The Art Of The Pivot: 5 Strategies For Adjusting Your Business Plan | Technological Leadership Institute
Venture capital, the “smart-money” of early-stage investing, is mainly received after Aha because Aha is when your potential to grow and dominate your industry becomes obvious. 96 to 98 percent of VC is provided after Aha. This means that VCs do not come in when your growth strategy is still murky. They want ventures that have a “clear” path to dominance in an emerging industry.
So you, the entrepreneur, are on your own before Aha. This means that before Aha you need to develop the plan that is right for you – even if you don’t write it down. Mentors may give you advice, but remember that they don't know you and what you can achieve.
The problem with business plans is that, like nearly all forecasts, they don’t come true. I have always maintained that the world’s most fearless forecasters are American economists and Indian astrologers. They are never right, and they always have a reason for being wrong. But that never stops them from making the next forecast – fearlessly.
An entrepreneur needs to know that his or her forecast, i.e. the business plan, will be wrong. A business plan’s true purpose is to tell you when you have gone off-course and what you need to do to adjust your strategy or your goals. To do this with capital-efficiency, you need to test the plan and adjust to find the right opportunity and the right strategy.
Many billion-dollar entrepreneurs adjust their business plans after they launch. Some call it pivoting. Here are a few of their strategies that can help you adjust your business plan.
Adjust to a trend. There are only two ways to grow your venture (assuming that you are not a roll-up entrepreneur). One is to grow on a trend and the second is to grow in a fragmented industry. Most of the billion-dollar entrepreneurs in Silicon Valley grew on a trend, including Page and Brin of Google (Internet 1.0), Zuckerberg of Facebook (Internet 2.0), and Kalanick of Uber (Internet 3.0). Entrepreneurs such as Schulze of Best Buy launched their businesses in one trend (consumer electronics for Schulze) and grew with another in a fragmented industry (big stores for consumer electronics).
Adjust your business model. Your first business model may not be the best. You may be able to improve it. Horst (Aveda) started his business as a hair-styling salon. But when he kept losing his hair stylists after he had trained them in his ground-breaking techniques, he sold his salons and opened a school to train stylists. Uber changed its business model. Microsoft changed its business model. Proves that no one can forecast the future accurately, except by sheer fluke.
Adjust your capital model. Since hardly any of you will receive VC until after Aha, you need a pre-Aha financing strategy and a post-Aha financing strategy. Pre-Aha, you need to get to Aha without VC. Post-Aha, you need to know how to dominate your industry with the right financing strategy. Entrepreneurs like Bill Gates used internal resources to grow without Aha until Aha. Then he got VC and went public. Richard Burke did the same with UnitedHealth except he did not get VC.
Adjust your launch strategy. Your first launch strategy may not be right. You may not know how to launch your business so you may want to experiment with various options. Then you need to adjust your strategy when you find what works. Sam Walton spent 12 years seeking the right strategy to succeed in rural America. He then found his strategy for a big store in a small town – and as the cliché goes, the rest is history.
Adjust “you”: To make a good plan great, you need to adjust “you.” At each stage you need to know what you need to do to succeed at the next stage. Glen Taylor joined a business at the age of 21 as COO. He grew the business and bought it about 10 years later. At that stage, he went to business school and learned how to grow from millions to billions. Then he built one. You never stop adjusting.
MY TAKE: Business plans for startup companies don’t come true. But it tells you when the “terrain differs from the map” and helps you adjust. The key is to adjust to reality, to opportunity, to customers’ unmet needs, and to competitors’ weak chinks. So if you win a business plan competition, know that the judges are just guessing. Adjust to reality. If you lose in business plan competitions, know that the judges are just guessing. See why they did not pick you and whether you need to adjust. But adjust.
Dr. Dileep Rao has more than 20 years of experiencing financing businesses and ventures using venture capital, leases, debt and subordinated debt. He also bought and turned around several companies. Since retiring, he has been writing, teaching, and hopefully thinking. He has also interviewed extremely successful entrepreneurs such as Glen Taylor and Bob Kierllin. Currently, he is writing books about how to build giant businesses without capital. Dr. Rao teaches in the Master of Science in Management of Technology degree program.
This article was originally written for Forbes, and republished with the author's consent.
The key is to adjust to reality, to opportunity, to customers’ unmet needs, and to competitors’ weak chinks.