What is a product pivot?

Article 16/34 about #productmanagement with a focus on Hard skills.

Pivot in the context of product management is a strategic decision to significantly change the direction of product development. This may include changing the target audience, the core functionality of the product, the business model, or even a complete abandonment of the current product in favor of developing a new one. The reason for a pivot may be insufficient satisfaction of user needs with the current product, changes in the market, new data on user preferences, or failure to achieve the desired profitability.

4 types of pivot product and when you should do them

When searching for a new product or feature to fit a market, it’s difficult to know exactly when to change direction and when to be persistent. Changing your product too early or not having enough evidence can rob you of a valuable opportunity. On the other hand, making a pivot decision too slowly can result in you wasting time and resources on a product that won’t benefit the consumer.

Making product pivoting decisions is challenging because it is not a perfect science. Even if you work through a rigorous data-driven process, choosing when, how and where to implement a repositioning requires common sense, intuition and risk.

#1 Pivot of the client’s mental model

Customer mental model pivot happens when we need to adapt our product, strategy, or roadmap because we have new data that changes the way we think about customers.

One of my favorite examples of a customer mental model pivot comes from the book The Lean Startup. Eric Ries describes how his company, IMVU, thought customers would want to create avatars of themselves to communicate with their friends online. However, they learned that customers actually want to use avatars to create new, imaginary identities so they can make new friends without giving up their real identities. He writes

“Our customers intuitively understood what we were slow to realize. All of the existing social products on the web were centered around users’ real identities. However, IMVU’s avatar technology was uniquely suited to help people get to know each other online without compromising security or exposing themselves to identity theft. Once we formed this hypothesis, the likelihood that our experiments would yield positive results increased significantly.”

Pivots of a customer’s mental model are highly effective pivots. Not only can they improve the outcome of a new product, but they can help create better outcomes for future developments. And while they are often done in response to a series of failed tests, they can also be done before or independent of feature deployments. For example, by continually interviewing users along with prototypes, teams are able to change and refine customers’ mental models without creating expensive, fully loaded features.

#2 Strategic Pivot.

Strategy is the underlying policy that drives a series of product decisions. Strategy determines what types of features we build, when — what areas of the product to focus on and in what sequence.

When you pivot your strategy, you need to change the principles on which product realization is based. You may have decided that the best way to win the market is to introduce a promising solution. Then you discover that none of the users are buying. You can change your strategy and start selling a version of your product with less friction in feature adoption so that customers start using your product and eventually adopt your prospect’s technology.

One of my favorite examples of strategy pivoting comes from George Rommel’s book Good Strategy, Bad Strategy. Rommel tells the story of Steve Jobs’ return as CEO of a nearly bankrupt Apple in 1998. At the time, the company had a wide range of products — several desktops, handhelds, printers, and so on. The current strategy was leaving Apple overstretched, unfocused and losing money. Jobs’ new strategy was to minimize product lines, focus on cash efficiency, and plan ahead for the “next big thing.” Rather than launching a wide range of products, Jobs created an interconnected ecosystem around a few key products (iMac, iPod, iTunes Store, and later the iPhone) that Apple’s competitors did not focus on. This strategy allowed Apple to transform itself from a dying niche computer company to the most valuable company on the planet.

#3 Business Model Pivot

Business Model Pivot is less about “is this product right for users” and more about finding the right monetization method that maximizes user success and business success. In this case, the team may find that the product idea is right, but the path to monetization doesn’t scale; or that the product is generating revenue, but at the expense of its users.

Finding the right fit is not easy. For example, Google search was originally going to monetize by offering SEO consulting services. They scrapped that idea because it would have allowed large companies that can afford to partner with Google to gain artificial priority in search results. Instead, Google found a way to maximize search integrity and profitability by showing ads relevant to keywords.

#4 Vision Pivot.

We learned about this Pivot from Marty Kagan, who in an SVPG article describes a vision pivot as changing “the big picture of what you’re trying to accomplish, usually over a 2–5 year period.” (This article sparked our interest in the types of Pivot. If you want to learn more about Pivot, this is a must read).

A Pivot vision happens when a company changes its existential focus. The company changes not only its business model, but also its vision of itself and its place in the marketplace.

Kagan argues that visions are elusive and require long iterations to realize. Therefore, visioning should only happen after a company or team has exhausted many other types of pivots and is still not successful.

Pivots to visioning can also occur when companies realize that their current product is near the end of the s-curve and a pivot to new technologies is necessary for future growth. Netflix has bet on the fact that the future of entertainment is streaming, not mail order DVDs. Meta has recently shifted its focus from social media platforms to the meta universe.

Eric Ries offers 10 types of pivots in his methodology. You should choose the appropriate option based on the identified problems of the startup:

1. Zoom-In Pivot — one element of the product becomes the core product. The startup focuses on the key feature that generates the most financial income — it is separated and acts as an independent product.
2. Zoom-Out Pivot — is based on the transformation of the initial product into a multifunctional product, i.e. the former becomes part of the new, scaled product. If the target market has a need for a variety of offers, formats, there is a need for an integrated solution.
3. Customer Segment Pivot (Customer Segment Pivot) — change of the target audience. If the product does not solve the problems of the current market (for example, due to insufficient castdev level), the startup switches to a segment where there is a high probability of being in demand. For example, repositioning a product from B2C to B2B.
4. Customer Need Pivot (Customer Need Pivot) — the problem that the current product solves turns out in practice to be not so significant for the consumer, i.e. there is no point in leaving it as the basis of the business. But market analytics shows that there is another “pain” that a startup is able to relieve.
5. Platform Pivot — a platform change (e.g., switching from an application to software, and vice versa)
6. Business architecture pivot — companies always choose one of 2 business models, both cannot be used at the same time. The first one is high profit and low sales volumes, the second one is low margin and high sales volumes.
7. Monetization Pivot (Value Capture Pivot) — changing the way of profit extraction. For example, switching from freemium monetization (providing a limited version of a product for free) to an advertising model (generating revenue from advertisers).
8. Engine Of Growth Pivot. Based on its goals, the startup chooses the appropriate growth model: sticky (customer retention), viral (promoting the product through consumers), paid (increasing the profitability of each customer or reducing the cost of attracting them).
9. Channel Pivot (Channel Pivot) — changing the way a product is delivered to customers.
10. Technology Pivot (Technology Pivot) — application of a new technological solution to the existing functionality of the product, which makes it of higher quality, increases demand for it, makes it possible to reduce costs or increase the price.

https://youtu.be/p9AuCQTzbgo

How do you realize it’s time to change?

Signs indicate that the time of pivot has come:

1. The startup is not keeping up with market trends, the chosen strategy does not provide sufficient development. It may help to change the growth mechanism, sales channel or monetization method.
2. High competition — especially from large companies. Giants have more resources and, consequently, a better chance of success, so you need to be ready for change. In addition, the saturation of the market with the product satisfies the needs of the target audience, which does not give a startup a chance to get full benefit.
3. Only one function of the product works effectively. Perhaps it is time to focus only on it and make it a key area (Zoom-In Pivot).
4. The product is not in demand, does not solve the users’ problem — this happens, even with the consumer’s interest, at the MVP stage. If there is no proper response from the target audience at market introduction, a pivot can save the day.
5. There are no ways to continuously attract customers, revenue drops or is absent, there is an outflow of consumers.
6. Change of goals and objectives — after launching a project and diving into a niche, other possible directions, more promising than the current one, often become obvious.
7. High costs of producing the product — it is necessary to look for ways to reduce the cost, for example, to make a pivot of technology.
8. Negative feedback about the product — this is an indicator of insufficient fulfillment of the need of the target audience. If you regularly receive feedback from customers about overpricing, poor functionality, availability of cheaper analogs, and so on — it’s time to pivot.

Examples of successful product and business turnarounds

Starbucks was originally a one-store retail outlet in Seattle that sold coffee makers, coffee beans, and other coffee-related items. Not a bad business, but probably not destined for mass success, especially with Amazon and other global retailers on the way. And you know what they didn’t sell in those early days? Freshly roasted coffee by the cup! It took Howard Schultz’s insight to recognize the opportunity to turn a mom-and-pop store into an international retail hub and a whole new addition to the modern lifestyle.

Twitter first appeared as Odeo, a platform for podcasters and their listeners to communicate. But then iTunes came along, and the founders realized it was time to change or die. So they did — and sure enough, #TwitterMadeHistory has become one of the most successful social media platforms in the world.

Youtube platform was originally conceived as a dating site, where anyone could post a video with a story about themselves and the ideal partner they were looking for. But the dating idea did not take off, and the founders made a pivot — they turned YouTube into a video hosting service. A year later, Google acquired it for $1.65 billion.

Shopify In 2004, a trio of friends organized an online store selling snowboards. Profitability figures were not pleasing, and the funders went pivot. In 2006, the Shopify e-commerce platform was launched, second only to the WooCommerce Checkout plugin for WordPress in global popularity.

PayPal The company’s original business idea was to transfer debt receipts between Palm Pilot smartphones. The service was not demanded by the market, and the startup switched to electronic payments by e-mail.

In 2002, the company was bought by eBay, which ensured the company’s success. Since 2015, the service has been operating as an independent online money transfer business.

Common mistakes and risks of pivot

Successful examples of global brand pivots can create the illusion that a change of business concept will lead to success sooner or later. But the realities are not like that at all: a U-turn is always associated with the risk of failure, so it requires objective assessment and timeliness. First of all, this applies to radical changes — their necessity must be proven.

Typical mistakes that make a pivot highly risky or unprofitable include:

1. Lack of necessity for a pivot — a pivot is advisable when all participants of the startup (founders, investors, mentors) have decided that the current project is unprofitable. It is recommended to change the concept as a last resort when other maneuvers have failed.
2. Late pivot — startups often delay making a decision due to fear of change, expectation that everything will get better, uncertainty about the right choice of a new direction and their own abilities. As a result of lost time, startup capital and investment funds run out — there are no opportunities for a smooth and planned turnaround. In this case, a kind of “head start” can be provided by other sources of income, for example, side businesses of the participants (if available).
3. “The startup team is focused on one direction, rejecting other ideas or “putting them off”. It is necessary to constantly monitor the market, follow its trends, work on the product and its improvement. Signals of the need for change are given by the target audience — the study of its “pain”, structure can indicate the feasibility of changing or expanding the segment, to optimize the offer to fully meet the identified needs.4
4. Refusal to calculate key metrics, failure to understand its pricing — the unsatisfactory performance of the previous idea is well demonstrated by generally recognized performance indicators (MRR, LTV, customer churn rate, the cost of attracting a customer, and so on). If income is falling or absent, there are no regular customers and ways to attract them, the churn rate is more than 5%, and other maneuvers do not help to improve the situation — it is time to think about the pivot. When planning a new idea and at the initial stage of its implementation, it is also necessary to take into account metrics — qualitative assessment of the product, its relevance to the market, costs of production and customer attraction. It is important to understand how the price of a product (service) is formed, what affects the cost of production, how to reduce it and other pricing factors.
5. Lack of competitor analysis. Studying the offers already available on the market allows you to objectively assess whether you actually need a pivot or whether the user’s problem has already been solved. It will not turn out that the bicycle is being reinvented. In addition, it is advisable to borrow effective solutions from competitors concerning the product, methods of attracting customers, sales channels, and so on.
6. Frequent radical pivots. If a startup is constantly subjected to significant changes, the focus on the main idea is lost. Small pivots happen regularly in a young project, but radical shake-ups should be justified and well-planned.

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Conclusion

Many well-known startups have gone through several “pivots” before finding their niche. A pivot is the beginning of a new path, giving you the opportunity to gain knowledge, experience, and deploy the project in such a way as to ensure its rapid growth and maximum efficiency.