Types of Business Model Pivots in Lean Startup
Pivot is one of those words that some Agile people like to throw around to sound hip and cool, but often use incorrectly. I have observed in many conversations where people use the word “pivot”, they tend to mean any type of course correction in product strategy (hey…I’ve been guilty of this myself). While this is kinda-sorta-true, this sloppy use of the word does a disservice to the robust concept of a pivot defined by the Lean Startup movement. So how does Eric Ries (@ericries), the author of The Lean Startup, define a pivot?
“…structured course correction designed to test a new fundamental hypothesis about the product, strategy and engine of growth.”
So a pivot is not any simple change based on a hunch, but a structured experiment to test a hypothesis about the future growth of the business. As it turns out, Eric Ries has defined ten types of pivots.
- Zoom-In: in this situation, a single feature becomes whole product and everything else in the product is cut away. This pivot helps organizations find and retain focus by delivering the minimum viable product (MVP) as fast as possible.
- Zoom-Out: what was considered the whole product now becomes a single feature of a much larger product. This is the reverse of the zoom-in pivot. Companies use this pivot when they have data that shows a single feature set, i.e. a product, is insufficient to support the customer, users or market segment and decide to make the product more expansive.
- Customer Segment: sometimes after a product is launched, it attracts real customers, but not the customers in the original product vision. While disappointing, this pivot encourages the product designers to reposition and optimize the product adoption by a more appreciative market segment.
- Customer Need: in some situations early customer feedback indicate that the problem being solved by the product is not very important. Other times, the customer does make money available to buy the product. This pivot requires the product team to find a real customer problem worth solving and worth paying for.
- Platform: this pivot refers to a change from an application to a platform or vice versa. Many product designers envision their solution as a platform for future products. Most customers buy solutions, not platforms.
- Business Architecture: Geoffrey Moore, author of the famous book Crossing the Chasm, observed many years ago that there are two major business architectures: high margin, low volume (complex systems model) or low margin, high volume (volume operations model). This pivot recognizes that a company cannot do both at the same time.
- Value Capture: this pivot refers to the monetization or revenue model for the product. When using this pivot, leaders changes how the company captures value. Many software products today offer free versions with minimally sufficient functionality. Later, they ask users to pay to unlock greater power. Unfortunately, the free model doesn’t capture much value for the business.
- Engine of Growth: there are three primary growth engines for a startup: viral (users promoting the product), sticky (customer retention) and paid growth models (advertising). Picking the right model can dramatically affect the speed of growth and profitability. This pivot seeks to change the engine of growth.
- Channel: there are many different ways, or channels, to deliver a product to the customers. This pivot asks the business to select a different product delivery channel with greater effectiveness. A channel pivot usually requires unique pricing, feature and\or competitive positioning adjustments.
- Technology: sometimes a startup discovers a way to deliver the same solution to the customer by using a completely different technology. Companies make this pivot when new technology can provide superior price and\or performance to improve competitive position.