Sticky Notes of Thoughts

…because some thoughts are worth remembering

On Types of Pivots

ArosExhibit

Burn rate is a commonly used term in the startup community’s lexicon. It means how quickly you are spending your funding (e.g., $10K/mo). In early days of startup, there is usually no real incoming coming in, so your burn rate defines how many months you have left (until you need new investment).

The book The Lean Startup presents a different metric one can measure: how many “pivots” do you have left? Focusing on burn rate alone can narrow your attention to changes one can make at the operational level (e.g., can we outsource this task for cheaper? If we fire the assistant, is there a significant reduction in our burn rate?). If what and how you are approaching your business is the only option you have, and if you can’t get to the next funding event, thinking about reducing the burn rate doesn’t really capture the potential of the enterprise. But if there are many options you can try to change the direction, it is not only worth it to lengthen that runway by reducing the burn rate, but it might also help get to new funding or make the burn rate itself less relevant.

The author refers to these options to change the business as pivots. Just as in a heated discussion, pivots are tough for entrepreneurs because they tend to be passionate believers of their own ideas, and sometimes that firm belief can shut out other options. For the few who are self-aware enough to be open to changes, may have a hard time thinking of these options. The author laid out several types of pivots in generic terms that people can use to come up with their own options:

  1. Zoom-in Pivot: single feature becomes the entire product (i.e., shed other features)
  2. Zoom-out Pivot: single feature becomes part of a larger product
  3. Customer-need Pivot: your target customer had another problem (you can solve), solve that instead because you have the customers
  4. Platform Pivot: switch platforms
  5. Business Architecture Pivot: change from high-margin and low-volume model to low-margin/high-volume model (or vice versa)
  6. Value Capture Pivot: change how you monetize the value of your service/product
  7. Engine-of-growth Pivot: change in your growth mode to/from: viral, sticky, paid growth
  8. Channel Pivot: change in sales/distribution channel or method
  9. Technology Pivot: achieve the same solution by using a different technology (say, one that’s more commonly used in established markets)

When I advise startups, or ask to comment on options to pursue for new initiatives, personal projects, etc., I find it useful to present the pivots with fewer categories organized in a way that perhaps evokes their corporate or personal value system, so these options do not all present themselves as equally valid options (because it will just make the decision making process that much longer to brainstorm for each pivot possibilities and then evaluate on basis of feasibility, economics, etc. Here’s another way to think of pivot options:

  1. Markets: change who you are selling to (business vs. individuals, gender, affluence of market segments, expertise level, age, geography, etc.)
  2. Business Model: change how are you monetizing the value of your service (freemium, reseller, franchising, wholesale, subscription, etc.). For more ideas, check out this site, or plug in business model types and get your noodle going.
  3. Product: change what you are selling
  4. Market Leadership: change “how you are” (the following categories from the book, The Discipline of Market Leaders) Operational Excellence (driven by streamlined operations that are effective for that market, such as Costco), Customer Focus (customer service differentiates you from your competitors such as Nordstrom), Product/Service Innovation (considerable product design aimed at innovative products, ones that are almost beyond what the market directly asked for, such as iPhone by Apple)
  5. Identity/motivation: Why are you in the business? Is it to help people, make something cheaper, faster, better, etc.

The last factor is more of a checksum for ideas from other categories, whether or how they can be in line with your vision. It is also a checksum for the team, as there may be new members on board since the inception and they may not share the original vision of the founders, The motivation may also have shifted over time.

Photo: From an exhibit at Aros, a modern art museum in Aarhus, Denmark

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This entry was posted on July 21, 2015 by in Entrepreneurship, Management and tagged , , , , , .
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