Many people discuss the importance of pivoting in the context of a startup business. And I agree, once a business launches, the entrepreneur must be mindful of what is working and what is not. That’s when it is time to pivot the startup.
The business pivot is of equal importance when a mature business faces tough times. As so many entrepreneurs have learned over the past few years, the only form of business capital available to keep their doors open may be the extremely expensive kind. The expensive business loan alternative often become a necessary evil and should be regarded as temporary. Yet, without a plan for return to being a business eligible for less costly capital from traditional lenders, most businesses will fail. This is when the pivot must become a priority and is absolutely necessary!
How to Evaluate the Business and Make the Pivot
Not all revenue from your clients/customers is equal. Innate to your business are clients/customers who produce better revenue than others. And this may not be readily apparent until you look carefully at your revenue sources.
We’ve developed a tool to help entrepreneurs look closely at their clients/customers revenue and profit. Download the tool—it’s free. This tool is based on Pareto’s Law whereby 80% of a company’s revenue is derived from 20% of its client/customer base. What this tool unmasks for the entrepreneur is that most of their customers are very expensive to support. In fact it is likely that the bottom clients/customers, producing only 20% of its revenue, are causing the business to lose money.
Three Steps to Pivoting a Mature Business Facing Losses
Knowing which group of clients/customers produce your best revenue is the foundation for making the pivot. Look carefully at the attributes of these two groups. Do they all buy the same service or product? Do clients/customers in the top group pay your business more on average every year than the bottom group? How much effort, labor, and resources are dedicated to serving the bottom group?
Take the next steps by:
- Examining the services/products you are selling to the top group and consider “do we want to continue growing this business?”
- If yes, then consider “what activities and resources are necessary to support this business?”
- Eliminate every activity, resource and all the associated overhead used to support the bottom group.
Okay, I realize this is a painful post to most entrepreneurs. I understand. However, using expensive loan alternatives is painful as well and can often be fatal. Make no mistake, if the underlying problems in such a business are not addressed quickly, failure is inevitable. Making the pivot gives the business a fighting chance to survive. In fact, we recommend growing businesses go through the pivot exercise often. Most entrepreneurs are surprised how the business thrives as a result.
Holly also founded ExitPromise.com and to date has answered more than 2,000 questions asked by business owners about starting, growing and selling a business.