Shifting business models doesn't have to be a last resort.
Ever since Eric Ries, author of The Lean Startup, coined the term pivot, it has become a buzzword in entrepreneurial circles. (Even Oprah proclaimed that her beleaguered television network had "made the pivot.") Though companies such as Fab have gained renown for upending their businesses to stay afloat, pivots aren't reserved for companies on the brink of disaster. In fact, Ries says more companies would be successful in their pivots if they didn't wait until things went wrong before planning their strategy. BitMethod is a good example of how a well-planned pivot can help a business make a smooth transition from one business model to the next.
Dan Shipton co-founded BitMethod, a software development firm, in 2009. Thanks to a few early successes, the Des Moines-based company gained a solid reputation as an IT consulting firm and a developer of mobile apps for client companies. From the start, however, Shipton wanted to develop products under the company's own name. "We could never pick up another 100 clients overnight," he says. "But with our own app, we knew that there was high growth potential."
That opportunity came along in the winter of 2010. A friend of Shipton's who owned a coffee shop mentioned how great it would be to have a simple cash-register app that would allow him to use payment services such as Dwolla. After asking a few other café owners whether they had similar needs, Shipton sat down with his partners and staff to discuss the idea of developing an app of their own. BitMethod employees conducted informal market research and noted that they had received similar requests from clients in the past. By the spring of 2011, the company committed to developing a point-of-sale app for coffee shops and quick-serve restaurants. Shipton gave it the name Change. Here are a few lessons the company learned from the transition:
Get your team on board By getting the rest of the company involved in the decision to pursue Change early on, Shipton avoided any rifts among his staff. In fact, a consensus developed that not only was the new app a real opportunity, but it seemed to offer a much better prospect for fast growth than any of the company's other projects. "Everyone went out and validated the idea," Shipton says. "That's why we didn't end up having knock-down, drag-out fights over it."
Focus your effort Initially, BitMethod continued to work on new projects for clients while developing Change, but that proved to be overwhelming for the company's employees. "If we kept our client work, we knew we would never get this out," says Shipton. So last March, he and his partners decided to stop taking on new work from clients. BitMethod launched a pilot of Change just two months later.
Maintain a revenue stream Dropping app development for outside clients slashed BitMethod's revenue. The company did have a backup source of cash flow, however. Even as its development team focused solely on Change, its IT consulting division, which operates under the name Grand Consulting, continued to accept clients. The two divisions had always worked autonomously, so the company's change in strategy had little impact on the consulting wing's day-to-day operations. Leaving the three-employee consulting division intact also gave the company's employees added confidence in going forward with Change.
Entrepreneurs attempting a pivot often face a Catch-22, says Ries. There's the obvious risk of putting all the eggs in one basket, but keeping two vastly different business units running at once can be detrimental to the pivot's success. Employees, for instance, may be less committed to the new strategy if they get the impression that the company's leaders are hesitant to make a complete break with the old one. But immediately switching over may be unfeasible for some companies. In BitMethod's case, Shipton wanted to preserve a source of revenue so that his company would avoid having to seek outside funding. His decision to house his company's dual functions within separate divisions is a smart approach, says Ries. "Everyone in the company needs to be clear what's the old thing and what's the new thing," he says.
Change went live last November. Since then, the app, which costs $79 a month, has processed more than 20,000 transactions, a modest but promising start. Some loose ends still need to be tied up, however. Shipton has not yet decided whether to formally rename the company, though he now introduces himself to potential customers as the CEO of Change. Also unclear is the future of Grand Consulting; it could be spun out into a separate company, or the consultants could take new positions within Change. "We don't know how it will unfold, but there are lots of options," Shipton says.
BitMethod's main priority now is making sales of Change the company's main revenue stream. Although Change is competing against well-established companies such as Square and ShopKeep POS, Shipton remains confident. He believes the company's previous success developing apps for other companies prepared it well to respond to restaurateurs' and retailers' needs. "The decision to pursue Change was a bit daunting," he says, "but this is clearly in our wheelhouse."