Netflix was a DVD-by-mail service before it became a subscription streaming service. Instagram was a location-based check-in app before it became a photo-sharing app. And Play-Doh was a wall-cleaning product before it became a children’s toy.
What do these brands have in common? They moved in a new direction – or pivoted – changing their business strategy to accommodate internal or external factors impacting their bottom line.
The good news is, pivot strategies work for big and small businesses alike. Here’s what you need to know about what a pivot is, why it’s important, and how you can pivot your business to help increase cash flow.
What is a pivot and why is it important?
The term pivot is relatively fluid, but it almost always involves a change in a company’s business strategy prompted by factors outside its control.
The pivots above involved:
- Capitalizing on emerging technology to adapt to a changing market (Netflix’s technology pivot)
- Simplifying a product offering and honing in on its most popular feature (Instagram’s zoom-in pivot)
- Re-envisioning a product to cater to a new target customer (Play-Doh’s customer segment pivot)
Pivoting can be effective for small businesses, too. According to a Wilbur Labs survey of 156 startup founders in December 2020, the most common pivot strategies used by startup founders are:
- Improving/changing their business plan (59.3%)
- Improving their existing product (40.7%)
- Launching a new product (39.5%)
- Rebranding (22.1%)
- Changing team (16.3%)
- Securing additional funds/investors (12.8%)
- Other (5.8%)
Not pivoting or having an unsuccessful pivot, however, can be the cause of a failing business.
How can you pivot your business to help increase cash flow?
Pivot Strategy: Case Studies
Chris Erhardt (Bring My Song To Life)
The pivot resulted in a 20% increase in cash flow compared to the last month we operated under the original business model.
—Chris Erhardt, co-founder and COO, Bring My Song To Life
Chris Erhardt is the co-founder and COO of Bring My Song To Life, which provides custom-made songs for special occasions.
“The cost-of-living crisis hasn’t changed our business offering,” says Erhardt, who is also the co-founder and CEO of Tunedly, an online recording studio.
“But we pivoted how we deliver our service. Originally, the business was a marketplace connecting clients with musicians to create songs. We recently pivoted away from this approach and now work with our in-house staff to deliver the majority of each song.”
Erhardt says pivoting benefited his business in four ways.
“Firstly, our business is more predictable. We know what our payroll is instead of working with multiple freelance musicians at different, constantly changing pay rates.
“Secondly, our reliability and turnaround time are vastly improved and a cut above our competitors.
“Thirdly, our revenue has consistently increased over the past three months. The pivot resulted in a 20% increase in cash flow compared to the last month we operated under the original business model.
“And, lastly, clients are less likely to cancel their orders and more likely to recommend us.”
Marcel Benson (Benson Watch Company)
Marcel Benson is the founder and CEO of the Benson Watch Company, a luxury watch brand.
“In 2021, online sales declined, then inflation reduced disposable income, which adversely affected the cost of making a sale,” he says.
“With rising costs in marketing and production, the best solution was to bring some of our outsourced services, such as ad services and social media marketing, in-house.”
Benson also pivoted his product line. “We added customization to our watches because we knew this would grow our customer lifetime value and average order value,” he says.
“Pivoting the business meant lower customer acquisition costs, better returns on advertising spend, increased revenue year-over-year (due to higher average order values) and a 20% increase in monthly cash flow.”
Pivot Strategy: The Founders’ Advice
Both Erhardt’s and Benson’s pivots saw a 20% increase in their cash flow. Here’s their advice on pivoting effectively.
1. Focus on the most popular feature or functionality.
The key to pivoting is focusing on one aspect of your business.
Assess your company’s products, services, and business model and focus on the most popular feature or functionality and make it the centerpiece of your business offering.
Erhardt adopted this approach to pivoting his bespoke song-making business. “We still provide clients with a list of vocalists, but the songwriting, composing, most instrumental recordings, and post-production are now done in-house,” he says.
“Our clients don’t care who plays the instruments in their songs or who mixes the production. What they care about is being able to request a certain vocal type and receiving a high-quality product in a timely manner.”
In addition to pivoting by substituting outsourced services with in-house employees, Benson pivoted by tapping into the increasing demand for personalized watches. “We added optional personalization to our timepieces,” he says. “This enhanced their value to our customers while allowing us to increase revenue per purchase.”
2. Inform and involve key personnel.
Pivoting often involves communication and collaboration with your company’s core personnel.
Be transparent with your employees about the state of the company and make a business case for a pivot. For example, invite them to share any insights on your business offering’s most popular feature or functionality.
Erhardt and Benson pivoted their businesses by enlisting the help of their in-house employees in the pivoting process – from concept to completion.
3. Balance short-term survival and long-term growth.
A pivot isn’t a silver bullet.
If you’re considering pivoting your business, ensure that the new business model is viable for short-term survival and long-term growth. It should also map out a sustainable route, which can increase the brand value in your customers’ eyes.
According to Erhardt, his customers are now more likely to recommend his business, which is a clear indication of enhanced brand value.
4. Time the pivot to perfection.
When it comes to pivoting, timing is everything.
Whilst Erhardt wouldn’t necessarily do anything differently if he were to pivot his business again, he admits that he didn’t read the writing on the wall. “I wish we had pivoted sooner because the warning signs were apparent in late 2021,” he says.
5. Trust the process.
The Wilbur Labs survey found that only 44% of founders were confident that pivoting their business would be successful.
Erhardt had reservations too, but says that wrongly-held beliefs about business failure also make some business owners reluctant to pivot.
“Lots of entrepreneurs feel that pivoting their business is failure, so they shy away from it,” he says. “But this couldn’t be further from the truth. In the early years of business, pivoting is often necessary for survival.” Erhardt’s view is supported by the survey, which found that 55% of founders pivoted to avoid startup failure.
Despite their reservations, Erhardt’s and Benson’s pivots were successful – much like 75% of founders in the survey.
A well-timed, strategic pivot can help your business adapt to changing circumstances and help increase your cash flow in an uncertain economy. The trick is to identify which parts of your business should remain stable and which part should become agile.
Photo: Getty Images
