Pivot or Persevere

The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses by Eric Ries

The Lean Startup method advocates a scientific approach to entrepreneurial management by identifying hypotheses related to one’s product, business model, or engine of growth. Making decisions based on metrics from these experiments is what propels the Lean Startup forward. As the startup learns, key strategic decisions are made based o on the evidence gathered from validating assumptions about value and growth. The term “pivot” has gained a ton of popularity lately and refers to these key forks in the road. In The Lean Startup Eric Ries devotes a chapter to explaining the varieties of pivots available to startups and the process for making a successful change.

Ries goes into a lot of depth and describes a pivot as a “strategic hypothesis”, not just a change for change’s sake or a change in the face of failure. He defines a startup as an organization whose purpose it is to learn to how to build a successful business and therefore a strategic change based on validated learning is a cornerstone of the Lean Startup method.

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 was once a feature within a larger product or system now becomes the entire product.
• Zoom-out Pivot: This is the opposite of the zoom-in pivot, where the entire legacy product now becomes a single feature of a new, larger product.
• Customer Segment Pivot: This pivot involves changing the customer segment based on validated learning about an existing customer segment.
• Customer Need Pivot: Here, the startup team develops a high level of customer intimacy and discovers a that the initial problem wasn’t a problem after all but there is an adjacent one that proves fruitful.
• Platform Pivot: In the platform pivot, the business begins by creating a product on top of a platform (or just a product) and then realizes that a platform strategy offers a better chance of success.
• Business Architecture Pivot: This is a switch between the volume operation business architecture to the complex system business architecture, or vice versa. These two business architectures are described by Geoffrey Moore in his book Dealing with Darwin.
• Value Capture Pivot: Ries points out that value capture is typically equated to monetization or revenue models, but value capture is in reality a deep-rooted attribute of the way a product is designed and how a business runs.
• Engine of Growth Pivot: Ries identifies three types of engines of growth in the book: the viral, sticky, and paid growth models.
• Channel Pivot: Changing distribution channels can dramatically alter the way value is delivered and experienced by the customer. A common example is switching from a third party distributor to a direct sales channel.
• Technology Pivot: Here, the product, operating model, distribution channel, and business model remain the same while the underlying technology changes.

The decision to pivot is so difficult that many companies fail to make it.

Ries lists the many reasons that pivots are difficult, not the least of which is the disruptive innovation blindspot that Clayton Christensen elaborates in his book The Innovator’s Dilemma. He also identifies three causes for delays in the pivot decision: 1) the use of vanity metrics rather than hypotheses which support learning; 2) when the founder(s) have an unclear hypothesis and are unable to generate the learning required to know when to change; and 3) fear that the startup will fail without a chance to prove itself.

Further Reading: Eric’s blog is Startup Lessons Learned.

In this video from a June 2010 Lean Startup Circle Boston presentation, Matthew Mamet and Matt Wiseley, founders of EditMe.com describe how they executed a market focus pivot in their startup business.

Your idea is probably wrong.

This entertaining presentation features Aaron Batalion of LivingSocal who gives several examples of famous pivots: Flickr–from social multi-player games to photo sharing; Paypal–from “beaming money between Palm organizers” to an internet financial behemoth; and Nintendo–from physical playing cards to market leading electronic game consoles. He also describes the various evolutionary stages his business took through the years as they searched for a scalable business model.