Pivoting a business involves strategically changing course in some way, with the aim being to improve viability or increase profits.
If pivoting is something that you are contemplating, it’s important to first understand what it actually entails. We will also look at the most common reasons to pivot, how to do so effectively, and whether the situation warrants the formation of a brand new company.
What is a business pivot?
A pivot occurs when a business shifts its strategy and moves in a new direction. It can involve fundamentally changing the entire nature of the business, essentially starting again from scratch. Or, it can be a small but significant change to improve efficiency, maximise potential, or breathe new life into a business that is failing to thrive.
The main aim of a business pivot is to boost revenue or increase viability in the market. Perhaps some aspect of your existing business model is not working, demand and sales have declined after initial success, or you’ve identified a new opportunity that you want to explore.
Reasons for pivoting a business
There are countless reasons for pivoting a business, but some of the most common signs that indicate the need for strategic change are:
1. Lack of demand
If a business is failing to attract new customers and/or is losing existing customers, the first step is to determine the exact cause.
Is the problem with the product itself? Perhaps it is no longer relevant or desirable, the quality is poor, or it’s too expensive compared to competitors’ offerings.
If the product isn’t the issue, the underlying cause could be a lack of brand awareness, unreliable stock availability, ineffective distribution channels, or poor customer support or delivery services.
It could even be that the business is targeting the wrong audience – in which case, pivoting the marketing strategy may be all that’s required.
2. One product or service is consistently more popular than others
Some businesses inadvertently end up with one particular product or service (or a specific feature of a product or service) that is more popular than everything else they offer.
When this is the case, it makes sense to focus efforts and capitalise on what’s working best. This may mean that the business needs to make changes to its less popular products – or stop offering them entirely.
3. Cash flow problems
Many reasons contribute toward cash flow problems, including low sales and high costs. To address this issue, the business may need to:
- Offer different products or services
- Improve certain aspects of its existing products or services that are causing poor sales
- Change its target audience
- Introduce a new marketing strategy
- Reduce manufacturing costs by using different technology or processes
- Find new manufacturers or suppliers
- Improve skills and efficiencies in the workforce
- Explore new distribution channels (e.g. business to business sales, rather than selling direct to consumers)
All of these changes are types of business pivots that may be implemented to improve cash flow and viability. The key is identifying which aspect of the business needs to change.
4. Outdated products or services
A new product or service may be popular at first, but it doesn’t take long for the latest trends to become outdated. To stay relevant and in demand, businesses need to be ever-evolving and attuned to what customers want.
Sometimes it’s not the products that are outdated, but rather the way they are marketed or sold. Refreshing the brand image could help to win back customers or appeal to a new audience. Or, perhaps the business needs to embrace the digital world and start selling online.
Pivoting to e-commerce was a common strategy during the pandemic, helping many firms to continue trading throughout. But online shopping was experiencing exponential growth long before COVID-19 was thrown into the mix.
This shift in consumer behaviour is here to stay, so any business that wants to remain relevant needs to be online, keep up to date with industry trends, and accommodate the changing needs of their target market.
5. Lagging behind the competition
Every business has competitors. However, when a company is consistently playing catch-up with its rivals, a business pivot is urgently required.
If the business is offering the same products or services as its competitors, can it differentiate itself in a way that appeals to a larger segment of the target market? This may involve changing the product or service, beating the competition on price or quality, or targeting a new audience.
An idea may seem unique at first, but bigger companies with greater resources and loyal customer bases can quickly swoop in with better, more competitively priced offerings.
Sometimes an industry is just too crowded, making it impossible for startups and small businesses to compete. In such instances, the best solution may be pivoting to a new product or service offering entirely.
6. To pursue a new opportunity
Business owners often identify new opportunities that they want to pursue, even when they’re already successful. It can be anything from a new or updated product, a different customer base, a new geographical market, collaborating with another business or an influencer, or changing the core values of the firm.
Pivoting a business that is stable and thriving can be risky, but it’s also important for long-term success to recognise and seize opportunities when they present themselves. This can help businesses to stay one step ahead of the competition.
How to pivot your business successfully
Identifying the reason to pivot is only the first step. To minimise risk and increase your chances of pivoting a business successfully, you need to:
Gather and listen to feedback
Information gathered during the course of running your business is key to understanding what’s working and what needs to be improved. This includes indirect and direct feedback from customers, market research, sales figures, and insight from staff. All of this valuable data will help you to make informed, strategic decisions and identify when it’s time to make some changes.
Analyse the competition
Before pivoting a business, analyse your competitors. What are they doing well? Think about how you can improve on their offerings. Is it possible to compete and still turn a significant enough profit? Look at where they are falling short. Are you making the same mistakes?
Ensure any changes you make are sustainable in the long term
It’s important to know exactly where you want to go before pivoting a business in a new direction. Otherwise, you may simply end up encountering a different problem further down the line.
Whether your startup has failed to take off, or your previously successful business has plateaued, ensure that any changes you make provide opportunities for growth and are sustainable in the long run.
When you have identified a problem or opportunity, you need to act quickly and decisively. By doing so, you can begin to direct money, time, and essential resources to your new strategy. The window of opportunity may be short-lived, so don’t waste time procrastinating once the decision to pivot has been made.
Examples of business pivots
Business pivots happen all the time, usually in response to industry changes, consumer preferences, or other external influences. It’s a strategy that has been successful for businesses of all sizes operating across all industries.
Netflix is one of the most famous examples, having successfully pivoted twice in response to evolving consumer trends.
Founded in 1997, Netflix initially provided DVD rentals by post, subsequently pivoting to a digital streaming service in 2007. Then, in 2013, the business pivoted a second time by producing its own content.
These innovative strategies have enabled Netflix to remain relevant and highly profitable whilst maintaining its original vision.
Pivoting in the pandemic
During the pandemic, many businesses had no choice but to pivot in order to survive.
Hospitality establishments started offering takeaway and delivery services. Gin distilleries diversified by manufacturing hand sanitiser – whilst somehow also managing to sustain the UK’s impressive lockdown libation habits.
Fitness studios transitioned to online classes, and fashion retailers turned their focus to activewear, loungewear, and an inordinate range of face masks. Many bricks-and-mortar stores were also forced to pivot to e-commerce for the first time.
More recently, the British sandwich and coffee chain Pret a Manger successfully pivoted by shifting its focus away from city centres toward regional towns and suburbs.
This, along with a drinks subscription service, has helped the business to increase its profits (after facing significant losses throughout 2020 and 2021) and boost customer loyalty.
Do I need to form a new company when pivoting a business?
In most cases, there is no need to form a new company when pivoting a business. Whether you’re a startup or an established firm, most changes can be implemented to your existing business structure.
However, there are some situations where setting up a new company would be beneficial or essential, for example:
- Growing a sole trader business – changing from sole trader to limited company can open doors for small businesses when operating in certain industries, bidding on contracts, or expanding into new markets
- When the existing company has suffered reputational damage that may be hard to overcome
- The existing company has a poor business credit score that could hinder its ability to pivot successfully
- To create a subsidiary of an established company – to explore a new opportunity, whilst maintaining continuity in the existing business
- When a startup fails to get off the ground – it is possible to change a company name, rather than form a new company, but sometimes it can help to just start afresh with a clean slate
A business pivot is a last resort and should only be considered when absolutely essential. It is a significant undertaking with no guarantee of success – but that’s the case when starting any business in the first place. So, research and planning are crucial before taking any steps.
Whilst there is no absolute need to form a new company when pivoting a business, there are times when it may be of benefit – as outlined above. This decision is easier if you have a clear understanding of why you want to pivot and where you want your business to go.
We hope that this post has provided some useful insight into the topic at hand. However, if you have any questions about pivoting your business or forming a limited company, please leave a comment below.