By Anshu Sharma

Some of the major Silicon Valley companies we know, like Slack and Twitter, are the result of successful “pivoting”. But what is a “pivot” and do we really understand what makes a good pivot?

Most people think that successfully pivoting a business is an unknown “dark art”, or achievable only by sheer luck. But, what if we could understand the different types of pivots, and how to choose the right one for your startup?

Over the years — having invested in over 50 startups, worked at top tech companies, and founded three startups — I’ve learned a few lessons about what makes a great startup pivot.

To deconstruct the pivot, let’s consider three questions:

  • What does it really mean to “rotate a business”?
  • What can you pivot around?
  • What’s a lesser-known (but one of the best) way to pivot your startup?

From a first principles perspective, pivot means a change of direction based on your current position. And that also means choosing something to keep constant while you change everything else. Thus, a business pivot is a radical change in a business where certain aspects remain constant. It’s a revolution short of a total reset. Here are some examples :

  • Twitter moved from an audio podcast platform called Odeo to his current social network
  • Soft went from making a game called Glitch to a business messaging app

Basketball provides a great metaphor for pivoting a business: a basketball player whose original path is blocked must choose a new direction before shooting. But, they also have to choose which foot to keep planted on the ground while they rotate the rest of their body. Similarly, a business looking to pivot must choose a new direction and also decide what to keep constant as other aspects of the business are transformed.

So what should a business consider when it needs a new strategy and it’s time to pivot? With such a high-stakes choice, it helps to have a clear understanding of your options.

A basketball player can choose between his left foot and his right foot when trying to pivot. But for startups, there are several things a company can keep constant as a “full point” when pivoting, including their:

And, for each type of pivot, it’s good to consider how different companies have made it work.

Pivot on your product

The most common type of pivot is to keep a product (or aspects of it) but look to new markets or new customers. This is the most common approach because founders are emotionally attached to what they have already invested in. They are also looking to recoup sunk costs by finding something to salvage from the initial R&D efforts.

For example, let’s say you’re trying to sell HR payroll transaction processing software to a client and discover that there’s a better market for the basic and innovative features you’ve created in e-commerce. Here, you’re getting a lot of your existing product back while changing the rest of your business.

YouTube and Play-Doh both provide good examples of pivoting on a product:

  • Youtube started as a dating site where users could upload videos. They kept the video platform (product) and just pivoted their target audience to anyone who wanted to share videos online.
  • modeling clay was originally sold as a wallpaper cleaning putty in the 1930s, but sales declined as the wallpaper went out of fashion. They changed their customers (from housekeepers to children) and their market (from cleaning products to craft supplies) while keeping their product largely unchanged.

Pivot in your market

Another pivot approach is to stay true to the market you originally targeted, but reinvent or completely replace your product. This seems like a harder step to take because it means deleting what you created. But you’re leveraging your company’s domain expertise because you’re using what you’ve learned about market needs. And that knowledge helps you create a product that is more likely to succeed.

Because your product does not match your original market, you replace it with a new product that better matches the market. You can grab code or functionality, but that’s more than a goal.

A good real world example of swivel in a market is PayPal, which remained in the online payments market while transitioning from a payment encryption service to a PDA-to-PDA payment application and finally a web-based payment processor. They used the information from each unsuccessful product to propel them to the next and, ultimately, to success. And, they changed their customers along the way: from payment providers to PDA users, and finally to all Ebay users.

You can read more about pivoting in your market from Marc Andreessen’s post, The only thing that counts.

Pivot on your client: the least known pivot

A lesser known approach pivoting your business means staying with your customer while changing your product and your market. The benefit of this pivot is that you leverage the knowledge you’ve gained about your customers’ needs so that the next product you build is tailored to their needs (and the needs of other potential customers). Instagram and Netflix provide great examples of pivoting on your customer.

Instagram first created a product called Burbn which was similar to Foursquare, focused on location-based registration. But, they noticed that photo sharing, comments and likes were the most used features by customers. So, they cut out all the other features to create the product their customers wanted.

netflix first created a DVD-to-email service to launch its subscription video content service, as the Internet did not yet offer enough speed and bandwidth to reliably deliver video content. While keeping their customers, they gradually replaced their DVD by mail offer with a streaming video offer. Both were centered around content catalogs, but that was all about to change — in fact, Reed Hastings literally created a separate office for the streaming unit.

In my experience, enterprise software vendors are particularly good at customer pivot. If you’ve spent years talking to HR leaders about building a benefits product, you’ve learned a lot about this marketer and its users. Although not officially a pivot (because the team changed companies), the founder and first team of Zenefits looked to their client when they built an integrated IT and HR product to Ripple.

When is the lesser known pivot the best?

Instagram and Netflix provide good examples of how pivoting on your customer can be a very successful strategy. While it’s never comfortable for a founder or leader to throw away much or all of the product they’ve built because throwing away R&D seems like a failure, I would advise leaders to embrace that discomfort. In short, don’t fall for the sunk cost fallacy.

Because if you can pivot on your customer, relying on what you know about them and their needs, you have a huge advantage. You retain something more valuable than the code – you retain deep know-how about what your customer cares about: their real problems and needs, as well as their budget constraints.

The pivoting exercise ultimately comes down to the team making an instinctive call on what they think is far more likely to succeed than the approach they’ve taken so far. So, trust your instincts to choose when and how to pivot on your product, market, or customer.

Finally, I would like to share the story of what I would call an anti-pivot. Veeva, one of the most successful enterprise SaaS companies ever, originally planned to build a platform for several different verticals. But they were so successful in their very first vertical (pharmaceuticals) that they reached over $1.5 billion in revenue and $25 billion in market capitalization. They decided to stop building for other verticals and just focus on this huge opportunity, and its huge TAM.

May we, the founders, be lucky enough to need an anti-pivot.