The Power of the PivotTom Green, Co-Founder @ Verticode

January 10, 2023, 6 min read

When is a Pivot required?

As part of the Build Measure Learn feedback cycle, all founders should be constantly seeking inputs from their users about their experience with the product – whether that be at MVP, V1 or Full Product stage. While collecting this feedback, founders will often find a trend of customers who are somewhat dissatisfied with the offering presented to them. In one case, the customers will feel that the product or service doesn’t effectively solve the problem which it set out to address – but the problem does still exist. In this instance, the founders will need to pivot the offering and listen to why customers don’t feel they’re gaining value from the current product. Alternatively, customers might be using the product for purposes which were initially unintended by the founders. In this instance, it’s vital to stay diligent to the Build Measure Learn process and recognise customer behaviour as a form of feedback. In this case, a founder should not fight customer behaviour but, instead, pivot their focus towards this new use case and relevant customers.

Another reason that founders might require a pivot is because of an unsustainable business model. This unsustainability could be down to a number of factors but, more often than not, it will be a matter of scalability. During MVP, V1 or even Full Product phases of development founders might realise that their business model is inefficient or clunky and requires an unreasonable amount of resource input to be able to create a nominal amount of revenue. In this case, businesses will require a pivot just to make sure that their business can be profitable in the long run – regardless of whether customers are reacting positively to the offering or not.

Different Types of Pivots

Customer Needs Pivot

In this type of pivot you keep the same target customer but focus on a different problem. This pivot often comes about when you either realise that the current problem you are focusing on isn’t severe enough for your target customers or if you are interviewing customers and you keep hearing about another problem that they are share that is severe. An example of a Customer Needs pivot is an antique shop in Chicago that used to make sandwiches to encourage store traffic. Soon lines wrapped around the corner to eat the sandwiches and eventually the antique store became a sandwiches shop called Potbelly. Now there are over 400 Potbelly Sandwich Shops across the US.

Customer Segment Pivot

This is where you keep the same product but focus on a different customer-base. It makes sense to make this pivot when you realise that the customer-base you are targeting doesn’t have the problem you are solving or doesn’t feel your solution addresses their needs. Car manufacturer Hyundai did this in the US market, moving from targeting budget-conscious buyers to move of an upper-middle class quasi- luxury customer segment.

Engine of Growth Pivot

This occurs when a company goes from viral growth strategies to paid growth. This generally occurs once a company reaches saturation with their target market and needs to expand to secondary and tertiary customer segments. Facebook needed to go through this pivot as they reached saturation with their target audience in the US and needed to expand globally and to older demographics.

Channel Pivot

A channel pivot is when you change how your product is distributed. You might come to this point when you realise that you aren’t able to get traction within your current channels. An example of this would be if a food manufacturer stops creating its own branded product and instead starts white-labeling for other brands. An example of a brand that buys white- labeled products from manufacturers, putting their own brand and packaging on the product is Kirkland Signature, Costco’s in-house brand. Costco could contract with the food manufacturer to offer their same product under the Kirkland Signature Brand.

Value Capture Pivot

A value capture pivot is when you change your monetisation model. It may be effective to do this when you realise either that your current revenue model isn’t profitable, won’t scale or doesn’t have large enough of a market size. Music app, Pandora had to go through a number of Value Capture Pivots as it changed from a licensing cost model to offering a user paid subscription to offering an ad supported model to now offering a hybrid. It went from being a music recommendation platform to an internet radio hub Zoom-In Pivot

Zoom-In Pivot

With a Zoom-In pivot a single feature from the current product becomes the entire new product. In other words, it’s when you get rid of all the other features save one, often because that is the only feature the customers really like or that really meets their needs. An online gaming company had an in-game feature that allowed users to share photos. Ultimately the game didn’t grab as much traction and they decided to focus on the photo sharing feature. That gaming company’s product became what we know as Flickr, which was acquired by Yahoo! For more than $20M.

Zoom-Out Pivot

The opposite can also be a path to take through a pivot. In a Zoom-Out pivot, your whole product becomes a small part of a broader solution. This pivot makes the most sense when you realize that your current solution doesn’t fully address the customer’s problem, or if the problem you are targeting is part of a larger problem that cannot be adequately addressed with your more narrow solution. Yelp went through a Zoom-out pivot as they went from being an email-based solution that allowed you to contact others to get recommendations on local businesses, to the go-to place for local business reviews.

Technology Pivot

A technology pivot is when you maintain the same value proposition but use a different technology to deliver it. Prezi, the presentation software experienced this pivot when they want from offering an Adobe Flash based solution, Prezi Classic, to a new product, Prezi Next, because the Flash technology platform is being retired. Another example is Nintendo, which went from being a playing cards making to offering games and entertainment via video games.

Platform Pivot

There are scenarios when you realize that your application may be only a small part of a greater opportunity to create a platform that delivers many applications. The opposite can be true where you may be building a platform and realize that a single app addresses a majority of the customer’s needs. An example of this is the video display advertising company Enplug who originally offered an end-to-end video display solution for businesses only to pivot to become a software platform that 3rd party developers could build their own apps on to be delivered through the Enplug system.

Business Architecture Pivot

The final pivot-type we will discuss is a Business Architecture pivot where you change from being low margin/high volume to high margin/low volume or visa versa. You may come to this conclusion when you realize that you could capture more profit by offering higher priced products to a smaller segment of customers or if you realize that offering a lower priced solution could appeal to a mass audience. Gap Inc. did this with their Banana Republic brand, changing it from a high-end more expensive brand to being more mass market.