As politicians enjoy saying, “the time to repair the roof is when the sun is shining”. This is also true of businesses. Pivoting a firm in a crisis might be necessary, but doing so when things are going well can often be more conducive to long-term success.
One of the clear traits of most successful entrepreneurs is that they are prepared to take risks. But striking the right balance is vital. It is important to maintain focus on the core profitable business and ensure that the creative team does not simply apply a scatter gun approach to new ideas which may divert management time and money. Some business owners spend years and burn through a lot of cash on an idea that was destined to fail. A lean startup approach to test a proof of concept is as useful for discovering bad ideas as it is for confirming good ones.
When successful entrepreneurs opt to pivot, they quickly assess the new business model to try to determine whether it has a clear path to profit. They take soundings from valued clients and partners to avoid running down blind alleys. They ensure that key stakeholders – particularly investors and senior employees – share the vision and agree that the pivot makes sense. Senior personnel may be resistant to change, as they may be unsure about how it will impact their standing and future in the company. Keeping all stakeholders on side is therefore crucial. It is also important to remember that existing external investors will have invested on the basis of an agreed business plan, so any material change in direction or new business model will need to be discussed and agreed in advance.
One useful way for startups to pivot and scale without the huge costs of new offices and employees is through strategic partnerships. Large companies are great at doing things at scale, but there are countless examples of them wasting huge sums trying and failing to develop products internally. Startups often have the technology ready to go, but not the scale, funds and know-how to penetrate new markets or to access multinational clients. A strategic alliance to combine complementary products or business ideas to gain access to new clients or markets can create the pivot moment for growing businesses.
Strategic partnerships aren’t without risks, though. Business owners should start with a pilot programme to test whether they can work together, in the process building the required trust and confidence. Many business leaders come to me having burnt their fingers after signing an exclusive multi-year agreement to work with one partner, only to find that the partner has failed to deliver on their promises. Only under very specific circumstances should entrepreneurs opt for an exclusive arrangement. Multiple routes to market and the flexibility to change partners if things aren’t working out are often critical to long-term success.
Founders must also make sure their IP and technology is protected before they move forward with any discussions with potential strategic partners. There is always the risk that the intended partner is on a fishing expedition – effectively outsourcing their R&D function without paying for it – or they are using the opportunity to exploit new ideas that have not been properly protected.
Assuming the risks have been weighed up, however, a pivot for the right reasons can be the making of a business. After all, complacency – particularly in tech firms – can often lead to failure. You may have a successful business today, but the next technological wave may be the one that sinks it. Having the courage to pivot when you are winning is more important than ever.
This article originally appeared in City A.M.