Start-Ups Must Be Ready to Pivot

Sohaib Shahid Bajwa; Xiaofeng Wang; Anh Nguyen Duc; Rafael Matone Chanin; Rafael Prikladnicki; Leandro Bento Pompermaier; Pekka Abrahamsson

doi:10.1109/MS.2017.84

Abstract

As prominent examples such as Twitter have demonstrated, software start-ups frequently find that their initial product ideas don't pan out commercially. So, they must be prepared to change direction in one or more ways, a process called pivoting.

TWITTER, PINTEREST, and Flickr are well-known, successful software start-ups. However, not many people know how they started. For example, Twitter was initially a podcast service, and Flickr used to offer an online multiplayer role-playing game. This shows that even the most successful start-ups don't necessarily end up the way they started, and some change direction drastically.

This occurs for several reasons. Software start-ups frequently develop innovative products and grow rapidly under extremely uncertain conditions. In addition, such companies have little or no operating history, generally lack resources, function under intense time pressure, and tackle dynamic and fast-growing markets.¹^,² Plans don't always work out, and circumstances can change in a hurry, often forcing start-ups to change direction to find a viable, scalable business model.

The Lean Start-Up approach calls this change in direction a pivot.³ A pivot aims to test a fundamental hypothesis about a product or service. It's a decision that leads a start-up to significantly change one or more, but not all, of its basic components: product, entrepreneurial team, business model, or growth strategy.⁴ Changing all components at the same time is considered starting a completely new business, rather than a pivot. Understanding pivots can help entrepreneurs avoid wasting effort⁵ and keep investors onboard.

Eric Ries claims that pivoting is what most successful start-ups have in common and is necessary for most software start-ups to survive, grow, and find sustainable business models.³ Does the evidence support these claims? What factors trigger software start-ups to pivot? And why do they make certain pivot-related decisions?

Our study of this⁴ followed Barbara Kitchenham and Stuart Charters’ systematic literature-review guidelines.⁶ We found 55 instances of pivots by 49 start-ups, including well-known companies such as Groupon, PayPal, and Yelp. (A list of the start-ups is at bit.do/pivot-study-online-rep.) We identified 10 pivot types and 14 triggering factors.⁴ We then classified five start-ups that went through an incubation process at a leading Brazilian science and technology park (STP) based on pivot types and triggering factors.

What Triggers Pivots?

Table 1 describes the major factors that cause software start-ups to pivot.⁴ Pivots often have more than one trigger. Most pivots are reactions to external, rather than internal, issues.

Table 1 Major factors triggering pivots.

Our study suggests that user reaction is the key reason software start-ups decide whether they're solving the right problem for the right set of customers or whether they should pivot.

One prominent internal triggering factor is a flawed business model. Trying to scale a business with a flawed business model could lead to failure. Software start-ups could avoid this by identifying business-model flaws—as indicated by, for example, revenue shortfalls—and changing direction accordingly, as demonstrated by Fab.com and Groupon.

Pivot Types

Table 2 shows the 10 pivot types we identified, including three that haven't been identified before.⁴

Table 2 Major pivot types.

Product- and Market-Related Pivots

Product- and market-related pivots are the most common. Zoom-in is the most common product-related pivot among software start-ups. Although start-ups develop many product features, few generate traction with customers.

Pivots can also be technology related. Start-ups are prone to this because they build technology-intensive products and must make changes to remain at the leading edge.

Software start-ups must find customer problems that are worth solving. However, the companies’ initial assumptions about user needs will probably be incorrect. This is one of the reasons for a customer-need pivot. In some cases, the identified problem might be real, but potential users aren't ready to pay for a solution yet.

Other Pivot Types

Pivots can be dramatic and completely reshape the start-up. The most dramatic in terms of the scope of change and the amount of effort and resources needed is a complete pivot, in which an entrepreneurial team comes up with an innovative idea different from the original one. This pivot implies significant changes in, for example, the product, the target market, and finances.

Twitter is a famous example of a complete pivot. It initially started as Odeo, which offered podcast sharing and recording. However, it couldn't compete when Apple iTunes entered that market, so Odeo's start-up team brainstormed and came up with the Twitter messaging service.

Even though start-ups often work under hectic conditions, many have one or more side projects, which run parallel to the main project but might be based on a different business idea and target different customers. Groupon is a well-known example of a pivot in which a side project took over from the main one. (Groupon was originally a social-media platform called The Point, which enabled participants to join forces to work for a cause or achieve a goal.) Start-ups could benefit from having side projects, in case they must pivot in the future.

Start-Ups Pivot More than Once

A key question entails how many pivots a start-up should make. Several successful software start-ups have made multiple types of pivots.

For example, Instagram has made both zoom-in and technology pivots. Instagram originally was a location-based service called Burbn, combining photo sharing and a game in which users earned points for hanging out with their friends and sharing pictures. However, the users appreciated only the photo-sharing feature, which changed the company's focus, as Instagram cofounder Kevin Systrom explained:

I've heard that Plan A is never the product entrepreneurs actually end up with. I didn't believe it. … In many ways, Burbn was getting a bunch of press, but it wasn't taking off the way we thought it would. We found people loved posting pictures and that photos [were] the thing that stuck. Mike [Krieger], my cofounder, and I sat down and thought about the one thing that made the product unique and interesting, and photos kept coming up.⁷

Unlike hardware products, software products are flexible, which allows start-ups to modify them relatively easily and thereby initiate pivots. Similarly, because companies can exploit software beyond its original use, they should be alert to factors such as unanticipated uses, which could trigger a pivot.

Pivots in Practice

Many Brazilian software start-ups develop within STPs such as Tecnopuc (Parque Científico e Tecnológico da PUCRS), which is owned by the Pontifical Catholic University of Rio Grande do Sul. Tecnopuc houses 120 companies and offers training and incubation services for entrepreneurs. It introduces the concept of pivoting early in the process.

We randomly selected five start-ups that went through the incubation process at Tecnopuc and experienced pivots. We classified the start-ups—whose names we have kept confidential—based on their pivot types and triggering factors, as Table 3 summarizes.

Table 3 Pivot information for five Tecnopuc start-ups.

Our study found that almost all the reasons for pivoting were customer related. This supports the idea that start-ups should focus on customers from the start, rather than develop a solution and then look for an interested customer segment. The key to developing a successful software start-up appears to be finding the right customer need to satisfy.

Our research also reinforces the idea that each start-up is unique and that creating tools and strategies applicable to all start-ups is difficult. Each combination of triggering factor, pivot type, and company context requires a customized approach.

FOOTNOTES

*A pivot type not previously identified.

References

1.S.M. Sutton, “The Role of Process in a Software Start-Up,” IEEE Software, vol. 17, no. 4, 2000, pp. 33–39.
2.C. Giardino et al., “What Do We Know about Software Development in Start-Ups?” IEEE Software, vol. 31, no. 5, 2014, pp. 28–32.
3.E. Ries, The Lean Start-Up: How Constant Innovation Creates Radically Successful Businesses, Penguin Group, 2011.
4.S.S. Bajwa et al., “‘Failures’ to Be Celebrated: An Analysis of Major Pivots of Software Start-Ups,” Empirical Software Eng., vol. 21, no. 5, 2016, pp. 1–36.
5.M. Unterkalmsteiner et al., “Software Start-Ups—a Research Agenda,” e-Informatica Software Eng. J., vol. 10, no. 1, 2016, pp. 89–123.
6.B. Kitchenham and S. Charters, Guidelines for Performing Systematic Literature Reviews in Software Engineering, tech. report EBSE 2007-01, Keele Univ. and Durham Univ., 2007.
7.R. Macmanus, “To Pivot or Not to Pivot: Instagram vs. Pinterest,” readwrite, Apr. 2012, readwrite.com/2012/04/10/to_pivot_or_not_to_pivot_instagram_vs_pinterest.

Sohaib Shahid Bajwa is a PhD student in computer science at the Free University of Bozen–Bolzano. Contact him at bajwa@inf.unibz.it.

Xiaofeng Wang is a tenure-track researcher at the Free University of Bozen–Bolzano. Contact her at xiaofeng.wang@unibz.it.

Anh Nguyen Duc is a postdoctoral researcher in the Norwegian University of Science and Technology's Department of Computer and Information Science. Contact him at anhn@idi.ntnu.no.

Rafael Matone Chanin is an assistant professor in the Pontifical Catholic University of Rio Grande do Sul's Computer Science School. Contact him at rafael.chanin@pucrs.br.

Rafael Prikladnicki is an associate professor in the Computer Science School and director of the science and technology park (Tecnopuc) at the Pontifical Catholic University of Rio Grande do Sul, where he also leads the MuNDDoS research group. He's on IEEE Software’s editorial board and chairs the magazine's advisory board. Contact him at rafaelp@pucrs.br.

Leandro Bento Pompermaier is an assistant professor in the Computer Science School and the business incubator manager at the Pontifical Catholic University of Rio Grande do Sul. Contact him at leandro.pompermaier@pucrs.br.

Pekka Abrahamsson is a full professor of software engineering at the Norwegian University of Science and Technology. Contact him at pekka.abrahamsson@ntnu.no.