This is the question on the mind of many business owners these days. Because the COVID-19 pandemic has brought sudden and drastic changes to the market conditions, business owners are looking to pivot their business models. No wonder pivoting has recently become a popular topic of discussion in many podcasts, blogs, and virtual business round tables.
In building a business, owners should not only be prepared to pivot but also know when to pull the trigger.
However, it’s hard for them to be disciplined about this. After all, they are probably working 60 hours a week on running the current business, launching new products, hiring new people, and putting out fires. It is hard to find the time to think about pivoting. They feel that if the current business model is working, there is no urgency for change. But this pandemic has demonstrated how important it is for business owners to be prepared and ready to pivot. Recently, I was invited to speak about this topic at the Northeastern Maryland Technology Council. After I shared my thoughts on how business owners can plan for pivoting, we had a lot of great discussions, further proof that pivoting is on top of their mind.
To prepare for business pivoting, it is critical that you evaluate the market opportunity and your capabilities both broadly and deeply, to find the potential fit. There are a few key factors to consider when doing so.
- Evaluate the market opportunity and your capabilities broadly
Instead of thinking about your market and capabilities specifically, try to define them more broadly. For example, a distiller has a large warehouse and an assembly line. Instead of focusing on the liquor market and the operation of storing and bottling whiskey, they can think about anything else that is liquid. What about fitness drinks? What about hand sanitizers? Market research suggests that the market for both fitness drinks and hand sanitizers will grow at a higher than the average rate in the next few years.
That’s what the owner of a two-million-dollar specialty vodka and gourmet tea company did. Pre-pandemic, Vanessa Braxton, founder, and CEO of Long Island-based Black Mama Brands, was doing well-selling artisan vodka and gourmet tea. With revenue at around $2M, she was planning to franchise the “Black Mama” brand of café concept to drive further growth. However, when the pandemic hit, Braxton quickly pivoted, using her distillery and manufacturing facility to produce hand sanitizers. Within two weeks, she was selling 1000 bottles a day, with an 8 oz bottle of sanitizer retailing at $13.99. “The demand is not just high, it’s astronomical,” said Vanessa Braxton. While the pandemic has posed a challenge for the café concept in the near future, Braxton has found a new product line to grow her business.
Last month, Eastman Kodak announced it had received approval of a 765-million-dollar government loan to produce the COVID-19 vaccine. The CEO was quoted as saying, “Kodak is a manufacturing company,” suggesting that they could use their facilities in a broad market, not just limited to a certain product category (e.g. film). Although the government loan is on hold right now due to congressional inquiry, the pivoting plan for Eastman Kodak is still a good one.
- Evaluate the market opportunity and your capabilities deeply
This requires you to look at your current products and services differently. Try to think about the problems that each component can solve or how they might be used to solve future problems. A famous example is the business of Flickr. We all know Flickr as the photo-sharing application, but it didn’t start that way. Founder Stewart Butterfield started the business by offering an internet video game called Neverending. Players used digital maps to buy and sell stuff, taking pictures along the way. That was in 2004 and internet games were very limited. While the game Neverending didn’t become a household sensation, Butterfield discovered that the photo-sharing feature of the game was ready for prime time and therefore pivoted the business to a photo-sharing app, leading to the Flickr we know today. It was later sold to Yahoo for 35 million dollars.
If you own an enterprise software business, you know that many features of the software are not used by your customers. Industry statistics said that most users only use 20% of the features. What if you can take 80% of the features not used by your current customers and do a deep dive? You may discover that some of them can solve problems that your existing customers don’t have, therefore allowing you to repackage the software and find new customers.
Solely evaluating the market opportunities and your own capabilities broadly and deeply is not enough. Business owners must also know when to pivot. Timing of the pivot matters. It could mean life and death for the business.
After selling Flickr to Yahoo, founder Steward Butterfield and his team worked for Yahoo for a few years. They then left to start another video game company called Glitch, with the idea that internet gaming was becoming mainstream. With the successful exit of Flickr, Butterfield raised venture money for the new business. While burning through almost two-thirds of it, Butterfield realized that the new game was still a niche. He quickly pivoted. In developing the game, they used a home-grown tool for communication. They found that this tool was better than anything else on the market. They scaled the communication tool, and it became the multi-billion-dollar business Slack. They pivoted at the perfect time, allowing them to grow a new business while they still had the money.
Successfully planning and executing business pivots are not easy. Business leaders need to know when to overcome obstacles but staying in the same course and when to change the course. However, knowing when and how to pivot is what differentiates a great leader from an ordinary one.
If you realize that all things change, there is nothing you will try to hold onto