The "business pivot" is all the rage in technology startup circles. The phrase coined by The Lean Startup author Eric Ries refers to the process a company goes through when it fails to achieve its vision and, in order to redeem itself, tries an often radically different approach.
There are many famous examples of pivots in the technology world:
- Twitter began as Odeo, a podcast subscription service which failed after the launch of iTunes.
- Groupon began as The Point, an online service to help people organize protests.
- Flickr began as an online multi-player game.
As Ries’ research indicates, most successful startups that achieve spectacular growth went through several pivots, experimenting with new ideas until they hit an approach that worked.
Business pivots aren’t limited to just startups or social media companies. Any business that's in trouble can undertake a successful pivot. Even small businesses that haven’t had meaningful change in years, or decades, can muster the resolve to pivot toward great opportunity and success. If you're considering a pivot, take a closer look at the example below to see how it actually works.
A Case Study
CAB launched in 2009 with a vision to revolutionize access to financing for small businesses. The company had a seasoned managed team and a visionary founder. It also had identified a clear opportunity, due to changes in government regulation, that would allow the company to tap into large funding sources for the benefit of small-business owners. As a small business itself, the company needed to prove its model quickly to build traction and convince regulators that it had the ability to accomplish its goals.
As the company executed on its original business plan, it ran into several roadblocks. First, obtaining regulatory approval to proceed with its funding model required that it first secure millions of dollars in capital, while the investors wanted to ensure approval was in place before funding. This created a chicken and an egg problem.
Second, the company’s main strategy of offering low-risk small business funding opportunities to investors required that it also find funders for riskier small-business loans. Its business model ensured leveraged loan guarantees by the Small Business Administration for 80 percent of the loan amount, but 20 percent remained unsecured and risky. The financial crisis made investor appetite for the riskier loans almost nonexistent at the time. The outcome looked bleak. The company’s original strategy for sourcing small-business financing failed to generate sufficient demand.
When It's Time To Pivot
The founding partners had risked hundreds of thousands of dollars, and after almost two years from the company's launch, they were nowhere near achieving their initial goals. There were heated discussions as to what could be done. Some partners dropped out. The founder still believed in his vision to revolutionize small-business financing, but eventually realized that his approach would not work as the roadblocks were just too severe. It was time to pivot.
It’s important to keep in mind that the founder did not back away from his original vision; instead he chose to approach it form a different angle. Throughout the three years from idea to the pivot point, the founder and founding partners had spoken with numerous banks, community lending organizations, equipment finance companies and other funders. Discussions with smaller banks from disparate parts of the country had very similar themes—they all faced serious challenges in meeting the funding needs of small businesses. Realizing that trend among this particular stakeholder group, the pivot opportunity became clear: providing a service to these organizations.
The pivot leveraged the founders’ expertise and technology for the benefit of financial institutions rather than trying to replicate and recreate a marketplace. The results have been rather impressive, with dozens of institutions signing up for the pilot test, a clear sign that the pivot is moving them in the proper direction.
Of course, anything could happen. The jury is still out on whether this pivot will work. While there's no guarantee of success if you pivot, there is guaranteed failure if you don’t change.
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