Why a Pivot in business strategy doesn’t mean throwing the baby out with the bathwater

In a previous post, I gave a brief overview to Eric Ries’ book, The Lean Startup. In a nutshell, Ries advocates applying the scientific method to the practice of building a startup into a sustainable business. The concept of the pivot is one of the most difficult, yet most profound concepts for business leaders to grasp.

Here is how Ries describes the crucial decision to pivot or persevere in the Lean Startup cycle:

My goal in advocating a scientific approach to the creation of startups is to channel human creativity into its most productive form, and there is no bigger destroyer of creative potential than the misguided decision to persevere. Companies that cannot bring themselves to pivot to a new direction on the basis of feedback from the marketplace can get stuck in the land of the living dead, neither growing enough nor dying, consuming resources and commitment from employees and other stakeholders but not moving ahead.

Startup productivity is not about cranking out more widgets or features. It is about aligning our efforts with a business and product that are working to create value and drive growth. In other words, successful pivots put us on a path toward growing a sustainable business.

Why is it so hard to say goodbye?

Starting up a new business is perhaps one of the riskiest actions that anyone can undertake. On the other hand, there isn’t much worth doing that doesn’t involve risk. When there is something that we humans consider “worth doing,” where the possibility of a positive outcome outweighs the risks, we arrive at passion. It takes a strong, and often deeply personal, conviction/drive to face Fear, Uncertainty and Doubt (FUD) without flinching.

For the stakeholders of a startup, the personal commitment required is not so different from what parents experience. We accept the responsibility of nurturing and caring for this fragile entity that would never have existed otherwise. And so it is for every startup business leader I have ever met. The business, and everything that entails, is their baby. And no matter how ugly that baby might be to others, we love it for what it is.

But alas, a business is not an infant child…

A for-profit business exchanges goods or services for money with the goal of having more money coming in (revenue) than is going out (expenses). The catch is that the marketplace determines value – something is only worth what someone is willing to pay for it. Predicting the behavior of the marketplace is very difficult, because so many uncontrollable variables exist.

For the founder(s) of a startup, presenting a product or service to the marketplace requires a true leap of faith. If the offering is not well-received, founders tend to have an “all or nothing” atitude. Unfortunately this is not only a false assumption, but it is also dangerous. The choice that businesses face is not to persevere at all costs or to “throw the baby out with the bathwater.”

The choice is to Persevere or Pivot

Since the Lean Startup methodology is based upon the scientific method, Ries advocates basing business decisions, especially whether to persevere or pivot, on evidence. Are there any successful examples of business pivots? Here are just a few:

  • Nintendo once sold playing cards before trying their hand at a variety of industries. In 1975, Nintendo took a chance on electronic games.
  • YouTube started out as a dating site. After not gaining much traction, the founders decided to pivot towards hosting videos.
  • Starbucks actually used to sell high-quality coffee beans and espresso machines. Not everyone wanted to learn the art of preparing fine coffee, and by offering products more conveniently to their clients, the Starbucks pivot proved quite successful. (Even though their coffee is reviled by true connoisseurs…)
  • Speaking of coffee, Edward Lloyd ran a coffeehouse that catered to sailors, merchants and others in the shipping trade. His pivot towards offering insurance transformed Lloyds of London somewhat dramatically.

Edward Lloyd didn’t throw the baby out with the bathwater. He enjoyed serving his clientele and was a primary source of news and information for patrons of his establishment. While I’m sure that they enjoyed his coffee, he offered an even greater value by providing insurance for their business operations.

Life is one big Pivot after another

What many businesses fail to realize is that deciding to start up a new business is a pivot in and of itself. In life, change is one of the few constants. A startup’s first customer is making a pivot. So startups (and all businesses, in my opinion) need to embrace change. If your customers are willing to take a chance on you, don’t you owe it to your customers to take a chance on them?

According to Ries, the goal of a startup isn’t to create the best service/product, to win the most customers, or even to generate the most revenue. The goal is to create a sustainable business. The task at hand for the leaders of a startup, therefore, is to constantly evaluate whether the business model should persevere or pivot.

Don’t throw the baby out with the bathwater. But don’t let the baby drown either.

Image courtesy David Locke1