Most entrepreneurs fail. Entrepreneurial heroes know how to “pivot”.

Entrepreneurs are seen as vitally important for job creation in South Africa, yet it’s tough for entrepreneurs to survive and thrive. A survey late last year involving more than 1,000 entrepreneurs indicated that nearly half of those who start their own business spotted fresh business opportunities or growth prospects. But, inability to access funds is often a major challenge in turning business dreams into realities; so too are other factors, like government red tape. Surveys can be fairly superficial, quantifying what’s known or assumed to be the response rather than excavating new gems of knowledge. In this podcast, US business expert Jacqueline Kirtley points to another challenge that is not considered in South African surveys: the ability of an entrepreneur to dramatically adapt strategy to avoid failure and get onto a positive path towards success. Many call this “pivoting”. Kirtley explains exactly what it means to pivot, after undertaking in-depth research with entrepreneurs over several years, in a piece produced by the University of Pennsylvania’s [email protected]. – Jackie Cameron

When and how entrepreneurs pivot

“Pivot” is a popular term in the start-up world. If their initial idea doesn’t work as planned, entrepreneurs are expected to be ready to pursue a Plan B. But what does it actually mean to pivot – and are entrepreneurs really as open to doing it as they say they are? In a new paper, Wharton management professor Jacqueline “Jax” Kirtley used a field study involving seven early stage firms in the energy and cleantech sector to take a closer look at how these strategic changes actually play out in the startup world. “What is a Pivot? Explaining When and How Entrepreneurial Firms Decide to Make Strategic Change and Pivot,” was co-authored with Siobhan O’Mahony, a professor at Boston University’s Questrom School of Business. Kirtley recently talked with [email protected] about their findings.

An edited transcript of the conversation follows.

[email protected]: The term “pivot” is pretty widely used, but can you talk a little bit about what its origins are?

Jacqueline “Jax” Kirtley: The use of the word as a specifically entrepreneurial term comes from Eric Ries and Steve Blank’s books on what’s now referred to as the “Lean Startup Movement.” They talk a lot about how you can use basically the scientific method – making hypotheses about what’s going on in your entrepreneurial firm – because there’s so much uncertainty for entrepreneurs. They suggest that you can think about explicit hypotheses about what you’re doing, and then test them.

And when you test those hypotheses, they either get validated or they don’t. And if you look at what the Lean Startup Movement is saying, when your hypotheses are not valid – are not shown to be accurate – you should change. You should pivot your strategy and create new hypotheses and test those. And that’s where the word “pivot” came into entrepreneurship – this very specific methodology. But it has been picked up by everybody and their brother, and it’s not used that precisely anymore. Now it is used by anybody who wants to talk about how we’ve changed – we’ve pivoted, we’ve pivoted our strategy.

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I actually had a student entrepreneur once tell me that they pivot every day. And that doesn’t make any sense. You don’t really change your strategy every day. In the paper, I specifically refer to the example of Slack and Flickr. [Co-founder] Stewart Butterfield started out making big online video games. And they didn’t work, so he changed from running a massive multi-player online video game to Flickr, which is an image sharing website based on technology that was part of the original game. That, we think of as a pivot because it’s a massive change. The word “pivot” is very evocative. You think of basketball players who have planted one foot and changed direction but kept that one foot down. We usually think about that as the technology or the firm — there’s something you keep, but you change your direction very completely.

So we all talk about pivots as if they are big changes. But we also hear entrepreneurs talk about pivots as little changes. And we’ve started to see the word come up to refer to anything – politicians pivot, and there was a period a couple of years ago where there were all these self-help articles about how to pivot your life. It has just become this ubiquitous, not specific term, but to entrepreneurs, it still has this very specific – or at least semi-specific – usage. We still talk about entrepreneurs in this way, and we teach it, too. We teach this scientific method of hypothesis-driven entrepreneurship.

So for me, I wanted to get down to, “Well, what is it really, then?” A lot of entrepreneurs will tell you, “We’re willing to pivot. We’re open to it.” But what does that really look like, and what does that really mean? That was something I wanted to understand.

“A lot of entrepreneurs will tell you, ‘We’re willing to pivot. We’re open to it.’ But what does that really look like, and what does that really mean?”

[email protected]: How were you able to study this question?

Kirtley: So this paper is coming out of my dissertation study. The dissertation [data] is three years, but the data collection has continued on since then. It’s now at, I think, about seven. I went out to the firms multiple times a year, talked to multiple people within the firm, and did interviews over several years, asking: What are they doing? What are the big decisions they’re working on? How is the firm evolving?

All the firms in this study are doing some kind of novel knowledge – in many cases, right out of a lab, trying to take it to market in energy and clean tech. So these are very hard-science, very technologically advanced concepts that they’re trying to bring out – products and technologies. How does your strategy evolve? How does your technology evolve when you start a firm like that? I showed up on their doorstep every few months and observed what they were doing, talked to different people within the firm about the big decisions going on, about what they were working on, to understand how things were changing.

What this gave me was the opportunity to see the before, during and after of big decisions. That’s the basis of this data. If I can see what are the things that lead up to a decision – a big decision about your strategy, about changing your strategy or pivoting – I can get a sense of what actually triggered a decision, and then what are the things you’re thinking about during that decision? Some of the pieces within one decision may be related to other decisions, or they may be related to things you were thinking about a year ago that become relevant to that decision-making. And then once you’ve made the decision, what happens next? This paper doesn’t get too much at what happens next. It’s mostly focused on the decision-making and the choice to change or not change.

[email protected]: As you delved deeper into that decision-making, what did you learn about the nature of pivots, and also the nature of things that were not pivots?

Kirtley: I have seven firms in the data, and they are all firms that were very, very early-stage when I met them. None of them had a product on the market when they first started talking to me, and several of them still don’t.

And what I was fascinated by is they all say they’re open to change. They’re young firms. They know there are things they don’t know about what’s happening, about what’s going to be the case, what’s going to work. So they’re all open to change.

[email protected]: I think an entrepreneur, anyone doing a startup, has to say that, be open to that, to some extent.

Kirtley: Anyone who is an entrepreneur is acting under uncertainty. So that’s actually something you would say. Any entrepreneur is acting under uncertainty, in that they’re doing something other people don’t think is worth it, is right, or is going to work. And they’re open to the fact that they might be wrong about some parts, but they’re usually pretty clear on the [core strategy] being totally there, and that this is going to work. And this is the strength they have behind their own convictions. In this paper, I look at 93 different decisions where at least one of the options involved changing the strategy.

[email protected]: When you say “changing the strategy,” is it changing that core belief or technology?

Kirtley: Changing something fundamental about what the firm is doing. So a change in the strategy might be: Are we a service company? Are we a product company? It might be: Are we funding ourselves through grants, or are we funding ourselves through VCs? Are we going to get contracted-out engineers, or are we only going to do work internally? There’s a whole bunch of different kinds of things that are part of your strategy, and for these 93 decisions, where at least one of the options they considered was a change, most of the time they didn’t change. Most of the time – and that’s 72 decisions – they didn’t change. As an outsider, very often I was surprised by this. I thought change was the right thing to do.

One example would be a firm deciding whether or not to build a physical prototype of their product – because their full-sized product is about the size of this room, and costs a couple of million dollars to build. So you don’t just build one of those just to show off. You can’t afford it. But they also thought it wasn’t worth designing a small prototype, because they knew anything you could do in a small prototype already existed in the world, and their new technology was only relevant at full-scale.

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They thought it would be a waste of time and money to build what they called a “toy.” And potential investors kept saying to them, “But you don’t have anything that works. You don’t have something I can see working.” So they asked themselves the question: Should we build a toy just for investor marketing? And that would have been a change in their strategy. They had come up with: How much money do we need to do all this? What are we spending our time on? What activities are we doing? You have to actually design a small version, not just say, “OK, I’ve got the big one, and I’m going to build a small one.” You have to actually make design choices and find the right parts to be able to build something that fits on a table, when the real thing is the size of a room.

They entered that decision process, and to me, as an outsider, I was figuring they were going to build this because they were having a lot of trouble finding money, finding investors, finding even grants. And they decided not to. And it took them a couple more years to get the money they needed to really get their firm started after that decision. Were they right? Were they wrong? I have no idea. But they decided to stay on their path of not building a prototype. What I saw in this study, more often than not, is that the entrepreneurs didn’t change their beliefs about what was the right thing to do, what was the right path to take. When you don’t change any of the beliefs you hold about the uncertainties you face and the challenges you are dealing with, you’re not going to change your strategy.

That was actually one of the first things that I would say this study found: As an entrepreneur, you have beliefs about the things you don’t know for sure — the uncertainties. If your beliefs don’t change, you don’t change your strategy. You stay on course. But every once in a while, in this case, only in about 21 instances, they did change. They did change their beliefs about what to do, about what was going on, about what was uncertain. Their beliefs did get affected.

“For these 93 decisions, where at least one of the options they considered was a change, most of the time they didn’t change.”

[email protected]: So in that minority of cases, what was going on there? Because it sounds like there was a pretty huge bar to clear to get them to make that change.

Kirtley: Unfortunately at this stage, I don’t know exactly which situations cause your beliefs to change and which ones don’t. That’s future research to do. But what I can see in this data is, in some cases, what the entrepreneurs believed about what they didn’t know or what they were unsure about – the uncertainties they faced – and if they were contradicted – that could be, “My belief was wrong. I was wrong about this market.” Or “I was wrong about the idea that partners would be willing to pay us or to work with us.” So there’s some belief that’s contradicted by new information. And it might be that the belief is wrong, and it might be just that the belief doesn’t align with the strategy we have, that I really do believe that this product is best sold as a component to some else’s system, but the someone else’s out there don’t want to buy it. So I still believe that this product is best entered into the market as a component, but since that’s not going to happen, that’s not going to work. None of those system-makers want to buy it. I’m going to have to do something else. There’s this contradiction.

In those cases, the entrepreneurs exited something. They said, “OK, this is not the right product.” And they stopped the product. When the entrepreneurs entered these decisions, they were triggered by the problems and the opportunities – new information that’s either unfavourable or favourable. The problems, when they affected their beliefs, led to these exits. There’s a contradiction in what I believe, and I need to exit something.

Opportunities – what I saw was the beliefs expanded. So I believe that my microchip technology is going to change the world. Well, then I learned a new piece of information about how to build my product without a microchip, using off-the-shelf electronic components. And what I, as a researcher, found is over time, as this team was deciding, “Well, do I need to make a microchip product? Could I make something that isn’t a microchip? – their language changed about those beliefs. Instead of talking about how our microchip technology is going to change the world, as this decision process went on, I heard them say, “Our core technology is going to change the world.” Their beliefs expanded. What they believed about their uncertainty, what they believed about what they were doing, grew. And in those cases, they added to their strategy. And in this example, they added a second product. And this is a two or three-year-old firm that hasn’t finished the first product, doesn’t have all the money they need to get to market on the first product, but they’ve added a second product, and they think this is worth doing.

And they believe in it. They believe that having two products is going to be valuable. One will get to market sooner, one will give us this, and one will give us that. So they added to their strategy.

What kind of choices are they making? They’re making an addition choice, or they’re making a subtraction and exit choice. But if you talk about a pivot, if you think about Stewart Butterfield going from a video game to Flickr, that’s bigger than one exit or one addition. You look at what you have and what your products are and what you could sell. And you identify, “Well, we have this image-sharing system that we’ve been using internally, and we could turn that into a product.”

This is something that I think kind of gets at the core of the findings about pivots. When you make a choice to change your strategy… it’s an incremental choice, but it’s a specific choice to add, to exit. You make this specific choice.

A pivot is, “I’ve changed and redirected my strategy. I was a game company, and now I am a photo-sharing website.” That kind of change is actually an accumulation of adds and exits. And over time, you accumulate those. And that time might be a day. That time may be six months.

“A pivot is, ‘I’ve changed and redirected my strategy. I was a game company, and now I am a photo-sharing website.’ That kind of change is actually an accumulation of adds and exits.”

One of the firms in my study actually went six months with no product defined. They exited their product, and it took them six months and a couple of different potential addition decisions – potential products they could add – before they decided, “This is the product we’re going to sell, and now this is what we’re going to do.” It took six months of a firm living on grants, with no product defined, and being willing to live in that uncertainty.

When we think about the pivot, we think about these big stories, and we tell them from two miles high. We were a game company. We are now Flickr. What happens on the ground, the decisions – that’s really what the unit of analysis is in this study. The decisions are more steps, and they compile, they aggregate into this complete redirection of what we’re doing as a strategy and what we’re doing now.

[email protected]: For those 20-something decisions to make a big change, it wasn’t that they all at once decided, “We’re just going to make this big pivot.” It was really a lot of different things going on over time that added up to a pivot.

Kirtley: It’s not a basketball player who plants one foot and turns around completely and changes direction. It is a set of decisions that, when you look over time – I was a product company that was focused on a number of different industries that could all use this energy device. And now, two years later, I will tell you that I am a service company with a set of products targeting one industry in energy. That’s a pivot. That’s a significant redirection of the firm. But in the case of that firm, there are 18 decisions, and some of them were to change. Some of them were not to change. Some of them you exited – you exited a product – and then that example went six months without knowing what your product is. Some of them, we added a product, or we added a customer, we added a joint venture, a partnership – things that really did change what our activities were, where we used our resources, what our day-to-day strategy was, what our firm did. But really redirecting from “I’m a product firm for lots of markets” to “I’m a service firm with products to one sector of energy” – that takes a lot of decisions.

One of the things I also found really fascinating throughout the data was when I talked casually with these entrepreneurs and their teams, they would say, “Yeah, we’re open to pivots.” But when we talked about the decisions they were actually making, when we talked about what they’re doing today and what they’re thinking about, they never used the word. There were, probably in all the data I have, a couple hundred hours of interviews. The word “pivot” was maybe used twice, and it was retrospective, to refer to kind of the era before – and the era now.

[email protected]: So they didn’t really necessarily even recognise the pivot while it was going on?

Kirtley: For a company that had made this kind of change – we were a product firm; now we’re a service firm – they might say, “Well, before we pivoted, we were looking at retail. We had a marketing person start looking into retail. And now that person’s role has changed.”

“We need to be careful when you’re talking to an entrepreneur who’s trying to do their thing today, that they don’t assume that that person had it easy and made all these decisions in one minute and was so certain.”

That role didn’t change in a day. It was over time. But that would be the only time in the data I ever heard these people use the word “pivot.” This retrospective [reference] to something that happened, and they’re referring to something that happened over the last year or two. But when you talk to them about entrepreneurship in general, they’ll say, “Oh, we’re open to pivots. We realise that this might not be exact, that things will change.” But when they’re making these decisions, that’s not the word they’re using. That’s not what they’re thinking about. They’re thinking about – What do I believe is the right thing now? What is going to work? And how is this firm going to succeed?

[email protected]: Your research focuses on hard-science and clean tech firms. Do you feel like the thought process and actual change of strategy is different for them than it would be for say, a tech start-up where the manufacturing costs and overhead might not be as high?

Kirtley: I think it applies either way, although the challenge of it, the beliefs you’re holding onto, how hard it is to change – those are going to be different. Maybe this is one of those instances where for a firm that is building a new kind of alternative energy generation, choosing to exit a product might be a slower decision because of what we’re doing, whereas deciding one day that this online video game isn’t working – that might be a decision I could make faster.

But I think we see, if we look at some of these assumed-to-be easier and faster startups like Flickr – even something like Google, where Google started out, their original business model was, “We’re going to license Search Powered by Google. We’re going to sell you a hardware device that you put internally to your servers at your office, and we’re going to have advertising.” But the advertising was actually something they weren’t that excited about. When they added AdWords in 2000, that was an addition to the company that was part of a set of decisions that turned them into what they are now, which is the mega-advertising system they are. They only stopped selling those hardware devices that you put internally to the servers in your office two years ago. So they’ve made choices that are steps of adds and exits, and we talk about the big pivot there, as well.

What my data allowed me to do is look at these extreme cases where maybe it was easier for me to see the choices being made – some of the kinds of changes they were dealing with or considering. But I think it is valid – the findings are generalisable to entrepreneurship in general.

[email protected]: What do you think is the value for entrepreneurs, or even for budding entrepreneurs to understand this process a little better?

Kirtley: I think it’s the idea that you can pivot and survive. This is one of the things about pivot I think a lot of entrepreneurs like. If I know that this isn’t working, I can pivot, and I can still succeed. That’s something that is a good thing for entrepreneurs to know. Because most entrepreneurial firms fail. So knowing that there’s an alternate – a way to survive, a way to change and move forward – that’s a good thing to know.

Assuming that you’re going to just make that one choice one day, and you’re going to go from being a game to being an image platform – that might be a lot to expect of yourself.

We talk a lot about entrepreneurial heroes when we talk about Facebook and Google and Flickr. We talk about these successful hero entrepreneurs. We need to be careful when you’re talking to an entrepreneur who’s trying to do their thing today, that they don’t assume that that person had it easy and made all these decisions in one minute and was so certain.

I think for an entrepreneur who’s facing these challenges – Should I pivot? Did I pivot wrong? Were these decisions right? Did I just change the wrong way? Knowing that all of these stories are more steps and that the big pivot isn’t a decision you’re making today – that, I think, can be helpful to the entrepreneurs as they’re doing these things.

[email protected]: So for future lines for this research, where are some other places you’d like to go with it?

“The optimist in me is attracted to this idea, that these opportunities we stumble over after we’ve already started the firm are significant to what our firms evolve into.”

Kirtley: Well, as I mentioned, I can’t say right now why some decisions resulted in beliefs being affected or changed. What’s the difference between the ones where the beliefs remained – where they stayed, and nothing changed or nothing was affected?

I would love to be able to find out more about the difference between those, and I think that could be incredibly helpful – especially if eventually there’s some way to connect that to how good or bad those decisions become. That’s a little idealistic. I’m not sure whether I will get there.

Another thing that I found really interesting in the data – opportunities led to decisions to change more often than problems. We think of it as if my current strategy fails, I’ll pivot. That’s a very firefighting perspective. It’s very negative. But one of the things that this data pointed to is some of these changes are coming more from, “Oh, there’s something cool I can also do.”

One of the examples of that in the data happens while driving in the customer’s truck. The customer starts talking about how “our industry came to a stand-still last winter for two weeks because of weather.” And the conversation continues, and the entrepreneurs realise, “Wait a minute, there’s a feature to what we’re already building that could solve the problem this gentleman just mentioned.” This is an opportunity that we have to solve something that’s real, that’s fundamental, that we didn’t know about before. And it’s not anywhere near the idea that these entrepreneurs had when they founded their company, but there’s something led by these opportunities, led by something more positive and less firefighting. The optimist in me is attracted to this idea, that these opportunities we stumble over after we’ve already started the firm are significant to what our firms evolve into.

We tell a lot of hero stories when it comes to probably business in general, but definitely entrepreneurship. We love to tell the story of the phoenix rising from the ashes, or the college dropout who became a billionaire. There’s a lot of energy that comes from those stories. There’s a lot of excitement and motivation that can come from those stories, but there are a lot of important details we don’t pay attention to when we just focus on the hero story.

The opportunities that you stumble upon along the way that are significant to what your firm becomes – those really change the story and change it for the better. And I think that’s something that’s worth understanding more.