Think Before You Pivot
by Matt, on 21 Jul 2020
When the business landscape suddenly shifts, as we have all experienced in 2020, many companies face existential threats. Leaders are forced to answer the hardest question: is my business still viable?
If your immediate answer is ‘no’ – or, at least, ‘not in its current form’ – then you must choose one of three paths:
- Continue without changing – hoping the situation will normalize and currently observed changes will undo themselves, returning the business to viability
- Adapt the business to make it viable under the new circumstances – assuming that what is observable today will become the ‘new normal’
- Abandon the business – either closing it down or selling it to someone for whom it can become a viable and value-adding acquisition
In this edition of SPT, we take a closer look at the middle road: adapting (a.k.a. pivoting) your business to overcome – or take advantage of – changing business conditions.
WHEN THE WORLD SUDDENLY SHIFTS
“Faced with crisis, the man of character falls back on himself. He imposes his own stamp of action, takes responsibility for it, makes it his own.” – CHARLES DE GAULLE
Whenever there’s a sudden and significant shift in how the world works, our leadership is put to the test.
Assumptions upon which our business model and strategies have been constructed, potentially since the beginning, may be in jeopardy. And that could threaten the viability of our entire enterprise.
Such is the situation being faced by millions of business owners and leaders around the world in 2020. Fundamental changes, brought about by COVID-19 and the near-simultaneous oil price crash, have swept through almost every walk of life.
In the beginning, before the transmissibility and deadliness of the virus was understood – and long before national governments were exposed as either having effective preparedness and response strategies or not – it was perfectly sensible to sit and wait.
Riding out a storm and then picking up the pieces once it has blown through is an approach with which we’re familiar. The damage can be costly but, thankfully, it’s seldom fatal or totally destructive.
But when the storm blows on and on and on, we reach a point where simply waiting for things to go back to ‘normal’ is no longer a viable strategy.
At this point, a full half-year into the pandemic-induced crisis, it’s becoming apparent that many of the changes will endure for months to come. Some are likely to be permanent.
The pandemic has greatly accelerated several trends that were happening in the background but at a slow enough pace we could monitor them and respond in the normal course of business: digitalization, remote working, telemedicine, virtual learning, online product search and evaluation, contactless commerce, and so on.
We believe that many of those accelerated changes will stick. After all, they say it takes 66 days to form a new habit (source: European Journal of Social Psychology) and by now we’ve been practicing new social and digital behaviors for up to three times that long.
This means that you as a business leader must reevaluate your business under the assumption that waiting this storm out could take months, years, or even forever.
You must ask yourself: is my business still viable?
We will suggest a basic framework for answering that question in just a moment, but what if the conclusion is ‘no’ or, at least, ‘not in its current form’?
We’ll devote the remainder of this post to considering when and whether adapting the business – the hot topic these days of ‘pivoting’ – is a credible strategy.
While you may be feeling urgent pressure to do something in response to the crisis - and pivoting surely sounds like you are - deciding to pivot should not be rushed. It isn’t always the right answer.
IS MY BUSINESS STILL VIABLE? A SIMPLE FRAMEWORK
Viability means the ability to work successfully and survive. Whether a business is viable or not is a question faced by entrepreneurs from the moment a venture is conceived until the day it achieves sustained profitability.
Sadly, viability rears its ugly head again whenever the operating landscape shifts and potentially jeopardizes the business’ foundations.
Like triage under other circumstances, a simple, clear checklist helps expedite the analysis. It isn’t all-encompassing and it doesn’t cover every possible contributor to viability, but it lets us quickly assess the most critical aspects.
Importantly, if one or more pieces of the framework indicates a problem, we can take a deeper dive into what that means, and whether it’s likely to be fixable or fatal.
We start with a very simple definition of what it takes to make a viable business:
A NEED + A SOLUTION + EXECUTION
Each of these elements can be broken into sub-components, all of which must be present – to an extent appropriate for the maturity of the business – for it to pass the viability test.
CONFIRMING THE NEED
Every business should solve a customer’s need. If you can’t clearly articulate that need, you’ve developed a solution looking for a problem and you don’t (yet) have a viable business.
Ask yourself the following questions about the need you solve:
- REAL – is it a real need, not just a nice-to-have or a perceived need that evaporates when a solution is proposed?
- SPECIFIC – is it a focused challenge, not some generic “solve global conflict” idea that is abstract?
- CRITICAL – is this an issue that has the end user’s hair on fire, or is it just somewhere down the long list of things they’d like to solve?
- IMPACTFUL – is it worth a lot to the end user if this challenge gets met?
- CHRONIC – is this something that customers will pay for on a recurring or repeated basis?
EVALUATING THE SOLUTION
The piece of the business that entrepreneurs spend most of their time worrying (and talking!) about is the solution they are creating. However, it has to be more than just a clever idea to become a viable business.
Evaluate your solution against these seven criteria:
- EFFECTIVE – does it completely meet the customer’s need, most of the time?
- DIFFERENT – is it distinct from everything else on the market, and anything that you know is under development?
- LOVABLE – have you confirmed that users appreciate and desire your solution in its current format?
- AFFORDABLE – can you produce and deliver the solution at a price point that’s sufficiently below its value to the customer, generating a healthy gross margin with which to pay costs and make a profit?
- MONETIZABLE – do you have a straightforward model for generating revenue with your solution, where the cost of customer acquisition is substantially less than your expected lifetime customer value? (i.e. a path to profitability)
- PROTECTED – have you obtained (or at least filed for) intellectual property protection or is there one or more tall barriers to entry that will prevent a larger, better-funded competitor from replicating your idea?
- EXTENSIBLE – will successful commercialization of your solution open doors to other markets and bigger things?
DELIVERING THE MISSION AND VISION
The third leg on our viability stool is your ability to deliver the goods. You’ll need the right people with the right skills and several other operational pieces in place if you’re going to successfully deliver your company’s vision.
Consider the following nine elements to determine your viability from an execution perspective:
- PURPOSEFUL – is your team in business for more than just financial gain?
- KNOWLEDGABLE – does your team understand – and preferably have personal experience with - the end user and the use case(s) for this solution?
- EXPERIENCED – do your team members have relevant experience using and commercializing similar things?
- SKILLED – does your team have the critical skills that will be needed to deliver the mission and vision, and a plan for hiring to meet future skills needs?
- RESILIENT SUPPLY – are the solution’s precursors available from multiple, reliable sources? (one of the most critical questions in post-COVID times!)
- SCALABLE – are there any obvious limitations to delivering the solution at a scale that will be necessary if you hit your commercialization goals?
- VISIBLE – are you building awareness and creating engagement with a relevant audience who will eventually become your customers?
- TIMELY – can your solution succeed now without relying on other trends to play out in a certain way?
- GAINING TRACTION – have you convinced early adopters to try and buy your solution, and are fast followers in sight?
TO PIVOT OR NOT TO PIVOT…
The framework we’ve just described can be usefully applied when pitching for investment (or as an investor evaluating an opportunity), but here we’re going to focus on the presently popular question of whether a business should pivot.
First, let’s discuss what it means to ‘pivot’.
In the business context, it means redirecting the objective of the business while keeping many of its elements fixed.
In our framework: addressing a different need while repurposing some of the same solution and execution components.
There have been a multitude of recent posts, articles, and webinars directed toward pivoting. This is no surprise, with so many jobs and companies in crisis, but it’s creating a subculture of ‘pivot-bragging’.
Just saying you’ve pivoted doesn’t mean you’ve succeeded. Or, even that your freshly repurposed business is viable.
To be viable, the post-pivot business must pass all the same tests as a completely new idea. And, crucially, it doesn’t get a pass on any of the elements just because they were viable for its previous incarnation.
Here’s a summary of the questions you should ask:
When faced with an existential crisis, it’s easy to fall in love with an adjacent business idea that seems to offer an easy way out.
However, it behooves the embattled leader to thoroughly examine all aspects of the business model in search of potential deficiencies.
We see many early-stage businesses stumbling from pivot to pivot as they burn through angel investors’ capital in search of a viable business. Sometimes you just have to keep rolling the dice. Often, however, there’s a fundamental missing piece that’s befalling them at each attempt.
Even though the framework we’ve described here takes a very simplistic view of what it really takes for a business to succeed, stopping to honestly answer these 21 questions should help you avoid a hopeful but ultimately hopeless pivot.
IDEAS TO TAKE AWAY
A sudden change in the business landscape – whether perpetuated by a natural disaster, political intervention, competitor action, or technological change – can leave your business facing an existential threat.
Riding out the storm can be an acceptable response if the change is likely to be short-lived and reversible.
If not, we recommend applying a simplified business framework to quickly assess whether your business remains viable despite the change. If the answer isn’t a resounding yes, it’s time (in the infamous words of Jack Welch) to fix, close, or sell.
When contemplating a fix – pivoting to a new business objective – use the same framework to test whether the new need, your proposed solution, and your readiness to execute can combine to make it viable.
Think before you pivot. Leaping into a new line of business without first validating the necessary business fundamentals risks not only postponing the inevitable but potentially destroying even more value than making a graceful exit.