Learn what indicators to look out for that may signal you should pivot your business and how to pivot successfully in 3 steps. | Bplans Blog

Businesses pivot all the time, be it to capitalize on new trends, extend their product lines or cut back on expenses. But how do you know if you need to pivot? 

Well, frankly, some aspects of your business may tell you — weak sales or finding that one product is consistently selling out are both common trends worth paying attention to. Take iconic Wrigley chewing gum, for example. The product was originally a giveaway, included for free with William Wrigley, Jr.’s actual business product — baking powder. But when the chewing gum proved more popular, he pivoted his entire business to accommodate his customers. 

These kinds of notably positive or negative results are great indicators of shifting business landscapes. This is why keeping a close watch on all aspects of your company can help you adapt accordingly. 

Should you pivot your business?

Statistically, more than 20% of small businesses fail in the first year, and roughly half fail within five years. Staying flexible and identifying what is, and what isn’t, working can help prevent one weakness from torpedoing the whole company.

Some of the most common reasons for business pivots are:

One product is outselling the others

Break down your sales and cash flow by product. If one or two products outsell the others or bring in more profit, it makes sense to focus more on them.

You’re losing customers

Weak demand is the number one reason small businesses fail. If you find customers are not returning, a pivot strategy could bring them back.

Your product is outdated

Products aren’t eternal. Outdated products could be a major reason why demand falls. A strong reason to pivot is to execute a product refresh and rebrand.

You’re experiencing cash flow problems

Cash flow issues are the second most common reason for small business failure. Cash flow can weaken for many reasons, including poor sales and high costs. 

Your team could be better utilized

The third most common reason for small business failure is the wrong team. Maybe you have a crackerjack chef in your restaurant, but your business plan depends on full occupancy for basic dishes anyone could make. You may need to highlight the chef and the unique dishes more. 

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How to be strategic about your business changes 

Now, identifying potential reasons to pivot is just the first step. To be successful, a pivot needs to fulfill three conditions.

1. It must align with a sustainable long-term trend

Many businesses have pivoted due to the COVID-19 pandemic. Restaurants have increased delivery options and consumer products companies have ramped up the production of certain items for at-home use. Businesses that could leverage their online presence, such as retail and educational services, have also done so. 

But while the pandemic (hopefully) won’t be around forever, some related trends, like remote work, might be. As a small business owner, you want to identify the trends that have staying power and look for opportunities to cater to those needs. Ask yourself whether the trend will result in a new customer base to market to or if a brand refresh is the best way to capitalize on the change. A flexible line of funding could help you finance your changes, especially since you can pull from it on an as-needed basis. 

2. It must focus on a lateral extension of what your company does

While pivots can vary in scope, remember what your company’s strengths are and harmonize with the strategy you already have in place. You may have to pare down your offerings and tweak your goals, but you shouldn’t stray from them completely.

Starbucks, for example, did not start life as a ubiquitous coffee shop. It opened as a place where customers could buy coffee beans, tea, and spices to brew at home. The pivot came when former-CEO Howard Schultz returned from Europe with the idea of selling ready-made coffee drinks like cappuccino and espresso. Ultimately, the Starbucks we know took off and now operates more than 30,000 stores around the world.  

3. It must have a sustainable path to profitability

No small business will be successful if it doesn’t make a profit. You will need to research and estimate revenue opportunities thoroughly before you pivot. It’s a good idea to develop at least several years’ worth of profitability forecasts.

Ask yourself the following questions:

Does inflation of potential material costs pose a concern for my company?

If you’re worried about changes to your materials, create multiple forecasts that reflect that concern. For example, create one forecast with high costs, one with medium costs, and one with low costs. That can help you identify whether or not your pivot will be successful in different economic conditions. 

Do I have the team I need, or will a pivot necessitate more hiring?

If you have a team that’s glued to your old model, you may need to bring in fresh blood. If you’re moving from a brick-and-mortar store to an online store, for example, you may need to hire someone with expertise in managing an e-commerce platform. 

What is the competitive landscape like?

Competitor research is crucial because another company cutting into your sales can be lethal to profitability. Also, ask yourself whether or not you’ll be creating new competitors as a result of your changing business plan. 

Be strategic when you pivot

A pivot can strengthen a flourishing business and save a floundering one. Just make sure to pay attention to trends and think strategically when you decide to make a change. Review your business strategy, forecast potential scenarios, and walk through the three steps outlined above. It will ensure that your pivot is a sound decision and improve your likelihood of success.

AvatarCallie McGill

Callie McGill is a content manager at LendingTree. Covering an array of personal finance topics, she works hard to provide unique viewpoints that empower people to make their best financial decisions. Callie earned her B.A. from Penn State University and her work has been published on major networks like Yahoo! and MSN.