Pivoting: Business Models Don’t Work Unless You Do

Remember why focusing on experimentation, constantly integrating customer feedback and iterative design could make the difference between success and failure? In this article we introduced the concept of the lean startup. It was concluded that the days of elaborate planning, building on intuition and executing big designs upfront are officially over. Now that you get the overall lean startup idea, let’s dig a little deeper and learn what it takes to successfully surrender to this innovative approach. 

Where to Start? 
Heard of Osterwalder and Pigneur and their grand tool called the Business Model Canvas? It turns out that their tool offers an excellent starting point in the lean startup journey. Why? The Business Model Canvas allows entrepreneurs to create a very visual overview of their idea’s hypotheses which summarizes how value can be created for both the company as well as the customer. Where in the past founders would often and unconsciously prioritize one aspect of a business model over another, the Business Model Canvas stimulates founders to think about all essential elements of the  business and how they are and can be connected. Note that the business model that is created as such, is not set. On the contrary. The Business Model Canvas allows for flexibility and alterations that will naturally occur throughout the rest of the lean startup process. The image below states the necessary questions that should be asked in order to generate a complete Business Model Canvas.

“Companies that fail to pivot run a risk of getting stuck in the land of the living dead.”

The Quest For a Functioning Business Model
Essentially, what entrepreneurs want to do is find a business model that works. To get there, their assumptions, which have been identified in the Business Model Canvas, need to be tested. This happens through customer feedback in the customer development phase. So, the hypotheses summarized in the Business Model Canvas represent the minimum viable product. The minimum viable product requires minimum time, money and effort and is therefore relatively easy to quickly develop and to use as a tool to gather feedback. In case this feedback indicates that the hypotheses are incorrect, they should either be revised or pivoted to new hypotheses. 

Thus, a pivot basically is a course correction intended to test a newly formulated hypothesis about the business model, after an initial hypothesis turned out to be incorrect. As such, a new minimum viable product will be established that, in turn, should be used to gather customer feedback. Seems like we are going around in circles? That is exactly the point. The loop can only be exited once all the hypotheses about the product have proven to be correct. Companies that fail to pivot, therefore run a risk of getting stuck in the land of the living dead. In other words, pivoting is a crucial process aimed to finetune the minimum viable product in such a way that it accurately reflects and serves the consumer’s demands. 

Now, that all sounds lovely and rather logical but it is not as easy as it sounds. According to Eric Ries, author of Lean Startup, there are multiple types of pivots to be found, which highlights how complex the pivoting process can get. In brief, the ten different pivots are: 

1. Zoom-In Pivot
One feature of the initial product becomes the whole product.

2. Zoom-Out Pivot
The opposite of the zoom-in pivot. So, what was considered the whole product at first, now becomes a single feature. 

3. Customer Segment Pivot
The business changes customer segments.

4. Customer Need Pivot
When a business realizes the problem it is trying to solve, is not very high on the customer’s needs list.

5. Platform Pivot
Represents a change in business model where companies find out their customers are more sensitive to access rather than ownership. This is closely related to the sharing economy, read about it in a previous blog post here.

6. Business Architecture Pivot
Requires adjusting the architecture of the business. For instance, switching from being a high margin, low volume business to a low margin, high volume business.

7. Value Capture Pivot
Changes how the business generates revenue. 

8. Engine of Growth Pivot
Involves altering the company’s growth strategy in order to establish faster of more profitable growth. 

9. Channel Pivot
Marks a change in sales or distribution channels.

10. Technology Pivot
When a new technology can be implemented to reach an existing effect faster or cheaper. 

Being able to identify the kind of pivot a founder is involved with, will provide a sense of direction towards establishing an accurate minimum viable product in a shorter amount of time. And as we all know, time is money. Especially when applying the lean startup approach. 

Eager to find out how your business could benefit from pivoting? Maybe we can help!

About Amstel Lab
Amstel Lab partners with start-ups and scale-ups to commercialize your business. On the back of our experience, we have developed the unique Amstel Lab method: a tailor-made approach to maximize success. We test your markets, refine your product, innovate your commercial approach and execute your strategies. Any good idea is worth seeing through.

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