Why Both CEOs and Entrepreneurs Need The Power To Pivot


We all know that most start-ups fail. They fail for many reasons including the product is not quite right, the marketing is not fully effective, the delivery is spotty, and by far, the most common reason — they simply run out of money.

In contrast and far fewer in number, are the successful ones who despite all types of adversity, make it and grow into significant companies. In many cases, their secret ingredient is that their leaders recognized the critical importance of the need to pivot.

Pivots represent major change, in many cases to the business model itself. Pivots are bold statements that the business as usual model is not working and that the need for change is essential. Pivots are the result of a belief that the business is facing existential threats, and that without a dramatic change in course, there will be no tomorrow.

There are many examples of companies who fail to pivot such as Blockbuster, who was unwilling to change then decided not to buy the new kid on the block named Netflix, which became strike two. Netflix is the classic pivoter who migrated their business model from renting DVDs to streaming — a move at the time that was questioned by everyone including its employees and investors. Witnessing the power of content itself, Netflix pioneered the creation of producing its own shows, like the famous House of Cards series and many others. Interestingly, others have since followed Netflix, including big names such as Amazon and Apple.

All companies, including General Motors, American Express, and Gap all started as small companies. As these companies became larger and more successful, they often get blinded by their own success. They wrongly assume that their success will continue, despite the dramatic changes around them. They also incorrectly assume and underestimate that start-ups attacking them will remain small and insignificant.

A great example of this is now happening in the shaving business. Gillette, the company that received a patent for double edge razor blades in 1904 still dominates the shaving industry. Proctor and Gamble, the giant consumer packaged goods company, acquired Gillette in 2005 for $54 billion and subsequently replaced the existing management team with P&G leaders. A start-up called Dollar Shave Club launched in 2012 to solve the dual problem of the high cost of for a package of blades ($40-45) and the need to wait in a convenience store for the employee to unlock the cabinet where they were stored (in part because they were expensive). Last year, Unilever acquired Dollar Shave club for $1 Billion (the start-up had raised $160 million in venture financing). In response, Gillette recently launched its own club (that is not as compelling as the upstart).

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