Business development 25 August 2016

The black art of entrepreneurial pivoting

Moltke the Elder
Field marshall Helmuth von Moltke the Elder successfully ran Germany’s army based on an infamous ability to react to changing circumstances

Continuing his journey through the various tough decisions and challenging business dilemmas entrepreneurs come up against on a daily basis, Small Business Charter chairman and ByBox CEO Stuart Miller explains three scenarios in which startup founders often need to react, or “pivot”, in response to change.

Moltke the Elder, the 19th century military strategist, famously quipped that no battle plan survives the first encounter with the enemy – so it is with entrepreneurship.

You can do all the research in the world but you won’t know how the market will react until you actually launch your business. Trying to predict people’s reactions is flawed in itself. And in any case, you have no idea what competitive plans are being hatched by other entrepreneurs just like you.

So you may well be faced with the need to re-think your master plan. To retrench, refine, re-build, or, as investors would say, to pivot.

Recognising the need to pivot was covered in my previous article. So once entrepreneurs have accepted the need to pivot, how do you actually do it?

Is your business really solving a problem?

All startups must solve problems. If you are not solving a problem, it is unlikely that anybody will pay you.

The first thing to clarify is that the problem actually exists. While that is a pre-requisite, it is not enough to guarantee business success. Assuming there is a problem to solve in the first place, there are three main pivoting scenarios to consider.

Scenario one: The problem exists, but nobody will pay

The heart breaking classic. You have identified a problem and developed your proposition. You have poured your guts into launching it only to find out that people just aren’t that bothered.

Often, you can recognise this before you launch your business, or at least very soon after – as long as you are really listening to the market rather than listening to yourself. The pre-qualifying question that you should have asked is “how are people solving this problem today?” If the answer is “in lots of ways” then it is unlikely that they will put much effort into switching to your solution.

The good news is that at least there is a problem to solve. If people won’t pay what you need to charge in order to make money, then you need to consider alternative revenue streams.

Part of the skill of this pivot is re-thinking the problem you’re attempting to solve for your customers. An obvious example is search engines – if search engines defined their problem as solving the need for rapid answers to questions, these firms would think of the average consumer as their customer – with a (flawed) business model based on charging for information. But define the problem as providing retailers with filtered access to relevant customers, and the business model starts to look more promising.

Scenario two: The problem exists, but it is too big for a startup

No need to panic with this one. Entrepreneurs are necessarily ambitious and aren’t typically fearful of attacking big problems.

Big problems offer big prizes, which in turn attract big players with deep pockets. Entrepneurs must avoid the temptation to puff out their chest and lead troops over the top once more. A logical approach would be to stop attacking muscle-bound incumbent businesses in the market and instead think of them as your customers. Pick a piece of the problem and solve that component brilliantly – and in doing so, help transition the market to a better place.

If you decide to pivot in this way, don’t hang around. This scenario is characterised by lots of active business of all sizes, including other startups just like yours.

You may need to accept a true strategic partnership with a large corporation to secure your business in the short-term. This will inevitably demand compromises, such as offering exclusivity for a period, but it’s far better to be exclusive and in business rather than stubborn and insolvent.

Scenario three: The problem will exist, just not yet

This is the trickiest one of the lot. You will have done some early trials, which went well. But they dragged on, and your main contact left for a new job, so things are on pause for a while.

Trade journals, tabloids and radio phone-ins provide maddeningly frequent evidence of the problem that you know exists andthat you want to solve. But the breakthrough remains elusive and the only thing that remains certain is the daily decline in your cash balance. You have come too far to stop, yet there is too far to go to go it alone.

There is no text-book response to this situation – it depends very much on your investor profile. If you haven’t yet done a friends-and-family funding round then that would be well worth considering.

If you’ve already drained those reserves then maybe it is time for an angel investor to come on board – as much for the experience as the cash, but you need to be realistic about the timeline. If you cannot find any hard evidence of the breakthrough being imminent, then you need to park your ego and think of this instead as either scenario one or two.

Moltke the Elder was right – no plan can survive first contact with the enemy. Great war generals react and re-plan. Similarly, great entrepreneurs create sustainable businesses – they are not have-a-go-heroes.

Catch up with Stuart Millar’s previous article – The core conundrum of entrepreneurship

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