The term pivot comes from the Lean Startup model by Eric Ries. A pivot refers to the necessary adjustment of a startup’s strategic direction while not questioning the company’s vision.
Pivoting refers to the significant strategic change of course of a young company so that it becomes more successful. But long-established companies can also use these pivots to generate innovation. Triggers for a pivot can be customer feedback, tests, competitive situations or generally new market circumstances.
There are different types of pivots.
– Zoom in pivot
In this case, what was previously considered a single feature in a product becomes the overall product.
– Zoom out pivot
In the opposite situation, sometimes a single feature is not enough to support an entire product. In this type of pivot, what was considered an overall product becomes a single feature of a larger product.
– Customer segment pivot
In this pivot, the company realizes that the product it is making solves a real problem for real customers, but that they are not the kind of customers it was originally intended for. In other words, the product hypothesis is only partially confirmed, the right problem is solved, but for different customers than originally expected.
– Customer demand pivot
After getting to know your customers extremely well, it sometimes becomes clear that the problem we are trying to solve doesn’t matter much to them. However, because of this familiarity with the customer, we often discover other related problems that are important and can be solved by our team. In many cases, these related problems require only a minor course correction in the existing product. In other cases, a completely new product is required. This is again a case where the product hypothesis is only partially confirmed; the target customer has a problem to solve, just not what was originally expected.
A famous example is the Potbelly Sandwich Shop chain, which today has over 200 stores. It all started with an antique store in 1977; the owners started selling sandwiches to support customer traffic in their stores. Soon they had pivoted into a completely different line of business.
– Platform pivot
A platform pivot refers to a change from an application to a platform or vice versa. Typically, startups looking to create a new platform start by selling individual apps for their platform, called the killer app. Only later does the platform help third parties break through as a way to create their own related products. However, this sequence is not always set in stone and some companies have to complete these pivots multiple times.
– Business model pivot
This pivot makes use of a concept by Geoffrey Moore, who observed that firms generally follow one of two main business models: high margin, low volume (complex systems model) or low margin, high volume (throughput volume model). The former is often associated with business to business (B2B) or corporate sales cycles and the latter with consumer products (there are notable exceptions). In a business model pivot, a startup changes models. Some companies are moving from high margin, low volume to mass market (Google’s search application, for example); others, originally designed for the mass market, found they needed long and costly sales cycles.
– Value creation pivot
There are many ways to exploit the value a company creates. These methods are often called monetization or revenue models. These terms are far too restrictive. Underlying the idea of monetization is that it is a separate feature of a product that can be added or taken away at will. In fact, value creation is an essential component of the product hypothesis. Often, changes in the way a company creates value can have far-reaching consequences for its business, product and marketing strategies.
– Growth apparatus pivot
In this type of pivot, a company changes its growth strategy to seek faster or more profitable growth. Generally, but not always, the growth apparatus requires a change in the way value is created.
– Channel pivot
In traditional sales terminology, the mechanism by which a company brings its product to customers is called a distribution channel. For example, packaged consumer goods are sold at grocery stores, automobiles are sold at dealerships, and corporate software (with extensive customization) is sold through consulting and specialized services firms. Often, the channel’s specifications determine a product’s price, features, and competitive landscape. A channel pivot is the realization that the same basic solution could be distributed through a different channel with greater effectiveness.
Whenever a company banishes a previous, complex distribution model and sells directly to its end customers, a channel pivot is underway.
It is precisely because of its destructive effect on distribution channels that the Internet has had such a damaging impact on industries that previously required complex distribution channels, such as newspapers, magazines, and books.
– Technology pivot
Sometimes a company discovers a way to achieve the same solution using a completely different technology. Technology pivots are far more common among established companies. In other words, they support innovation, achieve growth-enhancing improvement, and preserve their existing customer base. Established companies prefer this type of pivot because not so much changes. The customer segment remains the same, the customer problems are the same, the value creation model is identical and the sales partners are the same. The only question is whether the new technology will result in a higher price and/or more performance compared to the existing technology.
