Kim and Todd Saxton: Pivoting is important, but you must plant a foot first

According to CB Insights, 70% of startups that fail did so because they scaled prematurely, there wasn’t a big enough need for their offering, or they ran out of cash.

Basically, their go-to-market strategy wasn’t working, and they did not make sufficient changes to be successful. A startup pivot needed to happen, but it didn’t—at least not fast enough. Most people consider a startup pivot a shift in the product/service, target customer, or other change in direction based on market feedback.

Hoosiers might be familiar with the term “pivot” from basketball, where you keep one foot in place (the plant foot) and move the other foot around to shift direction or get leverage. For a startup, this distinction is important. A successful pivot happens when you keep part of the business grounded in what you were doing, but you make a change to a better position based on a hypothesis about what will be more effective.

Unfortunately, we often see ineffective pivots—the change is too sudden or too big, or it isn’t based on the next best hypothesis. Instead, sometimes pivots seem fairly random, like the startup is wildly responding to random suggestions and has forgotten what it set out to accomplish. The worst case we’ve seen is what we call the pinball startup. It changes direction every time it gets any feedback. Even the company becomes confused about what it was supposed to be doing.

A startup has to find product/market fit before it can scale. So, what is product/market fit? Venture capitalist and Stanford Graduate School of Business professor Andy Rachleff is credited with coining this term, which he explained: “Identifying a compelling value hypothesis is what I call finding product/market fit. A value hypothesis identifies the features you need to build, the audience that’s likely to care, and the business model required to entice a customer to buy your product. Companies often go through many iterations before they find product/market fit, if they ever do.” If things are not working, a startup has to pivot. The key is to stay grounded in at least one dimension—plant one foot and pivot with the other to find a better position.

Let’s talk about the primary kinds of pivots a startup can make:

◗ Product pivot involves changing the product by focusing on a new feature or removing a feature. Twitter is noted as originally being a podcasting company called Odeo. But before Odeo could launch, Apple released iTunes, which disrupted podcasting. So Odeo moved to be a microblogging platform that eventually became Twitter—same customers but with a different offering.

◗ Market or customer pivot happens when a startup shifts to focus on a different customer segment or market niche. This could include finding a new target, switching to a different industry or expanding to a new geography. Play-Doh was invented as a cleaner to remove coal soot from coal heating in the 1930s. When gas heating became the norm, it pivoted to arts and crafts—same product but new market.

◗ Business model pivot occurs when a startup changes how it gets revenue with a different pricing strategy or new distribution channel or even by transitioning from B2C to B2B or vice versa. Dropbox originally charged everyone for synchronizing their cloud storage. It pivoted to a freemium model targeting businesses with premium plans to enhance collaboration—same product, different revenue process.

◗ Strategic pivot is when a startup moves in a new strategic direction, like developing a platform, seeking partnerships or acquisitions, or moving into new industry verticals. Nokia was challenged by the dominance of the iOS and Android platforms and sought a partnership with Microsoft to tap into its Windows ecosystem—same product, new partner.

There are many ways to pivot, but don’t change more than one element at a time. If you change the business model, the target customer and the product features all at once, you will not know what part of the change worked or didn’t work. A controlled experiment does not change multiple variables at once. Change the product features and see how they do with the current target market. Still not working? Change the target market. Still not working? Review the business model. Systematic experimentation is the goal.

CB Insights also found that 10% of startups fail due to a “pivot gone bad.” So the downsides of pivoting are very real. As coach John Wooden is quoted: “Don’t mistake activity for achievement.” Pivoting is not a strategy or an achievement per se. It is an activity that might be necessary to achieve the goal of product/market fit. The key is to find product/market fit through systematic experimentation—but be sure to keep one foot planted.

We’d like to acknowledge Ben Pidgeon of VisionTech Partners, who invited us to participate in a panel on pivots at the 2023 Innovation Showcase.•

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Kim Saxton is a clinical professor of marketing at IU Kelley School of Business at IUPUI. Todd Saxton is an associate professor of strategy and entrepreneurship at IU Kelley School of Business at IUPUI. They are co-authors of “The Titanic Effect: Successfully Navigating the Uncertainties that Sink Most Startups.”