The term ‘Pivot’ has become a buzzword referring to a significant business change — ranging from mild to dramatic. A pivot is usually intended to help a business recover from a tough period, or survive after experiencing new competition or other factors that make the original business model unsustainable.
Companies often find themselves at crossroads that require them to make critical decisions to adapt and survive. One such decision is the choice to pivot – a strategic manoeuvre wherein a company shifts its core business model to better align with market demands. While pivots can lead to success stories, there is an inherent risk associated with working with companies undergoing such transformations. Companies pivot in various ways which comes with its own advantages and disadvantages.
Horizontal pivots involve realigning within the same industry or market segment. This approach offers the advantage of capitalizing on existing expertise and customer relationships. However, it brings the disadvantage of heightened competition and constrained growth potential.
Vertical pivots propel a company into a distinct part of the value chain. The benefits encompass enhanced control and the potential for improved margins. Nonetheless, this shift introduces operational complexities and the risk of straying from core proficiencies.
Unrelated pivots explore entirely new markets. This strategy offers benefits like diversification and reduced reliance. Nevertheless, it entails challenges such as steep learning curves and the possibility of lacking synergy.
It makes you wonder are pivots really a sound business strategy, or merely a last-ditch attempt to save a failing business.
The Temptation of Pivots: A Double-Edged Sword
Pivoting, a strategic shift in a company’s direction, is often portrayed as a mark of resilience and adaptability. However, not all pivots yield positive results. Start-ups and established firms alike may embrace this strategy to tap into new markets or address evolving customer needs. However, pivots come with their share of challenges. Several well-known Indian companies provide cautionary tales of pivots gone wrong, underscoring the inherent risks associated with such transitions.
Stayzilla: Originally founded as a platform for booking budget accommodation, Stayzilla attempted to pivot to a platform for short-term home rentals. However, they faced challenges in terms of scaling the new model and dealing with legal and operational issues. The company ultimately shut down in 2017.
AskMe: Originally an online classifieds and marketplace platform, AskMe tried to pivot into an e-commerce platform and digital payments provider. The pivot was driven by the desire to compete with larger players in the Indian e-commerce market. However, financial difficulties, management disputes, and the inability to secure additional funding led to the shutdown of AskMe and its associated companies.
FranklyMe: Initially a video microblogging platform, FranklyMe attempted to pivot to a platform for video interviews and discussions. The pivot was aimed at capitalizing on the popularity of video content. However, the company faced challenges in user engagement and monetization, ultimately leading to its closure.
According to a study, approximately 10% of failed entrepreneurs attributed their failure at least partially to a “pivot gone bad,”
Pitfalls of Pivoting Gone Awry
Working with companies in the midst of pivoting can present both advantages and disadvantages for any organisation. On one hand, there’s the potential for innovation, access to fresh ideas, and the opportunity to collaborate with a company that is adapting to new market trends. On the other hand, the risks are substantial.
- Uncertain Direction: Companies in the midst of a pivot may have an unclear direction and shifting priorities. This can result in inconsistencies and lack of focus in delivering services, leading to confusion for your organization.
- Quality and Reliability Concerns: Pivoting requires companies to divert resources and attention towards redefining their business model. This can lead to a dip in the quality and reliability of their services, affecting your organization’s operations and reputation.
- Financial Instability: Pivoting can strain a company’s financial resources, especially if they’re shifting their focus drastically. This financial instability might lead to delays in payments or disruptions in service delivery, negatively impacting your organization’s cash flow and operations.
- Loss of Focus: The allure of the “next big thing” can distract companies from addressing fundamental issues in their existing operations. This may divert the company’s focus away from meeting your specific needs and requirements, leading to misalignment between your expectations and their efforts.
- Risk of Shutdown: Pivoting can be a make-or-break moment for many companies. If the pivot doesn’t succeed, the company might face closure or downsizing. This can leave your organization stranded without a service provider mid-contract, disrupting your operations.
Informed Decision-Making in a Shifting Landscape
As research suggests an impending increase in insolvency rates by 15% in the coming years, leading to a wave of company closures, the importance of making informed decisions about third-party partnerships becomes even more crucial. The looming recession adds an extra layer of complexity to business relationships, urging organizations to prioritize stability and consistency in their collaborations.
Organizations must exercise caution when selecting third-party service providers, especially those undergoing pivots. While the allure of innovation and adaptation is strong, the risks associated with partnering with companies grappling with internal transformations cannot be overlooked. The lessons from failed pivots among Indian companies serve as a poignant reminder that embracing change without a solid foundation can lead to detrimental outcomes.