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The Business Pivot – The New Standard Operating Procedure

Pivot bannerThe “business pivot” is not a new dance craze doomed to live forever at  wedding receptions. Pivoting refers to a quick (and often unexpected) shift in a planned business model when the current model doesn’t successfully gain traction among shareholders or consumers. The term is derived from a basketball move where players keep one foot planted while changing direction with the other foot.

The concept of pivoting is not new for successful businesses; however, in the early 2000s technology blogger Eric Ries coined the phrase and documented processes for pivoting based on the shifts that many Silicon Valley start-ups had to take to survive, formalizing it as a business strategy. Today, the term and practice are no longer isolated to start-ups and technology firms. In fact, the concept is now being applied to everything from management styles to software development practices, and from sales strategies to marketing campaigns.

Learning to Pivot

A classic example of the pivot is Chegg.com, an online student portal that offers an array of required and non-required scholastic materials including millions of textbooks in any format, access to online homework help and textbook solutions, course organization and scheduling, as well as college and university matching tools and scholarship connections.

Chegg.com is a scholastic giant that almost wasn’t.

Based on its initial business plan, Chegg launched in 2003 as a free classified listings web portal for college students.  After a less-than-spectacular start,  the owners investigated customer use patterns on the site and discovered that the site’s traffic was heavy only at the beginning of each semester and then died off. Further, those engaged in the site at those times were mostly buying and selling textbooks. Realizing that the market was using their site as a text book exchange, they purchased 2,000 text books from various sellers on Amazon and offered them “for rent” through their site, essentially becoming the lender instead of simply facilitating the exchange.  This wasn’t their business model but based on the new realities discovered in actual business practice, they pivoted.  Today, among its other new services, Chegg rents more than one million books a year and employs over 150 people.

The Importance of Being Agile  

One example of pivoting that has extended into business operations is the growing popularity of agile software development.    Agile development refers to software development plan that creates and launches multiple phases of a software solution so that project leads and business analysts can assess the direction at each stage. A project that typically takes a year to plan, develop, test, and launch might be segmented into three or four phases, which are treated as individual projects during that same time period.  Depending on stakeholder and consumer feedback at each stage the software can, if necessary, pivot midstream. Doing so saves the lost time and budgets associated with restarting a project when it’s developed to completion and then tested.

Be it business plans or software development, flexibility is key. Every entrepreneur starts with a clear roadmap in their mind, a vision of what will be.  The problem is visions are just that – visions, not accurate predictions of how the market will react to that vision or what external factors will come into play to derail it. Successful start-ups are agile and become successful through a series of pivots that continue to involve the customer’s real-time engagement. But there’s a catch, today, predicting consumer behavior isn’t as easy as it used to be.

The Undefined Factor in the Modern Business Equation

Business plans are often formal, written documents that outline how an entrepreneur intends the business to operate based on market research such as consumer demand vs. supply, current competition, etc.  Marketing and operational practices are structured to comply with the assumptions laid out in these documents, which are typically based on historical experiences that dictate which outcomes are most common based on specific inputs.

As the Internet and technology force unexpected shifts in the way consumers communicate with brands and each other, research products, and make purchase decisions, flexibility becomes the most important element of a business plan and a critical factor in standard operation procedures.   Business outcomes and consumer behavior – however often those same outcomes have been documented when the same inputs in the same industry have been present in the past – are no longer predictable.

Customer decision making has become an undefinable element in business plan equations, and so engaging real customers very early in the creation of the business is critical. Equally important is the need to plan contingencies and “pivot points” in a business plan that are enabled when customer experiences change commonly recognized business practices.

Shifting vs. Predicting

“A good hockey player plays where the puck is…a great hockey player plays where the puck is going to be.” – Wayne Gretzky

The famous quote by legendary hockey player Wayne Gretzky is often cited as a model for modern business strategy. The success of Steve Jobs while running Apple Inc. has been credited to this same philosophy. Apple’s success was based on the premise that that customer feedback today doesn’t predict what customer needs and use pattern will be tomorrow.  Mr. Jobs was artful at anticipating those needs and how consumer would want to interact with various technologies before they knew it and created products and services that would fulfill those future needs.

For most businesses, this is quite the gamble. The pivot on the other hand, like the basketball maneuver it’s named after, allows a business to start a new direction while still keeping one metaphorical foot in the original game plan.

What if Research In Motion (RIM), makers of the iconic BlackBerry smart phone, were more adept at pivoting?  Not too long ago, RIM owned the lion’s share of the smart phone market around the world and many predicted that its dominance could not be beaten. Yet the expectations of its core audience – business professionals using smartphones as a combination phone and email device – shifted. Email communication was being replaced by social networking and entertainment. Personal utility apps were now seen as “necessary” tools, yet RIM maintained a focus on delivering the most secure business and email software and hardware devices,  placing little effort in developing hardware and an ecosystem to support those functions and applications. Then one day, almost overnight, RIM’s dominance was crushed by the iPhone and Android devices.  RIM’s business philosophy did not accommodate the notion of pivoting, nor was its operational infrastructure set up to do so.

Predicting future consumer needs and trends based on historical patterns or even today’s consumer feedback has become a risky business.  “Game-changing” technologies and events are no longer once-in-a-lifetime occurrences and their frequency increases with each decade that passes.

Sensei Debates: How important is it to plan formal “pivoting” options into business plans and standard operating procedures today?  Can business outcomes still be predicted based current and historical customer tracking?  Share your thoughts on this in the comments below.

Sam Fiorella
Feed Your Community, Not Your Ego

Image Credit: Soil Science, via Creative Commons

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