Pivoting Without Blinders: Advice for Startups

HorseBy their very nature, startups are full of unknowns. These unknowns are not the blinders in your startup.  Failing to acknowledge these unknowns and give them a value are the blinders.  It is this that hampers success and slows down your horse.

Entrepreneurs have an obligation to their stakeholders to ensure that assumptions they are making about these unknowns could possibly lead to financial success.

For example, a classic unknown for most startups is the price that customers would be willing to pay for your product.  Your startup needs to document some believable price and then demonstrate that if sufficient customers purchase the product at that price, then your company would be viable.

After you’ve launched your company, many of the assumptions you used will be proven false. You have three choices.  Here are those choices with their advantages and drawbacks:

Stick to your original plan   If the assumption proven incorrect was relatively minor, this is a valid alternative. Otherwise, it is somewhat foolish.

If customers aren’t buying at the assumed price, change the price or change the sales method or change the product.  Do something!  Don’t just decide that persistence is always a virtue.

The advantage of sticking to your original plan is that it is what your original investors expected you to do. The drawback is they would much rather have you pivot than lose their money.

Pivot   In my startup #3, we had always envisioned ourselves to be a product company (and gave many of our services free to our paying customers).

After two years without success, we pivoted to become a services company (and gave our products free to our paying customers). That move made us profitable.

The advantage of pivoting is you explore all viable options for your company. The drawback is that, without discipline, you could explore options forever. One secret is to spend as few resources as possible between iterations.

Learn quickly.  Pivot intelligently.  Determine that each pivot has at least the possibility of a sound financial outcome.

Abandon your startup   This is the most extreme case of a pivot. It comes in two flavors: personal and company.  I did a personal abandonment in one of my startups because I had assumed my business partner was ethical; he wasn’t, and I was out of there!

Company closure is the right move when you have seriously considered every possible direction and each one is either impossible to execute or leads to an outcome without financial success.

The advantage of abandoning your startup is it makes no sense to throw good money (or time) after bad. The drawback however is with a bit of tweaking you might have a perfectly viable company.

Wise entrepreneurs pivot. They modify disproven assumptions, once again assess whether the plan could possibly lead to financial success for all stakeholders, and if not, adjust other assumptions until they are once again headed in a direction toward a lucrative financial state.

As you assess your startup, consider how to pivot your business intelligently:

  • Spend as few resources as possible between pivots
  • Compare alternative directions for your next pivot and select the most viable
  • Do a financial analysis to ensure the new direction could result in financial success

Also consider the benefits:

  • Lowers the risk to you
  • Lowers the risk to investors
  • Raises the likelihood that your company will be successful

Assessing the terrain and making adjustments is the essence of pivoting and of responsible entrepreneurship.

???????????????????????????????Al Davis is a serial entrepreneur currently in his fifth startup. He is also an angel investor and author of six books.

‘Running beauty’ photo courtesy of Tambako the Jaguar (Creative Commons)