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Startup Jargon Series: PIVOTS
It’s been a few weeks on my first post on “Distruption“, so I thought it was time to do my second installment of the Startup Jargon Series.
This time, I’m going to discuss the concept of the PIVOT.
I had a maddening conversation with an entrepreneur a few weeks back. You could tell that this entrepreneur had done a little too much reading of pop tech blogs and not enough real reflection on some of the underlying concepts. This entrepreneur was telling me about the team’s early experimentation and described (I kid you not) 4 different pivots they had done.
The problem is that those “pivots” weren’t pivots. For basketball fans out there, a pivot usually means that one foot remains planted (the pivot foot) and the other foot goes somewhere new. This entrepreneur wasn’t describing pivots, she was describing travelling violations. They were completely different products going after completely different customers.
Pivots are very common for startups – almost all companies make several pivots in the course of their existence. But what I think the pop tech community considers high-profile pivots are sometimes not pivots at all. The concept of the pivot has obviously been around for a long time, but more recently entered startup jargon with the rise of the Lean Startup Methodology. The pivot is intimately tied to the core concept of the lean startup: that the goal of a startup is to search for a repeatable and scaleable business model. That search is focused on maximizing learning, through a rapid progression through some sort of customer development process. As a result, pivots occur when a change of direction occurs but grounded in previously validated learnings. Something new is pursued, but leveraging something old or learned. Specifically, there are typically three types of pivots:
Customer Segment Pivot: This occurs when prior learning suggests that the same product may resonate with a different type of customer. Usually, that is a customer who is facing a similar problem to the one the startup was trying to solve originally. So, SAME PRODUCT, DIFFERENT customers. My favorite example of this is the transition from thePoint to Groupon. thePoint was a platform to motivate collective action. There was a way to establish a tipping point for support of a cause. It was targeted at fundraising needs of organizations. But in talking to small businesses, Andrew realized that it was actually an excellent mechanism for small businesses to drive massive amounts of interest in a short term deal. Same product, similar need, different customers.
Customer Problem Pivot: This happens when prior learnings help you appreciate a deeper or different problem that your customers face that you are able to solve. Often, it’s not until you get deeply engaged with your customers that you really understand their needs. And sometimes, the realization is that the product you have been building can never satisfy their needs, but something else might. These kinds of pivots are why I have claimed that fast followers are actually leaders in disguise. Often, fast followers look like copycats, but actually have been engaged with their customers for a long time before doing a pivot. Sure, the inspiration for the new product may come from another company, but the opportunity is identified and executed on very quickly because of existing knowledge about the customer and their problems. This is why RueLaLa was in a great position to claim the #2 spot in the private sale space given their experience with fashion brands that were trying to liquidate their inventory through Smart Bargains.
Feature Pivot: This occurs when prior learnings show that one particular feature of the product is resonating with customers, and the company shifts its focus to orient around that feature. Paypal is the classic example of this. I’m not as close to the story of Instagram via BRBN, but I understand it was a pivot that also fits into this category. The key lesson from these pivots is to focus on the data. How are users using your product? Instead of just worrying about why they aren’t using it the way you intended, try to figure out why they are using it at all, and whether that is evidence of something really valuable about what you have built.
So, that’s a drive by shooting overview of Pivots. I won’t expand more except point you to the work of Eric Reis and Steve Blank who have much better things to say about the topic than I do. Let me just close with two observations about where I think people have gotten lazy about the concept of Pivots.
First, pivots are not restarts, and there is nothing wrong with a restart. Pivots can be a good thing – they are derived from data and customer learnings. But they assume that something you are doing is right and worth pivoting on. But sometimes, that doesn’t happen. It’s a hard pill to swallow, but that’s ok. You’d rather figure that out quickly and move on, rather than fight a battle that can’t be won. I was really impressed the first time Paul Graham did “office hours” on stage at TC Distrupt and he encouraged the entrepreneur that was pitching him to “start over”.
There is nothing wrong with starting over. Some of the best companies were born out of restarts. Twitter and Turntable.fm are recent examples. Maybe the founders of those companies did draw on some learnings from Odeo and Stickybits, but the services are completely different.
Second, pivots in the context of a lean startup isn’t only about getting to product market fit. It’s not like once a company has successfully built a free service with traction that pivoting or customer development is done. The goal of any business is to create a sustainable and repeatable business model. This means more cycles of testing, iteration, and potential pivots. Twitter is a big company with lots of user traction, but I think we continue to see many pivots from the company as they search for a repeatable business.