Make Investors Sit up and Notice #10 - To Pivot Or Not To Pivot
In my last post I introduced you, the vision master, to the concept of "The Pivot" and that:
1) You'll almost certainly have to conduct at least one pivot before finding ultimate market success
2) That understanding when, why and how to do it -- and being able to communicate that to investors -- is yet another way for you to demonstrate that you and your team take risk-assessment and mitigation seriously. That, of course, is another way to build investor trust and as you are well aware by now trust is absolutely necessary for funding.
I promised in the last post that we'd dive more deeply into the question of when NOT to pivot. As an investor, I'd be gratified and impressed if an entrepreneur asking me for funding could communicate to me that he or she understands what a pivot is, when to pivot and how to conduct a pivot successfully.
But I might still take pause . . .
Because I know -- and most savvy investors know -- that sometimes a pivot is the WRONG move to make and we wonder whether those seeking funding understand two critical nuances about pivots:
- How to know when not to pivot; and
- What to do when things aren't great but the pivot isn't the right move
So let's look into this more closely -- because if you REALLY want to stand out from the crowd and make investors sit up and listen, you need to communicate both that you know when and how to pivot AND that you know when not to do so, which also implies knowing what actions to take when the pivot isn't called for.
First, a quick review so we are all on the same page:
- You'll almost certainly have to make at least one pivot as you grow your company
- Risk assessment and mitigation includes understanding when and how to pivot
- Communicating this understanding to investors will help you build trust with them
- Knowing when and how to pivot implies knowing when not to pivot and what to do instead
There may well be an infinite number of nuanced situations within business in which some kind of fundamental change is needed, in order to avoid failure and improve the chances for success. Pivoting is just ONE way to respond and it's not always the most appropriate. To really understand when not to pivot we're going to deconstruct and reverse engineer the top three times when a pivot IS advised by entrepreneurial gurus like Steve Blank and Eric Ries.
Generally speaking (in order to be inclusive to all the many different businesses and industries which you, the reader, may be participating within) a pivot is advised when:
- Your product or service isn't gaining the traction you'd expected
- Your product or service is gaining traction but not for the core customer you'd expected
- Your product or service is hindered in gaining traction due to external factors
Let's explore each of these scenarios . . .
Scenario #1 Your product or service isn't gaining the traction you'd expected
No traction. Do you pivot or do you keep slugging it out until the customer base develops? To answer this question you have to look at your hypothesis that you started with and determine whether the customer feedback you're getting demonstrates a flaw in those hypotheses. Generally speaking, if you can identify a flaw then a pivot might be advisable.
On the other hand, it may simply be that your marketing and messaging isn't at a high enough volume or connecting properly to your customer base. It could be that your sales channels aren't performing as expected. It could be that major customers within your industry are experiencing a downturn and aren't spending as freely. It could be that some kind of regulatory change is impacting your customers. It could be many factors like these that have little or nothing to do with the desirability, utility, design or core customer hypotheses you've created. In such cases, pivoting to a different customer segment, design element, pricing scheme or entirely new product or customer may not make a meaningful difference. How do you know? Test your hypotheses.
What you want to communicate to investors:
- You understand that at some point your product may not gain the traction you'd expected
- If that happens your approach to understand and mitigate risk is to test your initial hypotheses
- Your goal in that testing will be to determine whether the lack of traction is grounded in bad assumptions you made about the core customer, the utility or desirability of the product
- If that's the case you'll seriously consider a pivot and engage in a process of entertaining and testing new hypotheses-- and you'll ask for help from investors, customers, mentors, and coaches
- If your lack of traction is due to something unrelated to your hypothesis, you'll identify the core problem, such as marketing, sales or industry downturn and seek the advice of your team, investors, mentors and coaches to develop strategies to make specific changes and then re-test
Scenario #2 Your product or service is gaining traction but not for the core customer you'd expected
This is a classic situation where a lot of famous pivots have been made, including the likes of Instagram, Slack and even Facebook. You find yourself in this place when your hypotheses about who would love your product and what they'd use it for were flawed. The good news is that someone out there really loves your product. The bad news is that at the moment you may not understand who and why until further research can be done.
Do you pivot and re-imagine the product for a different customer or different use? In other words, you were digging for gold and found silver. Do you keep looking for gold or abandon that and keep digging up the silver. . . To extend the analogy, it may come down to a decision based on: 1) how big a vein of silver you've just found; and 2) how close you are to the gold you were seeking in the first place. That takes customer research and testing of some of your hypotheses. You need to know whether this unexpected customer or usage is primarily due to the quirks of early adopters, or whether there is a huge new market you simply hadn't noticed before.
What you want to communicate to investors:
- It's possible that a different customer base or customer usage of your product or service will develop that is very different from your current plans
- If that happens you'll seek to mitigate risk by doing extensive customer and market research to determine who this unexpected customer is AND whether this represents a big new opportunity or perhaps just an early adopter "quirk"
- You'll keep selling to this new customer base, but will put significant resources into market and customer research to test your initial hypotheses -- in other words you'll mine the silver that is right there in front of you, but you won't pivot and abandon the gold right away
- Investors can trust that you won't pivot out of panic, lack of deep knowledge or to chase what may be an illusory opportunity
Scenario #3 Your product or service is hindered in gaining traction due to external factors
Sometimes the competition trumps you. Sometimes economic or regulatory changes blindside you. Sometimes, a better funded and better-known company decides to enter your space with a similar offering. Sometimes, what appeared to be a non-competitive product or service ends up being competitive.
Do you pivot or stay the course? Scenarios that arise in this context all have the impact of taking some control away from you. That feels lousy in business and creates a sense of fear, helplessness or even panic. A pivot may well be the best option. But it should not be done from that negative and heightened emotional space. Instead, you and your team (including your investors, your mentors, your coaches) need to do a reasoned, calm and rational assessment of the situation, including whether it is a temporary or chronic challenge and whether it is one you can side-step (pivot) or plow through.
What you want to communicate to investors:
- You understand that external factors -- especially competitive challenges -- may well impact the business
- You and your team are committed to mitigating risk by practicing vigilance and that is the main priority of your execution master
- Nevertheless, when the storm clouds come you will not act rashly to pivot away from the rain until your entire team, including the investors, have carefully assessed the nature of the problem, it's passing or chronic nature and how much control you have over it
- If a pivot is warranted your team knows how to carry it out; if it is not warranted you and your team have the commitment to stay the course and resolutely move through the challenge
Do you see a common theme within all of these scenarios?
The common theme is that your response to any condition in which a pivot may seem like a good idea must be calm and measured, involve your entire team and based on careful research, testing, and analysis of your initial hypotheses and the external factors impacting the situation.
Don't pivot when it feels like the comfortable or easy thing to do UNLESS it makes fundamental business sense. And by all means, use the points above to communicate to your investors that you are not the kind of person that will be a "serial pivoter."
You're the vision-master, not the pivot-master.
There is a clear distinction between running a nimble team and running a constant fire drill. I'm sure you can imagine which of those generates far more investor trust!
In the next post in this series, we will explore the pivot itself in detail, including Eric Ries' 10 types of pivots. This will provide you with an understanding of the types of pivots your particular business may need to conduct in the future. Armed with that knowledge, we'll then help you to create a "pivot process" appropriate to your industry or sector.
Key Takeaways: Knowing when to pivot implies knowing when not to do so. When speaking to investors about risk mitigation remember that to build trust you need to communicate that you understand when and how to pivot when necessary, but you and your team aren't "serial-pivoters" that will abandon the business model and plan at the first sign of adversity. Instead, you and your team, including investors, will take a rational and reasoned approach, back by research and careful testing of hypotheses, before embarking on a pivot. Communicate that you know how to determine when NOT to pivot and you'll complete the circle of trust with regard to risk awareness and mitigation with investors.