How to Know It’s Time to Pivot Your Business Model

Running a business isn’t easy, sometimes it feels like cash flow issues, competitors, declining sales and declining customer engagement are trying to crush you at every opportunity.

Sound familiar?

It may be time to consider changing your business model. How do you know when it’s time to make this change? Let’s take a look at the world of business fundamentals and how they can help your business stay on track.

Key Takeaways

  • Most businesses will have at least 1 business model – in some cases this is inevitable due to changes in the economy, customer habits or sociological reasons.
  • Follow your gut – if you’re constantly struggling to break even, your lifetime customer value is slow, or you’re experiencing a lot of competition, these may be signs to change your business model.
  • Some of the world’s leading businesses have pivoted – YouTube, Netflix, Slack, Instagram and Groupon. Understanding how and why to pivot can make your business bigger and more successful!

What is a Business Pivot?

A business point is a strategic change in the direction of your company. This may involve changing your product, service, target market or revenue model. Think of it as steering the ship in a new direction based on market demand, feedback, or even the winds of new opportunities. While pivots may seem risky, they take a long time to survive long-term.

Some of the largest companies are operating successfully today. YouTube started as a video dating platform, while Slack was originally a gaming company called Tiny Speck. And according to research 70% of startups make at least one turn during the journey.

8 It signals that it’s time to change your business model

1. Stagnant or declining sales

If your revenue has decreased or is starting to decrease, that’s a strong indicator that something isn’t clicking. A Startup Genome report found that 74% of high growth startups fail due to premature scalingoften because they do not turn around in time when initial growth slows down. If your product is no longer exciting customers or market fit, it’s time to rethink your approach.

2. Increased competition

If your competitors are stealing all your customers, it could mean they’re tapping into something they’re missing. Sometimes they may use a niche you haven’t considered or find ways to serve your market more effectively. Companies that focus on differentiation during a pivot 2.5 times more seeing higher returns than those associated with the status quo.

3. Customer feedback is not positive

Are you getting complaints, or worse, complete silence? No one likes to be ghosted. Customers who do not leave feedback may indicate that they are not engaged with your product. Approximately 90% of dissatisfied customers will leave without complainingmeaning that by the time you see it, most of your potential buyers are already gone.

4. You lose interest in your own business

Passion fuels creativity and perseverance! Do you want to not be tied to your work all the time? If so, you may need to reevaluate your path. Founders who lose passion for their product often struggle to inspire employees and customers, which means your business will never flourish.

5. The burning rate is not continuous

Your burn rate – AKA how fast you burn through your money – is one of the most important metrics for any startup. According to Forbes, 38% of startups fail due to running out of money. If your financial runway is shrinking and profitability is out of reach, it may be time to switch to a more sustainable business model. Take a step back and evaluate what isn’t working and look to other companies for inspiration!

6. You’re Constantly Putting Out Fires

If you always feel like you’re dealing with one crisis after another, it could be a sign of underlying problems with your business model. A constant state of firefighting usually indicates a lack of scalability or structural inefficiency.

7. The Market Is Changing

External factors such as technological advances or changes in consumer behavior can make a once-existing business obsolete. For example, the shift to digital-first operations during the COVID-19 pandemic saw countless businesses turn to survive. 91% of enterprises ultimately accelerating their digital transformation.

8. You’ve Found a Better Opportunity

Sometimes a new, more profitable opportunity arises while running your business. Ignoring it because you’re so focused on the original plan could mean missing out on long-term growth. A Harvard Business Review study found that businesses that turn around effectively based on market insights 36% will be more successful than those without.

Questions to ask yourself before changing your business

Before rushing to pivot, make sure it’s the right decision. Here are the main questions to ask:

1. What is the root cause of the problem?

Is it a product problem or a marketing failure? Determine where the problem is. A failed marketing campaign doesn’t mean your product is flawed – it could just mean you’re not targeting the right audience. Take a look at this guide The ultimate content marketing strategy for startups to give you some inspiration!

2. Is there a market for the new direction?

A pivot without a clear market is risky. It’s like a blind date. You may or may not get lucky! Make sure there is a demand for the destination you are considering. 42% of startups fail because they don’t have a market need for their product, so it’s very important to do your homework before changing course.

3. Do you have the resources to pivot?

Spinning is not free. This requires time, capital and often new employees or technology. Make sure you have the resources you need for a successful transition.

4. Will This Pivot Align With Your Long-Term Goals?

A pivot is a short-term move that leads you to long-term success. Make sure your new direction supports your larger vision. You don’t want to turn around just to survive if it sacrifices your company’s future potential. If you want some tips on how to set profitable business goals, read this quick guide!

5. How will your existing customers react?

Will your loyal customers still be interested in your new direction? While some customers may accept the change, others may leave, which can impact your bottom line in the short term. Weigh the risks and rewards of losing customers by winning them.

Different pivot types to consider

If you’ve decided that a pivot is right, the next step is to decide what kind of pivot makes the most sense for your business.

1. Zoom-In Pivot

Is your product relevant to your market? Take a look at this guide How to find the right one for your startup. A great tip is to focus on one successful feature of your product and make it the basis of your business. For example, Instagram started as Burbn, a complex signup program, crazy right?! When users noticed the photo sharing feature, they grew it and it became a huge success.

2. Distant Pivot

In contrast to scaling, a scaling pivot expands your offering to provide more value to your customers. If customers want more or if your current product is too niche, scaling can help broaden your appeal.

3. Customer Segment Pivot

Sometimes the problem isn’t your product, it’s who you sell it to. Targeting a new customer segment can open new doors. Airbnb initially targeted a niche market of conference attendees, but when they expanded their audience to anyone needing a short-term stay, their business took off. And honestly, how many times have there been you Have you used Airbnb?

4. Technology Pivot

Switching to a new technology or platform to improve performance or scalability can be a game changer. This kind of pivoting is especially common in software and technology companies, where rapid advancements can quickly render old solutions obsolete and no longer cost-effective.

5. Revenue Model Pivot

Are you making money the right way? Is your business making any money at all? no? Well, if you need to shed some light on why, read this guide. A revenue model pivot involves changing the way you make money. For example, many software companies have benefited from more consistent cash flow by moving from one-time purchases to subscription models.

6. Channel Pivot

Changing how you deliver your product, whether it’s moving from physical retail to e-commerce or changing your sales strategy, can unlock growth. Shopify has seen tremendous growth, helping brick-and-mortar businesses transition to selling online during the COVID-19 pandemic. 96% revenue growth in 2020.

7. Product Pivot

It involves leveraging your existing technology or platform to solve a different problem. For example, Twitter started as a podcasting platform called Odeo before switching to microblogging when podcasting became oversaturated. Then it was acquired for $44 BILLION, so don’t be afraid to change your tactics.

8. Complete Business Model Pivot

The most dramatic of all pivots, it involves completely changing how your business operates. It’s risky, but if done right, it can be transformative. For example, Netflix moved from DVD rentals to streaming and now their streaming revenues are surpassing $31 billion a year.

Changing your business model isn’t about accepting failure, it’s about learning and adapting. Recognizing the signs, asking the right questions, and choosing the right type of pivot can set you up for future success. Remember that some of the world’s most successful companies, from Slack to Netflix, only found their stride after a well-timed turnaround. So don’t be afraid to make this change, it just might save your business!

Want more advice on whether changing your business model is a good idea? Join Foundr+ for $1 will give you access to 1000+ business lessons, 30+ courses and world-class instructors and live coaching sessions. If you’re not sure about the right next step for your YouTube business, join The Foundr+ community!

Frequently Asked Questions:

What are the signs that it’s time to turn?

Signs that it’s time to turn include:

  • A decline in revenue or customer base.
  • Constant firefighting of problems.
  • Major changes in the market, such as technological advances or new competitors.
  • Financial difficulties such as running out of cash. If your business isn’t growing or maintaining traction, it may be time to reevaluate your model.

What is the difference between a pivot and a business model change?

A pivot is a specific, strategic change to improve an existing business model, while a business model shift involves completely reworking how a company delivers value, generates revenue, or interacts with customers. A pivot is generally more focused and aims to improve one part of the business, while a model shift is broader and may involve starting from scratch in some areas.

How risky is running a business?

Pivoting involves risks because it requires an investment of time, money, and resources. However, it is often necessary for long-term survival, especially when market conditions change. The key is to base it on data and feedback. According to research, startups that pivot early have a higher success rate than those that last too long with a failed strategy.

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