The latest buzz word in the start-up sector seems to be “pivot” but what does it mean?
Getting started with a new venture usually involves documenting an idea, pulling together a business plan, attracting venture capital, finding a place to setup and hiring staff. There is usually a period that is sometimes referred to as the honeymoon phase, where the page is blank and there is no shortage of things to do. People are busy getting to know each other and defining the foundation of the new venture.
Caution: It is easy during the honeymoon phase to lose focus and build a number of prototypes that do not directly have commercial value. In a post bubble world it is doubtful that this will end well.
So lets say that that doesn’t happen and the development team delivers a product. Sales of the product are good but not as good as what was predicted in the initial business plan. Or –> It could also be that during the development phase a better opportunity presented itself. Ideally this new opportunity would leverage the existing development to create a new product with better market potential.
So the management team has to make a decision to stay with the existing product or change direction and focus on the higher potential opportunity. With a start up company you usually don’t have the resources to do both.
So now that we have some background we can answer the question. A pivot is what happens when a company decides to make a change in its product direction. A pivot can effect marketing, sales and development. With a pivot there is usually a short term downturn in sales that has to be communicated to the board and share holders.
I worked at a company that was developing networked video surveillance equipment. We had created some management software that made installing and configuring the equipment which was unique and sales were steady. The company then realized that network enabling video surveillance was good, but recording, archiving and searching that data was more profitable. The company pivoted from networked video to manufacturing Digital Video Recorders and acquired Walmart as a marquee customer. That change set the stage for significant growth.
In the course of my career I have seen companies successfully pivot many times and I can’t think of a single failure. That said, I have only been involved with tech companies and they were all fairly well managed. I mentioned that a pivot usually results in a downturn in sales so if a company doesn’t plan for that, it might cause the pivot to fail.
As companies get more established with large amounts of money spent on market and product positioning, pivots pose a much bigger risk so other mechanisms have to be used to change directions.