Growth is one of the most important measurements of success for a business. A long history of growth does not necessarily lead to continued growth. The mainframe computer companies had decades of strong growth that was wiped out by the mini-computer and the PC. They saw the tide turning but were slow to pivot. Why? Let’s call it the “legacy tax”. It’s hard to put resources into funding a totally new line of business when it takes away from the roadmap of your legacy products. The legacy tax has doomed several past household names.
So how does a company successfully pivot into a new market? A successful pivot starts by taking an inventory of your current situation. Is a pivot a do-or-die situation or an opportunistic pivot to accelerate growth? Being able to recognize and come to terms with where your products are in their lifecycle is hard. The legacy tax often blinds managers from the real situation. It’s easy to fall into the trap that the good times will continue to roll because it’s what you know and it has led to your success. Netflix is a good example of a company that was able to successfully pivot. They went from physically renting movies to online streaming. Redbox was killed by the legacy tax. Redbox continued taxing themselves by investing in their old product as the market moved past them.
Pivots come with risk. Do-or-die pivots have risk factors like startups. An opportunistic pivot with the potential to increase the value multiple a company (like Netflix did) usually has less risk as the company’s existing customer and partner ecosystem can help with the pivot. This is not to say that company’s existing customer and partner ecosystem can’t help with a do-or-die pivot. It’s a matter of timing. Your existing customer base is invested in the company’s past success and could hold you back when the company is in a situation where it needs to pivot quickly.
Successful do-or-die pivots are rare. An opportunistic pivot into an adjacent high-growth market being done by a healthy business is more likely to succeed. Regardless of the type of pivot, there are several factors that will determine the outcome. Can your existing go-to-market be leveraged or does a new route need to be created? Are you gaining a first mover advantage or being a follower? Can the existing team manage the pivot or does new expertise need to be recruited? The pivot will mean a new or modified product/service, can you deliver it within the opportunity window? Will you have a defendable advantage compared to competitors? All of these factors will need to be considered together.
My first pivot turned a $2.6 Million seed investment into a $450 million exit in eight months – https://www.cnet.com/tech/mobile/cisco-snags-storage-technology-for-450-million/
I was the founding CEO of NuSpeed, Inc. and the author of our original business plan. We initially set out to build a device that would increase the network performance of servers. Then at a customer visit, someone pointed out that a nascent new standard for moving data over the internet may be a better way of increasing server performance and data accessibility. Pivoting after being in business for only three months seemed crazy. I saw this as a first mover advantage into what was going to be a multi-billion-dollar market. Our existing platform was perfect to support the pivot. Pivots are hard. When I suggested the pivot, my co-founder who came up with the original product idea did not agree with the 180-degree pivot. Eventually he came around and we went on to partner with IBM, Veritas Software, Cisco Systems, Brocade Communications, and Intel. All of which had an invested interest in what NuSpeed was creating. In the end, we agreed to be acquired by Cisco Systems. There is of course a lot more to the NuSpeed story than I can fit into a Blog post.