The Covid-19 global pandemic was unexpected and by the time the world understood the impact, things had gone out of hand for many. Most founders today are still caught in an overwhelming situation and wade through uncharted waters. This journey witnesses efforts by many startups to reinvent themselves. Pivoting the business is one of the key strategies for a startup.
But what is Pivoting? Simply put it is about reorganizing or making relevant changes to the organization’s financial, operational, or legal structures in order to recapture product-market fit in a growing market segment. In 2021, the likelihood of startups getting liquidated is far more than opening new companies or restarting operations again. If the pandemic was not enough, cut-throat market conditions coupled with technology developments are consistently acting as major disruptive forces.
It is good to identify the signs that show your startup needs pivoting, so here are the top seven signals that act as the indicator for a founder to start pivoting your startup asap:
- Declining sales
It’s the biggest indicator that things are not well. It is time to think of pivoting the business asap. If the sales volumes are incredibly low, it could mean that your business is sitting on the tip of an iceberg called bankruptcy. It is important to move swiftly to gain the lost ground and stay ahead of the competition. Through pivoting, startups need to get a fresh and new perspective to strategize so that they can become profitable again.
- Increasing dependency on debt
If your debt burden is rising more quickly than your revenue, it surely indicates that your startup needs to go into a pivot. When borrowing increases, the cost of servicing of this debt increases too, impacting the company cash-flow and profitability. The pivoting would majorly focus on formulating a plan to reduce the debt burden and to invest a good part of it into rebuilding the business.
- Runaway costs
Runaway costs are expenses that are not under the control of the business. Such unplanned costs are indicators of your startup requiring proper planning ahead. It could soon drive your business to bankruptcy as all the money would be used up in covering such costs. In this case, a founder would typically need a financial pivot and a plan to come out of the situation. Review your historic costs, analyze the variation in cost during the past and plan ahead to accommodate such surprises.
- Cash-flow crisis
When cash inflow goes down dramatically, even if the startup is registering tremendous sales and doing commendably good on paper is a tell-tale marker. In reality, there could be issues with clients not paying on time or a big client going out-of-business, or the working capital required to sustain the growth is incredibly high. It is smart to consider pivoting at this stage as a viable option.
- Market conditions are becoming unfavorable
Volatile market conditions are always an indicator that it is time to re-strategize. Pivoting is one strategy that has worked well with many startups. One of the signs the market not being favorable anymore is losing out on your industry’s top positions. Another sign of changing market condition is when no growth opportunity exists in your industry; you would want to go in for a major pivot. In a situation like this, even if your market share is good and there are no apparent threats to your startup, the scope of growing or scaling up does not exist.
- When change is imperative, yet there is a major resistance to change.
Change management is key to the success of many companies, yet, when the time to embrace change arrives, the employees and staff shirk away or lack the dynamism to adopt change. This could be a vicious circle because resistance to change can creep up and become the trigger for your valuable and performance-oriented employees to leave the organization.
- Changing customer loyalty
Customers can shift their preferences and loyalties anytime. That is why your startup works hard to retain its customers. If your startup is facing a similar situation where the customer base seems to be diminishing fast, you need to develop a plan asap and execute it.
Knowing when to pivot can help you save your startup, especially in today’s business environment.
Want to learn more on how-to-do, drop us an email and we will be happy to share our knowledge and insights with you!
For Hippocampus.io,
Christos Lytras – Managing Partner
