Make Investors Sit up and Notice #9 – How "The Pivot" Engenders Investor Trust

Investors sit up #9 - The Pivot in Business

Make Investors Sit up and Notice #9 - How "The Pivot" Engenders Investor Trust

I promised you some time ago that in future posts we'd continue to explore ways to prove to investors that you are aware of the risk and are taking tangible steps to reduce it - to engender investor trust.

The future is now, so let me fulfill that promise by introducing a series of posts on the pivot.

In basketball the pivot is crucial. The pivot foot stays planted on the floor, enabling the rest of the body to move in different directions. Using the pivot one can avoid a double-team, find an open teammate, or gain a clear path to the basket for an open shot. Pivoting reduces the risk of a turnover and increases the chances of a successful outcome to the possession.

In business, the pivot is just as crucial to success, because rarely does a new company move into maturity using the same business plan it started with. Doing a successful pivot can thus reduce the risk of going under and increase the chance of a positive outcome for your company.

You've probably heard of pivoting in the context of business. But do you really know what it means, or when it's necessary, or how to do it effectively?

In the next few posts in this series, we're going to dive into pivoting so that you have a clear understanding of why it is important to your business and some skills and resources you can use to recognize when a pivot is needed and how to do it successfully. Today, we'll set the context for why I feel it is so vital for every vision master to understand the art and science of the pivot.

When I first joined Tech Coast Angels in 2010, I asked a number of angel investors what percentage of businesses that succeeded did so without changing their business plan significantly (a pivot) and all said "none." So, consider that your company simply won't survive the next five years without at least one major pivot. Now consider that you're out to raise capital to fulfill on your current business plan. Finally, consider that you're asking an investor to trust that not only will your company survive long enough to repay that investment, but that it will be around long enough for he or she to actually make a profit.

Given those three realities, do you think that understanding why, when and how to pivot and being able to demonstrate to an investor that you understand these things and are capable of doing them well might help you gain trust and stand out from the crowd? This is a vital part of demonstrating risk-awareness, which in turn is a big part of showing investors that you take risk seriously and are committed to risk-mitigation.

OK . . . Pop Quiz time . . . can you name Nintendo's first product and when it was released?

Maybe that was too difficult. Let's try this -- can you name Nintendo's general industry niche and give me a ballpark estimate of when they first hit the market?

If you answered video games and the 1980's you're not even close.

The company began in '89 -- 1889! Yes, it's true. And their first product was playing cards. In the 130 or so years since then, Nintendo pivoted to a taxi service, a hotel chain, a toy maker and, finally, to a video game producer, perhaps most famous for its' Pokemon line.

Now THAT is pivoting.

I'm not suggesting that your own pivots will be as huge as those Nintendo made. But I am suggesting that the type of nimble management that enabled Nintendo to survive for 130 years by pivoting several times is vital to your own future, even if your pivots are far more modest.

The essence of pivoting is risk-awareness. You've got to be aware of the various risks that could impact your business in order to have the time to pivot before it's too late when conditions change.

Blockbuster could have used that kind of risk-awareness when Netflix showed up. Better yet, Blockbuster should have seen things coming when the major cable companies began to dramatically expand their pay-per-view movie selections. Kodak could have used that kind of risk-awareness when digital cameras and cameras in phones began to rise in popularity. Music land could have used that kind of risk-awareness when online music streaming became ubiquitous. Recently, Yellow Cab filed for bankruptcy. Why? Uber and Lyft.

So, you get the idea.

I'll go so far as to say that part of your planning and preparedness ought to be focused on the abandonment of the very business model under which you are now focused on establishing a foothold and hoping to dominate a market. Because, whatever you do, someone, somewhere is thinking about another way to do it that could render your company obsolete.

Let's begin to explore the pivot with a simple definition of what it means.

Alan Spoon, General Partner of Polaris Venture Partners, defines a pivot as a "reimagination" of the Company. It is accomplished, Spoon believes, through careful assessment of the marketplace, customer wants and needs and competitive realities, within the context not of failure, but of seeking additional growth opportunities. As you might expect, this kind of reimagination involves a lot of listening and conversation with trusted allies. This is where the wise counsel of mentors, coaches, your execution master, your investors and what you learn from customers and your entire team can empower you, the vision master, to powerfully re-imagine the company -- such a process demonstrates that you're nimble, coachable, a good listener, all of which builds trust with all of your stakeholders.

A pivot is a change in the business model, a tweak to the product, a new pricing scheme, a jump to a new market - it is by nature often disruptive. A pivot is not generally (though in some cases it could involve) making a new executive team hire, putting a new product into the same customer market, or reassigning people to new roles.

Now that you have a basic understanding of what a pivot is and what it isn't, let's look at when to pivot and when not to do so.

Richard Washington, writing for MarketResearch.com, provides a useful list of situations in which a pivot makes sense. Washington advocates a pivot when:

  • You have a talented team, but a product that can't gain traction
  • You're in a growing industry, but a bigger, better-funded competitor has beaten you at your specific product
  • Your customers love one small part of your business, but not the other parts
  • You have a line of products with one or two hits, and another ten duds
  • You have incredible technology, but people are using it in different ways than your business prescribes

Notice that there isn't one common theme here. The time to pivot can arise due to various factors and they may not always be obvious until it's too late. However, each of the situations above does arise in the context of a challenge -- things just aren't going as planned. If you keep pushing against things you'll eventually wear out. Instead, be like water and seek a way around whatever is blocking your growth. That's the essence of a pivot.

Understanding when NOT to pivot is a bit more advanced. In a future post in this series, I'll dive more deeply into this. For now, consider that a pivot may not be useful when:

  • Your product or service has a fundamental flaw -- it just doesn't work (a quality issue) or isn't complete (a features and benefits issue) or isn't appealing to people (a design issue). In such circumstances, you may want to fix the bugs and test a better version of your product or service and the business model under which you are selling it before you pivot.
  • Your product or service is selling but you aren't realizing the profits you had hoped for. In this circumstance, a pivot may well be needed but FIRST, explore your systems and processes to determine whether there are simply inefficiencies or scalability issues that could be solved.
  • You haven't yet launched your product or service -- unless you are convinced (based not only on your own beliefs but those of trusted advisors) that someone else has trumped you or made your product or service obsolete before it is even on the market, then it is generally best to get it to market and test the waters before pivoting to something else.

Again, these are general situations where a pivot may not yet be advisable, yet in your particular case they may well warrant a pivot. More on this in future posts.

If you and your key advisors feel a pivot is warranted it would be helpful of course to know HOW to do it successfully! In the next post in this series, we will explore this in detail. For the moment, here is a good general 12-Step process for doing a pivot from Neil Patel, a very successful serial entrepreneur, with my pointers in parentheses:

  1. Realize when your plan isn't working (risk-awareness)
  2. Come up with a list of possible reasons why it isn't working (consult your team and execution master)
  3. Gain a fresh perspective on your long-term goals and vision (talk to your mentor)
  4. Revise those goals and visions as necessary (consult your coach)
  5. Come up with a list of ideas to help accomplish the revised goals (self-awareness)
  6. Develop a clearly defined (new) plan
  7. Define the numbers or signs that gauge success of your new plan
  8. Forget the previous plan
  9. Explain the new plan to your team
  10. Embrace the new plan
  11. Watch the metrics
  12. "Rinse and Repeat" (in other words be prepared for another pivot)

Again, we will look at exactly how to execute a pivot in the next post in this series and I'll introduce you to the brilliant work of Eric Ries, author of The Lean Startup, who defines a pivot as "structured course correction designed to test a new fundamental hypothesis about the product, strategy, and as an engine for growth."

Key Takeaways: Pivoting is inevitable and therefore understand when, why and how to execute a pivot is essential to the survival of your company. For that reason, if you want to stand out from the crowd with investors you need to make them aware that YOU are aware of risk as an ever-present fact of life in your enterprise and that you and your team are capable of identifying the time for a pivot and of carrying it out successfully. Mastering the art of the pivot and communicating your mastery to investors is another key way to engender investor trust.