Before Instagram was Instagram, it was Burbn—a location check-in app with photo sharing capabilities, named for the founder’s appreciation of Bourbon whiskey. Initially, with location apps like Foursquare already dominating the early 2000s, the app struggled to gain traction. Users were not checking-in and sharing their location with friends.
However, they were using the app to share photos. The team took notice and shifted their focus, renaming the application and focusing squarely on photo-sharing: creating filters and optimizing the in-app photo-taking experience. Of course, the rest is history. Instagram went on to be acquired by Facebook for one billion dollars, becoming one of the most successful social networks ever.
How did they achieve this? They successfully executed a business pivot.
In a crowded technology marketplace, people have unlimited options in nearly every category—whether that’s developer tools, productivity apps, or streaming platforms. Even a strong customer solution, a perfectly-followed business plan, or a beautifully designed app can fall below expectations, failing to garner the traction you hoped. In these instances, a business pivot can be a powerful strategy to reorient your startup in a different direction, capturing more customers and generating more revenue.
This article will examine the crucial signs that indicate when a business pivot is necessary for your startup, details on the different kinds of business pivots, and actionable steps for implementing a successful business transition.
A business pivot is a strategic realignment of a company in response to unmet business expectations, market shifts, customer feedback, or the discovery of new opportunities. It’s common for a business pivot to involve redefining the company’s original value proposition, product offerings, target audience, or current business model. This new direction can range from minor adjustments to a complete overhaul of a company’s business model or technology.
Pivoting is often necessary when a startup or small business faces stagnation, competitive pressures, or difficulty scaling, allowing them to better align with market demands, stay relevant, and maintain growth potential. However, it’s also common for established companies to make business pivots in order to maintain market dominance—for instance, Adobe changed their business model from licensing to subscriptions for their software in 2013, resulting in record revenue numbers.
A business pivot doesn’t necessarily mean completely changing the mission of your company, building a new product, and seeking out an entirely different customer base—all at once. In reality, a business pivot can be either small or substantial, targeting anything from the underlying technology of your app to the industry your platform is serving. Ultimately, all forms of business pivots aim to prevent startup failure.
The product pivot involves refining your product to better address customer needs or market opportunities. This might involve adding new features, deprecating underutilized ones, or modifying existing features. It could also mean developing an entirely new product.
In this case, a company transitions from offering a single product to providing a comprehensive platform that includes multiple products. Creating a broader ecosystem allows startups and small businesses to potentially attract a larger user base, challenge a broader range of competitors in the space, while adding additional streams of revenue.
A technology pivot occurs when a startup shifts its core technology, or underlying infrastructure, to better address customer needs or take advantage of new technologies or evolving market opportunities (e.g. artificial intelligence, blockchain technologies, etc). This might mean adopting a new technology stack, leveraging existing technology in a new way, or improving the efficiency and performance of current solutions.
This pivot involves targeting a new or different audience with your startup’s existing product. This may be necessary when your company’s original target market is unresponsive to your offering or unprofitable. Company’s can adapt their messaging or sales motion to target a different customer base that is more receptive or lucrative (e.g. In 2022, Brex stopped serving SMBs in favor of acquiring and serving enterprise customers).
This pivot entails altering the way a startup generates revenue by adopting a new pricing structure, trying a different monetization strategy, or revising the current sales approach. Companies might implement a revenue model pivot to better align with customer preferences, increase profitability, or outperform competitors. For instance, transitioning from one-time sales to a subscription-based model or introduction tiered pricing structures based on usage.
A pivot can feel like failure—abandoning a strategy that you’ve already put time, effort, and resources into. In reality, a pivot prevents failure, opting for an intentional change in direction before your financing runs out and you need to shut down. Many businesses—including some of the world’s most successful companies—have pivoted at some point during their journey.
Stewart Butterfield famously started Slack as a gaming company called Tiny Speck, releasing a game called Glitch. When the multi-player game failed to find a fandom large enough to be profitable, they turned their attention towards their own internal messaging tool. They went on to release it as Slack. The tool garnered widespread adoption at startups and scaleups alike, disrupting workplace communication and the use of internal email.
Netflix began in 1997 as a DVD rental service, delivering movies through the mail. But as technology evolved and the internet saw widespread adoption, Netflix pivoted to streaming content online in 2007, with plans to entirely deprecate their rental service as of September 2023. Their pivoted business has become a ubiquitous entertainment platform worldwide.
Initially a mobile shopping app named Tote, meant to replace physical catalogs, the platform failed to gain much traction due to minimal development in the online payment space. However, when its founders noticed users were more interested in saving and sharing product images than making purchases, they pivoted to become a visual bookmarking platform. Today Pinterest is a public company with over 450 million active monthly users.
Twitter’s origin story begins with Odeo, a podcasting platform that was rapidly upended by Apple’s iTunes. The team instead pivoted to creating a microblogging service that allowed users to share short text updates. This was the birth of Twitter.
Groupon started as The Point, an online fundraising platform. After struggling to gain traction, the company pivoted focus on providing a marketplace where consumers could find discounts for local businesses. This move transformed Groupon into a successful marketplace for deals and offers.
Knowing when to make a change can be the difference between your startup succeeding and falling flat. Too early, and you don’t have enough data or feedback to understand what’s going wrong. Too late, and you run the risk of running out of money, not leaving enough funding to successfully transition your business.
To successfully pivot, note signs that indicate it might be the right time to make a strategic shift in your business—from a bright spot in an otherwise failing business to a plateau in your revenue.
Product-market fit—often depicted graphically as a trend curve moving up and to the right—is a crucial indicator of a startup’s potential for success. It is a strong proxy for the alignment between a product and the needs of its target market. Startups that lack product-market fit often struggle with customer acquisition and retention, experiencing high churn.
A lack of product-market fit suggests that your startup’s current direction may not be sustainable. Measure your product-market fit to determine whether making a pivot necessary to better address the needs of your target customer and find long term success.
If you take a look at your business, a particular product feature, service, or aspect of the startup might stand out, demonstrating greater potential than the core product. This standout component might see higher user engagement, generate significant revenue, or receive especially positive feedback. In these cases, consider a pivot that focuses on that specific aspect, rather than spreading your efforts and resources thin.
From customer interviews to NPS surveys, consider the feedback that you receive from customer or prospective users. If feedback is consistently negative, or even lukewarm, it’s unlikely that you’ll see significant user growth with your current trajectory. Your product may not be adequately addressing customer pain points or meeting their expectations.
Ask probing questions and deeply understand customer problems to inform your pivot and what your team builds next to breathe new life into your business.
While it can take some time to start generating revenue—and then growing that revenue—stagnant revenue growth over a few months can be a signal that a business pivot is needed. This is especially the case with continued marketing and sales efforts. Seeing a revenue plateau can mean your product does not address customer needs as well as competitors or that your total addressable market is smaller than you initially presumed. Pivoting can be a way to explore a new revenue stream, target different customer segments, or revamp your offering to see sustained growth.
If a competitor continues to dominate your market despite your best efforts, or churned users are adopting different solutions, it’s worthwhile to pivot your business. It may also be the case that you’re in a crowded market with too much competition. Reassess your competitive positioning and identify product opportunities to differentiate from market players.
The early days of a startup can be exciting, building momentum and having your team align behind a single mission. But a lack of progress can turn enthusiasm into indifference, or even exhaustion. A marked shift in the energy of your team can be a red flag, signalling that the startup’s current direction may not be inspiring or sustainable.
Watch for internal signs that employees are losing passion, are brushing up against burnout, or are unhappy with how your company operates. A pivot may be the best option to reinvigorate the team by aligning the company behind a revised product vision or a more inspiring mission.
Once you’ve decided to take your startup in a new direction, a well executed pivot can be an intricate process with a lot of moving parts—from informing a host of stakeholders about the change to telling existing customers about the future of your product. Think through how you’ll communicate changes, not just how you’ll make the changes themselves.
Pivot successfully by first completing a post-mortem analysis of your startup’s entire trajectory. This comprehensive evaluation can make all the difference for reorienting your towards the future, with valuable insights into your startup’s current position that informs what’s next.
Here are guiding questions to ask yourself and your team while conducting a post-mortem:
Before making any significant changes, as a business owner it’s crucial to communicate your pivot plan to all stakeholders. As much as possible, opt for transparency about your business pivot, and prepare for questions you may receive about proposed changes and expected outcomes.
Here’s a list of stakeholders to loop in about your business pivot:
Customers who are using your product are a particularly important group to address about a plan to pivot your business. Be proactive about your communication with them, pre-empting any concerns and highlighting the potential benefits of the new direction. If you are entirely deprecating your existing product, provide ample notice and time for existing customers to migrate to another solution for their business.
By involving stakeholders in the decision-making process and keeping them informed, you can foster continued trust, manage expectations, and ensure a smoother transition.
With a clear pivot direction and action plan in place, begin the process of building your new product or business model. Successful business pivots require alignments across your team to reimagine your business, and implement a direction that drives customer and revenue growth.
Check out all of DigitalOcean’s resources for startups and small businesses in The Wave, our startup resource hub, for more product, go-to market strategy, and company-building advice to help your startup thrive.
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