How to Pivot a Startup
Before there was Mario, Nintendo sold instant rice. Twitter began life as a podcast company. Slack’s first product was a video game named Tiny Speck. These are a few of the dramatic pivots that lead to wild success for companies.
However, not all pivots are as drastic as rice to Donkey Kong. Many are ordinary business model adjustments in respond to customer demand. For example, in early-2000s YouTube was a dating site, where people uploaded videos looking for love. The dating service was a flop, but the video sharing was a hit.
This past October, I celebrated the 25th anniversary of starting my business. Reflecting back on that time, I pivoted the company three times:
- In 1997, I pivoted from a technical writing firm to a security-focused value-added reseller (VAR).
- In 2013, from a VAR to a managed security services firm.
- In 2017, from a security services firm, to a product firm.
While the company remained in the security industry, each of those changes was necessary to keep pace with shifting customer demand. Each of those changes was excruciating. Like changing the wings of the plane in mid-flight, I had to oversee drastic organizational changes while keeping the business running and making money.
All that struggle taught me some valuable lessons. Namely, it taught me that pivoting a company is a delicate dance, on a collapsing wooden bridge, over a river of lava, filled with sharks. In other words, it is not something you do on a whim.
With the benefit of hindsight, I identified six major lessons from my pivoting experience. While I wrote these six lessons with a business leader in mind, they are equally relevant for employees enduring a pivot as well.
1. Start with Why
There is a reason I used the image of dancing over lava. Changing the direction of a company is dangerous. If it fails, the company collapses. Before doing or saying anything, you must nail down your reasons for doing it at all.
When I pivoted away from the VAR business, I had precise and powerfully personal reasons to make the change. The VAR business model is profoundly outdated (I documented this in the Anitian blog, Goodbye Yellow Brick VAR). However, what truly motivated me was that running a VAR was turning me into somebody I hated. It was making me cruel and selfish.
As Simon Sinek says, start with why. Why do you want to make this change? If you cannot answer that with conviction, your probability of success is severely diminished.
Most importantly, you need buy-in from other people within the company. As Sinek says, people do not buy what you do but why you do it. This applies to employees as well as customers. The employees must believe in this change such that they will follow you into a period of uncertainty and stress.
Do not make your change solely about money or profitability. Money is a weak motivator, especially to technical people. Make a change because of some larger purpose, mission, value, or market trend. Additional revenue or greater profitability should be the outcome of a successful pivot, not the reason for it.
2. Where are We Going?
Once you know why to change, the next big question is where? You and your newly minted followers must know (or have a plan for) where this pivot will land.
When I changed from a services company to a product company, I spent a year talking about a new kind of security company. I laid out my ideas in presentations, articles, and goals. This vision of a new company, with a new set of products and services helped guide employees, partners, and eventually customers through the change.
There is a simple question you must answer: after the change is made, what will the company look like? Who is employed in this new company? What do they do? How do you make money? Who are your customers? Why do your customers buy? These are all basic questions you must be able to answer.
However, you need to be careful with all this discussion in the early stages, which leads to the next item on this list.
3. Control the Reactor
Pivoting a company is a bit like controlling a nuclear reactor. You must control the rate of change carefully to achieve the outcome you want. The unstable element in this reactor is (as it always is) people. Change too quickly, and your employees and customers will react in unpredictable, and potentially devastating ways. Change too slowly, and your efforts may sputter out.
For example, as I pivoted out of the VAR business, I slowly modified our sales pitch and marketing content over a 12-month period. Each quarter, I had the sales team focus a little more on services, and less on products. I also made small changes to commissions to reward service sales. The changes were small, easy for people to handle, and always linked back to the vision.
In the early phases of a pivot, the changes to the company need to be almost imperceptible. This allows your team to ease into the changes. Make these changes small, but keep talking about the old business and its value. You want people to see movement toward the new business, with a grounding in the old.
In time, you must accelerate change, which increases fear, stress, and opposition among your employees. Once the pivot heats up, the stakes also increase. You are no longer controlling change, but playing a tense game of poker with the old business.
4. Stack the Deck
As change accelerates, people will notice. When they notice, you need to decisively change both people and processes to reflect the new business.
I recall in the tense final days of my VAR business, one of the finance people became frustrated as I questioned an outdated process. Exasperated, he said, “that’s not how we do it. We cannot just change everything overnight.” Amused, I replied, “why not?” This person had come face to face with a new reality. The old, comfortable ways of doing things were out. Discomfort was coming.
People derive personal value from their expertise and experience. Change threatens this value and makes them uncomfortable. When discomfort becomes too much, people will revolt and undermine your efforts.
How do you combat this without crashing the company? This was the dilemma I faced many times. I devised a Machiavellian strategy to keep the plane flying: stacking the deck.
It works like this:
- Identify the uncomfortable people resisting change.
- Keep those people comfortable working under the old business methods. This keeps them satisfied and keeps the existing business (and income) chugging along.
- Hire new people and train them exclusively on new processes and new business. (What you are changing to.)
- As the new business takes hold, slowly marginalize the old business and the people working in it.
- In time, the resisting employees will get the message: change or leave.
And leave they will. Tensions will increase as the old and new business clash. When the tensions hit a boiling point, you need to hit the gas.
5. Pedal to the Metal
Pivots hit a tipping point, when everybody sees change happening. Tensions are high. The old business and new business are fighting for prominence.
Once this tipping point arrives, you must go all in. Wipe away the old business swiftly. You cannot hesitate at this stage. Change must be decisive, conclusive, and absolute.
When I exited the VAR business, I pulled down the website on Friday. On Sunday, a new site was running with all mention of the VAR business wiped away. On Monday, I made an announcement to the employees, we were done being a VAR and there was absolutely no going back.
This will shock people, partners, and customers. However, it also demonstrates resolve. When the time comes, change must be swift and final.
Nevertheless, change of any magnitude leaves fallout. Which gets to the last item on my list.
6. Leave the Past in the Past
A company pivot, regardless of the scope, emotionally affects people (including you). Former employees may feel betrayed and lash out. Employees that remain will feel confused and uncertain about the new direction. After enduring the stress of pivoting the company, this emotional collateral damage can unravel everything.
For example, after dumping the VAR business, I harbored unhealthy levels of anger and resentment. I felt like a failure. The anger was blocking me, worrying employees, and threatening the whole change.
Time heals all wounds. I was fortunate to have a network of coaches, counselors, and supporters who helped me deal with my emotions and refocus on the future. However, your people may lack these resources.
Intellectually, we all understand that change is necessary (usually). However, change generates uncertainty, which in turn causes anxiety and discomfort. It is natural for people feeling unsure about the future of the company, to reject the changes, undermine leadership, and push the company to return to “the good old days” when they felt more comfortable. I saw this happen repeatedly when I went through my pivot in 2017.
People derive their self-worth from their experience and role in the company. Changing the company threatens their self-worth. Change becomes the enemy.
How can you resolve this?
- Acknowledge the Past: The previous business was a necessary step on the road to the future.
- Show Gratitude: Openly thank and praise to those who stuck with you and the company during the change.
- Full Speed Ahead: Be firm and clear there is no going back to the old ways.
The first step shows people that the past has value and creates a bridge to the future. This helps people feel like their previous contributions had value.
The second step reduces anxiety, fear, and feelings of loss. It allows the people who stayed to continue to earn self-worth from their experience (which they need.) However, it also reassures new people. Seeing experienced people get praise, shows newer employees they too can earn praise if they stick with changes and remain agile. Public praise is the most powerful motivator you have as a leader (it is significantly more powerful and long-lasting than money.)
The final item, and the most important of my list, cuts off any return to the past. People need this. They need certainty. Be decisive and firm that the changes are permanent. If you sense any attempt to go back to the old ways, snuff it out quickly. This is especially important with sales and marketing groups.
Change is the only constant in life. How we deal with change is as least as important as how we deal with life. The necessity of change is often obvious (new technology, new methods, new markets, new demands, etc.) What people lack is the nerve to make the changes and take risk. Therefore, change must be driven from the top of the organization.
A leader who respects the complexities of change can help people navigate that change and deliver success. Moreover, leaders can make a stressful experience, become an extremely rewarding one. When the change is successful, people look back on the experience with fondness. The stress and anxiety, in time, become positive feelings of growth and empowerment.
Reflecting back on my pivots, they were all miserable, stressful, and exhausting…and I would do it all over again in a flash. I look at them now with pride.
There is a reason companies like Nintendo made their change. The path from rice to Donkey Kong was undoubtedly rough. Yet, could you imagine anything different? Pivots may be painful, but they are a necessary part of building a great business.
Go forth and pivot.