What do you mean by “pivot”?
Startups (and companies in general) “pivot” when they change parts or all of their business models as a response to new information. These changes can be in anticipation of changes in the future (proactive) or as a result of some kind of unexpected change (reactive, like what is going on now with companies responses to the Coronavirus epidemic).
How are businesses pivoting in response to the Coronavirus?
This is definitely a time of great uncertainty for all businesses but especially so for startups who are still trying to prove that their business models can work and small- and medium-sized businesses that do not have much in the way of financial reserves and (this is especially true for brick and mortar stores) have seen their customers disappear.
Axios published an article about this and they say that startups are taking one of two approaches in response to the coronavirus:
- “Trying to do a different version of the same thing that doesn’t require in-person meetings.”
- “Augmenting what the company was doing before with additional offerings that are more relevant in this moment.”
The Axios article provided a couple examples of startups that are making pivots. One of them is a company called Spaces who before the pandemic hit made VR experiences for theme parks but has since pivoted to creating VR workspaces for companies.
“At first I was like, ‘Oh no,” CEO Jordan Stein told Axios. “Then I realized people are hungry for these connections. That exists whether we are virtual or in person. We just have to be creative on how we deliver that.”
Startups that have more runway, which is the amount of time a startup has with it’s current amount of cash, will have more of an opportunity to dial in a pivot and have a higher chance of success than those that don’t. But what about small businesses that don’t have investor backing?
CNN Business recently published an article that asked a number of small, brick-and-mortar businesses how they were dealing with the pandemic. The short answer: Not well.
It’s easy to say that a company should make a pivot and change how they do business but it’s a whole different thing to actually implement a successful pivot. If you are the owner of a boutique clothing store that had little to no online presence before the pandemic hit how, exactly, are you supposed to survive? That’s the situation that Michelle Helseth is facing. Here’s some of what she had to say as covered by CNN Business:
“The whole world is trying to process this new reality. It’s so fictional. This is something we would see in a movie theater but it’s happening.
“As far as business, it’s just come to a screeching halt.
“And then workman comp’s insurance tried to draw from my account. I have no staff, what’s the point? So I have to call my workman’s comp and say, ‘You know I have no staff right now so there’s no reason for you to deduct my account.’ I just invested in all this inventory. And so I’m extended, expecting for sales pick up in March and April, to get us back where we needed to be. I wish I was able to have reserves. We just don’t. We’re a small business where I’m a single mom. It’s not like I have a husband bringing another income or, or a partner, I don’t. This is my everything here.”
No one knows. Entrepreneurs are generally better at dealing with uncertainty than the general population but what is going on now is a black swan event. Here are some things that I have seen companies do during this time:
- Restaurants have moved to delivery and pickup (along with some other companies, I picked up a cable for my computer from Best Buy a couple of days after Cal State Fullerton transitioned to primarily remote working)
- As evidenced by the dramatic increase in unemployment claims, companies have laid off workers and are taking other actions to reduce costs
- Some service businesses that were meeting in person (i.e. personal trainers, consultants, educators, etc.) are now meeting with clients virtually
- Harvard Business School recommends applying for SBA loans, exploring private sector fintech products, and renegotiating terms of contracts and debt
- The US Chamber of Commerce and Forbes also have lists of options for businesses
Final thoughts on startup pivots
Through the link above to the US Chamber of Commerce I found an article titled 3 Trend Forecasters on the Business World After Coronavirus that I think can help provide some guidance for startups.
The second trend highlighted in this article is from Devon Powers, Ph.D. She sees there being a new normal where people focus more on the essentials of life and continue to practice some sort of social distancing going forward. Is she right? I wouldn’t bet against her right now. What if sporting events, restaurants, bars, and other forms of entertainment do not see a return to pre-coronavirus levels of business? What if there is a second wave of the coronavirus in the fall that only serves to strengthen this trend?
One solution, which is also the first solution as explicated by Joe McDonnell, the head of WGSN Insight, in the article linked to above is that more things will be digitized. And that could work for certain industries but isn’t a viable option for most restaurants and definitely not a viable option for bars. I suppose restaurants can transition into making more take-home meals and focusing on their take-home or delivery menus but bars don’t really have that option. And, if there is a sustained shift away from going out to eat and drink, will existing independently owned restaurants be the ones who survive or will so-called “ghost kitchens” dominate this space?
But other industries can definitely transition some, if not all, of what they do to the virtual space. Before the pandemic hit, some of the consultants I knew were already meeting their clients almost exclusively virtually. Years ago, CSUF alumnus Jonny May moved his music teaching business online, so while it is possible to move your business online you have to keep in mind that Jonny built up his online business over the course of years and wasn’t forced with the prospect of making it work immediately. How many businesses that can convert to going all or mostly digital will be able to make that transition during these times?
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