Updated: Jun 11, 2021
There are plenty of reasons for deciding to pivot, and none of them are easy or without risk, but in many cases they're critical for the company's survival. In some cases, the decision is the beginning of a fantastic turnaround and leads to great success stories.
Through concrete examples of startups that we have had the pleasure to work with, we are going to answer the 7 questions entrepreneurs should ask themselves before taking the decision to pivot:
Question 1: When should you decide to pivot?
Pivoting is a complex, risky and high-intensity process.
It should be undertaken only if strictly necessary, and indeed after other, past actions have shown to fail.
For Soan, a young French startup launched to serve the architect market, everything went off to a good start: in mid-2018, 6 months after launch, the entrepreneurial team had made contact with 200 architects to run through the well-establish iteration process; establish and confirm customer needs, identify improvements to make, further develop the product, after which it could go raise funds and recruit its first staff.
A year later, marketing started with the same enthusiasm: they called almost 2,000 architects within 3 months, or 17% of their target market, and managed to have meaningful conversations with almost 1,200 of them during which they discovered that only 10% were interested in their solution, 2/3 of the architects seem interested and 1/3 accept to attend a product demo (320 demos planned).
And then, bummer! At the end of September 2019 Soan found that 70% of the demo appointments turned into a no-show, and none of the architects who attended a demo reconnected with the trial codes made available during the demo.
Needless to say, faced with this observation, the Soan team did not take long to understand that pivoting was a matter of survival.
The decision to pivot is always a question of resources and time.
When WisElement, a startup specializing in sustainable energy, realized that the success of their first product was generating unsustainable cash flow needs that required financial capacity they did not have, it also didn't take long for its managers to figure out that they had to find a solution.
It was in this context that they came up with the idea for SATO, a VERY innovative water heater. But this time their intention was to leave nothing to chance to pivot successfully and make a place for themselves in a market concentrated around 2-3 players that had been in place for many years.
Since WisElement has a bit of cash in its coffers, the team took the time to achieve a twofold objective: to identify, on the one hand, the priorities of homeowners that could make the SATO water heater must-have and, on the other hand, the priorities of plumbers that could make them eager to install the SATO water heaters rather than existing brands.
Question 2: At what point is it best to stop trying to pivot?
The first criterion is whether the estimated time to complete the pivot is likely to be greater than the time left before the start-up runs out of cash.
The second criterion is when there is no objective information that the pivot will work.
To illustrate this, we can take the example of Foodette, a foodtech company founded in 2013 by one of us. Foodette decided to pivot because its managers realised that one of their competitors had pivoted before them and they saw that it worked. However, with barely one and a half month of cash left in the bank, criterion no1 remained negative - a good example of competitors showing the way of a (missed) opportunity…
The third criterion is also when the entrepreneur realizes not only that his initial intuition did not work, but also that he lacks the ability to gather any objective facts about the possibility of a successful pivot. In this case it may be better to stop.
Question 3: Is a pivot always possible?
As the old adagio says, with enough time, resources and dedication, anything is achievable. Problem is: nobody has those in infinite supply.
Pivots are highly dependent on the stage of the startup.
In a very early stage, a startup tries above all to find its market and its positioning within it. This means that it sometimes operates numerous "pivots".But these successive pivots do not endanger the company because they mostly involve the founders’ time and limited investments. I would also argue that this phase is compulsory, so less of a pivot per-se and more an iterative phase to ensure product market fit before engaging more resources, time and other’s capital into it.
When the founder of SugarMama, a Silicon Valley startup, tries to understand how she can find a place in the highly competitive weight loss market, she gives herself 12 months to succeed. During those 12 months, she considers different business models, evaluates different positioning hypotheses which are all pivots. But this has no impact on the business since she still has no customers, no investors, no employees. Sugarmama can therefore decide to pivot at any time, as this only involves its founder.
On the other hand, when a startup has already started marketing a product in a given market, has already raised funds and recruited employees, pivoting becomes a much more complex and more anxiety-inducing decision for the entrepreneur. s/he has almost no right to make a mistake: if s/he fails, this leads to the closure of the company with all the consequences that this entails: losses for the investors, unemployment for the employees and the risk for the entrepreneur to find oneself in a critical personal situation as when, for example, he has committed all his savings to his project.
In this second case, we advise the startup to have its pivot supported by shareholders and suppliers. Foodette, for example realized that, even after obtaining the consent from its suppliers to not be paid for 3 months, it needed €3,000 in order to move forward and be able to implement its pivot, which may not seem like much, but if the investors had not agreed to contribute, the company would have filed for bankruptcy just at the time the pivot was beginning to bear fruit.
And then sometimes the chasm is too big to cross and it is better to save what is essential than to pursue the fight, especially with a view to relaunching oneself after a failure.
To quote a famous maxim: Errare humanum est, perseverare diabolicum
Question 4: How can you avoid having to pivot?
Based on the experience of some 60 European startups, we have seen that in many cases the need for a pivot results from the entrepreneur's overconfidence in his understanding of how potential customers perceive the value of his solution. It is indeed very difficult to understand the needs of potential customers independently of how one' s solution addresses them.
Many entrepreneurs, even experienced ones, often find it very difficult to understand how to get potential customers to perceive the value of their solution, especially when the customers' perception is far removed from their own. They then tend to focus on satisfying the very needs they know how to meet first, without any evidence that these needs are in any way a priority for their market.
This leads them to make decisions biased by their desire to be right. In this context, it is very difficult for them to differentiate between 2 situations: an absence of market or a failure to find which solution is valued by the target market.
This bias is perfectly illustrated in a survey of 101 failed startups.
source : https://www.cbinsights.com/research/startup-failure-reasons-top/.
In this survey we see that the first reason given by the entrepreneurs for their failure is the lack of a market (42% of them). The inability to identify which solution is valued by the market is not even cited as a reason for failure!
A few years ago, Quicktext was positioned as an artificial intelligence solution for hoteliers. At the time, AI was far from being a buzz world and no hoteliers were interested in it. Faced with its difficulties in getting its sales off the ground, Quicktext could have concluded that there was no market (the future would unfortunately have proved them wrong).
Instead, Quicktext found a way to make hoteliers better perceive the value of their solution by discovering what their major concern was: more than 70% of a hotel's sales are stolen from it by online travel agencies such as Booking and Expedia. The entrepreneurial team thus pivoted the value proposition by positioning Quicktext as a solution to help hoteliers "Take back control of their sales ".
Before concluding that there is no market and that a pivot is necessary; one must ask oneself whether it is not a lack of knowledge of the priorities of the market that prevents moving forward.
And, of course, a pivot is sometimes absolutely necessary, as is the case for many start-ups which have seen their sometimes previously strongly growing revenues totally interrupted by the covid.