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Cathy Belk

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Entrepreneurs: Master 'The Pivot'

Posted: 05/03/11 02:54 PM ET

Have you ever heard of The Point?

It was a website launched in 2007 that enabled individuals to come together to solve problems that would be difficult to solve alone. Targeting citizens, parents or employees, the site enabled fundraising or activism campaigns -- only after a certain number of people indicated their support. Referred to as the "tipping point," this idea -- gaining traction from users prior to action -- delayed activism until there was enough support to create a real impact.

Sound familiar? It's now called Groupon, the website that provides "group coupons" for local restaurants, activities and products as long as a minimum number of people take advantage of a particular offer. Chicago-based Groupon started in 2009 with $1 million in financing and had generated $33 million in revenue a year later. The next year, the daily deals site generated $760 million in revenue and, in 2011, CEO Andrew Mason projects Groupon will rake in billions.

The main concept behind The Point -- to use the power of a group to create opportunities for individuals -- is unchanged, but the application of the idea has evolved significantly. It's a great example of what is known in business as a "pivot," or taking a "left turn."

It's a common phenomenon, occurring as a business evolves from an idea into a product or service that effectively meets the needs of a market. There's never perfect information at a company's launch, when an idea is imagined and cultivated. But as feedback is gathered from customers or investors, or as the product or service sees new challenges or opportunities, there's often a progression of strategic forks in the road requiring a relatively dramatic shift.

Even though the need to reassess and redirect is common for early-stage companies, recognizing it in time isn't always easy. Experienced entrepreneurs know to recognize and react to the signs more quickly than first-time entrepreneurs because they've learned the hard way. Often, first-time entrepreneurs get so engulfed in day-to-day "fires" that they lose sight of the big picture. The more time that goes by, the deeper they get pulled into a flawed business model, and the tougher it is to pivot. More lost time means more lost cash and more lost investor confidence.

A major market advantage startups have is that they are agile. As tough as it might be at the moment, entrepreneurs cannot afford to be tentative about exploiting their agility.

So how do entrepreneurs know when they may need to make a left turn with their own businesses? There are some common indicators:

• The product prototype is underperforming. The risk is that a startup may be trying to solve a problem that is not solvable. Entrepreneurs may need to explore ways to apply the value that
their products offer in other forms or for totally different markets. Often, it's more effective to
solve around problems than it is to solve through them.

The company can't get any sales traction. Entrepreneurs need to start with the value proposition. Does their target customer really understand the benefits of their product? How can the company position a product as a "must have" versus a "nice to have?" Or, if they are not getting in front of the decision maker, maybe their distribution model is wrong or they have the wrong people in the sales roles. Certainly, these issues mean it is time to reassess.

The company is struggling to raise money. It could be the plan, the presentation, the team, or maybe an entrepreneur just is not talking with the right people. Entrepreneurs need to push to get candid feedback from investors beyond a polite "no" so he or she can understand where the real issues lie.

Market forces have changed. Due to introductions of a new competitor, new regulations, or changes in the economic climate, a startup's value proposition may lose some of its power, or may have stronger application elsewhere. Young companies need to look for emerging trends they can leverage in their favor.

The team just isn't performing. When the time is right, an entrepreneur needs to know when to change players' roles, including his/her own. Startups need to draft a detailed position specification for each role in the company, and then fill the role with the right person. Young companies need to hire top quality talent and be prepared for that talent to take the company in a different -- and hopefully, a stronger performing -- direction

Actually taking the left turn can be just as difficult as identifying the need to take it. "But the ability to make well-informed pivots is necessary to discover where your technology offers the most value," says Rick Arlow, Chief Science Officer of LifeServe Innovations, a medical device startup.

The firm recently redesigned their device with the goal of addressing a much larger market. The initial prototype was developed for improving the survival rate for emergencies and battlefields; now, it better meets the needs of clinicians in non-emergency situations as well, allowing for use with more patients while also controlling costs.

"This pivot, and the resulting novel device we developed, is receiving positive responses from potential investors and our medical advisory board," Arlow observes. "It was well worth it."

 

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