Today´s topic is Pivot or Persevere regarding to Eric Ries´ book “The Lean Startup”
It´s probably one of the biggest challenges for startups. This is a really short summary of Eric Ries´ chapter. He is using detailed examples which would go beyond the scope of this article. So this is gonna be short and with little jumps but still enough to get in touch with the whole thing.
Every entrepreneur eventually faces an overriding challenge in developing a successful product: deciding when to pivot and when to persevere.
Everything that has been discussed so far is a prelude to a seemingly simple question: are we making sufficient progress to believe that our original strategic hypothesis is correct, or do we need to make a major change? That change is called a pivot: a structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth.
Innovation Accounting leads to faster pivots
One of the biggest failures is “getting stuck in the land of the living dead” as they call it in Silicon Valley. That means having a moderate success and activities but don´t grow any more at one point and “being stuck” – just enough to stay alive but not living up to the expectations of its founders and investors. Eric Ries gives one great example talking about David Binetti, the CEO of Votizen, and his story how he build his business step by step facing pivot or persevere moments. Each time the company pivoted, it didn´t have to start from scratch. David Binetti had a huge acceleration of MVPs. The first MVP took eight months, the next four, then three and then one. Using Innovation Accounting and the right pivots.
A startup´s runway is the number of pivots it can still make
Seasoned entrepreneurs often speak of the runway that their startup has left: the amount of time remaining in which a startup must either achieve lift-off or fail. This usually is defined as the remaining cash in the bank divided by the monthly burn rate, or net drain on that account balance. For example, a startup with $1 million in the bank that is spending $100.000 per month has a projected runway of ten months.
When startups start to run low on cash, they can extend the runway two ways: By cutting costs or by raising additional funds. But when entrepreneurs cut costs indiscriminately, they are as liable to cut the costs that are allowing the company to get through its Build-Measure-Learn feedback loop as they are to cut waste. If the cuts result in a slowdown to this feedback loop, all they have accomplished is to help the startup go out of business more slowly.
The true measure of runway is how many pivots a startup has left: the number of opportunities it has to make a fundamental change to its business strategy. Measuring runway through the lens of pivots rather than of time suggests another way to extend that runway: get to each pivot faster!
The Pivot or Persevere Meeting
The decision to pivot requires a clear-eyed and objective mindset. We should consider a pivot when: there are signs for decreasing effectiveness of product experiments and the general feeling that product development should be more productive.
Eric Ries´ advice is to mitigate this challenge is to schedule regular pivot or preserve meetings in advance. His experience is that less than a few weeks between meetings is too often and more than a few months is too infrequent – we should find our own pace.
A catalog of pivots
Pivots come in different flavors. The word pivot sometimes is used incorrectly as a synonym for change. A pivot is a special kind of change designed to test a new fundamental hypothesis about the product, business model, and engine of growth.
- Zoom-in pivot:
In this case, what previously was considered a single feature in a product becomes the whole product. This is the type of pivot Votizen (The example Eric Ries gives in his book and which was mentioned earlier in this article) made when it pivoted away from a full social network and toward a simple voter contact product.
- Zoom-out pivot
In the reverse situation, sometimes a single feature is insufficient to support a whole product. In this type of pivot, what was considered the whole product becomes a single feature of a much larger product.
- Customer Segment pivot
In this pivot, the company realizes that the product it is building solves a real problem for real customers but that they are not the type of customers it originally planned to serve. In other words, the product hypothesis is partially confirmed, solving the right problem, but for a different customer than originally anticipated.
- Customer Need pivot
As a result of getting to know customers extremely well, it sometimes becomes clear that the problem we are trying to solve for them is not very important. However, because of this customer intimacy, we often discover other related problems that are important and can be solved by our team.
- Platform pivot
A platform pivot refers to a change from an application to a platform or vice versa. Most commonly, startups that aspire to create a new platform begin life by selling a single application, the so-called killer app, for their platform. Only later does the platform emerge as a vehicle for third parties to leverage as a way to create their own related products. However, this order is not always set in stone, and some companies have to execute this pivot multiple times.
- Engine of Growth pivot
In this type of pivot, a company changes its growth strategy (viral, sticky or paid) to seek faster or more profitable growth.
- Channel pivot
In traditional sales terminology, the mechanism by which a company delivers its products to customers is called the sales channel or distribution channel. A channel pivot is a recognition that the same basic solution could be delivered through a different channel with greater effectiveness.
- Technology pivot
Occasionally, a company discovers a way to achieve the some solution by using a completely different technology.
A pivot is a strategic hypothesis
Although the pivots identified above will be familiar to students of business strategy, the ability to pivot is no substitute for sound strategic thinking. The problem with providing famous examples of pivots is that most people are familiar only with the successful end strategies of famous companies. Most readers know that Southwest or Walmart is an example of a low-cost disruption in their markets, that Microsoft an example of platform monopoly, and that Starbucks has leveraged a powerful premium brand. What is generally less well known are the pivots that were required to discover those strategies. Companies have a strong incentive to align their PR stories around the heroic founder and make it seem that their success was the inevitable result of a good idea.
Thus, although startups often pivot into a strategy that seems similar to that of a successful company, it is important not to put too much stock in these analogies. It´s extremely difficult to know if the analogy has been drawn properly. Have we copied the essential features or just superficial ones? Will what has worked in the past work today? A pivot is better understood as a new strategic hypothesis that will require a new minimum viable product to test.
A pivot is not just an exhortation to change. Remember, it is a special kind of structured change designed to test a new fundamental hypothesis about the product, business model, and engine of growth. It is the heart of the Lean Startup method. It is what makes the companies that follow Lean Startup resilient in the face of mistakes: if we take a wrong turn, we have the tools we need to realize it and the agility to find another path.
Principles of a lean startup: