Pivot! Defining & Understanding Complete Business Change DecisionsJune 11, 2019
By Becca Broaddus
“Pivoting” is a fairly recent buzz word in the business world, thanks to the bestselling book, The Lean Startup by Eric Ries. It’s built on the idea that if you start a business with less capital, you can more easily change your business model to adjust to market needs and influences. There’s one problem, though. The term “pivot” doesn’t exist in entrepreneurship academic literature.
“What is missing from that whole discussion is: how do you know when to pivot? In terms of making complete pivots, where you pretty much abandon your initial offering and change to something completely different, there was virtually no empirical research on this phenomenon,” Associate Professor of Entrepreneurship and Department Chair Matthew Wood said.
So Wood and Professor of Entrepreneurship Les Palich took their conversation about the lack of empirical evidence to a published article. The article, “Full Steam Ahead or Abandon Ship? An Empirical Investigation of Complete Pivot Decisions,” was published in the Journal of Small Business Management last year. In the review process, they pulled in a third Baylor researcher to complete their team: Entrepreneurship PhD candidate Russell Browder. It was his first article as a co-author to go through the full process to publication.
“This research captures the combined experience of a lot of people rather than a single entrepreneur,” Palich said. “Anecdotal experiences can be very influential…but you can’t safely extrapolate from individuals’ stories.”
Using data collected from a conjoint choice experiment of 111 entrepreneurs making 888 decisions, the article explores some of the factors that influence entrepreneurs to make a complete pivot.
“My industry background is in marketing, so I can relate to the idea that customer feedback influences the decisions entrepreneurs make,” Browder said. “In an entrepreneurship process, you don’t know what’s the right thing to do. Uncertainty is so high, you don’t know if you should stick with it or change. I’m very familiar with how [pivoting] looks in practice, but we were trying to articulate it from a research standpoint.”
The study participants received a series of profiles with different combinations of attributes, which included magnitude of the miss (how much outcomes differ from the entrepreneur’s projections), the length of the runway (the amount of capital available to fund the venture when considered against the rate of spending) and the attribution for the miss (the suspected cause of missed revenue goals).
The three factors were significant predictors of complete pivots. In fact, when they looked at all three together, the effects were compounded to determine whether people decided to pivot sooner or later.
They also evaluated the moderating effects of individual grit (or persistence in the face of unfavorable conditions) and impulsiveness. When these factors were considered, the trio found grit and impulsiveness did not alter the influence of magnitude or length of runway on complete pivot decisions, but they did affect the impact that attribution of the miss had on these choices.
There is probably good reason for these findings.
“Impulsiveness and grit as well as attributions are cognitive in nature,” Wood said. “Magnitude and length of runway are data driven and quantifiable. Attribution for a miss is perceptual.”
For example, a person who is high on impulsiveness and attributes missed revenue goals to a failure of anticipation (misjudging market demand) rather than persuasion (poor marketing and sales efforts) is more likely to pivot quickly. Whereas someone who is high on grit may be less likely to pivot if he or she perceives persuasion to be the reason for the miss.
Because this is the first research delving into complete pivots, the Baylor research team hopes to stimulate a stream of research in this arena to explore environmental factors, social structures, individual differences and other variables that may influence an entrepreneur’s decision to pivot.