This is an extraordinarily difficult time for every organization. The current situation is chaotic, and we are unsure of what lies ahead. For your organization (and almost all others), it means the existing business model has been disrupted – maybe even obliterated – and your cash flow is drying up.
At the Miller Center for Social Entrepreneurship, we've been working with organizations around the world to help navigate a way through the crisis. Over the past three weeks, one message has come across loud and clear: Pivoting the business model into survival mode is foremost on the minds of leaders.
Innovation and pivoting
Pivoting a company's business model is not new. It has been an integral part of business innovation for many years. Some companies are forced to pivot defensively because their original models are doomed. One of the most legendary pivots is the metamorphosis of Odeo into Twitter. Odeo began as a service for people to find podcasts, but their business model was threatened when iTunes launched. Odeo's management gave employees two weeks to come up with new ideas. Twitter was born when the company decided to commercialize the microblogging tool they developed for internal communication.
Other companies pivot proactively when they see opportunities to change the competitive environment and seize an advantage. Starbucks, the coffee shop that seems to be on every other street corner, did not start out selling brewed coffee. They started off in 1971 selling espresso makers and coffee beans. Howard Schultz (current chairman, president and CEO) realized they were missing out on a huge opportunity. He transformed Starbucks' business model to brew and sell Starbucks coffee in a European-style coffeehouse.
Pivots generally carry significant risks, but leadership recognizes that the potential benefits outweigh the risks. For companies looking at defensive pivots, it is clear that changing business models is less risky than doing nothing. This is the situation many organizations face today – inaction will lead to a failed business. This crisis makes defensive pivots essential for many companies.
The COVID-19 crisis has made it necessary for many commercial companies to shift their business models quickly. Many are repurposing their assets to create new value, protect the brand and survive.
- Gap, Nike, Zara, Brooks Brothers, and smaller manufacturers are using their factories to make masks, gowns and scrubs.
- Bicycle and sports equipment manufacturers are shifting to make personal protective equipment for frontline healthcare workers.
- LVMH, which owns luxury perfume and makeup brands, and P&G have shifted to hand sanitizer production; many alcoholic beverage producers are following a similar path.
- Warterfield, a trucking company, is partnering with logistics companies to replenish ransacked grocery and retail shelves.
- Hotel booking platform, Hotels.ng, has partnered with hotels to create isolation centers across Nigeria, an added buffer for the country's limited quarantine facilities.
In addition, we have seen social impact enterprises pivoting to adjust to the current crisis.
- Extensio in Mexico provides agronomic advice via a mobile app for farmers; it's now deploying its app to push public health advice and critical information.
- MaquaOnline, employing at-risk women as household maids, has pivoted to sanitation services.
- EllieFunDay, which sells baby clothes made by artisans, is now making fabric facemasks; the company is donating masks to hospitals and rolling out a buy-one-give-one model.
- Everytable, a Los-Angeles-based healthy food chain, has shifted to making home deliveries and started a COVID-19 helpline to link its services with schools, senior centers and homeless shelters in need of healthy, affordable meals.
- Lifebank, a health startup in Nigeria, created a national register for ventilators and respirators for hospitals.
- One social enterprise (which I am unable to reveal at the time) is pivoting their disease management expertise to track the spread of COVID-19 in Africa.
Where to look for pivots
All good pivots start with great questions. There are three business model aspects you should explore when deciding on potential pivots.
- Value proposition: What value do you deliver with your product or service?
- Value networks: How do you deliver and monetize your product or service?
- Target customers: Who receives and benefits from what you provide?
- Fulfill unmet needs. Shift to supply what people need today (health, nutrition, safety, and in-home education)
- Create solutions. Provide complete solutions to meet people's needs, not just a partial solution. (The trucking industry works with logistics companies to supply food.)
- Create new value with existing assets. Shift from nice to have to must have. (MaquaOnline is focusing on offering sanitation services rather than its full line of domestic services.)
- Rethink product/service dichotomy. Make your service a product or vice versa. (Deliver home school education products rather than provide education services.)
- Focus on what customers love about what you do. Make this a business. (Wrigley gave away gum to support the original business of selling baking goods and realized people liked the gum more than the baking goods.)
- Find new ways to deliver your value. Is electronic delivery of your product or service an option? How about direct to customer?
- Shift to a radically faster, better, cheaper supply chain. Are there options that you would never consider under normal circumstances?
- Connect through partners. Can you deliver needed value working with partners?
- Repurpose assets. What new products or services could you create with existing resources?
- Monetize differently. Can you find novel ways to get paid? Consider subscriptions or alternate payment methods.
- Find new clients. Who else could use your products and services? Healthcare providers or food services? (Everytable added schools and seniors to its customer base.)
- Reposition offering with existing clients. The best way to retain customers is to set them free. For example, consider delivering educational tools for home schooling and explore novel ways to get paid.
- Orchestrate the ecosystem. What can you do with partners that you can't do alone? Can you collaborate with supply chain members and local operators to overcome barriers like Warterfield? If we have X and a partner has Y, can we collaborate to deliver Z?
You can identify multiple pivot options in the value, network and customer areas. The following describes the framework and approach for generating and implementing a pivot.
Rapid pivot framework
Don't try to create pivot options in isolation. Gather ideas from inside and outside of your team. Work with your employees – they are valuable idea generators. Reach out to your board, mentors and others for additional perspectives and ideas. Use technology to work remotely in groups whenever possible – good ideas often come from interactions with different points of view and experience.
There are three key steps to pivoting quickly to a new model.
1. Host a pivot party.
Start with hosting a pivot party (via video conferencing). Begin with a SWOT (strengths, weaknesses, opportunities, threats) analysis of the current business model; it's a good initial exercise to get the juices flowing. Also, share what other enterprises have done to pivot – seeing what other companies have done can spark creative thinking. Then explore the three places to look for pivots – value, networks, customers – and identify options. Get creative, and break loose from traditional thinking about your business. Pivot parties are the time to be revolutionary.
2. Perform a sanity check, then select your best bet.
All of the ideas that are generated should be considered potentially useful, as long as they can shift key elements of the business model in such a way to save the current business, or allow you to jump into a new business that uses your people, partners or assets.
Make sure that you sanity-test the proposed pivots – some will be unrealistic, and some may seem truly lunatic. That's to be expected. Once you sort out the most realistic unconventional options, develop a brief set of selection criteria to help you narrow the list further. Use these criteria and your gut to select the best option.
3. Try it.
Quickly prototype the selected pivot with a rapid succession of fast, cheap tests. Test elements of the idea or a lean version of the pivot: Learn and improve with each iteration. Then give it a try. Don't let inertia set in. Ugly, bumpy, and fast is much better than smooth, beautiful, and slow.
Your mantra should be: "Make decisions, honor the decisions you made yesterday, then figure out how to do it better today." We have heard folks in the midst of a dynamic rollout describe the process in many different ways, but it always sounds something like this: "We are still in the early stages of adjusting operations and moving personnel around. We are still very much in the triage stage of things, trying to figure out how to do this and get everyone in place where they need to be." That's the process in a nutshell – a dynamic shift toward a new business model.
Making your pivot idea a reality
As you work your way through the three steps above, stay focused on the two essential elements of a successful pivot. The first is to manage the activities to generate great ideas. Ask smart questions about what can be done, and make sure everyone challenges conventional thinking and identifies pivots that can make a big difference.
Then you need to be bold in selecting and implementing your best pivot option. The situation requires a trailblazer that can move the organization to a safe harbor to ride out the storm. Acting decisively with a smart, fast pivot can re-energize the team and move the organization to a safer place.
More details about the "business model pivot framework" outlined in this article can be found in Making Innovation Work, a book co-authored by Tony Davila, Marc Epstein and Rob Shelton.