By Frank Williamson
No entrepreneur starts a business expecting it to fail. Whether inspired by a lifelong passion or a noticeable gap in the market, small business owners invest their lives into helping their ideas take flight.
A lot of times they get it right. Every big business — places like Amazon, Microsoft and Apple — started small. But according to Fundera, 20 percent of small businesses fail in their first year, and by their 10th year, a full 70 percent have disappeared.
In addition to the businesses that fail entirely and others that succeed as initially planned, there is a third category of small businesses where the owner of a struggling business pivots to another idea and achieves success. Take Wrigley, which started as a soap company. The owner included free chewing gum with customers’ purchases, but when the gum became more popular than the company’s actual products, the owner chose to pivot his business entirely to manufacturing chewing gum. Some of the nation’s most successful businesses — like Twitter, PayPal and Starbucks — also experienced dramatic shifts in their business models.
Unfortunately, changing the focus of your business is not a simple process. Choosing to step away from your current model — which may not be entirely unsuccessful — can be a difficult decision when you don’t know what the future holds for a new business model.
You must be willing to look at your circumstances objectively and ask yourself one question: “Do I have a better idea worth pivoting to?”
There are several causes that could put you in this scenario — among them, the market’s overall needs could be changing, your business could have stopped growing or you could simply be bored. All are valid reasons to consider altering your business plan, but pivoting your business requires taking resources away from your initial idea and applying them to the new one. For Wrigley, this meant the owner had to stop investing his time and money into producing and marketing soap, and invest it entirely into creating chewing gum.
One of the biggest questions faced by business owners in this situation is what to do with the business you’re pivoting away from. You have three choices: Shut it down, sell it off or gradually let it run down on its own.
- Shut it down: This is the quickest solution, but certainly the most expensive. Shutting down a business requires time and money to close customer accounts, pay creditors, lay off staff and cancel registrations, permits, licenses and business names. An added time-consuming task involves selling property like storefronts, office space and storage units, as well as any business equipment. You may have the time and money to devote to such undertakings, but they ultimately take away from what should be your primary focus — planning your new business.
- Sell it off: Selling your business may provide some financial support as you move forward with your next venture. You could also sell pieces of intellectual property — such as client lists — if you choose not to sell the entire business. Unfortunately, selling businesses is a “you don’t know until you ask” market, and the process of asking takes time, energy and strategy.
- Let it run down on its own: Your final option is to invest as little time and effort into your initial business as possible and let it wind down naturally. The key here is to ensure the unsuccessful aspects of your original model do not intrude on the success of your new business. One of our recent clients encountered this decision when they had the opportunity to shift their product from a slow-moving healthcare smartphone app to a more promising product servicing the financial industry. We assisted in putting the original product up for sale, and based on the terms they learned by checking the market, our client chose to let the product continue running and fade on its own over time.
It should also be mentioned that a pivot doesn’t necessarily have to mean terminating one’s initial business model. There is another important option to consider: a strategic acquisition.
A former client of ours — an email marketing company that worked with doctors to ensure clients were keeping up with their prescription medications — faced this choice when one of its suppliers went bankrupt. Instead of finding another supplier, the company chose to buy the division of its supplier that its business relied on.
This move transformed its business model from an email-marketing company to a mail-order pharmacy – a very different and highly regulated business. While decisions like this shouldn’t be taken lightly (you first need the necessary skill and capital, for example), they can offer your business greater opportunities for success.
Pivoting is a natural aspect of entrepreneurialism. It may not always involve grand, business-altering decisions, but pruning and revising your products or services is expected and necessary to keep your business growing. Take a step back and analyze your model open-mindedly to continue moving forward in your business’s success story.
Frank Williamson is the founder of Oaklyn Consulting, a firm that helps clients complete mergers, acquisitions, joint ventures and other strategic transactions; arrange financing; and manage investor relationships. By working as consultants, and billing hourly, Oaklyn Consulting helps in situations where investment bankers and other M&A brokers cannot.