When and How to Make a Business Pivot

Before Instagram was Instagram, it was Burbn—a location check-in app with photo sharing capabilities, named for the founder’s appreciation of Bourbon whiskey. Initially, with location apps like Foursquare already dominating the early 2000s, the app struggled to gain traction. Users were not checking-in and sharing their location with friends.

However, they were using the app to share photos. The team took notice and shifted their focus, renaming the application and focusing squarely on photo-sharing: creating filters and optimizing the in-app photo-taking experience. Of course, the rest is history. Instagram went on to be acquired by Facebook for one billion dollars, becoming one of the most successful social networks ever.

How did they achieve this? They successfully executed a business pivot.

In a crowded technology marketplace, people have unlimited options in nearly every category—whether that’s developer tools, productivity apps, or streaming platforms. Even a strong customer solution, a perfectly-followed business plan, or a beautifully designed app can fall below expectations, failing to garner the traction you hoped. In these instances, a business pivot can be a powerful strategy to reorient your startup in a different direction, capturing more customers and generating more revenue.

This article will examine the crucial signs that indicate when a business pivot is necessary for your startup, details on the different kinds of business pivots, and actionable steps for implementing a successful business transition.

What is a business pivot?

A business pivot is a strategic realignment of a company in response to unmet business expectations, market shifts, customer feedback, or the discovery of new opportunities. It’s common for a business pivot to involve redefining the company’s original value proposition, product offerings, target audience, or current business model. This new direction can range from minor adjustments to a complete overhaul of a company’s business model or technology.

Pivoting is often necessary when a startup or small business faces stagnation, competitive pressures, or difficulty scaling, allowing them to better align with market demands, stay relevant, and maintain growth potential. However, it’s also common for established companies to make business pivots in order to maintain market dominance—for instance, Adobe changed their business model from licensing to subscriptions for their software in 2013, resulting in record revenue numbers.

Five different kinds of business pivots

A business pivot doesn’t necessarily mean completely changing the mission of your company, building a new product, and seeking out an entirely different customer base—all at once. In reality, a business pivot can be either small or substantial, targeting anything from the underlying technology of your app to the industry your platform is serving. Ultimately, all forms of business pivots aim to prevent startup failure.

Product Pivot

The product pivot involves refining your product to better address customer needs or market opportunities. This might involve adding new features, deprecating underutilized ones, or modifying existing features. It could also mean developing an entirely new product.

Platform pivot

In this case, a company transitions from offering a single product to providing a comprehensive platform that includes multiple products. Creating a broader ecosystem allows startups and small businesses to potentially attract a larger user base, challenge a broader range of competitors in the space, while adding additional streams of revenue.

Technology pivot

A technology pivot occurs when a startup shifts its core technology, or underlying infrastructure, to better address customer needs or take advantage of new technologies or evolving market opportunities (e.g. artificial intelligence, blockchain technologies, etc). This might mean adopting a new technology stack, leveraging existing technology in a new way, or improving the efficiency and performance of current solutions.

Customer segment pivot

This pivot involves targeting a new or different audience with your startup’s existing product. This may be necessary when your company’s original target market is unresponsive to your offering or unprofitable. Company’s can adapt their messaging or sales motion to target a different customer base that is more receptive or lucrative (e.g. In 2022, Brex stopped serving SMBs in favor of acquiring and serving enterprise customers).

Revenue model pivot

This pivot entails altering the way a startup generates revenue by adopting a new pricing structure, trying a different monetization strategy, or revising the current sales approach. Companies might implement a revenue model pivot to better align with customer preferences, increase profitability, or outperform competitors. For instance, transitioning from one-time sales to a subscription-based model or introduction tiered pricing structures based on usage.

Five successful examples of business pivots

A pivot can feel like failure—abandoning a strategy that you’ve already put time, effort, and resources into. In reality, a pivot prevents failure, opting for an intentional change in direction before your financing runs out and you need to shut down. Many businesses—including some of the world’s most successful companies—have pivoted at some point during their journey.

Slack

Stewart Butterfield famously started Slack as a gaming company called Tiny Speck, releasing a game called Glitch. When the multi-player game failed to find a fandom large enough to be profitable, they turned their attention towards their own internal messaging tool. They went on to release it as Slack. The tool garnered widespread adoption at startups and scaleups alike, disrupting workplace communication and the use of internal email.

Netflix

Netflix began in 1997 as a DVD rental service, delivering movies through the mail. But as technology evolved and the internet saw widespread adoption, Netflix pivoted to streaming content online in 2007, with plans to entirely deprecate their rental service as of September 2023. Their pivoted business has become a ubiquitous entertainment platform worldwide.

Pinterest

Initially a mobile shopping app named Tote, meant to replace physical catalogs, the platform failed to gain much traction due to minimal development in the online payment space. However, when its founders noticed users were more interested in saving and sharing product images than making purchases, they pivoted to become a visual bookmarking platform. Today Pinterest is a public company with over 450 million active monthly users.

Twitter

Twitter’s origin story begins with Odeo, a podcasting platform that was rapidly upended by Apple’s iTunes. The team instead pivoted to creating a microblogging service that allowed users to share short text updates. This was the birth of Twitter.

Groupon

Groupon started as The Point, an online fundraising platform. After struggling to gain traction, the company pivoted focus on providing a marketplace where consumers could find discounts for local businesses. This move transformed Groupon into a successful marketplace for deals and offers.

Signs you need to make a business pivot

Knowing when to make a change can be the difference between your startup succeeding and falling flat. Too early, and you don’t have enough data or feedback to understand what’s going wrong. Too late, and you run the risk of running out of money, not leaving enough funding to successfully transition your business.

To successfully pivot, note signs that indicate it might be the right time to make a strategic shift in your business—from a bright spot in an otherwise failing business to a plateau in your revenue.

You haven’t found product-market fit

Product-market fit—often depicted graphically as a trend curve moving up and to the right—is a crucial indicator of a startup’s potential for success. It is a strong proxy for the alignment between a product and the needs of its target market. Startups that lack product-market fit often struggle with customer acquisition and retention, experiencing high churn.

A lack of product-market fit suggests that your startup’s current direction may not be sustainable. Measure your product-market fit to determine whether making a pivot necessary to better address the needs of your target customer and find long term success.

One part of your business stands out

If you take a look at your business, a particular product feature, service, or aspect of the startup might stand out, demonstrating greater potential than the core product. This standout component might see higher user engagement, generate significant revenue, or receive especially positive feedback. In these cases, consider a pivot that focuses on that specific aspect, rather than spreading your efforts and resources thin.

Customer feedback is lukewarm

From customer interviews to NPS surveys, consider the feedback that you receive from customer or prospective users. If feedback is consistently negative, or even lukewarm, it’s unlikely that you’ll see significant user growth with your current trajectory. Your product may not be adequately addressing customer pain points or meeting their expectations.

Ask probing questions and deeply understand customer problems to inform your pivot and what your team builds next to breathe new life into your business.

Your revenue growth has plateaued

While it can take some time to start generating revenue—and then growing that revenue—stagnant revenue growth over a few months can be a signal that a business pivot is needed. This is especially the case with continued marketing and sales efforts. Seeing a revenue plateau can mean your product does not address customer needs as well as competitors or that your total addressable market is smaller than you initially presumed. Pivoting can be a way to explore a new revenue stream, target different customer segments, or revamp your offering to see sustained growth.

You’re falling behind competitors

If a competitor continues to dominate your market despite your best efforts, or churned users are adopting different solutions, it’s worthwhile to pivot your business. It may also be the case that you’re in a crowded market with too much competition. Reassess your competitive positioning and identify product opportunities to differentiate from market players.

Internal enthusiasm has waned

The early days of a startup can be exciting, building momentum and having your team align behind a single mission. But a lack of progress can turn enthusiasm into indifference, or even exhaustion. A marked shift in the energy of your team can be a red flag, signalling that the startup’s current direction may not be inspiring or sustainable.

Watch for internal signs that employees are losing passion, are brushing up against burnout, or are unhappy with how your company operates. A pivot may be the best option to reinvigorate the team by aligning the company behind a revised product vision or a more inspiring mission.

How to make a business pivot

Once you’ve decided to take your startup in a new direction, a well executed pivot can be an intricate process with a lot of moving parts—from informing a host of stakeholders about the change to telling existing customers about the future of your product. Think through how you’ll communicate changes, not just how you’ll make the changes themselves.

Conduct a post-mortem

Pivot successfully by first completing a post-mortem analysis of your startup’s entire trajectory. This comprehensive evaluation can make all the difference for reorienting your towards the future, with valuable insights into your startup’s current position that informs what’s next.

Here are guiding questions to ask yourself and your team while conducting a post-mortem:

• What were our initial goals and objectives, and how well did we achieve them?
• What were the primary reasons or factors contributing to the failure of the startup?
• Did we accurately identify and address our target market’s needs and pain points?
• How effective was our marketing strategy and sales approach in attracting and retaining customers?
• How did our product compare to competitors in terms of quality, features, and pricing?
• Were there any significant industry trends or market shifts that negatively impacted our business?
• How well did we manage our resources, including free cash flow and finances, personnel, and time?
• What were the key decisions or strategies that could have been handled more effectively?
• How engaged and motivated was our team, and did we maintain a strong company culture?
• What lessons can we learn from this experience to inform our next steps or future ventures?

Inform all stakeholders, including customers

Before making any significant changes, as a business owner it’s crucial to communicate your pivot plan to all stakeholders. As much as possible, opt for transparency about your business pivot, and prepare for questions you may receive about proposed changes and expected outcomes.

Here’s a list of stakeholders to loop in about your business pivot:

• Investors: Inform any associated venture capital firms, angel investors, crowdfunding participants, or accelerator programs about your future plans and seek their counsel when appropriate.
• Employees: Let all of your team members, across every department, know about what’s next.
• Board members: If you have a board of directors, or an advisory board, let them know about your business pivot.
• Customers: Send out communication about your pivot to existing customers who will be impacted by the new strategy for your product or a new business model.
• Partners: Tell any strategic partners or collaborators ahead of your pivot.
• Media and public relations contacts: Once you’ve made internal stakeholders aware and your new direction is concrete, leverage PR to get out the word by contacting any journalists, writers, bloggers, and industry influencers and experts.

Customers who are using your product are a particularly important group to address about a plan to pivot your business. Be proactive about your communication with them, pre-empting any concerns and highlighting the potential benefits of the new direction. If you are entirely deprecating your existing product, provide ample notice and time for existing customers to migrate to another solution for their business.

By involving stakeholders in the decision-making process and keeping them informed, you can foster continued trust, manage expectations, and ensure a smoother transition.

Start executing on your new product direction

With a clear pivot direction and action plan in place, begin the process of building your new product or business model. Successful business pivots require alignments across your team to reimagine your business, and implement a direction that drives customer and revenue growth.

1. Set a clear pivot direction: Outline your new value proposition, product plan, target audience, and/or strategic goals, communicating them widely across your company and with stakeholders.
2. Conduct customer and market research: Alongside insights gained from your post-mortem and feedback from stakeholders, conduct industry analysis and seek out customer research to validate your new direction.
3. Develop a timeline: Develop a comprehensive action plan that outlines the steps needed to execute the pivot, including timelines, a prioritized product roadmap, resource allocation, and key milestones.
4. Collaborate across disciplines: Collaborate across your company to find alignment across product, product marketing, sales, customer support to seamlessly transition your product and/or business strategy in the new direction. This might involve engineers developing new features, designers rebranding your company, and product managers creating effective messaging and revising your pricing and positioning.
5. Test and iterate: Launch a beta, allowing you to continuously test and iterate throughout the development process, incorporating further customer feedback and market research to fine-tune your offering.
6. Launch your new product or business model: Launch your business pivot with a product launch checklist and monitor its performance closely, adjusting your strategy as needed to achieve your goals and ensure a successful pivot.

Grow your business in 2023

Check out all of DigitalOcean’s resources for startups and small businesses in The Wave, our startup resource hub, for more product, go-to market strategy, and company-building advice to help your startup thrive.

Make investments in your technology this year and sign up for a DigitalOcean account. Set your business up for future success by building your product on DigitalOcean’s virtual servers, databases, and more.