The reasons why certain businesses opt for implementing a pivot strategy

When the term 'pivot' comes up, you might envision a politician altering their stance on an issue or friends maneuvering a couch down a tricky staircase. However, businesses also occasionally opt for a pivot.

In a structured pivot strategy, a company deliberately shifts its strategic direction through a sequence of well-thought-out and implemented actions. Naturally, this decision shouldn't be made hastily or without due consideration. Yet, it's worth considering and examining the potential for a pivot strategy in specific situations.

5 common situations
For many businesses, five common situations often prompt a pivot:

1. Financial distress. When revenue streams dwindle and cash flow slows, it’s critical to pinpoint the cause(s) as soon as possible. In some cases, you may be able to blame temporary market conditions or a seasonal decline. But, in others, you may be looking at the irrevocable loss of a “unique selling proposition.”

In the latter case, a pivot strategy may be in order. This is one reason why companies are well-advised to regularly generate proper financial statements and projections. Only with the right data in hand can you make a sound decision on whether to pivot.

2. Lack of identity. Does your business offer a wide variety of products or services but have only one that clearly stands out? If so, you may want to pivot to focus primarily on that product or service — or even make it your sole offering.

Doing so typically involves cost-cutting and streamlining of processes to boost efficiency. In a best-case scenario, you might end up having to invest less in the business and get more out of it.

3. Weak demand. Sometimes the market tells you to pivot. If demand for your products or services has been steadily declining, it may be time to reimagine your strategic goals and pivot to something that will generate more dependable revenue.

Pivoting doesn’t always mean going all the way back to square one and completely rewriting your business plan. More often, it calls for targeted changes to production, pricing and marketing. For example, you might redefine your target audience and position your products or services as no hassle, budget-friendly alternatives. Or you could take the opposite approach and position yourself as a high-end “boutique” option.

4. Tougher competition. Many industries have seen “disrupters” emerge that upend the playing field. There’s also the age-old threat of a large company rolling in and simply being too big to beat.

A pivot can help set you apart from the dominant forces in your market. For example, you might seek to compete in a completely different niche. Or you may be able to pivot to exploit the weaknesses of your competitors — perhaps providing more personalized service or quicker delivery or response times.

5. Change of heart. In some cases, a pivot strategy may originate inside you. Maybe you’ve experienced a shift in your values or perspective. Or perhaps you have a new vision for your business that you feel passionate about and simply must pursue.

This type of pivot tends to involve considerable risk — especially if your company has been profitable. You should also think about the contributions and well-being of your employees. Nevertheless, one benefit of owning your own business is the freedom to call the shots.

Never a whim
Again, a pivot strategy should never be a whim. It must be carefully researched, discussed and implemented. For help applying thorough financial analyses to any strategic planning move you’re considering, contact your Rudler, PSC advisor at 859-331-1717.

RUDLER, PSC CPAs and Business Advisors

This week's Rudler Review is presented by Max Epplen, CPA and Matt Topmiller, CPA.

If you would like to discuss your particular situation, contact Max or Matt at 859-331-1717.

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