pivot once the money is gone will not allow the company to convince backers to get on board with the new direction. A pivot without money to execute the change is flawed and likely doomed to failure.
4. Management Conviction and Capability
The team has to be bought into the pivot completely. Yes, there may be some doubts but if the product, sales and marketing folks don't act with focused conviction - the pivot is undermined on a basic level. Everybody needs to be bought into the change and no hidden resistance is acceptable.
The sidebar to this the management has to be actually capable of succeeding at growing a business. I was involved with a company that pivoted a couple of times. The company's management couldn't execute against any particular approach so pivoting always appeared pretty desirable to them. It covered the previous failures in a blanket of past tense market focus.
The funny thing was every pivot for them was into a desirable market. But they couldn't execute well, so they just keep pivoting into new markets into which -- surprise -- they couldn't execute well enough to succeed. But, with one more pivot, they could blame the previous failure on the previous market.
5. Investor Support
The pivot point is the easiest and most tempting moment for an investor to depart or discontinue supporting a company. Investor support of the pivot might reasonably be sought first, ahead of other constituencies. If the investors are bought in, or at least, open minded to the pivot, management has a chance to re-energize financial support. If investors aren't bought in or, worse, greatly surprised by a pivot, it materially undermines any chance of success.
So, pivot if you must, but don't expect to be easy or problem free. In short term, a pivot will trade one set of issues for another set of issues. If your right about the pivot, however, your post pivot issues will become the higher quality problems of scaling and growth. If you're wrong about the pivot, try again if you can meet the criteria above.