Question, Learn, Pivot

I have recently been giving the lean start-up concept of “pivot” a lot of thought. It all started last week when I was asked to advise an early stage company that was racing to launch after an extremely long run in stealth mode (too long if you ask me). While the company has achieved a number of key milestones along the way, it has done so with limited learning from the market. And more critically, the company has worked its plan without ever re-examining its initial hypothesis. This has put the company on shaky financial ground right at the moment when it should be at its most fundable (clear path to revenue, competitive barriers erected, go-to-market partnerships in place).

Focus on the learning not the pivot
While the company does not necessarily need a full pivot, (though some focus would be great) because it has been in stealth mode for so long it has limited the learnings it could have collected along the way. Learnings that could have strengthened its position with its go-to-market partner, tightened its revenue model or proven its customer acquisition projections. All of these things would have reduced the risk to investors and therefore enhanced its value. While it is a company’s pivots that often get the headlines, it is the learning that drives the value, even if it doesn’t drive a pivot.

Not Just For Kids You Silly Rabbit.
Later stage companies can often benefit from a pivot mentality as well. While some of the barriers to pivoting are higher for later stage ventures, as Eric Ries says in his blog on pivots, “The hard part about abandoning work is the feeling of wasted effort”. The good news is that the volume of learning a later stage company can use as the basis for a pivot is also higher. Over the weekend I reviewed a company that I helped to fund in late 2001 (yes post-bubble). They have since gone on to receive another round of funding from a major VC and achieve solid but not spectacular growth executing against what is essentially the same business model they launched with. Their online retail vertical has since attracted some additional competitors and with no evolution in their own model they have suffered. This company needs to pivot. And with 9 years of customer learnings it should be a very well informed pivot.

Pivotool
In Eric’s post he provides examples on of three types of pivots; pivot on customer segment, pivot on customer problem, or pivot on a specific feature. This is a great start but a company can pivot on almost every element of its business model and needs to look at them all. Here is a Business Model Map created by Tor Grønsund as an adaption of several methodologies he reviewed in his blog Methodologist. While I do not believe that this map is perfect, it is a helpful cheat sheet for any business looking for a pivot.

Pick any part of the map and ask yourself how else your company could be addressing it. Are there other or additional distribution channels you could be using? Are there other revenue streams, a different cost structure or other ways your could grow your customers? Keep challenging the status quo because when things are not going as well as you would like, good leaders see that as a data point not a death sentence.

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5 responses to “Question, Learn, Pivot

  1. Great read. Thanks for the citation.

    Indeed, the Lean Startup Business Model pattern has its shortcomings. I’m currently looking into how it can illustrate the continual iteration present in the Lean Startup methodology. However, I start to recognize that every methodology needs its notation – as in software engineering where agile development is the methodology and UML is the notation. Perhaps then Lean Startup is methodology and Business Model Canvas is notation. What do you think?

    • Interesting thought. I remember struggling with this when Norton/Kaplan came out with the balanced business scorecard. While it captured the relevant areas of focus it did not reflect the dynamic, interconnectivity. It was like a quote I heard,”If you look at a snapshot of a car you cannot tell which direction it is going.” Using the canvas you must hold the output (offer) constant. What I like about it is that canvas forces start-ups (and all businesses really) to think about the implications of product changes and potential enablers/barriers to making that change.

  2. I wonder how many successful IT start-ups really execute to any business model. I am sure they have to adopt some formalized, accepted processes to secure external funding but I am just curious how many companies really live and breath these approaches. I’ve met many successful start-up operators and I’ve never encountered one that said, “Hey, without our business methodology, we would have never made it to this point.”

    I focus on building a good team, something I neglected at the outset. With a good team, the methodology becomes secondary.

    • A good team is a must no doubt. Often one of the many things that team brings is an implicit business model. IMHO making the model explicit for all to understand makes the expertise of a good team scalable. New team members join and quickly understand what the goals are and how there actions can impact the success of the company.

  3. I said execute to any business model … I meant methodology.

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