Monday, May 9, 2011

Lesson #31: The Power of a Pivot - Thinking Out of the Box

We are all familiar with the meteoric success of Groupon, the daily deals website.  But, as you can read in this Groupon case study at Business Insider, they were a struggling business in the group fundraising space called The Point.  Had, they not pivited their business model from a "tipping point" for fund raising needs, to a "tipping point" for consumer deals, they would most likely be out of business today, and not a company valued at $15BN.  Somebody inside of The Point had to be smart enough to realize their old business model wasn't working, and they needed to think drastically out of the box to create a winning long term business model.  And, as you remember, there were many other examples of successful business pivots that we discussed back in  Lesson #8 on startups requiring flexibility.  Today, we are going to tackle: (i) when pivots are required; (ii) how to identify what pivot opportunities may exist; and (iii) how these pivots can be minor or material in nature. 

I think it is pretty self explanatory, if limited revenues or traction is being made with the current business model, something needs to change, and fast.  But, is the business model flawed (requiring a pivot), or is the sales and marketing plan or the management team executing such plan the problem.  You need to do your best to assess the success of each of these elements in isolation, before resorting to a business pivot.  So, for example, if you have the exact same business model as several other successful businesses, your problem is most likely the wrong sales and marketing plan or management team.  But, in other examples, where the sales and marketing plan makes sense for your industry and you have a proven and competent team in place, if nobody is buying your product, that most likely means it is time for a business pivot.

In determining where the pivot opportunity is, you need to study the core assets of the business and how they may be applied in new ways.  In the Groupon example, it was the "tipping point" technologies used in a new industry (e.g., consumer deals, instead of fundraising).  There are other examples, where the exact same product wasn't working for B2B clients, but was demanded by B2C consumers.  Or, the product doesn't sell as a branded front end solution, but does as a white label back end solution.  Or, maybe your technology is too expensive on an installed license basis, but sells better under a more cost effective SaaS solution.  Maybe corporations don't need your solutions, but government or university clients do?

Or, maybe there are dramatic changes that could lead to much better financial returns on your investment.  In one example, at MediaRecall, a digital video services and technology company serving the film studios and television networks, we learned that instead of taking an upfront cash fee for services provided, we could do the work for free and keep a 50%/50% revenue share on the resulting professional entertainment content.  These content royalties would ultimately result in 10x the overall revenues than what we would have received from the upfront for-fee services model, as the resulting content gets distributed and monetizing on sites like YouTube and Hulu.  So, if we could fund the upfront work, definitely worth the wait for revenues over time, instead of upfront.

So, when looking for your strongest assets, look enterprise wide.  Your asset can be a technology.  Or, in distribution and logistics.  Or, in search engine marketing.  Or, offshore product sourcing.  Or, in call center operations?  Or, whatever.  Just figure out what it is, and leverage the hell out of it in new industries, sales channels or applications.

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