You on the other hand are not so successful in your current ventures yet, and you are thinking seriously about a major pivot. What would Elon say if you asked him how to pivot your company?
You can’t of course know the answer, but you can guess based on the way he seems to make decisions. Let’s summarize some things we know about Elon’s methods. Think of this as a checklist. In fact turn it into one:
- Start with first principles – check your premises
- Integrate vertically
- Acquire broad knowledge – know enough on each topic to be able to challenge your experts
- Do what makes the most difference in the world
- Use a narrow prism to make decisions: make decisions through the prism of a specific legacy (such as, for Musk, will it enable or retard a self-sustaining colony on Mars?)
- Look ahead by decades
- Inspire investors with your vision
- Make sure investors trust you personally
- Invest your own money
- Work long hours, as long as needed
- Do what you have fun doing
- Trust your Execution Master to handle day-to-day operations
- Don’t be afraid to be outrageous
- Embrace your uniqueness (on the spectrum, for example)
- Don’t be afraid to let people go
- Hire people much better than you are in particular areas
- Set ridiculous deadlines
- Challenge your people to meet or beat your ridiculous deadlines
- Don’t sweat the details
- Get the timing right (not too early and not too late)
- Make sure you’ll make money quickly
That’s a lot to chew on. Yet, it’s superficial. If you work for Mr. Musk, please connect with me and fill me in on what I missed.
More important, you’re not Elon Musk. You can’t duplicate all these methods and especially the nuances. But you can learn from them and get better when you pivot.
Let’s get clear about what a business pivot is and is not. According to Forbes Magazine, “A pivot means fundamentally changing the direction of a business when you realize the current products or services aren’t meeting the needs of the market. The main goal of a pivot is to help a company improve revenue or survive in the market, but the way you pivot your business can make all the difference.” (Forbes, July 3, 2020).
Let me add that another common reason to pivot is that
, even if your product does meet a market need, it’s too expensive to market. If it costs more than about 1/3 of your net revenue (after the cost of goods) to market your product, you won’t make a profit. According to Entrepreneur Magazine,
42% of startup failures report a lack of market need as a reason for failure, the most common reason given. There had to be some need unless the founders were completely delusional, so it had to be that it just cost too much to find enough customers with that need and close the sale and keep it closed.
OK, that’s enough of that. If you haven’t read enough about pivoting by now, search the term and read articles in Forbes, Entrepreneur, Inc., Harvard Business Review, all the regulars. Read my own articles on the subject. Intelliversity Business Pivot Articles
Then come back here to read something new and unconventional.
The sad truth is, there’s no perfect way to find out how much it costs to market a product until you try. And that’s why survey after survey of investors shows that far more than 50% of startups required pivots between investment and exit. If you count early pivots before major VC investment, it’s 90% or more. So like it or not, you’re going to need to pivot.
So here’s what I think Elon Musk would tell you about pivoting: “You better get it right. Unless you’re pivoting a company still at the idea phase, you’re going to spend as much or more as you’ve spent so far to complete a pivot. Right to the point here, your investors may only tolerate one costly pivot.” If you need a second major pivot, investors will chalk it up to poor decision-making. “Pivot once, shame on you. Pivot twice, shame on me.” In fact, most of your team will agree and leave.
So Elon would say “Get it right, or give it up.”
To put it a different way, “If you don’t get your pivot right, give it up and start fresh,” Start with a new team, new investors, a new product.
So how do you get it right when you pivot, if you’re Elon Musk? Answer: After all is said and done, it’s only #21 that really matters.
Make sure you’re making money quickly, with the earliest version of your revised product or service. Be a default-alive company. For example, at Tesla, Musk’s earliest plans called for a high-priced roadster, then a high-priced Sedan, and then and only then the cars that would make a real difference in the world.
Likewise at SpaceX, the Falcon 1 was designed as the smallest useful orbital rocket, instead of building something larger and running out of money. Only after proving it, did SpaceX graduate to the Falcon 9, which has been the real winner for SpaceX. Now more recently, StarLink could bring in $30B / year (far more than Falcon 9 ever could, about 10X more than the SpaceX core rocket business.) Since SpaceX was founded in 2002 and Starlink conceived in 2015, Starlink is a “pivot” even though SpaceX is already successful. Starlink makes SpaceX MUCH more successful and finally enables SpaceX to fulfill its ultimate vision of creating a human colony on Mars. But Starlink is a money-maker pure and simple. And this makes it quintessentially Elon Musk. “Make sure you’ll make money quickly.”
In sum, the likely reason for your pivot is that your current product or service costs too much to market. So now, as you pivot, you’ve got to make sure that your new product or service is profitable, i.e. you can market it for less than 1/3 of the net revenue, preferably much less. Take your blinders off. Don’t be blinded by your great and glorious vision for the long-term future. I think Elon would say, “Get the short-term right while keeping the long-term in your sights.” Do whatever market testing, and careful thought to get this right in your one and only major business pivot.
How do you do this?
How do you make sure your major pivot is profitable? I recommend a diligent use of Disciplined Entrepreneurship by MIT’s Bill Aulet. Oh, what a system; it will get you to the desired level of profits when you pivot. If you want step-by-step coaching this amazing system, set up a meeting with me right now