“Everything didn’t go according to plan”: how to change the course of product development and not lose

There is a misconception that a change of direction is a failure for a startup. We believe that a turn is an integral part of the development of any business. After all, it’s better to understand in time what you’re doing wrong and change the development vector, than ultimately lose everything and not solve a single user problem.

Any doubts? Then the time of proofs on the example of large companies. In the 2000s, Kevin Systrom began to study programming and created the Burbn photo sharing application with wide functionality reminiscent of something between Foursquare and Mafia Wars.

The company grew, but at a very slow pace. Many features were not successful, as they were better implemented in Foursquare. After coming to the company of Mike Krieger, entrepreneurs decided to “discard” everything that was unnecessary and focus on a simple exchange of photos and videos with filters and social distribution (which was most in demand among users, but slowly developed due to other functions complicating the interface).

As a result, in 2012, the project, known today as Instagram, was bought by Facebook for $ 300 million.

And there are a lot of such stories. Further in the article we give some more examples for illustrative purposes. In the meantime, we continue to discuss bends. Think at what points a U-turn is needed? We’ll talk about this next, you can check your answer options.

How to understand that the time has come for a reversal?

Startup does not solve the problem of users

If you have launched the first version of a product or MVP, but have not received the expected demand from the target audience, think about pivot. There are two options: to determine a new target audience that the current solution will interest, or to implement new functionality that will solve the acute problem of current consumers.

This is the most common reason organizations have to make turns. Not only that, many successful companies today went through this. For example, Yelp in 2004 was a recommendation service. The idea is dubious and not surprising that it failed.

But during the first tests, the founders found that it was interesting for people to write reviews on the local business and read the same notes from other users. The functionality of the platform was changed, the development course was sent in the other direction. Today, the annual turnover of the company is $ 500 million, and the monthly audience is 50 million users.

Startup fails to attract the right users

This situation most often arises for two reasons: startups did not do MVP to test the hypothesis, or the target audience was not as large as planned.

The way out of the situation is to expand the functionality of the product to attract new users or completely change the development course to another audience.

Attracting and retaining users is too expensive

The product works, solves the problem of the target audience, but the strategy of attracting and retaining users is inefficient – the cost of attracting new and retaining old users is high. In such situations, they do not fundamentally change the vector of startup (business) development, but think about the turn of the monetization method, growth mechanism or distribution channel (we will talk about them later).

Customers are not willing to pay startups

The business functions stably, solves the problem of consumers, but they are not ready to pay the set cost. This happens because of too high a price or a mismatch in the cost functional. In this situation, there are two options:

1. Reduce functionality and reduce the price of the product.
2. Expand functionality and find a new solvent audience.

Which option to choose? You decide, based on managerial experience and objective arguments (for example, tests performed).

Manufacturing a product is too expensive for a startup

This problem is most often faced by companies engaged in the production of physical goods. However, IT startups sometimes encounter it.

In this situation, they are looking for ways to reduce the cost of the product. Moreover, the problem often lies not in production itself, but in related directions. For example, the high costs of maintaining an online store. Sometimes they abandon sites and switch exclusively to applications. All this is a platform pivot, which we will talk about in more detail below.

Katerina Fake and Stuart Butterfield, the owners of the Ludicorp startup, initially developed Flickr as an online game, but then realized that their technology could solve a more global problem. They made a platform pivot and concentrated on photosharing. By the way, the original game was never released, and Yahoo! bought the project in 2005. (transaction amount is still unknown).

If you encounter one of these problems, conduct an analysis and make a quick decision about a U-turn. So you save money and put the business on the path of sustainable development. In addition, you already have real data about user behavior, their needs and problems. This will simplify further development.

Types of pivot

When you have determined the reason for the unsuccessful launch of the product and decided on a turn, select the optimal type of pivot for your situation. Next, we will consider all the existing options.

Pivot zoom (Zoom-in pivot)

One of the functions of the current service becomes a separate product. The creators of Instagram took such a path: they left the exchange of photos and videos with filters and social distribution from the previous Burbn service.

Pivot reduction (Zoom-out pivot)

The current product is becoming part of a new multifunctional service. Similarly, Yelp developed – from a service of regular e-mails of recommendation requests it turned into the largest portal with reviews about local business.

Pivot consumer segment (Customer segment pivot)

The company understands that it does not solve the problems of those consumers on which it was initially oriented (as a result of which the business is developing slowly). As a result, they switch to the segment in which the product is in demand.

Pivot customer needs (Customer need pivot)

At the moment, the service solves the problem of the audience, for which it is not so important. But on the other hand, the collected data gives an understanding that there is another segment in which the demand for the product is higher.

The customer needs pivot at the first stages of development was made by PayPal. Initially, the service served electronic auctions and was not very popular. The creators realized that they were able to solve the problem of another segment and switched to online transfers.

By 2002, PayPal had become so popular that 40% of transactions on eBay were conducted through it. The e-commerce giant bought the company for $ 1.5 billion.

Pivot platforms (Platform pivot)

Transition from application to platform and vice versa. A striking example is the cessation of Palm Pilot support by startup Cofinity in favor of developing a web platform. As a result of such a turn, a small organization managed to grow to a large company, known today as PayPal.

Pivot monetization method (Value capture pivot)

Change the method of monetization of the product. For example, access to the service was opened for a one-time payment, because of which income was not enough to cover expenses. Subsequently, they switched to a monthly subscription and began to receive stable profits.

Pivot business architecture (Business architecture pivot)

There are two popular business models:

1. Complex systems – high profit margins and small sales volumes.
2. The volume of operations is a low share of profits and large volumes of sales.

As a rule, the first corresponds to the B2B model, and the second, respectively, to B2C. A striking example of a pivot is Slack, which they did not develop as a familiar messenger, but offered it as a convenient means of interaction for business.

Pivot of the growth mechanism (Engine of growth pivot)

If a company develops slowly, they change the growth mechanism: choose the one that most suits the set goals. Experts distinguish three types:

1. The sticky growth mechanism is to attract and retain customers over a long period of time.
2. The mechanism of viral growth is the promotion of the product at the expense of existing users (for example, a referral program). With this mechanism, a significant part of the marketing is taken by current customers.
3. Paid growth mechanism – increasing the profitability of each paid client or reducing the cost of its acquisition.

Channel pivot

This turn means changing the channel through which the company delivers the product to the client. For example, an online store abolishes its own platform and switches to Ozon.

Pivot Technology (Technology pivot)

Transfer of current functionality to a new technology platform. Pivot is typical for stable companies that already have consumers, a workflow has been established, but there is not enough capacity to serve everyone. For example, Spotify did such a turn when it switched to Symfony2.

Now you know that mistakes or improper planning is not the end of a startup, but sometimes its beginning. This can be seen in the examples described in the article. The main thing is to accurately determine the reason why something went wrong and choose the right type of pivot. If you have any questions, ask them in the comments, we will be happy to answer them.

You can learn more about Pivot at our annual course “Profession: Product (0 to PRO)” Find out the details!