What is a Pivot, and Does Your Startup Need One?

There’s a new vocabulary around entrepreneurship this year: it’s from the Lean Startup movement, and it is centered around making effective use of resources to reduce the chance of failure. Started by Eric Ries, it has captivated not only Silicon Valley, but startups worldwide.

The principles of the Lean Startup are nothing new, but they often seem novel to the engineers who design today’s products. The engineer looks to finish or improve the product, forgetting that the most important part of a business is not the product, but the customer. Without the customer, there simply is no business and actually not much point in improving the product.  It’s the old idea of features (what the product can do) v. benefits (what the customer needs). Customers pay for benefits, not features.

My friend Dave McClure has put it down this way in his Startup Metrics for Pirates:

So the guiding principle of the Lean Startup movement is to get to market as quickly as possible with a minimum viable product (MVP), measure the response of customers through customer development, iterate quickly, and if you don’t see a sustainable business in the offing, PIVOT. Everybody in business has now adopted this term.

This term pivot has come to mean many things. It’s probably a good idea at this point to do a re-set on it.

What pivot doesn’t mean is abandon your idea or your vision. What it MAY mean is change your business model.

I can illustrate this through a client of ours, Jimdo. Jimdo started before the Lean Startup hype began. Therefore, whatever moves the company made were made intuitively and organically. Jimdo wasn’t following Eric’s rules, and they weren’t even in Silicon Valley; in fact they were on a pig farm in Germany. But they came to the same place the Lean Startup movement begins: listen to the customer to make a product someone will buy. This, after all, is what builds a sustainable business.

Jimdo started as NorthClick,  three co-founders who wanted to build simple web pages for businesses.  After a short stint on the farm, they won a business plan competition, which gave them $20,000 with which to move to Hamburg and get an office.

Soon, friends were asking them if they could use the company’s technology for personal web pages. Clearly, the core techology was already quite good and easy to use. People were asking to become customers, even if they weren’t the people the founders expected.. And here was the pivot:

Over time, more and more of our friends asked us whether they could use our system for personal sites. We were really excited by the cool sites they created! Some used the system for pages about themselves, three guys used it to document their sailing trip from Germany to Sydney, Australia, some used their websites to promote their bands…and the feedback was just unbelievable!

That’s when the idea was born to give away what you now know as Jimdo. Simply put – Pages to the People!

The change was in the business model, not in the vision or the technology. By listening to people who wanted to become their customers, they found their “product/market fit”: the spot where their product hit an already-existing market. Jimdo now uses a “freemium” business model, in which entry level pages are free. That’s what customers wanted. And that’s how Jimdo actually got to revenue.

Once you have found the market, it’s easy to go after funding, because you don’t have to convince investors that your product has a market. You are asking for money to scale, and the risk is much lower for the investor. Jimdo  raised one round of funding, which brought it to profitability.

Now, with 4,000,000 global users, Jimdo still keeps a close watch on what customers want, releasing features that make sense: an integration with DropBox for areas where bandwidth for uploading images and video is limited, and a mobile interface.