Entrepreneurs love their ideas, that’s why we are the ones to make things happen. Others don’t have the same passion and motivation for our ideas the way we do. We are driven and inspired to the point we may overlook the need to change directions. Being adaptable to changing conditions is essential to seeing your efforts result in a successful venture.
What does it mean to pivot? Pivoting is when you are on plan A and are able to forecast and determine plan A is a dead end. Before arriving at the dead end and running your company off the cliff into ultimate failure, you change directions and look at plan B. Plan B is your new direction and this has become your first business pivot.
How do you know when you should pivot? Pivoting is commonly described as this simple, analyze this do that, concept but many people find it difficult to determine exactly when that point is. Some people are more risk averse and will decide to give up their plan for what seems to be a less riskier approach. Was this the right thing to do? Did they just kill their potential for more rewarding growth since they were unwilling to weather some bad data? How bad does the data need to get before we make a real pivot?
The answer to all of these questions is CASH. CASH IS KING! Don’t forget this. I’ll even say it again – cash is king. All businesses and entrepreneurs need to understand this concept.
When the data doesn’t look great but you have the cash flow to continue business operations and grow, you don’t necessarily need to pivot. A healthy cash flow, even if business is not profitable, will keep your doors open. You can continue to pursue and implement your business plan as you see fit and even continue if you aren’t profitable!
I know, this is a little confusing. How can you operate if your aren’t profitable? I recommend reading a book by Steven Rogers and Rosa Makonnen called Entrepreneurial Finance. This book gives you some great examples of how exactly to read and understand your business finances at a high level. No, this isn’t a typical finance book that will bore you to death but I think it is valuable to the “serious entrepreneur.” It will show you more in depth detail how cash will keep things going even if you aren’t profitable.
Remember, however, your business plan is not fixed and will change often due to fluctuating and ever changing market conditions. These simple changes are not pivot’s but just an adjustment to your plan. The pivot occurs when you crumple up, burn down, and throw out plan A. You should decide to pivot when you are going to run out of cash or become so unprofitable, there will be no way to recover the losses. Cash will point out both of these issues. In addition, remembering that cash is king will help those who are more risk averse focus on a number that tells them they “are okay”. When these people see they have a healthy cash flow, but the unprofitability is stacking up, they can look at what phase of the business cycle they are in. The development and introduction stage almost always goes down into the red but as long as there is enough cash to cover, you can still make it into the profitable stages in the long term.
Please leave a comment! Do you agree that cash is king or do you have another approach to pivot?