September 23, 2019 Business Growth en_US Learn about business pivots, and how to pivot and build a successful business. Read about threats and opportunities that may result in business pivots. https://quickbooks.intuit.com/cas/dam/IMAGE/A9Wc2ZEM6/265347f1ecc9a6ab4f7c77d31587b989.jpg https://quickbooks.intuit.com/r/business-growth/pivot-your-small-business-pro-advice-on-how-to-refocus-for-profit-and-growth Pivot your small business: Pro advice on how to refocus for profit and growth
Business Growth

Pivot your small business: Pro advice on how to refocus for profit and growth

By Ken Boyd September 23, 2019

Something isn’t working.

You did all the right things when you started your small business. You found a customer problem that needed to be solved, and you wrote a detailed business plan for your new product.

When you launched your product, you found a small customer base in your target market, and the business seemed to be moving in the right direction.

But now, company growth has stalled.

Your business strategy helped you deliver a product to meet customer needs, but sales are flat. The team believes in the product, but they’re becoming frustrated about the lack of results.

You’re starting to question your business model, and if you need to make a course correction. The situation is stressful for you and your team, and something has to change.

It may be time for a company pivot.

Understanding a business pivot

You’ve learned a great deal by starting a business.

Pivoting is the ability to take what you’ve learned and use your resources to solve a different problem for customers.

Think about your interactions with customers.

Your team has received hundreds (or thousands) of emails, messages and phone calls from customers. You’ve used that feedback to make improvements:

  • E-Commerce: The team made changes to streamline the online checkout process.
  • Marketing: New customers like your product, but some feel that learning how to use your product takes too much time. You simplified your written instructions and updated your website to clearly explain the product.
  • A different problem: When you ask clients for feedback, many of them complain about a slightly different problem that your product doesn’t solve. They think your product is ok, but what they really want is something different.

Ok, great. You’ve made it easier for customers to make a purchase and use your product.

But, pay attention.

If customers are telling you about a problem that is more important to them, it’s time to move in a new direction.

Business pivots are an important component in the lean startup process.

The lean startup

Eric Reis is the author of “The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses,” and he is one of the first people to discuss business pivots.

As the Harvard Business Review explains, the process “favors experimentation over elaborate planning, customer feedback over intuition and iterative design over traditional ‘big design upfront’ development.”

In the past, a group of co-founders would create a new business by writing a static business plan. “The assumption is that it’s possible to figure out most of the unknowns of a business in advance, before you raise money and actually execute the idea.”

A lean startup is different.

Small business owners start by creating a minimum viable product, and assess how the target market responds to the product offering. Business owners then use the knowledge they gain to make changes. When your product idea solves an urgent client need, you’ve made a successful pivot.

There are a number of reasons why a business may decide to pivot.

Reasons to pivot

SWOT analysis is a popular tool to assess the status of a business.

The term stands for strengths, weaknesses, opportunities and threats, and managers often present these ideas in a grid format. It’s a great tool to visualize your firm’s current position, and to think about improvements.

Here are two components of SWOT, and why each may motivate you to pivot.

Competition

If you can’t differentiate your product from the competition, you may need to pivot.

When you market your product, the goal is to generate attention and interest. If you’re increasing the marketing budget and not converting more prospects into clients, that’s a red flag.

Create a product for a market that has fewer competitors.

Opportunity

Customer feedback may reveal an opportunity for a pivot.

If you sell 15 products and two of them drive most of your sales, find out why. Your customers are telling you that only two products are solving a problem for them. Identify the problem and find more ways to solve it.

Food companies have used this strategy for years by adding to existing product lines. If customers like a particular brand of chips, for example, companies add more chip varieties.

The strategy also works with consumer goods. If you like Crest toothpaste, Proctor and Gamble sells multiple versions of the product.

What’s the most popular feature of your product? The answer may be your justification for a pivot.

Breakdown of a business pivot

Meet Jill, she owns Hillside bikes, a manufacturer that produces road bikes and bike accessories in the US.

Hillside grew into a successful business by serving the needs of serious bike riders, primarily in the Rocky Mountain region. The company was able to differentiate itself by producing a high-quality bike using better component parts than the competition.

Today, things are different.

Jill’s competitors have improved the quality of their bikes. In addition, larger producers use their buying power to negotiate much lower prices for component parts.

The competitor has caught up. Jill is losing market share to larger firms that sell higher-quality bikes at, or below, Hillside’s prices.

But, Jill sees an opportunity.

An opening for growth

Hillside gets great customer feedback on the firm’s bike pumps and tires. They are durable products that are better than competing models. In fact, some customers use Hillside’s bike pump and tires on bikes purchased from competitor firms.

Changing a flat is frustrating. The rider must remove the tire and patch the bike tube or replace it, then inflate the tube. In many cases, the flat must be changed on the side of a road in bad weather.

Riders want durable products that make the process easier, and word has gotten around that Hillside’s products work well on any road bike.

Jill is considering a pivot away from bikes, and toward a business that focuses on bike pumps, tires and tubes.

She needs to do her homework.

Creating a new business plan

Jill starts by performing an extensive survey of the client base to validate her idea. She also posts a link to the survey on social media.

Sure enough, 10% of survey respondents have used Hillside bike pumps, tires and other bikes. When asked about purchasing tire tubes through Hillside, a majority of those surveyed would buy the product.

Next, Jill needs to determine the size of the market. Will the pivot become a $5 million-dollar business, or $50 million? Business pivots can work, if the market for the product or service is large enough.

Here are Jill’s findings:

  • Nearly 40 million people in the US use road bikes. Of that total, 3 million are serious bike riders who ride weekly and change their own flat tires on the road.
  • Jill determines that the 3 million serious riders change two flats per month, and must replace a bike tire every 6 months. These customers also purchase a bike pump every three years.
  • Hillside prices bike tires at $25, and each bike tube at $7. Based on these price assumptions, and the need for tires and tubes, the average rider spends $200 a year. The bike pump is priced at $20.

The total size of the market is ($200 X 3 million riders), or $600 million. That total excludes the $20 bike pump purchase every three years, which adds to the total.

If Hillside can capture 5% of the market, the company can generate at least $30 million in annual revenue.

Jill meets with her CFO and determines that she can generate a 10% profit margin, based on the costs of production. Hillside will continue to produce a small number of bikes at a premium price. Jill feels that this is necessary to maintain a relationship with her best customers.

There’s also an emotional component to the pivot decision.

Getting on the same page

You must be passionate about the new direction of your business.

Rather than focusing on what didn’t work, you need to be energized about your new path. Your personal outlook is critical, so that you can communicate a positive message to your team.

Your team members can sense where the company is headed.

Team members know when sales are stalled, and that your business isn’t growing. Your staff doesn’t need to see the financials to know that the firm is struggling. Fewer incoming customer calls, reduced shipments and frustrated salespeople provide plenty of evidence.

It’s up to you to communicate your vision for moving forward. If you’re not passionate and committed, the staff will sense it. Key employees may panic and leave—right when you need them the most.

Pivoting requires a big effort on your part, and the process can feel overwhelming. If you’re uncertain about a pivot, consider how these well-known companies benefited from making the change.

Successful pivots

Many successful companies have pivoted more than once.

PayPal

Fast Company explains that: “PayPal pivoted not once, not twice, but at least five times before finding the innovative business model that led to its success.”

The first idea was Fieldlink, a business that provides cryptography for handheld devices. The company changed its name to Confinity, and created new technology to transmit IOUs from one Palm Pilot to another.

Finally, the firm pivoted to the payment system service that PayPal offers today. PayPal’s team included Peter Thiel, Elon Musk and Reid Hoffman, who also founded LinkedIn. These highly successful business people saw the wisdom in making a business pivot.

Twitter

If someone asked you about Odeo, you’d probably have to Google it.

Odeo was a network that allowed users to find and subscribe to podcasts. The founders decided to pivot when iTunes started to grab market share. Jack Dorsey and Biz Stone pivoted and started Twitter.

You need to decide if a business pivot will work for you.

What to do next

Simply put, you have three choices:

  • Continue: Make changes to your existing business
  • Close
  • Pivot

Analysis

Do market research on your customer base, competitors and target market. Talk with your staff and get their feedback. Your staff works with customers every day, and they may have valuable insights into what your clients want and need.

If you can find an idea for a business pivot, you’ll need to develop a comprehensive business plan.

Business plan

Determine the size of the market for your idea, and estimate what percentage of the total market you can capture. Compute the cost to create and deliver your product, and decide on a sale price.

You need a compelling reason to make a business pivot.

Gather support

The reason must be powerful enough to motivate you. Pivoting is difficult because you have to operate your existing business while planning for a pivot.

If you see the potential and you’re passionate about the new idea, you have a better chance of succeeding.

Finally, explain your new direction to your staff, and take the time to explain your rationale for the change. If staff members helped you to analyze the problem, the pivot won’t come as a surprise.

You’re doing the right thing

Business pivots are now an accepted practice.

Don’t be embarrassed if your first (or second) business idea doesn’t pan out. Many successful businesses were created using a pivot, so move forward with confidence.

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Ken Boyd is the Co-Founder of Accountinged.com, and owns St. Louis Test Preparation (accountingaccidentally.com). He provides blogs, videos and speaking services on accounting and finance. Ken is the author of four Dummies books, including Cost Accounting for Dummies. Read more